<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-4618
SUNAMERICA INC.
<TABLE>
<S> <C>
INCORPORATED IN MARYLAND 86-0176061
(IRS EMPLOYER
IDENTIFICATION NO.)
</TABLE>
1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant's telephone number, including area code: (310) 772-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
<S> <C>
Common Stock (par value $1.00 per share) New York Stock Exchange
Pacific Stock Exchange
9 1/4% Preferred Stock, Series B New York Stock Exchange
$3.10 Depositary Shares representing Series E
Mandatory Conversion Premium Dividend Preferred Stock New York Stock Exchange
8 1/2% Premium Equity Redemption Cumulative
Security Units New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
--- ---
The aggregate market value of voting stock held by non-affiliates of the
Company on November 30, 1996 was $4,473,872,000.
The number of shares outstanding of each of the registrant's classes of
common stock on November 30, 1996 was as follows:
Common Stock (par value $1.00 per share) 108,866,188 shares
Nontransferable Class B Stock
(par value $1.00 per share) 10,848,468 shares
DOCUMENTS INCORPORATED BY REFERENCE
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
(INCORPORATED INTO PART III)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
SunAmerica Inc. (the "Company") is a diversified financial services company
specializing in retirement savings and investment products and services.
Together, the SunAmerica life insurance companies rank among the largest U.S.
issuers of annuities. Complementing these annuity operations are the Company's
asset management operations; its three broker-dealers, which the Company
believes, based on industry data, represent the largest network of independent
registered representatives in the nation; and its trust company, which provides
administrative and custodial services to qualified retirement plans. At
September 30, 1996, the Company held $36.87 billion of assets, consisting of
$23.73 billion of assets owned by the Company; $2.14 billion of assets managed
in mutual funds; and $11.00 billion of assets under custody in retirement trust
accounts.
The Company believes that demographic trends have produced strong consumer
demand for long-term, investment-oriented products. According to U.S. Census
Bureau projections, the number of individuals between the ages of 45 to 64 will
grow from 46 million to 60 million during the 1990s, making this age group the
fastest-growing segment of the U.S. population. Between 1985 and 1995, annual
industry premiums from annuities and fund deposits increased from $53 billion to
$159 billion. During the same period, annual industry sales of mutual funds,
excluding money market accounts, rose from $114 billion to $477 billion.
Focusing its operations on this expanding market, the Company specializes
in the sale of tax-deferred long-term savings products and investments through
its life insurance, asset management, retirement trust and broker-dealer
subsidiaries. The Company markets fixed annuities and guaranteed investment
contracts ("GICs") and fee-generating variable annuities, mutual funds and trust
services. Its annuity products are distributed through a broad spectrum of
financial services distribution channels, including independent registered
representatives of the Company's broker-dealer subsidiaries and other
broker-dealers; banks and other financial institutions; and independent general
insurance agents.
SunAmerica employs approximately 1,600 people. It is incorporated in
Maryland and maintains its principal executive offices at 1 SunAmerica Center,
Los Angeles, California 90067-6022, telephone (310) 772-6000. As used herein,
the "Company" or "SunAmerica" refers to SunAmerica Inc. and, unless the context
requires otherwise, its subsidiaries.
In recent years, SunAmerica has strategically expanded its operations, both
through internal growth and through the acquisition of fixed and variable
annuity reserves, distribution networks and complementary fee-based financial
services businesses. On November 29, 1996, the Company entered into a definitive
agreement to acquire for approximately $240.0 million in cash the annuity
operations of John Alden Financial Corporation, representing, in the aggregate,
approximately $5 billion in reserves for annuity contracts at September 30,
1996. The acquisition is subject to customary conditions and required regulatory
approvals, and is expected to be completed by the end of the first calendar
quarter of 1997. In April 1996, the Company assumed a block of annuity contracts
aggregating $959.0 million and acquired assets aggregating $919.2 million at the
date of acquisition from The Central National Life Insurance Company of Omaha, a
subsidiary of Beneficial Corp. In February 1996, the Company acquired Ford Life
Insurance Company ("Ford Life") from a subsidiary of Ford Motor Company ("Ford")
for approximately $172.5 million in cash. Under the terms of the agreement, Ford
retained Ford Life's credit life insurance business. At the date of acquisition,
Ford Life had assets of $3.15 billion and reserves for fixed annuity contracts
of $3.06 billion. In January 1996, the Company acquired Advantage Capital
Corporation ("Advantage Capital"), a Houston-based broker-dealer with more than
1,000 affiliated independent registered representatives at the date of
acquisition. In December 1995, the Company acquired CalFarm Life Insurance
Company ("CalFarm"), from its parent, Zenith National Insurance Corp. for
approximately $120 million in
1
<PAGE> 3
cash. Under the terms of the agreement, Zenith National Insurance Corp. retained
CalFarm's health insurance business. At the date of acquisition, CalFarm had
assets of $737.0 million and annuity reserves of $645.8 million. In November
1994, the Company acquired substantially all of the assets of Imperial Premium
Finance, Inc. ("Imperial"), the fourth largest insurance premium finance company
in the United States, based on 1993 premiums financed of approximately $1.5
billion (see "Premium Finance"). In October 1994, the Company's subsidiary,
Resources Trust Company ("Resources Trust"), acquired the account servicing
rights to approximately 44,500 individual retirement plan accounts ("IRAs"),
representing approximately $1.25 billion in plan assets at September 30, 1996,
from New England Securities Corporation, the broker-dealer subsidiary of New
England Life Insurance Company.
As consumer demand for investment-oriented products has grown, the Company
has broadened the array of fee income producing products and services it offers
and has in recent years significantly increased its fee income. Over the last
several years, the Company has enhanced its marketing of variable annuities,
mutual funds and trust services. Fee income has also expanded through the
receipt of broker-dealer net retained commissions and as a result of the
aforementioned acquisitions of Advantage Capital, Imperial and Resources Trust's
additional account servicing rights. The Company's fee generating businesses
entail no portfolio credit risk and require significantly less capital support
than its fixed-rate business, which generates net investment income.
For the year ended September 30, 1996, the Company's net investment income
(including net realized investment losses) and fee income by primary product
line or service are as follows:
NET INVESTMENT AND FEE INCOME
<TABLE>
<CAPTION>
Percent Primary product or service
Amount ------- ---------------------------------
--------------
(In thousands)
<S> <C> <C> <C>
Net investment income (including
net realized investment
losses)......................... $462,442 67.7% Fixed-rate products
-------- -----
Fee income:
Variable annuity fees........... 104,661 15.3 Variable annuities
Net retained commissions........ 49,824 7.3 Broker-dealer sales
Asset management fees........... 25,413 3.7 Mutual funds
Loan servicing fees............. 23,846 3.5 Premium finance
Trust fees...................... 16,684 2.5 Self-directed retirement accounts
Total fee income................ 220,428 32.3
-------- -----
Total............................. $682,870 100.0%
======== =====
</TABLE>
For financial information on the Company's business segments, see Part
IV --"Notes to Consolidated Financial Statements -- Note 12 -- Business
Segments."
LIFE INSURANCE COMPANIES
The Company's life insurance group includes 106-year-old SunAmerica Life
Insurance Company, acquired in 1971; Anchor National Life Insurance Company
("Anchor"), acquired in 1986; Ford Life and CalFarm, both acquired in 1996;
First SunAmerica Life Insurance Company ("First SunAmerica"), acquired in 1987;
and SunAmerica National Life Insurance Company ("SunAmerica National"), formed
in 1995. Collectively, these companies had $21.54 billion of assets at September
30, 1996 and served all 50 states and the District of Columbia. Based on the
latest available statutory industry data, the Company believes that its life
insurance group ranks among the largest issuers of fixed and variable annuities
in the nation, as measured by 1995 annuity premiums and deposits, and among the
top 2% of all U.S. life insurance companies, as measured by 1995 total assets.
Anchor ranks among the largest issuers of variable annuities in the nation,
according to the latest published industry data.
2
<PAGE> 4
The Company's life insurance group sells a wide array of fixed and variable
annuity products, as well as other products that cater to the market for
tax-deferred, long-term savings products. SunAmerica Life Insurance Company is
an Arizona-chartered company licensed in 48 states and the District of Columbia.
Anchor, founded in 1965, is an Arizona-chartered company licensed in 49 states
and the District of Columbia. Ford Life, founded in 1966, is a
Michigan-chartered company licensed in 49 states and the District of Columbia.
Subject to receipt of regulatory approvals, the Company intends to merge Ford
Life into SunAmerica Life Insurance Company in early fiscal 1997. SunAmerica
Life Insurance Company, Anchor and Ford Life each have a "AA-" (Excellent)
claims-paying ability rating from Standard & Poor's Corporation ("S&P"), a "AA"
(Very High) rating from Duff & Phelps, Inc. ("D&P") and an "A2" (Good) rating
from Moody's Investors Service ("Moody's"). SunAmerica Life Insurance Company
and Anchor each also have an "A+" (Superior) rating from industry analyst A.M.
Best Company, while Ford Life has an "A" (Excellent) rating. CalFarm, founded in
1951, has an "A" rating from A.M. Best Company and is licensed in 8 states.
First SunAmerica, founded in 1978, is a New York-chartered company that markets
its annuity products in the states of New York and Nebraska. It has an "A+"
(Superior) rating from A.M. Best Company. SunAmerica National is an
Arizona-chartered company that was formed in March 1995 to issue GICs to
employee benefit plans and other entities. It is currently seeking authority to
transact life insurance business in 49 states and the District of Columbia and
is licensed in 7 states. It has a "AAA" (Superior) rating from S&P.
SunAmerica Life Insurance Company focuses on the sale of fixed-rate
annuities and GICs. At September 30, 1996, it had $8.95 billion of assets.
Anchor specializes in the sale of flexible premium variable annuities, including
Polaris, the Company's flagship variable annuity, which offers investors nine
money management groups, 22 variable annuity portfolios and five fixed-rate
account options. Anchor also offers GICs. At September 30, 1996, it had $9.20
billion of assets. Ford Life specializes in the sale of single premium deferred
annuities, including its newest product, which offers the contractholder the
possibility to earn returns above a minimum guaranteed return, based on the
performance of the Standard and Poor's 500 Index. At September 30, 1996, it had
$3.18 billion of assets. CalFarm specializes in the sale of fixed-rate
annuities. At September 30, 1996, it had $788.2 million of assets. First
SunAmerica specializes in the sale of fixed-rate annuities and flexible premium
variable annuities, including Polaris. At September 30, 1996, it had $236.0
million of assets. SunAmerica National had $101.5 million of assets at September
30, 1996.
Benefiting from continued strong demographic growth of the retirement
savings market, industry sales of tax-deferred savings products have
represented, for a number of years, a significantly larger source of new
premiums for the U.S. life insurance industry than have traditional life
insurance products. Recognizing the growth potential of this market, the Company
focuses its life insurance operations on the sale of annuities and GICs.
Because of its focus on annuity products, which generally have more
contractholder transactions than traditional life insurance products, the
Company utilizes computer-driven systems that employ optical disk imaging and
artificial intelligence in lieu of paper-intensive life insurance processing
procedures. The Company believes its service support center and associated cost
structure to be among the most competitive in the industry.
The Company markets its fixed and variable annuities through the following
distribution channels: (i) independent registered representatives of the
Company's subsidiaries, Royal Alliance Associates, Inc. ("Royal Alliance"),
SunAmerica Securities, Inc. ("SunAmerica Securities") and Advantage Capital;
(ii) approximately 600 other securities firms and financial institutions; and
(iii) independent general insurance agents who specialize in selling fixed
annuities and other single premium products. Approximately 45,000 independent
sales representatives nationally are licensed to sell the Company's annuity
products.
3
<PAGE> 5
The Company markets its GICs principally through direct marketing to banks,
municipalities, asset management firms and direct plan sponsors or through
intermediaries, such as managers or consultants servicing these groups.
Fixed Annuities and GICs
SunAmerica Life Insurance Company, Ford Life, CalFarm and First SunAmerica
offer single premium and flexible premium deferred annuities that provide one-,
three-, five-, seven-, or ten-year fixed interest rate guarantees. Although the
Company's contracts remain in force an average of seven to ten years, a majority
(approximately 74% at September 30, 1996) reprice annually at discretionary
rates determined by the Company. In repricing, the Company takes into account
yield characteristics of its investment portfolio, annuity surrender assumptions
and competitive industry pricing. Its fixed-rate annuity products offer many of
the same features as conventional certificates of deposit from financial
institutions, giving investors a choice of interest period and yield as well as
additional advantages particularly applicable to retirement planning, such as
tax-deferred accumulation and flexible payout options (including the option of
payout over the life of the annuitant). The average new single premium fixed
annuity contract sold by the Company amounted to approximately $34,000 in 1996.
The Company augments its retail annuity sales effort with the marketing of
institutional products. At September 30, 1996, the Company had $4.17 billion of
primarily fixed-maturity GIC obligations. At that date, approximately 70% of
these obligations were fixed-rate and approximately 30% were variable-rate
obligations that reprice periodically based upon certain defined indexes. Of the
total GIC portfolio at September 30, 1996, approximately 39% was sold to asset
management firms, 32% was sold to state and local governmental entities and 29%
was sold to pension plans. The average new GIC contract sold by the Company
amounted to $9.7 million in 1996.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed-rate securities. The
Company's fixed-rate products incorporate surrender charges, two-tiered interest
rate structures or other limitations on when contracts can be surrendered for
cash to encourage persistency. Approximately 86% of the Company's fixed annuity
and GIC reserves had surrender penalties or other restrictions at September 30,
1996.
Variable Annuities
The variable annuity products of Anchor and First SunAmerica offer
investors a broad spectrum of fund alternatives, with a choice of investment
managers, as well as guaranteed fixed-rate account options. These companies earn
fee income through the sale, administration and management of the variable
account options of their variable annuity products. They also earn investment
income on monies allocated to the fixed-rate account options of these products.
Variable annuities offer retirement planning features and surrender charges
similar to those offered by fixed annuities, but differ in that the annuity
holder's rate of return is generally dependent upon the investment performance
of the particular equity, fixed-income, money market or asset allocation funds
selected by the contractholder. Because the investment risk is borne by the
customer in all but the fixed-rate account options, these products require
significantly less capital support than fixed annuities. The average new
variable annuity contract sold by the Company amounted to approximately $37,000
in 1996.
Investment Operations
The Company believes that its fixed-rate liabilities should be backed by a
portfolio principally composed of fixed maturities that generate predictable
rates of return. The Company does not have a
4
<PAGE> 6
specific target rate of return. Instead, its rates of return vary over time
depending on the current interest rate environment, the slope of the yield
curve, the spread at which fixed maturities are priced over the yield curve and
general competitive conditions within the industry. The Company manages most of
its invested assets internally. Its portfolio strategy is designed to achieve
adequate risk-adjusted returns consistent with its investment objectives of
effective asset-liability matching, liquidity and safety.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios.
For the years ended September 30, 1996, 1995 and 1994, the Company's yields
on average invested assets were 8.74%, 9.15% and 8.50%, respectively, before net
realized investment losses, and it realized net investment spreads of 3.43%,
3.69% and 3.30%, respectively, on average invested assets. At September 30,
1996, the weighted average life of the Company's investments was approximately
5.2 years and the duration was approximately 3.3. Weighted average life is the
average time to receipt of all principal, incorporating the effects of scheduled
amortization and expected prepayments, weighted by book value. Duration is a
common option-adjusted measure for the price sensitivity of a fixed-income
portfolio to changes in interest rates. It is the calculation of the relative
percentage change in market value resulting from shifts in interest rates, and
recognizes the changes in portfolio cashflows resulting from embedded options
such as prepayments and bond calls.
The Company's general investment philosophy is to hold fixed maturity
assets for long-term investment. Thus, it does not have a trading portfolio.
Effective December 1, 1995, pursuant to guidelines issued by the Financial
Accounting Standards Board, the Company determined that all of its portfolio of
bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available
to be sold in response to changes in market interest rates, changes in
prepayment risk, the Company's need for liquidity and other similar factors.
Accordingly, the Company no longer classifies a portion of its Bond Portfolio as
held for investment.
The following table summarizes the Company's investment portfolio at
September 30, 1996:
SUMMARY OF INVESTMENTS
<TABLE>
<CAPTION>
Amortized Percent of
cost portfolio
-------------- ----------
(In thousands)
<S> <C> <C>
Fixed maturities:
Cash and short-term investments....................... $ 529,363 3.3%
U.S. government securities............................ 1,067,498 6.6
Mortgage-backed securities............................ 4,519,643 27.8
Other bonds, notes and redeemable preferred stocks.... 7,070,479 43.5
Mortgage loans........................................ 1,652,257 10.2
----------- -----
Total................................................. 14,839,240 91.4
Partnerships............................................ 1,071,857 6.6
Real estate............................................. 105,321 0.6
Equity securities....................................... 44,871 0.3
Other invested assets................................... 177,577 1.1
----------- -----
Total investments....................................... $16,238,866 100.0%
=========== =====
</TABLE>
5
<PAGE> 7
All of the Bond Portfolio (at amortized cost, excluding $108.4 million of
redeemable preferred stocks) at September 30, 1996 was rated by S&P, Moody's,
D&P, Fitch Investor Service, Inc. ("Fitch") or under comparable statutory rating
guidelines established by the National Association of Insurance Commissioners
("NAIC") and implemented by either the NAIC or the Company. At September 30,
1996, approximately $11.31 billion (at amortized cost) of the Bond Portfolio was
rated investment grade by one or more of these agencies or by the Company or the
NAIC, pursuant to applicable NAIC guidelines, including $5.53 billion of U.S.
government/agency securities and mortgage-backed securities.
At September 30, 1996, the Bond Portfolio included $1.24 billion, (fair
value, $1.27 billion) of bonds not rated investment grade by S&P, Moody's, D&P,
Fitch or the NAIC. Based on their September 30, 1996 amortized cost, these
non-investment-grade bonds accounted for 5.2% of the Company's total assets and
7.6% of its invested assets.
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $1.54 billion at September 30, 1996. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1996, Secured Loans consisted of loans to 331
borrowers spanning 40 industries, with 15% of these assets (at amortized cost)
concentrated in financial institutions, 15% concentrated in the leisure industry
and 12% concentrated in utilities. No other industry concentration constituted
more than 7% of these assets.
Mortgage loans aggregated $1.65 billion at September 30, 1996 and consisted
of 648 first mortgage loans with an average loan balance of approximately $2.5
million, collateralized by properties located in 34 states. Approximately 44% of
the portfolio was multifamily residential, 20% was retail, 13% was manufactured
housing, 5% was industrial, 5% was office and 13% was other types.
Partnership investments totaled $1.07 billion at September 30, 1996,
constituting investments in approximately 450 separate partnerships with an
average size of approximately $2.4 million. This portfolio includes: (i) $498.5
million of partnerships managed by independent money managers that invest in a
broad selection of equity and fixed-income securities; (ii) $473.2 million of
partnerships that make tax-advantaged investments in affordable housing; and
(iii) $100.2 million of partnerships that invest in mortgage loans and
income-producing real estate.
At September 30, 1996, the amortized cost of all investments in default as
to the payment of principal or interest totaled $28.7 million (fair value $25.8
million), which constituted 0.2% of total invested assets at amortized cost.
For more information concerning the Company's investments, including the
risks inherent in such investments, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
and Liquidity."
MUTUAL FUNDS AND INVESTMENT SERVICES
Through its registered investment advisor, SunAmerica Asset Management
Corp. ("SunAmerica Asset Management"), and its related mutual fund distributor,
the Company earns fee income by distributing and managing a diversified family
of mutual funds and by providing professional management of individual,
corporate and pension plan portfolios. SunAmerica's mutual funds offer investors
an array of equity, fixed-income, money market and tax-exempt portfolios. In
November 1996, SunAmerica Asset Management introduced its new "Style Select
Series," which combines the expertise of three well-respected advisors with
similar investment styles in each available portfolio. Founded in 1983 and
acquired by the Company in January 1990, SunAmerica Asset Management managed
approximately $2.43 billion of assets at September 30, 1996, including mutual
fund assets and certain of the Company's variable annuity assets.
The SunAmerica mutual funds are distributed nationally through a network of
approximately 350 financial institutions and unaffiliated broker-dealers, as
well as by the Company's broker-dealer subsidiaries.
6
<PAGE> 8
RETIREMENT TRUST SERVICES
Through Resources Trust, acquired in January 1990, the Company earns fee
income by providing administrative and custodial services for approximately
204,000 self-directed retirement accounts. These self-directed retirement
accounts, including IRAs, Keoghs, 401(k) plans, and pension and profit sharing
plans, had combined account assets at September 30, 1996 of approximately $11.00
billion. In September 1994, Resources Trust also began offering its new
"Complete 401(k)," a product that combines the administrative and custodial
services of Resources Trust with the variable annuity and mutual fund products
of the Company.
Resources Trust also earns investment income on customer cash balances that
are interest-bearing and insured by the Federal Deposit Insurance Corporation.
Resources Trust's services are sold nationally through approximately 17,500
registered representatives affiliated with 1,000 broker-dealers, including the
Company's broker-dealer subsidiaries.
BROKER-DEALERS
The Company also owns three broker-dealers: Royal Alliance, acquired by the
Company in January 1990; SunAmerica Securities, which commenced business in
1989; and Advantage Capital, acquired by the Company in 1996. As a result of the
Company's ongoing active recruitment of independent registered representatives
and the acquisition of Advantage Capital, the Company has increased its network
of representatives from approximately 5,200 at September 30, 1995 to
approximately 6,600 at September 30, 1996. The Company believes that, through
ownership of these firms, it has the largest network of independent registered
representatives in the nation, based on industry data.
PREMIUM FINANCE
Through its premium finance company, Imperial, the Company earns fee income
by servicing loans that Imperial has originated and sold. Imperial provides
short-term installment loans for borrowers to fund their property and casualty
insurance premiums. These loans are substantially secured by the unearned
premiums associated with the underlying insurance policies. Currently, Imperial
sells and services most of the short-term loans that it originates. Founded in
1972 and acquired in November 1994, Imperial owned or serviced approximately
83,000 loans with an average loan balance of approximately $6,300 at September
30, 1996.
Imperial generally makes loans to borrowers through a network of
approximately 4,700 qualified independent property and casualty insurance agents
who arrange the loan or refer the client to Imperial.
REGULATION
The Company's insurance subsidiaries are subject to regulation and
supervision by the states in which they are authorized to transact business.
State insurance laws establish supervisory agencies with broad administrative
and supervisory powers related to granting and revoking licenses to transact
business, regulating marketing and other trade practices, operating guaranty
associations, licensing agents, approving policy forms, regulating certain
premium rates, regulating insurance holding company systems, establishing
reserve requirements, prescribing the form and content of required financial
statements and reports, performing financial and other examinations, determining
the reasonableness and adequacy of statutory capital and surplus, regulating the
type, valuation and amount of investments permitted, limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval and other related matters.
During the last decade, the insurance regulatory framework has been placed
under increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or
7
<PAGE> 9
enacted legislation that changes, and in many cases increases, the states'
authority to regulate insurance companies. Legislation has been introduced from
time to time in Congress that could result in the federal government assuming
some role in the regulation of insurance companies. In recent years, the NAIC
has approved and recommended to the states for adoption and implementation
several regulatory initiatives designed to reduce the risk of insurance company
insolvencies and market conduct violations. These initiatives include investment
reserve requirements, risk-based capital standards, new investment standards and
restrictions on an insurance company's ability to pay dividends to its
stockholders. The NAIC is also currently developing model laws relating to
product design and illustrations for annuity products. Current proposals are
still being debated and the Company is monitoring developments in this area and
the effects any changes would have on the Company.
SunAmerica Asset Management is registered with the Securities and Exchange
Commission (the "Commission") as a registered investment advisor under the
Investment Advisors Act of 1940. The mutual funds that it markets are subject to
regulation under the Investment Company Act of 1940. SunAmerica Asset Management
and the mutual funds are subject to regulation and examination by the
Commission. In addition, variable annuities and the related separate accounts of
the Company's life insurance subsidiaries are subject to regulation by the
Commission under the Securities Act of 1933 and the Investment Company Act of
1940.
Resources Trust is subject to regulation by the Colorado State Banking
Board and the Federal Deposit Insurance Corporation.
The Company's broker-dealer subsidiaries are subject to regulation and
supervision by the states in which they transact business, as well as by the
National Association of Securities Dealers, Inc. (the "NASD"). The NASD has
broad administrative and supervisory powers relative to all aspects of business
and may examine the subsidiaries' business and accounts at any time.
The Company's premium finance business is subject to regulation and
supervision by substantially all of the states in which it is authorized to
transact business. State premium finance laws establish supervisory agencies
with broad administrative and supervisory powers related to granting and
revoking licenses to transact business, approving finance agreement forms,
regulating certain finance charge rates, regulating marketing and other trade
practices (including the procedures to cancel financed insurance policies for
non-payment), prescribing the form and content of required financial statements
and reports, performing financial and other examinations and other related
matters.
COMPETITION
The businesses conducted by the Company's subsidiaries are highly
competitive. The Company's life insurance subsidiaries compete with other life
insurers, and also compete for customers' funds with a variety of investment
products offered by financial services companies other than life insurance
companies, such as banks, investment advisors, mutual fund companies and other
financial institutions. Within the U.S. life insurance industry, the 100 largest
writers of individual and group annuities account for approximately 97% of total
net annuity premiums written. Net annuity premiums written among the top 100
companies range from less than $200 million to more than $9 billion annually.
SunAmerica ranks in the top quartile of this group. Certain of these companies
and other life insurers with which the Company competes are significantly larger
and have available to them much greater financial and other resources. The
Company believes the primary competitive factors among life insurance companies
for investment-oriented insurance products, such as annuities and GICs, include
product flexibility, product pricing, innovation in product design, the
claims-paying ability rating and the name recognition of the issuing company,
the availability of distribution channels and service rendered to the customer
before and after a contract is issued. Other factors affecting the annuity
business include the benefits (including before-tax and after-tax investment
returns) and guarantees provided to the customer and the commissions paid.
8
<PAGE> 10
Competitors of SunAmerica Asset Management include a large number of mutual
fund organizations, both independent and affiliated with other financial
services companies, including banks and insurance companies. Competition in
mutual fund sales is based on investment performance, service to clients, and
product design.
Resources Trust competes for retirement plan assets against other trust
companies, brokerage firms, mutual funds, banks and insurance companies.
The Company's broker-dealers face competition from regional firms and
large, national full service and discount brokerage firms.
Imperial faces competition from other premium finance companies and many
large insurance companies who directly finance their own premiums.
ITEM 2. PROPERTIES
The Company's executive offices and the principal offices of its life
insurance subsidiaries are in leased premises at 1 SunAmerica Center, Los
Angeles, California. The Company's life insurance subsidiaries also lease office
space in Torrance, California; Houston, Texas; and New York, New York. The
Company's broker-dealers lease space in Phoenix, Arizona; Houston, Texas; and
New York, New York. The Company's asset management subsidiary leases offices in
New York, New York, and the retirement trust services subsidiary occupies leased
premises in Englewood, Colorado. The Company's premium finance subsidiary is
headquartered in Sherman Oaks, California.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted during the fourth quarter 1996 to a vote of
security-holders, through the solicitation of proxies or otherwise.
9
<PAGE> 11
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information regarding the executive
officers of SunAmerica Inc. as of December 10, 1996:
<TABLE>
<CAPTION>
Year
assumed Other positions and other business
Present position at present experience within the last five
Name Age December 10, 1996 position years From-to
- ------------------------- ---- -------------------- ------- ----------------------------------- -------------
<S> <C> <C> <C> <C> <C>
Eli Broad 63 Chairman and Chief 1976 (Cofounded Company in 1957)
Executive Officer
President 1986
Joseph M. Tumbler 48 Vice Chairman 1995 President and Chief Executive 1989-1995
Officer, Providian Capital
Management
Jay S. Wintrob 39 Vice Chairman 1995 Executive Vice President 1991-1995
(Joined Company in 1987)
James R. Belardi 39 Executive Vice 1995 Senior Vice President and Treasurer 1992-1995
President
Vice President and Treasurer 1989-1992
(Joined Company in 1986)
Lorin M. Fife 43 Senior Vice 1995 Vice President and General 1994-1995
President, and Counsel -- Regulatory Affairs
General Counsel -- Vice President and 1989-1994
Regulatory Affairs Associate General Counsel
(Joined Company in 1989)
Marc H. Gamsin 41 Senior Vice 1996 Partner, O'Melveny & Myers LLP 1979-1996
President
Jana Waring Greer 44 Senior Vice 1991 (Joined Company in 1974)
President
Susan L. Harris 39 Senior Vice 1995 Vice President, 1994-1995
President, General Counsel --
General Counsel -- Corporate Affairs, and Secretary
Corporate Affairs, Vice President, Associate General 1989-1994
and Secretary Counsel and Secretary
(Joined Company in 1985)
Gary W. Krat 49 Senior Vice 1992 Chairman of SunAmerica's 1991-Present
President broker-dealer operations
(Joined Company in 1990)
Scott L. Robinson 50 Senior Vice 1991 (Joined Company in 1978)
President and
Controller
James W. Rowan 34 Senior Vice 1995 Vice President 1993-1995
President Assistant to the Chairman 1992
Senior Vice President, 1990-1992
Security Pacific Corp.
Karel Carnohan 40 Vice President 1995 Vice President, Equity Analyst, 1994-1995
C.J. Lawrence/Deutsche Bank
Securities Corporation
First Vice President, Corporate 1990-1994
Finance and Investor Relations,
Countrywide Credit Industries, Inc.
Countrywide Mortgage Investments,
Inc.
Michael L. Fowler 42 Vice President 1988 (Joined Company in 1988)
George L. Holdridge, Jr. 39 Vice President 1995 Senior Vice President, SunAmerica 1994-1995
Financial, Inc.
Vice President and Director of 1989-1994
Technology, SunAmerica Financial,
Inc.
(Joined Company in 1983)
Scott H. Richland 34 Vice President and 1995 Vice President and Assistant 1994-1995
Treasurer Treasurer
Assistant Treasurer 1993-1994
Director, SunAmerica 1990-1993
Investments, Inc.
</TABLE>
10
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange. The Company's Common Stock is also traded on the Boston,
Midwest and Philadelphia Stock Exchanges. There is no trading or other market
for the Nontransferable Class B Stock.
High and low sales prices, based on the New York Stock Exchange Composite
Price Tape, for the Company's Common Stock for each quarter during the fiscal
years ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------- -----------------------
High Low High Low
------- --------- ---------- ---------
<S> <C> <C> <C> <C>
First quarter.................. $24 7/8 $20 7/16 $13 15/16 $11 7/16
Second quarter................. 28 3/4 22 1/16 14 3/4 12
Third quarter.................. 29 1/2 22 13/16 18 1/2 14 1/8
Fourth quarter................. 36 7/8 26 1/8 21 16 3/4
======= ========= ========= ========
</TABLE>
The sales prices listed above have been restated and rounded to the nearest
sixteenth to reflect a two-for-one split, paid in the form of a stock dividend
on August 30, 1996, and a three-for-two stock split, paid in the form of a stock
dividend on November 10, 1995.
HOLDERS
As of November 30, 1996, the number of holders of record of each class of
common equity of the Company was as follows:
<TABLE>
<CAPTION>
Number
of holders
Title of Class of record
- -------------- ----------
<S> <C>
Common Stock (par value $1.00 per share)........................ 2,204
Nontransferable Class B Stock (par value $1.00 per share)....... 7
=====
</TABLE>
DIVIDENDS
Dividends paid per share on the Company's Common Stock and Nontransferable
Class B Stock for each quarter during the fiscal years ended September 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Common Nontransferable Common Nontransferable
Stock Class B Stock Stock Class B Stock
------- --------------- ------- ---------------
<S> <C> <C> <C> <C>
First quarter.......... $0.0750 $0.0675 $0.0500 $0.0450
Second quarter......... 0.0750 0.0675 0.0500 0.0450
Third quarter.......... 0.0750 0.0675 0.0500 0.0450
Fourth quarter......... 0.0750 0.0675 0.0500 0.0450
------- ------- ------- -------
Total.................. $0.3000 $0.2700 $0.2000 $0.1800
======= ======= ======= =======
</TABLE>
The per-share dividends listed above have been restated to reflect a
two-for-one stock split, paid in the form of a stock dividend on August 30,
1996, and a three-for-two stock split, paid in the form of a stock dividend on
November 10, 1995.
11
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company and its
subsidiaries should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are included
elsewhere herein. Per-share amounts have been restated to reflect a two-for-one
stock split, paid in the form of a stock dividend on August 30, 1996, and a
three-for-two stock split, paid in the form of a stock dividend on November 10,
1995. In addition, certain items have been reclassified to conform to the
current year's presentation.
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income........................ $ 492,756 $ 365,555 $ 294,454 $ 263,791 $ 219,384
Net realized investment losses............... (30,314) (33,012) (21,124) (21,287) (56,364)
Fee income................................... 220,428 180,419 152,607 136,401 114,683
General and administrative expenses.......... (212,701) (166,540) (132,743) (135,790) (133,058)
Provision for future guaranty fund
assessments................................ -- -- -- (22,000) --
Amortization of deferred acquisition costs... (108,176) (86,107) (69,253) (53,216) (49,328)
Other income and expenses, net............... 30,034 19,291 16,060 16,112 15,774
--------- --------- --------- --------- ---------
Pretax income................................ 392,027 279,606 240,001 184,011 111,091
Income tax expense........................... (117,600) (85,400) (74,700) (57,000) (34,300)
--------- --------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES................. 274,427 194,206 165,301 127,011 76,791
Cumulative effect of change in accounting for
income taxes................................ -- -- (33,500) -- --
--------- --------- --------- --------- ---------
NET INCOME................................... $ 274,427 $ 194,206 $ 131,801 $ 127,011 $ 76,791
========= ========= ========= ========= =========
EARNINGS PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES............ $ 1.95 $ 1.42 $ 1.19 $ 0.92 $ 0.60
Cumulative effect of change in accounting
for income taxes.......................... -- -- (0.27) -- --
--------- --------- --------- --------- ---------
NET INCOME................................. $ 1.95 $ 1.42 $ 0.92 $ 0.92 $ 0.60
========= ========= ========= ========= =========
CASH DIVIDENDS PER SHARE PAID TO COMMON
SHAREHOLDERS:
Nontransferable Class B Stock............... $ 0.270 $ 0.180 $ 0.120 $ 0.084 $ 0.060
========= ========= ========= ========= =========
Common Stock................................ $ 0.300 $ 0.200 $ 0.133 $ 0.093 $ 0.067
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RATIOS OF EARNINGS TO FIXED CHARGES
Ratio of earnings to fixed charges (which
include dividends paid on preferred
securities of grantor trusts and interest
incurred on senior and subordinated debt,
but exclude interest incurred on fixed
annuities, guaranteed investment contracts
and trust deposits)......................... 5.4x 5.8x 5.8x 6.1x 4.0x
========= ========= ========= ========= =========
Ratio of earnings to fixed charges (which
include dividends paid on preferred
securities of grantor trusts and interest
incurred on senior and subordinated debt,
fixed annuities, guaranteed investment
contracts and trust deposits)............... 1.5x 1.5x 1.5x 1.4x 1.2x
========= ========= ========= ========= =========
Ratio of earnings to combined fixed charges
and preferred stock dividends (which include
dividends paid on preferred securities of
grantor trusts and interest incurred on
senior and subordinated debt, but exclude
interest incurred on fixed annuities,
guaranteed investment contracts and trust
deposits)................................... 3.8x 3.4x 2.8x 2.8x 2.7x
========= ========= ========= ========= =========
Ratio of earnings to combined fixed charges
and preferred stock dividends (which include
dividends paid on preferred securities of
grantor trusts and interest incurred on
senior and subordinated debt, fixed
annuities, guaranteed investment contracts
and trust deposits)......................... 1.4x 1.4x 1.4x 1.3x 1.2x
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments.......................... $16,199,784 $10,808,959 $ 9,280,390 $10,364,952 $ 9,428,266
Variable annuity assets.............. 6,380,458 5,263,006 4,513,093 4,194,970 3,293,343
Deferred acquisition costs........... 782,300 526,415 581,874 475,917 436,209
Other assets......................... 364,279 245,787 280,868 231,582 245,833
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS......................... $23,726,821 $16,844,167 $14,656,225 $15,267,421 $13,403,651
=========== =========== =========== =========== ===========
Reserves for fixed annuity
contracts........................... $ 9,654,674 $ 4,862,250 $ 4,519,623 $ 4,934,871 $ 5,143,339
Reserves for guaranteed investment
contracts........................... 4,169,028 3,607,192 2,783,522 2,216,104 2,023,048
Variable annuity liabilities......... 6,380,458 5,263,006 4,513,093 4,194,970 3,293,343
Trust deposits....................... 436,048 426,595 442,320 378,986 367,458
Other payables and accrued
liabilities......................... 489,672 747,733 860,763 1,828,153 1,372,010
Long-term notes and debentures....... 573,335 524,835 472,835 380,560 225,000
Other senior indebtedness............ -- -- 28,662 127,151 208,703
Deferred income taxes................ 125,417 146,847 74,319 96,599 40,682
Preferred securities of grantor
trusts.............................. 237,631 52,631 -- -- --
Shareholders' equity................. 1,660,558 1,213,078 961,088 1,110,027 730,068
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $23,726,821 $16,844,167 $14,656,225 $15,267,421 $13,403,651
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations of SunAmerica Inc. (the "Company") for the three years in the period
ended
September 30, 1996 follow. In connection with, and because it desires to take
advantage of, the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in the following discussion and elsewhere
in this report and in any other statements made by, or on behalf of, the
Company, whether or not in future filings with the Securities and Exchange
Commission ("SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. In particular, statements using verbs
such as "expect," "anticipate," "believe" or words of similar import generally
involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future or projected levels of sales of the Company's
products, investment spreads or yields, or the earnings or profitability of the
Company's activities.
Forward-looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Company. Whether
or not actual results differ materially from forward-looking statements may
depend on numerous foreseeable and unforeseeable events or developments, some of
which may be national in scope, such as general economic conditions and interest
rates, some of which may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation, and
others of which may relate to the Company specifically, such as credit,
volatility and other risks associated with the Company's investment portfolio,
and other factors. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
totaled $274.4 million or $1.95 per share in 1996, compared with $194.2 million
or $1.42 per share in 1995 and $165.3 million or $1.19 per share in 1994.
Results of operations in 1996 include the effects of the recently completed
acquisitions (the "Acquisitions") of CalFarm Life Insurance Company ("CalFarm"),
Ford Life Insurance Company ("Ford Life") and certain annuity contracts
purchased from The Central National Life Insurance Company (the "Central
National Annuity Contracts"). The acquisition of CalFarm was completed on
December 29, 1995, the acquisition of Ford Life was completed on February 29,
1996 and the acquisition of the Central National Annuity Contracts was completed
on April 1, 1996. The cumulative effect of the change in accounting for income
taxes resulting from the 1994 implementation of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," amounted to a
nonrecurring non-cash charge of $33.5 million or $0.27 per share. Accordingly,
net income amounted to $131.8 million or $0.92 per share in 1994.
PRETAX INCOME totaled $392.0 million in 1996, $279.6 million in 1995 and
$240.0 million in 1994. The $112.4 million improvement in 1996 over 1995
primarily resulted from increased net investment income, fee income and
surrender charges, partially offset by higher general and administrative
expenses and additional amortization of deferred acquisition costs. The $39.6
million improvement in 1995 over 1994 primarily resulted from increased net
investment income and fee income, partially offset by increased general and
administrative expenses, additional amortization of deferred acquisition costs
and higher net realized investment losses.
14
<PAGE> 16
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest or dividends paid on fixed annuities and other
interest-bearing liabilities, increased to $492.8 million in 1996 from $365.6
million in 1995 and $294.5 million in 1994. These amounts represent 3.43% on
average invested assets (computed on a daily basis) of $14.36 billion in 1996,
3.69% on average invested assets of $9.90 billion in 1995 and 3.30% on average
invested assets of $8.92 billion in 1994. The invested assets associated with
the Acquisitions were primarily high-grade corporate, government and
government/agency bonds and cash and short-term investments, which are generally
lower yielding than a significant portion of the invested assets that comprise
the remainder of the Company's portfolio. As a result of the Acquisitions, net
investment income as a percent of average invested assets in 1996 declined by 42
basis points.
Net investment income also includes the effect of income earned on the
excess of average invested assets over average interest-bearing liabilities.
This excess amounted to $1.06 billion in 1996, $741.2 million in 1995 and $647.1
million in 1994. The difference between the Company's yield on average invested
assets and the rate paid on average interest-bearing liabilities was 3.01% in
1996, 3.25% in 1995 and 2.90% in 1994. As a result of the Acquisitions, this
difference declined by 24 basis points in 1996.
Investment income and the related yields on average invested assets totaled
$1.25 billion or 8.74% in 1996, compared with $905.8 million or 9.15% in 1995
and $758.2 million or 8.50% in 1994. The $348.5 million increase in investment
income recorded in 1996 and the related 41 basis point decline in yield that it
represents both reflect the effects of the Acquisitions. In 1996, the investment
income associated with the Acquisitions aggregated $191.6 million, and reduced
the overall investment yield of the Company by 44 basis points.
In addition to increasing due to the effects of the Acquisitions,
investment income rose during 1996, and during 1995, as a result of higher
levels of average invested assets and additional partnership income. Partnership
income increased to $178.6 million (representing a yield of 19.04% on related
average assets of $937.8 million) in 1996, compared with $134.1 million
(representing a yield of 18.17% on related average assets of $738.0 million) in
1995 and $63.7 million (representing a yield of 11.35% on related average assets
of $560.9 million) in 1994. Partnership income includes income recognized by
using the cost method of accounting, which amounted to $59.1 million, $106.9
million and $26.5 million in 1996, 1995 and 1994, respectively. Such income is
based upon cash distributions received from limited partnerships, the operations
of which the Company does not significantly influence. Consequently, such income
is not predictable and there can be no assurance that the Company will realize
comparable levels of such income in the future.
The increase in investment yield in 1995 over 1994 reflects the higher
interest rates prevailing during the latter half of 1994 and into fiscal 1995.
The Company has historically enhanced investment yield through its use of
dollar roll transactions ("Dollar Rolls"), whereby the proceeds from sales of
mortgage-backed securities ("MBSs") are invested in short-term securities
pending the contractual repurchase of substantially the same securities at
discounted prices in the forward market. The Company has been able to engage in
Dollar Rolls due to the market demand for MBSs for formation of collateralized
mortgage obligations, but this demand has declined over the periods presented.
The Company recorded $1.4 million of enhanced yield on such transactions during
1996, compared with $4.6 million during 1995 and $15.6 million during 1994. (See
"Asset-Liability Matching" for additional discussion of Dollar Rolls.)
In addition, the Company has enhanced investment yield through total return
corporate bond swap agreements (the "Total Return Agreements"). The Company
recorded income of $32.5 million on the Total Return Agreements in 1996,
compared with $13.0 million recorded during 1995 and $1.3 million recorded in
1994. The improved results in 1996 and in 1995 primarily reflect increases in
the fair value of the underlying assets, resulting primarily from improved
overall performance of the non-investment-grade bonds underlying the Total
Return Agreements, and increases in the average
15
<PAGE> 17
notional principal amount of the Total Return Agreements. (See "Asset-Liability
Matching" for additional discussion of Total Return Agreements.)
Total interest and dividend expense aggregated $761.5 million in 1996,
$540.2 million in 1995 and $463.7 million in 1994. The average rate paid on all
interest-bearing liabilities was 5.73% (5.34% on fixed annuity contracts and
6.43% on guaranteed investment contracts ("GICs")) in 1996, compared with 5.90%
(5.48% on fixed annuity contracts and 6.68% on GICs) in 1995 and 5.60% (5.43% on
fixed annuity contracts and 6.20% on GICs) in 1994. Interest-bearing liabilities
averaged $13.29 billion during 1996, compared with $9.16 billion during 1995 and
$8.27 billion during 1994.
The average rate paid on all interest-bearing liabilities in 1996 also
reflects the impact of the Acquisitions. The interest-bearing liabilities
associated with the Acquisitions are primarily single premium deferred annuities
that carry a lower average crediting rate than the average crediting rate paid
on the Company's other annuity liabilities. Assumption of these additional
interest-bearing liabilities reduced the average rate paid on all
interest-bearing liabilities and on fixed annuity contracts by 20 basis points
in 1996. The favorable effects of the Acquisitions more than offset a small
increase in the average crediting rate on the Company's remaining
interest-bearing liabilities.
The increase in the average rate paid on all interest-bearing liabilities
during 1995 primarily resulted from the increased average crediting rate on the
Company's GICs. During 1996, 1995 and 1994, approximately 33%, 27% and 24%,
respectively, of the Company's average GIC portfolio were variable-rate
obligations that reprice periodically based upon certain defined indexes. At
September 30, 1996, approximately 30% of the Company's GIC portfolio was
composed of such obligations. In addition, in fiscal 1995, the Company increased
its crediting rates on new fixed-rate GIC obligations relative to those issued
during 1994 in response to higher prevailing interest rates. The average rate
paid on all interest-bearing liabilities also increased in 1995 as a result of a
modest increase in the average crediting rate on the Company's fixed annuity
contracts.
GROWTH IN AVERAGE INVESTED ASSETS since 1994 primarily reflects the impact
of the Acquisitions. Average assets in 1996 include the invested assets of
CalFarm for nine months, those of Ford Life for seven months and those
associated with the Central National Annuity Contracts for six months. In the
aggregate, the Acquisitions contributed $2.84 billion to the Company's average
invested assets in 1996. The Company intends to continue to pursue a strategy of
enhancing its internal growth with complementary acquisitions. On November 29,
1996, the Company entered into a definitive agreement to acquire John Alden
Financial Corporation's annuity operations (which had approximately $5.00
billion of fixed annuity reserves at September 30, 1996) for approximately
$240.0 million in cash. The acquisition is subject to customary conditions and
required regulatory approvals, and is expected to be completed by the end of the
first calendar quarter of 1997.
Average invested assets also increased in 1996 and in 1995 as a result of
sales of the Company's fixed-rate products, consisting of both fixed annuities
(including the fixed accounts of variable annuity products) and GICs, and $519.2
million of aggregate net proceeds from the issuances of Preferred Stock of the
Company, preferred securities of a subsidiary grantor trust and long-term notes.
Fixed annuity premiums totaled $993.4 million in 1996, compared with $944.7
million in 1995 and $230.0 million in 1994. These premiums include premiums for
the fixed accounts of variable annuities totaling $782.6 million, $286.7 million
and $140.6 million, respectively. The increase in aggregate fixed annuity
premiums in 1996 reflects an increase in premiums for the fixed accounts of
variable annuities in 1996, which resulted primarily from greater inflows into
the one-year fixed account of the Company's Polaris product. Other fixed
premiums declined during 1996 despite increases resulting from the Acquisitions,
primarily reflecting lower prevailing interest rates. The $714.7 million
increase in fixed annuity premiums during 1995 reflects higher market demand for
fixed-rate products, due, in part, to the increase in prevailing long-term
interest rates that began during the latter half of fiscal 1994 and continued
into the first quarter of fiscal 1995.
GIC premiums decreased to $1.02 billion in 1996 from $1.77 billion in 1995
and $1.04 billion in 1994. The decline in GIC premiums in 1996 primarily
resulted from planned reductions in sales of
16
<PAGE> 18
short-term maturity products to asset management firms and in reductions of
sales to banks. The increase in GIC sales during 1995 reflects the Company's
broadening of its distribution channels and product line to increase its GIC
client base. While GIC premiums declined, GIC surrenders also declined during
1996 to $708.7 million, compared with $1.16 billion in 1995 and $621.7 million
in 1994 and the size of the Company's GIC reserves increased over the three-year
period to $4.17 billion at September 30, 1996 from $2.22 billion at September
30, 1993.
The GICs issued by the Company generally guarantee the payment of principal
and interest at a fixed rate for a fixed term of three to five years. In the
case of GICs sold to pension plans, certain withdrawals may be made at book
value in the event of circumstances specified in the plan document, such as
employee retirement, death, disability, hardship withdrawal or employee
termination. The Company generally imposes surrender penalties in the event of
other withdrawals prior to maturity. Contracts purchased by banks or state and
local governmental entities either prohibit withdrawals or permit scheduled book
value withdrawals subject to the terms of the underlying indenture or agreement.
Contracts purchased by asset management firms either prohibit withdrawals or
permit withdrawals with notice ranging from 90 to 270 days. In pricing GICs, the
Company analyzes cash flow information and prices accordingly so that it is
compensated for possible withdrawals prior to maturity.
NET REALIZED INVESTMENT LOSSES totaled $30.3 million in 1996, $33.0 million
in 1995 and $21.1 million in 1994, and represent 0.21%, 0.33% and 0.24%,
respectively, of average invested assets. Net realized investment losses include
impairment writedowns of $34.9 million in 1996, $42.7 million in 1995 and $55.9
million in 1994. Therefore, net gains from sales of investments totaled $4.6
million in 1996, $9.7 million in 1995 and $34.8 million in 1994.
Net gains from sales of investments in 1996 include $11.8 million of net
gains realized on sales of other invested assets, principally leveraged leases,
$3.4 million of net gains realized on sales of common stocks and $11.9 million
of net losses realized on sales of bonds. Net gains from sales of investments in
1995 include $20.9 million of net gains realized on sales of common stocks and
$15.6 million of net losses realized on sales of bonds. Net gains from sales of
investments in 1994 include $22.6 million of net gains realized on sales of
common stocks and $27.0 million of net losses realized on sales of bonds. The
Company also realized $35.1 million of net gains on sales of certain partnership
interests in 1994. Sales of investments are generally made to maximize total
return.
Impairment writedowns in 1996 include $22.3 million of additional
provisions applied to defaulted bonds. Impairment writedowns in 1995 include
$23.8 million of additional provisions applied to defaulted bonds and $6.6
million of provisions applied to mortgage loans. Impairment writedowns in 1994
include $35.0 million applied to real estate. During 1994, the Company decided
to hold for sale all properties owned in Arizona, thereby changing its previous
intention to hold such real estate for future development. Accordingly, the
Company reappraised its Arizona properties and reduced their carrying values to
estimated fair values. Impairment writedowns in 1994 also include $13.2 million
of additional provisions applied to defaulted bonds.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $104.7
million in 1996, $84.6 million in 1995 and $79.5 million in 1994. Increases in
variable annuity fees in 1996 and 1995 reflect growth in average variable
annuity assets, principally due to increased market values and the receipt of
variable annuity premiums, partially offset by surrenders. Variable annuity
assets averaged $5.75 billion during 1996, $4.67 billion during 1995 and $4.43
billion during 1994. Variable annuity premiums, which exclude premiums allocated
to the fixed accounts of variable annuity products, totaled $929.2 million in
1996, $571.4 million in 1995 and $759.3 million in 1994. The increase in
premiums in 1996 may be attributed, in part, to a heightened demand for equity
investments, principally as a result of generally improved market performance.
The decline in premiums in 1995 may be attributed, in part, to a heightened
demand for fixed-rate investment options, including the fixed accounts of
variable annuities (see "Growth in Average Invested Assets"). The Company has
encountered increased
17
<PAGE> 19
competition in the variable annuity marketplace during recent years and
anticipates that the market will remain highly competitive for the foreseeable
future.
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiaries, after deducting the substantial portion of such commissions that
is passed on to registered representatives. Net retained commissions totaled
$49.8 million in 1996, $33.7 million in 1995 and $29.9 million in 1994.
Broker-dealer sales (mainly sales of general securities, mutual funds and
annuities) totaled $12.78 billion in 1996, $7.41 billion in 1995 and $6.87
billion in 1994. The significant increases in sales and net retained commissions
during 1996 reflect a greater number of registered representatives (largely due
to the acquisition of Advantage Capital Corporation, a Houston-based
broker-dealer, on January 3, 1996) and higher average production, combined with
generally favorable market conditions. Increases in net retained commissions are
not proportionate to increases in sales primarily due to differences in sales
mix.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management Corp. Such fees totaled $25.4 million on
average assets managed of $2.14 billion in 1996, $26.9 million on average assets
managed of $2.07 billion in 1995 and $31.3 million on average assets managed of
$2.39 billion in 1994. Asset management fees decreased slightly in 1996, despite
a modest increase in average assets managed, principally due to changes in
product mix. The decrease in asset management fees during 1995 principally
resulted from the decline in average assets managed, primarily due to an excess
of redemptions over sales. Redemptions of mutual funds, excluding redemptions of
money market accounts, amounted to $379.9 million in 1996, compared with $426.5
million in 1995 and $561.0 million in 1994. Sales of mutual funds, excluding
sales of money market accounts, amounted to $223.4 million in 1996, compared
with $140.2 million in 1995 and $342.6 million in 1994. Higher mutual fund sales
and lower redemptions in 1996 both reflect the combined effects of additional
advertising, the favorable performance records of certain of the Company's
mutual funds and heightened demand for equity investments, principally as a
result of improved market performance.
LOAN SERVICING FEES are earned by the Company's subsidiary, Imperial
Premium Finance, Inc. ("Imperial"). Imperial provides short-term installment
loans for borrowers to fund their property and casualty insurance premiums.
These loans are secured by the unearned premium associated with the underlying
insurance policies. Currently, Imperial sells most of the short-term loans it
originates and earns fee income by servicing these sold loans. Such fee income
totaled $23.8 million on average loans serviced of $457.8 million in 1996,
compared with $19.8 million on average loans serviced of $438.3 million in 1995.
Imperial's net assets were acquired on November 30, 1994, and, therefore, no
such fee income was earned in fiscal 1994.
TRUST FEES are earned by Resources Trust Company for providing
administrative and custodial services primarily for individual retirement
accounts, as well as for other qualified pension plans. Trust fees increased to
$16.7 million in 1996 (on an average of 201,800 trust accounts) from $15.4
million in 1995 (on an average of 196,000 trust accounts) and $11.9 million in
1994 (on an average of 148,500 trust accounts). The increases in trust fees and
the average number of trust accounts in 1995 principally resulted from the
October 1, 1994 acquisition of the right to service certain individual
retirement accounts from New England Life Insurance Company.
SURRENDER CHARGES on fixed and variable annuities totaled $22.1 million in
1996 (including $11.1 million attributable to the Acquisitions), compared with
$11.9 million in 1995 and $10.7 million in 1994. Surrender charges generally are
assessed on annuity withdrawals at declining rates during the first seven years
of an annuity contract. Withdrawal payments, which include surrenders and lump-
sum annuity benefits, totaled $1.42 billion (including $200.2 million
attributable to the Acquisitions) in 1996, $1.31 billion in 1995 and $1.13
billion in 1994. These payments represent 11.1% (7.5% of average fixed annuity
reserves associated with the Acquisitions), 14.8% and 13.2%, respectively, of
average fixed and variable annuity reserves. Withdrawals include variable
annuity payments from the
18
<PAGE> 20
separate accounts totaling $637.0 million in 1996, $650.0 million in 1995 and
$461.5 million in 1994. Excluding the effects of the Acquisitions, withdrawal
payments as a percentage of related average fixed and variable annuity reserves
in 1996 were 12.1%, lower than 1995 and 1994 levels, reflecting decreased fixed
annuity withdrawal payments, slightly decreased variable annuity withdrawals and
increased average fixed and variable annuity reserves. This decrease in fixed
annuity withdrawals principally resulted from unusually high withdrawals in 1995
and in 1994 (mainly as a result of certain blocks of policies coming off
surrender charge restrictions and greater volumes of surrenders on a closed
block of business) and the success of the Company's retention efforts in 1996.
Variable annuity surrenders increased in 1995 primarily due to surrenders on a
closed block of business, policies coming off surrender charge restrictions and
increased competition in the marketplace. Management anticipates that withdrawal
rates will remain relatively stable for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $212.7 million in 1996,
compared with $166.5 million in 1995 and $132.7 million in 1994. General and
administrative expenses in 1996 reflect the impact of the Acquisitions,
including Advantage Capital Corporation, and include the expenses of Imperial
for the full year, compared with ten months of such expenses recorded in 1995.
In addition, 1996 and 1995 include expenses related to a national advertising
campaign to increase the Company's brand name awareness. General and
administrative expenses remain closely controlled through a company-wide cost
containment program and represent approximately 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $108.2 million in 1996,
$86.1 million in 1995 and $69.3 million in 1994. The increase in 1996 primarily
reflects the amortization of the deferred acquisitions costs attributable to the
Acquisitions, which aggregated $16.8 million. Amortization has also increased
during the three-year period due to additional fixed and variable annuity and
mutual fund sales and the subsequent amortization of related deferred
commissions and other acquisition costs.
INCOME TAX EXPENSE totaled $117.6 million in 1996, $85.4 million in 1995
and $74.7 million in 1994, representing effective tax rates of 30% in 1996 and
31% in both 1995 and 1994. These tax rates reflect the favorable impact of
affordable housing tax credits.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDERS' EQUITY increased by $447.5 million to $1.66 billion at
September 30, 1996 from $1.21 billion at September 30, 1995, primarily as a
result of the $274.4 million of net income recorded in 1996 and the issuance of
$248.0 million of the Company's Series E Preferred Stock. These favorable
factors were partially offset by $61.7 million of dividends paid to shareholders
and a $12.3 million increase in net unrealized losses on debt and equity
securities available for sale charged directly to shareholders' equity.
BOOK VALUE PER SHARE amounted to $11.69 at September 30, 1996, compared
with $8.89 at September 30, 1995 and $6.30 at September 30, 1994. Excluding net
unrealized losses on debt and equity securities available for sale, book value
per share amounted to $11.82 at September 30, 1996, $8.93 at September 30, 1995
and $7.53 at September 30, 1994.
TOTAL ASSETS increased by $6.89 billion to $23.73 billion from $16.84
billion at September 30, 1995, principally due to a $5.39 billion increase in
invested assets and a $1.12 billion increase in the separate accounts for
variable annuities.
INVESTED ASSETS at year end totaled $16.20 billion in 1996, compared with
$10.81 billion in 1995. This $5.39 billion increase primarily resulted from the
Acquisitions (with related invested assets aggregating $4.73 billion at the
dates of acquisition) and sales of GICs and fixed annuity contracts, partially
offset by a $26.5 million increase in net unrealized losses on debt and equity
securities available for sale.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed maturity assets for long-term
investment. Thus, it does not have a trading
19
<PAGE> 21
portfolio. Effective December 1, 1995, pursuant to guidelines issued by the
Financial Accounting Standards Board, the Company determined that all of its
portfolio of bonds, notes and redeemable preferred stocks (the "Bond Portfolio")
is available to be sold in response to changes in market interest rates, changes
in prepayment risk, the Company's need for liquidity and other similar factors.
Accordingly, the Company no longer classifies a portion of its Bond Portfolio as
held for investment.
THE BOND PORTFOLIO had an aggregate amortized cost that exceeded its fair
value by $75.6 million at September 30, 1996, compared with $12.6 million at
September 30, 1995 (including net unrealized losses of $31.1 million on the
portion of the portfolio that was designated as available for sale at September
30, 1995). The increase in net unrealized losses on the Bond Portfolio since
September 30, 1995 principally reflects the higher relative prevailing interest
rates at September 30, 1996 and their corresponding effect on the fair value of
the Bond Portfolio.
All of the Bond Portfolio ($12.55 billion at amortized cost, excluding
$108.4 million of redeemable preferred stocks) at September 30, 1996 was rated
by Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"),
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investor Service, Inc. ("Fitch")
or under comparable statutory rating guidelines established by the National
Association of Insurance Commissioners ("NAIC") and implemented by either the
NAIC or the Company. At September 30, 1996, approximately $11.31 billion of the
Bond Portfolio (at amortized cost) was rated investment grade by one or more of
these agencies or by the Company or the NAIC, pursuant to applicable NAIC
guidelines, including $5.53 billion of U.S. government/agency securities and
MBSs.
At September 30, 1996, the Bond Portfolio included $1.24 billion (fair
value, $1.27 billion) of bonds not rated investment grade by S&P, Moody's, D&P,
Fitch or the NAIC. Based on their September 30, 1996 amortized cost, these
non-investment-grade bonds accounted for 5.2% of the Company's total assets and
7.6% of its invested assets. In addition to its direct investment in
non-investment-grade bonds, the Company has entered into Total Return Agreements
with an aggregate notional principal amount of $306.8 million at September 30,
1996 (see "Asset-Liability Matching").
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company intends that the proportion of its portfolio invested in such securities
not exceed current levels, but its policies may change from time to time,
including in connection with any possible acquisition. The Company had no
material concentrations of non-investment-grade securities at September 30,
1996.
20
<PAGE> 22
The following table summarizes the Company's rated bonds by rating
classification as of September 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Issues rated by S&P/Moody's/D&P/Fitch Issues not rated by S&P/Moody's/ Total
- ---------------------------------------------- D&P/Fitch, by NAIC category --------------------------
S&P/(Moody's)/ ----------------------------------------- Percent of
[D&P]/GFitchH Amortized Estimated NAIC Amortized Estimated Amortized invested
category(1) cost fair value category(2) cost fair value cost assets(3)
- --------------- ----------- ----------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
GAAA to A-H $ 8,207,963 $ 8,103,596 1 $ 748,369 $ 746,563 $ 8,956,332 55.15%
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
GBBB+ to BBB-H 1,939,333 1,917,694 2 414,468 419,519 2,353,801 14.49
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
GBB+ to BB-H 248,840 251,914 3 123,317 125,535 372,157 2.29
B+ to B-
(B1 to B3)
[B+ to B-]
GB+ to B-H 604,286 634,341 4 149,944 145,743 754,230 4.64
CCC+ to C
(Caa to C)
[CCC]
GCCC+ to C-H 79,909 74,946 5 19,804 22,717 99,713 0.61
CI to D
[DD]
GDH -- -- 6 12,948 11,228 12,948 0.08
---------- ---------- ---------- ---------- ----------
Total rated
issues $11,080,331 $10,982,491 $1,468,850 $1,471,305 $12,549,181
========== ========== ========== ========== ==========
<CAPTION>
Issues rate
- ---------------
S&P/(Moody's)/
[D&P]/GFitchH Estimated
category(1) fair value
- --------------- -----------
<S> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
GAAA to A-H $ 8,850,159
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
GBBB+ to BBB-H 2,337,213
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
GBB+ to BB-H 377,449
B+ to B-
(B1 to B3)
[B+ to B-]
GB+ to B-H 780,084
CCC+ to C
(Caa to C)
[CCC]
GCCC+ to C-H 97,663
CI to D
[DD]
GDH 11,228
----------
Total rated
issues $12,453,796
==========
</TABLE>
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-) indicates
the debt's relative standing within the rating category. A security rated
BBB- or higher is considered investment grade. Moody's rates debt securities
in rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any real investment standing). The number 1, 2
or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative
standing within the rating category. A security rated Baa3 or higher is
considered investment grade. D&P rates debt securities in rating categories
ranging from AAA (the highest) to DD (in payment default). A plus (+) or
minus (-) indicates the debt's relative standing within the rating category.
A security rated BBB- or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moody's, D&P and Fitch ratings
if rated by multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P/Moody's/D&P/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. A
substantial portion of the assets in the NAIC categories were rated by the
Company pursuant to applicable NAIC rating guidelines.
(3) At amortized cost.
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $1.54 billion at September 30, 1996. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1996, Secured Loans consisted of loans to 331
borrowers spanning 40 industries, with 15% of these assets (at amortized cost)
concentrated in financial institutions, 15% concentrated in the leisure industry
and 12% concentrated in utilities. No other industry concentration constituted
more than 7% of these assets.
While the trading market for Secured Loans is more limited than for
publicly traded corporate debt issues, management believes that participation in
these transactions has enabled the Company to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment-grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. The Company's Secured Loans are rated by S&P, Moody's, D&P, Fitch or
by the Company or the NAIC, pursuant to comparable statutory ratings guidelines
established by the NAIC.
21
<PAGE> 23
MORTGAGE LOANS aggregated $1.65 billion at September 30, 1996 and consisted
of 648 first mortgage loans with an average loan balance of approximately $2.5
million, collateralized by properties located in 34 states. Approximately 44% of
the portfolio was multifamily residential, 20% was retail, 13% was manufactured
housing, 5% was industrial, 5% was office and 13% was other types. At September
30, 1996, approximately 24% of the portfolio was secured by properties located
in California, 10% by properties located in Texas and no more than 9% of the
portfolio was secured by properties located in any other single state. At
September 30, 1996, there were 32 loans with outstanding balances of $10 million
or more, which loans collectively aggregated approximately 28% of the portfolio.
At the time of their origination or purchase by the Company, virtually all
mortgage loans had loan-to-value ratios of 75% or less. At September 30, 1996,
approximately 17% of the mortgage loan portfolio consisted of loans with balloon
payments due before October 1, 1999. During 1996, 1995 and 1994, loans
delinquent more than 90 days, foreclosed loans and restructured loans have not
been significant in relation to the portfolio.
Approximately 29% of the mortgage loans in the portfolio at September 30,
1996 were seasoned loans underwritten to the Company's standards and purchased
at or near par from the Resolution Trust Corporation or other financial
institutions, many of which were downsizing their portfolios. Such loans
generally have higher average interest rates than loans that could be originated
today. The balance of the mortgage loan portfolio has been originated by the
Company under strict underwriting standards. Commercial mortgage loans on
properties such as offices, hotels and shopping centers generally represent a
higher level of risk than do mortgage loans secured by multifamily residences.
This greater risk is due to several factors, including the larger size of such
loans and the effects of general economic conditions on these commercial
properties. However, due to the seasoned nature of the Company's mortgage loans,
its emphasis on multifamily loans and its strict underwriting standards, the
Company believes that it has reduced the risk attributable to its mortgage loan
portfolio while maintaining attractive yields.
PARTNERSHIP investments totaled $1.07 billion at September 30, 1996,
constituting investments in approximately 450 separate partnerships with an
average size of approximately $2.4 million. This portfolio includes: (i) $498.5
million of partnerships managed by independent money managers that invest in a
broad selection of equity and fixed-income securities, currently including
approximately 440 separate issuers; (ii) $473.2 million of partnerships that
make tax-advantaged investments in affordable housing, currently involving
approximately 340 multifamily projects in 39 states; and (iii) $100.2 million of
partnerships that invest in mortgage loans and income-producing real estate. At
September 30, 1996, $427.0 million of the Company's partnerships was accounted
for by using the cost method and $644.9 million by using the equity method. The
risks generally associated with partnerships include those related to their
underlying investments (i.e. equity securities, debt securities and real
estate), plus a level of illiquidity, which is mitigated for the affordable
housing partnerships by the marketability of the tax credits they generate. The
Company believes that these risks are acceptable in light of anticipated
partnership returns and the contractual termination provisions contained in the
partnership agreements.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company does
not have a specific target rate of return. Instead, its rates of return vary
over time depending on the current interest rate environment, the slope of the
yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed-rate securities. The
Company's fixed-rate
22
<PAGE> 24
products incorporate surrender charges, two-tiered interest rate structures or
other limitations on when contracts can be surrendered for cash to encourage
persistency. Approximately 86% of the Company's fixed annuity and GIC reserves
had surrender penalties or other restrictions at September 30, 1996.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios. At September 30, 1996, the weighted
average life of the Company's investments was approximately 5.2 years and the
duration was approximately 3.3.
As a component of its investment strategy, the Company utilizes interest
rate swap agreements ("Swap Agreements") to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a counterparty
interest rate payments of differing character (for example, variable-rate
payments exchanged for fixed-rate payments) based on an underlying principal
balance (notional principal) to hedge against interest rate changes. The Company
typically utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities into fixed-rate instruments. At September
30, 1996, the Company had 23 outstanding Swap Agreements with an aggregate
notional principal amount of $1.12 billion. These agreements mature in various
years through 2002 and have an average remaining maturity of 39 months.
The Company also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos"), Dollar Rolls and by investing
in MBSs. It also seeks to enhance its spread income by using Reverse Repos,
Dollar Rolls and Total Return Agreements. Reverse Repos involve a sale of
securities and an agreement to repurchase the same securities at a later date at
an agreed upon price and are generally over-collateralized. Dollar Rolls are
similar to Reverse Repos except that the repurchase involves securities that are
only substantially the same as the securities sold and the arrangement is not
collateralized, nor is it governed by a repurchase agreement. Total Return
Agreements effectively exchange a fixed rate of interest on the notional amount
for the coupon income plus or minus the increase or decrease in the fair value
of specified non-investment-grade corporate bonds. MBSs are generally
investment-grade securities collateralized by large pools of mortgage loans.
MBSs generally pay principal and interest monthly. The amount of principal and
interest payments may fluctuate as a result of prepayments of the underlying
mortgage loans.
There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risks associated with Total Return Agreements are the
credit risk on the underlying non-investment-grade bonds, the risk of potential
loss due to bond market fluctuations and the risk associated with counterparty
nonperformance. The primary risk associated with the Company's Dollar Rolls,
Reverse Repos and Swap Agreements is counterparty risk. The Company believes,
however, that the counterparties to its Total Return Agreements, Dollar Rolls,
Reverse Repos and Swap Agreements are financially responsible and that the
counterparty risk associated with those transactions is minimal. Counterparty
risk associated with Dollar Rolls is further mitigated by the Company's
participation in an MBS trading clearinghouse. The sell and buy transactions
that are submitted to this clearinghouse are marked to market on a daily basis
and each participant is required to over-collateralize its net loss position by
30% with either cash, letters of credit or government securities. In addition to
counterparty risk, Swap Agreements also have interest rate risk. However, the
Company's Swap Agreements typically hedge variable-rate assets or liabilities,
and interest rate fluctuations that adversely affect the net cash received or
paid under the terms of a Swap Agreement would be offset by increased interest
income earned on the variable-rate assets or reduced interest expense paid on
the variable-rate liabilities. The primary risk associated with MBSs is that a
changing interest rate environment might cause prepayment of the underlying
obligations at speeds slower or faster than anticipated at the time of their
purchase.
23
<PAGE> 25
INVESTED ASSETS EVALUATION routinely includes a review by the Company of
its portfolio of debt securities. Management identifies monthly those
investments that require additional monitoring and carefully reviews the
carrying values of such investments at least quarterly to determine whether
specific investments should be placed on a nonaccrual basis and to determine
declines in value that may be other than temporary. In making these reviews for
bonds, management principally considers the adequacy of collateral (if any),
compliance with contractual covenants, the borrower's recent financial
performance, news reports and other externally generated information concerning
the creditor's affairs. In the case of publicly traded bonds, management also
considers market value quotations, if available. For mortgage loans, management
generally considers information concerning the mortgaged property and, among
other things, factors impacting the current and expected payment status of the
loan and, if available, the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value
that are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to
the payment of principal or interest, totaled $28.7 million at September 30,
1996 (at amortized cost, with a fair value of $25.8 million), including $16.7
million of bonds and notes and $12.0 million of mortgage loans. At September 30,
1996, defaulted investments constituted 0.2% of total invested assets. At
September 30, 1995, defaulted investments totaled $61.8 million, including $34.4
million of bonds and notes and $27.4 million of mortgage loans. At September 30,
1995, defaulted investments constituted 0.6% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1996, approximately $5.66 billion of the Company's Bond
Portfolio had an aggregate unrealized gain of $177.6 million, while
approximately $7.00 billion of the Bond Portfolio had an aggregate unrealized
loss of $253.2 million. In addition, $577.5 million remains available to the
Company to issue securities under a shelf registration statement filed in
October 1996, subsequent to the Company's fiscal year end (see Note 9 of Notes
to Consolidated Financial Statements). Further, the Company's investment
portfolio currently provides approximately $138.7 million of monthly cash flow
from scheduled principal and interest payments.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
On a parent company stand-alone basis, SunAmerica Inc. (the "Parent"), at
September 30, 1996, had invested assets with a fair value of $1.05 billion and
outstanding senior indebtedness of $573.3 million, comprising all of the
Company's outstanding senior indebtedness. Additionally, as of
24
<PAGE> 26
September 30, 1996, the Parent had three GICs purchased by local government
entities which aggregated $239.1 million.
During June and October 1995, respectively, the Parent purchased the common
securities of SunAmerica Capital Trust I and SunAmerica Capital Trust II (the
"Grantor Trusts") and issued an aggregate of $245.5 million of junior
subordinated debentures (the "Debentures") to the Grantor Trusts in connection
with the public issuance of preferred securities of the Grantor Trusts (see Note
8 of Notes to Consolidated Financial Statements).
The Parent's annual debt service with respect to its senior indebtedness,
GIC obligations and Debentures totals $98.7 million for fiscal 1997, $118.9
million for fiscal 1998, $227.3 million for fiscal 1999, $92.1 million for
fiscal 2000, $101.1 million for fiscal 2001 and $2.12 billion, in the aggregate,
thereafter.
The Parent received dividends from its regulated life insurance
subsidiaries of $94.3 million in fiscal 1996, $69.2 million in fiscal 1995 and
$43.0 million in fiscal 1994. The Parent also received dividends of $16.0
million in fiscal 1996 and $2.4 million in fiscal 1994 from its other directly
owned subsidiaries.
The Company has transferred to third-party investors certain of its
interests in various partnerships that make tax-advantaged affordable housing
investments. As part of these transactions, the Parent has agreed to advance
monies to support the operations of the underlying housing projects, if
required, and has guaranteed that the transferred partnerships will provide, as
of the transfer date and under then current tax laws, a specified level of
associated tax credits and deductions to the third-party investors. In fiscal
1996 the Company prospectively adopted the accounting provisions of EITF
Consensus No. 94-1 for affordable housing investments made after May 1995, the
date of the consensus. Accordingly, syndication compensation is recognized in
income upon transfer of the partnerships and the remaining income is deferred
and amortized over a 15-year period. Previously, a portion of the income was
deferred to absorb estimated payments under the guarantees with the remainder
recognized in income at the date of transfer. The adoption of the consensus did
not have a material effect on net income in fiscal 1996, nor is it expected to
materially affect future net income. Based on an evaluation of the underlying
housing projects, management does not anticipate any material cash payments with
respect to the guarantees.
The Parent has guaranteed that its life insurance subsidiaries will receive
the statutory carrying value of certain invested assets, primarily debt
obligations and real estate, aggregating $127.9 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements begin on page F-3.
Reference is made to the Index to Financial Statements on page F-1 herein.
Additional financial statement schedules are included on pages S-3 through
S-7 herein. Reference is made to the Index to Financial Statement Schedules on
page S-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The Notice of 1997 Annual Meeting of Shareholders and Proxy Statement,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, will be incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the information
required under Part III (Items 10, 11, 12 and 13), except for the information
regarding the executive officers of the Company, which is included in Part I on
page 10.
25
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference is made to the indexes set forth on pages F-1 and S-1 of this
report.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
2(a) Stock Purchase Agreement between the Company and The American Road Insurance
Company, dated as of November 10, 1995, whereby the Company acquired all of the
outstanding stock of Ford Life Insurance Company from The American Road Insurance
Company, a subsidiary of Ford Motor Company, is incorporated herein by reference
to Exhibit 10.1 of the Company's Form 8-K, dated and filed on December 12, 1995.
2(b) Share Exchange Agreement, dated January 12, 1996, among the Company, Stanford
Ranch, Inc., and the Stockholders of Stanford Ranch, Inc. named therein, whereby
the Company issued shares of its Common Stock in exchange for all of the
outstanding shares of common stock of Stanford Ranch, Inc., is incorporated herein
by reference to the Company's Notice of 1996 Annual Meeting and Proxy Statement,
filed January 15, 1996.
2(c) Asset Purchase and Sale Agreement between SunAmerica Life Insurance Company and
John Alden Life Insurance Company, dated as of November 29, 1996.
2(d) Stock Purchase Agreement between SunAmerica Life Insurance Company and John Alden
Financial Corporation, dated as of November 29, 1996, regarding all of the
outstanding stock of John Alden Life Insurance Company of New York.
3(a) Restated Charter, dated October 2, 1991, is incorporated herein by reference to
Exhibit 3(a) to the Company's Form 8 dated and filed October 4, 1991, amending the
Company's Annual Report on Form 10-K for the year ended September 30, 1990, filed
December 20, 1990.
3(b) Articles Supplementary, dated June 24, 1992, which define the rights of the holders
of the Company's 9 1/4% Preferred Stock, Series B, are incorporated herein by
reference to Exhibit 3(c) to the Company's 1992 Annual Report on Form 10-K, filed
November 30, 1992.
3(c) Amendment to the Company's Restated Articles of Incorporation, dated February 1,
1993, is incorporated herein by reference to Exhibit 1 to the Company's Form 8-K,
filed February 3, 1993.
3(d) Articles Supplementary, dated March 9, 1993, which define the rights of the holders
of the Company's Series D Mandatory Conversion Premium Dividend Preferred Stock,
are incorporated herein by reference to Exhibit 3(e) to the Company's Registration
Statement No. 33-66048 on Form S-4, filed July 22, 1993.
3(e) Articles Supplementary, dated August 31, 1993, which define the rights of the
holders of the Company's Adjustable Rate Cumulative Preferred Stock, Series C, are
incorporated herein by reference to Exhibit 3(f) to the Company's 1993 Annual
Report on Form 10-K, filed December 16, 1993.
3(f) Articles of Merger, dated July 30, 1993, between the Company and SunAmerica
Corporation, are incorporated herein by reference to Exhibit 3(g) to the Company's
1993 Annual Report on Form 10-K, filed December 16, 1993.
3(g) Articles Supplementary, dated January 27, 1995, which define the reacquisition of
the Company's Series A Mandatory Conversion Premium Dividend Preferred Stock, are
incorporated herein by reference to Exhibit 3(g) to the Company's 1995 Annual
Report on Form 10-K, filed November 29, 1995.
3(h) Articles Supplementary, dated October 30, 1995, which define the rights of the
holders of the Company's Series E Mandatory Conversion Premium Dividend Preferred
Stock, are incorporated herein by reference to Exhibit 3(h) to the Company's
Annual Report on Form 10-K, filed November 29, 1995.
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
3(i) Articles of Amendment, dated October 30, 1995, are incorporated herein by reference
to Exhibit 3(i) to the Company's Annual Report on Form 10-K, filed November 29,
1995.
3(j) Articles of Amendment, dated June 7, 1996.
3(k) Bylaws, as amended and restated on November 8, 1996.
4(a) Restated Charter, dated October 3, 1991. See Exhibit 3(a).
4(b) Bylaws, as amended and restated on November 8, 1996. See Exhibit 3(k).
4(c) Articles Supplementary, dated June 24, 1992. See Exhibit 3(b).
4(d) Articles Supplementary, dated March 9, 1993. See Exhibit 3(d).
4(e) Articles Supplementary, dated August 31, 1993. See Exhibit 3(e).
4(f) Form of Subordinated Indenture, dated as of October 28, 1996, between the Company
and The First National Bank of Chicago, as Trustee, is incorporated herein by
reference to Exhibit 4.3 to the Company's Registration Statement No. 333-14201 on
Form S-3, filed October 16, 1996.
4(g) Senior Indenture, dated as of April 15, 1993, between the Company and The First
National Bank of Chicago, as Trustee, defining the rights of the holders of the
Company's 8 1/8% Debentures due April 28, 2023 and certain other debt securities
of the Company, is incorporated herein by reference to Exhibit 4(h) to the
Company's 1993 Annual Report on Form 10-K, filed December 16, 1993.
4(h) Supplemental Indenture, dated as of June 28, 1993, supplementing the Senior
Indenture, dated as of April 15, 1993, is incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement No. 333-14201 on Form S-3,
filed October 16, 1996.
4(i) Supplemental Indenture, dated October 28, 1996, supplementing the Senior Indenture,
dated as of April 15, 1993, as amended by the Supplemental Indenture, dated as of
June 28, 1993, between the Company and The First National Bank of Chicago, as
Trustee, is incorporated herein by reference to Exhibit 4.7 to the Company's
Current Report on Form 8-K, filed November 6, 1996.
4(j) Junior Subordinated Indenture, dated as of March 15, 1995, as supplemented by the
First Supplemental Indenture, dated as of March 15, 1995, defining the rights of
the holders of the Company's 9.95% Junior Subordinated Debentures, Series A, due
2044, between the Company and The First National Bank of Chicago, is incorporated
herein by reference to Exhibit 4.3 to the Company's Registration Statement No.
33-62405 on Form S-3, filed September 6, 1995.
4(k) Form of Second Supplemental Indenture, dated October 11, 1995, to the Junior
Subordinated Indenture dated as of March 15, 1995, defining the rights of the
holders of the Company's 8.35% Junior Subordinated Debentures due 2044, between
the Company and The First National Bank of Chicago, as Trustee, is incorporated
herein by reference to Exhibit 4.12 to the Company's Registration Statement No.
33-64205 on Form S-3, filed September 6, 1995.
4(l) Supplemental Indenture, dated October 28, 1996, supplementing the Junior
Subordinated Indenture, dated as of March 15, 1995, between the Company and The
First National Bank of Chicago, as Trustee, is incorporated herein by reference to
Exhibit 4.8 to the Company's Current Report on Form 8-K, filed November 6, 1996.
4(m) Fourth Supplemental Indenture, dated November 13, 1996, to the Junior Subordinated
Indenture, dated as of March 15, 1995, defining the rights of the holders of the
Company's 8.30% Junior Subordinated Debentures due 2045, between the Company and
The First National Bank of Chicago, as Trustee, is incorporated herein by
reference to Exhibit 4.16 to the Company's Current Report on Form 8-K, filed
November 12, 1996.
4(n) Purchase Contract Agreement, dated November 6, 1996, between the Company and The
Bank of New York, as Purchase Contract Agent (including Form of Security
Certificate), is incorporated hereby by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K, filed November 6, 1996.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
4(o) Pledge Agreement, dated November 6, 1996, among the Company, The First National
Bank of Chicago, as Collateral Agent, and The Bank of New York, as Purchase
Contract Agent, is incorporated herein by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K, filed November 6, 1996.
4(p) Prepaid Securities Indenture, dated November 1, 1996, between the Company and The
Bank of New York, as Trustee, is incorporated herein by reference to Exhibit 4.5
to the Company's Current Report on Form 8-K, filed November 6, 1996.
4(q) Supplemental Indenture, dated November 6, 1996, to the Prepaid Securities Indenture
(including Form of Certificate for the Prepaid Securities), is incorporated herein
by reference to Exhibit 4.6 to the Company's Current Report on Form 8-K, filed
November 6, 1996.
4(r) Tri-Party Agreement, dated as of July 1, 1993, among The First National Bank of
Chicago, Bank of America, NT & SA and the Company, appointing The First National
Bank of Chicago as Successor Trustee to Bank of America NT & SA for the Company's
9% Notes due January 15, 1995 and 9.95% Debentures due February 1, 2012, is
incorporated herein by reference to Exhibit 4(i) to the Company's 1993 Annual
Report on Form 10-K, filed December 16, 1993.
4(s) Form of Amended and Restated Declaration of Trust of SunAmerica Capital Trust I,
dated as of June 6, 1995, among the Company and the Trustees of the Trust, is
incorporated herein by reference to Exhibit 4.5 to the Company's Registration
Statement Nos. 33-56961 and 33-56961-01 on Form S-4, filed April 12, 1995.
4(t) Form of Amended and Restated Declaration of Trust of SunAmerica Capital Trust II,
dated as of October 11, 1995, among the Company and the Trustees of the Trust, is
incorporated herein by reference to Exhibit 4.10 to the Company's Registration
Statement Nos. 33-62405 and 33-62405-01 on Form S-3, filed September 6, 1995.
4(u) Amended and Restated Declaration of Trust of SunAmerica Capital Trust III, dated as
of November 13, 1996, among the Company and Trustees of the Trust, is incorporated
herein by reference to Exhibit 4.13 to the Company's Current Report on Form 8-K,
filed November 12, 1996.
4(v) Form of Guarantee Agreement, dated June 6, 1995, between the Company and the Bank
of New York, as Trustee, relating to the Preferred Securities of SunAmerica
Capital Trust I, is incorporated herein by reference to Exhibit 4.8 to the
Company's Registration Statement Nos. 33-56961 and 33-56961-01 on Form S-4, filed
April 12, 1995.
4(w) Form of Guarantee Agreement, dated October 11, 1995, between the Company and The
Bank of New York, as Trustee, relating to the Preferred Securities of SunAmerica
Capital Trust II, is incorporated herein by reference to Exhibit 4.14 to the
Company's Registration Statement Nos. 33-62405 and 33-62405-01 on Form S-3, filed
September 6, 1995.
4(x) Form of Guarantee Agreement, dated November 13, 1996, between the Company and The
Bank of New York, as Trustee, relating to the Preferred Securities of SunAmerica
Capital Trust III, is incorporated herein by reference to Exhibit 4.19 of the
Company's Registration Statement Nos. 333-14201 and 333-14201-01 on Form S-3,
filed October 16, 1996.
10(a) Amended and Restated Employment Agreement, dated March 21, 1996, between the
Company and Gary W. Krat, amending the Employment Agreement, dated July 30, 1992,
is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q, for the quarter ended March 31, 1996, filed May 13, 1996.
10(b) Employment Agreement, dated July 14, 1992, between the Company and Michael L.
Fowler, is incorporated herein by reference to Exhibit 10(f) to the Company's 1992
Annual Report on Form 10-K, filed November 30, 1992.
10(c) Employment Agreement, dated April 17, 1995, between the Company and Joseph M.
Tumbler, is incorporated herein by reference to Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q, for the quarter ended June 30, 1995, filed August
14, 1995.
10(d) Employment Agreement, dated April 27, 1995, between the Company and Jay S. Wintrob,
is incorporated herein by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q, for the quarter ended June 30, 1995, filed August 14, 1995.
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
10(e) 1988 Employee Stock Plan is incorporated herein by reference to Exhibit B to the
Company's and Kaufman and Broad Home Corporation's Notice of and Joint Proxy
Statement for Special Meeting of Shareholders held on February 21, 1989, filed
January 24, 1989.
10(f) Amended and Restated 1978 Employee Stock Option Program, is incorporated herein by
reference to Appendix A to the Company's Notice of 1987 Annual Meeting of
Shareholder's and Proxy Statement, filed March 24, 1987.
10(g) Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit
10(1) to the Company's 1985 Annual Report on Form 10-K, filed February 27, 1986.
10(h) 1987 Restricted Stock Plan is incorporated herein by reference to Appendix A to the
Company's Notice of 1988 Annual Meeting of Shareholders and Proxy Statement, filed
March 22, 1988.
10(i) Executive Deferred Compensation Plan, dated as of October 1, 1989, is incorporated
herein by reference to Exhibit 10(h) to the Company's 1994 Annual Report on Form
10-K, filed December 1, 1994.
10(j) SunAmerica Supplemental Deferral Plan is incorporated herein by reference to
Exhibit 10(m) to the Company's 1989 Annual Report on Form 10-K, filed December 20,
1989.
10(k) Long-Term Performance-Based Incentive Plan is incorporated herein by reference to
Appendix A to the Company's Notice of 1994 Annual Meeting of Shareholders and
Proxy Statement, filed December 21, 1993.
10(l) Performance Incentive Compensation Plan is incorporated herein by reference to the
Company's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement, filed
December 1, 1994.
10(m) 1995 Performance Stock Plan is incorporated herein by reference to Appendix A to
the Company's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement,
filed December 1, 1994.
10(n) Registered Representatives' Deferred Compensation Plan is incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement No. 333-10523 on
Form S-3, filed August 20, 1996.
10(o) Deferred Compensation Agreement is incorporated herein by reference to Exhibit 4.2
of the Company's Registration No. 333-10523 on Form S-3, filed August 20, 1996.
10(p) Amendment to Performance Incentive Compensation Plan is incorporated herein by
reference to the Company's Notice of 1996 Annual Meeting of Shareholders and Proxy
Statement, filed January 15, 1996.
10(q) $250,000,000 Credit Agreement, dated as of October 27, 1996, among the Company and
SunAmerica Financial, Inc. as Borrowers and Citibank, N.A. as Agent for the banks
named therein, is incorporated herein by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q, for the quarter ended December 31, 1995, filed
February 13, 1996.
10(r) List of Executive Compensation Plans and Arrangements.
11 Statement re Computation of per-share earnings.
12(a) Statement re Computation of ratio of earnings to fixed charges.
12(b) Statement re Computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
21 Subsidiaries of the Company.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
29
<PAGE> 31
REPORTS ON FORM 8-K
On July 25, 1996, the Company filed a Current Report on Form 8-K announcing
its third quarter 1996 earnings and its financial position at June 30, 1996.
On November 6, 1996, the Company filed a Current Report on Form 8-K to file
exhibits in connection with the issuance of its Premium Equity Redemption
Cumulative Security Units and its 6.20% Notes due October 31, 1999 (Series I and
Series II) pursuant to the Company's Registration Statement on Form S-3 (File
No. 333-14201).
On November 12, 1996, the Company filed a Current Report on Form 8-K
announcing its fourth quarter 1996 earnings and its financial position at
September 30, 1996.
On November 12, 1996, the Company filed a Current Report on Form 8-K to
file exhibits in connection with the issuance by SunAmerica Capital Trust III
(the "Trust") of its 8.30% Trust Originated Preferred Securities pursuant to
Registration Nos. 333-14201 and 333-14201-01 filed by the Company and the Trust.
On November 14, 1996, the Company filed a Current Report on Form 8-K to
announce that it had signed an exclusive letter of intent regarding the
acquisition of John Alden Financial Corporation's annuity operations by
SunAmerica Life Insurance Company.
30
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUNAMERICA INC.
<TABLE>
<S> <C>
Date: December 10, 1996 By: SCOTT L. ROBINSON
-------------------------------- ------------------------------------
Scott L. Robinson
Senior Vice President and Controller
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
---------- ----- ----
<C> <S> <C>
ELI BROAD Chairman, President and Chief December 10, 1996
- ---------------------------------------- Executive Officer (Principal
Eli Broad Executive Officer)
JAMES R. BELARDI Executive Vice President December 10, 1996
- ---------------------------------------- (Principal Financial Officer)
James R. Belardi
SCOTT L. ROBINSON Senior Vice President and December 10, 1996
- ---------------------------------------- Controller (Principal
Scott L. Robinson Accounting Officer)
Director December , 1996
- ----------------------------------------
William F. Aldinger
RONALD J. ARNAULT Director December 10, 1996
- ----------------------------------------
Ronald J. Arnault
KAREN HASTIE-WILLIAMS Director December 10, 1996
- ----------------------------------------
Karen Hastie-Williams
DAVID O. MAXWELL Director December 10, 1996
- ----------------------------------------
David O. Maxwell
BARRY MUNITZ Director December 10, 1996
- ----------------------------------------
Barry Munitz
LESTER POLLACK Director December 10, 1996
- ----------------------------------------
Lester Pollack
CARL E. REICHARDT Director December 10, 1996
- ----------------------------------------
Carl E. Reichardt
RICHARD D. ROHR Director December 10, 1996
- ----------------------------------------
Richard D. Rohr
SANFORD C. SIGOLOFF Director December 10, 1996
- ----------------------------------------
Sanford C. Sigoloff
HAROLD M. WILLIAMS Director December 10, 1996
- ----------------------------------------
Harold M. Williams
</TABLE>
31
<PAGE> 33
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-----------------
<S> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet as of September 30, 1996 and 1995............ F-3
Consolidated Income Statement for the years ended September 30, 1996,
1995 and 1994......................................................... F-4
Consolidated Statement of Cash Flows for the years ended September 30,
1996, 1995 and 1994................................................... F-5 through F-6
Notes to Consolidated Financial Statements.............................. F-7 through F-27
</TABLE>
Separate financial statements of subsidiaries not consolidated and 50% or
less owned persons accounted for by the equity method have been omitted because
they do not individually constitute a significant subsidiary.
F-1
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of SunAmerica Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of SunAmerica Inc. and its
subsidiaries at September 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996, except as to
Note 13 which is as of
November 29, 1996
F-2
<PAGE> 35
SUNAMERICA INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments......................................... $ 529,363 $ 855,350
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost: 1996,
$12,657,620,000; 1995, $6,615,620,000)............................... 12,582,024 6,584,488
Held for investment, at amortized cost (fair value: 1995,
$736,835,000)........................................................ -- 718,283
Mortgage loans.......................................................... 1,652,257 1,543,285
Common stocks, at fair value (cost: 1996, $44,871,000; 1995,
$21,403,000)......................................................... 81,385 39,906
Partnerships............................................................ 1,071,857 774,417
Real estate............................................................. 105,321 105,637
Other invested assets................................................... 177,577 187,593
----------- -----------
Total investments....................................................... 16,199,784 10,808,959
Variable annuity assets................................................... 6,380,458 5,263,006
Accrued investment income................................................. 186,803 95,038
Deferred acquisition costs................................................ 782,300 526,415
Other assets.............................................................. 177,476 150,749
----------- -----------
TOTAL ASSETS.............................................................. $23,726,821 $16,844,167
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.................................... $ 9,654,674 $ 4,862,250
Reserves for guaranteed investment contracts............................ 4,169,028 3,607,192
Trust deposits.......................................................... 436,048 426,595
Payable to brokers for purchases of securities.......................... 42,518 473,728
Income taxes currently payable.......................................... 18,436 2,465
Other liabilities....................................................... 428,718 271,540
----------- -----------
Total reserves, payables and accrued liabilities........................ 14,749,422 9,643,770
----------- -----------
Variable annuity liabilities.............................................. 6,380,458 5,263,006
----------- -----------
Long-term notes and debentures............................................ 573,335 524,835
----------- -----------
Deferred income taxes..................................................... 125,417 146,847
----------- -----------
Company-obligated mandatorily redeemable preferred securities of
subsidiary grantor trusts whose sole assets are junior subordinated
debentures of the Company................................................ 237,631 52,631
----------- -----------
Shareholders' equity:
Preferred Stock......................................................... 384,549 321,642
Nontransferable Class B Stock........................................... 10,848 10,240
Common Stock............................................................ 108,604 44,175
Additional paid-in capital.............................................. 304,295 185,211
Retained earnings....................................................... 869,215 656,509
Net unrealized losses on debt and equity securities available for
sale................................................................... (16,953) (4,699)
----------- -----------
Total shareholders' equity.............................................. 1,660,558 1,213,078
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $23,726,821 $16,844,167
=========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 36
SUNAMERICA INC.
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands,
except per-share amounts)
<S> <C> <C> <C>
Investment income....................................... $1,254,288 $ 905,802 $ 758,150
--------- --------- ---------
Interest expense on:
Fixed annuity contracts............................... (410,269) (258,730) (254,464)
Guaranteed investment contracts....................... (252,027) (213,340) (150,424)
Trust deposits........................................ (9,968) (10,519) (8,516)
Senior indebtedness................................... (69,033) (55,985) (50,292)
--------- --------- ---------
Total interest expense................................ (741,297) (538,574) (463,696)
--------- --------- ---------
Dividends paid on preferred securities of grantor
trusts................................................ (20,235) (1,673) --
--------- --------- ---------
NET INVESTMENT INCOME................................... 492,756 365,555 294,454
--------- --------- ---------
NET REALIZED INVESTMENT LOSSES.......................... (30,314) (33,012) (21,124)
--------- --------- ---------
Fee income:
Variable annuity fees................................. 104,661 84,583 79,483
Net retained commissions.............................. 49,824 33,715 29,880
Asset management fees................................. 25,413 26,935 31,302
Loan servicing fees................................... 23,846 19,792 --
Trust fees............................................ 16,684 15,394 11,942
--------- --------- ---------
TOTAL FEE INCOME........................................ 220,428 180,419 152,607
--------- --------- ---------
Other income and expenses:
Surrender charges..................................... 22,086 11,885 10,716
General and administrative expenses................... (212,701) (166,540) (132,743)
Amortization of deferred acquisition costs............ (108,176) (86,107) (69,253)
Other, net............................................ 7,948 7,406 5,344
--------- --------- ---------
TOTAL OTHER INCOME AND EXPENSES......................... (290,843) (233,356) (185,936)
--------- --------- ---------
PRETAX INCOME........................................... 392,027 279,606 240,001
Income tax expense...................................... (117,600) (85,400) (74,700)
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES....................................... 274,427 194,206 165,301
Cumulative effect of change in accounting for
income taxes.......................................... -- -- (33,500)
--------- --------- ---------
NET INCOME.............................................. $ 274,427 $ 194,206 $ 131,801
========= ========= =========
EARNINGS PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES........................ $ 1.95 $ 1.42 $ 1.19
Cumulative effect of change in accounting for
income taxes....................................... -- -- (0.27)
--------- --------- ---------
NET INCOME............................................ $ 1.95 $ 1.42 $ 0.92
========= ========= =========
NET EARNINGS APPLICABLE TO COMMON STOCK (used in the
computation of earnings per share).................... $ 262,895 $ 179,223 $ 115,381
========= ========= =========
AVERAGE SHARES OUTSTANDING.............................. 134,587 126,228 124,830
========= ========= =========
</TABLE>
See accompanying notes
F-4
<PAGE> 37
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
------------ ----------- -----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 274,427 $ 194,206 $ 131,801
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to:
Fixed annuity contracts....................... 410,269 258,730 254,464
Guaranteed investment contracts............... 252,027 213,340 150,424
Trust deposits................................ 9,968 10,519 8,516
Net realized investment losses................... 30,314 33,012 21,124
Accretion of net discounts on investments........ (28,610) (33,756) (5,612)
Provision for deferred income taxes.............. (3,457) (5,834) 78,285
Cumulative effect of change in accounting for
income taxes.................................... -- -- 33,500
Change in:
Accrued investment income........................ (10,347) 10,648 209
Deferred acquisition costs....................... (50,495) (24,741) (20,357)
Other assets..................................... (18,958) (4,731) 365
Income taxes currently payable................... 19,052 52,433 (61,211)
Other liabilities................................ 38,275 25,523 (22,410)
Other, net......................................... 15,721 12,674 4,121
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 938,186 742,023 573,219
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks..... (11,476,827) (6,852,129) (6,739,406)
Mortgage loans................................... (320,748) (250,547) (333,384)
Partnerships..................................... (712,749) (410,299) (406,171)
Other investments, excluding short-term
investments..................................... (132,711) (92,516) (143,279)
Net assets of Imperial Premium Finance, Inc...... -- (442,804) --
Net assets of CalFarm Life Insurance Company..... (168,665) -- --
Net assets of Ford Life Insurance Company........ 6,677 -- --
Annuity contracts from The Central National Life
Insurance Company of Omaha.................... 224,778 -- --
Sales of:
Bonds, notes and redeemable preferred stocks..... 7,490,441 4,498,853 4,317,279
Partnerships..................................... 318,303 165,710 146,568
Other investments, excluding short-term
investments..................................... 63,556 71,442 92,183
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks..... 2,891,448 2,134,509 1,463,932
Mortgage loans................................... 199,564 107,102 157,304
Partnerships..................................... 183,014 104,734 230,106
Other investments, excluding short-term
investments..................................... 50,819 53,928 83,201
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES.............. (1,383,100) (912,017) (1,131,667)
---------- ---------- ----------
</TABLE>
F-5
<PAGE> 38
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends to shareholders......... $ (61,721) $ (50,268) $ (50,830)
Premium receipts on:
Fixed annuity contracts.......................... 993,376 944,742 230,037
Guaranteed investment contracts.................. 1,019,275 1,766,629 1,038,699
Net exchanges to (from) the fixed accounts of
variable annuity contracts........................ (260,635) 10,388 (30,929)
Receipts of trust deposits......................... 454,237 447,398 319,318
Withdrawal payments on:
Fixed annuity contracts.......................... (786,724) (690,292) (693,618)
Guaranteed investment contracts.................. (708,743) (1,156,299) (621,706)
Trust deposits................................... (454,718) (473,611) (264,500)
Claims and annuity payments on fixed annuity
contracts......................................... (232,361) (178,487) (176,136)
Net proceeds from issuances of long-term notes and
debentures........................................ 47,478 51,675 91,711
Net repayments of other senior indebtedness........ -- (28,662) (98,489)
Net repayments of other short-term financings...... (310,560) (187,251) (413,523)
Net proceeds from issuance of preferred securities
of a subsidiary grantor trust..................... 179,476 -- --
Net proceeds from issuance of Series E Preferred
Stock............................................. 240,547 -- --
---------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES... 118,927 455,962 (669,966)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS....................................... (325,987) 285,968 (1,228,414)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD............................................ 855,350 569,382 1,797,796
---------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD... $ 529,363 $ 855,350 $ 569,382
========== ========== ==========
Supplemental cash flow information:
Interest paid on indebtedness.................... $ 66,037 $ 54,899 $ 56,169
========== ========== ==========
Income taxes paid, net of refunds received....... $ 102,005 $ 38,801 $ 57,626
========== ========== ==========
Non-cash financing activity:
Exchange of 2,105,235 shares of 9 1/4% Series B
Preferred Stock for preferred securities of a
subsidiary grantor trust........................ $ -- $ 52,631 $ --
========== ========== ==========
</TABLE>
See accompanying notes
F-6
<PAGE> 39
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
SunAmerica Inc. (the "Company") conducts its business through five
segments: annuity operations, asset management, retirement trust services,
broker-dealer operations and premium financing. Annuity operations, which
include the sale and administration of fixed and variable annuities and
guaranteed investment contracts, are conducted through the Company's six life
insurance subsidiaries: SunAmerica Life Insurance Company, Anchor National Life
Insurance Company, Ford Life Insurance Company ("Ford Life"), CalFarm Life
Insurance Company ("CalFarm"), First SunAmerica Life Insurance Company and
SunAmerica National Life Insurance Company. Asset management, which includes the
sale and management of mutual funds, is conducted by SunAmerica Asset Management
Corp. Retirement trust services are provided by Resources Trust Company and
include custodial and administrative services for self-directed retirement
plans. Broker-dealer operations include the sale of securities and financial
services products, and are conducted by the Company's three broker-dealer
subsidiaries: Royal Alliance Associates, Inc., SunAmerica Securities, Inc. and
Advantage Capital Corporation. Premium financing is provided by Imperial Premium
Finance, Inc. and involves the origination and servicing of short-term premium
finance loans.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The level of
sales of the Company's financial products is influenced by many factors,
including general market rates of interest, strength, weakness and volatility of
equity markets, and terms and conditions of competing financial products. The
Company is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets managed in mutual funds
and held in separate accounts.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts of the Company and all of its wholly owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain 1995 and 1994 amounts have been
reclassified to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
On August 30, 1996, the Company paid a two-for-one stock split and on
November 10, 1995, the Company paid a three-for-two stock split (the "Stock
Splits"). The Stock Splits were effected in the form of stock dividends on the
Company's Common Stock and Nontransferable Class B Stock. The par value of the
shares paid in connection with the Stock Splits was charged to Additional
Paid-In Capital in the balance sheet. Per-share amounts, shares outstanding,
average shares outstanding, stock option plan data and related prices have been
restated, for all periods presented, to reflect the Stock Splits.
RECENTLY ISSUED ACCOUNTING STANDARDS. In October 1995, the Financial
Accounting Standards Board released Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-
F-7
<PAGE> 40
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Based Compensation" ("FAS 123"). The Company expects to continue to apply
Accounting Principles Board Opinion No. 25 for measurement of stock compensation
and will provide the disclosure required by FAS 123 beginning in fiscal 1997.
The adoption of FAS 123 is not expected to have a material effect on the
Company's operating results.
In fiscal 1996, the Company prospectively adopted the provisions of
Emerging Issues Task Force Consensus No. 94-1, "Accounting for Tax Benefits
Resulting from Investments in Affordable Housing Projects" ("EITF 94-1"), for
purchase and sale transactions made after May 1995, the date of the consensus.
The adoption of the consensus did not have a material effect on net income for
1996, nor is it expected to materially affect future operating results.
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Accordingly, the cumulative effect of this change in accounting for income taxes
was recorded on October 1, 1993 to increase the liability for Deferred Income
Taxes by $33,500,000.
INVESTMENTS. Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such investments are carried at cost plus accrued
interest, which approximates fair value, have maturities of three months or less
and are considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholders' equity.
Bonds, notes and redeemable preferred stocks held for investment (the "Held for
Investment Portfolio") are carried at amortized cost. On December 1, 1995, the
Company reassessed the appropriateness of classifying a portion of its portfolio
of bonds, notes and redeemable preferred stocks as held for investment. This
reassessment was made pursuant to the provisions of "Special Report: A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," issued by the Financial Accounting Standards Board in
November 1995. As a result of its reassessment, the Company reclassified all of
its Held for Investment Portfolio as available for sale. At December 1, 1995,
the amortized cost of the Held for Investment Portfolio aggregated $701,512,000
and its fair value was $723,423,000. Upon reclassification, the resulting net
unrealized gain of $21,911,000 was credited to Net Unrealized Losses on Debt and
Equity Securities Available for Sale in the shareholders' equity section of the
balance sheet.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at the lower of cost or fair value.
Partnerships are accounted for by using the equity method if the Company
exercises significant influence over their operating affairs; otherwise, the
cost method is used. For partnerships that invest in tax-advantaged affordable
housing units, interest is capitalized during construction. The Company invests
in such partnerships principally with the intent to syndicate them to
third-party investors once construction of the underlying projects is completed.
With the adoption of EITF 94-1 in 1996, investments in such partnerships are
accounted for by using the equity method and sales of such partnerships are
accounted for as sales of real estate. Because the Company provides certain
operating and yield guarantees to the buyers, the gain realized upon sale is
deferred, after recognition of syndication compensation, and amortized over a
15-year period. Previously, gains, net of amounts
F-8
<PAGE> 41
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred to cover estimated obligations under the guarantees, were recognized
upon sale. Syndication compensation, imputed interest and amortization of
deferred gains are included in Investment Income in the income statement.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS. The net differential to be paid or received
on interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Investment Income or Interest
Expense in the income statement. All outstanding Swap Agreements are designated
as hedges, and, therefore, are not marked to market.
TOTAL RETURN CORPORATE BOND SWAP AGREEMENTS. Total return corporate bond
swap agreements ("Total Return Agreements") have been entered into for
investment purposes, and, accordingly, are marked to market with the related
gain or loss classified as Investment Income in the income statement.
DEFERRED ACQUISITION COSTS. Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in relation
to the present value of estimated gross profits, which are composed of net
interest income, net realized investment gains and losses, variable annuity
fees, surrender charges and direct administrative expenses. Costs incurred to
sell mutual funds are also deferred and amortized over the estimated lives of
the funds obtained. Deferred acquisition costs consist of commissions and other
costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to the
change in amortization that would have been recorded if such securities had been
sold at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized losses on debt and equity securities available for sale that
is credited or charged directly to shareholders' equity. Deferred Acquisition
Costs have been increased by $13,000,000 at September 30, 1996 and $5,400,000 at
September 30, 1995 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES. The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated in
separate accounts. The Company receives administrative fees for managing the
funds and other fees for assuming mortality and certain expense risks. Such fees
are included in Variable Annuity Fees in the income statement.
GOODWILL. Goodwill, amounting to $53,462,000 at September 30, 1996, is
amortized by using the straight-line method over periods ranging from 25 to 40
years and is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES. Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received, plus
accrued interest, less withdrawals and assessed fees).
F-9
<PAGE> 42
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEE INCOME. Variable annuity fees, asset management fees and trust fees
are recorded in income as earned. Net retained commissions are recognized as
income on a trade date basis. Loan servicing fees are recognized as income
ratably over the life of the serviced loans and include the difference between
the loan yield and the rate earned by the purchasers of the loans.
EARNINGS PER SHARE. The calculation of earnings per share is made by
dividing applicable earnings by the weighted average number of shares of Common
Stock and Nontransferable Class B Stock (collectively referred to as "Common
Stock") outstanding during each period, adjusted for the incremental shares
attributed to common stock equivalents. Common stock equivalents include
outstanding employee stock options and convertible preferred stock, which
includes the Series A, D and E Depositary Shares issued in October 1991, March
1993 and November 1995, respectively. Common stock equivalents are included in
the computation only if their effect is dilutive. Net Earnings Applicable to
Common Stock are reduced by preferred stock dividend requirements, which
amounted to $11,532,000 in 1996, $14,983,000 in 1995 and $16,420,000 in 1994.
These preferred stock dividend requirements do not include dividends paid on the
convertible issues, which amounted to $15,528,000 in 1996, $13,907,000 in 1995
and $21,140,000 in 1994.
F-10
<PAGE> 43
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS
On December 29, 1995, the Company completed the acquisition of all of the
outstanding stock of CalFarm Life for a cash purchase price of $120,000,000. The
Company acquired assets having an aggregate fair value of $737,028,000, composed
primarily of invested assets totaling $722,461,000. Liabilities assumed in this
acquisition totaled $650,186,000, including $645,814,000 of fixed annuity
reserves. An amount equal to the excess of the purchase price over the fair
value of the net assets acquired, amounting to $29,828,000 at September 30,
1996, is included in Deferred Acquisition Costs in the balance sheet, and is
being amortized, with interest, over the estimated lives of the assumed annuity
contracts in proportion to the present value of estimated future profits.
On February 29, 1996, the Company completed the acquisition of all of the
outstanding stock of Ford Life for a cash purchase price of $172,500,000. The
Company acquired assets having an aggregate fair value of $3,146,072,000,
composed primarily of invested assets totaling $3,097,152,000. Liabilities
assumed in this acquisition totaled $3,098,396,000, including $3,059,255,000 of
fixed annuity reserves. An amount equal to the excess of the purchase price over
the fair value of the net assets acquired, amounting to $115,654,000 at
September 30, 1996, is included in Deferred Acquisition Costs in the balance
sheet, and is being amortized, with interest, over the estimated lives of the
assumed annuity contracts in proportion to the present value of estimated future
profits.
On April 1, 1996, the Company completed the acquisition of a $958,962,000
block of annuity contracts (the "Central National Annuity Contracts") from The
Central National Life Insurance Company of Omaha, a subsidiary of Beneficial
Corp. As part of this acquisition, the Company acquired assets having an
aggregate fair value of $919,154,000, composed primarily of invested assets
totaling $908,755,000. An amount equal to the excess of the fair value of the
annuity reserves assumed over the fair value of the assets acquired, amounting
to $35,797,000 at September 30, 1996, is included in Deferred Acquisition Costs
in the balance sheet, and is being amortized, with interest, over the estimated
lives of the assumed annuity contracts in proportion to the present value of
estimated future profits.
These acquisitions have been accounted for by using the purchase method of
accounting. Accordingly, the income statement includes the results of CalFarm's
operations for only the period from January 1, 1996 through September 30, 1996;
Ford Life's operations for only the period from March 1, 1996 through September
30, 1996; and the operations associated with the Central National Annuity
Contracts for only the period from April 1, 1996 through September 30, 1996. On
a pro forma (unaudited) basis, assuming these acquisitions occurred on October
1, 1993, the beginning of the earliest period presented, revenues (investment
income, net realized investment losses and fee income) would have been
$1,577,225,000, $1,335,287,000 and $1,113,013,000, and income before cumulative
effect of change in accounting for income taxes would have been $285,391,000
($2.03 per share), $210,876,000 ($1.55 per share) and $192,008,000 ($1.41 per
share) for the years ended September 30, 1996, 1995 and 1994, respectively. Pro
forma revenues and operating results for the year ended September 30, 1995
include $23,279,000 of net realized investment losses incurred by Ford Life.
The excess purchase price attributable to each of the above acquisitions is
substantially less than a computation of the present value of estimated future
profits discounted at the applicable current average crediting rate.
F-11
<PAGE> 44
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale and held for investment by major category
follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
----------- -----------
(In thousands)
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States Government..................... $ 1,067,498 $ 1,046,134
Mortgage-backed securities..................................... 4,519,643 4,458,171
Securities of public utilities................................. 216,619 211,578
Corporate bonds and notes...................................... 5,540,279 5,536,192
Redeemable preferred stocks.................................... 108,438 128,228
Other debt securities.......................................... 1,205,143 1,201,721
----------- -----------
Total available for sale....................................... $12,657,620 $12,582,024
=========== ===========
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government..................... $ 665,412 $ 670,174
Mortgage-backed securities..................................... 3,905,100 3,858,037
Securities of public utilities................................. 12,615 13,038
Corporate bonds and notes...................................... 1,688,254 1,682,289
Redeemable preferred stocks.................................... 34,084 45,744
Other debt securities.......................................... 310,155 315,206
----------- -----------
Total available for sale....................................... $ 6,615,620 $ 6,584,488
=========== ===========
HELD FOR INVESTMENT:
Securities of the United States Government..................... $ 83,423 $ 84,356
Mortgage-backed securities..................................... 182,404 184,076
Securities of public utilities................................. 9,492 9,593
Corporate bonds and notes...................................... 403,362 419,208
Other debt securities.......................................... 39,602 39,602
----------- -----------
Total held for investment...................................... $ 718,283 $ 736,835
=========== ===========
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1996, follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
----------- -----------
<S> <C> <C>
(In thousands)
AVAILABLE FOR SALE:
Due in one year or less........................................... $ 266,227 $ 267,294
Due after one year through five years............................. 3,338,442 3,309,392
Due after five years through ten years............................ 2,674,729 2,677,578
Due after ten years............................................... 1,858,579 1,869,589
Mortgage-backed securities........................................ 4,519,643 4,458,171
---------- ----------
Total available for sale.......................................... $12,657,620 $12,582,024
========== ==========
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
F-12
<PAGE> 45
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale and held for investment by major category follow:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
gains losses
-------- ---------
(In thousands)
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States Government.......................... $ 542 $ (21,906)
Mortgage-backed securities.......................................... 46,677 (108,149)
Securities of public utilities...................................... 176 (5,217)
Corporate bonds and notes........................................... 96,238 (100,325)
Redeemable preferred stocks......................................... 27,455 (7,665)
Other debt securities............................................... 6,530 (9,952)
---------- ----------
Total available for sale............................................ $177,618 $(253,214)
========== ==========
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government.......................... $ 6,010 $ (1,248)
Mortgage-backed securities.......................................... 62,076 (109,139)
Securities of public utilities...................................... 446 (23)
Corporate bonds and notes........................................... 36,100 (42,065)
Redeemable preferred stocks......................................... 11,731 (71)
Other debt securities............................................... 5,170 (119)
---------- ----------
Total available for sale............................................ $121,533 $(152,665)
========== ==========
HELD FOR INVESTMENT:
Securities of the United States Government.......................... $ 981 $ (48)
Mortgage-backed securities.......................................... 2,567 (895)
Securities of public utilities...................................... 101 --
Corporate bonds and notes........................................... 17,342 (1,496)
---------- ----------
Total held for investment........................................... $ 20,991 $ (2,439)
========== ==========
</TABLE>
At September 30, 1996, gross unrealized gains on equity securities
aggregated $39,194,000 and gross unrealized losses aggregated $2,680,000. At
September 30, 1995, gross unrealized gains on equity securities aggregated
$24,896,000 and gross unrealized losses aggregated $6,393,000.
During 1994, the Company sold the remaining warrants to purchase 2,377,000
shares of the special common stock of Kaufman and Broad Home Corporation (the
"KBH Warrants") for net sales proceeds of $28,618,000, and recorded a gain of
$17,830,000, net of a provision for income taxes of $9,600,000. In accordance
with the method used to account for the 1989 distribution of substantially all
of the common stock of Kaufman and Broad Home Corporation then owned by the
Company to holders of the Company's Common Stock, the Company credited the net
gain directly to Retained Earnings. Therefore, there was no impact on net income
as a result of the sale.
F-13
<PAGE> 46
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVESTMENTS (CONTINUED)
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:
Available for sale:
Realized gains............................................. $ 81,323 $ 61,104 $ 44,124
Realized losses............................................ (93,261) (83,308) (69,320)
Held for investment:
Realized gains............................................. -- 9,262 10,572
Realized losses............................................ -- (2,626) (10,008)
EQUITIES:
Realized gains............................................... 8,765 25,863 23,120
Realized losses.............................................. (5,365) (4,985) (496)
OTHER INVESTMENTS:
Realized gains............................................... 13,234 6,453 41,722
Realized losses.............................................. (72) (2,028) (4,950)
IMPAIRMENT WRITEDOWNS........................................ (34,938) (42,747) (55,888)
--------- --------- ---------
Total net realized investment losses......................... $(30,314) $(33,012) $(21,124)
========= ========= =========
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------
1996 1995 1994
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Short-term investments...................................... $ 66,378 $ 43,485 $ 30,900
Bonds, notes and redeemable preferred stocks................ 819,812 555,260 518,215
Mortgage loans.............................................. 149,476 146,311 132,297
Equity-method partnerships.................................. 119,474 27,148 37,205
Cost-method partnerships.................................... 59,094 106,927 26,451
Other invested assets....................................... 40,054 26,671 13,082
---------- -------- --------
Total investment income..................................... $1,254,288 $905,802 $758,150
========== ======== ========
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$21,475,000 for the year ended September 30, 1996, $19,077,000 for the year
ended September 30, 1995 and $16,751,000 for the year ended September 30, 1994
and are included in General and Administrative Expenses in the income statement.
Investments in unconsolidated partnerships accounted for by using the
equity method of accounting totaled $644,862,000 at September 30, 1996. At that
date, total combined assets of these partnerships were $1,008,617,000
(consisting entirely of investments) and total combined liabilities were
$458,485,000 (including $415,007,000 of nonrecourse notes payable to banks). For
the year then ended, total combined revenues and expenses of such partnerships
were $222,831,000 and $108,207,000, respectively, resulting in $114,624,000 of
total combined pretax income.
Investments in unconsolidated partnerships accounted for by using the
equity method of accounting totaled $256,323,000 at September 30, 1995. At that
date, total combined assets of these
F-14
<PAGE> 47
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVESTMENTS (CONTINUED)
partnerships were $447,441,000 (including $445,131,000 of investments) and total
combined liabilities were $188,018,000 (including $149,032,000 of nonrecourse
notes payable to banks). For the year then ended, total combined revenues and
expenses of such partnerships were $97,507,000 and $69,174,000, respectively,
resulting in $28,333,000 of total combined pretax income.
At September 30, 1996, no investment exceeded 10% of the Company's
consolidated shareholders' equity.
At September 30, 1996, mortgage loans were collateralized by properties
located in 34 states, with loans totaling approximately 24% of the aggregate
carrying value of the portfolio secured by properties located in California.
At September 30, 1996, bonds, notes and redeemable preferred stocks
included $1,239,048,000 (fair value of $1,266,424,000) of bonds and notes not
rated investment grade by either Standard & Poor's Corporation, Moody's
Investors Service, Duff & Phelps Credit Rating Co., Fitch Investor Service, Inc.
or under National Association of Insurance Commissioners' guidelines. The
Company had no material concentrations of non-investment-grade assets at
September 30, 1996.
At September 30, 1996, the amortized cost of investments in default as to
the payment of principal or interest was $28,717,000, consisting of $16,700,000
of non-investment-grade bonds and $12,017,000 of mortgage loans. Such
nonperforming investments had an estimated fair value of $25,752,000.
The Company has entered into various Swap Agreements with major brokerage
firms and money center banks principally to reduce the impact of changes in
interest rates on certain floating-rate assets and liabilities. At September 30,
1996, the Company had 23 outstanding Swap Agreements with an aggregate notional
principal amount of $1,124,123,000. The Swap Agreements are typically used by
the Company to effectively convert certain variable-rate assets and liabilities
into fixed-rate instruments. These Swap Agreements mature in various years
through 2002 and have an average remaining maturity of approximately 39 months.
The excess of amounts received over amounts paid out is included in Investment
Income in the income statement and totaled $5,212,000, $8,017,000 and
$34,337,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
The Company is exposed to potential credit loss in the event of nonperformance
by the investment-grade-rated counterparties only with respect to the net
differential payments. However, nonperformance is not anticipated and,
therefore, no collateral is held or pledged.
For investment purposes, the Company also has entered into various Total
Return Agreements with an aggregate notional principal amount of $306,806,000
(the "Notional Amount") at September 30, 1996. The Total Return Agreements
effectively exchange a fixed rate of interest (the "Payment Amount") on the
Notional Amount for the coupon income plus or minus the increase or decrease in
the fair value (the "Total Return") of specified non-investment-grade corporate
bonds (the "Bonds"). The Total Return Agreements mature in November 1996;
however, the Company intends to enter into other similar agreements. The Company
is exposed to potential loss, due to credit risk on the underlying non-
investment-grade bonds and bond market fluctuations, equal to the Payment Amount
plus any reduction in the aggregate fair value of the Bonds below the Notional
Amount. The Company is also exposed to potential credit loss in the event of
nonperformance by the investment-grade-rated counterparty with respect to any
increase in the aggregate market value of the Bonds above the Notional Amount.
However, nonperformance is not anticipated and, therefore, no collateral is held
or pledged. The excess of amounts received over amounts paid out is included in
Investment Income in the income statement and totaled $32,490,000, $13,044,000
and $1,306,000 for the years ended September 30, 1996, 1995 and 1994,
respectively.
F-15
<PAGE> 48
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its other invested assets, equity
investments, partnerships and real estate investments) and liabilities or the
value of anticipated future business. The Company does not plan to sell most of
its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Selling expenses and potential taxes
are not included. The estimated fair value amounts were determined using
available market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other independent
information. Fair values include the market value, determined from independent
broker quotes, of Swap Agreements that hedge certain variable-rate bonds and
notes.
MORTGAGE LOANS: Fair values are primarily determined by discounting future
cash flows to the present at current market rates, using expected prepayment
rates. Fair values include the market value, determined from independent broker
quotes, of Swap Agreements that hedge certain variable-rate mortgage loans.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and
single premium life contracts are assigned a fair value equal to current net
surrender value, which includes the estimated fair value of hedging Swap
Agreements, determined from independent broker quotes. Annuitized contracts are
valued based on the present value of future cash flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of hedging Swap Agreements, determined from independent
broker quotes.
TRUST DEPOSITS: Trust deposits are carried at the fair value of deposits
payable upon demand.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent
net transactions of a short-term nature for which the carrying value is
considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
F-16
<PAGE> 49
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM NOTES AND DEBENTURES: Fair value is estimated based on the
quoted market prices for the same or similar issues and is net of the estimated
fair value of a hedging Swap Agreement, determined from independent broker
quote.
The estimated fair values of the Company's financial instruments at
September 30, 1996 and 1995, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
Carrying Fair
value value
----------- -----------
(In thousands)
<S> <C> <C>
1996:
ASSETS:
Cash and short-term investments................................. $ 529,363 $ 529,363
Bonds, notes and redeemable preferred stocks.................... 12,582,024 12,582,024
Mortgage loans.................................................. 1,652,257 1,696,080
Variable annuity assets......................................... 6,380,458 6,380,458
LIABILITIES:
Reserves for fixed annuity contracts............................ 9,654,674 9,233,359
Reserves for guaranteed investment contracts.................... 4,169,028 4,119,407
Trust deposits.................................................. 436,048 436,048
Payable to brokers for purchases of securities.................. 42,518 42,518
Variable annuity liabilities.................................... 6,380,458 6,183,055
Long-term notes and debentures.................................. 573,335 588,705
=========== ===========
1995:
ASSETS:
Cash and short-term investments................................. $ 855,350 $ 855,350
Bonds, notes and redeemable preferred stocks.................... 7,302,771 7,321,323
Mortgage loans.................................................. 1,543,285 1,600,906
Variable annuity assets......................................... 5,263,006 5,263,006
LIABILITIES:
Reserves for fixed annuity contracts............................ 4,862,250 4,758,096
Reserves for guaranteed investment contracts.................... 3,607,192 3,574,445
Trust deposits.................................................. 426,595 426,595
Payable to brokers for purchases of securities.................. 473,728 473,728
Variable annuity liabilities.................................... 5,263,006 5,108,997
Long-term notes and debentures.................................. 524,835 553,429
=========== ===========
</TABLE>
F-17
<PAGE> 50
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INDEBTEDNESS
Indebtedness consists of the following long-term notes and debentures
(interest rates are as of September 30):
<TABLE>
<CAPTION>
September 30,
-------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Medium-term notes due 1998 through 2026 (5 3/8% to 7 3/8%)... $248,335 $199,835
8 1/8% debentures due April 28, 2023......................... 100,000 100,000
9.95% debentures due February 1, 2012........................ 100,000 100,000
9% notes due January 15, 1999................................ 125,000 125,000
-------- --------
Total indebtedness........................................... $573,335 $524,835
======== ========
</TABLE>
On November 6, 1996, subsequent to the Company's fiscal year end, the
Company issued $431,250,000 of 6.20% notes due October 31, 1999.
Short-term borrowings, which include short-term bank notes, reverse
repurchase agreements and borrowings under a commercial paper program, averaged
$475,619,000 at a weighted average interest rate of 4 1/2% during 1996 and
$291,320,000 at a weighted average interest rate of 5 1/2% during 1995. The
highest level of short-term borrowings at any month-end was $747,961,000 at
4 3/4% during 1996 and $533,810,000 at 4 7/8% during 1995. There were no
short-term borrowings outstanding at September 30, 1996.
Principal payments on long-term borrowings, including the 6.20% notes, are
due as follows: 1998, $20,000,000; 1999, $142,775,000; 2000, $445,250,000; 2001,
$24,000,000; and thereafter, $372,560,000.
NOTE 7 -- CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
In 1989 and 1996, the Company sold, through three separate 100% coinsurance
transactions, the general agency division of SunAmerica Life Insurance Company,
the credit life business of Ford Life and the mortality-based business of
CalFarm. With respect to these coinsurance transactions, SunAmerica Life
Insurance Company, Ford Life and CalFarm could become liable for in-force
amounts ceded of $1,148,975,000, $3,694,527,000 and $2,560,489,000,
respectively, at September 30, 1996, if the coinsurers were to become unable to
meet the obligations assumed under the respective coinsurance agreements. At
September 30, 1996, related policyholder reserves carried by the coinsurers were
$65,129,000, $60,325,000 and $98,692,000, respectively. As part of the 1989
SunAmerica Life Insurance Company coinsurance transaction, assets substantially
equal to the policyholder reserves assumed by the coinsurer are held in trust to
secure the obligations of the coinsurer.
The Company has transferred to third-party investors certain of its
interests in various partnerships that make tax-advantaged affordable housing
investments. As part of these transactions, the Company has agreed to advance
monies to support the operations of the underlying housing projects, if
required, and has guaranteed that the transferred partnerships will provide, as
of the transfer date and under then current tax laws, a specified level of
associated tax credits and deductions to the third-party investors. Based on an
evaluation of the underlying housing projects, management does not anticipate
any material cash payments with respect to the guarantees.
F-18
<PAGE> 51
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMPANY-OBLIGATED PREFERRED SECURITIES OF GRANTOR TRUSTS
Preferred securities of subsidiary grantor trusts comprise $52,630,875
liquidation amount of 9.95% Trust Originated Preferred Securities, issued by
SunAmerica Capital Trust I on June 13, 1995 pursuant to an exchange offer, and
$185,000,000 liquidation amount of 8.35% Trust Originated Preferred Securities,
issued by SunAmerica Capital Trust II on October 11, 1995.
In connection with the exchange of the 9.95% Trust Originated Preferred
Securities for 2,105,235 shares of the Company's 9 1/4% Series B Preferred Stock
(also having a liquidation preference of $52,630,875) and the related purchase
by the Company of the grantor trust's common securities, the Company issued to
the grantor trust $54,258,650 principal amount of 9.95% junior subordinated
debentures, due 2044, which are redeemable at the option of the Company on or
after June 15, 1997 at a redemption price of $25 per debenture plus accrued and
unpaid interest.
In connection with the issuance of the 8.35% Trust Originated Preferred
Securities and the related purchase by the Company of the grantor trust's common
securities, the Company issued to the grantor trust $191,224,250 principal
amount of 8.35% junior subordinated debentures, due 2044, which are redeemable
at the option of the Company on or after September 30, 2000 at a redemption
price of $25 per debenture plus accrued and unpaid interest.
In November 1996, subsequent to the Company's fiscal year end, SunAmerica
Capital Trust III, a grantor trust and a consolidated wholly owned subsidiary of
the Company, issued $310,000,000 liquidation amount of its 8.30% Trust
Originated Preferred Securities in a public offering. In connection with the
issuance of the preferred securities and the related purchase by the Company of
the grantor trust's common securities, the Company issued to the grantor trust
$320,670,000 principal amount of 8.30% junior subordinated debentures, due 2045,
which are redeemable at the option of the Company on or after November 13, 2001
at a redemption price of $25 per debenture plus accrued and unpaid interest.
The interest and other payment dates on the debentures correspond to the
distribution and other payment dates on the preferred and common securities. The
preferred and common securities will be redeemed on a pro rata basis, to the
same extent as the debentures are repaid. Under certain circumstances involving
a change in law or legal interpretation, the debentures may be distributed to
holders of the preferred and common securities in liquidation of the grantor
trust(s). The Company's obligations under the debentures and related agreements,
taken together, provide a full and unconditional guarantee of payments due on
the preferred securities.
The debentures issued to the grantor trusts and the common securities
purchased by the Company from the grantor trusts are eliminated in the balance
sheet.
F-19
<PAGE> 52
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SHAREHOLDERS' EQUITY
The Company is authorized to issue 20,000,000 shares of preferred stock
("Preferred Stock"). All preferred shares of the Company rank on a parity with
each other and rank senior to Common Stock and Nontransferable Class B Stock of
the Company as to payment of dividends and distribution of assets upon
dissolution, liquidation or winding up of the Company.
On November 1, 1995, the Company issued 4,000,000 $3.10 Depositary Shares
(the "Series E Depositary Shares"), each representing one-fiftieth of a share of
Series E Mandatory Conversion Premium Dividend Preferred Stock, with a
liquidation preference of $62 per share. On November 1, 1998, each of the
outstanding Series E Depositary Shares will convert into three shares of Common
Stock. The Company may redeem the Series E Depositary Shares prior to such date,
in whole or in part, at a price per share initially equal to $81, declining by
$0.006111 on each day following the date of issue to $74.767 on September 1,
1998, and equal to $74.40 thereafter. The call price is payable in shares of
Common Stock having an aggregate current market price, as defined, equal to such
call price, plus an amount paid in cash or in Common Stock representing all
accrued and unpaid dividends. In addition, should the Company call the Series E
Depositary Shares prior to November 1, 1998, holders will receive 50% of the
excess, if any, of three times the current market price, as defined, of the
Common Stock over $74.40, payable in shares of Common Stock.
On March 10, 1993, the Company issued 5,002,500 $2.78 Depositary Shares
(the "Series D Depositary Shares"), each representing one-fiftieth of a share of
Series D Mandatory Conversion Premium Dividend Preferred Stock, with a
liquidation preference of $37 per share. On January 2, 1996, the Company
redeemed all of the Series D Depositary Shares for a call price equal to $49.95
per share plus accrued and unpaid dividends of approximately $0.247 per share.
The call price was paid with 5,112,529 shares of the Company's Common Stock.
At September 30, 1996, the Company had outstanding 486,800 shares of
Adjustable Rate Cumulative Preferred Stock, Series C (the "Series C Preferred
Shares"), with a liquidation preference of $100 per share. On October 4, 1996,
subsequent to the Company's fiscal year end, the Company redeemed all of the
Series C Preferred Shares for a call price equal to $100 per share plus accrued
and unpaid dividends of approximately $0.642 per share.
In 1992, the Company issued 5,620,000 shares of 9 1/4% Preferred Stock,
Series B (the "Series B Preferred Shares"), with a liquidation preference of $25
per share. On or after June 15, 1997, the Company may redeem the Series B
Preferred Shares, in whole or in part, at a price per share of $25, plus accrued
and unpaid dividends. On June 13, 1995, the Company exchanged 2,105,235 Series B
Preferred Shares with a liquidation preference of $52,630,875 for $52,630,875
liquidation amount of 9.95% Trust Originated Preferred Securities of SunAmerica
Capital Trust I (see Note 8).
On October 21, 1991, the Company issued 6,000,000 $1.11 Depositary Shares
(the "Series A Depositary Shares"), each representing ownership of one-fifth of
a share of Series A Mandatory Conversion Premium Dividend Preferred Stock, with
a liquidation preference of $13 per share. On August 16, 1994, the Company
redeemed all of the Series A Depositary Shares for a call price equal to $17.55
per share plus accrued and unpaid dividends of approximately $0.096 per share.
The call price was paid with 2,476,000 shares of the Company's Common Stock.
In October 1996, subsequent to the Company's fiscal year end, the Company
filed a shelf registration statement under which it may issue up to
$1,750,000,000 of securities in the form of debt, Preferred Stock, Common Stock,
warrants, stock purchase contracts or stock purchase units. Up to $577,500,000
remains available under this registration statement after the subsequent
issuance of securities discussed below and those discussed in Notes 6 and 8.
F-20
<PAGE> 53
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SHAREHOLDERS' EQUITY (CONTINUED)
In November 1996, subsequent to the Company's fiscal year end, the Company
issued 11,500,000 8-1/2% Premium Equity Redemption Cumulative Securities Units
(the "Units") with a stated amount of $37.50 per Unit. Each Unit consists of a
stock purchase contract (the "Contract") and a United States Treasury Note (the
"Treasury Note") having a principal amount equal to the stated amount and
maturing on October 31, 1999. The holders of the Units will receive interest on
the Treasury Notes payable by the United States Government at a rate of 7-1/2%
per annum and Contract fees payable by the Company at a rate of 1% per annum
(both, the "Unit Payments") based upon the stated amount. The Contract obligates
the Company to deliver on October 31, 1999 to the holder of each Unit one share
of Common Stock of the Company, subject to adjustment under certain defined
circumstances, and obligates the holder of the Unit to pay to the Company $37.50
per Unit. The Treasury Notes will be held by a collateral agent to secure
payment to the Company as required under the Contract, but may be redeemed by
the holders of the Units under certain defined circumstances. The Company may
call the Units (and close the Contract) prior to October 31, 1999, in whole or
in part, at a price per Unit initially equal to $59.829, declining by $0.008060
on each day following the date of issue to $51.108 on August 31, 1999, and equal
to $50.625 thereafter. The call price is payable in shares of Common Stock
having an aggregate current market price, as defined, equal to such call price,
plus an amount paid in cash equal to all accrued and unpaid Unit Payments. The
Company receives no proceeds from this offering until the Contracts are
consummated.
The Company is authorized to issue 175,000,000 shares of its $1.00 par
value Common Stock and is authorized to repurchase 4,000,000 shares of such
stock. At September 30, 1996, 108,604,000 shares were outstanding and at
September 30, 1995, 44,175,000 shares were outstanding.
The Company is authorized to issue 25,000,000 shares of its $1.00 par value
Nontransferable Class B Stock. Holders of this stock have rights identical to
those of the Company's common stockholders except that they have ten votes per
share and are entitled to only 90% of any cash dividend paid on the Common
Stock. This stock is convertible at any time into shares of Common Stock. At
September 30, 1996, 10,848,000 shares were outstanding and at September 30,
1995, 10,240,000 shares were outstanding.
At September 30, 1996, under the Company's 1988 Employee Stock Plan,
options to purchase 6,313,650 shares at prices ranging from $1.29 to $30.69 were
outstanding (including 3,360,350 exercisable shares at prices ranging from $1.29
to $18.46) and 1,864,950 shares were reserved for future grants.
Shares of Common Stock issued in connection with the exercise of employee
stock options aggregated 203,800 at prices ranging from $1.29 to $18.46 in 1996;
274,701 at prices ranging from $0.82 to $15.02 in 1995 and 542,945 at prices
ranging from $0.82 to $10.73 in 1994.
F-21
<PAGE> 54
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SHAREHOLDERS' EQUITY (CONTINUED)
Changes in shareholders' equity are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------
1996 1995 1994
-------- --------- ---------
(In thousands)
<S> <C> <C> <C>
PREFERRED STOCK:
Beginning balance.......................................... $321,642 $374,273 $452,273
Issuance of 4,000,000 Series E Preferred Shares............ 248,000 -- --
Redemption of 5,002,500 Series D Depositary Shares......... (185,093) -- --
Exchange of 2,105,235 Series B shares for 2,105,235 shares
of Trust Originated Preferred Securities of SunAmerica
Capital Trust I........................................... -- (52,631) --
Redemption of 6,000,000 Series A Depositary Shares......... -- -- (78,000)
-------- -------- --------
Ending balance............................................. $384,549 $321,642 $374,273
======== ======== ========
NONTRANSFERABLE CLASS B STOCK:
Beginning balance.......................................... $ 10,240 $ 6,826 $ 6,828
Conversion of 4,816,000 and 2,000 shares to Common Stock... (4,816) -- (2)
Stock Splits............................................... 5,424 3,414 --
-------- -------- --------
Ending balance............................................. $ 10,848 $ 10,240 $ 6,826
======== ======== ========
COMMON STOCK:
Beginning balance.......................................... $ 44,175 $ 28,977 $ 26,335
Issuance of 5,112,529 shares to redeem the Series D
Depositary Shares......................................... 5,113 -- --
Conversion of Nontransferable Class B Stock to 4,776,000
and 2,000 shares.......................................... 4,776 -- 2
Issuance of 2,476,000 shares to redeem the Series A
Depositary Shares......................................... -- -- 2,476
Stock options and other employee benefit plans............. 252 473 164
Stock Splits............................................... 54,288 14,725 --
-------- -------- --------
Ending balance............................................. $108,604 $ 44,175 $ 28,977
======== ======== ========
ADDITIONAL PAID-IN CAPITAL:
Beginning balance.......................................... $185,211 $188,667 $110,120
Cost of issuance of 4,000,000 Series E Preferred Shares.... (7,453) -- --
Excess of redemption value of 5,002,500 Series D Preferred
Shares over par value of 5,112,529 shares of Common Stock
issued, net of transaction costs.......................... 179,972 -- --
Cost of issuance of 7,400,000 shares of Trust Originated
Preferred Securities of SunAmerica Capital Trust II....... (5,524) -- --
Cost of exchange of Series B Shares for shares of Trust
Originated Preferred Securities........................... -- (2,500) --
Excess of redemption value of 6,000,000 Series A Depositary
Shares over par value of 2,476,000 shares of Common Stock
issued.................................................... -- -- 75,524
Stock options and other employee benefit plans............. 11,801 17,183 3,023
Stock Splits............................................... (59,712) (18,139) --
-------- -------- --------
Ending balance............................................. $304,295 $185,211 $188,667
======== ======== ========
</TABLE>
F-22
<PAGE> 55
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------
1996 1995 1994
-------- --------- ---------
(In thousands)
<S> <C> <C> <C>
RETAINED EARNINGS:
Beginning balance.......................................... $656,509 $ 512,571 $ 413,770
Net income................................................. 274,427 194,206 131,801
Dividends on:
Preferred Stock.......................................... (27,063) (29,112) (37,556)
Nontransferable Class B Stock............................ (4,878) (3,686) (2,458)
Common Stock............................................. (29,780) (17,470) (10,816)
Gain on sale of KBH Warrants, net of income taxes of
$9,600,000............................................... -- -- 17,830
-------- --------- ---------
Ending balance............................................. $869,215 $ 656,509 $ 512,571
======== ========= =========
NET UNREALIZED LOSSES ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance......................................... $ (4,699) $(150,226) $ 100,701
Change in net unrealized gains/losses on debt securities
available for sale...................................... (44,464) 297,910 (420,966)
Change in net unrealized gains on equity securities
available for sale...................................... 18,011 6,179 (49,627)
Change in adjustment to deferred acquisition costs........ 7,600 (80,200) 85,600
Tax effects of net changes................................ 6,599 (78,362) 134,066
-------- --------- ---------
Ending balance............................................ $(16,953) $ (4,699) $(150,226)
======== ========= =========
</TABLE>
Dividends that the Company may receive from its life insurance subsidiaries
in any year without prior approval of the Arizona, California, Michigan or New
York insurance commissioners are limited by statute. At September 30, 1996,
restricted net assets of these consolidated life insurance subsidiaries totaled
approximately $1,227,789,000, none of which is available for the payment of
dividends until calendar year 1997.
The combined statutory equity of the Company's six life insurance
subsidiaries totaled $1,031,611,000 at September 30, 1996; $943,755,000 at
December 31, 1995; and $698,236,000 at December 31, 1994. The combined statutory
net income of these subsidiaries totaled $159,011,000 for the nine months ended
September 30, 1996; $67,144,000 for the year ended December 31, 1995; and
$149,824,000 for the year ended December 31, 1994.
F-23
<PAGE> 56
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES
The components of the provisions for income taxes on pretax income consist
of the following:
<TABLE>
<CAPTION>
Federal State Total
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
1996:
Currently payable............................................. $110,531 $10,526 $121,057
Deferred...................................................... (991) (2,466) (3,457)
-------- ------- --------
Total income tax expense...................................... $109,540 $ 8,060 $117,600
======== ======= ========
1995:
Currently payable............................................. $ 85,688 $ 5,546 $ 91,234
Deferred...................................................... (5,370) (464) (5,834)
-------- ------- --------
Total income tax expense...................................... $ 80,318 $ 5,082 $ 85,400
======== ======= ========
1994:
Currently payable............................................. $ (4,840) $ 1,255 $ (3,585)
Deferred...................................................... 80,029 (1,744) 78,285
-------- ------- --------
Total income tax expense...................................... $ 75,189 $ (489) $ 74,700
======== ======= ========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35%
and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------
1996 1995 1994
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Amount computed at statutory rate............................. $137,209 $ 97,862 $84,000
Increases (decreases) resulting from:
Affordable housing tax credits.............................. (21,742) (17,579) (9,619)
State income taxes, net of federal tax benefit.............. 5,238 3,686 (317)
Dividends-received deduction................................ (8,277) (3,271) (740)
Other, net.................................................. 5,172 4,702 1,376
-------- -------- -------
Total income tax expense...................................... $117,600 $ 85,400 $74,700
======== ======== =======
</TABLE>
F-24
<PAGE> 57
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
September 30,
---------------------
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments.......................................................... $ 135,647 $ 85,036
Deferred acquisition costs........................................... 231,978 163,973
State income taxes................................................... 1,048 3,660
Other liabilities.................................................... 17,672 7,449
--------- ---------
Total deferred tax liabilities....................................... 386,345 260,118
--------- ---------
DEFERRED TAX ASSETS:
Contractholder reserves.............................................. (231,296) (99,107)
Guaranty fund assessments............................................ (9,230) (4,392)
Other assets......................................................... (11,273) (7,242)
Net unrealized losses on certain debt and equity securities.......... (9,129) (2,530)
--------- ---------
Total deferred tax assets............................................ (260,928) (113,271)
--------- ---------
Deferred income taxes................................................ $ 125,417 $ 146,847
========= =========
</TABLE>
F-25
<PAGE> 58
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended September 30, 1996 and 1995
follow:
<TABLE>
<CAPTION>
First Second Third Fourth
-------- -------- -------- --------
(In thousands, except per-share amounts)
<S> <C> <C> <C> <C>
1996:
Net investment income.............................. $102,126 $112,294 $128,533 $149,803
Net realized investment gains (losses)............. 1,404 (3,589) (12,629) (15,500)
Fee income......................................... 49,845 55,367 57,530 57,686
General and administrative expenses................ (44,098) (50,242) (54,292) (64,069)
Amortization of deferred acquisition costs......... (21,071) (24,216) (29,875) (33,014)
Other income and expenses, net..................... 4,380 7,827 10,190 7,637
-------- -------- -------- --------
Pretax income...................................... 92,586 97,441 99,457 102,543
Income tax expense................................. (27,800) (29,200) (29,800) (30,800)
-------- -------- -------- --------
Net income......................................... $ 64,786 $ 68,241 $ 69,657 $ 71,743
======== ======== ======== ========
Per share.......................................... $ 0.47 $ 0.48 $ 0.49 $ 0.51
======== ======== ======== ========
1995:
Net investment income.............................. $ 78,109 $ 86,716 $ 94,704 $106,026
Net realized investment losses..................... (7,231) (8,344) (8,975) (8,462)
Fee income......................................... 40,228 44,002 46,653 49,536
General and administrative expenses................ (33,108) (41,116) (44,358) (47,958)
Amortization of deferred acquisition costs......... (19,576) (19,789) (23,244) (23,498)
Other income and expenses, net..................... 5,112 5,285 4,585 4,309
-------- -------- -------- --------
Pretax income...................................... 63,534 66,754 69,365 79,953
Income tax expense................................. (18,400) (19,400) (21,100) (26,500)
-------- -------- -------- --------
Net income......................................... $ 45,134 $ 47,354 $ 48,265 $ 53,453
======== ======== ======== ========
Per share.......................................... $ 0.33 $ 0.34 $ 0.35 $ 0.40
======== ======== ======== ========
</TABLE>
F-26
<PAGE> 59
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
---------- ------------ -------- -----------
(In thousands)
<S> <C> <C> <C> <C>
1996:
Annuity operations..................... $1,292,295 $ 97,806 $350,183 $23,032,076
Broker-dealer operations............... 50,718 1,228 17,253 74,140
Retirement trust services.............. 45,146 1,166 13,570 481,974
Asset management....................... 29,711 18,295 2,448 74,410
Premium financing...................... 26,532 962 8,573 64,221
---------- -------- -------- -----------
Total.................................. $1,444,402 $ 119,457 $392,027 $23,726,821
========== ======== ======== ===========
1995:
Annuity operations..................... $ 921,289 $ 69,554 $246,037 $16,172,140
Broker-dealer operations............... 34,273 868 12,017 42,441
Retirement trust services.............. 46,622 1,461 15,268 484,456
Asset management....................... 30,253 24,069 510 86,510
Premium financing...................... 20,772 713 5,774 58,620
---------- -------- -------- -----------
Total.................................. $1,053,209 $ 96,665 $279,606 $16,844,167
========== ======== ======== ===========
1994:
Annuity operations..................... $ 790,211 $ 58,052 $211,419 $14,034,879
Broker-dealer operations............... 30,207 853 10,456 40,349
Retirement trust services.............. 36,412 838 10,210 478,805
Asset management....................... 32,803 19,330 7,916 102,192
---------- -------- -------- -----------
Total.................................. $ 889,633 $ 79,073 $240,001 $14,656,225
========== ======== ======== ===========
</TABLE>
NOTE 13 -- SUBSEQUENT EVENT
On November 29, 1996, the Company entered into a definitive agreement to
acquire the annuity business of John Alden Financial Corporation for
approximately $240,000,000 in cash. The transaction will include approximately
$3,700,000,000 of annuity reserves to be acquired under a reinsurance contract
from John Alden Life Insurance Company and the purchase of the outstanding
common stock of John Alden Life Insurance Company of New York, which has
approximately $1,300,000,000 of annuity reserves and $71,000,000 of adjusted
statutory capital and surplus at September 30, 1996. Completion of this
acquisition is expected by the end of the first calendar quarter of 1997 and is
subject to customary conditions and required regulatory approvals.
F-27
<PAGE> 60
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page number in
this Annual
Report on
Form 10-K
----------------
<S> <C>
Report of Independent Accountants on Financial Statement Schedules......... S-2
Schedule II -- Condensed Financial Information of Registrant............... S-3 through S-6
Schedule IV -- Reinsurance................................................. S-7
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
S-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of SunAmerica Inc.
Our audits of the consolidated financial statements referred to in our
report dated November 8, 1996, appearing on page F-2 of this Annual Report on
Form 10-K of SunAmerica Inc. also included an audit of the Financial Statement
Schedules listed on page S-1 of this Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996, except as to Note 13
to the consolidated financial statements
which is as of November 29, 1996
S-2
<PAGE> 62
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Investment in and advances to subsidiaries................... $1,770,212,000 $1,258,116,000
Other investments............................................ 1,045,629,000 789,746,000
Other assets................................................. 104,940,000 100,454,000
-------------- --------------
TOTAL ASSETS................................................. $2,920,781,000 $2,148,316,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes and debentures................................ $ 573,335,000 $ 524,835,000
Junior subordinated debentures............................. 245,483,000 54,259,000
Reserves for guaranteed investment contracts............... 239,050,000 250,365,000
Payable to brokers for purchases of securities............. 46,684,000 27,208,000
Other liabilities.......................................... 155,671,000 78,571,000
-------------- --------------
Total liabilities.......................................... 1,260,223,000 935,238,000
Shareholders' equity......................................... 1,660,558,000 1,213,078,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $2,920,781,000 $2,148,316,000
============== ==============
</TABLE>
CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Dividends received from subsidiary corporations... $110,256,000 $ 69,287,000 $ 45,400,000
Investment income................................. 189,911,000 158,228,000 104,299,000
Net realized investment gains (losses)............ 4,598,000 (25,459,000) 7,231,000
Other income...................................... 3,625,000 3,636,000 3,518,000
------------ ------------ ------------
TOTAL INCOME...................................... 308,390,000 205,692,000 160,448,000
------------ ------------ ------------
Interest expense on senior notes and debentures... (51,062,000) (44,729,000) (45,989,000)
Interest expense on junior subordinated
debentures...................................... (20,902,000) (2,854,000) --
Interest expense on guaranteed investment
contracts....................................... (20,411,000) (21,482,000) (25,624,000)
General and administrative expenses, net of
reimbursement from subsidiaries of $33,930,000 in
1996, $19,095,000 in 1995 and $11,374,000 in
1994............................................. (146,000) (2,354,000) 417,000
------------ ------------ ------------
TOTAL EXPENSES.................................... (92,521,000) (71,419,000) (71,196,000)
------------ ------------ ------------
PRETAX INCOME..................................... 215,869,000 134,273,000 89,252,000
Income tax expense................................ (35,404,000) (21,116,000) (9,607,000)
------------ ------------ ------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET INCOME
OF UNCONSOLIDATED SUBSIDIARIES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME
TAXES............................................ 180,465,000 113,157,000 79,645,000
Equity in undistributed net income of
unconsolidated subsidiaries...................... 93,962,000 81,049,000 30,931,000
Cumulative effect of change in accounting for
income taxes..................................... -- -- 21,225,000
------------ ------------ ------------
NET INCOME........................................ $274,427,000 $194,206,000 $131,801,000
============ ============ ============
</TABLE>
S-3
<PAGE> 63
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 274,427,000 $ 194,206,000 $ 131,801,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of
unconsolidated subsidiaries................. (93,962,000) (81,049,000) (30,931,000)
Net realized investment (gains) losses....... (4,598,000) 25,459,000 (7,231,000)
Cumulative effect of change in accounting for
income taxes................................ -- -- (21,225,000)
Other, net................................... 22,644,000 46,736,000 (12,641,000)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 198,511,000 185,352,000 59,773,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of investments........... (153,640,000) 24,505,000 (57,774,000)
Contributions of capital to subsidiary
corporations................................. (435,928,000) (203,476,000) (45,539,000)
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES.......... (589,568,000) (178,971,000) (103,313,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends..................... (61,721,000) (50,268,000) (50,830,000)
Net proceeds from issuances of senior notes and
debentures.................................... 47,478,000 51,675,000 91,711,000
Repayments of senior notes..................... -- -- (15,119,000)
Net proceeds from issuance of junior
subordinated debentures....................... 185,700,000 -- --
Withdrawal payments on guaranteed investment
contracts..................................... (31,725,000) (36,472,000) (299,330,000)
Proceeds from issuances of guaranteed
investment contracts.......................... -- -- 110,000,000
Net proceeds from issuance of Series E
Preferred Stock............................... 240,547,000 -- --
------------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.................................... 380,279,000 (35,065,000) (163,568,000)
------------- ------------- -------------
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS................................... (10,778,000) (28,684,000) (207,108,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD........................................ 120,959,000 149,643,000 356,751,000
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD........................................ $ 110,181,000 $ 120,959,000 $ 149,643,000
============= ============= =============
Non-cash financing activity:
Exchange of junior subordinated debentures,
Series A, due 2044 for 2,105,235 shares of
9 1/4% Series B Preferred Stock and for the
common securities of a subsidiary grantor
trust........................................ $ -- $ 54,259,000 $ --
============= ============= =============
</TABLE>
S-4
<PAGE> 64
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- INDEBTEDNESS
Notes payable consist of the following (interest rates are as of September
30):
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
SENIOR NOTES AND DEBENTURES:
Medium-term notes due 1998 through 2026 (5 3/8% to 7 3/8%)...... $248,335,000 $199,835,000
8 1/8% debentures due April 28, 2023............................ 100,000,000 100,000,000
9.95% debentures due February 1, 2012........................... 100,000,000 100,000,000
9% notes due January 15, 1999................................... 125,000,000 125,000,000
------------ ------------
Total senior notes and debentures............................... 573,335,000 524,835,000
------------ ------------
JUNIOR SUBORDINATED DEBENTURES:
9.95% junior subordinated debentures, series A, due 2044........ 54,259,000 54,259,000
8.35% junior subordinated debentures, due 2044.................. 191,224,000 --
------------ ------------
Total junior subordinated debentures............................ 245,483,000 54,259,000
------------ ------------
Total indebtedness.............................................. $818,818,000 $579,094,000
============ ============
</TABLE>
On November 6, 1996, subsequent to the Parent's fiscal year end, the Parent
issued $431,250,000 of 6.20% notes due October 31, 1999. On November 13, 1996,
the Parent issued to Sunamerica Capital Trust III, a grantor trust and a
consolidated wholly owned subsidiary of the Parent, $320,670,000 principal
amount of 8.30% junior subordinated debentures, due 2045, in connection with the
issuance by trust of its Trust Originated Preferred Securities (see Note 8 of
Notes to Consolidated Financial Statements).
In addition, the Company is the issuer of the following guaranteed
investment contracts ("GICs") (interest rates are as of September 30):
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
8 1/2% GIC due serially through 2002 (including interest
credited of $1,252,000 in 1996 and $1,363,000 in 1995)......... $190,627,000 $193,723,000
8 3/8% GIC due serially through 2003 (including interest
credited of $254,000 in 1996 and $330,000 in 1995)............. 39,294,000 47,625,000
7 3/8% GIC due in 2018 (including interest credited of $272,000
in 1996 and $132,000 in 1995).................................. 9,129,000 9,017,000
------------ ------------
Total guaranteed investment contracts........................... $239,050,000 $250,365,000
============ ============
</TABLE>
Aggregate debt service payments, including GICs, debt and debt issued
subsequent to the Parent's fiscal year end, are due as follows: 1997,
$135,085,000; 1998, $172,283,000; 1999, $280,691,000; 2000, $563,382,000; 2001,
$127,745,000; and $3,609,951,000, in the aggregate, thereafter.
S-5
<PAGE> 65
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- GUARANTEES
The Company has transferred to third-party investors certain of its
interests in various partnerships that make tax-advantaged affordable housing
investments. As part of these transactions, the Parent has agreed to advance
monies to support the operations of the underlying housing projects, if
required, and has guaranteed that the transferred partnerships will provide, as
of the transfer date and under then current tax laws, a specified level of
associated tax credits and deductions to the third-party investors. Based on an
evaluation of the underlying housing projects, management does not anticipate
any material cash payments with respect to the guarantees.
The Parent has guaranteed that its life insurance subsidiaries will receive
the statutory carrying value of certain invested assets, principally bonds and
real estate, aggregating $127,866,000.
NOTE 3 -- CONTINGENCIES
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
S-6
<PAGE> 66
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Percentage
Ceded Assumption of amount
Gross to other from other Net assumed
amount companies companies amount to net
---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
1996:
Life insurance in force.... $8,009,173 $7,701,296 $ -- $307,877 --%
========== ========== ====== ======== ==========
Premiums:
Annuities and other
single premiums......... $ 984,334 $ -- $ 9,042 $993,376 0.91%
Annual life insurance
premiums................ 42,364 42,364 -- -- --
Accident and health
insurance premiums...... 16,613 16,613 -- -- --
---------- ---------- ------ -------- ----------
Total premiums........... $1,043,311 $ 58,977 $ 9,042 $993,376 0.91%
========== ========== ====== ======== ==========
1995:
Life insurance in force.... $1,907,878 $1,592,650 $ -- $315,228 --%
========== ========== ====== ======== ==========
Premiums:
Annuities and other
single premiums......... $ 944,742 $ -- $ -- $944,742 --%
Annual life insurance
premiums................ 16,225 16,225 -- -- --
---------- ---------- ------ -------- ----
Total premiums........... $ 960,967 $ 16,225 $944,742 --%
========== ========== ====== ======== ==========
1994:
Life insurance in force.... $2,140,257 $1,822,112 $ -- $318,145 --%
========== ========== ====== ======== ==========
Premiums:
Annuities and other
single premiums......... $ 230,037 $ -- $ -- $230,037 --%
Annual life insurance
premiums................ 15,588 15,588 -- -- --
---------- ---------- ------ -------- ----------
Total premiums........... $ 245,625 $ 15,588 $ -- $230,037 --%
========== ========== ====== ======== ==========
</TABLE>
S-7
<PAGE> 67
SUNAMERICA INC.
1996 FORM 10-K
<PAGE> 68
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
2(c) Asset Purchase and Sale Agreement between SunAmerica Life Insurance Company and
John Alden Life Insurance Company, dated as of November 29, 1996.
2(d) Stock Purchase Agreement between SunAmerica Life Insurance Company and John Alden
Financial Corporation, dated as of November 29, 1996, regarding all of the
outstanding stock of John Alden Life Insurance Company of New York.
3(j) Articles of Amendment, dated June 7, 1996.
3(k) Bylaws, as amended and restated on November 8, 1996.
10(r) List of Executive Compensation Plans and Arrangements.
11 Statement re Computation of per-share earnings.
12(a) Statement re Computation of ratio of earnings to fixed charges.
12(b) Statement re Computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
21 Subsidiaries of the Company.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
99 Agreement to furnish exhibits and schedules.
</TABLE>
<PAGE> 1
ASSET PURCHASE AND SALE AGREEMENT
By and Between
JOHN ALDEN LIFE INSURANCE COMPANY
and
SUNAMERICA LIFE INSURANCE COMPANY
Dated November 29, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - PURCHASE AND SALE OF ASSETS; CLOSING 2
1.1. Closing 2
1.2. Transfer of Assets 3
1.3. Ceding Commission; Payment 5
1.4. Closing Deliveries 9
1.5. Additional Closing Deliveries 12
1.6. Post Closing Adjustments 12
ARTICLE 2 - ASSUMPTION OF LIABILITIES AND OBLIGATIONS 15
2.1. Assumption of Seller Liabilities 15
2.2. Guaranty Fund Assessments 15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SELLER 18
3.1. Organization, Standing and Authority of Seller 18
3.2. Authorization 18
3.3. Actions and Proceedings 19
3.4. No Conflict or Violation 19
3.5. Consents and Approvals 20
3.6. Brokerage and Financial Advisers 21
3.7. Compliance With Laws 21
3.8. Annuity Contracts 21
3.9. Permits, Licenses and Franchises 24
3.10. Regulatory Filings 25
3.11. Reinsurance 26
3.12. Absence of Certain Changes or Events 26
3.13. Assigned Contracts 28
3.14. Intellectual Property 29
3.15. Purchased Assets 29
3.16. Statutory Financial Statements 30
3.17. Reserves 31
3.18. Threats of Cancellation 32
3.19. Credited Rates 33
3.20. Related Agreements 33
3.21. Third Party Administration Agreements 33
3.22. Mortgage Loans 34
3.23. No Waiver of Defenses 40
3.24. Agent Balances 41
3.25. GAAP Financial Statements 41
<PAGE>
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF PURCHASER 42
4.1. Organization and Standing 42
4.2. Authorization 42
4.3. Actions and Proceedings 43
4.4. No Conflict or Violation 43
4.5. Consents and Approvals 44
4.6. Brokerage and Financial Advisers 44
4.7. GAAP Financial Statements 45
4.8. Statutory Financial Statements 45
4.9. Rating 46
ARTICLE 5 - PRE-CLOSING COVENANTS 47
5.1. Conduct of Business 47
5.2. Certain Transactions 50
5.3. Investigations 50
5.4. HSR Act Filings 51
5.5. Consents and Reasonable Efforts 51
5.6. Representations and Warranties 52
5.7. Computer Software and Other Intellectual Property 53
5.8. Financial Statements and Reports 53
5.9. Termination of Certain Reinsurance Arrangements 54
5.10. Woodland Hills Option 54
5.11. Oxford Put 54
5.12. Marketing Agreement 55
ARTICLE 6 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
PURCHASER TO CLOSE 55
ARTICLE 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
TO CLOSE 58
ARTICLE 8 - POST-CLOSING COVENANTS 61
8.1. Continued Access and Cooperation 61
8.2. Further Assurances 63
8.3. Expenses 63
8.4. Employee Plans 64
8.5. Non-Discriminatory Treatment of Policyholders 65
8.6. Repayment of Agent Balances 65
<PAGE>
8.7. No Inducement to Replace; Non-Twisting; Non-
Churning; Non-Competition 66
8.8. Preferred Stock Divided Repayment 70
8.9. Policyholder Consents 70
8.10. Current Report on Form 8-K 71
ARTICLE 9 - TERMINATION; SURVIVAL 71
9.1. Termination of Agreement 71
9.2. Effect of Termination 73
ARTICLE 10 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 73
10.1. Survival of Representations 73
10.2. Indemnification by Purchaser 74
10.3. Indemnification by Seller 76
10.4. Indemnification Procedure 78
ARTICLE 11 - PUBLICITY AND CONFIDENTIALITY 82
11.1. Publicity 82
11.2. Confidentiality 83
ARTICLE 12 - MISCELLANEOUS 84
12.1. Notices 84
12.2. Entire Agreement 86
12.3. Amendments 87
12.4. Waivers 88
12.5. Governing Law 88
12.6. Binding Effect; Assignment; Third Party
Beneficiaries 89
12.7. Severability 89
12.8. Headings 90
12.9. Counterparts 90
12.10.Arbitration 90
SIGNATURES 92
<PAGE>
ANNEX A - Definitions
EXHIBITS -
A - Indemnity Reinsurance Agreement
B - Assumption Reinsurance Agreement
C - Trust Agreement
D - Transition Services Agreement
E - Administrative Services Agreement
F - Assignment and Assumption Agreement
G - License Agreement
H - Bill of Sale
I - Opinion of Seller's Counsel
J - Opinion of Purchaser's Counsel
K - Loan Documentation
L - Terms of Marketing Agreement
<PAGE>
SCHEDULES -
1.2(a)(i) - Closing Date Portfolio Securities
1.2(a)(ii) - Policy Loans
1.2(a)(iii) - Additional Assets
1.2(d)(i) - Assigned Contracts
1.2(d)(ii) - Licensing Restrictions
3.3 - Actions and Proceedings
3.4 - Certain Matters
3.5 - Consents and Approvals
3.7 - Compliance
3.8(a) - Annuity Contract Forms
3.8(b) - Annuity Contracts
3.8(c) - Certain Commission Contracts
3.8(e) - Contested Benefits
3.8(h) - Known Agent Violations
3.9(a) - Licensed Jurisdictions
3.9(b) - Permit Exceptions
3.10 - Regulatory Filings
3.11 - Reinsurance Agreements
3.12 - Certain Changes or Events
3.13 - Other Necessary Contracts
3.14 - Intellectual Property
3.17(a) - Reserve Liabilities
3.17(b) - Reserve Exceptions
3.18 - Threats of Cancellation
3.20 - Related Agreements
3.21 - Third Party Administration Agreements
3.22(a) - Mortgage Loans
3.22(b) - Participations
3.22(d) - Waivers, Amendments & Releases
3.22(f) - Missing Original Notes
3.22(l) - Tax Delinquencies
3.24 - Agent Balances
4.3 - Purchaser's Litigation
4.4 - Purchaser's Certain Matters
4.5 - Purchaser's Consents and Approvals
Excluded Transactions
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
ASSET PURCHASE AND SALE AGREEMENT (the "Agreement") dated
November 29, 1996 by and between John Alden Life Insurance Company,
a Minnesota corporation ("Seller"), and SunAmerica Life Insurance
Company, an Arizona corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is engaged, among other businesses, in the
business of selling and administering annuity policies and related
activities in the United States other than in the State of New York
(the "Annuity Business");
WHEREAS, John Alden Life Insurance Company of New York, a New
York corporation ("JANY"), is engaged in the business of selling
and administering annuity, life and health related insurance
policies and related activities solely in the State of New York;
WHEREAS, Seller owns or holds certain assets used or held for
use in the Annuity Business and owns all of the outstanding capital
stock of JANY (the "JANY Stock"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser
wishes to acquire from Seller, certain of the assets of Seller used
in the conduct of the Annuity Business pursuant to the terms and
conditions set forth in this Agreement and the JANY Stock pursuant
to the terms and conditions set forth in a Stock Purchase and Sale
Agreement between Seller and Purchaser dated concurrently herewith
(the "JANY Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the premises,
representations and warranties and the mutual covenants and
agreements contained herein and other good, valuable and
<PAGE>
sufficient consideration, the receipt of which is hereby acknowledged,
Seller and Purchaser (collectively, the "Parties" and, sometimes
individually, a "Party"), intending to be legally bound, hereby
agree as follows.
The capitalized terms used in this Agreement and not defined
herein shall have the meanings specified in Annex A attached
hereto. Unless the context otherwise requires, such capitalized
terms shall include the singular and plural and the conjunctive and
disjunctive forms of the terms defined.
ARTICLE 1
PURCHASE AND SALE OF ASSETS; CLOSING
Section 1.1. Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place at 10:00 a.m.
local time at the offices of Kelley Drye & Warren LLP, 101 Park
Avenue, New York, New York 10178, or such other time and place as
Purchaser and Seller may mutually agree in writing, on the last
business day of the month in which the satisfaction of all
conditions set forth in Articles 6 and 7 hereof concerning the
Parties' respective obligations to consummate the transactions
contemplated herein occurs or such other date as Seller and
Purchaser may mutually agree in writing (the "Closing Date") and,
subject to completion, shall be deemed to have been consummated and
become effective for all purposes as of 11:59 p.m. on the Closing
Date.
<PAGE>
Section 1.2. Transfer of Assets.
(a) Subject to the terms and conditions set forth
herein, at the Closing, Seller shall sell, assign, transfer, convey
and deliver to Purchaser as a reinsurance premium, and Purchaser
shall purchase and accept from Seller, all of Seller's right, title
and interest in and to the following assets, with such changes
therein, additions thereto and deletions therefrom as may occur
from the date hereof through the Closing as permitted or required
pursuant to the terms hereof or otherwise agreed to by the Parties
in writing (collectively, the "Reinsurance Premium"):
(i) the Closing Date Portfolio Securities,
including the Accrued and Unpaid Investment Income
thereon and all documentation related thereto.
(ii) all of Seller's right and interest to receive
principal and interest paid on policy loans under the
Annuity Contracts (with the exception of any policy loans
listed in Schedule 1.2(a)(iii)) (the "Policy Loans")
outstanding after the Closing Date. The Policy Loans
outstanding as of September 21, 1996 are listed on
Schedule 1.2(a)(ii) attached hereto. An estimate of all
Policy Loans outstanding on the Closing Ledger Date will
be set forth in an updated Schedule 1.2(a)(ii) to be
delivered by Seller to Purchaser at the Closing.
Schedule 1.2(a)(ii) includes with respect to each Policy
Loan outstanding on September 21, 1996, and will include
with respect to each Policy Loan set forth on the updated
Schedule 1.2(a)(ii) to be delivered on the Closing Date,
the policy number, balance and form and contract number.
(iii) those additional assets listed on Schedule
1.2(a)(iii) attached hereto.
<PAGE>
(iv) cash in the amounts required to be paid
pursuant to Sections 1.2(c) hereof, with respect to
Rejected Mortgages, and 1.3(d)(i) hereof, with respect to
excess Reserve Liabilities.
(b) On the Closing Date, delivery of the Closing Date
Portfolio Securities shall be made by transfer to the trust account
(the "Trust") established pursuant to the Trust Agreement. The
cash portion of the Reinsurance Premium shall be transferred to the
Trust by wire transfer of immediately available funds. Securities,
cash equivalents, mortgage loans and other assets included among
the Closing Date Portfolio Securities shall be transferred by such
instruments of transfer as are acceptable to the Trustee and
reasonably acceptable to Purchaser. The gross amount of the cash
payment wired by Seller shall be reduced by an amount equal to one
day's interest on such gross amount at an interest rate equal to
the three month LIBOR rate in effect on the Business Day preceding
the Closing Date plus 25 basis points.
(c) Notwithstanding anything contained in this Section
1.2 to the contrary, Purchaser shall have the right not to purchase
up to $50,000,000 Book Value of (i) mortgages or (ii) mortgage
related private placements which comprise a portion of the October
21 Portfolio Securities (the "Rejected Mortgages"), and such
Rejected Mortgages shall not be sold, assigned, transferred,
conveyed or delivered to Purchaser hereunder; provided, however,
that upon written notice by Purchaser to Seller delivered not less
than 10 days prior to the Closing specifying such Rejected
Mortgages, Seller shall deliver cash to the Trust, as part of the
Reinsurance Premium, in an amount equal to the Book Value of the
Rejected Mortgages.
(d) At the Closing, Seller shall assign, transfer,
convey and deliver to Purchaser, and Purchaser shall accept from
Seller, the following:
<PAGE>
(i) Seller's rights including all claims arising
under the contracts and license agreements listed on
Schedule 1.2(d)(i) attached hereto (the "Assigned
Contracts"); and
(ii) originals or copies of all customer lists,
policy information, Seller's Annuity Contract forms and
rating plans, disclosure and other documents and filings
required under applicable Laws, and all claim, sales,
underwriting, financial, accounting, tax, business,
marketing and compliance records in the possession or
control of Seller ("control" for the purposes of this
Section 1.2(d)(ii) being defined as the ability to cause
delivery to Seller) and relating to the Annuity Business,
including, without limitation, any database, magnetic or
optical media (to the extent not subject to the licensing
restrictions listed on Schedule 1.2(d)(ii) attached
hereto) and any other form of recorded, computer
generated or stored information or process, but excluding
any such records that both (A) are, and would upon
transfer cease to be, subject to the attorney-client
privilege and (B) do not relate to the Purchased Assets
or Assumed Liabilities (collectively, the "Books and
Records").
(e) Seller and Purchaser agree that for tax purposes,
the fair market value of the Closing Date Portfolio Securities
shall be the GAAP book values used by Purchaser to reflect the
Closing Date Portfolio Securities on its Financial Statements on
the Closing Date.
Section 1.3. Ceding Commission; Payment.
(a) In consideration for the sale, assignment, transfer,
conveyance and delivery of the Reinsurance Premium to Purchaser by
Seller in accordance with and upon the terms and
<PAGE>
conditions set forth in this Agreement, on the Closing Date Purchaser
shall pay to Seller One Hundred Eight Million Fifty Thousand Dollars
($108,050,000) in cash, subject to adjustment as provided in
Section 1.3(c) below (the "Closing Date Ceding Commission").
Purchaser shall pay the Closing Date Ceding Commission to Seller on
the Closing Date by wire transfer of immediately available funds to
such bank account as Seller shall designate to Purchaser in writing
at least three Business Days prior to the Closing Date. Payment of
the Closing Date Ceding Commission shall be accompanied by (i) an
amount in cash equal to the Accrued and Unpaid Investment Income as
set forth on the Estimated Closing Date Statement and (ii) any
payments required to be made as a reduction in the Reinsurance
Premium pursuant to Section 1.3(d)(ii) hereof. The gross amount of
the cash payment wired to Seller pursuant to this Section 1.3(a)
shall be reduced by an amount equal to one day's interest on such
gross amount at an interest rate equal to the three month LIBOR
rate in effect on the Business Day preceding the Closing Date plus
25 basis points.
(b) On the Closing Date, Seller shall deliver to the
Purchaser a statement (the "Estimated Closing Date Statement") of
Seller's good faith estimate as of the Closing Date unless
otherwise noted below of (i) all Reserve Liabilities (ii) the
Policy Loan Balance, (iii) the Book Value of all Closing Date
Portfolio Securities, (iv) all JANY Reserve Liabilities (as defined
in the JANY Stock Purchase Agreement), (v) the Accrued and Unpaid
Investment Income, (vi) the gross amount on a tax lot by tax lot
basis of any realized capital gain ("Capital Gain") or capital loss
("Capital Loss") on the disposition of any June 21 Portfolio
Securities between June 21, 1996 and the Closing Date, (vii) the
Adjusted Capital and Surplus of JANY and (viii) the amount of cash
flows applicable to the Combined Reserve Liabilities from the
<PAGE>
Closing Ledger Date through Closing Date (the "Net Cash Flows").
The Estimated Closing Date Statement shall be prepared in a manner
consistent with the calculation of such items as of June 21, 1996.
Such calculations are reflected in Schedules 1.2(a)(i) (Closing
Date Portfolio Securities), 1.2(a)(ii) (Policy Loans) and 3.17
(Reserve Liabilities) attached hereto and have been prepared in
accordance with SAP.
(c) The Closing Date Ceding Commission shall be
adjusted as follows (using the calculations set forth on the
Estimated Closing Date Statement for this purpose):
(i) To the extent Combined Reserve Liabilities as
set forth on the Estimated Closing Date Statement, as
adjusted below, are less than $5,013,914,419 ("Expected
Reserves"), the Closing Date Ceding Commission shall be
reduced by an amount equal to (i) (A) the amount by which
the Expected Reserves exceed the Combined Reserve
Liabilities divided by (B) the Expected Reserves
multiplied by (ii) the difference between $240,000,000
and the Adjusted Capital and Surplus of JANY. For
purposes of this Section 1.3(c)(i), Combined Reserve
Liabilities shall be adjusted for the Net Cash Flows
applicable to the Combined Reserves not included in such
reserves from the Closing Ledger Date through the Closing
Date.
(ii) The Closing Date Ceding Commission will be
adjusted by interest at a rate of 2% per annum on the net
cash flows applicable to the Combined Reserves not
included in such reserves from the Closing Ledger Date
through the Closing Date.
<PAGE>
(iii) The Closing Date Ceding Commission shall
be (A) reduced by any Capital Gains realized with respect
to the June 21 Portfolio Securities between June 21, 1996
and the Closing Date and (B) increased by any Capital
Losses realized with respect to the June 21 Portfolio
Securities between June 21, 1996 and the Closing Date.
For purposes of this Section 1.3(c)(iii), Capital Gains
and Capital Losses shall be deemed to include, without
limitation, any gain or loss resulting from any sale,
pre-payment, maturity or similar event affecting a June
21 Portfolio Security, but shall be deemed to exclude
Capital Gains or Capital Losses with respect to Excluded
Transactions.
(d) As of the Closing Date, the Reinsurance Premium
shall be adjusted as follows (using the calculations set forth on
the Estimated Closing Date Statement):
(i) To the extent Reserve Liabilities exceed the
sum of (A) the Book Value of the Closing Date Portfolio
Securities, (B) any cash deposited in the Trust pursuant
to Section 1.2(c) hereof and (C) the Policy Loan Balance,
Seller shall deliver to Purchaser at Closing by transfer
to the Trust cash equal to such deficiency. The amount
of any such cash payment shall be made by wire transfer
of immediately available funds, and the gross amount
thereof shall be reduced by an amount equal to one day's
interest on such gross amount at an interest rate equal
to the three month LIBOR rate in effect on the Business
Day preceding the Closing Date plus 25 basis points.
(ii) To the extent the sum of (A) the Book
Value of the Closing Date Portfolio Securities, (B) any
cash deposited pursuant to Section 1.2(c) hereof and
<PAGE>
(C) the Policy Loan Balance exceeds Reserve Liabilities,
Purchaser shall deliver to Seller cash equal to said
excess.
Section 1.4. Closing Deliveries.
(a) At the Closing, Seller shall execute and deliver or
cause to be executed and delivered to Purchaser the following:
(i) the Indemnity Reinsurance Agreement between
Seller and Purchaser substantially in the form of Exhibit
A attached hereto (the "Indemnity Reinsurance
Agreement");
(ii) the Assumption Reinsurance Agreement
between Seller and Purchaser substantially in the form of
Exhibit B attached hereto (the "Assumption Reinsurance
Agreement");
(iii) the Trust Agreement among Seller,
Purchaser and Bankers Trust Company of California, N.A.,
in its capacity as trustee thereunder (the "Trustee"),
substantially in the form of Exhibit C attached hereto
(the "Trust Agreement");
(iv) the Transition Services Agreement between
Seller and Purchaser substantially in the form of Exhibit
D attached hereto (the "Transition Services Agreement");
(v) the Administrative Services Agreement between
Seller and Purchaser substantially in the form of Exhibit
E attached hereto (the "Administrative Services
Agreement");
<PAGE>
(vi) the Assignment and Assumption Agreement
between Seller and Purchaser substantially in the form of
Exhibit F attached hereto (the "Assignment and Assumption
Agreement");
(vii) the License Agreement between Seller and
Purchaser substantially in the form of Exhibit G attached
hereto (the "License Agreement");
(viii) the Bill of Sale between Seller and
Purchaser substantially in the form of Exhibit H attached
hereto (the "Bill of Sale");
(ix) the opinion of counsel to Seller,
substantially in the form of Exhibit I attached hereto
("Seller's Opinion");
(x) the Reinsurance Premium pursuant to Section 1.2
hereof;
(xi) the Assigned Contracts;
(xii) the Books and Records;
(xiii) a certificate of an executive officer of
Seller, dated the Closing Date, representing and
warranting to the effect that (A) the person signing such
certificate is familiar with the provisions of this
Agreement and (B) the conditions specified in Article 6
of this Agreement have been satisfied;
(xiv) written consents to assignments, where
necessary, from all applicable parties relating to the
Third Party Administration Agreements; and
(xv) such other documents as may be necessary
or advisable in Purchaser's reasonable judgment to vest
in Purchaser all of Seller's rights, title and interest
in and to the (i) assets transferred as the Reinsurance
Premium, (ii)
<PAGE>
the Assigned Contracts and (iii) the Books and Records
(clauses (i), (ii) and (iii), collectively the
"Purchased Assets") and the Assumed Liabilities.
The Indemnity Reinsurance Agreement, the Assumption Reinsurance
Agreement, the Transition Services Agreement, the Administrative
Services Agreement, the Bill of Sale, the Assignment and Assumption
Agreement, the Trust Agreement and the License Agreement are
referred to collectively herein as the "Ancillary Agreements."
(b) At the Closing, Purchaser shall execute and deliver
or cause to be executed and delivered to Seller the following:
(i) the Indemnity Reinsurance Agreement;
(ii) the Assumption Reinsurance Agreement;
(iii) the Trust Agreement;
(iv) the Transition Services Agreement;
(v) the Administrative Services Agreement;
(vi) the Assignment and Assumption Agreement;
(vii) the License Agreement;
(viii) the opinion of counsel to Purchaser,
substantially in the form of Exhibit J hereto
("Purchaser's Opinion");
(ix) a certificate of an executive officer of
Purchaser, dated the Closing Date, representing and
warranting to the effect that (A) the person signing such
certificate is familiar with the provisions of this
Agreement and (B) the conditions specified in Article 7
of this Agreement have been satisfied;
<PAGE>
(x) such other documents as may be necessary or
advisable in Seller's reasonable judgment to consummate
the transactions contemplated hereby; and
(xi) the Closing Date Ceding Commission.
Section 1.5. Additional Closing Deliveries. In addition to
the transactions and deliveries contemplated above, at the Closing
each of the agreements between or among JANY and Seller or any
Affiliates of Seller will be terminated (other than the Transition
Services Agreement to be entered into pursuant to the JANY Stock
Purchase Agreement).
Section 1.6. Post Closing Adjustments.
(a) No later than 60 days after the Closing Date,
Seller shall prepare and deliver to Purchaser a statement (the
"Final Closing Date Statement") that sets forth the actual
financial data as of the Closing Date required to be estimated in
the Estimated Closing Date Statement. The Final Closing Date
Statement shall be prepared in a manner consistent with the
Estimated Closing Date Statement and shall be accompanied by a copy
of all documents used in the preparation thereof. The Final
Closing Date Statement and the calculations and information set
forth therein shall be reviewed and certified by a Fellow of the
Society of Actuaries who is also a Member of the American Academy
of Actuaries (an FSA and MAAA) familiar with the business of Seller
and in particular the Annuity Business. The Final Closing Date
Statement shall be binding on Purchaser unless Purchaser delivers
to Seller within 60 days after its receipt of the Final Closing
Date Statement from Seller written notice of disagreement
specifying in reasonable detail the nature and extent of the
disagreement.
(b) If Purchaser and Seller are unable to resolve any
disagreement with respect to the Final Closing Date Statement
within 30 days after Seller receives a timely notice
<PAGE>
of disagreement, the items of disagreement alone shall be referred for
final determination to the U.S. national office of Price Waterhouse
or, if such firm is unable or unwilling to make such final
determination, to such other independent accounting firm as the
Parties shall mutually designate. The firm making such
determination is referred to herein as the "Independent Party." The
Final Closing Date Statement shall be deemed to be binding on
Purchaser and Seller upon the earlier to occur of (i) Purchaser's
failure to deliver to Seller a notice of disagreement within 30
days after its receipt of the Final Closing Date Statement prepared
by Seller, (ii) resolution of any disagreement by mutual agreement
of the Parties after a timely notice of disagreement has been
delivered to Seller or (iii) notification by the Independent Party
of its final determination of the items of disagreement submitted
to it. The fees and disbursements of the Independent Party shall
be borne equally, one-half by Purchaser and one-half by Seller.
(c) The Closing Date Ceding Commission, including the
adjustments set forth in Section 1.3(c) hereof, shall be
recalculated based on the actual financial information set forth in
the Final Closing Date Statement, which will establish the "Final
Ceding Commission." If the Final Ceding Commission is greater than
the Closing Date Ceding Commission, Purchaser will pay to Seller an
amount equal to the difference between the Final Ceding Commission
and the Closing Date Ceding Commission. If the Final Ceding
Commission is less than the Closing Date Ceding Commission, Seller
shall pay to Purchaser an amount equal to the difference between
the Final Ceding Commission and the Closing Date Ceding Commission.
(d) A Reinsurance Premium adjustment shall be made as
follows using the calculations set forth on the Final Closing Date
Statement):
<PAGE>
(i) If the Final Closing Net Assets are less than
the amount of the Reserve Liabilities, Seller shall
deliver cash to the Trustee in an amount equal to such
difference for deposit in the Trust.
(ii) If the Final Closing Net Assets are
greater than the amount of the Reserve Liabilities,
Purchaser and Seller shall cause the Trustee to pay cash
to Seller in an amount equal to such excess, as
contemplated by the Trust Agreement.
(e) An adjustment with respect to the Accrued but
Unpaid Investment Income will be made as follows (using the
calculations set forth on the Final Closing Date Statement):
(i) If the Accrued but Unpaid Investment Income is
greater than Accrued but Unpaid Investment Income set
forth on the Estimated Closing Date Statement, Purchaser
shall pay cash to Seller in an amount equal to such
excess.
(ii) If the Accrued but Unpaid Investment
Income is less than Accrued but Unpaid Investment Income
set forth on the Estimated Closing Date Statement, Seller
shall pay cash to Purchaser in an amount equal to such
difference.
(f) All amounts paid under this Section 1.6 shall be
paid in cash in immediately available funds within 10 days after
receipt by Purchaser of a binding Final Closing Date Statement with
interest calculated at a rate equal to the three month LIBOR rate
plus 25 basis points on the amount due from the Closing Date
through but not including the date on which such amount is actually
paid.
<PAGE>
ARTICLE 2
ASSUMPTION OF LIABILITIES AND OBLIGATIONS
Section 2.1. Assumption of Seller Liabilities. On the
Closing Date, Purchaser shall assume (a) pursuant to the Indemnity
Reinsurance Agreement, as between Seller and Purchaser, any and all
Insurance Liabilities and Other Liabilities of Seller arising out
of or with respect to each Annuity Contract pending its Novation
(as contemplated by Section 2.4 of the Assumption Reinsurance
Agreement); (b) pursuant to the Assumption Reinsurance Agreement,
any and all Insurance Liabilities and Other Liabilities of Seller
arising out of or with respect to each Annuity Contract from and
after its Novation (as contemplated by Section 2.4 of the
Assumption Reinsurance Agreement); and (c) pursuant to the
Assignment and Assumption Agreement, all contractual liabilities
and obligations of Seller relating to the period after the Closing
Date under the Assigned Contracts. The liabilities referred to in
the preceding clauses (a) through (c) are herein referred to as the
"Assumed Liabilities." Purchaser is not assuming any liabilities
or obligations of any nature whatsoever, fixed or contingent, known
or unknown, other than the Assumed Liabilities.
Section 2.2. Guaranty Fund Assessments.
(a) Purchaser shall pay or reimburse Seller for 100% of
all guaranty fund assessments (or any other assessment of a state
entity formed to protect policyholders against failure of an
insurer to perform its contractual obligations due to impairment or
insolvency, including but not limited to assessments of the
Colorado Life and Health Insurance Protection Association and the
Wisconsin Insurance Security Fund) ("Guaranty Fund Assessments")
payable by Seller and included in Other Liabilities.
<PAGE>
(b) On or before the Closing Date, Seller shall deliver
to Purchaser a report of annuity premiums written by state as
reported to the National Organization of Life & Health Guaranty
Associates ("NOLHGA") for 1993, 1994 and 1995. Seller shall
deliver to Purchaser copies of reports for 1996 and each subsequent
year when filed with NOLHGA until Purchaser determines that it no
longer needs such reports. With respect to each report of
premiums, Seller shall prepare a schedule allocating premiums
between the Annuity Contracts and other annuities issued by Seller
on a state-by-state basis for the time period covered by the report
of premiums and Seller shall deliver same to Purchaser (prior to
the Closing Date, with respect to the reports for 1993, 1994 and
1995). Seller shall deliver to Purchaser a copy of any notice
(including but not limited to a notice of assessment) that Seller
receives relating to any insolvency which occurs on or after the
Closing Date.
(c) With respect to each notice of assessment by the
fund of a state delivered to Purchaser by Seller, Seller shall
prepare a schedule showing the allocation of such assessment
between the Seller and the Purchaser. Subject to Section 2.2(d)
below, Purchaser shall pay its share of such assessment within 30
days after its receipt of the notice of assessment and the
schedules contemplated by this paragraph.
(d) Each notice and schedule delivered to Purchaser
pursuant to Section 2.2(c) hereof shall be binding on Purchaser
unless Purchaser notifies Seller of any disagreement, specifying in
reasonable detail the nature and extent of the disagreement. If
Purchaser and Seller are unable to resolve any disagreement with
respect to any assessment within 30 days after Seller receives a
timely notice of disagreement, the items of disagreement alone
shall be referred for final determination to the U.S. national
office of Price Waterhouse or, if such firm is unable or
<PAGE>
unwilling to make such final determination, to such other independent
accounting firm as the Parties shall mutually designate. The firm
making such determination is referred to herein as the "Independent
Party." Each assessment shall be deemed to be binding on Purchaser
and Seller upon the earlier to occur of (i) Purchaser's failure to
deliver to Seller a notice of disagreement within 30 days after its
receipt of the assessment and related schedules prepared by Seller,
(ii) resolution of any disagreement by mutual agreement of the
Parties after a timely notice of disagreement has been delivered to
Seller or (iii) notification by the Independent Party of its final
determination of the items of disagreement submitted to it. The
fees and disbursements of the Independent Party shall be borne
equally, one-half by Purchaser and one-half by Seller.
(e) Except as provided in Section 3.4 of the Indemnity
Reinsurance Agreement, to the extent Seller realizes a credit
against any premium tax payable by it as a result of any Guaranty
Fund Assessment paid by Purchaser pursuant to this Section 2.2, it
shall pay to Purchaser an amount equal to such credit within 30
days after the date for filing of the annual premium tax return for
such state. For purposes of this Section 2.2, Seller will be
deemed to realize a credit for Guaranty Fund Assessments paid by
Purchaser pursuant to this Section 2.2 if and when the premium tax
payable by Seller calculated without giving effect to available
credits for Guaranty Fund Assessments paid by Purchaser pursuant to
this Section 2.2 (but applying all other credits and debits
available to Seller in such manner as Seller elects in its sole
discretion, except that guaranty fund credits atttributable to
Guaranty Fund Assessments paid by Purchaser will be deemed utilized
first against premium taxes paid by Purchaser under Section 3.4 of
the Indemnity Reinsurance Agreement) is greater than the premium
tax payable
<PAGE>
by Seller giving effect to such credit, and the amount
of such credit realized shall be deemed to equal such difference;
provided, however, that in the event of a merger, only Seller
credits shall be taken into account. Purchaser's right to the
benefit of any credit shall be determined first under Section 3.5
of the Indemnity Reinsurance Agreement and then under this Section
2.2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 3.1. Organization, Standing and Authority of Seller.
Seller is a corporation duly organized as a capital stock life and
health insurance company, validly existing and in good standing
under the Laws of the State of Minnesota. Seller has all corporate
power and authority necessary or required by Law to engage in the
conduct of the Annuity Business as currently conducted by it.
Section 3.2. Authorization. Seller has all corporate power
and authority necessary to execute, deliver and perform its
obligations under this Agreement and under each of the Ancillary
Agreements to be executed by it. Seller is duly licensed,
qualified or admitted to do business and is in good standing in all
jurisdictions in which it is required to be so qualified, licensed
or admitted to do business by the Laws thereof, including, without
limitation in each jurisdiction in which Annuity Contracts have
been issued, except where the failure to so qualify, be admitted or
licensed, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect. The execution and
delivery by Seller of this Agreement and the Ancillary Agreements
to be executed by it, and the performance by Seller of its
obligations
<PAGE>
under such agreements, have been duly authorized by all
necessary corporate and shareholder actions on the part of Seller.
This Agreement and each of the Ancillary Agreements executed by
Seller, when executed by all of the parties thereto, will
constitute a valid and binding obligation of Seller enforceable
against Seller in accordance with its terms, except insofar as
enforceability may be limited by bankruptcy, insolvency, moratorium
or other Laws which may affect creditors' rights and remedies
generally and by principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
Section 3.3. Actions and Proceedings. Except as disclosed
on Schedule 3.3 attached hereto, (a) there are no outstanding
Orders by or with any court, arbitrator or Governmental Entity
before which Seller or any of its material Affiliates is or was a
party that, (i) relate to the Annuity Business or the Purchased
Assets or (ii) individually or in the aggregate, have a Material
Adverse Effect and (b) there are no Actions pending or, to the
knowledge of Seller, threatened against Seller or any of its
material Affiliates (i) related to the Annuity Business or to which
any of the Purchased Assets is subject that seeks monetary damages
in excess of $100,000 individually or $500,000 in the aggregate or
seeks an unspecified amount of damages, (ii) that seeks injunctive
or similar relief or (iii) which would, individually or in the
aggregate, have a Material Adverse Effect.
Section 3.4. No Conflict or Violation. Except as disclosed
on Schedule 3.4 attached hereto, the execution, delivery and
performance by Seller of this Agreement and the Ancillary
Agreements to which it is a party in accordance with the respective
terms and conditions hereof and thereof do not and will not (a)
violate any provision of the charter or by-laws of Seller, as
amended to date, (b) violate, constitute a default under or result
in the breach, cancellation or
<PAGE>
termination of, accelerate the performance required under, or result in
the creation of any lien, claim, restriction, charge or encumbrance or
other defect of title ("Liens") upon any of the assets of Seller or any
of the Purchased Assets pursuant to, any mortgage, deed of trust,
guaranty, note, indenture, bond, lease, agreement or other instrument
to which Seller is a party or by or to which it or any of such assets or
the Purchased Assets may be bound, (c) violate any Order of any court,
arbitrator or Governmental Entity against, or binding upon, or any
agreement with, or condition imposed by, any court, arbitrator or
Governmental Entity binding upon Seller, such assets or any of the
Purchased Assets, (d) violate any Law or (e) result in the breach
or violation of any of the terms or conditions of, constitute a
default under, or otherwise cause an impairment or revocation of,
any license, permit, order, approval, registration, authorization,
qualification or filing with or under any Law or Governmental
Entity (collectively, "Permits") related to the Annuity Business,
except for Liens, violations, breaches or defaults with respect to
assets of Seller other than the Purchased Assets that, individually
or in the aggregate, do not have a Material Adverse Effect.
Section 3.5. Consents and Approvals. Except as required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and rules and regulations thereunder (the "HSR Act") or as
set forth on Schedule 3.5 attached hereto, no consent, approval,
exemption or authorization is required to be obtained from, no
notice is required to be given to and no filing is required to be
made with any third party (including, without limitation,
Governmental Entities of competent jurisdiction) by Seller in order
(a) for this Agreement, each of the Ancillary Agreements and each
of the Assigned Contracts to which Seller will be a party to
constitute a valid and binding obligation of Seller, (b) to
authorize or permit the consummation
<PAGE>
of the transactions contemplated hereby by Seller or (c) to prevent
the termination of any material right, privilege, franchise, Permit
or agreement related to the Annuity Business or to prevent any material
loss related to the Annuity Business.
Section 3.6. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as
such for, or is entitled to any compensation from, Seller in
connection with this Agreement or the transactions contemplated
hereby, except CS First Boston, whose fees for services rendered in
connection with such transactions will be paid by Seller.
Section 3.7. Compliance With Laws. Except as disclosed in
Schedule 3.7 attached hereto, Seller is not in material violation
of any Law or any Order of any court, arbitrator or Governmental
Entity pertaining to the Annuity Business.
Section 3.8. Annuity Contracts. The forms of all policies
and endorsements utilized for all Annuity Contracts in effect on
the date of this Agreement are listed and described on Schedule
3.8(a) attached hereto. All Annuity Contracts in effect on October
21, 1996 are listed and described on Schedule 3.8(b) attached
hereto. All Annuity Contracts in effect on the Closing Ledger Date
will be set forth in an updated Schedule 3.8(b) delivered to
Purchaser at the Closing. Schedule 3.8(b) includes with respect to
each Annuity Contract in effect on October 21, 1996 and will
include with respect to each Annuity Contract in effect on the
Closing Ledger Date, the policy number, policyholder name, form,
plan code and account balance. Schedule 3.8(b) attached hereto also
sets forth statutory reserves by plan code with respect to the
Annuity Contracts as of September 21, 1996 and the updated Schedule
3.8(b) will set forth such information with respect to the Annuity
Contracts as of the date of such Schedule set forth above. All
Annuity Contracts are in all respects, to the extent required under
applicable Laws,
<PAGE>
on forms approved by applicable insurance regulatory authorities or
which have been filed and not objected to by such authorities within
the period provided for objection, and such forms comply in all
material respects and have been administered in all material respects
in accordance with applicable Laws. Without limiting the foregoing:
(a) Seller has offered and sold each Annuity Contract
in compliance with all applicable Laws (it being acknowledged that
no representation is made with respect to independent agents of
Seller except as provided in Section 3.8(h) hereof) and all of
Seller's registrations, filings or submissions made by it with
respect to the Annuity Contracts with any Governmental Entity were
in material compliance with applicable Laws when filed.
(b) The transactions contemplated by this Agreement
will not affect the validity and binding character of any Annuity
Contract entered into or issued by Seller or render any admitted
assets of Seller non-admitted under applicable Laws up to and
including the Closing Date.
(c) Except as set forth in Schedule 3.8(c) attached
hereto, and except in accordance with customary insurance industry
practice, (i) Seller is not liable to pay commissions upon the
renewal of any Annuity Contract nor (ii) is it a party to any
agreement providing for the third-party collection of annuity
premiums payable to Seller by any other Person which commissions or
premiums exceed $100,000 in the aggregate.
(d) All Annuity Contracts (including all Policy Loans
related thereto and the policy loans identified on Schedule
1.2(a)(iii) attached hereto) are in full force and effect and are
legal, valid and binding obligations of Seller, and to the
knowledge of Seller the other parties thereto, and are enforceable
against Seller, and to the knowledge of Seller the other parties
thereto, 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 (other than equitable rescission rights).
(e) All Annuity Contract benefits payable by Seller,
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 Seller, have been paid in accordance with the terms
of the Annuity Contracts under which they arose, except for such
benefits for which there is, in the reasonable opinion of Seller,
a reasonable basis to contest and all such contested benefits have
been disclosed in Schedule 3.8(e) attached hereto.
(f) No outstanding Annuity Contract issued, reinsured
or underwritten by Seller entitles the holder thereof or any other
Person to receive dividends, distributions or other benefits based
on the revenues or earnings of Seller or any other Person.
(g) The underwriting standards utilized and ratings
applied by Seller 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 Seller conform in all respects to
industry accepted practices and to the standards and ratings
required pursuant to the terms of the respective reinsurance,
coinsurance or other similar contracts.
(h) To the knowledge of Seller, each producer who
wrote, sold or produced any portion of the Annuity Business for
Seller was duly licensed as an insurance agent (for the type of
business written, sold or produced by such producer) in the
particular jurisdiction in which such producer wrote, sold or
produced such business. Except as otherwise provided in
<PAGE>
Schedule 3.8(h) attached hereto, to the knowledge of Seller, no
insurance agent who wrote, sold or produced any portion of the Annuity
Business for Seller violated in any material respect any terms or
provisions of any Law, except such violations as have been (i)
cured, (ii) resolved through agreements with applicable
Governmental Entities or (iii) are barred by an applicable statute
of limitations.
(i) The treatment under the Internal Revenue Code of
1986, as amended, and any successor thereto (the "Code") of all
Annuity Contracts is no less favorable to the Policyholder thereof
than the treatment under the Code for which such Annuity Contracts
were intended to qualify at the time of their issuance, except for
any failure to qualify for such treatment that results from (i)
changes to the Code, regulations, pronouncements, announcements or
guidance issued in connection with the treatment of the contracts
under the Code which were enacted (or have an effective date) after
the Closing Date, (ii) amendments, modifications, supplements,
riders, endorsements or revisions to the Annuity Contracts after
the Closing Date or (iii) changes in the manner in which the
Annuity Contracts are administered after the Closing Date.
Section 3.9. Permits, Licenses and Franchises. Schedule 3.9
attached hereto lists all jurisdictions in which Seller is licensed
to issue the Annuity Contracts and each Annuity Contract form
utilized in the respective jurisdictions. Seller has been duly
authorized by all relevant Governmental Entities to issue the
Annuity Contracts that it is currently writing, and was duly
authorized to issue the Annuity Contracts that it is not currently
writing at the time such Annuity Contracts were issued, in each of
the respective jurisdictions in which it conducts the Annuity
Business. Except as set forth on Schedule 3.9 attached hereto,
Seller has all Permits necessary
<PAGE>
to conduct the Annuity Business as currently conducted by Seller.
All of the Permits are in full force and effect and Seller has not
received notice from any Governmental Entity of its intention to
revoke or not renew any Permit, except for such failures to have
Permits in full force and effect, revocations, non-renewals and other
events which do not and will not, individually or in the aggregate,
have a Material Adverse Effect.
Section 3.10. Regulatory Filings. Seller has made available
for inspection by Purchaser all material registrations, filings and
submissions made by Seller with any Governmental Entity and final
financial and market conduct reports of examinations with respect
to Seller issued by any such Governmental Entity along with copies
of Seller's responses thereto to the extent that such
registrations, filings, submissions and reports relate to the
Annuity Business and were made or issued on or subsequent to
January 1, 1993. Except as listed on Schedule 3.10 attached
hereto, Seller has filed all material reports, statements,
documents, registrations, filings or submissions (including without
limitation any sales, marketing or advertising material) required
to be filed by it with any Governmental Entity to the extent the
same relate to the Annuity Business. Except as listed on Schedule
3.10 attached hereto, (a) no material deficiencies have been
asserted by any such Governmental Entity with respect to such
registrations, filings or submissions that have not been satisfied;
(b) such registrations, filings or submissions were in material
compliance with applicable Law when filed; (c) since December 31,
1994, Seller has not submitted any written response with respect to
material comments related to the Annuity Business from any
Governmental Entity concerning such registrations, filings,
submissions or reports of examination; (d) since December 31, 1992,
no fine or penalty has been imposed on Seller by any Governmental
Entity specifically with respect to the Annuity Business; and (e) no
<PAGE>
deposits have been made by Seller with, or at the direction of,
any Governmental Entity with respect to the Annuity Business which
were not shown in the most recent Annual Statement of Seller.
Section 3.11. Reinsurance. Schedule 3.11 sets forth all
reinsurance or co-insurance agreements (together with all other
agreements related thereto) related to the Annuity Contracts to
which Seller is a party and all such contracts, arrangements,
treaties, understandings and agreements under which Seller has any
obligation to cede or assume insurance. All such agreements are
valid and binding against Seller and, to the knowledge of Seller,
the other parties thereto, and are in full force and effect in
accordance with their terms and conform in all material respects to
all applicable Laws and neither Seller, nor to the knowledge of
Seller, any other party thereto is in material default under any
such agreement. Except as otherwise provided on Schedule 3.11, no
party to any such agreement has audited Seller with respect
thereto.
Section 3.12. Absence of Certain Changes or Events. Except
as disclosed on Schedule 3.12 attached hereto or except as
expressly contemplated or required by this Agreement, since
December 31, 1995, (a) with respect to Seller's Annuity Business,
Seller has not, except in the ordinary course of the Annuity
Business consistent with past practice, (I) engaged in any material
transaction, (II) entered into any material agreement or (III)
waived or released any material right or obligation and (b) except
as disclosed on Schedule 3.12 attached hereto, there has not been,
occurred or arisen in connection with Seller's Annuity Business:
(i) any work stoppage, strike, labor difficulty or
union organizational campaign (in process or threatened)
at or affecting Seller's Annuity Business;
<PAGE>
(ii) any payment, discharge or satisfaction by
Seller of any material Lien or liability other than
material Liens or liabilities that were paid, discharged
or satisfied in the ordinary course of business and
consistent with past practice;
(iii) any sale, transfer or conveyance of any
investments or other assets of Seller related to the
Annuity Business with an individual Book Value in excess
of $100,000 or an aggregate Book Value in excess of
$10,000,000, except in the ordinary course of business
and consistent with past practice;
(iv) any amendment, termination, waiver,
disposal or lapse of, or other failure to preserve, any
material license, Permit or other form of authorization
of Seller;
(v) any amendment of, or any failure by Seller to
perform all of its obligations under, or any default
under, or any waiver of any right under, or any
termination (other than on the stated expiration date)
of, any contract that involves or reasonably would
involve the annual expenditure or receipt by Seller of
more than $100,000 except for actions taken with respect
to Annuity Contracts in force (including, without
limitation, reinsurance thereon) in the ordinary course
of business and consistent with past practice;
(vi) any termination, amendment or entering
into by Seller as ceding or assuming insurer of any
reinsurance, coinsurance or other similar contract or any
trust agreement or security agreement related thereto
except as disclosed in Schedule 3.11 attached hereto or
contemplated hereby;
<PAGE>
(vii) any Lien created on or in any of the
Purchased Assets or assumed by Seller with respect to any
of such assets, which Lien relates to liabilities
individually or in the aggregate exceeding $100,000 (but
excluding Liens arising through securities lending in the
ordinary course of Seller's business);
(viii) any material change in any underwriting,
actuarial, investment, financial reporting, marketing or
accounting practice or policy followed by Seller related
to the Annuity Business, or in any assumption underlying
such a practice or policy, or in any method of
calculating any bad debt, contingency, or other reserve
for financial reporting or any other accounting purposes
related to the Annuity Business other than as required by
GAAP, SAP or applicable Law.
(ix) any contract or agreement, written or
oral, to take any of the actions set forth in clauses (i)
through (viii) of this Section 3.12.
Section 3.13. Assigned Contracts. Each of the Assigned
Contracts is valid and binding against Seller and, to the knowledge
of Seller, each other party thereto, and in full force and effect
according to its terms and is freely assignable to Purchaser
pursuant to this Agreement and the Assignment and Assumption
Agreement without notice to or consent of any person or entity,
other than as specified on Schedule 3.5 attached hereto. Other
than as set forth on Schedule 3.13 attached hereto, except for the
Assigned Contracts, there are no contracts of Seller necessary to
the Annuity Business as currently conducted by Seller. Neither
Seller nor, to Seller's knowledge, any other party to any Assigned
Contract is in violation, breach or default in any material respect
with respect to any such Assigned Contract.
<PAGE>
Section 3.14. Intellectual Property. Schedule 3.14 attached
hereto sets forth a list of all computer software programs and
other intellectual property used by Seller that Seller reasonably
believes to be necessary to conduct the Annuity Business as
currently being conducted. Schedule 3.14 attached hereto also sets
forth whether each such computer software program is (i) owned by
Seller or (ii) licensed by Seller. Schedule 3.14 attached hereto
sets forth each licensing agreement pursuant to which Seller has
the right to use such licensed software. To the knowledge of
Seller, Seller is not in conflict with or in violation or
infringement of any rights, asserted or otherwise, of any other
Person with respect to any such software and other intellectual
property, nor has Seller received any notice of any such conflict,
violation or infringement. Seller has the non-exclusive right to
use all such licensed software and other intellectual property and
will have the right to use such software after the Closing Date to
the extent necessary to provide administration services under the
Transition Services Agreement and the Transition Services Agreement
contemplated by the JANY Stock Purchase Agreement so long as the
services provided thereunder do not substantively change from the
administration currently conducted by Seller. Schedule 3.14
attached hereto sets forth the amounts paid by Seller since
December 31, 1995 for use of the licensed software.
Section 3.15. Purchased Assets. Seller has good and
marketable title to all assets included within the Purchased Assets
(other than cash and the Assigned Contracts), free of any Lien,
except to the extent the Annuity Contracts are subject to a
reinsurance, coinsurance or similar agreement as set forth on
Schedule 3.11 attached hereto. As of June 21, 1996, the June 21
Portfolio Securities in the aggregate had a Book Value equal to the
amount set forth on
<PAGE>
Schedule 1.2(a)(i) attached hereto and an aggregate gross book
annual effective yield (before reduction for third party mortgage
servicing costs) of at least 8.18%.
Section 3.16. Statutory Financial Statements. Seller has
previously delivered to Purchaser true, complete and correct copies
of the audited statements of admitted assets, liabilities and
capital and surplus (statutory basis) of Seller as of December 31,
1993, 1994 and 1995, and the related summaries of operations,
statements of capital and surplus and cash flow (statutory basis)
for the years then ended, together with the notes related thereto.
Seller has previously delivered to Purchaser true, complete and
correct copies of the Annual Statements of Seller as filed with the
Department of Commerce, State of Minnesota for the years ended
December 31, 1993, 1994 and 1995, together with all attachments,
exhibits and schedules thereto and all affirmations and
certifications filed therewith applicable to the Annuity Business
and the actuarial opinions applicable to the Annuity Business for
such years. Seller has previously made available to Purchaser for
review (without the right to remove or make copies) all auditors'
work papers related to the Annuity Business and related to the
foregoing audited financial information. Seller has previously
delivered to Purchaser true, complete and correct copies of the
Quarterly Statements of Seller as filed with the Department of
Commerce, State of Minnesota for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, together with all
attachments, exhibits and schedules thereto and all affirmations
and certifications filed therewith applicable to the Annuity
Business. Each such Annual Statement and Quarterly Statement
complied in all material respects with all applicable Laws when so
filed and was timely filed with all required Governmental Entities.
No material deficiencies have been asserted or are otherwise known
by Seller with respect thereto. Each such financial
<PAGE>
statement (and the exhibits and schedules relating thereto), including
without limitation each statement of assets, liabilities, surplus
and other funds (statutory basis) of Seller and each of the
summaries of operations, statements of capital and surplus and cash
flow (statutory basis) contained in the respective financial
statement was prepared in accordance with SAP applied on a
consistent basis (except for changes, if any, disclosed therein)
and each such Annual Statement and Quarterly Statement fairly
presents (in accordance with SAP) the financial condition of Seller
as of the respective dates thereof, and its results of operations
or cash flows, as the case may be, for and during the respective
periods covered thereby (provided the Quarterly Statements are
subject to normal year end adjustments and lack footnotes and other
presentation items). There were no material liabilities affecting
Seller as of December 31, 1995 required in accordance with SAP to
be reflected or disclosed in the Annual Statement for the period
then ended, or as of March 31, 1996, June 30, 1996 or September 30,
1996 required in accordance with SAP to be reflected or disclosed
in the Quarterly Statement for the period then ended, which are not
so reflected or disclosed therein. Seller has not prepared any
GAAP financial statements with respect to the Annuity Business.
Section 3.17. Reserves. The Reserve Liabilities as of June
30, 1996 and September 21, 1996 have been calculated in the manner
reflected on Schedule 3.17(a) attached hereto. Except as set forth
in Schedule 3.17(b) attached hereto, all reserves with respect to
Annuity Contracts as established or reflected, and all other
provisions made for policy and contract claims with respect to
Annuity Contracts (calculated gross of reinsurance applicable to
London Life Reinsurance Company pursuant to the agreement dated
October 1, 1996 and Lincoln National Reassurance Company pursuant
to the agreement dated December 31, 1991 and, at a
<PAGE>
minimum, to be calculated to include 66-2/3% of the additional
reserves (or such greater amount of reserves as have actually been
posted), solely due to compliance with Actuarial Guideline 33, for
policies issued on or prior to December 21, 1994, and 100% of such
additional reserves (or such greater amount of reserves as have
actually been posted) for policies issued subsequent to December 21, 1994)
(collectively, "Reserve Liabilities"), in the respective Annual and
Quarterly 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 Annuity Contracts of Seller, and
such Reserve Liabilities and other provisions met the applicable
requirements of the insurance Laws and regulations of the State of
Minnesota. Without limitation of the foregoing sentence, to
Seller'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 Annuity Contracts.
Section 3.18. Threats of Cancellation. Except as set forth
in Schedule 3.18 attached hereto, since December 31, 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 account values of Seller's and JANY's Annuity Business,
taken as a whole, in each case at or for the 12 month
<PAGE>
period then ended, has terminated or, to the knowledge of Seller,
threatened to terminate its relationship with Seller.
Section 3.19. Credited Rates. Seller has complied and is in
compliance with all applicable contract provisions and Laws
associated with credited interest rates related to the Annuity
Contracts.
Section 3.20. Related Agreements. Each of the Related
Agreements is similar in all material respects to one of the forms
set forth on Schedule 3.20 attached hereto. Seller knows of no
Related Agreements other than those listed in Schedule 3.20
attached hereto concerning commissions payable on the Annuity
Contracts. Seller is not in breach of any of the Related
Agreements, and to the knowledge of Seller, none of the other
parties to the Related Agreements is in breach thereof.
Section 3.21. Third Party Administration Agreements.
Schedule 3.21 attached hereto lists all third party administration
agreements relating to the Annuity Contracts, regardless of whether
Seller is receiving or providing services (the "Third Party
Administration Agreements"). The Third Party Administration
Agreements are valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms, and to Seller's
knowledge, are valid and binding obligations of the other parties
thereto, enforceable against such other parties in accordance with
their terms. Seller is not in breach of any of such Third Party
Administration Agreements and, to the knowledge of Seller, none of
the other parties to such Third Party Administration Agreements is
in breach thereof.
<PAGE>
Section 3.22. Mortgage Loans.
(a) Except as set forth on Schedule 3.22(a) attached
hereto, Seller is the holder of a first lien position on the
Mortgage Loans free and clear of any other Liens, except for with
respect to the Mortgaged Property or the mortgage related thereto
(a) the lien of current real property taxes and assessments, ground
rents, personal property taxes, water rates, water frontage charges
and/or meter charges, sewer taxes or rents and other similar
charges or assessments, in each case not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements
and other matters of public record of a type acceptable to lending
institutions generally or specifically referred to in the title
insurance policy or title opinion issued in connection with the
original loan made with respect to the Mortgaged Property, (c)
mechanics' or similar liens or claims for work, labor and
materials, (d) zoning and other land use restrictions and
ordinances, including, without limitation, landmark, historic and
wetland designations, (e) rights of tenants under leases or other
rights of tenants or rights of other occupants of the premises with
or without the legal right to do so, (f) any state of facts an
accurate survey would show with respect to the Mortgaged Property,
(g) the failure of the premises to comply with applicable occupancy
Law or municipal violations of record, (h) in the case where the
Mortgaged Property is a condominium unit, the lien of a condominium
association on such Mortgaged Property for unpaid maintenance or
common expense assessments not yet due and payable, (i) littoral or
riparian rights, if any, (j) any right, title or interest in any
minerals, mineral rights or related matters including but not
limited to oil, gas, coal and other hydrocarbons whether or not
shown by the public records and (l) the lien of any secondary
financing, in each case, which do not materially impair the
Mortgage Loan ("Permitted
<PAGE>
Mortgage Liens"). As of the date specified therein, the (i) loan
number, (ii) loan class, (iii) lien priority, (iv) borrower's name,
(v) property address, (vi) outstanding principal amount, (vii) book
value, (viii) delinquency status, (ix) status code, (x) current
interest rate (or the method of calculating same), (xi) service fee
rate, (xii) net interest rate, (xiii) maturity date and (xiv)
percentage owned by Seller for each Mortgage Loan are materially as
set forth in the Mortgage Loan Schedule. Except as set forth on
Schedule 3.22(a) attached hereto, the proceeds of each Mortgage Loan
have been fully disbursed and there are no future or additional advances
to be made with respect to any Mortgage Loans. Except as set forth
on Schedule 3.22(a) attached hereto, no Mortgage Loan has been
delinquent for a period of more than 30 days within the last 12 months
in the payment of any principal or interest thereon. Each Mortgage
Loan is a permitted investment for Minnesota life insurers under applicable
Law.
(b) With respect to each Mortgage Loan and any and all
Loan Documents relating thereto, to Seller's knowledge (i) each of
such Mortgage Loans and Loan Documents are the legal, valid, and
binding obligation of the mortgagor, obligor or the guarantor, as
applicable, and each is enforceable in accordance with its terms,
except as enforcement thereof may be limited by applicable
bankruptcy or insolvency Laws, provided that in this case, Seller
may rely upon borrower's closing counsel's opinion letter if
originated by Seller, or upon representations and warranties given
to Seller by another financial institution or entity if purchased
by Seller, or in the absence of either, without due inquiry or
investigation by Seller so long as Purchaser is assigned the
benefits of such opinions, representations or warranties, (ii) none
of such Mortgage Loans or Loan Documents is the subject of any
agreement, contract or other arrangement (other than this
Agreement) pursuant to which any interest in any Mortgage
<PAGE>
Loan or any payment due under any Mortgage Loan or with respect to any
Mortgage Property has been or is intended to be sold, used as
collateral, transferred to or otherwise disposed of to any Person
or Persons by the original lender, subject to the participatory
interests of other lenders or investors as are set forth on
Schedule 3.22(b) attached hereto.
(c) With respect to each Mortgage Loan and any and all
Loan Documents relating thereto, the mortgagor does not have a
valid defense to the payment in full of such Mortgage Loan that
arises from applicable Laws and such Mortgage Loan is not subject
to any right of rescission, set-off, abatement, diminution or
counterclaim, except in any case as such right or defense may be
provided by bankruptcy, insolvency, reorganization or other similar
Laws affecting the enforcement of creditors' rights generally and
by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) None of the terms of any Loan Documents relating to
any Mortgage Loan have been waived, amended or modified in any
respect, except as set forth on the Mortgage Loan Schedule and
except for such waivers, amendments and modifications as do not
adversely affect (i) any mortgagor's, obligor's or guarantor's
obligation to pay principal, interest or other sums required
(including the timing of such payments) to be paid under such Loan
Documents, (ii) Seller's Liens against the Mortgage Property
securing the Mortgage Loan or (iii) the enforceability in a timely
manner of such Liens. Except as set forth in the Mortgage Loan
Schedule, no Mortgage Loan has been satisfied, subordinated or
rescinded, in whole or in part, except (i) upon full payment of the
underlying loan or, in the case of a partial release, in connection
with the receipt of an independent third party MAI self-contained
appraisal evidencing that there is sufficient collateral (which for
this purposes shall mean no more than
<PAGE>
80% loan to value) remaining with respect to such Mortgage Loan or
(ii) as a result of a final judgment or its equivalent of a condemnation
or eminent domain proceeding which does not materially impair the
Mortgaged Property or Mortgage Loan. Except as set forth on Schedule
3.22(d) attached hereto, no mortgagor, obligor nor any guarantor listed
on the Mortgage Loan Schedule in respect of any Mortgage Loan has been
released, in whole or in part except in accordance with the terms
of the Note and Mortgage, except in the case of a partial release
either (i) as a result of a written loan modification or assumption
agreement or (ii) if, prior to the release of any mortgagor,
obligor or guarantor, a determination was made by Seller that (a)
such mortgagor, obligor or guarantor was insolvent or deemed to
have a lack of ability to make any material contribution with
respect to the outstanding Mortgage Loan debt and (b) that the
remaining mortgagor, obligor or guarantor was able to repay the
outstanding Mortgage Loan debt, in either case such that the
release of any mortgagor, obligor or guarantor would not have a
material adverse impact on the repayment of the Mortgage Loan.
(e) None of the Mortgage Loans are cross-collateralized
with any other mortgage loan except for another Mortgage Loan other
than a cross-collateralization which does not have a material
adverse impact on the repayment of the Mortgage Loan.
(f) The Mortgage File with respect to each Mortgage
Loan contains all of the Loan Documents relating to each such
Mortgage Loan, including, but not limited to, all documents
described on Exhibit K and all such documents are true, complete
and correct copies of the documents they purport to be. Except as
set forth on Schedule 3.22(f) attached hereto, the Mortgage Loan
Files contain the original promissory notes and/or other evidence of
<PAGE>
indebtedness (including all amendments thereto) and the originals
of all credit enhancements, if any, as applicable.
(g) With regard to the Mortgaged Property relating to
any Mortgage Loan, to the knowledge of Seller no material amount of
Hazardous Substances has been disposed of or identified on, under
or at such Mortgaged Property the presence of which is either in
violation of Law or would, under applicable Laws require (or permit
any Governmental Entity to require) removal or remediation of such
Hazardous Substance, except to the extent that removal or
remediation has occurred or will occur prior to the Closing Date
and except as would not materially affect the Mortgaged Property or
the repayment of the Mortgaged Loan.
(h) To the knowledge of Seller, there is no pending or
threatened condemnation proceeding affecting any Mortgaged
Property, or any part thereof, which could have an adverse effect
upon the current use of such Mortgaged Property.
(i) To the knowledge of Seller, there is no pending or
threatened Action relating to such Mortgage Loan affecting the
Mortgaged Property relating to such Mortgage Loan which would have
a material and adverse effect upon such Mortgage Loan.
(j) Seller has received no written notice (i) of any
material violation of any Law which is a direct result of the
maintenance, operation, occupancy, or use of any of the Mortgaged
Property related to such Mortgage Loan, in its present manner such
that the violation would materially adversely affect the operation,
occupancy or other use of such Mortgaged Property and (ii) that any
material Permits and approvals required by Governmental Entities
having jurisdiction over the operation of such Mortgaged Property
in its present manner have not been performed, issued or paid for
or are not in full force and effect.
<PAGE>
(k) With respect to each Mortgage Loan, (i) each
Mortgage is covered by a title insurance policy or where customary
an opinion of title from a law firm in such jurisdiction insuring
or opining that the Mortgage creates the first priority Lien it
purports to create and that the Mortgage is not subject to any
defect or encumbrance except Permitted Mortgage Liens, (ii) no
claims have been made by Seller or, to Seller's knowledge, any
other Person under any title policy relating to any Mortgage Loan,
(iii) there has been no act or omission by Seller, or to Seller's
knowledge, any party holding an interest in any title policy
(including without limitation any failure to pay the premiums
therefor) that creates sufficient grounds for the defense by the
title insurer of any claims by the insured or that otherwise limits
the title insurer's liability under any title policy relating to
any Mortgage Loan and (iv) there has been no act or omission by
Seller, or to Seller's knowledge, any party holding an interest in
any title policy that has caused a subordination of the priority of
any Lien as insured under any title policy relating to any Mortgage
Loan. Seller is the insured under any title policy relating to any
Mortgage Loan, either by name, endorsement or by virtue of being
the successor to the original named insured lender. Seller is
either the sole insured or a participant insured in those Mortgage
Loans in which the Seller does not hold 100% of the first Lien.
(l) There are no delinquent real estate taxes in
respect of any Mortgage Property except as set forth on the
Mortgage Loan Schedule or any deficiency in any obligor's
obligations to pay amounts into escrow (other than in the case of
escrows where property taxes have been increased in the past 12
months).
(m) If upon origination the Mortgaged Property relating
to such Mortgage Loan was in an area identified in the Federal
Register by the Federal Emergency Management
<PAGE>
Agency as having special flood hazards (and the flood insurance
described below is available), a flood insurance policy meeting
the requirements of the current guidelines of the Federal Insurance
Administrator, if available, is in effect with a generally acceptable
insurance carrier, in an amount representing coverage not less than the
lesser of (i) the unpaid principal balance of such Mortgage Loan,
(ii) the full insurable value of such Mortgaged Property or (iii)
the maximum amount of insurance available under the Flood Disaster
Protection Act of 1973.
(n) A hazard insurance policy with a standard mortgagee
clause is in effect with respect to each Mortgage Loan (other than
a Mortgage Loan secured solely by unimproved land), in an amount
representing coverage not less than the lesser of (i) the unpaid
principal balance of such Mortgage Loan or (ii) the full insurable
value of the Mortgaged Property relating to such Mortgage Loan.
(o) With respect to any Mortgage Loan that is secured
in whole or in part by the interest of a borrower as a lessee under
a ground lease of a Mortgaged Property, such ground lease has an
original term (including any extension options set forth therein)
which extends not less than five years beyond the maturity date of
the related Mortgage Loan.
(p) All servicing contracts related to the Mortgage
Loans originated by Seller are terminable at the election of Seller
at termination fees that are no greater than customary termination
fees paid in accordance with industry practice.
Section 3.23. No Waiver of Defenses. Seller has not waived
any defenses, claims or Actions which would have been available to
Seller under the Annuity Contracts or the Related Agreements.
<PAGE>
Section 3.24. Agent Balances. Schedule 3.24 attached hereto
sets forth all producers with respect to the Annuity Contracts
having a balance owed by such producer to Seller for fees and
commissions relating to the Annuity Contracts and the nature and
amount of such balance.
Section 3.25. GAAP Financial Statements. On or prior to the
date hereof, Seller has delivered to Purchaser true, correct and
complete copies of (a) the audited consolidated balance sheets of
John Alden Financial Corporation ("John Alden") and its
subsidiaries as of December 31, 1995 and 1994, prepared in
accordance with GAAP, together with the notes thereon and the
related report of Price Waterhouse the independent certified public
accountant of John Alden, and (b) the audited consolidated
statements of income, stockholders' equity and cash flows of John
Alden and its subsidiaries for the years ended December 31, 1995,
1994 and 1993 prepared in accordance with GAAP, together with the
notes thereon and the related report of Price Waterhouse
(collectively, the "John Alden Financial Statements"). Seller has
delivered to Purchaser true, correct and complete copies of the
consolidated balance sheets, and the related consolidated
statements of income, stockholders' equity and cash flows of John
Alden and its subsidiaries for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, prepared in accordance with
GAAP (the "Interim John Alden Financial Statements"). The John
Alden Financial Statements and the Interim John Alden Financial
Statements are based on the books and records of John Alden and its
subsidiaries and have been prepared in accordance with GAAP
consistently applied (except in the case of the Interim John Alden
Financial Statements for normal year end adjustments). The John
Alden Financial Statements have been, audited by Price Waterhouse.
The John Alden Financial Statements and the Interim John Alden
Financial Statements fairly present in all material respects the
consolidated financial position and results
<PAGE>
of operations of John Alden and its subsidiaries as of the dates
and for the periods indicated therein.
For purposes of this Article 3, references to the knowledge of
Seller means, after reasonable inquiry, the actual knowledge of
officers of Seller having the title of Senior Vice President or
higher.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 4.1. Organization and Standing. Purchaser is a
corporation duly organized and validly existing under the Laws of
the State of Arizona. Purchaser has all corporate power and
authority necessary or required by Law to own, lease and operate
its assets, properties and business and to carry on the operations
of its business as currently conducted by it.
Section 4.2. Authorization. Purchaser has all corporate
power and authority necessary to execute, deliver and perform its
obligations under this Agreement and under each of the Ancillary
Agreements to be executed by it. Purchaser is duly licensed,
qualified or admitted to do business and is in good standing in all
jurisdictions in which it is required to be so qualified, licensed
or admitted to do business by the Laws thereof, except where the
failure to so qualify, be admitted or licensed, individually or in
the aggregate is not reasonably likely to have a Material Adverse
Affect on Purchaser. The execution and delivery by Purchaser of
this Agreement and the Ancillary Agreements to be executed by it,
and the performance by
<PAGE>
Purchaser of its obligations under such agreements, have been duly
authorized by all necessary corporate and shareholder actions on
the part of Purchaser. This Agreement and each of the Ancillary
Agreements executed by Purchaser, when executed by all of the
parties thereto, will constitute a valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with its
terms, except insofar as enforceability may be limited by bankruptcy,
insolvency, moratorium or other Laws which may affect creditors' rights
and remedies generally and by principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
Section 4.3. Actions and Proceedings. Except as disclosed
on Schedule 4.3 attached hereto, (a) there are no outstanding
Orders by or with any court, arbitrator or Governmental Entity
before which Purchaser or any of its material Affiliates is or was
a party that, individually or in the aggregate, have a Material
Adverse Effect on Purchaser, and (b) there are no Actions pending
or, to Purchaser's knowledge, threatened against Purchaser or any
of its material Affiliates which would, individually or in the
aggregate, have a Material Adverse Effect on Purchaser.
Section 4.4. No Conflict or Violation. Except as disclosed
on Schedule 4.4 attached hereto, the execution, delivery and
performance by Purchaser of this Agreement and the Ancillary
Agreements to which it is a party in accordance with the respective
terms and conditions hereof and thereof do not and will not (a)
violate any provision of the charter, by-laws or other
organizational document of Purchaser, in each case, as amended to
date, (b) violate, constitute a default under, or result in the
breach, cancellation or termination of, accelerate the performance
required under, or result in the creation of any Lien upon any of the
<PAGE>
assets of Purchaser, pursuant to, any mortgage, deed of trust,
guaranty, note, indenture, bond, lease, agreement or other
instrument to which Purchaser is a party or by or to which it or
any of its assets may be bound, (c) violate any Order of any court,
arbitrator or Governmental Entity against, or binding upon, or any
agreement with, or condition imposed by, any court, arbitrator or
Governmental Entity binding upon Purchaser or any of its assets,
(d) violate any Law or (e) result in the breach of any of the terms
or conditions of, constitute a default under, or otherwise cause an
impairment or revocation of, any Permit necessary for Purchaser to
conduct the Annuity Business.
Section 4.5. Consents and Approvals. Except as required
under the HSR Act or as set forth on Schedule 4.5 attached hereto,
no consent, approval, exemption or authorization is required to be
obtained from, no notice is required to be given to and no filing
is required to be made with any third party (including, without
limitation, Governmental Entities of competent jurisdiction) by
Purchaser in order (a) for this Agreement, each of the Ancillary
Agreements and each of the Assigned Contracts to which Purchaser
will be a party to constitute a valid and binding obligation of
Purchaser, (b) to authorize or permit the consummation of the
transactions contemplated hereby by Purchaser or (c) to authorize
or permit Purchaser to conduct the Annuity Business after the
Closing.
Section 4.6. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as
such for, or is entitled to any compensation from, Purchaser in
connection with this Agreement or the transactions contemplated
hereby, except Goldman Sachs & Company, whose fees for services
rendered in connection with such transactions will be paid by
Purchaser.
<PAGE>
Section 4.7. GAAP Financial Statements. On or prior to the
date hereof, Purchaser has delivered to Seller true, correct and
complete copies of (a) the audited consolidated balance sheets of
SunAmerica Inc. ("SunAmerica") and its subsidiaries as of December
31, 1995 and 1994, prepared in accordance with GAAP, together with
the notes thereon and the related report of Price Waterhouse, the
independent certified public accountant of SunAmerica, and (b) the
audited consolidated statements of income, stockholders' equity and
cash flows of SunAmerica and its subsidiaries for the years ended
December 31, 1995, 1994 and 1993 prepared in accordance with GAAP,
together with the notes thereon and the related report of Price
Waterhouse (collectively, the "SunAmerica Financial Statements").
Purchaser has delivered to Seller true, correct and complete copies
of the consolidated balance sheets, and the related consolidated
statements of income, stockholders' equity and cash flows of
SunAmerica and its subsidiaries for the quarters ended March 31,
1996 and June 30, 1996, prepared in accordance with GAAP (the
"Interim SunAmerica Financial Statements"). The SunAmerica
Financial Statements and the Interim SunAmerica Financial
Statements are based on the books and records of SunAmerica and its
subsidiaries, and the SunAmerica Financial Statements have been
prepared in accordance with GAAP consistently applied, audited by
Price Waterhouse and fairly present in all material respects the
consolidated financial position and results of operations of
SunAmerica and its subsidiaries as of the dates and for the periods
indicated therein.
Section 4.8. Statutory Financial Statements. Purchaser has
furnished to Seller true, complete and correct copies of the Annual
Statements of Purchaser as filed with the Arizona Department of
Insurance for the years ended December 31, 1995, 1994 and 1993,
together with all attachments, exhibits and schedules thereto and
all affirmations and certifications filed
<PAGE>
therewith and applicable actuarial opinions for such years. Purchaser
has furnished to Seller true, complete and correct copies of the Quarterly
Statements of Purchaser as filed with the Arizona Department of
Insurance for the quarters ended March 31, 1996 and June 30, 1996,
together with all attachments, exhibits and schedules thereto and
all affirmations and certifications filed therewith and no further
amendments thereto are being considered. Each such Annual
Statement and Quarterly Statement complied in all material respects
with all applicable Laws when so filed and were timely filed with
all required Governmental Entities. No material deficiencies have
been asserted or are otherwise known by Purchaser with respect
thereto. Each such Annual Statement and Quarterly Statement was
prepared in accordance with SAP applied on a consistent basis
(except for changes, if any, disclosed therein) and fairly presents
(in accordance with SAP) the financial condition of Purchaser as of
the respective dates thereof or its results of operations or cash
flows, as the case may be, for and during the respective periods
covered thereby (provided the Quarterly Statements are subject to
normal year end adjustments and lack footnotes and other
presentation items). There were no material liabilities affecting
Purchaser as of December 31, 1995 required in accordance with SAP
to be reflected or disclosed in the Annual Statement for the period
then ended, or as of March 31, 1996 or June 30, 1996 required in
accordance with SAP to be disclosed in the Quarterly Statement for
the period then ended, which are not so reflected or disclosed
therein.
Section 4.9. Rating. As of the date hereof, the Standard &
Poor's Corporation Claims - Paying Ability Rating of Purchaser is
AA- and the Moody's Investor Service, Inc. Financial Strength
rating of Purchaser is A2. Purchaser's A.M. Best & Co. rating is
A+ (superior) and its Duff & Phelps rating is AA.
<PAGE>
For purposes of this Article 4, references to the knowledge of
Purchaser means, after reasonable inquiry, the actual knowledge of
officers of Purchaser having the title of Senior Vice President or
higher.
ARTICLE 5
PRE-CLOSING COVENANTS
Section 5.1. Conduct of Business.
(a) Prior to the Closing, Seller shall, unless Seller
shall receive the prior written consent of Purchaser:
(i) operate the Annuity Business as presently
operated and only in the ordinary course and consistent
with past practice (including but not limited to past
underwriting standards and investment philosophies)
subject however to such changes as may be required by
changes in applicable Laws or contemplated by this
Agreement ; and
(ii) use commercially reasonable efforts to
preserve its relationship with and the goodwill of its
brokers, customers, suppliers, employees and other
Persons having business dealings with Seller in
connection with the Annuity Business.
(b) Without limiting the generality of the foregoing,
Seller will:
(i) use commercially reasonable efforts to maintain
in full force and effect all material contracts,
documents and arrangements related to the Annuity
Business, to continue all current marketing and selling
programs relating to the
<PAGE>
Annuity Business in accordance with its current marketing plan,
to process Annuity Contracts consistent with past practice,
and to maintain each rating classification assigned to Seller
as of the date hereof by insurance rating agencies.
(ii) cause the Books and Records to be
maintained in the usual manner and consistent with past
practice and not permit a material change in any
underwriting, investment, actuarial, financial reporting
or accounting practice or policy of Seller or in any
assumption underlying such a practice or policy, or in
any method of calculating any bad debt, contingency or
other reserve for financial reporting purposes (including
without limitation any practice, policy, assumption or
method relating to or affecting the determination of
Annuity Contracts in force, premium or investment income,
Reserve Liabilities or operating ratios with respect to
expenses, losses or lapses) except as may be required by
a change in GAAP, SAP or Law.
(iii) (A) cause all Reserve Liabilities with
respect to Annuity Contracts established or reflected in
the Books and Records of Seller to be (1) established or
reflected on a basis consistent with those Reserve
Liabilities and reserving methods followed by Seller in
the preparation of its December 31, 1995 Annual Statement
filed with the Department of Commerce, State of Minnesota
and (2) adequate to cover the total amount of all
reasonably anticipated matured and unmatured benefits,
dividends, losses, claims, expenses and other liabilities
of Seller under all Annuity Contracts pursuant to which
Seller has or will have any liability (including without
limitation any liability arising under or as a result of
<PAGE>
any reinsurance, coinsurance or other similar contract);
and (B) continue to own assets that qualify as legal
reserve assets under all applicable Laws in an amount at
least equal to its Reserve Liabilities.
(iv) continue to comply with all Laws
applicable to its Annuity Business, operations or
affairs.
(c) Unless otherwise provided in this Agreement,
without the approval of Purchaser, which approval shall not be
unreasonably withheld, from and after the date hereof until the
Closing, Seller will refrain from:
(i) selling or otherwise transferring, assigning,
disposing of, granting or permitting to exist any Lien
on, any October 21 Portfolio Securities;
(ii) increasing the rates of compensation
(including bonuses) payable or to become payable to any
officer, employee, agent, independent contractor or
consultant of Seller in connection with the Annuity
Business other than in the ordinary course of business,
consistent with past practice;
(iii) except in the ordinary course of business
consistent with past practice, incurring any obligation,
liability or indebtedness, incurring any extraordinary
losses, or disposing of, canceling, waiving or permitting
to lapse any rights of material value relating to or
affecting the Annuity Business;
(iv) changing in any material respect its
accounting principles or practices (including, without
limitation, any changes in depreciation or amortization
policies or rates or any changes in any assumptions
underlying any
<PAGE>
method of calculating reserves) other than as required by
a change in GAAP, SAP or Law;
(v) except as disclosed herein, entering into or
amending or terminating any transaction or contract
related to the Annuity Business that could reasonably be
expected to have a Material Adverse Effect;
(vi) except in the ordinary course of business
consistent with past practice, terminating, amending or
executing any material reinsurance, coinsurance or other
similar contract, as ceding or assuming insurer related
to the Annuity Contracts, except as contemplated by
Section 5.9 hereof; or
(vii) entering into any contract or agreement to
do any of the foregoing.
Section 5.2. Certain Transactions. Except as contemplated
by the reinsurance agreements listed on Schedule 3.11 attached
hereto, from the date of this Agreement through the Closing,
neither Seller nor any of its directors or officers will (and
Seller shall cause its investment bankers and legal counsel not to)
solicit, encourage, initiate or engage in any negotiations or
discussions with, or provide any information to, or otherwise
cooperate in any other manner with, any Person or group (other than
Purchaser and its Affiliates) concerning any coinsurance,
reinsurance, replacement, sale or other disposition, directly or
indirectly, of the Annuity Business.
Section 5.3. Investigations. From the date hereof through
the Closing Date, Purchaser shall be entitled, through its
employees, counsel, actuaries and other Representatives, to make
such investigation of the assets, liabilities, business and
operations of the Annuity Business, and such examination of the
Books and Records, as Purchaser may reasonably request, including,
<PAGE>
without limitation, for the purpose of investigating the financial
condition, service quality and operations of Seller. Any
investigation, examination or interview by Purchaser of employees
of Seller shall be conducted at reasonable times upon reasonable
prior notice; and each of the Parties and its officers, employees
and Representatives, including, without limitation, counsel,
investment bankers and independent public accountants, shall
cooperate with the other's employees and Representatives, as the
case may be, in connection with such review and examination;
provided, however, that such examination shall not be deemed a
waiver by Purchaser of any of its rights with respect to the
representations and warranties of Seller.
Section 5.4. HSR Act Filings. Seller and Purchaser shall,
as promptly as practicable, file, or cause to be filed,
Notification and Report Forms under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") in
connection with the transactions contemplated by this Agreement,
the Ancillary Agreements and the other agreements contemplated
hereby and thereby, and will use their respective reasonable
efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional
information or documentation and to cause the waiting periods under
the HSR Act to terminate or expire at the earliest possible date.
Seller and Purchaser will each furnish to the other such necessary
information and reasonable assistance as the other may request in
connection with its preparation of necessary filings or submissions
to any government or regulatory agency, including, without
limitation, any filings necessary under the provisions of the HSR
Act.
Section 5.5. Consents and Reasonable Efforts. Seller and
Purchaser shall cooperate and use their commercially reasonable
efforts to obtain all consents, approvals and agreements
<PAGE>
of, and to give and make all notices and filings with, any Governmental
Entities, necessary to authorize, approve or permit the
consummation of the transactions contemplated by this Agreement,
the Ancillary Agreements and the other agreements contemplated
hereby and thereby. Seller shall use its commercially reasonable
efforts to obtain all approvals and consents to the transactions
contemplated by this Agreement and the Ancillary Agreements as set
forth on Schedule 3.5 attached hereto. Purchaser will use its
commercially reasonable efforts to obtain all approvals and
consents to the transactions contemplated by this Agreement and the
Ancillary Agreements as set forth on Schedule 4.5 attached hereto.
Without limiting the foregoing, Purchaser will permit
Representatives of Seller to participate in the meeting at which
the transactions contemplated by this Agreement are presented to
the Arizona Department of Insurance for approval.
Section 5.6. Representations and Warranties. From the date
hereof through the Closing Date, (a) Seller shall use its
reasonable efforts to conduct its affairs in such a manner so that,
except as otherwise contemplated or permitted by this Agreement,
the representations and warranties contained in Article 3 shall
continue to be true, complete and correct in all material respects
on and as of the Closing Date as if made on and as of the Closing
Date, (b) Purchaser shall use its reasonable efforts to conduct its
affairs in such a manner so that, except as otherwise contemplated
or permitted by this Agreement, the representations and warranties
as to Purchaser contained in Article 4 shall continue to be true
and correct in all material respects on and as of the Closing Date
as if made on and as of the Closing Date, (c) Seller shall notify
Purchaser promptly of any event, condition or circumstance known to
Seller occurring from the date hereof through the Closing Date that
would constitute a violation or breach of this
<PAGE>
Agreement by Seller and (d) Purchaser shall notify Seller promptly
of any event, condition or circumstance known to Purchaser occurring
from the date hereof through the Closing Date that would constitute a
violation or breach of this Agreement by Purchaser.
Section 5.7. Computer Software and Other Intellectual
Property. With respect to software and other intellectual property
listed on Schedule 3.14 attached hereto that is licensed to Seller,
but which is not freely assignable by Seller to Purchaser, Seller
will use its best efforts to cooperate with Purchaser, upon
Purchaser's request, to obtain at Purchaser's sole cost and expense
from the licensors of such software and other intellectual property
the right for Purchaser to operate such software and other
intellectual property.
Section 5.8. Financial Statements and Reports.
(a) At the time of filing with the Department of
Commerce, State of Minnesota, Seller will deliver to the Purchaser
true and complete copies of each Annual Statement and Quarterly
Statement filed after the date hereof and on or prior to the
Closing Date.
(b) From and after the date hereof and through the
Closing Date, Seller shall continue to prepare in the ordinary
course of business consistent with past practice and shall deliver,
as soon as available, to Purchaser, true and complete copies of
customarily prepared internal management information reports
(including financial statements, reports and analyses prepared by
or for Seller) prepared by Seller related to the Annuity Business,
including without limitation normal internal reports which Seller
prepares (such as those reflecting weekly net production,
surrenders, head count and claims and monthly cash flow and
operations expense) but excluding any statements, reports or
analyses prepared in connection with any analyses of
<PAGE>
the transaction contemplated in this Agreement. Without limiting the
foregoing, Seller will provide to Purchaser weekly a list of the
October 21 Portfolio Securities held by Seller, which reflects the
Market Value and Book Value thereof (monthly) and any changes from
the immediately preceding week (weekly), including, without
limitation, weekly maturities, prepayments, sales, redemptions or
similar events.
Section 5.9. Termination of Certain Reinsurance
Arrangements. Prior to the Closing, Seller will terminate the
Coinsurance Agreement effective October 1, 1996 between Seller and
London Life Reinsurance Company and recapture of the annuity
portion of the Coinsurance Agreement effective December 31, 1991
with Lincoln National Reassurance Company. Seller shall be
responsible for payment of the recapture fees payable thereunder
and, under no circumstances shall Purchaser be responsible for any
costs or fees of any type in connection with the termination of
such agreements.
Section 5.10. Woodland Hills Option. Seller hereby grants to
Purchaser an option to assume Seller's rights and obligations with
respect to Seller's equipment and facilities located at 20950
Warner Center Lane, Woodland Hills, California 91367, subject to
appropriate lessor consent, on the same financial terms currently
available to Seller and on such other terms as Purchaser and Seller
shall mutually agree; provided, however, such option shall result
in no costs to Seller or any ongoing liability to Seller.
Section 5.11. Oxford Put. In the event Purchaser does not
obtain the consent of Oxford Life Insurance Company to the
assignment of the Coinsurance Agreement dated January 31, 1990
between Seller and Oxford Life Insurance Company and the related
trust agreement (the "Oxford Agreement") on or prior to the 15th
Business Day preceding the Closing Date, it will
<PAGE>
on such Business Day notify Purchaser of the failure to obtain such
consent and (i) the Annuity Contracts subject to the Oxford Agreement
(the "Oxford Annuity Contracts") shall be excluded from the Annuity
Contracts to be assumed by Purchaser at the Closing (ii) the policy
loans with respect to the Oxford Annuity Contracts will not be
included in the Policy Loans, (iii) the reserve liabilities with respect
to the Oxford Annuity Contracts will not be included in Reserve
Liabilities and (iv) the Oxford Agreement shall not be included as
an Assigned Contract (the "Oxford Put"). If the Oxford Put is
implemented, at Purchaser's election, the Parties will execute and
deliver at the Closing an administration services agreement on
terms substantially similar to those of the Administrative Services
Agreement, provided that the compensation will be structured to
provide a pass-through to Purchaser of the compensation payable to
Seller pursuant to the Oxford Agreement with respect to the Oxford
Annuity Contracts. In addition, all references to Oxford Life
Insurance Company, the Oxford Agreement and the Oxford Annuity
Contracts in the Schedules to this Agreement shall be deemed
deleted.
Section 5.12. Marketing Agreement. The Parties will
negotiate in good faith towards a marketing agreement, containing
among other things, the terms set forth on Exhibit N attached
hereto and such other terms and conditions as may be mutually
acceptable to the Parties.
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATION OF PURCHASER TO CLOSE
The obligations of Purchaser to consummate the
transactions contemplated hereby are, unless waived by Purchaser in
accordance with Section 12.4 hereof, subject to the fulfillment, at
or before the Closing, of each of the following conditions:
<PAGE>
(i) No Law or Order of a court, arbitrator or
Governmental Entity of competent jurisdiction shall be in
effect which prohibits, restricts or enjoins, and no
Action shall be pending or threatened which seeks to
prohibit, restrict, enjoin, nullify, seek material
damages with respect to or otherwise materially adversely
affect, the consummation of the transactions contemplated
by this Agreement.
(ii) The applicable waiting period under the
HSR Act, including all extensions thereof, shall have
expired or been terminated and Purchaser shall have been
furnished with appropriate evidence, reasonably
satisfactory to it, of such expiration or termination.
(iii) All Permits, consents and waivers required
from all Governmental Entities legally required to
consummate the Closing and to perform this Agreement and
each of the Ancillary Agreements and to consummate the
transactions contemplated herein and thereby shall have
been obtained and shall be in full force and effect and
Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to it, of the granting
of such Permits, consents and waivers; provided, however,
that this condition shall be deemed satisfied with
respect to approvals of the transactions contemplated by
the Assumption Reinsurance Agreement by state insurance
regulators, upon receipt of the required Permits,
consents and waivers from the Minnesota Department of
Commerce and the Arizona Department of Insurance.
<PAGE>
(iv) All necessary consents to the transactions
contemplated by this Agreement and the Ancillary
Agreements shall have been obtained, including, without
limitation, those listed on Schedule 3.5 attached hereto.
(v) Except for such changes as may be permitted or
required pursuant to the terms hereof, the
representations and warranties of Seller set forth in
Article 3 hereof shall be true and correct in all
material respects on and as of the Closing with the same
effect as though such representations and warranties had
been made on and as of the Closing, 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.
(vi) Seller shall have performed and complied
with all covenants and agreements required to be
performed or complied with by Seller under this Agreement
prior to or concurrently with the Closing in all material
respects.
(vii) Purchaser shall have received all
certificates and other documents required to be delivered
to Purchaser at or before the Closing pursuant to this
Agreement duly executed by all necessary Persons (other
than Purchaser).
(viii) Purchaser shall have received the Closing
deliveries described in Section 1.4 hereof.
(ix) Purchaser and Seller shall have previously
or concurrently closed the transactions contemplated by
the JANY Stock Purchase Agreement.
(x) The Combined Reserve Liabilities as of the
Closing shall be at least $4,813,357,842 [96% of the
aggregate of such reserve liabilities as at June 21,
<PAGE>
1996]; provided, however, that if the Oxford Put has been
exercised, the Reserve Liabilities with respect to the
Oxford Annuity Contracts will be included in Combined
Reserve Liabilities for the purpose of this calculation.
(xi) Since December 31, 1995, there shall not
have occurred any event or events or state of facts that
individually or in the aggregate has or could reasonably
be expected to have a Material Adverse Effect; provided,
however, that for purposes of this subclause (xi), events
or facts which affect the insurance or annuity industry
generally (e.g., a change in general economic or market
conditions, a change in tax Law or a change in insurance
Law), shall not be included in determining whether a
Material Adverse Effect has occurred.
(xii) The Closing Date Portfolio Securities
tendered by Seller to the Trust pursuant to Section
1.2(b) hereof and any other assets therein (to the extent
such assets would be admitted assets if held by Purchaser
outside of the Trust) shall qualify as admitted assets of
Purchaser in Arizona for purposes of SAP and Purchaser
shall have received regulatory confirmation thereof from
the Arizona Department of Insurance.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE
The obligations of Seller to consummate the transactions
contemplated hereby are, unless waived by Seller in accordance with
Section 12.4 hereof, subject to the fulfillment, at or before the
Closing, of each of the following conditions:
<PAGE>
(i) No Law or Order of a court, arbitrator or
Governmental Entity of competent jurisdiction shall be in
effect which prohibits, restricts or enjoins, and no
Action shall be pending or threatened which seeks to
prohibit, restrict, enjoin, nullify, seek material
damages with respect to or otherwise materially adversely
affect, the consummation of the transactions contemplated
by this Agreement.
(ii) The applicable waiting period under the
HSR Act, including all extensions thereof, shall have
expired or been terminated and Seller shall have been
furnished with appropriate evidence, reasonably
satisfactory to it, of such expiration or termination.
(iii) All Permits, consents and waivers required
from all Governmental Entities legally required to
consummate the Closing and to perform this Agreement and
each of the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby shall have
been obtained and shall be in full force and effect and
Seller shall have been furnished with appropriate
evidence, reasonably satisfactory to it, of the granting
of such Permits, consents and waivers; provided, however,
that this condition shall be deemed satisfied with
respect to approvals of the transactions contemplated by
the Assumption Reinsurance Agreement by state insurance
regulators, upon receipt of the required Permits,
consents and waivers from the Minnesota Department of
Commerce and the Arizona Department of Insurance.
(iv) All necessary consents to the transactions
contemplated by this Agreement, the Assigned Contracts
and each of the Ancillary Agreements shall
<PAGE>
have been obtained, including, without limitation, those
listed on Schedule 4.5 attached hereto.
(v) Except for changes as may be permitted or
required pursuant to the terms hereof, the
representations and warranties of Purchaser set forth in
Article 4 hereof shall be true and correct in all
material respects on and as of the Closing with the same
effect as though such representations and warranties had
been made on and as of the Closing, 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.
(vi) Purchaser shall have performed and
complied with all covenants and agreements required to be
performed or complied with by Purchaser under this
Agreement prior to or concurrently with the Closing in
all material respects.
(vii) Seller shall have received all
certificates and other documents required to be delivered
to Seller at or before the Closing pursuant to this
Agreement duly executed by all necessary Persons (other
than Seller).
(viii) Seller shall have received the Closing
deliveries described in Sections 1.3 and 1.4 hereof.
(ix) Purchaser and Seller shall have previously
or concurrently closed the transactions contemplated by
the JANY Stock Purchase Agreement.
(x) Since December 31, 1995, there shall not have
occurred any event or events or state of facts that
individually or in the aggregate has or could reasonably
be expected to have a Material Adverse Effect on
Purchaser; provided,
<PAGE>
however, that for purposes of this subclause (x), events or
facts which affect the insurance or annuity industry generally
(e.g., a change in general economic or market conditions, a
change in tax Law or a change in insurance Law), shall not
be included in determining whether a Material Adverse Effect on
Purchaser has occurred.
ARTICLE 8
POST-CLOSING COVENANTS
Section 8.1. Continued Access and Cooperation.
(a) Following the Closing Date, Seller shall (i) allow
Purchaser, upon reasonable prior notice and during regular business
hours, through its employees and other Representatives, at
Purchaser's expense to examine and make copies of any books and
records retained by Seller within its possession or control
("control" for the purposes of this Section 8.1(a) being defined as
the ability to cause delivery to Seller or access by Purchaser) and
furnish Purchaser with such financial and reporting data and other
information with respect to the Annuity Contacts, the Third Party
Administration Agreements, Assigned Contracts and the Related
Agreements as Purchaser may from time to time reasonably request,
to the extent they relate to the Annuity Business, for any
reasonable business purpose, including, without limitation, the
preparation or examination of Tax Returns, regulatory filings and
financial statements and the conduct of any Action, whether pending
or threatened, concerning the conduct of the Annuity Business prior
to the Closing Date at Seller's offices or other facilities or
properties and (ii) maintain such books and records for Purchaser's
examination and copying.
<PAGE>
Access to such books and records shall be at Purchaser's expense and
may not unreasonably interfere with Seller's or any successor
company's business operations and Purchaser shall reimburse Seller for
all reasonable out-of-pocket expenses incurred by Seller in copying
such records. Seller shall retain such books and records for a period
of at least seven years (extended by a period equal to any extension
of the statute of limitations with respect to tax matters with respect
to which such books and records are necessary and of which Purchaser
shall notify Seller), after which time such books and records shall
be delivered to Purchaser. Purchaser shall not copy or remove from
Seller's premises the accountant's work papers made available to
Purchaser and its Representatives.
(b) Following the Closing Date, Purchaser shall (i)
allow Seller, upon reasonable prior notice and during regular
business hours, through its employees and other Representatives, at
Seller's expense to examine and make copies of the Books and
Records transferred to Purchaser at the Closing for any reasonable
business purpose, including, without limitation, the preparation or
examination of Tax Returns, regulatory filings and financial
statements and the conduct of any Action or the conduct of any
regulatory, contract holder, participant or other dispute
resolution, whether pending or threatened, at Purchaser's offices
or other facilities or properties and (ii) maintain such Books and
Records for Seller's examination and copying. Access to such Books
and Records shall be at Seller's expense and may not unreasonably
interfere with Purchaser's or any successor company's business
operations and Seller shall reimburse Purchaser for all reasonable
out-of-pocket expenses incurred by Purchaser in copying such
records. Purchaser shall retain any such Books and Records for a
period of at least seven years (extended by a period equal to any
extension of the statute of limitations with
<PAGE>
respect to tax matters with respect to which such Books and Records
are necessary and of which Seller shall notify Purchaser).
Section 8.2. Further Assurances.
(a) Upon the terms and subject to the conditions herein
provided, each of Seller and Purchaser shall use all commercially
reasonable efforts to take or cause to be taken, all actions or do,
or cause to be done, all things or execute or cause to be executed
any documents necessary, proper or advisable under applicable Laws
to consummate and make effective the transactions contemplated by
this Agreement, the Ancillary Agreements and the other agreements
contemplated hereby and thereby.
(b) On and after the Closing Date, Seller and Purchaser
shall take all commercially reasonable action and execute any
additional documents, instruments or conveyances of any kind (not
containing additional representations and warranties) and give all
notices and obtain all consents, approvals and Orders of
Governmental Entities and other third parties which may be
necessary to carry out any of the provisions hereof, including,
without limitation, putting Purchaser in full possession and
operating control of the Purchased Assets and the Annuity Business
it is assuming pursuant to this Agreement and the Ancillary
Agreements.
Section 8.3. Expenses. Except as otherwise specifically
provided in this Agreement and the respective Ancillary Agreements,
the Parties shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this
Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby, including, without limitation, all
fees and expenses of their respective Representatives; provided,
however, that Purchaser shall bear (a) the cost of the filing fees
in connection with the filings with the FTC and the Antitrust
<PAGE>
Division under the HSR Act with respect to the transactions
contemplated hereby (which expense shall be borne equally by Seller
and Purchaser if separate filings are required with respect to the
transactions contemplated by this Agreement and the transactions
contemplated by the Stock Purchase Agreement) and (b) the actual
out-of-pocket costs of providing policyholder notices in order to
implement the Assumption Reinsurance Agreement in accordance with
its terms.
Section 8.4. Employee Plans. Purchaser will provide to any
employee of Seller or its Affiliates who on or after the Closing
Date, at the sole discretion of Purchaser, becomes an employee of
Purchaser or its Affiliates (an "Ex-Employee") with such
compensation and benefits as are currently being provided to
Purchaser's employees of similar rank and tenure level. Nothing in
this Section 8.4 shall be construed as requiring the Purchaser to
(i) employ any of Seller's employees or (ii) provide any Ex-
Employee with such compensation or employee benefits as such Ex-
Employee had previously received from Seller or its Affiliates or
(iii) provide any former employee of Seller who is not an Ex-
Employee with any severance benefits. Any Ex-Employee actually
employed by Purchaser may request that assets held by Seller in
Seller's 401(k) Plan on behalf of such Ex-Employee will be
transferred as soon as practicable after the Service Transfer Date
to the trustees of a qualified plan maintained by Purchaser or its
Affiliate (if permitted) or retained in Seller's 401(k) Plan
(subject to the rights of Ex-Employees with respect thereto). Each
request will be honored by Seller if Seller, in its sole
discretion, determines that such transfer complies with applicable
Law. Any such assets transferred will be transferred in accordance
with the provisions of Purchaser's and Seller's 401(k) Plan.
<PAGE>
Section 8.5. Non-Discriminatory Treatment of Policyholders.
Except as otherwise provided in the Indemnity Reinsurance
Agreement, from and after the Closing Date Purchaser shall use all
commercially reasonable efforts to provide, at all times and from
time to time, to the Policyholders under the Annuity Contracts
crediting rates and renewal rates and standards of policyholder
service and administration which are no less than those provided to
other policyholders of annuity contracts issued, coinsured or
reinsured by Purchaser or its Affiliates with respect to policies
of a similar type and nature (including without limitation factors
such as issue date, actual and anticipated lapse rates and
surrender charge periods and other relevant features and market
conditions) as the Annuity Contracts. Purchaser will use
commercially reasonable efforts to include a provision
substantially similar to this Section 8.5 in any agreement for the
sale, transfer or bulk reinsurance of all or substantially all of
the Annuity Contracts.
Section 8.6. Repayment of Agent Balances. Within 10 days
after the Closing Date, Seller shall deliver to Purchaser a
schedule setting forth those producers with respect to the Annuity
Contracts having a balance owed by such producers to Seller for
fees or commissions relating to the Annuity Contracts, the amount
and nature of such balances, the specific Annuity Contracts to
which they relate, the dates such balances were incurred and all
other information required by Purchaser to facilitate the recovery
by Purchaser of such amounts. From and after the Closing until the
Service Transfer Date, if at any time any producer identified on
such schedule becomes entitled to a payment from Purchaser in
connection with the sale of an Annuity Contract, such payment shall
be first applied to reduce the amount of such balance and shall be
paid by Purchaser to Seller (in accordance with Purchaser's normal
payment cycle).
<PAGE>
Purchaser shall provide Seller with a quarterly report of all such
payments and balances pursuant to this Section 8.6.
Section 8.7. No Inducement to Replace; Non-Twisting; Non-
Churning; Non-Competition.
(a) In partial consideration of the payment of the
Final Ceding Commission, the Parties agree that, for a period of
seven years after the Closing (the "Restricted Period"), neither
Seller nor any of its present or future Affiliates shall carry on
or engage in, directly or indirectly, the business of selling or
administering annuity contracts (a "Competing Business") in any
county or city in which the Annuity Business has been conducted) or
in New York State, where JANY is engaged in the business of selling
and administering annuity contracts) or where Purchaser or its
Affiliates conduct a similar business after the Closing Date.
(b) Notwithstanding the provisions of Section 8.7(a)
hereof, during the Restricted Period, Seller and Houston National
Life Insurance Company ("Houston") may (A) market, underwrite and
sell directly or indirectly (i) policies of Houston and (ii) single
premium immediate annuities of the Seller and (B) assume annually
up to $200,000,000 of deferred annuities; provided, however, that
(I) the aggregate of any sales made in accordance with (A) above
shall not exceed $50,000,000 annually and (II) any assumptions made
pursuant to (B) above shall not exceed $200,000,000 annually;
provided further, however, that the Purchaser must consent in
writing to all assumptions made pursuant to (B) above which in the
aggregate will exceed $100,000,000 annually, such consent not to be
unreasonably withheld; and provided further, however, that the
sales and assumptions set forth in (i) and (ii) above shall be
limited in amount to the minimum amount and extent reasonably
necessary to (x) assure Houston
<PAGE>
and Seller each maintains its qualification as a life insurance
company for federal income tax purposes and (y) to enable Houston
and Seller to maintain their licenses as life insurance companies in
the states in which they are licensed to do business. Clause (B)
above shall not permit Seller, whether individually or in concert
with others, to re-enter the Annuity Business. With respect to the
assumption of deferred annuities by Seller or Houston pursuant to
clause (B) of this Section 8.7(b) during the Restricted Period,
Seller shall, and shall cause Houston to, offer to Purchaser the
right to provide such annuities, provided Purchaser is able to
provide such annuities on terms no less favorable in the aggregate
to Seller or Houston, as the case may be, than those available from
independent third parties. Purchaser shall have a period of 30 days
to respond to each such offer. Notwithstanding the provisions of Section
8.7(a) hereof, (i) Seller may administer (A) the annuity contracts
excluded from the definition of "Annuity Contracts" by the last
sentence thereof, (B) direct written annuity contracts of Aristar
Life Insurance Company pursuant to that service agreement between
Seller and Aristar Life Insurance Company dated October 29, 1987
and (C) annuity contracts of Houston and Seller issued pursuant to
the foregoing provisions of this 8.7(b), and (ii) Seller may market
annuity products issued by unaffiliated third parties.
(c) Notwithstanding the provisions of Section 8.7(a)
hereof, during the Restricted Period, Seller or its Affiliates may
acquire after the Closing an entity or business engaged in a
Competing Business if not more than 50% of the gross revenues,
computed in accordance with statutory accounting principles for
insurance companies or GAAP for other companies, of such entity or
business (for the fiscal year of such entity or business
immediately preceding such acquisition) are derived from a
Competing Business, provided that promptly
<PAGE>
upon consummation of such acquisition, Seller or its Affiliate, as
the case may be, shall provide to Purchaser an opportunity to negotiate
to acquire such Competing Business (and Seller or such Affiliate will
negotiate such sale to Purchaser in good faith) and, provided,
further, if such Competing Business is not acquired by Purchaser,
Seller shall not, and shall not permit any of its Affiliates to,
expand the Competing Business through the sale of any annuity
product and shall hold such business as a liquidating "closed
block." Notwithstanding the foregoing, in no event shall the name
"John Alden" or any derivation thereof, be used in connection with
such Competing Business.
(d) The provisions of Section 8.7(a) hereof shall not
apply to any Person who becomes an Affiliate of Seller after the
Closing Date by virtue of an acquisition of an ownership interest
in Seller or any Affiliate of Seller, if such Person was engaged in
the business of selling, issuing or administering annuity contracts
in the United States of America immediately prior to such
acquisition, and such new Affiliate's only relationship with Seller
and its Affiliates related to such Competing Business arises solely
as a result of such ownership interest. Notwithstanding the
foregoing, in no event (i) shall the name "John Alden" or any
derivation thereof be used in connection with such business or (ii)
shall Seller or its controlled Affiliates market their own annuity
products. Furthermore, during the four-year period after the
Closing Date, not more than 50% of the annuity products sold or
marketed by Seller or its controlled Affiliates may be annuity
products of such Competing Business, such New Affiliate or its
Affiliates.
(e) Seller will refrain and will cause its present and
future Affiliates, Subsidiaries and employees to refrain from
causing or attempting to cause, influence or induce (or assisting
any other Person in causing or attempting to cause, influence or
induce) (i) any
<PAGE>
Policyholder to replace or terminate any Annuity Contract issued,
reinsured, underwritten, or sold by Seller, in whole or in part, with
products of Seller or any other Person at any time; (ii) any reinsurer
to terminate or reduce any reinsurance, coinsurance, or other similar
contract, or sever a relationship, with Purchaser at any time relating
to annuity contracts; or (iii) any agent (including without limitation any
insurance agent) to resign or sever or reduce a relationship with
Purchaser at any time relating to annuity contracts. Seller will
not participate as principal or agent in any transfer involving a
"Section 1035" exchange or replacement of any Annuity Contract.
(f) Seller acknowledges that the covenants of Seller
set forth in this Section 8.7 are an essential element of this
Agreement and that, but for the agreement of Seller to comply with
these covenants, Purchaser would not have entered into this
Agreement. Seller acknowledges that each of the covenants of
Seller set forth in this Section 8.7 constitutes an independent
covenant and shall not be affected by performance or nonperformance
of any other provision of this Agreement by Purchaser.
(g) Seller recognizes and agrees that a breach by
Seller or any of its Affiliates of any provision of this Section
8.7 could cause irreparable harm to Purchaser, that Purchaser'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, Purchaser shall be authorized to 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 Purchaser.
(h) If the provisions of this Section 8.7 are more
restrictive, as to duration, geographic limitations or scope, than
permitted by the Laws of any jurisdiction in which
<PAGE>
Purchaser seeks enforcement hereof, it shall be limited to the
extent required to permit enforcement under such Laws. In particular,
the parties intend that, to the extent appropriate to permit the
enforcement hereof, the covenants contained in this Section 8.7 shall be
construed as a series of separate and divisible covenants, one for
each county and city in which the Annuity Business has been carried
on and in which Purchaser 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 8.8. Preferred Stock Divided Repayment. Within 30
days after receipt by Purchaser, Purchaser shall remit to Seller,
by wire transfer of immediately available funds, the portion of any
dividend or dividends undeclared as of the Closing Date received by
Purchaser after the Closing Date on preferred stock (or similar
instrument) included in the Closing Date Portfolio Securities which
relate to the period up to and including the Closing Date. Each
such payment shall be accompanied by interest calculated at a rate
equal to the three month LIBOR rate plus 25 basis points on the
amount of such payment from the date receipt by the Company through
the date on which such amount is actually paid.
Section 8.9. Policyholder Consents. Promptly after the
Closing, Purchaser shall (i) distribute to policyholders of Annuity
Contracts notice of the transactions reflected herein and (ii) use
commercially reasonable efforts to obtain Novations of all Annuity
Contracts (as contemplated by Section 2.4 of the Assumption
Reinsurance Agreement). Seller shall provide,
<PAGE>
at Purchaser's expense, such assistance as Purchaser reasonably
requests with respect to Purchaser's performance of the preceding sentence.
Section 8.10. Current Report on Form 8-K. Seller will
cooperate with Purchaser, at Seller's expense, in SunAmerica's
preparation of a Current Report on Form 8-K prepared in connection
with the transactions contemplated hereby; provided, however, that
notwithstanding anything else contained in this Section 8.10,
Purchaser shall bear any and all costs and expenses incurred by
Seller's independent accountants in connection with their
preparation of the GAAP financial statements of the Annuity
Business. Purchaser shall use reasonable efforts to provide Seller
and Seller's counsel with an opportunity to review references to
Seller contained in such filing.
ARTICLE 9
TERMINATION; SURVIVAL
Section 9.1. Termination of Agreement. Notwithstanding
anything contained herein to the contrary, this Agreement may be
terminated:
(a) at any time prior to the Closing, by mutual written
consent of Seller and Purchaser;
(b) by written notice by Purchaser to Seller if there
has been a material breach by Seller of any of the representations,
warranties, agreements or covenants of Seller set forth herein
which is not subject to cure prior to the Closing, or a failure of
any other condition not subject to cure prior to the Closing to
which the obligations of Purchaser are subject;
<PAGE>
(c) by written notice by Seller to Purchaser if there
has been a material breach by Purchaser of any of the
representations, warranties, agreements or covenants of Purchaser
set forth herein which is not subject to cure prior to the Closing,
or a failure of any other condition not subject to cure prior to
the Closing to which the obligations of Seller are subject;
(d) at any time after April 30, 1997 (the "Termination
Date") and prior to the Closing, by Purchaser by written notice to
Seller, if (A) the Closing shall not have been consummated on or
before the Termination Date and (B) the failure to consummate the
Closing on or before the Termination Date did not result from the
failure by Purchaser to perform or comply with any covenant or
agreement contained in this Agreement required to be performed or
complied with prior to the Closing by Purchaser;
(e) at any time after the Termination Date and prior to
the Closing, by Seller by written notice to Purchaser, if (i) the
Closing shall not have been consummated on or before the
Termination Date and (ii) the failure to consummate the Closing on
or before the Termination Date did not result from the failure by
Seller to perform or comply with any covenant or agreement
contained in this Agreement required to be performed or complied
with prior to the Closing by Seller; or
(f) subject to Section 8.2 hereof, by written notice to
Purchaser or Seller to the other, at any time after a Governmental
Entity having jurisdiction over Purchaser or Seller has notified
such Party that it will not provide an approval, consent or Order
necessary for the terminating Party to consummate the transactions
contemplated by this Agreement or the
<PAGE>
Ancillary Agreements and the Parties cannot subsequently procure
such approval, consent or Order using their respective commercially
reasonable efforts.
Section 9.2. Effect of Termination. In the event that this
Agreement shall be terminated pursuant to Section 9.1, all further
obligations of the Parties under this Agreement shall terminate
without further liability of either Party to the other; provided
that the obligations of the Parties contained in Section 8.3
(Expenses), Article 11 (Confidentiality) and Article 12
(Miscellaneous) shall survive any such termination. A termination
under Section 9.1 shall not relieve any Party of any liability for
a breach of, or for any misrepresentation under, this Agreement, or
be deemed to constitute a waiver of any available remedy (including
specific performance if available) for any such breach or
misrepresentation.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 10.1. Survival of Representations. (a) The
representations and warranties of Purchaser set forth in Article 4
hereof shall survive the execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby for a period of 21 months following the Closing
Date; provided, however, that the representations contained in
Sections 4.1 (Organization, Standing and Authority of Seller), and
4.2 (Authorization) shall survive until the expiration of all
applicable statutes of limitations (including all periods of
extension, whether automatic or permissive).
(b) The representations and warranties of Seller set
forth in Article 3 hereof shall survive the execution, delivery and
performance of this Agreement and the consummation
<PAGE>
of the transactions contemplated hereby for a period of 21 months
following the Closing Date; provided, however, that the
representations contained in Sections 3.1 (Organization, Standing
and Authority of Seller), 3.2 (Authorization), 3.8 (Annuity
Contracts) (paragraph (i) only) and 3.15 (Purchased Assets) shall
survive until the expiration of all applicable statutes of
limitations (including all periods of extension, whether automatic
or permissive) and the representations and warranties contained in
Section 3.22 (Mortgage Loans) (paragraph (g) only) will survive
until the fifth anniversary of the Closing Date.
(c) No Action may be commenced by any Person with
respect to any claim arising out of or relating to such warranties
or representations after the expiration of the period for which
such representations and warranties shall survive pursuant to this
Section 10.1 (the "Applicable Survival Period"); provided, however,
that, subject to this Article 10, any Person shall have the right
to commence a suit, action or proceeding after the expiration of
the Applicable Survival Period with respect to claims arising out
of or relating to such representations and warranties which shall
have been asserted by such Person under Section 10.4 hereof before
the expiration of the Applicable Survival Period.
Section 10.2. Indemnification by Purchaser.
(a) Subject to Sections 10.1, the following provisions
of this Section 10.2 and 10.4 hereof, Purchaser shall indemnify
Seller and its Affiliates (collectively, the "Seller Group") for,
and shall hold it harmless from, any and all damages, claims,
suits, actions, causes of action, proceedings, investigations,
losses, liabilities, assessments, judgments, deficiencies and
expenses (including, without limitation, reasonable legal,
accounting and other professional expenses) ("Liabilities")
asserted against or incurred or sustained by the Seller Group relating
<PAGE>
to, associated with or arising out of (i) any breach by Purchaser of
any covenant or agreement contained in this Agreement applicable to
Purchaser, (ii) any breach by Purchaser of any of the warranties or
representations of Purchaser set forth in Article 4 of this Agreement,
(iii) any of the Assumed Liabilities or (iv) the conduct of the Annuity
Business by Purchaser or the ownership, leasing or use of the Purchased
Assets by Purchaser during the period after the Closing; provided,
however, that notwithstanding anything contained in this Section 10.2(a)
to the contrary, Purchaser shall not be obligated hereunder to
indemnify the Seller Group for, or to hold the Seller Group harmless
from, any Liabilities under this Section 10.2(a) to the extent that
Seller is obligated to indemnify Purchaser in respect of the same
Liabilities pursuant to Section 10.3 hereof.
(b) The Seller Group shall be entitled to
indemnification under Section 10.2(a)(ii) hereof only when the
aggregate amount of all Liabilities with respect to which the
Seller Group would otherwise be entitled to indemnification under
Section 10.2(a)(ii) hereof and Sections 9.2(a)(ii) and 9.2(b) under
the JANY Stock Purchase Agreement exceed $1.5 million. In addition,
as soon as practicable after such Liabilities exceed $1.5 million,
Purchaser shall pay to Seller $750,000. In no event shall the
amount payable by Purchaser and its Affiliates to the Seller Group
pursuant to Section 10.2(a)(ii) hereof and Sections 9.2(a)(ii) and
9.2(b) of the JANY Stock Purchase Agreement exceed $240,000,000.
(c) If any event shall occur or circumstance shall
exist which would otherwise entitle the Seller Group to
indemnification hereunder, Liabilities shall be deemed reduced to
the extent of any proceeds (other than (i) proceeds from
self-insurance and (ii) proceeds under experience-rated insurance
policies the premiums for which would be increased by reason of the
<PAGE>
filing of a claim thereunder with respect to such Liability)
actually recovered, net of the cost of such recovery, by the Seller
Group from any third party (including, without limitation, any
insurance company) with respect thereto. In furtherance of the
immediately preceding sentence, Seller agrees to, and to cause its
Affiliates to, (i) in good faith, diligently seek recovery, at its
or their own expense, all such proceeds from all third parties with
respect to all Liabilities with respect to which it or they make or
may make a claim for indemnification hereunder and (ii) keep
Purchaser fully and promptly informed of all material matters
related thereto.
(d) To the extent that the undertakings set forth in
Section 10.2(a) hereof may be unenforceable, Purchaser shall
contribute the maximum amount that it is permitted to contribute
under applicable Law to the payment and satisfaction of all
Liabilities incurred by the Seller Group.
Section 10.3. Indemnification by Seller.
(a) Subject to Sections 10.1, the following provisions
of this Section 10.3 and 10.4 hereof, Seller shall indemnify
Purchaser and its Affiliates (collectively, the "Purchaser Group")
for, and shall hold it harmless from, any and all Liabilities
asserted against or incurred or sustained by Purchaser Group
relating to, associated with or arising out of: (i) any breach by
Seller of any covenant or agreement contained in this Agreement by
Seller, (ii) any breach by Seller of any of the warranties or
representations set forth in Article 3 of this Agreement (other
than Section 3.22(g) hereof), (iii) any Excluded Liability or Extra
Contractual Obligation or (iv) any Liability related to the Annuity
Contracts or the Annuity Business, or the ownership, leasing or use
of the Purchased Assets prior to the Closing Date, regardless of
whether at the time of the Closing such Liabilities were (A)
foreseen or unforeseen, (B) known or unknown,
<PAGE>
(C) existing or arose in the future, (D) fixed or contingent, (E)
matured or unmatured, (F) asserted before or after the Closing Date or
(G) reflected in any of the Schedules attached hereto, other than Assumed
Liabilities.
(b) Subject to Section 10.1, the following provisions
of this Section 10.3 and 10.4 hereof, Seller shall indemnify the
Purchaser Group for, and shall hold it harmless from, (i) one-half
of any and all Liabilities up to an aggregate of $3,000,000 (i.e.,
$1.5 million of the first $3.0 million)and (ii) any and all
Liabilities in excess of $3,000,000 asserted against or incurred or
sustained by the Purchaser Group relating to, associated with or
arising out of any breach of the representations and warranties of
Seller set forth in Section 3.22(g) hereof and Sections 2.32(g) and
2.18(b) of the JANY Stock Purchase Agreement (without giving effect
to the knowledge and materiality qualifiers set forth therein).
(c) The Purchaser Group shall be entitled to
indemnification under Section 10.3(a)(ii) hereof and 9.3(a)(ii) and
9.3(a)(iii) under the JANY Stock Purchase Agreement, only when the
aggregate amount of all Liabilities with respect to which the
Purchaser Group would otherwise be entitled to indemnification
under Section 10.3(a)(ii) hereof and 9.3(a)(ii) and 9.3(a)(iii)
under the JANY Stock Purchase Agreement exceed $1.5 million. In
addition, as soon as practicable after such Liabilities exceeds
$1.5 million, Seller shall pay to Purchaser $750,000. In no event
shall the amount payable by Seller and its Affiliates to the
Purchaser Group pursuant to Section 10.3(a)(ii) hereof and
9.3(a)(ii) and 9.3(a)(iii) under the JANY Stock Purchase Agreement
exceeds $240,000,000.
(d) If any event shall occur or circumstance shall
exist which would otherwise entitle the Purchaser Group to
indemnification hereunder, Liabilities shall be deemed reduced
<PAGE>
to the extent of any proceeds (other than (i) proceeds from
self-insurance and (ii) proceeds under experience-rated insurance
policies the premiums for which would be increased by reason of the
filing of a claim thereunder with respect to such Liability)
actually recovered, net of the cost of such recovery, by the
Purchaser Group from any third party (including, without
limitation, any insurance company) with respect thereto. In
furtherance of the immediately preceding sentence, Purchaser agrees
to, and to cause its Affiliates to, (i) in good faith, diligently
seek recovery, at its or their own expense, all such proceeds from
all third parties with respect to all Liabilities with respect to
which it or they make or may make a claim for indemnification
hereunder and (ii) keep Seller fully and promptly informed of all
material matters related thereto.
(e) To the extent that the undertakings set forth in
Section 10.3(a) hereof may be unenforceable, Seller shall
contribute the maximum amount that it is permitted to contribute
under applicable Law to the payment and satisfaction of all
Liabilities incurred by the Purchaser Group.
Section 10.4. Indemnification Procedure.
(a) Within a reasonable time after obtaining knowledge
thereof, a Person who may be entitled to indemnification hereunder
(the "Indemnitee") shall promptly give the Party who may be
obligated to provide such indemnification (the "Indemnitor")
written notice of any Liability which the Indemnitee has determined
has given or could give rise to a claim for indemnification
hereunder (a "Notice of Claim"); provided, however, no failure or
delay in giving any such Notice of Claim shall relieve the
Indemnitor of its obligations except, and only to the extent, that
it is prejudiced thereby. A Notice of Claim shall specify in
reasonable detail the nature and all known particulars related to
a Liability. The Indemnitor shall perform its
<PAGE>
indemnification obligations in respect of a Liability described in a
Notice of Claim under Sections 10.2 or 10.3 hereof, as the case may be,
within 30 days after the Indemnitor shall have received such Notice
of Claim.
(b) The Indemnitor shall inform the Indemnitee promptly
after the Indemnitor has made a good faith determination, based on
the facts alleged in such Notice of Claim or which have otherwise
become known to the Indemnitor, either that the Indemnitor
acknowledges that it has an indemnification obligation hereunder in
respect of such Liability or that the Indemnitor has made a good
faith determination that it has no indemnification obligation
hereunder in respect of such Liability. If the Indemnitor fails to
perform its obligations under this Section 10.4, or if the
Indemnitor shall have informed the Indemnitee in writing in that
the Indemnitor does not have an indemnification obligation
hereunder in respect of such Liability, then the Indemnitee shall
have the right, but not the obligation, to take the actions which
the Indemnitor would have had the right to take in connection with
the performance of such obligations and, if the Indemnitee is
entitled to indemnification hereunder in respect of the event or
circumstance as to which the Indemnitee takes such actions, then
the Indemnitor shall, in addition to indemnifying Indemnitee for
the Liability, indemnify the Indemnitee for all of the legal,
accounting and other costs, fees and expenses reasonably and
actually incurred in connection therewith.
(c) The Indemnitor shall have the right and obligation,
in good faith and at its own cost and expense, to cure, remediate,
mitigate, remedy or otherwise handle any event or circumstance
which gives rise to a Liability in respect of which a Notice of
Claim has been given (including events and circumstances which can
be cured, remediated, mitigated or
<PAGE>
remedied through the expenditure of money and events and circumstances
which give rise to a Liability which can be measured in terms of money),
regardless of the nature of such Liability. Such right and obligation shall
include, without limitation, (i) the right to investigate any such
event or circumstance, and (ii) the right to defend, contest or
otherwise oppose any third party claim, demand, suit, action or
proceeding related to such event or circumstance with legal counsel
selected by it. The exercise of such right and performance of
such obligation shall not constitute an admission or agreement by
Indemnitor that it has an indemnification obligation hereunder in
respect of such Liability. If the Indemnitor proposes to settle or
compromise any such third party action, demand, claim, suit or
proceeding, the Indemnitor shall give written notice to that effect
(together with a statement in reasonable detail of the terms and
conditions of such settlement or compromise) to the Indemnitee a
reasonable time prior to effecting such settlement or compromise.
(d) The Indemnitee shall have the right, but not the
obligation, to participate, at its own cost and expense, in the
defense, contest or other opposition of any such third party claim,
demand, suit, action or proceeding through legal counsel selected
by it and shall have the right, but not the obligation, to assert
any and all cross-claims or counterclaims which it may have. So
long as the Indemnitor is in good faith performing its obligations
under this Section 10.4, the Indemnitee shall (i) at Indemnitor's
cost and expense, cooperate in all reasonable ways with, make its
and its Affiliates' relevant files and records available for
inspection and copying by, make its and its Affiliates' employees
reasonably available to and otherwise render reasonable assistance
to the Indemnitor upon request and (ii) not compromise or settle
any such claim, demand, suit, action or proceeding without the
prior written consent of the Indemnitor.
<PAGE>
The Indemnitee shall have the right (i) to object to the settlement
or compromise of any such third party action, demand, claim, suit
or proceeding whereupon if such settlement is solely a cash settlement
(A) the Indemnitee will assume the defense, contest or other opposition
of any such third party action, demand, claim, suit or proceeding for
its own account and as if it were the Indemnitor and (B) the Indemnitor
shall be released from any and all liability with respect to any such third
party action, demand, claim, suit or proceeding to the extent that
such liability exceeds the liability which the Indemnitor would
have had in respect of such a settlement or compromise, or (ii) to
assume, at any time by giving written notice to that effect to the
Indemnitor, the cure, mitigation, remediation, remedy or other
handling of such event or circumstance and the defense, contest or
other opposition of any such third party action, demand, claim,
suit or proceeding for its own account whereupon the Indemnitor
shall be released from any and all liability with respect to such
event or circumstance and such third party action, demand, claim,
suit or proceeding.
(e) After the Closing, each Party shall take all
commercially reasonable actions which may be necessary to enable
the other Party to exercise its rights and perform its obligations
under this Section 10.4.
(f) Notwithstanding anything contained herein to the
contrary, each Party shall use, and shall cause its Affiliates to
use, commercially reasonable efforts to mitigate any and all
damages, losses, liabilities, costs and expenses in respect of
which it may be entitled to indemnification hereunder.
<PAGE>
ARTICLE 11
PUBLICITY AND CONFIDENTIALITY
Section 11.1. Publicity. Neither Party, shall or shall
permit its Affiliates to, issue any publicity, release or
announcement concerning the execution and delivery of this
Agreement, the provisions hereof or the transactions contemplated
hereby without the prior written approval of the form and content
of such publicity, release or announcement by the other; provided,
however, that no such approval shall be required when such
publicity, release or announcement is required by (i) applicable
Law, (ii) applicable rules or regulations of, or any listing
agreement with, a national or foreign stock exchange or the
Automated Quotation System maintained by the National Association
of Securities Dealers, Inc. or (iii) any Order of any court,
arbitrator or Governmental Entity of competent jurisdiction; and,
provided further, that, prior to issuing any publicity, release or
announcement without such prior written approval, the Party issuing
or whose Affiliate is issuing such publicity, release or
announcement shall have given reasonable prior notice to the other
Party of such intended issuance and, if requested by the other
Party, shall have used reasonable efforts at such other Party's
cost and expense to obtain a protective order or similar protection
for the benefit of the other Party. In addition, with the prior
written consent of the Parties, not to be unreasonably withheld, CS
First Boston and Goldman Sachs & Company each may cause to be
published such tombstone advertisements with respect to the
transactions contemplated by this Agreement as it shall deem
appropriate. Nothing contained herein shall prevent the
communication of information with any Governmental Entity or any
agency or other organization which rates the financial solvency or
claims-paying ability of Seller or Purchaser, including without
limitation, A.M. Best Company, Inc., Duff & Phelps, Standard
<PAGE>
& Poor's Corporation and Moody's Investors Services, Inc. or state
insurance departments or other regulatory bodies.
Section 11.2. Confidentiality.
(a) All data, reports, records and other information of
any kind received by a Party or its Affiliates or Representatives
(such Party being hereinafter referred to as the "Receiving Party")
from the other Party or its Affiliates or Representatives (such
other Party being hereinafter referred to as the "Delivering
Party") under this Agreement or in connection with the transactions
contemplated hereby shall be treated as confidential (collectively,
"Confidential Information"). Except as otherwise provided herein,
the Receiving Party shall not use (and shall not permit its
Affiliates or Representatives to use) Confidential Information for
its own (or their own) benefit and shall use commercially
reasonable efforts (and shall cause its Affiliates, directors,
officers and employees to use commercially reasonable efforts) to
maintain the confidentiality of Confidential Information. If the
Receiving Party or any of its Affiliates or Representatives is
required to disclose Confidential Information by or to any court,
arbitrator or Governmental Entity of competent jurisdiction, the
Receiving Party shall, prior to such disclosure, promptly notify
the Delivering Party of such requirement and all particulars
related to such requirement. The Delivering Party shall have the
right, at its own cost and expense, to object to such disclosure
and to seek confidential treatment of any Confidential Information
to be so disclosed on such terms as it shall determine.
(b) The restrictions set forth in Section 11.2(a)
hereof shall not apply to the use or disclosure of Confidential
Information to the extent, but only to the extent, (i) permitted or
required pursuant to any other agreement between or among the
Parties or their respective
<PAGE>
Affiliates or Representatives, (ii) necessary by a Party or its
Affiliates in connection with exercising its or their rights or
performing its or their duties or obligations under this Agreement,
the Ancillary Agreements or the other agreements described in clause
(i) of this sentence, (iii) contemplated by the last two sentences
of Section 11.2(a) hereof or (iv) that the Receiving Party can
demonstrate such Confidential Information (A) is or becomes generally
available to the public through no fault or neglect of the Receiving
Party, (B) is received in good faith on a non-confidential basis from
a third party who discloses such Confidential Information without
violating any obligations of secrecy or confidentiality, (C) is
independently developed after the time of receipt as shown by dated written
records or (D) was already possessed at the time of receipt as
shown by prior dated written records.
(c) For the purposes of this Section 11.2,
(i) information which is specific shall not be deemed to be within
an exception set forth in Section 11.2(b) hereof merely because it
is embraced by general information which is within such an
exception and (ii) a combination of information shall not be deemed
to be within an exception set forth in Section 11.2(b) hereof
merely because individual aspects of such combination are within
such an exception unless the combination of information itself, its
principle of operation and its value or advantages are within such
an exception.
ARTICLE 12
MISCELLANEOUS
Section 12.1. Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally (by courier or otherwise), sent
<PAGE>
by certified, registered or express mail, postage prepaid and return
receipt requested, or transmitted by facsimile (with a copy of such
notice or other communication and a confirmation of transmission sent by
certified, registered or express mail, postage prepaid and return
receipt requested no later than the close of business on the next
business day following such transmission) and shall be addressed as
follows:
when Purchaser is to be notified:
SunAmerica Life Insurance Company
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Attention: General Counsel
Facsimile No.: (310) 772-6574
with a copy to:
SunAmerica Life Insurance Company
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Attention: Controller
Facsimile No.: (310) 772-6684
and
O'Melveny & Myers
1999 Avenue of the Stars
Suite 700
Los Angeles, California 90067
Attention: Robert D. Haymer, Esq.
Facsimile No.: (310) 246-6779
when Seller is to be notified:
John Alden Life Insurance Company
7300 Corporate Center Drive
Miami, Florida 33126-1223
Attention: General Counsel
Facsimile No.: (305) 715-1342
<PAGE>
With copies to:
John Alden Financial Corporation
7300 Corporate Center Drive
Miami, Florida 33126-1223
Attention: General Counsel
Facsimile No.: (305) 715-1497
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Jay R. Schifferli, Esq.
Facsimile No.: (203) 327-2669
A Party may, by notice given in accordance with this Section 12.1
to the other Party, designate another address or Person to which
notices required or permitted to be given pursuant to this
Agreement shall thereafter be transmitted. Each notice transmitted
in the manner described in this Section 12.1 shall be deemed to
have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as
indicated by the return receipt (if transmitted by mail),
transmitted to the addressee (if transmitted by facsimile and
subject to delivery of the mailed copy thereof) or the affidavit of
the messenger (if transmitted by personal delivery) or (ii)
presented for delivery to the addressee as so indicated during
normal business hours, if such delivery shall have been refused for
any reason.
Section 12.2. Entire Agreement. This Agreement (including
the Ancillary Agreements, the other agreements contemplated hereby
and thereby, the JANY Stock Purchase Agreement, the Annex, the
Exhibits and the Schedules attached hereto (the "Transaction
Agreements")) contains the entire agreement and understanding
between the Parties with respect to the subject matter hereof and
cancels and supersedes all of the previous or contemporaneous
agreements, representations, warranties and understandings, whether
written or oral, by or between the
<PAGE>
Parties with respect to the subject matter hereof. Except for the
representations and warranties expressly set forth in the Transaction
Agreements, Purchaser disclaims reliance upon (i) any representations,
warranties or guarantees (whether express or implied and whether
oral or written) by Seller, JANY or any of their Affiliates or any
of their respective Affiliates' Representatives (including, without
limitation, any projections of future sales, revenues, expenses or
earnings and any statements regarding the prospects of the Annuity
Business as presently conducted by Seller) or (ii) any other
information with respect to the Annuity Business, the Purchased
Assets, Seller, JANY or their industry provided by or on behalf of
them. Nothing contained in any document or instrument of
conveyance, transfer, assignment or delivery executed or delivered
at the Closing pursuant to this Agreement shall amend, extend,
modify, renew or alter in any manner any representation, warranty,
covenant, agreement or indemnity contained herein. Nothing
contained in the Transaction Agreements or in any of the Schedules
hereto or thereto or in any of the other agreement contemplated
hereby or thereby shall constitute or be interpreted or construed
as an admission by any Party or any of its Affiliates of liability
to third parties, whether under Laws or otherwise, or as an
admission that any Party or any of its Affiliates are in violation
of or have ever violated any Law.
Section 12.3. Amendments. No addition to, and no
cancellation, renewal, extension, modification or amendment of or
approval under, this Agreement shall be binding upon a Party unless
such addition, cancellation, renewal, extension, modification,
amendment or approval is set forth in a written instrument which
states that it adds to, amends, cancels, renews or extends this
Agreement or grants an approval hereunder and which is executed and
delivered on behalf of each Party by an officer of, or attorney-in-
fact for, such Party.
<PAGE>
Section 12.4. Waivers. No waiver of any provision of this
Agreement shall be binding upon a Party unless such waiver is
expressly set forth in a written instrument which is executed and
delivered on behalf of such Party by an officer of, or attorney-in-
fact for such Party. Such waiver shall be effective only to the
extent specifically set forth in such written instrument. Neither
the exercise (from time to time or at any time) nor the delay or
failure (at any time or for any period of time) to exercise any
right, power or remedy shall operate as a waiver of, the right to
exercise, or impair, limit or restrict the exercise of part of any
Party of any such right, power or remedy any other right, power or
remedy at any time and from time to time thereafter. No waiver of
any right, power or remedy of a Party shall be deemed to be a
waiver of any other right, power or remedy of such Party or shall,
except to the extent so waived, impair, limit or restrict the
exercise of such right, power or remedy.
Section 12.5. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. Each Party consents and submits to the
non-exclusive personal jurisdiction of any federal court in the
State of Delaware in respect of any proceeding for the sole purpose
of injunctive relief or to enforce an arbitration award under
Section 12.10 hereof. Each Party consents to service of process
upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
applicable Laws. Each Party waives any objection that it may now
or hereafter have to the laying of venue of any such proceeding in
federal court in the State of Delaware and any claim that it may
now or hereafter have that any such proceeding in any such court
has been brought in an inconvenient forum.
<PAGE>
Section 12.6. Binding Effect; Assignment; Third Party
Beneficiaries. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and
permitted assigns. Neither Seller nor Purchaser shall assign any
of its rights or delegate any of its duties hereunder, (in whole or
in part and by operation of law or otherwise) without the prior
written consent of the other Party hereto, except that Purchaser
may assign its rights and obligations under this Agreement to any
of its Affiliates provided Purchaser shall remain liable for its
obligations hereunder notwithstanding such assignment. Any
assignment of rights or delegation of duties under this Agreement
by a Party without the prior written consent of the other Party, if
such consent is required hereby, shall be void. No Person
(including, without limitation, any employee of a Party) shall be,
or be deemed to be, a third party beneficiary of this Agreement.
Section 12.7. Severability. If any provision of this
Agreement shall hereafter be held to be invalid, unenforceable or
illegal, in whole or in part, in any jurisdiction under any
circumstances for any reason, (i) such provision shall be reformed
to the minimum extent necessary to cause such provision to be
valid, enforceable and legal while preserving the intent of the
Parties as expressed in, and the benefits to the Parties provided
by, this Agreement or (ii) if such provision cannot be so reformed,
such provision shall be severed from this Agreement and an
equitable adjustment shall be made to this Agreement (including,
without limitation, addition of necessary further provisions to
this Agreement) so as to give effect to the intent as so expressed
and the benefits so provided. Such holding shall not affect or
impair the validity, enforceability or legality of such provision
in any other jurisdiction or under any other
<PAGE>
circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of
any other provision of this Agreement.
Section 12.8. Headings. The headings in this Agreement have
been inserted for convenience of reference only, and shall not be
considered a part of this Agreement and shall not limit, modify or
affect in any way the meaning or interpretation of this Agreement.
Section 12.9. Counterparts. This Agreement may be executed
by the parties in any number of counterparts, each of which when so
executed and delivered shall constitute an original instrument, but
all such counterparts shall together constitute one and the same
instrument. This Agreement shall become effective and be deemed to
have been executed and delivered by all of the Parties at such time
as counterparts shall have been executed and delivered by both of
the Parties, regardless of whether each of the Parties has executed
the same counterpart. It shall not be necessary when making proof
of this Agreement to account for any counterparts other than a
sufficient number of counterparts which, when taken together,
contain signatures of both of the Parties.
Section 12.10. Arbitration. The Parties acknowledge and
agree that the transactions contemplated herein substantially
affect and impact interstate commerce. Therefore, all disputes or
differences between Seller and Purchaser arising under or which are
related to this Agreement (other than proceedings for the sole
purpose of injunctive relief) upon which an amicable understanding
cannot be reached within 30 days shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, except as hereinafter provided, and
judgment upon the award entered by the Arbitrators (as defined
below) may be entered in any court having jurisdiction thereof.
The Arbitrators provided for herein shall
<PAGE>
construe this Agreement in light of the prevailing custom and practices
for acquisition transactions of a similar nature. The "Arbitrators"
shall consist of one neutral arbitrator (or as provided below, three
neutral arbitrators). The Parties agree that the arbitration, if
implemented under this Agreement, shall be held at a site selected
by the Arbitrators. The Parties agree to arbitrate within 90 days
following the transmittal of written demand of either Party to
arbitrate any dispute arbitrable under this Agreement. The Parties
will in good faith, within 15 days following notice of written
demand to arbitrate attempt to agree on a single Arbitrator. If
the Parties cannot within 15 days thereafter agree on a single
arbitrator, each of the Parties shall appoint an Arbitrator,
notifying the other Party of the name and address of such
Arbitrator. The Arbitrators appointed by each Party shall agree
upon and appoint a third neutral Arbitrator. If either Party shall
fail to appoint an Arbitrator as herein provided, or should the two
Arbitrators so named fail to select the third Arbitrator within 30
days after their appointment, then, in either event, the President
of the American Arbitration Association or its successor shall
appoint such second and/or third Arbitrator. A decision of a
majority of the Arbitrators shall be final and binding and there
shall be no appeal therefrom. The Arbitrators shall within 45 days
after the final hearing enter an award and the award shall be
supported by a written opinion. The fees of the Arbitrators and
the direct costs of the arbitration shall be shared equally by the
Parties; all other costs of the respective Parties, including
without limitation fees and expenses of the respective Party's
attorneys, witnesses, and discovery shall be paid by the respective
Party, except to the extent that the Arbitrators otherwise direct
based on the equities of the situation. The arbitration shall be
held in New York, New York, unless otherwise agreed between the
Parties.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first written above.
SUNAMERICA LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
_________________________________
Name: Jay S. Wintrob
Title: Executive Vice President
JOHN ALDEN LIFE INSURANCE COMPANY
By: /s/ GLENDON E. JOHNSON
___________________________________
Name: Glendon E. Johnson
Title: Chairman, President & C.E.O.
<PAGE>
ANNEX A
The following terms are defined in the following Sections.
DEFINED TERM SECTION
Administrative Services Agreement 1.5
Agreement Introduction
Ancillary Agreements 1.5
Annuity Business Introduction
Antitrust Division 5.4
Applicable Survival Period 10.1
Assigned Contracts 1.2
Assignment and Assumption Agreement 1.5
Assumed Liabilities 2.1
Assumption Reinsurance Agreement 1.5
Bill of Sale 1.5
Books and Records 1.2
Capital Loss 1.3
Capital Gain 1.3
Ceding Commission 1.3
Closing Date Adjustments 1.3
Closing Date Ceding Commission 1.3
Closing 1.1
Closing Date 1.1
Code 3.8
Competing Business 8.7
Confidential Information 11.2(a)
Continuing Employees 8.4
Delivering Party 11.2(a)
Dividend Declaration Date 8.8
Estimated Closing Date Statement 1.3
Excluded Transactions 1.3
Final Closing Adjustments 1.7
Final Closing Date Statement 1.7
FTC 5.4
Houston 8.7
HSR Act 3.5
Indemnitee 10.4(a)
Indemnitor 10.4(a)
Indemnity Reinsurance Agreement 1.5
Independent Party 1.7
Interim John Alden Financial Statements 3.25
<PAGE>
Interim SunAmerica Financial Statements 4.7
JANY Stock Purchase Agreement Introduction
JANY Stock Introduction
JANY Introduction
John Alden 3.25
Liabilities 10.2(a)
License Agreement 1.5
Liens 3.4
Net Cash Flows 1.3(c)(i)
NOLHGA 2.2
Notice of Claim 10.4(a)
Oxford Agreement 5.11
Oxford Annuity Contracts 5.11
Oxford Put 5.11
Parties Introduction
Party Introduction
Permits 3.4
Permitted Mortgage Liens 3.22
Policy Loans 1.2
Portfolio Securities 1.2
Purchased Assets 1.2
Purchaser Introduction
Purchaser Financial Statements 4.7
Purchaser Group 10.3(a)
Purchaser's Opinion 1.5
Receiving Party 11.2(a)
Reinsurance Premium 1.2
Rejected Mortgage 1.2
Reserve Liabilities 3.17
Restricted Period 8.7
Seller Introduction
Seller Group 10.2(a)
Seller's Opinion 1.5
SunAmerica 4.7
SunAmerica Financial Statements 4.7
Termination Date 9.1
Third Party Administration Agreements 3.25
Transition Services Agreement 1.5
Transaction Agreements 12.2
Trust Agreement 1.5
Trustee 1.5
<PAGE>
"Accrued and Unpaid Investment Income" means the aggregate
accrued but unpaid interest through and including the Closing Date
on bonds, mortgages and other interest bearing instruments included
in the Closing Date Portfolio Securities plus accrued but unpaid
interest through and including the Closing Date on any and all
Policy Loans related to the Policy Loan Balance plus declared but
unpaid dividends on Preferred Stock.
"Action" means any action, claim, complaint, cause of action,
arbitration, petition, investigation, suit or administrative or
other proceeding, whether civil or criminal, at law or in equity,
before any court, arbitrator or Governmental Entity.
"Adjusted Capital and Surplus of JANY" means, as of the
Closing Date, capital and surplus plus asset valuation reserves of
JANY as shown on lines 38, 11.4 and 24.1 of page 3 of the 1995
Annual Statement of JANY, calculated as of the Closing Date in a
manner consistent with such calculation at year end.
"Affiliate" shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with the Person specified. For purposes of
this definition, "control" (and its derivative terms "controlled,"
"controls," etc.) shall mean the power and right to direct the
management and policies of another Person, whether by ownership of
voting securities, the ability to elect a majority of the board of
directors or other managing board or committee, management
contract, or otherwise.
"Annuity Contracts" means all policies described on Schedule
3.8(a) attached hereto. Annuity Contracts as used in this Agreement
is intended to refer to all single premium deferred annuity
policies, flexible premium deferred annuity policies, single
premium immediate annuity policies, supplementary contracts and
guaranteed investment contracts included in the Annuity Business
which are in-force as of the Closing Ledger Date, as well as any
riders providing for other supplemental benefits, and all
supplements, endorsements, riders and ancillary agreements in
connection therewith and specifically includes without limitation
(i) all lapsed Annuity Contracts that are reinstated and (ii) any
supplemental benefits arising out of the Annuity Contracts.
Notwithstanding anything to the contrary in this Agreement,
"Annuity Contracts" shall not include (i) any policy for which the
reserves or applicable premiums are not actually transferred to
Purchaser, (ii) any policy not described in Schedule 3.8(b)
attached hereto, (iii) Annuity Contracts issued on or prior to
April 1, 1978, (iv) single premium immediate annuities and
supplementary contracts involving life contingencies, (v) universal
life flexible premium deferred annuity riders, (vi) annuity
policies assumed by Seller from Aristar Life Insurance Company and
(vii) if the Oxford Put is implemented pursuant to Section 5.10
hereof, the Oxford Annuity Contracts. For purposes of the
representations and warranties of Seller set forth in Article 3
hereof, the term "Annuity Contracts" shall be deemed to include
policies described on Schedule 3.8(a) attached hereto sold after
the Closing Ledger Date and on or prior to the Closing Date or
which terminated after the Closing Ledger Date and on or prior to
the Closing Date.
"Book Value" means book value computed in accordance with SAP,
without marking to market and without including Accrued and Unpaid
Investment Income.
<PAGE>
"Business Day" means any day on which banks and other
financial institutions are not required to be closed pursuant to
applicable Laws in any of New York, New York, Los Angeles,
California and Miami, Florida.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act.
"Closing Date Portfolio Securities" means the cash,
securities, mortgage loans and other assets of Seller identified on
Schedule 1.2(a)(i) attached hereto (which Schedule also sets forth
the Book Value of each such asset as of October 21, 1996) (the
"October 21 Portfolio Securities"), (i) less the Rejected
Mortgages, (ii) less any such assets which have been sold before
the Closing Date with the approval of Purchaser in accordance with
Section 5.1(c)(i) hereof, (iii) less any October 21 Portfolio
Securities that have matured or been redeemed in accordance with
their terms between October 21, 1996 and the Closing Date.
"Closing Ledger Date" means the 21st day of the month in which
the Closing occurs or, if such day is not a Business Day, on the
next preceding Business Day.
"Combined Reserve Liabilities" means the Reserve Liabilities
for Annuity Contracts plus all reserves with respect to JANY's
Insurance Contracts (as defined in the JANY Stock Purchase
Agreement), in the aggregate.
"Commercially reasonable efforts" when used with respect to
any Party, means the reasonable efforts of such Party without the
requirement that such Party incur any extraordinary out-of-pocket
expenses, incur any other unanticipated burden or commence or
pursue any action, suit or proceeding.
"Environmental Laws" means any Law pertaining to health,
industrial hygiene or the environmental condition on or under any
property including, without limitation, CERCLA and the Toxic
Substance Control Act, and the rules and regulations thereunder.
"Excluded Liabilities" means (i) all liability for premium
taxes arising on account of premiums paid on or prior to the
Closing Ledger Date with respect to the Annuity Contracts, (ii) all
liability for commission payments and other fees or compensation
payable with respect to the Annuity Contracts to or for the benefit
of brokers and agents and other distribution sources, to the extent
that such amounts are based on premiums paid on or prior to the
Closing Ledger Date, (iii) trailer commissions (which are based
upon account values) accruable on or prior to the Closing Ledger
Date and (iv) all Guaranty Fund Assessments imposed as a result of
a conservatorship or other insolvency proceeding commenced on or
prior to the Closing Date with respect to the Annuity Contracts.
"Excluded Transactions" means with respect to the June 21
Portfolio Securities the sale or assignment of such Portfolio
Securities which resulted in (i) $1,174,000 of capital losses on
bonds, (ii) $1,072,000 in capital gains on bonds, (iii) $3,107,000
of losses due to mortgage write
<PAGE>
downs and sales, and (iv) $161,000 of gains on mortgage prepayments,
as set forth on the Schedule attached hereto entitled "Excluded
Transactions."
"Execution Date" means the date of this Agreement.
"Extra Contractual Obligations" means all liabilities (i) for
compensatory, consequential, exemplary, punitive or similar damages
which directly relate to any alleged or actual act, error,
omission, fraud or misrepresentation by Seller, any of its
Affiliates or any of its or its Affiliates' officers or employees,
whether intentional or otherwise, prior to the Closing Date, or
(ii) from any actual or alleged reckless conduct or bad faith by
Seller, any of its Affiliates or any of its or its Affiliates'
officers or employees in connection with Seller's handling of any
claim under any of the Annuity Contracts or in connection with the
issuance, offer, sale, delivery, cancellation or administration by
Seller or any of its Affiliates or any of its or its Affiliates'
officers or employees of any of the Annuity Contracts or (iii) in
connection with any acceleration of the benefits under the Annuity
Contracts or any claims for the present value of the Annuity
Contracts, in either case, in connection with rehabilitation,
liquidation, receivership or other similar proceedings filed
against Seller.
"Final Closing Net Assets" means the sum of (i) the Book Value
of the Closing Date Portfolio Securities as of the Closing Date as
set forth on the Final Closing Date Statement, (ii) any cash
deposited in the Trust pursuant to Section 1.2(c) hereof and (iii)
the Policy Loan Balance as set forth on the Final Closing Date
Statement, which sum will be (x) increased by any amount paid by
Seller pursuant to Section 1.3(d)(i) hereof or (y) decreased by the
amount paid by Purchaser pursuant to Section 1.3(d)(ii) hereof.
"GAAP" shall mean United States generally accepted accounting
principles as in effect from time to time, consistently applied
throughout the specified period and in the immediately prior
comparable period.
"Governmental Entity" means any agency, administrative
division or department (or administrative subdivision), commission,
regulatory authority (including without limitation any insurance
regulatory authority), taxing or administrative authority, court or
other judicial body, legislature of the government of the United
States or any state, city, municipality, county, town, district or
other political subdivision thereof or any state, city,
municipality, county, town, district or other political subdivision
thereof or any quasi-governmental entity, including, without
limitation, the employees or agents thereof.
"Hazardous Substance" means (i) any and all substances defined
as "hazardous substances," "extremely hazardous substances," "toxic
substances," "hazardous waste," "hazardous materials" or
"infectious waste" for purposes of CERCLA or any other
Environmental Law and (ii) any petroleum or petroleum-based
products.
"Insurance Liabilities" means only the contractual liabilities
and obligations of Seller arising under the Annuity Contracts, as
evidenced by the written policy forms and riders, and
<PAGE>
no other liabilities whatsoever. Without limiting the foregoing,
Insurance Liabilities shall not include Excluded Liabilities or any
Extra Contractual Obligations.
"June 21 Portfolio Securities" means the cash, securities,
mortgage loans and other assets identified on Schedule 1.2(a)(i) as
of June 21, 1996.
"Laws" means any and all federal, state or local statutes,
laws, ordinances, rules and regulations.
"Loan Documents" means the Mortgage Note, the Mortgage and any
and all other agreements, certificates, documents or instruments in
Seller's possession or under its control relating to the
origination, closing and modification of a Mortgage Loan, including
without limitation any related assignment of rents, security
agreement, UCC financing statement, guaranty, letter of credit,
pledge agreement, loan agreement or other instrument creating a
security interest in, and Lien upon, real and/or personal property.
"Market Value" means (i) with respect to any publicly traded
security, the last reported sales price on the business day
immediately preceding the date on which such valuation is being
made, (ii) with respect to other (private) securities, the value
estimated using publicly quoted market prices for similar
securities, as identified by Seller, increased by 30 basis points
and (iii) with respect to mortgages, the GAAP book value per
Seller's financial statements.
"Material Adverse Effect" means any change, effect, event or
occurrence that has, or is reasonably likely to have, individually
or in the aggregate, a material adverse impact on (i) the assets,
business, financial position or results of operations of the
Annuity Business, the Annuity Contracts or the Purchased Assets or
(ii) the ability of Seller to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements;
provided that "Material Adverse Effect" shall be deemed to exclude
the impact of (i) changes in Laws, or interpretations thereof by
any Governmental Entity, relating to or affecting the Annuity
Business and (ii) changes in GAAP or SAP.
"Material Adverse Effect on Purchaser" means any change,
effect, event or occurrence that has, or is reasonably likely to
have, individually or in the aggregate, a material adverse impact
on (i) the business, financial position or results of operations of
Purchaser (either before or after the Closing and the closing under
the JANY Stock Purchase Agreement) or (ii) the ability of Purchaser
to consummate the transactions contemplated by this Agreement and
the Ancillary Agreements; provided that "Material Adverse Effect on
Purchaser" shall be deemed to exclude the impact of (i) changes in
Laws or interpretations thereof by any Governmental Entity relating
to or affecting the business of Purchaser and (ii) changes in GAAP
or SAP.
"Mortgage" means the mortgage, deed of trust or other
instrument (and all modifications thereto) creating a lien on real
property described therein or on the tenant's interest under a
ground lease of real property described therein, in either case
securing a Mortgage Note.
<PAGE>
"Mortgage Loan" means any individual mortgage loan that is
identified on the Mortgage Loan Schedule.
"Mortgage Loan Principal Balance" means, with respect to any
Mortgage Loan, the unpaid principal balance as of the date
specified in the Mortgage Loan Schedule.
"Mortgage Loan Schedule" means the list of Mortgage Loans
subject to this Agreement and identified on Schedule 3.22(a)
attached hereto, which schedule sets forth the following
information with respect to each Mortgage Loan as of the date
specified therein.
(i) the Mortgage Loan numbers;
(ii) the name of the mortgagor and the name or address
of the Mortgaged Property;
(iii) the Mortgage Loan Principal Balance;
(iv) lien priority of the Mortgage;
(v) the maturity date; and
(vi) the current interest rate.
(vii) the Mortgage Loan Status (current, litigation,
bankruptcy, tax plans, etc.).
"Mortgage Note" means the note or other evidence of the
indebtedness under a Mortgage Loan.
"Mortgaged Property" means the land and improvements that
secure a Mortgage, which in the case of a leasehold mortgage shall
mean the tenant's interest in the real property underlying the
ground lease or, where the context so requires, the real property
underlying the ground lease.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Other Liabilities" means (i) all liability for premium taxes
arising on account of premiums paid to Purchaser with respect to
the Annuity Contracts after the Closing Ledger Date, (ii) all
liability for commission payments and other fees or compensation
payable with respect to the Annuity Contracts to or for the benefit
of brokers and agents and other distribution sources, to the extent
that such amounts are based on premiums paid to Purchaser after the
Closing Ledger Date, (iii) trailer commissions (which are based
upon account values) accruable after the Closing Ledger Date and
(iv) all Guaranty Fund Assessments imposed as a result of
<PAGE>
conservatorship or other insolvency proceedings commenced
subsequent to the Closing Date with respect to the Annuity
Contracts.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company,
proprietorship, trust, union, association, court, tribunal, agency,
government, department, commission, self-regulatory organization,
arbitrator, board, bureau, instrumentality, or other entity,
enterprise, authority, or business organization.
"Policyholders" means, as applicable, the beneficiaries under,
or policyholders with respect to, or owners of, the Annuity
Contracts, or any other Person entitled to payment with respect to
the Annuity Contracts.
"Policy Loan Balance" means the aggregate outstanding
principal amount of all Policy Loans as of a date of calculation
(other than the Policy Loans associated with the Oxford Annuity
Contracts in the event the Oxford Put is implemented).
"Qualified 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 then equivalent grade) by S&P,
is organized under the Laws of the United States or any State
thereof and is rated "TBW-1" or the equivalent 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 Execution Date of this
Agreement) which is rated "TBW-1" or the equivalent 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; (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) or (C) above, (ii) whose total net assets exceed $1 billion
and (iii) where the Seller's investment in such fund is limited to
an amount not exceeding 10% of such fund's assets; or (E) such
other assets as the Party receiving such Qualified Investments may
expressly approve in writing.
"Related Agreements" means the agreements providing for the
payment of commissions relating to the Annuity Contracts.
"Representatives" means, with respect to any Person, such
person's Affiliates, subsidiaries, shareholders, directors,
partners, joint ventures, officers, employees, agents,
representatives, producers, independent contractors, consultants,
lenders, brokers, finders, investment bankers, financial advisors,
attorneys and accountants. Seller's Representatives
<PAGE>
include without limitation CS First Boston. Purchaser's Representatives
include without limitation Goldman Sachs & Company.
"Service Transfer Date" means the date which is nine months
from the Closing Date, unless an earlier date is agreed to in
writing by Seller and Purchaser.
"SAP" means the statutory accounting principals and practices,
as in effect from time to time, required or permitted for life
insurance companies by applicable Laws of the National Association
of Insurance Commissioners and the insurance regulatory authority
in the state in which the company in question is domiciled,
consistently applied throughout the specified period and in the
immediately prior comparable period.
"Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments, including, without limitation, income, gross
receipts, ad valorem, premium, excise, real property, personal
property, windfall profit, sales, use, transfer, licensing,
withholding, employment, payroll, and franchise taxes imposed by
any Governmental Entity; and such term shall include any interest
(through the date of payment), penalties, assessments, or additions
to tax resulting from, attributable to, or incurred in connection
with any such tax or any contest or dispute thereof.
"Tax Returns" shall mean returns, declarations, statements,
reports, schedules, forms and information returns and any amended
Tax Return required to be supplied to a taxing authority in respect
of or relating to Taxes.
<PAGE> 1
STOCK PURCHASE AND SALE AGREEMENT
By and Between
JOHN ALDEN LIFE INSURANCE COMPANY
and
SUNAMERICA LIFE INSURANCE COMPANY
Dated November 29, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - PURCHASE AND SALE OF STOCK; CLOSING 2
1.1. Closing 2
1.2. Purchase and Sale of JANY Stock 2
1.3. Closing Deliveries 3
1.4. Additional Closing Deliveries 4
1.5. Settlement of Intercompany Obligations 4
1.6. Disputes 6
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER 6
2.1. Organization, Standing and Authority of Seller 6
2.2. Authorization 7
2.3. Actions and Proceedings 7
2.4. No Conflict or Violation 8
2.5. Consents and Approvals 8
2.6. Brokerage and Financial Advisers 9
2.7. Compliance With Laws 9
2.8. Insurance Contracts 9
2.9. Permits, Licenses and Franchises 12
2.10. Regulatory Filings 13
2.11. Reinsurance 14
2.12. Absence of Certain Changes or Events 14
2.13. Computer Software and Other Intellectual
Property 17
2.14. Contracts 18
2.15. Statutory Financial Statements 20
2.16. JANY Capital Stock 22
2.17. Tax Matters 22
2.18. Real Property 24
2.19. Owned Properties 25
2.20. Pension and Other Employee Plans 26
2.21. Labor Matters 29
2.22. Banks 29
2.23. Reserves 30
2.24. Books and Records 31
2.25. Threats of Cancellation 31
2.26. Operations Insurance 31
2.27. Intercompany Liabilities 32
2.28. Employee Loans 32
2.29. Credited Rates 32
2.30. Related Agreements. 32
2.31. Third Party Administration Agreements 33
<PAGE>
2.32. Mortgage Loans 33
2.33. No Waiver of Defenses 39
2.34. GAAP Financial Statements 39
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF PURCHASER 40
3.1. Organization and Standing 41
3.2. Authorization 41
3.3. Actions and Proceedings 41
3.4. No Conflict or Violation 42
3.5. Consents and Approvals 42
3.6. Brokerage and Financial Advisers 43
3.7. GAAP Financial Statements 43
3.8. Statutory Financial Statements 44
3.9. Rating 45
3.10. Investment Intent and Acknowledgement 45
ARTICLE 4 - PRE-CLOSING COVENANTS 46
4.1. Conduct of Business 46
4.2. Certain Transactions 50
4.3. Investigations 51
4.4. HSR Act Filings 51
4.5. Consents and Reasonable Efforts 52
4.6. Representations and Warranties 52
4.7. Financial Statements and Reports 53
4.8. Transfer Real Estate Owned 54
4.9. Stay-on Bonus. 54
ARTICLE 6 - CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
TO CLOSE 56
ARTICLE 7 - POST-CLOSING COVENANTS 59
7.1. Continued Access and Cooperation 59
7.2. Further Assurances 60
7.3. Expenses 61
7.4. Tax Indemnification and Other Tax Matters 61
7.5. Employee Plans 70
7.6. Non-Discriminatory Treatment of Policyholders 71
7.7. Change of Name 71
ARTICLE 8 - TERMINATION; SURVIVAL 72
<PAGE>
8.1. Termination of Agreement 72
8.2. Effect of Termination 73
ARTICLE 9 - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 74
9.1. Survival of Representations 74
9.2. Indemnification by Purchaser and JANY 75
9.3. Indemnification by Seller 77
9.4. Indemnification Procedure 79
ARTICLE 10 - PUBLICITY AND CONFIDENTIALITY 82
10.1. Publicity 82
10.2. Confidentiality 83
ARTICLE 11 - MISCELLANEOUS 85
11.1. Notices 85
11.2. Entire Agreement 87
11.3. Amendments 88
11.4. Waivers 88
11.5. Governing Law 88
11.6. Binding Effect; Assignment; Third Party
Beneficiaries 89
11.7. Severability 89
11.8. Headings 90
11.9. Counterparts 90
11.10. Arbitration 90
SIGNATURES 92
<PAGE>
ANNEX A - Definitions
EXHIBITS
A - Transition Services Agreement
B - Opinion of Seller's Counsel
C - Opinion of Purchaser's Counsel
D - Loan Documentation
<PAGE>
SCHEDULES
2.3 - Actions and Proceedings
2.4 - Certain Matters - Conflicts
2.5 - Consents and Approvals
2.7 - Compliance
2.8(a) - Insurance Contract Forms
2.8(b) - In Force Insurance Contracts
2.8(c) - Certain Commissions Contracts
2.8(e) - Contested Benefits
2.8(f) - Distributions and Other Benefits
2.8(h) - Known Agent Violations
2.8(f) - Distributions and Other Benefits
2.9 - Permit Exceptions
2.10 - Regulatory Filings
2.11 - Reinsurance Agreements
2.12 - Certain Changes or Events
2.13 - Intellectual Propterty
2.14 - Contracts
2.17 - Tax Matters
2.18 - Real Property
2.20 - Pension and Other Employee Plans
2.22 - Bank Accounts
2.23(a) - Reserve Liabilities
2.23(b) - Reserve Exceptions
2.25 - Threats of Cancellation
2.26 - Operations Insurance
2.27 - Intercompany Liabilities
2.28 - Employee Loans
2.30 - Related Agreements
2.31 - Third Party Administration Agreements
2.32(a) - Mortgage Loans
2.32(b) - Participation
2.32(d) - Waivers, Amendments and Releases Mortgage
Loans
2.32(f) - Missing Original Notes
2.32(l) - Tax Delinquencies
3.3 - Purchaser's Actions and Proceedings
3.4 - Purchaser's Conflicts or Violations
3.5 - Purchaser's Consents and Approvals
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT (the "Agreement") dated
November 29, 1996 by and between John Alden Life Insurance Company,
a Minnesota corporation ("Seller"), and SunAmerica Life Insurance
Company, an Arizona corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, John Alden Life Insurance Company of New York, a New
York corporation (along with any business or predecessor company
acquired by it, "JANY"), is engaged in the business of selling and
administering annuity, life and health related insurance policies
and related activities solely in the State of New York (the
"Insurance Business");
WHEREAS, Seller owns all of the outstanding capital stock of
JANY (the "JANY Stock"); and
WHEREAS, Seller wishes to sell to Purchaser, and Purchaser
wishes to acquire from Seller, all of the JANY Stock pursuant to
the terms and conditions set forth in this Agreement and certain
other assets of Seller pursuant to the terms and conditions set
forth in the Asset Purchase and Sale Agreement dated concurrently
herewith between Seller and Purchaser (the "Asset Purchase
Agreement").
NOW, THEREFORE, in consideration of the premises,
representations and warranties and the mutual covenants and
agreements contained herein and other good, valuable and sufficient
consideration, the receipt of which is hereby acknowledged, Seller
and Purchaser
<PAGE>
(collectively, the "Parties" and, sometimes individually, a "Party"),
intending to be legally bound, hereby agree as follows.
The capitalized terms used in this Agreement and not
defined herein shall have the meanings specified in Annex A
attached hereto. Unless the context otherwise requires, such
capitalized terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
ARTICLE 1
PURCHASE AND SALE OF STOCK; CLOSING
Section 1.1. Closing. The closing of the transactions
contemplated hereby (the "Closing") shall take place at 10:00 a.m.
local time, at the offices of Kelley Drye & Warren LLP, 101 Park
Avenue, New York, New York, 10178, or such other time and place as
Purchaser and Seller may mutually agree in writing, on the last
business day of the month in which the satisfaction of all
conditions set forth in Articles 5 and 6 hereof concerning the
Parties' respective obligations to consummate the transactions
contemplated herein occurs or such other date as Seller and
Purchaser may mutually agree in writing (the "Closing Date") and,
subject to completion, shall be deemed to have been consummated and
become effective for all purposes as of 11:59 p.m. on the Closing
Date.
Section 1.2. Purchase and Sale of JANY Stock.
Subject to the terms and conditions set forth herein, at
the Closing, Seller shall sell, assign and deliver to Purchaser,
and Purchaser shall purchase and accept from Seller, all of
Seller's right, title and interest in and to the JANY Stock. In
consideration for the sale, assignment and delivery of the JANY
Stock, at the Closing Purchaser shall pay to Seller a
<PAGE>
purchase price of One Hundred Thirty Two Million Dollars ($132,000,000)
(the "Purchase Price"). Purchaser shall pay the Purchase Price to
Seller on the Closing Date by wire transfer of immediately
available funds to such bank account as Seller shall designate to
Purchaser at least three business days prior to the Closing Date.
The amount of the cash payment wired to Seller shall be reduced by
an amount equal to one day's interest at an interest rate equal to
the three month LIBOR rate in effect on the day preceding the
Closing Date plus 25 basis points.
Section 1.3. Closing Deliveries.
(a) At the Closing, Seller shall or shall cause JANY to
deliver to Purchaser the following:
(i) the certificates representing the JANY Stock
duly endorsed in blank or accompanied by stock transfer powers
in proper form duly endorsed in blank, together with all
necessary stock transfer stamps affixed thereto and such other
instruments as shall reasonably be required by Purchaser to
transfer to Purchaser all rights, title and interest in the
JANY stock;
(ii) all minutes and minute books of JANY;
(iii) all stock transfer books and stock ledgers
of JANY;
(iv) all blank certificates for shares of capital
stock of JANY;
(v) resignations of all directors and officers of
JANY serving in office immediately prior to the Closing;
(vi) the opinion of counsel to Seller and JANY,
substantially in the form of Exhibit B attached hereto
("Seller's Opinion"); and
(vii) a certificate of an executive officer of
Seller, dated the Closing Date, representing and warranting to
the effect that (A) the officer signing such
<PAGE>
certificate is familiar with the provisions of this Agreement
and (B) the conditions specified in Article 4 of this Agreement
have been satisfied.
(b) At the Closing, Purchaser shall deliver to Seller
the following:
(i) the opinions of counsel to Purchaser,
substantially in the form of Exhibit C attached hereto
("Purchaser's Opinion");
(ii) a certificate of an executive officer of
Purchaser, dated the Closing Date, representing and warranting
to the effect that (A) the Person signing such certificate is
familiar with the provisions of this Agreement and (B) the
conditions specified in Article 5 of this Agreement have been
satisfied;
(iii) written consents to assignments, where
necessary from all applicable parties relating to the Third
Party Administration Agreements; and
(iv) the Purchase Price.
Section 1.4. Additional Closing Deliveries. In addition to
the transactions and deliveries contemplated above, the following
acts or transactions will occur at the Closing:
(a) Seller and Purchaser will enter into a Transition
Services Agreement substantially in the form of Exhibit A attached
hereto (the "Transition Services Agreement"); and
(b) all of the agreements between or among (i) JANY and
Seller or (ii) JANY and any Affiliates of Seller will be
terminated.
Section 1.5. Settlement of Intercompany Obligations.
(a) At least five days prior to the Closing, Seller will
estimate and cause to be paid by or to Seller or its Affiliates and
JANY, as the case may be, in cash, all obligations accrued through
the Closing on JANY's books and records payable by or to JANY from or to
<PAGE>
Seller and its Affiliates, which payments shall have been incurred in
the ordinary course of business on a basis consistent with past practice,
except that Seller shall not allocate to JANY any portion of any
bonuses for any Person who is not an employee of JANY. Seller shall
deliver to Purchaser a reasonably detailed description of all such
payments at least five days prior to the Closing.
(b) Seller shall prepare and deliver to Purchaser on or
before the 60th day after the Closing Date a reconciliation
statement of the estimated obligations paid by or to Seller and its
Affiliates by or to JANY pursuant to Section 1.5(a) hereof and the
actual amount of the amount of such obligations (other than as
provided in Section 7.4(d) hereof) (the "Reconciliation
Statement"). If the total actual amount of such obligations is
less than the estimated amount paid to Seller or its Affiliates by
JANY pursuant to Section 1.5(a) hereof, Seller shall pay to JANY in
cash an amount equal to such difference, together with interest
from the Closing Date through the date of payment at the rate per
annum equal to the three month LIBOR rate in effect on the date of
payment plus 25 basis points. Such payment shall accompany the
reconciliation statement. If the actual total amount and revised
estimate of such obligations exceeds the estimated amount paid to
Seller or its Affiliates by JANY pursuant to Section 1.5(a) hereof,
Purchaser shall pay, or cause JANY to pay, to Seller or its
Affiliates, as the case may be, within 10 days after delivery of
such statement cash in an amount equal to such excess, together
with interest from the Closing Date through the date of such
payment at the rate per annum equal to the three month LIBOR rate
in effect on the date of payment plus 25 basis points. After the
date hereof, JANY will not enter into any contract or, except as
required by this Agreement or any contract listed on Schedule 2.27
attached hereto, engage in any transaction with Seller or any
Affiliate of Seller.
<PAGE>
Section 1.6. Disputes. If Purchaser and Seller are unable
to resolve any disagreement with respect to the Reconciliation
Statement within 30 days after Seller receives a timely notice of
disagreement, the items of disagreement alone shall be referred for
final determination to the U.S. national office of Price Waterhouse
or, if such firm is unable or unwilling to make such final
determination, to such other independent accounting firm as the
Parties shall mutually designate. The firm making such
determination is referred to herein as the "Independent Party." The
Reconciliation Statement shall be deemed to be binding on Purchaser
and Seller upon the earlier to occur of (i) Purchaser's failure to
deliver to Seller a notice of disagreement within 30 days after its
receipt of the Reconciliation Statement prepared by Seller, (ii)
resolution of any disagreement by mutual agreement of the Parties
after a timely notice of disagreement has been delivered to Seller
or (iii) notification by the Independent Party of its final
determination of the items of disagreement submitted to it. The
fees and disbursements of the Independent Party shall be borne
equally, one-half by Purchaser and one-half by Seller.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 2.1. Organization, Standing and Authority of Seller.
Seller is a corporation duly organized as a capital stock life and
health insurance company, validly existing and in good standing
under the Laws of the State of Minnesota. JANY is a corporation
duly organized, validly existing and in good standing in the State
of New York. JANY has all corporate power and authority necessary
or required by Law to engage in the conduct of the Insurance Business
<PAGE>
as currently conducted by it. Seller has furnished Purchaser with
true and correct copies of the Articles of Incorporation and By-laws
of JANY, along with all amendments thereto.
Section 2.2. Authorization. Seller has all corporate power
and authority necessary to execute, deliver and perform its
obligations under this Agreement and the Transition Services
Agreement. The execution and delivery by Seller of this Agreement
and the Transition Services Agreement, and the performance by
Seller and JANY of its obligations hereunder and thereunder, have
been duly authorized by all necessary corporate and shareholder
actions on the part of Seller and JANY. This Agreement and the
Transition Services Agreement, when executed by all of the parties
thereto, will each constitute a valid and binding obligation of
Seller enforceable against Seller in accordance with its terms,
except insofar as enforceability may be limited by bankruptcy,
insolvency, moratorium or other Laws which may affect creditors'
rights and remedies generally and by principles of equity
(regardless of whether enforceability is considered in a proceeding
in equity or at law).
Section 2.3. Actions and Proceedings.
(a) Except as disclosed on Schedule 2.3 attached hereto,
there are no outstanding Orders by or with any court, arbitrator or
Governmental Entity before which Seller or any of its material
Affiliates or JANY is or was a party.
(b) Except as set forth on Schedule 2.3 attached hereto,
there are no Actions pending or, to the knowledge of Seller,
threatened either by or against JANY, Seller with respect to JANY
or any of JANY's properties or assets which (i) seeks monetary
damages exceeding $50,000 individually or $500,000 in the aggregate
or an unspecified amount of damages, (ii) seeks any injunction or
similar relief or (iii) would, individually or in the aggregate,
have a Material Adverse Effect.
<PAGE>
(c) There are no Actions presently pending or, to the
knowledge of Seller, threatened, and there are no final Orders
presently outstanding which pertain to any of the JANY Stock.
Section 2.4. No Conflict or Violation. Except as disclosed
on Schedule 2.4 attached hereto, the execution, delivery and
performance by Seller of this Agreement and the Transition Services
Agreement in accordance with the respective terms and conditions
hereof and thereof do not and will not (a) violate or constitute a
default under any provision of the charter or by-laws of Seller or
JANY, in each case, as amended to date, (b) violate or result in
the breach, cancellation or termination of, accelerate the
performance required under, or result in the creation of any lien,
claim, restriction, charge or encumbrance or other defect of title
("Liens") upon the JANY Stock or any of the material properties or
assets of JANY pursuant to, any mortgage, deed of trust, guaranty,
note, indenture, bond, lease, agreement or other instrument to
which either of Seller or JANY is a party or by or to which it or
any of the assets of JANY may be bound, (c) violate any Order of
any court, arbitrator or Governmental Entity against, or binding
upon, or any agreement with, or condition imposed by, any
Governmental Entity binding upon Seller or JANY or any of such
properties or assets of JANY, (d) violate any Law or (e) result in
the breach or violation of any of the terms or conditions of,
constitute a default under, or otherwise cause an impairment or
revocation of, any license, permit, order, approval, registration,
authorization, qualification or filing with or under any Law or
Governmental Entity (collectively, "Permits") related to the
Insurance Business.
Section 2.5. Consents and Approvals. Except as required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and rules and regulations thereunder (the "HSR Act") or as
set forth on Schedule 2.5 attached hereto, no consent, approval, exemption
<PAGE>
or authorization is required to be obtained from, no notice is required
to be given to and no filing is required to be made with any third party
(including, without limitation, Governmental Entities of competent
jurisdiction) by Seller or JANY in order (a) for this Agreement and the
Transition Services Agreement to constitute a valid and binding obligation
of Seller, (b) to authorize or permit the consummation of the transactions
contemplated hereby by Seller and JANY or (c) to prevent the
termination of any material right, privilege, franchise, license,
permit or agreement of JANY or to prevent any material loss to
JANY.
Section 2.6. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as
such for, or is entitled to any compensation from, Seller or JANY
in connection with this Agreement or the transactions contemplated
hereby, except CS First Boston, whose fees for services rendered in
connection with such transactions will be paid by Seller.
Section 2.7. Compliance With Laws. Except as disclosed in
Schedule 2.7 attached hereto, neither Seller nor JANY is in
material violation of any Law or any Order of any court, arbitrator
or Governmental Entity pertaining to JANY or any of its assets.
Section 2.8. Insurance Contracts. The forms of all policies
and endorsements utilized for the In Force Insurance Contracts of
JANY are described on Schedule 2.8(a) attached hereto. All In Force
Insurance Contracts in effect on October 21, 1996 or September 21,
1996, (as indicated in such Schedule) are listed in Schedule 2.8(b)
attached hereto. All In Force Insurance Contracts in effect on
Closing Ledger Date will be set forth in an updated Schedule 2.8(b)
delivered to Purchaser at the Closing. Schedule 2.8(b) includes
(and the updated Schedule 2.8(b) will include) with respect to each In
Force Insurance Contract the policy number, policyholder name, form, plan
code and account balance. All In Force Insurance Contracts are in all
<PAGE>
respects, to the extent required under applicable Law, on forms approved
by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply in all material respects and have been
administered in all material respects in accordance with applicable
Law. Without limiting the foregoing:
(a) JANY has offered and sold each Insurance Contract in
compliance with all applicable Laws (it being acknowledged that no
representation is made with respect to compliance by independent
agents of JANY except as provided in Section 2.8(h) hereof) and all
of Seller's registrations, filings or submissions made by it with
respect to the Insurance Contracts with any Governmental Entity
were in material compliance with applicable Laws when filed.
(b) The transactions contemplated by this Agreement will
not materially affect the validity and binding character of any
Insurance Contract entered into or issued by JANY or render any
admitted assets of JANY non-admitted under the applicable Laws up
to and including the Closing Date.
(c) Except as set forth in Schedule 2.8(c) attached
hereto, and except in accordance with customary insurance industry
practice, (i) JANY is not liable to pay commissions upon the
renewal of any insurance policy nor (ii) is it a party to any
agreement providing for the third-party collection of annuity or
insurance premiums payable to JANY by any other Person, which
commissions or premiums exceed $100,000 in the aggregate.
(d) All In Force Insurance Contracts are in full force
and effect and are legal, valid and binding obligations of JANY,
and to the knowledge of Seller each other party thereto, and are
enforceable against JANY, and to the knowledge of Seller each other
party thereto, in accordance with their respective terms, except to
the extent that enforcement thereof may be
<PAGE>
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 (other than equitable rescission rights).
(e) All Insurance Contract benefits payable by JANY 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 JANY have been paid in accordance with the terms of the
Insurance Contracts under which they arose, except for such
benefits for which there is, in the reasonable opinion of Seller or
JANY, a reasonable basis to contest and all such contested benefits
have been disclosed in Schedule 2.8(e) attached hereto.
(f) Except as set forth on Schedule 2.8(f) attached
hereto, no In Force Insurance Contract issued, reinsured or
underwritten by JANY entitles the holder thereof or any other
Person to receive dividends, distributions or other benefits based
on the revenues or earnings of JANY or any other Person.
(g) The underwriting standards utilized and ratings
applied by JANY 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 JANY conform in all respects to
industry accepted practices and to the standards and ratings
required pursuant to the terms of the respective reinsurance,
coinsurance or other similar contracts.
(h) To the knowledge of Seller, each producer who wrote,
sold or produced business for JANY was duly licensed as an
insurance agent (for the type of business written, sold or produced
by such producer) in the particular jurisdiction in which such
producer wrote, sold or produced such business. Except as otherwise
provided in Schedule 2.8(h) attached hereto, to the knowledge of Seller,
no insurance agent who wrote, produced or sold any portion
<PAGE>
of the business of JANY for Seller violated in any material respect any
terms or provisions of any Law, except such violations as have been
(i) cured, (ii) resolved through agreements with applicable Governmental
Entities or (iii) are barred by an applicable statute of limitations.
(i) The treatment under the Internal Revenue Code of
1986, as amended, and any successor thereto (the "Code") of all
Insurance Contracts is no less favorable to the Policyholder
thereof than the treatment under the Code for which such Insurance
Contracts were intended to qualify at the time of their issuance,
except for any failure to qualify for such treatment that results
from (i) changes to the Code, regulations, pronouncements,
announcements or guidance issued in connection with the treatment
of the contracts under the Code which were enacted (or have an
effective date) after the Closing Date, (ii) amendments,
modifications, supplements, riders, endorsements or revisions to
the Insurance Contracts after the Closing Date or (iii) changes in
the manner in which the Insurance Contracts are administered after
the Closing Date.
Section 2.9. Permits, Licenses and Franchises. JANY is
licensed to issue life and health related insurance policies only
in the State of New York. JANY has been duly authorized by the New
York Department of Insurance to issue the Insurance Contracts that
it is currently writing, and was duly authorized to issue the
Insurance Contracts that it is not currently writing at the time
such Insurance Contracts were issued. Except as set forth on
Schedule 2.9 attached hereto, JANY has all Permits necessary to
conduct the Insurance Business as currently conducted by JANY.
Neither the ownership of its property or assets nor the business
conducted by JANY requires the qualification, registration, license
or admission in any jurisdiction outside the State of New York,
except where the failure to be so qualified, registered, licensed
or admitted, individually or in the aggregate, would not have a
Material Adverse Effect. All of the Permits
<PAGE>
are in full force and effect and JANY has not received notice from
any Governmental Entity of its intention to revoke or not renew any
Permit, except for such failures to have Permits in full force and effect,
revocations, non-renewals and other events which do not and will
not, individually or in the aggregate, have a Material Adverse
Effect.
Section 2.10. Regulatory Filings. Seller has made available
for inspection by Purchaser all material registrations, filings and
submissions made by JANY with any Governmental Entity and final
financial and market conduct reports of examinations with respect
to JANY issued by any such Governmental Entity along with copies of
JANY's or Seller's responses thereto made or issued on or
subsequent to January 1, 1993. Except as listed on Schedule 2.10
attached hereto, JANY has filed all material reports, statements,
documents, registrations, filings or submissions (including without
limitation any marketing, advertising or sales material) required
to be filed by it with any Governmental Entity. Except as listed
on Schedule 2.10 attached hereto, (a) no material deficiencies have
been asserted by any such Governmental Entity with respect to such
registrations, filings or submissions that have not been satisfied;
(b) such registrations, filings or submissions were in material
compliance with applicable Law when filed; (c) since December 31,
1994, neither Seller nor JANY has submitted any written response
with respect to material comments from any Governmental Entity
concerning such filings, registrations, submissions or reports of
examination; (d) since December 31, 1992, no fine or penalty has
been imposed on JANY (or on Seller with respect to JANY) by any
Governmental Entity; and (e) no deposits have been made by JANY (or
by Seller with respect to JANY) with, or at the direction of, any
Governmental Entity which were not shown in the most recent Annual
Statement of JANY.
<PAGE>
Section 2.11. Reinsurance. Schedule 2.11 sets forth all
reinsurance or co-insurance agreements (together with all other
agreements related thereto) to which JANY is a party related to the
Insurance Contracts, and all such contracts, arrangements,
treaties, understandings and agreements under which JANY has any
obligation to cede or assume insurance. All such agreements are
valid and binding against JANY and, to the knowledge of Seller the
other parties thereto, and are in full force and effect in
accordance with their terms and conform in all material respects to
all applicable Laws and neither JANY nor, to Seller's knowledge,
any other party thereto is in material default under any such
agreement. Except as otherwise provided on Schedule 2.11 attached
hereto, no party to any such agreement has audited Seller with
respect thereto.
Section 2.12. Absence of Certain Changes or Events. Except
as disclosed on Schedule 2.12 attached hereto or except as
expressly contemplated or required by this Agreement, since
December 31, 1995, (a) JANY has not, except in the ordinary course
of business, consistent with past practice, (i) engaged in any
material transaction, (ii) entered into any material agreement,
(iii) waived or released any material right or obligation or (iv)
incurred any indebtedness for borrowed money and (b) except as
disclosed on Schedule 2.12 attached hereto, there has not been,
occurred or arisen:
(i) any declaration, setting aside, or payment of
any dividend or other distribution in respect of the capital
stock of JANY, or any direct or indirect redemption, purchase
or other acquisition by JANY of any such stock or of any
interest in or right to acquire any such stock;
(ii) any issuance, sale or disposition by JANY of
any debenture, note, stock or other security issued by JANY,
or any material modification or amendment of
<PAGE>
any right of the holder of any outstanding debenture, note,
capital stock or other security issued by JANY.
(iii) any Lien created on any of the assets of
JANY or assumed by JANY with respect to any of such assets
which Lien relates to liabilities individually or in the
aggregate exceeding $100,000 (but excluding Liens arising
through securities lending in the ordinary course of JANY's
business);
(iv) any prepayment of any liabilities (other than
pursuant to any Insurance Contract) individually or in the
aggregate exceeding $100,000;
(v) any liability involving the borrowing of money
by JANY individually or in the aggregate exceeding $100,000;
(vi) any damage, destruction or loss (whether or not
covered by insurance) affecting any of the assets of JANY
which damage, destruction or loss individually or in the
aggregate exceeds $100,000;
(vii) any work stoppage, strike, labor difficulty or
union organizational campaign (in process or threatened) at or
affecting JANY;
(viii) any payment, discharge or satisfaction by
JANY of any material Lien or liability other than material
Liens or liabilities that were paid, discharged or satisfied
in the ordinary course of business and consistent with past
practice;
(ix) any sale, transfer or conveyance of any
investments or other assets of JANY with an individual Book
Value in excess of $100,000, except in the ordinary course of
business and consistent with past practice;
(x) any amendment, termination, waiver, disposal or
lapse of, or other failure to preserve, any material license,
Permit or other form of authorization of JANY;
<PAGE>
(xi) any amendment of, or any failure by JANY to
perform all of its obligations under, or any default under, or
any waiver of any right under, or any termination (other than
on the stated expiration date) of, any contract that involves
or reasonably would involve the annual expenditure or receipt
by JANY of more than $100,000 except for actions taken with
respect to Insurance Contracts (including, without limitation,
reinsurance thereon) in the ordinary course of business and
consistent with past practice;
(xii) any amendment of the articles or
certificate of incorporation or by-laws of JANY;
(xiii) any termination, amendment or entering
into by JANY as ceding or assuming insurer of any reinsurance,
coinsurance or other similar contract or any trust agreement
or security agreement related thereto, except as contemplated
hereby;
(xiv) any transaction or arrangement under which
JANY 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, JANY or any
Affiliate of Seller, (ii) any Affiliate of Seller or JANY, or
(iii) any business or other Person in which Seller, JANY, any
such officer or director, or any Affiliate of Seller or JANY
has any material interest, except transactions or arrangements
not exceeding $100,000 in the aggregate which are consistent
with past practice;
(xv) any material change in any underwriting,
actuarial, investment, financial reporting, marketing or
accounting practice or policy followed by JANY, or in any
assumption underlying such a practice or policy, or in any
method of calculating any bad debt, contingency or other
reserve for financial reporting or any other accounting
<PAGE>
purposes other than as required by GAAP, SAP or applicable Law
and consistent with past practice;
(xvi) any expenditure or commitment for
additions to property, plant, equipment or other tangible or
intangible capital assets of JANY which exceed $100,000 in the
aggregate;
(xvii) any accruals or payments by Seller or JANY
or employer contributions under any employee benefit plan in
respect of employees of JANY, other than those in accordance
with the terms of such plans and consistent with past
practice;
(xviii) any increase in compensation outside the
ordinary course; or
(xix) any contract or agreement, written or
oral, to take any of the actions set forth in the preceding
clauses (i) through (xviii) of this Section 2.12.
Section 2.13. Computer Software and Other Intellectual
Property. Schedule 2.13 attached hereto sets forth a list of all
computer software programs and other intellectual property used by
JANY that Seller reasonably believes to be necessary to conduct the
Insurance Business as currently being conducted. Schedule 2.13
attached hereto also sets forth whether each such computer software
program is (i) owned by JANY or licensed by JANY and (ii) the title
of each licensing agreement pursuant to which JANY has the right to
use such licensed software. Schedule 2.13 attached hereto sets
forth each licensing agreement pursuant to which Seller has the
right to use such licensed software. To the knowledge of Seller,
JANY is not in conflict with or in violation or infringement of any
rights, asserted or otherwise, of any other Person with respect to
any owned software or licensed software or other intellectual
property, nor has Seller received any notice of any such conflict,
violation or infringement. JANY has the non-exclusive right to use
all such licensed software and other intellectual property.
<PAGE>
Section 2.14. Contracts.
(a) Schedule 2.14 lists and briefly describes (including
the parties to and the date and subject matter of) each and every
contract, agreement, lease, license, commitment or arrangement to
which JANY is a party or which is binding upon JANY, except only
for those specifically listed in Schedules 2.8(b), 2.8(c), 2.8(f),
2.11, 2.12, 2.13, 2.18, 2.26, 2.27, 2.30, 2.31, 2.32(a) or 2.32(d)
attached hereto, attached hereto or those which may be terminated
by JANY without penalty or having a value to or imposing an
obligation upon JANY not in excess of $100,000 in the aggregate
annually.
(b) Schedule 2.14 hereto also identifies each contract
in force entered into by JANY in connection with or related to
JANY's business and operations 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 JANY 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 JANY;
(iii) all direct or indirect guarantees of any
obligation of JANY, or contracts for the provision for credit
support to JANY with respect to obligations to third parties,
by Seller or any of its Affiliates;
<PAGE>
(iv) all contracts relating to the future
disposition or acquisition by JANY of any assets or of any
interest in any business enterprise (other than 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);
(vi) all contracts for the provision of
administrative, managerial or other services by or for JANY to
or from any other Person;
(vii) all partnerships, joint ventures, profit-
sharing or similar contracts;
(viii) all contracts relating to the borrowing of
money by JANY or to the direct or indirect guarantee by JANY
of any obligation for borrowed money in excess, individually
or in the aggregate, of $100,000 in respect of indebtedness of
any other Person, including without limitation any contract
relating to (i) the maintenance of compensating balances that
are not terminable by JANY without penalty or other liability
upon not more than 60 calendar days' notice, (ii) any line of
credit or similar facility, (iii) the payment for property,
products, or services of any other Person even if such
property, products or services have not yet been conveyed,
delivered or rendered or (iv) the obligation to take-or-pay,
keep-well, make-whole or maintain surplus or earnings levels
or perform other financial ratios or requirements; and
<PAGE>
(ix) all leases or subleases of real property used
in the business, operations or affairs of JANY, and all other
leases, subleases, or rental or use contracts for which JANY
is liable.
(c) Except as set forth on Schedule 2.14 attached
hereto, each of the contracts listed on Schedule 2.14 is in full
force and effect and is legal, valid and binding on JANY and to
Seller's knowledge the other parties thereto, and is enforceable
against JANY and to Seller's knowledge the other parties thereto 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 (other than
equitable rescission rights). Neither JANY nor, to Seller's
knowledge, any other party to such contract is in material
violation, breach or default of any such contract. There have been
delivered or made available to Purchaser true and complete copies
of all of the contracts set forth in Schedule 2.14 attached hereto.
Section 2.15. Statutory Financial Statements. Seller has
previously delivered to Purchaser true, complete and correct copies
of the audited statements of admitted assets, liabilities and
capital and surplus (statutory basis) of Seller as of December 31,
1993, 1994, and 1995, and the related summaries of operations,
statements of capital and surplus and cash flow (statutory basis)
for the years then ended, together with the notes related thereto.
Seller has previously delivered to Purchaser true, complete and
correct copies of the Annual Statements of JANY as filed with the
New York Department of Insurance, for the years ended December 31,
1993, 1994 and 1995, together with all attachments, exhibits and
schedules thereto and all affirmations and certifications filed
therewith and the actuarial opinions for such years. Seller
<PAGE>
has previously made available to Purchaser for review (without the
right to remove or make copies) all auditors' work papers related
to the foregoing audited financial information. Seller has
previously delivered to Purchaser true, complete and correct copies
of the Quarterly Statements of JANY as filed with the New York
Department of Insurance, for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, together with all exhibits
and schedules thereto. Each such Annual Statement and Quarterly
Statement complied in all material respects with all applicable
Laws when so filed and was timely filed with all required
Governmental Entities. No material deficiencies have been
asserted or are otherwise known by Seller with respect thereto.
Each such financial statement (and the exhibits and schedules
relating thereto), including without limitation each statement of
assets, liabilities, surplus and other funds (statutory basis) of
Seller and each of the summaries of operations, statements of
capital and surplus and cash flow (statutory basis) contained in
the respective financial statement was prepared in accordance with
SAP applied on a consistent basis (except for changes, if any,
disclosed therein) and each such Annual Statement and Quarterly
Statement fairly presents (in accordance with SAP) the financial
condition of JANY as of the respective dates thereof, and its
results of operations or cash flows, as the case may be, for and
during the respective periods covered thereby (provided the
Quarterly Statements are subject to normal year end adjustments and
lack footnotes and other presentation items). There were no
material liabilities affecting JANY as of December 31, 1995
required in accordance with SAP to be reflected or disclosed in the
Annual Statement for the period then ended, or as of March 31,
1996, June 30, 1996 or September 30, 1996 required in accordance
with SAP to be reflected or disclosed in the Quarterly Statement
for the period then ended, which are not so reflected or disclosed
therein. JANY has not prepared any GAAP financial statements.
<PAGE>
Section 2.16. JANY Capital Stock.
(a) The authorized capital stock of JANY consists of
360,000 shares of common stock, $20 par value per share, all of
which shares have been validly issued and are fully paid and are
outstanding and, subject to any liability imposed by Section 630 of
the New York Business Corporation Law, non-assessable. All such
shares were issued in compliance with applicable Laws. Such shares
are all of the shares of JANY Stock. Except for this Agreement,
there are no outstanding subscriptions, options, warrants, rights,
convertible or exchangeable securities, agreements or commitments
which obligate or require Seller or JANY to issue or sell any
shares of capital stock of JANY. JANY has no subsidiaries and does
not control, directly or indirectly, any other Person. JANY 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 JANY's portfolio investments.
(b) The JANY Stock is owned beneficially and of record
by Seller free and clear of all Liens. Upon consummation of the
transactions contemplated hereby, good and valid title and interest
in and to the JANY Stock shall have been sold, assigned and
delivered to Purchaser free and clear of all Liens.
Section 2.17. Tax Matters.
(a) Except as set forth on Schedule 2.17 attached
hereto, all Tax Returns, required to be filed with respect to JANY
have been timely filed for all years and periods for which such Tax
Returns were due (taking into account all filing date extensions),
all Taxes due and payable for the periods covered by such Tax
Returns have been duly and timely paid, there are no outstanding
waivers or extensions of statutes of limitation with respect to any
Taxes required to be shown on any such Tax Return, and all required
estimated payments of Taxes
<PAGE>
sufficient to avoid any penalties for underpayment have been made,
and, to the knowledge of Seller, there are no material misstatements
contained in any such Tax Return. To the knowledge of Seller, since
December 31, 1995, JANY has not incurred any liability with respect
to any Taxes, except in the ordinary course of the Insurance Business.
Except as set forth in Schedule 2.17 attached hereto, there are no
presently pending or, to the knowledge of Seller, threatened audits
or assessments by any federal, state or local taxing authority involving
material issues which pertain to JANY or any of the material properties
owned by JANY. There are no Liens with respect to Taxes (except for Liens
with respect to real property Taxes not yet delinquent) upon any of
the assets and properties of JANY. All federal income Taxes owed
by the affiliated group referred to in Section 2.17(g) hereof have
been paid for each taxable period during which JANY was a member of
such group, other than any unpaid Taxes that, if required to be
paid, would not have a Material Adverse Effect.
(b) With respect to any period through September 30,
1996 for which Tax Returns have not yet been filed, or for which
Taxes are not yet due or owing, JANY has made due and sufficient
current accruals for such Taxes in accordance with SAP and GAAP,
and such current accruals through such date are duly and fully
provided for in the financial statements of JANY for the period
then ended.
(c) The federal and state income and state premium Tax
Returns of JANY have not been audited or examined by the relevant
Governmental Entity, and the statute of limitations for the federal
and state income and premium Tax Returns for all periods through
the respective years specified in Schedule 2.17 attached hereto has
expired. Seller has previously delivered to the Purchaser copies,
which are true and complete in all material respects, of each of
(i) the most recent audit reports relating to the federal and state
income and state premium
<PAGE>
Taxes due from JANY for the last three taxable years and (ii) the
federal and state income and state premium Tax Returns filed by JANY
for each of the last three taxable years, and Seller has made
available to Purchaser for inspection true and correct copies of
such Tax Returns (insofar as such returns relate to JANY) filed by
any affiliated, combined or consolidated group of which JANY was then
a member.
(d) No audit or other proceeding by any Governmental
Entity is pending or, to the knowledge of Seller, threatened with
respect to any Taxes due from JANY or any Tax Return filed by or
relating to JANY. To the knowledge of Seller, no assessment of Tax
has been formally proposed by any Governmental Entity, orally or in
writing, against JANY.
(e) JANY is not a party to, is not bound by and has no
obligation under, any tax sharing contract and, to the knowledge of
Seller, JANY does not have any liability for indemnification of
third parties with respect to Taxes or liabilities for Taxes as a
transferee.
(f) The insurance reserves set forth in the federal
income Tax Returns filed by or on behalf of JANY 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 JANY for the
period ending on the Closing Date.
(g) JANY is (and will continue to be on the Closing
Date) a member of the affiliated group that files consolidated
federal income Tax Returns with Seller.
Section 2.18. Real Property.
(a) Schedule 2.18 attached hereto identifies all real
property which is owned by or leased to JANY other than interests
arising under any Mortgage (the "Real Property"). JANY owns good
and indefeasible title to, or has a valid leasehold interest in,
free and clear of all Liens, all such Real Property currently used
in the conduct of its business or of a type
<PAGE>
required to be disclosed in Schedule A of an Annual Statement if
owned by JANY. No improvement on any such Real Property owned by JANY
encroaches upon any real property of any other Person and there are no
physical, mechanical or structural defects therein. JANY owns,
leases or has a valid right under contract or otherwise to use
adequate means of ingress and egress to, from and over all Real
Property. JANY has not granted any rights of occupancy with
respect to the Real Property leased by it.
(b) (i) Neither JANY nor, to the knowledge of Seller,
any other Person has used any of the Real Property for the storage,
treatment, generation, transportation, manufacture, processing,
handling, production, distribution, deposit, burial, use, or
disposal of any Hazardous Substance which has created or might
create any liability of owners or occupants of the Real Property
under, or which would require reporting to a Governmental Entity
pursuant to, Environmental Laws; (ii) JANY has no liability arising
out of or resulting from a release of any Hazardous Substance on or
from any Real Property; (iii) JANY has complied in all material
respects with all applicable Environmental Laws relating to the
Real Property and the business, activities and processing conducted
thereon; (iv) no asbestos or PCB's are contained in or stored on
the Real Property or the improvements thereon; (v) no radon gas is
contained in any of such improvements; and (vi) there are no
storage tanks located in, on or under the Real Property.
Section 2.19. Owned Properties. JANY is the sole and
exclusive owner of, and has good and marketable title to, all of
the properties and assets owned by it, free and clear of all Liens
other than:
(i) those reflected in the June 30, 1996 interim
statutory financial statements of JANY, including, without
limitation, obligations with respect to the Insurance
Contracts;
<PAGE>
(ii) liens for taxes, charges and assessments
imposed by any taxing authority which are not yet due and
payable or which are being contested in good faith by
appropriate proceedings;
(iii) mechanics', suppliers', installment sales
and similar liens for services rendered or materials
furnished, the charges for which are not yet due and payable
or which are being contested in good faith by appropriate
proceedings, and purchase money security interests and similar
security interests for goods purchased by JANY;
(iv) in the case of the Real Property and equipment,
defects or imperfections in title, liens, claims, easements or
rights, restrictions and encumbrances which do not materially
interfere with the use of such properties as presently used by
JANY or the conduct of the Insurance Business as presently
conducted by JANY; and
(v) Liens arising through securities lending in the
ordinary course of JANY's business.
Section 2.20. Pension and Other Employee Plans. Schedule
2.20 attached hereto lists all benefit plans and, without
duplication, all employee benefit plans and collective bargaining,
employment or severance agreements or other similar arrangements to
which JANY is a party or by which it is bound, legally or
otherwise, including without limitation (i) any profit-sharing,
deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement, (ii) any plan, agreement
or arrangement providing for "fringe benefits" or perquisites to
employees, officers, directors or agents, including but not limited
to benefits relating to JANY's automobiles, clubs, vacation, child
care, parenting, sabbatical, sick leave, medical, dental,
hospitalization, life
<PAGE>
insurance and other types of insurance, (iii) any employment agreement,
or (iv) any other "employee benefit plan" within the meaning of ERISA).
Seller has delivered to Purchaser true and complete copies of all current
governing documents and summary plan descriptions with respect to such
plans, agreements and arrangements, or summary descriptions of any such
plans, agreements or arrangements not otherwise in writing. JANY is in
compliance with the applicable provisions of ERISA (as amended
through the date of this Agreement), the regulations and other
published regulatory authorities thereunder, and all other laws
applicable with respect to all benefit plans. JANY has performed
all of its obligations under all benefit plans. To the knowledge
of Seller, there are no Actions (other than routine claims for
benefits) pending or threatened against such benefit plans of their
assets, or arising out of such benefit plans, and, to the knowledge
of Seller, no facts exist which could give rise to any such
Actions. Other than as indicated on Schedule 2.20 attached hereto:
(a) JANY neither maintains, sponsors nor contributes to
any program or arrangement covering employees of JANY that is an
"employee pension benefit plan," an "employee welfare benefit
plan," or a "multi-employer plan" as such terms are defined in
Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"), or any other incentive or benefit arrangement
("Non-ERISA Plans");
(b) No ERISA Plan (or any trust created thereunder) has
engaged in a "prohibited transaction" within the meaning of Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code"), which could subject the Purchaser or JANY
to any tax penalty on prohibited transactions and which has not
adequately been corrected;
<PAGE>
(c) Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA
as they relate to any such ERISA Plan;
(d) Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such
ERISA Plan is qualified thereunder;
(e) No ERISA Plan subject to Title IV of ERISA has been
terminated;
(f) No ERISA Plan has incurred any "accumulated funding
deficiency" as such term is defined in Section 302 of ERISA and
Section 412 of the Code (whether or not waived);
(g) No liability to the Pension Benefit Guaranty
Corporation (the "PBGC"), other than for premiums, has been
incurred with respect to any ERISA Plan;
(h) No proceeding or other action has been initiated by
the PBGC to terminate any ERISA Plan, nor has written notice been
given by the PBGC of an intention to commence or seek the
commencement of any such proceeding or actions; and
(i) JANY has not, within the last six years before the
Closing, completely or partially withdrawn from a "multi-employer
plan" covering its employees.
(j) Each ERISA plan has been duly authorized by the
Board of Directors of JANY. Each such plan is qualified in form
and operation under Section 401(a) of the Code and each trust under
each such plan is exempt from tax under Section 501(a) of the Code.
No event has occurred that will or could give rise to
disqualification or loss of tax-exempt status of any such plan or
trust under such sections. No event has occurred that will or
could subject any such plans to tax under Section 511 of the Code.
No nonexempt prohibited transaction (within the meaning of Section
4975 of the Code) or party-in-interest transaction (within the
meaning of Section 406 of ERISA) has occurred with respect to any
of such plans.
<PAGE>
(k) Seller has delivered to Purchaser for each such plan
copies of the following documents: (i) the Form 5500 filed in each
of the three most recent plan years, including but not limited to
all schedules thereto and financial statements with attached
opinions of independent accountants, (ii) the most recent
determination letter from the IRS, (iii) the consolidated statement
of assets and liabilities of such plan as of its most recent
valuation date, and (iv) the statement of changes in fund balance
and in financial position or the statement of changes in net assets
available for benefits under such plan for the most recently ended
plan year. The financial statements so delivered fairly present
the financial condition and the results of operations of each of
such plans as of such dates, or for such periods in accordance with
GAAP.
(l) All group health plans of JANY and any ERISA
affiliate have been operated in compliance with the group health
plan continuation coverage requirements of Section 4980B of the
Code to the extent such requirements are applicable.
(m) There has been no act or omission by JANY or any
ERISA affiliate that has given rise to or may give rise to fines,
penalties, taxes, or related charges under Section 502(c) or (l) or
Section 4071 or ERISA or Chapter 43 of the Code.
Section 2.21. Labor Matters. JANY is not a party to any
representation or collective bargaining agreement with any
employees of JANY. There is no strike, slowdown, picketing, work
stoppage, labor trouble or other similar event in which employees
of JANY are participating or, to the knowledge of Seller, have
threatened to participate.
Section 2.22. Banks. Schedule 2.22 attached hereto sets
forth (a) the name, location and account number of each bank, trust
company, securities broker and other financial institution at which
JANY maintains an account, safe deposit box, lock box or vault or
maintains a banking,
<PAGE>
custodial, trading or other similar relationship and (b) the name of
each individual authorized by JANY to effect transactions with respect
to such account, safe deposit box, lock box or vault.
Section 2.23. Reserves. Except as set forth in Schedule 2.23
attached hereto, all reserves with respect to Insurance Contracts
as established or reflected, and all other provisions made for
policy and contract claims with respect to Insurance Contracts
(collectively, "JANY Reserve Liabilities"), in the respective
Annual and Quarterly 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 Insurance Contracts of JANY,
and such JANY Reserve Liabilities and other provisions met the
applicable requirements of the insurance laws and regulations of
the State of New York. The JANY Reserve Liabilities as of October
21, 1996 have been calculated in the manner set forth on Schedule
2.23 attached hereto. Without limitation of the foregoing
sentence, to Seller's knowledge, adequate provision for all JANY
Reserve Liabilities has been made to cover the total amount of all
reasonably anticipated matured and unmatured benefits, claims and
other liabilities under all Insurance Contracts. JANY owns assets
that qualify as legal reserve assets under applicable Laws in an
amount at least equal to all such JANY Reserve Liabilities. Except
as described in Schedule 2.23(b) attached hereto, all reserves and
accrued liabilities for estimated losses, settlements, costs and
expenses from pending suits, actions and proceedings included in
JANY's most recent Quarterly Financial Statements filed with the
New York Department of Insurance were determined in accordance with
Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board.
<PAGE>
Section 2.24. Books and Records. The minute books of JANY
contain a true and complete record in all material respects of all
corporate actions taken at all meetings and by all written consents
in lieu of meetings of JANY's stockholder and Board of Directors
and all committees thereof. The stock record books of JANY reflect
accurately all transactions in its capital stock. The books,
files, reports, documents, plans and operating records of, or
maintained by Seller or JANY, and all other data in the possession
or control of Seller and of JANY and primarily relating to or
otherwise reasonably required for the operation of JANY's business
have been maintained in all material respects in accordance with
all applicable Laws.
Section 2.25. Threats of Cancellation. Except as set forth
in Schedule 2.25 attached hereto, since December 31, 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 account values of Seller and JANY, taken as a whole, in
each case at or for the 12 month period then ended, has terminated
or, to the knowledge of Seller, threatened to terminate its
relationship with JANY.
Section 2.26. Operations Insurance. Schedule 2.26 attached
hereto lists all casualty, liability, property and other similar
insurance contracts that insure the business, operations or affairs
of JANY or affect or relate to the ownership, use or operations of
any of JANY's assets (including, without limitation, the names of
the insurers and the type of coverage thereof) and (a) that have
been issued to JANY or (b) that are held by Seller or by any
Affiliate of Seller
<PAGE>
(other than JANY) for the benefit of JANY. All such insurance policies
shall terminate as of the Closing Date.
Section 2.27. Intercompany Liabilities. Except as reflected
in the Annual or Quarterly Financial Statements of JANY filed with
the New York Department of Insurance, or disclosed in Schedule 2.27
attached hereto, there are no liabilities, contracts or commitments
between JANY on the one hand, and Seller or any Affiliate of
Seller, on the other. Except as disclosed in Schedule 2.27
attached hereto, during the period from June 30, 1996 to the date
hereof, no such intercompany liabilities have been paid and no
settlements of such intercompany liabilities have been made except
intercompany liabilities that have been paid or settled on a basis
consistent with the JANY's past practice or as provided in Section
2.12(xiv).
Section 2.28. Employee Loans. All loans issued by JANY to
any officer, director or employee of Seller or JANY are set forth
on Schedule 2.28 attached hereto. Except as set forth on Schedule
2.28 attached hereto, all such loans were issued in accordance with
commercially reasonable underwriting standards and there is no
default on any such loan.
Section 2.29. Credited Rates. JANY has complied and is in
compliance with all applicable contract provisions and Laws
associated with credited interest rates related to the Insurance
Contracts.
Section 2.30. Related Agreements. Each of the Related
Agreements is similar in all material respects to one of the forms
set forth on Schedule 2.30 attached hereto. Neither Seller nor
JANY knows of any Related Agreements other than those that gave
rise to the commissions listed in Schedule 2.30 attached hereto
concerning commissions payable on the Insurance Contracts. JANY is
not in breach of any of the Related Agreements and, to the
knowledge of Seller, none of the other parties to the Related
Agreements is in breach thereof.
<PAGE>
Section 2.31. Third Party Administration Agreements.
Schedule 2.31 attached hereto lists all third party administration
agreements to which JANY is a party (the "Third Party
Administration Agreements"). The Third Party Administration
Agreements are valid and binding obligations of JANY, enforceable
against JANY in accordance with their terms, and to JANY's
knowledge, are valid and binding obligations of the other parties
thereto, enforceable against such other parties in accordance with
their terms. JANY is not in breach of any of such Third Party
Administration Agreements and, to the knowledge of Seller, none of
the other parties to such Third Party Administration Agreements is
in breach thereof.
Section 2.32. Mortgage Loans.
(a) Except as set forth on Schedule 2.32(a) attached
hereto, Seller is the holder of a first lien position on the
Mortgage Loans free and clear of any other Liens, except for with
respect to the Mortgaged Property or the mortgage related thereto
(a) the lien of current real property taxes and assessments, ground
rents, personal property taxes, water rates, water frontage charges
and/or meter charges, sewer taxes or rents and other similar
charges or assessments, in each case not yet due and payable, (b)
covenants, conditions and restrictions, rights of way, easements
and other matters of public record of a type acceptable to lending
institutions generally or specifically referred to in the title
insurance policy or title opinion issued in connection with the
original loan made with respect to the Mortgaged Property, (c)
mechanics' or similar liens or claims for work, labor and
materials, (d) zoning and other land use restrictions and
ordinances, including, without limitation, landmark, historic and
wetland designations, (e) rights of tenants under leases or other
rights of tenants or rights of other occupants of the premises with
or without the legal right to do so, (f) any state of facts an
accurate survey would show with respect to the Mortgaged Property,
(g) the failure of the
<PAGE>
premises to comply with applicable occupancy Law or municipal violations
of record, (h) in the case where the Mortgaged Property is a condominium
unit, the lien of a condominium association on such Mortgaged Property
for unpaid maintenance or common expense assessments not yet due and
payable, (i) littoral or riparian rights, if any, (j) any right, title
or interest in any minerals, mineral rights or related matters including
but not limited to oil, gas, coal and other hydrocarbon whether or not
shown by the public records and, (k) the lien of any secondary
financing in each case, which do not materially impair the Mortgage
Loan ("Permitted Mortgage Liens"). As of the date specified
therein, the (i) loan number, (ii) loan class, (iii) lien priority,
(iv) borrower's name, (v) property address, (vi) outstanding
principal amount, (vii) book value, (viii) delinquency status, (ix)
status code, (x) current interest rate (or the method of
calculating same), (xi) service fee rate, (xii) net interest rate,
(xiii) maturity date and (xiv) percentage owned by JANY for each
Mortgage Loan are materially as set forth in the Mortgage Loan
Schedule. Except as set forth on Schedule 2.32(a) attached hereto,
the proceeds of each Mortgage Loan have been fully disbursed and
there are no future or additional advances to be made with respect
to any Mortgage Loans. Except as set forth on Schedule 2.32(a)
attached hereto, no Mortgage Loan has been delinquent for a period
of more than 30 days within the last 12 months in the payment of
any principal or interest thereon. Each Mortgage Loan is a
permitted investment for Minnesota life insurers under applicable
Law.
(b) With respect to each Mortgage Loan and any and all
Loan Documents relating thereto, to Seller's knowledge (i) each of
such Mortgage Loans and Loan Documents are the legal, valid, and
binding obligation of the mortgagor, obligor or the guarantor, as
applicable, and each is enforceable in accordance with its terms,
except as enforcement thereof may be limited by applicable
bankruptcy or insolvency Laws, provided that in this case, Seller
<PAGE>
may rely upon borrower's closing counsel's opinion letter if
originated by Seller, or upon representations and warranties given
to Seller by another financial institution or entity if purchased
by Seller, or in the absence of either, without due inquiry or
investigation by Seller so long as Purchaser is assigned the
benefits of such opinions, representations or warranties, (ii) none
of such Mortgage Loans or Loan Documents is the subject of any
agreement, contract or other arrangement (other than this
Agreement) pursuant to which any interest in any Mortgage Loan or
any payment due under any Mortgage Loan or with respect to any
Mortgage Property has been or is intended to be sold, used as
collateral, transferred to or otherwise disposed of to any Person
or Persons by the original lender, subject to the participatory
interests of other lenders or investors as are set forth on
Schedule 2.32(b) attached hereto.
(c) With respect to each Mortgage Loan and any and all
Loan Documents relating thereto, the mortgagor does not have a
valid defense to the payment in full of such Mortgage Loan that
arises from applicable Laws and such Mortgage Loan is not subject
to any right of rescission, set-off, abatement, diminution or
counterclaim, except in any case as such right or defense may be
provided by bankruptcy, insolvency, reorganization or other similar
Laws affecting the enforcement of creditors' rights generally and
by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) None of the terms of any Loan Documents relating to
any Mortgage Loan have been waived, amended or modified in any
respect, except as set forth on the Mortgage Loan Schedule and
except for such waivers, amendments and modifications as do not
adversely affect (i) any mortgagor's, obligor's or guarantor's
obligation to pay principal, interest or other sums required
(including the timing of such payments) to be paid under such Loan
Documents, (ii) Seller's Liens against the Mortgage Property
securing the Mortgage Loan or (iii) the
<PAGE>
enforceability in a timely manner of such Liens. Except as set forth
in the Mortgage Loan Schedule, no Mortgage Loan has been satisfied,
subordinated or rescinded, in whole or in part except (i) upon full
payment of the underlying loan or, in the case of a partial release,
in connection with the receipt of an independent third party MAI
self-contained appraisal evidencing that there is sufficient collateral
(which for this purposes shall mean no more than 80% loan to value)
remaining with respect to such Mortgage Loan or (ii) as a result of a final
judgment or its equivalent of a condemnation or eminent domain
proceeding which does not materially impair the Mortgaged Property
or Mortgage Loan. Except as set forth on Schedule 2.32(d) attached
hereto, no mortgagor, obligor nor any guarantor listed on the
Mortgage Loan Schedule in respect of any Mortgage Loan has been
released, in whole or in part except in accordance with the terms
of the Note and Mortgage except in the case of a partial release
either (i) as a result of a written loan modification or assumption
agreement or (ii) if, prior to the release of any mortgagor,
obligor or guarantor, a determination was made by Seller that (A)
such mortgagor, obligor or guarantor was insolvent or deemed to
have a lack of ability to make any material contribution with
respect to the outstanding Mortgage Loan debt and (B) that the
remaining mortgagor, obligor or guarantor was able to repay the
outstanding Mortgage Loan debt, in either case such that the
release of any mortgagor, obligor or guarantor would not have a
material adverse impact on the repayment of the Mortgage Loan.
(e) None of the Mortgage Loans are cross-collateralized
with any other mortgage loan except for another Mortgage Loan other
than a cross-collateralization which does not have a material
adverse impact on the repayment of the Mortgage Loan.
(f) The Mortgage File with respect to each Mortgage Loan
contains all of the Loan Documents relating to each such Mortgage
Loan, including, but not limited to, all
<PAGE>
documents described on Exhibit D and all such documents are true,
complete and correct copies of the documents they purport to be.
Except as set forth on Schedule 2.32(f) attached hereto, the Mortgage
Loan Files contain the original promissory notes and/or other evidence
of indebtedness (including all amendments thereto) and the originals of
all credit enhancements, if any, as applicable.
(g) With regard to the Mortgaged Property relating to
any Mortgage Loan, to the knowledge of Seller no material amount of
Hazardous Substances has been disposed of or identified on, under
or at such Mortgaged Property the presence of which is either in
violation of Law or would, under applicable Laws, require (or
permit any Governmental Entity to require) removal or remediation
of such Hazardous Substance, except to the extent that removal or
remediation has occurred or will occur prior to the Closing Date
and except as would not materially affect the Mortgaged Property or
the repayment of the Mortgaged Loan.
(h) To the knowledge of Seller, there is no pending or
threatened condemnation proceeding affecting any Mortgaged
Property, or any part thereof, which could have an adverse effect
upon the current use of such Mortgaged Property.
(i) To the knowledge of Seller, there is no pending or
threatened Action relating to such Mortgage Loan affecting the
Mortgaged Property relating to such Mortgage Loan which would have
a material and adverse effect upon such Mortgage Loan.
(j) Seller has received no written notice (i) of any
material violation of any Law which is a direct result of the
maintenance, operation, occupancy, or use of any of the Mortgaged
Property related to such Mortgage Loan, in its present manner such
that the violation would materially adversely affect the operation,
occupancy or other use of such Mortgaged Property and (ii) that any
material Permits and approvals required by Governmental Entities
<PAGE>
having jurisdiction over the operation of such Mortgaged Property
in its present manner have not been performed, issued or paid for
or are not in full force and effect.
(k) With respect to each Mortgage Loan, (i) each
Mortgage is covered by a title insurance policy or where customary
an opinion of title from a law firm in such jurisdiction, insuring
or opining that the Mortgage creates the first priority Lien it
purports to create and that the Mortgage is not subject to any
defect or encumbrance except Permitted Mortgage Liens, (ii) no
claims have been made by Seller or, to Seller's knowledge, any
other Person under any title policy relating to any Mortgage Loan,
(iii) there has been no act or omission by Seller, or to Seller's
knowledge, any party holding an interest in any title policy
(including without limitation any failure to pay the premiums
therefor) that creates sufficient grounds for the defense by the
title insurer of any claims by the insured or that otherwise limits
the title insurer's liability under any title policy relating to
any Mortgage Loan and (iv) there has been no act or omission by
Seller, or to Seller's knowledge, any party holding an interest in
any title policy that has caused a subordination of the priority of
any Lien as insured under any title policy relating to any Mortgage
Loan. Seller is the insured under any title policy relating to any
Mortgage Loan, either by name, endorsement or by virtue of being
the successor to the original named insured lender. Seller is
either the sole insured or a participant insured in those Mortgage
Loans in which the Seller does not hold 100% of the first Lien.
(l) Except as set forth on Schedule 2.32(l) attached
hereto, there are no delinquent real estate taxes in respect of any
Mortgage Property except as set forth on the Mortgage Loan Schedule
or any deficiency in any obligor's obligations to pay amounts into
escrow (other than in the case of escrows where property taxes have
been increased in the past 12 months).
<PAGE>
(m) If upon origination the Mortgaged Property relating
to such Mortgage Loan was in an area identified in the Federal
Register by the Federal Emergency Management Agency as having
special flood hazards (and the flood insurance described below is
available), a flood insurance policy meeting the requirements of
the current guidelines of the Federal Insurance Administrator, if
available, is in effect with a generally acceptable insurance
carrier, in an amount representing coverage not less than the
lesser of (i) the unpaid principal balance of such Mortgage Loan,
(ii) the full insurable value of such Mortgaged Property or (iii)
the maximum amount of insurance available under the Flood Disaster
Protection Act of 1973.
(n) A hazard insurance policy with a standard mortgagee
clause is in effect with respect to each Mortgage Loan (other than
a Mortgage Loan secured solely by unimproved land), in an amount
representing coverage not less than the lesser of (i) the unpaid
principal balance of such Mortgage Loan or (ii) the full insurable
value of the Mortgaged Property relating to such Mortgage Loan.
(o) All servicing contracts related to the Mortgage
Loans originated by JANY are terminable at the election of JANY at
termination fees that are no greater than customary termination
fees paid in accordance with industry practice.
Section 2.33. No Waiver of Defenses. JANY has not waived any
defenses, claims or Actions which would have been available to JANY
under the Insurance Contracts or the Related Agreements.
Section 2.34. GAAP Financial Statements. On or prior to the
date hereof, JANY has delivered to Purchaser true, correct and
complete copies of (a) the audited consolidated balance sheets of
John Alden Financial Corporation ("John Alden") and its
subsidiaries as of December 31, 1995 and 1994, prepared in
accordance with GAAP, together with the notes thereon and the
<PAGE>
related report of Price Waterhouse the independent certified public
accountant of John Alden, and (b) the audited consolidated
statements of income, stockholders' equity and cash flows of John
Alden and its subsidiaries for the years ended December 31, 1995,
1994 and 1993 prepared in accordance with GAAP, together with the
notes thereon and the related report of Price Waterhouse
(collectively, the "John Alden Financial Statements"). JANY has
delivered to Purchaser true, correct and complete copies of the
consolidated balance sheets, and the related consolidated
statements of income, stockholders' equity and cash flows of John
Alden and its subsidiaries for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, prepared in accordance with
GAAP (the "Interim John Alden Financial Statements"). The John
Alden Financial Statements and the Interim John Alden Financial
Statements are based on the books and records of John Alden and its
subsidiaries and have been prepared in accordance with GAAP
consistently applied (except in the case of the Interim John Alden
Financial Statements for normal year end adjustments). The John
Alden Financial Statements have been audited by Price Waterhouse.
The John Alden Financial Statements and the Interim John Alden
Financial Statements fairly present in all material respects the
consolidated financial position and results of operations of John
Alden and its subsidiaries as of the dates and for the periods
indicated therein.
For purposes of this Article 2, references to the knowledge of
Seller means, after reasonable inquiry, the actual knowledge of the
officers of Seller having the title of Senior Vice President or
higher.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
<PAGE>
Purchaser hereby represents and warrants to Seller as follows:
Section 3.1. Organization and Standing. Purchaser is a
corporation duly organized and validly existing under the Laws of
the State of Arizona. Purchaser has all corporate power and
authority necessary or required by Law to own, lease and operate
its assets, properties and business and to carry on the operations
of its business as currently conducted by it.
Section 3.2. Authorization. Purchaser has all corporate
power and authority necessary to execute, deliver and perform its
obligations under this Agreement. Purchaser is duly licensed,
qualified or admitted to do business and is in good standing in all
jurisdictions in which it is required to be so qualified, licensed
or admitted to do business by the Laws thereof, except where the
failure to so qualify, be admitted or licensed, individually or in
the aggregate is not reasonably likely to have a Material Adverse
Affect on Purchaser. The execution and delivery by Purchaser of
this Agreement, and the performance by Purchaser of its obligations
hereunder, have been duly authorized by all necessary corporate and
shareholder actions on the part of Purchaser. This Agreement, when
executed by the Parties, will constitute a valid and binding
obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except insofar as enforceability may be
limited by bankruptcy, insolvency, moratorium or other Laws which
may affect creditors' rights and remedies generally and by
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
Section 3.3. Actions and Proceedings. Except as disclosed
on Schedule 3.3 attached hereto, (a) there are no outstanding
Orders by or with any court, arbitrator or Governmental Entity
before which Purchaser or any of its material Affiliates is or was
a party that, individually or in the aggregate, have a Material
Adverse Effect on Purchaser, and (b) there are no Actions pending or, to
Purchaser's knowledge, threatened against Purchaser or any of its material
<PAGE>
Affiliates which, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect on Purchaser.
Section 3.4. No Conflict or Violation. Except as disclosed
on Schedule 3.4 attached hereto, the execution, delivery and
performance by Purchaser of this Agreement in accordance with the
terms and conditions hereof do not and will not (a) violate any
provision of the charter, by-laws or other organizational document
of Purchaser, in each case, as amended to date, (b) violate,
constitute a default under, or result in the breach, cancellation
or termination of, accelerate the performance required under, or
result in the creation of any Lien upon any of the assets of
Purchaser, pursuant to, any mortgage, deed of trust, guaranty,
note, indenture, bond, lease, agreement or other instrument to
which Purchaser is a party or by or to which it or any of its
assets may be bound, (c) violate any Order of any court, arbitrator
or Governmental Entity against, or binding upon, or any agreement
with, or condition imposed by, any court, arbitrator or
Governmental Entity binding upon Purchaser or any of such assets,
(d) violate any Law or (e) result in the breach of any of the terms
or conditions of, constitute a default under, or otherwise cause an
impairment or revocation of, any Permit related to Purchaser's
business.
Section 3.5. Consents and Approvals. Except as required
under the HSR Act or as set forth on Schedule 3.5 attached hereto,
no consent, approval, exemption or authorization is required to be
obtained from, no notice is required to be given to and no filing
is required to be made with any third party (including, without
limitation, Governmental Entities of competent jurisdiction) by
Purchaser in order (a) for this Agreement and the Transition
Services Agreement to constitute a valid and binding obligation of
Purchaser, (b) to authorize or permit the consummation of the
transactions contemplated hereby by Purchaser or (c) to authorize
or permit Purchaser to conduct the business of JANY after the
Closing.
<PAGE>
Section 3.6. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as
such for, or is entitled to any compensation from, Purchaser in
connection with this Agreement or the transactions contemplated
hereby, except Goldman Sachs & Company, whose fees for services
rendered in connection with such transactions will be paid by
Purchaser.
Section 3.7. GAAP Financial Statements. On or prior to the
date hereof, Purchaser has delivered to Seller true, correct and
complete copies of (a) the audited consolidated balance sheets of
SunAmerica Inc. ("SunAmerica") and its subsidiaries as of December
31, 1995 and 1994, prepared in accordance with GAAP, together with
the notes thereon and the related report of Price Waterhouse, the
independent certified public accountant of SunAmerica, and (b) the
audited consolidated statements of income, stockholders' equity and
cash flows of SunAmerica and its subsidiaries for the years ended
December 31, 1995, 1994 and 1993, prepared in accordance with GAAP,
together with the notes thereon and the related report of Price
Waterhouse (collectively, the "SunAmerica Financial Statements").
Purchaser has delivered to Seller true, correct and complete copies
of the consolidated balance sheets, and the related consolidated
statements of income, stockholders' equity and cash flows of
SunAmerica and its subsidiaries for the quarters ended March 31,
1996 and June 30, 1996, prepared in accordance with GAAP (the
"Interim Purchaser Financial Statements"). The SunAmerica
Financial Statements and the Interim Purchaser Financial Statements
are based on the books and records of SunAmerica and its
subsidiaries, and the SunAmerica Financial Statements have been
prepared in accordance with GAAP consistently applied, audited by
Price Waterhouse and fairly present in all material respects the
consolidated financial position and results of operations of
SunAmerica and its subsidiaries as of the dates and for the periods
indicated therein.
<PAGE>
Section 3.8. Statutory Financial Statements. Purchaser has
furnished to Seller true, complete and correct copies of the Annual
Statements of Purchaser as filed with the Arizona Department of
Insurance for the years ended December 31, 1995, 1994 and 1993,
together with all attachments, exhibits and schedules thereto and
all affirmations and certifications filed therewith and applicable
actuarial opinions for such years. Purchaser has furnished to
Seller true, complete and correct copies of the Quarterly
Statements of Purchaser as filed with the Arizona Department of
Insurance for the quarters ended March 31, 1996 and June 30, 1996,
together with all attachments, exhibits and schedules thereto and
all affirmations and certifications filed therewith and no further
amendments thereto are being considered. Each such Annual
Statement and Quarterly Statement complied in all material respects
with all applicable Laws when so filed and were timely filed with
all required Governmental Entities. No material deficiencies have
been asserted or are otherwise known by Purchaser with respect
thereto. Each such Annual Statement and Quarterly Statement was
prepared in accordance with SAP applied on a consistent basis
(except for changes, if any, disclosed therein) and fairly presents
(in accordance with SAP) the financial condition of Purchaser as of
the respective dates thereof or its results of operations or cash
flows, as the case may be, for and during the respective periods
covered thereby, (provided the Quarterly Statements are subject to
normal year end adjustments and lack footnotes and other
presentation items). There were no material liabilities affecting
Purchaser as of December 31, 1995 required in accordance with SAP
to be reflected or disclosed in the Annual Statement for the period
then ended, or as of March 31, 1996 or June 30, 1996 required in
accordance with SAP to be reflected or disclosed in the Quarterly
Statement for the period then ended, which are not so reflected or
disclosed therein.
<PAGE>
Section 3.9. Rating. As of the date hereof, the Standard &
Poor's Corporation Claims - Paying Ability Rating of Purchaser is
AA- and the Moody's Investor Service, Inc. Financial Strength
rating of Purchaser is A2. Purchaser's A.M. Best & Co. rating is
A+ (superior) and its Duff & Phelps rating is AA.
Section 3.10. Investment Intent and Acknowledgement.
Purchaser is purchasing the JANY Stock for its own account and not
with a view toward, or for resale in connection with, any
distribution thereof. Purchaser acknowledges that it and its
representatives and advisors have had the opportunity to ask
questions of and receive answers from Seller, JANY and their
representatives to the extent that Purchaser and its
representatives and advisors have deemed necessary and appropriate
and to review all written documentation and other information
requested by them, for the purpose of evaluating JANY, the purchase
of the JANY Stock and the transactions contemplated by this
Agreement, the Ancillary Agreements and the agreements contemplated
hereby and thereby. In entering into this Agreement and in
purchasing the JANY Stock, Purchaser has relied solely upon its own
due diligence, its knowledge of the industry in which the Insurance
Business is conducted and the representations and warranties of
Seller expressly set forth in this Agreement, and not upon any
other representations, warranties or statements of any kind;
provided, however, that such diligence and knowledge shall not be
deemed a waiver by Purchaser of any of its rights with respect to
the representations and warranties of Seller.
For purposes of this Article 3, references to the knowledge of
Purchaser means, after reasonable inquiry, the actual knowledge of
officers of Purchaser having the title of Senior Vice President or
higher.
<PAGE>
ARTICLE 4
PRE-CLOSING COVENANTS
Section 4.1. Conduct of Business.
(a) Prior to the Closing, Seller shall, and shall cause
JANY to, unless Seller shall receive the prior written consent of
Purchaser:
(i) operate the business of JANY as presently
operated and only in the ordinary course and consistent with
past practice (including but not limited to past underwriting
standards and investment philosophies) subject however to such
changes as may be required by changes in applicable Laws or
contemplated by this Agreement; and
(ii) use commercially reasonable efforts to preserve
its relationship with and the goodwill of its brokers,
customers, suppliers, employees and other Persons having
business dealings with Seller and/or JANY in connection with
its business.
(b) Without limiting the generality of the foregoing,
Seller will or will cause JANY to:
(i) use commercially reasonable efforts to (A)
maintain all licenses, qualifications and authorizations
necessary for JANY to do business in the State of New York,
(B) maintain in full force and effect all material contracts,
documents and arrangements set forth in Schedule 2.14 hereof,
(C) maintain all of JANY's material assets and properties in
good working order and condition, ordinary wear and tear
excepted, (D) continue all current marketing and selling
programs relating to JANY's business in accordance with its
current marketing plan and (E) maintain each rating
classification assigned to JANY as of the date hereof by
insurance rating agencies.
<PAGE>
(ii) cause the books and records of JANY to be
maintained in the usual manner and consistent with past
practice and not permit a material change in any underwriting,
investment, actuarial, financial reporting or accounting
practice or policy of JANY or in any assumption underlying
such a practice or policy, or in any method of calculating any
bad debt, contingency or other reserve for financial reporting
purposes (including without limitation any practice, policy,
assumption or method relating to or affecting the
determination of insurance or annuities in force, premium or
investment income, JANY Reserve Liabilities or operating
ratios with respect to expenses, losses or lapses) except as
may be required by a change in GAAP, SAP or Law.
(iii) (A) prepare and file all Tax Returns
required to be filed by JANY prior to or on the Closing Date
and (B) 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
adequate reserves have been established on the books and
records of JANY.
(iv) (A) cause all JANY Reserve Liabilities with
respect to Insurance Contracts established or reflected in the
books and records of JANY to be (1) established or reflected
on a basis consistent with those JANY Reserve Liabilities and
reserving methods followed by JANY in the preparation of its
December 31, 1995 Annual Statement filed with the New York
Department of Insurance and (2) adequate to cover the total
amount of all reasonably anticipated matured and unmatured
benefits, dividends, losses, claims, expenses and other
liabilities of JANY under all Insurance Contracts pursuant to
which JANY has or will have any liability (including without
limitation any liability arising under or as a result of any
reinsurance, coinsurance or other similar
<PAGE>
contract); and (B) cause JANY to continue to own assets that
qualify as legal reserve assets under all applicable Laws in an
amount at least equal to the JANY Reserve Liabilities.
(v) use commercially reasonable efforts to maintain
in full force and effect until the Closing substantially the
same levels of coverage for JANY as the insurance afforded
under the contracts listed in Schedule 2.26 attached hereto
and cooperate with Purchaser, at Purchaser's cost and expense,
to obtain additional or carry-on insurance with respect to
JANY after the Closing. Any and all benefits under the
contracts listed in Schedule 2.26 attached hereto paid or
payable prior to the Closing with respect to the business,
operations, affairs or assets and properties of JANY shall be
paid or payable to JANY.
(vi) cause JANY to continue to administer the
Insurance Contracts (including surrenders) in the ordinary
course, consistent with past practice.
(vii) cause JANY to continue to comply with all
Laws applicable to its business, operations or affairs, except
for such failures to comply as would not, individually or in
the aggregate, have a Material Adverse Effect.
(viii) cause JANY to invest current and future
cash assets in high grade public corporate bonds (NAIC 1 or 2)
designated by Purchaser on the first Business Day of each week
or, if Purchaser does not make such a designation, in
Qualified Investments and provide Purchaser with weekly
reports showing the above investments in the form prepared by
JANY in the ordinary course of its business.
<PAGE>
(c) Unless otherwise provided in this Agreement, Seller
will prevent JANY, without the approval of Purchaser, which
approval 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 Lien on
or otherwise disposing of any assets which are material to
JANY's business, taken as a whole, as presently conducted,
other than with respect to investment and portfolio assets in
the ordinary course of business, consistent with past
practice;
(ii) increasing the rates of compensation (including
bonuses) payable or to become payable to any officer,
employee, agent, independent contractor or consultant of JANY;
(iii) except in the ordinary course of business
consistent with past practice, incurring any obligation,
liability or indebtedness, incurring any extraordinary losses,
or disposing of, canceling, waiving or permitting to lapse any
rights of material value;
(iv) changing in any material respect its accounting
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 Law;
(v) except as disclosed herein, entering into or
amending or terminating any transaction or contract that could
reasonably be expected to have a Material Adverse Effect;
<PAGE>
(vi) splitting, combining, redeeming, repurchasing
or reclassifying the capital stock of JANY or declaring,
setting aside, making or paying any dividend or other
distribution in respect of the capital stock of JANY;
(vii) 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;
(viii) amending the articles of incorporation or
bylaws or other charter or organizational documents of JANY;
(ix) except in the ordinary course of business
consistent with past practice, terminating, amending or
executing any material reinsurance, coinsurance or other
similar contract, as ceding or assuming insurer related to the
Insurance Contracts;
(x) settling any intercompany account or
obligations between Seller (or any of its Affiliates) and
JANY; or
(xi) entering into any contract or agreement to do
any of the foregoing;
Section 4.2. Certain Transactions. From the date of this
Agreement through the Closing, neither Seller, JANY nor any of
their respective directors or officers will (nor will Seller permit
its investment bankers or legal counsel to) solicit, encourage,
engage in or initiate any negotiations or discussions with, or
provide any information to, or otherwise cooperate in any other
manner with, any Person or group (other than Purchaser and its
Affiliates) concerning any sale, coinsurance, reinsurance,
replacement or other disposition, directly or indirectly of the
business of JANY or JANY's capital stock (except in the case of
coinsurance or reinsurance, for performance of obligations under
the reinsurance agreements listed on Schedule 2.11).
<PAGE>
Section 4.3. Investigations. From the date hereof through
the Closing Date, Purchaser shall be entitled, through its counsel,
actuaries and other employees and Representatives, to make such
investigation of the assets, liabilities, business and operations
of JANY, and such examination of the books and records of JANY, as
Purchaser may reasonably request, including, without limitation,
for the purpose of investigating the financial condition, service
quality and operations of JANY. Any investigation, examination or
interview by Purchaser of employees of Seller and JANY shall be
conducted at reasonable times upon reasonable prior notice; and
each of the Parties and its officers, employees and
representatives, including, without limitation, counsel, investment
bankers and independent public accountants, shall cooperate with
the other's employees and representatives, as the case may be, in
connection with such review and examination; provided, however,
that such examination shall not be deemed a waiver by Purchaser of
any of its rights with respect to the representations and
warranties of Seller.
Section 4.4. HSR Act Filings. Seller and Purchaser shall,
as promptly as practicable, file, or cause to be filed,
Notification and Report Forms under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice (the "Antitrust Division") in
connection with the transactions contemplated by this Agreement and
the other agreements contemplated hereby, and will use their
respective reasonable efforts to respond as promptly as practicable
to all inquiries received from the FTC or the Antitrust Division
for additional information or documentation and to cause the
waiting periods under the HSR Act to terminate or expire at the
earliest possible date. Seller and Purchaser will each furnish to
the other such necessary information and reasonable assistance as
the other may request in connection with its preparation of
necessary filings or submissions
<PAGE>
to any government or regulatory agency, including, without limitation,
any filings necessary under the provisions of the HSR Act.
Section 4.5. Consents and Reasonable Efforts. Seller and
Purchaser shall, and Seller will cause JANY to, cooperate and use
their commercially reasonable efforts to obtain all consents,
approvals and agreements of, and to give and make all notices and
filings with, any Governmental Entities, necessary to authorize,
approve or permit the consummation of the transactions contemplated
by this Agreement and the other agreements contemplated hereby.
Seller shall, and Seller will cause JANY to, use its commercially
reasonable efforts to obtain all approvals and consents to the
transactions contemplated by this Agreement as set forth on
Schedule 2.5 attached hereto. Purchaser will use its commercially
reasonable efforts to obtain all approvals and consents to the
transactions contemplated by this Agreement as set forth on
Schedule 3.5 attached hereto, if any. In addition, if required by
the New York Department of Insurance as a condition to consummation
of the transactions contemplated hereby, Purchaser shall cause JANY
to be merged at or after the Closing with another insurance company
Affiliate of Purchaser.
Section 4.6. Representations and Warranties. From the date
hereof through the Closing Date, (a) Seller shall use its
reasonable efforts to conduct its affairs, and to cause JANY to
conduct its affairs, in such a manner so that, except as otherwise
contemplated or permitted by this Agreement, the representations
and warranties contained in Article 2 shall continue to be true,
complete and correct in all material respects on and as of the
Closing Date as if made on and as of the Closing Date, (b)
Purchaser shall use its reasonable efforts to conduct its affairs
in such a manner so that, except as otherwise contemplated or
permitted by this Agreement, the representations and warranties as
to Purchaser contained in Article 3 shall continue to be true
<PAGE>
and correct in all material respects on and as of the Closing Date as
if made on and as of the Closing Date, (c) Seller shall notify
Purchaser promptly of any event, condition or circumstance known to
Seller occurring from the date hereof through the Closing Date that
would constitute a violation or breach of this Agreement by Seller
and (d) Purchaser shall notify Seller promptly of any event,
condition or circumstance known to Purchaser occurring from the
date hereof through the Closing Date that would constitute a
violation or breach of this Agreement by Purchaser.
Section 4.7. Financial Statements and Reports.
(a) At the time of filing with the New York Department
of Insurance, Seller will deliver to the Purchaser true and
complete copies of each Annual Statement and Quarterly Statement
filed by JANY after the date hereof and on or prior to the Closing.
(b) From and after the date hereof and through the
Closing Date, Seller shall continue to prepare in the ordinary
course of business consistent with past practice and shall deliver,
as soon as available, to Purchaser, true and complete copies of
customarily prepared internal management information reports
(including financial statements, reports, and analyses prepared by
or for Seller or JANY) prepared by or for Seller and as relate to
any of the business, operations, or affairs of JANY, including
without limitation normal internal reports which Seller or JANY
prepares (such as those reflecting weekly net production,
surrenders, head count and claims and monthly cash flow and
operations expense) but excluding any statements, reports or
analyses prepared in connection with any analyses of the
transaction contemplated in this Agreement. Without limiting the
foregoing, Seller will provide to Purchaser weekly a list of the
portfolio securities held by Seller, which reflects the market
value and book value thereof
<PAGE>
(monthly) and any changes from the immediately preceding week (weekly),
including without limitation, weekly maturities, prepayments, sales,
redemptions or similar events.
Section 4.8. Transfer Real Estate Owned. On or prior to the
Closing Date, Seller shall cause JANY to transfer to Seller or its
Affiliates all real estate owned (excluding leasehold interests) by
JANY (on an as is-where is basis, with no representations or
warranties) in exchange for a cash payment by Seller to JANY equal
to the book value of such real estate owned on the date of
exchange.
Section 4.9. Stay-on Bonus. Seller, and not JANY, will pay
any stay-on bonus to JANY employees announced on or before the
Closing Date.
ARTICLE 5
CONDITIONS PRECEDENT TO THE OBLIGATION OF PURCHASER TO CLOSE
The obligations of Purchaser to consummate the
transactions contemplated hereby are, unless waived by Purchaser in
accordance with Section 11.4 hereof, subject to the fulfillment, at
or before the Closing, of each of the following conditions:
(i) No Law or Order of a court, arbitrator or
Governmental Entity of competent jurisdiction shall be in
effect which prohibits, restricts or enjoins, and no Action
shall be pending or threatened which seeks to prohibit,
restrict, enjoin, nullify, seek material damages with respect
to or otherwise materially adversely affect, the consummation
of the transactions contemplated by this Agreement.
(ii) The applicable waiting period under the HSR
Act, including all extensions thereof, shall have expired or
been terminated and Purchaser shall have been
<PAGE>
furnished with appropriate evidence, reasonably satisfactory to
it, of such expiration or termination.
(iii) All Permits, consents and waivers required
from all Governmental Entities legally required to consummate
the Closing and to perform this Agreement and the Transition
Services Agreement and to consummate the transactions
contemplated herein and thereby shall have been obtained and
shall be in full force and effect and Purchaser shall have
been furnished with appropriate evidence, reasonably
satisfactory to it, of the granting of such Permits, consents
and waivers.
(iv) All necessary consents to the transactions
contemplated by this Agreement and the Transition Services
Agreement shall have been obtained including, without
limitation, those listed on Schedule 2.5 attached hereto, if
any.
(v) Except for such changes as may be permitted or
required pursuant to the terms hereof, the representations and
warranties of Seller set forth in Article 2 hereof shall be
true and correct in all material respects on and as of the
Closing with the same effect as though such representations
and warranties had been made on and as of the Closing, 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.
(vi) Seller shall have performed and complied with
all covenants and agreements required to be performed or
complied with by Seller under this Agreement prior to or
concurrently with the Closing in all material respects.
<PAGE>
(vii) Purchaser shall have received all
certificates and other documents required to be delivered to
Purchaser at or before the Closing pursuant to this Agreement
duly executed by all necessary Persons (other than Purchaser).
(viii) Purchaser shall have received the Closing
deliveries described in Section 1.3 hereof.
(ix) The transactions contemplated by this Agreement
shall have been approved by the New York Insurance Department.
(x) Purchaser and Seller shall have previously or
concurrently closed the transactions contemplated by the Asset
Purchase Agreement.
(xi) Since December 31, 1995, there shall not have
occurred any event or events or state of facts that
individually or in the aggregate has or could reasonably be
expected to have a Material Adverse Effect; provided, however,
that for purposes of this subclause (xi), events or facts
which affect the insurance or annuity industry generally
(e.g., a change in general economic or market conditions, a
change in tax Law or a change in insurance Law), shall not be
included in determining whether a Material Adverse Effect has
occurred.
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE
The obligations of Seller to consummate the transactions
contemplated hereby are, unless waived by Seller in accordance with
Section 11.4 hereof, subject to the fulfillment, at or before the
Closing, of each of the following conditions:
<PAGE>
(i) No Law or Order of a court, arbitrator or
Governmental Entity of competent jurisdiction shall be in
effect which prohibits, restricts or enjoins, and no Action
shall be pending or threatened which seeks to prohibit,
restrict, enjoin, nullify, seek material damages with respect
to or otherwise materially adversely affect, the consummation
of the transactions contemplated by this Agreement.
(ii) The applicable waiting period under the HSR
Act, including all extensions thereof, shall have expired or
been terminated and Seller shall have been furnished with
appropriate evidence, reasonably satisfactory to it, of such
expiration or termination.
(iii) All Permits, consents and waivers required
from all Governmental Entities legally required to consummate
the Closing and to perform this Agreement and the Transition
Services Agreement and to consummate the transactions
contemplated hereby and thereby shall have been obtained and
shall be in full force and effect and Seller shall have been
furnished with appropriate evidence, reasonably satisfactory
to it, of the granting of such Permits, consents and waivers.
(iv) All necessary consents to the transactions
contemplated by this Agreement and the Transition Services
Agreement shall have been obtained, including, without
limitation, those listed on Schedule 3.5 attached hereto.
(v) Except for changes as may be permitted or
required pursuant to the terms hereof, the representations and
warranties of Purchaser set forth in Article 3 hereof shall be
true and correct in all material respects on and as of the
Closing with the same effect as though such representations
and warranties had been made on and as of the Closing, except
that any such representations and warranties that are given as of a
<PAGE>
specified date and relate solely to a specified date or period
shall be true and correct only as of such date or period.
(vi) Purchaser shall have performed and complied
with all covenants and agreements required to be performed or
complied with by Purchaser under this Agreement prior to or
concurrently with the Closing in all material respects.
(vii) Seller shall have received all certificates
and other documents required to be delivered to Seller at or
before the Closing pursuant to this Agreement duly executed by
all necessary Persons (other than Seller and JANY).
(viii) Seller shall have received the Closing
deliveries described in Sections 1.3 and 1.4 hereof.
(ix) The transaction contemplated by this Agreement
shall have been approved by the New York Insurance Department.
(x) Purchaser and Seller shall have previously or
concurrently closed the transactions contemplated by the Asset
Purchase Agreement.
(xi) Since December 31, 1995 there shall not have
occurred any event or events or state of facts that
individually or in the aggregate has or could reasonably be
expected to have a Material Adverse Effect on Purchaser;
provided, however, that for purposes of this subclause (xi),
events or facts which affect the insurance or annuity industry
generally (e.g., a change in general economic or market
conditions, a change in tax Law or a change in insurance Law),
shall not be included in determining whether a Material
Adverse Effect on Purchaser has occurred.
<PAGE>
ARTICLE 7
POST-CLOSING COVENANTS
Section 7.1. Continued Access and Cooperation.
(a) Following the Closing Date, Seller shall (i) allow
Purchaser, upon reasonable prior notice and during regular business
hours, through its employees and other Representatives, at
Purchaser's expense, to examine and make copies of any books and
records retained by Seller within its possession or control
("control" for the purpose of this Section 8.1(a) being defined as
the ability to cause delivery to Seller or access by Purchaser), to
the extent they relate to JANY or the Insurance Business, for any
reasonable business purpose, including, without limitation, the
preparation or examination of Tax Returns, regulatory filings and
financial statements and the conduct of any Action, whether pending
or threatened, concerning the conduct of JANY or the Insurance
Business prior to the Closing Date at Seller's offices or other
facilities or properties and (ii) maintain such books and records
for Purchaser's examination and copying. Access to such books and
records shall be at Purchaser's expense and may not unreasonably
interfere with Seller's or any successor company's business
operations and Purchaser shall reimburse Seller for all reasonable
out-of-pocket expenses incurred by Seller in copying such records.
Seller shall retain such books and records for a period of at least
seven years (extended by a period equal to any extension of the
statute of limitations with respect to tax matters with respect to
which such books and records are necessary and of which Purchaser
shall notify Seller), after which time such books and records shall
be delivered to Purchaser.
(b) Following the Closing Date, Purchaser shall (i)
allow Seller, upon reasonable prior notice and during regular business
hours, through its employees and other Representatives, at Seller's
expense, to examine and make copies of the books and records of
<PAGE>
JANY for any reasonable business purpose relating to Seller's prior
ownership of JANY, including, without limitation, the preparation or
examination of Tax Returns, regulatory filings and financial statements
and the conduct of any Action or the conduct of any regulatory, contract
holder, participant or other dispute resolution whether pending or
threatened at Purchaser's offices or other facilities or properties,
and (ii) maintain such books and records for Seller's examination and
copying. Access to such books and records shall be at Seller's expense
and may not unreasonably interfere with Purchaser's or any successor
company's business operations and Seller shall reimburse Purchaser for all
reasonable out-of-pocket expenses incurred by Purchaser in copying
such books and records. Purchaser shall retain such books and
records for a period of at least seven years (extended by a period
equal to any extension of the statute of limitations with respect
to tax matters with respect to which such books and records are
necessary and of which Seller shall notify Purchaser).
Section 7.2. Further Assurances.
(a) Upon the terms and subject to the conditions herein
provided, each of Seller and Purchaser shall use all commercially
reasonable efforts to take or cause to be taken, all actions or do,
or cause to be done, all things or execute or cause to be executed
any documents necessary, proper or advisable under applicable Laws
to consummate and make effective the transactions contemplated by
this Agreement, the Transition Services Agreements and the other
agreements contemplated hereby and thereby.
(b) On and after the Closing Date, Seller and Purchaser
shall take all commercially reasonable action and execute any additional
documents, instruments or conveyances of any kind (not containing
additional representations and warranties) and give all notices and obtain
all consents, approvals and Orders of Governmental Entities and other third
<PAGE>
parties which may be necessary to carry out any of the provisions hereof,
including, without limitation, putting Purchaser in full possession and
operating control of JANY.
Section 7.3. Expenses. Except as otherwise specifically
provided in this Agreement and the Transition Services Agreement,
the Parties shall bear their respective expenses incurred in
connection with the preparation, execution and performance of this
Agreement, the Transition Services Agreement and the transactions
contemplated hereby and thereby, including, without limitation, all
fees and expenses of their respective Representatives; provided,
however, that Purchaser shall bear (a) the cost of the filing fees
in connection with the filings with the FTC and the Antitrust
Division under the HSR Act with respect to the transactions
contemplated hereby (which expense shall be borne equally by Seller
and Purchaser if separate filings are required with respect to the
transactions contemplated by this Agreement and the transactions
contemplated by the JALIC Asset Purchase Agreement), and (b) the
cost of obtaining required insurance regulatory approvals (other
than any approvals that relate solely to Seller), from regulatory
authorities.
Section 7.4. Tax Indemnification and Other Tax Matters.
(a) Seller shall be liable for, shall pay to the
relevant Tax Authorities, and shall indemnify and hold JANY and
Purchaser harmless against, (i) all Taxes that relate to (A) with
respect to any taxable period that commences prior to the Closing
Date, but ends on or after the Closing Date, the portion of the
taxable period that commences on the first day of such taxable
period and continues up to and including the Closing Date (the
"Pre-Closing Straddle Period"), and (B) any other taxable period
ending on or before the Closing Date, (ii) any Tax liability
arising under Treasury Regulation section 1.1502-6 or equivalent
state law provision as a result of JANY being included in a
consolidated, combined or unitary federal or state income
<PAGE>
or franchise Tax Return prior to the Closing Date, (iii) federal
income and state Taxes required to be paid by or on behalf of JANY
as a result of the Section 338(h)(10) Election (and any equivalent
state law election) (as herein defined), if made pursuant to
Section 7.4(g) hereof, (iv) any Tax liability arising as a result
of JANY ceasing to be a member of the affiliated group of Seller
for purposes of Section 1504 of the Code and (v) Taxes incurred by
Purchaser or JANY as a result of a breach of a representation by
Seller set forth in Section 2.17 hereof or a failure on the part of
Seller to comply with the covenants and undertakings set forth in
this Section 7.4, including Seller's covenant to join in making the
Section 338(h)(10) Election, if so directed by Purchaser pursuant
to Section 7.4(g) hereof, provided that such failure does not
result from any act or omission on the part of Purchaser or, after
the Closing Date, JANY. The federal income Taxes described in
Section 7.4(a)(iii) above shall be calculated by comparing (x)
JANY's actual liability for federal income Taxes for the taxable
period in which the "deemed asset sale" resulting from the Section
338(h)(10) Election is reported to (y) the liability for federal
income Taxes that JANY would have had for such period had the
Section 338(h)(10) Election not been made. The state Taxes
described in Section 7.4(a)(iii) above shall mean JANY's actual
liability for state income or other Taxes payable to the State of
New York or any other state or local Tax jurisdiction arising from
the "deemed asset sale" or other consequences resulting from the
Section 338(h)(10) Election (and any state law equivalent or any
election that is deemed to result from the filing of the Section
338 (h)(10) Election).
(b) Except as provided in Section 7.4(a) or Section 9.4
hereof, Purchaser and JANY shall be liable for, shall pay to the
appropriate Tax Authorities, and shall hold Seller harmless against
all Taxes that relate to (i) with respect to any taxable period
that commences prior to the Closing Date but ends after the Closing
Date, the portion of the taxable period that
<PAGE>
commences on the first day after the Closing Date and continues up to
and including the last day of such taxable period (the "Post-Closing
Straddle Period") and (ii) any taxable period that begins after the Closing
Date.
(c) Whenever it is necessary for purposes of this
Section 7.4 to determine the liability for Taxes of JANY for a
taxable period that begins before and ends after the Closing Date,
the determination shall be made by assuming that JANY 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.
(d) Except to the extent provided in this Section
7.4(d), JANY's participation under the tax allocation agreement
among the Houston National Life Insurance Company consolidated
group ("Tax Allocation Agreement") shall be terminated as of the
Closing Date. After the date hereof, JANY shall continue to make
Tax payments to Seller pursuant to the Tax Allocation Agreement
("Tax Allocation Payments") and appropriate estimated tax payments
to the State of New York in respect of taxable periods described in
Section 7.4(a)(i) above; provided, however, the computation of such
payments shall not take into account (and Seller shall indemnify
JANY against) any Taxes described in Section 7.4(a) (ii), (iii),
(iv) and (v) above. At the time a consolidated federal income Tax
Return that includes JANY for a taxable period described in Section
7.4(a)(i) hereof is filed, (i) Purchaser shall pay (or cause JANY
to pay) to Seller the amount by which (x) the amount of Tax to be
reported on such Tax Return that pertains to JANY, exclusive of any
Taxes described in Section 7.4(a) (ii), (iii), (iv) and (v) above
("JANY's Adjusted Tax Return Liability") exceeds (y) the total Tax
Allocation Payments previously made by JANY in respect of the
taxable period covered by such Tax Return
<PAGE>
("JANY's Total Tax Allocation Payments"), and (ii) Seller shall pay
to Purchaser or JANY the amount by which JANY's Total Tax Allocation
Payments exceeds JANY's Adjusted Tax Return Liability, as well as any other
amounts required to be paid to JANY pursuant to the Tax Allocation
Agreement with respect to the taxable period covered by the Tax
Return. At the time any state or local Tax Return of JANY is filed
that pertains to a taxable period described in Section 7.4(a)(i)
hereof or that covers Taxes described in Section 7.4(a)(iii)
hereof, Seller shall pay to Purchaser or JANY so much of the Tax
liability of JANY to be reported on such Tax Return that relates to
Taxes described in Section 7.4(a)(ii), (iii) and (v) hereof. Any
payments required to be made by Seller or Purchaser pursuant to the
preceding two sentences shall also include interest, if any,
commencing on the due date (without extensions) of the Tax Return
in question at an annual rate equal to the one year LIBOR rate in
effect on such due date plus 25 basis points. Any disputes
regarding the calculation of any payments required to be made
pursuant to this Section 7.4(d) shall be resolved pursuant to the
procedure set forth in Section 1.6 above. Except for the payments
permitted or required to be made by Purchaser or JANY pursuant to
this Section 7.4(d), nothing contained herein shall in any way
affect Seller's indemnification obligations pursuant to Section
7.4(a) hereof, including with respect to any subsequently
determined deficiencies in Tax arising in respect of any Tax Return
covering a period described in Section 7.4(a)(i) hereof.
(e) In the event that Seller or JANY is or becomes
entitled to or receives any refund of Taxes attributable to JANY in
respect of the Pre-Closing Straddle Period or any other taxable
period ending on or prior to the Closing Date, (i) Purchaser, JANY
and Seller shall cooperate with each other and take all reasonable
actions necessary to obtain such refund and (ii) the amount thereof
plus any interest related thereto, shall be (A) the property of
(and paid over to) Seller (but net of any Taxes imposed on JANY
with respect thereto) if it relates to a Tax period or portion
thereof ending on or before June 30, 1996 and was not reflected as
an asset or used to reduce the accrual for Taxes, on the Financial
Statement for the period ended June 30, 1996, and (B) JANY in all
other cases.
(f) (i) Seller shall prepare and timely file (or
provide to Purchaser for filing, if applicable) all Tax Returns
required or permitted by applicable Law to be filed by JANY (or by
Seller on its behalf) with respect to periods ending on or before
the Closing Date. Seller shall cause JANY to close its books as of
the Closing Date in compliance with the requirements of Treasury
Regulation 1.1502-76(b) and any similar state or local Law. If the
Closing Date shall not occur at the end of a calendar month,
Seller, with Purchaser's written consent, which will not be
unreasonably withheld, shall be permitted to ratably allocate the
calendar month's items of income and expense in accordance with
Regulation Section 1.1502-76(b)(2)(iii). Purchaser and JANY shall
(A) cooperate with Seller for the purpose of making any election
under applicable Law to permit JANY to file any short period Tax
Return for the taxable period ending on the Closing Date and (B)
provide access to all relevant books and records for purposes of
preparing such Tax Returns. Unless otherwise required by
applicable Law and disclosed in writing to Purchaser by Seller in
advance of the filing of the relevant Tax Return, any Tax Return to
be prepared by Seller pursuant to this Section 7.4(f) shall be
prepared on a basis consistent with past practice and shall not be
prepared 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 Purchaser as a result of the
transactions contemplated by this Agreement. Purchaser shall be
given the opportunity to review any such Tax Return not less than
30 days prior to the due date for the filing of such return with
the relevant Governmental
<PAGE>
Entity, and Seller shall consult with Purchaser in good faith with
respect to any issues that Purchaser may have regarding such Tax
Return. Purchaser shall have the right to approve (which approval
will not be unreasonably withheld) any position taken in such Tax Return
that affects Purchaser's or JANY's liability for Tax Allocation Payments
or estimated Tax payments pursuant to Section 7.4(d) hereof or Taxes
described in Section 7.4(b) hereof. Unless required by applicable Law,
Seller shall not file an amended Tax Return for JANY without Purchaser's
consent if such amendment would cause or increase JANY's liability
for any Taxes described in Section 7.4(b) hereof.
(ii) Purchaser 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 JANY for taxable years or periods
ending after the Closing Date. With respect to any such Tax Return
that covers a Pre-Closing Straddle Period, a copy of such Tax
Return shall, to the extent permitted by applicable law, be
prepared on a basis consistent with past practices of JANY and
shall be provided to Seller within 30 days prior to the due date
(including extensions) for the filing thereof. Seller shall have
the right to approve (which approval shall not be unreasonably
withheld) such Tax Return to the extent it would require an
indemnification payment by Seller pursuant to Section 7.4(a)
hereof. Unless required by applicable law, Purchaser shall not
file an amended Tax Return for JANY without Seller's written
consent if such amendment would cause or increase Seller's
indemnification obligations pursuant to Section 7.4(a) hereof.
(g) At Purchaser's request, Seller will join with
Purchaser in making a timely election pursuant to Section
338(h)(10) of the Code (the "338(h)(10) Election"), and any
equivalent election in any state or states that Purchaser may
designate, with respect to the purchase and sale of JANY Stock
contemplated by this Agreement. For purposes of determining
<PAGE>
the "deemed sales price", as defined in Regulation Section
1.338(h)(10)-(f) for purposes of this Section 7.4(g), the
liabilities of JANY shall be equal to the amount of such
liabilities for Federal income tax purposes as of the Closing Date.
Purchaser shall have the initial responsibility for the timely
preparation of IRS Form 8023-A, and all supporting statements,
schedules, and required information applicable thereto (including
an allocation of the purchase price to the assets of JANY), and
such Form 8023-A, statements, schedules, and information (the "Form
8023-A Package") shall be submitted to Seller for its review no
later than 120 days after the Closing Date. Within 30 days after
the receipt by Seller of the Form 8023-A Package, Seller shall
notify Purchaser of any objections or proposed changes. If Seller
has no objections or proposed changes or if Purchaser and Seller
agree on the resolution of all objections or proposed changes,
Purchaser and Seller shall promptly file Form 8023-A and the
relevant attachments with the IRS via certified mail with return
receipt requested. As soon as practicable thereafter, Purchaser
and Seller shall furnish to each other a photocopy of such
certificate of mailing and return receipt. If Seller and Purchaser
shall fail to reach an agreement with respect to any objection or
proposed change within 180 days following the Closing Date, then
any disputed objection(s) or proposed change(s) shall be submitted
for resolution to the national offices of Price Waterhouse LLP or,
if such firm refuses or is unable to undertake such matter, such
other public accounting firm as Purchaser and Seller shall mutually
agree (the "Resolution Accountant"). Purchaser and Seller shall
use reasonable efforts to cause a report of the Resolution
Accountant to be rendered within 10 Business Days of its
appointment, and the Resolution Accountant's determination as to
the appropriateness and extent of changes (if any) to the Form
8023-A Package shall be final and binding. The fees and
disbursements of the Resolution Accountant's with respect to making
such determination shall be borne one-half by
<PAGE>
Seller and one-half by Purchaser. Promptly after such determination,
Purchaser and Seller shall file Form 8023-A and the relevant attachments
with the IRS in accordance with the procedure described above. Purchaser
and Seller agree to file their respective tax returns, reports and
forms, including IRS Form 8023-A, in a manner consistent with the
finalized Form 8023-A Package.
(h) Purchaser or JANY shall promptly (i) notify Seller
of the commencement of any claim, audit, examination or other
proposed change or adjustment by any Governmental Entity concerning
any Taxes for which Seller may be responsible under Section 7.4(a)
hereof (a "Tax Claim") and (ii) furnish Seller with copies of any
correspondence received from any Governmental Entity in connection
with such Tax Claim. Seller shall promptly (i) notify Purchaser or
JANY of the commencement of any claim, audit, examination or other
proposed change or adjustment by any Governmental Entity concerning
any Tax for which Purchaser or JANY may be responsible under
Section 7.4(b) hereof and (ii) furnish Purchaser or the JANY with
copies of any correspondence received from any Governmental Entity
in connection with such claim. Notwithstanding the foregoing, no
failure or delay in giving any notice described above shall relieve
Seller of its obligations under this Section 7.4 except, and only
to the extent, that it is prejudiced thereby.
(i) At its election, Seller may contest or settle any
Tax Claim in any legally permissible manner at its sole cost and
expense and, upon Seller's payment of such Taxes to the relevant
Governmental Entity, may sue for a refund thereof. Seller shall
control all correspondence, responses and proceedings related to
any such contest or refund suit, and may pursue or forego any
administrative proceedings, appeals or litigation in respect of
such Tax Claim. Purchaser and JANY, as appropriate, will cooperate
fully, provide access to all books
<PAGE>
and records, and will take all lawful action in connection with such
contest or refund suit as Seller may reasonably request. Seller shall
keep Purchaser and JANY, as appropriate, regularly apprised of the
progress of any such contest or refund suit. In the event that such
contest or refund suit may reasonably be expected to increase materially
the liability of JANY for Taxes described in Section 7.4(b) hereof, or
increase JANY's obligation to make payments pursuant to Section
7.4(d) hereof dealing with tax sharing agreements, if any hereof,
Seller shall consult with Purchaser in good faith as to any
considerations that Purchaser may have regarding such contest or
refund suit. If, during the course of an audit, the IRS proposes
an adjustment to the purchase price allocation reflected in the
Form 8023-A Package as ultimately approved by Seller or determined
by the Resolution Accountant pursuant to Section 7.4(g) hereof,
Seller shall (i) use its reasonable best efforts to defend in good
faith such purchase price allocation in the course of the audit,
(ii) keep Purchaser apprised of the progress of the audit, (iii)
give Purchaser and JANY an opportunity to participate, at their own
expense, in contesting the proposed adjustment to the purchase
price allocation and (iv) obtain Purchaser's approval of any
proposed settlement of the issues, which approval shall not be
unreasonably withheld.
(j) In the event that Seller does not elect to contest
a Tax Claim pursuant to Section 7.4(i) hereof, Purchaser or JANY
may (but shall not be required to) contest such claim for the
account of Seller, in which case (i) Seller shall have the right to
review and approve in advance any correspondence or responses sent
to any Governmental Entity by or on behalf of the JANY with respect
to any Tax Claim and to participate in any subsequent
administrative proceedings, appeals and litigation, if any, and
(ii) Purchaser and JANY, as appropriate, shall provide access to
all relevant books and records. Purchaser and JANY, as
appropriate, shall keep Seller regularly apprised of the progress
of any such contest, proceedings, appeals or
<PAGE>
litigation. In the event that Purchaser or JANY elects to contest
such claim, Purchaser and JANY shall indemnify and hold harmless Seller
for any Tax liability in excess of the amount of the Tax liability that
would have arisen under the settlement that Seller was willing to
accept and which Seller has disclosed to Purchaser and JANY in
writing in advance of such election.
(k) In the event that, for any tax period ending after
the Closing Date, JANY recognizes a loss or becomes entitled to a
credit that may be carried back to a taxable period of JANY during
which it was included in Seller's consolidated federal income Tax
Return or any combined or unitary Tax Return that includes Seller
or its Affiliates, such carryback shall be made only with Seller's
written consent; provided that Seller shall consent to such
carryback, shall cooperate in the filing of any required returns or
claims for refund and shall pay Purchaser any Tax refund received
or the amount of reduction in Taxes so obtained (net of any tax or
other cost incurred by Seller in connection therewith) if Seller,
in its reasonable discretion, determines that permitting such
carryback or filing such returns or claims will not materially
adversely affect Seller or its Affiliates.
Section 7.5. Employee Plans. With respect to the John Alden
Retirement Plan of Seller (the "Pension Plan") and the John Alden
Employee Savings Incentive Plan of Seller (the "401(k) Plan"),
Purchaser and Seller agree as follows:
(a) Pension Plan. Effective as of the Closing, JANY
employees with accrued benefits under the Seller's Pension Plan
will be offered, subject to any required spousal consent rules, the
right to receive the value of such accrued benefits in a lump sum.
(b) 401(k) Plan. Assets held by Seller in Seller's
401(k) Plan on behalf of all Employees, at each such Employee's
option, will be transferred as soon as practicable after the
Closing to the trustees of a qualified plan maintained by Purchaser
or its Affiliates (if permitted)
<PAGE>
or retained in Seller's 401(k) Plan (subject to rights of Employees
with respect thereto). Any assets transferred will be transferred in
accordance with the provisions of Seller's and Purchaser's 401(k) Plans.
Section 7.6. Non-Discriminatory Treatment of Policyholders.
Except as otherwise provided in the Indemnity Reinsurance Agreement
between Seller and Purchaser dated concurrently herewith, from and
after the Closing Date Purchaser shall use all commercially
reasonable efforts to cause JANY to provide, at all times and from
time to time, to the Policyholders under the Insurance Contracts
crediting rates and renewal rates and standards of policyholder
service and administration which are no less than those provided to
other policyholders of insurance or annuity contracts issued,
coinsured or reinsured by Purchaser or its Affiliates of a similar
type and nature (including without limitation factors such as issue
date, actual and anticipated lapse rates and surrender charge
periods and other relevant features and market conditions) as the
Insurance Contracts. Purchaser will use commercially reasonable
efforts to include a provision substantially similar to this
Section 7.6 in any agreement for the sale, transfer or bulk
reinsurance of all or substantially all of the Insurance Contracts.
Section 7.7. Change of Name. Purchaser will use
commercially reasonable efforts to cause the name of JANY to be
changed prior to December 31, 1997 to a name that does not include
the phrase "John" or "Alden" or any variant thereof or any name
substantially similar to John Alden. As soon as practicable after
obtaining the approval of the New York Department of Insurance to
a change of name, the policies sold under the "John Alden" name
shall be endorsed with the new name of JANY. Seller hereby grants
to Purchaser a license to use the "John Alden" name: (i) until such
time as the name change has been approved; and (ii)
<PAGE>
thereafter, but only for the limited purpose of referring to JANY as
being formerly known under its prior name.
ARTICLE 8
TERMINATION; SURVIVAL
Section 8.1. Termination of Agreement. Notwithstanding
anything contained herein to the contrary, this Agreement may be
terminated:
(a) or at any time prior to the Closing, by mutual
written consent of Seller and Purchaser;
(b) by written notice by Purchaser to Seller if there
has been a material breach by Seller of any of the representations,
warranties, agreements or covenants of Seller set forth herein
which is not subject to cure prior to the Closing, or a failure of
any other condition not subject to cure prior to the Closing to
which the obligations of Purchaser are subject;
(c) by written notice by Seller to Purchaser if there
has been a material breach by Purchaser of any of the
representations, warranties, agreements or covenants of Purchaser
set forth herein which is not subject to cure prior to the Closing,
or a failure of any other condition not subject to cure prior to
the Closing to which the obligations of Seller are subject;
(d) at any time after April 30, 1997 (the "Termination
Date") and prior to the Closing, by Purchaser by written notice to
Seller, if (A) the Closing shall not have been consummated on or
before the Termination Date and (B) the failure to consummate the
Closing on or before the Termination Date did not result from the
failure by Purchaser to perform or comply with any covenant or
agreement contained in this Agreement required to be performed or
complied with prior to the Closing by Purchaser;
<PAGE>
(e) at any time after the Termination Date and prior to
the Closing, by Seller by written notice to Purchaser, if (i) the
Closing shall not have been consummated on or before the
Termination Date and (ii) the failure to consummate the Closing on
or before the Termination Date did not result from the failure by
Seller to perform or comply with any covenant or agreement
contained in this Agreement required to be performed or complied
with prior to the Closing by Seller; or
(f) subject to Section 7.2 hereof, by written notice to
Purchaser or Seller to the other, at any time after a Governmental
Entity having jurisdiction over Purchaser or Seller has notified
such Party that it will not provide an approval, consent or Order
necessary for the terminating Party to consummate the transactions
contemplated by this Agreement or the Ancillary Agreements and the
Parties cannot subsequently procure such approval, consent or Order
using their respective commercially reasonable efforts.
Section 8.2. Effect of Termination. In the event that this
Agreement shall be terminated pursuant to Section 8.1, all further
obligations of the parties under this Agreement shall terminate
without further liability of either Party to the other; provided
that the obligations of the parties contained in Section 7.3
(Expenses), Article 10 (Confidentiality) and Article 11
(Miscellaneous) shall survive any such termination. A termination
under Section 8.1 shall not relieve any Party of any liability for
a breach of, or for any misrepresentation under, this Agreement, or
be deemed to constitute a waiver of any available remedy (including
specific performance if available) for any such breach or
misrepresentation.
<PAGE>
ARTICLE 9
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 9.1. Survival of Representations.
(a) The representations and warranties of Purchaser set
forth in Article 3 hereof shall survive the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby for a period of 21 months
following the Closing Date; provided, however, that the
representations contained in Section 3.1 (Organization, Standing
and Authority of Purchaser), and 3.2 (Authorization) shall survive
until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or
permissive).
(b) The representations and warranties of Seller set
forth in Article 2 hereof shall survive the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby for a period of 21 months
following the Closing Date; provided, however, that the
representations contained in Sections 2.1 (Organization, Standing
and Authority of JANY and Seller), 2.2 (Authorization), 2.16 (JANY
Capital Stock), 2.17 (Tax Matters) and 2.21 (Pension and Other
Employee Plans) shall survive until the expiration of all
applicable statutes of limitations (including all periods of
extension, whether automatic or permissive), and Sections 2.18
(Real Property) (paragraph (b) only) and 2.32 (Mortgages)
(paragraph (g) only) will survive until the fifth anniversary of
the Closing Date.
(c) No Action may be commenced by any Person with
respect to any claim arising out of or relating to such warranties
or representations after the expiration of the period for which
such representations and warranties shall survive pursuant to this
Section 9.1 (the "Applicable Survival Period"); provided, however,
that, subject to this Article 9, any Person
<PAGE>
shall have the right to commence a suit, action or proceeding after
the expiration of the Applicable Survival Period with respect to
claims arising out of or relating to such representations and
warranties which shall have been asserted by such Person under Section
9.4 hereof before the expiration of the Applicable Survival Period.
Section 9.2. Indemnification by Purchaser and JANY.
(a) Subject to Sections 7.4, 9.1, the following
provisions of this Section 9.2 and 9.4 hereof, Purchaser shall
indemnify Seller and its Affiliates (other than JANY after the
Closing) (collectively, the "Seller Group") for, and shall hold it
harmless from, any and all damages, claims, suits, actions, causes
of action, proceedings, investigations, losses, liabilities,
assessments, judgments, deficiencies and expenses (including,
without limitation, reasonable legal, accounting and other
professional expenses) ("Liabilities") asserted against or incurred
or sustained by the Seller Group relating to, associated with or
arising out of (i) any breach by Purchaser of any covenant or
agreement contained in this Agreement by Purchaser or (ii) any
breach by Purchaser of any of the warranties or representations of
Purchaser set forth in Article 3 of this Agreement.
(b) From and after the Closing, JANY shall indemnify
each member of the Seller Group for, and hold the Seller Group
harmless from, any and all Liabilities of any kind or nature
asserted against or incurred or sustained by any or all of the
members of the Seller Group arising out of, related to or
associated with the Insurance Business or JANY, regardless of
whether at the time of Closing such Liabilities were (A) foreseen
or unforeseen, (B) known or unknown, (C) existing or arose in the
future, (D) fixed or contingent, (E) matured or unmatured, (F)
reflected in any of the Schedules attached hereto or (G) relate to
or are associated with events occurring or circumstances existing
before or after the Closing; provided,
<PAGE>
however, that notwithstanding anything contained in this Section 9.2(b)
to the contrary, JANY shall not be obligated hereunder to indemnify the
Seller Group for, or to hold the Seller Group harmless from, any
Liabilities under this Section 9.2(b) to the extent that Seller is
obligated to indemnify Purchaser in respect of the same Liabilities
pursuant to Section 9.3 hereof (or would be obligated to indemnify
Purchaser if (i) the limitation on representations or warranties
under Section 9.1, or (ii) the dollar limitations on
indemnification set forth in Section 9.2(c) hereof did not apply).
(c) The Seller Group shall be entitled to
indemnification under Section 9.2(a)(ii) and 9.2(b), only when the
aggregate amount of all Liabilities with respect to which the
Seller Group would otherwise be entitled to indemnification under
Sections 9.2(a)(ii) and 9.2(b) hereof and Section 10.2(a)(ii) of
the Asset Purchase Agreement exceed $1.5 million. In addition, as
soon as practicable after such Liabilities exceed $1.5 million,
Purchaser shall pay to Seller $750,000. In no event shall the
amount payable by Purchaser and its Affiliates (including JANY) to
the Seller Group pursuant to Section 9.2(a)(ii) and 9.2(b) hereof
and Section 10.2(a)(ii) of the Asset Purchase Agreement exceed
$240,000,000.
(d) If any event shall occur or circumstance shall exist
which would otherwise entitle the Seller Group to indemnification
hereunder, Liabilities shall be deemed reduced to the extent of any
proceeds (other than (i) proceeds from self-insurance and (ii)
proceeds under experience-rated insurance policies the premiums for
which would be increased by reason of the filing of a claim
thereunder with respect to such Liability or expense) actually
recovered, net of the cost of such recovery, by the Seller Group
from any third party (including, without limitation, any insurance
company) with respect thereto. In furtherance of the immediately
preceding sentence, Seller agrees to, and to cause its Affiliates
to, (i) in good faith, diligently
<PAGE>
seek recovery, at its or their own expense, of all such proceeds from
all third parties with respect to all Liabilities with respect to
which it or they make or may make a claim for indemnification hereunder
and (ii) keep Purchaser fully and promptly informed of all material matters
related thereto.
(e) To the extent that the undertakings set forth in
Section 9.2(a) and (b) hereof may be unenforceable, Purchaser shall
contribute the maximum amount that it is permitted to contribute
under applicable Law to the payment and satisfaction of all
Liabilities incurred by the Seller Group.
Section 9.3. Indemnification by Seller.
(a) Subject to Sections 7.4, 9.1, the following
provisions of this Section 9.3, and 9.4 hereof, Seller shall
indemnify Purchaser and its Affiliates (including JANY after the
Closing) (collectively, the "Purchaser Group") for, and shall hold
them harmless from, any and all Liabilities asserted against or
incurred or sustained by Purchaser relating to, associated with or
arising out of: (i) any breach by Seller of any covenant or
agreement contained in this Agreement by Seller, (ii) any breach by
Seller of any of the warranties or representations set forth in
Article 2 of this Agreement (other than Sections 2.18(b) and
2.32(g) hereof), (iii) any Extra Contractual Obligations, (iv) any
Vanishing Premium Liabilities; provided, however, that Seller shall
not be required to provide the indemnification with respect to
Vanishing Premium Liabilities related to any In Force Insurance
Contract if Purchaser reduces the dividend scale applicable to such
Insurance Contract or (v) the Insurance Contracts issued by JANY
without Permits as identified on Schedule 2.9 attached hereto.
(b) Subject to Section 9.1, the following provisions of
this Section 9.3 and 9.4 hereof, Seller shall indemnify the
Purchaser Group for, and shall hold it harmless from, (i) one-
<PAGE>
half of any and all Liabilities up to an aggregate of $3,000,000 (i.e.,
$1.5 million of the first $3.0 million of such Liabilities) and
(ii) any and all Liabilities in excess of $3,000,000 asserted
against or incurred or sustained by the Purchaser Group relating
to, associated with or arising out of any breach of the
representations and warranties of Seller set forth in Sections
2.18(b) and 2.32(g) hereof and Section 3.22(g) of the Asset
Purchase Agreement (without giving effect to the knowledge and
materiality qualifiers set forth therein).
(c) The Purchaser Group shall be entitled to
indemnification under Section 9.3(a)(ii), 9.3(a)(iii) and
9.3(a)(iv) hereof only when the aggregate amount of all Liabilities
with respect to which the Purchaser Group would otherwise be
entitled to indemnification under Sections 9.3(a)(ii), 9.3(a)(iii)
and 9.3(a)(v) hereof and Section 10.3(a)(ii) of the Asset Purchase
Agreement exceeds $1.5 million. In addition, as soon as
practicable after such Liabilities exceeds $1.5 million, Seller
shall pay to Purchaser $750,000. In no event shall the amount
payable by Seller and its Affiliates to the Purchaser Group
pursuant to Sections 9.3(a)(ii), 9.3(a)(iii) and 9.3(a)(v) hereof
and Section 10.3(a)(ii) of the Asset Purchase Agreement exceeds
$240,000,000.
(d) If any event shall occur or circumstance shall exist
which would otherwise entitle the Purchaser Group to
indemnification hereunder, Liabilities shall be deemed reduced to
the extent of any proceeds (other than (i) proceeds from
self-insurance and (ii) proceeds under experience-rated insurance
policies the premiums for which would be increased by reason of the
filing of a claim thereunder with respect to such Liability)
actually recovered, net of the cost of such recovery, by the
Purchaser Group from any third party (including, without
limitation, any insurance company) with respect thereto. In
furtherance of the immediately preceding sentence, Purchaser agrees
to, and to cause its Affiliates to, (i) in good faith, diligently
seek recovery, at
<PAGE>
its or their own expense, of all such proceeds from all third parties
with respect to all Liabilities with respect to which it or they make
or may make a claim for indemnification hereunder and (ii) keep Seller
fully and promptly informed of all material matters related thereto.
(e) To the extent that the undertakings set forth in
Section 9.3(a) hereof may be unenforceable, Seller shall contribute
the maximum amount that it is permitted to contribute under
applicable Law to the payment and satisfaction of all Liabilities
incurred by the Purchaser Group.
Section 9.4. Indemnification Procedure.
(a) Within a reasonable time after obtaining knowledge
thereof, a Person who may be entitled to indemnification hereunder
(the "Indemnitee") shall promptly give the Party who may be
obligated to provide such indemnification (the "Indemnitor")
written notice of any Liability which the Indemnitee has determined
has given or could give rise to a claim for indemnification
hereunder (a "Notice of Claim"); provided, however, no failure or
delay in giving any such Notice of Claim shall relieve the
Indemnitor of its obligations except, and only to the extent, that
it is prejudiced thereby. A Notice of Claim shall specify in
reasonable detail the nature and all known particulars related to
a Liability. The Indemnitor shall perform its indemnification
obligations in respect of a Liability described in a Notice of
Claim under Sections 9.2 or 9.3 hereof, as the case may be, within
30 days after the Indemnitor shall have received such Notice of
Claim.
(b) The Indemnitor shall inform the Indemnitee promptly
after the Indemnitor has made a good faith determination, based on
the facts alleged in such Notice of Claim or which have otherwise
become known to the Indemnitor, either that the Indemnitor
acknowledges that it has an indemnification obligation hereunder in
respect of such Liability or that the Indemnitor has made a good
faith determination that it has no indemnification obligation
hereunder in respect of such Liability. If the Indemnitor fails to
perform its obligations under this Section 9.4 or if the Indemnitor
shall have informed the Indemnitee in writing in that the
Indemnitor does not have an indemnification obligation hereunder in
respect of such Liability, then the Indemnitee shall have the
right, but not the obligation, to take the actions which the
Indemnitor would have had the right to take in connection with the
performance of such obligations and, if the Indemnitee is entitled
to indemnification hereunder in respect of the event or
circumstance as to which the Indemnitee takes such actions, then
the Indemnitor shall, in addition to indemnifying Indemnitee for
the Liability, indemnify the Indemnitee for all of the legal,
accounting and other costs, fees and expenses reasonably and
actually incurred in connection therewith.
(c) The Indemnitor shall have the right and obligation,
in good faith and at its own cost and expense, to cure, remediate,
mitigate, remedy or otherwise handle any event or circumstance
which gives rise to a Liability in respect of which a Notice of
Claim has been given (including events and circumstances which can
be cured, remediated, mitigated or remedied through the expenditure
of money and events and circumstances which give rise to a
Liability which can be measured in terms of money), regardless of
the nature of such Liability. Such right and obligation shall
include, without limitation, (i) the right to investigate any such
event or circumstance, and (ii) the right to defend, contest or
otherwise oppose any third party claim, demand, suit, action or
proceeding related to such event or circumstance with legal counsel
selected by it. The exercise of such right and performance of
such obligation shall not constitute an admission or agreement by
Indemnitor that it has an indemnification obligation hereunder in
respect of such Liability. If the Indemnitor proposes to settle or
compromise any
<PAGE>
such third party action, demand, claim, suit or proceeding, the
Indemnitor shall give written notice to that effect (together with
a statement in reasonable detail of the terms and conditions of
such settlement or compromise) to the Indemnitee a reasonable time
prior to effecting such settlement or compromise.
(d) The Indemnitee shall have the right, but not the
obligation, to participate, at its own cost and expense, in the
defense, contest or other opposition of any such third party claim,
demand, suit, action or proceeding through legal counsel selected
by it and shall have the right, but not the obligation, to assert
any and all cross-claims or counterclaims which it may have. So
long as the Indemnitor is in good faith performing its obligations
under this Section 9.4, the Indemnitee shall (i) at Indemnitor's
cost and expense, cooperate in all reasonable ways with, make its
and its Affiliates' relevant files and records available for
inspection and copying by, make its and its Affiliates' employees
reasonably available to and otherwise render reasonable assistance
to the Indemnitor upon request and (ii) not compromise or settle
any such claim, demand, suit, action or proceeding without the
prior written consent of the Indemnitor. The Indemnitee shall have
the right (i) to object to the settlement or compromise of any such
third party action, demand, claim, suit or proceeding whereupon if
such settlement is solely a cash settlement (A) the Indemnitee will
assume the defense, contest or other opposition of any such third
party action, demand, claim, suit or proceeding for its own account
and as if it were the Indemnitor and (B) the Indemnitor shall be
released from any and all liability with respect to any such third
party action, demand, claim, suit or proceeding to the extent that
such liability exceeds the liability which the Indemnitor would
have had in respect of such a settlement or compromise, or (ii) to
assume, at any time by giving written notice to that effect to the
Indemnitor, the cure, mitigation, remediation, remedy or other
handling of such event or
<PAGE>
circumstance and the defense, contest or other opposition of any such
third party action, demand, claim, suit or proceeding for its own
account whereupon the Indemnitor shall be released from any and all
liability with respect to such event or circumstance and such third
party action, demand, claim, suit or proceeding.
(e) After the Closing, Purchaser shall and shall cause
JANY to take all commercially reasonable actions which may be
necessary to enable Seller to exercise its rights and perform its
obligations under this Section 9.4.
(f) Notwithstanding anything contained herein to the
contrary, each Party shall use, and shall cause its Affiliates to
use, commercially reasonable efforts to mitigate any and all
damages, losses, liabilities, costs and expenses in respect of
which it may be entitled to indemnification hereunder.
ARTICLE 10
PUBLICITY AND CONFIDENTIALITY
Section 10.1. Publicity. Neither Party shall or shall permit
its Affiliates to issue any publicity, release or announcement
concerning the execution and delivery of this Agreement, the
provisions hereof or the transactions contemplated hereby without
the prior written approval of the form and content of such
publicity, release or announcement by the other; provided, however,
that no such approval shall be required when such publicity,
release or announcement is required by (i) applicable Law, (ii)
applicable rules or regulations of, or any listing agreement with,
a national or foreign stock exchange or the Automated Quotation
System maintained by the National Association of Securities
Dealers, Inc. or (iii) any Order of any court, arbitrator or
Governmental Entity of competent jurisdiction; and, provided
further, that, prior to issuing
<PAGE>
any publicity, release or announcement without such prior written
approval, the Party issuing or whose Affiliate is issuing such
publicity, release or announcement shall have given reasonable
prior notice to the other Party of such intended issuance and, if
requested by the other Party, shall have used reasonable efforts
at such other Party's own cost and expense to obtain a protective
order or similar protection for the benefit of the other Party.
In addition, with the prior written consent of the Parties, not to
be unreasonably withheld, CS First Boston and Goldman Sachs & Company
each may cause to be published such tombstone advertisements with
respect to the transactions contemplated by this Agreement as it shall
deem appropriate. Nothing contained herein shall prevent the
communication of information with any Governmental Entity or any
agency or other organization which rates the financial solvency or
claims-paying ability of Seller, Purchaser or JANY, including
without limitation, A.M. Best Company, Inc., Duff & Phelps,
Standard & Poor's Corporation and Moody's Investors Services, Inc.
or state insurance departments or other regulatory bodies.
Section 10.2. Confidentiality.
(a) All data, reports, records and other information of
any kind received by a Party or its Affiliates or Representatives
(such Party being hereinafter referred to as the "Receiving Party")
from the other Party or its Affiliates or Representatives, (such
other Party being hereinafter referred to as the "Delivering
Party") under this Agreement or in connection with the transactions
contemplated hereby shall be treated as confidential (collectively,
"Confidential Information"). Except as otherwise provided herein,
the Receiving Party shall not use (and shall not permit its
Affiliates, or Representatives to use) Confidential Information for
its own (or their own) benefit and shall use commercially reasonable
efforts (and shall cause its Affiliates, directors, officers and
employees to use commercially reasonable efforts) to maintain
<PAGE>
the confidentiality of Confidential Information. If the
Receiving Party or any of its Affiliates or Representatives is
required to disclose Confidential Information by or to any court,
arbitrator or Governmental Entity of competent jurisdiction, the
Receiving Party shall, prior to such disclosure, promptly notify
the Delivering Party of such requirement and all particulars
related to such requirement. The Delivering Party shall have the
right, at its own cost and expense, to object to such disclosure
and to seek confidential treatment of any Confidential Information
to be so disclosed on such terms as it shall determine.
(b) The restrictions set forth in Section 10.2(a) hereof
shall not apply to the use or disclosure of Confidential
Information to the extent, but only to the extent, (i) permitted or
required pursuant to any other agreement between or among the
Parties or their respective Affiliates or Representatives, (ii)
necessary by a Party or its Affiliates in connection with
exercising its or their rights or performing its or their duties or
obligations under this Agreement, the Transition Services Agreement
or the other agreements described in clause (i) of this sentence,
(iii) contemplated by the last two sentences of Section 10.2(a)
hereof or (iv) that the Receiving Party can demonstrate such
Confidential Information (A) is or becomes generally available to
the public through no fault or neglect of the Receiving Party, (B)
is received in good faith on a non-confidential basis from a third
party who discloses such Confidential Information without violating
any obligations of secrecy or confidentiality, (C) is independently
developed after the time of receipt as shown by dated written
records or (D) was already possessed at the time of receipt as
shown by prior dated written records.
(c) For the purposes of this Section 10.2,
(i) information which is specific shall not be deemed to be within
an exception set forth in Section 10.2(b) hereof merely because it
is embraced by general information which is within such an
exception and (ii) a combination
<PAGE>
of information shall not be deemed to be within an exception set forth
in Section 10.2(b) hereof merely because individual aspects of such
combination are within such an exception unless the combination of
information itself, its principle of operation and its value or
advantages are within such an exception.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally (by courier or otherwise), sent by certified,
registered or express mail, postage prepaid and return receipt
requested or transmitted by facsimile (with a copy of such notice
or other communication and a confirmation of transmission sent by
certified, registered or express mail, postage prepaid and return
receipt requested no later than the close of business on the next
business day following such transmission), and shall be addressed
as follows:
when Purchaser is to be notified:
SunAmerica Life Insurance Company
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Attention: General Counsel
Facsimile No.: (310) 772-6574
with a copy to:
SunAmerica Life Insurance Company
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Attention: Controller
Facsimile No.: (310) 772-6684
and
<PAGE>
O'Melveny & Myers
1999 Avenue of the Stars
Suite 700
Los Angeles, California 90067
Attention: Robert D. Haymer, Esq.
Facsimile No.: (310) 246-6779
when Seller is to be notified:
John Alden Life Insurance Company
7300 Corporate Center Drive
Miami, Florida 33126-1223
Attention: General Counsel
Facsimile No.: (305) 715-1342
with copies to:
John Alden Financial Corporation
7300 Corporate Center Drive
Miami, Florida 33126-1223
Attention: General Counsel
Facsimile No.: (305) 715-1497
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Jay R. Schifferli, Esq.
Facsimile No.: (203) 327-2669
A Party may, by notice given in accordance with this Section 11.1
to the other Party, designate another address or Person to which
notices required or permitted to be given pursuant to this
Agreement shall thereafter be transmitted. Each notice transmitted
in the manner described in this Section 11.1 shall be deemed to
have been given, received and become effective for all purposes at
the time it shall have been (i) delivered to the addressee as
indicated by the return receipt (if transmitted by mail),
transmitted to the addressee (if transmitted by facsimile and
subject to delivery of the mailed copy thereof) or the affidavit of
the messenger (if transmitted
<PAGE>
by personal delivery) or (ii) presented for delivery to the addressee
as so indicated during normal business hours, if such delivery shall
have been refused for any reason.
Section 11.2. Entire Agreement. This Agreement (including
the Transition Services Agreement, the Asset Purchase Agreement,
the other agreements contemplated hereby and thereby, the Annex,
the Exhibits and the Schedules attached hereto (the "Transaction
Agreements")) contains the entire agreement and understanding
between the Parties with respect to the subject matter hereof and
cancels and supersedes all of the previous or contemporaneous
agreements, representations, warranties and understandings, whether
written or oral, by or between the Parties with respect to the
subject matter hereof. Except for the representations and
warranties expressly set forth in the Transaction Agreements,
Purchaser disclaims reliance upon (i) any representations,
warranties or guarantees (whether express or implied and whether
oral or written) by Seller, JANY or any of their Affiliates or any
of their or their respective Affiliates' Representatives
(including, without limitation, any projections of future sales,
revenues, expenses or earnings and any statements regarding the
prospects of the Insurance Business as presently conducted by JANY)
or (ii) any other information with respect to the Insurance
Business, Seller, JANY, their respective assets and properties or
their industry provided by or on behalf of them. Nothing contained
in any document or instrument of conveyance, transfer, assignment
or delivery executed or delivered at the Closing pursuant to this
Agreement shall amend, extend, modify, renew or alter in any manner
any representation, warranty, covenant, agreement or indemnity
contained herein. Nothing contained in the Transaction Agreements
or in any of the Schedules attached hereto or thereto or in any
other agreement contemplated hereby or thereby shall constitute or
be interpreted or construed as an admission by any Party or any of
its Affiliates of liability to third parties, whether under any
<PAGE>
Law or otherwise, or as an admission that any Party or any of its
Affiliates are in violation of or have ever violated any such Law.
Section 11.3. Amendments. No addition to, and no
cancellation, renewal, extension, modification or amendment of, or
approval under this Agreement shall be binding upon a Party unless
such addition, cancellation, renewal, extension, modification,
amendment or approval is set forth in a written instrument which
states that it adds to, amends, cancels, renews or extends this
Agreement or grants an approval hereunder and which is executed and
delivered on behalf of each Party by an officer of, or attorney-in-
fact for, such Party.
Section 11.4. Waivers. No waiver of any provision of this
Agreement shall be binding upon a Party unless such waiver is
expressly set forth in a written instrument which is executed and
delivered on behalf of such Party by an officer of, or attorney-in-
fact for such Party. Such waiver shall be effective only to the
extent specifically set forth in such written instrument. Neither
the exercise (from time to time or at any time) nor the delay or
failure (at any time or for any period of time) to exercise any
right, power or remedy shall operate as a waiver of, the right to
exercise, or impair, limit or restrict the exercise of part of any
Party of any such right, power or remedy any other right, power or
remedy at any time and from time to time thereafter. No waiver of
any right, power or remedy of a Party shall be deemed to be a
waiver of any other right, power or remedy of such Party or shall,
except to the extent so waived, impair, limit or restrict the
exercise of such right, power or remedy.
Section 11.5. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF. Each Party consents and submits to the
non-exclusive personal jurisdiction of any federal court in the
State of Delaware in respect of any proceeding for the sole purpose
of injunctive relief or to enforce an arbitration award under
Section 11.10 hereof. Each Party consents to service of process
upon it with respect to any such proceeding by registered mail,
return receipt requested, and by any other means permitted by
applicable Laws. Each Party waives any objection that it may now
or hereafter have to the laying of venue of any such proceeding in
federal court in the State of Delaware and any claim that it may
now or hereafter have that any such proceeding in any such court
has been brought in an inconvenient forum.
Section 11.6. Binding Effect; Assignment; Third Party
Beneficiaries. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and
permitted assigns. Neither Seller nor Purchaser shall assign any
of its rights or delegate any of its duties hereunder (in whole or
in part and by operation of law or otherwise) without the prior
written consent of the other Party hereto except that Purchaser may
assign its rights and obligations under this Agreement to any of
its Affiliates provided Purchaser shall remain liable for all of
its obligations hereunder notwithstanding such assignment. Any
assignment of rights or delegation of duties under this Agreement
by a Party without the prior written consent of the other Party, if
such consent is required hereby, shall be void. No Person
(including, without limitation, any employee of a Party) shall be,
or be deemed to be, a third party beneficiary of this Agreement.
Section 11.7. Severability. If any provision of this
Agreement shall hereafter be held to be invalid, unenforceable or
illegal, in whole or in part, in any jurisdiction under any
circumstances for any reason, (i) such provision shall be reformed
to the minimum extent necessary to cause such provision to be
valid, enforceable and legal while preserving the intent of the
Parties as expressed in, and the benefits to the Parties provided
by, this Agreement or (ii) if such provision cannot be so reformed,
such provision shall be severed from this Agreement and an
equitable adjustment shall be made to this Agreement (including,
without limitation, addition of necessary further provisions to
this Agreement) so as to give effect to the intent as so expressed
and the benefits so provided. Such holding shall not affect or
impair the validity, enforceability or legality of such provision
in any other jurisdiction or under any other circumstances.
Neither such holding nor such reformation or severance shall affect
or impair the legality, validity or enforceability of any other
provision of this Agreement.
Section 11.8. Headings. The headings in this Agreement have
been inserted for convenience of reference only, and shall not be
considered a part of this Agreement and shall not limit, modify or
affect in any way the meaning or interpretation of this Agreement.
Section 11.9. Counterparts. This Agreement may be executed
by the parties in any number of counterparts, each of which when so
executed and delivered shall constitute an original instrument, but
all such counterparts shall together constitute one and the same
instrument. This Agreement shall become effective and be deemed to
have been executed and delivered by all of the Parties at such time
as counterparts shall have been executed and delivered by both of
the Parties, regardless of whether each of the Parties has executed
the same counterpart. It shall not be necessary when making proof
of this Agreement to account for any counterparts other than a
sufficient number of counterparts which, when taken together,
contain signatures of both of the Parties.
Section 11.10. Arbitration. The Parties acknowledge and
agree that the transactions contemplated herein substantially
affect and impact interstate commerce. Therefore, all disputes or
differences between Seller and Purchaser arising under or which are
related to this Agreement (other than proceedings for the sole
purpose of injunctive relief) upon which an amicable
<PAGE>
understanding cannot be reached within 30 days shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association, except as hereinafter provided, and
judgment upon the award entered by the Arbitrators (as defined
below) may be entered in any court having jurisdiction thereof.
The Arbitrators provided for herein shall construe this Agreement
in light of the prevailing custom and practices for acquisition
transactions of a similar nature. The "Arbitrators" shall consist
of one neutral arbitrator (or as provided below, three neutral
arbitrators). The Parties agree that the arbitration, if
implemented under this Agreement, shall be held at a site selected
by the Arbitrators. The Parties agree to arbitrate within 90 days
following the transmittal of written demand of either Party to
arbitrate any dispute arbitrable under this Agreement. The Parties
will in good faith, within 15 days following notice of written
demand to arbitrate attempt to agree on a single Arbitrator. If
the Parties cannot within 15 days thereafter agree on a single
arbitrator, each of the Parties shall appoint an Arbitrator,
notifying the other Party of the name and address of such
Arbitrator. The Arbitrators appointed by each Party shall agree
upon and appoint a third neutral Arbitrator. If either Party shall
fail to appoint an Arbitrator as herein provided, or should the two
Arbitrators so named fail to select the third Arbitrator within 30
days after their appointment, then, in either event, the President
of the American Arbitration Association or its successor shall
appoint such second and/or third Arbitrator. A decision of a
majority of the Arbitrators shall be final and binding and there
shall be no appeal therefrom. The Arbitrators shall within 45 days
after the final hearing enter an award and the award shall be
supported by a written opinion. The fees of the Arbitrators and
the direct costs of the arbitration shall be shared equally by the
Parties; all other costs of the respective Parties, including
without limitation fees and expenses of the respective Party's
attorneys, witnesses, and discovery shall be paid by the respective
Party,
<PAGE>
except to the extent that the Arbitrators otherwise direct based on
the equities of the situation. The arbitration shall be held in
New York, New York, unless otherwise agreed between the Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the date first written above.
SUNAMERICA LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
_____________________________________
Name: Jay S. Wintrob
Title: Executive Vice President
JOHN ALDEN LIFE INSURANCE COMPANY
By: /s/ GLENDON E. JOHNSON
_____________________________________
Name: Glendon E. Johnson
Title: Chairman, President & C.E.O.
<PAGE>
ANNEX A
The following terms are defined in the following Sections.
DEFINED TERM SECTION
Agreement Introduction
Ancillary Agreements 3.10
Antitrust Division 4.4
Applicable Purchaser Survival Period 9.1
Arbitrators 11.10
Asset Purchase Agreement Introduction
Books and Records 1.5
Closing 1.1
Closing Date 1.1
Code 2.9
Confidential Information 10.2
Deemed Asset Sale 7.4
Delivering Party 10.2
ERISA 2.20
ERISA Plans 2.20
401K Plan 7.5
Form 8023-A Package 7.4
FTC 4.4
Houston 7.4
HSR Act 2.5
Indemnitee 9.4
Indemnitor 9.4
Insurance Business Introduction
Interim John Alden Financial Statements 2.34
Interim Purchaser Financial Statements 3.7
JANY's Adjusted Tax Return Liability 7.4
JANY Employee 7.5
JANY Reserve Liabilities 2.23
JANY Stock Introduction
JANY Introduction
John Alden 2.34
John Alden Financial Statements 2.34
knowledge 2.3
Liabilities 9.2
Liens 2.4
Notice of Claim 9.4
Parties Introduction
Party Introduction
Pension Benefit Guaranty Corporation 2.20
<PAGE>
Pension Plan 7.5
Permits 2.5
Pre-Closing Straddle Period 7.4
Post-Closing Straddle Period 7.4
Purchase Price 1.2
Purchaser Introduction
Purchaser Financial Statements 3.7
Purchaser Group 9.3
Purchaser's Opinion 1.3
Real Property 2.18
Receiving Party 10.2
Resolution Accountant 7.4
Seller Introduction
Seller Group 9.2
Seller's Opinion 1.3
Tax Allocation Agreement 7.4
Tax Allocation Payments 7.4
Tax Claim 7.4
Termination Date 8.1
Third Party Administration Agreements 2.31
Transition Services Agreement 1.4
Transaction Agreements 1.2
"Action" means any action, claim, complaint, cause of action,
arbitration, petition, investigation, suit or administrative or
other proceeding, whether civil or criminal, at law or in equity,
before any court, arbitrator or Governmental Entity.
"Affiliate" shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with the Person specified. For purposes of
this definition, "control" (and its derivative terms "controlled,"
"controls," etc.) shall mean the power and right to direct the
management and policies of another Person, whether by ownership of
voting securities, the ability to elect a majority of the board of
directors or other managing board or committee, management
contract, or otherwise.
"Book Value" means book value computed in accordance with SAP,
without marking to market and without including Accrued and Unpaid
Investment Income.
"Business Day" means any day on which banks and other
financial institutions are not required to be closed pursuant to
applicable Laws in any of New York, New York, Los Angeles,
California and Miami, Florida.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act.
<PAGE>
"Closing Ledger Date" means the 21st day of the month in which
the Closing occurs or, if such day is not a Business Day, the next
preceding Business Day.
"Combined Reserve Liabilities" means the Reserve Liabilities
for JALIC Annuity Contracts plus all reserves with respect to
JANY's insurance contracts, in the aggregate.
"Commercially reasonable efforts" when used with respect to
any Party, means the reasonable efforts of such Party without the
requirement that such Party incur any extraordinary out-of-pocket
expenses, incur any other unanticipated burden or commence or
pursue any action, suit or proceeding.
"Environmental Laws" means any Law pertaining to health,
industrial hygiene or the environmental condition on or under any
property including, without limitation, CERCLA and the Toxic
Substance Control Act, and the rules and regulations thereunder.
"Excluded Liabilities" means (i) all liability for premium
taxes arising on account of premiums paid on or prior to the
Closing Ledger Date with respect to the Insurance Contracts, (ii)
all liability for commission payments and other fees or
compensation payable with respect to the Insurance Contracts to or
for the benefit of brokers and agents and other distribution
sources, to the extent that such amounts are based on premiums paid
on or prior to the Closing Ledger Date, (iii) trailer commissions
(which are based upon account values) accruable on or prior to the
Closing Ledger Date, and (iv) all guaranty fund assessments (or any
other assessment from a state entity formed to protect
policyholders against failure of an insurer to perform its
contractual obligations) imposed as a result of a conservatorship
or other insolvency proceeding commenced on or prior to the Closing
Date with respect to the Insurance Contracts.
"Execution Date" means the date of this Agreement.
"Extra Contractual Obligations" means all liabilities (i) for
compensatory, consequential, exemplary, punitive or similar damages
which directly relate to any alleged or actual act, error,
omission, fraud or misrepresentation by Seller or any of its
Affiliates or any of its or its Affiliates' officers or employees,
whether intentional or otherwise, prior to the Closing Date, or
(ii) from any actual or alleged reckless conduct or bad faith by
Seller, or any of its Affiliates or any of its or its Affiliates'
officers or employees, in connection with Seller's handling of any
claim under any of the Insurance Contracts or in connection with
the issuance, offer, sale, delivery, cancellation or administration
by Seller or any of its Affiliates or any of its or its Affiliates'
officers or employees of any of the Insurance Contracts.
"GAAP" shall mean United States generally accepted accounting
principles as in effect from time to time, consistently applied
throughout the specified period and in the immediately prior
comparable period.
"Governmental Entity" means any agency, administrative
division or department (or administrative subdivision), commission,
regulatory authority (including without limitation any insurance
regulatory authority), taxing or administrative authority, court or
other judicial body,
<PAGE>
legislature of the government of the United States or any state, city,
municipality, county, town, district or other political subdivision
thereof on any state, city, municipality, county, town, district or
other political subdivision thereof or any quasi-governmental entity,
including, without limitation, the employees or agents thereof.
"Hazardous Substance" means (i) any and all substances defined
as "hazardous substances," "extremely hazardous substances," "toxic
substances," "hazardous waste," "hazardous materials" or
"infectious waste" for purposes of CERCLA or any other
Environmental Law and (ii) any petroleum or petroleum-based
products.
"In Force Insurance Contracts" means the Insurance Contracts
in effect on the date hereof, and as of the Closing Date, as the
case may be.
"Insurance Contracts" means all annuity and other policies and
supplementary contracts, as well as any riders providing for other
supplemental benefits, and all supplements, endorsements, riders
and ancillary agreements in connection therewith, and specifically
includes without limitation (i) all lapsed Insurance Contracts
subject to reinstatement and (ii) any supplemental benefits arising
out of the Insurance Contracts.
"Laws" means any and all federal, state or local statutes,
laws, ordinances, rules and regulations.
"Loan Documents" means the Mortgage Note, the Mortgage and any
and all other agreements, certificates, documents or instruments in
Seller's possession or under its control relating to the
origination, closing and modification of a Mortgage Loan, including
without limitation any related assignment of rents, security
agreement, UCC financing statement, guaranty, letter of credit,
pledge agreement, loan agreement or other instrument creating a
security interest in, and Lien upon, real and/or personal property.
"Material Adverse Effect" means any change, effect, event or
occurrence that has, or is reasonably likely to have, individually
or in the aggregate, a material adverse impact on (i) the assets,
business, financial position or results of operations of JANY or
(ii) the ability of Seller or JANY to consummate the transactions
contemplated by this Agreement and the Transition Services
Agreement; provided that "Material Adverse Effect" shall be deemed
to exclude the impact of (i) changes in Laws or interpretations
thereof by any Governmental Entity relating to or affecting the
Insurance Business and (ii) changes in GAAP or SAP.
"Material Adverse Effect on Purchaser" means any change,
effect, event or occurrence that has, or is reasonably likely to
have, individually or in the aggregate, a material adverse impact
on (i) the business, financial position or results of operations of
Purchaser (and after giving effect to the Closing, together with
JANY) or (ii) the ability of Purchaser to consummate the
transactions contemplated by this Agreement and the Transition
Services Agreement; provided that "Material Adverse Effect on
Purchaser" shall be deemed to exclude the impact of (i) changes in
Laws or interpretations thereof by any Governmental entity relating
to or affecting the business of Purchaser and (ii) changes in GAAP
or SAP.
<PAGE>
"Mortgage" means the mortgage, deed of trust or other
instrument (and all modifications thereto) creating a Lien on real
property described therein or on the tenant's interest under a
ground lease of real property described therein, in either case
securing a Mortgage Note.
"Mortgage Loan" means any individual mortgage loan that is
identified on the Mortgage Loan Schedule.
"Mortgage Loan Schedule" means the list of Mortgage Loans
subject to this Agreement and identified on Schedule 2.32(a)
attached hereto, which schedule sets forth the following
information with respect to each Mortgage Loan as of the date
specified therein.
(i) the Mortgage Loan numbers;
(ii) the name of the mortgagor and the name or address
of the Mortgaged Property;
(iii) the Mortgage Loan Principal Balance;
(iv) lien priority of the Mortgage;
(v) the maturity date; and
(vi) the current interest rate.
(vii) the Mortgage Loan Status (current, litigation,
bankruptcy, tax plans, etc.).
"Mortgage Note" means the note or other evidence of the
indebtedness under a Mortgage Loan.
"Mortgaged Property" means the land and improvements that
secure a Mortgage, which in the case of a leasehold mortgage shall
mean the tenant's interest in the real property underlying the
ground lease or, where the context so requires, the real property
underlying the ground lease.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, limited liability
company,proprietorship, trust, union, association, court, tribunal,
agency, government, department, commission, self-regulatory
organization, arbitrator, board, bureau, instrumentality, or other
entity, enterprise, authority, or business organization.
"Policyholders" means, as applicable, the beneficiaries under,
or policyholders with-respect to, or owners of, the Insurance
Contracts, or any other Person entitled to payment with respect to
the Insurance Contracts.
<PAGE>
"Related Agreements" means the agreements providing for the
payment of commissions relating to the Insurance Contracts as
listed in Schedule 2.30.
"Representatives" means, with respect to any Person, such
person's Affiliates, subsidiaries, shareholders, directors,
partners, joint ventures, officers, employees, agents,
representatives, producers, independent contractors, consultants,
lenders, brokers, finders, investment bankers, financial advisors,
attorneys and accountants. Seller's Representatives include
without limitation CS First Boston. Purchaser's Representatives
include without limitation Goldman Sachs & Company.
"Qualified 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 then equivalent grade) by S&P,
is organized under the Laws of the United States or any State
thereof and is rated "TBW-1" or the equivalent 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 Execution Date of this
Agreement) which is rated "TBW-1" or the equivalent 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; (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) or (C) above, (ii) whose total net assets exceed $1 billion
and (iii) where the Seller's investment in such fund is limited to
an amount not exceeding 10% of such fund's assets; or (E) such
other assets as the Party receiving such Qualified Investments may
expressly approve in writing.
"SAP" means the statutory accounting principals and practices,
as in effect from time to time, required or permitted for life
insurance companies by applicable Laws of the National Association
of Insurance Commissioners and the insurance regulatory authority
in the state in which the company in question is domiciled, as the
case may be, consistently applied throughout the specified period
and in the immediately prior comparable period
"Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments, including, without limitation, income, gross
receipts, ad valorem, premium, excise, real property, personal
property, windfall profit, sales, use, transfer, licensing,
withholding, employment, payroll, and franchise taxes imposed by
any Governmental Entity; and such term shall include any interest
(through the date of payment), penalties, assessments, or additions
to tax resulting from, attributable to, or incurred in connection
with any such tax or any contest or dispute thereof.
<PAGE>
"Tax Returns" shall mean returns, declarations, statements,
reports, schedules, forms and information returns and any amended
Tax Return required to be supplied to a taxing authority in respect
of or relating to Taxes.
"Vanishing Premium Liabilities" means any Liabilities arising
out of or connected with a claim that an Insurance Contract which
utilizes dividends, credited interest or other earnings to reduce
the premium was sold based on a premium and earnings illustration
or representation that was allegedly or actually fraudulent or
misleading.
<PAGE> 1
EXHIBIT 3(j)
STATE OF MARYLAND
450982
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street, Baltimore, Maryland 21201
DATE: JUNE 07, 1996
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT FOR SUNAMERICA
INC. WERE RECEIVED AND APPROVED FOR RECORD ON JUNE 7, 1996 AT 9:10 AM.
FEE PAID: 78.00
SEAL
WILLIAM B. MARKER
CHARTER SPECIALIST
<PAGE> 2
SUNAMERICA INC.
ARTICLES OF AMENDMENT
SunAmerica Inc., a Maryland corporation, having its principal
office in the State of Maryland in Baltimore City, Maryland (which is
hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by
striking out paragraph (e) of Section 8 of Article Fifth of the Charter and
inserting in lieu thereof the following:
(e) At any time when the number of outstanding shares of
Nontransferable Class B Stock as reflected on the stock transfer books
of the Corporation falls below 5% of the aggregate number of the
issued and outstanding shares of Common Stock and Nontransferable
Class B Stock of the Corporation, or the Board of Directors and the
holders of a majority of the outstanding shares Nontransferable Class
B Stock approve the conversion of all of the Nontransferable Class B
Stock into Common Stock, then, immediately upon the occurrence of
either such event, the outstanding shares of Nontransferable Class B
Stock shall be converted into shares of Common Stock. In the event of
such a conversion, certificates formerly representing outstanding
shares of Nontransferable Class B Stock shall thereupon and thereafter
be deemed to represent the like number of shares of Common Stock.
SECOND: The amendment does not increase the authorized stock
of the Corporation.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF, SunAmerica Inc. has caused these presents
to be signed in its name and on its behalf by its Vice Chairman and witnessed
by its Secretary on June 5, 1996.
WITNESS: SunAmerica Inc.
/s/ SUSAN L. HARRIS By: /s/ JAY S. WINTROB
- ----------------------- ---------------------------
Susan L. Harris, Jay S. Wintrob
Secretary
THE UNDERSIGNED, Vice Chairman of SunAmerica Inc., who executed on behalf of
the Corporation the foregoing Articles of Amendment of which this certificate
is made a part, hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles of Amendment to be the corporate act of said
Corporation and hereby certifies that to the best of his knowledge,
information, and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ JAY S. WINTROB
-------------------------------
Jay S. Wintrob
<PAGE> 1
Exhibit 3(k)
SUNAMERICA INC.
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 2:00 p.m. on the second Friday in February in each
year if not a legal holiday, or at such other time on such other day falling on
or before the 30th day thereafter as shall be set by the Board of Directors.
Except as the Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting. Special meetings of the stockholders
shall be called by the Secretary at the request of stockholders only on the
written request of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting. A request for a special meeting
shall state the purpose of the meeting and the matters proposed to be acted on
at it. The Secretary shall inform the stockholders who make the request of the
reasonably estimated costs of preparing and mailing a notice of the meeting
and, on payment of these costs to the Corporation, notify each stockholder
entitled to notice of the meeting.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than
ten nor more than 90 days before each stockholders' meeting, the Secretary
shall give written notice of the meeting to each stockholder entitled to vote
at the meeting and each other stockholder entitled to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting is
a
<PAGE> 2
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered
to him or her, left at his or her residence or usual place of business, or
mailed to him or her at his or her address as it appears on the records of the
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he or she before or after the meeting signs
a waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast
at the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes
cast at a meeting at which a quorum is present is sufficient to elect a
director.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted
at the meeting as originally notified may be deferred and transacted at any
such adjourned meeting at which a quorum shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be voted
for as many individuals as there are directors to be elected and for whose
election the share is entitled to be voted. A stockholder may vote the stock
the stockholder
<PAGE> 3
owns of record either in person or by proxy. A stockholder may sign a writing
authorizing another person to act as proxy. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing the writing or
causing the stockholder's signature to be affixed to the writing by any
reasonable means, including facsimile signature. A stockholder may authorize
another person to act as proxy by transmitting, or authorizing the transmission
of, a telegram, cablegram, datagram, or other means of electronic transmission
to the person authorized to act as proxy or to a proxy solicitation firm, proxy
support service organization, or other person authorized by the person who will
act as proxy to receive the transmission. Unless a proxy provides otherwise,
it is not valid more than 11 months after its date. A proxy is revocable by a
stockholder at any time without condition or qualification unless the proxy
states that it is irrevocable and the proxy is coupled with an interest. A
proxy may be made irrevocable for so long as it is coupled with an interest.
The interest with which a proxy may be coupled includes an interest in the
stock to be voted under the proxy or another general interest in the
Corporation or its assets or liabilities.
SECTION 1.08. List of Stockholders. At each meeting of stockholders,
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.09. Conduct of Business and Voting. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these
By-Laws, the Charter or law, shall be decided or determined by the chairman of
the meeting. If demanded by stockholders, present in person or by proxy,
entitled to cast 10% in number of votes entitled to be cast, or if ordered by
the chairman, the vote upon any election or question shall be taken by ballot
and, upon like demand or order, the voting shall be conducted by two
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an
inspector or inspectors to act at such meeting, and in default of such election
the chairman of the meeting may appoint an inspector or inspectors. No
candidate for election as a director at a meeting shall serve as an inspector
thereat.
<PAGE> 4
SECTION 1.10. No Meeting by Conference Telephone. Stockholders must
participate in meetings in person or by proxy and may not participate in a
meeting by means of a conference telephone or similar communications equipment.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have at
least three directors; provided that, if there is no stock outstanding, the
number of Directors may be less than three but not less than one, and, if there
is stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the Charter to not
exceeding 12 nor less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director.
SECTION 2.03. Election and Tenure of Directors. At each annual
meeting, the stockholders shall elect directors to hold office until the next
annual meeting and until their successors are elected and qualify.
<PAGE> 5
SECTION 2.04. Removal of Director. Unless statute or the Charter
provides otherwise, the stockholders may remove any director, with or without
cause, by the affirmative vote of a majority of all the votes entitled to be
cast for the election of directors.
SECTION 2.05. Vacancy on Board. The stockholders may elect a
successor to fill a vacancy on the Board of Directors which results from the
removal of a director. A director elected by the stockholders to fill a
vacancy which results from the removal of a director serves for the balance of
the term of the removed director. A majority of the remaining directors,
whether or not sufficient to constitute a quorum, may fill a vacancy on the
Board of Directors which results from any cause except an increase in the
number of directors, and a majority of the entire Board of Directors may fill a
vacancy which results from an increase in the number of directors. A director
elected by the Board of Directors to fill a vacancy serves until the next
annual meeting of stockholders and until his or her successor is elected and
qualifies.
SECTION 2.06. Regular Meetings. After each meeting of stockholders
at which directors shall have been elected, the Board of Directors shall meet
as soon as practicable for the purpose of organization and the transaction of
other business. In the event that no other time and place are specified by
resolution of the Board, the President or the Chairman, with notice in
accordance with Section 2.08, the Board of Directors shall meet immediately
following the close of, and at the place of, such stockholders' meeting. Any
other regular meeting of the Board of Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated from
time to time by the Board of Directors. In the absence of designation such
meeting shall be held at such place as may be designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered personally
to him or her, left at his or her residence or usual place of business, or sent
by telegraph, facsimile transmission or telephone, at least 24 hours
<PAGE> 6
before the time of the meeting or, in the alternative by mail to his or her
address as it shall appear on the records of the Corporation, at least 72 hours
before the time of the meeting. Unless these By-Laws or a resolution of the
Board of Directors provides otherwise, the notice need not state the business
to be transacted at or the purposes of any regular or special meeting of the
Board of Directors. No notice of any meeting of the Board of Directors need be
given to any director who attends except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened, or to any director who, in writing
executed and filed with the records of the meeting either before or after the
holding thereof, waives such notice. Any meeting of the Board of Directors,
regular or special, may adjourn from time to time to reconvene at the same or
some other place, and no notice need be given of any such adjourned meeting
other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or
By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. One-third of the entire Board of Directors shall
constitute a quorum for the transaction of business. In the absence of a
quorum, the directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally notified. Any action required or permitted to be taken at a meeting
of the Board of Directors may be taken without a meeting, if an unanimous
written consent which sets forth the action is signed by each member of the
Board and filed with the minutes of proceedings of the Board.
<PAGE> 7
SECTION 2.10. Meeting by Conference Telephone. Members of the Board
of Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.11. Compensation. By resolution of the Board of Directors
a fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Directors who are full-time employees of
the Corporation need not be paid for attendance at meetings of the board or
committees thereof for which fees are paid to other directors. A director who
serves the Corporation in any other capacity also may receive compensation for
such other services, pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from
among its members an Executive Committee and other committees composed of one
or more directors and delegate to these committees any of the powers of the
Board of Directors, except the power to authorize dividends on stock, elect
directors, issue stock other than as provided in the next sentence, recommend
to the stockholders any action which requires stockholder approval, amend these
By-Laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock providing for or establishing a method
or procedure for determining the maximum number of shares to be issued, a
committee of the Board, in accordance with that general authorization or any
stock option or other plan or program adopted by the Board of Directors, may
authorize or fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. One-third of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any
<PAGE> 8
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member. Any action required or permitted to be taken
at a meeting of a committee may be taken without a meeting, if an unanimous
written consent which sets forth the action is signed by each member of the
committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by conference telephone in accordance
with the provisions of Section 2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the Charter and these By-Laws, a quorum of the then incumbent Executive
Committee shall conduct and manage the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a quorum of the then incumbent Executive
Committee, the available directors shall elect an Executive Committee
consisting of one or more members of the Board of Directors, whether or not
they be officers of the Corporation, which member(s) shall constitute the
Executive Committee for the full conduct and management of the affairs of the
Corporation in accordance with the foregoing provisions of this Section. This
Section shall be subject to implementation by resolution of the Board of
Directors passed from time to time for that purpose, and any provisions of
these By-Laws (other than this Section) and any resolutions which are contrary
to the provisions of this Section or to the provisions of any such implementary
resolutions shall be suspended until it shall be determined by any interim
Executive Committee acting under this Section that it shall be to the advantage
of the Corporation to resume the conduct and management of its affairs and
business under all the other provisions of these By-Laws.
<PAGE> 9
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation shall
have a Chairman, one or more Vice-Chairmen, a President, one or more Vice
Presidents, a Secretary, and a Treasurer and such other officers as may be
established and appointed by the Board of Directors. The Board of Directors
shall designate who shall serve as chief executive officer, who shall have
general supervision of the business and affairs of the Corporation, and may
designate a chief operating officer, who shall have supervision of the
operations of the Corporation. In the absence of any designation, the Chairman
of the Board, if there be one, shall serve as chief executive officer and the
President shall serve as chief operating officer. In the absence of the
Chairman of the Board, or if there be none, the President shall be the chief
executive officer. The same person may hold both offices. The Corporation may
also have one or more assistant officers and subordinate officers as may be
established by the Board of Directors. A person may hold more than one office
in the Corporation except that no person may serve concurrently as both
President and Vice-President of the Corporation. The Chairman of the Board
shall be a director; the other officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if
one be elected, shall preside at all meetings of the Board of Directors and of
the stockholders at which he or she shall be present. Unless otherwise
specified by the Board of Directors, he or she shall be the chief executive
officer of the Corporation. In general, he or she shall perform such duties as
are customarily performed by the chief executive officer of a corporation and
may perform any duties of the President and shall perform such other duties and
have such other powers as are from time to time assigned to him or her by the
Board of Directors.
SECTION 4.03. President. Unless otherwise provided by resolution of
the Board of Directors, the President, in the absence of the Chairman of the
Board, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. Unless otherwise specified
by the Board of Directors, the President shall be the chief operating officer
of the Corporation and perform the duties customarily performed by chief
operating officers; he or she may execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation. In general, he or
<PAGE> 10
she shall perform such other duties customarily performed by a president of a
corporation and shall perform such other duties and have such other powers as
are from time to time assigned to him or her by the Board of Directors or the
chief executive officer of the Corporation.
SECTION 4.04. Vice-Presidents. The Vice-President or
Vice-Presidents, at the request of the chief executive officer or the
President, or in the President's absence or during his or her inability to act,
shall perform the duties and exercise the functions of the President, and when
so acting shall have the powers of the President. If there be more than one
Vice-President, the Board of Directors may determine which one or more of the
Vice-Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors, the
chief executive officer, or the President may make such determination;
otherwise any of the Vice-Presidents may perform any of such duties or exercise
any of such functions. Each Vice-President shall perform such other duties and
have such other powers, and have such additional descriptive designations in
their titles (if any), as are from time to time assigned to them by the Board
of Directors, the chief executive officer, or the President.
SECTION 4.05. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he or she shall see that all notices are
duly given in accordance with the provisions of these By-Laws or as required by
law; he or she shall be custodian of the records of the Corporation; he or she
may witness any document on behalf of the Corporation, the execution of which
is duly authorized, see that the corporate seal is affixed where such document
is required or desired to be under its seal, and, when so affixed, may attest
the same. In general, he or she shall perform such other duties customarily
performed by a secretary of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
<PAGE> 11
SECTION 4.06. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board of Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he or she shall perform such other duties customarily
performed by a treasurer of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.07. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board
of Directors, the chief executive officer, or the President.
SECTION 4.08. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any officer to appoint assistant and
subordinate officers. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. All officers shall be appointed to
hold their offices, respectively, during the pleasure of the Board. The Board
of Directors (or, as to any assistant or subordinate officer, any committee or
officer authorized by the Board) may remove an officer at any time. The
removal of an officer does not prejudice any of his or her contract rights.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may fill a vacancy which occurs
in any office for the unexpired portion of the term.
SECTION 4.09. Compensation. The Board of Directors shall have power
to fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation. No officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a director
of the Corporation. The Board of Directors may authorize any committee or
officer, upon whom the power of appointing assistant and subordinate officers
may have been conferred, to fix the salaries, compensation and remuneration of
such assistant and subordinate officers.
ARTICLE V.
<PAGE> 12
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled
to certificates which represent and certify the shares of stock he or she holds
in the Corporation. Each stock certificate shall include on its face the name
of the Corporation, the name of the stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall be
in such form, not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a
Vice-President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is
valid and may be issued whether or not an officer who signed it is still an
officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.
SECTION 5.03. Record Dates or Closing of Transfer Books. The Board
of Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be prior to the close of business on the
day the record date is fixed nor, subject to Section 1.06, more than 90 days
before the date on which the action requiring the determination will be taken;
the
<PAGE> 13
transfer books may not be closed for a period longer than 20 days; and, in the
case of a meeting of stockholders, the record date or the closing of the
transfer books shall be at least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock ledger
may be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.05. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board considers necessary or desirable. On receipt of a certification
which complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set
forth in the certification, the holder of record of the specified stock in
place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders
<PAGE> 14
for the payment of money, notes and other evidences of indebtedness, issued in
the name of the Corporation, shall, unless otherwise provided by resolution of
the Board of Directors or the Executive Committee, be signed by the President,
a Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. Annual Statement of Affairs. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial
statement of operations for the preceding fiscal year. The statement of
affairs shall be submitted at the annual meeting of the stockholders and,
within 20 days after the meeting, placed on file at the Corporation's principal
office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall
be the twelve calendar months period ending September 30 in each year, unless
otherwise provided by the Board of Directors or the Executive Committee.
SECTION 6.04. Dividends. If declared by the Board of Directors at
any meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01. Procedure. Any indemnification, or payment of expenses
in advance of the final disposition of any proceeding, shall be made promptly,
and in any event within 60 days, upon the written request of the director or
officer entitled to seek indemnification (the "Indemnified Party"). The right
to indemnification and advances hereunder shall be enforceable by the
Indemnified Party in any court of competent jurisdiction, if (i) the
Corporation denies such request, in whole or in part, or (ii) no disposition
thereof is made
<PAGE> 15
within 60 days. The Indemnified Party's costs and expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such action shall also be reimbursed by the
Corporation. It shall be a defense to any action for advance for expenses that
(a) a determination has been made that the facts then known to those making the
determination would preclude indemnification or (b) the Corporation has not
received both (i) an undertaking as required by law to repay such advances in
the event it shall ultimately be determined that the standard of conduct has
not been met and (ii) a written affirmation by the Indemnified Party of such
Indemnified Party's good faith belief that the standard of conduct necessary
for indemnification by the Corporation has been met.
SECTION 7.02. Exclusivity, Etc. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed
exclusive of any other rights to which a person seeking indemnification or
advance of expenses may be entitled under any law (common or statutory), or any
agreement, vote of stockholders or disinterested directors or other provision
that is consistent with law, both as to action in his or her official capacity
and as to action in another capacity while holding office or while employed by
or acting as agent for the Corporation, shall continue in respect of all events
occurring while a person was a director or officer after such person has ceased
to be a director or officer, and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. The Corporation shall not
be liable for any payment under this By-Law in connection with a claim made by
a director or officer to the extent such director or officer has otherwise
actually received payment under insurance policy, agreement, vote or otherwise,
of the amounts otherwise indemnifiable hereunder. All rights to
indemnification and advance of expenses under the Charter of the Corporation
and hereunder shall be deemed to be a contract between the Corporation and each
director or officer of the Corporation who serves or served in such capacity at
any time while this By-Law is in effect. Nothing herein shall prevent the
amendment of this By-Law, provided that no such amendment shall diminish the
rights of any person hereunder with respect to events occurring or claims made
before its adoption or as to claims made after its adoption in respect of
events occurring before its adoption. Any repeal or modification of this
By-Law shall not in any way diminish any rights to indemnification or advance
of expenses of such director or officer or the obligations of the Corporation
arising hereunder with respect to events occurring, or claims made, while this
By-Law or any provision hereof is in force.
SECTION 7.03. Severability; Definitions. The invalidity or
<PAGE> 16
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.01. Books and Records. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes of
the proceedings of its stockholders and Board of Directors and of any executive
or other committee when exercising any of the powers of the Board of Directors.
The books and records of a Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
these By-Laws shall be kept at the principal office of the Corporation.
SECTION 8.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal to
place the word "(seal)" adjacent to the signature of the person authorized to
sign the document on behalf of the Corporation.
SECTION 8.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
<PAGE> 17
SECTION 8.04. Voting Stock in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, the Secretary, or a proxy appointed
by any of them. The Board of Directors, however, may by resolution appoint
some other person to vote such shares, in which case such person shall be
entitled to vote such shares upon the production of a certified copy of such
resolution.
SECTION 8.05. Mail. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. Execution of Documents. A person who holds more than
one office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 8.07. Amendments. Subject to the provisions of Section 2.02,
(a) any provision of these By-Laws may be altered or repealed and new by-laws
may be adopted at any annual meeting of the stockholders or at a special
meeting called for that purpose and (b) the Board of Directors shall have the
power, at any regular or special meeting thereof, to make and adopt new
by-laws, or to amend, alter or repeal any provision of these By-Laws.
ARTICLE IX.
SPECIAL VOTE OF OUTSIDE DIRECTORS
WITH RESPECT TO CERTAIN PROPOSED TRANSACTIONS
SECTION 9.01. Type of Transaction; Vote Required. In the event the
Corporation or an Affiliate (as hereinafter defined) of the Corporation
proposes to enter into a Rule 13e-3 Transaction (as hereinafter defined), such
transaction shall not be consummated unless it has been approved by a majority
of the Outside Directors (as hereinafter defined) as being fair to the
Unaffiliated Stockholders (as hereinafter defined) of the Corporation. In
considering whether to approve such transaction, the Outside Directors shall be
entitled to seek the advice and opinion only of independent legal counsel, an
independent investment banker, or such other independent experts they may
select, provided that such independent legal counsel, independent investment
banker or such other independent experts have no current or recent material
affiliation with the Corporation or such Affiliate of the Corporation.
<PAGE> 18
SECTION 9.02. Definitions. For the purposes of this Article IX;
(a) "Affiliate of the Corporation" shall have the same
meaning as the term "affiliate" of an issuer under Regulation Section
241.13e-3(a)(1), 17 C.F.R. Section 240.13e-3(a)(1), promulgated under the
Securities Exchange Act of 1934, as amended.
(b) "Rule 13e-3 Transaction" shall have the same meaning
as that term is given under Regulation Section 241.13e-3(a)(3), 17 C.F.R.
Section 240.13e-3(a)(3), promulgated under the Securities Exchange Act of 1934,
as amended.
(c) "Outside Directors" shall mean those duly elected and
acting directors of the Corporation who are not employees (as that term is
defined in Section 3121(d) of the Internal Revenue Code of 1986, as amended) of
the Corporation, or of any subsidiary of the Corporation, except that Eli Broad
shall not be deemed to be an Outside Director of the Corporation whether or not
he is such an employee of the Corporation at the time of the approval of such
Rule 13e-3 Transaction.
(d) "Unaffiliated Stockholders" shall have the same
meaning as the term "unaffiliated security holder" is given under Regulation
Section 240.13e-3(a)(3)(ii)(4), 17 C.F.R. Section 240.13e-3(a)(3)(ii)(4),
promulgated under the Securities Exchange Act of 1934, as amended.
(e) "Voting Stock of the Corporation" shall mean the
outstanding shares of capital stock of the Corporation at the time to vote
generally in the election of directors.
<PAGE> 19
SECTION 9.03. Amendment. Article VII of the By-Laws to the contrary
notwithstanding, this Article IX cannot be altered, amended or repealed except
upon the affirmative vote of the holders of not less than a majority of the
total voting power of the Voting Stock of the Corporation held by Unaffiliated
Stockholders voting at a duly held meeting at which a quorum is present.
<PAGE> 20
SECRETARY'S CERTIFICATE
I, Susan L. Harris, hereby certify that I am duly elected, qualified
and acting Secretary of SunAmerica Inc., a Maryland corporation, and that the
foregoing Bylaws are the Bylaws of said corporation as adopted by action of the
Board of Directors of the corporation duly taken on November 8, 1996. These
Bylaws have not been amended, modified or rescinded and are in full force and
effect as of the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate as Secretary of
the Corporation this 8th day of November, 1996.
/s/ Susan L. Harris
-------------------------
Susan L. Harris,
Secretary
<PAGE> 1
EXHIBIT 10(r)
SUNAMERICA INC.
List of Executive Compensation Plans and Arrangements
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------ -----------------------------------------------------------------------------------
<S> <C>
10(a) Amended and Restated Employment Agreement, dated March 21, 1996, between the
Company and Gary W. Krat, amending the Employment Agreement, dated July 30, 1992,
is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q, for the quarter ended March 31, 1996, filed May 13, 1996.
10(b) Employment Agreement, dated July 14, 1992, between the Company and Michael L.
Fowler, is incorporated herein by reference to Exhibit 10(f) to the Company's 1992
Annual Report on Form 10-K, filed November 30, 1992.
10(c) Employment Agreement, dated April 17, 1995, between the Company and Joseph M.
Tumbler, is incorporated herein by reference to Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q, for the quarter ended June 30, 1995, filed August
14, 1995.
10(d) Employment Agreement, dated April 27, 1995, between the Company and Jay S. Wintrob,
is incorporated herein by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q, for the quarter ended June 30, 1995, filed August 14, 1995.
10(e) 1988 Employee Stock Plan is incorporated herein by reference to Exhibit B to the
Company's and Kaufman and Broad Home Corporation's Notice of and Joint Proxy
Statement for Special Meeting of Shareholders held on February 21, 1989, filed
January 24, 1989.
10(f) Amended and Restated 1978 Employee Stock Option Program, is incorporated herein by
reference to Appendix A to the Company's Notice of 1987 Annual Meeting of
Shareholder's and Proxy Statement, filed March 24, 1987.
10(g) Executive Deferred Compensation Plan is incorporated herein by reference to Exhibit
10(1) to the Company's 1985 Annual Report on Form 10-K, filed February 27, 1986.
10(h) 1987 Restricted Stock Plan is incorporated herein by reference to Appendix A to the
Company's Notice of 1988 Annual Meeting of Shareholders and Proxy Statement, filed
March 22, 1988.
10(i) Executive Deferred Compensation Plan, dated as of October 1, 1989, is incorporated
herein by reference to Exhibit 10(h) to the Company's 1994 Annual Report on Form
10-K, filed December 1, 1994.
10(j) SunAmerica Supplemental Deferral Plan is incorporated herein by reference to
Exhibit 10(m) to the Company's 1989 Annual Report on Form 10-K, filed December 20,
1989.
10(k) Long-Term Performance-Based Incentive Plan is incorporated herein by reference to
Appendix A to the Company's Notice of 1994 Annual Meeting of Shareholders and Proxy
Statement, filed December 21, 1993.
10(l) Performance Incentive Compensation Plan is incorporated herein by reference to the
Company's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement, filed
December 1, 1994.
10(m) 1995 Performance Stock Plan is incorporated herein by reference to Appendix A to
the Company's Notice of 1995 Annual Meeting of Shareholders and Proxy Statement,
filed December 1, 1994.
10(n) Registered Representatives' Deferred Compensation Plan is incorporated herein by
reference to Exhibit 4.1 to the Company's Registration Statement No. 333-10523 on
Form S-3, filed August 20, 1996.
10(o) Deferred Compensation Agreement is incorporated herein by reference to Exhibit 4.2
of the Company's Registration No. 333-10523 on Form S-3, filed August 20, 1996.
10(p) Amendment to Performance Incentive Compensation Plan is incorporated herein by
reference to the Company's Notice of 1996 Annual Meeting of Shareholders and
Proxy Statement, filed January 15, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 11
SUNAMERICA INC.
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average number of common and
common stock equivalent shares
outstanding during the period:
Common Stock issued and
outstanding at beginning of
period 108,830 107,410 99,490 96,040 94,362
Average number of common shares
issued upon exercise of employee
stock options or under other
employee stock plans 278 1,081 248 2,391 1,014
Average number of common stock
equivalent shares arising from
outstanding employee stock options 4,450 3,062 2,652 2,800 2,790
Average number of shares
issuable upon conversion of
convertible preferred stock:
Series A Mandatory
Conversion Premium Dividend
Preferred Stock -- -- 6,490 11,182 16,860
Series D Mandatory
Conversion Premium Dividend
Preferred Stock 2,584 14,675 15,010 8,352 --
Series E Mandatory
Conversion Premium Dividend
Preferred Stock 10,808 -- -- -- --
Average number of shares issued
upon redemption of Series A
Depositary Shares on
August 16, 1994 -- -- 940 -- --
Average number of shares issued
upon redemption of Series D
Depositary Shares on
January 2, 1996 7,642 -- -- -- --
Average number of shares redeemed
upon exchange of Common Stock for
Nontransferable Class B Stock
on June 6, 1996 (5) -- -- -- --
-------- -------- -------- -------- --------
Average number of common and
common stock equivalent shares
outstanding during the period 134,587 126,228 124,830 120,765 115,026
======== ======== ======== ======== ========
</TABLE>
<PAGE> 2
EXHIBIT 11
SUNAMERICA INC.
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(In thousands, except per-share amounts)
(Continued)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings applicable to
common stock:
Income before cumulative
effect of change in accounting
for income taxes $274,427 $194,206 $165,301 $127,011 $ 76,791
Less preferred dividend
requirements other than those
related to convertible issues:
9-1/4% Preferred Stock,
Series B (8,124) (11,440) (12,996) (12,996) (3,249)
SunAmerica Adjustable Rate
Cumulative Preferred Stock,
Series C (3,408) (3,543) (3,424) (3,478) (4,630)
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting for
income taxes applicable to
common stock 262,895 179,223 148,881 110,537 68,912
Cumulative effect of change in
accounting for income taxes -- -- (33,500) -- --
-------- -------- -------- -------- --------
Net income applicable to
common stock $262,895 $179,223 $115,381 $110,537 $ 68,912
======== ======== ======== ======== ========
Earnings per common and common
equivalent share:
Income before cumulative
effect of change in accounting
for income taxes $ 1.95 $ 1.42 $ 1.19 $ 0.92 $ 0.60
Cumulative effect of change
in accounting for income taxes -- -- (0.27) -- --
-------- -------- -------- -------- --------
Net income $ 1.95 $ 1.42 $ 0.92 $ 0.92 $ 0.60
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 12(a)
SUNAMERICA INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(FIXED CHARGES INCLUDE DIVIDENDS PAID ON PREFERRED SECURITIES OF GRANTOR TRUSTS
AND INTEREST INCURRED ON SENIOR AND SUBORDINATED DEBT, BUT EXCLUDE INTEREST
INCURRED ON
FIXED ANNUITIES, GUARANTEED INVESTMENT CONTRACTS AND TRUST DEPOSITS)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income $ 392,027 $ 279,606 $ 240,001 $ 184,011 $ 111,091
--------- --------- --------- --------- ---------
Add:
Interest incurred on:
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
--------- --------- --------- --------- ---------
Total interest incurred 69,033 55,985 50,292 36,246 37,165
--------- --------- --------- --------- ---------
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
--------- --------- --------- --------- ---------
Total earnings $ 481,295 $ 337,264 $ 290,293 $ 220,257 $ 148,256
========= ========= ========= ========= =========
Fixed charges:
Interest incurred on:
Senior indebtedness $ 69,033 $ 55,985 $ 50,292 $ 36,246 $ 33,224
Subordinated notes -- -- -- -- 3,941
--------- --------- --------- --------- ---------
Total interest incurred 69,033 55,985 50,292 36,246 37,165
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
--------- --------- --------- --------- ---------
Total fixed charges $ 89,268 $ 57,658 $ 50,292 $ 36,246 $ 37,165
========= ========= ========= ========= =========
Ratio of earnings to fixed charges
(which include dividends paid on
preferred securities of grantor
trusts and interest incurred on
senior and subordinated debt,
but exclude interest incurred
on fixed annuities, guaranteed
investment contracts and trust
deposits) 5.4x 5.8x 5.8x 6.1x 4.0x
========= ========= ========= ========= =========
</TABLE>
<PAGE> 2
EXHIBIT 12(a) (CONTINUED)
SUNAMERICA INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(FIXED CHARGES INCLUDE DIVIDENDS PAID ON PREFERRED SECURITIES OF GRANTOR TRUSTS
AND INTEREST INCURRED ON SENIOR AND SUBORDINATED DEBT, FIXED ANNUITIES,
GUARANTEED INVESTMENT CONTRACTS AND TRUST DEPOSITS)
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
Earnings: (In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Pretax income $ 392,027 $ 279,606 $ 240,001 $ 184,011 $ 111,091
---------- --------- --------- --------- ---------
Add:
Interest incurred on:
Fixed annuity contracts 410,269 258,730 254,464 308,910 362,094
Guaranteed investment contracts 252,027 213,340 150,424 136,984 140,114
Trust deposits 9,968 10,519 8,516 8,438 4,256
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
---------- --------- --------- --------- ---------
Total interest incurred 741,297 538,574 463,696 490,578 543,629
---------- --------- --------- --------- ---------
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
---------- --------- --------- --------- ---------
Total earnings $1,153,559 $ 819,853 $ 703,697 $ 674,589 $ 654,720
========== ========= ========= ========= =========
Fixed charges:
Interest incurred on:
Fixed annuity contracts $ 410,269 $ 258,730 $ 254,464 $ 308,910 $ 362,094
Guaranteed investment contracts 252,027 213,340 150,424 136,984 140,114
Trust deposits 9,968 10,519 8,516 8,438 4,256
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
---------- --------- --------- --------- ---------
Total interest incurred 741,297 538,574 463,696 490,578 543,629
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
---------- --------- --------- --------- ---------
Total fixed charges $ 761,532 $ 540,247 $ 463,696 $ 490,578 $ 543,629
========== ========= ========= ========= =========
Ratio of earnings to fixed charges
(which include dividends paid on
preferred securities of grantor
trusts and interest incurred on
senior and subordinated debt,
fixed annuities, guaranteed
investment contracts and trust
deposits) 1.5x 1.5x 1.5x 1.4x 1.2x
========== ========= ========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 12(b)
SUNAMERICA INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(FIXED CHARGES INCLUDE DIVIDENDS PAID ON PREFERRED SECURITIES OF GRANTOR
TRUSTS AND INTEREST INCURRED ON SENIOR AND SUBORDINATED DEBT, BUT EXCLUDE
INTEREST INCURRED ON FIXED ANNUITIES, GUARANTEED INVESTMENT
CONTRACTS AND TRUST DEPOSITS)
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income $ 392,027 $ 279,606 $ 240,001 $ 184,011 $ 111,091
--------- --------- --------- --------- ---------
Add:
Interest incurred on:
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
--------- --------- --------- --------- ---------
Total interest incurred 69,033 55,985 50,292 36,246 37,165
--------- --------- --------- --------- ---------
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
--------- --------- --------- --------- ---------
Total earnings $ 481,295 $ 337,264 $ 290,293 $ 220,257 $ 148,256
========= ========= ========= ========= =========
Combined fixed charges and
preferred stock dividends:
Interest incurred on:
Senior indebtedness $ 69,033 $ 55,985 $ 50,292 $ 36,246 $ 33,224
Subordinated notes -- -- -- -- 3,941
--------- --------- --------- --------- ---------
Total interest incurred 69,033 55,985 50,292 36,246 37,165
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
Dividends paid on preferred
stock of SunAmerica Inc.,
on a tax equivalent basis 38,662 41,914 54,528 42,675 17,733
--------- --------- --------- --------- ---------
Total combined fixed charges
and preferred stock dividends $ 127,930 $ 99,572 $ 104,820 $ 78,921 $ 54,898
========= ========= ========= ========= =========
Ratio of earnings to combined
fixed charges and preferred
stock dividends (which include
dividends paid on preferred
securities of grantor trusts
and interest incurred on senior
and subordinated debt, but
exclude interest incurred on
fixed annuities, guaranteed
investment contracts and
trust deposits) 3.8x 3.4x 2.8x 2.8x 2.7x
========= ========= ========= ========= =========
</TABLE>
<PAGE> 2
EXHIBIT 12(b) (CONTINUED)
SUNAMERICA INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(FIXED CHARGES INCLUDE DIVIDENDS PAID ON PREFERRED SECURITIES OF GRANTOR
TRUSTS AND INTEREST INCURRED ON SENIOR AND SUBORDINATED DEBT, FIXED ANNUITIES,
GUARANTEED INVESTMENT CONTRACTS AND TRUST DEPOSITS)
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income $ 392,027 $ 279,606 $ 240,001 $ 184,011 $ 111,091
---------- --------- --------- --------- ---------
Add:
Interest incurred on:
Fixed annuity contracts 410,269 258,730 254,464 308,910 362,094
Guaranteed investment
contracts 252,027 213,340 150,424 136,984 140,114
Trust deposits 9,968 10,519 8,516 8,438 4,256
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
---------- --------- --------- --------- ---------
Total interest incurred 741,297 538,574 463,696 490,578 543,629
---------- --------- --------- --------- ---------
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
---------- --------- --------- --------- ---------
Total earnings $1,153,559 $ 819,853 $ 703,697 $ 674,589 $ 654,720
========== ========= ========= ========= =========
Combined fixed charges and
preferred stock dividends:
Interest incurred on:
Fixed annuity contracts $ 410,269 $ 258,730 $ 254,464 $ 308,910 $ 362,094
Guaranteed investment contracts 252,027 213,340 150,424 136,984 140,114
Trust deposits 9,968 10,519 8,516 8,438 4,256
Senior indebtedness 69,033 55,985 50,292 36,246 33,224
Subordinated notes -- -- -- -- 3,941
--------- --------- --------- --------- ---------
Total interest incurred 741,297 538,574 463,696 490,578 543,629
Dividends paid on preferred
securities of grantor trusts 20,235 1,673 -- -- --
Dividends paid on preferred
stock of SunAmerica Inc., on
a tax equivalent basis 38,662 41,914 54,528 42,675 17,733
--------- --------- --------- --------- ---------
Total combined fixed charges
and preferred stock dividends $ 800,194 $ 582,161 $ 518,224 $ 533,253 $ 561,362
========== ========= ========= ========= =========
Ratios of earnings to combined
fixed charges and preferred stock
dividends (which include dividends
paid on preferred securities of
grantor trusts and interest
incurred on senior and
subordinated debt, fixed
annuities, guaranteed investment
contracts and trust deposits) 1.4x 1.4x 1.4x 1.3x 1.2x
========== ========= ========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
LIST OF SUBSIDIARIES
List of subsidiaries and certain other affiliates with percentage of voting
securities owned by SunAmerica Inc. or SunAmerica Inc.'s subsidiary which is
the immediate parent.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED BY
COMPANY OR COMPANY'S
SUBSIDIARY WHICH IS THE
NAME OF COMPANY IMMEDIATE PARENT
- ---------------- -------------------------
<S> <C>
ARIZONA CORPORATIONS: %
Anchor National Life Insurance Company 100
SunAmerica Life Insurance Company of America 100
SunAmerica National Life Insurance Company 100
CALIFORNIA CORPORATIONS:
CalFarm Life Insurance Company 100
Imperial Premium Finance of California, Inc. 100
COLORADO CORPORATION:
Resources Trust Company 100
DELAWARE CORPORATIONS:
Royal Alliance Associates, Inc. 100
SunAmerica Asset Management Corp. 100
SunAmerica Capital Services, Inc. 100
SunAmerica Capital Trust I 100
SunAmerica Capital Trust II 100
SunAmerica Capital Trust III 100
SunAmerica Capital Trust IV 100
SunAmerica Capital Trust V 100
SunAmerica Capital Trust VI 100
SunAmerica Fund Services, Inc. 100
Imperial Premium Finance, Inc. 100
SunAmerica Securities, Inc. 100
GEORGIA CORPORATION:
SunAmerica Financial, Inc. 100
MICHIGAN CORPORATION:
Ford Life Insurance Company 100
NEW YORK CORPORATIONS:
Advantage Capital Corporation 100
First SunAmerica Life Insurance Company 100
</TABLE>
<PAGE> 1
EXHIBIT 23
SUNAMERICA INC. AND CONSOLIDATED SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on Form S-8
pertaining to the Amended and Restated 1978 Employee Stock Option Program (No.
2-53718) and the 1988 Employee Stock Plan (No. 33-28744) and Form S-3
pertaining to Debt Securities, Preferred Stock, Common Stock, Warrants to
Purchase any of the foregoing Debt Securities, Preferred Stock and Common
Stock, Stock Purchase Contracts and Stock Purchase Units (No. 333-14201,
333-14201-01, 333-14201-02, 333-14201-03 and 333-14201-04) of SunAmerica Inc.
of our report dated November 8, 1996, except as to Note 13 which is as of
November 29, 1996, appearing on page F-2 of this Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedules, which appears on page S-2 of this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
December 10, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF SUNAMERICA INC.'S FORM 10-K FOR THE YEAR ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 12,582,024
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 81,385
<MORTGAGE> 1,652,257
<REAL-ESTATE> 105,321
<TOTAL-INVEST> 16,199,784
<CASH> 529,363
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 782,300
<TOTAL-ASSETS> 23,726,821
<POLICY-LOSSES> 13,823,702
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 573,335
0
384,549
<COMMON> 119,452
<OTHER-SE> 1,156,557
<TOTAL-LIABILITY-AND-EQUITY> 23,726,821
0
<INVESTMENT-INCOME> 1,155,052
<INVESTMENT-GAINS> (30,314)
<OTHER-INCOME> 220,428
<BENEFITS> 662,296
<UNDERWRITING-AMORTIZATION> 108,176
<UNDERWRITING-OTHER> (30,034)
<INCOME-PRETAX> 392,027
<INCOME-TAX> 117,600
<INCOME-CONTINUING> 274,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,427
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AGREEMENT TO FURNISH EXHIBITS AND SCHEDULES
The Company hereby agrees to furnish supplementally to the
Securities and Exchange Commission upon its request a copy of any of
the exhibits and schedules to Exhibits 2(c) and 2(d) to this Report
on Form 10-K. Each of such Exhibits to this Report on Form 10-K sets
forth a description of each schedule and exhibit.
