SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
--------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________to__________________
Commission file number 1-4618
SUNAMERICA INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0176061
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1 SunAmerica Center, Los Angeles, California 90067-6022
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (310) 772-6000
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share, 109,061,788 shares outstanding
Nontransferable Class B Stock, par value $1.00 per share, 10,848,468
shares outstanding
SUNAMERICA INC.
INDEX
Page
Number(s)
---------
Part I - Financial Information
Consolidated Balance Sheet (Unaudited) -
December 31, 1996 and September 30, 1996 3-4
Consolidated Income Statement (Unaudited) -
Three Months Ended December 31, 1996 and 1995 5
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended December 31, 1996 and 1995 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-27
Part II - Other Information 28-29
SUNAMERICA INC.
CONSOLIDATED BALANCE SHEET
(In thousands - unaudited)
December 31, September 30,
1996 1996
------------ -------------
ASSETS
Investments:
Cash and short-term investments $ 852,124 $ 529,363
Bonds, notes and redeemable preferred stocks
available for sale, at fair value
(amortized cost: December 31, 1996,
$13,730,943; September 30, 1996,
$12,657,620) 13,776,872 12,582,024
Mortgage loans 1,706,191 1,652,257
Common stocks, at fair value
(cost: December 31, 1996, $45,319;
September 30, 1996, $44,871) 104,012 81,385
Partnerships 1,173,094 1,071,857
Real estate 99,507 105,321
Other invested assets 226,886 177,577
------------ -------------
Total investments 17,938,686 16,199,784
Variable annuity assets 6,869,800 6,380,458
Accrued investment income 203,256 186,803
Deferred acquisition costs 784,903 782,300
Other assets 191,111 177,476
------------ -------------
TOTAL ASSETS $ 25,987,756 $ 23,726,821
============ =============
See accompanying notes
SUNAMERICA INC.
CONSOLIDATED BALANCE SHEET (Continued)
(In thousands - unaudited)
December 31, September 30,
1996 1996
------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 9,811,904 $ 9,654,674
Reserves for guaranteed investment contracts 4,590,888 4,169,028
Trust deposits 461,823 436,048
Payable to brokers for purchases of securities 178,979 42,518
Income taxes currently payable 29,756 18,436
Other liabilities 626,670 428,718
------------ -------------
Total reserves, payables
and accrued liabilities 15,700,020 14,749,422
------------ -------------
Variable annuity liabilities 6,869,800 6,380,458
------------ -------------
Long-term notes and debentures 1,004,585 573,335
------------ -------------
Deferred income taxes 162,600 125,417
------------ -------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary grantor
trusts whose sole assets are junior
subordinated debentures of the Company 547,631 237,631
------------ -------------
Shareholders' equity:
Preferred Stock 335,869 384,549
Nontransferable Class B Stock 10,848 10,848
Common Stock 109,062 108,604
Additional paid-in capital 259,001 304,295
Retained earnings 932,231 869,215
Net unrealized gains (losses) on debt and
equity securities available for sale 56,109 (16,953)
------------ -------------
Total shareholders' equity 1,703,120 1,660,558
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,987,756 $ 23,726,821
============ =============
See accompanying notes
SUNAMERICA INC.
CONSOLIDATED INCOME STATEMENT
For the three months ended December 31, 1996 and 1995
(In thousands, except per-share amounts - unaudited)
1996 1995
---------- ----------
Investment income $ 370,545 $ 253,990
---------- ----------
Interest expense on:
Fixed annuity contracts (128,895) (68,096)
Guaranteed investment contracts (67,179) (61,424)
Trust deposits (2,422) (2,571)
Senior indebtedness (19,791) (15,052)
---------- ----------
Total interest expense (218,287) (147,143)
---------- ----------
Dividends paid on preferred
securities of grantor trusts (8,589) (4,721)
---------- ----------
NET INVESTMENT INCOME 143,669 102,126
---------- ----------
NET REALIZED INVESTMENT GAINS (LOSSES) (9,304) 1,404
---------- ----------
Fee income:
Variable annuity fees 30,898 24,416
Net retained commissions 13,322 9,161
Asset management fees 6,418 6,503
Loan servicing fees 5,769 5,570
Trust fees 4,455 4,195
---------- ----------
TOTAL FEE INCOME 60,862 49,845
---------- ----------
Other income and expenses:
Surrender charges 6,635 2,588
General and administrative expenses (59,052) (44,098)
Amortization of deferred acquisition costs (30,410) (21,071)
Other, net 2,368 1,792
---------- ----------
TOTAL OTHER INCOME AND EXPENSES (80,459) (60,789)
---------- ----------
PRETAX INCOME 114,768 92,586
Income tax expense (34,400) (27,800)
---------- ----------
NET INCOME $ 80,368 $ 64,786
========== ==========
EARNINGS PER SHARE $ 0.58 $ 0.47
========== ==========
NET EARNINGS APPLICABLE TO COMMON STOCK (used
in the computation of earnings per share) $ 78,309 $ 61,903
========== ==========
AVERAGE SHARES OUTSTANDING 134,937 131,492
========== ==========
See accompanying notes
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended December 31, 1996 and 1995
(In thousands - unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 80,368 $ 64,786
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts 128,895 68,096
Guaranteed investment contracts 67,179 61,424
Trust deposits 2,422 2,571
Net realized investment losses (gains) 9,304 (1,404)
Accretion of net discounts on investments (7,602) (4,318)
Provision for deferred income taxes (11,150) (10,525)
Change in:
Accrued investment income (21,938) (7,193)
Deferred acquisition costs (25,651) (5,529)
Other assets (12,810) (2,582)
Income taxes currently payable 11,012 32,566
Other liabilities 9,094 (15,205)
Other, net 12,182 3,892
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 241,305 186,579
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks (4,119,409) (1,927,244)
Mortgage loans (125,265) (65,905)
Partnerships (352,389) (209,987)
Other investments, excluding short-term
investments (77,912) (39,276)
Net assets of CalFarm Life Insurance Company -- (52,102)
Sales of:
Bonds, notes and redeemable preferred
stocks 2,542,057 1,264,089
Partnerships 100,126 60,425
Other investments, excluding short-term
investments 21,140 33,160
Traditional life insurance business of
CalFarm Life Insurance Company -- (117,719)
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks 665,599 540,047
Mortgage loans 71,553 36,827
Partnerships 311,424 70,621
Other investments, excluding short-term
investments 15,887 20,174
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (947,189) (386,890)
------------ ------------
See accompanying notes
SUNAMERICA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the three months ended December 31, 1996 and 1995
(In thousands - unaudited)
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends to shareholders $ (17,352) $ (15,959)
Premium receipts on:
Fixed annuity contracts 427,420 147,340
Guaranteed investment contracts 540,622 231,505
Net exchanges from the fixed accounts
of variable annuity contracts (91,348) (37,432)
Receipts of trust deposits 149,407 103,984
Withdrawal payments on:
Fixed annuity contracts (233,901) (131,418)
Guaranteed investment contracts (185,918) (216,232)
Trust deposits (126,052) (105,302)
Claims and annuity payments on fixed
annuity contracts (75,286) (41,787)
Net proceeds from issuances of long-term notes 429,383 14,475
Net borrowings (repayments) of other
short-term financings 5,510 (367,355)
Net proceeds from issuances of preferred
securities of subsidiary grantor trusts 300,202 179,172
Net proceeds from issuance of Series E
Preferred Stock -- 241,180
Net payment for redemption of Series C
Preferred Stock (48,680) --
Payment of issuance costs of 8-1/2% Premium
Equity Redemption Cumulative Security Units (45,362) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,028,645 2,171
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 322,761 (198,140)
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD 529,363 855,350
------------ ------------
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 852,124 $ 657,210
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 24,757 $ 13,629
============ ============
Income taxes paid, net of refunds received $ 34,538 $ 5,759
============ ============
See accompanying notes
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Company's
consolidated financial position as of December 31, 1996 and September 30,
1996, the results of its consolidated operations for the three months
ended December 31, 1996 and 1995 and its consolidated cash flows for the
three months ended December 31, 1996 and 1995. The results of operations
for the three months ended December 31, 1996 are not necessarily
indicative of the results to be expected for the full year. The
accompanying unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements for the
fiscal year ended September 30, 1996, contained in the Company's 1996
Annual Report to Shareholders.
2. Acquisitions
------------
The Company acquired all of the outstanding stock of CalFarm Life
Insurance Company and of Ford Life Insurance Company on December 29, 1995
and February 29, 1996, respectively. On April 1, 1996, the Company
completed the acquisition of a block of annuity contracts from The
Central National Life Insurance Company of Omaha, a subsidiary of
Beneficial Corp. These acquisitions have been accounted for by using the
purchase method of accounting. Accordingly, the income statement for the
three months ended December 31, 1995 does not include the results of
operations of these acquired businesses. On a pro forma basis, assuming
these acquisitions occurred on October 1, 1995, the beginning of the
earliest period presented herein, revenues (investment income, net
realized investment losses and fee income) would have been $386,398,000
and net income would have been $70,834,000 ($0.52 per share) for the
three months ended December 31, 1995.
3. Company-Obligated Preferred Securities of Subsidiary 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 in June 1995, $185,000,000 liquidation
amount of 8.35% Trust Originated Preferred Securities issued by
SunAmerica Capital Trust II in October 1995 and $310,000,000 liquidation
amount of 8.30% Trust Originated Preferred Securities issued by
SunAmerica Capital Trust III in November 1996.
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. Company-Obligated Preferred Securities of Subsidiary Grantor Trusts
(Continued)
-------------------------------------------------------------------
In connection with the issuance of the 9.95% 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 $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 connection with the issuance of the 8.30% 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 $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 grantor trusts are wholly owned subsidiaries of the Company. 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.
4. 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, phantom shares arising from
other employee stock plans, Premium Equity Redemption Cumulative Security
Units issued in November 1996 and convertible preferred stock, which
includes the Series D and E Depositary Shares issued in 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 $2,059,000 and $2,883,000 for the three months ended
December 31, 1996 and 1995, respectively. These preferred stock dividend
requirements do not include dividends paid on the convertible issues,
which dividends amounted to $3,100,000 and $4,992,000 for the three
months ended December 31, 1996 and 1995, respectively.
SUNAMERICA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Ratio of Earnings to Fixed Charges
----------------------------------
The ratios of earnings to fixed charges for the three months ended
December 31, 1996 and 1995 are as follows:
Three months ended
December 31,
------------------
1996 1995
------- -------
Ratio of earnings to fixed charges (which
include dividends paid on preferred securities
of grantor trusts and interest incurred on senior
debt, but exclude interest incurred on fixed
annuities, guaranteed investment contracts and
trust deposits) 5.0x 5.7x
======= =======
Ratio of earnings to fixed charges (which
include dividends paid on preferred securities
of grantor trusts and interest incurred on senior
debt, fixed annuities, guaranteed investment
contracts and trust deposits) 1.5x 1.6x
======= =======
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 debt, but exclude interest
incurred on fixed annuities, guaranteed
investment contracts and trust deposits) 4.0x 3.6x
======= =======
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 debt, fixed annuities, guaranteed
investment contracts and trust deposits) 1.5x 1.5x
======= =======
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 months ended
December 31, 1996 ("Fiscal 1997") and December 31, 1995 ("Fiscal 1996")
follows. 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 in any other statements made by, or
on behalf of, the Company, whether or not in future filings with the Securities
and Exchange Commission (the "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 changes in 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
NET INCOME totaled $80.4 million or $0.58 per share in Fiscal 1997, up
from $64.8 million or $0.47 per share in Fiscal 1996. The $15.6 million
increase in net income reflects the effects of the acquisitions (the
"Acquisitions") of CalFarm Life Insurance Company on December 29, 1995, Ford
Life Insurance Company on February 29, 1996 and certain annuity contracts
purchased from The Central National Life Insurance Company on April 1, 1996.
While operating results in Fiscal 1997 include those of the Acquisitions, the
results of operations in Fiscal 1996 do not, due to the completion dates of the
acquisitions and the application of the purchase method of accounting (see Note
2 of Notes to Consolidated Financial Statements).
PRETAX INCOME totaled $114.8 million in Fiscal 1997 and $92.6 million in
Fiscal 1996. This $22.2 million improvement primarily resulted from increased
net investment income and fee income which were partially offset by higher
general and administrative expenses, net realized investment losses and
amortization of deferred acquisition costs.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other
interest-bearing liabilities, increased to $143.7 million in Fiscal 1997 from
$102.1 million in Fiscal 1996. These amounts represent 3.37% on average
invested assets (computed on a daily basis) of $17.07 billion in Fiscal 1997
and 3.71% on average invested assets of $11.01 billion in Fiscal 1996. 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 Fiscal 1997 declined by 51 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 $1.15 billion in Fiscal 1997 and $1.00 billion in
Fiscal 1996. The difference between the Company's yield on average invested
assets and the rate paid on average interest-bearing liabilities was 2.98% in
Fiscal 1997 and 3.16% in Fiscal 1996. As a result of the Acquisitions, this
difference declined by 28 basis points in Fiscal 1997.
Investment income and the related yields on average invested assets
totaled $370.5 million or 8.68% in Fiscal 1997 and $254.0 million or 9.23% in
Fiscal 1996. The $116.5 million increase in investment income recorded in
Fiscal 1997 and the related 55 basis point decline in yield that it represents
both reflect the effects of the Acquisitions. In Fiscal 1997, the investment
income associated with the Acquisitions aggregated $81.9 million, and reduced
the overall investment yield of the Company by 56 basis points.
Investment income also rose during Fiscal 1997 as a result of higher
levels of average invested assets and additional partnership income.
Partnership income increased to $57.8 million (representing a yield of 20.0%
on related average assets of $1.16 billion) in Fiscal 1997, compared with
$36.3 million (representing a yield of 18.03% on related average assets of
$804.3 million) in Fiscal 1996. Partnership income includes income recognized
by using the cost method of accounting, which amounted to $17.1 million in
Fiscal 1997 and $18.3 million in Fiscal 1996. 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 Company has further enhanced investment yield through total return
bond swap agreements (the "Total Return Agreements"). The Company recorded
income of $8.2 million on the Total Return Agreements in Fiscal 1997, compared
with $4.9 million recorded in Fiscal 1996. The improved results in Fiscal 1997
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. (See "Asset-Liability
Matching" for additional discussion of Total Return Agreements.)
Total interest and dividend expense aggregated $226.9 million in Fiscal
1997 and $151.9 million in Fiscal 1996. The average rate paid on all
interest-bearing liabilities was 5.70% (5.31% on fixed annuity contracts and
6.33% on guaranteed investment contracts ("GICs")) in Fiscal 1997, compared
with 6.07% (5.61% on fixed annuity contracts and 6.70% on GICs) in Fiscal 1996.
Interest-bearing liabilities averaged $15.91 billion during Fiscal 1997,
compared with $10.01 billion during Fiscal 1996.
Total interest and dividend expense and the average rate paid on all
interest-bearing liabilities in Fiscal 1997 also reflect 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 increased total interest and dividend expense by $57.1 million and
reduced the average rate paid on all interest-bearing liabilities by 28 basis
points and on fixed annuity contracts by 27 basis points in Fiscal 1997. These
favorable effects of the Acquisitions complemented a modest nine basis point
decline in the average crediting rate on the Company's remaining interest-
bearing liabilities. This decline resulted primarily from a 37 basis point
decline in the average crediting rate on the Company's GIC liabilities,
partially offset by the effects of increases in the percentage of average
interest-bearing liabilities composed of preferred securities of subsidiary
grantor trusts and GICs, which generally bear higher interest rates than the
average interest rate on the other interest-bearing liabilities of the Company.
GROWTH IN AVERAGE INVESTED ASSETS to $17.07 billion in Fiscal 1997
primarily reflects the impact of the Acquisitions. In the aggregate, the
Acquisitions contributed $4.39 billion to the Company's average invested assets
in Fiscal 1997. 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 Fiscal 1997 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
$762.3 million of aggregate net proceeds from the issuances of preferred
securities of a subsidiary grantor trust and long-term notes. Since December
31, 1995, fixed annuity premiums have aggregated $1.27 billion and GIC premiums
have totaled $1.33 billion. Fixed annuity premiums totaled $427.4 million in
Fiscal 1997, nearly triple the $147.3 million recorded in Fiscal 1996. These
premiums include premiums for the fixed accounts of variable annuities totaling
$388.4 million and $64.1 million, respectively. This increase in premiums for
the fixed accounts of variable annuities resulted primarily from greater
inflows into the one-year fixed account of the Company's Polaris product. The
Company has observed that many purchasers of its variable annuity contracts
allocate new premiums to the one-year fixed account and concurrently sign up
for the option to dollar cost average into the variable fund. Accordingly, the
Company anticipates that it will see a large portion of these premiums
transferred into the separate accounts.
GIC premiums increased to $540.6 million in Fiscal 1997 from
$231.5 million in Fiscal 1996. The increase in GIC premiums in Fiscal 1997
reflects an expansion of the GIC client base due, in part, to a broadening of
the Company's distribution channels and product line, specifically its AAA/Aaa-
rated credit-enhanced GIC product. GIC premiums in 1997 also reflect increased
sales of longer-maturity products to banks and asset management firms.
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. GICs 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. GICs 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 $9.3 million in Fiscal 1997,
compared with net realized investment gains of $1.4 million in Fiscal 1996.
Net realized investment gains/losses include impairment writedowns of $7.6
million in Fiscal 1997 and $6.8 million in Fiscal 1996. Therefore, net losses
from sales of investments totaled $1.7 million in Fiscal 1997, compared with
$8.2 million of realized net gains in Fiscal 1996.
Net losses from sales of investments in Fiscal 1997 include $6.5 million
of net losses realized on sales of bonds and notes and $4.2 million of net
gains realized on sales of common stocks. Net gains from sales of investments
in Fiscal 1996 include $6.5 million of net gains realized on sales of other
invested assets, principally leveraged leases, and $1.3 million of net gains
realized on sales of common stocks. Sales of investments are generally made
to maximize total return.
Impairment writedowns in Fiscal 1997 include provisions of $3.7 million
applied to real estate, $2.6 million applied to defaulted bonds and $1.3
million applied to common stocks. Impairment writedowns in Fiscal 1996 include
$5.7 million of provisions applied to defaulted bonds. Impairment writedowns,
on an annualized basis, represent 0.18% and 0.25% of average invested assets
in Fiscal 1997 and 1996, respectively. Such writedowns are based upon
estimates of the net realizable value of the applicable assets. Actual
realization will be dependent upon future events.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $30.9
million in Fiscal 1997 and $24.4 million in Fiscal 1996. The increase in
variable annuity fees in Fiscal 1997 reflects 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 $6.68 billion during Fiscal 1997 and $5.33 billion during
Fiscal 1996. Variable annuity premiums, which exclude premiums allocated to
the fixed accounts of variable annuity products, have aggregated $950.9 million
since December 31, 1995. Variable annuity premiums increased to $231.7 million
in Fiscal 1997 from $210.0 million in Fiscal 1996. This increase may be
attributed, in part, to a heightened demand for equity investments, principally
as a result of generally improved market performance. The Company has
encountered increased 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
$13.3 million in Fiscal 1997 and $9.2 million in Fiscal 1996. Broker-dealer
sales (mainly sales of general securities, mutual funds and annuities) totaled
$3.28 billion in Fiscal 1997 and $2.26 billion in Fiscal 1996. The significant
increases in sales and net retained commissions during Fiscal 1997 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 may not be 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 $6.4 million on
average assets managed of $2.21 billion in Fiscal 1997 and $6.5 million on
average assets managed of $2.15 billion in Fiscal 1996. Asset management fees
decreased slightly in Fiscal 1997, despite a modest increase in average assets
managed, principally due to changes in product mix. Sales of mutual funds,
excluding sales of money market accounts, have aggregated $249.5 million since
December 31, 1995. Mutual fund sales totaled $62.3 million in Fiscal 1997 and
$36.3 million in Fiscal 1996. Higher mutual fund sales in Fiscal 1997 include
$14.3 million of sales from the Company's "Style Select Series," a product
introduced in November 1996. Sales in Fiscal 1997 also reflect the combined
effects of additional advertising, increased distribution, 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. Redemptions of mutual funds, excluding redemptions of money
market accounts, amounted to $103.7 million in Fiscal 1997 and $97.6 million
in Fiscal 1996.
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 $5.8 million on average loans serviced of $478.1 million in Fiscal
1997, compared with $5.6 million on average loans serviced of $440.7 million
in Fiscal 1996.
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 $4.5 million in Fiscal 1997 (on an average of 203,000 trust accounts) from
$4.2 million in Fiscal 1996 (on an average of 198,000 trust accounts).
SURRENDER CHARGES on fixed and variable annuities totaled $6.6 million in
Fiscal 1997 (including $3.6 million attributable to the Acquisitions) and
$2.6 million in Fiscal 1996. 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 $410.4 million (including $105.5 million attributable
to the Acquisitions) in Fiscal 1997 and $284.5 million in Fiscal 1996. These
payments represent 10.5% (9.5% of average fixed annuity reserves associated
with the Acquisitions) and 11.8%, respectively, of the aggregate of average
fixed and variable annuity reserves. Withdrawals include variable annuity
payments from the separate accounts totaling $177.3 million in Fiscal 1997 and
$155.4 million in Fiscal 1996. Excluding the effects of the Acquisitions,
withdrawal payments represented 10.8% of related average fixed and variable
annuity reserves in Fiscal 1997. Management anticipates that withdrawal rates
will remain relatively stable for the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $59.1 million in Fiscal 1997
and $44.1 million in Fiscal 1996. Expenses in Fiscal 1997 include a $3.0
million provision for estimated programming costs associated with the year
2000. Expenses in Fiscal 1997 also reflect the impact of the Acquisitions,
including Advantage Capital Corporation. Expenses remain closely controlled
through a company-wide cost containment program and continue to represent
approximately 1% of average total assets on an annualized basis.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $30.4 million in Fiscal
1997 and $21.1 million in Fiscal 1996 and represent, for each period, on an
annualized basis, approximately 15% of the balance of deferred acquisition
costs at the beginning of each period. The increase in Fiscal 1997 primarily
reflects the amortization of the deferred acquisition costs attributable to the
Acquisitions, which aggregated $8.2 million. Amortization has also increased
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 $34.4 million in Fiscal 1997 and $27.8 million
in Fiscal 1996, representing effective annualized tax rates of 30% in both
periods. These tax rates reflect the favorable impact of affordable housing
tax credits.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDERS' EQUITY increased by $42.6 million to $1.70 billion at
December 31, 1996 from $1.66 billion at September 30, 1996, primarily as a
result of the $80.4 million of net income recorded in Fiscal 1997.
Shareholders' equity at December 31, 1996 was also favorably impacted by the
recording of a $56.1 million net unrealized gain on debt and equity securities
available for sale, a $73.1 million improvement over the $17.0 million net
unrealized loss recorded at September 30, 1996. These favorable factors were
partially offset by $55.2 million of aggregate issuance costs resulting from
the November 1996 public offering of Premium Equity Redemption Cumulative
Security Units and preferred securities of a subsidiary grantor trust, a $48.7
million reduction in outstanding preferred stock, resulting from the redemption
of the Company's Adjustable Rate Cumulative Preferred Stock, Series C, and
$17.4 million of dividends paid to shareholders.
BOOK VALUE PER SHARE amounted to $12.46 at December 31, 1996, compared
with $11.69 at September 30, 1996. Excluding net unrealized gains and losses
on debt and equity securities available for sale, book value per share amounted
to $12.03 at December 31, 1996 and $11.82 at September 30, 1996. On a pro
forma basis, assuming that the Premium Equity Redemption Cumulative Security
Units were converted to Common Stock, book value per share would have been
$14.50 at December 31, 1996.
TOTAL ASSETS increased by $2.26 billion to $25.99 billion at December 31,
1996 from $23.73 billion at September 30, 1996, principally due to a
$1.74 billion increase in invested assets and a $489.3 million increase in the
separate accounts for variable annuities.
INVESTED ASSETS at December 31, 1996 totaled $17.94 billion, compared with
$16.20 billion at September 30, 1996. This $1.74 billion increase primarily
resulted from the November 1996 issuances of $431.3 million of 6.20% notes and
$310.0 million of preferred securities of a subsidiary grantor trust, sales of
GICs and fixed annuity contracts and the $104.6 million net unrealized gain
recorded on debt and equity securities available for sale at December 31, 1996,
a $143.7 million improvement over the $39.1 million net unrealized loss
recorded on such securities at September 30, 1996.
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 portfolio. However, the Company
has 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.
THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized
cost by $45.9 million at December 31, 1996. At September 30, 1996, the
amortized cost of the Bond Portfolio exceeded its fair value by $75.6 million.
The net unrealized gain on the Bond Portfolio since September 30, 1996
principally reflects the lower relative prevailing interest rates at December
31, 1996 and their corresponding effect on the fair value of the Bond
Portfolio.
All of the Bond Portfolio ($13.62 billion at amortized cost, excluding
$106.4 million of redeemable preferred stocks) at December 31, 1996 was rated
by Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service,
L.P. ("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 December 31, 1996, approximately
$12.17 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 $6.10 billion of U.S.
government/agency securities and mortgage-backed securities ("MBSs").
At December 31, 1996, the Bond Portfolio included $1.45 billion (fair
value, $1.49 billion) of bonds not rated investment grade by S&P, Moody's, DCR,
Fitch or the NAIC. Based on their December 31, 1996 amortized cost, these
non-investment-grade bonds accounted for 5.6% of the Company's total assets and
8.1% 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 $358.2 million at
December 31, 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 December 31,
1996. The table on the following page summarizes the Company's rated bonds by
rating classification.
<TABLE>
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
<CAPTION>
Issues not rated by S&P/Moody's/
Issues rated by S&P/Moody's/D&P/Fitch DCR/Fitch, by NAIC category Total
- ---------------------------------------------- ----------------------------------- ----------------------------------
S&P/(Moody's)/ Estimated NAIC Estimated Percent of Estimated
[DCR]/{Fitch} Amortized fair category Amortized fair Amortized invested fair
category(1) cost value (2) cost value cost assets(3) value
- --------------- ---------- ---------- -------- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-} $8,757,435 $8,740,577 1 $ 787,152 $ 793,201 $9,544,587 53.52% $9,533,778
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-} 2,206,935 2,215,762 2 423,765 433,909 2,630,700 14.75 2,649,671
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-} 208,919 217,642 3 110,901 115,875 319,820 1.79 333,517
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-} 679,488 700,162 4 307,703 315,328 987,191 5.54 1,015,490
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-} 79,807 83,612 5 52,884 46,697 132,691 0.74 130,309
CI to D
[DD]
{D} -- -- 6 9,580 9,380 9,580 0.05 9,380
----------- ----------- ---------- ---------- ----------- -----------
TOTAL RATED ISSUES $11,932,584 $11,957,755 $1,691,985 $1,714,390 $13,624,569 $13,672,145
=========== =========== ========== ========== =========== ===========
Footnotes appear on the following page.
</TABLE>
Footnotes to the table of rated bonds by rating classification
---------------------------------------------------------------
(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. DCR 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, DCR 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/DCR/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 $1.57 billion at December 31, 1996.
Secured Loans are senior to subordinated debt and equity, and are secured by
assets of the issuer. At December 31, 1996, Secured Loans consisted of loans
to approximately 250 borrowers spanning 40 industries, with 13% of these assets
(at amortized cost) concentrated in utilities, 13% concentrated in the leisure
industry and 11% concentrated in financial institutions. 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, DCR, Fitch
or by the Company or the NAIC, pursuant to comparable statutory ratings
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $1.71 billion at December 31, 1996 and
consisted of 642 first mortgage loans with an average loan balance of
approximately $2.7 million, collateralized by properties located in 35 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 December 31, 1996, approximately 23% 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 December 31, 1996, there were 32 loans with outstanding
balances of $10 million or more, which loans collectively aggregated
approximately 27% 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 December 31, 1996, approximately 20% of the mortgage loan
portfolio consisted of loans with balloon payments due before January 1, 2000.
During Fiscal 1997 and Fiscal 1996, loans delinquent by more than 90 days,
foreclosed loans and restructured loans have not been significant in relation
to the portfolio.
Approximately 24% of the mortgage loans in the portfolio at December 31,
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 $1.17 billion at December 31, 1996,
constituting investments in approximately 550 separate partnerships with an
average size of approximately $2.2 million. This portfolio includes:
(i) $448.5 million of partnerships managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including approximately 450 separate issuers; (ii) $604.8 million of
partnerships that make tax-advantaged investments in affordable housing,
currently involving approximately 460 multifamily properties in 40 states; and
(iii) $119.8 million of partnerships that invest in mortgage loans and
income-producing real estate. At December 31, 1996, $535.6 million of the
Company's partnerships was accounted for by using the cost method and
$637.5 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 economic conditions. 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 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 December 31, 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 December 31, 1996, the weighted
average life of the Company's investments was approximately 5.0 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 measures the approximate percentage change in the
market value of a portfolio if interest rates change by 100 basis points,
recognizing the changes in portfolio cashflows resulting from embedded options
such as prepayments and bond calls.
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
December 31, 1996, the Company had 23 outstanding Swap Agreements with an
aggregate notional principal amount of $1.11 billion. These agreements mature
in various years through 2002 and have an average remaining maturity of 36
months.
The Company also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos"), dollar roll transactions
("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 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.
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 $55.2 million at December 31,
1996 (at amortized cost, with a fair value of $50.5 million), including
$33.5 million of bonds and notes and $21.7 million of mortgage loans. At
December 31, 1996, defaulted investments constituted 0.3% of total invested
assets. At September 30, 1996, defaulted investments totaled $28.7 million and
constituted 0.2% 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 December 31, 1996, approximately $7.14 billion of the Company's Bond
Portfolio had an aggregate unrealized gain of $216.8 million, while
approximately $6.59 billion of the Bond Portfolio had an aggregate unrealized
loss of $170.9 million. In addition, $577.5 million remains available to the
Company to issue securities under a shelf registration statement filed in
October 1996. Further, the Company's investment portfolio currently provides
approximately $162.6 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 December 31, 1996, had invested assets with a fair value of $1.64 billion
and outstanding senior indebtedness of $1.00 billion, comprising all of the
Company's outstanding senior indebtedness. Additionally, as of December 31,
1996, the Parent had three GICs purchased by local government entities which
aggregated $243.9 million.
During November 1996, October 1995 and June 1995, respectively, the
Parent purchased the common securities of SunAmerica Capital Trust III,
SunAmerica Capital Trust II and SunAmerica Capital Trust I (the "Grantor
Trusts") and issued an aggregate of $566.2 million of junior subordinated
debentures (the "Debentures") to the Grantor Trusts in connection with the
public issuance of the preferred securities of the Grantor Trusts (see Note 2
of Notes to Consolidated Financial Statements).
The Parent's annual debt service with respect to its senior indebtedness,
GIC obligations and Debentures totals $97.2 million for the remainder of fiscal
1997, $169.1 million for fiscal 1998, $280.7 million for fiscal 1999,
$563.4 million for fiscal 2000, $127.8 million for fiscal 2001 and
$3.61 billion, in the aggregate, thereafter. On or before October 31, 1999, the
Company is contractually scheduled to receive $431.3 million upon delivery of
11.5 million shares of the Company's Common Stock in accordance with the terms
of the Company's Premium Equity Redemption Cumulative Security Units.
The Parent received dividends from its regulated life insurance
subsidiaries of $94.3 million in March 1996 and $69.2 million in March 1995.
The Parent also received dividends of $0.7 million during Fiscal 1997 and $16.0
million in the fiscal year 1996 from its other directly owned subsidiaries.
At December 31, 1996, there was approximately $115 million of dividends
available to the Parent from its regulated life insurance 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 1997, 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.
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 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 Corp. is registered with the SEC 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 Corp. and the mutual funds are
subject to regulation and examination by the SEC. In addition, variable
annuities and the related separate accounts of the Company's life insurance
subsidiaries are subject to regulation by the SEC under the Securities Act of
1933 and the Investment Company Act of 1940.
Resources Trust Company 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.
SUNAMERICA INC.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
EXHIBITS
10.1 Amendment and Restatement, dated as of December 31, 1996, to the
$250,000,000 Credit Agreement, among the Company and SunAmerica
Financial, Inc., as Borrowers and Citibank, N.A. as Agent for the banks
named therein.
10.2 Executive Savings Plan, effective January 1, 1997.
11 Statement re computation of per-share earnings.
27 Financial Data Schedule.
REPORTS ON FORM 8-K
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.
On January 27, 1997, the company filed a Current Report on Form 8-K
announcing its first quarter 1997 earnings and its financial position at
December 31, 1996.
SUNAMERICA INC.
PART II - OTHER INFORMATION
(Continued)
SIGNATURES
----------
Pursuant to the requirements 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.
-----------------------------------
Registrant
Dated February 13, 1997 /s/ JAY S. WINTROB
---------------------------- -----------------------------------
Jay S. Wintrob
Vice Chairman
Dated February 13, 1997 /s/ SCOTT L. ROBINSON
---------------------------- -----------------------------------
Scott L. Robinson
Senior Vice President and Controller
SUNAMERICA INC.
LISTS OF EXHIBITS FILED
- -----------------------
10.1 Amendment and Restatement, dated as of December 31, 1996, to the
$250,000,000 Credit Agreement, among the Company and SunAmerica
Financial, Inc., as Borrowers and Citibank, N.A. as Agent for the banks
named therein.
10.2 Executive Savings Plan, effective January 1, 1997.
11 Statement re computation of per-share earnings.
27 Financial Data Schedule.
<TABLE>
EXHIBIT 11
SUNAMERICA INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
For the three months ended December 31, 1996 and 1995
(In thousands, except per-share amounts)
1996 1995
---------- ----------
<S> <C> <C>
Average number of common and common stock
equivalent shares outstanding during
the period:
Common Stock issued and outstanding at
beginning of period 119,452 108,830
Average number of common shares issued
upon exercise of employee stock options
or under other employee stock plans 143 158
Average number of common stock equivalent
shares arising from outstanding employee
stock options 3,580 3,828
Average number of common stock equivalent
units arising from other employee stock
plans 687 450
Average number of shares issuable upon
conversion of convertible preferred stock:
Series D Mandatory Conversion
Premium Dividend Preferred Stock -- 10,226
Series E Mandatory Conversion
Premium Dividend Preferred Stock 10,129 8,000
Average number of common stock equivalent
shares arising from outstanding Premium
Equity Redemption Cumulative Security Units 946 --
---------- ----------
Average number of common and common stock
equivalent shares outstanding during
the period 134,937 131,492
========== ==========
Earnings applicable to common stock:
Net income $ 80,368 $ 64,786
Less preferred dividend requirements other
than those related to convertible issues:
9-1/4% Preferred Stock, Series B (2,031) (2,031)
SunAmerica Adjusted Rate Cumulative
Preferred Stock, Series C (28) (852)
---------- ----------
Net earnings applicable to common stock $ 78,309 $ 61,903
========== ==========
Net earnings per common and common
equivalent share $ 0.58 $ 0.47
========== ==========
Note: Share amounts for the three months ended December 31, 1995 have been adjusted
to reflect a two-for-one stock split paid in form of a stock dividend on
August 30, 1996 to holders of record on August 21, 1996.
</TABLE>
<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-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 13,776,872
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 104,012
<MORTGAGE> 1,706,191
<REAL-ESTATE> 99,507
<TOTAL-INVEST> 17,938,686
<CASH> 852,124
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 784,903
<TOTAL-ASSETS> 25,987,756
<POLICY-LOSSES> 14,402,792
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,004,585
0
335,869
<COMMON> 119,910
<OTHER-SE> 1,247,341
<TOTAL-LIABILITY-AND-EQUITY> 25,987,756
0
<INVESTMENT-INCOME> 339,743
<INVESTMENT-GAINS> (9,304)
<OTHER-INCOME> 60,862
<BENEFITS> 196,074
<UNDERWRITING-AMORTIZATION> 30,410
<UNDERWRITING-OTHER> (9,003)
<INCOME-PRETAX> 114,768
<INCOME-TAX> 34,400
<INCOME-CONTINUING> 80,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,368
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
[EXECUTION COUNTERPART]
AMENDMENT AND RESTATEMENT
AMENDMENT AND RESTATEMENT dated as of December 31, 1996 among:
SUNAMERICA INC., a Maryland corporation ("SunAmerica");
SUNAMERICA FINANCIAL, INC., a Georgia corporation ("SAFI", and
together with SunAmerica, the "Borrowers");
the banks listed on the signature pages hereof (collectively, the
"Banks"); and
CITIBANK, N.A., a national banking association, as agent for the
Lenders (in such capacity, together with its successors in such capacity,
the "Agent").
The Borrowers, the Banks and the Agent are parties to a Credit
Agreement dated as of October 27, 1995 (as heretofore amended, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for
the making of loans by the Banks to the Borrowers in an aggregate principal
amount not exceeding $250,000,000 at any one time outstanding. The
Borrowers, the Banks and the Agent wish to amend the Credit Agreement in
certain respects and to restate the Credit Agreement as set forth herein.
Accordingly, the parties hereto agree to amend the Credit
Agreement as set forth herein and to restate the Credit Agreement in its
entirety to read as set forth in the Credit Agreement with the amendments
specified in Section 2 below:
Section 1. Definitions. Except as otherwise defined in this
Amendment and Restatement, terms defined in the Credit Agreement are used
herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 4 below, but effective as of the
date hereof, the Credit Agreement shall be amended as follows:
A. General. References in the Credit Agreement to the Credit
Agreement (including indirect references thereto such as "hereunder",
"hereby", "herein" and "hereof") shall be deemed to be references to the
Credit Agreement as amended and restated hereby. For all purposes of the
Credit Agreement (as amended and restated hereby), each promissory note
delivered to a Bank pursuant to Section 4(B) hereof shall constitute a
"Note".
B. Definitions. Section 1.1 of the Credit Agreement shall be
amended by inserting the following definitions (or, in the case of any
definition for a term that is defined in the Credit Agreement before giving
effect to this Amendment and Restatement, by amending and restating such
definition to read as set forth below):
"Alternate Treatment" by Moody's or S&P means that such rating
agency has notified SunAmerica in writing that:
(a) with respect to the 1996 PERCS-Related Debt, such
rating agency considers all or a portion of the 1996 PERCS-Related Debt not
to be debt; and/or
(b) with respect to the 1996 PERCS, such rating agency
considers all or a portion of the 1996 PERCS not to be equity.
If SunAmerica elects to treat either the 1996 PERCS or the 1996 PERCS-
Related Debt in accordance with an Alternate Treatment, SunAmerica and the
Lenders agree to treat both the 1996 PERCS and the 1996 PERCS-Related Debt
in accordance with such Alternate Treatment for all purposes hereof.
"Amendment and Restatement Effective Date" shall mean the date
specified by the Agent to the Borrowers and the Lenders in writing as the
date on which the conditions precedent set forth in Section 4 to the
Amendment and Restatement of this Agreement dated as of December 31, 1996
have been satisfied or waived.
"Anchor" means Anchor National Life Insurance Company, an Arizona
stock insurance company.
"Commitment" means the amount set forth opposite each Lender's
name on Schedule 1 hereto (or in an Assignment and Acceptance or New
Commitment Acceptance entered into by it after the Amendment and
Restatement Effective Date) as its Commitment, as such amount may be
adjusted from time to time to give effect to Money Market Reductions
pursuant to Section 2.1, reduced from time to time pursuant to Section
2.10(a) or increased from time to time pursuant to Section 2.10(c).
"Consolidated Debt" means the consolidated Debt of SunAmerica and
its Subsidiaries, determined in accordance with GAAP, to the extent such
Debt is reflected or is required under GAAP to be reflected on the
consolidated balance sheet of SunAmerica and its Subsidiaries, provided
that such Debt shall not include:
(a) Debt specified in clause (vii) of the definition of
Debt;
(b) any Debt specified in the definition of Permitted
Collateralization Obligations (so long as, in the case of clause (ii)
thereof, none of the events referred to in the parenthetical clause of said
clause has occurred); or
(c) the 1996 PERCS-Related Debt, but only if and to the
extent that (1) either or both of Moody's and S&P has notified SunAmerica
in writing of an Alternate Treatment with respect to the 1996 PERCS-Related
Debt and (2) SunAmerica has notified the Agent that it elects to treat the
1996 PERCS-Related Debt in accordance with such an Alternate Treatment.
"Consolidated Tangible Net Worth" means, without duplication, the
total of (a) the consolidated shareholders' equity of SunAmerica and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
plus (b) the Trust Originated Preferred Securities (or similar securities)
on SunAmerica's balance sheet plus or minus, as the case may be, (c) any
net unrealized losses or gains, as the case may be, on securities
"available for sale" shown thereon as a separate component of consolidated
shareholders' equity in accordance with the Proposed Statement of Financial
Accounting Standards "Accounting for Certain Investments in Debt and Equity
Securities", as the same may be implemented, minus (d) the carrying value
of goodwill, any covenant not to compete, capitalized organizational
expenses and other assets treated as intangibles under GAAP arising from
the acquisition, through stock purchase, merger or otherwise, of the stock
or assets of any Person (other than intangibles classified as deferred
acquisition costs arising from the writing of new insurance policies or
contracts), minus (e) treasury stock and capital stock, obligations or
other securities of, or capital contributions to, or investments in, any
unconsolidated Subsidiary and plus (f) the aggregate outstanding amount of
1996 PERCS, except to the extent that (1) either or both of Moody's and S&P
has notified SunAmerica in writing of an Alternate Treatment with respect
to the 1996 PERCS and (2) SunAmerica has notified the Agent that it elects
to treat the 1996 PERCS in accordance with such an Alternate Treatment.
"Level I Status" means that, at 8:30 a.m. New York City time at
any date of determination, SunAmerica's senior unsecured long term debt is
rated "A+" or better by Standard & Poor's and "A3" or better by Moody's.
"Level II Status" means that, at 8:30 a.m. New York City time at
any date of determination, SunAmerica's senior unsecured long term debt is
rated "A-" or better by Standard & Poor's and "Baa1" or better by Moody's,
but Level I Status does not exist.
"Level III Status" means that, at 8:30 a.m. New York City time at
any date of determination, SunAmerica's senior unsecured long term debt is
rated "BBB+" or better by Standard & Poor's and "Baa2" or better by
Moody's, but Level I Status and Level II Status do not exist.
"Level IV Status" means that, at 8:30 a.m. New York City time at
any date of determination, SunAmerica's senior unsecured long term debt is
rated below Level III Status or is not rated as of such date by Standard &
Poor's or Moody's.
"1996 PERCS" shall mean the 8-1/2% Premium Equity Redemption
Cumulative Security Units issued by SunAmerica on October 31, 1996.
"1996 PERCS-Related Debt" shall mean Debt of SunAmerica under the
6.20% notes of SunAmerica due October 31, 1999 issued in an original
aggregate principal amount of $431,250,000, which notes were issued in
connection with the issuance of the 1996 PERCS.
"Permitted Collateralization Obligations" means the
collateralized obligations of the Borrowers and their Subsidiaries relating
to:
(i) real estate mortgage investment conduits (REMICs),
passthrough obligations, collateralized mortgage obligations,
collateralized bond and loan obligations, other asset-backed
securitizations of properties, rights or receivables of SunAmerica or its
Subsidiaries, or similar instruments, except for any such collateralized
obligations to the extent such collateralized obligations require a cash
payment by any Borrower or its Subsidiary (other than (x) advances in
connection with the servicing of any such REMIC, passthrough obligation,
collateralized mortgage obligation, collateralized bond obligation or
similar instrument or payments to repurchase collateral and (y) the payment
of legal fees and other customary amounts), recourse for the payment of
which is not limited to the specific assets of such Borrower or such
Subsidiary serving as collateral for such obligations;
(ii) the securitization of Rule 12b-1 fee income under the
Investment Company Act of 1940, as amended, and associated sales charges
earned by the Borrowers or their Subsidiaries, except any such
securitization to the extent such securitization requires a cash payment by
any Borrower or its Subsidiary (other than payments that may be required
upon the occurrence of certain events, the occurrence of which is at the
time of such securitization considered unlikely by management of
SunAmerica), recourse for the payment of which is not limited to such Rule
12b-1 fees or sales charges;
(iii) (x) the Amended and Restated Receivables Purchase and
Sale Agreement, dated as of November 20, 1995 among Imperial Premium
Funding, Inc., SunAmerica Financial Resources, Inc., Imperial Premium
Finance, Inc. (the Delaware corporation) and Imperial Premium Finance, Inc.
(the California corporation), as Sellers, Corporate Asset Funding Company
Inc. ("CAFCO"), Preferred Receivables Funding Corporation ("PREFCO") and
WCP Funding, Inc. ("WCP"), as Investors, The First National Bank of
Chicago, as Agent for PREFCO, and Citicorp North America, Inc., as Agent
for CAFCO and WCP and as Facility Agent, (y) the Agreement dated January
31, 1995 to Purchase $65,000,000 of Certificates Issued by a Grantor Trust
Organized by Rockford Limited I and (z) the Receivables Purchase and Sale
Agreement dated as of September 22, 1995 (as amended by Amendments No. 1,
No. 2 and No. 3 thereto) among SunAmerica Life Insurance Company, as
Seller, WCP Funding, Inc., as Investor, and Westdeutsche Landesbank
Girozentrale, New York Branch, as Agent, in each case as amended from time
to time, provided that no such amendment shall make any material change in
the provisions of said agreements relating to or limiting recourse; and
(iv) any transaction that is reflected by the relevant
Borrower and/or its relevant Subsidiary or Subsidiaries as a sale for
accounting purposes in accordance with GAAP (and any guarantee of any such
transaction).
"Recharacterized Sale" means a transaction involving assets of
SunAmerica or any of its Subsidiaries that was, at the time of such
transaction, accounted for as a sale of such assets under GAAP but that is
thereafter determined by SunAmerica or the relevant Subsidiary to be
required under GAAP to be recharacterized as a transaction that is not
accounted for as a sale of such assets.
"Termination Date" means, subject to Section 2.10(b), December 31,
2001 or the earlier date of termination in whole of the Commitments
pursuant to Section 2.10 or 9.1.
C. Notice of Committed Borrowings. Section 2.2(d) of the Credit
Agreement shall be amended to read as follows:
"(d) whether Level I Status, Level II Status, Level III Status or
Level IV Status exists on the date of such notice; and"
D. Interest Rates.
(1) Section 2.7(b) of the Credit Agreement shall be amended by
amending the definition of "Eurodollar Margin" therein to read as follows:
"Eurodollar Margin" means (1) 0.14% for any day on which Level I
Status exists, (2) 0.15% for any day on which Level II Status exists, (3)
0.17% for any day on which Level III Status exists and (4) 0.20% for any
day on which Level IV Status exists.
(2) Section 2.7(d) of the Credit Agreement shall be amended by
amending the third sentence thereof to read as follows:
"If the rating system of Moody's or Standard and Poor's shall change
in a manner that causes the definition of "Level I Status", "Level II
Status", "Level III Status" or "Level IV Status" no longer to have its
intended meaning hereunder, or if any such rating agency shall have ceased
to rate corporate debt obligations of SunAmerica for any reason other than
action or inaction on the part of the Borrowers, at the request of the
Borrowers, the Borrowers, the Agent and the Lenders shall negotiate in good
faith to amend the references to specific ratings in the definition of
"Level I Status", "Level II Status", "Level III Status" and "Level IV
Status" to reflect such changed rating system or the non-availability of
ratings from such rating agency."
E. Fees. Section 2.8 of the Credit Agreement shall be amended
by deleting paragraph (b) thereof and by restating said Section 2.8 to read
in its entirety as follows:
"SECTION 2.8. Fees.
(a) Facility Fee. The Borrowers shall pay to the Agent for the
account of the Lenders ratably a facility fee at the following rates per
annum: (i) 0.06% for any day on which Level I Status exists, (ii) 0.07%
for any day on which Level II Status exists, (iii) 0.10% for any day on
which Level III Status exists and (iv) 0.15% for any day on which Level IV
Status exists. Such facility fee shall accrue from the Effective Date to
the Termination Date (or, if all Advances have not been repaid in full on
the Termination Date, to the date such Advances are repaid) on the daily
average of the aggregate amount of Commitments (without giving effect to
any Money Market Reductions), or, if greater, on the daily average of the
outstanding principal amount of Advances.
(b) Payments. Accrued fees under this Section 2.8 shall be
calculated on a 360 day basis and shall be payable quarterly in arrears on
each March 15, June 15, September 15 and December 15 and upon the
Termination Date (and, if later, the date the Advances shall be repaid in
their entirety)."
F. Commitments. Section 2.10 of the Credit Agreement shall be
amended to read as follows:
"SECTION 2.10. Optional Termination or Reduction of Commitments;
Extensions; Increases.
(a) Termination and Reduction. At any time prior to the Termination
Date, the Borrowers may, upon at least 3 Domestic Business Days' notice to
the Agent, (i) terminate the Commitments in full, if no Advances are
outstanding at such time, or (ii) reduce from time to time by (x) an
aggregate amount of $5,000,000 or any larger multiple of $5,000,000 or (y)
the full amount thereof, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the Advances. The
Lenders' Commitments will be terminated or ratably reduced, as the case may
be.
(b) Extensions of Commitments. The Borrowers may, by notice to the
Agent (which shall promptly notify the Lenders) not less than 60 days and
not more than 120 days prior to each anniversary (each such anniversary, an
"Anniversary Date") of the Amendment and Restatement Effective Date,
request that each Lender extend the Termination Date to the date (the "New
Termination Date") that is one year after the Termination Date then in
effect (or if such date is not a Business Day, to the next succeeding
Business Day thereafter). The Lenders, acting in their sole discretion,
may, by written notice to SunAmerica and the Agent not less than 30 days
after the date of such request, agree to such request and thereby extend
the Termination Date to the New Termination Date; provided that no such
extension shall be made unless each Lender, acting in its sole discretion,
shall have so agreed to such extension.
(c) Increase in Commitments. (i) The Borrowers may, no more than
twice in any calendar year, propose to increase the aggregate amount of the
Commitments by an aggregate amount of not less than $25,000,000 or an
integral multiple of $1,000,000 in excess thereof (the "Proposed Aggregate
Commitment Increase") in the manner set forth below, provided that:
(x) no Default shall have occurred and be continuing either as
of the date of the Notice of Increase (as hereinafter defined) or as of the
Increase Date (as hereinafter defined); and
(y) after giving effect to any such increase, the aggregate
amount of the Commitments shall not exceed $500,000,000.
(ii) The Borrowers may request an increase in the aggregate amount
of the Commitments by delivering to the Agent a notice in substantially the
form of Exhibit I (a "Notice of Increase"; the date of delivery thereof to
the Agent being the "Increase Notice Date") specifying (x) the amount by
which the Borrowers propose to increase the aggregate amount of the
Commitments (the "Proposed Aggregate Commitment Increase"), (y) the
proposed date (the "Increase Date") on which the Commitments would be so
increased (which Increase Date may not be fewer than 30 nor more than 90
days after the Increase Notice Date) and (z) the New Lenders (as
hereinafter defined), if any, to whom the Borrowers propose to offer
(subject to clause (iii) below) the opportunity to commit to all or a
portion of the Proposed Aggregate Commitment Increase. The Agent shall in
turn promptly notify each Lender of the Borrowers' request by sending each
Lender a copy of such notice.
(iii) Promptly after the Increase Notice Date, the Agent shall notify
each Lender of the opportunity to commit to all or any portion of the
Proposed Aggregate Commitment Increase. Each Lender may in its sole
discretion (but shall not be obligated to) offer to commit to all or a
portion of the Proposed Aggregate Commitment Increase (such Lender's
"Proposed Increased Commitment") by notifying the Agent (which shall give
prompt notice thereof to SunAmerica) before 11:00 a.m. (New York City time)
on the date that is 10 Business Days after the Increase Notice Date.
(iv) If the aggregate Proposed Increased Commitments of all the
Lenders shall be less than the Proposed Aggregate Commitment Increase, then
(unless the Borrowers otherwise request) the Agent shall, on or prior to
the date that is 15 days after the Increase Notice Date, notify each New
Lender of the opportunity to so commit to all or any portion of the
Proposed Aggregate Commitment Increase not committed to by Lenders pursuant
to Section 2.10(c)(iii). Each New Lender may irrevocably commit to all or
a portion of such remainder (such New Lender's "Proposed New Commitment")
by notifying the Agent (which shall give prompt notice thereof to
SunAmerica) no later than 11:00 a.m. (New York City time) on the date five
days before the Increase Date; provided that:
(x) the Proposed New Commitment of each New Lender shall be in
an aggregate amount not less than $10,000,000; and
(y) each New Lender that submits a Proposed New Commitmentshall
promptly execute and deliver to the Agent (for its acceptance and recording
in the Register) a New Commitment Acceptance, together with a processing
and recordation fee payable to the Agent in the amount of $3,000.
(v) If the aggregate amount of Proposed New Commitments and Proposed
Increased Commitments (such aggregate amount, the "Total Committed
Increase") equals or exceeds $25,000,000, then, subject to the conditions
set forth in Section 2.10(c)(i):
(x) effective on and as of the Increase Date, the aggregate
amount of the Commitments shall be increased by the Total Committed
Increase and shall be allocated among the New Lenders and the Lenders as
provided in clause (vi) below; and
(y) on the Increase Date, if any Committed Advances are then
outstanding, the Borrowers shall borrow Committed Advances from all or
certain of the Lenders and/or prepay (subject to Section 2.14) Committed
Advances of all or certain of the Lenders such that, after giving effect
thereto, the Committed Advances (including, without limitation, the Types
and Interest Periods thereof) shall be held by the Lenders (including for
such purposes New Lenders) ratably in accordance with their respective
Commitments.
If the Total Committed Increase is less than $25,000,000, then the
aggregate amount of the Commitments shall not be changed pursuant to this
Section 2.10(c).
(vi) The Total Committed Increase shall be allocated among New
Lenders having Proposed New Commitments and Lenders having Proposed
Increased Commitments as follows:
(x) If the Total Committed Increase shall be at least
$25,000,000 and less than or equal to the Proposed Aggregate Commitment
Increase, then subject to clause (vii) below, (1) the initial Commitment of
each New Lender shall be such New Lender's Proposed New Commitment and (2)
the Commitment of each Lender shall be increased by such Lender's Proposed
Increased Commitment.
(y) If the Total Committed Increase shall be greater than the
Proposed Aggregate Commitment Increase, then the Proposed Aggregate
Commitment Increase shall be allocated, in such a manner as the Borrowers
and the Agent shall agree, among the Lenders (in each case not to exceed
their respective Proposed Increased Commitments) and to the New Lenders (in
each case not to exceed their respective Proposed New Commitments).
(vii) The increases in the Commitments contemplated hereby shall not
become effective until the Agent shall have received (x) Notes payable to
the respective New Lenders, and (y) evidence satisfactory to the Agent
(including an update of the opinion of counsel provided for in Section
4.1(c)) that such increases in the Commitments, and borrowings thereunder,
have been duly authorized.
(viii) As used herein, (1) "New Lender" means an Eligible Assignee
proposed by the Borrowers and acceptable to the Agent, and (2) "New
Commitment Acceptance" means an instrument executed and delivered by a New
Lender and accepted by the Agent in substantially the form of Exhibit J."
G. Use of Proceeds. Section 5.16 of the Credit Agreement shall
be amended to read as follows:
"SECTION 5.16. Proceeds. The proceeds of the Advances will be used
to provide liquidity to the Borrowers for general corporate purposes
(including, without limitation, to support the Borrowers' obligations under
the commercial paper programs of SunAmerica and its Subsidiaries) and to
finance acquisitions by SunAmerica and its Subsidiaries."
H. Certain Reports, Etc. Section 6.1(f) of the Credit Agreement
shall be amended by amending the introductory clause thereof to read as
follows:
"With respect to each Insurance Subsidiary that is a Material
Subsidiary".
I. Liens. Section 7.1 of the Credit Agreement shall be amended
by redesignating paragraph (o) thereof as paragraph (p), by amending
paragraphs (m) and (n) thereof to read as set forth below and by adding a
new paragraph (o) thereto reading as set forth below:
"(m) Liens on assets having an aggregate book value not exceeding
$50,000,000 at any one time granted under interest rate and/or currency
swap arrangements, interest rate protection arrangements, futures
contracts, total return swaps (and similar arrangements), regardless of
notional amount;
(n) Liens on assets of either Borrower and any Material Subsidiary,
in each case that secure Debt or other liabilities of such Borrower or such
Material Subsidiary and are not otherwise permitted by the foregoing
clauses of this Section 7.1 so long as the aggregate principal amount of
all such Debt and the aggregate amount of all such other liabilities
subject to this clause (n) at any time outstanding does not exceed
$150,000,000;
(o) Liens on assets arising or created in connection with
Recharacterized Sales of such assets by SunAmerica or any of its
Subsidiaries; and".
J. Consolidations, Etc. Section 7.2 of the Credit Agreement
shall be amended by deleting "or" at the end of paragraph (e) thereof, by
substituting "; or" for the period at the end of paragraph (f) thereof and
by adding the following paragraph (g) thereto:
"(g) to any consolidation or merger of any Subsidiary of SunAmerica
into or with any other Subsidiary of SunAmerica or to any sale, lease or
other transfer of any shares of the capital stock of any Subsidiary of
SunAmerica (or all or substantially all of the assets of any Subsidiary of
SunAmerica) to any other Subsidiary of SunAmerica."
K. Assignments, Etc. Section 11.7 of the Credit Agreement shall
be amended by adding "or New Commitment Acceptance" following "Assignment
and Acceptance" in paragraph (c) thereof, and by adding a new paragraph (h)
thereto reading as follows:
"(h) Each New Lender shall submit a New Commitment Acceptance in
accordance with the provisions of Section 2.10(c). Upon the execution,
delivery, acceptance and recording of a New Commitment Acceptance, from and
after the Increase Date related thereto such New Lender shall be a party
hereto and have the rights and obligations of a Lender hereunder having the
Commitment specified therein (or such lesser Commitment as shall be
allocated to such New Lender in accordance with Section 2.10(c)). By
executing and delivering a New Commitment Acceptance, the New Lender
thereunder confirms to and agrees with the other parties hereto as follows:
(i) such New Lender hereby agrees that no Lender has made any
representation or warranty, or assumes any responsibility, with respect to
(x) any statements, warranties or representations made in or in connection
with this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument
or document furnished pursuant hereto or (y) the financial condition of the
Borrowers or the performance or observance by the Borrowers of any of their
respective obligations under this Agreement or any other instrument or
document furnished pursuant hereto; (ii) such New Lender confirms that it
has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 5.6 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such New Commitment Acceptance; (iii)
such assignee will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (iv) such New Lender
confirms that it is an Eligible Assignee; (v) such New Lender appoints and
authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto; and (vi) such New Lender agrees that it will perform in accordance
with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender."
L. Confidentiality. The Credit Agreement shall be amended by
adding the following new Section 11.12 thereto:
"SECTION 11.12. Confidentiality. Each Lender and the Agent (each, a
"Recipient") agrees (on behalf of itself and each of its officers,
directors, employees, accountants, attorneys and other advisors (each, a
"Representative")) to maintain the confidentiality of the Confidential
Information in accordance with such Recipient's customary procedures for
handling confidential information and in accordance with safe and sound
banking practices, and in any event using the same degree of care as such
Recipient uses to maintain the confidentiality of its own information of
equivalent importance. Nothing in this Section 11.12 shall limit the
disclosure of any Confidential Information (1) to the extent required by
statute, rule, regulation or judicial process, or in accordance with any
order, ruling or regulatory practice of any bank regulatory agency
(including, without limitation, the Board of Governors of the Federal
Reserve System) having or claiming jurisdiction of such Recipient, or to
bank examiners, (2) to other Recipients, to an affiliate of a Recipient, to
their Representatives or to counsel for any Representative, in each case
only to the extent the Person receiving such Confidential Information
agrees to maintain the confidentiality thereof in accordance with the terms
of this Section 11.12, (3) to the Recipient's auditors, in each case only
to the extent such auditors agree to maintain the confidentiality thereof
in accordance with the terms of this Section 11.12 or with such auditors'
customary practices for maintaining the confidentiality of such
information, (4) subject to Section 11.7(f), to any potential assignee or
participant (and their respective counsel) or (5) in connection with any
litigation to which such Recipient or a Representative is a party. For
purposes of this Section 11.12, "Confidential Information" means
information identified as such that SunAmerica or any of its Subsidiaries
furnishes to the Agent or any Lender, but does not include any such
information once such information has become generally available to the
public or once such information has become available to the Agent or any
Lender from a source other than SunAmerica and its Subsidiaries (unless, in
either case, such information becomes so available as a result of the
breach by the Agent or a Lender of its duty of confidentiality set forth in
this Section 11.12)."
M. Schedule 1. The Credit Agreement shall be amended by
amending Schedule 1 thereto to read as set forth on Schedule 1 hereto.
N. Form of Note. Exhibit A to the Credit Agreement shall be
amended by substituting "providing for, as of the Amendment and Restatement
Effective Date, a $250,000,000 revolving credit facility (as amended and
restated as of December 31, 1996 and as the same may be further amended
from time to time, the "Credit Agreement")" for "providing for a
$250,000,000 revolving credit facility (as the same may be amended from
time to time, the "Credit Agreement")".
O. Form of Notice of Committed Borrowing. Exhibit B to the
Credit Agreement shall be amended by amending clause (iv) thereof to read
as follows:
"(iv) Level [I] [II] [III] [IV] Status exists on the date of this
Notice; and".
P. New Exhibits. The Credit Agreement shall be amended by
adding Exhibits I and J hereto as Exhibits I and J thereto.
Section 3. Representations and Warranties. Each Borrower represents
and warrants to the Agent and the Banks that the representations and
warranties made by it in Article V of the Credit Agreement are true and
complete in all material respects on the date hereof with the same effect
as though made on and as of such date except to the extent they were
expressly made as of the Effective Date or expressly relate to a prior
date.
Section 4. Conditions Precedent. The amendment and restatement of
the Credit Agreement contemplated hereby shall become effective upon the
satisfaction of the following conditions precedent:
A. Execution by All Parties. This Amendment and Restatement shall
have been executed and delivered by each of the Borrowers, the Banks and
the Agent.
B. Notes. The Borrowers shall have delivered to the Agent for each
Bank a promissory note of the Borrowers in substantially the form of
Exhibit A to the Credit Agreement as amended and restated hereby, dated the
Amendment and Restatement Effective Date, payable to such Bank and
otherwise duly completed.
C. Documents. The Agent shall have received certified copies of the
charter and by-laws (or equivalent documents) of each Borrower (or, in the
alternative, a certification to the effect that none of such documents has
been modified since delivery thereof on the Effective Date pursuant to the
Credit Agreement).
D. Other Documents. The Agent shall have received such other
documents as the Agent or any Bank or special New York counsel to the Agent
may reasonably request.
Section 5. Pro Rata Adjustments. The Borrowers shall, on the
effective date of the amendment and restatement of the Credit Agreement
contemplated hereby, if any Committed Advances are outstanding on said
date, borrow Committed Advances from certain of the Banks and/or
(notwithstanding the provisions of Section 2.12(a) of the Credit Agreement
requiring that prepayments be made ratably in accordance with the principal
amounts of the Advances of the relevant Type held by the Banks) prepay
Committed Advances of certain of the Banks (together with accrued interest
and any amounts payable under Section 2.14 of the Credit Agreement) such
that, after giving effect thereto, the Committed Advances (including,
without limitation, the Types and Interest Periods thereof) shall be held
by the Banks ratably in accordance with their respective Commitments.
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This
Amendment and Restatement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Amendment and
Restatement by signing any such counterpart. This Amendment and
Restatement shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
and Restatement to be duly executed and delivered as of the day and year
first above written.
SUNAMERICA INC.
By:/s/Scott H. Richland
Name: Scott H. Richland
Title: Vice President
and Treasurer
SUNAMERICA FINANCIAL, INC.
By:/s/Susan L. Harris
Name: Susan L. Harris
Title: Secretary
CITIBANK, N.A.,
in its capacities as the Agent and
a Bank
By:/s/Kelley T. Hebert
Name: Kelley T. Hebert
Title: Attorney-in-Fact
Banks
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:/s/Michael T. Ernst
Name: Michael T. Ernst
Title: Vice President
THE BANK OF NEW YORK
By:/s/Christine Herrick
Name: Christine Herrick
Title: Vice President
THE CHASE MANHATTAN BANK
By:/s/Peter Platten
Name: Peter Platten
Title: Vice President
WELLS FARGO BANK
By:/s/Garret Baker
Name: Garret Baker
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By:/s/Thomas W. Doddridge
Name: Thomas W. Doddridge
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By:/s/Vicente L. Timiraos
Name: Vicente L. Timiraos
Title: Sr. Vice President
and Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:/s/Maria H. DellAquila
Name: Maria H. DellAquila
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
By:/s/Gregory A. Seib
Name: Gregory A. Seib
Title: Officer
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:/s/Vincent J. Portella
Name: Vincent J. Portella
Title: Managing Director
By:/s/Leo G. Kapakos
Name: Leo G. Kapakos
Title: Associate
SCHEDULE 1
Name of Lender Commitment
___________________________________________________________________________
CITIBANK, N.A. $25,000,000.00
BANK OF AMERICA NATIONAL TRUST
& SAVINGS ASSOCIATION $25,000,000.00
THE BANK OF NEW YORK $25,000,000.00
THE CHASE MANHATTAN BANK $25,000,000.00
WELLS FARGO BANK $25,000,000.00
THE FIRST NATIONAL BANK OF CHICAGO $25,000,000.00
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
LOS ANGELES AGENCY $25,000,000.00
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK $25,000,000.00
NATIONSBANK, N.A. (SOUTH) $25,000,000.00
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH $25,000,000.00
_______________
$250,000,000.00
EXHIBIT I
Notice of Increase
Citibank, N.A., as Agent
for the Lenders parties
to the Credit Agreement
referred to below
399 Park Avenue
New York, New York 10043
Attn: Insurance Department
[Date]
Ladies and Gentlemen:
The undersigned, SunAmerica Inc. and SunAmerica Financial Inc.,
refer to the Credit Agreement dated as of October 27, 1995 (as amended and
restated as of December 31, 1996 and as the same may be further amended
from time to time, the "Credit Agreement", the terms defined therein being
used herein as therein defined), among each of the undersigned, certain
Lenders parties thereto, and Citibank, N.A., as Agent for said Lenders, and
hereby give you notice, irrevocably, pursuant to Section 2.10(c) of the
Credit Agreement, that the undersigned request an increase in the aggregate
amount of the Commitments as follows:
Increase Date: _________________________
Proposed Aggregate
Commitment Increase: ___________________
The undersigned hereby certify that the following statements are
true on the date hereof, and will be true on the Increase Date:
(A) the representations and warranties made by the Borrowers in
Article V of the Credit Agreement are true and complete in all material
respects on the date hereof with the same effect as though made on and as
of such date except to the extent they were expressly made as of the
Effective Date or expressly relate to a prior date; and
(B) no Default has occurred and is continuing.
SUNAMERICA INC. SUNAMERICA FINANCIAL INC.
By_____________________ By_____________________
Name: Name:
Title: Title:
EXHIBIT J
[FORM OF NEW COMMITMENT ACCEPTANCE]
NEW COMMITMENT ACCEPTANCE
Dated ______________, ____
Reference is made to the Credit Agreement, dated as of October
27, 1995 (as amended and restated as of December 31, 1996 and as the same
may be further amended from time to time, the "Credit Agreement"), among
SunAmerica Inc., a Maryland corporation ("SunAmerica") and SunAmerica
Financial, Inc., a Georgia corporation (together with SunAmerica, the
"Borrowers"), the Lenders identified on the signature pages thereof and
Citibank, N.A., as Agent for the Lenders (the "Agent"). Unless otherwise
indicated in this New Commitment Acceptance (the "Acceptance"), the
capitalized terms used in this Acceptance shall have the meanings given to
such terms in the Credit Agreement.
1. [INSERT NAME OF ACCEPTED LENDER] (the "Accepted Lender")
agrees to become a party to the Credit Agreement and to have the rights and
perform the obligations of a Lender under the Credit Agreement, and to be
bound in all respects by the terms of the Credit Agreement.
2. The Accepted Lender hereby agrees to a Commitment of
[INSERT AMOUNT OF PROPOSED NEW COMMITMENT] (the "Proposed New Commitment").
3. The Accepted Lender (i) confirms that it has received a
copy of the Credit Agreement, together with copies of the financial
statements referred to in Section 5.6 thereof and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into this Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement; (iii) confirms that it is an Eligible
Assignee; (iv) appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the Credit Agreement
as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement are required to be performed by it as a
Lender; [and] (vi) specifies as its Domestic Lending Office [and address
for notices), Money Market Lending Office and Eurodollar Lending Office the
offices set forth beneath its name on the signature pages hereof [and (vii)
attaches the forms prescribed by the Internal Revenue Service of the United
States evidencing their exemption from U.S. withholding taxes].
4. The effective date for this Acceptance shall be the
Increase Date related to this Acceptance; provided that this Acceptance has
been fully executed and delivered to the Agent for acceptance and recording
by the Agent on or prior to such Increase Date.
5. Upon such execution, delivery, acceptance and recording
and as of the Increase Date, the Accepted Lender shall be a party to the
Credit Agreement with a Commitment equal to the Proposed New Commitment as
it may be adjusted or reduced pursuant to Section 2.10(c) of the Credit
Agreement and, to the extent provided in this Acceptance, have the rights
and obligations of a Lender thereunder.
6. Upon such acceptance and recording, from and after the
Increase Date, the Agent shall make all payments under the Credit Agreement
in respect of the Proposed New Commitment provided for in this Acceptance
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to the Accepted Lender.
7. This Acceptance shall be governed by and construed in
accordance with the laws of the State of New York.
8. This Acceptance may be signed in any number of
counterparts, each of which shall be an original, with the same as if the
signatures were upon the same instrument.
ACCEPTED LENDER
[Name of Accepted Lender]
By:___________________________
Title:
Domestic Lending office (and
address for notices):
[Address]
Money Market Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
Accepted and consented
to this ______ day of
____________, ____
CITIBANK, N.A., as Agent
By______________________
Name:
Title:
SUNAMERICA INC.
By______________________
Name:
Title:
SUNAMERICA
EXECUTIVE SAVINGS PLAN
Restated Effective January 1, 1997<PAGE>
SUNAMERICA
EXECUTIVE SAVINGS PLAN
WHEREAS, SunAmerica Inc. (the "Company") and certain of
its affiliates maintain a tax-qualified profit-sharing plan which
includes a pre-tax 401(k) plan feature ("401(k) Plan"); and
WHEREAS, under the 401(k) Plan certain highly
compensated employees are prevented by the tax laws from making
the full amount of contribution they desire to make; and
WHEREAS, the Company established, effective April 1,
1989, a plan ("Plan") to permit eligible employees to defer
amounts they cannot now defer under the 401(k) Plan and for
certain other purposes; and
WHEREAS, the Company now wishes to amend the Plan so
that the deferrals under the Plan are more closely coordinated
with the limitations applicable to the 401(k) Plan; and
WHEREAS, the Company wishes to make certain other
changes to the Plan;
NOW, THEREFORE, the SunAmerica Executive Savings Plan
(formerly titled "SunAmerica Supplemental Deferral Plan" and
"Broad Inc./SunAmerica Supplemental Deferral Plan") is hereby
restated in its entirety, effective as of January 1, 1997, as set
forth below. The provisions of this restated Plan shall apply to
all existing amounts credited under the Plan prior to its
restatement.<PAGE>
ARTICLE I
DEFINITIONS
When used in this Plan, the following terms shall have
the meanings set forth below unless a different meaning is
plainly required by the context:
1.1 "Account" means the records maintained by the Plan
Administrator to determine each Participant's interest under this
Plan. Such Account may be reflected as a book reserve entry in
the Company's accounting records, or as a separate account under
the Trust, or as a combination of both. Each Participant's
Account shall consist of at least two subaccounts: a Deferral
Subaccount and a Company Matching Subaccount. The Plan
Administrator may establish such additional subaccounts as it
deems necessary for the proper administration of the Plan.
1.2 "Anniversary Date" means the last day of each Plan
Year.
1.3 "Available 401(k) Deferral" has the meaning set
forth in Section 3.2(a)(2).
1.4 "Base Compensation" means an Eligible Employee's
Compensation, reduced by any amounts which the Plan Administrator
determines constitutes incentive compensation (including
incentive compensation paid to marketing and non-marketing
employees).
1.5 "Beneficiary" means the person or persons last
designated in writing by the Participant to receive the amounts
provided by this Plan in the event of such Participant's death;
or if no designation shall be in effect at the time of a
Participant's death or if all designated Beneficiaries shall have
predeceased the Participant, then the Beneficiary shall be the
following (in the priority order listed):
i) The trustee then existing of any inter vivos
(living) trust (including any amendment thereto up to the time of
the Participant's death) established by the Participant for the
benefit of the Participant's surviving spouse and/or issue,
provided the Participant's surviving spouse (if there be one) is
either a signatory thereto, or acknowledges, in writing to the
Plan Administrator, such surviving spouse's approval thereof;
ii) Such Participant's surviving spouse, if any;
iii) The Participant's lawful living issue (including
adopted issue) who survive such Participant, with each such
issue's beneficial interest to be determined by right of
representation;
iv) Otherwise, the Participant's estate.
1.6 "Code" means the Internal Revenue Code of 1986, as
amended.
1.7 "Company" means SunAmerica Inc. (a Maryland
corporation) or its successor or successors.
1.8 "Company Matching Subaccount" means the subaccount
of a Participant's Account maintained to reflect his interest in
the Plan attributable to the Company's matching credits or
contributions.
1.9 "Compensation" means the gross amount of salary or
wages paid to an Eligible Employee on the books of the Employer
on account of a Plan Year, including overtime payments,
commission payments, and bonus payments, and also including any
amount of salary or wages which the Eligible Employee elects to
defer under the 401(k) Plan or this Plan, or to contribute on a
pre-tax basis under Section 125 to a healthcare or similar plan.
1.10 "Deferral Subaccount" means the subaccount of a
Participant's Account maintained to reflect his interest in the
Plan attributable to his deferrals of Compensation.
1.11 "Election Form" means the form prescribed by the
Plan Administrator on which a Participant may specify the amount
of his Compensation that is to be deferred pursuant to the
provisions of Section II, whether the Participant's Available
401(k) Deferral should be contributed to the 401(k) Plan, and the
timing and form of benefit payment requested by the Participant.
1.12 "Eligible Employee" means any management or highly
compensated employee of an Employer designated by the Plan
Administrator as an employee eligible to participate in the Plan.
The Plan Administrator shall limit Eligible Employee status to a
select group of management or highly compensated employees, as
set forth in Sections 201, 301 and 401 of ERISA.
1.13 "Employer" means the Company and any affiliate or
subsidiary which adopts the Plan with the consent of the Company.
1.14 "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
1.15 "401(k) Matching Contribution" has the meaning set
forth in Section 3.2(b)(2).
1.16 "401(k) Plan" means the SunAmerica Inc. Profit
Sharing and Retirement Plan, as it may be amended from time to
time.
1.17 "Participant" means any Eligible Employee who
elects to defer Compensation under this Plan.
1.18 "Plan" means the SunAmerica Executive Savings
Plan, as it may be amended from time to time. This Plan
constitutes an unfunded plan maintained primarily for the purpose
of providing deferred compensation for a select group of
management or highly compensated employees, as set forth in
Sections 201, 301 and 401 of ERISA.
1.19 "Plan Year" means the 12-month period January 1 to
December 31.
1.20 "Plan Administrator" means the committee or
individual appointed pursuant to the provisions of this Plan to
administer this Plan.
1.21 "Trust" means the grantor trust maintained under
the terms of the Trust Agreement.
1.22 "Trust Agreement" means that certain agreement,
known as the Broad Inc./SunAmerica Supplemental Deferral Trust
Agreement, entered into by and between the Company and the
Trustee simultaneously herewith, as amended from time to time.
1.23 "Trustee" means the one or more persons (including
an organization) who have entered into the Trust Agreement as
Trustee of the Trust thereunder, and any duly appointed
successor.
1.24 "Valuation Date" means the Annual Valuation Date,
December 31, and any other date(s) selected by the Plan
Administrator as of which the assets of the Plan are valued.
ARTICLE II
PARTICIPATION
2.1 Eligibility. Each individual designated as an
Eligible Employee shall be eligible to participate in this Plan.
2.2 Deferral Election. Each Eligible Employee may
elect to defer any whole percentage up to 90% of his Compensation
in the manner described in Section 2.3. Notwithstanding the
foregoing, no Eligible Employee shall be allowed to defer
Compensation to the extent the Plan Administrator determines that
such compensation should be withheld to pay the employee's
portion of taxes under the Federal Insurance Contributions Act,
any state, federal or local income taxes, payments required to
maintain coverage for the employee or the employee's dependents
under any welfare plan or program of the Company, or any similar
payment. Any amount of Compensation deferred by a Participant
hereunder shall be distributed as provided in Sections 3.2, 3.4
and 3.5.
2.3 Time and Manner of Election. When an employee of
the Company first becomes an Eligible Employee, he may make a
prospective election to defer Compensation at any time within
30 days after the date on which he becomes an Eligible Employee.
However, such election must be made prior to the period of
service for which the Compensation subject to the deferral
election would otherwise be payable. Any subsequent deferral
election by the Eligible Employee must be made not later than
December 31st of the Plan Year preceding the Plan Year for which
the Compensation subject to the deferral election would otherwise
be payable.
An election to defer Compensation must be made in
writing on an Election Form and must be filed with the Plan
Administrator. The Election Form must specify the Compensation
to be deferred in the manner set forth on the Election Form. If
an Eligible Employee fails to file an Election Form with the Plan
Administrator by the prescribed time, he will be deemed to have
elected not to defer any Compensation under this Plan. Except as
provided in Section 2.4, a Participant may not discontinue or
change his election for a year which he has elected to defer
after the applicable election date.
2.4 Change of Election. Upon written notice to the
Plan Administrator delivered not less than ten days prior to the
end of a Plan Year, a Participant may increase, decrease, or
discontinue his deferral election for the following Plan Year;
provided, however, that (a) the election to increase, decrease,
or discontinue the amount deferred, and (b) the amount to be
deferred after such election, are within the limitations set
forth in Sections 2.2 and 2.3. If the Participant fails to
deliver a change of election form in the manner provided in this
section, his deferral election shall remain in effect for the
following Plan Year. In addition, a Participant may at any time
terminate an election and discontinue future deferrals of
Compensation under this Plan during the Plan Year by providing
written notice to the Plan Administrator not less than ten days
prior to the start of the next payroll period for which
Compensation will be payable. In such event, Compensation earned
for services subsequent to such termination will be paid directly
to the Eligible Employee and will not be subject to his prior
deferral election. A Participant who elects to discontinue
participation in the Plan for a Plan Year may not recommence
participation in the Plan until the next following Plan Year.
2.5 Coordination with 401(k) Plan Election. At the
time a Participant makes an election under Section 2.3 or changes
an election under Section 2.4, the Participant shall also
separately elect whether the Participant's Available 401(k)
Deferral (if any) should be contributed to the 401(k) Plan, as
described in Section 3.2(a). Such election shall be irrevocable
for the Plan Year to which it relates. The election made under
this Section 2.5 shall be in lieu of any other election to make
elective deferrals under the 401(k) Plan. A Participant may make
elective deferrals under the 401(k) Plan only as provided in this
Plan.
ARTICLE III
PARTICIPANT ACCOUNTS
3.1 Establishment of Accounts. The Plan Administrator
shall open and maintain an Account for each Participant.
Separate records shall be maintained of each Participant's
Deferral Subaccount and Company Matching Subaccount. The Plan
Administrator shall maintain Account and Subaccount records with
respect to any amounts transferred to the Trustee as provided in
Section 3.7, or contributed to the 401(k) Plan as provided in
Section 3.2.
3.2 Accounting for Participants' Interests.
(a) Deferral Subaccount.
(1) Initial Crediting of Subaccount. Each
Participant's Deferral Subaccount shall be initially
credited with the amounts of Compensation deferred by
the Participant at the time such amounts would
otherwise have been payable to the Participant.
(2) Debiting of Subaccount by Available 401(k)
Deferral. As soon as feasible following the end of a
Plan Year, the Plan Administrator shall determine, in
conjunction with the administrator of the 401(k) Plan,
each Participant's Available 401(k) Deferral. The Plan
Administrator shall determine each Participant's
Available 401(k) Deferral in its sole discretion,
provided that: (i) the Available 401(k) Deferral for
any Participant shall not exceed the amount specified
in Section 402(g) of the Code, (ii) the Available
401(k) Deferral for any Participant, and the group of
Participants as a whole, shall not exceed an amount
which, if contributed as elective deferrals to the
401(k) Plan, would cause the 401(k) Plan to fail to
satisfy the limitation of Code Section 401(k)(3), would
increase the margin by which the 401(k) Plan fails to
satisfy the limitation of Code Section 401(k)(3), or
would cause the 401(k) Plan to fail to satisfy the
nondiscrimination requirements of Code Section
401(a)(4). Notwithstanding the foregoing, the Plan
Administrator may (but shall not be required to)
establish Available 401(k) Deferral(s) in excess of the
limits set forth in clause (ii) above if the
administrator of the 401(k) Plan certifies that the
401(k) Plan will otherwise satisfy the limitation of
Code Section 401(k)(3). The Available 401(k) Deferral
for any Participant (or all Participants) may be zero
if the Plan Administrator so determines in its sole
discretion. In no event shall a Participant's
Available 401(k) Deferral exceed the amount of
Compensation deferred by the Participant for the Plan
Year.
Each Participant's Deferral Subaccount shall be debited
by the amount of the Participant's Available 401(k)
Deferral at the time the Available 401(k) Deferral is
contributed to the 401(k) Plan or refunded to the
Participant, as specified in subsection 3.2(a)(3).
(3) Contribution to 401(k) Plan or Refund to
Participant. If the Participant elected, pursuant to
Section 2.5, to have his Available 401(k) Deferral
contributed to the 401(k) Plan, then such amount shall
be contributed to the 401(k) Plan as soon as
practicable following the end of the Plan Year, but in
no event later than the March 15 following the end of
the Plan Year. If the Participant did not elect to
have the Available 401(k) Deferral contributed to the
401(k) Plan, then the Participant's Available 401(k)
Deferral shall be paid to the Participant as soon as
feasible following the end of the Plan Year, but in no
event later than the March 15 following the end of the
Plan Year.
(b) Company Matching Subaccount.
(1) Initial Crediting of Subaccount. On a monthly
basis, the Company Matching Subaccount of each
Participant who is actively employed on the last day of
the month shall be initially credited with the amount
that the Company would have contributed to the
Participant's Forfeitable Matching Contribution Account
under the 401(k) Plan for such month pursuant to the
provisions of Section 3.8 of the 401(k) Plan if the
amount of Compensation that the Participant elected to
defer under this Plan was instead deferred under the
401(k) Plan, subject to the limitations stated in
Sections 3.3 and 3.8 of the 401(k) Plan that matching
contributions shall only be made with respect to the
first 4% of an Eligible Employee's Base Compensation,
but without regard to the other limitations of the
401(k) Plan. The Plan Administrator may, in its sole
discretion, establish a different formula for
determining the matching contributions under this Plan;
provided that any such formula which would reduce the
available matching contribution for any Eligible
Employee to less than 4% of Base Compensation shall be
announced to Eligible Employees prior to the Plan Year
for which such formula applies.
(2) Debiting of Subaccount by 401(k) Plan Matching
Contribution. The Participant's Company Matching
subaccount shall be debited by either (i) in the case
of a Participant who elected to have his Available
401(k) Deferral contributed to the 401(k) Plan, the
amount actually contributed by the Company to the
Participant's Forfeitable Matching Contribution Account
under the 401(k) Plan, or (ii) in the case of a
Participant who elected to have his Available 401(k)
Deferral refunded to him, the amount which would have
been contributed by the Company to the Participant's
Forfeitable Matching Contribution Account under the
401(k) Plan if the Participant's Available 401(k)
Deferral had been contributed to the 401(k) Plan. In
either case, the debiting shall be made at the time the
Company makes its Matching Contribution to the 401(k)
Plan for Participants.
3.3 Vesting of a Participant's Account. A
Participant's interest in his Deferral Subaccount shall be at all
times 100% vested and nonforfeitable. A Participant's interest
in his Company Matching Subaccount shall be at any time vested in
the same percentage in which he is vested in his Forfeitable
Matching Contribution Account balance under the terms of the
401(k) Plan. If a Participant terminates employment with the
Company prior to being 100% vested in his Company Matching
Subaccount he will forfeit the nonvested portion of his Company
Matching Subaccount as of the end of the month in which his
termination of employment occurs (unless he resumes employment
with the Company prior to that time). To the extent that assets
representing such Participant's Company Matching Subaccount were
held in the Trust, the amount so forfeited may be applied by the
Company toward its matching contributions under Section 3.2(b)
for the Plan Year or a subsequent Plan Year.
3.4 Distribution of a Participant's Account Following
Termination of Employment.
(a) Request of Distribution Form. Pursuant to the
Election Form completed at the time a Participant elects to defer
Compensation pursuant to Section 2.2, the Participant shall
specify the form of payment which the Participant requests that
his or her Account be distributed upon termination of employment.
The Participant may change the request by filing a new Election
Form, provided that the change is filed with the Plan
Administrator at least one year prior to the Participant's
termination of employment. A Participant's last timely request
shall apply to the Participant's entire Account, unless the Plan
Administrator explicitly provides otherwise. The optional forms
of payment which may be requested are as follows:
(1) A lump sum payment on the date (which shall be no
later than five years following termination of
employment) designated by the Participant in the
Participant's Election Form; or
(2) Annual installments over 5, 10 or 15 years, to
begin on a date (which shall be no later than five
years following termination of employment) designated
by the Participant in the Participant's Election Form.
The amount to be paid to the Participant shall be the vested
portion (determined as of termination of employment) of the
Participant's Account. The vested and unpaid portion of a
Participant's Account shall continue to be credited (or debited)
monthly with investment gains and losses as set forth in Section
3.7(b). If installment payments are made to the Participant, the
Plan Administrator shall adjust the amount of each installment as
it deems appropriate to take into account investment gains or
losses which occur during the period that installment payments
are made. Accordingly, the crediting (or debiting) of investment
gains (or losses) may result in installment payments which are
not substantially equal, and may deplete the Participant's
Account before all installment payments are made.
(b) Disposition of Participant's Request. If a
Participant's employment with the Company terminates on or after
the Participant reaches age 55, distribution of the Participant's
entire Account shall be made in the form last timely requested by
the Participant. If a Participant's employment with the Company
terminates before the Participant reaches age 55, distribution of
the Participant's entire Account shall be made, in the Plan
Administrator's sole discretion, either (1) in the form last
timely requested by the Participant, or (2) a single lump sum as
soon as feasible following termination of employment. The Plan
Administrator shall exercise its discretion in the manner the
Plan Administrator determines best serves the interests of the
Company.
(c) Death of Participant. In the event of the death
of a Participant, the Participant's entire remaining unpaid
Account (adjusted for investment gains and losses through the
date of payment) shall be distributed in a single lump sum to the
Participant's beneficiary as soon as feasible following the
Participant's death, regardless of the age of the Participant at
the time of death, or any election made by the Participant prior
to death.
(d) Transition Rule. For any Participant whose
employment terminated prior to January 1, 1997, distribution
shall commence as soon as feasible following January 1, 1997, and
shall be made in the form of payment determined by the Committee.
3.5 Distributions Prior to Termination of Employment.
(a) Penalty Distributions. At any time, a
Participant, in his sole discretion, may withdraw up to 100% of
his vested Account balance subject to a penalty equal to 10% of
the amount withdrawn. The 10% penalty shall be permanently and
irrevocably forfeited. The forfeited amount shall be the
property of the Company.
(b) Hardship Distributions. A Participant may receive
a hardship distribution, subject to the approval of the Plan
Administrator, if the Participant suffers a financial hardship.
A financial hardship exists if the Participant demonstrates to
the satisfaction of the Plan Administrator that he has suffered a
severe financial hardship which is unforeseeable, and that he
does not have other assets sufficient to satisfy the financial
need created by the hardship. A hardship includes, but is not
limited to, a hardship as defined in the 401(k) Plan. The
determination of whether a Participant has suffered a hardship
shall be made by the Plan Administrator in its sole discretion.
A hardship distribution shall be in an amount no greater than the
amount needed to satisfy the hardship, as determined by the Plan
Administrator.
(c) Advance Election. A Participant may receive
a distribution, without a penalty, of the dollar amount or
percentage of his Account requested by the Participant at least
three years in advance of the distribution date specified by the
Participant. A Participant's election to receive a distribution
under this subsection may not be revoked at any time within the
three-year period preceding the date of distribution.
3.6 Benefits Unfunded. The benefits provided by this
Plan shall be unfunded except to the extent otherwise provided
herein. All amounts payable under this Plan to Participants
shall be paid from the general assets of the Company, and nothing
contained in this Plan or the Trust Agreement shall require the
Company to set aside or hold in trust any amounts or assets for
the purpose of paying benefits to Participants, or invest assets
in any particular manner. This Plan shall create only a
contractual obligation on the part of the Company, and
Participants shall have the status of general unsecured creditors
under the Plan with respect to amounts of Compensation they defer
hereunder or any other obligation of the Company to pay benefits
pursuant hereto. Any funds of the Company available to pay
benefits pursuant to the Plan (but not any amounts held in trust)
shall be subject to the claims of general creditors of the
Company, and may be used for any purpose by the Company.
3.7 Trust Arrangements and Investment of Accounts.
(a) Notwithstanding Section 3.6, the Company may at
any time transfer assets representing all or any portion of a
Participant's Account to the Trust to be held and invested and
reinvested by the Trustee pursuant to the terms of the Trust
Agreement and this Section 3.7. However, to the extent provided
in the Trust Agreement only, such transferred amounts shall
remain subject to the claims of general creditors of the Company.
To the extent that assets representing a Participant's Account
are held in the Trust when his benefits under the Plan become
payable, the Plan Administrator may direct the Trustee to pay
such benefits to the Participant from the assets of the Trust.
(b) Except to the extent other investment funds or
arrangements are established by the Plan Administrator or the
Trustee, amounts in the Participant's Account under the Plan
shall be credited (or debited) with investment gains (or losses)
corresponding to investment funds established by the Plan
Administrator and selected by the Participant. The Participant's
election of the investment fund or funds upon which such
crediting and debiting will be based, including the right to
change such election with respect to his future contributions and
his existing account balance, shall be handled in the manner
prescribed by the Plan Administrator. Investment gains (or
losses) on amounts distributed from the Plan shall be credited
through the last business day of the month preceding the month in
which distribution occurs.
ARTICLE IV
PLAN ADMINISTRATOR
4.1 Members. The Plan Administrator shall consist of
a committee or an individual appointed by the Board to serve at
its pleasure. Members of the committee shall not be required to
be employees of the Company or Participants. Any committee
member may resign by giving notice, in writing, filed with the
Board.
4.2 Action. Action of the Plan Administrator may be
taken with or without a meeting of committee members; provided,
however, that any action shall be taken only upon the vote or
other affirmative expression of a majority of the committee
members qualified to vote with respect to such action. If a
member of the committee or the appointed individual is a
Participant in the Plan, he shall not participate in any decision
which solely affects his own Account. The Plan Administrator
shall for purposes of administering the Plan choose a secretary
who shall keep minutes of the Plan Administrator's proceedings
and all records and documents pertaining to the administration of
this Plan. The secretary may execute any certificate or any
other written direction on behalf of the Plan Administrator.
4.3 Right and Duties. The Plan Administrator, on
behalf of the Participants, shall administer the Plan and shall
have all powers necessary to accomplish that purpose, including
(but not limited to) the following:
(a) To construe, interpret, and administer this Plan;
(b) To make allocations and determinations required by
this Plan, and to maintain records regarding Participants'
Accounts;
(c) To compute and certify to the Company and the
Trustee the amount and kinds of benefits payable to Participants
or their Beneficiaries, and to determine the time and manner in
which such benefits are to be paid;
(d) To authorize all disbursements by the Company and
the Trustee pursuant to this Plan and the Trust;
(e) To maintain all the necessary records of the
administration of this Plan;
(f) To make and publish such rules for the regulation
of this Plan as are not inconsistent with the terms hereof;
(g) To delegate to other individuals or entities from
time to time the performance of any of its duties or
responsibilities hereunder;
(h) To direct the Trustee concerning the performance
of various duties and responsibilities under the Trust; and
(i) To establish or to change the investment options
under Section 3.7 of the Plan and the Trust.
The Plan Administrator has the exclusive right to
construe and to interpret the Plan, to decide all questions of
eligibility for benefits and to determine the amount of such
benefits, and its decisions on such matters are final and
conclusive.
4.4 Compensation, Indemnity and Liability. The Plan
Administrator shall serve as such without bond and without
compensation for services hereunder. All expenses of the Plan
Administrator shall be paid by the Company. If the Plan
Administrator is a committee, no member of the committee shall be
liable for any act or omission of any other member of the
committee, nor for any act or omission on his own part, excepting
his own willful misconduct or gross negligence. The Company
shall indemnify and hold harmless the Plan Administrator and each
member of the committee, if any, against any and all expenses and
liabilities, including reasonable legal fees and expenses,
arising out of his membership on the committee, excepting only
expenses and liabilities arising out of his own willful
misconduct or gross negligence.
4.5 Taxes. If the whole or any part of any
Participant's Account shall become liable for the payment of any
estate, inheritance, income, or other tax which the Company shall
be required to pay or withhold, the Company shall have the full
power and authority to withhold and pay such tax out of any
monies or other property in its hand for the Account of the
Participant whose interests hereunder are so liable. Prior to
making any payment, the Company may require such releases or
other documents from any lawful taxing authority as it shall deem
necessary.
ARTICLE V
CLAIMS PROCEDURE
5.1 Claims for Benefits. If a Participant or
Beneficiary (hereafter, "Applicant") does not receive timely
payment of any benefits which he believes are due and payable
under the Plan, he may make a claim for benefits to the Plan
Administrator. The claim for benefits must be in writing and
addressed to the Plan Administrator or to the Company. If the
claim for benefits is denied, the Plan Administrator shall notify
the Applicant in writing within 90 days after the Plan
Administrator initially received the benefit claim. Any notice
of a denial of benefits shall advise the Applicant of the basis
for the denial, any additional material or information necessary
for the Applicant to perfect his claim, and the steps which the
Applicant must take to have his claim for benefits reviewed.
5.2 Appeals. Each Applicant whose claim for benefits
has been denied may file a written request for a review of his
claim by the Plan Administrator. The request for review must be
filed by the Applicant within 60 days after he received the
written notice denying his claim. The decision of the Plan
Administrator will be made within 60 days after receipt of a
request for review and shall be communicated in writing to the
Applicant. Such written notice shall set forth the basis for the
Plan Administrator's decision. If there are special
circumstances (such as the need to hold a hearing) which require
an extension of time for completing the review, the Plan
Administrator's decision shall be rendered not later than 120
days after receipt of a request for review.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 Amendments. The Company shall have the right to
amend this Plan in whole or in part from time to time by
resolution of the Board or by action of the Company's Personnel,
Compensation and Stock Plan Committee (or its successor, and to
amend and cancel any amendments; provided, however, that no
action under this Section shall cancel or adversely affect
amounts credited at that time to any Participant's Account. An
amendment shall be in writing and executed by a duly authorized
officer of the Company. All Participants shall be bound thereby.
6.2 Discontinuance of Plan. The Company expects to
continue this Plan, but does not obligate itself to do so. The
Company reserves the right to discontinue and terminate the Plan
at any time, for any reason (including a change, or an impending
change, in the tax laws of the United States or any State) by
resolution of the Board. If the Plan is terminated, the Plan
Administrator shall be notified of such action in a writing
executed by a duly authorized officer of the Company, and the
Plan shall be terminated at the time therein set forth.
Termination of the Plan shall be binding on all Participants, but
in no event may such termination cancel or adversely affect
amounts credited at that time to any Participant's Account. If
this Plan is terminated, amounts theretofore credited to
Participants' Accounts shall either be paid to them immediately,
or in some other manner consistent with the provisions of
Section 3.4, as determined by the Board in its sole discretion.
ARTICLE VII
MISCELLANEOUS
7.1 Limitation on Participant's Rights. Participation
in this Plan shall not give any Participant the right to be
retained in the Company's employ or any right or interest in this
Plan or any assets of the Company other than as herein provided.
The Company reserves the right to terminate any Participant
without any liability for any claim against the Company except to
the extent provided herein.
7.2 Other Plans. This Plan shall not affect the right
of any Eligible Employee or Participant to participate in and
receive benefits under and in accordance with the provisions of
any other employee benefit plans which are now or hereafter
maintained by the Company, unless the terms of such other
employee benefit plan or plans specifically provide otherwise.
7.3 Receipt or Release. Any payment to a Participant
in accordance with the provisions of this Plan shall, to the
extent thereof, be in full satisfaction of all claims against the
Plan Administrator and the Company, and the Plan Administrator
may require such Participant, as a condition precedent to such
payment, to execute a receipt and release to such effect.
7.4 Governing Law. This Plan shall be construed,
administered, and governed in all respect in accordance with
applicable federal law and, to the extent not preempted by
federal law, in accordance with the laws of the State of
California. If any provisions of this instrument shall be held
by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to
be fully effective.
7.5 Gender, Tense, and Headings. In this Plan,
whenever the context so indicates, the singular or plural number
and the masculine, feminine, or neuter gender shall be deemed to
include the other. Headings and subheadings in this Plan are
inserted for convenience of reference only and are not considered
in the construction of the provisions hereof.
7.6 Successors and Assigns. This Plan shall inure to
the benefit of and be binding upon, the parties hereto and their
successors and assigns; provided, however, that the amounts
credited to the Account of a Participant shall not be assignable
or transferrable and, except as provided by Section 4.5, any
purported transfer, assignment, encumbrance or attachment thereof
shall be void and of no effect. In the event of a dispute
involving any individual's right to receive the distribution of
the Account, the Plan Administrator or the Company may enter an
interpleaded action. Payment of the Account to a court of
competent jurisdiction with proper notice to the appropriate
parties in dispute shall be in full satisfaction of all claims
against the Plan Administrator and the Company as to the Account,
and shall be equivalent to a receipt and release pursuant to
Section 7.3.
IN WITNESS WHEREOF, the Company has caused this
restated Plan to be executed by its duly authorized officer as of
January 1, 1997.
SUNAMERICA INC.
By:/s/ SCOTT RICHLAND
------------------
Scott Richland
Vice President and Treasurer
