<PAGE>
Registration No. 33-58677
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment No. 1
to
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE TRAVELERS LIFE AND ANNUITY COMPANY
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and
THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Exact name of registrant as specified in its charter)
CONNECTICUT
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(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number: 06-0904249
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I.R.S. Employer Identification Number: 06-0566090
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One Tower Square, Hartford, Connecticut 06183 (203) 277-0111
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(Address, including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
Ernest J. Wright
The Travelers Life and Annuity Company
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183
(203) 277-4345
----------------------------------------
(Name, Address, including Zip Code, and Telephone Number,
including Area Code of Agent for Service)
Approximate date of commencement of proposed sale to the public: The annuities
covered by this registration statement are to be issued from time to time after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. X
--------
If the Registrant elects to deliver its latest Annual Report to security-
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box.
-------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
----------------------------------
THE TRAVELERS LIFE AND ANNUITY COMPANY
THE TRAVELERS INSURANCE COMPANY
Cross Reference Sheet Pursuant to Regulation S-K, Item 501(b)
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<TABLE>
<CAPTION>
Item
No. Form S-2 Caption Heading in Prospectus
- ---- ---------------- ---------------------
<S> <C> <C>
1. Forepart of the Registration Outside Front Cover Page of Registration
Statement and Outside Front Statement and Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Available Information; Incorporation of
Back Cover Pages of Certain Documents by Reference; Table of
Prospectus Contents
3. Summary Information, Risk Prospectus Summary; Outside Front Cover
Factors and Ratio of Page
Earnings to Fixed Charges
4. Use of Proceeds Investments by the Company
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of the Contract
9. Description of Securities Outside Front Cover Page of Prospectus;
to be Registered Description of Contracts; Limited Guarantee
10. Interests of Named Experts Not Applicable
and Counsel
11. Information with Respect to Outside Front Cover Page; Incorporated
the Registrant by Reference to Form 10-K; Description of
The Travelers Life and Annuity Company
12. Incorporation of Certain Incorporation of Certain Documents by
Information by Reference Reference
13. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
</TABLE>
<PAGE>
THE TRAVELERS LIFE AND ANNUITY COMPANY
THE TRAVELERS INSURANCE COMPANY
ONE TOWER SQUARE
HARTFORD, CONNECTICUT 06183
TTM
TRAVELERS TARGET MATURITY
MODIFIED GUARANTEED ANNUITY CONTRACT
This Prospectus describes $100 million in participating interests in
individual and group deferred annuity contracts issued by The Travelers Life
and Annuity Company (the "Company"). They are designed to offer retirement
programs to eligible individuals. With respect to the group Contract, eligible
individuals include persons who have established accounts with certain broker-
dealers that have entered into a participation agreement to offer interests in
the Contract, and members of other eligible groups. (See "Distribution of the
Contracts," page 11.) An individual deferred annuity contract is offered in
certain states and through certain trusts. Certain Qualified Plans may also
purchase the Contract. (See Appendix A.)
Participation by an individual in a group Contract will be separately
accounted for by the issuance of a certificate evidencing the individual's
interest under the Contract. Participation in an individual Contract is
evidenced by the issuance of an individual annuity Contract. A group Contract
will be issued under certain circumstances. (See Appendix A.) The certificate,
group and individual annuity Contract are hereafter collectively referred to
as the "Contract."
A minimum single Purchase Payment of at least $5,000 must accompany the
application or purchase order for a Contract. Prior approval by the Company is
necessary for Purchase Payments in excess of $1,000,000. No additional
payments are permitted to be made under a Contract, although eligible
individuals may purchase more than one Contract. (See "Description of the
Contracts--Application and Purchase Payment," page 2.)
Purchase Payments become part of the general assets of the Company. The
Company intends generally to invest funds received in relation to the
Contracts in fixed income securities, including public and privately placed
bonds, and mortgages. (See "Investments by the Company," page 11.)
The Travelers Insurance Company ("Travelers Insurance") has entered into an
agreement, a Limited Guarantee, with the Company whereby Travelers Insurance
has agreed to guarantee the Contracts described in this Prospectus as to
principal and interest under the Contracts. (See "Limited Guarantee," page
20.)
UPON A SUBSEQUENT GUARANTEE PERIOD, THE GUARANTEED INTEREST RATE WILL BE
DECLARED BY THE COMPANY BASED ON VARIOUS FACTORS. IT MAY BE HIGHER OR LOWER
THAN THE PREVIOUS GUARANTEED INTEREST RATE. (See "Guarantee Periods," page 3
and "Establishment of Guaranteed Interest Rates," page 4.)
THIS PROSPECTUS IS ACCOMPANIED BY A COPY OF THE TRAVELERS INSURANCE
COMPANY'S LATEST ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED DECEMBER 31,
1994, A FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1995 AND A FORM 8-K DATED
JUNE 25, 1995, WHICH CONTAIN ADDITIONAL INFORMATION ABOUT THE TRAVELERS
INSURANCE COMPANY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED OR OTHERWISE
PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
INVESTMENT.
THE DATE OF THIS PROSPECTUS IS .
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MUTUAL FUNDS, ANNUITIES AND INSURANCE PRODUCTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK, NOR ARE THEY INSURED OR OTHERWISE
PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
INVESTMENT.
THE DATE OF THIS PROSPECTUS IS .
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
GLOSSARY OF SPECIAL TERMS..........................................GLOSSARY - 1
PROSPECTUS SUMMARY..................................................SUMMARY - 1
THE INSURANCE COMPANY...................................................... 1
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
DESCRIPTION OF THE CONTRACTS............................................... 2
Application and Purchase Payment......................................... 2
Right to Cancel.......................................................... 2
ACCUMULATION PERIOD........................................................ 3
Guarantee Periods........................................................ 3
ESTABLISHMENT OF GUARANTEED INTEREST RATES................................. 4
SURRENDERS................................................................. 5
General.................................................................. 5
Surrender Charge......................................................... 5
Market Value Adjustment.................................................. 5
Special Surrenders....................................................... 6
Waiver of Surrender Charge............................................... 6
Reduction or Elimination of Surrender Charges............................ 7
Guarantee Period Exchange Option......................................... 7
Premium Taxes............................................................ 7
DEATH BENEFIT.............................................................. 8
PAYMENT UPON FULL OR PARTIAL SURRENDER..................................... 8
ANNUITY PERIOD............................................................. 8
Election of Annuity Commencement Date and Form of Annuity................ 8
Change of Annuity Commencement Date or Annuity Option.................... 9
Annuity Options.......................................................... 9
Annuity Payment.......................................................... 10
Death of Annuitant After Annuity Commencement Date....................... 10
INVESTMENTS BY THE COMPANY................................................. 11
AMENDMENT OF THE CONTRACTS................................................. 11
ASSIGNMENT OF THE CONTRACTS................................................ 11
DISTRIBUTION OF THE CONTRACTS.............................................. 11
FEDERAL TAX CONSIDERATIONS................................................. 12
General.................................................................. 12
Section 403(b) Plans and Arrangements.................................... 12
Qualified Pension and Profit-Sharing Plans............................... 13
Individual Retirement Annuities.......................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 457 Plans........................................................ 13
Nonqualified Annuities................................................... 14
Federal Income Tax Withholding........................................... 15
Tax Advice............................................................... 16
LEGAL OPINION.............................................................. 16
INDEPENDENT ACCOUNTANTS.................................................... 16
LIMITED GUARANTEE.......................................................... 17
THE TRAVELERS LIFE AND ANNUITY COMPANY..................................... 17
Business................................................................. 17
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 18
FINANCIAL STATEMENTS....................................................... 23
APPENDIX A................................................................. 51
Modified Guaranteed Annuity for Qualified Plans.......................... 51
APPENDIX B................................................................. 52
</TABLE>
<PAGE>
GLOSSARY OF SPECIAL TERMS
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In this Prospectus the following terms have the indicated meanings:
ACCOUNT VALUE -- The Purchase Payment plus all interest earned, minus all
surrenders, surrender charges and applicable premium taxes previously
deducted.
ANNUITANT -- The person upon whose life the Contract is issued.
ANNUITY COMMENCEMENT DATE -- The date on which annuity payments are to start.
The date may be designated in the Contract or elected by the Owner.
BENEFICIARY -- The person entitled to receive benefits pursuant to the terms
of the Contract in case of the death of the Annuitant or the Owner, or
joint Owner, as applicable.
CASH SURRENDER VALUE -- The Cash Value less surrender charges and any
applicable premium tax.
CASH VALUE -- The Account Value at the end of a Guarantee Period or the Market
Adjusted Value before the end of a Guarantee Period.
COMPANY (WE, US, OUR) -- The Travelers Life and Annuity Company.
CONTINGENT ANNUITANT -- The person named prior to the Contract Date by the
Owner who, upon the Annuitant's death (prior to the Annuity Commencement
Date) becomes the Annuitant. All rights and benefits provided by the
Contract then continue to be in effect. Applicable to nonqualified
Contracts only.
CONTRACT -- For a group Contract, the certificate evidencing a participating
interest in the group annuity Contract. Any reference in this Prospectus to
Contract includes the underlying group annuity Contract. For an individual
Contract, the individual annuity Contract.
CONTRACT DATE -- The effective date of participation under the group annuity
Contract as designated in the certificate, or the date of issue of an
individual annuity Contract.
CONTRACT YEAR -- A continuous twelve-month period commencing on the Contract
Date and each anniversary thereof.
GUARANTEE PERIOD -- The period for which either an initial or subsequent
Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE -- The annual effective interest rate credited during
the Guarantee Period.
HOME OFFICE -- The principal executive offices of The Travelers Life and
Annuity Company located at One Tower Square, Hartford, Connecticut 06183
(Attention: Annuity Services).
MARKET VALUE ADJUSTMENT -- The Market Value Adjustment reflects the
relationship, at the time of surrender, between the then-current Guaranteed
Interest Rate for a Guarantee Period equal to the duration left in your
Guarantee Period, and the Guaranteed Interest Rate that applies to your
Contract.
MATURITY VALUE -- The accumulated value of a Purchase Payment at the
Guaranteed Interest Rate at the end of the Guarantee Period selected, minus
all surrenders, surrender charges and premium taxes previously deducted.
- -------------------------------------------------------------------------------
Glossary-1
<PAGE>
OWNER (YOU, YOURS) -- For an individual Contract, the person or entity to whom
the individual Contract is issued. Joint Owners, who share in ownership
rights and any benefits or payments, may be named in nonqualified
Contracts. For a group Contract, the person or entity to whom the
certificate under a group annuity Contract is issued.
PURCHASE PAYMENT -- The premium payment applied to the Contract less premium
taxes if applicable.
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Glossary-2
<PAGE>
PROSPECTUS SUMMARY
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The Travelers Life and Annuity Company ("Company"), an indirect wholly owned
subsidiary of Travelers Group Inc., is offering individual and group modified
guaranteed annuity contracts to eligible individuals.
Upon application or purchase order, you select an initial Guarantee Period
from among those available from the Company. Interest on the Purchase Payment
is credited on a daily basis and this compounding effect is reflected in the
Guaranteed Interest Rate. (See "Accumulation Period--Guarantee Periods," page
3 and "Establishment of Guaranteed Interest Rates," page 4.)
At the end of each Guarantee Period, a subsequent Guarantee Period of one
year will begin unless, within the thirty-day period prior to the end of the
Guarantee Period, you elect a different duration from among those offered by
us at that time.
The Account Value as of the first day of each subsequent Guarantee Period
will earn interest at the subsequent Guaranteed Interest Rate. THE COMPANY
WILL MAKE THE FINAL DETERMINATION AS TO GUARANTEED INTEREST RATES TO BE
DECLARED. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED INTEREST
RATES. (See "Accumulation Period--Guarantee Periods," page 3 and
"Establishment of Guaranteed Interest Rates," page 4.)
Subject to certain restrictions, full and partial surrenders are permitted.
However, such surrenders may be subject to a surrender charge and/or a Market
Value Adjustment. A full or partial surrender made prior to the end of a
Guarantee Period will be subject to a Market Value Adjustment. Except as
described below, the surrender charge will be deducted from any surrender made
before the end of the seventh Contract Year. The surrender charge will be an
amount equal to the amount surrendered multiplied by a specified percentage.
The applicable percentage is seven percent for surrenders occurring in the
first Contract Year, and will be reduced by one percentage point for each of
the next six Contract Years for surrenders occurring during those years. A
REQUEST FOR SURRENDER AT THE END OF A GUARANTEE PERIOD MUST BE RECEIVED IN
WRITING WITHIN 30 DAYS PRECEDING THE END OF THE GUARANTEE PERIOD. A MARKET
VALUE ADJUSTMENT WILL NOT BE APPLIED.
No surrender charge will apply for full or partial surrenders taken: (1) at
the end of an initial Guarantee Period of at least three years or (2) at the
end of any other Guarantee Period provided the surrender occurs on or after
the fifth Contract Year. We will waive surrender charges in certain instances.
(See "Surrenders--Waiver of Surrender Charge," page 6.) For Section 403(b) or
other qualified plan participants, surrenders may be subject to restrictions.
(See "Federal Tax Considerations" page 12.)
In addition, we will send you any interest that has been credited during the
prior Contract Year if you so request in writing. No surrender charge or
Market Value Adjustment will be imposed on such interest payments; however,
all applicable premium taxes will be deducted. Any such surrender may also be
subject to federal and state taxes. (See "Surrenders," page 5 and "Federal Tax
Considerations," page 12.)
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SUMMARY - 1
<PAGE>
The Market Value Adjustment reflects the relationship between the then
current Guaranteed Interest Rate for the duration remaining in the Guarantee
Period at the time of surrender and the Guaranteed Interest Rate that applies
to your Contract. Generally, the primary factor affecting the amount of the
Market Value Adjustment is the level of interest rates on investments to be
made by the Company at the time that the current Guaranteed Interest Rates are
established. The Market Value Adjustment is sensitive, therefore, to changes
in interest rates. It is possible that the amount you receive upon surrender
may be less than your original Purchase Payment if interest rates increase. It
is also possible that if interest rates decrease, the amount you receive upon
surrender may be more than your original Purchase Payment plus accrued
interest.
We may defer payment of any surrender for a period not exceeding six months
from the date of our receipt of your written notice of surrender or the period
permitted by state insurance law, if less, but such a deferral of payment will
be for a period greater than 30 days only under highly unusual circumstances.
Interest of at least 3 1/2% per annum will be paid on any amounts deferred for
more than 30 days if the Company chooses to exercise this deferral right. (See
"Payment Upon Full or Partial Surrender," page 8.)
On the Annuity Commencement Date specified by you, the Company will make
either a lump-sum payment or start to pay a series of payments on the Annuity
Options you select. (See "Annuity Period," page 8.)
The Contract provides for a death benefit. If the Annuitant dies before the
Annuity Commencement Date and there is no designated Contingent Annuitant
surviving, or if the Owner dies before the Annuity Commencement Date with the
Annuitant surviving, the death benefit will be payable to the Beneficiary. For
Contracts that are not tax-qualified, the party receiving distributions upon
the death of the Owner before the Annuity Commencement Date with the Annuitant
surviving may be either the surviving joint Owner or the Beneficiary depending
upon all the circumstances and terms of the Contract. The death benefit is
calculated as of the date we receive written notification of due proof of
death at the Company's Home Office. The death benefit will equal the Account
Value. (See "Death Benefit," page 8).
On any Contract subject to premium tax, the Company will deduct any
applicable premium taxes from the Cash Value either upon death, surrender,
annuitization, or at the time the Purchase Payment is made to the Contract.
(See "Surrenders--Premium Taxes," page 7.)
Certain changes and elections must be made in writing to the Company. Where
the term "in writing" is used, it means that written information must be sent
to the Company's Home Office in a form and content satisfactory to the
Company.
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SUMMARY - 2
<PAGE>
THE INSURANCE COMPANY
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The Travelers Life and Annuity Company (the "Company") is a wholly owned
subsidiary of The Travelers Insurance Company ("Travelers Insurance"), which
is indirectly owned, through a wholly owned subsidiary, by Travelers Group
Inc. The Company is a stock insurance company chartered in 1973 in the State
of Connecticut and has been continuously engaged in the insurance business
since that time. The Company is licensed to conduct a life insurance business
in a majority of the states of the United States, and intends to seek
licensure in the remaining states, except New York. The principal executive
offices of both the Company and Travelers Insurance are located at One Tower
Square, Hartford, Connecticut 06183, telephone number (203) 277-0111.
AVAILABLE INFORMATION
- -------------------------------------------------------------------------------
Travelers Insurance is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act"), as amended, and files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. and at the Commission's Regional Offices
located at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
Under the Securities Act of 1933, the Company and Travelers Insurance have
filed with the Commission a registration statement (the "Registration
Statement") relating to the Contracts offered by this Prospectus and the
related Limited Guarantee. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth
in the Registration Statement and the exhibits, and reference is hereby made
to such Registration Statement and exhibits for further information relating
to the Company, Travelers Insurance and the Contracts and related Limited
Guarantee. The Registration Statement and the exhibits may be inspected and
copied as described above. Although The Travelers Insurance Company does
furnish the Annual Report on Form 10-K for the year ended December 31, 1994 to
owners of contracts or certificates, neither the Company nor Travelers
Insurance plans to furnish subsequent annual reports containing financial
information to the owners of contracts or certificates described in this
Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- -------------------------------------------------------------------------------
The Travelers Insurance Company's latest Annual Report on Form 10-K and the
current reports on Form 8-K (dated January 3, 1995, April 21, 1995, and June
25, 1995) and Form 10-Q (dated May 15, 1995) have been filed with the
Commission pursuant to Section 15(d) of the 1934 Act. They are incorporated by
reference into this Prospectus and copies of the
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1
<PAGE>
Form 10-K, Form 10-Q dated May 15, 1995 and 8-K dated June 25, 1995 must
accompany this Prospectus.
The Form 10-K for the fiscal year ended December 31, 1994 contains
additional information about The Travelers Insurance Company, including
audited financial statements for The Travelers Insurance Company's latest
fiscal year. The Forms 8-K report certain significant events and pro forma
financial information concerning the sale of The Travelers Insurance Company's
group life and related businesses to Metropolitan Life Insurance Company and
the formation of The MetraHealth Companies Inc. ("MetraHealth"), the joint
venture of the health care benefits businesses of The Travelers Insurance
Company and Metropolitan Life Insurance Company, the subsequent agreement
relating to the proposed acquisition of MetraHealth by United HealthCare
Corporation and the proposed distribution of Class A Common Stock of Transport
Holdings, Inc. to common stockholders of Travelers Group, Inc. The pro forma
financial information in the Form 8-K dated June 25, 1995 supersedes the
previous Form 8-K filings. The Form 10-Q contains unaudited first quarter 1995
information that updates the financial information reported in Form 10-K.
If requested, the Company will furnish, without charge, to each person to
whom a copy of this Prospectus is delivered, a copy of any of the documents
referred to above which has been incorporated by reference in the Prospectus,
other than exhibits to any such documents (unless such exhibits are
specifically incorporated by reference in such documents). Any such requests
should be directed to The Travelers Life and Annuity Company, One Tower
Square, Hartford, Connecticut 06183-5030, Attention: Annuity Services. The
telephone number is (203) 277-0111.
DESCRIPTION OF THE CONTRACTS
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APPLICATION AND PURCHASE PAYMENT
To apply for a Contract, you must complete an application form or an order
to purchase. The application must be submitted to the Company's Home Office
for approval. Your Purchase Payment must accompany the application or order to
purchase in order for the Contract to become effective.
The minimum Purchase Payment is $5,000. The Company retains the right to
limit the amount of the maximum Purchase Payment to $1,000,000 without prior
approval.
On the date we receive your Purchase Payment, it becomes part of our general
assets and is credited to an account we establish for you. We then issue a
Contract and confirm the Purchase Payment in writing. You may not contribute
additional Purchase Payments to the Contract in the future. You may, however,
purchase additional Contracts at the then-effective interest rates.
In the event that your application or order to purchase is not properly
completed, we will attempt to contact your agent or broker by telephone. We
will return an improperly completed application, along with the corresponding
Purchase Payment, within ten days after we receive it, if the application or
order to purchase has not been properly completed by that time.
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2
<PAGE>
RIGHT TO CANCEL
State law may afford the right to cancel a Contract for a certain period of
time after receipt of the Contract and may allow a refund of the Purchase
Payment.
ACCUMULATION PERIOD
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GUARANTEE PERIODS
Upon application, you will select the duration of the Guarantee Period and
corresponding Guaranteed Interest Rate from among those offered by us. Your
Purchase Payment will earn interest at the Guaranteed Interest Rate during the
entire Guaranteed Period. All interest earned will be credited daily; this
compounding effect is reflected in the Guaranteed Interest Rate.
The following example is an illustration of how interest will be credited to
your Account Value during each Guarantee Period. For the purpose of this
example we have made the assumptions indicated.
NOTE: THE FOLLOWING EXAMPLE ASSUMES NO SURRENDERS, DEDUCTIONS FOR PREMIUM
TAXES, OR PRE-AUTHORIZED PAYMENT OF INTEREST DURING THE ENTIRE FIVE-YEAR
PERIOD. A MARKET VALUE ADJUSTMENT OR SURRENDER CHARGE MAY APPLY TO ANY SUCH
INTERIM SURRENDER (SEE "SURRENDERS," PAGE 5). THE HYPOTHETICAL GUARANTEED
INTEREST RATES ARE ILLUSTRATIVE ONLY AND ARE NOT INTENDED TO PREDICT FUTURE
GUARANTEED INTEREST RATES TO BE DECLARED UNDER THE CONTRACT. ACTUAL
GUARANTEED INTEREST RATES DECLARED FOR ANY GIVEN TIME MAY BE MORE OR LESS
THAN THOSE SHOWN.
EXAMPLE OF COMPOUNDING AT THE GUARANTEED INTEREST RATE
Beginning Account Value: $50,000
Guarantee Period: 5 years
Guaranteed Interest Rate: 5.50% per annum
<TABLE>
<CAPTION>
END OF CONTRACT YEAR
- -----------------------------------------------------------------------------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Account Value. $50,000.00
X (1+ Guaranteed Inter-
est Rate).............. 1.055
-----------
$52,750.00
===========
Account Value at end of
Contract Year 1........ $52,750.00
X (1+ Guaranteed Inter-
est Rate) ............. 1.055
-----------
$55,651.25
===========
Account Value at end of
Contract Year 2........ $55,651.25
X (1+ Guaranteed Inter-
est Rate).............. 1.055
-----------
$58,712.07
===========
Account Value at end of
Contract Year 3........ $58,712.07
X (1+ Guaranteed Inter-
est Rate).............. 1.055
----------
$61,941.23
==========
Account Value at end of
Contract Year 4........ $61,941.23
X (1+ Guaranteed Inter-
est Rate).............. 1.055
----------
$65,348.00
----------
Account Value at end of Guarantee
Period (i.e. Maturity Value) $65,348.00
==========
Total Interest Credited
in Guarantee Period-- $65,348.00 - 50,000.00 = $15,348.00
Account Value at end of
Guarantee Period-- $50,000.00 + 15,348.00 = $65,348.00
</TABLE>
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3
<PAGE>
At the end of any Guarantee Period, a subsequent Guarantee Period will
begin. The Account Value at the beginning of any subsequent Guarantee Period
will equal the Account Value at the end of the Guarantee Period just ending.
This Account Value will earn interest at the subsequent Guaranteed Interest
Rate. We will notify you in writing about selecting a subsequent Guarantee
Period before maturity. This written notification will not specify the then-
current Guaranteed Interest Rates. You may elect, during the 30-day period
before the end of the then-current Guarantee Period, a Guarantee Period of a
duration available at that time. The election may be made by notifying us in
writing or by telephone.
If no election is made, we will automatically transfer the Account Value
into a one-year Guarantee Period. At any time during that year, you may elect
to transfer from your current automatic one-year Guarantee Period into another
Guarantee Period of a different duration. No Market Value Adjustment, transfer
or surrender charge will be applied. Surrender charges will continue to be
based on time elapsed from the original Contract Date.
In no event may subsequent Guarantee Periods extend beyond the Annuity
Commencement Date then in effect. For example, if you are age 72 upon the
expiration of a Guarantee Period and you have chosen age 75 as an Annuity
Commencement Date, we will provide a three-year Guarantee Period to equal the
number of years remaining before your Annuity Commencement Date. Your Account
Value will then earn interest at a Guaranteed Interest Rate that we have
declared for that duration.
We will notify you of any subsequent Guaranteed Interest Rate applicable to
your Contract. You may also contact us to inquire about subsequent Guaranteed
Interest Rates.
ESTABLISHMENT OF GUARANTEED INTEREST RATES
- -------------------------------------------------------------------------------
You will know the Guaranteed Interest Rate for the Guarantee Period you
choose at the time you purchase your Contract, and we will send you a
confirmation that will show the amount of your Purchase Payment and the
applicable Guaranteed Interest Rate. After the end of each calendar year, we
will send you a statement that will show (a) your Account Value as of the end
of the preceding year, (b) all transactions regarding your Contract during the
year, (c) your Account Value at the end of the current year, and (d) the
Guaranteed Interest Rate being credited to your Contract.
The Company has no specific formula for determining Guaranteed Interest
Rates in the future. The Guaranteed Interest Rates will be declared from time
to time as market conditions dictate. (See "Investments by the Company," page
11.) In addition, the Company may also consider various other factors in
determining Guaranteed Interest Rates for a given period, including regulatory
and tax requirements, sales commissions, administrative expenses, general
economic trends and competitive factors.
THE COMPANY WILL MAKE THE FINAL DETERMINATION AS TO GUARANTEED INTEREST
RATES TO BE DECLARED. WE CANNOT PREDICT NOR CAN WE GUARANTEE FUTURE GUARANTEED
INTEREST RATES.
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4
<PAGE>
SURRENDERS
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GENERAL
The Company will permit full and partial surrenders of the Contract at any
time, subject to surrender charges described below. In the case of all
surrenders, the Cash Value and Maturity Value will be reduced.
Upon request, the Company will inform you of the amount payable upon a full
or partial surrender. Any full, partial or special surrender may be subject to
tax. (See "Federal Tax Considerations," page 12.)
For Participants in Section 403(b) tax-deferred annuity plans, a cash
surrender may not be made from certain amounts prior to the earliest of age 59
1/2, separation from service, death, disability or hardship. (See "Federal Tax
Considerations--Section 403(b) Plans and Arrangements," page 12.)
SURRENDER CHARGE
There are no sales charges deducted from a Purchase Payment when it is
received. However, a surrender charge may be assessed on surrenders made
before the end of the seventh Contract Year. The surrender charge is computed
as a percentage of the Cash Value (or portion thereof) being surrendered. The
chart below indicates the percentage charge applied during the specified
Contract Year:
<TABLE>
<CAPTION>
CONTRACT YEAR CHARGE AS A PERCENTAGE OF
IN WHICH SURRENDER IS MADE CASH VALUE
-------------------------- -------------------------
<S> <C>
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
No surrender charge will be made for surrender dates after Contract Year 7
or certain surrenders effective at the end of a Guarantee Period. (See
"Special Surrenders," below.)
MARKET VALUE ADJUSTMENT
The amount payable on a full or partial surrender made prior to the end of
any Guarantee Period may be adjusted up or down by the application of the
Market Value Adjustment.
The Market Value Adjustment reflects, at the time of surrender, the
relationship between the then-current Guaranteed Interest Rate for a Guarantee
Period equal to the duration left in your Guarantee Period, and the Guaranteed
Interest Rate that applies to your Contract.
Generally, if your Guaranteed Interest Rate is lower than the applicable
current Guaranteed Interest Rate, then the application of the Market Value
Adjustment will result in a lower payment upon surrender. Conversely, if your
Guaranteed Interest Rate is higher than
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5
<PAGE>
the applicable current Guaranteed Interest Rate, the application of the Market
Value Adjustment will result in a higher payment upon surrender.
For example, assume you purchase a Contract and select an initial Guarantee
Period of ten years which has a Guaranteed Interest Rate of 8% per annum.
Assume at the end of seven years you make a partial surrender. If the current
three-year Guaranteed Interest Rate is then 6%, the amount payable upon
partial surrender will increase after the application of the Market Value
Adjustment. On the other hand, if the current three-year Guaranteed Interest
Rate is higher than your 8% Guaranteed Interest Rate, for example, 10%, the
application of the Market Value Adjustment will decrease the amount payable to
you upon this partial surrender.
Generally, the primary factor affecting the amount of the Market Value
Adjustment is the level of interest rates on investments made by the Company
at the time that the current Guaranteed Interest Rates are established. The
Market Adjusted Value is sensitive, therefore, to changes in current interest
rates. It is possible that the amount you receive upon surrender would be less
than the original Purchase Payment if interest rates increase. It is also
possible that if interest rates decrease, the amount you receive upon
surrender may be more than the original Purchase Payment plus accrued
interest.
The formula for calculating the Market Value Adjustment is set forth in
Appendix B to this Prospectus, which also contains an additional illustration
of the application of the Market Value Adjustment.
SPECIAL SURRENDERS
No surrender charge or Market Value Adjustment will apply for full or
partial surrenders taken: (1) at the end of an initial Guarantee Period of at
least three years in duration; or (2) at the end of any other Guarantee Period
provided the surrender occurs on or after the fifth Contract Year. However,
Guarantee Periods initiated through the Guaranteed Period Exchange Option will
be subject to the surrender charges based on the original Contract Date. (See
"Guarantee Period Exchange Option," page 7.)
No surrender charges will be assessed upon the application of your Account
Value to elect an annuity option on the Annuity Commencement Date (except if
the Fifth Option is elected within the First Contract Year). A Market Value
Adjustment will be applied if the Annuity Commencement Date is not at the end
of a Guarantee Period. To elect an annuity option, you must notify us at least
30 days before your Annuity Commencement Date.
In addition, we will send you any interest that has been credited during the
prior Contract Year if you so request in writing. No surrender charge or
Market Value Adjustment will be imposed on such interest payments. Any such
surrender may, however, be subject to federal or state taxes.
WAIVER OF SURRENDER CHARGE
The surrender charge may be waived if:
(a) distributions are applied to any one of the annuity options (except
if the Fifth Option is elected within the first Contract Year);
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6
<PAGE>
(b) you become disabled (as defined by the Internal Revenue Code
("Code") Section 72 (m)(7)) subsequent to purchase of the Contract;
(c) the Owner or Annuitant dies and payment of a death benefit is made
to the Beneficiary;
(d) as a participant under a tax-deferred annuity plan (Section 403(b)
plan), you retire after age 55 and the Contract has been in force
for at least five years, provided that the payment is made directly
to the Owner;
(e) as Owner of an IRA, you reach age 70 1/2, and the Contract has been
in force for at least five years;
(f) as a participant under a qualified pension or profit sharing plan,
including a 401(k) plan, you retire at or after age 59 1/2 and the
Contract has been in force for at least five years, or if refunds
are made under any such plan to satisfy the anti-discrimination
test; or
(g) as a participant under a Section 457 deferred compensation plan, you
retire and the Contract has been in force for at least five years,
or if a financial hardship or disability withdrawal as defined by
the Code has been allowed by the plan administrator.
REDUCTION OR ELIMINATION OF SURRENDER CHARGES
The amount of the surrender charge and duration that may be assessed on a
Contract may be reduced or eliminated when sales of Contracts are made to
persons in certain employee or professional purchase arrangements in such a
manner that results in savings or reductions of sales and distribution
expenses. Any such reduction in the surrender charge will be based on the size
and type of groups to which sales are made (the sales and distribution
expenses for a larger group are generally less than for a smaller group), and
any prior or existing relationship with the Company.
There may be other circumstances, of which the Company is not presently
aware, which could result in reduced sales and distribution expenses. In no
event will reductions or elimination of the surrender charge and its duration
be permitted where such reductions or elimination would be unfairly
discriminatory to any person.
GUARANTEE PERIOD EXCHANGE OPTION
Once each Contract Year after the first year, you may elect to transfer from
your current Guarantee Period into a new Guarantee Period of a different
duration and at the then-current Guaranteed Interest Rate. A Market Value
Adjustment will be applied to your current Account Value at the time of
transfer. There will be no surrender charge for this exchange. However,
surrender charges will continue to be based on time elapsed from the original
Contract Date. We reserve the right to charge a fee of up to $50 for such
transfers, but do not impose a transfer charge as of the date of this
Prospectus.
PREMIUM TAXES
Certain state and local governments impose premium taxes. These taxes
currently range from 0.5% to 3 1/2%, depending upon jurisdiction. The Company,
in compliance with any
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7
<PAGE>
applicable state law, will determine the method used to recover premium tax
expenses incurred. The Company will deduct any applicable premium taxes from
the Cash Value either upon death, surrender, annuitization, or at the time the
Purchase Payment is made to the Contract, but no earlier than when the Company
has a tax liability under state law.
DEATH BENEFIT
- -------------------------------------------------------------------------------
A death benefit is payable to the Beneficiary upon the death of the
Annuitant prior to the Annuity Commencement Date with no contingent Annuitant
surviving. The death benefit will equal the Account Value, and will be
calculated as of the date we receive written notification of due proof of
death at the Company's Home Office. A Beneficiary may request that a death
benefit payable under the Contract be applied to one of the annuity options
available under the Contract, subject to the contract provisions.
In addition, for nonqualified contracts, if the Owner dies (including the
first of joint owners) before the Annuity Commencement Date with the Annuitant
surviving, and if a distribution is made as a result of such death, as
required by the Code's minimum distribution rules, the value of the death
benefit will be credited to the individual(s) taking distributions upon death
of the Owner. The individual(s) will generally be the surviving joint owner or
the Beneficiary in accordance with all the circumstances and the terms of the
Contract. The individual(s) may differ from the Beneficiary who was named by
the Owner in a written request and who would receive any remaining contractual
benefits upon the death of the Annuitant. The individual(s) may be paid in a
single lump sum, or by other options, but should take distributions as
required by the Code's minimum distribution rules. If the Owner's spouse is
the surviving joint owner or Beneficiary, the spouse may elect to continue the
Contract as owner in lieu of taking a distribution under the Contract.
PAYMENT UPON FULL OR PARTIAL SURRENDER
- -------------------------------------------------------------------------------
We may defer payment of any surrender for a period not exceeding six months
from the date we receive your notice of surrender or the period permitted by
state insurance law, if less. Only under highly unusual circumstances will we
defer a surrender payment more than 30 days, and if we defer payment for more
than 30 days, we will pay interest of at least 3.5% per annum on the amount
deferred. While all circumstances under which we could defer payment upon
surrender may not be foreseeable at this time, such circumstances could
include, for example, our inability to liquidate assets due to a general
financial crisis.
ANNUITY PERIOD
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ELECTION OF ANNUITY COMMENCEMENT DATE AND FORM OF ANNUITY
When you apply for or complete a purchase order for a Contract, you may
select an Annuity Commencement Date. If no date is elected, for nonqualified
Contracts, the automatic
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8
<PAGE>
default age is 95. For qualified Contracts, the automatic default age is 70
1/2. Within 30 days prior to your Annuity Commencement Date, you may elect to
have all or a portion of your Cash Value paid in a lump sum on your Annuity
Commencement Date. Alternatively, you may elect, at least 30 days prior to the
Annuity Commencement Date, to have your Cash Value or a portion thereof (less
applicable premium taxes, if any) distributed under any of the Annuity Options
described below. In the absence of such an election, for nonqualified
Contracts, the Cash Value will be applied on the Annuity Commencement Date
under the Second Option to provide a life annuity with 120 monthly payments
certain. For qualified Contracts, the Cash Value will be applied to the Fourth
Option, to provide a Joint and Last Survivor Life Annuity. This Contract may
not be surrendered after the commencement of annuity payments, except with
respect to the Sixth Option.
CHANGE OF ANNUITY COMMENCEMENT DATE OR ANNUITY OPTION
You may change the Annuity Commencement Date at any time as long as such
change is made in writing and is received by us at least 30 days prior to the
scheduled Annuity Commencement Date. Once an Annuity Option has begun, it may
not be changed.
ANNUITY OPTIONS
Any one of the following Annuity Options may be elected. Annuity payments
may be available on a monthly, quarterly, semiannual or annual basis. The
minimum amount that may be applied to Annuity Options is $2,000 unless we
consent to a smaller amount.
FIRST OPTION - LIFE ANNUITY: An annuity payable during the lifetime of the
Annuitant, ceasing with the last payment prior to the Annuitant's death. Upon
the death of the Annuitant, no additional annuity payments will be made.
SECOND OPTION - LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS
CERTAIN: An annuity providing income to the Annuitant for a guaranteed period
of 120 months, 180 months, or 240 months (as selected), and for as long
thereafter as the Annuitant lives.
THIRD OPTION - CASH REFUND LIFE ANNUITY: An annuity payable during the
lifetime of the Annuitant. Upon the death of the Annuitant, the Beneficiary
will receive a payment equal to the Cash Value applied to this option on the
Annuity Commencement Date minus the dollar amount of annuity payments already
paid.
FOURTH OPTION - JOINT AND LAST SURVIVOR LIFE ANNUITY: An annuity payable
during the lifetimes of the Annuitant and a designated second person, ceasing
with the last payment prior to the death of the survivor. Upon the death of
the last survivor, no additional annuity payments will be made.
FIFTH OPTION - PAYMENTS FOR A DESIGNATED PERIOD: An amount payable for the
guaranteed number of years selected which may be from five to thirty years.
SIXTH OPTION - ANNUITY PROCEEDS SETTLEMENT OPTION: Proceeds from the Death
Benefit may be left with the Company for a period not to exceed five years
from the date of the Owner's or Annuitant's death prior to the Annuity
Commencement Date. The proceeds will remain in the same Guarantee Period and
continue to earn the same Guaranteed Interest Rate as at the time of death. If
the Guarantee Period ends before the end of the five-year
- -------------------------------------------------------------------------------
9
<PAGE>
period, the Beneficiary may elect a new Guarantee Period with a duration not
to exceed the time remaining in the period of five years from the date of the
Owner's or Annuitant's death. Full or partial surrenders may be made at any
time. In the event of surrenders, the remaining Cash Value will equal the
proceeds left with the Company, minus any surrender charge and applicable
premium tax, plus any interest earned. A Market Value Adjustment will be
applied to all surrenders except those occurring at the end of a Guarantee
Period.
The Tables in the Contract reflect guaranteed dollar amounts of monthly
payments for each $1,000 applied under the first five Annuity Options listed
above. Under the First, Second or Third Options, the amount of each payment
will depend upon the age (and, for nonqualified Contracts, sex) of the
Annuitant at the time the first payment is due. Under the Fourth Option, the
amount of each payment will depend upon the payees' ages at the time the first
payment is due (and, for nonqualified Contracts, the sex of both payees).
The Tables for the First, Second, Third and Fourth Options are based on the
1983 Individual Annuitant Mortality Table A with ages set back one year and a
net investment rate of 3% per annum. The table for the Fifth Option is based
on a net investment rate of 3% per annum. If mortality appears more favorable
and interest rates so justify, at our discretion, we may apply other tables
which will result in higher payments for each $1,000 applied under one or more
of the first five Annuity Options.
ANNUITY PAYMENT
The first payment under any Annuity Option will be made on the Annuity
Commencement Date. Subsequent payments will be made in accordance with the
manner of payment selected and will be based on the first payment date.
The option elected must result in a payment at least equal to the minimum
payment amount according to Company rules then in effect. If at any time
payments are less than the minimum payment amount, the Company has the right
to change the frequency to an interval resulting in a payment at least equal
to the minimum. If any amount due is less than the minimum per year, the
Company may make other arrangements that are equitable to the Annuitant.
Once annuity payments have commenced, no surrender of the annuity benefit
(including benefits under the Fifth Option) can be made for the purpose of
receiving a lump-sum settlement.
DEATH OF ANNUITANT AFTER ANNUITY COMMENCEMENT DATE
In the event of the Annuitant's death after the Annuity Commencement Date
any amount payable as a death benefit will be distributed at least as rapidly
as under the method of distribution in effect.
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10
<PAGE>
INVESTMENTS BY THE COMPANY
- -------------------------------------------------------------------------------
Assets of the Company must be invested in accordance with the requirements
established by applicable state laws regarding the nature and quality of
investments that may be made by life insurance companies and the percentage of
their assets that may be committed to any particular type of investment. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages, real estate and
certain other investments. All claims by purchasers of the Contracts, and
other general account products, will be funded by the Company's general
account. All proceeds of the Contracts will be used for general corporate
purposes.
In establishing Guaranteed Interest Rates, the Company will consider the
yields on fixed income securities that are part of the Company's current
investment strategy for the Contracts at the time that the Guaranteed Interest
Rates are established. (See "Establishment of Guaranteed Interest Rates," page
4.) The current investment strategy for the Contracts is to invest in fixed
income securities, including public bonds, privately placed bonds, and
mortgages, some of which may be zero coupon securities. While the foregoing
generally describes our investment strategy, we are not obligated to follow
any particular strategy except as may be required by federal and state laws.
AMENDMENT OF THE CONTRACTS
- -------------------------------------------------------------------------------
We reserve the right to amend the Contracts to comply with applicable
federal or state laws or regulations. We will notify you in writing of any
such amendments.
ASSIGNMENT OF THE CONTRACTS
- -------------------------------------------------------------------------------
Your rights as evidenced by a Contract may be assigned as permitted by
applicable law. An assignment will not be binding upon us until we receive
notice from you in writing. We assume no responsibility for the validity or
effect of any assignment. You should consult your tax adviser regarding the
tax consequences of an assignment.
DISTRIBUTION OF THE CONTRACTS
- -------------------------------------------------------------------------------
Tower Square Securities, Inc. ("TSSI") is the principal underwriter of the
Contracts. TSSI is registered with the Securities and Exchange Commission
under the 1934 Act as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc. TSSI is an indirect wholly owned
subsidiary of Travelers Group Inc.
TSSI may enter into distribution agreements with certain broker-dealers
registered under the 1934 Act. Under the distribution agreements such broker-
dealers may offer Contracts to
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11
<PAGE>
persons who have established an account with the broker-dealer. In addition,
the Company may offer certificates to members of certain other eligible
groups. The Company will pay a maximum commission of 5% of the Purchase
Payment for the sale of a Contract.
From time to time, the Company may offer customers of certain broker-dealers
special Guaranteed Interest Rates and negotiated commissions. The Company may
pay a commission on an Owner's election of a subsequent Guarantee Period. In
addition, the Company may offer Contracts to members of certain other eligible
groups through trusts or otherwise.
FEDERAL TAX CONSIDERATIONS
- -------------------------------------------------------------------------------
GENERAL
The Company is taxed as a life insurance company under Subchapter L of the
Code. Generally, amounts credited to a contract are not taxable until received
by the Contract Owner, participant or beneficiary, either in the form of
annuity payments or other distributions. Tax consequences and limits are
described further below for each annuity program.
SECTION 403(B) PLANS AND ARRANGEMENTS
Purchase Payments for a tax deferred annuity contract may be made by an
employer for employees under annuity plans adopted by public educational
organizations and certain organizations which are tax exempt under Section
501(c)(3) of the Code. Within statutory limits, such payments are not
currently includable in the gross income of the participants. Increases in the
value of the contract attributable to these Purchase Payments are similarly
not subject to current taxation. The income in the contract is taxable as
ordinary income whenever distributed.
An additional tax of 10% will apply to any taxable distribution received by
the participant before the age of 59 1/2, except when due to death,
disability, or as part of a series of payments for life or life expectancy, or
made after the age of 55 with separation from service. There are other
statutory exceptions.
Amounts attributable to salary reductions and income thereon may not be
withdrawn prior to attaining the age of 59 1/2, separation from service,
death, total and permanent disability, or in the case of hardship as defined
by federal tax law and regulations. Hardship withdrawals are available only to
the extent of the salary reduction contributions and not from the income
attributable to such contributions. These restrictions do not apply to assets
held generally as of December 31, 1988.
Distributions must begin by April 1st of the calendar year following the
calendar year in which the participant attains the age of 70 1/2. Certain
other mandatory distribution rules apply at the death of the participant.
Certain rollover distributions, including most partial or full redemptions or
"term-for-years" distributions of less than 10 years, are eligible for direct
rollover to another 403(b) contract or to an Individual Retirement Arrangement
(IRA) without federal income tax withholding.
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12
<PAGE>
QUALIFIED PENSION AND PROFIT-SHARING PLANS
Under a qualified pension or profit-sharing trust described in Section
401(a) of the Code and exempt from tax under Section 501(a) of the code, a
Purchase Payment made by an employer is not currently taxable to the
participant and increases in the value of a contract are not subject to
taxation until received by a participant or beneficiary.
Distributions in the form of annuity payments are taxable to the participant
or beneficiary as ordinary income in the year of receipt. Any distribution
that is considered the participant's "investment in the contract" is treated
as a return of capital and is not taxable. Certain lump-sum distributions
described in Section 402 of the Code may be eligible for special ten-year
forward averaging treatment for individuals born before January 1, 1936. All
individuals may be eligible for favorable five-year forward averaging of lump-
sum distributions after age 59 1/2. Certain eligible rollover distributions
including most partial and full surrenders or term-for-years distributions of
less than 10 years are eligible for direct rollover to an eligible retirement
plan or to an IRA without federal income tax withholding.
An additional tax of 10% will apply to any taxable distribution received by
the participant before the age of 59 1/2, except by reason of death,
disability or as part of a series of payments for life or life expectancy, or
at early retirement at or after the age of 55. There are other statutory
exceptions.
INDIVIDUAL RETIREMENT ANNUITIES
To the extent of earned income for the year and not exceeding $2,000 per
individual, an individual may make deductible contributions to an individual
retirement annuity (IRA). (Note: The minimum Purchase Payment allowed for this
Contract is $5,000.) There are certain limits on the deductible amount based
on the adjusted gross income of the individual and spouse based on their
participation in a retirement plan. If an individual is married and the spouse
is not employed, the individual may establish IRAs for the individual and
spouse. Purchase Payments may then be made annually into IRAs for both spouses
in the maximum amount of 100% of earned income up to a combined limit of
$2,250.
Partial or full distributions made prior to the age of 59 1/2 are treated as
ordinary income. Amounts contributed after 1986 on a non-deductible basis are
not includable in income when distributed. Distributions must commence by
April 1st of the calendar year after the close of the calendar year in which
the individual attains the age of 70 1/2. The individual must maintain
personal and tax return records of any non-deductible contributions and
distributions.
Section 407(k) of the Code provides for the purchase of a Simplified
Employee Pension (SEP) plan. A SEP in funded through an IRA with an annual
employer contribution limit of 15% of compensation up to $30,000 for each
participant.
SECTION 457 PLANS
Section 457 of the Code allows employees and independent contractors of
state and local governments and tax-exempt organizations to defer a portion of
their salaries or compensation to retirement years without paying current
income tax on either the deferrals or the earnings on the deferrals.
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13
<PAGE>
The Owner of contracts issued under Section 457 plans is the employer or a
contractor of the participant and amounts may not be made available to
participants (or beneficiaries) until separation from service, retirement or
death or an unforeseeable emergency as determined by Treasury Regulations. The
proceeds of annuity contracts purchased by Section 457 plans are subject to
the claims of general creditors of the employer or contractor.
Distributions must begin generally by April 1st of the calendar year
following the calendar year in which the participant attains the age of 70
1/2. Certain other mandatory distribution rules apply upon the death of the
participant.
All distributions from plans that meet the requirements of Section 457 of
the Code are taxable as ordinary income in the year paid or made available to
the participant or beneficiary.
NONQUALIFIED ANNUITIES
Individuals may purchase tax-deferred annuities without tax law funding
limits. The Purchase Payment receives no tax benefit, deduction or deferral,
but increases in the value of the Contract are generally deferred from tax
until distribution. If a nonqualified annuity is owned by other than an
individual, however (e.g., by a corporation), the increases in value
attributable to Purchase Payments made after February 28, 1986 are includable
in income annually. Furthermore, for Contracts issued after April 22, 1987,
all deferred increases in value will be includable in income annually.
Furthermore, for Contracts issued after April 22, 1987, all deferred increases
in value will be includable in the income of an Owner when that Owner
transfers the Contract without adequate considerations.
The federal tax law requires nonqualified annuity contracts issued on or
after January 19, 1985 to meet minimum mandatory distribution requirements
upon the death of the Contract Owner. Failure to meet these requirements will
cause the succeeding Contract Owner or beneficiary to lose the tax benefits
associated with annuity contracts, i.e., primarily the tax deferral prior to
distribution. The distribution required depends upon whether an Annuity Option
is elected or whether the succeeding Owner is the surviving spouse. Contracts
will be administered by the Company in accordance with these rules.
If two or more nonqualified annuity contracts are purchased from the same
insurer within the same calendar year, distributions from any of them will be
taxed based upon the amount of income in all of the same calendar year series
of annuities. This will generally have the effect of causing taxes to be paid
sooner on the deferred gain in the contracts.
Those receiving partial distributions made before annuitization of a
contract will generally be taxed on an income-first basis to the extent of
income in the contract. Certain pre-August 14, 1982 deposits into a
nonqualified annuity contract that have been placed in the contract by means
of a tax-deferred exchange under Section 1035 of the Code may be withdrawn
first without income tax liability. This information on deposits must be
provided to the Company by the other insurance company at the time of the
exchange. There is income in the contract generally to the extent the Cash
Value exceeds the investment in the contract. The investment in the contract
is equal to the amount of premiums paid less any amount received previously
which was excludable from gross income. Any direct or indirect borrowing
against the value of the contract or pledging of the contract as security for
a loan will be treated as a cash withdrawal under the tax law.
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14
<PAGE>
With certain exceptions, the law will impose an additional tax if a Contract
Owner makes a withdrawal of any amount under the contract which is allocable
to an investment made after August 13, 1982. The amount of the additional tax
will be 10% of the amount includable in income by the Contract Owner because
of the withdrawal. The additional tax will not be imposed if the amount is
received on or after the Contract Owner reaches the age of 59 1/2, or if the
amount is one of a series of substantially equal periodic payments made for
life or life expectancy of the taxpayer. The additional tax will not be
imposed if the withdrawal or partial surrender follows the death or disability
of the Contract Owner.
FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding, generally pursuant to Section
3405 of the Code. The application of this provision is summarized below.
1. ELIGIBLE ROLLOVER DISTRIBUTION FROM SECTION 403(B) PLANS OR ARRANGEMENTS
OR FROM QUALIFIED PENSION AND PROFIT-SHARING PLANS
There is an unwaivable 20% tax withholding for plan distributions that are
eligible for rollover to an IRA or to another retirement plan but that are
not directly rolled over. A distribution made directly to a participant or
beneficiary may avoid this result if:
(a) a periodic settlement distribution is elected based upon a life or
life expectancy calculation, or
(b) a complete term-for-years settlement distribution is elected for a
period of ten years or more, payable at least annually, or
(c) a minimum required distribution as defined under the tax law is
taken after the attainment of the age of 70 1/2 or as otherwise
required by law.
A distribution including a rollover that is not a direct rollover will
require the 20% withholding, and a 10% additional tax penalty may apply to
any amount not added back in the rollover. The 20% withholding may be
recovered when the participant or beneficiary files a personal income tax
return for the year if a rollover was completed within 60 days of receipt
of the funds, except to the extent that the participant or spousal
beneficiary is otherwise underwithheld or short on estimated taxes for that
year.
2. OTHER NON-PERIODIC DISTRIBUTIONS (FULL OR PARTIAL REDEMPTIONS)
To the extent not described as requiring 20% withholding in 1 above, the
portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding, to the extent such
aggregate distributions exceed $200 for the year, unless the recipient
elects not to have taxes withheld. If an election out is not provided,
10% of the taxable distribution will be withheld as federal income tax.
Election forms will be provided at the time distributions are requested.
This form of withholding applies to all annuity programs.
3. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN
ONE YEAR)
The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding under the wage
withholding tables as if the recipient
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15
<PAGE>
were married claiming three exemptions. A recipient may elect not to
have income taxes withheld or have income taxes withheld at a different
rate by providing a completed election form. Election forms will be
provided at the time distributions are requested. This form of
withholding applies to all annuity programs. As of January 1, 1994, a
recipient receiving periodic payments (e.g., monthly or annual payments
under an Annuity Option) which total $13,700 or less per year, will
generally be exempt from the withholding requirements.
Recipients who elect not to have withholding made are liable for payment of
federal income tax on the taxable portion of the distribution. All recipients
may also be subject to penalties under the estimated tax payment rules if
withholding and estimated tax payments are not sufficient.
Recipients who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding.
Additionally, United States citizens residing outside of the country, or U.S.
legal residents temporarily residing outside the country, are not permitted to
elect out of withholding.
TAX ADVICE
Because of the complexity of the law and the fact that the tax results will
vary according to the factual status of the individual involved, tax advice
may be needed by a person contemplating purchase of an annuity contract and by
an Owner, participant or beneficiary who may make elections under a contract.
It should be understood that the foregoing description of the federal income
tax consequences under these contracts is not exhaustive and that special
rules are provided with respect to situations not discussed here. It should be
understood that if a tax-benefited plan loses its exempt status, employees
could lose some of the tax benefits described. For further information, a
qualified tax adviser should be consulted.
LEGAL OPINION
- -------------------------------------------------------------------------------
Legal matters in connection with federal laws and regulations affecting the
issue and sale of the Contracts described in this Prospectus and the
organization of the Company, its authority to issue such Contracts under
Connecticut law, the Limited Guarantee and the validity of the forms of the
Contracts under Connecticut law have been passed on by the General Counsel of
the Life and Annuities Division of Travelers Insurance.
INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
The consolidated statements of operations and retained earnings and cash
flows for the year ended December 31, 1994 and the consolidated balance sheets
of The Travelers Insurance Company as of December 31, 1994 and 1993, included
in The Travelers Insurance Company's Form 10-K for the year ended December 31,
1994, have been incorporated by
- -------------------------------------------------------------------------------
16
<PAGE>
reference herein in reliance upon the report (also incorporated by reference
herein) of KPMG Peat Marwick LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP covering the December 31, 1994 financial
statements refers to a change in accounting for investments. The consolidated
statements of operations and retained earnings and cash flows of The Travelers
Insurance Company for the years ended December 31, 1993 and 1992, have been
incorporated by reference herein in reliance upon the reports dated January
24, 1994 and February 9, 1993 (except for Notes 2 and 5 as to which the date
is January 24, 1994), which report includes an explanatory paragraph regarding
the Company's change in its methods of accounting for postretirement benefits
other than pensions, income taxes and foreclosed assets in 1992 (also
incorporated by reference herein) of Coopers & Lybrand L.L.P., independent
accountants, and upon the authority of said firm as experts in accounting and
auditing.
LIMITED GUARANTEE
- -------------------------------------------------------------------------------
Travelers Insurance has agreed to pay in full to any owner of a Contract the
principal and interest under the Contract, as and when due to the extent that
the Company has not made such payment. This is not a guarantee that the
principal and interest under the Contract will maintain any specific level or
amount. It is a guarantee of the Company's obligation to pay the principal and
interest due under the Contract. There can be no assurance that the amount so
due will equal or exceed the Purchase Price.
This Limited Guarantee has been filed as an exhibit to the Registration
Statement, of which this Prospectus forms a part.
This Limited Guarantee will remain in effect for only so long as the
Contracts described in this Prospectus remain in effect.
THE TRAVELERS LIFE AND ANNUITY COMPANY
- -------------------------------------------------------------------------------
BUSINESS
The Travelers Life and Annuity Company (the "Company") is a wholly owned
subsidiary of The Travelers Insurance Company, which is indirectly owned,
through a wholly owned subsidiary, by Travelers Group Inc. The Company is a
stock insurance company chartered in 1973 in the state of Connecticut and has
been continuously engaged in the insurance business since that time. The
Company offers individual life insurance and annuities to individuals and
small businesses. It also provides group pension deposit products, including
guaranteed investment contracts, and annuities to employer-sponsored
retirement and savings plans.
The Company is licensed to conduct a life insurance business in a majority
of the states of the United States and intends to seek licensure in the
remaining states, except New York. The Company's Home Office is located at One
Tower Square, Hartford, Connecticut, 06183.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto beginning on page
24.
- -------------------------------------------------------------------------------
17
<PAGE>
SELECTED FINANCIAL DATA FOR
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992 1991* 1990*#
----- ----- ----- --------- -------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums............................... $ 3 $ 5 $ 5 $ (2,251) $ 108
Net investment income.................. 66 58 64 222 416
Realized investment gains (losses)..... (2) 12 21 22 (7)
Other.................................. 19 9 7 6 1
----- ----- ----- --------- ------
86 84 97 (2,001) 518
----- ----- ----- --------- ------
BENEFITS AND EXPENSES:
Current and future insurance benefits.. 55 67 68 (2,077) 414
General and administrative expenses.... 3 3 8 8 14
Other.................................. -- 1 -- 12 27
----- ----- ----- --------- ------
58 71 76 (2,057) 455
----- ----- ----- --------- ------
Income before federal income taxes and
cumulative effect of changes in
accounting principles................. 28 13 21 56 63
Federal income tax expense (benefit)... 10 (1) 15 19 30
----- ----- ----- --------- ------
Income before cumulative effect of
changes in accounting principles...... 18 14 6 37 33
Cumulative effect of changes in
accounting principles, net of tax..... -- -- 3 -- --
----- ----- ----- --------- ------
Net Income............................. $ 18 $ 14 $ 9 $ 37 $ 33
===== ===== ===== ========= ======
</TABLE>
* Includes results of The Travelers Life Insurance Company, a former
subsidiary of the Company, through May 31, 1991. Effective June 1, 1991, the
Company terminated its reinsurance agreements with Travelers Insurance that
ceded group and individual annuity business from Travelers Insurance to the
Company. Effective with the termination of these agreements, all assets and
liabilities, as well as premiums and claims associated with this business,
were transferred at book value to Travelers Insurance. This transfer resulted
in a decrease of approximately $2.3 billion in assets, liabilities, premiums
and claims during 1991. This transaction had no impact on net income.
# Unaudited
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company primarily writes single premium group annuity close-out
contracts and, since June 1991, individual structured settlement annuities.
The single premium group annuity contracts are typically purchased by
employer-sponsored pension plans upon termination of the plan, asset reversion
or other significant plan changes. As a result, sales activity can vary
significantly from period to period.
The individual structured settlement contracts are purchased by an
affiliate, The Travelers Indemnity Company, in connection with the settlement
of certain of its policyholder obligations. All structured settlement
contracts are issued through a separate account of the
- -------------------------------------------------------------------------------
18
<PAGE>
Company. Accordingly, the Company's other revenues include the net activity of
the separate account, i.e., structured settlement policyholder benefits and
expenses net of the related revenues.
The Company also writes a small amount of individual life insurance, which
is fully reinsured with The Travelers Insurance Company (the Company's
parent), and, from January 1993 until December 1994, wrote group accident and
health business through a separate account.
THREE MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
COMPARED TO THREE MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
The net loss for the three months ended March 31, 1995 was $0.2 million,
compared to net income of $1.5 million for the same period in 1994. Excluding
realized investment gains and losses, operating earnings increased from $1.7
million in 1994 to $3.5 million in 1995, reflecting a modest increase in
retained investment margins and reduction of operating expenses.
Premiums and deposits amounted to $7.7 million in the first quarter of 1995,
a 29% decrease compared to 1994, reflecting a decline in group annuity single
premiums and a modest decline in structured settlement sales. Deposits relate
to separate account receipts. As noted above, separate account revenues and
expenses are included in revenues on a net basis.
Policyholder benefit reserves, including separate accounts, aggregated $1.5
billion at March 31, 1995, level with the prior year amount.
YEAR ENDED DECEMBER 31, 1994
COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net income for the year ended December 31, 1994 increased 35% over 1993 to
$18.3 million. Excluding realized investment gains and losses, operating
earnings increased from $5.8 million in 1993 to $19.8 million in 1994. In
1994, pre-tax retained investment margins increased by $28.4 million,
reflecting both a significant improvement in investment income resulting from
higher interest rates and the reinvestment of proceeds from the sale of
underperforming real estate, partially offset by the amortization of purchase
accounting adjustments on invested assets and policyholder liabilities made in
conjunction with Primerica Corporation's December 31, 1993 acquisition of The
Travelers Corporation (Primerica Corporation's name was subsequently changed
to Travelers Group Inc.) This increase in retained investment margins was
partially offset by the 1993 impact of tax benefits from the resolution of
prior year federal income tax audit issues.
Premiums and deposits for 1994 totaled $41.1 million, compared to $49.9
million in 1993. The 18% decline is primarily attributable to lower structured
settlement sales volume.
Policyholder benefit reserves, including separate accounts, aggregated $1.5
billion at December 31, 1994, a 12% decrease from the prior year-end amount.
This decrease is primarily attributable to the scheduled termination of the
group accident and health separate account contract.
- -------------------------------------------------------------------------------
19
<PAGE>
YEAR ENDED DECEMBER 31, 1993
COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net income for the year ended December 31, 1993 increased 53% to $13.6
million. Excluding realized investment gains, the cumulative effects in 1992
of changes in accounting for postretirement benefits and for income taxes, and
changes in effective federal tax rates, 1993 operating results were level with
1992.
1993 premiums and deposits aggregated $49.9 million, down 30% from 1992 as a
result of a decline in structured settlement sales.
Policyholder benefit reserves, including separate accounts, aggregated $1.7
billion at December 31, 1993. The 31% increase over the prior year-end is
primarily attributable to the establishment of the group accident and health
separate account and the purchase accounting adjustments made in conjunction
with the December 31, 1993 acquisition by Primerica Corporation.
- -------------------------------------------------------------------------------
20
<PAGE>
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
REVENUES
Premiums.................................................... $ 79 $ 2,992
Net investment income....................................... 15,869 14,672
Realized investment losses.................................. (5,618) (201)
Other....................................................... 3,690 3,691
-------- --------
14,020 21,154
-------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits....................... 13,330 18,055
Amortization of value of insurance in force................. 313 --
General and administrative expenses......................... 674 766
-------- --------
14,317 18,821
-------- --------
Income (loss) before federal income taxes................... (297) 2,333
Federal income taxes (benefit).............................. (127) 800
-------- --------
Net income (loss)........................................... (170) 1,533
Retained earnings beginning of period....................... 128,990 110,665
-------- --------
Retained earnings end of period............................. $128,820 $112,198
======== ========
</TABLE>
See notes to condensed financial statements.
- --------------------------------------------------------------------------------
21
<PAGE>
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments........................................... $ 831,125 $ 851,037
Separate accounts..................................... 820,669 820,384
Deferred federal income taxes......................... 82,272 94,315
Other assets.......................................... 79,416 35,633
---------- ----------
Total assets........................................ $1,813,482 $1,801,369
========== ==========
LIABILITIES
Future policy benefits................................ $ 686,594 $ 691,108
Separate accounts..................................... 807,461 808,181
Other liabilities..................................... 36,129 43,960
---------- ----------
Total liabilities................................... 1,530,184 1,543,249
========== ==========
SHAREHOLDER'S EQUITY
Capital stock, par value $100; 100,000 shares
authorized, 30,000 issued and outstanding............ 3,000 3,000
Additional paid-in capital............................ 167,355 167,354
Unrealized investment losses, net of taxes............ (15,877) (41,224)
Retained earnings..................................... 128,820 128,990
---------- ----------
Total shareholder's equity.......................... 283,298 258,120
---------- ----------
Total liabilities and shareholder's equity.......... $1,813,482 $1,801,369
========== ==========
</TABLE>
See notes to condensed financial statements.
- --------------------------------------------------------------------------------
22
<PAGE>
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995
1. GENERAL
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(an indirect, wholly owned subsidiary of Travelers Group Inc.), have been
prepared in conformity with generally accepted accounting principles (GAAP)
and are unaudited. They reflect all adjustments (none of which were other than
normal recurring adjustments) necessary, in the opinion of management, for a
fair statement of results for the periods reported.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
2. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures", and Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", which describe how impaired loans should be measured when determining
the amount of a loan loss accrual. These statements also amend existing
guidance on the measurement of restructured loans in a troubled debt
restructuring involving a modification of terms. The adoption of these
statements did not have a material effect on results of operations or
financial position.
3. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various litigation matters. Although there can
be no assurances, as of March 31, 1995, the Company believes, based on
information currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity.
- -------------------------------------------------------------------------------
23
<PAGE>
THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
INCREASE (DECREASE) IN CASH
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1995 1994
-------- -------
<S> <C> <C>
Net cash provided by (used in) operating activities......... $(39,511) $27,596
-------- -------
Cash flows from investing activities
Investment repayments
Fixed maturities........................................ 1,747 10,767
Mortgage loans.......................................... 6,666 19,081
Proceeds from sales of investments, including real estate
held for sale
Fixed maturities........................................ 75,448 295
Equity securities....................................... 1,925 569
Mortgage loans.......................................... 902 10
Real estate held for sale............................... -- 10,442
Investments in
Fixed maturities........................................ (37,448) (73,021)
Equity securities....................................... (65) (33)
Short-term securities, (purchases) sales, net........... 9,363 (6,885)
Other investments, net.................................. (1,010) 1,979
Securities transactions in course of settlement........... (18,311) 9,985
-------- -------
Net cash provided by (used in) investing activities..... 39,217 (26,811)
-------- -------
Net increase (decrease) in cash............................. (294) 785
Cash at beginning of period................................. 296 --
-------- -------
Cash at end of period....................................... $ 2 $ 785
======== =======
Supplemental disclosure of cash flow information
Income taxes paid......................................... $ 34,474 $ --
======== =======
</TABLE>
See notes to condensed financial statements.
- --------------------------------------------------------------------------------
24
<PAGE> 1
THE TRAVELERS LIFE AND ANNUITY COMPANY
Financial Statements
for the years ended December 31, 1994, 1993 and 1992
<PAGE> 2
THE TRAVELERS LIFE AND ANNUITY COMPANY
FINANCIAL STATEMENTS
INDEX
Page
Independent Auditors' Reports 1-3
Financial Statements:
Statement of Operations and Retained Earnings
for the years ended December 31, 1994, 1993 and 1992 4
Balance Sheet - December 31, 1994 and 1993 5
Statement of Cash Flows
for the years ended December 31, 1994, 1993 and 1992 6
Notes to Financial Statements 7-26
Glossary of Insurance Terms 27-28
<PAGE> 3
Independent Auditors' Report
The Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 1994 and 1993, and the related statements of
operations and retained earnings and cash flows for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," in 1994.
/s/KPMG Peat Marwick LLP
Hartford, Connecticut
January 17, 1995
1
<PAGE> 4
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the statements of operations and retained earnings and cash
flows of The Travelers Life and Annuity Company for the year ended December 31,
1993. These financial statements are the responsibility of Company
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Travelers Life and Annuity Company for the year ended December 31, 1993 in
conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND
Hartford, Connecticut
September 16, 1994
2
<PAGE> 5
Report of Independent Accountants
To the Board of Directors and Shareholder of
The Travelers Life and Annuity Company:
We have audited the statements of operations and retained earnings and cash
flows of The Travelers Life and Annuity Company for the year ended December 31,
1992. These financial statements are the responsibility of Company management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The
Travelers Life and Annuity Company for the year ended December 31, 1992 in
conformity with generally accepted accounting principles.
As discussed in Notes 2, 7 and 9 to the financial statements, the Company
changed its method of accounting for postretirement benefits other than
pensions, accounting for income taxes and accounting for foreclosed assets in
1992.
/s/COOPERS & LYBRAND
Hartford, Connecticut
September 16, 1994
3
<PAGE> 6
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1994 | 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES |
Premiums $ 3,498 | $ 4,524 $ 4,781
Net investment income 66,093 | 58,044 63,912
Realized investment gains (losses) (2,074) | 11,955 21,403
Other 18,702 | 9,102 7,542
- --------------------------------------------------------------------------------------------------------
86,219 | 83,625 97,638
- --------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES |
Current and future insurance benefits 55,596 | 67,489 68,253
General and administrative expenses 2,758 | 3,075 8,045
- --------------------------------------------------------------------------------------------------------
58,354 | 70,564 76,298
- --------------------------------------------------------------------------------------------------------
|
Income before federal income taxes and |
cumulative effects of changes in |
accounting principles 27,865 | 13,061 21,340
- --------------------------------------------------------------------------------------------------------
Federal income taxes: |
Current 4,742 | 22,124 37,198
Deferred 4,798 | (22,672) (21,704)
- --------------------------------------------------------------------------------------------------------
9,540 | (548) 15,494
- --------------------------------------------------------------------------------------------------------
|
Income before cumulative effects of changes |
in accounting principles 18,325 | 13,609 5,846
Cumulative effect of change in accounting |
for postretirement benefits other than |
pensions, net of tax - | - (1,148)
Cumulative effect of change in accounting |
for income taxes - | - 4,171
- --------------------------------------------------------------------------------------------------------
|
Net income 18,325 | 13,609 8,869
Retained earnings beginning of year 110,665 | 97,034 88,119
Preference stock tax benefit allocated by parent - | 22 46
- --------------------------------------------------------------------------------------------------------
Retained earnings end of year $128,990 | $110,665 $97,034
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
4
<PAGE> 7
THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(at December 31, in thousands) 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market in 1994
(cost, $624,347); at lower of aggregate cost or market
in 1993 (market, $487,010) $ 559,142 $ 486,195
Equity securities, at market (cost, $14,252; $22,827) 16,064 24,666
Mortgage loans 152,359 246,965
Real estate held for sale, net of accumulated depreciation of $337; $0 6,810 30,983
Short-term securities 44,472 43,326
Other investments 72,190 75,708
- ---------------------------------------------------------------------------------------------------
Total investments 851,037 907,843
- ---------------------------------------------------------------------------------------------------
Cash 296 -
Investment income accrued 10,211 11,296
Reinsurance recoverable 573 523
Deferred federal income taxes 94,315 78,007
Separate accounts 820,384 949,772
Value of insurance in force 21,014 -
Other assets 3,539 15,703
- ---------------------------------------------------------------------------------------------------
Total assets $1,801,369 $1,963,144
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits $ 691,108 $707,916
Current federal income taxes 26,071 20,305
Separate accounts 808,181 942,633
Other liabilities 17,889 11,383
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,543,249 1,682,237
- ---------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000
shares authorized, 30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,354 166,047
Unrealized investment gains (losses), net of taxes (41,224) 1,195
Retained earnings 128,990 110,665
- ---------------------------------------------------------------------------------------------------
Total shareholder's equity 258,120 280,907
- ---------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $1,801,369 $1,963,144
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
<PAGE> 8
THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(for the year ended December 31, in thousands) 1994 | 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Premiums collected $ 3,498 | $ 4,524 $10,034
Net investment income received 57,240 | 53,944 64,304
Benefits and claims paid (72,298) | (74,660) (76,873)
Operating expenses paid (4,400) | (3,249) (6,562)
Income taxes refunded (paid) 1,030 | (10,661) (25,537)
Trading account investments (purchases) sales, net - | 35,093 (18,341)
Other 22,507 | (683) (19,101)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,577 | 4,308 (72,076)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES |
Investment repayments |
Fixed maturities 29,043 | 29,479 28,409
Mortgage loans 60,260 | 53,835 80,904
Proceeds from investments sold |
Fixed maturities 41,671 | 46,001 4,527
Equity securities 9,373 | 7,676 34,058
Mortgage loans 23,327 | 11,835 26,120
Real estate 34,181 | 26,014 20,025
Investments in |
Fixed maturities (204,412) | (206,682) (75,479)
Equity securities (375) | (5,280) (15,577)
Mortgage loans (5,607) | - (599)
Short-term securities, (purchases) sales, net (1,146) | (16,430) (26,310)
Other investments, (purchases) sales, net 682 | 46,595 (11,437)
Securities transactions in course of settlement 5,722 | 1,133 7,095
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (7,281) | (5,824) 71,736
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 296 | $ (1,516) $ (340)
- -----------------------------------------------------------------------------------------------------
Cash at December 31 $ 296 $ - $ 1,516
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
<PAGE> 9
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC). TIC is a wholly
owned subsidiary of The Travelers Insurance Group Inc. (TIG). TIG is an
indirect wholly owned subsidiary of The Travelers Inc. Significant
accounting policies used in the preparation of the accompanying financial
statements follow.
Basis of presentation
In December 1992, Primerica Corporation (Primerica) acquired
approximately 27% of The Travelers Corporation's common stock (the
Acquisition). The Acquisition was accounted for as a purchase.
Effective December 31, 1993, Primerica acquired the approximately 73% of
The Travelers Corporation common stock which it did not already own, and
The Travelers Corporation was merged into Primerica, which was renamed
The Travelers Inc. This was effected through the exchange of .80423
shares of The Travelers Inc. common stock for each share of The Travelers
Corporation common stock (the Merger). All subsidiaries of The Travelers
Corporation were contributed to TIG.
The Acquisition and the Merger are being accounted for as a "step
acquisition." The step acquisition method of purchase accounting
requires that the assets and liabilities of the Company be recorded at
the fair values determined at each acquisition date (i.e., 27% of values
at December 31, 1992 as carried forward and 73% of the values at
December 31, 1993). These assets and liabilities are reflected in the
balance sheet at December 31, 1993 based upon management's then best
estimate of their fair values. Evaluation and appraisal of assets and
liabilities, including investments, the value of insurance in force,
reinsurance recoverable, other insurance assets and liabilities and
related deferred income taxes were completed during 1994. The excess of
the 27% share of assigned value of identifiable net assets over cost at
December 31, 1992, which was allocated to the Company through the
"pushdown" basis of accounting, was approximately $1.3 million and is
being amortized over ten years on a straight-line basis.
The statement of operations and retained earnings, the statement of cash
flows and the related accompanying notes for the year ended December 31,
1994, which are presented on a purchase accounting basis, are separated
from the corresponding 1993 and 1992 information, which is presented on a
historical accounting basis, to indicate the difference in valuation
bases.
Certain prior year amounts have been reclassified to conform with the
1994 presentation.
7
<PAGE> 10
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Investments
Fixed maturities include bonds, notes and redeemable preferred stocks.
Fixed maturities are valued based upon quoted market prices, or if
quoted market prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and maturity of
the investment. Securities are classified as "available for sale" and
are reported at fair value, with unrealized gains and losses, net of
income taxes, charged or credited directly to shareholder's equity at
December 31, 1994. As of December 31, 1993, in conjunction with the
Merger, all fixed maturities were classified as "available for sale" and
recorded at the lower of aggregate cost or market value.
Equity securities, which include common and nonredeemable preferred
stocks, are carried at market values that are based primarily on quoted
market prices. Changes in market values of equity securities are charged
or credited directly to shareholder's equity, net of applicable income
taxes.
Mortgage loans are carried at amortized cost. Real estate held for sale
is carried at the lower of cost or fair value less estimated costs to
sell. Fair value was established at time of foreclosure by appraisers,
both internal and external, using discounted cash flow analyses and
other acceptable techniques.
Accrual of income is suspended on fixed maturities or mortgage loans
that are in default, or on which it is likely that future interest
payments will not be made as scheduled. Interest income on investments
in default is recognized only as payment is received.
Forward commitments are not recorded in the balance sheet until the
commitments are fulfilled.
Investment Gains and Losses
Realized investment gains and losses are included as a component of
pretax revenues based upon specific identification of the investments
sold on the trade date and, prior to the Merger, included adjustments to
the valuation reserves. These adjustments reflected changes considered
to be other than temporary in the net realizable value of investments.
Also included are gains and losses arising from the translation of the
local currency value of foreign investments to U.S. dollars, the
functional currency of the Company.
Separate Accounts
Separate accounts primarily represent funds for which the assets of each
account are legally segregated and are not subject to claims that arise
out of any other business of the Company. Each account has specific
investment objectives. The liabilities associated with these separate
account products provide for guarantees of mortality, morbidity,
principal or interest and the related assets of these accounts are
carried at amortized cost except at December 31, 1993, when the assets
and liabilities of these accounts were recorded at the value assigned at
the acquisition dates. Amounts assessed to the contractholders for
management services are included in other revenues. Deposits and net
investment income for these accounts are excluded from revenues, and
related liability increases are excluded from benefits and expenses.
8
<PAGE> 11
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Value of Insurance In Force
The value of insurance in force represents the actuarially determined
present value of anticipated profits to be realized from annuities
contracts at the date of the Merger using the same assumptions that were
used for computing related liabilities where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
business acquired. The value of the business in force is amortized over
the contract period using current interest crediting rates to accrete
interest and using an amortization method based on a level yield method.
The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required.
Benefit Reserves
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for traditional life insurance and annuity
policies have been computed based upon mortality, morbidity, persistency
and interest assumptions applicable to these coverages, which range from
5.5% to 7.3%, including a provision for adverse deviation. These
assumptions consider Company experience and industry standards and may
be revised if it is determined that the future experience will differ
substantially from that previously assumed. The assumptions vary by
plan, age at issue, year of issue and duration.
At December 31, 1994, the Company has $691.1 million of life and annuity
deposit funds and reserves, none of which are subject to discretionary
withdrawal based on contract terms and related market conditions.
Permitted Statutory Accounting Practices
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices
prescribed or permitted by the State of Connecticut Insurance
Department. Prescribed statutory accounting practices include a variety
of publications of the National Association of Insurance Commissioners
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The impact of any permitted accounting
practices on the statutory surplus of the Company is not material.
Premiums
Premiums are recognized as revenues when due. Reserves are established
for the portion of premiums that will be earned in future periods.
Other Revenues
Other revenues include surrender, mortality and administrative charges
and fees as earned on investment and other insurance contracts.
9
<PAGE> 12
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Federal Income Taxes
The provision for federal income taxes is comprised of two components,
current income taxes and deferred income taxes. Deferred federal income
taxes arise from changes in the Company's deferred federal income tax
asset during the year. The deferred federal income tax asset is
recognized to the extent that future realization of the tax benefit is
more likely than not, with a valuation allowance for the portion that is
not likely to be recognized.
Accounting Standards not yet Adopted
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(FAS 118), and Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), describe
how impaired loans should be measured when determining the amount of a
loan loss accrual. These statements also amend existing guidance on the
measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. The adoption of these statements,
effective January 1, 1995, will not have a material effect on results of
operations or financial position.
2. CHANGES IN ACCOUNTING PRINCIPLES
Accounting for Certain Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (FAS 115), which addresses accounting and
reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Investment
securities have been classified as "available for sale" and are reported
at fair value, with unrealized gains and losses, net of income taxes,
charged or credited directly to shareholder's equity. Previously,
securities classified as available for sale were carried at the lower of
aggregate cost or market value. Initial adoption of this standard
resulted in an increase of approximately $530 thousand (net of taxes) to
net unrealized gains in shareholder's equity. See note 11 for additional
disclosures.
Accounting and Reporting for Reinsurance Contracts
In the first quarter of 1993, the Company implemented Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (FAS 113). FAS
113 requires the reporting of reinsurance receivables and prepaid
reinsurance premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113 did not
have an impact on the Company's earnings, however, assets and liabilities
increased by like amounts. See note 3 for additional reinsurance
disclosures.
10
<PAGE> 13
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHANGES IN ACCOUNTING PRINCIPLES, Continued
Postretirement Benefits other than Pensions
In 1992, the Company adopted Statement of Financial Accounitng Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required, the Company changed its method of
accounting for retiree benefit plans effective January 1, 1992, to accrue
for the Company's share of the costs of postretirement benefits over the
service period rendered by employees. Previously these benefits were
charged to expense when paid. The Company elected to recognize
immediately the liability for postretirement benefits as the cumulative
effect of a change in accounting principle. This resulted in a noncash
after-tax charge to net income of $1.1 million. See Note 7 for
additional information relating to FAS 106.
Accounting for Income Taxes
In the third quarter of 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
with retroactive application to January 1, 1992. FAS 109 establishes new
principles for calculating and reporting the effects of federal income
taxes in financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard with a
balance sheet approach. Under the new approach, deferred tax assets and
liabilities are generally determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. FAS 109 allows recognition of deferred tax assets if future
realization of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
The implementation of FAS 109 resulted in a one time increase to earnings
of $4.2 million in the first quarter of 1992. This increase in earnings
was principally due to tax rate differences and the recognition of a
portion of previously unrecognized deferred tax assets. See note 9 for
further discussion of FAS 109.
Accounting for Foreclosed Assets
In February 1993, The Travelers Corporation announced its intent to
accelerate the sale of foreclosed real estate and, effective December 31,
1992, changed its method of accounting for foreclosed assets in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 92-3, "Accounting for Foreclosed Assets" (SOP
92-3). This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost or fair
value less estimated costs to sell. Previously, all foreclosed assets
were carried at cost less accumulated depreciation. This accounting
change resulted in a $12.5 million pre-tax charge to realized investment
losses in 1992.
3. REINSURANCE
The Company participates in reinsurance to reduce overall risks,
including exposure to large losses and catastrophic events. The Company
remains primarily liable as the direct insurer on all risks reinsured.
11
<PAGE> 14
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
3. REINSURANCE, Continued
Life insurance in force ceded to affiliates at December 31, 1994 and 1993
was $106.0 million and $111.7 million, respectively.
4. SHAREHOLDER'S EQUITY
Unrealized Investment Gains (Losses)
An analysis of the change in unrealized gains and losses on investments
is shown in note 11.
Additional Paid-in Capital
As a result of the finalization of the evaluations and appraisals used
to assign fair values to assets and liabilities under purchase
accounting, additional paid-in capital was increased by $1.3 million in
1994. It was decreased by $70.4 million in 1993 based upon the initial
evaluations and appraisals.
Shareholder's Equity and Dividend Availability
The statutory net income was $5.7 million for the year ended December 31,
1994. The statutory net loss was $23.0 million and $35.3 million for the
years ended December 31, 1993 and 1992, respectively.
Statutory capital and surplus was $233.0 million and $220.1 million at
December 31, 1994 and 1993, respectively.
The Company is currently subject to various regulatory restrictions that
limit the maximum amount of dividends available to TIC without prior
approval of insurance regulatory authorities. Under statutory
accounting practices, there is no statutory surplus available in 1995
for dividends to TIC without prior approval.
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Company has, in the normal course of business, provided fixed rate
loan commitments and commitments to partnerships. Also, the Company
uses forward contracts as a means of prudently hedging exposure to
foreign currency rate risk on existing assets. The Company does not
hold or issue derivative instruments for trading purposes.
These derivative financial instruments have off-balance-sheet risk.
Financial instruments with off-balance-sheet risk involve, to varying
degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of
these instruments reflect the extent of involvement the Company has in a
particular class of financial instrument. However, the maximum credit
loss or cash flow associated with these instruments can be less than
these amounts. For unfunded commitments, credit exposure is the
contractual amount of the unfunded commitments.
12
<PAGE> 15
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance-sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures. Many
transactions include the use of collateral to minimize credit risk and
lower the effective cost to the borrower.
A summary of contract or notional amounts is presented below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Contract or
notional amount
(in thousands) 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract
amount represents credit exposure:
Unfunded commitments to partnerships $9,606 $9,328
Fixed rate loan commitments 378 6,631
--------------------------------------------------------------------------------
</TABLE>
The Company has outstanding at any given time commitments to fund
partnerships. Generally these are simple forward commitments for
investment purposes. At December 31, 1994 and 1993, the terms of
unfunded commitments to partnerships approximate market value. Fixed
rate loan commitments are obligations to make investments at fixed rates.
At December 31, 1994 and 1993, the terms of fixed rate loan commitments
approximate market value.
The off-balance-sheet risks of forward contracts were not considered
significant at December 31, 1994 and 1993.
Fair Value of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair values of financial instruments which are considered
insurance contracts are not required to be disclosed and are not
included in the amounts discussed.
At December 31, 1994 and 1993, investments in fixed maturities have a
fair value of $559.1 million and $487.0 million, respectively. See note
11.
At December 31, 1994, mortgage loans have a carrying value of $152.4
million, which approximates fair value, compared with a carrying value
and fair value of $247.0 million at December 31, 1993. In estimating
fair value, the Company used interest rates reflecting the higher
returns required in the current real estate financing market.
The carrying value of $2.4 million and $2.0 million of financial
instruments classified as other assets approximates their fair values at
December 31, 1994 and 1993, respectively. The carrying value of $14.2
million and $7.6 million of financial instruments classified as other
liabilities also approximates their fair values at December 31, 1994 and
1993, respectively. Fair value is determined using various methods
including discounted cash flows and carrying value, as appropriate for
the various financial instruments.
13
<PAGE> 16
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
5. DISCLOSURE ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS, Continued
The assets of separate accounts providing a guaranteed return have a
carrying value and a fair value of $820.4 million and $757.2 million,
respectively, at December 31, 1994, compared to a carrying value of
$949.7 million which approximates fair value at December 31, 1993. The
liabilities of separate accounts providing a guaranteed return have a
carrying value and a fair value of $808.2 million and $681.4 million,
respectively, at December 31, 1994, compared to a carrying value of
$942.7 million which approximates fair value at December 31, 1993.
The carrying values of cash, short-term securities, and investment
income accrued approximate their fair values.
6. COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance-Sheet Risk
See Note 5 for a discussion of financial instruments with
off-balance-sheet risk.
Litigation
The Company is a defendant in various litigation matters. Although there
can be no assurances, as of December 31, 1994, the Company believes,
based on information currently available, that the ultimate resolution of
these legal proceedings would not be likely to have a material adverse
effect on its results of operations, financial condition or liquidity.
7. BENEFIT PLANS
Pension Plans
The Company participates in qualified and nonqualified, noncontributory
defined benefit pension plans covering the majority of the Company's U.S.
employees. Benefits for the qualified plan are based on an account
balance formula. Under this formula, each employee's accrued benefit can
be expressed as an account that is credited with amounts based upon the
employee's pay, length of service and a specified interest rate, all
subject to a minimum benefit level. This plan is funded in accordance
with the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code. For the nonqualified plan, contributions are based on
benefits paid. The Company's share of net pension expense was not
significant for 1994, 1993 or 1992.
14
<PAGE> 17
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
7. BENEFIT PLANS, Continued
Other Benefit Plans
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees through a plan
sponsored by TIG. Covered employees may become eligible for these
benefits if they reach retirement age while working for the Company.
These retirees may elect certain prepaid health care benefit plans. Life
insurance benefits generally are set at a fixed amount. The cost
recognized by the Company for these benefits represents its allocated
share of the total costs of the plan, net of employee contributions.
In the third quarter of 1992, TIG adopted FAS 106 and elected to
recognize the accumulated postretirement benefit obligation (i.e., the
transition obligation) as a change in accounting principle retroactive to
January 1, 1992. The Company's pretax share of the total cost of the
plan for 1994, 1993 and 1992 was $140 thousand, $155 thousand and $1.9
million, respectively.
The Merger resulted in a change in control of The Travelers Corporation
as defined in the applicable plans, and provisions of some employee
benefit plans secured existing compensation and benefit entitlements
earned prior to the change in control, and provided a salary and benefit
continuation floor for employees whose employment was affected. The
costs related to these changes have been assumed by TIG.
Savings, Investment and Stock Ownership Plan
Under the savings, investment and stock ownership plan available to
substantially all employees of TIG, the Company matches a portion of
employee contributions. Effective April 1, 1993, the match decreased
from 100% to 50% of an employee's first 5% contribution and a variable
match based on TIG's profitability was added. The Company's matching
obligation was $48 thousand, $94 thousand and $245 thousand in 1994, 1993
and 1992, respectively.
8. RELATED PARTY TRANSACTIONS
The principal banking functions for certain subsidiaries and affiliates
of TIG, and salaries and expenses for TIG and its insurance subsidiaries,
are handled by TIC. Settlements for these functions between TIC and its
affiliates are made regularly. TIC provides various insurance coverages,
principally life and health, to certain subsidiaries of TIG. The
premiums for these coverages were charged in accordance with normal cost
allocation procedures. In addition, investment advisory and management
services, data processing services and claims processing services are
provided by affiliated companies.
TIG and its subsidiaries maintain short-term investment pools in which
the Company participates. The positions of each company participating in
the pools are calculated and adjusted daily. At December 31, 1994 and
1993, the pools totaled approximately $1.5 billion and $1.3 billion,
respectively. The Company's share of the pools amounted to $44.5 million
and $43.2 million at December 31, 1994 and 1993, respectively, and is
included in short-term securities in the balance sheet.
15
<PAGE> 18
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS, Continued
Amounts due to parent and affiliates included in other liabilities at
December 31, 1994 were $3.8 million. Amounts due from parent and
affiliates included in other assets at December 31, 1993 were $13.5
million.
Most leasing functions for TIG and its subsidiaries are handled by TIC.
Leasing expenses are shared by the companies on a cost allocation method
based generally on estimated usage by department.
9. FEDERAL INCOME TAXES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
(in thousands) 1994 | 1993 1992
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effective tax rate |
|
Income before federal |
income taxes $ 27,865 | $ 13,061 $ 21,340
---------------------------------------------------------------------------------------
Statutory tax rate 35% | 35% 34%
---------------------------------------------------------------------------------------
|
Expected federal income taxes $ 9,753 | $ 4,571 $ 7,256
Tax effect of: |
Nontaxable investment income (90) | (85) (83)
Adjustments to benefit and other reserves (117) | (4,705) 7,217
Adjustment to deferred tax asset for |
enacted change in tax rates from |
34% to 35% - | (255) -
Other (6) | (74) 1,104
---------------------------------------------------------------------------------------
Federal income taxes $ 9,540 | $ (548) $ 15,494
---------------------------------------------------------------------------------------
|
Effective tax rate 34% | (4)% 73%
---------------------------------------------------------------------------------------
|
Composition of federal income taxes |
Current: |
United States $ 4,742 | $ 22,124 $ 37,198
---------------------------------------------------------------------------------------
|
Deferred: |
United States 4,798 | (22,672) (21,704)
---------------------------------------------------------------------------------------
Federal income taxes $ 9,540 | $ (548) $ 15,494
---------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
9. FEDERAL INCOME TAXES, Continued
The net deferred tax assets at December 31, 1994 and 1993 were comprised
of the tax effects of the temporary differences related to the following
assets and liabilities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(in thousands) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Benefit, reinsurance and other reserves $ 70,729 $ 71,623
Investments 30,908 3,521
Investment income valuation reserve - 3,317
Other 2,766 1,616
------------------------------------------------------------------------------
Total 104,403 80,077
------------------------------------------------------------------------------
Deferred tax liabilities:
Value of insurance in force 7,355 -
Other 663 -
------------------------------------------------------------------------------
Total 8,018 -
------------------------------------------------------------------------------
Net deferred tax asset before valuation allowance 96,385 80,077
Valuation allowance for deferred tax assets (2,070) (2,070)
------------------------------------------------------------------------------
Net deferred tax asset after valuation allowance $ 94,315 $ 78,007
------------------------------------------------------------------------------
</TABLE>
Starting in 1994 and continuing for at least five years, TIC and its life
insurance subsidiaries will file a consolidated federal income tax
return. Federal income taxes are allocated to each member on a separate
return basis adjusted for credits and other amounts required by the
consolidation process. Any resulting liability will be paid currently to
TIC. Any credits for losses will be paid by TIC to the extent that such
credits are for tax benefits that have been utilized in the consolidated
federal income tax return. The Company has no receivable for
unreimbursed credits from its previous allocation agreement with the
Travelers Corporation.
A net deferred tax asset valuation allowance of $2.1 million has been
established to reduce the net deferred tax asset on investment losses to
the amount that, based upon available evidence, is more likely than not
to be realized. Reversal of the valuation allowance is contingent upon
the recognition of future capital gains in the Company's consolidated
life insurance company federal income tax return through 1998, and the
consolidated federal income tax return of The Travelers Inc. commencing
in 1999 or a change in circumstances which causes the recognition of the
benefits to become more likely than not. There was no net change in the
valuation allowance during 1994. The initial recognition of any benefit
provided produced by the reversal of the valuation allowance will be
recognized by reducing goodwill.
17
<PAGE> 20
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
9. FEDERAL INCOME TAXES, Continued
In management's judgment, the $94.3 million "net deferred tax asset after
valuation allowance" as of December 31, 1994, is fully recoverable
against expected future years' taxable ordinary income and capital gains.
At December 31, 1994, the Company has no ordinary or capital loss
carryforwards.
The "policyholders surplus account", which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provisions of the Tax Reform Act of 1984, will not increase
after 1983, is estimated to be $2.0 million. This amount has not been
subjected to current income taxes but, under certain conditions that
management considers to be remote, may become subject to income taxes in
future years. At current rates, the maximum amount of such tax (for
which no provision has been made in the financial statements) is
approximately $700 thousand.
See note 2 for a discussion of the implementation of new principles for
accounting for income taxes.
10. NET INVESTMENT INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross investment income |
----------------------- |
Fixed maturities $ 44,569 | $ 39,400 $ 34,429
Equity securities 827 | 930 1,221
Mortgage loans 17,178 | 25,258 37,846
Real estate 6,299 | 19,028 20,640
Other 4,265 | (4,273) (1,371)
-----------------------------------------------------------------------------------------
73,138 | 80,343 92,765
-----------------------------------------------------------------------------------------
|
Investment expenses 7,045 | 22,299 28,853
-----------------------------------------------------------------------------------------
Net investment income $ 66,093 | $ 58,044 $ 63,912
-----------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 21
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) for the periods were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized |
|
Fixed maturities $ (908) | $ 8,659 $ (1,621)
Equity securities 1,675 | 1,580 4,065
Mortgage loans 36 | (1,564) 823
Real estate - | (8,310) (6,713)
Other (2,877) | 11,590 24,849
-----------------------------------------------------------------------------------------
Realized investment gains (losses) $ (2,074) | $ 11,955 $ 21,403
-----------------------------------------------------------------------------------------
</TABLE>
Changes in net unrealized investment gains (losses) that are included as a
separate component of shareholder's equity were as follow:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized |
|
Fixed maturities $ (65,205) | $ (20,059) $ 20,730
Equity securities (27) | (1,389) 3,916
Other (28) | 8,524 (5,318)
-------------------------------------------------------------------------------------------
(65,260) | (12,924) 19,328
Related taxes (22,841) | (3,445) 6,571
-------------------------------------------------------------------------------------------
|
Net unrealized investment gains (losses) (42,419) | (9,479) 12,757
Balance beginning of year 1,195 10,674 | (2,083)
-------------------------------------------------------------------------------------------
Balance end of year $ (41,224) $ 1,195 | $ 10,674
-------------------------------------------------------------------------------------------
</TABLE>
The initial adoption of FAS 115 resulted in an increase of approximately
$530 thousand (net of taxes) to net unrealized investment gains in 1994.
Fixed Maturities
Proceeds from sales of fixed maturities classified as available for sale
were $41.7 million in 1994, resulting in gross realized gains of $869
thousand and gross realized losses of $1.9 million. There were no sales
of fixed maturities classified as available for sale in 1993 or 1992 as,
in conjunction with the Merger, all fixed maturities were first
classified as "available for sale" effective December 31, 1993.
19
<PAGE> 22
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Prior to December 31, 1993, fixed maturities that were intended to be
held to maturity were recorded at amortized cost and classified as held
for investment. Proceeds from sales of such securities were $16.4
million and $5.1 million in 1993 and 1992, respectively. Gross gains of
$617 thousand in 1993 and gross losses of $2.2 million in 1992 were
realized on those sales.
Prior to December 31, 1993, the carrying values of the trading portfolio
fixed maturities were adjusted to market value as it was likely they
would be sold prior to maturity. Sales of trading portfolio fixed
maturities were $96.6 million and $39.0 million in 1993 and 1992,
respectively. Gross gains of $12.4 million and $1.2 million in 1993 and
1992, respectively, were realized on those sales.
The amortized cost and market values of investments in fixed maturities
were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
December 31, 1994
----------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
(in thousands) cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 60,102 $ 14 $ 4,624 $ 55,493
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 188,043 25 24,301 163,767
Obligations of states and
political subdivisions 3,000 - 184 2,816
Debt securities issued by
foreign governments 20,076 - 2,157 17,919
All other corporate bonds 352,197 1,140 35,055 318,280
Redeemable preferred stock 929 13 76 867
------------------------------------------------------------------------------------------
Total $ 624,347 $ 1,192 $ 66,397 $ 559,142
------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1993
--------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in thousands) value gains losses value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities -
CMOs and pass through
securities $ 63,241 $ 462 $ 709 $ 62,994
U.S. Treasury securities
and obligations of U.S.
Government and
government agencies
and authorities 91,777 660 280 92,157
Debt securities issued by
foreign governments 9,211 179 - 9,390
All other corporate bonds 320,748 3,485 3,004 321,229
Redeemable preferred stock 1,218 24 2 1,240
--------------------------------------------------------------------------------------------
Total $ 486,195 $ 4,810 $ 3,995 $ 487,010
--------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and market value of fixed maturities available for
sale at December 31, 1994, by contractual maturity, are shown below.
Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Maturity Amortized Market
(in thousands) Cost value
-----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,105 $ 3,912
Due after 1 year through 5 years 35,433 32,495
Due after 5 years through 10 years 110,446 102,555
Due after 10 years 414,261 364,687
-----------------------------------------------------------------------
564,245 503,649
Mortgage-backed securities 60,102 55,493
-----------------------------------------------------------------------
Total $ 624,347 $ 559,142
-----------------------------------------------------------------------
</TABLE>
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy
is to purchase CMO tranches which are protected against prepayment risk,
primarily planned amortization class (PAC) tranches. Prepayment
protected tranches are preferred because they provide stable cash flows
in a variety of scenarios. The Company does invest in other types of CMO
tranches if a careful assessment indicates a favorable risk/return
tradeoff. The Company does not purchase residual interests in CMOs.
21
<PAGE> 24
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1994 and 1993, the Company held CMOs with a market value
of $55.5 million and $63.0 million, respectively. Approximately 96% and
100% of the Company's CMO holdings are fully collateralized by GNMA, FNMA
or FHLMC securities at December 31, 1994 and 1993, respectively. The
majority of these are GNMA-backed securities. Virtually all of these
securities are rated AAA.
Equity Securities
The cost and market values of investments in equity securities were as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
December 31, 1994
------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized Market
(in thousands) Cost gains losses value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks $ 6,141 $ 3,177 $ 654 $ 8,664
Nonredeemable preferred stocks 8,111 7 718 7,400
------------------------------------------------------------------------------------------
Total $ 14,252 $ 3,184 $ 1,372 $ 16,064
------------------------------------------------------------------------------------------
December 31, 1993
------------------------------------------------------------------------------------------
Common stocks $ 11,061 $ 1,779 $ 199 $ 12,641
Nonredeemable preferred stocks 11,766 260 1 12,025
------------------------------------------------------------------------------------------
Total $ 22,827 $ 2,039 $ 200 $ 24,666
------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of equity securities were $9.4 million in 1994,
resulting in gross realized gains of $2.8 million and gross realized
losses of $369 thousand.
Mortgage loans and real estate held for sale
Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans and loans modified at interest
rates below market. The Company continues its strategy, adopted in
conjunction with the Merger, to dispose of these real estate assets and
some of the mortgage loans and to reinvest the proceeds to obtain current
market yields.
22
<PAGE> 25
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
At December 31, 1994 and 1993, the Company's mortgage loan and real
estate portfolios consisted of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(in thousands) 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Current mortgage loans $ 134,868 $ 213,110
Underperforming mortgage loans 17,491 33,855
---------------------------------------------------------------------------
Total mortgage loans 152,359 246,965
---------------------------------------------------------------------------
Real estate held for sale 6,810 30,983
---------------------------------------------------------------------------
Total mortgage loans and real estate $ 159,169 $ 277,948
---------------------------------------------------------------------------
</TABLE>
Aggregate annual maturities on mortgage loans at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
(in thousands)
----------------------------------------------------
<S> <C>
Past maturity $ 4,567
1995 13,278
1996 26,317
1997 9,473
1998 24,000
1999 7,759
Thereafter 66,965
----------------------------------------------------
Total $ 152,359
----------------------------------------------------
</TABLE>
Concentrations
At December 31, 1994 and 1993, the Company had no concentration of credit
risk in a single investee exceeding 10% of shareholder's equity.
The Company participates in a short-term investment pool maintained by
TIG and its subsidiaries. This pool is discussed in note 8.
Included in fixed maturities are below investment grade assets totaling
$51.1 million and $78.0 million at December 31, 1994 and 1993,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist.
Such assets include publicly traded below investment grade bonds, highly
leveraged transactions and certain other privately issued bonds that are
classified as below investment grade loans.
23
<PAGE> 26
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
The Company also has significant concentrations of investments in the
following industries:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Banking $ 42,191 $43,856
Oil and gas 39,749 39,348
Transportation 38,523 23,577
Chemical manufacturing 27,326 27,155
--------------------------------------------------------------------------
</TABLE>
Below investment grade assets included in the totals of the previous
table are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Banking $ 5,124 $ 5,104
Oil and gas 4,002 2,822
Transportation 2,678 6,488
--------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, significant concentrations of mortgage
loans were for properties located in highly populated areas in the states
listed below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
New York $ 23,710 $ 22,904
Arizona 21,074 36,708
Florida 19,638 23,073
California 18,636 53,373
West Virginia 15,106 15,924
Texas 12,077 21,119
--------------------------------------------------------------------------
</TABLE>
Other mortgage loan investments are fairly evenly dispersed throughout
the United States, with no holdings in any state exceeding $9.3 million
and $8.8 million at December 31, 1994 and 1993, respectively.
Concentrations of mortgage loans by property type at December 31, 1994
and 1993 are shown below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Office $ 40,559 $ 47,456
Agricultural 32,890 49,851
Retail 31,712 48,125
Apartment 16,108 67,882
--------------------------------------------------------------------------
</TABLE>
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often
includes pledges of assets, including stock and other assets, guarantees
and letters of credit. The Company's underwriting standards with respect
to new mortgage loans generally require loan to value ratios of 75% or
less at the time of mortgage origination.
24
<PAGE> 27
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
11. INVESTMENTS AND INVESTMENT GAINS (LOSSES), Continued
Investment Valuation Reserves
At December 31, 1993 and 1992, total investment valuation reserves, which
are deducted from the applicable investment carrying values in the
balance sheet, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year $ - | $ 41,443 $ 28,535
Increase - | 8,355 12,548
Impairments, net of gains/recoveries - | (6,887) 360
Purchase accounting adjustment - | (42,911) -
-------------------------------------------------------------------------------------------
End of year $ - $ - | $ 41,443
-------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1992, investment valuation reserves were comprised of
$28.9 million for mortgage loans and $12.5 million for real estate.
Increases in the investment valuation reserves were reflected as realized
investment losses.
Nonincome Producing
Investments included in the balance sheets that were nonincome producing
for the preceding 12 months were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) 1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 444 $ 1,408
Fixed maturities 90 1,537
Real estate - 4,925
--------------------------------------------------------------------------
Total $ 534 $ 7,870
--------------------------------------------------------------------------
</TABLE>
Restructured
The Company has mortgage loan and debt securities which were restructured
at below market terms totaling approximately $17.4 million and $30.7
million at December 31, 1994 and 1993, respectively. At December 31,
1993, the Company's restructured assets were recorded at purchase
accounting value. The new terms typically defer a portion of contract
interest payments to varying future periods. The accrual of interest is
suspended on all restructured assets, and interest income is reported
only as payment is received. Gross interest income on restructured
assets that would have been recorded in accordance with the original
terms of such assets amounted to $5.2 million in 1994 and $3.1 million in
1993. Interest on these assets, included in net investment income,
aggregated $1.4 million in 1994 and $471 thousand in 1993.
25
<PAGE> 28
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
12. RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
The following table reconciles net income to net cash provided by
operating activities:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
(For the year ended December 31, in thousands) 1994 | 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 18,325 | $ 13,609 $ 8,869
Reconciling adjustments |
Trading account investments, |
(purchases) sales, net - | 35,093 (18,341)
Realized gains (losses) 2,074 | (11,955) (21,403)
Investment income accrued 1,085 | (9,607) 708
Deferred federal income taxes 4,798 | (22,672) (21,704)
Cumulative effects of changes in |
accounting principles - | - (3,023)
Insurance reserves and accrued expenses (16,062) | 80,238 3,512
Other, including investment valuation reserves (2,643) | (80,398) (20,694)
------------------------------------------------------------------------------------------------
|
Net cash provided by (used in) |
operating activities $ 7,577 | $ 4,308 $ (72,076)
------------------------------------------------------------------------------------------------
</TABLE>
13. NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash investing and financing activities include: a) the
1994 transfer of $5.6 million of mortgage loans from one of the Company's
separate accounts to the general account; b) changes in investment
valuation reserves in 1993 and 1992 for mortgage loans and/or investment
real estate (see note 11); c) acquisition of real estate through
foreclosures of mortgage loans amounting to $10.3 million, $7.7 million
and $8.1 million in 1994, 1993 and 1992, respectively.
26
<PAGE> 29
THE TRAVELERS LIFE AND ANNUITY COMPANY
GLOSSARY OF INSURANCE TERMS
ANNUITY - A contract that pays a periodic income benefit for the life of
a person (the annuitant), the lives of two or more persons or for a specified
period of time.
ASSUMED REINSURANCE - Business received as reinsurance from another
company. See "Reinsurance".
ASSUMPTION REINSURANCE - A transaction whereby the ceding company
transfers its entire obligation under the policy to the reinsurer, who becomes
directly liable to the policyholder in all respects, including collecting
premiums and paying benefits. See "Reinsurance."
CEDED REINSURANCE - Risks transferred to another company as reinsurance.
See "Reinsurance".
CLAIM - Request by an insured for indemnification by an insurance company
for loss incurred from an insured peril.
CONTRACTHOLDER FUNDS - Receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risks.
DEFERRED ACQUISITION COSTS - Commissions and other selling expenses which
vary with and are directly related to the production of business. These
acquisition costs are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in conformity with
GAAP.
DEFINED BENEFIT PLANS - Type of pension plan under which benefits are
fixed in advance by formula, and contributions vary.
DEPOSITS AND OTHER CONSIDERATIONS - Consist of cash value deposits and
charges for mortality risk and expenses associated with universal life
insurance, annuities and group pensions.
FIDUCIARY ACCOUNTS - Accounts held on behalf of others.
GENERAL ACCOUNT - All of an insurer's assets other than those allocated
to separate accounts.
GUARANTEED INVESTMENT CONTRACTS (GICs) - Group contracts sold to pension
plans, profit sharing plans and funding agreements that guarantee a stated
interest rate for a specified period of time.
INDEMNITY REINSURANCE - A transaction whereby the reinsurer agrees to
indemnify the ceding company against all or part of the loss that the latter
may sustain under the policies it issued that are being reinsured. The ceding
company remains primarily liable as the direct insurer on all risks ceded. See
"Reinsurance."
INSURANCE - Mechanism for contractually shifting burdens of a number of
risks by pooling them.
27
<PAGE> 30
THE TRAVELERS LIFE AND ANNUITY COMPANY
LIFE CONTINGENCIES - Contingencies affecting the duration of life of an
individual or a group of individuals.
LONG-TERM CARE - Coverage for extended stays in a nursing home or home
health services.
MORBIDITY - The rate at which people become diseased, mentally or
physically, or physically impaired.
MORTALITY - The rate at which people die.
POLICY LOAN - A loan made by an insurance company to a policyholder on
the security of the cash value of the policy. Policy loans offset benefits
payable to policyholders.
REINSURANCE - The acceptance by one or more insurers, called reinsurers,
of all or a portion of the risk underwritten by another insurer who has
directly written the coverage. However, the legal rights of the insured
generally are not affected by the reinsurance transaction and the insurance
enterprise issuing the insurance contract remains liable to the insured for
payment of policy benefits.
RETENTION - The amount of exposure an insurance company retains on any
one risk or group of risks.
SEPARATE ACCOUNTS - Funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
contractholders. The assets of these separate accounts are legally segregated
and not subject to claims that arise out of any other business of the insurance
company.
STATUTORY ACCOUNTING PRACTICES - Those accounting practices prescribed or
permitted by the National Association of Insurance Commissioners or an
insurer's domicilary state insurance regulator for purposes of financial
reporting to regulators.
STATUTORY CAPITAL AND SURPLUS - The excess of statutory admitted assets
over statutory liabilities as shown on an insurer's statutory financial
statements.
STRUCTURED SETTLEMENTS - Periodic payments to an injured person or
survivor for a determined number of years or for life, typically in settlement
of a claim under a liability policy.
SURRENDER VALUE - The amount of money, usually the legal reserve under
the policy, less sometimes a surrender charge, which an insurance company will
pay to a policyholder who cancels a policy. This value may be used as
collateral for a loan.
UNDERWRITING - The assumption of risk for designated loss or damage in
consideration of receiving a premium. Also includes the process of examining,
accepting or rejecting insurance risks, and determining the proper premium.
28
<PAGE>
APPENDIX A
- -------------------------------------------------------------------------------
MODIFIED GUARANTEED ANNUITY FOR QUALIFIED PLANS
The Travelers Target Maturity Annuity for Qualified Plans is a group
deferred annuity Contract under which a Purchase Payment may be made. Plans
eligible to purchase the Contract are pension and profit sharing plans
qualified under (S)401(a) of the Internal Revenue Code, and eligible state
deferred compensation plans under (S)457 of the Code ("Qualified Plans").
To apply for a Group Annuity Contract, the trustee or other applicant need
only complete an application or purchase order for the Group Annuity Contract
and make a Purchase Payment. A Group Annuity Contract will then be issued to
the applicant. While no Certificates are issued, each Purchase Payment and the
Account established thereby, are confirmed to the Contract Owner. The Purchase
Payment operates to establish an Account under the Group Annuity Contract in
the same manner as non-qualified purchases. Each Account will have its own
optional Guarantee Period and Guaranteed Interest Rate. Surrenders under the
Group Annuity Contract may be made at the election of the Contract Owner, from
the Account established under the Contract. Account surrenders are subject to
the same limitations, adjustments and charges as surrenders made under a
certificate (see "Surrenders," page 5). Surrender Values may be taken in cash
or applied to purchase annuities for the Contract Owners' Qualified Plan
participants.
Because there are no individual participant accounts, the qualified Group
Annuity Contract issued in connection with a Qualified Plan does not provide
for death benefits. Annuities purchased for Qualified Plan participants may
provide for a payment upon the death of the Annuitant depending on the option
chosen (see "Annuity Options," page 9). Additionally, since there are no
Annuitants prior to the actual purchase of an Annuity by the Contract Owner,
the provisions regarding the Annuity Commencement Date are not applicable.
- -------------------------------------------------------------------------------
51
<PAGE>
APPENDIX B
- -------------------------------------------------------------------------------
MARKET VALUE ADJUSTMENT
The amount payable on a partial or full surrender may be adjusted up or down
by the application of the Market Value Adjustment. The formula which will be
used to determine the Market Adjusted Value is:
[ 1 ]
Market Adjusted Value = (Maturity Value) X [ ------ ] t/365
[ 1 + iC ]
where "iC" is the current Guaranteed Interest Rate for a Guarantee Period
of "t" days and "t" is the number of days remaining in the Guarantee
Period adjusting for leap years.
The current Guaranteed Interest Rate is declared periodically by the Company
and is the rate (straight line interpolation between whole years) which the
Company is then paying on premiums paid under this class of Contracts with the
same maturity date as the Purchase Payment to which the formula is being
applied.
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
PURCHASE PAYMENT: $50,000.00
GUARANTEE PERIOD: 5 YEARS
GUARANTEED INTEREST RATE: 5% EFFECTIVE ANNUAL RATE
The following examples illustrate how the Market Value Adjustment may affect
the values of your Contract. In these examples, the surrender occurs one year
after a Purchase Payment of $50,000 was made to the Contract. The Maturity
Value of this Purchase Payment would be $63,814.08 at the end of the five-year
Guarantee Period. However, after one year, when the surrenders occur in these
examples, the Account Value (i.e., the Purchase Payment plus accumulated
interest) would be $52,500.
The Market Value Adjustment will be based on the rate the Company is
crediting at the time of surrender on new Purchase Payments of the same term-
to-maturity as the time remaining in your Guarantee Period. One year after the
Purchase Payment was made, you would have four years remaining in the five-
year Guarantee Period.
EXAMPLE OF A NEGATIVE MARKET VALUE ADJUSTMENT
A negative Market Value Adjustment results from a surrender that occurs when
interest rates have increased since the date the Purchase Payment was made.
Assume interest rates have increased one year after the Purchase Payment and
the Company is crediting 7% for a four-year Guarantee Period.
If you surrender the full Account Value, the Market Adjusted Value would be:
[ 1 ]
$48,683.46 = $63,814.08 X [ ------- ] /4/
[ 1 + .07 ]
- -------------------------------------------------------------------------------
52
<PAGE>
The Market Value Adjustment is a reduction of $3,816.54 from the Account
Value:
$48,683.46 = $52,500.00 - $3,816.54
If instead of a full surrender, 50% of the Account Value was surrendered,
the Market Adjusted Value of the surrendered portion would be 50% of the full
surrender:
[ 1 ]
$24,341.73 = $31,907.04 X [ ------- ] /4/
[ 1 + .07 ]
The Maturity Value after the partial surrender would be 50% of the Maturity
Value prior to surrender, or $31,907.04.
EXAMPLE OF A POSITIVE MARKET VALUE ADJUSTMENT
A positive Market Value Adjustment results from a surrender that occurs when
interest rates have decreased since the date a Purchase Payment was made.
Assume interest rates have decreased one year later and the Company is then
crediting 3.5% for a four-year Guarantee Period.
If you surrender the full Account Value, the Market Adjusted Value would be:
[ 1 ]
$55,610.28 = $63,814.08 X [ -------- ] /4/
[ 1 + .035 ]
The Market Value Adjustment is an increase of $3,110.28 over Account Value:
$55,610.28 = $52,500.00 + $3,110.28
If instead of a full surrender, 50% of the Account Value were surrendered,
the Market Adjusted Value of the surrendered portion would be 50% of the full
surrender:
[ 1 ]
$27,805.14 = $31,907.04 X [ -------- ] /4/
[ 1 + .035 ]
The Maturity Value after the partial surrender would be 50% of the Maturity
Value prior to the surrender, or $31,907.04.
These examples illustrate what may happen when interest rates increase or
decrease from the beginning of a Guarantee Period. A particular Market Value
Adjustment may have a greater or lesser impact than that shown in these
examples, depending on how much interest rates have changed since the
beginning of a Guarantee Period and the amount of time remaining to maturity.
In addition, a surrender charge may be assessed on surrenders made before the
Purchase Payment has been under the Contract for seven years.
- -------------------------------------------------------------------------------
53
<PAGE>
"TTM"
Travelers Target Maturity
MODIFIED GUARANTEED ANNUITY CONTRACTS
issued by
The Travelers Life and Annuity Company
One Tower Square
Hartford, Connecticut 06183
L-12455 TLAC/TIC ED. JULY 1995
- --------------------------------------------------------------------------------
<PAGE>
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 14. Other Expenses of Issuance and Distribution
-------------------------------------------
Registration Fees: $34,482.76 for 100,000,000 in interests of Modified
Guaranteed Annuity Contracts.
Estimate of Printing Costs: $15,000
Cost of Independent Auditors: Approximately $8,000
Item 15. Indemnification of Directors and Officers
-----------------------------------------
Section 33-320a of the Connecticut General Statutes ("C.G.S.") regarding
indemnification of directors and officers of Connecticut corporations provides
in general that Connecticut corporations shall indemnify their officers,
directors and certain other defined individuals against judgments, fines,
penalties, amounts paid in settlement and reasonable expenses actually incurred
in connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification generally does not apply unless (1)
the individual is successful on the merits in the defense of any such
proceeding; or (2) a determination is made (by persons specified in the statute)
that the individual acted in good faith and in the best interests of the
corporation; or (3) the court, upon application by the individual, determines in
view of all of the circumstances that such person is fairly and reasonably
entitled to be indemnified, and then for such amount as the court shall
determine. With respect to proceedings brought by or in the right of the
corporation, the statute provides that the corporation shall indemnify its
officers, directors and certain other defined individuals, against reasonable
expenses actually incurred by them in connection with such proceedings, subject
to certain limitations.
C.G.S. Section 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less than
that authorized by the statute, e.g., pursuant to its certificate of
incorporation, by-laws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Travelers Group Inc. provides liability insurance for its directors and officers
and the directors and officers of its subsidiaries, including the Registrants.
This insurance provides for coverage against loss from claims made against
directors and officers in their capacity as such, including, subject to certain
exceptions, liabilities under the federal securities laws.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
Item 16. Exhibits
--------
(a) Exhibits
1. Form of Underwriting Agreement.
2. Agreement and Plan of Merger dated June 25, 1995, by and among
United HealthCare Corporation, Montana Acquisition, Inc., The
MetraHealth Companies, Inc., and Certain Other Persons.
3(a). Charter of The Travelers Life and Annuity Company, as amended on
April 10, 1990. (Incorporated herein by reference to Exhibit 6(a)
to the Registration Statement on Form N-4, File No. 33-58131,
filed on March 17, 1995.)
3(a)(i) Charter of The Travelers Insurance Company as amended on
October 19, 1994. (Incorporated herein by reference to Exhibit
3(a)(i) to the Registration Statement on Form S-2, File
No. 33-58677, filed on April 18, 1995.)
3(b). By-Laws of The Travelers Life and Annuity Company, as amended on
October 20, 1994. (Incorporated herein by reference to
Exhibit 6(b) to the Registration Statement on Form N-4,
File No. 33-58131, filed on March 17, 1995.)
3(b)(i) By-Laws of The Travelers Insurance Company, as amended on
October 20, 1994.
(Incorporated herein by reference to Exhibit 3(b)(i) to the
Registration Statement on Form S-2, File No. 33-58677, filed on
April 18, 1995.)
4(a). Contracts.
4(b). Limited Guarantee.
4(b)(i). Approval from State of Connecticut
5. Opinion Re: Legality, Including Consent. (Incorporated herein by
reference to Exhibit 5 to the Registration Statement on Form S-2,
File No. 33-58677, filed on April 18, 1995.)
10. Material Contracts.
a. Restated Second Amended General Agency Agreement (SAGAA) dated
as of November 1, 1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity Life Insurance
Company; hereinafter "Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.15 to the Annual Report on Form 10-K
of The Travelers Inc. (formerly Primerica Corporation) for the
fiscal year ended December 31, 1990 (File No. 1-9924) (the
"Primerica 1990 10-K").
b. Restated First Amendment to SAGAA dated as of November 1,
1989, by and among Primerica Life, A.L. Williams & Associates,
Inc. and Arthur L. Williams, Jr., incorporated by reference to
Exhibit 10.16 to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1, 1994, between the
Company and Metropolitan Life Insurance Company ("MetLife"),
incorporated by reference to Exhibit 10.03 to The Travelers
Insurance Company's Form 10-Q for the quarter ended September
30, 1994, File No. 33-33691, filed on November 14, 1994.
<PAGE>
d. Group Life Insurance and Related Businesses Acquisition
Agreement, dated as of September 1, 1994, among MetLife, the
Company, The Travelers Indemnity Company of Rhode Island and
The Travelers Insurance Company of Illinois, incorporated by
reference to Exhibit 10.04 to The Travelers Insurance
Company's Form 10-Q for the quarter ended September 30, 1994,
File No. 33-33691, filed on November 14, 1994.
23(a). Consent of Coopers & Lybrand L.L.P., Independent Accountants, to
the reference in the Prospectus to such firm as "experts" in
accounting and auditing and to the incorporation of their reports
on The Travelers Insurance Company and The Travelers Life and
Annuity Company financial statements.
23(b). Consent of KPMG Peat Marwick LLP, Independent Auditors, to the
reference in the Prospectus to such firm as "experts" in
accounting and auditing and to the incorporation of their reports
on The Travelers Insurance Company and The Travelers Life and
Annuity Company financial statements.
23(c). Consent of Counsel (see Exhibit 5).
24(a). Power of Attorney for Separate Account MGA II authorizing Jay S.
Fishman or Ernest J. Wright as signatory for Marc P. Weill and
Christine B. Mead.
24(b). Powers of Attorney for Separate Account MGA II authorizing Jay
S. Fishman or Ernest J. Wright as signatory for Robert I. Lipp,
Charles O. Prince, III, Donald T. DeCarlo, Irwin R. Ettinger, and
Michael A. Carpenter. (Incorporated herein by reference to the
Registration Statement on Form S-2, File No. 33-58677, filed on
April 18, 1995.)
24(c). Powers of Attorney authorizing Jay S. Fishman or Ernest J.
Wright as signatory for Robert I. Lipp, Charles O. Prince, III,
Marc P. Weill, Irwin R. Ettinger, Michael A. Carpenter,
Donald T. DeCarlo and Christine B. Mead.
27(a). Financial Data Schedule of The Travelers Life and Annuity
Company.
27(b). Financial Data Schedule of The Travelers Insurance Company.
(Incorporated herein by reference to Exhibit 27 to Form 10-K for
the year ended December 31, 1994, File No. 33-33691, filed on
March 31, 1995.)
Item 17. Undertakings
------------
The undersigned registrants hereby undertake as follows, pursuant to Item 512 of
Regulation S-K:
(a) Rule 415 offerings:
1. To file, during any period in which offers or sales of the registered
securities are being made, a post-effective amendment to this
registration statement:
a. to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
<PAGE>
b. to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
c. to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(h) Requests for Acceleration of Effective Date:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the provisions described under Item 15 above or
otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrants of expenses incurred or paid by a director,
officer or controlling person of the registrants in the successful defense
of any action, suit or proceeding) is asserted against the registrants by
such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the Registrant named
below certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this pre-effective
amendment to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut, on July 11, 1995.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Registrant)
By: /s/Jay S. Fishman
----------------------------
Jay S. Fishman
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this pre-effective
amendment to this registration statement has been signed by the following
persons in the capacities indicated on July 11, 1995.
*MICHAEL A. CARPENTER Director and Chairman of the Board
- -------------------------- (principal executive officer)
(Michael A. Carpenter)
*ROBERT I. LIPP Director
- --------------------------
(Robert I. Lipp)
/s/JAY S. FISHMAN Director and Chief Financial Officer
- --------------------------
(Jay S. Fishman)
*CHARLES O. PRINCE, III Director
- --------------------------
(Charles O. Prince, III)
*MARC P. WEILL Director
- --------------------------
(Marc P. Weill)
*IRWIN R. ETTINGER Director
- --------------------------
(Irwin R. Ettinger)
*DONALD T. DeCARLO Director
- --------------------------
(Donald T. DeCarlo)
/s/CHRISTINE B. MEAD Vice President - Finance
- -------------------------- and Controller
(Christine B. Mead)
*By: /s/Jay S. Fishman
--------------------------------------
Jay S. Fishman, Attorney-in-Fact
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the Registrant named
below certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-2 and has duly caused this pre-effective
amendment to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hartford, State of
Connecticut, on July 11, 1995.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
By: /s/Jay S. Fishman
----------------------------
Jay S. Fishman
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this pre-effective
amendment to this registration statement has been signed by the following
persons in the capacities indicated on July 11, 1995.
*ROBERT I. LIPP Director
- ---------------
(Robert I. Lipp)
/s/JAY S. FISHMAN Director and Chief Financial Officer
- -----------------
(Jay S. Fishman)
*CHARLES O. PRINCE, III Director
- ------------------------
(Charles O. Prince, III)
*MARC P. WEILL Director
- --------------
(Marc P. Weill)
*IRWIN R. ETTINGER Director
- ------------------
(Irwin R. Ettinger)
*MICHAEL A. CARPENTER Director, President and Chief Executive
- --------------------- Officer
(Michael A. Carpenter) (principal executive officer)
*DONALD T. DeCARLO Director
- ------------------
(Donald T. DeCarlo)
/s/CHRISTINE B. MEAD Vice President - Finance
- -------------------- and Controller
(Christine B. Mead)
*By: /s/Jay S. Fishman
------------------------------
Jay S. Fishman, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Description Method of Filing
-------- ----------- ----------------
1. Form of Underwriting Agreement. Electronically
2. Agreement and Plan of Merger dated June 25, Electronically
1995, by and among United HealthCare Corporation,
Montana Acquisition, Inc., The MetraHealth
Companies, Inc. and Certain Other Persons.
3(a). Charter of The Travelers Life and Annuity
Company, as amended on April 10, 1990.
(Incorporated herein by reference to Exhibit 6(a)
to the Registration Statement on Form N-4, File
No. 33-58131, filed on March 17, 1995.)
3(a)(i) Charter of The Travelers Insurance Company, as
amended on October 19, 1994. (Incorporated
herein by reference to Exhibit 3(a)(i) to the
Registration Statement on Form S-2, File
No. 33-58677, filed on April 18, 1995.)
3(b). By-Laws of The Travelers Life and Annuity
Company, as amended on October 20, 1994.
(Incorporated herein by reference to Exhibit
6(a) to the Registration Statement on Form N-4,
File No. 33-58131, filed on March 17, 1995.)
3(b)(i) By-Laws of The Travelers Insurance Company, as
amended on October 20, 1994. (Incorporated
herein by reference to Exhibit 3(b)(i) to the
Registration Statement on Form S-2, File
No. 33-58677, filed on April 18, 1995.)
4(a). Contracts. Electronically
4(b). Limited Guarantee Electronically
4(b)(i). Approval from State of Connecticut Electronically
5. Opinion Re: Legality, Including Consent.
(Incorporated herein by reference to Exhibit 5
to the Registration Statement on Form S-2,
File No. 33-58677, filed on April 18, 1995.)
10. Material Contracts.
a. Restated Second Amended General Agency
Agreement (SAGAA) dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams, Jr.,
incorporated by reference to Exhibit 10.15
to the Annual Report on Form 10-K of The
Travelers Inc. (formerly Primerica Corporation)
for the fiscal year ended December 31, 1990
(File No. 1-9924) (the "Primerica 1990 10-K").
<PAGE>
b. Restated First Amendment to SAGAA dated as of
November 1, 1989, by and among Primerica Life,
A.L. Williams & Associates, Inc. and Arthur L.
Williams, Jr., incorporated by reference to
Exhibit 10.16 to the Primerica 1990 10-K.
c. Master Agreement, dated as of September 1,
1994, between the Company and Metropolitan Life
Insurance Company ("MetLife"), incorporated by
reference to Exhibit 10.03 to Form 10-Q for the
quarter ended September 30, 1994, File
No. 33-33691, filed on November 14, 1994.
d. Group Life Insurance and Related Businesses
Acquisition Agreement, dated as of September 1,
1994, among MetLife, the Company, The Travelers
Indemnity Company of Rhode Island and The
Travelers Insurance Company of Illinois,
incorporated by reference to Exhibit 10.04 to
Form 10-Q for the quarter ended September 30,
1994, File No. 33-33691, filed on November 14,
1994.
23(a). Consent of Coopers & Lybrand L.L.P., Independent Electronically
Accountants, to the reference in the Prospectus
to such firm as "experts" in accounting and
auditing and to the incorporation of their reports
on The Travelers Insurance Company and The
Travelers Life and Annuity Company financial
statements.
23(b). Consent of KPMG Peat Marwick LLP, Independent Electronically
Auditors, to the reference in the Prospectus to
such firm as "experts" in accounting and auditing
and to the incorporation of their reports on The
Travelers Insurance Company and The Travelers
Life and Annuity Company financial statements.
23(c). Consent of Counsel (see Exhibit 5).
24(a). Powers of Attorney for Separate Account MGA II Electronically
authorizing Jay S. Fishman or Ernest J. Wright
as signatory for Marc P. Weill and Christine B.
Mead.
24(b). Powers of Attorney for Separate Account MGA II
authorizing Jay S. Fishman or Ernest J. Wright
as signatory for Robert I. Lipp, Charles O.
Prince, III, Donald T. DeCarlo, Irwin R. Ettinger
and Michael A. Carpenter. (Incorporated herein by
reference to the Registration Statement on Form
S-2, File No. 33-58677, filed on
April 18, 1995.)
24(c). Powers of Attorney authorizing Jay S. Fishman or Electronically
Ernest J. Wright as signatory for Robert I. Lipp,
Charles O. Prince, III, Marc P. Weill, Irwin R.
Ettinger, Michael A. Carpenter, Donald T. DeCarlo
and Christine B. Mead.
<PAGE>
27(a). Financial Data Schedule of The Travelers Life and Electronically
Annuity Company
27(b). Financial Data Schedule of The Travelers
Insurance Company. (Incorporated herein by
reference to Exhibit 27 to Form 10-K for the year
ended December 31, 1994, File No. 33-33691,
filed on March 31, 1995.)
<PAGE>
EXHIBIT 1
---------
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
PRINCIPAL UNDERWRITING AGREEMENT (the "Agreement") made this ____ day of
_________, 1995, by and among The Travelers Life and Annuity Company, a
Connecticut stock insurance company (hereinafter the "Company"), Tower Square
Securities, Inc., a Connecticut general business corporation (hereinafter
"TSSI"), and The Travelers Separate Account MGA II (hereinafter "Separate
Account MGA II"), a separate account of the Company established on February 1,
1995 by its Chief Investment Officer in accordance with a resolution adopted by
the Company's Board of Directors and pursuant to Section 38a-433 of the
Connecticut General Statutes.
1. The Company hereby agrees to provide all administrative services
relative to modified guaranteed annuity contracts and revisions thereof
(hereinafter "Contracts") sold by the Company, the net proceeds of which or
reserves for which are maintained in Separate Account MGA II.
2. TSSI hereby agrees to perform all sales functions relative to the
Contracts. The Company agrees to reimburse TSSI for commissions paid, other
sales expenses and properly allocable overhead expenses incurred in performance
thereof.
3. For providing the administrative services referred to in paragraph 1
above and for reimbursing TSSI for the sales functions referred to in paragraph
2 above, the Company will receive the deductions for sales and administrative
expenses which are stated in the Contracts.
4. The Company will furnish at its own expense and without cost to
Separate Account MGA II the administrative expenses of Separate Account MGA II,
including but not limited to:
(a) office space in the offices of the Company or in such other place as
may be agreed upon from time to time, and all necessary office
facilities and equipment;
(b) necessary personnel for managing the affairs of Separate Account MGA
II, including clerical, bookkeeping, accounting and other office
personnel;
(c) all information and services, including legal services, required in
connection with registering and qualifying Separate Account MGA II or
the Contracts with federal and state regulatory authorities,
preparation of registration statements and prospectuses, including
amendments and revisions thereto, and any other reports required to be
furnished to Contract Owners, including the costs of printing and
mailing such items;
(d) the costs of preparing, printing, and mailing all sales literature;
(e) all registration, filing and other fees in connection with compliance
requirements of federal and state regulatory authorities;
-1-
<PAGE>
(f) the charges and expenses of independent accountants retained by
Separate Account MGA II, if applicable.
5. The services of the Company and TSSI to Separate Account MGA II
hereunder are not to be deemed exclusive and the Company or TSSI shall be free
to render similar services to others so long as its services hereunder are not
impaired or interfered with thereby.
6. This Agreement will be effective on the date executed, and will remain
effective until terminated by any party upon sixty (60) days notice; provided,
however, that this Agreement will terminate automatically in the event of its
assignment by any of the parties hereto.
7. Notwithstanding termination of this Agreement, the Company shall
continue to provide administrative services and mortality and expense guarantees
provided for herein with respect to Contracts in effect on the date of
termination, and the Company shall continue to receive the compensation provided
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officials thereunto duly authorized and, in the case
of the Company and TSSI, seals to be affixed as of the day and year first above
written.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Seal)
By:_________________________________________
Title:_______________________________________
ATTEST:
_______________________
Assistant Secretary
THE TRAVELERS SEPARATE ACCOUNT MGA II
By:__________________________________________
Title:________________________________________
WITNESS:
_______________________
TOWER SQUARE SECURITIES, INC.
By: __________________________________________
Title: ________________________________________
ATTEST: (SEAL)
_______________________
Corporate Secretary
-2-
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UNITED HEALTHCARE CORPORATION,
MONTANA ACQUISITION, INC.,
THE METRAHEALTH COMPANIES, INC.
and
CERTAIN OTHER PERSONS NAMED HEREIN
June 25, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER 1
SECTION 1.01 The Merger 1
SECTION 1.02 Effective Time 2
SECTION 1.03 Effect of the Merger 2
SECTION 1.04 Certificate of Incorporation; By-Laws 2
SECTION 1.05 Directors and Officers 2
SECTION 1.06 Taking Necessary Action; Further Action 2
SECTION 1.07 The Closing 3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES 3
SECTION 2.01 Conversion of Securities 3
SECTION 2.02 Exchange of Certificates 5
SECTION 2.03 Adjustments to Contingent Consideration 6
SECTION 2.04 Determination of Preferred Conversion Price 10
SECTION 2.05 Contingent Payment Rights 10
SECTION 2.06 Stock Transfer Books 13
SECTION 2.07 Restricted Stock and Stock Options 13
SECTION 2.08 Dissenting Stockholders 16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 16
SECTION 3.01 Organization and Qualification; Subsidiaries 16
SECTION 3.02 Certificate of Incorporation; By-Laws 17
SECTION 3.03 Capitalization 17
SECTION 3.04 Authority; Enforceability; Vote Required 18
SECTION 3.05 No Conflict; Required Filings and Consents 18
SECTION 3.06 Permits; Compliance 19
SECTION 3.07 Reports; Financial Statements; Financial Matters 20
SECTION 3.08 Absence of Certain Changes or Events 23
SECTION 3.09 Absence of Litigation 24
SECTION 3.10 Contracts; No Default 24
SECTION 3.11 Employee Benefit Plans; Labor Matters 26
SECTION 3.12 Taxes 31
SECTION 3.13 Third-Party Funds 34
SECTION 3.14 Brokers and Agents; Insurance Matters 34
SECTION 3.15 Intellectual Property Rights 35
SECTION 3.16 Certain Business Practices and Regulations 36
SECTION 3.17 Insurance 36
SECTION 3.18 Certain Relationships 37
SECTION 3.19 Title to Properties; Environmental Matters 37
- i -
<PAGE>
SECTION 3.20 Brokers 39
SECTION 3.21 Effective Time; Disclosure 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDERS 40
SECTION 4.01 Organization and Qualification 40
SECTION 4.02 Authority; Enforceability 40
SECTION 4.03 No Conflict; Required Filings and Consents 40
SECTION 4.04 Ownership of Stock 41
SECTION 4.05 Brokers 42
SECTION 4.06 Investment Representations 42
SECTION 4.07 Effective Time; Disclosure 42
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR SUB 42
SECTION 5.01 Organization and Qualification 43
SECTION 5.02 Articles of Incorporation; By-Laws 43
SECTION 5.03 Capitalization 43
SECTION 5.04 Authority; Enforceability 44
SECTION 5.05 No Conflict; Required Filings and Consents 45
SECTION 5.06 Reports; Financial Statements 46
SECTION 5.07 Ownership of Acquiror Sub; No Prior Activities 47
SECTION 5.08 Brokers 48
SECTION 5.09 Permits; Compliance 48
SECTION 5.10 Absence of Litigation 48
SECTION 5.11 Absence of Certain Changes or Events 49
SECTION 5.12 Effective Time; Disclosure 49
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS 49
SECTION 6.01 Affirmative Covenants of the Company 49
SECTION 6.02 Negative Covenants of the Company 50
SECTION 6.03 Covenants of the Stockholders 53
SECTION 6.04 Affirmative Covenants of Acquiror 55
SECTION 6.05 Access and Information. 55
ARTICLE VII ADDITIONAL AGREEMENTS 56
SECTION 7.01 Approval of Stockholders 56
SECTION 7.02 Appropriate Action; Consents; Filings 57
SECTION 7.03 New York State Employees Contract 58
SECTION 7.04 Update Disclosure; Breaches 58
SECTION 7.05 Public Announcements 59
SECTION 7.06 Indemnification of Directors and Officers 59
SECTION 7.07 Obligations of Acquiror Sub 60
SECTION 7.08 Severance and Employment Agreements 60
- ii -
<PAGE>
SECTION 7.09 Company Employee Benefit Plans 62
SECTION 7.10 Related Agreements 63
SECTION 7.11 Utilization of Products and Services 63
SECTION 7.12 Amendment of Certain Agreements 64
SECTION 7.13 Rights under Master Agreement 64
SECTION 7.14 Restructuring Matters 65
SECTION 7.15 Cooperation and Exchange of Tax Information; Preparation
of Tax Returns 66
SECTION 7.16 Use of Computer Software 68
SECTION 7.17 Assumption of Registration Rights Agreement 69
SECTION 7.18 Waiver of Rights of First Refusal 69
SECTION 7.19 Post-Closing Cooperation 69
SECTION 7.20 Certain Litigation 70
SECTION 7.21 Post-Effective Time Employee Benefit Plans 71
ARTICLE VIII CLOSING CONDITIONS 73
SECTION 8.01 Conditions to Obligations of Each Party Under 73
This Agreement
SECTION 8.02 Additional Conditions to Obligations of Acquiror and
Acquiror Sub 75
SECTION 8.03 Additional Conditions to Obligations of the Company 76
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 77
SECTION 9.01 Termination 77
SECTION 9.02 Effect of Termination 77
SECTION 9.03 Fees and Expenses 78
ARTICLE X INDEMNIFICATION 79
SECTION 10.01 Survival of Representations and Warranties 79
SECTION 10.02 Indemnification by the Stockholders 79
SECTION 10.03 Indemnification by Acquiror 81
SECTION 10.04 Method of Asserting Claims 81
SECTION 10.05 Expiration of Indemnities 83
SECTION 10.06 Indemnification Claims; Interest 83
SECTION 10.07 Tax Claims; Certain Contest Rights 84
SECTION 10.08 No Right of Offset 86
SECTION 10.09 Exclusive Remedy 86
ARTICLE XI DEFINITIONS 86
SECTION 11.01 Defined Terms 86
ARTICLE XII GENERAL PROVISIONS 93
SECTION 12.01 Arbitration 93
- iii -
<PAGE>
SECTION 12.02 Notices 94
SECTION 12.03 Amendment 95
SECTION 12.04 Waiver 96
SECTION 12.05 Headings 96
SECTION 12.06 Severability 96
SECTION 12.07 Entire Agreement 96
SECTION 12.08 Assignment 96
SECTION 12.09 Parties in Interest 96
SECTION 12.10 Governing Law 96
SECTION 12.11 Best Efforts 97
SECTION 12.12 Counterparts 97
SECTION 12.13 Tax Treatment 97
EXHIBITS
--------
Exhibit 1.04 Amendments to Acquiror Sub's Certificate of Incorporation
Exhibit 2.03 Calculation of Company Earnings
Exhibit 2.05 Definition of Earnings Per Share
Exhibit 2.07(a) Company Restricted Shares
Exhibit 7.10(a) Amended Marketing Agreement
Exhibit 7.10(b) Standstill Agreement
Exhibit 7.14(b) Leased Premises
Exhibit 7.19 Liaison Committee
Exhibit 8.01(d) Registration Rights Agreement
Exhibit 11.01 Certificate of Designations
SCHEDULES
---------
Company Disclosure Schedule
Acquiror Disclosure Schedule
Stockholder Disclosure Schedule
Schedule of Stockholders
- iv -
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 25, 1995 (this
"Agreement"), is by and among UNITED HEALTHCARE CORPORATION, a Minnesota
corporation ("Acquiror"), Montana Acquisition, Inc., a Delaware corporation and
a wholly owned Subsidiary of Acquiror ("Acquiror Sub"), The MetraHealth
Companies, Inc., a Delaware corporation (the "Company"), each of the
stockholders of the Company listed on the Schedule of Stockholders attached to
------------------------
this Agreement (each a "Stockholder and collectively, the "Stockholders"), and
Metropolitan Life Insurance Company, a New York mutual life insurance company
("MetLife"). Capitalized terms used and not otherwise defined in this Agreement
are defined in Article XI.
WITNESSETH:
WHEREAS, the Board of Directors of the Company has (i) determined that
the Merger is in the best interests of the holders of Company Common Stock and
(ii) approved and adopted this Agreement and the transactions contemplated
hereby and recommended adoption of this Agreement by the stockholders of the
Company;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger is in the best interests of Acquiror and its stockholders and has
approved and adopted this Agreement and the transactions contemplated hereby;
WHEREAS, Acquiror Sub, upon the terms and subject to the conditions of
this Agreement and in accordance with Delaware Law, desires to merge with and
into the Company (the "Merger") and its Board of Directors has approved and
adopted, and its sole stockholder has adopted, this Agreement and the
transactions contemplated hereby; and
WHEREAS, the Stockholders collectively own approximately 96% of the
outstanding capital stock of the Company and desire to enter into this Agreement
to induce Acquiror and Acquiror Sub to enter into this Agreement and consummate
the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
----------
SECTION 1.01 The Merger. Upon the terms and subject to the
------------------------
conditions set forth in this Agreement, and in accordance with Delaware Law, at
the Effective Time, Acquiror Sub shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Acquiror Sub shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). Acquiror Sub and the Company are sometimes
collectively referred to in this Agreement as the "Constituent Corporations."
SECTION 1.02 Effective Time. As promptly as practicable after the
----------------------------
satisfaction or, if permissible, waiver, of the conditions set forth in Article
VIII, but in no
- 1 -
<PAGE>
event later than December 31, 1995 (subject to extension as provided in Section
9.01(d)), the parties shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as required by, and executed in accordance
with, the relevant provisions of Delaware Law (the date and time of such filing
being the "Effective Time"); provided that the parties agree to use their best
efforts to consummate the Merger as soon as practicable after the date of this
Agreement.
SECTION 1.03 Effect of the Merger. At the Effective Time, the effect
----------------------------------
of the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of those laws, and subject to their provisions,
at the Effective Time, all the property, interests, assets, rights, privileges,
immunities, powers and franchises of Acquiror Sub and the Company shall vest in
the Surviving Corporation, and all debts, liabilities, duties and obligations of
Acquiror Sub and the Company shall become the debts, liabilities, duties and
obligations of the Surviving Corporation.
SECTION 1.04 Certificate of Incorporation; By-Laws. At the Effective
---------------------------------------------------
Time, the Certificate of Incorporation, as amended by the amendments thereto set
forth in Exhibit 1.04 to this Agreement (which amendments shall become effective
------------
only at the Effective Time), and the By-Laws of Acquiror Sub shall be the
Certificate of Incorporation and the By-Laws of the Surviving Corporation.
SECTION 1.05 Directors and Officers. The directors of Acquiror Sub
------------------------------------
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Acquiror Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
SECTION 1.06 Taking Necessary Action; Further Action. Acquiror,
-----------------------------------------------------
Acquiror Sub, the Company and the Stockholders, respectively, shall each use its
best efforts to take all such action as may be necessary or appropriate to
effectuate the Merger under Delaware Law at the time specified in Section 1.02.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all properties, interests,
assets, rights, privileges, immunities, powers and franchises of either of the
Constituent Corporations, the officers of the Surviving Corporation are fully
authorized in the name of each Constituent Corporation or otherwise to take, and
shall take, all such lawful and necessary action.
SECTION 1.07 The Closing. The closing of the transactions
-------------------------
contemplated by this Agreement (the "Closing") will take place at the offices of
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York, or
at such other place that is mutually acceptable to the parties, and will be
effective at the Effective Time.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
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<PAGE>
SECTION 2.01 Conversion of Securities. At the Effective Time, by
--------------------------------------
virtue of the Merger and without any further action on the part of Acquiror Sub,
the Company or the holders of any of the following securities:
(a) Each share of Company Common Stock, including all restricted
shares, outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.01(b)) shall
be converted, subject to Section 2.02(c), into and become the right to receive
the following (collectively, the "Merger Consideration"):
(i) an amount in cash (the "Cash Consideration") equal to (A)
$1,150,000,000 (less the amount of dividends, if any, paid by the Company to its
stockholders after the date of this Agreement and prior to the Effective Time
which have been consented to by Acquiror) divided by (B) the number of shares of
Company Common Stock, including all restricted shares, outstanding at the
Effective Time;
(ii) a number of shares of Acquiror Preferred Stock equal to (A)
500,000 divided by (B) the number of shares of Company Common Stock, including
all restricted shares, outstanding at the Effective Time;
(iii) an amount (the "Contingent Consideration") equal to (A)
$350,000,000 less (B) the amount of the reductions, if any, determined under
Section 2.03 of this Agreement divided by (C) the number of shares of Company
Common Stock, including all restricted shares, outstanding at the Effective
Time, which amount shall, at Acquiror's election, be payable, subject to Section
2.03(c), either (x) in cash, (y) by issuance of one or more types of
Alternative Securities priced as provided in Section 2.03(d)(iv) in an aggregate
amount equal to the amount of the Contingent Consideration to be paid in the
form of Alternative Securities; or (z) any combination of cash and/or
Alternative Securities the Contingent Consideration (whether the initial payment
under Section 2.03(a) or any adjustments thereto under Sections 2.03(b) or (c))
shall also include interest, which interest shall be payable in cash, on the
amount of Contingent Consideration paid from the Effective Time to the date of
payment or issuance of Contingent Consideration at the rate specified in Section
10.06; and
(iv) one "Contingent Payment Right" having the rights and terms
set forth in Section 2.05.
Notwithstanding the foregoing, the amounts issuable in respect of Company Common
Stock under clauses (i) and (ii) above shall be aggregated, and each holder of
Company Common Stock shall have the right to elect to receive either all Cash
Consideration or a combination of Cash Consideration and Acquiror Preferred
Stock, subject to the following:
(aa) each of TIC and TIG hereby elects to receive all Cash
Consideration and no Acquiror Preferred Stock;
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<PAGE>
(bb) MHH hereby elects to receive the full $500,000,000 face value of
Acquiror Preferred Stock, subject to reduction under clause (cc) below, and the
balance of the amounts payable to it under clauses (i) and (ii) above as Cash
Consideration;
(cc) in no event shall the aggregate amount of Acquiror Preferred
Stock issued under clause (ii) above exceed a face value of $500,000,000, and if
one or more holders of Company Common Stock other than MHH elect to receive
Acquiror Preferred Stock, the amount of Acquiror Preferred Stock issuable to MHH
shall be reduced by the amount of Acquiror Preferred Stock allocable to the
holders who make such an election and MHH shall receive cash equal to the
aggregate face value of Acquiror Preferred Stock that such other holders have
elected to receive; and
(dd) in no event shall the Cash Consideration exceed $1,150,000,000
(less the amount of dividends, if any, paid by the Company to its stockholders
after the date of this Agreement and prior to the Effective Time which have been
consented to by Acquiror).
The foregoing formula for conversion of the Company Common Stock is
referred to as the "Exchange Ratio." Notwithstanding the foregoing, if between
the date of this Agreement and the Effective Time the outstanding shares of
Company Common Stock shall have been changed into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares. In addition, if between the date of this Agreement and the
Effective Time an event of the type described in Section 9 of the Certificate of
Designations occurs, the conversion price of the Acquiror Preferred Stock set
forth in the Certificate of Designations shall be correspondingly adjusted to
reflect such event in the same manner as such conversion price would have been
adjusted if the Acquiror Preferred Stock had been issued on the date of this
Agreement.
All shares of Company Common Stock converted pursuant to the Merger
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Merger Consideration
into which such Company Common Stock was converted in the Merger and cash in
lieu of fractional shares of Acquiror Preferred Stock pursuant to Section
2.02(c). Certificates previously representing shares of Company Common Stock
shall be exchanged for the Cash Consideration and certificates representing
whole shares of Acquiror Preferred Stock issued in consideration therefor upon
the surrender of such certificates in accordance with the provisions of Section
2.02. No fractional share of Acquiror Preferred Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 2.02(c) of this
Agreement, without interest.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by any direct or indirect
wholly owned Subsidiary of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion of such shares and no
payment shall be made with respect to such shares.
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<PAGE>
(c) Each share of common stock, par value $.01 per share, of Acquiror
Sub ("Acquiror Sub Common Stock") issued and outstanding immediately prior to
the Effective Time, shall be converted into and become one newly and validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation.
SECTION 2.02 Exchange of Certificates.
--------------------------------------
(a) Payment of Merger Consideration; Exchange of Certificates. On the
---------------------------------------------------------
date the Effective Time occurs (the "Closing Date"), each holder of Company
Common Stock shall be entitled to receive (i) the Cash Consideration to which
such holder is entitled under Section 2.01, payable by cashier's or certified
check or, if requested by such holder, by wire transfer of immediately available
funds to an account specified by such holder, (ii) a certificate or certificates
representing the number of whole shares of Acquiror Preferred Stock, if any,
issuable to such holder with respect to the aggregate number of such shares as
provided in Section 2.01, (iii) a cash payment in lieu of fractional shares, if
any, as provided in Section 2.02(c), and (iv) the Contingent Payment Rights with
respect to such shares, which Rights shall be uncertificated and shall have only
the rights and terms set forth in Section 2.05. The Contingent Consideration to
which such holder is entitled, if any, shall be paid as specified in Section
2.03. Upon surrender of each outstanding certificate theretofore evidencing
outstanding shares of Company Common Stock ("Certificates"), the Acquiror shall
pay to the holder of such Certificate the Merger Consideration, as set forth
above in this Section 2.02(a).
(b) No Further Rights in Company Common Stock. All shares of Acquiror
-----------------------------------------
Preferred Stock issued, the Cash Consideration paid, and cash paid in lieu of
fractional shares of Acquiror Preferred Stock pursuant to Section 2.02(c), upon
conversion of the shares of Company Common Stock in accordance with the terms of
this Agreement, shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
other than the right to receive payments in respect of the Contingent
Consideration in accordance with Section 2.03 and the Contingent Payment Rights
in accordance with Section 2.05.
(c) No Fractional Shares. No certificates or scrip representing
--------------------
fractional shares of Acquiror Preferred Stock shall be issued upon the surrender
for exchange of Certificates, and the owner of such fractional share interests
will not be entitled to vote or to any other rights of a stockholder of
Acquiror. Each holder of Certificates who otherwise would be entitled to
receive a fractional share of Acquiror Preferred Stock shall receive, in lieu of
such fractional share interest, an amount of cash (without interest) determined
by multiplying (i) the closing sale price per share of Acquiror Common Stock as
reported on the NYSE on the business day immediately preceding the Closing Date
by (ii) the number of shares of Acquiror Common Stock into which the fractional
share interest to which such holder would otherwise be entitled would otherwise
be convertible.
SECTION 2.03 Adjustments to Contingent Consideration.
-----------------------------------------------------
(a) If the amount of Company Earnings for the year ending December 31,
1995 is: (i) $190,000,000 or higher, there shall be no reduction in the
Contingent Consideration under this Section 2.03; (ii) less than $190,000,000
but greater than $155,000,000,
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<PAGE>
then the aggregate Contingent Consideration shall be reduced by $10 for every
dollar by which the amount of Company Earnings for such year is less than
$190,000,000; and (iii) $155,000,000 or less, then the aggregate Contingent
Consideration shall be reduced by $350,000,000. Not later than 10 days following
completion of the special review to be conducted by Deloitte & Touche of the
combined financial statements of the MetraHealth Business for the year ending
December 31, 1995, the Company shall prepare and deliver to each of Acquiror and
the Stockholders in accordance with the procedures set forth on Exhibit 2.03 a
------------
statement (the "Initial Company Earnings Statement") setting forth the amount of
Company Earnings and the aggregate amount of the Contingent Consideration
payable, if any, in accordance with this Section 2.03, a detailed reconciliation
of the combined after tax net income or loss of the MetraHealth Business to
Company Earnings, prepared by officers of the Company who were officers prior to
the Effective Time, and a reasonably detailed description of the calculation of
such Company Earnings and Contingent Consideration. The parties hereby agree
that Deloitte & Touche will be retained by the Stockholders and that the scope
of the work to be performed by Deloitte & Touche will be determined by the
Stockholders in their sole discretion. In no event will such scope be less than
what would otherwise be required had the procedures to be employed by Deloitte &
Touche been sufficient to constitute an audit in accordance with Generally
Accepted Auditing Standards. The Company shall use its best efforts to cause
such special review to be completed as soon as practicable after December 31,
1995. The amount of the Contingent Consideration payment reflected on the
Initial Company Earnings Statement shall be paid (if cash) or issued (if
Alternative Securities) by Acquiror to the persons entitled to receive such
Contingent Consideration on the fifth business day following delivery of the
Initial Company Earnings Statement, subject to extension in accordance with
Section 2.03(d). If Acquiror intends to issue Alternative Securities, Acquiror
shall give notice to the Stockholders of such intent at least five business days
prior to issuance of such securities. The aggregate amount of Contingent
Consideration payable or issuable under this Agreement shall equal $350,000,000
less the aggregate reductions, if any, to Contingent Consideration determined in
accordance with this Section 2.03(a). Cash paid in respect of Contingent
Consideration, together with interest thereon in accordance with Section
2.01(a)(iii), shall be paid by cashier's or certified check or, if requested by
a person entitled to receive payment, by wire transfer of immediately available
funds to an account specified by such person. "Company Earnings" shall be
determined in accordance with the provisions of Exhibit 2.03 attached to this
------------
Agreement. The calculation of the amount of Contingent Consideration paid under
this Section 2.03(a) shall be subject to review as provided in Section 2.03(c)
below.
(b) The amount of Company Earnings reflected on the Initial Company
Earnings Statement and the amount of Contingent Consideration payable under
Section 2.03(a), as finally determined hereunder, shall be subject to adjustment
as set forth on Exhibit 2.03 (the "Claims Accrual Adjustment"). Not later than
------------
August 31, 1996, the Company shall prepare and deliver to each of Acquiror and
the Stockholders in accordance with the procedures set forth on Exhibit 2.03 a
------------
statement (the "Second Company Earnings Statement") setting forth the
calculation of the Claims Accrual Adjustment, including the resulting amount of
adjustments, if any, to Company Earnings and to the aggregate amount of
Contingent Consideration paid under Section 2.03(a), setting forth in reasonable
detail the basis for the determination of the Claims Accrual Adjustment. If as
a result of the Claims Accrual Adjustment an additional amount is
payable to the persons entitled to receive Contingent Consideration or an amount
is required to be paid by such persons to Acquiror,
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<PAGE>
then such amount shall be paid in cash by Acquiror to the persons entitled to
receive Contingent Consideration, or by such persons to Acquiror, as the case
may be, on the fifth business day following delivery of the Second Company
Earnings Statement. The calculation of the amount of the Claims Accrual
Adjustment paid under this Section 2.03(b) shall be subject to review as
provided in Section 2.03(c) below. Cash paid in respect of Contingent
Consideration, together with interest thereon in accordance with Section
2.01(a)(iii), shall be paid by cashier's or certified check or, if requested by
a person entitled to receive payment, by wire transfer of immediately available
funds to an account specified by such person.
(c) If Acquiror or a Stockholder entitled to receive Contingent
Consideration shall have any objections to the Initial Company Earnings
Statement or the Second Company Earnings Statement, Acquiror or such Stockholder
shall deliver a reasonably detailed statement describing its objections to
Acquiror, the Company and the other Stockholders entitled to receive Contingent
Consideration within 30 business days after receiving the Company Earnings
Statement in question. In the event no such statement is delivered within such
30-business day period, the Company's calculation of Company Earnings and the
amount of Contingent Consideration payable (as set forth in the Initial Company
Earnings Statement), or the Company's calculation of the Claims Accrual
Adjustment (as set forth in the Second Company Earnings Statement), as the case
may be, shall be conclusive. The Stockholders entitled to receive Contingent
Consideration and Acquiror will use reasonable efforts to resolve any objections
to the calculation of Company Earnings and/or the Contingent Consideration
payment and/or the Claims Accrual Adjustment, in each case which are timely
raised by a Stockholder or Acquiror. If the parties do not obtain a final
resolution within 20 days after delivery of a statement of objections, such
Stockholders and Acquiror will select an accounting firm mutually acceptable to
them to resolve any remaining objections. If such Stockholders and Acquiror are
unable to agree on the choice of an accounting firm, such accounting firm will
be selected by lot from a list of nationally-recognized accounting firms, after
excluding the regular outside accounting firms of Acquiror and each of the
Stockholders. The determination of any accounting firm so selected will be set
forth in writing and will be conclusive and binding upon the parties. In the
event that parties submit any unresolved objections to an accounting firm for
resolution as provided in this Section 2.03(c), the fees and expenses of the
accounting firm shall (i) be borne by the objecting party if such accounting
firm determines that no additional payment is due to such party, (ii) be borne
equally by Acquiror and the Stockholders if the payment which such accounting
firm determines to be due to the Stockholders or Acquiror does not vary from the
payment reflected on the Initial or Second Company Earnings Statement, as the
case may be, by more than $5,000,000, (iii) be borne by Acquiror if the payment
which such accounting firm determines to be due to the Stockholders exceeds the
payment reflected on the Initial or Second Company Earnings Statement, as the
case may be, by more than $5,000,000 or (iv) be borne by the Stockholders if the
payment reflected on the Initial or Second Company Earnings Statement, as the
case may be, is more than $5,000,000 in excess of the payment which such
accounting firm determines to be due to the Stockholders. Any additional amount
of Contingent Consideration to be paid to the holders of Company Common Stock
under this Section 2.03(c) upon final resolution of disputes regarding the
Initial Company Earnings Statement or the Second Company Earnings Statement, as
the case may be, shall be paid in cash by Acquiror to the persons entitled to
receive such additional Contingent Consideration on the fifth business day
following the final determination of the amount of such additional Contingent
Consideration. Any reduction to the Contingent Consideration initially paid by
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<PAGE>
Acquiror under Section 2.03(a) which is to be paid to Acquiror under this
Section 2.03(c) upon final resolution of disputes regarding the Initial Company
Earnings Statement or the Second Company Earnings Statement shall be paid in
cash to Acquiror by the persons who were entitled to receive the initial payment
of Contingent Consideration under Section 2.03(a) on the fifth business day
following the final determination of the amount of such additional Contingent
Consideration. Any such cash payment shall be paid by cashier's or certified
check or, if requested by a person entitled to receive payment, by wire transfer
of immediately available funds to an account specified by such person.
(d) For purposes of this Agreement, "Alternative Securities" means one
or more of the following types of securities: convertible preferred stock; non-
convertible preferred stock; convertible debt securities; non-convertible debt
securities; convertible MIPS"; or other comparable securities, in each case
having terms substantially similar to those which are prevailing in the market
at the time of issuance for Alternative Securities of the type(s) issued under
Section 2.01(a)(iii). In the event any Alternative Securities are issued under
Section 2.01(a)(iii), the following provisions shall apply:
(i) The aggregate liquidation value and/or principal amount of any
particular type or class of Alternative Securities shall be not less than $100
million;
(ii) Acquiror shall pay all Registration Expenses (as defined in
the Registration Agreement) incurred upon subsequent resale of Alternative
Securities, which expenses shall be subject to Acquiror's reasonable advance
approval;
(iii) Subject to postponement under the circumstances provided in
Section 2.6 of the Registration Agreement, Acquiror shall prepare and file a
registration statement under the Securities Act covering the resale of such
Alternative Securities, and shall use its best efforts to cause such
registration statement to become effective as soon as practicable after filing,
and shall use best efforts to keep such registration statement effective for a
period not to exceed 90 days from the date of its effectiveness; and
(iv) Such Alternative Securities shall be immediately marketable
under federal and state securities laws and shall be priced to trade at their
respective liquidation values or principal amounts on a fully distributed basis
on the date of delivery, provided that if Acquiror cannot deliver immediately
marketable securities on such date, it may deliver such Alternative Securities
within 60 days of such date, priced to trade at their respective liquidation
values or principal amounts on a fully distributed basis on such date of
delivery. If such Alternative Securities are not delivered within such 60-day
period, Acquiror shall in lieu thereof deliver cash equal to the aggregate
amount of Contingent Consideration represented thereby. The price of the
Alternative Securities shall be jointly determined by investment bankers for
each of Acquiror and MetLife or, if such investment bankers cannot agree within
two business days, by a third investment banker to be chosen by Acquiror's and
MetLife's investment bankers.
SECTION 2.04 Determination of Preferred Conversion Price. The
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"Preferred Conversion Price" of a share of Acquiror Preferred Stock means
$49.477; provided, however, that if the average closing price of Acquiror Common
Stock as quoted on the NYSE for the five trading days ending with the second
trading day preceding the Closing Date (the "Average
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<PAGE>
Stock Price") is $48.27 or higher, then the "Preferred Conversion Price" of a
share of Acquiror Preferred Stock means the product determined by multiplying
(i) 1.025 by (ii) the Average Stock Price.
SECTION 2.05 Contingent Payment Rights.
---------------------------------------
(a) Each Contingent Payment Right shall represent only a right to
receive a cash payment (the "Earn-Out") from Acquiror, subject to the terms set
forth in this Section 2.05. The amount of any Earn-Out payment payable with
respect to each Contingent Payment Right shall be equal to the aggregate Earn-
Out payment payable, calculated as set forth below, divided by the total number
of Contingent Payment Rights outstanding as of the date such payment is due.
Not later than 10 days following the completion of the audit of Acquiror's
financial statements for each Earn-Out Year (as defined below), Acquiror shall
prepare and deliver to the Stockholders entitled to receive payment a statement
(the "Earn-Out Statement") setting forth the amount of Earnings Per Share (as
defined below), the amount of the Earn-Out, if any, payable for such Earn-Out
Year in accordance with this Section 2.05 and a reasonably detailed description
of the calculations of such Earnings Per Share and Earn-Out amount. The amount
of the Earn-Out payment reflected on the Earn-Out Statement shall be paid by
Acquiror to the holders of Contingent Payment Rights not later than the tenth
business day following the date the Earn-Out Statement is required to be
delivered to the Stockholders entitled to receive payment (the "Earn-Out Payment
Date"). Any objections made to the calculation of Earnings Per Share and/or the
amount of the Earn-Out payment shall be resolved in accordance with Section
2.05(f). In connection with any payment of the Earn-Out, Acquiror shall also
pay to each holder of Contingent Payment Rights interest on the amount of the
Earn-Out determined to be payable under this Section 2.05 to such holder for the
period beginning on the Earn-Out Payment Date to the date such amount is
actually paid, at the rate specified in Section 10.06. Contingent Payment Rights
shall not possess any attributes of common stock or other security and shall not
entitle the holders of the Contingent Payment Rights to any rights of any kind
other than as specifically set forth in this Agreement.
(b) The term "Earn-Out Year" shall refer to each of the following
twelve-month periods: (i) the period from January 1, 1996 through December 31,
1996; and (ii) the period from January 1, 1997 through December 31, 1997.
(c) The Earn-Out payments shall be determined by measuring Acquiror's
Earnings Per Share for Earn-Out Years 1996 and 1997 against Threshold Earnings
Per Share and Maximum Earnings Per Share for such Earn-Out Years, calculated as
set forth on Exhibit 2.05.
------------
(d) Failure to achieve the Threshold Earnings Per Share amount in any
Earn-Out Year will result in no Earn-Out payment being made for that Earn-Out
Year. Achieving the Maximum or greater Earnings Per Share in any Earn-Out Year
will result in the maximum Earn-Out payment to all holders of Contingent Payment
Rights, collectively, of $175,000,000 being made for that Earn-Out Year.
Earnings Per Share in any Earn-Out Year which is between the Threshold and
Maximum Earnings Per Share amounts for such year will result in an Earn-Out
payment to all holders of Contingent Payment Rights, collectively, being made
for that Earn-Out Year calculated as follows:
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Aggregate Earn-Out payment = [(X-Y) / (Z-Y)] x $175,000,000
Where: X = the actual Earnings Per Share for an Earn-Out Year,
Y = the Threshold Earnings Per Share for an Earn-Out Year
Z = the Maximum Earnings Per Share for an Earn-Out Year
Note: X will be calculated to four decimal places and rounded to
the nearest two decimal places.
(e) "Earnings Per Share" for each Earn-Out Year shall be determined in
accordance with the provisions of Exhibit 2.05.
------------
(f) If a Stockholder entitled to receive payment shall have any
objections to the Earn-Out Statement, such Stockholder shall deliver a
reasonably detailed statement describing its objections to Acquiror within 30
days after receiving the Earn-Out Statement in question. In the event such
statement is not delivered to Acquiror within such 30-day period, Acquiror's
calculation of Earnings Per Share and the Earn-Out payment, as set forth in the
Earn-Out Statement, shall be conclusive as to such Stockholder. The
Stockholders entitled to receive payment and Acquiror will use reasonable
efforts to resolve any objections to the calculation of Earnings Per Share
and/or the Earn-Out Payment which are timely raised by such Stockholders. If
the parties do not obtain a final resolution within 20 days after Acquiror's
receipt of a statement of objections, the Stockholders entitled to receive
payment and Acquiror will select an accounting firm mutually acceptable to them
to resolve any remaining objections. If such Stockholders and Acquiror are
unable to agree on the choice of an accounting firm, such accounting firm will
be selected by lot from a list of nationally recognized accounting firms, after
excluding the regular outside accounting firms of Acquiror and each such
Stockholder. The determination of any accounting firm so selected will be set
forth in writing and will be conclusive and binding upon the parties. If such
accounting firm determines that the Stockholders are entitled, under this
Section 2.05, to an additional payment from Acquiror, the Acquiror shall pay
such amount with interest from the Earn-Out Payment Date to the date such amount
is actually paid at the rate specified in Section 10.06. In the event that the
parties submit any unresolved objections to an accounting firm for resolution as
provided in this Section 2.05(f), the fees and expenses of the accounting firm
shall (i) be borne by the objecting Stockholder if such accounting firm
determines that no additional payment is due to such Stockholder, (ii) be borne
equally by Acquiror and such Stockholder if the payment which such accounting
firm determines to be due to such Stockholder does not exceed the Earn-Out
payment reflected on the Earn-Out Statement by more than $5,000,000, or (iii) be
borne by Acquiror if the payment which such accounting firm determines to be due
to such Stockholder exceeds the Earn-Out payment reflected on the Earn-Out
Statement by more than $5,000,000.
(g) The Contingent Payment Rights are personal to each initial holder
thereof and shall not be transferable for any reason other than (i) to an
affiliate of such holder, (ii) to another holder of Contingent Payment Rights or
(iii) by operation of law or by will or the laws of descent and distribution.
Any attempted transfer of a Contingent Payment Right by any holder thereof
(other than as permitted by the immediately preceding sentence) shall be null
and void.
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<PAGE>
(h) Payment of the Earn-Out shall be made by cashier's or certified
check or, if requested by a person entitled to receive payment, by wire transfer
of immediately available funds to an account specified by such person, after
taking such action as is necessary to assure that all applicable federal or
state income withholding and any other taxes are withheld and deducted from such
funds otherwise to be paid to the holders of Contingent Payment Rights. Each
payment of the Earn-Out shall, to the extent required by Law, be deemed to
include interest at the applicable federal rate under the Code (it being
understood that such deemed interest will not affect the amount due and payable,
if any, under this Section 2.05).
(i) In the event that an Acquiror Change of Control occurs prior to
the end of the second Earn-Out Year, Acquiror will, prior to or at the time of
such Acquiror Change of Control, make appropriate provision or cause appropriate
provision to be made (in each case reasonably satisfactory to the Stockholders
entitled to receive payment) so that (i) the Earn-Out can be calculated and paid
(if the targets for payment are met) following such Acquiror Change of Control,
and (ii) Acquiror's obligations under this Section 2.05 are expressly assumed by
the acquiring person. This Section 2.05, and Acquiror's obligation to pay the
Earn-Out hereunder, shall survive any Acquiror Change of Control which is
effected in such a manner that Acquiror does not have the opportunity to comply
with the provisions of the first sentence of this Section 2.05(i). In the event
that (x) Acquiror does not comply with the provisions of the first sentence of
this Section 2.05(i) in connection with an Acquiror Change of Control, or (y)
following any Acquiror Change of Control and prior to the end of the second
Earn-Out Year, the acquiring person (1) disposes of any material portion of the
businesses conducted by Acquiror as of the Acquiror Change of Control so as to
adversely affect Earnings Per Share or (2) engages in any other transaction or
reorganization that makes calculation of Earnings Per Share impossible or unduly
burdensome (in each case, an "Earn-Out Default"), then the maximum amount of the
Earn-Out payment for (A) the year in which the Earn-Out Default occurs and (B)
for the second Earn-Out Year (if the Earn-Out Default occurs in the first Earn-
Out Year), shall become due and payable upon consummation of the Acquiror Change
of Control in the case of clause (x) above or immediately upon occurrence of the
circumstances described in clause (y) above.
SECTION 2.06 Stock Transfer Books. At the Effective Time, the stock
----------------------------------
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. From and after the Effective Time, the holders of
Certificates shall cease to have any rights with respect to such shares of
Company Common Stock except as otherwise provided in this Agreement or by Law.
On or after the Effective Time, any Certificates presented to Acquiror for any
reason shall be converted into the Cash Consideration, shares of Acquiror
Preferred Stock, any cash in lieu of fractional shares of Acquiror Preferred
Stock to which the holders of the Certificates are entitled pursuant to Section
2.02(c), the right to receive the Contingent Consideration in accordance with
Section 2.03 and Contingent Payment Rights.
SECTION 2.07 Restricted Stock and Stock Options.
------------------------------------------------
(a) Exhibit 2.07(a) sets forth a list of shares of restricted Company
---------------
Common Stock issued in connection with the merger of MetraHealth Acquisition
Corp., a wholly owned subsidiary of the Company, with and into HealthSpring,
Inc. (the "HealthSpring
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<PAGE>
Merger") on March 9, 1995 ("Restricted Company Shares"), including the name of
the holder and the number of Restricted Company Shares held by each such holder.
All Restricted Company Shares shall be deemed to be vested as of the Effective
Time, shall be treated as outstanding for purposes of Section 2.01 and shall be
entitled to receive the Merger Consideration pursuant to such Section.
(b) Prior to the Effective Time, the Company shall amend its 1995
Employee Stock Option Plan (as so amended, the "Company Stock Plan"), and each
option granted thereunder prior to such amendment (in each case in a manner
satisfactory to Acquiror), to eliminate any provision requiring termination of
options granted thereunder upon consummation of the Merger (including any
provision converting options into the right to receive payments of cash or other
consideration) and to permit such options to be converted into options to
acquire shares of Acquiror Common Stock in accordance with this Section 2.07.
The aggregate number of shares of Company Common Stock issuable upon exercise of
all options granted under the Company Stock Plan or otherwise outstanding as of
the Effective Time shall not exceed 400,000. No option grants shall be made
after the date of this Agreement under the Company Stock Plan, except to persons
and in amounts and on the terms set forth on Sections 2.07(b) and 3.03 of the
Company Disclosure Schedule or otherwise approved in writing by Acquiror.
(c) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock issued pursuant to the Company Stock Plan, whether
vested or unvested, shall be assumed by Acquiror (each, an "Assumed Stock
Option") as follows:
(i) Each Assumed Stock Option granted prior to the date of this
Agreement or after the date of this Agreement to the persons and in the amounts
referenced in Section 3.03 of the Company Disclosure Schedule shall be deemed to
constitute an option to acquire that number of shares of Acquiror Common Stock
at the per share exercise price, in each case determined in accordance with the
applicable formula set forth below, and otherwise on the same terms and
conditions as were applicable to such Company Stock Option so converted.
N = p * {[k + ((b-a) * c)] / (0.8 * b)}, with the result rounded to the
nearest integer
S = 0.2 * b, with the result rounded to the nearest cent
Where:
N = number of shares of Acquiror Common Stock for which such Assumed Stock
Option may be exercised
S = exercise price per share of each Assumed Stock Option
p = number of shares of Company Common Stock covered by Assumed Stock
Option immediately prior to the Effective Time
k = $123.62
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<PAGE>
a = $40.225
b = The greater of a and the closing price of one share of Acquiror Common
Stock on the NYSE on the trading day immediately preceding the
Effective Time
c = k / (0.8 * a)
(ii) At the Effective Time, each Assumed Option other than those
issued prior to the date of this Agreement or those issued to the persons and in
the amounts referenced in Section 3.03 of the Company Disclosure Schedule shall
be deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Assumed Stock Option, (A) a number of whole shares
of Acquiror Common Stock (rounded down to the nearest whole share) with a value,
valued at the closing price of Acquiror Common Stock on the NYSE on the trading
day immediately preceding the Closing Date, equal to the value of the Company
Common Stock, valued at a price per share of $494.49, that the holder of such
Assumed Stock Option would have been entitled to receive had such holder
exercised such option in full immediately prior to the Effective Time and (B) at
an exercise price per share (rounded up to the nearest whole cent) equal to (1)
the aggregate exercise price for the shares of Company Common Stock otherwise
purchasable pursuant to such Assumed Stock Option divided by (2) the number of
whole shares of Acquiror Common Stock deemed purchasable pursuant to such
Assumed Stock Option; provided, however, that in the case of any Assumed Stock
Option to which Section 421 of the Code applies by reason of its qualification
under Section 422 of the Code ("qualified stock options"), the option price, the
number of shares purchasable pursuant to such Assumed Stock Option and the terms
and conditions of exercise of such Assumed Stock Option shall be determined in
order to comply with Section 424(a) of the Code.
(d) As soon as practicable after the Effective Time, Acquiror shall
deliver to the holders of Assumed Stock Options appropriate notices setting
forth such holders' rights with respect to such Assumed Stock Options pursuant
to the Company Stock Plan and the documents evidencing the grants of such
Assumed Stock Options shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.07 after giving effect to
the Merger and the assumption by Acquiror as set forth above). Acquiror shall
comply with the terms of the Company Stock Plan and shall use reasonable efforts
to ensure, to the extent required by, and subject to the provisions of, such
Plan, that Assumed Stock Options which qualified as qualified stock options
prior to the Effective Time continue to qualify as qualified stock options of
Acquiror after the Effective Time.
(e) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of Assumed Stock Options. As soon as practicable, but in no event
more than 30 days, after the Effective
Time, Acquiror shall file a registration statement on Form S-8 (or any successor
or other appropriate form) with respect to the shares of Acquiror Common Stock
subject to Assumed Stock Options and shall use its reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses referred to therein) for so
long as any of such Assumed Stock Options remain outstanding. Acquiror shall
administer the Company Stock Plan assumed pursuant to this Section 2.07 in a
manner that complies with Rule 16b-3 promulgated under the Securities Exchange
Act of
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<PAGE>
1934, as amended. Acquiror shall take such other action as is reasonably
necessary to effectuate the intents and purposes of this Section 2.07.
SECTION 2.08 Dissenting Stockholders.
-------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, if
Section 262 of the Delaware Law shall be applicable to the Merger, shares of
Company Common Stock that are issued and outstanding immediately prior to the
Effective Time and which are held by stockholders who have not voted such shares
in favor of the Merger, who shall have delivered, prior to any vote on the
Merger, a written demand for appraisal for such shares in the manner provided in
Section 262 of the Delaware Law and who, as of the Effective Time, shall not
have effectively withdrawn or lost such right to dissenters' rights ("Dissenting
Shares") shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.01 of this Agreement, but the holders
thereof shall be entitled only to such rights as are granted by Section 262 of
the Delaware Law. Each holder of Dissenting Shares who becomes entitled to
payment for such shares pursuant to Section 262 of the Delaware Law shall
receive payment therefor from the Surviving Corporation in accordance with the
Delaware Law; provided, however, that if such holder of Dissenting Shares shall
-------- -------
have effectively withdrawn such holder's demand for appraisal of such shares or
lost such holder's right to appraisal and payment of such shares under Section
262 of the Delaware Law, such holder shall forfeit the right to appraisal of
such shares and each such share shall thereupon be deemed to have been
converted, as of the Effective Time, into and represent only the right to
receive payment from the Surviving Corporation of the Merger Consideration, as
provided in Section 2.01 of this Agreement.
(b) The Company shall give Acquiror (i) prompt notice of any written
demand for appraisal, any withdrawal of any such demand for appraisal and any
other instrument served pursuant to Section 262 of the Delaware Law received by
the Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under such Section 262 of the Delaware
Law. The Company shall not, except with the prior written consent of Acquiror,
voluntarily make any payment with respect to any demand for appraisal or offer
to settle or settle any such demand.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as set forth in the Disclosure Schedule delivered by the
Company to Acquiror prior to the execution of this Agreement (the "Company
Disclosure Schedule"), which identifies exceptions by specific Section
references, the Company hereby represents and warrants to Acquiror that:
SECTION 3.01 Organization and Qualification; Subsidiaries. Each of
----------------------------------------------------------
the Company and its Subsidiaries is a corporation, duly incorporated, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being conducted
and is duly qualified and in good standing to do business in each
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<PAGE>
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary except
such jurisdictions, if any, where the failure to be so qualified or in good
standing would not have a Company Material Adverse Effect. A true and complete
list of all of the Company's directly or indirectly owned Subsidiaries, together
with the jurisdiction of incorporation or organization of each Subsidiary and
the percentage of each Subsidiary's outstanding capital stock or other equity
interests owned by the Company or another Subsidiary of the Company, is set
forth in Section 3.01 of the Company Disclosure Schedule.
SECTION 3.02 Certificate of Incorporation; By-Laws. The Company has
---------------------------------------------------
made available to Acquiror complete and correct copies of the Certificate of
Incorporation and the By-Laws, as amended or restated, of the Company and each
of its Subsidiaries. Neither the Company nor any Subsidiary is in violation of
any of the provisions of its Certificate of Incorporation or By-Laws, as amended
or restated, or equivalent organizational documents.
SECTION 3.03 Capitalization.
----------------------------
(a) As of June 22, 1995, the authorized capital stock of the Company
consists of: 5,000,000 shares of Company Common Stock of which (i) 3,730,570
shares of Company Common Stock are issued and outstanding, including 130,570
Restricted Company Shares issued in the HealthSpring Merger; (ii) 400,000 shares
of Company Common Stock are reserved for future issuance pursuant to outstanding
options under the Company Stock Plan; and (iii) no shares of Company Common
Stock are held in the treasury of the Company.
(b) Except as contemplated by this Agreement, there have been no
changes in the terms of outstanding Company Stock Options since the date of
their issuance. Section 3.03 of the Company Disclosure Schedule sets forth, for
each option outstanding or proposed to be issued in accordance with Section 2.07
under the Company Stock Plan, the name of the holder, the number of shares
subject to such option, and the exercise price, vesting terms and expiration
date of such option. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights under Delaware Law, the Company's Certificate of Incorporation
or By-Laws or any rights similar to preemptive rights under any agreement to
which the Company is a party or by which it is bound. Each of the outstanding
shares of capital stock of, or other equity interests in, each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and non-assessable,
and such shares or other equity interests are owned by the Company (or its
Subsidiaries) free and clear of all security interests, liens, claims, pledges,
agreements, limitations on the Company's voting rights, charges or other
encumbrances of any nature whatsoever. Except as disclosed in Section 3.03(a),
there are no options, warrants, restricted shares or other rights, agreements,
arrangements or commitments to which the Company or any of its Subsidiaries is a
party of any character relating to the issued or unissued capital stock of, or
other equity interests in, the Company or any of the Subsidiaries or obligating
the Company or any of the Subsidiaries to grant, issue, sell or register for
sale any shares of the capital stock of, or other equity interests in, the
Company or any of the Subsidiaries, by sale, lease, license or otherwise. As of
the date of this Agreement, there are no obligations, contingent or otherwise,
of the Company or any of its Subsidiaries to (x) repurchase, redeem or otherwise
acquire any shares of Company Common Stock, or the capital stock of, or other
equity interests in, any Subsidiary of the Company; or (y) provide funds to, or
make any
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<PAGE>
investment in (in the form of a loan, capital contribution or otherwise), or
provide any guarantee with respect to the obligations of, any Subsidiary of the
Company or any other person, except for the provision of funds to, making an
investment in (in the form of a loan, capital contribution or otherwise) or
provision of any guarantees of obligations of Subsidiaries in the ordinary
course.
SECTION 3.04 Authority; Enforceability; Vote Required.
------------------------------------------------------
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations under this
Agreement and to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement (other than with
respect to the adoption of this Agreement by the holders of Company Common Stock
in accordance with Delaware Law and the Company's Certificate of Incorporation
and By-Laws). This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by the
Stockholders, MetLife, Acquiror and Acquiror Sub, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
(b) The affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock is the only vote of the holders of
any class or series of capital stock of the Company necessary to approve the
Merger.
SECTION 3.05 No Conflict; Required Filings and Consents.
--------------------------------------------------------
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not: (i)
conflict with or violate the Certificate of Incorporation or By-Laws or
equivalent organizational documents of the Company or any of its Subsidiaries;
(ii) subject to (x) obtaining the requisite adoption of this Agreement by the
holders of a majority of the outstanding shares of Company Common Stock in
accordance with Delaware Law and the Company's Certificate of Incorporation and
By-Laws, (y) obtaining the consents, approvals, authorizations and permits of,
and making filings with or notifications to any Governmental Entity pursuant to
the applicable requirements of any Law (including any Health Benefit Law) or of
any third party listed on Section 3.05 of the Company Disclosure Schedule, and
(z) the filing and recordation of appropriate merger documents as required by
Delaware Law, conflict with or violate any Laws applicable to the Company or any
of its Subsidiaries or by which any of their respective properties is bound or
affected; or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the properties or
assets of the Company or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party, by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected, except for any matters described in
clause (ii) or
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<PAGE>
(iii) that would not have a Company Material Adverse Effect. Section 3.05 of the
Company Disclosure Schedule sets forth a list of all (i) consents, approvals,
authorizations, permits, filings, and notifications of, with and to any
Governmental Entity required to be made, obtained or filed by the Company under
(A) any Health Benefit Law, (B) any other material Law applicable to the Company
and its Subsidiaries or (C) to the Company's knowledge, any other Law applicable
to the Company and its Subsidiaries and (ii) all material consents and approvals
of any other third party required as a result of the execution and delivery of
this Agreement by the Company and the consummation of the Merger.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entities or other third party, except for (i) the consents,
approvals, authorizations, filings, notices or permits described in Section 3.05
of the Company Disclosure Schedule, (ii) the filing and recordation of
appropriate merger documents as required by Delaware Law, and (iii) consents,
approvals, authorizations, filings, notices or permits not required to be
disclosed on Section 3.05 of the Company Disclosure Schedule.
SECTION 3.06 Permits; Compliance. Each of the Company and its
---------------------------------
Subsidiaries is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary for the Company or any of its
Subsidiaries to own, lease and operate its properties or to carry on their
business as it is now being conducted (the "Company Permits") and no suspension,
revocation or cancellation of any of the Company Permits is pending or, to the
knowledge of the Company, threatened. Neither the Company nor any of its
Subsidiaries is operating in conflict with, or in default or violation of, in
any material respect (i) any Law applicable to the Company or any of its
Subsidiaries or by which any of their respective properties is bound or affected
(including, without limitation, all applicable regulations, procedures and
policies governing the development of community-rated and experience-rated
premiums charged to the United States Office of Personnel Management for
individuals covered by the Federal Employees' Health Benefit Plan who enroll in
a HMO or health insurance plan of the Company or its Subsidiaries) or (ii) any
of the Company Permits.
SECTION 3.07 Reports; Financial Statements; Financial Matters.
--------------------------------------------------------------
(a) Since December 31, 1991, the Company and each of its Subsidiaries,
and the Stockholders and their affiliates with respect to the Health Care
Benefits Business, have filed all material forms, reports, statements, notices
and other documents required to be filed with applicable federal or state
regulatory authorities including, without limitation, state insurance and health
regulatory authorities (all such forms, reports, statements, notices and other
documents being collectively referred to as the "Company Reports"). The Company
Reports were prepared in all material respects in accordance with the
requirements of applicable Law.
(b) The Company (i) has furnished Acquiror with a copy of (A) the
condensed combined balance sheet of the MetraHealth Business as of April 30,
1995 and the related statements of income and changes in stockholders' equity
for the four-month period then ended (together with any notes thereto, the
"April 30 Statements"), (B) the condensed
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combined balance sheet of the MetraHealth Business as of January 3, 1995
(together with any notes thereto, the "Opening Balance Sheet"), (C) the audited
combined financial statements of the Travelers Business as of December 31, 1993
and 1994 and for the respective years then ended, which financial statements
were prepared in compliance with the Master Agreement (together with any notes
thereto, the "Travelers Statements"), and (D) the audited combined financial
statements of the MetLife Business as of December 31, 1993 and 1994 and for the
respective years then ended, which financial statements were prepared in
compliance with the Master Agreement (together with any notes thereto, the
"MetLife Statements"), and (ii) will furnish prior to the Closing (A) the
condensed combined balance sheet of the MetraHealth Business as of the last day
of each fiscal quarter ending at least 45 days prior to the Closing Date and the
related statements of income and changes in stockholders' equity for the
year-to-date period then ended (together with any notes thereto, the "Quarterly
Statements") and (B) the condensed combined balance sheet of the MetraHealth
Business as of the last day of the last month ending at least 45 days prior to
the Closing Date and the related statements of income and changes in
stockholders' equity for the year-to-date period then ended (the "Final
Statements" and, together with the April 30 Statements, the Quarterly
Statements, the Opening Balance Sheet, the Travelers Statements and the MetLife
Statements, the "Company Financial Statements"). The Company Financial
Statements have been, or in the case of the Quarterly Statements and the Final
Statements will be, prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except (x) to the extent required by changes
in GAAP and (y) with respect to Company Financial Statements prepared prior to
the date of this Agreement, as may be specifically indicated in the notes
thereto) and fairly present, or in the case of the Quarterly Statements and the
Final Statements will fairly present, the consolidated financial position of the
MetraHealth Business, the Travelers Business or the MetLife Business, as the
case may be, as of the dates thereof and the consolidated results of operations,
changes in stockholders' equity and cash flows for the periods then ended,
except that (i) the April 30 Statements, the Quarterly Statements and the Final
Statements (A) were or will be subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount and (B)
are not or may not be necessarily indicative of results for the full fiscal
year, (ii) the Company Financial Statements relating to the Travelers Business
and the MetLife Business, respectively, have been prepared on a basis consistent
with the accounting practices of TIC or MetLife, as the case may be, then
applicable, (iii) the April 30 Statements, while prepared in accordance with
GAAP, have not necessarily been prepared on a basis consistent with any past
practices, although the Quarterly Statements and the Final Statements delivered
by the Company subsequent to the April 30 Statements will be prepared on a basis
consistent with the April 30 Statements, and (iv) any pro forma financial
information contained in the Opening Balance Sheet is not necessarily indicative
of the consolidated financial position of the MetraHealth Business as of the
date thereof and the consolidated results of operations and cash flows for the
period indicated. For purposes of this Agreement, (i) "Travelers Business" means
the Managed Care and Employee Benefits Operations Medical Division of TIG, which
includes the entire Health Care Benefits Business conducted by TIG and its
affiliates, (ii) "MetLife Business" means the Metropolitan Life Insurance
Company Health Care Benefits Business, which includes the entire Health Care
Benefits Business conducted by MetLife and its affiliates, and (iii)
"MetraHealth Business" means the businesses conducted by the Company and its
Subsidiaries and the portion of the Health Care Benefits Businesses of the
Stockholders and their affiliates which have not yet been contributed to the
Company and its Subsidiaries.
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<PAGE>
(c) The Company has furnished Acquiror with a copy of the statutory
reports of each Subsidiary of the Company which is a licensed insurance company
or HMO as of December 31, 1993 and 1994 (the "SAP Statements"). The SAP
Statements have been prepared in accordance with statutory accounting principles
prescribed or permitted by applicable insurance regulatory authorities ("SAP")
and comply in all material respects with the requirements of applicable
insurance Laws.
(d) The financial projections regarding the MetraHealth Business which
have been provided to Acquiror by the Company were prepared by the Company in
good faith based on assumptions that the Company believed at the time such
projections were prepared to be reasonable and represented at the time prepared
the Company's best estimate of the combined results of operations of the
MetraHealth Business as of the dates and for the periods covered by such
projections, without taking into account the Merger. Such projections are
consistent with internal reports and projections prepared by the Company's
senior management for official use.
(e) Except as and to the extent set forth in the April 30 Statements,
neither the Company nor any of its Subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on, or reserved against in, a balance
sheet of the MetraHealth Business or in the notes thereto, prepared in
accordance with GAAP, except for liabilities or obligations (none of which is a
liability resulting from breach of contract, breach of warranty, or tort or
infringement claim or lawsuit) incurred in the ordinary course since April 30,
1995.
(f) The Company has delivered to Acquiror a statement calculating the
pro forma amount of life insurance company risk based capital (as currently
defined in NAIC) of The MetraHealth Insurance Company as of January 1, 1995, as
required by the NAIC formula, calculated at the Company action level.
(g) Other than the absence of the reserve for adverse deviation, the
amount of reserves of The MetraHealth Insurance Company and each Subsidiary
which is a licensed insurance company or a HMO reflected in the Company
Financial Statements has been determined in accordance with sound actuarial
principles using accounting and reserve criteria applied consistently with the
criteria applied during calendar 1994 by either Stockholder and its affiliates
with respect to its Health Care Benefits Business.
(h) Section 3.07(h) of the Company Disclosure Schedule sets forth a
list of all Investments owned or held by the Company and its Subsidiaries
("Company Investments") as of April 30, 1995. As of the date of this Agreement,
all Company Investments are owned by the Company or one of its Subsidiaries,
free and clear of all liens and encumbrances, other than inchoate tax or other
statutory liens and encumbrances. All Company Investments have been made in
accordance with the established investment guidelines of the Company or the
applicable Stockholder and its affiliates, as the case may be. "Investment" as
applied to any person means (i) any direct or indirect purchase or other
acquisition by such person of any note, obligation, instrument, stock, mortgage,
security, or ownership interest (including any partnership, limited liability
company or joint venture interest) of any other person (other than a wholly
owned Subsidiary) and (ii) any capital contribution by such person to any
person.
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<PAGE>
(i) Neither the Company nor any of its Subsidiaries owns any interest
in, or has any liability (including any contingent liability) with respect to,
any options, puts, calls, swaps, exchange contracts or other derivatives or any
other similar material off balance sheet financing arrangements or liabilities.
(j) The April 30 Statements set forth the principal accounting
policies followed by the MetraHealth Business, and since April 30, 1995, except
as provided in Section 6.02(i), there has been no change in such policies,
except as required by changes in GAAP or SAP.
SECTION 3.08 Absence of Certain Changes or Events. Except as
--------------------------------------------------
disclosed in Section 3.08 of the Company Disclosure Schedule or as otherwise
contemplated in this Agreement, since January 1, 1995:
(a) each of the Company and its Subsidiaries has conducted its
business only in the ordinary course in all material respects including, without
limitation, with regard to underwriting, pricing, actuarial, accounting and
investment policies and the basis used to establish reserves;
(b) there has not occurred any Company Material Adverse Effect and the
Company has not had any development which would reasonably be expected to result
in a Company Material Adverse Effect;
(c) neither the Company nor any of its Subsidiaries has made any loans
or advances in excess of $60,000 to any officer, director, stockholder or
affiliate of the Company or of any of its Subsidiaries (except for ordinary
travel and business expense payments and loans or advances made to the
Stockholders in the ordinary course in accordance with the terms of any
Affiliate Contract);
(d) the Company has not declared or paid, or accrued any liability for
the payment of, any dividends or made any other distributions to its
stockholders with respect to shares of its capital stock;
(e) neither the Company nor any of its Subsidiaries has entered into
any commitment or transaction (including without limitation any borrowing or
capital expenditure) other than in the ordinary course;
(f) neither the Company nor any of its Subsidiaries has incurred any
indebtedness for borrowed money (or guaranteed any such indebtedness) in excess
of $2,000,000 or other than in the ordinary course, regardless of amount;
(g) neither the Company nor any of its Subsidiaries has issued,
redeemed or repurchased any stock, bond or other corporate security except
issuance of options pursuant to the terms of the Company Stock Plan, or issuance
of Company Common Stock upon exercise of any outstanding stock options issued
under such plan;
(h) neither the Company nor any of its Subsidiaries has experienced
any damage, theft or casualty loss in an amount exceeding $3,000,000 in the
aggregate;
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<PAGE>
(i) neither the Company nor any of its Subsidiaries has relinquished
any material contract or contract right, except in the ordinary course;
(j) neither the Company nor any of its Subsidiaries has sold,
assigned, transferred or bulk reinsured any of its assets (tangible or
intangible), except in the ordinary course; and
(k) neither the Company nor any of its Subsidiaries has entered into
any commitment (contingent or otherwise) to do any of the foregoing.
SECTION 3.09 Absence of Litigation.
-----------------------------------
(a) Section 3.09(a) of the Company Disclosure Schedule lists and
briefly describes all material legal, arbitral or administrative claims,
actions, suits, litigation or proceedings of any kind affecting the Company or
any of its Subsidiaries or the Health Care Benefits Business, at law or in
equity (including actions or proceedings seeking injunctive relief), which are
pending or, to the knowledge of the Company, threatened (other than grievance or
complaint proceedings in the ordinary course). There is no action pending or,
to the knowledge of the Company, threatened seeking to enjoin or restrain the
Merger or the transactions contemplated by this Agreement.
(b) Neither the Company nor any of its Subsidiaries is subject to any
material order of, consent decree, settlement agreement or other similar written
agreement with, or pending or, to the knowledge of the Company, threatened
investigation by, any Governmental Entity, or any material judgment, order,
writ, injunction, decree or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders.
(c) True and complete copies of all correspondence delivered to the
Company's or any Subsidiaries' external certified public accountants by the
Company's or any Subsidiaries' counsel since January 1, 1995 in connection with
any audit report by such accountants relating to any asserted pending or
unasserted claims or loss contingencies have been provided to Acquiror.
SECTION 3.10 Contracts; No Default.
-----------------------------------
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth as
of the date of this Agreement a list of each Contract:
(i) of the Company or its Subsidiaries concerning a partnership
or joint venture with another person;
(ii) to which the Company, any of its Subsidiaries, the
Stockholders or any of their affiliates is a party limiting the right of the
Company or any of its Subsidiaries at any time on or after the date of this
Agreement, or Acquiror or any of its Subsidiaries or affiliates at or after the
Effective Time, to engage in, or to compete with any person in, any business of
a type included in the Health Care Benefits Business, including each such
Contract containing exclusivity provisions restricting the geographical area in
which, or the method by
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which, any such business may be conducted by the Company or any of its
Subsidiaries or affiliates, or by the Acquiror or any of its Subsidiaries or
affiliates after the Effective Time; or
(iii) between the Company or any of its Subsidiaries and either
Stockholder or one of their affiliates.
Correct and complete copies of all written Contracts required to be disclosed on
Section 3.10(a) of the Company Disclosure Schedule have been made available to
Acquiror and the material terms of all oral Contracts required to be disclosed
on Section 3.10(a) of the Company Disclosure Schedule and known to the Company
are described on such schedule.
(b) Each material Contract (i) to which the Company or any of its
Subsidiaries is a party or (ii) principally or exclusively relating to the
Health Care Benefits Business and to which a Stockholder or its affiliates is a
party, is in full force and effect in all material respects, each is a legal,
valid and binding Contract in all material respects and there is no material
default (or any event known to the Company which, with the giving of notice or
lapse of time or both, would be a material default) by the Company or any of its
Subsidiaries or the Stockholders and their affiliates or, to the knowledge of
the Company, any other party, in the timely performance of any obligation to be
performed or paid under any such Contract.
(c) The Master Agreement and each of the Affiliate Contracts is in
full force and effect and has not been modified since January 3, 1995, except as
contemplated by this Agreement. The Master Agreement and each Affiliate
Contract contemplated thereby has been implemented, and the Health Care Benefits
Business has been operated in compliance with the terms of the Master Agreement
and such Affiliate Contracts in all material respects.
(d) As of the date of this Agreement, to the knowledge of the Company,
the relationships of the Company and its Subsidiaries with the customers of the
Health Care Benefits Business, taken in the aggregate, are good commercial
working relationships. Since January 3, 1995, no customer of the Health Care
Benefits Business who represented more than 1% of the consolidated total
revenues or covered medical lives of the Health Care Benefits Business during
the 12-month period preceding its cancellation or termination has canceled or
otherwise terminated its relationship with the Company, any Subsidiary or either
Stockholder or its affiliates, and, to the Company's knowledge, no such customer
of the Health Care Benefits Business has indicated that it intends to cancel or
terminate its relationship with the Company, its Subsidiaries or either
Stockholder or its affiliates.
SECTION 3.11 Employee Benefit Plans; Labor Matters.
---------------------------------------------------
(a) Section 3.11 of the Company Disclosure Schedule sets forth a list,
which is complete and true in all material respects, of (i) the compensation
scheduled to be paid to the 20 most highly compensated officers and employees of
the Company and its Subsidiaries in the 1995 calendar year, and (ii) all
compensation and bonus plans of the Company and its Subsidiaries relating to
officers and employees of the Company and its Subsidiaries, except deferred
compensation plans described in Section 3.11(b).
(b) Section 3.11 of the Company Disclosure Schedule lists any pension,
retirement, savings, disability, medical, dental, health, life (including any
individual life
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insurance policy as to which the Company or any ERISA Affiliate is the owner,
beneficiary or both of such policy), death benefit, group insurance, profit
sharing, deferred compensation, stock option, bonus, incentive, vacation pay,
severance pay, Code Section 125 "cafeteria" or "flexible benefit" plan, or other
employee benefit plan, trust, arrangement, contract, agreement, policy or
commitment (including without limitation, any employee pension benefit plan as
defined in Section 3(2) of ERISA, and any employee welfare benefit plan as
defined in Section 3(1) of ERISA), under which current or former employees of
the Company or any of its ERISA Affiliates (as defined in Section 11.01(a)
below) are entitled to participate by reason of their employment with the
Company or any of its ERISA Affiliates (and not by reason of their former
employment with a Stockholder), whether or not any of the foregoing is funded,
whether insured or self-funded, and whether written or oral, (i) to which the
Company or any of its ERISA Affiliates is a party or a sponsor or by which the
Company or any of its ERISA Affiliates (or any of their rights, properties or
assets) is bound or (ii) with respect to which the Company or any of its ERISA
Affiliates has made or is obligated to make any payments, contributions or
commitments, or may otherwise have any liability (whether or not the Company or
any of its ERISA Affiliates still maintains such plan, trust, arrangement,
contract, agreement, policy or commitment) (the "Employee Benefit Plans"). The
Company Disclosure Schedule also lists each contributing or participating
employer in each Employee Benefit Plan, regardless of whether each such employer
is an ERISA Affiliate. Except as described in this Agreement or the Company
Disclosure Schedule, there are no Employee Benefit Plans with respect to which
the Company or any of its ERISA Affiliates has any direct or indirect material
liability.
(c) Section 3.11 of the Company Disclosure Schedule lists all ERISA
Affiliates of the Company.
(d) As used in this Agreement, "Pension Plan" means any Employee
Benefit Plan which is an employee pension benefit plan as defined in Section
3(2) of ERISA or is otherwise a pension, savings or retirement plan or a plan of
deferred compensation and "Welfare Plan" means any Employee Benefit Plan which
is not a Pension Plan.
(e) Except as described in Section 3.11 of the Company Disclosure
Schedule with respect to the Employee Benefit Plans (other than matters not
involving employees of the Company or its Subsidiaries or with respect to which
the Company and its Subsidiaries have no liability):
(i) There are no Employee Benefit Plans which are multi-employer
plans as defined in Section 3(37) of ERISA or plans subject to Title IV of
ERISA, and neither the Company nor any of its ERISA Affiliates has incurred or
reasonably expects to incur, any direct or indirect material liability under or
by operation of Title IV of ERISA;
(ii) There are no Employee Benefit Plans which promise or provide
health or life benefits to retirees or former employees of the Company or its
ERISA Affiliates;
(iii) Since January 1, 1991, each Employee Benefit Plan has at all
times been operated and administered in material compliance with the applicable
requirements of ERISA, the Code and any other applicable law (including
regulations and rulings thereunder), and its terms;
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(iv) Each Employee Benefit Plan that is intended to be tax
qualified under Section 401(a) of the Code has received, or in a timely manner
applied for, a favorable determination letter from the IRS stating that the Plan
meets all the requirements of the Code and that any trust or trusts associated
with the plan are tax exempt under Section 501(a) of the Code. To the knowledge
of the Company, there is no reason why the qualified status under Section 401(a)
of the Code of any such tax qualified Employee Benefit Plan would be denied or
revoked, whether retroactively or prospectively, by any governmental agency
including the IRS or the United States Department of Labor. All material
amendments to the Employee Benefit Plans that were required to be made through
the date hereof and the Effective Time to maintain the continued qualified
status of such Employee Benefit Plans under Section 401(a) of the Code
subsequent to the issuance of each such Employee Benefit Plan's determination
letter, if any, have been made, or will be made by the Effective Time, including
all amendments required to be made by each respective date by the Tax Reform Act
of 1986 and any other tax acts or legislation affecting such Employee Benefit
Plans. There is no amendment which needs to be made to continue, and no
provision or amendment to the Employee Benefit Plan(s) which adversely affects,
the qualified status of such Employee Benefit Plan(s) under Section 401(a) of
the Code;
(v) Since January 1, 1991, to the knowledge of the Company, no
actual or threatened disputes, lawsuits, claims (other than routine claims for
benefits), investigations, audits or complaints to, or by, any person or
Governmental Entity have been filed or are pending with respect to the Employee
Benefit Plans or the Company or its ERISA Affiliates in connection with any
Employee Benefit Plan or the fiduciaries responsible for such Employee Benefit
Plans, and to the knowledge of the Company, no state of facts or conditions
exist which reasonably could be expected to subject the Company to a Company
Material Adverse Effect or its ERISA Affiliates to any material liability (other
than routine claims for benefits) under the terms of the Employee Benefit Plan
or applicable law;
(vi) The Company and each of its ERISA Affiliates have filed or
caused to be filed every return, report, statement, notice, declaration and
other document, including audited financial statements, required by any federal,
state or local law or government agency (including, without limitation, the IRS
and the United States Department of Labor), with respect to each Employee
Benefit Plan, except where the failure to file would not result in the
incurrence of a Company Material Adverse Effect by the Company or of a material
liability by any of its ERISA Affiliates; and the Company has not incurred any
Company Material Adverse Effect nor has any of its ERISA Affiliates incurred any
material liability, in each case, in connection with the inadequacy, inaccuracy
or untimeliness of such filings;
(vii) Since January 1, 1991, the Company and each of its ERISA
Affiliates have delivered or caused to be delivered to every participant,
beneficiary and other party entitled thereto, all material returns, reports,
schedules, notices, statements and similar materials, including, without
limitation, summary plan descriptions, summaries of material modifications and
summary annual reports, as are required to be delivered under Title I of ERISA,
the Code or both; and the Company has not incurred any Company Material Adverse
Effect nor does any of its ERISA Affiliates have any material liability, in each
case, in connection with the inadequacy, inaccuracy or untimeliness of such
deliveries;
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(viii) Since January 1, 1991, neither the Company nor any of its
ERISA Affiliates has made, or committed to make, whether in writing, orally or
through other representation, any payment, contribution or award to or under any
Employee Benefit Plan (other than as required by its terms, the Code, ERISA or
the actuarial valuation incident to the Plan);
(ix) There are no delinquent contributions or payments to or in
respect of any Employee Benefit Plan. Since January 1, 1991, the Company has
not requested, nor has pending as of the date hereof or the Effective Time, a
minimum funding variance or waiver within the meaning of Code Section 412(d).
There are no unfunded liabilities as of the Effective Time associated with any
Employee Benefit Plan that is a Pension Plan qualified under Section 401(a) of
the Code. As of the Effective Time, all payments of outstanding contributions,
due on or prior to that date, including minimum contributions, premiums,
including premiums owed to the PBGC and funding obligations imposed by the terms
of an Employee Benefit Plan or by any Law or Governmental Entity (including Part
3 of ERISA and Code Section 412) shall have been made with respect to each and
every Employee Benefit Plan. All contributions to and payments with respect to
or under the Employee Benefit Plans that are required to be made with respect to
periods ending on or before the Effective Time (including periods from the first
day of the then current plan or policy year to the Effective Time) have been
made or accrued before the Effective Time by the Company in accordance with the
appropriate actuarial report, plan documents, financial statement, collective
bargaining agreements or insurance contracts or arrangements;
(x) With respect to each material Employee Benefit Plan, the
Company has delivered to Acquiror true and complete copies of the following
documents to the extent, in each case, that such documents exist or are required
by Law:
(A) plan documents, subsequent plan amendments, or any and all
other documents that establish or describe the existence of the plan, trust,
arrangement, contract, policy or commitment;
(B) summary plan descriptions and summaries of material
modifications;
(C) the most recent tax qualified determination letters, if
any, received from or any determination letter applications pending with the
IRS;
(D) the three most recent Form 5500 Annual Reports, including
related schedules and audited financial statements and opinions of independent
certified public accountants;
(E) all related trust agreements, insurance contracts or other
funding agreements that implement each such Employee Benefit Plan;
(F) the three most recent Form 990 and Form 1041 reports
relating to any trust or account maintained in connection with any Employee
Benefit Plan;
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(G) with respect to each 401k plan: the most recent
nondiscrimination testing results and the most recent annual and quarterly or
monthly valuations;
(H) with respect to each Pension Plan, a copy of the most
recent actuarial valuation, copies of any amendments to freeze accruals or to
change benefit formulas and a record of quarterly Pension Plan contributions;
and
(I) A schedule of any penalties and/or fines levied, imposed or
assessed during the preceding five (5) calendar years by the IRS and/or the
United States Department of Labor on the Company or its ERISA Affiliates or in
connection with any Employee Benefit Plan (except for any such penalties or
fines which did not and will not have a Company Material Adverse Effect); such
schedule shall indicate (1) the original amount of such penalty and/or fine and
(2) the amount of such penalty or fine, if any, outstanding as of the Effective
Time.
(xi) Neither the Company nor any ERISA Affiliate has maintained
defined benefit plans covering employees of the Company within the meaning of
Section 3(35) of ERISA;
(xii) Neither the Company nor any ERISA Affiliate has terminated
any Pension Plan within the three preceding calendar years nor has the Company
or any ERISA Affiliate terminated any Welfare Plan within the preceding calendar
year which Welfare Plan termination may have a Company Material Adverse Effect;
(xiii) The benefits to be provided to participants under each Welfare
Plan are to be provided exclusively from the general assets of the Company or
through insurance contracts, or a combination thereof;
(xiv) The benefits to be provided to participants under each
Pension Plan, other than a tax qualified Pension Plan under Code Section 401(a),
are to be provided exclusively from the general assets of the Company;
(xv) With respect to each Employee Benefit Plan, there has not
occurred, and no person or entity is contractually bound to enter into, any
material nonexempt "prohibited transaction" within the meaning of Section 4975
of the Code or Section 406 of ERISA; and
(xvi) The audited financial statements and actuarial valuations,
if any, for each Employee Benefit Plan reflect in all material respects the
financial condition and funding of the Employee Benefit Plan as of the date of
such financial statements or valuations, and no material adverse change has
occurred with respect to the financial condition or funding of the Employee
Benefit Plan since the date of such financial statements or actuarial
valuations.
(f) Section 3.11(f) of the Company Disclosure Schedule lists, as of
the date of this Agreement, all collective bargaining or other labor union
contracts to which the Company or any of its Subsidiaries is a party and which
is applicable to persons employed by
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the Company or its Subsidiaries. To the knowledge of the Company, there are no
union organization attempts underway with respect to the employees of the
Company. There is no pending or, to the knowledge of the Company, threatened
labor dispute, strike or work stoppage against the Company or any of its
Subsidiaries, other than any disputes, strikes or work stoppages in connection
with which the number of employees involved will not exceed 25 employees.
Neither the Company nor its Subsidiaries, nor, to the knowledge of the Company,
their respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of the
Company or its Subsidiaries, and there is no pending or, to the knowledge of the
Company, threatened charge or complaint against the Company or its Subsidiaries
by the National Labor Relations Board or any comparable state agency.
(g) Section 3.11(g) of the Company Disclosure Schedule sets forth a
list, and sets forth the term, of all written or, to the Company's knowledge,
all oral (i) employment agreements, employment contracts or understandings
providing for annual compensation in excess of $200,000 per year (other than
understandings with respect to "at will" employment) relating to employment and
(ii) severance agreements, contracts or understandings based on a change of
control of the Company or otherwise, regardless of amount, in each case to which
the Company or any of its Subsidiaries is a party. To the knowledge of the
Company, no employee of the Company or any of its Subsidiaries holding the
position of manager or higher is subject to any secrecy or noncompetition
agreement or any agreement or restriction of any kind with any third party that
would impede in any material way the ability of such employee to carry out fully
all activities of such employee in furtherance of the business of the Company or
any of its Subsidiaries.
(h) Except as described in Section 3.11(h) of the Company Disclosure
Schedule, the Company has no liability or obligation with respect to employee
benefits relating to the Stockholders or any predecessor employer or other
entity.
(i) Section 3.11(i) of the Company Disclosure Schedule sets forth the
number of employees of the Company and its Subsidiaries whose employment has
been terminated or who have been laid off by the Company and its Subsidiaries
since December 31, 1994. The Company and its Subsidiaries have not incurred any
liability under the Worker Adjustment and Retraining Notification Act of 1988,
as amended ("WARN"), and the Company and its Subsidiaries have complied with
WARN in all material respects.
SECTION 3.12 Taxes.
-------------------
(a) (i) All Returns (as defined below) in respect of Taxes (as
defined below) required to be filed with respect to the Company and each of its
Subsidiaries (including any consolidated federal income tax returns of the
Company and any state tax returns that include the Company or any of its
Subsidiaries on a consolidated, combined or unitary basis) have been timely
filed (including extensions) except for any such failure to file which would not
have a Company Material Adverse Effect;
(ii) All Taxes shown on such Returns to be due or payable have
been timely paid and all payments of estimated Taxes required to be made with
respect to the Company or any of its Subsidiaries under Section 6655 of the Code
or any comparable
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provision of state, local or foreign law have been made on the basis of the
Company's good faith estimate of the required installments, except where the
failure to make such payments would not have a Company Material Adverse Effect,
and all material backup withholding obligations required by Law have been
satisfied;
(iii) All Taxes of the Company and its Subsidiaries which will
be due and payable, whether now or hereafter, for any period ending on, prior to
or including the Closing Date, shall have been paid by or on behalf of the
Company and its Subsidiaries or shall be reflected on the books of the Company
and its Subsidiaries as an accrued Tax liability, either current or deferred,
determined in a manner consistent with the April 30 Statements, without taking
account of the Merger, except where the failure to make such accruals would not
have a Company Material Adverse Effect;
(iv) All such Returns (or, in cases where amended Returns have
been filed, such Returns as amended) are believed by the Company to be true,
correct and complete in all material respects;
(v) No adjustment relating to any of such Returns has been
proposed in writing by any Tax authority, except proposed adjustments that have
been resolved prior to the date hereof and those that would not have a Company
Material Adverse Effect;
(vi) There are no outstanding subpoenas or requests for
information with respect to any federal, state, local or foreign income tax
Returns of the Company or its Subsidiaries or the Taxes reflected on such
Returns;
(vii) The Company has not, in any taxable period for which the
statute of limitations on assessment remains open, acquired, either directly or
through any Subsidiary, any corporation that filed a consolidated federal income
tax return with any other corporation that was not also acquired, either
directly or through any Subsidiary, by the Company, and no Subsidiary or
corporation that was included in the filing of a Return with the Company on a
consolidated, combined, or unitary basis has left the Company's consolidated,
combined or unitary group in a taxable year for which the statute of limitations
on assessment remains open;
(viii) No consent under Section 341(f) of the Code has been
filed with respect to the Company or any of its Subsidiaries;
(ix) There are no material Tax liens on any assets of the
Company or any of its Subsidiaries other than liens for Taxes not yet due or
payable;
(x) Neither the Company nor any of its Subsidiaries has been
at any time a member of any partnership or joint venture or the holder of a
beneficial interest in any trust for any period after December 31, 1990;
(xi) Except as provided in Section 6.01(h), neither the
Company nor any of its Subsidiaries owes any material amount pursuant to any Tax
sharing agreement or arrangement, and neither the Company nor any Subsidiary
will have any liability after the date hereof in respect of any Tax sharing
agreement or arrangement executed or agreed to
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prior to the date hereof with respect to any company that has been sold or
disposed of by the Company or any of its Subsidiaries, whether any such
agreement or arrangement is written or unwritten;
(xii) All Taxes required to be withheld, collected or deposited
by the Company or any of its Subsidiaries during any taxable period after
December 31, 1990 have been timely withheld, collected or deposited and, to the
extent required, have been paid to the relevant Tax authority, except where the
failure to withhold, collect, deposit or pay would not have a Company Material
Adverse Effect;
(xiii) Neither the Company nor any of its Subsidiaries is or has
been subject to the provisions of Section 1503(d) of the Code related to "dual
consolidated loss" rules;
(xiv) Neither the Company nor any of its Subsidiaries is a
party to any agreement, contract, or arrangement that would result, separately
or in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code by reason of the Merger; and
(xv) No property of the Company or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168 of the Code.
(b) (i) There are no outstanding waivers or agreements extending
the statute of limitations for any period with respect to any Tax, other than
real or personal property Taxes, to which the Company or any of its Subsidiaries
may be subject; and
(ii) Neither the Company nor any of its Subsidiaries is, as of
the date of this Agreement, under audit with respect to any taxable period for
any federal, state, local or foreign Tax (including income and franchise Taxes
but not including real or personal property Taxes) by the IRS or the applicable
Tax authority in each such state, local, or foreign jurisdiction.
(c) (i) Except as expressly provided in this subdivision (i),
neither the Company nor any of its Subsidiaries has any
(A) material income reportable for a period ending after
the Effective Time but attributable to an installment sale occurring in or a
change in accounting method made for a period ending at or prior to the
Effective Time which resulted in a deferred reporting of income from such
transaction or from such change in accounting method (other than a deferred
intercompany transaction), or
(B) material deferred gain or loss arising out of any
deferred intercompany transaction.
(ii) Except as provided in Section 6.01(h), no written Tax
sharing or allocation agreement exists involving the Company or any of its
Subsidiaries.
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(iii) Neither the Company nor any of its Subsidiaries has any
unused net operating loss, unused net capital loss, unused credit, unused
foreign tax credit, or excess charitable contribution for federal income tax
purposes as of the Effective Time.
(d) For the purposes of this Section 3.12, references to the Company
and each of its Subsidiaries shall include former Subsidiaries of the Company
for periods during which any such corporations were owned, directly or
indirectly, by the Company.
SECTION 3.13 Third-Party Funds. Each of (a) the Company and its
-------------------------------
Subsidiaries and (b) the Stockholders and their affiliates with respect to the
Health Care Benefits Business, has accurately accounted in all material respects
for all monies entrusted to it by third parties and all monies over which it has
or has had signature authority or other control for the benefit of others in the
operation of the Health Care Benefits Business and its third-party health claims
administration (collectively, "Entrusted Funds"); all Entrusted Funds have been
applied to the reimbursement or direct payment of covered benefits of employees
or eligible members of client employers in accordance in all material respects
with the instruments governing such benefit plans or the written instructions of
the plan administrator or employer; all material filings with any governmental
authorities with respect to the payment of Entrusted Funds have been made by
each of the Company and its Subsidiaries and the Stockholders and their
affiliates if required to be so filed and each of the Company and its
Subsidiaries and the Stockholders and their affiliates is in material compliance
with all federal and state laws and regulations pertaining to the holding and
administration of Entrusted Funds. Each of the Company's and its Subsidiaries's
and the Stockholders' and their affiliates' trust or other accounts in which
Entrusted Funds are held and administered are fully reconcilable in all material
respects.
SECTION 3.14 Brokers and Agents; Insurance Matters.
---------------------------------------------------
(a) True and correct copies of all standard forms of agency or brokers
contracts or agreements used by the Company or its Subsidiaries in the Health
Care Benefits Business have been made available to Acquiror. Section 3.14(a) of
the Company Disclosure Schedule lists all persons through which either (A) the
Company and its Subsidiaries or (B) the Stockholders and their affiliates with
respect to the Health Care Benefits Business, places or sells products with
premium volume, on an annualized basis, in excess of $10,000,000 per year for
calendar year 1994 or 1995 ("Significant Agents"), and no Significant Agent has
any Contract which differs in any material respect from the Company's standard
forms.
(b) Except as listed on Section 3.14(b) of the Company Disclosure
Schedule, all insurance contracts included in the Health Care Benefits Business
as now in force (i) are, in the aggregate, in all material respects, to the
extent required under applicable Law, on forms approved by applicable insurance
regulatory authorities or which have been filed and not objected to by such
authorities within the period provided for objection, (ii) such forms comply in
all material respects with the insurance Laws applicable thereto and (iii) to
the Company's knowledge, are not subject to any review or investigation by any
insurance regulatory authority. True, complete and correct copies of such forms
have been furnished or made available to Acquiror and there are no other forms
of insurance contracts used in connection with the Health Care Benefits
Business. Premium rates established in connection with the Health Care Benefits
Business which are required to be filed with or approved by
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<PAGE>
insurance regulatory authorities (i) have been so filed or approved, (ii) the
premiums charged conform in all material respects thereto and comply in all
material respects with the insurance Laws applicable thereto and (iii) to the
Company's knowledge, no such premiums are subject to any review or investigation
by any insurance regulatory authority.
SECTION 3.15 Intellectual Property Rights. Section 3.15 of the
------------------------------------------
Company Disclosure Schedule sets forth (a) all material patents, patents
pending, trademarks, service marks, trade names, service names and slogans
owned, used or licensed by the Company or any of its Subsidiaries (the "Marks
and Rights"), including all titles, registration numbers, applications numbers,
dates of registration and application, inventors, licensors and licensees, as
applicable; and (b) since December 31, 1993 all litigation and claims brought or
made by the Company, a Subsidiary or a Stockholder or its affiliates or by a
third party against the Company, a Subsidiary or a Stockholder or its
affiliates, involving the Marks and Rights currently owned or licensed by the
Company or its Subsidiaries and used in the Company's operation of the Health
Care Benefits Business (the "Company Marks"), any computer software program used
or licensed by the Company and its Subsidiaries or other intellectual property
rights, including all conflicting claims of ownership and claims of infringement
of the Marks and Rights, computer software programs or other intellectual
property rights. As of the Effective Time, the Company or a Subsidiary will own
or possess a valid and enforceable right to use all Company Marks, without any
known conflict with the rights of others. All personal computer based operating
computer software and all application computer software programs (including
object code or other format and all related documentation), data bases and
information systems used in the Company's operation of the Health Care Benefits
Business (the "Company Software") (other than commercially available software
programs that may be licensed for a one-time or annual fee of $10,000 or less)
will at the Effective Time be owned by the Company or one of its Subsidiaries or
leased or licensed to the Company or one of its Subsidiaries pursuant to a valid
and enforceable lease or license agreement, free and clear of all liens and
encumbrances, and as of the Effective Time there will be no material defaults
under such agreements by the Company and its Subsidiaries or, to the Company's
knowledge, any other party. The Company Software to be owned or licensed by the
Company and its Subsidiaries at the Effective Time will be adequate in all
material respects to serve the needs of the Health Care Benefits Business as
currently conducted. Neither the Company nor any of its Subsidiaries has sold,
licensed, leased or otherwise transferred, or granted any interest or rights in,
any such computer programs, data bases or information systems to any third
party, except for software, the use of which is made available to customers of
the Company and its Subsidiaries at customer locations for the purpose of
facilitating the provision of products and services to such customers.
SECTION 3.16 Certain Business Practices and Regulations. Neither the
--------------------------------------------------------
Company nor any of its Subsidiaries, nor any of its or their respective
executive officers, directors, or managerial employees has, directly or
indirectly, (i) made or agreed to make any contribution, payment or gift to any
customer, supplier, governmental official, employee or agent where either the
contribution, payment or gift or the purpose thereof was illegal under any Law,
(ii) established or maintained any unrecorded fund or asset of the Company for
any improper purpose or made any false entries on its books and records for any
reason, (iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to any candidate for
federal, state or local public office in violation of any
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<PAGE>
Law, or (iv) engaged in any activity constituting fraud or abuse under the
Health Benefit Laws or the regulation of health care professionals or
professional corporations.
SECTION 3.17 Insurance. All policies and binders of insurance for
-----------------------
professional liability, and directors and officers liability, and all material
policies and binders of insurance for property and casualty, fire, liability,
worker's compensation and other customary matters held by or on behalf of the
Company or its Subsidiaries ("Insurance Policies") have been made available to
Acquiror. The Insurance Policies are in full force and effect in all material
respects and neither the Company nor any of its Subsidiaries is in default with
respect to any provision contained in any Insurance Policy, nor, to the
knowledge of the Company, has the Company or its Subsidiaries failed to give any
notice of any claim under any Insurance Policy in due and timely fashion, nor
has any coverage for current claims been denied, except where such default,
failure or denial as of the date of this Agreement, individually or in the
aggregate, would not reasonably be expected to result in a cost to the Company
and its Subsidiaries in excess of $1,000,000. The business policy of the
Company and its Subsidiaries is to require that each individual or entity
rendering professional health care services as an employee of or contractor to
the Company or its Subsidiaries maintain professional liability insurance and
the Company has no reason to believe that such individuals and entities
generally do not comply with such policy of the Company and its Subsidiaries.
SECTION 3.18 Certain Relationships. To the knowledge of the Company,
-----------------------------------
none of the executive officers or directors of the Company or its Subsidiaries,
or any entity controlled by any of the foregoing or any member of the immediate
family of any of the foregoing:
(a) owns, directly or indirectly, in whole or in part, any material
real property, leasehold interests, tangible property or intangible property
which the Company or its Subsidiaries currently use in their respective
businesses;
(b) has pending, or since January 1, 1995 has asserted, any suit,
action or claim whatsoever against, or owes any amount in excess of $60,000 to,
the Company or its Subsidiaries, except for claims in the ordinary course, such
as for accrued benefits under Company Benefit Plans and similar matters;
(c) has since January 1, 1995 sold to, or purchased from, the Company
or its Subsidiaries any assets or property for consideration in excess of
$25,000 in the aggregate; or
(d) has a contractual right to borrow a material amount of funds from
the Company.
As used in this Section 3.18, a person's immediate family shall mean such
person's spouse, parents, children, siblings, mothers and fathers-in-law, and
brothers and sisters-in-law.
SECTION 3.19 Title to Properties; Environmental Matters.
--------------------------------------------------------
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<PAGE>
(a) All of the real property owned by the Company or any Subsidiary or
leased or subleased by the Company or any Subsidiary under leases or subleases
covering more than 20,000 square feet of rentable space is listed in Section
3.19 of the Company Disclosure Schedule (the "Real Property").
(b) The Company owns good and insurable title to each parcel of owned
Real Property and owns each of the tangible properties and tangible assets
reflected in the Company Financial Statements, in each case free and clear of
all liens and encumbrances, other than inchoate tax and other statutory liens
and encumbrances and easements, rights of way restrictions and other minor
imperfections of title that individually or in the aggregate do not detract from
the value or interfere with the use of any single property or asset subject
thereto. The leases and subleases for the Real Property described in Section
3.19 of the Company Disclosure Schedule are in full force and effect in all
material respects, and the Company holds a valid and existing leasehold interest
under each of such leases and subleases. Neither the Company nor the applicable
Subsidiary is in default, and to the knowledge of the Company no circumstances
exist which, if unremedied, would, either with or without notice or the passage
of time or both, result in the Company's or the applicable Subsidiary's default,
in any material respect, under any of such leases or subleases; nor, to the
knowledge of the Company, is any other party to any of such leases or subleases
in such default.
(c) All of the buildings, machinery, equipment and other fixed assets
reasonably necessary for the conduct of the Company's and its Subsidiaries'
business, taken as a whole, are in reasonably good condition and repair in all
material respects, ordinary wear and tear excepted, and are useable in the
ordinary course. There are no significant defects in such assets or other
conditions relating thereto which adversely affect the operation or value of
such assets in any material respect.
(d) Neither the Company nor any Subsidiary is in violation of any
applicable zoning ordinance or other law, regulation or requirement relating to
the operation of any properties used in the operation of its business which
violation has had a Company Material Adverse Effect, and neither the Company nor
any Subsidiary has received any notice of any such violation, or the existence
of any condemnation proceeding with respect to any of the Real Property.
(e) All of the Real Property owned or used by the Company or any
Subsidiary has been maintained in all material respects in compliance with all
federal, state and local environmental protection, occupational, health and
safety or similar Laws, ordinances, restrictions, licenses and regulations,
including but not limited to the Federal Water Pollution Control Act (33 U.S.C.
(S) 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. (S) 6901 et
------ --
seq.), Safe Drinking Water Act (42 U.S.C. (S) 3000(f) et seq.), Toxic Substances
- --- ------
Control Act (15 U.S.C. (S) 261 et seq.), Clean Air Act (42 U.S.C. (S) 7401 et
------ --
seq.), Comprehensive Environmental Response of Compensation and Liability Act
- ---
(42 U.S.C. (S) 6901 et seq.) ("CERCLA"), and similar state laws, ordinances,
------
restrictions, licenses and regulations.
(f) Neither the Company nor any Subsidiary has received any written
notification from any Governmental Entity with respect to current, existing
violations, or past violations which are not yet fully resolved, of any of the
Laws enumerated in clause (e) above,
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<PAGE>
or pursuant to any of their respective implementing regulations or state
analogues to such Laws or regulations.
(g) To the Company's knowledge, there has not been, at any location
owned or used by the Company or any Subsidiary, any "Release" of any "Hazardous
Substance," in each case as defined in CERCLA (without giving effect to the
exclusion of any petroleum products from the definition of Hazardous Substance).
(h) To the Company's knowledge, neither the Company nor any Subsidiary
has sent or arranged for the transportation or disposal of Hazardous Substances
or wastes to a site which, pursuant to CERCLA or any similar state Law (i) has
been placed or is proposed (by the Environmental Protection Agency or relevant
state authority) to be placed, on the "National Priorities List" of hazardous
waste sites or its state equivalent, or (ii) is subject to a claim, an
administrative order or other request to take "removal" or "remedial" action (in
each case as defined in CERCLA) by any person.
(i) Neither (A) the Company and its Subsidiaries nor (B) any
Stockholder or its affiliates with respect to the Health Care Benefits Business,
has violated, or, to the Company's knowledge, is the subject of any
investigation, inquiry or enforcement action by any Governmental Entity under
any applicable Law relating to the disposal of medical wastes ("Medical Waste
Laws"). The Company and its Subsidiaries have obtained and are in material
compliance with all permits related to medical waste disposal required by
applicable Medical Waste Laws, and all disposal of medical wastes by them and by
the Stockholders and their affiliates with respect to the Health Care Benefits
Business has been in material compliance with such Laws.
(j) Neither the Company nor any of its Subsidiaries has used during
the last two years or currently uses underground storage tanks located on any
parcel of owned Real Property.
SECTION 3.20 Brokers. No broker, finder or investment banker (other
---------------------
than Smith Barney Inc. and Morgan Stanley & Co. Incorporated) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Prior to the date of this Agreement, the Company has
furnished to Acquiror a complete and correct copy of all agreements between the
Company and Smith Barney Inc. and Morgan Stanley & Co. Incorporated, pursuant to
which such firms will be entitled to any payment relating to the transactions
contemplated by this Agreement.
SECTION 3.21 Effective Time; Disclosure. Each of the representations
----------------------------------------
and warranties set forth in this Article III shall be deemed made at and as of
the date of this Agreement and again at and as of the Effective Time, as if made
at such time and substituting the Effective Time for the date of this Agreement
throughout this Article III, except to the extent such representations and
warranties specifically refer to a date other than the date of this Agreement.
To the Company's knowledge, no representation or warranty contained in this
Agreement or in the Company Disclosure Schedule, or in any document delivered by
the Company to Acquiror pursuant to Article VIII of this Agreement, contains or
will, at the Effective Time, contain any untrue statement of a material fact or
omits or will, at the
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<PAGE>
Effective Time, omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were or will be made,
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------------------------------------------------
As used in this Article IV, the term "Stockholder" shall mean (a) TIG
and TIC on one hand and (b) MetLife and MHH on the other. Except as set forth
in the Disclosure Schedule delivered by the Stockholders to Acquiror prior to
the execution of this Agreement (the "Stockholder Disclosure Schedule"), which
identifies exceptions by specific Section references, each Stockholder hereby
represents and warrants to Acquiror, as to such Stockholder and the Health Care
Benefits Business of such Stockholder and its affiliates, that:
SECTION 4.01 Organization and Qualification. Such Stockholder is a
--------------------------------------------
corporation or mutual corporation, has been duly organized and is validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization.
SECTION 4.02 Authority; Enforceability. Such Stockholder has the
---------------------------------------
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations under this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by such Stockholder and the consummation by such Stockholder of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action and no other proceedings on the part of such
Stockholder are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by such Stockholder and, assuming the due authorization,
execution and delivery by the Company, the other Stockholders, Acquiror and
Acquiror Sub, constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms.
SECTION 4.03 No Conflict; Required Filings and Consents.
--------------------------------------------------------
(a) The execution and delivery of this Agreement by such Stockholder
do not, and the performance of this Agreement by such Stockholder will not: (i)
conflict with or violate the Certificate of Incorporation or By-Laws or
equivalent organizational documents of such Stockholder; (ii) subject to
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to any Governmental Entity pursuant to the
applicable requirements of any Law (including any Health Benefit Law) or of any
third party listed on Section 3.05 of the Company Disclosure Schedule and
Section 4.03 of the Stockholder Disclosure Schedule, conflict with or violate
any Laws applicable to such Stockholder or by which any of such Stockholder's
properties is bound or affected; or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of such Stockholder with respect
to the Health Care Benefits Business pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license,
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<PAGE>
permit, franchise or other instrument or obligation to which such Stockholder or
its affiliates is a party or by which such Stockholder, its affiliates or any of
their respective properties is bound or affected, except for any such matters
described in clause (ii) or (iii) that would not have a Company Material Adverse
Effect. Section 4.03 of the Stockholder Disclosure Schedule sets forth a list of
(i) all consents, approvals, authorizations, permits, filings, and notifications
of, with and to any Governmental Entity required to be made, obtained or filed
by the Stockholders under (A) any Health Benefit Law, (B) any other material Law
applicable to such Stockholder or (C) to such Stockholder's knowledge, any other
Law applicable to such Stockholder and (ii) all material consents and approvals
of any other any other third party required as a result of the execution and
delivery of this Agreement by such Stockholder and the consummation of the
Merger, other than those required to be disclosed in Section 3.05 of the Company
Disclosure Schedule.
(b) The execution and delivery of this Agreement by such Stockholder
do not, and the performance of this Agreement by such Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entities, or other third party except for the
consents, approvals, authorizations, filings, notices or permits (i) described
in Section 3.05 of the Company Disclosure Schedule or Section 4.03 of the
Stockholder Disclosure Schedule, and (ii) not required to be disclosed on
Section 3.05 of the Company Disclosure Schedule or Section 4.03 of the
Stockholder Disclosure Schedule.
(c) Since December 31, 1991, such Stockholder and each of its
affiliates have, with respect to the Health Care Benefits Business, filed all
material forms, reports, statements, notices and other documents required to be
filed with applicable federal or state regulatory authorities including, without
limitation, state insurance and health regulatory authorities, and such forms,
reports, statements, notices and other documents were prepared in all material
respects in accordance with the requirements of applicable Law.
SECTION 4.04 Ownership of Stock. Section 4.04 of the Stockholder
--------------------------------
Disclosure Schedule sets forth the number of shares of Company Common Stock
owned by such Stockholder, together with any options, warrants, convertible
securities or other rights to acquire Company Common Stock owned by such
Stockholder. Such Stockholder has, and will have as of the Effective Time, good
title to all of the shares of Company Common Stock listed on Section 4.04 of the
Stockholder Disclosure Schedule as being owned by such Stockholder. Except as
set forth on Section 4.04 of the Stockholder Disclosure Schedule, such
Stockholder does not own or have the right to acquire any Company Common Stock
or other securities of the Company.
SECTION 4.05 Brokers. No broker, finder or investment banker is
---------------------
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of such Stockholder.
SECTION 4.06 Investment Representations. MHH is acquiring the
----------------------------------------
Acquiror Preferred Stock to be issued to it in the Merger for investment and not
with a view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling such stock. MHH
acknowledges that neither the Acquiror Preferred
- 36 -
<PAGE>
Stock to be issued in the Merger nor the Acquiror Common Stock issuable upon
conversion thereof will, at the time of issuance, be registered under the
Securities Act, or any state securities laws and that neither such Acquiror
Preferred Stock nor such Acquiror Common Stock may be sold, transferred or
otherwise disposed of without registration under the Securities Act and
applicable state securities laws, which registration Acquiror has agreed to
effect on the terms and conditions set forth in the Registration Agreement, or
pursuant to an exemption from registration thereunder. All certificates
evidencing Acquiror Preferred Stock, and Acquiror Common Stock issued upon
conversion thereof, shall be imprinted with a restrictive legend to such effect
until such time as such stock may be freely transferred without registration
under the Securities Act and applicable state securities laws.
SECTION 4.07 Effective Time; Disclosure. Each of the representations
----------------------------------------
and warranties set forth in this Article IV shall be deemed made at and as of
the date of this Agreement and again at and as of the Effective Time, as if made
at such time and substituting the Effective Time for the date of this Agreement
throughout this Article IV, except to the extent such representations and
warranties specifically refer to a date other than the date of this Agreement.
To such Stockholder's knowledge, no representation or warranty of such
Stockholder contained in this Agreement or in the Stockholder Disclosure
Schedule, or in any document delivered by such Stockholder to Acquiror pursuant
to Article VIII of this Agreement contains or will, at the Effective Time,
contain any untrue statement of a material fact with respect to such
Stockholder, or omits or will, at the Effective Time, omit to state a material
fact necessary to make the statements therein with respect to such Stockholder,
in light of the circumstances under which they were or will be made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
----------------------------
Except as set forth in the Disclosure Schedule delivered by Acquiror
and Acquiror Sub to the Company prior to the execution of this Agreement (the
"Acquiror Disclosure Schedule"), which shall identify exceptions by specific
Section references, Acquiror and Acquiror Sub hereby jointly and severally
represent and warrant to the Company and the Stockholders that:
SECTION 5.01 Organization and Qualification. Each of Acquiror and
--------------------------------------------
Acquiror Sub is a corporation, duly incorporated, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation, and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and is duly qualified
and in good standing to do business in each jurisdiction in which the nature of
the business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, except such jurisdictions, if any, where the
failure to be so qualified or in good standing would not have an Acquiror
Material Adverse Effect.
SECTION 5.02 Articles of Incorporation; By-Laws. Acquiror has
------------------------------------------------
furnished to the Company a complete and correct copy of the Articles or
Certificate of Incorporation and
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<PAGE>
the By-Laws, as amended or restated, of each of Acquiror and Acquiror Sub.
Neither Acquiror nor Acquiror Sub is in violation of any of the provisions of
its Articles or Certificate of Incorporation or By-Laws, as amended or restated,
or equivalent organizational documents.
SECTION 5.03 Capitalization.
----------------------------
(a) As of June 22, 1995, the authorized capital stock of Acquiror
consisted of the following:
(i) 500,000,000 shares of Acquiror Common Stock, of which:
(A) 173,207,110 shares were issued and outstanding as
of May 31, 1995;
(B) 14,279,391 shares were reserved for future issuance
pursuant to options outstanding as of May 31, 1995 pursuant
to Acquiror's stock option and incentive plans relating to
stock options and awards for certain officers, employees,
consultants and directors;
(C) 254,647 shares were reserved as of May 31, 1995 for
future issuance pursuant to Acquiror's 1993 Employee Stock
Purchase Plan;
(D) no shares are held in the treasury of Acquiror; and
(ii) 10,000,000 shares of preferred stock, par value $0.001 per
share, of which none are issued and outstanding.
(b) As of the date of this Agreement, (i) no shares of the preferred
stock, par value $0.001 per share, are issued and outstanding, and (ii) all
shares of Acquiror Common Stock issued and outstanding are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights, whether created by statute or otherwise. Since May 31, 1995, Acquiror
has not issued any shares of Acquiror Common Stock or granted any options,
warrants, restricted shares or other rights to acquire shares of Acquiror Common
Stock other than pursuant to the exercise or grant of options or the issuance of
shares under the plans referred to in Sections 5.03(a)(i)(B) and (C).
(c) Except as disclosed in the Acquiror SEC Reports (as defined in
Section 5.06) or in this Section 5.03, as of the date of this Agreement, there
are no options, warrants, restricted shares or other rights, agreements,
arrangements or commitments to which Acquiror or any of its Subsidiaries is a
party of any character relating to the issued or unissued capital stock of, or
other equity interests in, Acquiror or any of its Subsidiaries or obligating
Acquiror or any of its Subsidiaries to grant, issue, sell or register for sale
any shares of the capital stock of, or other equity interests in, Acquiror or
any of its Subsidiaries by sale, lease, license or otherwise, except Acquiror's
existing stock option plans or stock purchase plans to the extent options have
not yet been granted thereunder and options granted thereunder since
- 38 -
<PAGE>
May 31, 1995 in the ordinary course of business. As of the date of this
Agreement, there are no obligations, contingent or otherwise, of Acquiror or any
of its Subsidiaries to (x) repurchase, redeem or otherwise acquire any shares of
Acquiror Common Stock or the capital stock of, or other equity interests in, any
Subsidiary of Acquiror; or (y) except for guarantees of obligations of, or loans
to, Subsidiaries entered into in the ordinary course of business, provide funds
to, make any investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations of, any
Subsidiary of Acquiror or any other person. The shares of Acquiror Preferred
Stock to be issued pursuant to the Merger have been duly authorized, and, when
issued, will be validly issued, fully paid and non-assessable and are not
subject to preemptive rights created by the Minnesota Business Corporation Act,
Acquiror's Articles of Incorporation or By-Laws or any agreement to which
Acquiror is a party or is bound.
SECTION 5.04 Authority; Enforceability. Each of Acquiror and
---------------------------------------
Acquiror Sub has the requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder, and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Acquiror and Acquiror Sub, and the consummation by Acquiror and
Acquiror Sub of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action and no other corporate proceedings on the part
of Acquiror or Acquiror Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly executed and delivered by Acquiror and Acquiror Sub and, assuming the
due authorization, execution and delivery by the Company, the Stockholders and
MetLife, constitutes a legal, valid and binding obligation of Acquiror and
Acquiror Sub, enforceable against Acquiror and Acquiror Sub in accordance with
its terms. The Acquiror Preferred Stock and the Alternative Securities, when
issued in accordance with this Agreement, and any securities issued upon the
exercise or conversion of the Acquiror Preferred Stock or Alternative
Securities, when issued in accordance with the terms of the Acquiror Preferred
Stock or the Alternative Securities, will be duly authorized and validly issued,
and, in the case of equity securities, fully paid and non-assessable and free of
preemptive rights, and, in the case of other securities, valid and binding
obligations of Acquiror. Acquiror shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Acquiror Common Stock for
delivery upon conversion of such Acquiror Preferred Stock and, upon the issuance
of Alternative Securities, the exercise or conversion of such Alternative
Securities.
SECTION 5.05 No Conflict; Required Filings and Consents.
--------------------------------------------------------
(a) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub will not: (i) conflict with or violate the Articles or Certificate
of Incorporation or By-Laws or equivalent organizational documents of Acquiror
or Acquiror Sub; (ii) subject to (x) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, any
Governmental Entities pursuant to the applicable requirements of Law (including
any Health Benefit Law) or of any third party which are required to be disclosed
in Section 3.05 of the Company Disclosure Schedule or Section 4.03 of the
Stockholder Disclosure Schedule, (y) the filing and recordation of appropriate
merger documents as required by Delaware Law and (z) obtaining the consents,
approvals, authorizations and permits of, and making filings with or
notifications to, any Governmental Entities pursuant to the applicable
requirements of
- 39 -
<PAGE>
Law (including any Health Benefit Law) or of any third party which are required
to be disclosed in Section 5.05 of the Acquiror Disclosure Schedule, conflict
with or violate any Laws applicable to Acquiror, Acquiror Sub or any of
Acquiror's Subsidiaries or by which any of their respective properties is bound
or affected; or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Acquiror, Acquiror Sub or any of Acquiror's
Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Acquiror, Acquiror Sub or any of Acquiror's Subsidiaries is a party or
by which Acquiror, Acquiror Sub or any of Acquiror's Subsidiaries or any of
their respective properties is bound or affected, except for any such matters
described in clause (ii) or (iii) that would not have an Acquiror Material
Adverse Effect. Section 5.05 of the Acquiror Disclosure Schedule sets forth a
list of (i) all consents, approvals, authorizations, permits, filings, and
notifications of, with and to any Governmental Entity required to be made,
obtained or filed by Acquiror under (A) any Health Benefit Law, (B) any other
material Law applicable to Acquiror and its Subsidiaries or (C) to Acquiror's
knowledge, any other Law applicable to Acquiror or its Subsidiaries and (ii) all
material consents and approvals of any other third party as a result of the
execution and delivery of this Agreement by Acquiror or Acquiror Sub and the
consummation of the Merger, other than those required to be disclosed in Section
3.05 of the Company Disclosure Schedule or Section 4.03 of the Stockholder
Disclosure Schedule (or not required to be disclosed thereon).
(b) The execution and delivery of this Agreement by Acquiror and
Acquiror Sub do not, and the performance of this Agreement by Acquiror and
Acquiror Sub shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entities or other third
party in addition to those required to be disclosed in the Company Disclosure
Schedule or the Stockholder Disclosure Schedule, except for (i) the consents,
approvals, authorizations or permits described in Section 5.05 of the Acquiror
Disclosure Schedule, (ii) the filing and recordation of appropriate merger
documents as required by Delaware Law and (iii) the consents and approvals not
required to be disclosed on Section 3.05 of the Company Disclosure Schedule,
Section 4.03 of the Stockholder Disclosure Schedule or Section 5.05 of the
Acquiror Disclosure Schedule.
SECTION 5.06 Reports; Financial Statements.
-------------------------------------------
(a) Since December 31, 1991, Acquiror and its Subsidiaries have filed
(i) all material forms, reports, statements, notices and other documents
required to be filed with (A) the SEC including, without limitation, (1) all
Annual Reports on Form 10-K, (2) all Quarterly Reports on Form 10-Q, (3) all
proxy statements relating to meetings of stockholders (whether annual or
special), (4) all required Current Reports on Form 8-K, (5) all other reports or
registration statements and (6) all amendments and supplements to all such
reports and registration statements (collectively, the "Acquiror SEC Reports")
and (B) any applicable state securities authorities; and (ii) all forms,
reports, statements,
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<PAGE>
notices and other documents required to be filed with any other applicable
federal or state regulatory authorities, including, without limitation, state
insurance and health regulatory authorities, except where the failure to file
any such forms, reports, statements, notices and other documents under this
clause (ii) would not have an Acquiror Material Adverse Effect (all such forms,
reports, statements, notices and other documents in clauses (i) and (ii) of this
Section 5.06(a) being collectively referred to as the "Acquiror Reports"). The
Acquiror Reports, including all Acquiror Reports filed after the date of this
Agreement and prior to the Effective Time, (i) were or will be prepared in all
material respects in accordance with the requirements of applicable Law
(including, with respect to the Acquiror SEC Reports, the Securities Act and the
Exchange Act, as the case may be), and (ii) did not at the time they were filed,
or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were or will be made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Acquiror SEC Reports,
including any Acquiror SEC Reports filed after the date of this Agreement and
prior to the Effective Time, (i) have been or will be prepared in all material
respects in accordance with the published rules and regulations of the SEC and
GAAP applied on a consistent basis throughout the periods involved (except (A)
to the extent required by changes in GAAP and (B) with respect to Acquiror SEC
Reports filed prior to the date of this Agreement, as may be indicated in the
notes thereto) and (ii) fairly present or will fairly present the consolidated
financial position of Acquiror and its Subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated, except that (x) any unaudited interim financial statements
(1) were or will be subject to normal and recurring year-end adjustments which
were not or are not expected to be material in amount and (2) are not or may not
be necessarily indicative of results for the full fiscal year and (y) any pro
forma financial information contained in such consolidated financial statements
is not or may not be necessarily indicative of the consolidated financial
position of Acquiror and its Subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows for the periods indicated.
(c) Except as and to the extent set forth on the consolidated balance
sheet of Acquiror and its Subsidiaries at December 31, 1994, including all notes
thereto, neither Acquiror nor any of its Subsidiaries has any material
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on, or reserved against in,
a balance sheet of Acquiror or in the notes thereto, prepared in accordance with
the published rules and regulations of the SEC and GAAP, except (i) as otherwise
reported in the consolidated financial statements contained in Acquiror's
Quarterly Reports on Form 10-Q for the quarter ended March 31, 1995, or (ii) for
liabilities or obligations incurred (none of which is a liability resulting from
breach of contract, breach of warranty, or tort or infringement claim or
lawsuit) in the ordinary course of business since December 31, 1994 that would
not have an Acquiror Material Adverse Effect.
SECTION 5.07 Ownership of Acquiror Sub; No Prior Activities.
------------------------------------------------------------
(a) Acquiror Sub was formed for the sole purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the Effective Time, all of the outstanding capital stock of
Acquiror Sub will be owned directly by Acquiror. As of the Effective Time,
there will be no options, warrants or other rights (including registration
rights), agreements, arrangements or
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commitments to which Acquiror Sub is a party of any character relating to the
issued or unissued capital stock of, or other equity interests in, Acquiror Sub
or obligating Acquiror Sub to grant, issue or sell any shares of the capital
stock of, or other equity interests in, Acquiror Sub, by sale, lease, license or
otherwise. There are no obligations, contingent or otherwise, of Acquiror Sub to
repurchase, redeem or otherwise acquire any shares of the capital stock of
Acquiror Sub.
(c) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement, Acquiror Sub
has not and will not have incurred, directly or indirectly, through any
Subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 5.08 Brokers. No broker, finder or investment banker other
---------------------
than Goldman, Sachs & Co. is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Acquiror.
SECTION 5.09 Permits; Compliance. Each of Acquiror and its
---------------------------------
Subsidiaries is in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary for Acquiror or any of its
Subsidiaries to own, lease and operate its properties or to carry on their
business as it is now being conducted (the "Acquiror Permits") and no
suspension, revocation or cancellation of any of the Acquiror Permits is pending
or, to the knowledge of Acquiror, threatened, except for any such suspension,
revocation or cancellation which would not have an Acquiror Material Adverse
Effect. Neither Acquiror nor any of its Subsidiaries is operating in conflict
with, or in default or violation of, in any material respect (i) any Law
applicable to Acquiror or any of its Subsidiaries or by which any of their
respective properties is bound or affected or (ii) any of the Acquiror Permits,
except for any of the foregoing which would not have an Acquiror Material
Adverse Effect.
SECTION 5.10 Absence of Litigation. There are no material claims,
-----------------------------------
actions, suits, litigations, proceedings or arbitrations of any kind affecting
Acquiror or any of its Subsidiaries, at law or in equity (including actions or
proceedings seeking injunctive relief), which are pending or, to the knowledge
of Acquiror, threatened (other than grievance or complaint proceedings in the
ordinary course of business) which would, if adversely determined, have an
Acquiror Material Adverse Effect. There is no action pending or, to the
knowledge of Acquiror, threatened seeking to enjoin or restrain the Merger or
the transactions contemplated by this Agreement. Neither Acquiror nor any of
its Subsidiaries is subject to any material order of, consent decree, settlement
agreement or other similar written agreement with, or pending or, to the
knowledge of Acquiror, threatened investigation by, any Governmental Entity, or
any material judgment, order, writ, injunction, decree or award of any
Governmental Entity or arbitrator, including, without limitation, cease-and-
desist or other orders, except those which have not had and would not have an
Acquiror Material Adverse Effect.
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<PAGE>
SECTION 5.11 Absence of Certain Changes or Events. Except as
--------------------------------------------------
disclosed in Section 5.11 of the Acquiror Disclosure Schedule or as otherwise
contemplated in this Agreement, since March 31, 1995, (a) Acquiror has conducted
its business in the ordinary course of business in all material respects and (b)
there has not occurred any Acquiror Material Adverse Effect and Acquiror has not
had any development which would reasonably be expected to result in an Acquiror
Material Adverse Effect.
SECTION 5.12 Effective Time; Disclosure. Each of the representations
----------------------------------------
and warranties set forth in this Article V shall be deemed made at and as of the
date of this Agreement and again at and as of the Effective Time, as if made at
such time and substituting the Effective Time for the date of this Agreement
throughout this Article V, except to the extent such representations and
warranties specifically refer to a date other than the date of this Agreement.
To Acquiror's knowledge, no representation or warranty contained in this
Agreement or in the Acquiror Disclosure Schedule, or in any document delivered
by the Acquiror to the Company pursuant to Article VIII of this Agreement,
contains or will, at the Effective Time, contain any untrue statement of a
material fact or omits or will, at the Effective Time, omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were or will be made, not misleading.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
SECTION 6.01 Affirmative Covenants of the Company. The Company
--------------------------------------------------
hereby covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement, as set forth in Section 6.01 of the
Company Disclosure Schedule or otherwise consented to in writing by Acquiror,
the Company will and will cause each of its Subsidiaries to:
(a) operate its business in the ordinary course in all material
respects;
(b) use best efforts to preserve intact in all material respects its
business organization and assets, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain the
relationships with its respective customers and suppliers;
(c) use best efforts to keep in full force and effect liability
insurance and bonds comparable in amount and scope of coverage to that currently
maintained;
(d) confer with Acquiror at its reasonable request to report
operational matters of a material nature and to report the general status of the
ongoing operations of the business of the Company and its Subsidiaries;
(e) comply in all material respects with the terms of, and perform all
of its obligations under, the Master Agreement and each Affiliate Contract
contemplated thereby, as amended as contemplated by this Agreement;
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<PAGE>
(f) make Investments only in accordance with the Company's investment
guidelines in effect as of April 30, 1995;
(g) use best efforts to cause each of the conditions set forth in
Article VIII to be satisfied as soon as practicable after the date of this
Agreement;
(h) pay for Tax benefits as follows: to the extent that the Company
(or its Subsidiaries) benefits from the use of federal, state or local net
operating loss carryforwards for income Tax purposes of MetLife (or its present
or former Subsidiaries) or TIG (or its present or former Subsidiaries)
attributable to one or more periods ending on or prior to January 3, 1995, then
when the appropriate Return for the year in which the Company (or its
Subsidiaries) realizes such benefit is filed, the Company will convey such
benefit to MetLife or TIG, as the case may be, in an amount which results in no
net cost to the Company (or its Subsidiaries). MetLife or TIG, as the case may
be, shall return to the Company an amount equal to such payment plus the amount
of expenses of the Company (or its Subsidiaries) deducted in determining the
amount of such payment (without duplication for amounts otherwise indemnified
under Section 10.07) with interest at the rate specified in Section 10.06 from
the date paid by the Company to the date such payment (including such expenses)
is returned to the Company, if and to the extent that such net operating loss
carryforwards are thereafter disallowed as a result of a final determination
within the meaning of Section 10.07(e), and the Stockholders shall bear all
costs reasonably related thereto (without duplication for amounts otherwise
indemnified under Section 10.07). The Company's obligations pursuant to this
Section 6.01(h) shall survive the Closing; and
(i) promptly notify Acquiror upon receiving any notice that any of the
20 largest customers is canceling, terminating or electing not to renew, or
intends to cancel, terminate or not renew, its relationship with the Company,
any Subsidiary or either Stockholder or its affiliates with respect to the
Health Care Benefits Business.
SECTION 6.02 Negative Covenants of the Company. Except as expressly
-----------------------------------------------
contemplated by this Agreement, as set forth in Section 6.02 of the Company
Disclosure Schedule or otherwise consented to in writing by Acquiror, from the
date of this Agreement until the Effective Time, the Company shall not and the
Company shall not permit any of the Company's Subsidiaries to, do any of the
following:
(a) (i) increase the compensation payable or to become payable to any
director, officer or employee, except for increases payable or to become payable
in the ordinary course to employees of the Company or its Subsidiaries who are
not directors or executive officers of the Company; (ii) enter into any
severance or termination agreement or arrangement with any director, officer or
employee involving maximum severance payments in excess of $10,000 or creating a
severance obligation, regardless of amount, as a result of the transactions
contemplated by this Agreement, (iii) except as provided in clause (i) of this
subsection (a), enter into or amend any employment agreement with any director,
officer or employee that would extend beyond the Effective Time except on an at-
will basis; or (iv) establish, adopt, enter into or amend any Employee Benefit
Plan, except as may be required to comply with applicable Law;
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<PAGE>
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock, other than dividends from
Subsidiaries to the Company or to other Subsidiaries of the Company in the
ordinary course;
(c) (i) redeem, purchase or otherwise acquire any shares of its or any
of its Subsidiaries' capital stock or any securities or obligations convertible
into or exchangeable for any shares of its or its Subsidiaries' capital stock,
or any options, warrants or conversion or other rights to acquire any shares of
its or its Subsidiaries' capital stock or any such securities or obligations;
(ii) effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its respective Subsidiaries' capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for, shares of its or its respective Subsidiaries' capital
stock (except for the issuance of shares upon the exercise of options or
warrants in accordance with their terms);
(d) except in accordance with Section 2.07(b), issue, deliver, award,
grant or sell, or authorize the issuance, delivery, award, grant or sale
(including the grant of any security interests, liens, claims, pledges,
limitations on voting rights, charges or other encumbrances) of, any shares of
any class of its or its Subsidiaries' capital stock (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares, or any rights, warrants or options to acquire, any such shares
(except for the issuance of shares of Company Common Stock upon the exercise of
outstanding options or warrants in accordance with their or its terms), or amend
or otherwise modify the terms of any such rights, warrants or options the effect
of which shall be to make such terms more favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person (other than the purchase of assets from
suppliers or vendors in the ordinary course);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any material amount of any of its or its respective
Subsidiaries' assets, except for dispositions in the ordinary course;
(g) directly or indirectly solicit or initiate any discussions or
negotiations with, or in any way participate in any negotiations with or provide
any information to or otherwise cooperate in any other way with, or facilitate
or encourage any effort to attempt to, or enter into any agreement or
understanding with, any person or group of persons (other than Acquiror and its
directors, officers, employees, representatives and agents), concerning any
Competing Transaction, or authorize any of the officers or directors of the
Company or any of its Subsidiaries to take any such action, and the Company
shall cause the directors, officers, employees, agents, stockholders and
representatives of the Company and its Subsidiaries (including, without
limitation, any investment banker, financial advisor, attorney or accountant
retained by the Company or any of its Subsidiaries) not to take any such action.
The Company shall promptly notify Acquiror (A) if any inquiries, or proposals or
requests for information concerning a Competing Transaction are received by the
Company or any of
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<PAGE>
its Subsidiaries or any of its or their respective officers or directors, or (B)
when the Company becomes aware that any such inquiries or proposals have been
received by a Stockholder's, the Company's or any of their respective
affiliates' investment bankers, financial advisors, attorneys, accountants,
other representatives or stockholders.
For purposes of this Agreement, "Competing Transaction" shall mean any
of the following involving the Company or any of its Subsidiaries (other than
the transactions contemplated by this Agreement): (i) any sale of stock,
merger, consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of twenty percent or more of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions; or (iii) any agreement to, or public announcement by the Company
of a proposal, plan or intention to, do any of the foregoing;
(h) adopt any amendments to its Certificate of Incorporation or By-
Laws;
(i) subject to Acquiror's consent to the extent required under Section
7.15(d), except for changes in methods of accounting made in consultation with
Acquiror that relate to (i) premium stabilization reserves, (ii) the status of
the HMOs as insurance companies and (iii) changes in connection with the reserve
for adverse deviation, (A) make any change in its methods of accounting used in
the preparation of the April 30 Statements, except as may be expressly required
by Law, GAAP or SAP, or (B) make or rescind any material express or deemed
election relating to Taxes, settle or compromise any material claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or make any material change in any of its methods of
reporting income or deductions for federal income Tax purposes from those
employed in the preparation of the federal income Tax returns for the taxable
year ending December 31, 1994, except as may expressly be required by Law or the
IRS;
(j) other than in the ordinary course, incur any obligation for
borrowed money or purchase money indebtedness, whether or not evidenced by a
note, bond, debenture or similar instrument;
(k) alter, amend, modify, terminate or cancel any Contract existing as
of the date of this Agreement between the Company or its Subsidiaries and a
Stockholder or its affiliates in a manner which is, individually or in the
aggregate, actually or potentially adverse to the Company and its Subsidiaries;
(l) enter into any reinsurance arrangements, or modify or amend any
existing reinsurance arrangements;
(m) modify or amend its provider reimbursement arrangements in any
respect that is material in the aggregate with respect to all such arrangements;
(n) modify or amend in any material respect any Contract covering or
relating to more than 10,000 covered medical lives or enter into any Contract,
or modify or amend in any material respect any existing Contract, with or
covering New York state employees;
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<PAGE>
(o) enter into any Contract limiting the right of the Company or any
of its Subsidiaries at any time on or after the date of this Agreement or
Acquiror or any of its Subsidiaries or affiliates at or after the Effective
Time, to engage in, or to compete with any person in, any business of a type
included in the Health Care Benefits Business, including any Contract which
includes exclusivity provisions restricting the geographical area in which, or
the method by which, any such business may be conducted by the Company or any of
its Subsidiaries or affiliates, or by the Acquiror or any of its Subsidiaries or
affiliates after the Effective Time, or modify or amend any such existing
Contract, except to reduce or eliminate the duration, geographic scope or other
terms of any existing restrictions or limitations;
(p) agree in writing or otherwise to do any of the foregoing.
SECTION 6.03 Covenants of the Stockholders. As used in this Section
-------------------------------------------
6.03, the term "Stockholder" shall mean (a) TIG on one hand and (b) MetLife and
MHH on the other. Each Stockholder hereby covenants and agrees that, prior to
the Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to in writing by the Acquiror, such Stockholder will:
(a) use its best efforts to cause the Company and its Subsidiaries to
fully comply with the provisions of Sections 6.01 and 6.02 of this Agreement;
(b) unless the conditions set forth in Section 8.03 are not satisfied,
adopt and approve the Merger and this Agreement in the manner provided in
Section 7.01 of this Agreement;
(c) not alter, amend, modify, terminate or cancel any Contract
existing as of the date of this Agreement between such Stockholder or its
affiliates and the Company or its Subsidiaries in a manner which is adverse to
the Company and its Subsidiaries;
(d) (i) comply in all material respects with the terms of, and perform
all of its obligations under, the Master Agreement and each Affiliate Contract
contemplated thereby, (ii) within 60 days of the date of this Agreement,
finalize all contribution adjustments and post-closing audits under Article III
of the Master Agreement, and (iii) pay in full all intercompany and similar
items owing to the Company and its Subsidiaries by the Stockholders and their
affiliates which have become due and payable, and cause the Company and its
Subsidiaries to pay any such amounts owing to the Stockholders and their
affiliates which have become due and payable; provided, however, that the
provisions of this Section 6.03(d) shall not apply to amounts which have not
become due and payable with respect to (x) reinsurance or administrative
agreements between the Company and its Subsidiaries and any Stockholder (or any
of its affiliates), (y) employee-related items, or (z) tax refunds or net
operating losses;
(e) not take any action, directly or indirectly, which, if taken by
the Company, would be prohibited under Section 6.02(g);
(f) (i) use its best efforts to terminate the Registration Rights
Agreement dated as of January 3, 1995, as amended, among the Company, the
Stockholders and certain affiliates of the Stockholders and, if unable to
terminate such agreement, Stockholder shall not
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<PAGE>
at any time exercise any of its rights thereunder, and (ii) terminate the
Stockholders' Agreement dated as of January 3, 1995, as amended, among the
Company, the Stockholders and certain affiliates of the Stockholders; provided
that such Stockholder's obligation under clauses (i) and (ii) are subject to the
consummation of the transactions contemplated by this Agreement;
(g) enter into any Contract limiting the right of the Company or any
of its Subsidiaries at any time on or after the date of this Agreement or
Acquiror or any of its Subsidiaries or affiliates at or after the Effective
Time, to engage in, or to compete with any person in, any business of a type
included in the Health Care Benefits Business, including any Contract which
includes exclusivity provisions restricting the geographical area in which, or
the method by which, any such business may be conducted by the Company or any of
its Subsidiaries or affiliates, or by the Acquiror or any of its Subsidiaries or
affiliates after the Effective Time, or modify or amend any such existing
Contract, except to reduce or eliminate the duration, geographic scope or other
terms of any existing restrictions or limitations;
(h) promptly notify Acquiror upon receiving any notice that any of the
20 largest customers is canceling, terminating or electing not to renew, or
intends to cancel, terminate or not renew, its relationship with the Company,
any Subsidiary or either Stockholder or its affiliates with respect to the
Health Care Benefits Business;
(i) use its best efforts to obtain, prior to the Effective Time,
approval by the Company's stockholders with respect to any payments which, in
the absence of such approval, would constitute "parachute payments" within the
meaning of Section 280G of the Code, and to provide adequate disclosure
regarding such payments in accordance with Section 280G(b)(5)(B)(ii) of the
Code; and
(i) use best efforts to cause each of the conditions set forth in
Article VIII to be satisfied as soon as practicable after the date of this
Agreement.
SECTION 6.04 Affirmative Covenants of Acquiror. Acquiror hereby
-----------------------------------------------
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by the
Company or otherwise consistent with Acquiror's acquisition program reflected in
the Acquiror Reports, Acquiror will, and will cause each of its Subsidiaries to:
(a) operate its business in the usual and ordinary course in all
material respects (taking into account Acquiror's acquisition program);
(b) use best efforts to cause each of the conditions set forth in
Article VIII to be satisfied as soon as practicable after the date of this
Agreement;
(c) adopt the Certificate of Designations and file the Certificate of
Designations with the Minnesota Secretary of State; and
(d) approve the Merger in its capacity as sole stockholder of Acquiror
Sub.
SECTION 6.05 Access and Information.
------------------------------------
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<PAGE>
(a) The Company and the Stockholders (but only with respect to their
respective Health Care Benefits Businesses) shall (and shall cause their
respective affiliates to) afford to Acquiror and its officers, employees,
accountants, consultants, legal counsel and other representatives reasonable
access upon reasonable notice to all information concerning the business,
properties, contracts, records and personnel of the Company, the Stockholders
(but only with respect to their respective Health Care Benefits Businesses) or
their respective affiliates as Acquiror may reasonably request.
(b) Acquiror shall (and shall cause its Subsidiaries to) afford to the
Company, the Stockholders and their respective officers, employees, accountants,
consultants, legal counsel and other representatives reasonable access upon
reasonable notice to all information concerning the business, properties,
contracts, records and personnel of Acquiror or its Subsidiaries as the Company
or the Stockholders may reasonably request. Upon delivery of each of the
Initial and Second Company Earnings Statements under Section 2.03 or any Earn-
Out Statement under Section 2.05, the Company shall afford to the Stockholders'
and, in the case of the Initial and Second Company Earnings Statements,
Acquiror's accounting representatives prompt and reasonable access upon
reasonable notice to all information reasonably necessary to verify calculation
of Company Earnings and the amount of Contingent Consideration payable, the
Claims Accrual Adjustment and the amount of adjustments to Contingent
Consideration, or Earnings Per Share and the amount of any Earn-Out payment
payable for an Earn-Out Year, as the case may be. The Company shall make its
employees who are familiar with such matters, its independent outside accounting
firm and its outside actuarial advisors (if any) available to the Stockholders
and Acquiror and their respective representatives on a mutually convenient basis
at reasonable times during normal business hours to provide an explanation of
such materials and provide such other information (including, but not limited
to, accountants work papers and reserve calculations) as the Stockholders and
Acquiror and their respective representatives may reasonable request in
connection with their review of each of the Initial and Second Company Earnings
Statements or any Earn-Out Statement.
(c) The parties will, and will cause their respective officers,
employees, accountants, consultants, legal counsel and other representatives to,
comply with all of their respective obligations under the Confidentiality
Agreement dated March 21, 1995 between the Company and Acquiror and the
Confidentiality Agreements, dated May 11, 1995, between Acquiror and each
Stockholder.
ARTICLE VII
ADDITIONAL AGREEMENTS
---------------------
As used in this Article VII, the term "Stockholder" shall mean (a) TIG
and TIC on one hand and (b) MetLife and MHH on the other.
SECTION 7.01 Approval of Stockholders. The Company and the
--------------------------------------
Stockholders shall take all action necessary in accordance with Delaware Law and
the Company's Certificate of Incorporation and By-Laws to secure the vote or
consent of stockholders required by Delaware Law to adopt and approve this
Agreement and the Merger,
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including calling and attending a meeting of stockholders or obtaining and
executing a written consent in lieu of a stockholders meeting in accordance with
the Delaware Law.
SECTION 7.02 Appropriate Action; Consents; Filings.
---------------------------------------------------
(a) The Company, the Stockholders and Acquiror shall use all
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, (ii) obtain from any
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Acquiror or the
Company or any of their respective Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated in this Agreement, including, without limitation,
the Merger, and (iii) make all necessary notifications and filings, and
thereafter make any other required submissions, with respect to this Agreement
and the Merger required under applicable Health Benefit Laws and other
applicable Laws; provided that, Acquiror and the Company shall cooperate with
each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its advisors
prior to filing and, if requested, to accept all reasonable additions, deletions
or changes suggested in connection therewith. The Company and Acquiror shall
furnish to each other all information required for any application or other
filing to be made pursuant to the rules and regulations of any applicable Law in
connection with the transactions contemplated by this Agreement.
(b) (i) The Company, the Stockholders and Acquiror shall give (or
shall cause their respective Subsidiaries to give) any notices to third parties,
and use, and cause their respective Subsidiaries to use, reasonable efforts to
obtain any third party consents (A) disclosed in the Company Disclosure
Schedule, the Stockholder Disclosure Schedule or the Acquiror Disclosure
Schedule, as the case may be, and which Acquiror identifies as being conditions
to the Closing pursuant to Section 8.02(c) or (B) which are otherwise identified
by Acquiror or required to prevent a Company Material Adverse Effect from
occurring prior to or after the Effective Time or an Acquiror Material Adverse
Effect from occurring prior to or after the Effective Time.
(ii) In the event that either party shall fail to obtain any third
party consent described in subsection (b)(i) above, such party shall use all
reasonable efforts, and shall take any such actions reasonably requested by the
other party, to minimize any adverse effect upon the Company and Acquiror, their
respective Subsidiaries, and their respective businesses resulting, or which
could reasonably be expected to result after the Effective Time, from the
failure to obtain such consent.
(c) Prior to the Effective Time, to the extent reasonably requested by
Acquiror the Company and the Stockholders will, to the extent permitted by
applicable Law, cooperate with Acquiror in approaching, meeting with and
communicating with the 100 largest customers of the Health Care Benefits
Business (as measured by the number of covered medical lives) to explain the
change in ownership of the Company and to assist in obtaining a renewal with or
transfer to the Company and its Subsidiaries of all contracts, agreements and
insurance policies with such customers, and the Company and the Stockholders
shall
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<PAGE>
encourage such customers to renew or transfer their contracts, agreements and
policies with or to the Company and its Subsidiaries; provided that no
Stockholder shall be required to incur unreasonable costs under this Section
7.02(c).
(d) From the date of this Agreement until the Effective Time, the
Company shall, promptly following acquiring knowledge thereof, notify Acquiror
in writing of any pending or, to the knowledge of the Company, threatened
action, proceeding or investigation by any Governmental Entity or any other
person (i) challenging or seeking material damages in connection with the Merger
or the conversion of the Company Common Stock into the Merger Consideration
pursuant to the Merger or (ii) seeking to restrain or prohibit the consummation
of the Merger or otherwise limit the right of Acquiror or, to the knowledge of
the Company, its Subsidiaries, to own or operate all or any portion of the
businesses or assets of the Company or its Subsidiaries.
(e) From the date of this Agreement until the Effective Time, the
Acquiror shall, promptly following acquiring knowledge thereof, notify the
Company in writing of any pending or, to the knowledge of Acquiror, threatened
action, proceeding or investigation by any Governmental Entity or any other
person (i) challenging or seeking material damages in connection with the Merger
or the conversion of the Company Common Stock into the Merger Consideration
pursuant to the Merger or (ii) seeking to restrain or prohibit the consummation
of the Merger or otherwise limit the right of the Acquiror or its Subsidiaries
to own or operate all or any portion of the businesses or assets of the Company
or its Subsidiaries.
SECTION 7.03 New York State Employees Contract. So long as MetLife
-----------------------------------------------
or its affiliates is party to any Contract relating to the Health Care Benefits
Business covering or servicing New York state employees, Acquiror shall have the
right to provide coverage and/or service thereunder pursuant to arrangements
substantially similar to those in effect or contemplated with the Company and
its Subsidiaries as of the date of this Agreement, unless MetLife is prohibited
from doing so by Law, in which case MetLife shall use its best efforts to assure
Acquiror obtains the economic benefits of any such Contract on a mutually
acceptable basis.
SECTION 7.04 Update Disclosure; Breaches. From and after the date of
-----------------------------------------
this Agreement until the Effective Time, each party shall promptly notify the
other parties by written update to its Disclosure Schedule of (i) the occurrence
or non-occurrence of any event the occurrence or non-occurrence of which would
be likely to cause any condition to the obligations of any party to effect the
Merger and the other transactions contemplated by this Agreement not to be
satisfied, or (ii) the failure of the Company, the Stockholders, Acquiror or
Acquiror Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement which would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied; provided, however, that the delivery of any
notice pursuant to this Section 7.04 shall not cure any breach of any
representation or warranty requiring disclosure of such matter prior to the date
of this Agreement or otherwise limit or affect the remedies available to the
party receiving such notice.
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SECTION 7.05 Public Announcements. Acquiror, the Stockholders and
----------------------------------
the Company shall consult in good faith with each other before issuing any press
release or otherwise making any public statements with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and obtaining the consent of the
other parties (which consent shall not be unreasonably withheld), except as may
be required by Law or the requirements of the NYSE.
SECTION 7.06 Indemnification of Directors and Officers.
-------------------------------------------------------
(a) From and after the Effective Time, (i) each Stockholder shall
indemnify, defend and hold harmless those employees, officers and directors of
such Stockholder or its affiliates that were or are directors of the Company and
(ii) Acquiror shall indemnify, defend and hold harmless the present directors of
the Company who are not required to be indemnified by the Stockholders under
clause (i) of this Section 7.06(a) and the officers of the Company
(collectively, the "Indemnitees") against all losses, expenses, claims, damages
or liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the full extent permitted or required as of the date of this
Agreement by the Company's Certificate of Incorporation and Bylaws (and shall
also advance expenses as incurred to the fullest extent permitted under the
Company's Certificate of Incorporation and Bylaws, provided that the person to
whom expenses are advanced provides the undertaking to repay such advances
contemplated by applicable Law, except as otherwise modified by this Section
7.06). The Company shall use reasonable efforts to obtain extended reporting
endorsements (tail coverage) on the fiduciary liability, professional liability
and directors and officers liability policies currently covering the Company or
any of its Subsidiaries or any of the Indemnitees required to be indemnified by
Acquiror at a commercially reasonable cost; provided that such coverage and the
cost thereof shall be subject to Acquiror's approval. In connection with such
efforts, the Company will use its best efforts to accurately complete any
insurance applications and forms of the applicable insurer and take any
reasonable steps to preserve any claims, including submitting a full and
complete list of any potential claims of which the Company has knowledge, under
the policy issued by such insurer. In the event the Company is unable to obtain
such extended reporting coverage under the Company's existing directors and
officers liability insurance policies at a commercially reasonable cost,
Acquiror shall use reasonable efforts to provide similar coverage for those
Indemnitees that it is required to indemnify under policies then maintained by
Acquiror; provided that such similar coverage is available to Acquiror at a
commercially reasonable cost.
(b) In the event any claim, action, suit, proceeding or investigation
(a "D & O Claim") for which indemnification is provided under this Section 7.06
is brought against an Indemnitee (whether arising before or after the Effective
Time) after the Effective Time (i) such Indemnitee may retain counsel
satisfactory to it (subject to approval by the indemnifying party), (ii) the
indemnifying party shall pay all reasonable fees and expenses of such counsel
for such Indemnitee promptly as statements therefor are received (subject to the
ability of the indemnifying party to receive such information relative to the
legal services provided as is customarily provided and reasonably requested by
the indemnifying party and provided that nothing in this Section 7.06 shall
prevent the indemnifying party from disputing any fees it believes are not
reasonable), and (iii) the indemnifying party will use all reasonable efforts to
assist in the vigorous defense of any such matter, provided that the
indemnifying
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party shall not be liable for any settlement of any D & O Claim effected without
its written consent. Any Indemnitee wishing to claim indemnification under this
Section 7.06, upon learning of any such D & O Claim, shall notify the
appropriate indemnifying party (but the failure so to notify such indemnifying
party shall not relieve it from any liability which it may have under this
Section 7.06 except to the extent such failure materially prejudices such
indemnifying party), and shall deliver to such indemnifying party the
undertaking contemplated by applicable Law. The Indemnitees as a group may
retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnitees.
SECTION 7.07 Obligations of Acquiror Sub. Acquiror shall take all
-----------------------------------------
action necessary to cause Acquiror Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 7.08 Severance and Employment Agreements.
-------------------------------------------------
(a) Any severance, change of control or termination pay obligations
arising by reason of, or payable as a result of, (i) the transactions
contemplated by the Master Agreement or (ii) events occurring at or prior to
January 3, 1995 with respect to any employee of the Company or its Subsidiaries
who had previously been employed by a Stockholder or its affiliates immediately
prior to becoming an employee of the Company or its Subsidiaries shall be paid
by such Stockholder at such Stockholder's option, either (x) directly to the
appropriate persons (without taking into account any resultant Tax benefit or
detriment to any person ) or (y) to the Company (which payment to the Company
shall be made as a capital contribution with respect to the Company Common
Stock, net of any Tax benefit to the Company attributable to such severance,
change of control or termination pay obligation and the Company will then make
such payments), and such Stockholder shall indemnify and hold Acquiror, the
Company and their Subsidiaries harmless against payment of any such amounts.
(b) Section 7.08(b) of the Company Disclosure Schedule sets forth a
list of each officer or employee of the Company and its Subsidiaries who is
party to any employment or severance Contract providing for the payment of
severance pay, termination pay or other consideration by reason of consummation
of the Merger. The Stockholders agree to pay (in the manner described in
Section 7.08(a)), and to indemnify and hold Acquiror, the Company and their
Subsidiaries harmless against payment of, any amounts payable to the persons
listed on Section 7.08(b) of the Company Disclosure Schedule by reason of
consummation of the Merger. If Acquiror or any of its Subsidiaries employs or
offers to employ any person listed in Section 7.08(b) of the Company Disclosure
Schedule, in connection therewith it shall use its best efforts to cause such
person to waive, subject to consummation of the Merger, the receipt of any such
payment.
(c) Section 7.08(c) of the Company Disclosure Schedule sets forth a
list of each officer or employee of the Company and its Subsidiaries (other than
the persons listed on Section 7.08(b) of the Company Disclosure Schedule) who is
party to any employment or severance Contract providing for the payment of
severance or termination pay in excess of the Company's standard severance
policy (without regard to the Merger) as such policy has been described to
Acquiror prior to the date of this Agreement, by reason of consummation of the
Merger or otherwise. Any severance pay, termination pay or other consideration
in excess of the Company's standard severance policy (i) payable by reason of
consummation of the
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Merger or (ii) otherwise payable upon termination, in each case under employment
or severance Contracts which are not disclosed on Section 7.08(c) of the Company
Disclosure Schedule and which are not terminated prior to the Effective Time,
shall be paid by the Stockholders (in the manner described in Section 7.08(a))
to the appropriate persons or to the Company, and each Stockholder agrees, with
respect to such payments, to indemnify and hold Acquiror, the Company and their
Subsidiaries harmless.
(d) Any severance or termination payments payable to the individuals
listed on Section 7.08(d) of the Company Disclosure Schedule shall be paid by
the Stockholders (in the manner described in Section 7.08(a)) or by the Company
as follows:
(i) if either or both of such individuals' employment terminates
on or prior to the six month anniversary of the Merger, the Stockholders shall
pay 100% of severance or termination payments payable to such individual(s);
(ii) if either or both of such individuals' employment terminates
after the six month anniversary of the Merger and on or prior to the 12 month
anniversary of the Merger, the Stockholders shall pay 75% of severance or
termination payments payable to such individual(s), and the Company shall pay
25% of such payments;
(iii) if either or both of such individuals' employment terminates
after the 12 month anniversary of the Merger and on or prior to the 18 month
anniversary of the Merger, the Stockholders shall pay 50% of severance or
termination payments payable to such individual(s), and the Company shall pay
50% of such payments;
(iv) if either or both of such individuals' employment terminates
after the 18 month anniversary of the Merger and on or prior to the 24 month
anniversary of the Merger, the Stockholders shall pay 25% of severance or
termination payments payable to such individual(s), and the Company shall pay
75% of such payments; and
(v) if either or both of such individuals' employment terminates
after the 24 month anniversary of the Merger, the Company shall pay 100% of such
payments.
(e) Acquiror shall pay 50% and the Stockholders shall (in the manner
described in Section 7.08(a)) pay 50% of any amounts payable to the individual
listed on Section 7.08(e) of the Company Disclosure Schedule in the amount and
under the circumstances set forth therein.
SECTION 7.09 Company Employee Benefit Plans. Each Stockholder agrees
--------------------------------------------
to indemnify and hold harmless Acquiror, the Company and their Subsidiaries
against any Losses with respect to any current or former employee of the Company
or its Subsidiaries who had previously been employed by such Stockholder arising
out of any claim or liability made or arising under the employee benefit plans
of such Stockholder and its affiliates (a) which arises as a result of (i) the
transactions contemplated by the Master Agreement and the Affiliate Contracts
entered into in connection therewith, or (ii) any facts, events or circumstances
occurring prior to the Effective Time, and (b) for which such Stockholder or its
affiliates
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<PAGE>
(i) has any liability or obligation to such employees with respect to any time
at or prior to the Effective Time, or (ii) has failed to comply with any
material provision of Law, including ERISA and, with respect to any failure to
achieve intended tax results, the Code, except where such failure is due to the
failure on the part of Acquiror or the Company to cooperate with such
Stockholder in the good faith attempt by such Stockholder to comply with such
provisions.
SECTION 7.10 Related Agreements.
--------------------------------
(a) Marketing Agreement. At the Closing, the Company and MetLife
-------------------
shall enter into a replacement to the Marketing Agreement dated as of January 3,
1995 between the Company and MetLife, which replacement agreement shall be in
the form of Exhibit 7.10(a) attached hereto, and such replacement agreement
---------------
shall be in full force and effect as of the Merger.
(b) Standstill Agreement. At the Closing, Acquiror, MHH and MetLife
--------------------
shall enter into a Standstill Agreement substantially in the form of Exhibit
-------
7.10(b) attached hereto.
- -------
SECTION 7.11 Utilization of Products and Services.
--------------------------------------------------
(a) Each Stockholder (which for all purposes of this Section 7.11 only
shall include Travelers Group, Inc.) and its Subsidiaries will purchase from the
Company and Acquiror for calendar year 1996 those health care coverages and
managed care products and services ("Health Care Products"), for the same
employee populations, which are in effect with the Company on the date of this
Agreement. If the negotiations with respect to the provision of these products
and services extend beyond the Effective Time, Acquiror agrees to negotiate in
good faith with respect to the provision of these products and services. Prior
to the Effective Time, the Company and each of the Stockholders agree to
negotiate in good faith with respect to the provision of these products and
services.
(b) Each Stockholder and its Subsidiaries will, for calendar years
1997 and 1998, continue to purchase from the Company and Acquiror the same
Health Care Products for the same employee populations for which such Health
Care Products were in effect for calendar year 1996 so long as such Health Care
Products offered to such Stockholder and its Subsidiaries are competitive as to
quality, service and products and are reasonably competitive as to price
("Selection Criteria"). With respect to such employee populations, if such
Stockholder and its Subsidiaries reasonably determines that the Health Care
Products of Acquiror and the Company do not meet the Selection Criteria, such
Stockholder and its Subsidiaries shall give Acquiror and the Company a
reasonable opportunity to make a new proposal which meets the Selection
Criteria.
(c) For employee populations of each Stockholder and its Subsidiaries
for which the Company is not providing Health Care Products as of the date of
this Agreement (including any employee population added as a result of any
acquisition of any business operation by such Stockholder or its Subsidiaries,
whether by merger, consolidation, purchase of stock or assets, or otherwise
(unless any agreement relating to such acquisition prohibits such actions)) for
calendar years 1996, 1997 and 1998, the Company and Acquiror shall have
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<PAGE>
the opportunity to make a proposal (including in connection with any process in
which such Stockholder or its Subsidiaries is considering bids of competitors of
Acquiror or the Company) to provide Health Care Products for such employee
populations. In the event that such Stockholder and its Subsidiaries consider a
proposal from a competitor of Acquiror or the Company to be more competitive
than the initial proposal received from the Company and Acquiror, then such
Stockholder and its Subsidiaries shall give Acquiror and the Company a
reasonable opportunity to make a new proposal to provide Health Care Products
for such employee population.
SECTION 7.12 Amendment of Certain Agreements. The following
---------------------------------------------
agreements are hereby amended, or shall be amended, as set forth below,
effective as of the Effective Time and subject to the consummation of the
Merger:
(a) by deleting Section 11 of the Supplementary Agreement dated as of
January 3, 1995 between TIC and the Company in its entirety, provided that in
consideration of such amendment, Acquiror agrees to give Moore's Business Forms,
Inc., for the time period set forth in such Section 11, the opportunity to
submit a bid on any matters with respect to which Moore's Business Forms, Inc.
had rights prior to the Effective Time under such Section 11;
(b) by extending until the Effective Time the time under the License
Agreements, each dated January 3, 1995, between TIC and the Company, between TIG
and the Company and between Travelers Group, Inc. and the Company, and the
License Agreement dated January 3, 1995 between MetLife and the Company for
which the Company may use certain marks of TIC and MetLife as part of the names
of certain of the Company's Subsidiaries;
(c) by requiring the Stockholders and their Subsidiaries to use their
best efforts to ensure that derivative software licensed back to the
Stockholders under the Software License Agreement dated January 3, 1995 between
the Company and TIC and the Software License Agreement dated January 3, 1995
between the Company and MetLife is used solely by the Stockholders or their
Subsidiaries or affiliates for internal business purposes; and
(d) prior to the Effective Time the Company shall convey back to
MetLife, and MetLife shall accept, all of the Company's interest in First Health
Associates.
SECTION 7.13 Rights under Master Agreement.
-------------------------------------------
(a) Notwithstanding any provision to the contrary set forth in the
Master Agreement or other Affiliate Contracts, the Stockholders agree that, from
and after the Effective Time, Acquiror shall be entitled to enforce all rights
of the Company and its Subsidiaries under the Master Agreement and the other
Affiliate Contracts in effect as of the Effective Time, as such agreements may
be expressly amended or modified under the terms of this Agreement or the other
agreements contemplated by this Agreement.
(b) Notwithstanding any provision to the contrary set forth in the
Master Agreement or other Affiliate Contract, Acquiror agrees that, from and
after the Effective Time, Acquiror shall cause the Company to comply with its
obligations under the Master
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<PAGE>
Agreement and the other Affiliate Contracts in effect as of the Effective Time,
as such agreements may be expressly amended or modified under the terms of this
Agreement or the other agreements contemplated by this Agreement.
(c) Notwithstanding Sections 7.13(a) and (b) above, to the extent of
any inconsistencies between the terms of this Agreement on one hand and the
Master Agreement and the other Affiliate Contracts on the other, the provisions
of this Agreement shall control.
SECTION 7.14 Restructuring Matters.
-----------------------------------
(a) Severance Costs. Prior to the date of this Agreement, the Company
---------------
has provided to Acquiror a copy of the Company's restructuring plan describing
planned personnel reductions and the setting forth the amount budgeted for the
costs of such reductions. In addition to any amounts payable by the
Stockholders under Section 7.08, each Stockholder shall pay directly or
reimburse the Company (in the manner described in Section 7.08(a)) for all
severance costs incurred with respect to employees of the Company and its
Subsidiaries formerly employed by such Stockholder or its affiliates immediately
prior to becoming employees of the Company or its Subsidiaries ("Severance
Costs") whose employment is terminated on or before December 31, 1995 or who has
been given notice on or before December 31, 1995 that their employment will be
terminated. From and after the Effective Time, Acquiror shall be entitled to
make all decisions relating to termination of employment. To the extent any
such Severance Costs are incurred by the Company or its Subsidiaries, the
Company shall, on a monthly basis, send to the Stockholders a notice setting
forth the aggregate amount of such Severance Costs and the amount payable by
each Stockholder, including the names of the persons to whom such payments
relate. The applicable Stockholder(s) shall pay or reimburse the Company (in
the manner described in Section 7.08(a)) the amount of Severance Costs set forth
in such notice within 10 days of receiving such notice. Notwithstanding the
foregoing, in no event shall the amounts for which the Stockholders are
obligated to pay or reimburse for the 12 months ending December 31, 1995 and
under this Section 7.14(a) exceed, on a pre-tax basis, $27,339,000; provided
that amounts required to be paid or reimbursed by the Stockholders under
Sections 7.08(a), (b), (c), (d) and (e) shall not be counted toward the maximum
payments under this Section 7.14(a).
(b) Real Estate and Operating Assets. Attached hereto as Exhibit
-------------------------------- -------
7.14(b) is a list of premises which were leased or subleased by the Company or
- -------
its Subsidiaries as of the Effective Time and which the Company, as of the date
of this Agreement, intends to vacate as permitted by the Master Agreement and
generally consistent with the intent of the Master Agreement ("Leased
Premises"). Exhibit 7.14(b) may be updated by the Company at least 20 days
---------------
prior to the Effective Time and properties may be added to such list by the
Company if all conditions in the Master Agreement are met, and properties may be
deleted from such list by the Company (provided that the deletion from such
exhibit of any property listed thereon on the date of this Agreement and with
respect to which notice of vacation has been given to the Stockholders prior to
such deletion shall in any event require the consent of the Stockholders), and
such updated exhibit shall be attached to this Agreement at the Effective Time;
provided that any change from Exhibit 7.14(b) in the form attached to this
---------------
Agreement on the date hereof which would reasonably be expected to materially
increase the cost to the Stockholders shall require approval by the Company's
board of directors. In preparing any such update, the Company shall consult
with Acquiror and provide Acquiror with the
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<PAGE>
opportunity to discuss any such update. At any time on or prior to December 31,
1995, Acquiror may, by notice delivered to the Stockholders, elect to (i) vacate
any Leased Premises set forth on the final Exhibit 7.14(b) (and which the
---------------
Company has not elected to vacate prior to the Effective Time) and/or (ii)
return any Operating Assets (as defined in the Master Agreement) contributed and
delivered or leased to the Company under the Master Agreement which are located
at such Leased Premises. Acquiror shall completely vacate not later than June
30, 1996 any Leased Premises or return any Operating Assets for which the
Company or Acquiror has timely made such an election. From and after the
Effective Time, Acquiror shall be entitled to make all decisions relating to
vacation of Leased Premises or return of Operating Assets, it being understood
that Acquiror may choose not to vacate any of the Leased Premises listed on
Exhibit 7.14(b) with respect to which the Company has not made an election to
- ---------------
vacate as of the Effective Time. Upon Acquiror's vacation of such Leased
Premises or return of Operating Assets, all rent and other payment obligations
of Acquiror and its Subsidiaries with respect to such Leased Premises or
Operating Assets shall terminate.
SECTION 7.15 Cooperation and Exchange of Tax Information; Preparation
----------------------------------------------------------------------
of Tax Returns.
- --------------
(a) Except as otherwise provided in this Section 7.15, the
Stockholders and Acquiror will provide each other with such cooperation and
information as either of them reasonably may request of the other in filing any
Return, amended Return or claim for refund, determining a liability for Taxes or
a right to a refund of Taxes or in conducting any audit or proceeding in respect
of Taxes. Such cooperation and information shall include providing copies of
relevant Returns or portions thereof, together with accompanying schedules and
related work papers and documents relating to rulings or other determinations by
Taxing authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanation of any documents or information provided
hereunder. The Stockholders and Acquiror will also make available to each other
copies of all of their workpapers, schedules, all other books and records, and
such other information relating to the business of the Company or the businesses
transferred to the Company by such Stockholder (which information the
Stockholders and Acquiror agree to maintain and preserve until six months after
the expiration of the applicable statute of limitations) which such person
reasonably may request in connection with its filing any Return, amended Return
or claim for refund, determining a liability for Taxes or a right to a refund of
Taxes, or in conducting any audit or proceeding in respect of Taxes of the
Company or Acquiror Sub.
(b) The Company shall file or cause to be filed, on the due date (as
it may be extended), all Returns of the Company required to be filed for all Tax
periods beginning on or after January 3, 1995 and ending on or before the
Closing Date. The Company, to the extent permissible, will include (or cause to
be included) the results of the operations of the Company in a separate Return
of the Company with respect to all Tax periods beginning on or after January 3,
1995 and ending on or before the Closing Date, and will cause the Company's Tax
year to end on the Closing Date. The Company shall provide Acquiror with a copy
of each federal and state income tax Return or election at least 10 business
days before the due date for such Return or election, and shall reasonably
cooperate with any request for information by Acquiror in connection therewith.
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<PAGE>
(c) Acquiror, on behalf of the Company, shall file or cause to be
filed, on the due date (as it may be extended), all Returns of the Company for
all Tax periods ending after the Closing Date. Acquiror will file (or cause to
be filed) any Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date ("Straddle Period Returns"). The
Company shall provide the Stockholders with a copy of each Straddle Period
Return at least 10 business days before the due date for such Return, and shall
reasonably cooperate with any request for information by the Stockholders in
connection therewith. All such Returns described in this Section 7.15(c) and
any schedules to be included therewith shall be prepared on a basis consistent
with those of the Company prepared for prior Tax periods.
(d) Without the prior written consent of Acquiror, which consent may
not be unreasonably withheld, the Company shall not make any election with
respect to Taxes, change an annual accounting period, adopt or change any
accounting method (except for the changes authorized by Section 6.02(i)) or
file any amended Return, if such election, adoption, change or filing would be
reasonably expected to increase the Tax liability or reduce any taxable loss of
the Company (or its successor) with respect to any period ending after the
Closing Date.
(e) Without the prior written consent of the Stockholders, which
consent may not be unreasonably withheld, the Company shall not, after the
Closing, make any election with respect to Taxes, change an annual accounting
period, adopt or change any accounting method or file any amended Return, if
such election, adoption, change or filing would be reasonably expected to
increase the Tax liability or reduce any taxable loss of the Company (or its
successor) with respect to any taxable period (or portion thereof) ending on or
before the Closing Date. Without the prior written consent of the Stockholders,
which consent may not be unreasonably withheld, the Company shall not, after the
Closing, claim any refund of Taxes of the Company with respect to any taxable
period (or portion thereof) ending on or before the Closing Date.
(f) For purposes of this Section 7.15, all references to the Company
shall include the Subsidiaries and affiliates, and the former Subsidiaries and
affiliates, of the Company.
SECTION 7.16 Use of Computer Software.
--------------------------------------
(a) Each Stockholder shall use its best efforts to, at or prior to the
Effective Time, transfer to the Company and its Subsidiaries, or provide an
enforceable license (which license shall be (x) perpetual in the case of any
computer software owned by a Stockholder or its affiliates or licensed to the
Company or its Subsidiaries by a Stockholder or its affiliates (other than
computer software licensed to the Company or its Subsidiaries through a pass
through arrangement with a third party) and (y) of like tenor in the case of
computer software licensed from parties other than a Stockholder or its
affiliates or licensed to the Company or its Subsidiaries through a pass through
arrangement with a third party) for the Company and its Subsidiaries to use, all
Company Software, and the right to use pursuant to existing contractual
arrangements (on the same terms as in effect on the date of this Agreement) all
operating software used by the Company and its Subsidiaries as of the date of
this Agreement which is not included in the definition of Company Software
("Operating Software"). Each
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Stockholder shall pay all costs and expenses in excess of existing ongoing
royalty obligations to persons other than a Stockholder or its affiliates
(including, but not limited to, existing royalty obligations relating to
computer software licensed to the Company or its Subsidiaries through a pass
through arrangement with a third party) incurred in connection with the transfer
or license to the Company of all Company Software, including, but not limited
to, payment of any transfer or license fees or similar costs. In the event any
Stockholder is unable to effect the transfer or license to the Company of any
Company Software, or provide the Company with the right to use any Operating
Software, such Stockholder shall make arrangements for the provision of
replacement computer software to the Company as of the Effective Time, which
replacement software shall be reasonably acceptable to Acquiror, and such
Stockholder shall pay all costs and expenses in excess of existing ongoing
royalty obligations to persons other than a Stockholder or its affiliates
(including, but not limited to, existing royalty obligations relating to
computer software licensed to the Company or its Subsidiaries through a pass
through arrangement with a third party) incurred in connection with obtaining
and/or developing such replacement software.
(b) Each Stockholder shall indemnify and hold Acquiror, the Company
and their Subsidiaries harmless against any Losses arising out of the use of any
Company Software or Operating Software by the Company and its Subsidiaries prior
to the Effective Time, which use is claimed to be in violation of the
intellectual property rights of any person or any license or other agreement
relating to the use of such software.
SECTION 7.17 Assumption of Registration Rights Agreement. Effective
---------------------------------------------------------
upon consummation of the Merger, Acquiror hereby assumes the Company's
obligations under the Registration Rights Agreement dated as of March 9, 1995,
as amended, among the Company and certain stockholders of the Company (all of
which are former stockholders of HealthSpring, Inc.) listed on Exhibit A thereto
---------
(the "HealthSpring Stockholders") with respect to registration of (a) the
Acquiror Common Stock issuable upon conversion of any Acquiror Preferred Stock
issued to the HealthSpring Stockholders in the Merger and (b) any Acquiror
Preferred Stock issued to such stockholders in the Merger.
SECTION 7.18 Waiver of Rights of First Refusal. By execution of this
-----------------------------------------------
Agreement, each Stockholder, on behalf of itself and its respective affiliates,
waives all rights of first offer, rights of first refusal or similar rights
(whether under the Master Agreement, the Stockholders Agreement referred to in
Section 6.03(f) or otherwise), with respect to the Merger and the capital stock
or assets of the Company and its Subsidiaries.
SECTION 7.19 Post-Closing Cooperation.
--------------------------------------
(a) Until the second anniversary of the Merger (or such other period
provided in Section 7.15(a) in connection with Taxes), the Stockholders shall
provide any reasonable assistance requested by Acquiror in connection with the
matters contemplated by this Agreement, the Master Agreement and the Affiliate
Contracts entered into in connection with the Master Agreement; provided that no
Stockholder shall be required to incur unreasonable costs under this Section
7.19.
(b) In the event the Stockholders receive any notice from any
Governmental Entity regarding the Health Care Benefits Business of the Company
and its Subsidiaries, the
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recipient shall promptly deliver such notice to Acquiror. The parties shall work
together to resolve any issues raised by such notice and, if requested by
Acquiror, the Stockholders shall provide reasonable assistance in accordance
with Section 7.19(a) above in resolving any such issues.
(c) At the Effective Time, a liaison committee (the "Liaison
Committee"), shall be formed consisting of two senior executives of each of TIG,
MetLife and Acquiror. The initial members of the Liaison Committee are set
forth on Exhibit 7.19 attached to this Agreement. In the event any such
------------
member's employment terminates, a replacement member holding a comparable
position shall be named to serve on the Liaison Committee. The Liaison
Committee shall meet at least quarterly and shall be responsible for overseeing
the implementation of this Agreement, the Master Agreement and related Affiliate
Contracts, the transition of the operations of the Health Care Benefits Business
from the Stockholders to the Company and to Acquiror under such agreements, and
any issues which arise among the parties pursuant to such agreements. The
Liaison Committee shall remain in place until the second anniversary of the
Merger, or such earlier date as Acquiror determines that its functions have been
completed or are no longer necessary.
SECTION 7.20 Certain Litigation.
--------------------------------
(a) Each Stockholder shall indemnify and hold harmless Acquiror, the
Company and their Subsidiaries against all Losses arising out of any legal,
arbitral or administrative claims, actions, suits, litigation or proceedings of
any kind affecting the Health Care Benefits Business, at law or in equity
(including actions or proceedings seeking injunctive relief), whether or not the
Company or its Subsidiaries is a named party, which (i) arise from facts, events
or circumstances occurring prior to January 3, 1995 with respect to the Health
Care Benefits Business conducted by such Stockholder and its affiliates, (ii)
arise on or after January 3, 1995 with respect to any matter relating to the
Health Care Benefits Business for which such Stockholder or its affiliates
exercised decision making authority (including by choosing not to act after
reviewing specific actions taken or proposed to be taken by the Company and its
Subsidiaries) under the Master Agreement, any Affiliate Contract or otherwise
(other than Losses resulting from actions or omissions of the Company and its
Subsidiaries after January 3, 1995 and for which such Stockholder would be
entitled to indemnification from the Company under the terms of any Affiliate
Contract contemplated by the Master Agreement) or (iii) arise on or after
January 3, 1995 with respect to any business conducted by the Stockholder or its
affiliates of the type included in the Health Care Benefits Business that was
not transferred to or reinsured by the Company or its Subsidiaries (other than
Losses resulting from actions or omissions of the Company and its Subsidiaries
after January 3, 1995 and for which such Stockholder would be entitled to
indemnification from the Company under the terms of any Affiliate Contract
contemplated by the Master Agreement) (collectively, "Litigation"). Effective
as of the Effective Time, the Company shall eliminate the litigation reserve of
the Company's Subsidiaries for the matters referred to in clause (i) above to
the extent that such reserve remains on the books of the Company and its
Subsidiaries as of the Effective Time and was part of the $2.5 million
litigation reserve established at the time of formation of the Company, and the
amount of such reserve which is eliminated shall be paid in cash to the
Stockholder who contributed the Subsidiary in question.
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<PAGE>
(b) Except as otherwise provided in this Section 7.20 or as otherwise
agreed by the parties, the defense of any Litigation existing as of the date of
this Agreement or instituted after the date of this Agreement shall be assumed
by the Stockholder in connection with whose Health Care Benefits Business such
Litigation arose as of the date of this Agreement (or the date of institution),
and thereafter such Litigation shall be managed by such Stockholder, and the
Stockholders shall be responsible for all costs, expenses and liabilities
relating to such Litigation. The Company and its Subsidiaries shall assign to
the applicable Stockholder all rights to any recovery, whether by reason of
subrogation, insurance or otherwise, against any third party in respect of any
Losses to such Stockholder resulting from the Litigation.
(c) The Stockholders shall keep Acquiror informed of all material
developments in such Litigation (including any proposed settlement), and the
Stockholders shall not take any action or enter into any settlement with respect
to such Litigation that could reasonably be expected to adversely affect the
Health Care Benefits Business without the prior written consent of Acquiror,
which consent shall not be unreasonably withheld. In the event that Acquiror,
in its reasonable judgment, determines that any Litigation managed by a
Stockholder is not being defended by such Stockholder in a reasonably diligent
manner or the management of such Litigation is otherwise materially adversely
affecting the business of Acquiror, the Company or their Subsidiaries, Acquiror
shall, upon written notice to such Stockholder, be permitted to assume the
defense of such Litigation, and all reasonable out-of-pocket costs and expenses
incurred by Acquiror in defending such Litigation, and all amounts paid pursuant
to any judgment or settlement relating thereto, shall be paid by the
Stockholders; provided, however, that no such settlement shall be entered into
without the prior consent of the applicable Stockholder, which consent shall not
be unreasonably withheld, and provided further that the applicable Stockholder
may participate in the defense of such Litigation at its own cost and expense.
SECTION 7.21 Post-Effective Time Employee Benefit Plans.
--------------------------------------------------------
(a) As of the Effective Time, each employee who was employed by the
Company or any of its Subsidiaries immediately prior to the Effective Time
("Affected Employees") shall remain an employee of the Company, or as applicable
such Subsidiary, on the same terms and conditions (including salary and wage
rate) as were in effect immediately prior to the Effective Time. The Affected
Employees shall continue participation (without any break in service or full or
partial termination of the relevant plan), on the same terms and conditions as
were in effect immediately prior to the Effective Time, in The Travelers
Savings, Investment and Stock Ownership Plan, the Savings and Investment Plan
for Employees of Metropolitan Life and Participating Affiliates and The
Travelers TESIP Restoration and Nonqualified Savings Plan (each, a "Savings
Plan"), during the period commencing at the Effective Time and ending on
December 31, 1995, or, by mutual consent of Acquiror and the Stockholder
involved, a later date (any such date, which may be different between the
Savings Plans, is referred to herein as the "Transfer Date"). Between the
Effective Time and the Transfer Date, the Company shall continue to make
matching contributions (via reimbursement of the applicable Stockholder or
directly) to the Savings Plans in accordance with the provisions of the Savings
Plans. Notwithstanding the foregoing, nothing herein shall prohibit the Company
or its Subsidiaries from terminating employment of any Affected Employees, with
or without cause.
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<PAGE>
(b) As of the Effective Time, the Affected Employees shall commence
participation, or, as applicable, continue to participate, in (without any
break in service for purposes of eligibility, pre-existing condition, deductible
or co-payment provisions) welfare benefit plans, including, but not limited to,
severance plans, of the Company ("Replacement Welfare Benefit Plans"), which
Replacement Welfare Benefit Plans shall provide for substantially identical
benefits at substantially identical cost and substantially identical terms and
conditions as were in effect immediately prior to the Effective Time, and such
Replacement Welfare Benefit Plans may not be amended or terminated, except as
may be required by Law or to preserve intended tax results, before January 1,
1996. Notwithstanding the foregoing, nothing herein shall prohibit, or be
construed to prohibit, the Company or its Subsidiaries from terminating or
amending the Replacement Welfare Benefit Plans at any time after January 1,
1996. From the Effective Time until January 1, 1996, the Stockholder that
administered the predecessor welfare benefit plan shall administer the
Replacement Welfare Benefit Plan under commercially reasonable terms agreed upon
by the parties; provided, however, that the Company may terminate such
administration at any time. With respect to any insured plan, each Stockholder
shall use its best efforts to cause the Company portion of the insurance
contract to be spun off as of the Effective Time into a separate contract for
the Company's employees with identical benefits and premiums. To the extent the
applicable Stockholder and the Company cannot obtain such a separate contract,
the requirement to provide substantially identical benefits in the first
sentence of this Section 7.21(b) shall not apply, but such Stockholder and the
Company shall exercise their best efforts to obtain a contract that duplicates
such benefits as nearly as practicable. Acquiror shall credit the Affected
Employees with credit for continued service with the Company, its Subsidiaries,
the Stockholders or their Subsidiaries, prior to the Effective Time for all
eligibility and vesting purposes, including for determination of entitlement to
vacation and short-term disability benefits. The Stockholders will cooperate
with the Company to provide service records for such Affected Employees.
(c) Effective as of the applicable Transfer Date, Acquiror shall cause
the Affected Employees who cease at such time to participate in a Savings Plan
which is a qualified plan, to commence participation in a qualified defined
contribution plan of the Company or Acquiror (the "Successor Plan"), and shall
credit under each Successor Plan the Affected Employees with credit for service
with the Company, its Subsidiaries, the Stockholders, or their Subsidiaries
prior to the Transfer Date for all purposes for which such service was
recognized by the applicable Savings Plan, including, without limitation, credit
for eligibility, vesting and the determination of the level of the match under
any Successor Plan. The Stockholders will cooperate with the Company to provide
service records for such Affected Employees.
(d) Prior to the Transfer Date, neither the Company nor Acquiror shall
take any action that may result in (or omit to take any action which would
prevent) the disqualification of, or any adverse tax consequences to, any
Savings Plan. The Company and Acquiror shall at all times cooperate with the
Stockholders in all reasonable respects in connection with the filing or
providing documents and other data necessary for the administration of plans,
including payroll data, with regard to the Travelers Pension Plan for Salaried
Employees (the "Travelers Pension Plan") and the Savings Plans, and in
connection with similar administrative matters, and shall indemnify and hold
harmless the Stockholders with respect to any Losses due to Acquiror's or the
Company's failure to reasonably so
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<PAGE>
cooperate with the Stockholders. No employee communications shall be sent with
respect to the Travelers Pension Plan and the Savings Plan without the approval,
which shall not be unreasonably withheld, by the relevant Stockholder. Each
Stockholder shall have the right, subject to the consent of Acquiror, which
shall not be unreasonably withheld, to communicate with the participants in such
plans with respect to any developments affecting such participants.
(e) Anything in this Agreement to the contrary notwithstanding, no
employee benefits shall be paid or provided by the Stockholders after the
Effective Time, except to the extent explicitly provided for in this Section
7.21 or elsewhere in this Agreement.
(f) Each Stockholder shall indemnify and hold harmless the Company and
Acquiror with respect to any Losses arising under, or with respect to, its
respective Savings Plans or the continued participation of employees of the
Company and its Subsidiaries therein, except as otherwise provided in Section
7.09.
ARTICLE VIII
------------
CLOSING CONDITIONS
------------------
SECTION 8.01 Conditions to Obligations of Each Party Under This
----------------------------------------------------------------
Agreement. The respective obligations of each party to effect the Merger and
- ---------
the other transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, to the extent permitted by
applicable Law:
(a) No Injunction, Action or Proceeding. There shall not have been
-----------------------------------
any injunction or order issued and remaining in effect which restrains, enjoins
or prohibits the consummation of the Merger. There shall not be pending any
action or proceeding by a Governmental Entity before any court of competent
jurisdiction or governmental agency or regulatory or administrative body, and no
order or decree shall have been entered in any such action or proceeding (i)
imposing or seeking to impose limitations on the ability of Acquiror to acquire
or hold or to exercise full rights of ownership of any securities of the Company
or any of its Subsidiaries; (ii) imposing or seeking to impose limitations on
the ability of Acquiror to combine and operate the business and assets of the
Company with any of Acquiror's Subsidiaries or other operations; (iii) imposing
or seeking to impose other sanctions, damages or liabilities arising out of the
Merger on Acquiror, Acquiror Sub or the Company or any of their officers or
directors; (iv) requiring or seeking to require divestiture by the Acquiror of
all or any material portion of the business, assets or property of the Company
or any of its Subsidiaries; or (v) seeking to restrain, enjoin or prohibit the
consummation of the Merger, in each case, with respect to clauses (i) through
(iv) above, which would or is reasonably likely to result in a Company Material
Adverse Effect at or prior to the Effective Time or an Acquiror Material
Adverse Effect at, prior to or after the Effective Time or, with respect to
clauses (i) through (v) above, to subject any of their respective officers or
directors to substantial penalties or criminal liability; provided that prior
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<PAGE>
to invoking this condition, the party seeking to invoke it shall have used its
reasonable efforts to have any such action or proceeding dismissed or such order
or decree vacated.
(b) HSR Act. The applicable waiting period, together with any
-------
extensions thereof, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, shall have expired or been terminated.
(c) Health Benefit Laws. The applicable approvals and any applicable
-------------------
waiting periods under Health Benefit Laws listed on Section 3.05 of the Company
Disclosure Schedule, Section 4.03 of the Stockholder Disclosure Schedule or
Section 5.05 of the Acquiror Disclosure Schedule and which have been identified
thereon by Acquiror on the date of this Agreement as being a condition to
Closing under this Section 8.01(c) shall have been received, waived or
terminated and all notices required by such Laws given, and any such matters
omitted from any such schedule on the date of this Agreement, which the failure
to receive, waive, terminate or give would reasonably be expected to have a
Company Material Adverse Effect prior to or after the Effective Time or an
Acquiror Material Adverse Effect after the Effective Time, shall have been
received, waived, terminated or given.
(d) Registration Agreement. Acquiror, MHH and MetLife shall have
----------------------
entered into a Registration Rights Agreement substantially in the form of
Exhibit 8.01(d) attached hereto (the "Registration Agreement"), and such
- ---------------
agreement shall be in full force and effect.
(e) Other Approvals or Notices. All consents, waivers, approvals and
--------------------------
authorizations required to be obtained, and all filings or notices required to
be made, by Acquiror and the Company or any Subsidiary prior to consummation of
the transactions contemplated in this Agreement with all Governmental Entities
(other than the filing and recordation of merger documents in accordance with
Delaware Law and matters covered by Section 8.01(c)) which are listed on Section
3.05 of the Company Disclosure Schedule, Section 4.03 of the Stockholder
Disclosure Schedule or Section 5.05 of the Acquiror Disclosure Schedule and
which have been identified thereon by Acquiror on the date of this Agreement as
being a condition to Closing under this Section 8.01(e) shall have been obtained
or made, and any such matters omitted from any such schedule on the date of this
Agreement, which the failure to obtain or make would reasonably be expected to
have a Company Material Adverse Effect prior to or after the Effective Time or
an Acquiror Material Adverse Effect after the Effective Time, shall have been
obtained or made.
SECTION 8.02 Additional Conditions to Obligations of Acquiror and
------------------------------------------------------------------
Acquiror Sub. The obligations of Acquiror and Acquiror Sub to effect the Merger
- ------------
and the other transactions contemplated in this Agreement are also subject to
each of the following conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company, and of the Stockholders and MetLife contained in this
Agreement, without giving effect to any update to the Company Disclosure
Schedule or the Stockholder Disclosure Schedule under Section 7.04 shall,
without regard to any qualification by reference to "materiality" or "Company
Material Adverse Effect," be true and correct in all respects as of the
Effective Time, as though made on and as of the Effective Time (provided, that
those
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<PAGE>
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date), except for any inaccuracies
which, individually or in the aggregate, have not had, and would not have, a
material adverse effect on the financial condition, results of operations,
businesses, properties, assets or liabilities of the Company and its
Subsidiaries, taken as a whole; provided, however, that there shall be deemed
not to be such a material adverse effect to the extent that (i) such material
adverse effect is, or in the reasonable judgment of a person similarly situated
to Acquiror can be, compensated through a reduction in Contingent Consideration
in accordance with the terms of Section 2.03 or indemnification in accordance
with the terms of Section 10.02(a) or (ii) they are the result of general
economic conditions or changes generally in applicable Laws that affect the
industries in which the Company operates. Acquiror shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company and an appropriate officer of each Stockholder to that effect.
(b) Agreements and Covenants. The Company, the Stockholders and
------------------------
MetLife shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them on or prior to the Effective Time. Acquiror shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company and from an appropriate officer of each Stockholder to that effect.
(c) Third-Party Consents. The Company shall have obtained (i) each of
--------------------
the consents or approvals listed in Section 3.05 of the Company Disclosure
Schedule or Section 4.03 of the Stockholder Disclosure Schedule (other than with
respect to matters covered by Section 8.01(c) or 8.01(e)) and which have been
identified thereon by Acquiror on the date of this Agreement as being a
condition to Closing under this Section 8.02(c), and (ii) any such consents or
approvals omitted from any such schedule on the date of this Agreement, which
the failure to receive, waive, terminate or give would reasonably be expected to
have a Company Material Adverse Effect prior to or after the Effective Time or
an Acquiror Material Adverse Effect after the Effective Time, shall have been
obtained.
(d) Stockholder Approval. This Agreement shall have been adopted by
--------------------
the requisite vote of the stockholders of the Company.
SECTION 8.03 Additional Conditions to Obligations of the Company.
-----------------------------------------------------------------
The obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement, and the obligation of the Stockholders to vote
to approve the Merger, is also subject to the following conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Acquiror contained in this Agreement, without giving effect to any
update to the Acquiror Disclosure Schedule under Section 7.04 shall, without
regard to any qualification by reference to "materiality" or "Acquiror Material
Adverse Effect," be true and correct in all respects as of the Effective Time,
as though made on and as of the Effective Time (provided that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date), except for any inaccuracies
which, individually or in the aggregate, have not had, and would not have, a
material adverse effect on the financial condition, results of operations,
businesses, properties, assets or liabilities of Acquiror
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<PAGE>
and its Subsidiaries, taken as a whole; provided, however, that there shall be
deemed not to be such a material adverse effect to the extent that (i) such
material adverse effect is, or in the reasonable judgment of a person similarly
situated to the Company can be, compensated through indemnification in
accordance with the terms of Section 10.03(a) or (ii) they are the result of
general economic conditions or changes generally in applicable Laws that affect
the industries in which Acquiror operates. The Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Acquiror to that effect.
(b) Agreements and Covenants. Acquiror shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have received a certificate of the Chief
Executive Officer or Chief Financial Officer of Acquiror to that effect.
(c) Certificate of Designations. Acquiror shall have duly adopted,
---------------------------
executed and filed the Certificate of Designations with the Minnesota Secretary
of State, and the Certificate of Designations shall be in full force and effect
as of the Closing under the laws of the State of Minnesota and shall not have
been amended or modified.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 9.01 Termination. This Agreement may be terminated at any
-------------------------
time prior to the Effective Time, whether before or after approval of this
Agreement and the Merger by the stockholders of the Company:
(a) by mutual consent of Acquiror, the Company and the Stockholders;
(b) (i) by Acquiror, if there has been a breach by the Company or
either Stockholder of any of its covenants or agreements contained in this
Agreement or if any of the representations and warranties of the Company or the
Stockholders shall have become untrue, in any such case such that Section
8.02(a) or Section 8.02(b) will not be satisfied, and, if capable of being
cured, such breach or condition has not been cured within 30 days following
receipt by the Company or such Stockholder of written notice of such breach; or
(ii) by the Company, if there has been a breach by Acquiror of
any of its covenants or agreements contained in this Agreement or if any of the
representations and warranties of Acquiror shall have become untrue, in any such
case such that Section 8.03(a) or Section 8.03(b) will not be satisfied, and, if
capable of being cured, such breach or condition has not been cured within 30
days following receipt by Acquiror of written notice of such breach;
(c) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting consummation
of the Merger shall have become final and nonappealable; or
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<PAGE>
(d) by either Acquiror or the Company if the Merger shall not have
been consummated before December 31, 1995 (although the parties agree to use
their best efforts to consummate the Merger as soon as practicable after the
date of this Agreement); provided, however, that this Agreement shall be
extended not more than 90 days thereafter if (i) the Merger shall not have been
consummated as a result of the failure (A) to receive all regulatory approvals
or consents required to be obtained with respect to the Merger, or (B) to
resolve all actions or proceedings of a type described in Section 8.01(a) or the
last sentence of Section 3.09(a), and (ii) the parties are diligently pursuing
such approvals and consents and there is a reasonable likelihood that such
approvals and consents will be obtained.
SECTION 9.02 Effect of Termination. Except as provided below and
-----------------------------------
subject to the remedies of the parties set forth in Sections 9.03(c) and (d), in
the event of the termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of Acquiror, Acquiror Sub or the Company or any of their
respective officers or directors and all rights and obligations of each party
hereto shall cease. Notwithstanding the foregoing, the agreements set forth in
Sections 6.05(c), 9.02 and 9.03 and Article XII shall survive termination of
this Agreement.
SECTION 9.03 Fees and Expenses.
-------------------------------
(a) Except as provided in Sections 9.03(c) and (d), all Expenses
incurred by the parties shall be borne solely and entirely by the party which
has incurred the same; provided that the amount of legal expenses paid by the
Company and its Subsidiaries shall be limited to $500,000, and any excess over
such amount shall be paid by the Stockholders.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and all other matters related to the closing of
the transactions contemplated by this Agreement.
(c) The Company agrees that (i) if Acquiror shall terminate this
Agreement pursuant to Section 9.01(b) by reason of a breach of Sections 6.02(g),
6.03(b) or 6.03(e), or (ii) if the Company determines not to consummate the
Merger for any reason not permitted under this Agreement, then on the Payment
Date (as defined below), TIG and MetLife shall pay to Acquiror an aggregate
amount equal to $100,000,000 (which amount shall be paid 50% by TIG and 50% by
MetLife). For purposes of this Section 9.03(c), the "Payment Date" is the date
10 days following the earliest of the following to occur: (1) the closing of any
transaction resulting from a Competing Transaction, (2) the date as of which the
Company publicly announces that the Competing Transaction giving rise to
Acquiror's termination of this Agreement will not proceed, (3) the date the
Company determines not to consummate the Merger under clause (ii) above and (4)
the date twelve months following a termination of this Agreement by Acquiror
giving rise to payment under this Section 9.03(c).
(d) The Company, the Stockholders, MetLife and Acquiror each agree
that (i) the payment provided for in Section 9.03(c) shall be the sole and
exclusive remedy of
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<PAGE>
Acquiror upon any termination of this Agreement as described in Section 9.03(c)
(i) and such remedies shall be limited to the sum stipulated in Section 9.03(c)
regardless of the circumstances (including willful or deliberate conduct) giving
rise to such termination, and (ii) with respect to any termination of this
Agreement pursuant to Section 9.01(b) as a direct result of a material,
intentional breach by a party of any of its representations, warranties,
covenants or agreements contained in this Agreement (other than due to a breach
of Sections 6.02(g), 6.03(b) or 6.03(e)), all remedies available to the other
party either in law or equity shall be preserved and survive the termination of
this Agreement.
(e) Any payment required to be made pursuant to Section 9.03(c) shall
be made to Acquiror not later than two business days after delivery to the
Company of notice of demand for payment, and shall be made by wire transfer of
immediately available funds to an account designated by Acquiror in the notice
of demand for payment delivered pursuant to this Section 9.03(e).
(f) Subject to Sections 9.03(c) and (d) above, if all conditions to
the obligations of a party at Closing contained in Article VIII of this
Agreement have been satisfied (or waived by the party entitled to waive such
conditions), and the first party does not proceed with the Closing, all remedies
available to the other party, either at law or in equity, on account of such
failure to close, including, without limitation, the right to pursue a claim for
damages on account of a breach of this Agreement, shall be preserved and shall
survive any termination of this Agreement.
ARTICLE X
INDEMNIFICATION
---------------
As used in this Article X, the term "Stockholder" shall mean (a) TIG
and TIC on one hand and (b) MetLife and MHH on the other.
SECTION 10.01 Survival of Representations and Warranties.
---------------------------------------------------------
Notwithstanding any investigation made by or on behalf of any of the parties
hereto or the results of any such investigation and notwithstanding the
participation of such party in the Closing, the representations and warranties
contained in Articles III, IV and V hereof shall survive the Closing.
SECTION 10.02 Indemnification by the Stockholders.
--------------------------------------------------
(a) Subject to the limitations set forth in Section 10.02(b) below,
the Stockholders severally agree to indemnify Acquiror and its officers,
directors, employees and agents (collectively, the "Acquiror Indemnified
Parties") and hold them harmless against any loss, liability, Tax (including
interest and penalties), damage or expense (including reasonable legal expenses
and costs) or any assertion thereof, net of any Tax benefit to the person being
indemnified (determined at the maximum statutory federal corporate income tax
rate in effect at the time of determination) to the extent any indemnification
payment hereunder is not taxable to the applicable indemnified party ("Losses")
which any Acquiror Indemnified Party may suffer, sustain or become subject to as
a result of (i) any representation or warranty by
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the Company or the Stockholders in, or in connection with, this Agreement, that
is not true and correct as of the date made, (ii) any breach of any covenant or
agreement of the Company or the Stockholders contained in this Agreement or any
other agreement entered into by any such party in connection with this
Agreement, (iii) any amounts not paid by the Stockholders, or for which the
Stockholders are obligated to indemnify, in accordance with (including any Tax
arising from payments or reimbursements by the Stockholders made on an after-Tax
basis under) Sections 7.08, 7.09, 7.14, 7.16, 7.20 and 7.21, respectively, due
and payable (including, without limitation, any amounts paid by Acquiror and its
Subsidiaries after the Closing or by the Company and its Subsidiaries prior to
the Closing), (iv) any amounts for which a Stockholder is obligated to indemnify
under Section 7.06, and (v) without regard to limitations set forth in Section
10.02(b)(ii), any Tax attributable to the disallowance of any Tax benefit
(determined at the same rate as used in determining such Tax benefit) taken into
account when computing the amount of any indemnification payment hereunder.
(b) The Stockholders shall be liable to the Acquiror Indemnified
Parties for any Losses described in Section 10.02(a)(i) or (ii): (i) only if
Acquiror or another Acquiror Indemnified Party delivers to the Stockholders
written notice, setting forth in reasonable detail the identity, nature and
amount of Acquiror Losses related to such claim or claims prior to expiration of
Acquiror's right to indemnity under Section 10.05; and (ii) once, and not until,
the aggregate amount of all such Acquiror Losses exceeds $20,000,000, the
Stockholders shall be obligated to indemnify the Acquiror Indemnified Parties
for the full aggregate amount of all such Acquiror Losses in excess of
$20,000,000; provided that (x) once the aggregate amount of Acquiror Losses
exceeds $20,000,000, Acquiror shall refrain from asserting any claim for
indemnity hereunder until the aggregate of all individual claims asserted
exceeds $1,000,000, at which time Acquiror may bring all of its indemnity claims
hereunder (provided that Acquiror may bring any claim or claims which are less
than $1,000,000 in the aggregate if necessary to avoid the loss of any such
claim due to expiration of its indemnification rights hereunder) and (y)
Acquiror shall not be entitled to indemnity under Sections 10.02(a)(i) or (ii)
to the extent the amount of Acquiror Loss is recovered by Acquiror through the
adjustments to the Contingent Consideration under Section 2.03 or by
indemnification payments under Sections 10.02(a)(iii), 10,02(a)(iv) and
10.02(a)(v). Acquiror Losses described in Sections 10.02(a)(iii), 10.02(a)(iv)
and 10.02(a)(v) shall not be subject to the limitations of Sections 10.02(b)(i)
and (ii), or counted for purposes of the limitations set forth in Section
10.02(b)(ii). Notwithstanding the foregoing, the aggregate liability of the
Stockholders for indemnity under this Article X shall not exceed $800,000,000.
The indemnification obligations of the Stockholders under this Article X shall
be several such that:
(x) amounts payable for indemnification claims made under any
circumstances other than those described in clause (y) below shall be paid 50%
by TIG and 50% by MetLife; and
(y) amounts payable for indemnification claims made under (1) Section
10.02(a)(i) for breach of the representations and warranties set forth in
Article IV and (2) Section 10.02(a)(ii) for breach of any covenants of a
Stockholder, shall be paid 100% by TIG if TIG or TIC was the breaching party or
100% by MetLife if MetLife or MHH was the breaching party.
SECTION 10.03 Indemnification by Acquiror.
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(a) Subject to the limitations of Section 10.03(b), Acquiror agrees to
indemnify in full the Stockholders, and their officers, directors, employees,
and agents (collectively, the "Stockholder Indemnified Parties") and hold them
harmless against any Losses which any Stockholder Indemnified Party may suffer,
sustain or become subject to as a result of (i) any representation or warranty
by the Acquiror or the Acquiror Sub in, or in connection with, this Agreement,
that is not true and correct as of the date made, and (ii) any breach of any
covenant or agreement of Acquiror or the Acquiror Sub contained in this
Agreement or any other agreement entered into by any such party in connection
with this Agreement.
(b) Acquiror shall be liable to the Stockholder Indemnified Parties
for any Stockholder Losses described in Sections 10.03(a)(i) or (ii): (i) only
to the extent of the Stockholder Losses for which Stockholder or another
Stockholder Indemnified Party delivers to Acquiror written notice, setting forth
in reasonable detail the identity, nature and amount of Stockholder Losses
related to such claim or claims prior to expiration of Stockholder's right to
indemnity under Section 10.05; and (ii) only if the aggregate amount of all such
Stockholder Losses exceeds $20,000,000, in which case Acquiror shall be
obligated to indemnify the Stockholder Indemnified Parties for the full
aggregate amount of all such Stockholder Losses in excess of $20,000,000.
SECTION 10.04 Method of Asserting Claims. As used in this Section
-----------------------------------------
10.04, an "Indemnified Party" shall refer to an "Acquiror Indemnified Party" or
"Stockholder Indemnified Party," as applicable, the "Notifying Party" shall
refer to the party hereto whose Indemnified Parties are entitled to
indemnification hereunder, and the "Indemnifying Party" shall refer to the party
hereto obligated to indemnify such Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or administrative,
instituted by any third party for the liability or the costs or expenses of
which are Losses (any such third party action or proceeding being referred to as
a "Claim"), the Notifying Party shall give the Indemnifying Party prompt notice
thereof. Defense of any Claim relating to Taxes shall be governed by Section
10.07. Defense of all other Claims shall be governed by this Section 10.04. The
failure to give such notice shall not affect any Indemnified Party's ability to
seek reimbursement unless such failure has materially and adversely affected the
Indemnifying Party's ability to defend successfully a Claim. The Indemnifying
Party shall be entitled to contest and defend such Claim; provided that the
-------------
Indemnifying Party (i) has a reasonable basis for concluding that such defense
may be successful and (ii) diligently contests and defends such Claim. Notice of
the intention so to contest and defend shall be given by the Indemnifying Party
to the Notifying Party within 20 business days after the Notifying Party's
notice of such Claim (but, in all events, at least five business days prior to
the date that an answer to such Claim is due to be filed). Such contest and
defense shall be conducted by reputable attorneys employed by the Indemnifying
Party. The Notifying Party shall be entitled at any time, at its own cost and
expense (which expense shall not constitute a Loss unless the Notifying Party
reasonably determines that the Indemnifying Party is not adequately representing
or, because of a conflict of interest, may not adequately represent, any
interests of the Indemnified Parties, and only to the extent that such expenses
are reasonable), to participate in such contest and defense and to be
represented by attorneys of its or their own choosing. If the Notifying
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Party elects to participate in such defense, the Notifying Party will cooperate
with the Indemnifying Party in the conduct of such defense. Neither the
Notifying Party nor the Indemnifying Party may concede, settle or compromise any
Claim without the consent of the other party, which consents will not be
unreasonably withheld. Notwithstanding the foregoing, (i) if a Claim seeks
equitable relief or (ii) if the subject matter of a Claim relates to the ongoing
business of any of the Indemnified Parties, which Claim, if decided against any
of the Indemnified Parties, would materially adversely affect the ongoing
business or reputation of any of the Indemnified Parties, then, in each such
case, the Indemnified Parties alone shall be entitled to contest, defend and
settle such Claim in the first instance and, if the Indemnified Parties do not
contest, defend or settle such Claim, the Indemnifying Party shall then have the
right to contest and defend (but not settle) such Claim.
(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party that does not involve a Claim, the Notifying Party shall
deliver a notice of such claim with reasonable promptness to the Indemnifying
Party. If the Indemnifying Party notifies the Notifying Party that it does not
dispute the claim described in such notice or fails to notify the Notifying
Party within 30 days after delivery of such notice by the Notifying Party
whether the Indemnifying Party disputes the claim described in such notice, the
Loss in the amount specified in the Notifying Party's notice will be
conclusively deemed a liability of the Indemnifying Party and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand,
subject to the provisions of Sections 10.02(b)(ii) and 10.03(b)(ii) (if
applicable to such Loss). If the Indemnifying Party has timely disputed its
Liability with respect to such claim, the Chief Executive Officers or other
representatives of each of the Indemnifying Party and the Notifying Party will
proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through the negotiations of such persons within 60 days after the
delivery of the Notifying Party's notice of such claim, such dispute shall be
resolved fully and finally pursuant to an arbitration proceeding in accordance
with Section 12.01 below. The arbitrator(s) shall resolve the dispute within 30
days after selection, and judgment upon the award rendered by such arbitrator(s)
may be entered in any court of competent jurisdiction.
(c) After the Closing, the rights set forth in this Article X shall be
each party's sole and exclusive remedies against the other party hereto for
misrepresentations or breaches of covenants contained in this Agreement and the
other agreements entered into in connection with this Agreement. Notwithstanding
the foregoing, nothing herein shall prevent any of the Indemnified Parties from
bringing an action based upon allegations of fraud or other intentional breach
of an obligation of or with respect to any party in connection with this
Agreement and such other agreements. In the event such action is brought, the
prevailing party's attorneys' fees and costs shall be paid by the nonprevailing
party.
SECTION 10.05 Expiration of Indemnities.
----------------------------------------
(a) The indemnification obligations of the Stockholders set forth in
Section 10.02(a)(ii) for covenants and agreements required to be performed, in
whole or in part, after the Closing, and in Sections 10.02(a)(iii) and
10.02(a)(iv) shall not expire. The remaining indemnification obligations of the
Stockholders set forth in Sections 10.02(a)(i), 10.02(a)(ii) and 10.02(a)(v)
shall expire upon the last to occur of:
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(i) (A) with respect to claims under Sections 3.12 and 10.02(a)(v),
six months after the expiration of the statute of limitations period for the
applicable Tax and (B) with respect to claims under Sections 10.02(a)(i) (other
than for breach of any representation and warranty set forth in Section 3.12)
and 10.02(a)(ii) (for covenants and agreements required to be fully performed at
or prior to the Closing) on April 30, 1998; and
(ii) the full and complete discharge, settlement, arbitration or
adjudication of all such claims made under such sections before the applicable
period specified in clause (i) above, and payment in full of all amounts for
which liability has been established or agreed upon with respect thereto.
(b) The indemnification obligations of Acquiror set forth in Section
10.03(a)(ii) for covenants and agreements required to be performed, in whole or
in part, after the Closing, shall not expire. The remaining indemnification
obligations of Acquiror set forth in Sections 10.03(a)(i) and 10.03(a)(ii) shall
expire upon the last to occur of:
(i) April 30, 1998; and
(ii) the full and complete discharge, settlement, arbitration or
adjudication of all such claims made under such sections before the applicable
period specified in clause (i) above, and payment in full of all amounts for
which liability has been established or agreed upon with respect thereto.
SECTION 10.06 Indemnification Claims; Interest. Interest on any
-----------------------------------------------
claim for indemnification pursuant to this Article X shall accrue at a rate
equal to the three-month LIBOR rate, as in effect at the Effective Time, from
the date the Loss which gave rise to such claim arose until the claim is
satisfied by payment.
SECTION 10.07 Tax Claims; Certain Contest Rights.
-------------------------------------------------
(a) Within ten business days after receipt by Acquiror, Acquiror Sub
or the Company of a written notice of any demand, claim or circumstance which,
after the lapse of time, would or might give rise to a claim or the commencement
(or threatened commencement) of any action, proceeding or investigation relating
to Taxes with respect to which indemnity may be sought under Section 10.02 (an
"Asserted Tax Liability"), Acquiror shall give written notice thereof to the
Stockholders (the "Tax Claim Notice"), and payment to Acquiror of amounts due
pursuant to the Stockholders' indemnification obligation shall be made in
accordance with this Article X. In the event that any of the Stockholders elect
pursuant to Section 10.07(b) hereof to contest or compromise an Asserted Tax
Liability, except as otherwise provided herein, the Stockholders' Tax
indemnification obligation under this Article X shall be deferred until such
time as there is a final determination with respect to the Asserted Tax
Liability. A Tax Claim Notice shall contain factual information (to the extent
reasonably available to Acquiror, Acquiror Sub or the Company) generally
describing the Asserted Tax Liability in question and shall include copies of
any notice or other document received from any taxing authority in respect of
such Asserted Tax Liability. Failure by Acquiror, Acquiror Sub or the Company
to give the Stockholders prompt notice of an Asserted Tax Liability shall not
reduce or otherwise discharge the Stockholders' obligations pursuant to this
Article X; provided that to the extent that the Stockholders are damaged by
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such failure, then any amount which the Stockholders would otherwise be required
to pay pursuant to this Article X with respect to such Asserted Tax Liability
shall be reduced by the amount which is solely and directly attributable to such
failure to give prompt notice.
(b) The Stockholders may elect to direct at their own expense, a
compromise or contest, either administratively or in the courts, of any Asserted
Tax Liability; provided that the Stockholders have acknowledged in writing their
obligation to indemnify Acquiror with respect to such Asserted Tax Liability;
and provided further that Acquiror, in its sole and absolute discretion, may
notify the Stockholders at any time that any such compromise or contest must be
immediately terminated, in which case the Stockholders' obligation to make
indemnity payments pursuant to this Article X with respect to such Asserted Tax
Liability (or any liability substantially related to such Asserted Tax Liability
(by virtue of common factual or legal issues underlying such liability)) shall
thereupon terminate. If, in accordance with the foregoing, the Stockholders
elect to direct the compromise or contest of any Asserted Tax Liability, they
shall within 30 calendar days after receiving the Tax Claim Notice with respect
to such Asserted Tax Liability (or sooner, if the nature of the Asserted Tax
Liability so requires) notify Acquiror of their intent to do so, and Acquiror
shall cooperate and shall cause the Company to cooperate, at the Stockholders'
sole expense (subject to Section 10.07(d)), in the compromise or contest of such
Asserted Tax Liability. Notwithstanding any attempt to compromise or contest
any Asserted Tax Liability, Acquiror and the Company may reasonably determine
not to release or disclose to the Stockholders any information relating to
matters which arose after the Closing Date which either of them determines is of
a confidential nature and which, in the best interests of Acquiror or the
Company should not be disclosed to the Stockholders unless the Stockholders,
their advisors and agents agree in writing to protect the confidential nature of
such information and to use or disclose such information solely to the extent
necessary to contest an Asserted Tax Liability.
(c) The Stockholders may enter into a settlement agreement with
respect to, or otherwise resolve, any Asserted Tax Liability but only with prior
written consent of Acquiror, which consent may not be unreasonably withheld. In
the event that Acquiror reasonably determines in accordance with the immediately
preceding sentence not to consent to any settlement agreement or resolution of
any Asserted Tax Liability, then Acquiror, at its own expense, shall be
obligated to attempt to compromise or contest, in its sole and absolute
discretion, such Asserted Tax Liability. In such event the Stockholders'
obligation to make indemnity payments pursuant to this Article X with respect to
such Asserted Tax Liability shall be limited to the amount which would have been
payable by the Stockholders pursuant to this Article X if the settlement
agreement or resolution with respect to the Asserted Tax Liability which had
been agreed to by the Stockholders had also been consented to by Acquiror and
shall be deferred until such time that Acquiror, in its sole and absolute
discretion, decides no longer to proceed with any attempt to compromise or
contest such Asserted Tax Liability. If, in accordance with the provisions of
this Section 10.07, the Stockholders (i) do not attempt to contest the Asserted
Tax Liability, or (ii) contest their obligation to indemnify under this Article
X, Acquiror or the Company may pay, compromise or contest, in their sole and
absolute discretion, such Asserted Tax Liability without obtaining any approval
or consent from, or on behalf of, the Stockholders and without obtaining a final
determination of such Asserted Tax Liability (to the extent that Acquiror is
damaged thereby). If the Stockholders fail to notify Acquiror of their election
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pursuant to Section 10.07(b) to compromise or contest an Asserted Tax Liability,
the Stockholders shall indemnify Acquiror and the Company to the extent that
Acquiror or the Company is damaged thereby.
(d) In the event that, in accordance with the provisions of this
Section 10.07, the Stockholders are attempting to compromise or contest any
Asserted Tax Liability, Acquiror or the Company, as the case may be, may
participate, at their own expense, in all proceedings, either administratively
or in the courts. In such event Acquiror shall promptly empower and shall cause
the Company promptly to empower (by power of attorney or such other
documentation as may be appropriate, limited to the Asserted Tax Liability) such
representative of the Stockholders as the Stockholders may designate as a co-
representative of Acquiror or the Company in any audit, claim for refund or
administrative or judicial proceeding, but only insofar as such audit, claim for
refund or proceeding involves an Asserted Tax Liability for which the
Stockholders would be liable under this Article X. For all purposes of this
Section 10.07, the right to participate in all proceedings either
administratively or in the courts relating to an Asserted Tax Liability shall
include the right to attend and be kept fully informed of all of the foregoing
but shall not include, unless expressly provided for herein, the power to
compromise, contest or make any other decisions with respect to an Asserted Tax
Liability.
(e) For all purposes of this Section 10.07, a final determination
means a decision by the appropriate administrative officer empowered to review
and consider a compromise or contest of any Asserted Tax Liability, except that
in the case of any Asserted Tax Liability relating to federal Taxes, a final
determination means a final decision by the United States Tax Court, the
appropriate United States District Court or the United States Claims Court,
whichever the parties choose, with a right of appeal and except that in the case
of any Asserted Tax Liability relating to state income taxes, a final
determination means a final decision by the highest court of that state to which
a contest or protest of such Asserted Tax Liability may be taken. In the event
of a final determination, Acquiror or the Company in their sole and absolute
discretion, may terminate any compromise or contest relating to any Asserted Tax
Liability and in that event Acquiror shall receive all payments required to be
made pursuant to this Article X.
SECTION 10.08 No Right of Offset. Neither Acquiror nor the
---------------------------------
Stockholders shall be entitled to offset the amount of any claim for
indemnification against any other party to this Agreement pursuant to this
Article X, against any amount owing to any such other party.
SECTION 10.09 Exclusive Remedy. The parties agree that the
-------------------------------
indemnities provided for in this Agreement shall be the exclusive remedy of the
parties for any breach of this Agreement, other than in the case of fraud and
other than under Articles I and II of this Agreement.
ARTICLE XI
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DEFINITIONS
-----------
SECTION 11.01 Defined Terms.
----------------------------
(a) When each of the following terms is used in this Agreement it
shall have the meaning stated below:
"Acquiror Change of Control" means (i) any sale or transfer of all or
substantially all of the assets of Acquiror and its Subsidiaries on a
consolidated basis, (ii) any sale of stock, merger, consolidation, share
exchange, business combination, or other similar transaction which results in
persons other than the holders of Acquiror Common Stock immediately prior to any
such transaction holding a number of shares of Acquiror Common Stock possessing
the power, under ordinary circumstances, to elect a majority of the board of
directors of Acquiror or the surviving entity following any such transaction.
"Acquiror Common Stock" means the common stock, par value $.01 per
share, of Acquiror.
"Acquiror Material Adverse Effect" means a material adverse effect on
the financial condition, results of operations, business, properties, assets or
liabilities of Acquiror and its Subsidiaries, taken as a whole.
"Acquiror Preferred Stock" means the 5.75% Series A Convertible
Preferred Stock, par value $.001 per share, of the Acquiror having the rights
and preferences set forth in the Certificate of Designations.
"Acquisition" means (i) the acquisition, by purchase of stock, merger
or otherwise, of the equity interests of any person and (ii) the acquisition of
any business as a going concern by means of an acquisition of all or
substantially all of the assets of any person or business, in each case if the
transaction is accounted for either as a purchase or pooling under GAAP.
"affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; provided that the Company shall not be deemed
to be an affiliate of TIC, TIG, MetLife or MHH.
"Affiliate Contracts" means each of the contracts and agreements
required to be disclosed in Section 3.10(a)(iii).
"business day" shall mean any day on which the NYSE is open for
trading.
"Certificate of Designations" means the Certificate of Designations in
the form attached to this Agreement as Exhibit 11.01.
-------------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
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"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Company Common Stock" means the Common Stock, par value $.001 per
share, of the Company.
"Company Material Adverse Effect" means a material adverse effect on
the financial condition, results of operations, businesses, properties, assets
or liabilities of the Company and its Subsidiaries, taken as a whole.
"Contract" means any written contract, agreement, arrangement or
understanding or any oral contract or agreement.
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
"Delaware Law" means the General Corporation Law of the State of
Delaware.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliates" shall mean any trade or business (whether or not
incorporated) that is part of the same controlled group, or under common control
with, or part of an affiliated service group that includes, the Company within
the meaning of Section 414(b), (c), (m) or (o) of the Code; provided, however,
that none of the Stockholders or any of their respective affiliates shall be
deemed an ERISA Affiliate of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"GAAP" means U.S. generally accepted accounting principles, as in
effect from time to time.
"Governmental Entity" means any governmental or regulatory authority,
domestic or foreign.
"Health Benefit Law" means all Laws related to the licensure,
certification, qualification or authority to transact business relating to the
provision of and/or payment for health benefits, including, but not limited to,
ERISA, COBRA and laws relating to the regulation of health maintenance
organizations, workers compensation, managed care organizations, insurance,
preferred provider organizations, point-of-service plans, certificates of need,
third party administrators, utilization review, coordination of benefits,
hospital reimbursement, Medicare and Medicaid participation, fraud and abuse and
patient referrals.
"Health Care Benefits Business" means the group health insurance,
managed care and HMO businesses, related administrative services and health care
consulting businesses and other businesses conducted by the Company and its
Subsidiaries, including, but not
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limited to, their respective workers compensation provider networks and other
provider networks. "Health Care Benefits Business" shall also include any of the
foregoing (i) conducted by the Stockholders and their Subsidiaries under
contractual arrangements with the Company and its Subsidiaries or otherwise for
the benefit of the Company and its Subsidiaries or (ii) contributed to the
Company and its Subsidiaries under the Master Agreement and related Affiliate
Contracts.
"HMO" means a health maintenance organization organized or qualified
as such under applicable Law.
"IRS" means the Internal Revenue Service.
"knowledge" of a party means the actual knowledge of the senior
officers of that party, as such knowledge has been obtained in the normal
conduct of the business and also includes such knowledge as a reasonably prudent
senior officer would have obtained upon the exercise of reasonable diligence
under the same or similar circumstances; "known" shall have a correlative
meaning. Any reference in this Agreement to the knowledge of the Company shall
also include the knowledge of the senior officers of the Stockholders.
"Law" means any federal, state, local or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree.
"Master Agreement" means the Master Agreement dated as of September 1,
1994 between TIC and MetLife.
"Medicare" means the applicable provisions of Title XVIII of the
Social Security Act and the regulations promulgated thereunder.
"Medicaid" means the applicable provisions of Title XIX of the Social
Security Act and the regulations promulgated thereunder and the state laws and
regulations implementing the Medicaid program.
"MHH" means MetLife HealthCare Holdings, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"ordinary course," when used in connection with the Company's
business, shall mean the normal course of the Company's business as conducted
since January 1, 1995, taking into account that the Company is a newly-formed
entity with an evolving business plan (which includes combining and
rationalizing the Health Care Benefits Business contributed by the Stockholders
under the Master Agreement) and shall not take into account the conduct of the
businesses contributed to the Company prior to January 1, 1995.
"person" means an individual, corporation, partnership, association,
limited liability company, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act).
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"Returns" shall mean any and all returns, reports, information returns
and information statements with respect to Taxes required to be filed with the
IRS or any other Governmental Entity or tax authority or agency, whether
domestic or foreign, including, without limitation, consolidated, combined and
unitary tax returns.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Subsidiary" with respect to any person shall mean any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such person (either alone or through or together with any other
Subsidiary), owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
"Tax" or "Taxes" means any and all taxes, charges, fees, levies, and
other governmental assessments and impositions of any kind, payable to any
federal, state, local or foreign governmental entity or taxing authority or
agency, including, without limitation,
(i) income, franchise, net worth, profits, gross receipts, minimum,
alternative minimum, estimated, ad valorem, value added, sales, use, service,
real or personal property, capital stock, license, payroll, withholding,
disability, employment, social security, Medicare, workers compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes,
(ii) customs duties, imposts, charges, levies or other similar
assessments of any kind, and
(iii) interest, penalties and additions to tax imposed with respect
thereto.
"TIC" means The Travelers Insurance Company.
"TIG" means The Travelers Insurance Group, Inc.
(b) When each of the following terms is used in this Agreement, it
shall have the meaning stated in the Section indicated below:
Acquiror PREAMBLE
Acquiror Disclosure Schedule ARTICLE V PREAMBLE
Acquiror Indemnified Parties SECTION 10.02(a)
Acquiror Permits SECTION 5.09
Acquiror Reports SECTION 5.06(a)
Acquiror SEC Reports SECTION 5.06(a)
Acquiror Sub PREAMBLE
Acquiror Sub Common Stock SECTION 2.01(c)
Affected Employees SECTION 7.21(a)
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Agreement PREAMBLE
Alternative Securities SECTION 2.03(c)
April 30 Statements SECTION 3.07(b)
Asserted Tax Liability SECTION 10.07(a)
Assumed Stock Option SECTION 2.07(c)
Average Stock Price SECTION 2.04
Cash Consideration SECTION 2.01(a)
CERCLA SECTION 3.19(e)
Certificate of Merger SECTION 1.02
Certificates SECTION 2.02(a)
Claim SECTION 10.04(a)
Claims Accrual Adjustment SECTION 2.03(b)
Closing SECTION 1.07
Closing Date SECTION 2.02(a)
Company PREAMBLE
Company Disclosure Schedule ARTICLE III PREAMBLE
Company Earnings SECTION 2.03
Company Financial Statements SECTION 3.07(b)
Company Investments SECTION 3.07(h)
Company Marks SECTION 3.15
Company Permits SECTION 3.06
Company Reports SECTION 3.07(a)
Company Software SECTION 7.16
Company Stock Plan SECTION 2.07(b)
Competing Transaction SECTION 6.02(g)
Constituent Corporations SECTION 1.01
Contingent Consideration SECTION 2.01(a)
Contingent Payment Right SECTION 2.01(a)
D & O Claim SECTION 7.06(b)
Dissenting Shares SECTION 2.08
Earnings Per Share SECTION 2.05(e)
Earn-Out Default SECTION 2.05(i)
Earn-Out SECTION 2.05(a)
Earn-Out Payment Date SECTION 2.05(a)
Earn-Out Statement SECTION 2.05(a)
Earn-Out Year SECTION 2.05(b)
Effective Time SECTION 1.02
Employee Benefit Plans SECTION 3.11(b)
Entrusted Funds SECTION 3.13
Exchange Ratio SECTION 2.01(a)
Expenses SECTION 9.03(b)
Final Statements SECTION 3.07(b)
Hazardous Substance SECTION 3.19(g)
Health Care Products SECTION 7.11(a)
HealthSpring Merger SECTION 2.07(a)
HealthSpring Stockholders SECTION 7.17
Indemnified Parties SECTION 10.04
Indemnifying Party SECTION 10.04
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Indemnitees SECTION 7.06(a)
Initial Company Earnings
Statement SECTION 2.03(a)
Insurance Policies SECTION 3.17
Investment SECTION 3.07(h)
Leased Premises SECTION 7.14(b)
Liaison Committee SECTION 7.19(c)
Litigation SECTION 7.20
Losses SECTION 10.02(a)
Marks and Rights SECTION 3.15
Medical Waste Laws SECTION 3.19(i)
Merger PREAMBLE
Merger Consideration SECTION 2.01(a)
MetLife PREAMBLE
MetLife Business SECTION 3.07(b)
MetLife Statements SECTION 3.07(b)
MetraHealth Business SECTION 3.07(b)
Notifying Party SECTION 10.04
Opening Balance Sheet SECTION 3.07(b)
Operating Software SECTION 7.16(a)
Payment Date SECTION 9.03(c)
Pension Plan SECTION 3.11(d)
Petitioner SECTION 12.01(b)
Preferred Conversion Price SECTION 2.04
qualified stock options SECTION 2.07(b)
Quarterly Statements SECTION 3.07(b)
Real Property SECTION 3.19(a)
Registration Agreement SECTION 8.01(d)
Release SECTION 3.19(g)
Replacement Welfare Benefit
Plan SECTION 7.21(b)
Respondent SECTION 12.01(b)
Restricted Company Shares SECTION 2.07(a)
SAP SECTION 3.07(c)
SAP Statements SECTION 3.07(c)
Savings Plan SECTION 7.21(a)
Second Company Earnings
Statements SECTION 2.03(b)
Selection Criteria SECTION 7.11(b)
Severance Costs SECTION 7.14(a)
Significant Agents SECTION 3.14(a)
Stockholder Disclosure
Schedule ARTICLE IV PREAMBLE
Stockholder Indemnified
Parties SECTION 10.03(a)
Stockholders PREAMBLE
Straddle Period Returns SECTION 7.15(c)
Successor Plan SECTION 7.21(c)
Surviving Corporation SECTION 1.01
Tax Claim Notice SECTION 10.07(a)
Transfer Date SECTION 7.21(a)
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<PAGE>
Travelers Business SECTION 3.07(b)
Travelers Pension Plan SECTION 7.21(d)
Travelers Statements SECTION 3.07(b)
WARN SECTION 3.11(i)
Welfare Plan SECTION 3.11(d)
ARTICLE XII
GENERAL PROVISIONS
------------------
SECTION 12.01 Arbitration.
--------------------------
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or the agreements contemplated by this Agreement, the breach
hereof or thereof, or coverage of this arbitration provision which is not
settled by Acquiror and the Company or the Stockholders, other than disputes,
controversies or claims involving third party claims which have not been
settled, resolved or otherwise disposed of, shall be resolved by arbitration
conducted in accordance with this Section 12.01. In such cases the disputing
parties will submit their differences to a panel of three arbiters: one to be
selected by each disputing party and the third to be selected by the arbiters
named by the disputing parties. In the event of disagreement among the
arbiters, the decision will rest with the majority. The arbiters will make
their award with a view to effecting the intent of the parties; provided that
the arbiters shall have no authority to award punitive or exemplary damages or
to vary or ignore (but may interpret or construe) the terms of this Agreement or
the other agreements contemplated by this Agreement, and the arbiters shall be
bound by controlling laws and legal precedent. Each arbiter shall be a present
or former officer of a corporation engaged in a business similar to the Health
Care Benefits Business, but not of any party or their affiliates, or other
person experienced in the Health Care Benefits Business.
(b) Arbitration may be initiated by Acquiror or by the Company or the
Stockholders (the initiating party is referred to as the "Petitioner") by
written notice to the other party or parties demanding arbitration and naming
its arbiter. The other party or parties (collectively, the "Respondent') shall
have 20 days after receipt of said notice within which to designate its arbiter.
The third arbiter shall be chosen by the two arbiters named by the Respondent
and the Petitioner within 20 days thereafter and the arbitration shall be held
at the place hereinafter set forth ten days after the appointment of the third
arbiter. Should the two arbiters not be able to agree on the choice of the
third, each arbiter shall nominate three persons of whom the other shall reject
two. The third arbiter shall then be chosen by drawing lots. If the Respondent
does not name its arbiter within 20 days, the Petitioner may designate the
second arbiter. Arbitration shall take place in Hartford, Connecticut.
(c) The arbiters shall apply the Commercial Arbitration Rules of the
American Arbitration Association, except as may otherwise be agreed and
stipulated by all of the disputing parties prior to commencement of any
arbitration. The arbiters shall conduct the arbitration so that a final result,
determination, finding, judgment and/or award is made or rendered as soon as
practicable, but in no event later than 90 days after the third arbiter is
chosen. The arbiters shall render their decision with 15 days of completion of
the arbitration.
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<PAGE>
The decision of the majority of the arbiters shall be binding upon the parties
without appeal and may be entered as a judgment in any court of competent
jurisdiction. If injunctive or other equitable relief is permitted under this
Agreement or otherwise permissible under applicable law, either the arbiters or
a court of competent jurisdiction (if an arbitration panel cannot be timely
convened or is otherwise unavailable) shall be empowered to grant such
injunctive or other equitable relief on a permanent, preliminary or temporary
basis, as appropriate under the circumstances. The parties hereby irrevocably
consent and submit to the jurisdiction of the courts of the State of Connecticut
for all purposes relative to any arbitration and to any subsequent entry of
judgment on any decision rendered pursuant thereto. The Petitioner and the
Respondent each shall pay its own attorneys' and witnesses' fees and expenses
and other expenses connected with the presentation of its case. The remaining
costs of any arbitration, including the cost of the record or transcripts
thereof, if any, administrative fees and other fees and expenses of the arbiters
shall be shared equally between the Petitioner and the Respondent.
SECTION 12.02 Notices. All notices and other communications given or
----------------------
made pursuant to this Agreement shall be in writing and shall be deemed to have
been duly given or made as of the date delivered, mailed or transmitted, and
shall be effective upon receipt, if delivered personally, sent by reputable
overnight express courier, charges prepaid, to the Stockholders at their
addresses set forth on the Schedule of Stockholders, to MetLife at the address
------------------------
of MHH set forth on the Schedule of Stockholders, and to the other parties at
------------------------
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to the
telecopier number specified below:
(a) If to Acquiror or Acquiror Sub:
United HealthCare Corporation
9900 Bren Road East
Minnetonka, Minnesota 55343
Telecopier No.: (612) 936-1745
Attention: General Counsel
With a copy to:
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
Telecopier No.: (612) 340-8738
Attention: David J. Lubben, Esq.
(b) If to the Company:
The MetraHealth Companies, Inc.
2000 Corporate Ridge
10th Floor, Suite 1000
McLean, VA 22102
Telecopier No.: (203) 918-4298
Attention: Chief Executive Officer
- 83 -
<PAGE>
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 735-2001
Attention: Kenneth J. Bialkin, Esq.
SECTION 12.03 Amendment. This Agreement may be amended by the
------------------------
parties by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after adoption
of this Agreement by the stockholders of the Company, no amendment may be made
without further approval of such stockholders which would reduce the amount or
change the type of consideration into which each share of Company Common Stock
shall be converted pursuant to this Agreement upon consummation of the Merger.
This Agreement may not be amended except by an instrument in writing signed by
the parties.
SECTION 12.04 Waiver. At any time prior to the Effective Time, any
---------------------
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement and (c) waive compliance by the other party
with any of the agreements or conditions contained in this Agreement. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 12.05 Headings. The headings contained in this Agreement are
-----------------------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12.06 Severability. If any term or other provision of this
---------------------------
Agreement is finally adjudicated by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 12.07 Entire Agreement. This Agreement (together with the
-------------------------------
Exhibits, the Company, Acquiror and Stockholder Disclosure Schedules and the
other documents delivered pursuant hereto), constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof.
SECTION 12.08 Assignment. This Agreement shall not be assigned by
-------------------------
operation of law or otherwise.
- 84 -
<PAGE>
SECTION 12.09 Parties in Interest. This Agreement shall be binding
----------------------------------
upon and inure solely to the benefit of each party, and nothing in this
Agreement, express or implied, other than the right to receive the consideration
payable in the Merger pursuant to Article II, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
SECTION 12.10 Governing Law. This Agreement shall be governed by,
----------------------------
and construed in accordance with, the Laws of the State of Delaware, regardless
of the Laws that might otherwise govern under applicable principles of conflicts
of law.
SECTION 12.11 Best Efforts. No reference in this Agreement to "best
---------------------------
efforts" shall require a person obligated to use its best efforts to incur
unreasonable out-of-pocket expenses, to incur indebtedness or, except as
expressly provided herein, to institute litigation or to consent generally to
service of process in any jurisdiction.
SECTION 12.12 Counterparts. This Agreement may be executed in one or
---------------------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 12.13 Tax Treatment. Except as otherwise provided herein,
----------------------------
any payments made pursuant to this Agreement shall, to the extent permitted by
Law, be treated by the parties for all Tax purposes as part of or as an
adjustment to the Merger Consideration.
* * * * *
- 85 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be executed as of the date first written above.
UNITED HEALTHCARE CORPORATION
By /s/William W. McGuire
------------------------------------
Its
--------------------------------
MONTANA ACQUISITION, INC.
By /s/William W. McGuire
------------------------------------
Its
--------------------------------
THE METRAHEALTH COMPANIES, INC.
By /s/K. L. Simmons
-----------------------------------
Its
--------------------------------
THE TRAVELERS INSURANCE GROUP, INC.
By /s/Jay S. Fishman
------------------------------------
Its
--------------------------------
THE TRAVELERS INSURANCE COMPANY
By /s/Jay S. Fishman
------------------------------------
Its
--------------------------------
<PAGE>
METLIFE HEALTHCARE HOLDINGS, INC.
By /s/John D. Moynahan
-----------------------------------
Its
--------------------------------
METROPOLITAN LIFE INSURANCE
COMPANY
By /s/John D. Moynahan
-----------------------------------
Its
--------------------------------
<PAGE>
[LETTERHEAD OF THE TRAVELERS LIFE AND ANNUITY COMPANY APPEARS HERE]
We are pleased to provide You the benefits of this annuity contract. Please read
all attached forms carefully.
This contract is subject to the terms and conditions stated on the attached
pages, all of which are a part of it. The Certificate is issued in
consideration of the purchase payment.
Executed at Hartford, Connecticut
/s/ [signature appears here]
Chairman
This is a legal contract between You and Us. PLEASE READ YOUR CONTRACT
CAREFULLY.
Single Premium Group Modified Guaranteed Annuity Contract
Non-Tax Qualified
Elective Options Non-Participating
THE CASH SURRENDER VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE MARKET
VALUE ADJUSTMENT FORMULA ON THE CONTRACT SPECIFICATIONS PAGE. THE CASH
SURRENDER VALUE IS AVAILABLE WITHOUT APPLICATION OF THE MARKET VALUE ADJUSTMENT
AT THE END OF A GUARANTEE PERIOD.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Contract Specifications Page 3
Definitions Page 5
Purchase Payment Page 6
Contract Control Provisions Page 6
Crediting of Interest and Guarantee Periods Page 8
Market Value Adjustment Page 9
Transfer Between Guarantee Periods Page 9
Termination Provisions Page 9
Settlement Provisions Page 11
General Provisions Page 13
</TABLE>
Any Riders or Endorsements follow the Life Annuity Tables.
Page 2
<PAGE>
CONTRACT SPECIFICATIONS
CONTRACT OWNER THE GROUP ANNUITY TRUST
CONTRACT NUMBER SPECIMEN 06/01/94 CONTRACT DATE
- --------------------------------------------------------------------------------
Purchase Payment/Termination Amount:
- ------------------------------------
Minimum Purchase Payment Amount: $5,000 per Certificate
Maximum Purchase Payment Amount: $1,000,000 per Certificate unless we consent to
a larger amount
Termination Amount: $2,000 per Certificate
Market Value Adjustment Formula:
- --------------------------------
A Market Value Adjustment will be applied when a surrender occurs prior to the
end of a Guarantee Period. The Market Value Adjustment is the difference
between the Account Value and the Market Adjusted Value.
Market Adjusted Value = (Maturity Value) x [1/1 + ic] (to the 1/365 power)
ic = the current Guaranteed Interest Rate (straight line interpolation between
whole years) that we are then crediting for a Guarantee Period of t days on this
class of certificate(s).
t = the number of days remaining in the Guarantee Period adjusting for leap
years.
Surrender Charge:
- -----------------
During the first seven years after a purchase payment is applied to a
Certificate under the contract, a surrender charge may be deducted from any
amount surrendered. This charge is a percentage of the Cash Value surrendered
from a Certificate.
CERTIFICATE YEARS SINCE PAYMENT WAS APPLIED SURRENDER CHARGE
- ------------------------------------------- ----------------
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
THEREAFTER 0%
No surrender charge will apply at the end of an initial Guarantee Period of at
least three years. Initial Guarantee Periods of one or two years are subject to
surrender charge for a period of five years.
Page 3
<PAGE>
Free Withdrawal Amount:
- -----------------------
The Certificate Owner may withdraw interest credited in the previous Certificate
Year without a Market Value Adjustment or a surrender charge.
Automatic Renewal Guarantee Period:
- -----------------------------------
A one year Guarantee Period.
Guarantee Period Transfer Charge:
- ---------------------------------
$0.
Page 4
<PAGE>
DEFINITIONS
(a) Account - An Account is established for each purchase payment.
(b) Account Value - The sum of the purchase payment under each Account and all
interest credited to that date, less the sum of all partial surrenders,
surrender charges, and applicable premium tax deducted to that date under
a Certificate.
(c) Annuitant - The person on whose life the Certificate is issued and on
whose life the annuity payments are made.
(d) Annuity Commencement Date - the date shown on the Certificate
Specifications page on which annuity payments commence.
(e) Beneficiary(ies) - The person(s) entitled to receive benefits under a
Certificate after the death of the Annuitant, Certificate Owner or first
of joint Certificate Owners.
(f) Cash Surrender Value - The Cash Value under each Account less surrender
charges and any applicable premium tax.
(g) Cash Value - The Account Value at the end of a Guarantee Period or the
Market Adjusted Value before the end of a Guarantee Period.
(h) Certificate - The individual Certificate provided to the Certificate
Owner, which describes the benefits, rights and obligations of the
Certificate Owner and Us.
(i) Certificate Date - The date on which a Certificate is issued.
(j) Certificate Owner(s) - The person(s) who participate(s) under this
contract and is given a Certificate.
(k) Certificate Year(s) - The twelve month period(s) beginning with the
Certificate Date.
(l) Contingent Annuitant - The person designated prior to the Certificate Date
who, upon the Annuitant's death prior to the Annuity Commencement Date,
becomes the Annuitant.
(m) Contract Date - The date shown on the Contract Specifications page on
which the contract is issued.
(n) Due Proof of Death - A copy of a certified death certificate; a copy of a
certified decree of a court of competent jurisdiction as to the finding of
death; a written statement by a medical doctor who attended the deceased;
or any other proof satisfactory to Us.
(o) Guaranteed Interest Rate - The annual effective interest rate credited to
a purchase payment during the Guarantee Period as described in the
Crediting of Interest and Guarantee Periods section.
(p) Guarantee Period - The period for which either an initial or subsequent
Guarantee Interest Rate is credited.
(q) Market Adjusted Value - Reflects the relationship on the Surrender Date
between the current Guaranteed Interest Rate for the duration remaining in
the Guarantee Period and the Guaranteed Interest Rate that applies to the
Certificate.
(r) Market Value Adjustment - The difference between the Account Value and the
Market Adjusted Value.
(s) Maturity Value - The accumulated value of a purchase payment at the
Guaranteed Interest Rate at the end of the Guarantee Period selected less
any partial surrenders, surrender charges, and applicable premium tax
previously deducted.
(t) Our Office - The home office of the Travelers Life and Annuity Company
located at One Tower Square, Hartford, Connecticut. All correspondence
concerning this contract should be sent to the attention of Annuity
Services.
(u) Surrender Date - The date We receive Written Request from the Certificate
Owner for a surrender or the date the Certificate Owner requests the
surrender to be effective, if later.
(v) We, Us, Our - The Travelers Life and Annuity Company.
(w) Written Request - A written form satisfactory to Us and received at Our
Office.
(x) You, Your - The contract owner. The contract owner is the person or
entity named as such on the Contract Specifications page.
Page 5
<PAGE>
PURCHASE PAYMENT
Purchase Payment - The purchase payment is the payment made for the Certificate
and the benefits it provides. The minimum purchase payment is shown on both the
Contract and Certificate Specifications pages. The purchase payment is payable
at Our Office. We reserve the right to limit the amount of the purchase payment
which will be accepted.
Premium Tax - The premium tax is the amount of tax, if any, charged by the state
or municipality on a purchase payment, on the Cash Value upon surrender, or on
the amount applied to elect an annuity option. We will deduct any applicable
premium tax from the Cash Value either upon death, surrender, annuitization or
at the time the purchase payment is made, but no earlier than when We have a tax
liability under law.
CONTRACT CONTROL PROVISIONS
Allocation of Purchase Payment
The purchase payment (less applicable premium tax, if any) will be allocated to
an Account established for the Certificate Owner by Us. Account Values will be
determined in accordance with the terms of this contract and related
certificates.
Owner
This contract belongs to the Contract Owner shown on the Contract Specifications
page. The Certificate belongs to the Certificate Owner or to any person
subsequently named in a Written Request of transfer of certificate ownership as
provided below. A Certificate Owner has sole power during the Annuitant's
lifetime to exercise any rights and to receive all benefits given in the
Certificate provided an irrevocable Beneficiary is not named and provided the
Certificate is not assigned.
The Certificate Owner will be the recipient of all payments while the Annuitant
is alive unless he/she directs them to an alternate recipient under a recorded
payment direction. An alternate recipient under a payment direction does not
become the Certificate Owner. A payment direction is revocable by the
Certificate Owner at any time by Written Request giving 30 days advance notice.
Joint Certificate Owners
Married spouses may be named as joint Certificate Owners in a Written Request
prior to the Certificate Date. All rights of Certificate ownership must be
exercised by joint action. Joint Certificate Owners own equal shares of any
benefits accruing or payments made to them while both live. All rights of a
joint Certificate Owner end at death if another joint Certificate Owner
survives. The entire interest of the deceased joint Certificate Owner in the
Certificate will pass to the surviving joint Certificate Owner.
Assignments
Ownership Assignments
A Certificate Owner may transfer Certificate ownership by Written Request.
The Certificate Owner may not revoke any assignment after the effective
date. Once the Certificate ownership assignment is recorded by Us, it will
take effect as of the date of the Certificate Owner's Written Request,
subject to any payments made or other action taken by Us before the
recording.
Unless provided otherwise, a Certificate ownership assignment does not
affect the interest of any Beneficiary designated prior to the effective
date of the transfer. Certificate ownership assignments may have adverse tax
consequences to the Certificate Owner.
Page 6
<PAGE>
Collateral Assignments
A Certificate Owner may collaterally assign Certificate ownership of all or
a portion of the Certificate by Written Request without the approval of any
Beneficiary unless irrevocably named. The Certificate Owner may not exercise
any rights of ownership while the assignment remains in effect without the
approval of the collateral assignee. We are not responsible for the validity
of any assignment. Once the collateral assignment is recorded by Us, it will
take effect as of the date of the Certificate Owner's Written Request,
subject to any payments made or any other actions taken by Us before the
request is received.
If a claim is made based on an assignment, We may require proof of interest
of the claimant. A recorded assignment takes precedence over any rights of a
Beneficiary. Any amount due under a recorded assignment will be paid in a
single sum. Collateral Assignments may have adverse tax consequences to the
Certificate Owner.
Creditor Claims
To the extent permitted by law, the rights or benefits of the Certificate Owner
or the Beneficiary under the Certificate are not subject to the claims of
creditors or to any legal process.
Beneficiary
The Beneficiary is the surviving joint Certificate Owner. If there is no
surviving joint Certificate Owner, the Beneficiary is the party named by the
Certificate Owner in a Written Request. The Beneficiary has the right to
receive any remaining Certificate benefits upon the death of the Certificate
Owner, the first joint Certificate Owner, or the Annuitant, as described further
in the Death Benefit provision.
The surviving joint Certificate Owner receives the entire Death Benefit to the
exclusion of any party that is named as Beneficiary.
If there is more than one Beneficiary surviving the death of the Certificate
Owner or the death of the Annuitant, the Beneficiaries will share equally in
benefits unless different shares are recorded with Us in a Written Request prior
to the death.
Unless an irrevocable Beneficiary has been named, the Certificate Owner has the
right to change any Beneficiary by Written Request during the Annuitant's
lifetime and while the Certificate continues.
Once a change in Beneficiary is recorded by Us, it will take effect on that date
or on the date requested, if later, subject to any payments made or other
actions taken by Us before the recording.
If no Beneficiary has been named, or if no Beneficiary is living when the
Certificate Owner or Annuitant dies, the interest of any Beneficiary will pass:
(a) if the Certificate Owner is living, to the Certificate Owner; or
(b) if the Certificate Owner has died, to the Certificate Owner's estate.
Page 7
<PAGE>
Contingent Annuitant
The Certificate Owner may name one individual as a Contingent Annuitant by
Written Request prior to the Certificate Date. A Contingent Annuitant may not
be changed, deleted or added to the Certificate after the Certificate Date.
If an Annuitant who is not also the Certificate Owner or a joint Certificate
Owner dies prior to the Annuity Commencement Date while the Certificate is in
effect and while the Contingent Annuitant is living:
(a) the death benefit will not be payable upon the Annuitant's death;
(b) the Contingent Annuitant becomes the Annuitant; and
(c) all other rights and benefits provided by the Certificate will continue in
effect.
When a Contingent Annuitant become the Annuitant, the Annuity Commencement Date
remains the same as previously in effect unless otherwise provided.
If the Annuitant dies simultaneously with the Certificate Owner or with a joint
Certificate Owner, distributions required by tax law must commence as described
under the Tax Law Qualification section. The Contingent Annuitant does not
become the Annuitant in this circumstance.
CREDITING OF INTEREST AND GUARANTEE PERIODS
The purchase payment (less surrenders made and less applicable premium tax, if
any) will earn interest at the initial Guaranteed Interest Rate during the
initial Guarantee Period. All interest earned will be credited daily. This
compounding effect is reflected in the Guaranteed Interest Rates.
Within 60 days of the end of any Guarantee Period, We will notify the
Certificate Owner about selecting a subsequent Guarantee Period. If no election
is made, the automatic renewal guarantee period as stated on both the Contract
and Certificate Specifications pages will commence, unless the Certificate
Owner has:
a. submitted a Written Request for a full surrender which we receive
within 30 days prior to the end of the current Guarantee Period; or
b. elected by Written Request a Guarantee Period of a different duration
from among those offered by Us within 30 days prior to the end of the
current Guarantee Period; or
c. selected a subsequent Guarantee Period that extends beyond the Annuity
Commencement Date then in effect. In this case, We will automatically
establish a subsequent Guarantee Period that will end nearest to the
Annuity Commencement Date then in effect, unless the Certificate Owner
elects by Written Request a subsequent Guarantee Period of shorter
duration.
At any time during the automatic renewal guarantee period, the Certificate Owner
may transfer to a Guarantee Period of a different duration without incurring a
surrender charge or Market Value Adjustment.
The Account Value at the beginning of any subsequent Guarantee Period will be
equal to the Account Value at the end of the Guaranteed Period just ending. The
Account Value will earn interest at the subsequent Guaranteed Interest Rate
during the subsequent Guarantee Period. There is no minimum Guaranteed Interest
Rate for renewals. However, this rate will be at least equal to the initial
Guaranteed Interest Rate being credited to purchase payments for new
certificates at the time the subsequent Guaranteed Interest Rate is determined.
Page 8
<PAGE>
MARKET VALUE ADJUSTMENT
This contract and related certificates contain a Market Value Adjustment
formula. The formula may result in upward or downward adjustments in the amount
payable on any full or partial surrender of a Certificate made prior to the end
of any Guarantee Period. Details of the Market Value Adjustment formula are
described in both the Contract and Certificate Specifications pages.
The Market Value Adjustment formula will not be applied when the Certificate
Owner submits a Written Request for:
a. a full or partial surrender at the end of any Guarantee Period if
We receive the request within the 30 day period prior to the end of such
Guarantee Period; or
b. any interest credited during the previous Certificate Year.
TRANSFER BETWEEN GUARANTEE PERIODS
Once each Certificate Year after the first Certificate Year, the Certificate
Owner may elect by Written Request to transfer out of the current Guarantee
Period and into a Guarantee Period of a different duration. At that time, a new
Guarantee Period will be established for the duration the Certificate Owner
chooses, and the Account Value at the beginning of the new Guarantee Period will
equal the Market Adjusted Value for the current Guarantee Period at the time of
the transfer. There is no surrender charge for this transfer. We reserve the
right to charge for any such transfer by reducing the Account Value at the
beginning of the new Guarantee Period by an amount not to exceed $50.00. The
Guarantee Period transfer charge is shown on both the Contract and Certificate
Specifications pages.
Surrender charges will continue to be based on the appropriate Certificate Year
as determined from the original Certificate Date.
TERMINATION PROVISIONS
General Surrenders
The Certificate Owner may make full and partial surrenders from the Certificate
at any time. A surrender charge may be assessed on surrenders as stated on both
the Contract and Certificate Specifications pages.
Special Surrenders
A full or partial surrender of a Certificate made at the end of a Guarantee
Period may be subject to a surrender charge as set forth on both the Contract
and Certificate Specifications pages. The Market Value Adjustment will not be
applied. A request for a surrender at the end of a Guarantee Period must be
received by Written Request within the 30 day period prior to the end of such
Guarantee Period.
No surrender charges will apply at the end of an initial Guarantee Period of at
least three years. Initial Guarantee Periods of one or two years are subject to
surrender charge for a period of five years. No surrender charge will be applied
upon annuitization unless the fifth annuity option is elected within the first
Certificate Year.
In addition, if the Certificate Owner notifies Us by Written Request, We will
send the Certificate Owner any interest credited during the previous Certificate
Year. No surrender charge or Market Value Adjustment will be imposed on such
interest payments.
Termination After the Annuity Commencement Date
The Certificate may not be surrendered after the commencement of annuity
payments.
Payment Upon Surrender - Deferral of Payment
We may defer payment of a partial or full surrender request for up to six months
from the date of the Written Request. If payment is deferred for more than 30
days from date the request is received, We will pay interest of 3 1/2% on the
amount deferred.
Page 9
<PAGE>
Death Benefit
A death benefit is payable to the Beneficiary before annuity payments commence,
upon the death of
a. the Annuitant
b. the Certificate Owner, or
c. the first of joint Certificate Owners.
We will pay the Beneficiary the death benefit in a single sum upon receiving Due
Proof of Death. The death benefit equals the Account Value as of the date We
receive written notification of Due Proof of Death.
A death benefit is also due and payable to the Beneficiary when the Annuitant
dies after annuity payments commence under options with remaining guaranteed
payments or cash refunds.
A Beneficiary may request that a death benefit payable under the Certificate be
applied to an annuity option, subject to the Settlement Provisions.
If before annuity payments commence, the Annuitant dies with both joint
Certificate Owners or the Certificate Owner and a Contingent Annuitant
surviving, the Contingent Annuitant becomes the Annuitant and a death benefit is
not payable.
Tax Law Qualification
The following conditions, restrictions, and limitations must apply for certain
death benefit payments as described below to maintain the federal tax deferred
status of this annuity:
a) If the Certificate Owner dies before annuity payments commence,
the Beneficiary must receive the entire death benefit proceeds within five
years of the Certificate Owner's death unless:
1. the Beneficiary elects by Written Request to receive the proceeds
over life or over a period not extending beyond life expectancy, and
the payments begin within one year of the Certificate Owner's death,
or
2. the sole Beneficiary is the Certificate Owner's spouse who elects by
Written Request to continue the Certificate deferral. The Certificate
Owner's spouse in this circumstance becomes the Certificate Owner and
Annuitant (if the Annuitant has not survived).
b) If one joint Certificate Owner dies before annuity payments commence,
the surviving joint Certificate Owner who is the sole Beneficiary for this
purpose must receive the entire death benefit proceeds within five years of
the deceased joint Certificate Owner's death unless:
1. the Beneficiary elects by Written Request to receive the proceeds
over life or over a period not extending beyond life expectancy, and
the payments begin within one year of the deceased joint Certificate
Owner's death, or
2. the Beneficiary elects by Written Request to continue the Certificate
deferral. That individual becomes the sole owner and also the
Annuitant if the deceased joint Certificate Owner was the Annuitant
or if the Annuitant died simultaneously with the deceased joint
Certificate Owner.
c) If the Certificate Owner is a non-natural person and the
Annuitant dies before any annuity payments commence, the Beneficiary must
receive the entire death benefit proceeds within five years of the death of
the Annuitant.
d) If the Certificate Owner or Annuitant dies after annuity payments commence,
the remaining value of the contract must be distributed at least as rapidly
as under the method of distribution being used at the date of death.
e) If there is no Beneficiary named when the Certificate Owner dies, or if none
survives the Certificate Owner, and if there is no surviving joint
Certificate Owner, ownership of the death benefit passes to the Certificate
Owner's estate. The estate or persons taking benefits through the
Certificate Owner's estate must receive the entire death benefit proceeds
within five years of the Certificate Owner's death.
Page 10
<PAGE>
f) If the federal tax law, regulations or rules require a distribution more
rapid than described above to keep this annuity contract tax deferred, we
will administer the contract and related certificates in accordance with the
law, regulations and rules. We will provide You with a revised contract
rider describing any necessary changes, and the Certificate Owner with a
revised Certificate rider following all regulatory approvals.
Termination of the Contract and Certificate
We reserve the right to terminate a Certificate if the Account Value is less
than the termination amount shown on both the Contract and Certificate
Specifications pages. Termination will not occur until 31 days after We have
mailed notice of termination to the Certificate Owner at the Certificate Owner's
last known address. If a Certificate is terminated, we will pay the Certificate
Owner the Cash Surrender Value, if any.
We reserve the right to terminate this contract if all related certificates have
been terminated.
SETTLEMENT PROVISIONS
Annuity Benefit
On the Annuity Commencement Date, unless directed otherwise, We will apply the
Cash Surrender Value, or any part thereof, less any applicable premium tax, to
purchase the monthly annuity payments according to the annuity option elected by
the Certificate Owner. In the absence of such election, the second annuity
option providing a life annuity with 120 months certain will apply. Election of
an annuity option must be made by Written Request and received by Us at least 30
days prior to the date such election is to become effective. If the Annuity
Commencement Date coincides with the end of any Guarantee Period, no Market
Value Adjustment will be applied in the determination of the annuity payments.
No surrender charge will be applied upon annuitization (unless the fifth annuity
option is elected within the first Certificate Year).
The Certificate Owner may change the Annuity Commencement Date at any time as
long as the change is made by Written Request and is received by Us at least 30
days prior to the scheduled Annuity Commencement Date.
The Certificate Owner, or in the event the Certificate Owner has not done so,
the Beneficiary, may elect, in lieu of payment in one sum, that any amount due
under the Certificate be applied under any of the annuity options described
below. The election by the Beneficiary must be made within one year after the
Certificate Owner's death by Written Request to Our Office.
Death of Annuitant
In the event of the death of the Certificate Owner or Annuitant after annuity
payments commence, any method of distribution must provide that any amount
payable as a death benefit will be distributed at least as rapidly as under the
method of distribution in effect at the time of the death of the Certificate
Owner or Annuitant.
Annuity Options
Option 1. Life Annuity - An annuity payable monthly during the lifetime of the
Annuitant, ceasing with the last payment due prior to the death of the
Annuitant.
Option 2. Life Annuity with 120, 180, or 240 Monthly Payments Certain - An
annuity providing monthly income to the Annuitant for a guaranteed period of 120
months, 180 months, or 240 months (as selected), and for as long thereafter as
the Annuitant shall live.
Page 11
<PAGE>
Option 3. Cash Refund Life Annuity - An annuity payable monthly during the
lifetime of the Annuitant, ceasing with the last payment due prior to the death
of the Annuitant provided that, at the death of the Annuitant, the Beneficiary
will receive an additional payment equal to the excess, if any, of (a) over (b)
where: (a) is the Cash Value applied on the Annuity Commencement Date under
this option; and (b) is the dollar amount of annuity payments already paid.
Option 4. Joint and Last Survivor Annuity - An annuity payable monthly during
the joint lifetime of the Annuitant and a secondary payee, and thereafter during
the remaining lifetime of the survivor, ceasing with the last payment prior to
the death of the survivor.
Option 5. Payments for a Designated Period - An amount payable monthly for the
guaranteed number of years selected which may be from 5 to 30 years.
Option 6. Annuity Proceeds Settlement Option - Proceeds from the death benefit
can be left with Us for a period not to exceed five years from the date of the
Certificate Owner's or Annuitant's death prior to the Annuity Commencement Date.
The proceeds will remain in the same Guarantee Period and continue to earn the
same Guaranteed Interest Rate in effect at the time of death as long as this
option is elected at the time Due Proof of Death is provided to Us. If the
Guarantee Period ends before the end of the five year period, the Beneficiary
may elect a new Guarantee Period with a duration not to exceed the time
remaining in the period of five years from the date of the death of the
Certificate Owner or Annuitant. If no election is made, the certificate will
automatically renew for a period of one year, provided that the five year period
is not exceeded. Full or partial surrenders may be made at any time. A Market
Value Adjustment will be applied to all surrenders except those occurring at the
end of a Guarantee Period or if the previous Certificate Year's interest is
being surrendered. This option is only available to Beneficiaries.
Annuity Tables
The attached tables show the dollar amount of the monthly payments for each
$1000 of proceeds applied under the five annuity options. Under options 1, 2 or
3, the amount of each payment will depend upon the age of the Annuitant at the
time the first payment is due. Under option 4, the amount of each payment will
depend upon the ages of the Annuitant and the secondary payee at the time the
first payment is due.
Betterment of Rates
If at the due date of the first annuity payment, We have declared a higher rate
per $1,000 of proceeds applied under an annuity option, then the annuity
payments will be based on the higher rates.
In no event will the annuity benefit, at the time of its commencement, be less
than that which would be provided by applying the greater of the Cash Surrender
Value or 95% of the Cash Value to purchase a single premium immediate annuity
contract offered by Us or one of Our affiliates at the time to the same class of
annuitants.
Minimum Amount
The minimum amount that can be placed under an annuity option is $2,000 unless
We consent to a lesser amount.
Minimum Payment
The annuity option elected must result in a payment of at least $20.00. If at
any time payments are less than $20.00, We have the right to change the
frequency to an interval resulting in a payment of at least $20.00. If any
amount due is less than $20.00 per year, We may make other arrangements that are
equitable to the Annuitant.
Date of Payment
The first payment under any annuity option shall be made on the Annuity
Commencement Date. Subsequent payments shall be made on the same day of each
month in accordance with the manner of payment selected.
Page 12
<PAGE>
GENERAL PROVISIONS
The Contract
The entire contract between You and Us consists of the contract and all attached
pages.
The Certificate
Each Certificate owner will receive an individual Certificate stating in
substance the benefits to which he or she is entitled under the Certificate and
contract. The Certificate does not constitute a part of the contract. The entire
Certificate consists of the Certificate and all attached pages.
Contract and Certificate Changes
The only way this contract or the Certificate may be changed is be a written
endorsement signed by one of Our officers.
Misstatement
If the Annuitant's or Certificate Owner's sex or date of birth was misstated,
all benefits of the Certificate are what the purchase payment would have
purchased at the correct age and sex. Proof of the Annuitant's and Certificate
Owner's age may be filed at any time at Our Office.
Incontestability
We will not contest this contract from its Contract Date. We will not contest a
Certificate from its Certificate Date.
Required Reports
We will provide a report to the Certificate Owner as often as required by law,
but at least once in each Certificate Year before the due date of the first
annuity payment.
Mortality and Expenses
Our actual mortality and expense experience will not affect the amount of any
annuity payments or any other values under the contract and related
certificates.
Non-Participating
This contract and related certificates do not share in Our surplus earnings, so
neither You or a Certificate Owner will receive dividends under it.
Conformity with State and Federal Laws
This contract and related certificates are governed by the law of the state in
which they are issued for delivery. Any paid-up annuity, Cash Surrender Value
or death benefit available under this contract and related certificates will not
be less than the minimum benefits required by the statutes of that state.
Upon receiving appropriate state approval, We may at any time make any changes,
including retroactive changes, in this contract or related certificates to the
extent that the change is required to meet the requirements of any law or
regulation issued by any governmental agency to which We or You are subject.
Page 13
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1, 2 AND 3 - SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
MALE
ADJUSTED NUMBER OF MONTHLY PAYMENTS GUARANTEED CASH
AGE NONE 120 180 240 REFUND
<S> <C> <C> <C> <C> <C>
45 3.87 3.85 3.82 3.77 3.72
46 3.93 3.90 3.87 3.82 3.77
47 3.99 3.96 3.92 3.87 3.82
48 4.05 4.02 3.98 3.92 3.87
49 4.12 4.09 4.04 3.97 3.92
50 4.19 4.15 4.10 4.03 3.98
51 4.27 4.22 4.17 4.08 4.04
52 4.34 4.30 4.23 4.14 4.10
53 4.43 4.37 4.30 4.20 4.16
54 4.51 4.45 4.37 4.26 4.23
55 4.60 4.54 4.45 4.32 4.30
56 4.70 4.62 4.53 4.39 4.37
57 4.80 4.72 4.61 4.45 4.44
58 4.91 4.82 4.69 4.51 4.52
59 5.03 4.92 4.78 4.58 4.61
60 5.15 5.03 4.87 4.65 4.69
61 5.28 5.14 4.96 4.71 4.79
62 5.43 5.27 5.06 4.78 4.88
63 5.58 5.39 5.16 4.84 4.98
64 5.74 5.53 5.26 4.90 5.09
65 5.91 5.66 5.36 4.96 5.20
66 6.10 5.81 5.46 5.02 5.32
67 6.30 5.96 5.56 5.08 5.44
68 6.51 6.12 5.66 5.13 5.56
69 6.73 6.28 5.77 5.18 5.70
70 6.97 6.44 5.86 5.23 5.84
71 7.23 6.61 5.96 5.27 5.99
72 7.51 6.79 6.05 5.31 6.14
73 7.80 6.96 6.14 5.34 6.30
74 8.12 7.14 6.23 5.37 6.47
75 8.46 7.32 6.31 5.40 6.65
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second, third, and
fourth options are based on the 1983 Individual Annuitant Mortality Table A with
ages set back one year and a net investment rate of 3% per annum. The adjusted
age of the person on whose life the life annuity is based is determined from the
actual age last birthday on the due date of the first annuity payment in the
following manner:
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR YEAR IN WHICH
FIRST PAYMENT IS DUE 1995-2000 2001-2010 2011-2020 2021 & LATER
ADJUSTED AGE IS
ACTUAL AGE MINUS 0 MINUS 1 MINUS 2 MINUS 3
</TABLE>
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1, 2 AND 3 - SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
FEMALE
ADJUSTED NUMBER OF MONTHLY PAYMENTS GUARANTEED CASH
AGE NONE 120 180 240 REFUND
<S> <C> <C> <C> <C> <C>
45 3.59 3.58 3.57 3.55 3.52
46 3.64 3.63 3.61 3.59 3.56
47 3.68 3.67 3.66 3.63 3.60
48 3.74 3.72 3.71 3.68 3.64
49 3.79 3.78 3.76 3.72 3.69
50 3.85 3.83 3.81 3.77 3.73
51 3.90 3.89 3.86 3.82 3.78
52 3.97 3.95 3.92 3.88 3.84
53 4.03 4.01 3.98 3.93 3.89
54 4.10 4.08 4.04 3.99 3.95
55 4.18 4.15 4.11 4.05 4.01
56 4.25 4.22 4.18 4.11 4.07
57 4.34 4.30 4.25 4.17 4.14
58 4.42 4.38 4.32 4.23 4.20
59 4.52 4.47 4.40 4.30 4.28
60 4.61 4.56 4.48 4.37 4.35
61 4.72 4.66 4.57 4.44 4.43
62 4.83 4.76 4.66 4.51 4.52
63 4.95 4.87 4.75 4.58 4.61
64 5.08 4.98 4.85 4.65 4.70
65 5.21 5.10 4.95 4.72 4.80
66 5.36 5.22 5.05 4.79 4.90
67 5.51 5.36 5.16 4.86 5.01
68 5.67 5.50 5.26 4.93 5.12
69 5.85 5.65 5.38 5.00 5.25
70 6.04 5.80 5.49 5.06 5.37
71 6.25 5.97 5.60 5.12 5.51
72 6.47 6.14 5.71 5.18 5.65
73 6.71 6.32 5.83 5.23 5.80
74 6.98 6.50 5.94 5.28 5.96
75 7.26 6.69 6.04 5.32 6.13
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second, third, and
fourth options are based on the 1983 Individual Annuitant Mortality Table A with
ages set back one year and a net investment rate of 3% per annum. The adjusted
age of the person on whose life the life annuity is based is determined from
the actual age last birthday on the due date of the first annuity payment in the
following manner:
CALENDAR YEAR IN WHICH
FIRST PAYMENT IS DUE 1995-2000 2001-2010 2011-2020 2021 & LATER
ADJUSTED AGE IS
ACTUAL AGE MINUS 0 MINUS 1 MINUS 2 MINUS 3
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
<TABLE>
<CAPTION>
FEMALE AGE
MALE AGE 45 50 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C>
45 3.36 3.46 3.56 3.64 3.71 3.76 3.80
50 3.42 3.56 3.69 3.82 3.93 4.01 4.08
55 3.47 3.64 3.82 3.99 4.16 4.29 4.40
60 3.51 3.70 3.92 4.15 4.39 4.61 4.79
65 3.54 3.75 4.00 4.29 4.61 4.94 5.24
70 3.56 3.78 4.07 4.41 4.80 5.25 5.70
75 3.57 3.81 4.11 4.48 4.95 5.51 6.15
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second,
third, and fourth options are based on the 1983 Individual Annuitant
Mortality Table A with ages set back one year and a net investment rate
of 3% per annum. The adjusted age of the person on whose life the life
annuity is based is determined from the actual age last birthday on the
due date of the first annuity payment in the following manner:
<TABLE>
<CAPTION>
CALENDAR YEAR IN WHICH 1995-2000 2001-2010 2011-2020 2021 & LATER
FIRST PAYMENT IS DUE
<S> <C> <C> <C> <C>
ADJUSTED AGE IS
ACTUAL AGE MINUS 0 MINUS 1 MINUS 2 MINUS 3
</TABLE>
<PAGE>
ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 5-PAYMENTS FOR A DESIGNATED PERIOD
<TABLE>
<CAPTION>
NUMBER OF MONTHLY NUMBER OF MONTHLY
YEARS PAYMENT YEARS PAYMENT
AMOUNT AMOUNT
<S> <C> <C> <C>
5 17.91 18 5.96
6 15.14 19 5.73
7 13.16 20 5.51
8 11.68 21 5.32
9 10.53 22 5.15
10 9.61 23 4.99
11 8.86 24 4.84
12 8.24 25 4.71
13 7.71 26 4.59
14 7.26 27 4.47
15 6.87 28 4.37
16 6.53 29 4.27
17 6.23 30 4.18
</TABLE>
The dollar amounts of the monthly annuity payments for the fifth option are
based on a net investment rate of 3% per annum.
<PAGE>
The Travelers
THE TRAVELERS LIFE AND ANNUITY COMPANY . ONE TOWER SQUARE . HARTFORD CT . 06183
A STOCK COMPANY
We are pleased to provide You the benefits of this annuity contract. Please read
all the attached forms carefully.
RIGHT TO EXAMINE THIS CONTRACT
If this contract is returned to Us at Our Office or to Our agent to be cancelled
within 10 days after its delivery to You, We will pay You the Market Adjusted
Value within 10 days after its return. After the contract is returned, it will
be considered as if it were never in effect.
This contract is issued in consideration of the Purchase Payment. It is subject
to the terms and conditions stated on the attached pages, all of which are a
part of it.
Executed at Hartford, Connecticut
/s/ [signature appears here]
Chairman
This is a legal contract between You and Us.PLEASE READ YOUR CONTRACT CAREFULLY.
Single Premium Individual Modified Guaranteed Annuity Contract
Non-Tax Qualified
Elective Options Non-Participating
THE CASH SURRENDER VALUE MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE MARKET
VALUE ADJUSTMENT FORMULA ON THE CONTRACT SPECIFICATIONS PAGE. THE CASH SURRENDER
VALUE IS AVAILABLE WITHOUT APPLICATION OF THE MARKET VALUE ADJUSTMENT AT THE END
OF A GUARANTEE PERIOD.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Contract Specifications Page 3
Definitions Page 4
Purchase Payment Page 5
Contract Control Provisions Page 5
Crediting of Interest and Guarantee Periods Page 6
Market Value Adjustment Page 7
Transfer Between Guarantee Periods Page 7
Termination Provisions Page 7
Settlement Provisions Page 9
General Provisions Page 10
</TABLE>
Any Riders or Endorsements follow the Life Annuity Tables.
<PAGE>
CONTRACT SPECIFICATIONS
CONTRACT OWNER JOHN DOE JANE DOE ANNUITANT
JOINT OWNER JANE DOE SAM DOE CONTINGENT ANNUITANT
CONTRACT NUMBER SPECIMEN 06/01/1995 CONTRACT DATE
MONTHLY LIFE ANNUITY 06/01/2024 ANNUITY COMMENCEMENT DATE
- ------------------------------------------------------------------------------
Purchase Payment/Termination Amount:
- ------------------------------------
Minimum Purchase Payment Amount: $5,000
Maximum Purchase Payment Amount: $1,000,000 unless We consent to a larger amount
Termination Amount: $2,000
Market Value Adjustment Formula:
- --------------------------------
A Market Value Adjustment will be applied when a surrender occurs prior to the
end of a Guarantee Period. The Market Value Adjustment is the difference between
the Account Value and the Market Adjusted Value.
Market Adjusted Value = Maturity Value x [ 1/1 + ic ] t/365
ic = the current Guaranteed Interest Rate (straight line interpolation between
whole years) that We are then crediting for a Guarantee Period of t days on this
class of contract(s).
t = the number of days remaining in the Guarantee Period adjusting for leap
years.
Surrender Charge:
- -----------------
During the first seven years after a Purchase Payment is applied under the
contract, a surrender charge may be deducted from any amount surrendered. This
charge is a percentage of the Cash Value surrendered from the contract.
<TABLE>
<CAPTION>
CONTRACT YEARS SINCE PAYMENT WAS APPLIED SURRENDER CHARGE
- ---------------------------------------- ----------------
<S> <C>
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
THEREAFTER 0%
</TABLE>
No surrender charge will apply at the end of an initial Guarantee Period of at
least three years. Initial Guarantee Periods of one or two years are subject to
a surrender charge for a period of five years.
Page 3
<PAGE>
Free Withdrawal Amount:
- -----------------------
Interest credited in the previous Contract Year may be withdrawn without a
Market Value Adjustment or a surrender charge.
Automatic Renewal Guarantee Period:
- -----------------------------------
A one year Guarantee Period.
Guarantee Period Transfer Charge:
- ---------------------------------
$0.
Page 3a
<PAGE>
DEFINITIONS
(a) Account Value - The sum of the purchase payment and all interest credited
to that date, less the sum of all partial surrenders, surrender charges,
and applicable premium tax deducted to that date.
(b) Annuitant - The person on whose life this contract is issued and on whose
life the annuity payments are made.
(c) Annuity Commencement Date - The date on which annuity payments are to
begin. The date is shown on the Contract Specifications page.
(d) Beneficiary - The person entitled to receive benefits after the death of
the Annuitant, Your death or the death of a joint contract owner as
applicable.
(e) Cash Surrender Value - The Cash Value less surrender charges and any
applicable premium tax.
(f) Cash Value - The Account Value at the end of a Guarantee Period or the
Market Adjusted Value before the end of a Guarantee Period.
(g) Contingent Annuitant - The person You designate prior to the Contract Date,
who, upon the Annuitant's death prior to the Annuity Commencement Date,
becomes the Annuitant.
(h) Contract Date - The date shown on the Contract Specifications page.
(i) Contract Year(s) - The twelve month period(s) beginning with the Contract
Date.
(j) Due Proof of Death - A copy of a certified death certificate; a copy of a
certified decree of a court of competent jurisdiction as to the finding of
death; a written statement by a medical doctor who attended the deceased;
or any other proof satisfactory to Us.
(k) Guaranteed Interest Rate - The annual effective interest rate credited to a
purchase payment during the Guarantee Period as described in the Crediting
of Interest and Guarantee Periods section.
(l) Guarantee Period - The period for which either an initial or subsequent
Guaranteed Interest Rate is credited.
(m) Market Adjusted Value - Reflects the relationship on the Surrender Date
between the current Guaranteed Interest Rate for the duration remaining
in the Guarantee Period and the Guaranteed Interest Rate that applies to
Your contract.
(n) Market Value Adjustment - The difference between the Account Value and the
Market Adjusted Value.
(o) Maturity Value - The accumulated value of a purchase payment at the
Guaranteed Interest Rate at the end of the Guarantee Period selected, less
any partial surrenders, surrender charges, and applicable premium tax
previously deducted.
(p) Our Office - The home office of The Travelers Life and Annuity Company
located at One Tower Square, Hartford Connecticut. All correspondence
concerning this contract should be sent to the attention of Annuity
Services.
(q) Surrender Date - The date We receive Your Written Request for a surrender
or the date You request the surrender to be effective, if later.
(r) We, Us, Our - The Travelers Life and Annuity Company.
(s) Written Request - A written form satisfactory to Us and received at Our
Office.
(t) You, Your - The contract owner(s). The contract owner(s) is the person(s)
or entity(ies) named as such on the Contract Specifications page.
Page 4
<PAGE>
PURCHASE PAYMENT
Purchase Payment - The minimum purchase payment is shown on the Contract
Specifications page. The purchase payment is payable at Our Office. We reserve
the right to limit the amount of the purchase payment which will be accepted.
Premium Tax - The premuim tax is the amount of tax, if any, charged by the state
or municipality on a purchase payment, on the Cash Value upon surrender, or on
the amount applied to elect an annuity option. We will deduct any applicable
premium tax from the Cash Value either upon death, surrender, annuitization or
at the time the purchase payment is made, but no earlier than when We have a tax
liability under law.
CONTRACT CONTROL PROVISIONS
Allocation of Purchase Payment
The purchase payment (less applicable premium tax, if any) will be allocated to
an account established for You by Us. Account Values will be determined in
accordance with the terms of this contract.
Owner
This contract belongs to You or to any person subsequently named in a Written
Request of ownership assignment as provided below. You have sole power during
the Annuitant's lifetime to exercise any rights and to receive all benefits
given in this contract provided You have not named an irrevocable Beneficiary
and provided the contract is not assigned.
You will be the recipient of all payments while the Annuitant is alive unless
You direct them to an alternate recipient under a recorded payment direction.
An alternate recipient under a payment direction does not become the contract
owner. A payment direction is revocable by You at any time by Written Request
giving 30 days advance notice.
Joint Owner
Married spouses may be named as joint owners in a Written Request prior to the
Contract Date. All rights of ownership must be exercised by joint action. Joint
owners own equal shares of any benefits accruing or payments made to them. All
rights of a joint owner end at death if another joint owner survives. The entire
interest of the deceased joint owner in this contract will pass to the surviving
joint owner.
Assignments
Ownership Assignments
You may transfer ownership by Written Request. You may not revoke any
assignment after the effective date. Once the ownership assignment is
recorded by Us, it will take effect as of the date of Your Written
Request, subject to any payments made or other actions taken by Us before
the recording.
Unless provided otherwise, an ownership assignment does not affect the
interest of any Beneficiary designated prior to the effective date of
the transfer. Ownership assignments may have adverse tax consequences to
You.
Collateral Assignments
You may collaterally assign ownership of all or a portion of this
contract by Written Request without the approval of any Beneficiary
unless irrevocably named. You may not exercise any rights of ownership
while the assignment remains in effect without the approval of the
collateral assignee. We are not responsible for the validity of any
assignment. Once the collateral assignment is recorded by Us, it will
take effect as of the date of your Written Request, subject to any
payments made or other actions taken by Us before the request is
received.
If a claim is made based on an assignment, We may require proof of
interest of the claimant. A recorded assignment takes precedence over
any rights of a Beneficiary. Any amount due under a recorded assignment
will be paid in a single sum. Collateral assignments may have adverse
tax consequences to You.
Creditor Claims
To the extent permitted by law, the rights or benefits of You or the Beneficiary
under this contract are not subject to the claims of creditors or to any legal
process except as may be provided by a collateral assignment.
Page 5
<PAGE>
Beneficiary.
The Beneficiary is the surviving joint owner. If there is no surviving joint
owner, the Beneficiary is the party named in a Written Request. The Beneficiary
has the right to receive any remaining contractual benefits upon the death of
the owner, the first joint owner, or the Annuitant, as described further in the
Death Benefit provision.
The surviving joint owner receives the entire Death Benefit to the exclusion of
any party that is named as Beneficiary.
If there is more than one Beneficiary surviving Your death as a sole owner or
the death of the Annuitant, the Beneficiaries will share equally in benefits
unless different shares are recorded with us by Written Request prior to the
death.
Unless an irrevocable Beneficiary has been named, You have the right to change
any Beneficiary by Written Request during the lifetime of the Annuitant and
while the contract continues.
Once a change in Beneficiary is recorded by Us, it will take effect on that date
or on the date requested, if later, subject to any payments made or other
actions taken by Us before the recording.
If no Beneficiary has been named by You, of if no Beneficiary is living when the
contract owner or Annuitant dies, the interest of the Beneficiary will pass:
(a) if You are living, to You; or
(b) if You have died, to Your estate.
Annuitant
The Annuitant is shown on the Contract Specifications page. The Annuitant may
not be changed after the Contract Date.
Contingent Annuitant
You may name one individual as a Contingent Annuitant by Written Request prior
to the Contract Date. A Contingent Annuitant may not be changed, deleted or
added to the contract after the Contract Date.
If an Annuitant who is not also the contract owner or a joint owner dies prior
to the Annuity Commencement Date while this contract is in effect and while the
Contingent Annuitant is living:
(a) the death benefit will not be payable upon the Annuitant's death;
(b) the Contingent Annuitant becomes the Annuitant; and
(c) all other rights and benefits provided by this contract will continue in
effect.
When a Contingent Annuitant becomes the Annuitant, the Annuity Commencement Date
remains the same as previously in effect unless otherwise provided.
If the Annuitant dies simultaneously with You or with a joint owner,
distributions required by tax law must commence as described under the Tax Law
Qualification section. The Contingent Annuitant does not become the Annuitant
in this circumstance. Neither does a Contingent Annuitant become the Annuitant
when there is a non-natural owner and the Annuitant dies.
CREDITING OF INTEREST AND GUARANTEE PERIODS
The purchase payment (less surrenders made and less applicable premium tax, if
any) will earn interest at the initial Guaranteed Interest Rate during the
initial Guarantee Period. All interest earned will be credited daily. This
compounding effect is reflected in the Guaranteed Interest Rates.
Within 60 days of the end of any Guarantee Period, We will notify You about
selecting a subsequent Guarantee Period. If no election is made, the automatic
renewal guarantee period as stated on the Contract Specifications page will
commence, unless You have:
a. submitted a Written Request for a full surrender which We receive within
30 days prior to the end of the current Guarantee Period; or
b. elected by Written Request a Guarantee Period of a different duration
from among those offered by Us at any time within 30 days prior to the
end of the current Guarantee Period; or
c. selected a subsequent Guarantee Period that extends beyond the Annuity
Commencement Date then in effect. In this case We will automatically
establish a subsequent Guarantee Period that will end nearest to the
Annuity Commencement Date then in effect, unless You elect by Written
Request a subsequent Guarantee Period of shorter duration.
Page 6
<PAGE>
At any time during the automatic renewal guarantee period, You may transfer to a
Guarantee Period of a different duration without incurring a surrender charge or
Market Value Adjustment.
The Account Value at the beginning of any subsequent Guarantee Period will be
equal to the Account Value at the end of the Guaranteed Period just ending. The
Account Value will earn interest at the subsequent Guaranteed Interest Rate
during the subsequent Guarantee Period. There is no minimum Guaranteed Interest
Rate for renewals. However, this rate will be at least equal to the initial
Guaranteed Interest Rate being credited to purchase payments for new contracts
at the time the subsequent Guaranteed Interest Rate is determined.
MARKET VALUE ADJUSTMENT
This contract contains a Market Value Adjustment formula. The formula may result
in upward or downward adjustments in the amount payable on any full or partial
surrender made prior to the end of any Guarantee Period. Details of the Market
Value Adjustment formula are described on the Contract Specifications page.
The Market Value Adjustment formula will be applied when You submit a Written
Request for:
a. a full or partial surrender at the end of any Guarantee Period if We
receive the request within the 30 day period prior to the end of such
Guarantee Period; or
b. any interest credited during the previous Contract Year.
TRANSFER BETWEEN GUARANTEE PERIODS
Once in each Contract Year after the first Contract Year, You may elect by
Written Request to transfer out of the current Guarantee Period and into a
Guarantee Period of a different duration. At that time, a new Guarantee Period
will be established for the duration You choose, and the Account Value at the
beginning of the new Guarantee Period will equal the Market Adjusted Value for
the current Guarantee Period at the time of the transfer. There is no surrender
charge for this transfer. We reserve the right to charge for any such transfer
by reducing the Account Value at the beginning of the new Guarantee Period by an
amount not to exceed $50.00. The Guarantee Period transfer charge is shown on
the Contract Specifications page.
Surrender charges will continue to be based on the appropriate Contract Year as
determined from the original Contract Date.
TERMINATION PROVISIONS
GENERAL SURRENDERS
Full and partial surrenders may be made under this contract at any time. A
surrender charge may be assessed on surrenders as stated on the Contract
Specifications page.
SPECIAL SURRENDERS
A full or partial surrender made at the end of a Guarantee Period may be subject
to a surrender charge as set forth on the Contract Specifications page. The
Market Value Adjustment will not be applied. A request for a surrender at the
end of a Guarantee Period must be received by Written Request within the 30 day
period prior to the end of such Guarantee Period.
No surrender charges will apply at the end of an initial Guarantee Period of at
least three years. Initial Guarantee Periods of one or two years are subject to
a surrender charge for a period of five years. No surrender charge will be
applied upon annuitization unless the fifth annuity option is elected within the
first Contract Year.
In addition, if You notify Us by Written Request, We will send You any interest
credited during the previous Contract Year. No surrender charge or Market Value
Adjustment will be imposed on such interest payments.
TERMINATION AFTER THE ANNUITY COMMENCEMENT DATE
This contract may not be surrendered after the commencement of annuity payments.
PAYMENT UPON SURRENDER-DEFERRAL OF PAYMENT
We may defer payment of a partial or full surrender request for up to six months
from the date of our receipt of the Written Request. If payment is deferred for
more than 30 days from the date the request is received, We will pay interest of
3 1/2% on the amount deferred.
Page 7
<PAGE>
Death Benefit
A death benefit is payable to the Beneficiary before annuity payments commence,
upon the death of:
a. the Annuitant
b. You, or
c. the first of joint owners.
We will pay the Beneficiary the death benefit in a single sum upon receiving Due
Proof of Death. The death benefit equals the Account Value as of the date We
receive written notification of Due Proof of Death.
A death benefit is also payable to the Beneficiary when You die or the Annuitant
dies after annuity payments commence under annuity options with remaining
guaranteed payments or cash refunds.
A Beneficiary may request that a death benefit payable under this contract be
applied to an annuity option, subject to the Settlement Provisions.
If before annuity payments commence the Annuitant dies with both joint owners or
You and a Contingent Annuitant surviving, the Contingent Annuitant becomes the
Annuitant and a death benefit is not payable.
Tax Law Qualification
The following conditions, restrictions, and limitations must apply for certain
death benefit payments as described below to maintain the federal tax deferred
status of Your annuity:
a. If You die before annuity payments commence, Your Beneficiary must
receive the entire death benefit proceeds within five years of Your
death unless:
1. the Beneficiary elects by Written Request to receive the proceeds
over life or over a period not extending beyond life expectancy,
and the payments begin within one year of Your death, or
2. the sole Beneficiary is Your spouse who elects by Written Request
to continue the contract deferral. Your spouse in this
circumstance becomes the contract owner and Annuitant (if the
Annuitant has not survived).
b. If You are the first joint owner to die before annuity payments
commence, the surviving joint owner who is the sole Beneficiary for
this purpose must receive the entire death benefit proceeds within five
years of Your death unless:
1. the Beneficiary elects by Written Request to receive the proceeds
over life or over a period not extending beyond life expectancy,
and the payments begin within one year of Your death, or
2. the Beneficiary elects by Written Request to continue the
contract deferral. That individual becomes the sole owner, and
also the Annuitant if You were the Annuitant or if the Annuitant
died simultaneously with You.
c. If the owner is a non-natural person and the Annuitant dies before
annuity payments commence, the Beneficiary must receive the entire
death benefit proceeds within five years of the death of the Annuitant.
d. If You die or the Annuitant dies after annuity payments commence, the
remaining value of the contract must be distributed at least as rapidly
as under the method of distribution being used at the date of death.
e. If there is no Beneficiary named when You die, or if none survives You,
and if there is no surviving joint owner, ownership of the death
benefit passes to Your estate. The estate or persons taking benefits
through Your estate must receive the entire death benefit proceeds
within five years of Your death.
f. If the federal tax law, regulations or rules require a distribution
more rapid than described above to keep this annuity contract tax
deferred, we will administer the contract in accordance with the law,
regulations and rules. We will provide You with a revised contract
rider describing any necessary changes, following all regulatory
approvals.
Termination of this Contract
We reserve the right to terminate this contract if the Account Value is less
than the termination amount shown on the Contract Specifications page.
Termination will not occur until 31 days after We have mailed notice of
termination to You at Your last known address. If the contract is terminated, We
will pay You the Cash Surrender Value, if any.
<PAGE>
SETTLEMENT PROVISIONS
Annuity Benefit
On the Annuity Commencement Date, unless directed otherwise, We will apply the
Cash Surrender Value, or any part thereof, less any applicable premium tax, to
purchase the monthly annuity payments according to the annuity option elected.
In the absence of an election, the second annuity option providing a life
annuity with 120 monthly payments will apply. Election of any annuity option
must be made by Written Request and received by Us at least 30 days prior to the
date such election is to become effective. If the Annuity Commencement Date
coincides with the end of any Guarantee Period, no Market Value Adjustment will
be applied in the determination of the annuity payments. No surrender charge
will be applied upon annuitization (unless the fifth annuity option is elected
within the first Contract Year).
You may change the Annuity Commencement Date at any time as long as the Written
Request is received by Us at least 30 days prior to the scheduled Annuity
Commencement Date. Once annuity payments commence, the annuity option cannot be
changed.
You, or in the event You have not done so, the Beneficiary, after Your death or
the death of the Annuitant, may elect, in lieu of payment in one sum, that any
amount due under this contract be applied under any of the annuity options
described below. Such election by the Beneficiary must be made within one year
after the death of the Annuitant by Written Request to Our Office.
Death of Annuitant
In the event of Your death or the death of the Annuitant after annuity payments
commence, any amount payable as a death benefit will be distributed at least as
rapidly as under the method of distribution in effect at the time of Your death
or the death of the Annuitant.
Annuity Options
Option 1. Life Annuity - An annuity payable monthly during the lifetime of the
Annuitant, ceasing with the last payment due prior to the death of the
Annuitant.
Option 2. Life Annuity with 120, 180, or 240 Monthly Payments Certain - An
annuity providing monthly income to the Annuitant for a guaranteed period of 120
months, 180 months, or 240 months (as selected), and for as long thereafter as
the Annuitant shall live.
Option 3. Cash Refund Life Annuity - An annuity payable monthly during the
lifetime of the Annuitant, ceasing with the last payment due prior to the death
of the Annuitant provided that, at the death of the Annuitant, the Beneficiary
will receive an additional payment equal to the excess, if any, of (a) over (b)
where: (a) is the Cash Value applied on the Annuity Commencement Date under this
option; and (b) is the dollar amount of annuity payments already paid.
Option 4. Joint and Last Survivor Annuity - An annuity payable monthly during
the joint lifetime of the Annuitant and a secondary payee, and thereafter during
the remaining lifetime of the survivor, ceasing with the last payment prior to
the death of the survivor.
Option 5. Payments for a Designated Period - An amount payable monthly for the
guaranteed number of years selected which may be from 5 to 30 years.
Option 6. Annuity Proceeds Settlement Option - Proceeds from the death benefit
can be left with Us for a period not to exceed five years from the date of Your
or the Annuitant's death prior to the Annuity Commencement Date. The proceeds
will remain in the same Guarantee Period and continue to earn the same
Guaranteed Interest Rate as at the time of death as long as this option is
elected at the time Due Proof of Death is provided to Us. If the Guarantee
Period ends before the end of the five year period, the Beneficiary may elect a
new Guarantee Period with a duration not to exceed the time remaining in the
period of five years from the date of Your or the Annuitant's death. If no
election is made, the contract will automatically renew for a period of one year
provided the one year period does not exceed a total of five years from the date
of Your death. (See the Tax Law Qualification Section, page 8). Full or partial
surrenders may be made at any time. A Market Value Adjustment will be applied to
all surrenders except those occurring at the end of a Guarantee Period or if
the previous Contract Year's interest is being surrendered. This option is only
available to Beneficiaries.
Annuity Tables
The attached tables show the guaranteed dollar amount of the monthly payments
for each $1000 of proceeds applied under the first five annuity options. Under
option 1, 2 or 3, the amount of each payment will depend upon the age and sex of
the Annuitant at the time the first payment is due. Under option 4, the amount
of each payment will depend upon the sex of the Annuitant and secondary payee
and their ages at the time the first payment is due.
Page 9
<PAGE>
Betterment of Rates
If at the due date of the first annuity payment, We have declared a higher rate
per $1,000 of proceeds applied under an annuity option, then the annuity
payments will be based on the higher rates.
In no event will the annuity benefit, at the time of its commencement, be less
than that which would be provided by applying the greater of the Cash Surrender
Value or 95% of the Cash Value to purchase a single premium immediate annuity
contract offered by Us or one of Our affiliates at the time to the same class of
annuitants.
Minimum Amount
The minimum amount that can be placed under an annuity option is $2,000 unless
We consent to a lesser amount.
Minimum Payment
The annuity option elected must result in a payment of at least $20.00. If at
any time payments are less than $20.00, We have the right to change the
frequency to an interval resulting in a payment of at least $20.00. If any
amount due is less than $20.00 per year, We may make other arrangements that are
equitable to the Annuitant.
Date of Payment
The first payment under any annuity option shall be made on the Annuity
Commencement Date. Subsequent payments shall be made on the same day of each
month in accordance with the manner of payment selected.
GENERAL PROVISIONS
The Contract
The entire contract between You and Us consists of the contract and all attached
pages.
Contract Changes
The only way this contract may be changed is by a written endorsement signed by
one of Our officers.
Misstatement
If You or the Annuitant's sex or date of birth was misstated, all benefits of
this contract are what the purchase payment paid would have purchased at the
correct sex and age. Proof of the Annuitant's and Your ages may be filed at any
time at Our Office.
Incontestability
We will not contest this contract from its Contract Date.
Required Reports
We will provide a report to You as often as required by law, but at least once
in each Contract Year before the due date of the first annuity payment.
Mortality and Expenses
Our actual mortality and expense experience will not affect the amount of any
annuity payments or any other values under this contract.
Non-Participating
This contract does not share in Our surplus earnings, so You will receive no
dividends under it.
Conformity with State and Federal Laws
This contract is governed by the law of the state in which it is issued for
delivery. Any paid-up annuity, Cash Surrender Value or death benefit available
under this contract will not be less than the minimum benefits required by the
statutes of that state.
Upon receiving appropriate state approval, We may at any time make any changes,
including retroactive changes, in this contract to the extent that the change is
required to meet the requirements of any law or regulation issued by any
governmental agency to which We or You are subject.
Page 10
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1,2 AND 3 - SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
MALE
ADJUSTED NUMBER OF MONTHLY PAYMENTS GUARANTEED CASH
AGE NONE 120 180 240 REFUND
<C> <C> <C> <C> <C> <C>
45 3.87 3.85 3.82 3.77 3.72
46 3.93 3.90 3.87 3.82 3.77
47 3.99 3.96 3.92 3.87 3.82
48 4.05 4.02 3.98 3.92 3.87
49 4.12 4.09 4.04 3.97 3.92
50 4.19 4.15 4.10 4.03 3.98
51 4.27 4.22 4.17 4.08 4.04
52 4.34 4.30 4.23 4.14 4.10
53 4.43 4.37 4.30 4.20 4.16
54 4.51 4.45 4.37 4.26 4.23
55 4.60 4.54 4.45 4.32 4.30
56 4.70 4.62 4.53 4.39 4.37
57 4.80 4.72 4.61 4.45 4.44
58 4.91 4.82 4.69 4.51 4.52
59 5.03 4.92 4.78 4.58 4.61
60 5.15 5.03 4.87 4.65 4.69
61 5.28 5.14 4.96 4.71 4.79
62 5.43 5.27 5.06 4.78 4.88
63 5.58 5.39 5.16 4.84 4.98
64 5.74 5.53 5.26 4.90 5.09
65 5.91 5.66 5.36 4.96 5.20
66 6.10 5.81 5.46 5.02 5.32
67 6.30 5.96 5.56 5.08 5.44
68 6.51 6.12 5.66 5.13 5.56
69 6.73 6.28 5.77 5.18 5.70
70 6.97 6.44 5.86 5.23 5.84
71 7.23 6.61 5.96 5.27 5.99
72 7.51 6.79 6.05 5.31 6.14
73 7.80 6.96 6.14 5.34 6.30
74 8.12 7.14 6.23 5.37 6.47
75 8.46 7.32 6.31 5.40 6.65
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second, third,
and fourth options are based on the 1983 Individual Annuitant Mortality Table
A with ages set back one year and a net investment rate of 3% per annum. The
adjusted age of the person on whose life the life annuity is based is
determined from the actual age last birthday on the due date of the first
annuity payment in the following manner:
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR YEAR IN WHICH
FIRST PAYMENT IS DUE 1995-2000 2001-2010 2011-2020 2021 & LATER
ADJUSTED AGE IS
ACTUAL AGE MINUS 0 MINUS 1 MINUS 2 MINUS 3
</TABLE>
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTIONS 1, 2 AND 3-SINGLE LIFE ANNUITIES
<TABLE>
<CAPTION>
FEMALE
ADJUSTED NUMBER OF MONTHLY PAYMENTS GUARANTEED CASH
AGE NONE 120 180 240 REFUND
<S> <C> <C> <C> <C> <C>
45 3.59 3.58 3.57 3.55 3.52
46 3.64 3.63 3.61 3.59 3.56
47 3.68 3.67 3.66 3.63 3.60
48 3.74 3.72 3.71 3.68 3.64
49 3.79 3.78 3.76 3.72 3.69
50 3.85 3.83 3.81 3.77 3.73
51 3.90 3.89 3.86 3.82 3.78
52 3.97 3.95 3.92 3.88 3.84
53 4.03 4.01 3.98 3.93 3.89
54 4.10 4.08 4.04 3.99 3.95
55 4.18 4.15 4.11 4.05 4.01
56 4.25 4.22 4.18 4.11 4.07
57 4.34 4.30 4.25 4.17 4.14
58 4.42 4.38 4.32 4.23 4.20
59 4.52 4.47 4.40 4.30 4.28
60 4.61 4.56 4.48 4.37 4.35
61 4.72 4.66 4.57 4.44 4.43
62 4.83 4.76 4.66 4.51 4.52
63 4.95 4.87 4.75 4.58 4.61
64 5.08 4.98 4.85 4.65 4.70
65 5.21 5.10 4.95 4.72 4.80
66 5.36 5.22 5.05 4.79 4.90
67 5.51 5.36 5.16 4.86 5.01
68 5.67 5.50 5.26 4.93 5.12
69 5.85 5.65 5.38 5.00 5.25
70 6.04 5.80 5.49 5.06 5.37
71 6.25 5.97 5.60 5.12 5.51
72 6.47 6.14 5.71 5.18 5.65
73 6.71 6.32 5.83 5.23 5.80
74 6.98 6.50 5.94 5.28 5.96
75 7.26 6.69 6.04 5.32 6.13
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second, third, and
fourth options are based on the 1983 Individual Annuitant Mortality Table A with
ages set back one year and a net investment rate of 3% per annum. The adjusted
age of the person on whose life the life annuity is based is determined from the
actual age last birthday on the due date of the first annuity payment in the
following manner:
CALENDAR YEAR IN WHICH
FIRST PAYMENT IS DUE 1995-2000 2001-2010 2011-2020 2021 & LATER
ADJUSTED AGE IS
ACTUAL AGE MINUS 0 MINUS 1 MINUS 2 MINUS 3
<PAGE>
LIFE ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 4 - JOINT AND LAST SURVIVOR LIFE ANNUITY
FEMALE AGE
<TABLE>
<CAPTION>
MALE AGE 45 50 55 60 65 70 75
<S> <C> <C> <C> <C> <C> <C> <C>
45 3.36 3.46 3.56 3.64 3.71 3.76 3.80
50 3.42 3.56 3.69 3.82 3.93 4.01 4.08
55 3.47 3.64 3.82 3.99 4.16 4.29 4.40
60 3.51 3.70 3.92 4.15 4.39 4.61 4.79
65 3.54 3.75 4.00 4.29 4.61 4.94 5.24
70 3.56 3.78 4.07 4.41 4.80 5.25 5.70
75 3.57 3.81 4.11 4.48 4.95 5.51 6.15
</TABLE>
Dollar amounts of the monthly annuity payments for the first, second,
third, and fourth options are based on the 1983 Individual Annuitant
Mortality Table A with ages set back one year and a net investment rate of
3% per annum. The adjusted age of the person on whose life the life annuity
is based is determined from the actual age last birthday on the due date of
the first annuity payment in the following manner:
<TABLE>
<S> <C> <C> <C> <C>
CALENDAR YEAR IN WHICH 1995-2000 2001-2010 2011-2020 2021 & LATER
FIRST PAYMENT IS DUE
ADJUSTED AGE IS MINUS 0 MINUS 1 MINUS 2 MINUS 3
ACTUAL AGE
</TABLE>
<PAGE>
ANNUITY TABLES
GUARANTEED DOLLAR AMOUNT OF THE MONTHLY ANNUITY PAYMENTS
PURCHASED WITH EACH $1,000 OF PROCEEDS APPLIED
OPTION 5 - PAYMENTS FOR A DESIGNATED PERIOD
<TABLE>
<CAPTION>
NUMBER OF MONTHLY NUMBER OF MONTHLY
YEARS PAYMENT YEARS PAYMENT
AMOUNT AMOUNT
<S> <C> <C> <C>
5 17.91 18 5.96
6 15.14 19 5.73
7 13.16 20 5.51
8 11.68 21 5.32
9 10.53 22 5.15
10 9.61 23 4.99
11 8.86 24 4.84
12 8.24 25 4.71
13 7.71 26 4.59
14 7.26 27 4.47
15 6.87 28 4.37
16 6.53 29 4.27
17 6.23 30 4.18
</TABLE>
The dollar amounts of the monthly annuity payments for the fifth option are
based on a net investment rate of 3% per annum.
<PAGE>
<PAGE>
Single Premium
Individual Modified Guaranteed Annuity Contract
Non-Tax Qualified
Non-Participating
ENDORSEMENTS
TL-14243 TIC Ed. 3-95
<PAGE>
DISTRIBUTION FROM A QUALIFIED RETIREMENT PLAN QUALIFICATION RIDER
The following conditions, restrictions and limitations apply to this contract if
it has been issued as an annuity contract as described in Section 401(g) of the
Internal Revenue Code.
OWNERSHIP - NON-TRANSFERABLE
You may not sell, assign, or discount this contract or pledge this contract as
collateral for a loan or as security for the performance of an obligation or for
any other purpose, to any person or organization other than Us; provided,
however, the restrictions of this provision will not apply to the Trustee of any
Trust described in Section 401(a) or the Administrator of any Annuity Plan
described in Section 403(a) of the Code. This provision supersedes any
provisions of the contract which may be inconsistent with it.
MANDATORY DISTRIBUTION RESTRICTIONS
In order to meet the qualification requirements of Code Section 401(a), all
plans must meet the required mandatory distribution rules in Code Section
401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee no later than
the "required beginning date" or over no longer than the life or life expectancy
of such employee or the lives or joint life expectancy of such employee and a
designated Beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the calendar year in which the employee attains
age 70 1/2.
If the employee dies before his/her entire interest has been distributed, the
remaining interest must be paid out at least as rapidly as under the method of
payment in effect at the time of death. If the employee dies before the
distribution of his/her entire interest has begun, the entire interest must be
distributed within five years after the employee's death or an annuity payable
over no longer than life or life expectancy must be distributed to an electing
designated Beneficiary starting within one year of the employee's death. A
spousal designated Beneficiary may elect to defer distributions until the
employee would have attained the age of 70 1/2.
ELIGIBLE ROLLOVERS AND OTHER ROLLOVERS
To the extent the Certificate Owner is eligible to make a rollover distribution
under Federal tax law, he or she may elect to have such distribution or a
portion of it paid directly to an eligible retirement plan. You must specify the
eligible retirement plan to which such distribution is to be paid in a form and
at such time acceptable to Us. Such distribution shall be made as a direct
transfer to the eligible retirement plan so specified. Contract surrender
charges and/or market value adjustments may apply to all rollovers.
Previously taxed amounts in this contract are not eligible for rollover. An
eligible rollover distribution includes generally any taxable distribution or
portion thereof from this contract except:
1. any distribution which is one of a series of substantially equal
periodic payments made not less frequently than annually and made to
the Certificate Owner for life or life expectancy or to the Certificate
Owner and his or her joint life beneficiary for joint lives or life
expectancies, or for a specified period of ten years or more, or
2. any distribution which is a required distribution as described above
under "MANDATORY DISTRIBUTION RESTRICTIONS."
An eligible retirement plan includes an individual retirement annuity or account
described in Code Section 408. It also includes a qualified retirement plan
described under Code Section 401(a) or qualified annuity plan under Code Section
403(a), provided these plans are eligible rollovers and are defined contribution
plans.
ANNUITIES DISTRIBUTED UNDER QUALIFIED PLANS
If the applicant for this contract requested that it be issued to comply with
Section 401(a) of the Code, and this contract has subsequently been transferred
to the Annuitant, the following conditions, restrictions and limitations apply
to this contract in addition to the above.
Spousal Consent
- ---------------
Death Benefit - If the Annuitant dies while the contract continues and the
- -------------
Annuitant has a spouse at the time of the Annuitant's death, We will pay the
death benefit to a person other than the spouse of the Annuitant only if proof
of spousal consent, which meets the requirements of Section 417 of the Code, is
furnished to Us.
If the Beneficiary is not the spouse and such spousal consent is not furnished,
We will pay 50% of the death benefit to the spouse. We will pay the balance of
the death benefit to the Beneficiary.
Cash Surrender - Before the due date of the first Annuity Payment, 1) if You do
not have a spouse and without the consent of any Beneficiary unless irrevocably
named; or, 2) if You do have a spouse then only with the written consent of Your
spouse, as required by Section 417 of the Code; We will pay to You all or any
portion of the Cash Surrender Value of the contract upon receipt of your Written
Request for it.
<PAGE>
Settlement Option - If the Annuitant is living on the Maturity Date, payment
- -----------------
must be made in accordance with Option 4 under ANNUITY OPTIONS unless you elect
another form of annuity option and furnish us a qualified election which meets
the requirements of Section 417 of the Code.
THE TRAVELERS LIFE AND ANNUITY COMPANY
Chairman
<PAGE>
PENSION/PROFIT SHARING PLAN QUALIFICATION RIDER
If You requested that this certificate be issued to comply with Section 401(a)
of the Code, the following conditions, restrictions and limitations apply to
this contract.
OWNERSHIP - NON-TRANSFERABLE
The Certificate Owner may not sell, assign, discount or pledge this certificate
as collateral for a loan or as security for the performance of an obligation or
for any other purpose, to any person or organization other than The Travelers
Life and Annuity Company; provided however, the restrictions of this provisions
will not apply to the Trustee of any Trust described in Section 401(a) or the
Administrator of any Annuity Plan described in Section 403(a) of the Code. This
provision supersedes any provisions of this certificate which may be
inconsistent with it.
MANDATORY DISTRIBUTION RESTRICTIONS
In order to meet the qualification requirements of Code Section 401(a), all
plans must meet the required mandatory distribution rules in Code
Section 401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over no longer than the life or life expectancy
of such employee or the lives or joint life expectancy of such employee and a
designated Beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the calendar year in which the employee attains
age 701/2.
If the employee dies before his/her entire interest has been distributed, the
remaining interest must be paid out at least as rapidly as under the method of
payment in effect at the time of death. If the employee dies before the
distribution of his/her entire interest has begun, the entire interest must be
distributed within five years after the employee's death or an Annuity payable
over no longer than life or life expectancy must be distributed to an electing
designated Beneficiary starting within one year of the employee's death. A
spousal designated Beneficiary may elect to defer distributions until the
employee would have attained the age of 70 1/2.
ANNUITIES DISTRIBUTED UNDER QUALIFIED PLANS
If You requested that this certificate be issued to comply with Section 401(a)
of the Code, and this certificate has subsequently been transferred to the
Annuitant, the following conditions, restrictions and limitations apply to this
certificate in addition to the above.
Spousal Consent
- ---------------
Death Benefit - If the Annuitant dies while this certificate continues and the
- -------------
Annuitant has a spouse at the time of the Annuitant's death, we will pay the
death benefit to a person other than the current spouse of the Annuitant only if
proof of spousal consent, which meets the requirements of Section 417 of the
Code, is furnished to us.
If the Beneficiary is not the current spouse and such spousal consent is not
furnished, we will pay 50% of the death benefit to the current spouse. We will
pay the balance of the death benefit to the Beneficiary.
Cash Surrender - Before the due date of the first Annuity or Income Payment,
- --------------
1) if the Certificate Owner does not have a spouse and without the consent of
any Beneficiary; or, 2) if the Certificate Owner does have a current spouse then
only with the written consent of your spouse, as required by Section 417 of the
Code; we will pay to the Certificate Owner all or any portion of the Cash
Surrender Value of the certificate upon receipt of the Certificate Owner Written
Request for it.
Settlement Option - If the Annuitant is living on the Maturity Date, payment
- -----------------
must be made in accordance with Option 4 under ANNUITY OPTIONS unless the
Certificate Owner elects another form of Annuity Option and furnish us a
qualified election which meets the requirements of Section 417 of the Code.
THE TRAVELERS LIFE AND ANNUITY COMPANY
Chairman
<PAGE>
TAX SHELTERED ANNUITY QUALIFICATION RIDER
This endorsement is made a part of this contract in order to comply with Section
403(b) of the Internal Revenue Code. The following conditions, restrictions and
limitations apply.
OWNERSHIP-NONTRANSFERABLE
You may not sell, assign, or discount this contract or pledge this contract as
collateral for a loan or as security for the performance of an obligation or for
any other purpose, to any person or organization other than to Us. This
provision supersedes any provisions of the contract which may be inconsistent
with it.
ELECTIVE DEFERRAL CONTRIBUTION LIMITS
In order to meet the qualification requirements of Code Section 403(b), elective
deferral contributions may not exceed the limitations in effect under Code
Section 402(g).
This rule is an individual limitation that applies to all elective deferral
plans, contracts or arrangements in the aggregate.
WITHDRAWAL RESTRICTIONS
To qualify as a contract which can defer compensation under a Code Section
403(b) plan or arrangement, the withdrawal restrictions under Code Section
403(b)(11) must be met.
Withdrawals attributable to contributions made pursuant to a salary reduction
agreement may be paid only upon or after attainment of age 59 1/2, separation
from service, death, total or permanent disability (as defined in Code Section
72(m)(7)) or in the case of hardship (as defined in the Treasury Regulations).
The hardship exception applies only to the salary reduction contribution and not
to any income attributable to such contribution.
These withdrawal restrictions apply to years beginning after December 31, 1988
but only with respect to assets other than those assets held as of the close of
the last year beginning before January 1, 1989.
If contributions attributable to a custodial account described in Section
403(b)(7) of the Code are transferred to this contract, the following
conditions, restrictions and limitations apply.
vWithdrawals attributable to these transferred contributions may be paid only
upon or after attainment of age 59 1/2, separation from service, death, or total
and permanent disability (as defined in Code Section 72(m)(7)).
Withdrawals on account of hardship may be made only with respect to assets
attributable to a custodial account as of the close of the last year beginning
before January 1, 1989 and amounts contributed thereafter under a salary
reduction agreement but not to any income attributable to such contributions.
MANDATORY DISTRIBUTION REQUIREMENTS
In order to meet the qualification requirements of Code Section 403(b), all
plans must meet the required mandatory distribution rules in Code Section
401(a)(9).
Code Section 401(a)(9) states that a plan will not be qualified unless the
entire interest of each employee is distributed to such employee not later than
the "required beginning date" or over the life or life expectancy of such
employee or over the lives or joint life expectancy of such employee and a
designated Beneficiary. Generally, the "required beginning date" means April 1
of the calendar year following the calendar year in which the employee attains
age 70 1/2.
If the employee dies before his/her entire interest has been distributed, the
remaining interest must be paid out at least as rapidly as it was being paid out
under the method of payment in effect at the time of death. If the employee dies
before the distribution of his/her entire interest has begun, the entire
interest must be distributed within five years after the employee's death or an
annuity payable over no longer than life or life expectancy must be distributed
to an electing designated Beneficiary starting within one year of the employee's
death. A spousal designated Beneficiary may elect to defer distributions until
the employee would have attained the age of 70 1/2.
ELIGIBLE ROLLOVERS AND OTHER ROLLOVERS
To the extent You are otherwise eligible for a distribution under this contract,
and provided the distribution is an eligible rollover distribution, You may
elect to have such distribution or a portion of it paid directly to an eligible
retirement plan. You must specify the eligible retirement plan to which such
distribution is to be paid in a form and at such time acceptable to Us. Such
distribution shall be made in the form of a direct transfer to the eligible
retirement plan so specified. Contract surrender penalties and/or market value
adjustments may apply to all rollovers.
Previously taxed amounts in this contract are not eligible for rollover. Amounts
that are rolled over are not taxed generally until later distributed. An
eligible rollover distribution includes generally any taxable distribution or
portion thereof from this contract except:
<PAGE>
a. Any distribution which is one of a series or substantially equal periodic
payments made not less frequently than annually and made to You for life
or life expectancy or to You and Your joint life beneficiary for joint
lives or life expectancies, or for a specified period of 10 years or
more, or
b. any distribution which is a required distribution as described above under
"MANDATORY DISTRIBUTION REQUIREMENTS".
An eligible retirement plan includes an individual retirement annuity or account
described in Code Section 408. It also includes a qualified annuity plan under
Code Section 403(a) or a qualified trust under Code Section 401(a), or a tax
sheltered annuity plan or arrangement under Code Section 403(b), provided they
accept eligible rollovers and are defined contribution plans.
If You receive a distribution that is eligible for rollover but You receive the
check directly, then mandatory income tax withholding will be taken from the
distribution. You may roll over the balance to an individual retirement annuity
or account within 60 days of receipt, and may make up the amount withheld from
other sources in the rollover in order to roll over the maximum without possible
early distribution tax penalty on the amount of the tax withholding.
ADMINISTRATIVE COMPLIANCE
If changes in the Code and related law, regulations and rulings require a
distribution greater than described above in order to keep this annuity
qualified under the Code, We will administer the contract in accordance with
these laws, regulations and rulings. We will provide you with a revised rider
describing any necessary changes, following all required regulatory approvals.
THE TRAVELERS LIFE AND ANNUITY COMPANY
Chairman
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY QUALIFICATION RIDER
As requested by the You, this contract is amended as follows to qualify as
an Individual Retirement Annuity (IRA) under Section 408(b) of the Internal
Revenue Code of 1986, as amended.
I. EXCLUSIVE BENEFIT
-----------------
This contract is established for the exclusive benefit of You or Your
Beneficiaries.
II. PROHIBITION OF ASSIGNMENT OR LOAN
---------------------------------
This contract shall not be pledged or otherwise encumbered and it shall not
be sold, assigned or otherwise transferred to any person or entity other
than Us. No loans shall be made under this contract.
III. LIMITATION ON PURCHASE PAYMENTS
-------------------------------
Notwithstanding the provisions of the contract and except in the case of a
rollover contribution (as permitted by Section 402(c), 403(a)(4),
403(b)(8), or 408(d)(3) of the Code) or a contribution made in accordance
with the terms of a Simplified Employee Pension (SEP) program as described
in Section 408(k) of the Code, the total contributions shall not exceed the
lesser of $2,000 or 100% of compensation for any taxable year. In the case
of a spousal IRA, the maximum contribution shall not exceed the lesser of
$2,250 or 100% of compensation, but no more than $2,000 can be contributed
to either spouse's IRA. In the case of a Simplified Employee Pension
Plan qualifying under Section 408(k), the annual contribution under the
contract may not exceed the lesser of $30,000 or 15% of compensation. No
contribution will be accepted unless it is in cash.
The Purchase Payment under this contract is not fixed. Any refund of
Purchase Payment (other than those attributable to excess contributions)
will be applied, before the close of the calendar year following the year
of the refund. The minimum purchase payment must be received as a rollover
(See Section X).
IV. COMPENSATION
------------
Compensation means wages, salaries, professional fees, or other amounts
derived from or received from personal service actually rendered
(including, but not limited to, commissions) and includes earned income as
defined in Code Section 401(c)(2). Compensation does not include amounts
received as earnings or profits from property or amounts not includible in
gross income. Compensation also does not include any amount received as a
pension or annuity or as deferred compensation. The term "compensation"
shall include any amount includible in the individual's gross income under
Code Section 71 with respect to a divorce or separation instrument.
V. DISTRIBUTION OF BENEFITS
------------------------
Notwithstanding any provision of this contract to the contrary, the
distribution of an individual's interest shall be made in accordance with
the minimum distribution requirements of Section 408(a)(6) or Section
408(b)(3) of the Code and the regulations thereunder, including the
incidental death benefit provisions of Section 1.401(a)(9)-2 of the
proposed regulations, all of which are herein incorporated by reference.
Your entire interest in the account must be distributed, or begin to be
distributed, by Your required beginning date, which is the April 1
following the calendar year in which You reach age 70 1/2. For each
succeeding year, a distribution must be made on or before December 31. By
the required beginning date You may elect to have the balance in the
account distributed in one of the following forms:
1. a single sum payment;
2. equal or substantially equal payments over Your life;
3. equal or substantially equal payments over the lives of You and
Your designated Beneficiary;
4. equal or substantially equal payments over a specified period that
may not be longer than Your life expectancy;
5. equal or substantially equal payments over a specified period that
may not be longer than the joint life and last survivor expectancy
of You and Your designated Beneficiary.
Minimum Amounts to be Distributed.
- ----------------------------------
If Your interest is to be distributed in other than a lump sum or substantially
equal amounts as discussed above, then the amount to be distributed each year,
commencing at Your required beginning date, must be at least an amount equal to
the quotient obtained by dividing Your entire interest by Your life expectancy
or the joint and last survivor expectancy of You and Your designated
Beneficiary.
<PAGE>
Life expectancy and joint and last survivor expectancy are computed by use
of the return multiples contained in section 1.72-9 of the Income Tax
Regulations. For purposes of this computation, the Your life expectancy may
be recalculated no more frequently than annually; however, the life
expectancy of a nonspouse Beneficiary may not be recalculated.
If Your designated Beneficiary is not Your spouse, then the minimum amount
required to be distributed shall be the greater of the amount determined
above, or the amount determined under the incidental benefit rules set
forth in Treasury Regulation Section 1.401(a)(9)-2.
VI. DEATH
-----
If You die before Your entire interest is distributed, the entire remaining
interest will be distributed as follows:
1. If You die on or after distributions have begun under the
DISTRIBUTION OF BENEFITS section, the entire remaining interest must
be distributed at least as rapidly as provided under the DISTRIBUTION
OF BENEFITS section.
2. If You die before distributions have begun under the DISTRIBUTION OF
BENEFITS section, the entire remaining interest must be distributed
as elected by You, or, if You have not so elected, as elected by the
Beneficiary or Beneficiaries, as follows:
a. by December 31st of the year containing the fifth anniversary of
Your death; or
b. in equal or substantially equal payments over the life or life
expectancy of the designated Beneficiary or Beneficiaries
starting by December 31st of the year following the year of Your
death. If however, the Beneficiary is Your surviving spouse,
then this distribution is not required to begin before December
31st of the year in which You would have turned 70 1/2.
If Your surviving spouse dies before distributions begin, he or she shall be
treated as the IRA Contract Owner and the restrictions in the preceding
paragraph shall apply.
Unless otherwise elected by You prior to the commencement of distributions
under the DISTRIBUTION OF BENEFITS section or, if applicable, by the surviving
spouse where You die before distributions have commenced, life expectancies of
You or Your spousal Beneficiary shall be recalculated annually for purposes of
distributions under the DISTRIBUTION OF BENEFITS section and the DEATH section.
An election not to recalculate shall be irrevocable and shall apply to all
subsequent years. The life expectancy of a non-spouse Beneficiary shall not be
recalculated.
VII. ALTERNATIVE CALCULATION METHOD
------------------------------
An individual may satisfy the minimum distribution requirements under
section 408(a)(6) and 408(b)(3) of the Code by receiving a distribution for one
IRA that is equal to the amount required to satisfy the minimum distribution
requirements for two or more IRAs. For this purpose, the owner of two or more
IRAs may use the "alternative method" described in Notice 88-38, 1988-1 C.B.
524, to satisfy the minimum distribution requirements described above.
VIII. NONFORFEITABLE
--------------
Your entire interest in this contract is nonforfeitable.
IX. NONTRANSFERABLE
---------------
This contract is not transferable.
<PAGE>
X. ROLLOVERS
---------
A. Subject to subparagraphs (B) and (C) hereof, and the limitations
stated in the contract, you may transfer to this contract your
interest in any of the following:
1. the entire amount, or any portion thereof, under any other
individual retirement account or individual retirement annuity
qualified under Section 408 of the Code;
2. the entire amount, or any portion thereof, excluding
nondeductible employee voluntary contributions, under a trust
described in Section 401(a) of the Code which is exempt from tax
under Section 501(a) of the Code or under a qualified annuity plan
described in Section 403(a) of the Code.
3. the entire amount or any portion thereof to which you are entitled
under a tax sheltered annuity described in Section 403(b) of the
Code, excluding nondeductible employee voluntary contributions.
Distributions You roll over from retirement plans or arrangements
described in A.2. and A.3. above to this contract must be completed by
means of a direct transfer or rollover in accordance with Code Section
401(a)(31) in order to avoid mandatory 20% income tax withholding from
the distribution and a possible 10% additional tax penalty under Code
Section 72(t). You may replace amounts withheld from other sources and
complete an indirect full rollover, without incurring the 10%
penalty.
B. You shall not make a rollover under subparagraph (A)(1) hereof during
the 12 month period commencing on the date you last made a rollover
contribution of the type described in subparagraph (A)(1).
C. We must receive any amount which qualifies for a rollover within 60
days after You receive the distribution.
XI. DISTRIBUTIONS PRIOR TO AGE 59 1/2
---------------------------------
Except in the event of Your death, disability or attainment of age 59 1/2,
We must receive from You a declaration of Your intention as to the
disposition of the amounts distributed before making any distribution
from this contract.
XII. REPORTS
-------
As the issuer of this contract, We will furnish reports concerning the
status of the annuity at least annually.
XIII. DISABILITY PAYMENTS
-------------------
If the contract contains a Rider for waiver of premium and disability
payment benefits, any disability payments provided for in the Contract
Specifications will be applied as a purchase payment under the contract.
XIV. AMENDMENT
---------
This contract may be amended by Us at any time to maintain its qualified
status under Section 408(b) of the Code, following all required regulatory
approvals. Any such amendment may be made retroactively effective if
necessary or appropriate to conform to the requirements of the Code (or
any State law granting IRA tax benefits.)
THE TRAVELERS LIFE AND ANNUITY COMPANY
/s/ [signature appears here]
Chairman
<PAGE>
Exhibit 4(b)
LIMITED GUARANTEE AGREEMENT
Agreement dated as of this 16th day of June, 1995 by and between The
Travelers Insurance Company ("Travelers Insurance") and the Travelers Life and
Annuity Company ("TLAC").
WHEREAS, TLAC seeks to issue annuity products registered with the Securities and
Exchange Commission ("SEC");
WHEREAS, Travelers Insurance is currently a registrant with the SEC;
WHEREAS, SEC rules require a guarantee from a registrant such as Travelers
Insurance in order for TLAC to register its annuity product with the SEC on Form
S-2.
NOW THEREFORE the parties agree as follows:
1. Travelers Insurance hereby guarantees certain securities of TLAC, as to
principal and interest only, in accordance with SEC Rule S-2 where those certain
securities are defined as the TLAC TTM Modified Guaranteed Annuity Contracts
referred to in the Registration Statement on Form S-2 (File No. 33-58677) and
the related Prospectus in a principal amount of up to One Hundred Million
(100,000,000) Dollars (the "Annuity Contracts"). No other securities of TLAC or
any other issuer are guaranteed hereby. TLAC hereby agrees to make principal
and interest payments as and when due in accordance with the terms of such
Annuity Contracts.
2. The obligation of Travelers Insurance hereunder is strictly and solely to
pay in full to any owner or beneficiary of the Annuity Contracts principal and
interest as and when due in accordance with the terms of such Annuity Contracts
to the extent TLAC fails to make such payment.
3. It is not the intention of the parties hereto to create any duties or
obligations of Travelers Insurance to any third parties other than the owners or
beneficiaries of Annuity Contracts as defined herein.
4. This Agreement constitutes the entire agreement between the parties on the
subject hereof and may be amended only in a writing executed by both parties.
5. This Agreement shall be governed by the laws of the State of Connecticut.
6. This Agreement shall remain in effect for only so long as the Annuity
Contracts remain in effect.
Acknowledged and Agreed
The Travelers Insurance Company
By: /s/Jay S. Fishman
Its: Chief Financial Officer
The Travelers Life and Annuity Company
By: /s/Michael A. Carpenter
Its Chairman
<PAGE>
[LETTERHEAD OF STATE OF CONNECTICUT APPEARS HERE]
Exhibit 4(b)(i)
April 18, 1995
Mr. James L. Morgan
Senior Vice President and Chief Accounting Officer
The Travelers Insurance Company
One Tower Square
Hartford, CT 06183
Re: D - Prior Notice of a Transaction
Dear Mr. Morgan:
The Form D dated April 5, 1995 on behalf of The Travelers Insurance Company
(TIC) and The Travelers Life and Annuity Company (TLAC) along with the attached
exhibits, has been reviewed.
Approval is granted for the transaction pursuant to Connecticut General
Statute 38a-136(b)(1).
Under the terms of the Limited Guaranty Agreement, TIC will guaranty that
the capital and surplus of TLAC, its wholly-owned subsidiary, will be maintained
at the minimum required by New Jersey, North Carolina, and such other states as
may impose similar admission requirements. The Limited Guaranty Agreement will
be used to obtain licenses for TLAC, as well as to meet the requirements of the
SEC for the issuance of modified guaranteed annuity contracts.
Very truly yours,
/s/ Louis J. Scotti
Louis J. Scotti
Assistant Director
Regulatory Compliance
Examination Division
LJS:pem
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Pre-Effective Amendment No. 1 of this
Registration Statement on Form S-2 of our reports on the statements of
operations and retained earnings and cash flows for the years ended December 31,
1993 and 1992 of The Travelers Life and Annuity Company ("TLAC") both dated
September 16, 1994, which include an explanatory paragraph regarding the change
in the methods of accounting for postretirement benefits other than pensions,
income taxes and foreclosed assets in 1992, on our audits of the financial
statements of TLAC and to the incorporation by reference of our reports on the
consolidated statements of operations and retained earnings and cash flows for
the years ended December 31, 1993 and 1992 of The Travelers Insurance Company
and Subsidiaries ("TIC") dated January 24, 1994 and February 9, 1993 (except for
Notes 2 and 5, as to which the date is January 24, 1994), which includes an
explanatory paragraph regarding the change in the methods of accounting for
postretirement benefits other than pensions, income taxes and foreclosed assets
in 1992, on our audits of the consolidated financial statements of TIC on Form
10-K which are incorporated by reference. We also consent to the reference to
our Firm as experts under the caption "Independent Accountants".
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
July 6, 1995
<PAGE>
Exhibit 23 (B)
The Boards of Directors
The Travelers Life and Annuity Company and
The Travelers Insurance Company:
We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
registration statement (No. 33-58677) on Form S-2, filed by The Travelers Life
and Annuity Company and The Travelers Insurance Company, of our reports, dated
January 17, 1995, and to the reference to our firm as experts under the heading
"Independent Accountants" in the prospectus. Our reports refer to a change in
accounting for investments in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
KPMG PEAT MARWICK LLP
Hartford, Connecticut
July 10, 1995
<PAGE>
Exhibit 24(a)
MODIFIED GUARANTEED ANNUITY CONTRACTS
"MGA II"
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Marc P. Weill of New York, New York, director of The Travelers Life
and Annuity Company (hereinafter the "Company"), do hereby make, constitute and
appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company,
and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form S-2
or other appropriate form under the Securities Act of 1933 for Modified
Guaranteed Annuity Contracts to be offered by the Company and further, to sign
any and all amendments thereto, including post-effective amendments, that may be
filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of March, 1995.
/s/Marc P. Weill
Director
The Travelers Life and Annuity Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
"MGA II"
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That I, Christine B. Mead of Avon, Connecticut, Vice President and
Controller of The Travelers Life and Annuity Company (hereinafter the
"Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant
Secretary of said Company, or either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements on behalf of said Company on Form S-2 or other
appropriate form under the Securities Act of 1933 for Modified Guaranteed
Annuity Contracts to be offered by the Company and further, to sign any and all
amendments thereto, including post-effective amendments, that may be filed by
the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of June, 1995.
/s/Christine B. Mead
Vice President and Controller
The Travelers Life and Annuity Company
<PAGE>
EXHIBIT 24C
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, CHARLES O. PRINCE, III of Weston, Connecticut, director of The
Travelers Insurance Company (hereafter the "Company"), do hereby make,
constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of
said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or
either one of them acting alone, my true and lawful attorney-in-fact, for me,
and in my name, place and stead, to sign registration statements on behalf of
said Company on Form S-2 or other appropriate form under the Securities Act of
1933 for a Limited Guarantee for certain Modified Guaranteed Annuity Contracts
to be offered by The Travelers Life and Annuity Company and further, to sign any
and all amendments thereto, including post-effective amendments, that may be
filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of July,
1995.
/s/Charles O. Prince, III
Director
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, ROBERT I. LIPP, of Scarsdale, New York, director of The Travelers
Insurance Company (hereafter the "Company"), do hereby make, constitute and
appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company,
and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form S-2
or other appropriate form under the Securities Act of 1933 for a Limited
Guarantee for certain Modified Guaranteed Annuity Contracts to be offered by The
Travelers Life and Annuity Company and further, to sign any and all amendments
thereto, including post-effective amendments, that may be filed by The Travelers
Life and Annuity Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July,
1995.
/s/Robert I. Lipp
Director
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, MARC P. WEILL of New York, New York, director of The Travelers
Insurance Company (hereafter the "Company"), do hereby make, constitute and
appoint JAY S. FISHMAN, Director and Chief Financial Officer of said Company,
and ERNEST J. WRIGHT, Assistant Secretary of said Company, or either one of them
acting alone, my true and lawful attorney-in-fact, for me, and in my name, place
and stead, to sign registration statements on behalf of said Company on Form S-2
or other appropriate form under the Securities Act of 1933 for a Limited
Guarantee for certain Modified Guaranteed Annuity Contracts to be offered by The
Travelers Life and Annuity Company and further, to sign any and all amendments
thereto, including post-effective amendments, that may be filed by The Travelers
Life and Annuity Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July,
1995.
/s/Marc P. Weill
Director
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, MICHAEL A. CARPENTER of Greenwich, Connecticut, Director, President
and Chief Executive Officer of The Travelers Insurance Company (hereafter the
"Company"), do hereby make, constitute and appoint JAY S. FISHMAN, Director and
Chief Financial Officer of said Company, and ERNEST J. WRIGHT, Assistant
Secretary of said Company, or either one of them acting alone, my true and
lawful attorney-in-fact, for me, and in my name, place and stead, to sign
registration statements on behalf of said Company on Form S-2 or other
appropriate form under the Securities Act of 1933 for a Limited Guarantee for
certain Modified Guaranteed Annuity Contracts to be offered by The Travelers
Life and Annuity Company and further, to sign any and all amendments thereto,
including post-effective amendments, that may be filed by The Travelers Life and
Annuity Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July,
1995.
/s/Michael A. Carpenter
Director, President and
Chief Executive Officer
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, DONALD T. DeCARLO, of Douglaston, New York, director of The
Travelers Insurance Company (hereafter the "Company"), do hereby make,
constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of
said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or
either one of them acting alone, my true and lawful attorney-in-fact, for me,
and in my name, place and stead, to sign registration statements on behalf of
said Company on Form S-2 or other appropriate form under the Securities Act of
1933 for a Limited Guarantee for certain Modified Guaranteed Annuity Contracts
to be offered by The Travelers Life and Annuity Company and further, to sign any
and all amendments thereto, including post-effective amendments, that may be
filed by The Travelers Life and Annuity Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of July,
1995.
/s/Donald T. DeCarlo
Director
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, CHRISTINE B. MEAD of Avon, Connecticut, Vice President and
Controller of The Travelers Insurance Company (hereafter the "Company"), do
hereby make, constitute and appoint JAY S. FISHMAN, Director and Chief Financial
Officer of said Company and ERNEST J. WRIGHT, Assistant Secretary of said
Company, or either one of them acting alone, my true and lawful attorney-in-
fact, for me, and in my name, place and stead, to sign registration statements
on behalf of said Company on Form S-2 or other appropriate form under the
Securities Act of 1933 for a Limited Guarantee for certain Modified Guaranteed
Annuity Contracts to be offered by The Travelers Life and Annuity Company and
further, to sign any and all amendments thereto, including post-effective
amendments, that may be filed by The Travelers Life and Annuity Company on
behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of July,
1995.
/s/Christine B. Mead
Vice President and Controller
The Travelers Insurance Company
<PAGE>
MODIFIED GUARANTEED ANNUITY CONTRACTS
Travelers Target Maturity
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That I, Irwin R. Ettinger of Stamford, Connecticut, director of The
Travelers Insurance Company (hereinafter the "Company"), do hereby make,
constitute and appoint JAY S. FISHMAN, Director and Chief Financial Officer of
said Company, and ERNEST J. WRIGHT, Assistant Secretary of said Company, or
either one of them acting alone, my true and lawful attorney-in-fact, for me,
and in my name, place and stead, to sign registration statements on behalf of
said Company on Form S-2 or other appropriate form under the Securities Act of
1933 for a Limited Guarantee for certain Modified Guaranteed Annuity Contracts
to be offered by The Travelers Life and Annuity Company and further, to sign
any and all amendments thereto, including post-effective amendments, that may
be filed by the Company on behalf of said registrant.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of July,
1995.
/s/Irwin R. Ettinger
Director
The Travelers Insurance Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This Schedule contains summary financial information extracted from the
Travelers Life and Annuity Company's financial statements OPT for the three
months ended March 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000733076
<NAME> TRAVELERS INSURANCE CO
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 831,125
<CASH> 2
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,813,482
<POLICY-LOSSES> 686,594
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 807,461
<NOTES-PAYABLE> 0
<COMMON> 3,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,813,482
79
<INVESTMENT-INCOME> 15,869
<INVESTMENT-GAINS> (5,618)
<OTHER-INCOME> 3,690
<BENEFITS> 13,330
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 987
<INCOME-PRETAX> (297)
<INCOME-TAX> (127)
<INCOME-CONTINUING> (170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
