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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13654
LIBERTY FINANCIAL COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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Massachusetts 04-3260640
(State of incorporation) (I.R.S. Employer Identification No.)
600 Atlantic Avenue 02210-2214
Boston, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 722-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------------------- ------------------------
Common Stock, Par Value $.01 per share New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of March 19, 1999 (based on the closing sale price of the Common
Stock on the New York Stock Exchange on such date) was approximately $281.0
million.
There were 46,675,377 shares of the registrant's Common Stock, $.01 par
value, and 324,759 shares of the registrant's Series A Convertible Preferred
Stock, $0.01 par value, outstanding as of March 19, 1999.
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Documents Incorporated by Reference
Portions of the Company's 1998 Annual Report to Stockholders are incorporated
into Part II, Items 6, 7, 7A and 8, and Part IV, Item 14(a)1, of this Form
10-K.
Portions of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on or about May 10, 1999 are incorporated into Part
III, Items 10, 11, 12, and 13, of this Form 10-K.
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<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
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<S> <C> <C>
Item 1. Business 1
Executive Officers of the Registrant 17
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
Part III
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Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
Part IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
</TABLE>
<PAGE>
PART I
Item 1. Business
Overview
Liberty Financial Companies, Inc. ("Liberty Financial" or the "Company")
is a leading asset accumulation and management company. The Company has two
core product lines--retirement-oriented insurance products and investment
management products. Retirement-oriented insurance products consist
substantially of annuities. Investment management products consist of mutual
funds, private capital management and institutional asset management. The
Company sells its products through multiple distribution channels, including
brokerage firms, banks and other depository institutions, financial planners
and insurance agents, as well as directly to investors. The Company's net
operating income (i.e., net income excluding net realized investment gains and
losses, net of related income taxes) was $122.6 million in 1998, $112.4 million
in 1997 and $94.8 million in 1996. The following table sets forth the Company's
assets under management as of December 31, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Assets Under Management
------------------------------
As of December 31,
------------------------------
1998 1997 1996
-------- -------- --------
(dollars in billions)
<S> <C> <C> <C>
Retirement-oriented insurance
products .............................. $13.1 $12.8 $12.1
Mutual funds ........................... 28.6 26.8 25.7
Private capital management ............. 7.9 6.6 5.3
Institutional asset management ......... 11.4 5.3 4.9
----- ----- -----
Total ................................ $61.0 $51.5 $48.0
===== ===== =====
</TABLE>
At March 19, 1999, approximately 71.0% of the combined voting power of
Liberty Financial's voting stock was indirectly owned by Liberty Mutual
Insurance Company ("Liberty Mutual").
Liberty Financial's principal executive offices are located at 600
Atlantic Avenue, Boston, Massachusetts 02210-2214. Its telephone number is
(617) 722-6000.
Recent Developments. On August 31, 1998, the Company acquired certain
assets and assumed certain liabilities of Progress Investment Management
Company, Inc. ("Progress"), a registered investment adviser to institutional
accounts with approximately $2.1 billion in assets under management as of that
date. On September 30, 1998, Liberty Financial acquired certain assets and
assumed certain liabilities of The Crabbe Huson Group, Inc. ("Crabbe Huson"), a
registered investment adviser with approximately $3.3 billion of assets under
management as of that date. The combined purchase price for these transactions
was approximately $104.0 million and consisted of $95.1 million in cash and
$8.9 million in the Company's Common Stock. In addition, the Company has agreed
to pay up to an additional $71.5 million in cash and Common Stock over five
years, contingent upon the attainment of certain earnings objectives. The
acquisitions were recorded using the purchase method of accounting.
In November, 1998, the Company issued $450.0 million of senior debt
securities. The offering consisted of $300.0 million of 6-3/4% 10-year notes and
$150.0 million of 7-5/8% 30-year debentures. The Company used the proceeds of
the offering to refinance $90.0 million of bank debt incurred in connection
with the Crabbe Huson acquisition and to repay debt owed to affiliates of
Liberty Mutual in the aggregate principal amount of $229.0 million. The Company
will use the balance of the proceeds for general corporate purposes.
In March, 1999, the Company reached a mutual agreement with Societe
Generale Asset Management S.A. to terminate the previously announced
acquisition of Societe Generale Asset Management Corp.
Multiple Asset Accumulation Products. The Company sells a full range of
retirement-oriented insurance products, grouped by whether they provide fixed,
indexed or variable returns to policyholders.
1
<PAGE>
Substantially all of these products currently are annuities that are written by
the Company's wholly-owned subsidiary, Keyport Life Insurance Company
("Keyport"), one of the country's leading annuity companies. Annuities are
insurance products which provide a tax-deferred means of accumulating savings
for retirement needs, as well as a tax-efficient source of income in the payout
period. The Company's principal fixed annuity products are individual single
premium deferred fixed annuities ("SPDAs"), which represented $8.2 billion of
policyholder liabilities as of December 31, 1998. In addition to SPDAs, the
Company also sells equity-indexed and variable annuities. Equity-indexed
annuities are an innovative product first introduced to the marketplace by the
Company when it began selling its KeyIndex[RegTM] product in 1995. The
Company's equity-indexed annuities credit interest to the policyholder at a
"participation rate" equal to a portion of the change in value of a specified
equity index (in the case of the Company's equity-indexed products, the
Standard & Poor's 500 Composite Stock Index ("S&P 500 Index")).* Under a
variable annuity, the policyholder has the opportunity to select separate
account investment options, consisting of underlying mutual funds, which pass
the investment risk directly to the policyholder in return for the potential of
higher returns. Variable annuities also include guaranteed fixed interest rate
options.
The Company has six operating units engaged in investment management: The
Colonial Group ("Colonial"), Stein Roe & Farnham Incorporated ("Stein Roe"),
Newport Pacific Management, Inc. ("Newport"), Crabbe Huson, Progress and
Liberty Asset Management Company ("LAMCO"), each of which carries strong brand
name recognition in the markets it serves. As of December 31, 1998, the Company
sponsored 78 open-end mutual funds, as well as seven closed-end funds. The
open-end funds consist of 46 intermediary-distributed funds, 19 direct-marketed
funds, and 13 other funds included among the investment options available under
the Company's variable annuities. The closed-end funds consist of five fixed
income funds and two equity funds. Fifty-eight of the Company's 78 open-end
mutual funds are long-term funds (defined as open-end funds having at least a
three-year performance record, excluding funds that invest solely in money
market securities). Forty of those 58 funds (representing 81% of the total
assets in those 58 funds as of December 31, 1998) were ranked by Lipper
Analytical Services, Inc. ("Lipper") in the top two quartiles of their
respective peer groups for the three-year period ended that date.
Multiple Distribution Channels. Liberty Financial sells its products
through multiple distribution channels. The Company distributes its products
through all the major third party intermediary channels, including national and
regional brokerage firms, banks and other depository institutions, financial
planners and insurance agents. To capitalize on the importance of banks and
other depository institutions as intermediaries for its products, the Company
also operates its own distribution unit, Independent Financial Marketing Group,
Inc. ("Independent"), which sells annuities and mutual funds through such
entities. Certain of the Company's products also are sold directly to
investors, including its mutual funds sold without a sales load, private
capital management and institutional asset management products. The Company
believes that it is one of the few asset accumulators with a significant
presence in both the intermediary and direct channels. Total product sales for
1998 were $9.6 billion (including $1.3 billion of reinvested dividends). During
1998, 54% of sales were made through intermediary distributors, with the
balance made directly to the investor. Over 35,000 individual brokers and other
intermediaries sold Liberty Financial products in 1998.
Business Strategy. The Company's business strategy has four interrelated
elements:
o Diversification. The Company believes that the diversification in its
products and distribution channels allows it to accumulate assets in
different market cycles, thereby providing more consistent growth potential
and reducing earnings volatility. Within its two core product lines, the
Company sells a range of products that serve individuals at different stages
of their life and earnings cycle. This mix also is designed to include
products that will be in demand under a variety of economic and market
conditions. Similarly, the Company reaches customers through a variety of
distribution channels. Diversification of distribution channels allows the
Company to reach many segments of the marketplace and lessens its dependence
on any one source of assets.
- ----------
*"S&P," "S&P 500" and "Standard & Poor's 500" are registered trademarks of The
McGraw-Hill Companies, Inc., and have been licensed for use by Keyport.
2
<PAGE>
o Integration. Liberty Financial actively promotes integration of its operating
units and believes that such efforts will enable it to accumulate additional
assets by leveraging distribution capabilities and to reduce expenses by
consolidating redundant back office functions. The Company has consolidated
its mutual fund administration and transfer agency operations as well as the
distribution of all of the Company's intermediary-distributed mutual funds,
while retaining the distinctive styles of its investment management
subsidiaries. Stein Roe manages the majority of Keyport's general account
assets and together with Colonial, Newport and LAMCO manages certain of the
funds underlying Keyport's variable annuity products. Independent Financial
Marketing Group, Inc. ("Independent"), the Company's bank distribution unit,
was the largest distributor of Keyport's annuities and the second largest
distributor of the Colonial funds in 1998.
o Acquisitions. Where appropriate, the Company seeks acquisitions that provide
additional assets, new or complementary investment management capabilities,
distribution capabilities or other integration or diversification
opportunities in its core product areas. Acquisitions are an integral part of
Liberty Financial's business strategy. Stein Roe (acquired in 1986), Keyport
(acquired in 1988), Colonial (acquired in 1995), Newport (acquired in 1995),
Crabbe Huson (acquired in 1998), Progress (acquired in 1998) and major
components of the Company's bank distribution unit (including Independent,
acquired in 1996) all joined Liberty Financial by acquisition. The Company is
constantly evaluating acquisition opportunities. As of the date of this
Report, the Company has not entered into any definitive agreement for a
material acquisition.
o Innovation. Liberty Financial believes that product and distribution
innovations are essential in order to grow its asset base and meet the ever
changing financial needs of its customers. The Company believes that it has
an impressive track record in such innovations. For example, Newport created
the first U.S.-based mutual fund to focus exclusively on the "Tiger"
countries of Asia, and the Company recently began to sell Colonial fixed
income funds in Japan in a distribution venture with a Japanese brokerage
firm. The Stein Roe Young Investor[SM] Fund was the first mutual fund to be
coupled with an educational program to teach young people about investing,
while offering parents an excellent device to save for educational and other
family needs. The Company also introduced the first equity-indexed annuity
product to the marketplace.
The Company's business strategy is based on its belief that its products have
attractive growth prospects due to important demographic and economic trends.
These trends include the need for the aging baby boom generation to increase
savings and investment, lower public confidence in the adequacy of government
and employer-provided retirement benefits, longer life expectancies, and rising
health care costs. The Company believes that its product mix and distribution
strength are well suited to exploit these demographic and economic trends and
will help the Company maintain and enhance its position as a leading asset
accumulation and management company.
Retirement-Oriented Insurance Products
The Company sells a full range of retirement-oriented insurance products,
grouped by whether they provide fixed, indexed or variable returns to
policyholders. Annuities are insurance products designed to offer individuals
protection against the risk of outliving their financial assets during
retirement. Annuities offer a tax-deferred means of accumulating savings for
retirement needs and provide a tax-efficient source of income in the payout
period. The Company earns spread income from fixed and indexed annuities;
variable annuities primarily produce fee income for the Company. The Company's
primary financial objectives for its annuities business are to increase
policyholder balances through new sales and asset retention and to earn
acceptable investment spreads on its fixed and indexed return products.
Products
The Company's principal retirement-oriented insurance products are
categorized as follows:
Fixed Annuities. The Company's principal fixed annuity products are SPDAs.
A SPDA policyholder makes a single premium payment at the time of issuance. The
Company obligates itself to credit interest to the policyholder's account at a
rate that is guaranteed for an initial term (typically one year) and is reset
annually thereafter, subject to a guaranteed minimum rate. Interest crediting
continues until the policy is surrendered or the policyholder dies or turns age
90.
3
<PAGE>
Equity-Indexed Annuities. Equity-indexed annuities are an innovative
product first introduced to the marketplace in 1995 by the Company when it
began selling its KeyIndex product. The Company's equity-indexed annuities
credit interest to the policyholder at a "participation rate" equal to a
portion (ranging for existing policies from 25% to 95%) of the change in value
of a specified equity index. KeyIndex is currently offered for one, five and
seven-year terms with interest earnings based on a percentage of the increase
in the S&P 500 Index. With the five and seven-year terms, the interest earnings
are based on the highest policy anniversary date value of the S&P 500 Index
during the term. KeyIndex also provides a guarantee of principal at the end of
the term. Thus, unlike a direct equity investment, even if the S&P 500 Index
declines there is no market risk to the policyholder's principal. In late 1996,
the Company introduced a market value adjusted ("MVA") annuity product,
KeySelect, which offers a choice between an equity-indexed account similar to
KeyIndex and a fixed annuity-type interest account. KeySelect offers terms for
each equity-indexed account of one, three, five, six and seven years, as well
as a ten-year term for the fixed interest account. KeySelect shifts some
investment risk to the policyholder, since surrender of the policy before the
end of the policy term will result in increased or decreased account values
based on the change in rates of designated U.S. Treasury securities since the
beginning of the term. The Company is continuing to develop new versions of its
equity-indexed annuities, including versions registered under the Securities
Act of 1933 (the "Securities Act") which are designed to be sold through major
national brokerage firms.
Variable Annuities. Variable annuities offer a selection of underlying
investment alternatives which may satisfy a variety of policyholder risk/return
objectives. Under a variable annuity, the policyholder has the opportunity to
select separate account investment options (consisting of underlying mutual
funds) which pass the investment risk directly to the policyholder in return
for the potential of higher returns. Variable annuities also include guaranteed
fixed interest options. Keyport has several different variable annuity products
that currently offer from 18 to 21 separate account investment choices,
depending on the product, and four guaranteed fixed-interest options.
While the Company currently does not offer traditional life insurance
products, it manages a closed block of single premium whole life insurance
policies ("SPWLs"), a retirement-oriented tax-advantaged life insurance
product. The Company discontinued sales of SPWLs in response to certain tax law
changes in the 1980s. The Company had SPWL policyholder balances of $2.0
billion as of December 31, 1998.
Under the Internal Revenue Code (the "Code"), returns credited on
annuities and life insurance policies during the accumulation period (the
period during which interest or other returns are credited) are not subject to
federal income tax. Proceeds payable on death from a life insurance policy are
also free from such taxes. At the maturity or payment date of an annuity
policy, the policyholder is entitled to receive the original deposit plus
accumulated returns. The policyholder may elect to take this amount in either a
lump sum or an annualized series of payments over time. The return component of
such payments is taxed at the time of receipt as ordinary income at the
recipient's then applicable tax rate. The demand for the Company's
retirement-oriented insurance products could be adversely affected by changes
in the tax law.
The following table sets forth certain information regarding Keyport's
retirement-oriented insurance products for the periods indicated.
<TABLE>
<CAPTION>
As of or for the Year Ended
December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(dollars in millions, except
policy
data)
<S> <C> <C> <C>
Policy and Separate Account Liabilities:
Fixed annuities ........................ $ 8,246 $ 8,417 $ 8,641
Equity indexed annuities ............... 2,125 1,527 788
Variable annuities ..................... 1,744 1,277 1,083
Life insurance ......................... 2,112 2,129 2,142
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Total ................................. $14,227 $13,350 $12,654
======= ======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
As of or for the Year Ended
December 31,
--------------------------------------------
1998 1997 1996
------------- ------------- ------------
(dollars in millions, except policy data)
<S> <C> <C> <C>
Number of In Force Policies:
Fixed annuities ............................... 205,510 222,903 236,574
Equity indexed annuities ...................... 46,484 39,224 24,174
Variable annuities ............................ 37,049 27,429 25,177
Life insurance ................................ 23,097 24,921 26,850
-------- -------- -------
Total ........................................ 312,140 314,477 312,775
======== ======== =======
Average In Force Policy Amount:
Fixed annuities ............................... $40,126 $37,710 $ 36,479
Equity indexed annuities ...................... $45,720 $38,943 $ 32,591
Variable annuities ............................ $47,070 $46,542 $ 43,035
Life insurance ................................ $91,435 $83,709 $ 79,207
Premiums (statutory basis):
Fixed annuities ............................... $ 706 $ 425 $ 493
Equity indexed annuities ...................... 278 524 655
Variable annuities ............................ 508 173 97
Life insurance (net of reinsurance) ........... (1) (1) --
---------- ---------- ---------
Total ........................................ $ 1,491 $ 1,121 $ 1,245
========= ========= =========
New Contracts and Policies:
Fixed annuities ............................... 10,450 13,744 11,358
Equity indexed annuities ...................... 9,249 16,076 21,396
Variable annuities ............................ 12,238 4,333 1,814
--------- --------- ---------
Total ........................................ 31,937 34,153 34,568
========= ========= =========
Aggregate Amount Subject to Surrender Charges:
Fixed annuities ............................... $ 6,643 $ 6,982 $ 7,371
Equity indexed annuities ...................... $ 2,125 $ 1,527 $ 788
Withdrawals and Terminations (statutory basis):
Fixed Annuities:
Death ........................................ $ 29 $ 60 $ 25
Maturity ..................................... $ 118 $ 110 $ 87
Surrender .................................... $ 1,226 $ 1,000 $ 966
Indexed Annuities:
Death ........................................ $ 11 $ 4 $ 0.1
Maturity ..................................... -- -- --
Surrender .................................... $ 39 $ 19 $ 3
Variable Annuities:
Death ........................................ $ 7 $ 4 $ 2
Maturity ..................................... $ 87 $ 28 $ 21
Surrender .................................... $ 141 $ 105 $ 77
Life Insurance:
Death ........................................ $ 63 $ 66 $ 53
Surrender .................................... $ 77 $ 96 $ 98
Surrender Rates:
Fixed annuities ............................... 14.73% 11.74% 11.79%
Equity indexed annuities ...................... 2.13% 1.68% 0.69%
Variable annuities ............................ 9.31% 8.86% 7.55%
Life insurance ................................ 3.73% 4.57% 4.58%
</TABLE>
5
<PAGE>
Sales and Asset Retention
Product sales are influenced primarily by overall market conditions
affecting the attractiveness of the Company's retirement-oriented insurance
products, by product features including interest crediting and participation
rates, and by innovations and services that distinguish the Company's products
from those of its competitors.
The Company's mix of annuity products is designed to include products in
demand under a variety of economic and market conditions. Sales of SPDAs,
variable annuities and equity-indexed annuities tend to be sensitive to
prevailing interest rates. Sales of SPDAs can be expected to increase and
surrenders to decrease in interest rate environments when SPDA rates are higher
than rates offered by competing conservative fixed return investments, such as
bank certificates of deposit. SPDA sales can be expected to decline and
surrenders to increase in interest rate environments when this differential in
rates is not present (as was the case during 1998 and at the date of filing of
this Report). SPDA sales also can be adversely affected by low interest rates
(as was the case during 1998 and at the date of filing of this Report).
Conversely, sales of variable annuities can be expected to increase and
surrenders of such products to decrease in a rising equity market, low interest
rate environment. While sales of equity-indexed annuities can be expected to
increase and surrenders to decrease in a rising equity market, low interest
rate environment, sales of these products can be affected by the participation
rate credited by the Company, which may be reduced in a rising but relatively
volatile equity market.
The Company's insurance products include important features designed to
promote both sales and asset retention, including crediting rates and, in most
cases, surrender charges. Initial interest crediting and participation rates on
fixed and indexed products significantly influence the sale of new policies.
Resetting of rates on SPDAs impacts retention of SPDA assets, particularly on
policies where surrender penalties have expired. At December 31, 1998,
crediting rates on 97.0% of the Company's in force SPDA policy liabilities were
subject to reset during the succeeding 12 months. In setting crediting and
participation rates, the Company takes into account yield characteristics on
its investment portfolio, surrender rate assumptions and competitive industry
pricing. Interest crediting rates on the Company's in force SPDAs ranged from
3.50% to 7.75% at December 31, 1998. Such policies had guaranteed minimum rates
ranging from 3.0% to 6.35% as of such date. Initial interest crediting rates on
new policies issued in 1998 ranged from 4.30% to 7.20%. Guaranteed minimum
rates on new policies issued during 1998 ranged from 3.0% to 4.5%.
Substantially all of the Company's annuity insurance products permit the
policyholder at anytime to withdraw all or any part of the accumulated policy
value. Premature termination of a policy results in the loss by the Company of
anticipated future earnings related to the premium deposit and the accelerated
recognition of the expenses related to policy acquisition (principally
commissions), which otherwise are deferred and amortized over the life of the
policy. Surrender charges provide a measure of protection against premature
withdrawal of policy values. Substantially all of the Company's insurance
products currently are issued with surrender charges or similar penalties. Such
surrender charges for all policies, except KeyIndex, typically start at 7% of
the policy premium and then decline to zero over a five- to seven-year period.
KeyIndex imposes a penalty on surrender of up to 10% of the premium deposit for
the life of the policy. At December 31, 1998, 80.6% of the Company's fixed
annuity policyholder balances remained in the surrender charge period.
Surrender charges generally do not apply to withdrawals by policyholders of,
depending on the policy, either up to 10% per year of the then accumulated
value or the accumulated returns. In addition, certain policies may provide for
charge-free withdrawals in certain circumstances and at certain times. All
policies except for certain variable annuities also are subject to "free look"
risk (the legal right of the policyholder to cancel the policy and receive back
the initial premium deposit, without interest, for a period ranging from ten
days to one year, depending upon the policy). To the extent a policyholder
exercises the "free look" option, the Company may realize a loss as a result of
any investment losses on the underlying assets during the free look period, as
well as the commissions paid on the sale of the policy. While SPWLs also permit
withdrawal, the withdrawal generally would produce significant adverse tax
consequences to the policyholder.
Keyport's financial ratings are important to its ability to accumulate and
retain assets. Keyport is rated "A" (excellent) by A.M. Best, "AA" (very strong
financial security) by S&P, "A2" (good) by Moody's and AA- (very high claims
paying ability) by Duff & Phelps. Rating agencies periodically review the
ratings
6
<PAGE>
they issue. S&P raised Keyport's rating from "AA-" to "AA" in March, 1998 and
reaffirmed that rating in January, 1999. In September 1998, Moody's reduced
Keyport's rating from "A1" to "A2". In January 1999, A.M. Best reduced
Keyport's rating from "A+" to "A". These ratings reflect the opinion of the
rating agency as to the relative financial strength of Keyport and Keyport's
ability to meet its contractual obligations to its policyholders. Such ratings
are not "market" ratings or recommendations to use or invest in Keyport or
Liberty Financial and should not be relied upon when making a decision to
invest in the Company. Many financial institutions and broker-dealers focus on
the claims-paying ability rating of an insurer in determining whether to market
the insurer's annuities. If any of Keyport's ratings were downgraded from their
current levels or if the ratings of Keyport's competitors improved and
Keyport's did not, sales of Keyport's products, the level of surrenders on
existing policies and the Company's relationships with distributors could be
materially adversely affected. No assurance can be given that Keyport will be
able to maintain its financial ratings. Keyport has been advised that its S&P
rating was placed under credit watch with negative implications as a
consequence of an acquisition announced by Liberty Mutual in January, 1999.
Customer service also is essential to asset accumulation and retention.
The Company believes Keyport has a reputation for excellent service to its
distributors and its policyholders. Keyport has developed advanced technology
systems for immediate response to customer inquiries, and rapid processing of
policy issuances and commission payments (often at the point of sale). These
systems also play an important role in controlling costs. Keyport's annualized
operating expenses for 1998 were 0.42% of assets, which reflects Keyport's low
cost operations.
General Account Investments
Premium deposits on fixed and indexed annuities are credited to the
Company's general account investments (which at December 31, 1998 totaled $13.3
billion). General account investments include cash and cash equivalents. To
maintain its investment spreads at acceptable levels, the Company must earn
returns on its general account sufficiently in excess of the fixed or indexed
returns credited to policyholders. The key element of this investment process
is asset/liability management. Successful asset/liability management requires
both a quantitative assessment of overall policy liabilities (including
maturities, surrenders and crediting of interest) and prudent investment of
general account assets. The two most important tools in managing policy
liabilities are setting crediting rates and establishing surrender periods. The
investment process requires portfolio techniques that earn acceptable yields
while effectively managing both interest rate risk and credit risk. The Company
emphasizes a conservative approach to asset/liability management, which is
oriented toward reducing downside risk in adverse markets, as opposed to
maximizing spread in favorable markets. The approach is also designed to reduce
earnings volatility. Various factors can impact the Company's investment
spread, including changes in interest rates and other factors affecting the
Company's general account investments.
The bulk of the Company's general account investments are invested in
fixed maturity securities (84.7% at December 31, 1998). The Company's principal
strategy for managing interest rate risk is to closely match the duration of
its general account investment portfolio and its policyholder balances. The
Company also employs hedging strategies to manage this risk, including interest
rate swaps and caps. In the case of equity-indexed products, the Company
purchases S&P 500 Index call options and futures to hedge its obligations to
provide participation rate returns. Credit risk is managed by careful credit
analysis and monitoring. A portion of general account investments (8.1% at
December 31, 1998) is invested in below investment grade fixed maturity
securities to enhance overall portfolio yield. Below investment grade
securities pose greater risks than investment grade securities. The Company
actively manages its below investment grade portfolio in an effort to optimize
its risk/return profile. At December 31, 1998, the carrying value of fixed
maturity investments that were non-income producing was $30.0 million, which
constituted 0.2% of the Company's general account investments. For a more
detailed description of the management of the Company's general account
investments, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition--Quantitative and Qualitative Disclosures About Market
Risk" beginning at page 33 of the Company's 1998 Annual Report To Shareholders
(the "1998 Annual Report").
7
<PAGE>
As of December 31, 1998, the Company owned approximately $3.3 billion of
mortgage-backed securities (24.8% of its general account investments), 97.3% of
which were investment grade. Mortgage-backed securities are subject to
significant prepayment and extension risks, since the underlying mortgages may
be repaid more or less rapidly than scheduled.
As of December 31, 1998, approximately $3.6 billion (26.7% of the
Company's general account investments) were invested in securities which were
sold without registration under the Securities Act and were not freely
tradeable under the Securities Act or which were otherwise illiquid. These
securities may be resold pursuant to an exemption from registration under the
Securities Act. If the Company sought to sell such securities, it might be
unable to do so at the then current carrying values and might have to dispose
of such securities over extended periods of time at uncertain levels.
Stein Roe manages the majority ($7.8 billion at December 31, 1998) of the
Company's general account investments. In addition, several unaffiliated
parties manage portions of its general account investments in order to obtain
diversification of investment styles and asset classes.
The Company's general account investments, all of which pertain to the
Company's annuity insurance operations, were comprised of the following as of
the dates indicated (in millions):
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Fixed maturities .................... $11,277.2 $11,246.5 $10,718.6
Policy loans ........................ 578.9 554.7 532.8
Other invested assets ............... 717.6 501.5 250.6
Equity securities ................... 24.6 40.8 35.9
----- ----- -----
Investments ........................ 12,598.3 12,343.5 11,537.9
Cash and cash equivalents ........... 719.6 1,162.4 767.4
-------- -------- --------
General account investments ......... $13,317.9 $13,505.9 $12,305.3
========= ========= =========
</TABLE>
Investment Management
Liberty Financial has three types of investment management products:
mutual funds, private capital management, and institutional asset management.
The Company has six separate operating units engaged in investment management:
Colonial, Stein Roe, Newport, Crabbe Huson, Progress and LAMCO. The Company's
primary financial objectives with respect to its investment management
businesses are to increase assets under management in each of its three core
products, and to improve operating margins through increasing scale and cost
savings produced by integration.
Products and Services.
Mutual Funds. As of December 31, 1998 the Company sponsored 78 open-end
mutual funds, as well as seven closed-end funds. The open-end funds include 46
intermediary-distributed mutual funds, 19 direct-marketed funds, and 13 other
funds included among the investment options available under the Company's
variable annuities. The closed-end funds include five fixed income funds and
two equity funds. At December 31, 1998, total mutual fund assets were $28.6
billion. At December 31, 1998, 52.6% of these assets were invested in equity
funds, 25.4% in taxable fixed income funds and 22.0% in tax-exempt fixed income
funds. The Company seeks to increase equity mutual fund assets, which generally
carry higher fees than funds that invest in fixed income securities.
Private Capital Management. At December 31, 1998, the Company managed $7.9
billion in investment portfolios for high net worth individuals and families
and smaller institutional investors, all of which are managed by Stein Roe.
Institutional Asset Management. At December 31, 1998, the Company managed
$11.4 billion of investment portfolios for institutional investors such as
insurance companies, public and private retirement funds, endowments,
foundations and other institutions. These assets are managed by Stein Roe,
Colonial, Crabbe Huson and Progress. In addition, Stein Roe manages the
majority of Keyport's general account assets supporting Keyport's insurance
products. See "--Retirement-Oriented Insurance Products--General Account
Investments."
8
<PAGE>
The Company's investment management business focuses on managing the
investments of each client's portfolios in accordance with the client's
investment objectives and policies. The Company also provides related
administrative and support services to clients, such as portfolio pricing,
accounting and reporting. Investment management fees and related administrative
and support fees generally are charged as a percentage of assets under
management. Client accounts are managed pursuant to a written agreement which,
with limited exceptions, is terminable at any time upon relatively short notice
(typically 30-60 days).
In the case of mutual fund clients, all services provided by the Company
are subject to the supervision of the fund's Board of Trustees. Additional
administrative services provided to mutual funds include provision of office
space, other facilities and personnel, marketing and distribution services, and
transfer agency and other shareholder support services. Investment management
fees paid by a mutual fund must be approved annually by the fund's Board of
Trustees, including a majority of the independent Trustees. Any increases in
such fees also must be approved by fund shareholders. Most of the Company's
mutual fund assets are held in open-end funds. Shareholders of open-end funds
generally can redeem their shares on any business day.
The Company's direct-market mutual funds are sold without a sales load.
The Company's intermediary-distributed mutual funds generally offer investors a
choice of three pricing options: (1) a traditional front-end load option, in
which the investor pays a sales charge at the time of purchase; (2) a
contingent deferred sales charge, in which the investor pays no sales charge at
the time of purchase, but is subject to an asset-based sales charge paid by the
fund generally for eight years after purchase and a declining contingent
deferred sales charge paid by the investor if shares are redeemed generally
within six years after purchase; and (3) a level-load option, in which the
investor pays a small initial sales charge, and is subject to an ongoing
asset-based sales charge paid by the fund and a small contingent deferred sales
charge paid by the investor if shares are redeemed within one year after
purchase.
The following tables present certain information regarding the Company's
assets under management as of or for each year in the three-year period ended
December 31, 1998. Such information includes Keyport's assets (including its
general account investments managed by Stein Roe, as well as loans to
policyholders and Keyport's general account investments managed by unaffiliated
investment managers). In addition, certain information is provided separately
for mutual fund assets.
<TABLE>
<CAPTION>
As of December 31,
------------------------------
1998 1997 1996
Total Assets Under Management -------- -------- --------
(dollars in billions)
<S> <C> <C> <C>
Mutual funds:
Intermediary-distributed ...................... $17.9 $16.1 $16.1
Direct-marketed ............................... 6.8 7.2 6.6
Closed-end .................................... 2.4 2.2 1.9
Variable annuity .............................. 1.5 1.3 1.1
----- ----- -----
Total mutual funds ........................... 28.6 26.8 25.7
Private capital management ..................... 7.9 6.6 5.3
Institutional asset management ................. 11.4 5.3 4.9
Retirement-oriented insurance products ......... 13.1 12.8 12.1
----- ----- -----
Total ...................................... $61.0 $51.5 $48.0
===== ===== =====
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------
Total Assets Under Management 1998 1997 1996
By Asset Class (1) -------- -------- --------
(dollars in billions)
<S> <C> <C> <C>
Fee-based assets:
Equity ........................................ $26.0 $18.2 $16.1
Fixed-income .................................. 21.9 20.5 19.8
----- ----- -----
Total fee-based assets ....................... 47.9 38.7 35.9
Retirement-oriented insurance products ......... 13.1 12.8 12.1
----- ----- -----
Total ...................................... $61.0 $51.5 $48.0
===== ===== =====
</TABLE>
- ----------------
(1) Balanced funds are classified as equity funds; all categories include cash
and other short-term investments in applicable portfolios.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------
Total Mutual Fund Assets Under 1998 1997 1996
Management By Asset Class (1) -------- -------- --------
(dollars in billions)
<S> <C> <C> <C>
Equity funds ................... $15.0 $13.3 $12.1
Fixed-income funds:
Taxable ....................... 7.3 7.0 7.0
Tax-exempt .................... 6.3 6.5 6.6
----- ----- -----
Total ...................... $28.6 $26.8 $25.7
===== ===== =====
</TABLE>
- ----------------
(1) Balanced funds are classified as equity funds; all categories include
cash and other short-term investments in applicable portfolios.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------
Total Assets Under Management -- 1998 1997 1996
Asset Flow Summary -------- -------- --------
(dollars in billions)
<S> <C> <C> <C>
Assets under management--beginning ......... $ 51.5 $ 48.0 $ 42.5
Sales and reinvestments .................... 9.6 7.5 8.6
Redemptions and withdrawals ................ (8.2) (7.8) (6.9)
Asset acquisitions ......................... 5.4 -- 1.2
Net insurance cash flows ................... 0.6 0.7 0.7
Market appreciation ........................ 2.1 3.1 1.9
------ ------ ------
Assets under management--ending ............ $ 61.0 $ 51.5 $ 48.0
====== ====== ======
</TABLE>
10
<PAGE>
Sales and Asset Retention
The Company believes that the most important factors in accumulating and
retaining investment management assets are investment performance, customer
service and brand name recognition. Strong investment performance is crucial to
asset accumulation and retention, regardless of the product or distribution
channel. Performance is particularly important for mutual funds, whether
intermediary-distributed or direct-marketed. Fifty-eight of the Company's 78
open-end mutual funds were long-term funds as of December 31, 1998 (defined as
open-end funds having at least a three-year performance record, excluding funds
that invest solely in money market securities). Forty of those 58 funds
(representing 81% of the total assets in those 58 funds as of December 31,
1998) were ranked by Lipper in the top two quartiles of their respective peer
groups for the three-year period ended that date. The Company believes that
over time, more sophisticated tools, such as those employed by consultants to
institutional investors, will become available to consumers for analyzing
mutual fund performance and risk. The Company's investment performance must
remain competitive for the Company to continue to grow investment management
product sales and assets.
The Company believes that, in light of the proliferation of mutual funds
and investment managers, strong brand name recognition in relevant distribution
channels is essential to asset accumulation and retention, particularly with
respect to mutual funds. The Company believes that the Colonial name carries
strong brand name recognition among brokers and other intermediaries selling
mutual funds, and that the Stein Roe name carries similar recognition in the
direct sales channel. Similarly, the Company believes that Stein Roe has a
franchise presence in the private capital management market and that Newport is
a recognized leader in investments in the Asian markets. The Company believes
that Crabbe Huson is a recognized leader in its specialty area of contrarian
investing and that Progress has a strong reputation in the selection and
management of multiple investment managers.
Sales of mutual funds and other investment management products are subject
to market forces, such as changes in interest rates and stock market
performance. Changes in the financial markets, including significant increases
or decreases in interest rates or stock prices, can increase or decrease fund
sales and redemptions, as well as the values of assets in such portfolios, all
of which impact investment management fees. The competitiveness of the
Company's investment management products (both in terms of new sales and asset
retention) also is dependent on the relative attractiveness of their underlying
investment philosophies and methods.
Distribution
Liberty Financial sells its products through multiple distribution
channels. Total product sales during 1998 were $9.6 billion (including $1.3
billion of reinvested dividends and similar reinvested returns). During 1998,
54% of these sales were made through intermediary distributors, with the
balance made directly to the investor. Over 35,000 individual brokers and other
intermediaries sold Liberty Financial products in 1998.
Distribution Through Intermediaries
The Company sells both annuities and mutual funds through various
intermediaries, including national and regional brokerage firms, banks and
other depository institutions, financial planners and insurance agents. The
Company's annuities and mutual funds are most often sold to middle and upper-
middle class investors and savers. Many of these individuals seek the help of
an investment professional in selecting investment and retirement income and
savings products. In each of these intermediary channels, the Company provides
products, as well as promotional materials and other support services.
Reflecting its diversification strategy, the Company maintains
distribution relationships with several different types of intermediaries.
Intermediary-distributed mutual funds and annuities historically have been
distributed through brokerage firms and insurance agents. Banks and financial
planners also have become significant distributors of these products.
The Company employs wholesalers and other sales professionals to promote
sales of its intermediary-distributed products. These representatives meet with
intermediaries' sales forces to educate them on matters such as product
objectives, features, performance records and other key
11
<PAGE>
selling points. The Company also produces marketing material designed to help
intermediaries sell the Company's products, and provides after-sale support to
both the intermediaries and their customers. The degree and mix of these
services vary with the requirements of the particular intermediary.
The Company was a pioneer in selling through banks, both in terms of
helping banks develop marketing programs and in establishing wholesaling
relationships with banks. Liberty Financial operates a sales unit, Independent,
that sells mutual funds and annuities through banks. The Company acquired
Independent in March, 1996. Since the acquisition, the Company has consolidated
its prior bank sales unit, the Liberty Financial Bank Group, with Independent.
These businesses design and implement programs that sell annuities and mutual
funds through their client banks, license and train sales personnel, and
provide related financial services and administrative support. Program
structures and the degree of the Company's involvement vary widely depending
upon the particular needs of each bank. Products sold include the Company's
proprietary products, as well as non-proprietary products (including in some
cases the bank's proprietary mutual funds). At December 31, 1998, Independent
had over 60 bank relationships involving over 2,500 registered salespersons.
The proliferation of competing products and the market presence of certain
large competitors requires the Company to compete to establish and maintain
distribution relationships and to maintain "shelf space" with distributors.
Many of the larger distributors have begun to reduce the number of companies
for whom they distribute. Product features, relative performance, pricing and
support services to distributors and their customers are important factors in
competing for distribution relationships. Some distributors assess fee sharing
payments or similar charges as additional compensation for fund sales. The
Company can be confronted with the choice of absorbing these charges or
limiting its access to certain distributors. An interruption in the Company's
continuing relationship with certain of these distributors could materially
adversely affect the Company's ability to sell its products. There can be no
assurance that the Company would be able to find alternative sources of
distribution in a timely manner.
The sales practices and support needs of the Company's distributors are
constantly evolving. The Company must respond to these changes in order to
maintain and grow its intermediary distribution relationships. Pricing
structures in these channels, particularly with respect to mutual funds, have
expanded in recent years from one-time up-front sales loads to additional
options that shift investors' payments over time and move somewhat toward
fee-based pricing. The Company's intermediary-distributed mutual funds now are
sold with alternate pricing structures. Intermediaries also increasingly demand
that product providers supply new value-added services.
Direct Distribution
The Company's direct-marketed mutual funds, as well as its private capital
management and institutional asset management services, are sold directly to
investors. The Company's direct-marketed mutual funds are purchased
predominantly by middle and upper-middle class investors and savers who choose
to select their own funds and who wish to avoid paying sales loads and similar
fees. Private capital management clients typically are high net worth
individuals and families. Institutional asset management clients typically are
larger institutional investors managed by in-house professional staffs that
select and oversee asset managers, often with the advice of third party
consultants.
In each of the direct sales markets served by the Company, investment
performance is essential to generating sales and retaining customers. Mutual
fund sales also require robust marketing campaigns using print, radio and
television advertising and direct mail that highlight performance and other
selling points. The Company believes that certain technology-based customer
service and support tools it is developing, including on-line account access
and interactive illustrative investment tools, can become important devices in
accumulating and retaining assets in the direct distribution channels. The
reputation of the Company's high quality asset managers is an important factor
in generating new private capital and institutional asset management clients.
Active management of the client relationship, including frequent personal
contacts, is necessary to retain these clients.
So-called "mutual fund supermarkets," such as Charles Schwab & Co., Inc.'s
OneSource[TM], have become an important source of customers for direct-marketed
mutual funds. During 1998, 40% of the
12
<PAGE>
total new sales of the Company's direct-marketed mutual funds were through
mutual fund supermarkets and similar arrangements. To access these
marketplaces, the Company pays the supermarket sponsor a fee based upon a
percentage of mutual fund assets held by supermarket customers in return for
certain services provided by the supermarket sponsor, such as omnibus
shareholder accounting. Financial planners and similar unaffiliated advisors
sometimes serve as sources of referrals for private capital management clients,
in some cases in return for referral fees or other compensation.
Industry Segment Information
Liberty Financial conducts its business in two industry segments: annuity
insurance and asset management. Annuity insurance operations relate primarily
to the Company's fixed, indexed and variable annuities and its closed block of
SPWLs. Asset management operations relate to its mutual funds, private capital
management and institutional asset management products. For information on
these reportable segments, see Note 12 of Notes to the Consolidated Financial
Statements of the Company contained in the 1998 Annual Report.
Regulation
Overview
The Company's business activities are extensively regulated. The following
briefly summarizes the principal regulatory requirements and certain related
matters. The regulatory requirements applicable to the Company include, among
other things, (i) regulation of the form and in certain cases the content of
the Company's products, (ii) regulation of the manner in which those products
are sold and (iii) compliance oversight of the Company's business units,
including frequent reporting obligations to and inspections by regulators.
Changes in or the failure by the Company to comply with applicable law and
regulations could have a material adverse effect on the Company.
Annuity Insurance
The Company's retirement-oriented insurance products generally are issued
as individual policies. The policy is a contract between the issuing insurance
company and the policyholder. Policy forms, including all principal contract
terms, are regulated by state law. In most cases, the policy form must be
approved by the insurance department or similar agency of a state in order for
the policy to be sold in that state.
Keyport issues most of the Company's retirement-oriented insurance
products. Independence Life & Annuity Company ("Independence Life") and Keyport
Benefit Life Insurance Company ("Keyport Benefit"), Keyport subsidiaries, also
issue certain policies. Keyport and Independence Life are each chartered in the
state of Rhode Island, and the Rhode Island Insurance Department is their
primary oversight regulator. Keyport Benefit is chartered in the state of New
York, and the New York Department of Insurance is its primary oversight
regulator. Keyport Benefit, acquired by Keyport in January, 1998, operates
exclusively in New York and Rhode Island. Keyport and Independence Life also
must be licensed by the state insurance regulators in each other jurisdiction
in which they conduct business. They currently are licensed to conduct business
in 49 states (the exception being New York) and in the District of Columbia and
the Virgin Islands. State insurance laws generally provide regulators with
broad powers related to issuing licenses to transact business, regulating
marketing and other trade practices, operating guaranty associations,
regulating certain premium rates, regulating insurance holding company systems,
establishing reserve requirements, prescribing the form and content of required
financial statements and reports, performing financial and other examinations,
determining the reasonableness and adequacy of statutory capital and surplus,
regulating the type and amount of investments permitted, limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval, and other related matters. The
regulators also make periodic examinations of individual companies and review
annual and other reports on the financial condition of all companies operating
within their respective jurisdictions.
Keyport and Independence Life prepare their statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the Rhode Island Insurance Department. Keyport Benefit prepares its
statutory-basis financial statements in accordance with accounting practices
13
<PAGE>
prescribed or permitted by the New York Department of Insurance. Certain
statutory accounting practices are prescribed by state law. Permitted statutory
accounting practices encompass all accounting practices that are not
proscribed; such practices may differ between the states and companies within a
state. The National Association of Insurance Commissioners (the "NAIC") is
currently in the process of codifying statutory accounting practices, the
result of which is expected to constitute the only source of prescribed
statutory accounting practices. That project, which is expected to be completed
in 1999, may result in changes to the accounting practices that Keyport uses to
prepare its statutory-basis financial statements. The impact of any such
changes on Keyport's statutory surplus cannot be determined at this time. No
assurance can be given that such changes would not have a material adverse
effect on the Company.
Risk-Based Capital Requirements. In recent years, various states have
adopted new quantitative standards promulgated by the NAIC. These standards are
designed to reduce the risk of insurance company insolvencies, in part by
providing an early warning of financial or other difficulties. These standards
include the NAIC's risk-based capital ("RBC") requirements. RBC requirements
attempt to measure statutory capital and surplus needs based on the risks in a
company's mix of products and investment portfolio. The requirements provide
for four different levels of regulatory attention which implement increasing
levels of regulatory control (ranging from development of an action plan to
mandatory receivership). As of December 31, 1998, Keyport's capital and surplus
exceeded the level at which the least severe of these regulatory attention
levels would be triggered.
Guaranty Fund Assessments. Under the insurance guaranty fund laws existing
in each state, insurers can be assessed for certain obligations of insolvent
insurance companies to policyholders and claimants. Because assessments
typically are not made for several years after an insurer fails, Keyport cannot
accurately determine the precise amount or timing of its exposure to known
insurance company insolvencies at this time. For certain information regarding
Keyport's historical and estimated future assessments in respect of insurance
guaranty funds, see Note 16 to the Notes to the Consolidated Financial
Statements contained in the 1998 Annual Report. The insolvency of large life
insurance companies in future years could result in material assessments to
Keyport by state guaranty funds. No assurance can be given that such
assessments would not have a material adverse effect on the Company.
Insurance Holding Company Regulation. Current Rhode Island insurance law
imposes prior approval requirements for certain transactions with affiliates
and generally regulates dividend payments by a Rhode Island-chartered insurance
subsidiary to its parent company. Keyport may not make distributions or
dividend payments to Liberty Financial which, together with distributions and
dividends paid during the preceding 12 months, exceed the lesser of (i) 10% of
its statutory surplus as of the preceding December 31 or (ii) its statutory net
gain from operations for the preceding fiscal year without prior approval by
the Rhode Island Commissioner of Insurance. As of December 31, 1998, such
restriction would limit dividends without such approval to $59.1 million.
Keyport paid $20.0 million in dividends during 1998, but had not previously
paid any dividends since its acquisition in December, 1988. In addition, no
person or group may acquire, directly or indirectly, 10% or more of the voting
stock or voting power of Liberty Financial unless such person has provided
certain required information to the Rhode Island Department of Business
Regulation and such acquisition is approved by the Department.
General Regulation at Federal Level and Certain Related Matters. Although
the federal government generally does not directly regulate the insurance
business, federal initiatives often have an impact on the business in a variety
of ways. Current and proposed federal measures that may significantly affect
the insurance business include limitations on antitrust immunity, minimum
solvency requirements and the removal of barriers restricting banks from
engaging in the insurance business. In particular, several proposals to repeal
or modify the Bank Holding Company Act of 1956 (which prohibits banks from
being affiliated with insurance companies) have been made by members of
Congress and the Clinton Administration. Moreover, the United States Supreme
Court held in 1995 in NationsBank of North Carolina v. Variable Annuity Life
Insurance Company that annuities are not insurance for purposes of the National
Bank Act. In addition, the Supreme Court also held in 1995 in Barnett Bank of
Marion City v. Nelson that state laws prohibiting national banks from selling
insurance in small town locations are preempted by
14
<PAGE>
federal law. The Office of the Comptroller of the Currency adopted a ruling in
November 1996 that permits national banks, under certain circumstances, to
expand into other financial services, thereby increasing competition for the
Company. At present, the extent to which banks can sell insurance and annuities
without regulation by state insurance departments is being litigated in various
courts in the United States. Although the effect of these recent developments
on the Company and its competitors is uncertain, there can be no assurance that
such developments would not have a material adverse effect on the Company.
Asset Management Products
The primary sources of regulation of the Company's asset management
operations are the federal securities laws. Asset management products are
subject to the Investment Advisers Act (the "Advisers Act"). The mutual funds
and closed-end funds sponsored by the Company also are subject to the
Investment Company Act of 1940 (the "Investment Company Act"). Mutual fund
shares are securities, and, as such, must be registered under the federal
securities laws. The foregoing laws impose various restrictions on the
Company's asset management products, including fee structures, the timing and
content of advertising, and, in the case of the funds, certain investment
restrictions. Mutual funds also must be managed to comply with certain other
investment restrictions imposed by the Internal Revenue Code. Accounts subject
to the Employee Retirement Income Security Act of 1974 ("ERISA") must comply
with certain investment and other restrictions imposed by ERISA.
The Company's subsidiaries directly engaged in asset management (including
Colonial, Stein Roe, Newport, Crabbe Huson, Progress and LAMCO) are registered
with the Securities and Exchange Commission (the "SEC") as investment advisers
under the Advisers Act. They also are subject to the Investment Company Act
insofar as it relates to investment advisers to registered investment
companies. These securities laws and the related regulations of the SEC require
reporting, maintenance of books and records in prescribed forms, mandatory
custodial arrangements, approval of employees and representatives and other
compliance procedures. Possible sanctions in the event of noncompliance include
the suspension of individual employees, limitations on the firm's engaging in
business for specified periods of time, revocation of the firm's registrations,
censures and fines.
In the ordinary course of its investment management business, the Company
enters into investment advisory agreements with mutual funds and others. As
required by the Investment Company Act and the Advisers Act, Liberty
Financial's investment advisory agreements provide that the agreements
terminate automatically upon their "assignment." The Investment Company Act and
the Advisers Act define the term "assignment" to include any "direct or
indirect transfer" of a "controlling block of the voting securities" of the
issuer's outstanding voting securities. The Investment Company Act presumes
that any person holding more than 25% of the voting stock of any person
"controls" such person. Sales by Liberty Mutual or other stockholders or new
issuances of capital stock by Liberty Financial, among other things, may raise
issues relating to assignments of the Company's investment advisory agreements.
The Company's Restated Articles of Organization include provisions limiting the
voting power of shares of the Company's Voting Stock (as defined in the
Company's Restated Articles of Organization) held by holders of 20% or more of
such Voting Stock in certain circumstances. These provisions do not apply to
Liberty Mutual, subsidiaries or affiliates of Liberty Mutual, direct or
indirect subsidiaries of the Company and certain employee plans established or
to be established by the Company or certain of its subsidiaries. Liberty
Financial's Board of Directors may approve the exemption of other persons or
groups from the provisions described above. While this voting limitation is in
place to reduce the likelihood, under certain circumstances, of inadvertent
terminations of Liberty Financial's advisory agreements as a result of
"assignments" thereof, there can be no assurance that this limitation will
prevent such a termination from occurring. In addition, such limitation could
be deemed to have an anti-takeover effect and to make changes in management
more difficult.
Several proposals to repeal or modify the Glass-Steagall Act of 1933
(which restricts banks from engaging in securities-related businesses) have
been made by members of Congress and the Clinton Administration. Although the
effect that any such proposals if adopted would have on the Company and its
competitors is uncertain, there can be no assurance that such proposals if
adopted would not have a material adverse effect on the Company.
15
<PAGE>
Distribution
Sales of the Company's annuities and mutual funds are also subject to
extensive regulation. Annuities must be sold through an entity registered as an
insurance agency in the particular state. The sales person must be properly
licensed under state insurance law. Variable annuities and certain indexed
annuities also require the sales person to be registered with the National
Association of Securities Dealers ("NASD") and the applicable state securities
commission. Mutual fund shares must be sold through an entity registered as a
broker-dealer under the Exchange Act and applicable state law. The sales person
must be registered with the NASD and the applicable state securities
commission.
Various business units of the Company are registered as broker-dealers.
These include certain units which operate the Company's bank marketing
business, as well as other units through which mutual fund and certain
annuities are sold. Certain bank marketing units also are registered as
insurance agencies in states where they sell annuities. These laws regulate the
licensing of sales personnel and sales practices. They impose minimum net
capital requirements. They also impose reporting, records maintenance, and
other requirements, and provide for penalties in the event of non-compliance,
similar in scope to the regulations applicable to asset managers.
Certain securities sales through the Company's bank marketing units are
conducted in accordance with the provisions of a "no-action" letter issued by
the staff of the SEC requiring, among other things, that securities sales
activities be conducted by sales personnel who are registered representatives
of the Company and are subject to its supervision and control. The letter
limits the functions of non-registered bank personnel to ministerial duties.
The letter is not binding on the courts, however, and no assurance can be given
that the SEC will not change its position.
Banks are an important distribution channel for the Company's annuities
and mutual funds. The recent growth in sales of mutual funds, annuities and
other investment and insurance products through or at banks and similar
institutions has prompted increased scrutiny by federal bank regulators, the
SEC and other regulators. Regulations promulgated by federal banking
authorities impose additional restrictions and duties with respect to bank
sales practices, including obligations to disclose that the products are not
subject to deposit insurance.
Competition
The Company's businesses operate in extremely competitive markets. These
markets are highly fragmented, although in the case of annuities and mutual
funds, a few companies do have relatively substantial market shares. Certain of
the Company's competitors are significantly larger and have access to
significantly greater financial and other resources.
The Company's products compete with every other investment or savings
vehicle available to a prospective customer, including those offered by other
insurance companies, investment management firms and banks. The Company
believes that the most important competitive factor affecting the marketability
of its products is the degree to which they meet customer expectations, both in
terms of returns (after fees and expenses) and service. These competitive
pressures apply to competition for customers in general, as well as competition
to access and maintain distribution relationships in the case of products sold
through intermediaries. Product and service innovations also are important
devices for generating new sales and maintaining distribution relationships.
Sales of particular products may be affected by conditions in the financial
markets, such as increases or decreases in interest rates or stock prices.
Product features of particular relevance to annuities include interest
crediting and participation rates, surrender charges and innovation in product
design. Maintenance of Keyport's financial ratings at a high level also is
important. The Company believes that the most important factors affecting
competition for investment management clients are investment performance,
customer service and brand name recognition. Pricing policies and product
innovations also are important competitive factors. The Company's ability to
increase and retain clients' assets could be materially adversely affected if
client accounts underperform the market or competing products or if key
investment managers leave the Company. The ability of the Company's asset
management subsidiaries to compete with other asset
16
<PAGE>
management products also is dependent, in part, on the relative attractiveness
of their underlying investment philosophies and methods under prevailing market
conditions.
Employees
As of December 31, 1998, the Company had 2,125 full-time employees
summarized by activity as follows: 408 in annuity insurance operations; 1,292
in asset management activities; 374 in marketing and distribution operations;
and 51 in general corporate. The Company provides its employees with a broad
range of employee benefit programs. The Company believes that its relations
with its employees are excellent.
Executive Officers of the Registrant
Set forth below are the names, ages at March 31, 1999, and principal
occupations for the last five years of each executive officer of the Company.
All such persons have been elected to serve until the next annual election of
officers and their successors are elected or until their earlier resignation or
removal.
<TABLE>
<CAPTION>
Name Age Position
- ----------------------- ----- ------------------------------------------------
<S> <C> <C>
Gary L. Countryman 59 Chairman and Director
Kenneth R. Leibler 50 Chief Executive Officer, President and Director
John A. Benning 64 Senior Vice President, General Counsel and
Clerk
John V. Carberry 51 Senior Vice President
Lindsay Cook 47 Executive Vice President
Frank A. Faggiano 59 Senior Vice President, Human Resources
Stephen E. Gibson 45 President and Chief Executive Officer, The
Colonial Group
J. Scott Hansen 45 Senior Vice President, Corporate Development
J. Andy Hilbert 40 Senior Vice President, Chief Financial Officer
and Treasurer
C. Allen Merritt, Jr. 58 Chief Operating Officer
Porter P. Morgan 58 Senior Vice President, Marketing
</TABLE>
Mr. Countryman has been Chairman (since 1991) and Chief Executive Officer
(from 1986 until April, 1998) of Liberty Mutual and Liberty Mutual Fire
Insurance Company (an affiliate of Liberty Mutual). He currently serves as a
director of the Company, Liberty Mutual and certain of its affiliates,
BankBoston Corporation, Boston Edison Company, Harcourt General, Inc. and
Unisource Worldwide, Inc.
Mr. Leibler became Chief Executive Officer of Liberty Financial on January
1, 1995, has been President of Liberty Financial since August, 1990, and was
Chief Operating Officer from August, 1990, until December, 1994. Mr. Leibler
currently serves as a director of the Company, Keyport Life Insurance Company,
an indirect wholly-owned subsidiary of Liberty Financial, ISO New England, Inc.
and the Boston Stock Exchange.
Mr. Benning has been Senior Vice President, General Counsel and Clerk of
Liberty Financial since October, 1989.
Mr. Carberry joined Liberty Financial as Senior Vice President in
February, 1998. Prior to that time he was a Managing Director of Salomon
Brothers Inc.
Mr. Cook became Executive Vice President of Liberty Financial in February,
1997. He became a Senior Vice President of Liberty Financial in February, 1994,
having been a Vice President prior to that time.
Mr. Faggiano became Senior Vice President, Human Resources in August,
1997. Prior to that time he was Vice President, Human Resources.
Mr. Gibson became President and Chief Executive Officer of The Colonial
Group, a subsidiary of Liberty Financial, in January, 1997. He was Executive
Vice President of The Colonial Group from July,
17
<PAGE>
1996 to January, 1997. Prior to that, he was Managing Director of Marketing at
Putnam Investments from 1995 to July, 1996, and prior thereto was Executive
Vice President of Putnam Mutual Funds.
Mr. Hansen became Senior Vice President, Corporate Development in May,
1996. Prior to that time he was Vice President, Corporate Development.
Mr. Hilbert joined the Company as Senior Vice President and Chief
Financial Officer in March, 1997. He became Treasurer in March, 1998. From
October, 1995 until that time, he was Senior Vice President and Chief Financial
Officer of Paul Revere Corporation. Prior to joining Paul Revere, Mr. Hilbert
was a partner at Price Waterhouse.
Mr. Merritt became Chief Operating Officer of Liberty Financial in March,
1998. From February, 1997 to March, 1998 he was Executive Vice President. He
was Senior Vice President of Liberty Financial prior to that time.
Mr. Morgan has been Senior Vice President, Marketing of Liberty Financial
since 1991.
Item 2. Properties
As of December 31, 1998, the Company leased its various office facilities.
The Company's principal leasing arrangements can be summarized as follows: The
Company's principal executive offices occupy approximately 30,300 square feet
in a single facility in downtown Boston under a lease which expires in 2002.
Keyport leases approximately 96,500 square feet in two buildings in downtown
Boston under leases which expire in 2008, approximately 19,800 square feet in a
single facility in Lincoln, Rhode Island under a lease which expires in 2007,
and 7,700 square feet in a single facility in Maitland, Florida under a lease
which expires in 1999. Colonial leases approximately 219,000 square feet in two
buildings in downtown Boston under leases which expire in 2006 and
approximately 31,200 square feet in Aurora, Colorado under a lease which
expires in 2000. Stein Roe leases 141,300 square feet in downtown Chicago under
a lease which expires in 2009. Newport leases approximately 6,900 square feet
in downtown San Francisco under a lease which expires in 2000. Crabbe Huson
leases approximately 17,700 square feet in downtown Portland, Oregon under a
lease which expires in 2003. Progress leases approximately 9,000 square feet in
downtown San Francisco under a lease which expires in 2005. Independent leases
approximately 29,500 square feet in Purchase, New York under a lease which
expires in 2007.
Item 3. Legal Proceedings
The Company is from time to time involved in litigation incidental to its
businesses. In the opinion of Liberty Financial's management, the resolution of
such litigation is not expected to have a material adverse effect on the
Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
18
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "L". The Company's Common Stock is also listed on the
Boston Stock Exchange. On December 31, 1998, the closing price of the Company's
Common Stock on the NYSE was $27 per share. Per share amounts have been
adjusted to reflect the Company's 3 for 2 common stock split effected in the
form of a 50 percent stock dividend on December 10, 1997. As of March 19, 1999
there were approximately 253 shareholders of record. In addition, the Company
estimates that there are approximately 4,000 beneficial shareholders whose
shares are held in street name. The high and low sales prices for each quarter
during 1998 and 1997, as traded on the NYSE Composite Tape, were as follows:
<TABLE>
<CAPTION>
1998
Quarter High Low
- -------------------- ----------------- ----------
<S> <C> <C>
January-March $ 39-3/4 $ 33
April-June 40-5/8 32-3/4
July-September 38-9/16 25-3/4
October-December 30-5/8 20-1/8
1997
Quarter High Low
- -------------------- ----------- --------
January-March $30-7/16 $25-3/4
April-June 34-1/16 25-1/4
July-September 37-1/8 32-13/16
October-December 38-1/4 33-5/16
</TABLE>
The Company currently has a policy of paying quarterly cash dividends of
$0.10 per share and has paid such quarterly dividends regularly since becoming
a public company in 1995. The declaration and payment of any dividends on the
Common Stock are dependent upon the Company's results of operations, financial
condition, cash requirements, capital requirements, regulatory considerations
and other relevant factors, and in all events are subject to the discretion of
the Board of Directors and to any preferential dividend rights of the
outstanding Series A Convertible Preferred Stock ("Preferred Stock") of Liberty
Financial. The holders of the issued and outstanding shares of Preferred Stock
are entitled to receive cumulative cash dividends at the rate of $2.875 per
annum per share, payable in equal quarterly installments. The terms of the
Preferred Stock preclude the payment of any dividends on the Common Stock
unless cumulative dividends on the outstanding Preferred Stock have been paid
or declared and set aside in full. Accordingly, there is no requirement, and no
assurances can be given, that dividends will be paid on the Common Stock.
The Company's Board of Directors established an optional dividend
reinvestment plan ("DRIP") for holders of Common Stock and Preferred Stock.
Liberty Mutual has participated in the DRIP since its inception. Such
participation may be terminated at any time.
For a further discussion of the Company's ability to pay dividends in cash
on its Common Stock, see "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity" in the 1998 Annual Report.
Sales of Unregistered Securities
Liberty Financial issued shares of its Common Stock during 1998 without
registration under the Securities Act of 1933 (the "Securities Act") in the
transaction described below:
On September 30, 1998, Liberty Financial acquired Crabbe Huson for cash
and 252,969 shares of Common Stock issued to Crabbe Huson. The stock was
distributed to the shareholders of Crabbe Huson, with 221,196 of such shares
issued on September 30, 1998, and 31,773 of such shares issued on December 23,
1998. Crabbe Huson's shareholders made customary investment representations to
the Company, and such issuances were exempt from registration pursuant to
Section 4(2) of the Securities Act.
19
<PAGE>
Item 6. Selected Financial Data
Selected Consolidated Financial Data, which appears on page 27 in the 1998
Annual Report, are incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Results of Operations and
Financial Condition, which appears beginning on page 28 in the 1998 Annual
Report, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Quantitative and Qualitative Disclosure About Market Risk is included in
Management's Discussion and Analysis of Results of Operations and Financial
Condition beginning at page 33 of the 1998 Annual Report, and is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements which appear beginning on
page 42 in the 1998 Annual Report, and the report thereon of Ernst & Young LLP
as of and for the year ended December 31, 1998, which appears on page 67 in the
1998 Annual Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information relating to the executive officers of the Company appears
under the caption "Executive Officers of the Registrant" in Part I of this Form
10-K on page 17.
Information relating to the directors of the Company is incorporated
herein by reference from Liberty Financial's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on or about May 10, 1999 (the "Proxy
Statement") under the caption "Election of Directors."
In addition, the information appearing in the Proxy Statement under the
caption "Security Ownership of Management and Certain Beneficial
Owners--Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated herein by reference.
Item 11. Executive Compensation
Information relating to executive compensation is incorporated herein by
reference from the Proxy Statement under the following captions: "Compensation
of Executive Officers" (excluding, however, the portions thereof under the
subcaptions "Compensation Committee Report on Executive Compensation" and
"Stockholder Return Comparison") and "Election of Directors--1998 Meetings and
Standard Fee Arrangements."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference from the Proxy Statement
under the caption "Security Ownership of Management and Certain Beneficial
Owners" (excluding the material under the sub-caption "Section 16(a) Beneficial
Ownership Reporting Compliance").
Item 13. Certain Relationships and Related Transactions
Information relating to Certain Relationships and Related Transactions is
incorporated herein by reference from the Proxy Statement under the caption
"Certain Relationships and Related Transactions."
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of the Company, which
appear beginning on page 42 of the 1998 Annual Report, are incorporated herein
by reference:
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Income Statements for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following financial statement schedules are included as part of this
Report:
I Summary of Investments
II Condensed Financial Information of Registrant
III Supplementary Insurance Information
All other schedules are omitted because they are not applicable or are not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
3. Exhibits
The exhibits filed as part of this Report are listed on the Exhibit Index
immediately following the financial statement schedules included in this
Report. The following exhibits are management contracts or compensatory plans
or arrangements: 10.4 through 10.14.2, 10.22, 10.28 and 10.29.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the fourth
quarter of 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on March 30, 1999.
LIBERTY FINANCIAL COMPANIES, INC.
By: /s/ Kenneth R. Leibler
------------------------------------
Kenneth R. Leibler
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ Kenneth R. Leibler Chief Executive Officer, President March 30, 1999
- --------------------------- and Director
Kenneth R. Leibler
/s/ J. Andrew Hilbert Senior Vice President and Chief March 30, 1999
- --------------------------- Financial Officer (Principal Financial
J. Andrew Hilbert and Accounting Officer)
/s/ Gary L. Countryman Director March 30, 1999
- ---------------------------
Gary L. Countryman
/s/ Gerald E. Anderson Director March 30, 1999
- ---------------------------
Gerald E. Anderson
/s/ Michael J. Babcock Director March 30, 1999
- ---------------------------
Michael J. Babcock
/s/ William F. Connell Director March 30, 1999
- ---------------------------
William F. Connell
/s/ Paul J. Darling, II Director March 30, 1999
- ---------------------------
Paul J. Darling, II
/s/ David F. Figgins Director March 30, 1999
- ---------------------------
David F. Figgins
/s/ John B. Gray Director March 30, 1999
- ---------------------------
John B. Gray
/s/ Marian L. Heard Director March 30, 1999
- ---------------------------
Marian L. Heard
/s/ Raymond H. Hefner, Jr. Director March 30, 1999
- ---------------------------
Raymond H. Hefner, Jr.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ---------- ---------------
<S> <C> <C>
/s/ Edmund F. Kelly Director March 30, 1999
- -------------------------
Edmund F. Kelly
/s/ Sabino Marinella Director March 30, 1999
- -------------------------
Sabino Marinella
/s/ Thomas J. May Director March 30, 1999
- -------------------------
Thomas J. May
/s/ Ray B. Mundt Director March 30, 1999
- -------------------------
Ray B. Mundt
/s/ Kenneth L. Rose Director March 30, 1999
- -------------------------
Kenneth L. Rose
/s/ Glenn P. Strehle Director March 30, 1999
- -------------------------
Glenn P. Strehle
/s/ Stephen J. Sweeney Director March 30, 1999
- -------------------------
Stephen J. Sweeney
</TABLE>
23
<PAGE>
Schedule I
LIBERTY FINANCIAL COMPANIES, INC.
SUMMARY OF INVESTMENTS
(in millions)
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------
Balance
Amortized Sheet
Type of Investment Cost Fair Value Amount
- ------------------------------------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. government
corporations and agencies ................................ $ 1,030.9 $ 1,059.3 $ 1,059.3
Foreign governments ....................................... 251.1 244.3 244.3
Corporate and other securities ............................ 7,606.1 7,641.4 7,641.4
Mortgage backed securities ................................ 2,286.6 2,332.2 2,332.2
--------- --------- ---------
Total fixed maturity securities .......................... 11,174.7 11,277.2 11,277.2
Equity securities:
Common stocks:
Industrial, miscellaneous and all other ................... 21.8 24.6 24.6
Mortgage loans on real estate (1) ........................... 55.1 56.6 55.1
Policy loans ................................................ 578.9 578.9 578.9
Other long term investments ................................. 662.5 730.4 662.5
--------- --------- ---------
Total investments ........................................ $12,493.0 $12,667.7 $12,598.3
========= ========= =========
</TABLE>
------------
(1) Includes mortgage notes relating to certain investment property owned by an
affiliate of Liberty Mutual in the amount of $39.5 million at December 31,
1998. These notes were paid in January, 1999.
24
<PAGE>
Schedule II
LIBERTY FINANCIAL COMPANIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions, except per share data)
Balance Sheets
<TABLE>
<CAPTION>
December 31
--------------------------
1998 1997
----------- ------------
<S> <C> <C>
Assets:
Cash and cash equivalents ...................... $ 180.4 $ 19.4
Investments in subsidiaries .................... 1,357.4 1,183.4
Notes receivable--subsidiaries ................. 152.1 160.9
Accounts receivable--subsidiaries .............. 16.3 20.8
Other assets ................................... 50.9 44.0
-------- --------
$1,757.1 $1,428.5
======== ========
Liabilities:
Notes payable to affiliates .................... $ -- $ 199.0
Notes payable .................................. 446.9 --
Accounts payable and accrued expenses .......... 23.6 16.0
-------- --------
470.5 215.0
-------- --------
Redeemable convertible preferred stock .......... 15.3 14.6
-------- --------
Stockholders' Equity:
Common stock ................................... 0.5 0.4
Additional paid-in capital ..................... 901.5 866.2
Retained earnings .............................. 346.4 251.5
Accumulated other comprehensive income ......... 27.2 83.0
Unearned compensation .......................... (4.3) (2.2)
-------- --------
Total stockholders' equity .................... 1,271.3 1,198.9
-------- --------
$1,757.1 $1,428.5
======== ========
</TABLE>
Income Statements
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest income, principally from subsidiaries ................... $ 15.1 $ 13.0 $ 12.1
Realized investment gains (losses) ............................... 0.3 (0.6) --
Operating expenses ............................................... (18.3) (15.6) (16.3)
------- ------- -------
Loss before income taxes ......................................... (2.9) (3.2) (4.2)
Benefit for income taxes ......................................... 7.5 19.2 21.9
Equity in net income of subsidiaries ............................. 119.9 113.5 83.0
------- ------- -------
Income before extraordinary item ................................. 124.5 129.5 100.7
Extraordinary loss on extinguishment of debt, net of tax ......... (9.7) -- --
------- ------- -------
Net Income ....................................................... $ 114.8 $ 129.5 $ 100.7
======= ======= =======
Net income per share--basic:
Income before extraordinary item ................................ $ 2.72 $ 2.94 $ 2.36
======= ======= =======
Net income ...................................................... $ 2.51 $ 2.94 $ 2.36
======= ======= =======
Net income per share--assuming dilution:
Income before extraordinary item ................................ $ 2.63 $ 2.77 $ 2.24
======= ======= =======
Net income ...................................................... $ 2.42 $ 2.77 $ 2.24
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements contained in the 1998 Annual
Report incorporated herein by reference.
25
<PAGE>
Schedule II (continued)
LIBERTY FINANCIAL COMPANIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in millions)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 114.8 $ 129.5 $ 100.7
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary loss on extinguishment of debt, net
of tax .................................................. 9.7 -- --
Equity in net income of subsidiaries ...................... (119.9) (113.5) (83.0)
Increase in notes receivable--subsidiaries ................ (13.0) (0.7) (1.2)
Net change in accounts receivable--subsidiaries,
other assets and accounts payable ....................... 13.7 (9.2) (41.2)
-------- -------- -------
Net cash provided by (used in) operating activities ......... 5.3 6.1 (24.7)
-------- -------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired .......................... (94.7) -- (8.1)
Capital contributions to subsidiaries ....................... (29.1) (25.0) (8.0)
-------- -------- -------
Net cash used in investing activities ....................... (123.8) (25.0) (16.1)
-------- -------- -------
Cash flows from financing activities:
Repayment of notes payable to affiliates .................... (244.0) -- --
Issuance of notes payable ................................... 446.9 -- --
Exercise of stock options ................................... 7.4 7.6 2.4
Dividends, net .............................................. 69.2 23.3 36.1
-------- -------- -------
Net cash provided by financing activities ................... 279.5 30.9 38.5
-------- -------- -------
Increase (decrease) in cash and cash equivalents ............. 161.0 12.0 (2.3)
Cash and cash equivalents at beginning of year ............... 19.4 7.4 9.7
-------- -------- -------
Cash and cash equivalents at end of year ..................... $ 180.4 $ 19.4 $ 7.4
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements contained in the 1998 Annual
Report incorporated herein by reference.
26
<PAGE>
Schedule III
LIBERTY FINANCIAL COMPANIES, INC.
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
Three Years Ended December 31, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------- ------------- --------------- ---------- -----------------
Policyholder Policy contract
Deferred account claims and
policy balances and other
acquisition future policy Unearned policyholders'
costs benefits premiums funds
<S> <C> <C> <C> <C>
December 31, 1998
Interest sensitive
products ......... $341.0 $12,446.0 NA $58.1
====== ========= ========== =====
December 31, 1997
Interest sensitive
products ......... $232.0 $12,031.8 NA $54.3
====== ========= ========== =====
December 31, 1996
Interest sensitive
products ......... $250.4 $11,610.4 NA $27.1
====== ========= ========== =====
<CAPTION>
Column A Column F Column G Column H Column I Column J Column K
- ------------------- ----------- ------------ --------------- -------------- ----------- ---------
Interest
credited to Amortization
policyholders of deferred
Net and policy policy Other
Insurance investment benefits and acquisition operating Premiums
revenues income claims costs expenses written
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Interest sensitive
products ......... $38.1 $820.9 $565.1 $69.2 $63.0 NA
===== ====== ====== ===== ===== ==========
December 31, 1997
Interest sensitive
products ......... $33.1 $853.1 $598.0 $75.9 $61.6 NA
===== ====== ====== ===== ===== ==========
December 31, 1996
Interest sensitive
products ......... $30.9 $796.4 $576.2 $60.2 $55.1 NA
===== ====== ====== ===== ===== ==========
</TABLE>
27
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------- --------------------------------------------------------------------------------------
<S> <C>
3.1 (1) Form of Restated Articles of Organization of the Company
3.2 (1) Form of Certificate of Designation of Series A Convertible Preferred Stock of the
Company
3.3 (2) Restated By-laws of the Company, as amended
4.1 (1) Form of Certificate for Common Stock of the Company
4.2 (1) Form of Certificate for Series A Convertible Preferred Stock of the Company
4.3 (3) Form of Indenture between the Company and State Street Bank and Trust Company
as Trustee
4.4 (3) Form of Senior Note
10.1 (1) Form of Intercompany Agreement between Liberty Mutual and the Company
10.2 (4) Form of Registration Rights Agreement between Liberty Mutual and the Company
10.3 (4) Form of Tax Sharing Agreement between Liberty Mutual and the Company
10.4 (1) Form of 1990 Stock Option Plan of the Company, together with amendments 1 and 2
thereto
10.5 Form of Restated Savings and Investment Plan of the Company
10.6 (1) Form of Amended and Restated Supplemental Savings Plan of the Company
10.7 (1) Form of Stein Roe Profit Sharing Plan and amendments thereto
10.8 Form of Amended and Restated Pension Plan of the Company
10.9 (1) Form of Amended and Restated Supplemental Pension Plan of the Company
10.10 (5) Form of Amended and Restated 1995 Stock Incentive Plan of the Company
10.11 (4) Form of 1995 Employee Stock Purchase Plan of the Company
10.12 (1) Form of Deferred Compensation Plan of the Company
10.12.1 (1) Letters from the Company, setting forth additional retirement benefits for John A.
Benning and Sabino Marinella
10.13 (1) Form of Keyport Deferred Compensation Plan
10.14 (1) Form of Stein Roe Deferred Compensation Plan
10.14.1 (1) Form of Stein Roe Non-Qualified Supplemental Retirement Plan
10.14.2 (1) Form of Stein Roe Long Term Incentive Plan
10.16 (1) Lease Agreement with respect to 600 Atlantic Avenue, Boston, Massachusetts
10.17 (1) Lease Agreement with respect to 125 High Street, Boston, Massachusetts, as
amended
10.17.1 Third and Fourth Amendments to 125 High Street Lease
10.18 (1) Lease Agreement with respect to One South Wacker Drive, Chicago, Illinois, as
amended
10.19 (1) Unconditional Guarantee Agreement dated November 7, 1991 executed by Liberty
Mutual and related Mortgage Maintenance Agreement by and among LRE
Properties, Inc., Atlantic Real Estate Limited Partnership and Keyport Life Insurance
Company
10.20 (1) Administrative Services Agreement dated as of June 9, 1993 between Liberty Life
Assurance Company of Boston and Keyport Life Insurance Company
10.21 (6) Lease Agreement with respect to One Financial Center, Boston, Massachusetts
10.22 Agreement between the Company and Stephen E. Gibson, President and Chief
Executive Officer of Colonial
10.23 Credit Agreement dated as of April 10, 1998 among Colonial and BankBoston, N.A.,
as agent for itself and certain other lenders named therein (and Amendment No. 1 to
Credit Agreement)
10.28 (7) Colonial Profit Sharing Plan (and Amendment Nos. 1-3 thereto)
10.29 (7) Colonial Split-Dollar Insurance Coverage description
10.30 (6) Coinsurance Agreement between Fidelity and Guaranty Life Insurance Company and
Keyport Life Insurance Company, and first and second amendments thereto
10.31 (8) Dividend Reinvestment Plan of the Company
12 Statement re computation of ratios
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- -------------------------------------------------------------------------------------
<S> <C>
13 Portions of Annual Report to Stockholders incorporated by reference into this Report
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
99.3 (1) Form of Stockholders' Agreement among the Company, Liberty Mutual Insurance
Company and certain holders of the Company's Series A Convertible Preferred Stock
</TABLE>
- ------------
(1) Incorporated by reference to the same Exhibit Number in the Company's
Registration Statement on Form S-4 (filed under the name NEW LFC, INC.)
(Registration No. 33-88824).
(2) Incorporated by reference to the same Exhibit Number in the Company's 1997
Annual Report on Form 10-K filed
March 31, 1998.
(3) Incorporated by reference to the same Exhibit number in the Company's
Registration Statement on Form S-3 (Registration No. 333-63349).
(4) Incorporated by reference to the same Exhibit Number in the Company's 1994
Annual Report on Form 10-K filed
March 30, 1995.
(5) Incorporated by reference to the same Exhibit Number in the Company's
Registration Statement on Form S-3 (Registration Number 333-29315).
(6) Incorporated by reference to the same Exhibit Number in the Company's 1996
Annual Report on Form 10-K filed
March 28, 1997.
(7) Incorporated by reference to the same Exhibit Number in the Company's 1995
Annual Report on Form 10-K filed
March 29, 1996.
(8) Incorporated by reference to Prospectus contained in the Company's
Registration Statement on Form S-3 (Registration Number 333-20067).
29
LIBERTY FINANCIAL COMPANIES, INC.
SAVINGS AND INVESTMENT PLAN
---------------------------
Restated Effective July 1, 1998
August, 1998
Exec.Ver.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
ARTICLE 1 X INTRODUCTION
1.1 Amendment of Plan 1
1.2 Plan 1
1.2.A Plan Mergers 1
1.3 Purpose of Plan 2
1.4 Application of Prior Provisions of Plan 2
ARTICLE 2 X DEFINITIONS
2.1 "Account" 3
2.2 "Affiliated Company" 3
2.2.A "After Tax Contribution Account" 3
2.3 "Annual Addition" 4
2.4 "Armed Forces Leave of Absence" 4
2.5 "Beneficiary" 4
2.6 "Board of Directors" 4
2.7 "Break in Service 4
2.8 "Code" 5
2.9 "Company" 5
2.10 "Discretionary Contribution" 5
2.11 "Discretionary Contribution Account" 5
2.12 "Effective Date" 5
2.13 AElective Contribution" 5
2.14 "Elective Contribution Account" 5
2.15 "Eligible Employee" 6
2.16 "Employee" 6
2.17 "Employer" 6
2.18 "Employment Commencement Date" 6
2.19 "Entry Date" 6
2.20 "ERISA" 6
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2.21 "Fiduciaries" 6
2.22 "Highly Compensated Participant" 7
2.23 "Highly Compensated Employee" 7
2.24 "Hour of Service" 7
2.25 "Limitation Year" 7
2.26 "Matching Contribution" 7
2.27 "Matching Contribution Account" 7
2.28 "Maternity/Paternity Leave of Absence" 7
2.29 "Named Fiduciaries" 8
2.30 "Normal Retirement Date" 8
2.31 "Participant" 8
2.32 "Participating Employer" 8
2.33 "Plan" 9
2.34 "Plan Administrator" 9
2.35 "Plan Year" 9
2.36 "Qualified Domestic Relations Order" 9
2.37 "Rollover Account" 9
2.38 "Share of the Trust Fund" 10
2.38A "Service Termination Date" 10
2.39 "Total Compensation" 10
2.40 "Trust" 11
2.41 "Trust Fund" 11
2.42 "Trustee" or "Trustees" 11
2.43 "Valuation Date" 12
2.44 "Year of Service for Vesting" 12
ARTICLE 3 X ADMINISTRATION
3.1 Allocation of Responsibility Among
Fiduciaries for Plan and Trust
Administration 13
3.2 Administration 14
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3.3 Claims Procedure 14
3.4 Records and Reports 15
3.5 Other Administrative Powers and Duties 15
3.6 Rules and Decisions 17
3.7 Reliance on Tables, etc. 17
3.8 Procedures 17
3.9 Authorization of Withdrawals and
Distributions 17
3.10 Rules and Procedures for Withdrawals
and Distributions 17
3.11 Indemnification of Plan Administrator 18
ARTICLE 4 X PARTICIPATION
4.1 Participation 19
4.2 Cessation of Participation 19
4.3 Breaks in Service 19
ARTICLE 5 X CONTRIBUTIONS
5.1 Elective Contributions 20
5.2 Compensation Reduction Authorizations 20
5.3 Revocation or Change of Compensation
Deductions 20
5.4 Matching Contributions 21
5.5 Discretionary Contributions 21
5.6 Treatment of Forfeitures 21
5.7 Maximum Amount of Contributions 22
5.8 Return of Contributions 22
5.9 Nondiscrimination Requirements 23
5.10 Adjustments by Plan Administrator 23
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5.11 Distribution of Excess Contributions 24
5.12 Distribution of Excess Deferrals 25
ARTICLE 6 X TRUST FUND AND INVESTMENTS
6.1 Investment Funds Within the Trust Fund 26
6.2 Selection of Investment Funds 26
6.2.A Certain Self-Managed Accounts 27
ARTICLE 7 X PARTICIPANT ACCOUNTS AND LIMITATIONS
ON ANNUAL ADDITIONS
7.1 Accounts 28
7.2 Adjustment of Accounts 28
7.3 Limitations 28
ARTICLE 8 X RIGHTS TO BENEFITS
8.1 Normal Retirement 31
8.2 Disability Retirement 31
8.3 Death 31
8.4 Other Termination of Employment 34
8.5 Election of Former Vesting Schedule 35
8.6 Forfeitures 36
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ARTICLE 9 X DISTRIBUTION OF BENEFITS
9.1 Payment Upon Retirement, Disability,
or Termination of Employment 38
9.2 Payment Upon Death 38
9.3 Amount of Distribution 38
9.4 Consent to Distributions Before Age 702 38
9.5 Latest Commencement of Benefits 39
9.6 Forms of Distribution 41
9.7 Notice to Trustee 42
9.8 Direct Rollovers 43
ARTICLE 10 X IN-SERVICE WITHDRAWALS
10.1 Hardship Withdrawals 45
10.1A Age 59-1/2 Withdrawals 47
10.2 Subsequent Distributions 48
ARTICLE 11 X LOANS
11.1 Requests for Loans 49
11.2 Rules and Procedures 49
11.3 Maximum Amount of Loan 49
11.4 Note; Security; Interest 50
11.5 Repayment 51
11.6 Repayment Upon Distribution 51
11.7 Note as Trust Asset 52
11.8 Adjustment of Accounts 52
11.9 Nondiscrimination 52
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Exec. Ver.
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ARTICLE 12 X TOP HEAVY PROVISIONS
12.1 Special Contribution for Top Heavy Plan Years 54
12.2 Adjustment to Limitation on Annual Additions 54
12.3 Definitions 55
ARTICLE 13 X AMENDMENT AND TERMINATION
13.1 Amendment 58
13.1A Certain Amendments Regarding Acquisitions
and Administrative Matters 59
13.2 Termination 59
13.3 Distributions Upon Termination of the Plan 60
13.4 Merger or Consolidation of Plan;
Transfer of Plan Assets 60
13.5 Participating Employer Ceasing to be
Affiliated With The Company 60
ARTICLE 14 X ROLLOVER CONTRIBUTIONS
14.1 Transfer of Amount Distributed from
Another Qualified Plan 62
14.2 Transfer of Amount Distributed from
a Rollover IRA 63
14.3 Monitoring of Rollovers 64
14.4 Treatment of Transferred Amount Under the Plan 65
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Exec. Ver.
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ARTICLE 15 X MISCELLANEOUS
15.1 Limitation of Rights 65
15.2 Nonalienability of Benefits 65
15.3 Information Between Plan Administrator
and Trustee 66
15.4 Payment Under Qualified Domestic
Relations Order 66
15.5 Payment of Benefit for Disabled or
Incapacitated Person 67
15.6 Telephonic and/or Electronic Transactions 68
15.7 Temporary Suspensions of Transactions 68
15.8 Governing Law 68
15.9 Acquisitions 68
</TABLE>
(vii)
Savings Plan
Exec. Ver.
<PAGE>
ARTICLE 1
INTRODUCTION
1.1 Amendment of Plan. Pursuant to the provisions of Article 13 of the
Liberty Financial Companies, Inc. Savings and Investment Plan and
Trust, Liberty Financial Companies, Inc., hereby amends, restates and
continues said Plan and Trust by striking out the present provisions
thereof and by substituting therefore the provisions of the Plan
hereinafter set forth. Except as otherwise specifically provided, the
changes contained herein are effective as of July 1, 1998; provided,
however, any changes required by the Tax Reform Act of 1986 or any
other applicable law are effective as of the dates required under said
laws.
1.2 Plan. This Plan is intended to qualify as a profit-sharing plan and
trust under Section 401(a) of the Internal Revenue Code of 1986
(without regard to current or accumulated profits pursuant to Section
401(a)(27) of the Code), and the cash or deferred arrangement and the
matching contribution features of the Plan are intended to qualify
under Sections 401(k) and 401(m), respectively, of the Code. Subject
to the provisions of Sections 5.8, no part of the corpus or income of
the Trust will be used for or diverted to purposes other than for the
exclusive benefit of each Participant and Beneficiary.
1.2.A. Plan Mergers. Effective July 1, 1998, the Stein, Roe & Farnham
Retirement Plan and the Keyport Life Insurance Company Savings and
Investment Plan are merged into and become a part of this Plan.
Effective September 1, 1998, the Colonial Profit Sharing Plan is
merged into and becomes a part of this Plan. Upon such merger the
accounts and investments maintained under such prior plans shall be
transferred to and held pursuant to the provisions of this Plan.
1.3 Purpose of Plan. The purpose of the Plan is to provide retirement
income to Eligible Employees through a program of voluntary
tax-deferred contributions matched in part
-1-
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Exec. Ver.
<PAGE>
by supplemental Participating Employer contributions, as well as
discretionary contributions made by Participating Employers.
1.4 Application of Prior Provisions of Plan. Except as otherwise
explicitly provided herein, the rights to benefits of persons who were
participants in the Plan before July 1, 1998 (September 1, 1998 in the
case of the Colonial Profit Sharing Plan) and who are not employed by
the Employer on or after that date will be determined in accordance
with the provisions of the Plan as in effect from time to time prior
to that date.
-2-
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Exec. Ver.
<PAGE>
ARTICLE 2
DEFINITIONS
Whenever used herein, a pronoun or adjective in the masculine gender includes
the feminine gender, the singular includes the plural, and the following terms
have the following meanings unless a different meaning is clearly required by
context:
2.1 "Account" means, for each Participant, his After-Tax Contribution
Account, his Elective Contribution Account, his Matching Contribution
Account, his Discretionary Contribution Account, his Rollover Account,
and any other account the Plan Administrator determines is necessary
for the proper administration of the Plan.
2.2 "Affiliated Company" means any corporation, trust, association or
enterprise (other than the Company) which is:
(a) required to be considered, together with the Company, as one
employer pursuant to the provisions of Sections 414(b), 414(c),
414(m) or 414(o) of the Code; or
(b) which is designated an Affiliated Employer by the Company.
The term "Affiliated Company" shall not include any corporation or
unincorporated trade or business prior to the date on which such
corporation, trade or business satisfies the affiliation or control
tests of (a) above. In identifying "Affiliated Companies" for purposes
of Section 7.3, the definitions in Sections 414(b) and (c) of the Code
shall be modified as provided in Section 415(h) of the Code.
-3-
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Exec. Ver.
<PAGE>
2.2.A. "After-Tax Contribution Account" means for any Participant the Account
maintained for a Participant with respect to any after-tax
contributions he may have made to the Plan (or a plan which has been
merged with this Plan) prior to July 1, 1998. After-tax contributions
are no longer permitted under this Plan.
2.3 "Annual Addition" means, in the case of any Participant, the sum for
any Limitation Year of all Elective Contributions, Matching
Contributions and Discretionary Contributions, and forfeitures
credited to the Participant's Account for such year.
2.4 "Armed Forces Leave of Absence" means for the purpose of the Plan,
service in the Armed Forces of the United States for any period
prescribed under any applicable federal or state law during which the
Participant has reemployment rights with the Employer, provided that
the Participant shall have returned to the service of the Employer
within 90 days after final release from active duty or within such
longer period as may be prescribed by federal or state law then in
force.
2.5 "Beneficiary" means the person or persons entitled under Section 8.3
to receive benefits under the Plan upon the death of the Participant.
2.6 "Board of Directors" means the Board of Directors of the Company. The
Board of Directors may allocate and delegate its fiduciary
responsibilities, or may designate others to carry out its fiduciary
responsibilities, in accordance with Section 405 of ERISA.
2.7 "Break in Service" means a 12-consecutive-month period commencing on
an Employee's Service Termination Date (or anniversary thereof) during
which such individual does not complete an Hour of Service.
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Exec. Ver.
<PAGE>
2.8 "Code" means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes
reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or
subsection.
2.9 "Company" means Liberty Financial Companies, Inc., a corporation
organized and existing under the laws of the Commonwealth of
Massachusetts, and any successor to all or a major portion of its
assets or business which assumes the obligations of the Company under
the Plan.
2.10 "Discretionary Contribution" means the contribution made by a
Participating Employer on behalf of a Participant under Section 5.5.
2.11 "Discretionary Contribution Account" means, for any Participant, the
account described in Section 7.1 to which Discretionary Contributions
for the Participant's benefit (and earnings attributable thereto) are
credited.
2.12 "Effective Date" means July 1, 1998, with respect to this amended and
restated Plan.
2.13 "Elective Contribution" means, in the case of any Participant, a
contribution made for the benefit of the Participant under Section
5.1.
2.14 "Elective Contribution Account" means, for any Participant, the
account described in Section 7.1 to which Elective Contributions for
the Participant's benefit (and earnings attributable thereto) are
credited.
-5-
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Exec. Ver.
<PAGE>
2.15 "Eligible Employee" means any Employee employed by a Participating
Employer except for a temporary employee (an employee hired to work on
a project or other matter for a period which is expected to last less
than 6 months), an intern, a co-op employee or an employee residing in
Puerto Rico.
2.16 "Employee" means any individual employed by the Employer. "Employee"
also includes any leased employee (as defined in Section 414(n) of the
Code) of the Employer, but solely for purposes of determining his
service for eligibility and vesting purposes and in applying the
limitations of Section 7.3. No leased employee may become a
Participant hereunder unless he becomes an Eligible Employee.
2.17 "Employer" means the Company and all Affiliated Companies.
2.18 "Employment Commencement Date" means the first date on which an
Employee performs an Hour of Service.
2.19 "Entry Date" means, with respect to each Employee each January 1 and
July 1.
2.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as
from time to time amended and any successor statute or statutes of
similar import.
2.21 "Fiduciaries" means the Named Fiduciaries and any other party
designated as Fiduciaries by the Named Fiduciaries in accordance with
the powers described herein, but only with respect to the specific
responsibilities of each in connection with the Plan and Trust.
-6-
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Exec. Ver.
<PAGE>
2.22 "Highly Compensated Participant" means a Participant who is a Highly
Compensated Employee.
2.23 "Highly Compensated Employee" means an Employee who, for a Plan Year,
is a highly compensated employee within the meaning of Section 414(q)
of the Code.
2.24 "Hour of Service" means each hour for which the Employee is directly
or indirectly paid, or entitled to payment, for the performance of
duties for the Employer, each such hour to be credited to the Employee
for the Computation Period in which the duties were performed. In any
event, Hours of Service shall be credited hereunder in accordance with
Section 2530.200(b)-2 of the Department of Labor Regulations which are
incorporated herein by reference.
2.25 "Limitation Year" means the calendar year.
2.26 "Matching Contribution" means, in the case of any Participant, any
contribution made for the benefit of the Participant under Section
5.4.
2.27 "Matching Contribution Account" means, for any Participant, the
account described in Section 7.1 to which Matching Contributions for
the Participant's benefit (and earnings attributable thereto) are
credited.
2.28 "Maternity/Paternity Leave of Absence" means a period of absence from
an Employer that begins for any of the following reasons:
(a) the Employee's pregnancy;
(b) birth of the Employee's child;
(c) placement of a child with the Employee in connection with the
adoption of such child by the Employee; or
-7-
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Exec. Ver.
<PAGE>
(d) the caring for such child for a period beginning immediately
following such birth or placement; provided, however, that in
order for an Employee's absence to qualify as a
Maternity/Paternity Leave of Absence, the Plan Administrator may
require the Employee to furnish such information (in such form
and at such time as it may reasonably require) establishing that
the absence from work is an absence described hereunder.
2.29 "Named Fiduciaries" means the Plan Administrator, Trustee, and the
investment committee if appointed pursuant to Section 6.1.
2.30 "Normal Retirement Date" means the date on which the Participant
attains age 65.
2.31 "Participant" means each Eligible Employee who participates in the
Plan in accordance with Article 4 hereof.
2.32 "Participating Employer" means the Company and any other Affiliated
Company which adopts the Plan with the approval of the Company. The
Participating Employers as of July 1, 1998 are identified as
signatories of this document at the end hereof.
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Exec. Ver.
<PAGE>
2.33 "Plan" means the Liberty Financial Companies, Inc. Savings and
Investment Plan set forth herein, together with any and all amendments
and supplements hereto.
2.34 "Plan Administrator" means the committee appointed by the Board of
Directors to administer the Plans maintained hereunder, and shall have
the authority provided in Article 3.
2.35 "Plan Year" shall mean the calendar year.
2.36 "Qualified Domestic Relations Order" means any judgment, decree or
order (including approval of a property settlement agreement) which
(a) relates to the provision of child support, alimony payments, or
marital property rights to a spouse, former spouse, child or
other dependent of a Participant;
(b) is made pursuant to a state domestic relations law (including a
community property law); and
(c) constitutes a "qualified domestic relations order" within the
meaning of Section 414(p) of the Code.
2.37 "Rollover Account" means, for any Employee, an account to which cash
is transferred pursuant to Section 14.1 or 14.2.
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Exec. Ver.
<PAGE>
2.38 "Share of the Trust Fund" means, in the case of each Participant, that
portion of the Trust's assets which is allocated to the Accounts of
the Participant in accordance with Article 7 of the Plan.
2.38A "Service Termination Date" means the earliest of the following:
(a) the date on which the Employee resigns, is discharged or is
terminated, or retires from employment with the Employer;
(b) the date the Employee dies;
(c) the first anniversary of the date on which the Employee
starts an authorized leave of absence or is absent for any
other reason other than a Maternity/Paternity Leave of
Absence; and
(d) the second anniversary of the date on which the Employee
commenced a Maternity/Paternity Leave of Absence, if such
Employee has not yet returned to work with the Employer.
2.39 "Total Compensation" means, in the case of each Employee and for each
Plan Year, base pay, performance-based bonuses and incentives,
commissions, overrides, overtime pay, vacation pay, and sick pay
(i.e., salary continuation) received by the Employee from the Employer
during the Plan Year for services rendered during such Year, plus any
amounts that would have been received by the Employee from the
Employer during the Plan Year except for any compensation reduction
authorization described in Section 5.2 or any other election under
Section 125, 401(k), 402(h), or 403(b) of the Code. "Total
Compensation" does not include any other form of cash, property or
"imputed" income provided by the Employer to the Employee, including
without limitation the following: Employer contributions under this
Plan or any other employee benefit plan, fund, program or arrangement,
whether now or hereafter established; moving,
-10-
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Exec. Ver.
<PAGE>
automobile or other expense reimbursements or allowances; severance
pay; trip awards, personal use of company car, group term life
insurance, or other imputed compensation; sign on or stay bonuses;
long term incentive bonuses; employee referral fees or other cash
awards; tuition aid; outplacement services or other layoff benefits;
employee gifts or other property; generally, any amounts received
after termination of employment which the plan administrator
determines are not payment for the performance of services; and other
items not includable as compensation under Treasury Regulation Section
1.415-2(d)(2). In no event shall an Employee's Total Compensation in
any Plan Year exceed, for purposes of this Plan, $160,000 or such
larger amount as the Secretary of the Treasury may determine for such
Plan Year under Section 401(a)(17) of the Code.
2.40 "Trust" means the trust established between the Company and Trustees.
2.41 "Trust Fund" means the property held in trust by the Trustee for the
benefit of Participants, former Participants and their Beneficiaries.
2.42 "Trustee" or "Trustees" means the persons who have executed this Trust
as Trustee and any successor trustee or trustees, and any additional
trustee or trustees.
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Exec. Ver.
<PAGE>
2.43 "Valuation Date" means the last business day of each Plan Year and
such other day or days as may be specified by the Plan Administrator.
2.44 "Year of Service for Vesting" means with respect to any Employee, all
periods of employment with the Employer, whether or not consecutive,
measured from the Employee's Employment Commencement Date and ending
on his Service Termination Date. Years of Service for Vesting shall
also include the period following his Service Termination Date,
provided he is reemployed by the Employer prior to incurring a Break
in Service.
This Section shall be subject to the reinstatement of service
provision of Section 8.6(b).
-12-
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Exec. Ver.
<PAGE>
ARTICLE 3
ADMINISTRATION
3.1 Allocation of Responsibility Among Fiduciaries for Plan and Trust
Administration. The Fiduciaries shall have only those specific powers,
duties, responsibilities, and obligations as are specifically given or
delegated to them under the Plan or the Trust. The Participating
Employers shall have the sole responsibility for making the
contributions under the Plan as specified in Article 5, and the
Company shall have the sole authority to appoint and remove the Plan
Administrator, any Trustee or Trustees, and any investment manager
which may be provided for under the Trust, and to amend or terminate,
in whole or in part, the Plan or the Trust. The Plan Administrator
shall have the sole responsibility for the administration of the Plan,
which responsibility is specifically described in the Plan and the
Trust. The Trustee shall have the responsibilities as specifically
provided in the Trust. Each Fiduciary warrants that any directions
given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan or the Trust, as the case
may be, authorizing or providing for such direction, information or
action. Furthermore, each Fiduciary may rely upon any direction,
information or action of another Fiduciary as being proper under the
Plan or the Trust, and is not required under the Plan or the Trust to
inquire into the propriety of any direction, information or action. It
is intended under the Plan and the Trust that each Fiduciary shall be
responsible for the proper exercise of its own powers, duties,
responsibilities and obligations under the Plan and the Trust and
shall not be responsible for any act or failure to act of another
Fiduciary. No Fiduciary guarantees the Trust in any manner against
investment loss or depreciation in asset value.
-13-
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Exec. Ver.
<PAGE>
3.2 Administration. The Plan shall be administered by the Plan
Administrator, which may appoint or employ persons to assist in the
administration of the Plan and may appoint or employ any other agents
it deems advisable, including legal counsel, actuaries, auditors,
bookkeepers and recordkeepers to serve at the Plan Administrator's
direction. All usual and reasonable expenses of the Plan and the Plan
Administrator may be paid in whole or in part by the Company, and any
expenses not paid by the Company shall be paid by the Trustee out of
the Trust Fund.
3.3 Claims Procedure. The Plan Administrator, or a party designated by the
Plan Administrator, shall make all determinations as to the right of
any person to a distribution under the Plan. If a request for a Plan
distribution by a Participant or Beneficiary is wholly or partially
denied, the Plan Administrator, or the designated party, will provide
such claimant a comprehensible written notice setting forth:
(a) the specific reason or reasons for such denial;
(b) specific reference to pertinent Plan provisions on which the
denial is based;
(c) a description of any additional material or information necessary
for the claimant to submit to perfect the claim and an
explanation of why such material or information is necessary; and
(d) a description of the Plan's claim review procedure and the fact
that the review procedure is available upon written request by
the claimant to the Plan Administrator, or the designated party,
within 60 days after receipt by the claimant of written notice of
the denial of the claim, and includes the right to examine
pertinent documents and submit issues and comments in writing to
the Plan Administrator or the designated party.
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Exec. Ver.
<PAGE>
Such written notice will be given within 90 days after the claim is
received by the Plan Administrator (or within 180 days, if special
circumstances require an extension of time for processing the claim,
and if written notice of such extension and circumstances is given to
the claimant within the initial 90-day period). If such notification
is not given within such period, the claim will be considered denied
as of the first day of such period and such person may request a
review of his claim. The decision on review will be made within 60
days after receipt of the request for review, unless circumstances
warrant an extension of time not to exceed an additional 60 days (and
unless written notice of such extension and circumstances is given to
the claimant within the initial 60-day period), and shall be in
writing and drafted in a manner calculated to be understood by the
claimant, and include specific reasons for the decision with
references to the specific Plan provisions on which the decision is
based.
3.4 Records and Reports. The Plan Administrator shall exercise such
authority and responsibility as it deems appropriate in order to
comply with ERISA and government regulations issued thereunder
relating to records of Participants' service and benefits;
notifications to Participants; reports to, or registration with, the
Internal Revenue Service; reports to the Department of Labor; and such
other documents and reports as may be required by ERISA.
3.5 Other Administrative Powers and Duties. The Plan Administrator shall
have such powers and duties, in addition to those powers and duties
set forth elsewhere herein, as may be necessary to discharge its
functions hereunder, including the following:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment
of any distributions
-15-
Savings Plan
Exec. Ver.
<PAGE>
hereunder to the fullest extent provided by law; any interpretations
or decisions so made will be conclusive and binding on all persons
having an interest in the Plan;
(b) to prescribe procedures to be followed by Participants or
Beneficiaries requesting distributions or withdrawals;
(c) to prepare and distribute, in such manner as the Plan
Administrator determines to be appropriate, information
explaining the Plan, which shall include providing Participants
not less frequently than annually with periodic statements of
their accounts;
(d) to receive from Employees and agents such information as shall be
necessary for the proper administration of the Plan;
(e) to receive, review and keep on file (as it deems convenient or
proper) reports of the financial condition, and of the receipts
and disbursements, of the Trust from the Trustee; and
(f) to designate or employ persons to carry out any of the Plan
Administrator's fiduciary duties or responsibilities under the
Plan.
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Exec. Ver.
<PAGE>
3.6 Rules and Decisions. The Plan Administrator may adopt such rules,
regulations and procedures as it deems necessary, desirable or
appropriate. All decisions of the Plan Administrator shall be
uniformly and consistently applied to all Participants in similar
circumstances. When making a determination or calculation, the Plan
Administrator shall be entitled to rely upon information furnished by
a Participant or Beneficiary, the legal counsel of the Plan
Administrator, an Employer or the Trustee.
3.7 Reliance on Tables, etc. In administering the Plan, the Plan
Administrator will be entitled, to the extent permitted by law, to
rely conclusively on all tables, valuations, certificates, opinions
and reports which are furnished by any accountant, trustee, counsel or
other expert who is employed or engaged by the Plan Administrator or
by the Company on the Plan Administrator's behalf.
3.8 Procedures. The Plan Administrator shall keep all necessary records
and forward all necessary communications to the Trustee.
3.9 Authorization of Withdrawals and Distributions. The Plan Administrator
or its agent shall issue and/or approve directions, instructions
and/or procedures to the Trustee concerning all withdrawals and
distributions which are to be made from the Trust pursuant to the
provisions of the Plan, and shall warrant that all such directions are
in accordance with the Plan.
3.10 Rules and Procedures for Withdrawals and Distributions. The Plan
Administrator may require a Participant request a withdrawal or
distribution pursuant to rules and procedures it may establish from
time to time. The Plan Administrator may rely upon all such
information so furnished it, including the Participant's current
mailing address.
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Exec. Ver.
<PAGE>
3.11 Indemnification of Plan Administrator. The Company agrees to indemnify
and to defend to the fullest extent permitted by law any Employee
serving as Plan Administrator (including any Employee who formerly
served as a Plan Administrator) against all liabilities, damages,
costs and expenses (including attorneys' fees and amounts paid in
settlement of any claims approved by the Company) occasioned by an act
or omission to act in connection with the Plan, if such act or
omission is in good faith.
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<PAGE>
ARTICLE 4
PARTICIPATION
4.1 Participation. Each person who was a Participant in the Liberty
Financial Companies, Inc. or the Keyport Life Insurance Company
Savings Plan and Trust as of June 30, 1998, will continue to be a
Participant on July 1, 1998. Any other Employee will become a
Participant on the Entry Date next following his date of hire provided
that he is an Eligible Employee on such Entry Date.
4.2 Cessation of Participation. A Participant will cease to be a
Participant as of the earlier of
(a) the date on which he ceases to be an Eligible Employee; or
(b) the date on which the Plan terminates.
4.3 Breaks in Service.
(a) If an Employee who has ceased to be a Participant pursuant to
Section 4.2 again becomes an Eligible Employee, he will
immediately become a Participant in the Plan.
(b) If an Employee who was not a Participant and who terminates
employment with the Company and all Affiliated Companies again
becomes an Employee, he shall become a Participant on the Entry
Date next following his Date of Hire.
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Exec. Ver.
<PAGE>
ARTICLE 5
CONTRIBUTIONS
5.1 Elective Contributions. On behalf of each Participant for whom there
is in effect, for any pay period, a compensation reduction
authorization described in Section 5.2, and who is receiving Total
Compensation from a Participating Employer during such pay period,
such Participating Employer will contribute to the Trust, as an
Elective Contribution, an amount equal to the amount by which such
Total Compensation was reduced pursuant to the compensation reduction
authorization.
5.2 Compensation Reduction Authorizations. For purposes of Section 5.1, a
"compensation reduction authorization" is an authorization from an
Eligible Employee to a Participating Employer which satisfies the
requirements of this Section 5.2. Each such authorization shall
provide that the Participant's Total Compensation from the
Participating Employer will be reduced by a number of whole percentage
points between 1% and 19%, inclusive, elected by the Participant, and
that the Participating Employer will contribute such amount to the
Trust as an Elective Contribution on behalf of such Participant. Each
such authorization shall be made pursuant to procedures prescribed or
approved by the Plan Administrator and shall be irrevocable while the
authorization is in effect.
5.3 Revocation or Change of Compensation Deductions. A Participant may
change or revoke his compensation reduction authorization effective as
of any pay period. A Participant who has revoked his compensation
reduction authorization may reinstate his prior reduction
authorization as of any subsequent pay period. Any such revocation,
change or reinstatement shall be made pursuant to procedures
prescribed or approved by the Plan Administrator.
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<PAGE>
5.4 Matching Contributions. For each pay period, each Participating
Employer will contribute to the Trust, for the benefit of each
Participant employed by the Participating Employer (including a former
Participant who ceased to be a Participant during the month), a
Matching Contribution equal to 75 percent of such portion of the
Participant's Elective Contributions for the pay period as does not
exceed six percent of the Participant's Total Compensation for the pay
period from the Participating Employer.
5.5 Discretionary Contributions. For each Plan Year each Participating
Employer will contribute to the Trust such amount of Discretionary
Contributions, if any, as it determines. Except as hereafter provided,
as of the last business day of each Plan Year, each Participating
Employer's Discretionary Contribution for such year will be allocated
among and credited to the Discretionary Contribution Accounts of
Participants who are employed by such Participating Employer on the
last day of such year in proportion to their respective amounts of
Total Compensation (only Total Compensation while an Employee is a
Participant and employed by a Participating Employer shall be counted
for this purpose) paid by such Participating Employer for such Plan
Year. A Participant who retires on or after age 65, becomes disabled,
or dies while employed during a Plan Year shall be considered as if
still employed on the last day of the Plan Year.
5.6 Treatment of Forfeitures. If a Participant forfeits any part of his
interest in the Trust Fund under Section 8.6, the amount of the
forfeiture will be applied as soon as reasonably practical (at least
annually) to reduce the Matching Contributions required to be made to
the Plan under Section 5.4. Forfeitures shall be maintained and
applied separately with respect to each Participating Employer
pursuant to procedures established by the Plan Administrator.
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Exec. Ver.
<PAGE>
5.7 Maximum Amount of Contributions. In no event will the sum of the
contributions under Sections 5.1, 5.4 and 5.5 for any Plan Year be in
an amount which would cause the Annual Addition for any Participant to
exceed the amount permitted under Section 415 of the Code, nor will
the sum of the contributions under Sections 5.1, 5.4 and 5.5 exceed
the maximum amount deductible under Section 404 of the Code.
Participating Employer contributions under the Plan are hereby
conditioned on their deductibility under Section 404 of the Code. The
Elective Contributions made for a Participant for any Plan Year may
not exceed the limit as may be in effect for the Plan Year under
Section 402(g)(1) of the Code, reduced by any other elective deferrals
(as defined in Section 402(g)(3) of the Code) of the Participant
through the Employer for the Plan Year.
5.8 Return of Contributions. If a contribution by a Participating Employer
to the Trust is
(a) made by reason of a good faith mistake of fact, or
(b) is conditioned upon its deductibility under Section 404 of the
Code, and the deduction is disallowed,
the Trustee shall, upon request by the Participating Employer, return
to the Participating Employer the excess of the amount contributed
over the amount, if any, that would have been contributed had there
not occurred a mistake of fact or a mistake in determining the
deduction. In no event shall the return of a contribution hereunder
cause any Participant's Share of the Trust Fund to be reduced to less
than it would have been had the mistaken or nondeductible amount not
been
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<PAGE>
contributed. No return of a contribution hereunder shall be made more
than one year after the mistaken payment of the contribution, or
disallowance of the deduction, as the case may be.
5.9 Nondiscrimination Requirements.
Elective Contributions, Matching Contributions, and QNECs (that is,
qualified nonelective contributions as defined in Treasury Regulation
1.401(k)-1(g)(13)(ii))for any Plan Year must satisfy the
nondiscrimination requirements set forth in Sections 401(k)(3) and
401(m)(9) of the Code, Treasury Regulations 1.401(k)-1(b) and
1.401(m)-2, and any applicable successor to such Sections and/or
Regulations. For this purpose the so-called prior year/look back year
method shall be used.
5.10 Adjustments by Plan Administrator.
(a) Notwithstanding any provision of the Plan to the contrary, the
Plan Administrator may, in its sole discretion, decrease the
amount of the future Elective Contributions to be made for the
benefit of any Highly Compensated Employee, and pay the amount of
the decrease to the Employee in cash, if the Plan Administrator
deems such a decrease to be necessary in order to satisfy either
the nondiscrimination requirements of Section 5.9 or the
limitations described in Section 5.7, or both. If the Plan
Administrator decreases any Elective Contributions in order to
meet the nondiscrimination requirement of Section 5.9, such
decrease shall be made first in the Elective Contributions for
the Highly Compensated Employees whose Elective Contributions are
expected to be the highest dollar amount for the Plan Year so
that no reduction is made in the Elective Contributions for any
Highly Compensated Employee as long as any other Highly
Compensated Employee is expected to make a higher dollar
contribution for the Plan Year. Any
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<PAGE>
decrease in the Elective Contributions for a Participant will
also be effective for purposes of determining the amount of the
Matching Contributions to be made for the Participant's benefit
under Section 5.4.
(b) Notwithstanding any provision of the Plan to the contrary, the
Plan Administrator may, in its sole discretion, decrease the
amount of Matching Contributions to be made for the benefit of
Highly Compensated Employees if the Plan Administrator deems such
decrease to be necessary in order to satisfy the
nondiscrimination requirements of Section 5.9. Any decrease in
Matching Contributions in order to satisfy Section 5.9 shall be
made first in the Matching Contributions for the Highly
Compensated Employees whose Matching Contributions for the Plan
Year are expected to be the highest dollar amounts, so that no
reduction is made in the Matching Contributions for any Highly
Compensated Employee as long as any other Highly Compensated
Employee is expected to have a higher dollar contribution for the
Plan Year.
5.11 Distribution of Excess Contributions. If, after all contributions for
a Plan Year have been made, the nondiscrimination requirements of
Section 5.9 have not been satisfied for the Plan Year, the Plan
Administrator shall, as soon as practicable (but in no event later
than the close of the following Plan Year), distribute the excess
contributions (adjusted for income or loss allocable to such excess)
to Highly Compensated Participants, in accordance with Sections
401(k)(8) and 401(m)(6) of the Code, to the extent necessary to
satisfy Section 5.9. If distributions must be made under this Section
5.11 in order to satisfy a nondiscrimination test in Section 5.9,
there shall be distributed first Elective Contributions together with
any Matching Contributions attributable to them (adjusted for income
or loss), and then Matching Contributions (adjusted for income or
loss).
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Exec. Ver.
<PAGE>
5.12 Distribution of Excess Deferrals. If, on or before March 1 of any
year, a Participant notifies the Plan Administrator, in accordance
with Section 402(g)(2)(A) of the Code and regulations thereunder, that
all or part of the Elective Contributions made for his benefit
represent an excess deferral for the preceding taxable year of the
Participant, the Plan Administrator shall make every reasonable effort
to cause such excess deferral (adjusted for income or loss allocable
to such excess) to be distributed to the Participant no later than the
April 15 following such notification. Except to the extent otherwise
provided in regulations, any amount distributed under this Section
5.12 shall be taken into account in applying Sections 5.9, 5.10 and
5.11 as if it had not been distributed, except that any distribution
of excess Elective Contributions to a Participant under Section 5.11
shall be reduced by the amount of any distribution to the Participant
under this Section 5.12.
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<PAGE>
ARTICLE 6
TRUST FUND AND INVESTMENTS
6.1 Investment Funds Within the Trust Fund. All contributions to the Trust
and all investments thereunder shall be held by the Trustee in the
Trust Fund. The Trust Fund shall consist of such investment funds as
the Company, or investment advisor or manager appointed by the
Company, shall select, including, without limitation, fixed income
contracts with one or more insurance companies, shares of one or more
mutual funds, and common stock of the Company. The Company may name an
investment or similar committee which shall be responsible for
selecting the investment funds which will be offered hereunder from
time to time.
The separate investment funds made available within the Trust Fund may
be changed or modified from time to time by the Company, or by an
investment advisor or manager or investment committee appointed by the
Company. It is expressly permissible under the Plan for Trust assets
to be invested in "qualifying employer securities" as that term is
defined in Section 407(d)(5) of ERISA.
The Plan and Trust are intended to comply with Section 404(c) of
ERISA.
6.2 Selection of Investment Funds. Each Participant may select the
investment fund or funds for his future Contributions and Accounts
among the funds described in Section 6.1. Each such investment
election shall be made pursuant to investment election rules and
procedures established by the Plan Administrator.
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<PAGE>
Notwithstanding any provision of the Plan to the contrary, to the
extent permitted according to rules and procedures adopted by the Plan
Administrator, an investment election or change in investment
direction may be made by the telephone or other electronic means.
6.2.A. Certain Self-Managed Accounts. In conjunction with certain corporate
restructuring and acquisitions, the Company has agreed to permit
certain Participants to invest a portion of their Accounts in various
securities that are not generally offered under the Plan (self-managed
accounts). A Participant who is investing in a self-managed account
may continue to utilize such self-managed account with respect to
amounts held in such self-managed account but may not add any other
amounts to such account. If a Participant transfers an amount from
such account to one of the investment funds offered under the Plan,
such amount may not be transferred back to the self-managed account.
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<PAGE>
ARTICLE 7
PARTICIPANT ACCOUNTS AND LIMITATIONS ON ANNUAL ADDITIONS
7.1 Accounts. The Plan Administrator shall maintain or cause to be
maintained on its books for each Participant an Elective Contribution
Account, a Matching Contribution Account, a Discretionary Contribution
Account, and a Rollover Account as appropriate to correspond to the
types of contributions made by or on his behalf to the Plan. The Plan
Administrator shall also establish and maintain such other accounts or
subaccounts as it deems necessary or desirable to carry out the
provisions of the Plan, for example, to reflect any amount which is
repaid to the Plan on an after-tax basis pursuant to Section 8.6(a).
7.2 Adjustment of Accounts. The Plan Administrator shall, as of each
Valuation Date, adjust or cause to be adjusted each Participant's
Account to reflect contributions, distributions, withdrawals,
investment transfers, participant loans and repayments on any such
loans, investment earnings, expenses, and any other debits or credits
to such Account since the last Valuation Date, including realized and
unrealized gains and losses determined on the basis of fair market
value.
7.3 Limitations. Notwithstanding any other provisions of the Plan:
(a) The Annual Addition to a Participant's accounts under the Plan
for any Limitation year, when added to the annual additions to
his accounts for such year under all other defined contribution
plans (if any) maintained by the Employer, shall not exceed the
lesser of (1) the maximum dollar limitation or (2) 25 percent of
the Participant's Taxable Compensation for such Limitation
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Exec. Ver.
<PAGE>
Year. For purposes of this Section, "maximum dollar limitation" means
$30,000 (or, if greater, one-fourth of the limitation in effect for
the Limitation Year under Section 414(b)(1)(A) of the Code).
(b) In the case of a Participant who also participates in a defined
benefit plan maintained by the Employer, the Annual Addition for
a Limitation Year will, if necessary, be further limited so that
the sum of the Participant's "defined contribution plan fraction"
(as determined under Section 414(e) of the Code and the
regulations promulgated thereunder) and his "defined benefit plan
fraction" (as determined under Section 415(e) of the Code and the
regulations promulgated thereunder) for such Limitation Year does
not exceed 1.0.
(c) To the extent necessary to satisfy the limitations of this
Section 7.3 for any Participant, the Participant's benefit under
any and all defined benefit plans shall be reduced before his
Annual Addition under this Plan, and his Annual Addition under
this Plan shall be reduced before his Annual Addition under any
other defined contribution plan. The Plan Administrator may limit
the amount of Elective Contributions a Participant may make
hereunder during a Limitation Year so that his Annual Addition
for the Year shall not exceed the limit set forth in (a) above.
In the event a Participant's Annual Addition for a Limitation
Year exceeds the limit set forth in (a) above, the Plan
Administrator may establish a suspense account on behalf of the
Participant in an amount equal to such excess and the amount in
the suspense account shall be applied as a contribution due on
behalf of the Participant for the succeeding Limitation year. In
the event no contributions are due on behalf of the Participant
for the succeeding Limitation Year, or if the amount in the
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Exec. Ver.
<PAGE>
suspense account exceeds the contributions which are due, the
balance in the suspense account shall be applied to reduce the
contributions due on behalf of other Participants and no
contributions shall be made to the Plan until the suspense
account is so applied. In lieu of establishing a suspense account
and applying it as above described, the Plan Administrator may
correct an excess Annual Addition on behalf of a Participant for
a Limitation year by distributing to such Participant all or a
portion of such Participant's Elective Contribution for the Plan
Year as necessary to correct such excess.
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<PAGE>
ARTICLE 8
RIGHTS TO BENEFITS
8.1 Normal Retirement. A Participant who attains his Normal Retirement
Date while an Employee, will have a fully vested and nonforfeitable
interest in his Share of the Trust Fund. Upon his retirement on or
after his Normal Retirement Date, the Participant's Share of the Trust
Fund will be distributed in accordance with Article 9 below.
8.2 Disability Retirement. A Participant may retire before his Normal
Retirement Date if he becomes eligible for disability benefits under
the Employer's long term disability plan. In the event of such a
disability retirement, the Participant will have a fully vested and
nonforfeitable interest in, and will be entitled to receive, his Share
of the Trust Fund. Distribution will be made in accordance with
Article 9 below.
8.3 Death.
(a) If a Participant or former Participant dies while employed by the
Company or an Affiliated Company before the distribution of his
Share of the Trust Fund has been made under Article 9, upon his
death his designated Beneficiary will have a fully vested and
nonforfeitable interest in, and will be entitled to receive, the
value of his Share of the Trust Fund. Distribution to the
Beneficiary will be made in accordance with Article 9.
(b) If the Participant was married at the time of death, he shall be
deemed to have designated his surviving spouse as his Beneficiary
unless:
(1) prior to his death, he designated as his Beneficiary a person
other than his surviving spouse, such designation to be made
in writing at such time and in such manner as the Plan
Administrator shall approve or prescribe; and
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Exec. Ver.
<PAGE>
(2) either
(A) his surviving spouse consents in writing to the
designation described in (1) above, such consent
acknowledges the effect of such designation and the
specific non-spouse Beneficiary (including any class of
Beneficiaries or any contingent Beneficiaries) or
authorizes the Participant to designate Beneficiaries
without further consent, and such consent is witnessed by
a Plan representative or a notary public, or
(B) it is established to the satisfaction of the Plan
Administrator that the consent required under (A) above
may not be obtained because there is no spouse, because
the spouse cannot be located, or because of such other
circumstances as the Secretary of the Treasury may
prescribe; and
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<PAGE>
(3) the non-spouse Beneficiary designated in accordance with the
provisions of this Section survives the Participant.
Any consent by a spouse under (2)(A) above, or a determination by the
Plan Administrator with respect to such spouse under (2)(B) above,
shall be effective only with respect to such spouse. Any such consent
shall be irrevocable, but shall be effective only with respect to the
specific Beneficiary designation unless the consent expressly permits
designations by the Participant without any requirement of further
consent. Any consent that permits Beneficiary designations by the
Participant without any requirement of further consent must
acknowledge the spouse's right to limit consent to a specific
Beneficiary and the spouse's voluntary election to relinquish such
right.
(c) A Participant who is not married may designate a Beneficiary in
writing at such time and in such manner as the Plan Administrator
shall approve or prescribe.
(d) A Participant who has designated a Beneficiary in accordance with
this Section 8.3 may change such designation at any time by
giving written notice to the Plan Administrator, subject to the
conditions of this Section 8.3 and such additional conditions and
requirements as the Plan Administrator may prescribe in
accordance with applicable law.
(e) If a Participant dies without a surviving Beneficiary, the full
amount payable upon his death will be paid to his issue per
stirpes. If any of such issue is a minor, at the direction of the
Plan Administrator, the Trustee may deposit his share in a
savings account to his credit in a savings bank or other
financial
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<PAGE>
institution for the benefit of such issue. If there are no surviving
issue, then the amount may be paid to his executor or administrator or
applied to the payment of his debts and funeral expenses, all as the
Plan Administrator shall determine.
8.4 Other Termination of Employment. If a Participant separates from the
service (within the meaning of Code Section 401(k)(2)(B)(i)(I)) of the
Employer for any reason other than retirement, disability or death
described in Section 8.1, 8.2 or 8.3, he will be entitled under this
Section 8.4 to a benefit equal to the sum of
(a) the balances of his Elective Contribution Account, that portion,
if any, of his Discretionary Contribution Account attributable to
qualified non-elective contributions which may have been made
under a predecessor to this Plan (QNEC) and Rollover Account, if
any, plus
(b) his vested portion, determined under the vesting schedule below,
of his Matching Contribution Account and his Discretionary
Contribution Account (other than that portion, if any,
attributable QNECs) determined as of the same Valuation Date. The
vested portion of a Participant's Matching Contribution Account
and Discretionary Contribution Account (other than amounts
attributable to QNECs) will be determined by multiplying the
balance of each such Account by the following percentage, based
upon the number of the Participant's Years of Service for Vesting
on the date his employment terminates:
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<PAGE>
<TABLE>
<CAPTION>
Years of Service for Vesting Percentage
---------------------------- ----------
<S> <C>
less than 2 0
2 25
3 50
4 75
5 or more 100
</TABLE>
Distribution of a benefit under this Section 8.4 will be made in
accordance with Article 9. A Participant shall be treated as having
separated from the service of the Employer if the Participant ceases
to be an Employee because of the disposition by a Participating
Employer of a subsidiary, or of substantially all the assets of a
trade or business, unless the organization acquiring the subsidiary or
trade or business maintains the Plan, as determined under Treasury
Regulation 1.401(k)-1(d)(4).
8.5 Election of Former Vesting Schedule. If the Plan is amended, and if
such amendment directly or indirectly affects the computation of the
nonforfeitable percentage of a Participant's right to his Account,
each Participant who has completed three Years of Service for Vesting
as of the end of the election period described below and whose
nonforfeitable percentage at any time after such amendment could be
less than such percentage determined without regard to such amendment,
may elect during such election period to have the nonforfeitable
percentage of his Account determined without regard to such amendment.
The election period referred to in the preceding sentence will begin
on the date such amendment is adopted and will end on the latest of
the following dates:
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<PAGE>
(a) the date which is 60 days after the date on which such amendment
is adopted;
(b) the date which is 60 days after the date on which such amendment
becomes effective; or
(c) the date which is 60 days after the date on which the Participant
is issued written notice of such amendment by the Plan
Administrator.
An election under this Section 8.5 may be made only by an individual
who is a Participant at the time such election is made and once made
shall be irrevocable.
8.6 Forfeitures.
(a) If a Participant separates from the service of the Employer at a
time when he has less than a 100 percent nonforfeitable interest
in his Matching Contribution Account or his Discretionary
Contribution Account, any portion of his Matching Contribution
Account or Discretionary Contribution Account not payable to him
under Section 8.4 will be forfeited on the date the Participant
receives a distribution of the vested portion of his Account or
the date the Participant incurs a Break in Service. Any such
forfeitures shall be applied as described in Section 5.6. If a
Participant who has incurred such a forfeiture resumes employment
with an Employer prior to incurring five consecutive Breaks in
Service, the Company shall contribute to the Trust and credit to
the Participant's Matching Contribution Account and/or
Discretionary Contribution Account an amount equal to the amount
previously forfeited if, within 5 years after the date on which
the Participant resumes employment, he repays to the Plan the
amount previously distributed to him, without interest.
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<PAGE>
(b) In the event a Participant terminates employment with the Company
or an Affiliated Company, his years of Service for Vesting shall
be reinstated if, and only if, (i) he was fully or partially
vested in Employer Contributions when he terminated employment,
or (ii) if he was not fully or partially vested in Employer
Contributions, he returns to employment before he incurs five
consecutive Breaks in Service.
(c) In the event a Participant makes a withdrawal from his Account
attributable to Employer Contributions before he is fully vested
in such Contributions, his vested interest in his remaining
Account at any time before he is 100% vested in such Account
shall be determined according to the following formula:
X = P (AB + D) B D
where P is the Participant's vesting percentage at the time his
vested interest is being determined, AB is the balance of his
Account attributable to Employer Contributions, and D is the
amount of the withdrawal.
(d) For the purpose of determining an Employee's vesting percentage,
years of employment with the Company and any Affiliated Company
will be taken into consideration.
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<PAGE>
ARTICLE 9
DISTRIBUTION OF BENEFITS
9.1 Payment Upon Retirement, Disability, or Termination of Employment. If
a Participant's Share of the Trust Fund becomes payable under Section
8.1, 8.2, or 8.4, distribution of such Share will be made in a form
determined under Section 9.6, as soon as reasonably practicable after
retirement, disability, or termination of employment, subject in each
case to Sections 9.4, 9.5, and 9.6 below.
9.2 Payment Upon Death. If a Participant's Share of the Trust Fund becomes
payable under Section 8.3, distribution of such Share will be made in
a single payment as soon as reasonably practicable after the date of
the Participant's death, and in no event later than the end of the
calendar year in which occurs the fifth anniversary of the
Participant's death.
9.3 Amount of Distribution. The amount of any distribution will not be
more than the amount of the Participant's vested Account as of the
most recent Valuation Date preceding the date of the distribution, or
such other Valuation Date that conforms to the Plan's regular
distribution practices.
9.4 Consent to Distributions Before Age 70-1/2. No distribution shall be
made to any Participant before he reaches age 70-1/2 unless:
(a) the Participant's prior written consent to the distribution has
been obtained by the Plan Administrator, or
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<PAGE>
(b) the value of the vested and nonforfeitable portion of the
Participant's Share of the Trust Fund, determined as of the
Valuation Date coinciding with or next preceding the date of the
distribution, does not exceed $5,000.
If the Participant's consent is required under this Section 9.4 but is
not provided prior to the time distribution is to be made or commence
under Section 9.1, distribution shall be made the earliest of: (1) the
April 1 following the year the Participant attains age 70-1/2, (2) as
soon as practicable after the Plan Administrator is notified of the
Participant's death, or (3) as soon as practicable after the date the
Plan Administrator receives from the Participant and records a request
for distribution.
9.5 Latest Commencement of Benefits.
(a) Unless otherwise elected in accordance with the following
paragraph, in no case will distributions of any Participant's
Share of the Trust Fund commence later than the 60th day after
the latest of the following:
(i) the close of the Plan Year in which occurs the date on
which the Participant attains age 65;
(ii) the close of the Plan Year in which occurs the tenth
anniversary of the year in which the Participant commenced
participation in the Plan; or
(iii) the close of the Plan Year in which the Participant's
service with the Employer terminates.
Subject to Section 401(a)(9) of the Code, a Participant who is
entitled to a distribution of his Share pursuant to the
provisions of this Article may elect, in
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<PAGE>
accordance with procedures adopted by the Plan Administrator, to
defer payment of such Share but not beyond the April 1 following
the Plan Year in which he attains age 70-1/2. The distribution of
such Share for any Participant who makes such an election will be
made in a single lump sum payment (unless otherwise provided
under Section 9.6) as soon as reasonably practicable after the
Valuation Date coinciding with or immediately following the
commencement date elected by such Participant.
(b) In any event, and notwithstanding any election or provision of
this Plan to the contrary, distribution of a Participant's
Account shall be made not later than the April 1 following the
close of the calendar year in which he attains age 70-1/2,
provided that if a Participant is still an Employee at the time
distributions are required to commence under this Section 9.5(b),
and the Participant is not a 5% or more owner of the Company,
distributions shall be made as soon as practicable after the
Participant terminates employment.
(c) If a Participant dies on or after the applicable date described
in (b) above and before distribution of his benefit has been
completed, the remaining portion of his benefit will be
distributed to his Beneficiary at least as rapidly as under the
method of distribution under which the Participant was receiving
his benefit as of the date of his death.
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(d) All distributions under the Plan shall be made in a manner
consistent with Section 401(a)(9) of the Code and regulations
thereunder.
(e) For purposes of this Section 9.5, life expectancies shall not be
recalculated under Section 401(a)(9)(D) of the Code.
9.6 Forms of Distribution.
(a) In General. Subject to Sections 9.6(b) and (c) below, and the
minimum distribution rules under Code Section 401(a)(9), a
Participant or Beneficiary may elect to receive the amounts
payable to him under the Plan in the following form or forms:
(i) a single payment in cash or in kind or a combination
thereof;
(ii) in the case of a Participant who became a Participant in
the Plan prior to January 1, 1989, by the purchase and
distribution of a non-transferable annuity contract
providing for payments (A) as a single life annuity or (B)
in the case of a married Participant only, as a 50 percent
joint and survivor annuity providing for payments to the
Participant for the remainder of his life and thereafter
to his spouse for the spouse's life in an amount equal to
50 percent of the amount of the benefit then being paid to
the Participant determined as of the first of the month in
which the Participant dies; or
(iii) A combination of (i) and (ii).
A Participant may elect a partial rather than a full
distribution provided that no more than one partial
distribution may be made in a
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calendar year and any such partial distribution shall not
be less than $1,000. In any event, a terminated
Participant's Account shall be distributed no later than
the April 1 following the close of the calendar year in
which he attains age 70-1/2.
(b) Special Rule for Certain Married Participants. If a married
Participant at any time elects the purchase and distribution of
an annuity contract, the survivor annuity requirements of Code
Sections 401(a)(11) and 417 will always thereafter apply to all
of the Participant's benefits under this Plan, and the Plan shall
satisfy the applicable written explanation, consent, election and
withdrawal rules of such Code sections and the regulations
thereunder, including payment of benefits in the form of a
qualified joint and survivor annuity unless such annuity is
waived and such waiver is properly consented to by the
Participant's spouse within 90 days of the Participant's annuity
starting date.
(c) Special Rule for Certain Small Benefits. If the total amount
payable before any distribution has commenced with respect to a
Participant (whether or not he is a married Participant) does not
exceed $5,000, such amount will be paid in a single payment in
cash.
(d) A Participant (with his spouse's consent if married) may waive
the 30-day pre-notification requirement as described in Section
417 of the Code.
9.7 Notice to Trustee. The Plan Administrator will notify the Trustee, or
its delegate, whenever any Participant or Beneficiary is entitled to
receive a distribution under the Plan. In giving such notice, the Plan
Administrator will specify the name and last known address of the
person receiving such distribution. Upon receipt of such notice from
the Plan Administrator, the Trustee, or its delegate, will, as soon as
is reasonably practicable, distribute such amount.
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9.8 Direct Rollovers. Notwithstanding any provision of the Plan to the
contrary, a "distributee" may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
"eligible rollover distribution" paid directly to an "eligible
retirement plan" specified by the distributee as a "direct rollover".
The Administrator may require evidence that the Plan to which the
rollover is intended to be made is, in fact an "eligible retirement
plan". The Plan Administrator is not required to make wire transfers
nor to make direct rollovers to more than one eligible retirement plan
on behalf of a distributee.
The following definitions shall apply for purposes of this Section
9.8:
(a) an "eligible rollover distribution" is any distribution of all or
any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life expectancy (or life expectancies) of the distributee or
the joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income (determined with regard to the exclusion for net
unrealized appreciation with respect to employer securities);
(b) an "eligible retirement plan" is an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts that
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity;
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(c) a "distributee" includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse or
former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the spouse
or former spouse.
(d) a "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
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ARTICLE 10
IN-SERVICE WITHDRAWALS
10.1 Hardship Withdrawals. A Participant who suffers a financial hardship,
as defined in this Section, may request a withdrawal from (1) the
vested portion of his Matching Contribution Account, (2) the vested
portion of his Discretionary Contribution Account, (3) his Rollover
Account, if any, and (4) his Elective Contribution Account (other than
that portion of his Elective Contribution Account which is
attributable to income credited after December 31, 1988). Such a
request shall be made by written notice to the Plan Administrator
setting forth the nature and amount of the hardship need and
documentary evidence thereof. Upon receipt and recording of such a
request, the Plan Administrator shall determine whether a financial
hardship exists; if the Plan Administrator determines that such a
hardship does exist, it shall further determine what portion of the
amount requested by the Participant is required to meet the need
created by the hardship, and shall direct the Trustee to distribute to
the Participant in a single lump sum payment the amount so determined.
A hardship withdrawal shall be permitted under this Section only in
the event of a financial need arising from
(I) unreimbursed major medical expenses (described in Section 213(d)
of the Code) for which payment is necessary in advance in order
to obtain medical services for the Participant or his spouse or
dependent or for such medical expenses already incurred by the
Participant or his spouse or dependent,
(II) the purchase of a principal residence for the Participant
(excluding mortgage payments),
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(III) payment of tuition and related educational fees for the next 12
months, semester or quarter of post-secondary education for the
Participant or his spouse, children, or dependents, or
(IV) the need to prevent eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
For purposes of this Section, the term "dependent" shall have the
meaning assigned to it by Section 152 of the Code.
No distribution shall be made under this Section in excess of the
amount of the Participant's immediate and heavy financial need plus
any amounts necessary to pay any income taxes or penalties reasonably
expected to result from the distribution. In addition, no such
distribution shall be made unless the Participant has obtained all
distributions (other than hardship distributions) and all loans
currently available under all plans maintained by the Employer. In the
event a Participant receives a distribution under this Section,
(A) No Elective Contributions shall be made for the Participant's
benefit for the 12 calendar months following the Valuation Date
coinciding with or next following the hardship withdrawal;
(B) No elective contributions or employee contributions shall be made
for such 12 month period to any other qualified or nonqualified
plan of deferred compensation maintained by the Employer,
including stock option or stock purchase plans; and
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(C) The Elective Contributions for the Participant's benefit
(together with any elective contributions under other qualified
retirement plans maintained by the Employer) for the calendar
year following the year of the hardship withdrawal may not exceed
the limit of Section 402(g)(1) of the Code applicable to the such
following calendar year reduced by the amount of the
Participant's Elective Contributions made during the year of the
hardship withdrawal. In the event any Account from which a
Participant's hardship withdrawal is made is invested in more
than one of the separate investment funds maintained under the
Plan, a withdrawal of less than the complete balance of the
Account shall be withdrawn proportionately from each applicable
investment fund. Any withdrawal hereunder shall not exceed the
vested balance of the relevant Account or Accounts determined as
of the Valuation Date next following receipt from the Participant
and recording by the Plan Administrator of the Participant's
withdrawal request, reduced by the amount of any indebtedness of
the Participant to the Plan attributable to any such Account, and
shall be made to the Participant as soon as practicable after
such Valuation Date.
10.1A Age 59-1/2 Withdrawals. Notwithstanding Section 10.1, a Participant
who has attained age 59-1/2 may request a withdrawal (minimum $1,000)
from his vested Account for any reason in accordance with procedures
adopted by the Plan Administrator, but no more frequently than once
each calendar year. In the event any Account from which a
Participant's withdrawal is made is invested in more than one of the
separate investment funds maintained under the Plan, a withdrawal of
less than the complete balance of the Account shall be withdrawn
proportionately from each applicable investment fund.
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10.2 Subsequent Distributions. A withdrawal pursuant to this Article 10
will not affect the Participant's right to receive distribution of the
remaining portion of his Share of the Trust Fund pursuant to Articles
8 and 9.
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ARTICLE 11
LOANS
11.1 Requests for Loans. Each Participant, and such other persons to whom
the opportunity to borrow from the Trust must be extended under
applicable law, may request a loan from the Trust, subject to the
conditions prescribed in this Article 11.
11.2 Rules and Procedures. The Plan Administrator shall determine the time
or times when loans shall be made available, and shall formulate such
rules and procedures as it deems appropriate relating to such loans.
Such rules and procedures shall be set forth in the summary plan
description in such detail as may be required under applicable
regulations. Such rules and procedures shall form part of the Plan. No
request for a loan will be accepted if the Participant then has two
loans outstanding. The Plan Administrator may charge a reasonable loan
fee for all loans taken under the Plan in accordance with such uniform
and nondiscriminatory procedures as it shall establish. Such fee shall
be deducted from the Participant's Account or loan proceeds pursuant
to uniform rules established by the Plan Administrator.
11.3 Maximum Amount of Loan. The amount of any loan, together with the
aggregate amount of principal and accrued interest owed by the
borrower with respect to any prior loans from qualified retirement
plans of the Employer, shall not exceed the lesser of:
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(a) $50,000, reduced by the excess of (1) the highest outstanding
loan balance of the borrower from such plans during the one year
period ending on the day before the loan is made, over (2) the
borrower's outstanding loan balance from such plans immediately
prior to the loan; or
(b) one-half of the borrower's nonforfeitable portion (determined
under Article 8) of the borrower's Share of the Trust Fund.
For purposes of this Section 11.3, the value of a borrower's Share of
the Trust Fund shall be determined as of the Valuation Date coinciding
with or next following receipt of the borrower's request for a loan.
The present value of the borrower's nonforfeitable accrued benefit
under any other plan shall be determined by the Plan Administrator in
such manner and as of such time as the Plan Administrator decides.
Notwithstanding the foregoing, no loan shall be made hereunder for
less than $1,000.
11.4 Note; Security; Interest. Each loan shall be evidenced by a note and
shall bear interest at a reasonable rate determined by the Plan
Administrator. The rate of interest shall be the prime rate of
interest of as published in the Wall Street Journal as of the first
day of the calendar quarter preceding the effective date of the loan.
The Committee shall review the rate of interest to determine if it is
consistent with commercial rates for similar loans, and if not, the
Committee shall have the authority to modify such rate of interest for
new loans to be consistent with such commercial rates. Each loan must
be secured by one-half of the borrower's Share of the Trust Fund and
by such other security, if any, as the Plan Administrator may require.
In no event, however, shall the Plan Administrator apply the
borrower's Share of the Trust Fund to satisfy the borrower's loan
obligation, whether or not
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the borrower is in default, unless and until that amount so applied
could be distributed or withdrawn in accordance with Article 8 or 9 of
the Plan.
11.5 Repayment. Each such loan shall be repayable to the extent reasonably
possible by payroll deduction over a specified period of time, as
determined by the Plan Administrator, and on the basis of
substantially level payments made no less frequently than quarterly.
Such period of time shall not exceed five years (20 years if the loan
is used to acquire a dwelling unit which is to be used within a
reasonable time as a principal residence of the Participant). A
borrower may prepay all, but not less than all, of his loan at any
time, without penalty, by paying the loan principal then outstanding
together with interest accrued and unpaid to the date of payment.
11.6 Repayment Upon Distribution. If, as of the earlier of (i) 60 days
after termination of a borrower's employment with the Employer (or, if
later, 30 days after written demand for repayment) or (ii) the time
benefits are to be distributed to a borrower or his Beneficiary under
Article 9 of the Plan, there remains any unpaid balance of a loan
hereunder, such unpaid balance shall become immediately due and
payable in full. Such unpaid balance, together with any accrued but
unpaid interest on the loan, shall be deducted from the borrower's
Share of the Trust Fund before any such distribution of benefits is
made.
11.7 Note as Trust Asset. A note evidencing a loan to a Participant under
this Article 11 shall be an asset of the Trust which is allocated to
the account of the borrower, and shall for purposes of the Plan be
deemed to have a fair market value at any given time equal to the
unpaid balance of the note plus the amount of any accrued but unpaid
interest.
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11.8 Adjustment of Accounts. Loans will be made from the borrower's
Rollover Account (if any), Elective Contribution Account,
Discretionary Contribution Account (to the extent vested), and
Matching Contribution Account (to the extent vested), in that order,
the funds to be removed from the borrower's investment funds in
proportion to the vested balances therein. Repayments of loan
principal will be credited to the borrower's Accounts in the same
order as originally withdrawn. Payments of loan interest will be
prorated to such Accounts based on the relative loan principal
balances outstanding at the time of each such payment. Each payment of
principal and interest will be deposited into the various investment
funds according to the Participant's investment elections respecting
future contributions as soon as reasonably practicable after such
payment is made.
11.9 Nondiscrimination. Loans shall be made available to all Participants
and such other persons to whom the opportunity to borrow from the
Trust Fund must be extended under applicable law on a reasonably
equivalent basis, except that the Plan Administrator may make
reasonable distinctions based upon creditworthiness, other obligations
of the borrower, state law restrictions affecting payroll deductions
and other factors that may adversely affect the ability to assure
repayment through payroll deduction. The Plan Administrator may reduce
or refuse a requested loan where it determines that timely repayment
of the loan through payroll deduction is not assured.
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ARTICLE 12
TOP HEAVY PROVISIONS
12.1 Special Contribution for Top Heavy Plan Years.
(a) If for any top heavy plan year the sum of the Elective
Contributions, Matching Contributions and Discretionary
Contributions (if any) made for the benefit of any eligible
employee who is not a key employee for such year is exceeded by
three percent of such eligible employee's Taxable Compensation
for such year, the eligible employee's Participating Employer
shall contribute to the Trust, for his benefit, an additional
amount equal to such excess. However, if for such top heavy plan
year the highest percentage obtained by dividing the sum of the
Elective, Matching and Discretionary Contributions made for the
benefit of each key employee by the key employee's Taxable
Compensation is less than three percent, such percentage shall be
substituted for "three percent" in the preceding sentence. Any
additional contribution made for the benefit of an eligible
employee under this Section 12.1 shall be credited to his
Discretionary Contribution Account as soon as practicable after
the close of the Plan Year for which the contribution is made.
12.2 Adjustment to Limitation on Annual Additions. For any Limitation Year
which is a top heavy plan year, the adjustment described in Section
416(h) of the Code shall apply for purposes of determining a
Participant's "defined contribution plan fraction" and "defined
benefit plan fraction" under Section 7.3(b) unless:
(a) the Plan and each plan with which the Plan is required to be
aggregated pursuant to the first sentence of Section 12.3(c)(4)
satisfies the requirements of Section 416(h)(2)(A) of the Code;
and
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(b) the Plan Year would not be a top heavy plan year if "ninety
percent" were substituted for "sixty percent" in the first
paragraph of Section 12.3(c).
12.3 Definitions. For purposes of this Article,
(a) "eligible employee" means an Eligible Employee who has satisfied
the participation requirements of Section 4.1;
(b) "key employee" means a key employee described in Section
416(i)(1) of the Code, determined on the basis of Taxable
Compensation; and
(c) "top heavy plan year" means a Plan Year if the sum of the present
value of the total accrued benefits of all key employees under
each defined benefit plan (as of the applicable determination
date of each such plan) which is aggregated with this Plan and
the sum of the account balances of all key employees under the
Plan and under each other defined contribution plan (as of the
applicable determination date of each such plan) which is
aggregated with this Plan exceeds 60 percent of the sum of such
amounts for all Employees or former Employees (other than former
key employees but including beneficiaries of deceased former
Employees) under such plans. The following rules shall apply for
purposes of this definition:
(1) The foregoing determination will be made in accordance with
the provisions of Section 416 of the Code, and the
regulations promulgated thereunder, which are specifically
incorporated herein by reference.
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(2) "Determination date" means, with respect to the initial plan
year of a plan, the last day of such plan year and, with
respect to any other plan year of a plan, the last day of the
preceding plan year of such plan. The "applicable
determination date" means, with respect to the Plan, the
determination date for the Plan Year of reference and, with
respect to any other plan, the determination date for any
plan year of such plan which falls within the same calendar
year as the applicable determination date of the Plan.
(3) Accrued benefits or account balances under a plan will
include all such amounts other than deductible employee
contributions and will be determined as of the most recent
valuation date in the 12-month period ending on the
applicable determination date of the plan; provided, however,
that in the case of a defined benefit plan such valuation
date must be the same date as employed for minimum funding
purposes, and in the case of a defined contribution plan the
value so determined will be adjusted for contributions made
after the valuation date to the extent required by applicable
Treasury regulations.
(4) Each plan of the Company or any Affiliated Company in which a
key employee participates, and any other plan of the Company
or any Affiliated Company which enables a plan referred to in
the preceding clause to satisfy the requirements of Sections
401(a)(4) and 410 of the Code, shall be aggregated with the
Plan. Any plan of the Company or any Affiliated Company not
required to be aggregated
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with the Plan may nevertheless, at the discretion of the Plan
Administrator, be aggregated with the Plan if the benefits
and coverage of all aggregated plans would continue to
satisfy the requirements of Sections 401(a)(4) and 410 of the
Code.
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ARTICLE 13
AMENDMENT AND TERMINATION
13.1 Amendment. The Company reserves the right at any time or times to
amend the provisions of the Plan and Trust, by resolution of the Board
of Directors, to any extent and in any manner that it may deem
advisable by delivery to the Trustee of a written instrument executed
by the Company providing for such amendment. Upon the delivery of such
instrument to the Trustee, such instrument will become effective in
accordance with its terms as to all Participants and all persons
having or claiming any interest hereunder; provided, however, that the
Company will not have the power:
(a) to amend the Plan and Trust in such manner as would cause or
permit any part of the assets of the Trust to be diverted to
purposes other than for the exclusive benefit of each Participant
and his Beneficiary (except as permitted by Sections 5.8 and
15.4), unless such amendment is permitted by law, governmental
regulation or ruling;
(b) to amend the Plan or Trust retroactively in such a manner as
would deprive any Participant of any benefit to which he was
entitled under the Plan by reason of contributions made prior to
the amendment, unless such amendment is necessary to conform the
Plan or Trust to, or satisfy the conditions of, any law,
governmental regulation or ruling, or to permit the Trust and the
Plan to meet the requirements of Sections 401(a) and 501(a) of
the Code; or
(c) to amend the Plan or Trust in such manner as would increase the
duties or liabilities of the Trustee or affect its fee for
services hereunder, unless the Trustee consents thereto in
writing.
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13.1A Certain Amendments Regarding Acquisitions and Administrative Matters.
In the event the Company or a Participating Employer acquires another
corporation, a division of another corporation, or hires en masse a
group of employees previously employed by another employer, the Plan
Administrator may amend the participation requirements as set forth in
Section 4.1 as they apply with respect to the employees of the
acquired corporation or division or the employees hired en masse, for
example by waiving the service requirements for one or more purposes
of the Plan. In addition, the Plan Administrator may amend the Plan
with respect to administrative matters and/or to comply with
applicable IRS requirements, provided that in each case such amendment
does not affect the Company's obligation to make contributions or the
Company's fiduciary responsibilities under the Plan.
13.2 Termination. The Company has established the Plan and the Trust with
the bona fide intention and expectation that contributions will be
continued indefinitely, but the Company will have no obligation or
liability whatsoever to maintain the Plan for any given length of time
and may discontinue contributions under the Plan or terminate the Plan
at any time by action of its Board without any liability whatsoever
for any such discontinuance or termination. The Plan will be deemed
terminated
(a) if and when the Company is judicially declared bankrupt,
(b) if and when the Company is a party to a merger in which it is not
the surviving corporation or sells all or substantially all of
its assets, unless the surviving corporation or the purchaser
maintains any other defined contribution plan or adopts the Plan
by an instrument in writing delivered to the Trustee within 60
days after the merger or sale, or
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(c) upon dissolution of the Company.
13.3 Distributions Upon Termination of the Plan. Upon termination or
partial termination of the Plan or complete discontinuance of
contributions thereunder, each affected Participant (including a
terminated Participant in respect of amounts not previously forfeited
by him) will have a fully vested and nonforfeitable interest in his
Share of the Trust Fund, and the Trustee will distribute to each such
Participant (or other person entitled to distribution) the value of
the Participant's Share of the Trust Fund in a single lump sum
payment. However, if a successor plan is established within the
meaning of Section 401(k)(2)(B)(i)(II) of the Code and Treasury
Regulation 1.401(k)-1(d)(3), distributions shall be made to
Participants and their beneficiaries only in accordance with Articles
8 and 9. Upon the completion of distributions to all Participants, the
Trust will terminate, the Trustee will be relived from all liability
under the Trust, and no Participant or other person will have any
claims thereunder, except as required by applicable law.
13.4 Merger or Consolidation of Plan; Transfer of Plan Assets. In case of
any merger or consolidation of the Plan with, or transfer of assets
and liabilities of the Plan to, any other plan, provisions must be
made so that each Participant would, if the Plan then terminated,
receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would have
been entitled to receive immediately before the merger, consolidation
or transfer if the Plan had then terminated.
13.5 Participating Employer Ceasing to be Affiliated With The Company. In
the event a Participating Employer ceases to be an Affiliated Company
for any reason, including a merger, reorganization, or sale or other
transfer of stock, the following provisions shall apply:
(a) Such Participating Employer shall thereupon cease to be a
Participating Employer under this Plan.
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(b) The Plan shall not terminate with respect to the Participants
employed by such former Participating Employer solely because it
ceased to be a Participating Employer.
(c) The Company may agree with such former Participating Employer (or
with an organization acquiring the former Participating Employer)
that the assets of the Trust properly allocable to Participants
employed by the former Participating Employer be transferred to
another plan maintained by the former Participating Employer (or
by such other organization), provided that the requirements of
Section 13.4 are satisfied and such other plan assumes all
liabilities of this Plan with respect to such Participants. The
Plan Administrator shall direct the Trustee to carry out such
transfer in accordance with the terms of such agreement.
(d) In the absence of any agreement described in paragraph (c) above
and if the former Participating Employer does not maintain the
Plan, as determined under Treasury Regulation 1.401(k)-1(d)(4),
each Participant employed by the former Participating Employer
shall be treated as having ceased employment with the Employer
for purposes of the Plan at the time the former Participating
Employer ceased to be an Employer (unless the Participant was
employed immediately thereafter by the Company or another
Affiliated Company), and shall be entitled to benefits as a
result of such cessation of employment to the extent provided by
Article 8.
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ARTICLE 14
ROLLOVER CONTRIBUTIONS
14.1 Transfer of Amount Distributed from Another Qualified Plan. An
Eligible Employee who was formerly a participant in a plan described
in Section 401(a) of the Code (the "distributing plan") and who has
received an eligible rollover distribution (within the meaning of
Section 402 of the Code) from the distributing plan (the
"distribution") may contribute to the Trust an amount determined under
(c) below (the "transferred amount") provided the conditions set forth
in (a) and (b) below are satisfied.
(a) The transferred amount must be contributed to the Trust on or
before the 60th day following the Eligible Employee's receipt of
the distribution from the distributing plan.
(b) The transferred amount:
(1) must not exceed the fair market value of the distribution,
reduced by the amount contributed to the distributing plan
by the Eligible Employee, as determined in accordance with
Section 72(f) of the Code and the Treasury regulations
thereunder, such amount to be reduced by any amounts
theretofore distributed to the Eligible Employee which
were not includible in his gross income for Federal income
tax purposes, and
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(2) must include no property other than (A) money received in
the distribution, and (B) money attributable to other
property received in the distribution which is sold and
the proceeds of which are transferred pursuant to Section
402(a)(6)(D) of the Code.
(c) A rollover contribution may also be made by means of a direct
transfer from a distributing plan qualified under Section 401(a)
of the Code to the extent permitted under Section 401(a)(31) and
402 of the Code.
14.2 Transfer of Amount Distributed from a Rollover IRA.
(a) An Eligible Employee who has received a distribution meeting the
requirements of Section 14.1(a), and who subsequently deposited
such distribution in an individual retirement account, as defined
in Section 408 of the Code, in accordance with Section
408(d)(3)(A)(ii) of the Code, may contribute a portion or all of
a distribution from such account (the "transferred amount") to
the trust provided the conditions set forth in (b) and (c) are
satisfied.
(b) The transferred amount must be contributed to the Trust on or
before the 60th day following the Eligible Employee's receipt of
the amount from the individual retirement account.
(c) The distribution from the individual retirement account must
consist of the entire amount in the account, and must include no
amount attributable to any source other than a qualified plan
described in Section 401(a) of the Code.
-62-
Savings Plan
Exec. Ver.
<PAGE>
14.3 Monitoring of Rollovers.
(a) The Plan Administrator shall establish such procedures and
require such information from transferring employees as it deems
necessary to insure that amounts transferred under this Article
14 satisfy the requirements for tax-free rollovers established by
conditions of this Article 14 and the Code and Treasury
regulations.
(b) No amount may be transferred under this Article 14 until approved
by the Plan Administrator.
14.4 Treatment of Transferred Amount Under the Plan.
(a) The Plan Administrator will establish a Rollover Account for each
Eligible Employee making a contribution described in Section 14.1
or 14.2 above.
(b) Upon retirement, death, or other termination of employment, the
Eligible Employee's Rollover Account shall be distributed to him
in accordance with Articles 8 and 9.
(c) The Eligible Employee will at all times have a fully vested and
nonforfeitable interest in the amount credited to his Rollover
Account.
(d) An Eligible Employee who contributes an amount to the Plan in
accordance with this Article 14 will not become a Participant
until he has satisfied the requirements of Article 4. However,
such an Eligible Employee will be treated as a Participant, with
respect to his interest in his Rollover Account, for purposes of
Articles 3, 6, 7, 8, 9, 11, 13 and 15 of the Plan and, so long as
he is an Employee, Articles 10 and 11.
-63-
Savings Plan
Exec. Ver.
<PAGE>
ARTICLE 15
MISCELLANEOUS
15.1 Limitation of Rights. Neither the establishment of the Plan and the
Trust, nor any amendment thereof, nor the creation of any fund or
account, nor the payment of any benefits, will be construed as giving
to any Participant or other person any legal or equitable right
against any Participating Employer or the Plan Administrator or
Trustee, except as provided herein, and in no event will the terms of
employment or service of any Participant be modified or in any way be
affected hereby. It is a condition of the Plan, and each Participant
expressly agrees by his participation herein, that each Participant
will look solely to the assets held in the Trust for the payment of
any benefit to which he is entitled under the Plan.
15.2 Nonalienability of Benefits. The benefits provided hereunder will not
be subject to alienation, assignment, garnishment, attachment,
execution or levy of any kind, and any attempt to cause such benefits
to be so subjected will not be recognized, except to such extent as
may be required by law. The provisions of the preceding sentence shall
apply in general to the creation, assignment or recognition of a right
to any benefit payable with respect to a Participant pursuant to a
domestic relations order, except that if such order is a Qualified
Domestic Relations Order, the provisions of the preceding sentence
shall not apply.
-64-
Savings Plan
Exec. Ver.
<PAGE>
15.3 Information Between Plan Administrator and Trustee. The Plan
Administrator will furnish to the Trustee, and the Trustee will
furnish to the Plan Administrator, such information relating to the
Plan and Trust as may be required under the Code and any regulations
issued or forms adopted by the Treasury Department thereunder or under
the provisions of ERISA and any regulations issued or forms adopted by
the Labor Department thereunder.
15.4 Payment Under Qualified Domestic Relations Order. Notwithstanding any
provisions of the Plan to the contrary, if there is entered any
Qualified Domestic Relations Order that affects the payment of
benefits hereunder, such benefits shall be paid in accordance with the
applicable requirements of such Order.
The Committee shall establish a procedure to determine the status of a
judgement, decree or order as a Qualified Domestic Relations Order and
to administer Plan distributions in accordance with Qualified Domestic
Relations Orders. Such procedure shall be in writing, shall include a
provision specifying the notification requirements enumerated in the
preceding paragraph, shall permit an alternate payee to designate a
representative for receipt of communications from the Committee and
shall include such other provisions as the Committee shall determine,
including provisions describing the interest rate to be used in making
present value determinations as well as provisions required under
regulations promulgated by the Secretary of the Treasury.
-65-
Savings Plan
Exec. Ver.
<PAGE>
Notwithstanding any Plan provision to the contrary, as permitted under
Section 414(p)(10) of the Code, a payment may be made to an alternate
payee in accordance with the provisions of a Qualified Domestic
Relations Order before the Participant to whom the order relates
separates from service with the Employer and before such Participant
attains his earliest retirement age (as defined in Section 414(p)(4)
of the Code). Furthermore, unless otherwise provided under a Qualified
Domestic Relations Order, payment shall be made to an alternate payee
in a single payment in cash or in kind as soon as practicable
following the determination that such order is qualified.
15.5 Payment of Benefit for Disabled or Incapacitated Person. Whenever, in
the opinion of the Plan Administrator or its agent, a person entitled
to receive any payment of a benefit hereunder is under a legal
disability or is incapacitated in any way so as to be unable to manage
his financial affairs, the Plan Administrator or its agent may direct
the Trustee to make payments to such person or to his legal
representative or to a relative or friend of such its agent may direct
the Trustee to apply the payment for the benefit of such person in
such manner as the Plan Administrator or its agent considers
advisable. Any payment under Section 15.5 shall be a complete
discharge of any liability for the making of such payment under the
provisions of the Plan. Nothing contained in this Section 15.5,
however, should be deemed to impose upon the Plan Administrator any
liability for paying a benefit to any person who is under such a legal
disability or is so incapacitated unless it has received notice of
such disability or incapacity from a competent source.
-66-
Savings Plan
Exec. Ver.
<PAGE>
15.6 Telephonic and/or Electronic Transactions. The Plan Administrator may
authorize the use of telephonic and/or electronic means and procedures
for effecting one or more transactions or Participant requests
hereunder, for example, enrolling in the Plan, requesting loans and/or
withdrawals, electing investments, and commencing, changing, and/or
suspending contributions.
15.7 Temporary Suspensions of Transactions. The Plan Administrator may
temporarily suspend certain transactions hereunder as may be necessary
to accommodate a change in Trustee, Plan recordkeeper, and/or
investment funds. Any such suspension shall be communicated to
Participants in advance.
15.8 Governing Law. The Plan will be construed, administered and enforced
according to the laws of the Commonwealth of Massachusetts to the
extent such laws are not inconsistent with and preempted by ERISA.
15.9 Acquisitions. Notwithstanding any Plan provision to the contrary, in
no event shall the employees of an entity which is acquired by the
Company or any Affiliated Company be eligible to participate under the
Plan unless and until the Company approves and agrees to such
participation.
-67-
Savings Plan
Exec. Ver.
<PAGE>
IN WITNESS WHEREOF, Liberty Financial Companies, Inc. and each other
Participating Employer listed below has caused this instrument to be executed by
its respective duly authorized officer this ____________________ day of
_______________________, 19___.
LIBERTY FINANCIAL COMPANIES, INC.
By: _____________________________________
KEYPORT LIFE INSURANCE COMPANY
By: _____________________________________
LIBERTY FUNDS GROUP, LLC
By: _____________________________________
STEIN, ROE & FARNHAM INCORPORATED
By: _____________________________________
-68-
Savings Plan
Exec. Ver.
<PAGE>
INDEPENDENT FINANCIAL MARKETING GROUP, INC.
By: _____________________________________
NEWPORT PACIFIC MANAGEMENT, INC.
By: _____________________________________
LIBERTY ASSET MANAGEMENT COMPANY
By: _____________________________________
-69-
Savings Plan
Exec. Ver.
<PAGE>
APPENDIX A
SPECIAL RULES FOR IFMG
1.1.A Introduction. Effective March 7, 1996, the Company acquired the
Independent Financial Marketing Group, Inc. and its wholly owned
subsidiary IFS Agencies, Inc. (IFMG) and effective May 1, 1996, IFMG
became a Participating Employer under the Liberty Financial Companies,
Inc. Savings and Investment Plan and Trust (LFC Plan). The IFMG 401(k)
Plan was subsequently merged into the LFC Plan. This Appendix sets
forth certain rules which apply to former IFMG employees and certain
employees who transferred to IFMG after it was acquired.
1.2.A Years of Service. Employment with IFMG both prior and subsequent to
March 7, 1996 will be counted as employment with the Company or an
Affiliate for all purposes of the Plan except to the extent such
employment may be disregarded under the break in service rules of the
IFMG 401(k) Plan.
1.3.A Matching Contributions. Certain Employees transferred their employment
from the Liberty Financial Bank Group, Keyport Life Insurance Company,
or Liberty Financial Companies, Inc. to IFMG. The Matching
Contribution for such Employees shall be increased to 100% for 60
months beginning April 1, 1997.
1.4.A Vesting. A Participant who was a participant in the IFMG Plan will
become 100% vested at age 55 provided he is still employed by the
Company or an affiliate.
1.5.A Spousal Consent for Distributions and Withdrawals. A married
Participant who was previously a participant in the IFMG 401(k) Plan
must obtain his spouse's consent in order to make a distribution or
withdrawal.
1.6.A Annuity Options. In the case of a Participant who was previously a
Participant in the IFMG 401(k) Plan, in addition to the other forms of
payment available hereunder for a final distribution annuity options
shall be available in the form of a life annuity, 50%, 66b%, and 100%
contingent annuitant annuity, a 5-, 10-, or 15-year certain and
continuous annuity, and a cash refund annuity. A 50% contingent
annuitant annuity with his spouse as designated beneficiary shall be
automatically payable if the Participant is married unless the spouse
consents to another form of distribution, and a life annuity shall be
the automatic form of distribution if the Participant is not married
unless he consents to another form of distribution.
<PAGE>
APPENDIX B
SPECIAL RULES FOR STEIN, ROE & FARNHAM EMPLOYEES
1.1.B Introduction. The special rules set forth in this Appendix B shall
apply to Participants who are Employees of Stein, Roe & Farnham.
1.2.B Definition of Compensation. The definition of compensation as set
forth in the Stein, Roe & Farnham Retirement Plan as it existed on
June 30, 1998 shall continue to apply through December 31, 1998.
Thereafter, the definition set forth in this Plan shall apply.
1.3.B Maximum Employee Contribution. The maximum Elective Employee
Contribution shall be 14% unless a greater contribution is approved
by the Plan Administrator in accordance with IRS rules.
1.4.B Matching Contribution. The Company matching contribution shall be
50% of the first 6% of Employee Elective Contributions and shall be
made only with respect to the first $66,000 of Compensation.
Effective January 1, 1999, the Matching Contribution shall be
increased to 75% of the first 6% of Employee Elective Contributions
and shall be made with respect to the first $80,000 of
Compensation.
1.5.B Discretionary Contribution. This Discretionary Contribution shall
be 7.5% of Compensation unless changed by Stein, Roe & Farnham.
Notwithstanding the eligibility provisions of the Plan, an Employee
hired during 1998 will not be eligible for a Discretionary
Contribution until the Plan year ending December 31, 1999.
1.6.B Vesting.
(a) A Participant hired before July 2, 1987 shall be 100% vested in
his Discretionary Contribution Account.
(b) A Participant hired before July 1, 1998 shall be 100% vested in
his Company Matching Contribution Account.
(c) A Participant who was previously a Participant in the KJMM
Money Purchase Plan shall be vested in his transferred Money
Purchase Plan Account and his Discretionary Contribution
Account pursuant to the following schedule:
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 2 0%
2 33%
3 67%
4 100%
</TABLE>
<PAGE>
1.7.B Forms of Payment for Former KJMM Employees. The spousal consent and
forms of payment rules described in Appendix A for IFMG shall also
apply to Participants who were previously Participants in the KJMM
Money Purchase Plan or 401(k) Plan.
1.8.B Withdrawals. No hardship withdrawals shall be permitted from a
Participant's Discretionary Contribution Account, including any
Profit Sharing Accounts transferred from the Stein, Roe & Farnham
Retirement Plan. Any After-Tax Contributions made under the Stein,
Roe & Farnham Retirement Plan, and related investment earnings, may
be withdrawn for any reason at any time, provided that any such
withdrawal shall consist of the Participant's entire After-Tax
Contribution Account.
1.9.B Loans. In the event a Stein, Roe & Farnham Participant has more
than 2 outstanding loans as of June 30, 1998, he may continue to
repay the loans according to their original terms. However, no new
loan will be permitted which will cause his outstanding loans to
exceed 2.
1.10.B Transfer of Accounts. Accounts held on behalf of a Participant
under the Stein, Roe & Farnham Retirement Plan shall be transferred
to this Plan and held under corresponding accounts maintained under
this Plan.
<PAGE>
APPENDIX C
SPECIAL RULES FOR COLONIAL EMPLOYEES
1.1.C Introduction. Effective September 1, 1998, the Colonial Group, Inc.
Profit Sharing Plan (the Colonial Plan) is merged into and becomes
a part of this Plan and the Accounts under such plan are
transferred to this Plan. The special rules set forth in this
Appendix C shall apply to Participants who are Employees of
Colonial.
1.2.C Rules from September 1 through December 31, 1998. For the period
September 1 through December 31, 1998, the rules of the Colonial
Plan as in effect on August 31, 1998 shall continue to apply except
that the investment funds offered under the Plan shall replace the
funds previously offered under the Colonial Plan. For this purpose,
the terms of the Colonial Plan are hereby incorporated by
reference, except that the terms of this plan relating to
investments shall apply instead of the corresponding provisions of
the Colonial Plan.
1.3.C Rules on and after January 1, 1999. Effective January 1, 1999, the
rules of this Plan shall entirely replace the rules of the Colonial
Plan for Colonial Employees, subject to the special rules described
below.
1.4.C Maximum Employee Contribution. The maximum Elective Employee
Contribution shall be 12% unless a greater contribution is approved
by the Plan Administrator in accordance with IRS rules.
1.5.C Withdrawals. In addition to the withdrawal rules set forth in the
Plan, the following special rules apply to Colonial Employees for
whom Accounts have been transferred to this Plan from the Colonial
Plan.
(a) After-Tax Contributions made under the Colonial Plan, and
related investment earnings, may be withdrawn for any reason at
any time, provided that any such withdrawal shall consist of
the Participant=' entire After-Tax Contribution Account;
(b) Before-Tax Contributions made under the Colonial Plan shall be
subject to the same withdrawal rules as apply to Elective
Employee Contributions under this Plan;
(c) One half of the Participant's Profit Sharing Account (as
defined under the Colonial Plan) value under the Colonial Plan
determined as of January 1, 1987 (not including the value of
any Before-Tax Contributions) shall be subject to the same
withdrawal rules as apply to Elective Employee Contributions;
<PAGE>
(d) Except as provided in (b) and (c) above, no hardship
withdrawals shall be permitted from a Participant's Profit
Sharing Account, his ESOP Account (in each case as defined
under the Colonial Plan), or his Discretionary Contribution
Account.
1.6.C Vesting. In the case of a Colonial Employee hired prior to January
1, 1999, the following vesting rules shall apply to the extent they
provide for earlier vesting than the terms of the Plan:
(a) Any Before-Tax Contributions (as defined under the Colonial
Plan), made under the Colonial Plan for Plan Years commencing
before January 1, 1999 shall be 100% vested;
(b) The following vesting schedule shall apply to both Matching
Contributions and Discretionary Contributions, and related
investment earnings, including any Profit Sharing Contributions
under the Colonial Plan which were not Before-Tax
Contributions;
<TABLE>
<CAPTION>
Years of Service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 1 0%
1 33%
2 67%
3 100%
</TABLE>
(c) The Employee shall become 100% vested at age 55 regardless of
his Years of Service.
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
---------------------------------
PENSION PLAN
------------
Amended and Restated
Effective January 1, 1999
Exec. Ver.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PREAMBLE ----
<S> <C> <C> <C>
ARTICLE I DEFINITIONS
1.1 "Accrued Benefit" 1
1.2 "Active Participant" 1
1.3 "Actuarial Equivalent" 1
1.4 "Actuary" 2
1.5 "Affiliated Employer" 2
1.6 "Annuity Starting Date" 2
1.7 "Authorized Leave of Absence" 2
1.8 "Average Earnings" 3
1.9 "Beneficiary" 3
1.10 "Board" 3
1.11 "Covered Compensation" 3
1.12 "Code" 4
1.13 "Contingent Annuitant" 4
1.14 "Credited Service" or "Years of Credited Service" 4
1.15 "Early Retirement Date" 4
1.16 "Earnings" or "Annual Earnings" 4
1.17 "Effective Date" 6
1.18 "Eligible Employee" 6
1.19 "Employee" 6
1.20 "Employer" 6
1.21 "Employment Date" 7
1.22 "Fiduciary" 7
1.23 "Fund", "Trust" or "Trust Fund" 7
1.24 "Hour of Service" 7
1.25 "Normal Form" 9
1.26 "Normal Retirement Age" 9
1.27 "Normal Retirement Date" 9
1.28 "One Year Break in Service" 9
1.29 "Parental Absence" 9
1.30 "Participant" 9
1.31 "Participating Employer" 10
1.32 "Plan" 10
1.33 "Plan Administrator" 10
1.34 "Plan Year" 10
1.35 "Postponed Retirement Date" 10
(i)
Pension Plan
Exec. Ver.
<PAGE>
Page
----
1.36 "Prior Plan" 10
1.37 "Reemployment Date" 10
1.38 "Retired Participant" 10
1.39 "Retirement Benefit" 11
1.40 "Service Termination Date" 11
1.41 "Spouse" 12
1.42 "Trust Agreement" 12
1.43 "Trustee" 12
1.44 "Vested Inactive Participant" 12
1.45 "Years of Service" 12
ARTICLE II PARTICIPATION AND SERVICE
2.1 Participation Requirements 13
2.2 Years of Service 13
2.3 Years of Credited Service 15
2.4 Reemployment Before Benefits Commence 16
2.5 Postponed Retirement or Reemployment After
Benefits Commence 17
2.6 Suspension of Benefits 19
2.7 Transfers 21
ARTICLE III NORMAL RETIREMENT BENEFIT
3.1 Normal Retirement Benefit 22
3.2 Minimum Accrued Benefit 23
3.3 Maximum Benefit 25
3.4 Continuing Employment 29
3.5 Accrued Benefit Upon Reemployment After
Annuity Starting Date 29
3.6 Accrued Benefit Upon Reemployment Before
Annuity Starting Date 31
ARTICLE IV EARLY RETIREMENT DATE AND EARLY RETIREMENT BENEFIT
4.1 Early Retirement Date 32
4.2 Early Retirement Benefit 32
4.3 Minimum Benefit 33
(ii)
Pension Plan
Exec. Ver.
<PAGE>
Page
----
ARTICLE V POSTPONED RETIREMENT DATE AND
POSTPONED RETIREMENT BENEFIT
5.1 Postponed Retirement Date 34
5.2 Postponed Retirement Benefit 34
5.3 Death Prior to Postponed Retirement Date 36
ARTICLE VI TERMINATION OF EMPLOYMENT
6.1 Non-Vested Termination 37
6.2 Vested Termination 37
6.3 Early Payment 38
ARTICLE VII DEATH AND DISABILITY BENEFITS
7.1 Pre-Retirement Surviving Spouse Benefit
For Death Occurring On or After Early
Retirement Eligibility 39
7.2 Pre-Retirement Surviving Spouse Benefit
For Death Occurring Before Early
Retirement Eligibility 39
7.3 Death Benefits After Retirement
Benefits Commenced 40
7.4 Disability 41
7.5 Continued Benefit Accruals 42
7.6 Payment of Disability Pension 42
7.7 Form of Payment for Disability Pension 43
7.8 Cessation of Disability Pension 43
ARTICLE VIII PAYMENT OF RETIREMENT BENEFITS
8.1 Automatic Payment Forms 44
8.2 Election of Optional Forms 44
8.3 Joint and Survivor Option 45
8.4 Life Annuity Option 46
8.5 Life Annuity With Guaranteed Payment
Period Option 46
(iii)
Pension Plan
Exec. Ver.
<PAGE>
Page
----
8.6 General Provisions 46
8.7 Small Benefit Cash-Out Provision 49
8.8 Missing Persons 49
8.9 Restrictions on Distributions 50
8.10 Direct Rollovers 51
ARTICLE IX PLAN ADMINISTRATION
9.1 Responsibility for Plan and Trust
Administration 53
9.2 Retirement Plan Administrator 53
9.3 Agents of the Plan Administrator 53
9.4 Plan Administrator Procedures 53
9.5 Administrative Powers of the Plan Administrator 54
9.6 Benefit Claims Procedures 54
9.7 Reliance on Reports and Certificates 55
9.8 Other Plan Administrator Powers and Duties 56
9.9 Compensation of Plan Administrator 57
9.10 Plan Administrator's Own Participation 57
9.11 Liability of Plan Administrator 57
9.14 Indemnification 57
ARTICLE X FUNDING AND CONTRIBUTIONS
10.1 Establishment of Fund 58
10.2 Contribution to the Fund; Plan Expenses 58
10.3 Contributions Conditional 59
10.4 Employee Contributions 59
ARTICLE XI FIDUCIARY RESPONSIBILITIES
11.1 Basic Responsibilities 60
11.2 Actions of Fiduciaries 60
11.3 Fiduciary Liability 61
(iv)
Pension Plan
Exec. Ver.
<PAGE>
Page
----
ARTICLE XII AMENDMENT AND TERMINATION
12.1 Right to Amend or Terminate 62
12.2 Partial Termination 62
12.3 Vesting and Distribution of Funds Upon
Termination 62
12.4 Determination of Funds Upon Termination 64
12.5 Restriction on Benefits 65
12.6 Right to Accrued Benefits 65
ARTICLE XIII TOP-HEAVY PLAN PROVISIONS
13.1 General Rule 66
13.2 Vesting Provisions 66
13.3 Minimum Benefit Provisions 66
13.4 Limitation on Benefits 67
13.5 Top-heavy Plan Definition 67
13.6 Key Employee 71
13.7 Non-Key Employee 71
ARTICLE XIV GENERAL PROVISIONS
14.1 Plan Voluntary 72
14.2 Payments to Minors and Incompetents 72
14.3 Non-Alienation of Benefits 73
14.4 Use of Masculine and Feminine; Singular and
Plural 75
14.5 Merger, Consolidation or Transfer 75
14.6 Leased Employees 75
14.7 Governing Law 76
14.8 Severability 76
14.9 Captions 76
APPENDIX A GRANDFATHERING FOR KEYPORT LIFE
INSURANCE COMPANY
A.1 Definitions 79
A.2 Eligibility 81
A.3 Normal Retirement Benefit 82
A.4 Early Retirement Date and Early Retirement
Benefit 84
</TABLE>
(v)
Pension Plan
Exec. Ver.
<PAGE>
(vi)
Pension Plan
Exec. Ver.
<PAGE>
PREAMBLE
Effective December 13, 1988, Keystone Provident Life Insurance Company
established a defined benefit retirement plan referred to as the Retirement Plan
for Employees of Keystone Provident Life Insurance Company (the "Prior Plan").
In 1990, Keystone Provident Life Insurance Company changed its name to Keyport
Life Insurance Company. Employees of Keyport Life Insurance Company continued to
participate in the Prior Plan. Effective July 1, 1992, Liberty Financial
Companies, Inc. (the "Employer") changed the name of the Prior Plan to the
Liberty Financial Companies, Inc. Pension Plan (the "Plan") and amended and
restated the Plan. In addition to changes in the Plan reflecting a new formula
and compliance with requirements of the Tax Reform Act of 1986, the restated
Plan extended participation to certain subsidiaries and affiliates of Liberty
Financial Companies, Inc. in addition to Keyport Life Insurance Company.
Grandfathering provisions for certain employees of Keyport Life Insurance
Company were included in the restated Plan. For employees of Keyport Life
Insurance Company who participated in the Prior Plan, an additional benefit
equal to 25% of such employee's accrued benefit under the Prior Plan as of June
30, 1992 is included as part of their Accrued Benefit hereunder. Such additional
benefit as described in Section 3.1(d) represents the Actuarial Equivalent
present value of the automatic cost-of-living adjustment provided under the
Prior Plan.
The Plan was amended and restated effective January 1, 1989 and thereafter to
comply with theTax Reform Act of 1986 and certain other IRS requirements. The
Plan is again being amended effective January 1, 1999 to incorporate all
previous amendments, to comply with recent legislation and IRS requirements, and
to improve certain aspects of Plan administration.
(vii)
Pension Plan
Exec. Ver.
<PAGE>
It is intended that the Plan, as amended and restated herein, will continue to
meet the requirements for qualification under Section 401(a) of the Internal
Revenue Code of 1986 (the "Code") as amended from time to time and that the
Trust shall continue to be exempt from taxation as provided under Code Section
501(a). As such, the Plan contains provisions required by the Tax Reform Act of
1986, and subsequent legislation and regulations affecting pension plan
qualification requirements under Code Section 401(a). The Plan is intended to
provide Eligible Employees with periodic income after retirement in addition to
benefits under the Social Security Act. A Trust Agreement (the "Trust") has been
adopted by the Employer and forms a part of this Plan..
Except as otherwise specifically and expressly provided herein:
(a) the provisions of this Plan shall apply only to individuals who are
Eligible Employees afterDecember 31, 1998;
(b) a former Employee's eligibility for and amount of benefits, if any,
payable to or on behalf of such former Employee, shall be determined in
accordance with the provisions of the Plan in effect when his employment
terminated. The benefit payable to or on behalf of a Participant
included under the Plan in accordance with the following provisions
shall not be affected by the terms of any amendment to the Plan adopted
after such Participant's employment terminates, unless the amendment
expressly provides otherwise.
(viii)
Pension Plan
Exec. Ver.
<PAGE>
ARTICLE I
DEFINITIONS
The following words and phrases when used in the Plan shall have the meanings
indicated in this Article I unless a different meaning is plainly required by
the context:
1.1 "Accrued Benefit" shall mean the amount of monthly Retirement Benefit
determined under Article III payable in the Normal Form beginning at a
Participant's Normal Retirement Date or, if applicable, beginning on his
Postponed Retirement Date and determined in accordance with Article V.
The Accrued Benefit shall not be less than the minimum accrued benefit
determined under Section 3.2 and shall not be greater than the maximum
benefit determined under Section 3.3.
1.2 "Active Participant" shall mean an Eligible Employee who has become
covered under the Plan under Section 2.1(a) or (b). This term includes
any disabled Participant who has deferred receipt
of his Retirement Benefit under Section 7.5.
1.3 "Actuarial Equivalent" shall mean a benefit of equivalent value to
another benefit, determined on the following bases:
(a) the applicable mortality table and applicable interest rate, as
of January preceding the payment, specified under Code Section
417(e)(3);
(b) for all other purposes:
(i) Mortality: 1983 Group Annuity Mortality Table (male)
-1-
Pension Plan
Exec. Ver.
<PAGE>
(ii) Interest: 8.5% annual
1.4 "Actuary" shall mean an actuary who meets the standards and
qualifications established by the Joint Board for the Enrollment of
Actuaries, or an actuarial firm that employs such individuals,
as selected by the Plan Administrator from time to time.
1.5 "Affiliated Employer" shall mean any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not
incorporated) which is under common control (as defined in Code Section
414(c)) with the Employer; any organization (whether or not
incorporated) which is a member of an affiliated service group (as
defined in Code Section 414(m)) which includes the Employer; and any
other entity required to be aggregated with the Employer pursuant to
regulations under Code Section 414(o).
1.6 "Annuity Starting Date" shall mean:
(a) the first day of the first period for which a benefit is payable
to the Participant under the Plan as an annuity, (or to the Spouse
in the case of death before Retirement Benefits commence), or
(b) in the case of a benefit not payable in the form of an annuity,
the first day on which all events have occurred which entitle the
Participant (or Spouse) to such benefit.
1.7 "Authorized Leave of Absence" shall mean any absence authorized by an
Employer under the Employer's standard personnel practices, provided
that all persons under similar circumstances are treated alike in the
granting of such Authorized Leave of Absence, and provided further that
the Participant returns or retires within the period specified in the
Authorized Leave of Absence. An absence due to service in the Armed
Forces of the United States shall be considered an Authorized Leave of
Absence provided that the Employee complies with all of the requirements
of federal law in order to be entitled to
-2-
Pension Plan
Exec. Ver.
<PAGE>
reemployment and provided further that the Employee returns to
employment with the Employer or an Affiliated Employer within the period
provided by such law.
1.8 "Average Earnings" shall mean, on any date of determination, the average
of a Participant's Annual Earnings for the 60 consecutive months
included in the 120-month period ending on the date of determination for
which his aggregate Earnings were the highest. In the case of a
Participant who has not received Earnings for 60 consecutive months in
the aforementioned 120-month period, Average Earnings means the average
of his Annual Earnings during the consecutive calendar quarters in such
period in which he received Earnings.
1.9 "Beneficiary" shall mean the individual designated by a Participant to
receive payments upon the death of the Participant under one of the
options elected under Section 8.3 or Section 8.5. If a Participant is
married on the Annuity Starting Date, the election of an option under
Sections 8.3, 8.4 or 8.5 and the naming of any Beneficiary shall be
invalid unless a waiver meeting the requirements of Section 8.6(e) has
been made. Death benefits which become payable under Article VII before
Retirement Benefits are paid may only be paid to a Participant's Spouse.
1.10 "Board" shall mean the Board of Directors of the Employer.
1.11 "Covered Compensation" shall mean the average of the "taxable wage
bases", without indexing, for the thirty-five (35) calendar years ending
with the Plan Year in which a Participant attains Social Security
Retirement Age as defined in Section 3.3. "Taxable wage base" means,
with respect to any year, the maximum amount of earnings which may be
considered wages for such year under Code Section 3121(x)(1). For an
individual who terminates employment prior to Social Security Normal
Retirement Age, the taxable wage bases for years until such age shall be
deemed to be equal to the taxable wage base in effect on the date the
individual is no longer an Eligible Employee and the
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Pension Plan
Exec. Ver.
<PAGE>
provisions of the Social Security Act on such date alone shall govern
the calculation of the Covered Compensation.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and any regulations issued thereunder. Reference to any
Code Section shall include any successor provision thereto.
1.13 "Contingent Annuitant" shall mean the person designated by the
Participant to receive lifetime monthly benefit payments in the event of
the Participant's death after Retirement Benefits have started as
provided under the joint and survivor payment forms in Section 8.3. If
the Participant is married on the date Retirement Benefits are to
commence, the Contingent Annuitant is his Spouse, unless a waiver
meeting the requirements of Section 8.6(c) provides for the designation
of a Contingent Annuitant who is not the Spouse.
1.14 "Credited Service" or "Years of Credited Service" shall mean the
Participant's period of service determined in accordance with Article
II. In the case of a former Eligible Employee who was transferred or
deemed to have transferred to IFMG on or prior to April 1, 1997,
Credited Service shall be granted for employment through March 31, 1997,
even if a portion of such Credited Service would not otherwise be
considered Credited Service because IMFG is not a Participating
Employer.
1.15 "Early Retirement Date" shall mean the date on which a Participant
becomes eligible to retire with an early retirement benefit under the
Plan, as determined in accordance with Article IV.
1.16 "Earnings" or "Annual Earnings" shall mean, subject to the transfer
provisions of Section 2.7, with respect to any 12-month period, the
total Monthly Earnings paid to the Employee by the Employer or an
Affiliated Employer for that 12-month period. "Monthly Earnings" shall
mean, for any month, the amount of base salary paid, plus any pre-tax
contributions made at the Participant's election to a qualified cash or
deferred
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Pension Plan
Exec. Ver.
<PAGE>
arrangement as defined in Code Section 401(k) or a cafeteria plan as
defined in Code Section 125 sponsored by the Employer, plus sales
commissions paid, but not more than $100,000 of commissions in a
calendar year ($150,000 of commissions for employees of Keyport Life
Insurance Company), plus overtime pay, sick pay, pay for vacations and
holidays, salary continuation payments, whether made under plans of the
Employer or plans mandated by a State or Commonwealth, plus bonuses paid
under the Management Incentive Program.
The bonuses paid under the Management Incentive Program shall be
included in Monthly Earnings in the month paid.
Earnings shall not include reimbursed education expenses, relocation
expenses, car allowances, employment referral awards, sales incentive
awards, long-term incentive awards or income imputed for federal income
tax purposes due to life insurance in excess of $50,000, loans or any
other income required to be imputed for federal income tax purposes for
non-cash benefits provided by the Employer.
Earnings shall not include any standstill bonuses paid to employees of
Keyport Life Insurance Company in 1988 or 1989.
Earnings shall not include any amount deferred or paid under the Liberty
Financial Companies, Inc. Supplemental Savings Plan, the Keyport Life
Insurance Company Non-Qualified Deferred Compensation Plan, the Liberty
Financial Companies, Inc. Voluntary Non-Qualified Deferred Compensation
Plan, or any other non-qualified deferred compensation plan which a
Participating Employer may adopt.
Annual Earnings for a Plan Year shall not include any amount in excess
of the limit prescribed under Code Section 401(a)(17) ($160,000 for
1999) adjusted for cost-of-living as permitted under such Code Section
and regulations thereunder.
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Pension Plan
Exec. Ver.
<PAGE>
Earnings shall not include any compensation paid to an Employee prior to
the date he first becomes an Eligible Employee.
-6-
Pension Plan
Exec. Ver.
<PAGE>
1.17 "Effective Date" shall mean January 1, 1989, or such other date as
required by the Tax Reform Act of 1986 (or subsequent legislation
or regulations); provided, however, that the Plan contains
voluntary amendments effective July 1, 1992 or such other date as
specified herein.
1.18 "Eligible Employee" shall mean an Employee who:
(a) is employed by a Participating Employer in an employment
classification designated by such Employer as eligible to
participate under the Plan;
(b) is not a "leased employee" as defined in Code Section
414(n)(2);
(c) is not covered by a collective-bargaining agreement, unless
such agreement specifically provides for eligibility herein;
and
(d) is not an Employee of the Chemical Investment Services
division of Liberty Securities Corporation; and
(e) is not a "highly compensated employee" (as defined in Code
Section 414(q)) who is an Employee of Copley Venture Capital,
Inc.
1.19 "Employee" shall mean a regular common-law employee of the
Employer or an Affiliated Employer. A shared employee, as
determined by the Plan Administrator, shall not be an Employee
under this Plan. A leased employee as described in Code Section
414(n)(2) shall be considered an Employee to the extent provided
under Section 14.6.
1.20 "Employer" shall mean Liberty Financial Companies, Inc. a
corporation organized and existing under the laws of the
Commonwealth of Massachusetts, or its successor or successors.
Prior to July 1, 1992, "Employer" meant Keyport Life Insurance
Company.
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Pension Plan
Exec. Ver.
<PAGE>
1.21 "Employment Date" shall mean the first day on which an Employee is
credited with an Hour of Service.
1.22 "Fiduciary" shall mean any person who exercises any discretionary
authority or discretionary control respecting the management of
the Plan, assets held under the Plan, or disposition of Plan
assets; who renders investment advice for a fee or other
compensation, direct or indirect, with respect to assets held
under the Plan or has any authority or responsibility to do so; or
who has any discretionary authority or discretionary
responsibility in the administration of the Plan. Any person who
exercises authority or has responsibility of a fiduciary nature as
described above shall be considered a Fiduciary under the Plan.
1.23 "Fund", "Trust" or "Trust Fund" shall mean the cash and other
investments of the Plan, and income attributable thereto, held and
administered by the Trustee in accordance with the Trust
Agreement.
1.24 "Hour of Service" shall mean:
(a) Each hour for which an Employee is directly or indirectly paid
or entitled to payment by the Employer and any Affiliated
Employer for the performance of duties;
(b) Each hour for which an individual is directly or indirectly
paid or entitled to payment by the Employer and any Affiliated
Employer (including payments made or due from a trust fund or
insurer to which the Employer or Affiliated Employer
contributes or pays premiums) on account of a period of time
during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to periods of
vacation, holidays, illness, incapacity, disability, layoff,
jury duty, military duty, or leave of absence, provided that:
-8-
Pension Plan
Exec. Ver.
<PAGE>
(i) No more than 501 Hours of Service shall be credited
under this paragraph (b) to an Employee on account of
any single continuous period during which the Employee
performs no duties; and
(ii) Hours of Service shall not be credited under this
paragraph (b) to an Employee for a payment which solely
reimburses the Employee for medically related expenses
incurred by the Employee or which is made or due under a
plan maintained solely for the purpose of complying with
applicable workers' compensation, unemployment
compensation or disability insurance laws; and
(c) Each hour not already included under paragraph (a) or (b)
above for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or by
an Affiliated Employer, provided that crediting of Hours of
Service under this paragraph with respect to periods described
in paragraph (b) above shall be subject to the limitation
therein set forth.
The number of Hours of Service to be credited under paragraph (b)
or (c) above on account of a period during which an Employee
performs no duties, and the Plan Years to which Hours of Service
shall be credited under paragraphs (a), (b), or (c) above shall be
determined by the Plan Administrator in accordance with Sections
2530.200b-2(b) and (c) of the Regulations of the U.S. Department
of Labor.
To the extent not credited above, Hours of Service shall also be
credited based on the customary work week of the Employee for
periods of military duty (as required by applicable law),
Authorized Leave of Absence and periods during which the Employee
is receiving salary continuation payments under any salary
continuation plan of the Employer or any mandated salary
continuation plan of a State or Commonwealth.
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Pension Plan
Exec. Ver.
<PAGE>
1.25 "Normal Form" shall mean a monthly annuity payable to a
Participant commencing on his designated Annuity Starting Date and
ending with the payment due for the month in which his death
occurs.
1.26 "Normal Retirement Age" shall mean the later of:
(a) the Participant's 65th birthday, and
(b) the fifth anniversary of the date the individual became an
active Participant.
1.27 "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the Participant's Normal
Retirement Age.
1.28 "One Year Break in Service" shall mean each 12-consecutive-month
period commencing on an Employee's Service Termination Date (or
anniversary thereof) provided that during such 12-consecutive
month period the individual fails to complete one Hour of Service.
1.29 "Parental Absence" shall mean an Employee's absence from work
which has commenced for any of the following reasons:
(a) the pregnancy of the Employee;
(b) the birth of the Employee's child;
(c) the adoption of a child by the Employee; or
(d) the need to care for the Employee's child immediately
following its birth or adoption.
1.30 "Participant" shall mean an Active Participant currently
participating in the Plan pursuant to Article II or a Vested
Inactive Participant.
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Pension Plan
Exec. Ver.
<PAGE>
1.31 "Participating Employer" shall mean Liberty Financial Companies,
Inc. and any Affiliated Employer (or a division of either) which
has adopted this Plan and which has been authorized by the Board
to participate in this Plan.
1.32 "Plan" shall mean the Liberty Financial Companies, Inc. Pension
Plan as set forth in this document and as it may be amended from
time to time. This Plan constitutes an amendment and restatement
of the Prior Plan.
1.33 Plan Administrator" shall mean the persons appointed pursuant to
Article IX to administer the plan.
1.34 "Plan Year" shall mean the calendar year for calendar years
beginning on or after January 1, 1993. The Plan Year which began
on December 13, 1991 shall end on December 12, 1992. There will be
a short Plan Year for the period December 13, 1992 to December 31,
1992.
1.35 "Postponed Retirement Date" shall mean the date after his Normal
Retirement Date on which a Participant elects to retire, as
determined in accordance with Article V.
1.36 "Prior Plan" shall mean the Plan, as in effectDecember 31, 1998.
The Prior Plan is amended and restated effective January 1, 1999
as the Plan, defined above.
1.37 "Reemployment Date" shall mean the day an Employee returns to work
and is credited with an Hour of Service following a Service
Termination Date or an Authorized Leave of Absence from the
Employer or an Affiliated Employer.
1.38 "Retired Participant" shall mean a former Employee who is
receiving a Retirement Benefit or a former Employee who has
received a lump sum Retirement Benefit pursuant to Section 8.7.
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Pension Plan
Exec. Ver.
<PAGE>
1.39 "Retirement Benefit" shall mean either:
(a) a lump sum payment made pursuant to Section 8.7, or
(b) an annual pension paid in monthly installments.
1.40 "Service Termination Date" shall mean the earliest of the
following:
(a) the date on which the Employee resigns, is discharged, or
retires from employment with the Employer and all Affiliated
Employers;
(b) the date the Employee dies;
(c) except as provided below, the first anniversary of the date on
which the Employee is laid off, starts an Authorized Leave of
Absence, or is absent from work for any other reason other
than a Parental Absence on or after January 1, 1985; or
(d) effective January 1, 1985, the second anniversary of the date
on which the Employee commenced a Parental Absence, if such
Employee has not yet returned to work with the Employer or an
Affiliated Employer.
Notwithstanding subsection (c) above, an Employee who is on an
Authorized Leave of Absence due to military service in the armed
forces of the United States of America shall not incur a Service
Termination Date with respect to such military duty providing he
returns to employment with the Employer or an Affiliated Employer
within the time prescribed by law for reinstatement of employment
rights. Similarly, if an Authorized Leave of Absence is granted
for reasons other than military duty and the period of such
authorized leave is more than 12 months, a Service Termination
Date shall not occur if the Employee returns to work within the
time period specified in such Authorized Leave
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Pension Plan
Exec. Ver.
<PAGE>
of Absence. If such individual does not return to employment with
the Employer or an Affiliated Employer within the time period
specified in the Authorized Leave of Absence, a Service
Termination Date shall occur on the first anniversary of the date
on which the Authorized Leave of Absence began.
1.41 "Spouse" shall mean the legal spouse to whom a Participant is
married on the Annuity Starting Date under applicable state law.
However, if the Participant should die before his Annuity Starting
Date, then the Spouse shall be the legal spouse to whom the
Participant was married on the Participant's date of death.
1.42 "Trust Agreement" shall mean the agreement or agreements governing
the investment of Plan assets as amended from time to time,
entered into between the Employer and the Trustee to carry out the
purpose of the Plan.
1.43 "Trustee" shall mean the trustee or trustees duly appointed by the
Board.
1.44 "Vested Inactive Participant" shall mean a former Active
Participant who is vested in a Plan benefit, is no longer an
Eligible Employee, and has not begun to receive a Retirement
Benefit.
1.45 "Years of Service" shall mean the period of an Employee's
employment with the Employer and all Affiliated Employers as
determined in accordance with Article II.
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Pension Plan
Exec. Ver.
<PAGE>
ARTICLE II
PARTICIPATION AND SERVICE
2.1 Participation Requirements.
(a) Each Eligible Employee on January 1, 1999 who was an Active
Participant under the Prior Plan onDecember 31, 1998, shall
continue to be an Active Participant onJanuary 1, 1999.
(b) On and after January 1, 1999 each Eligible Employee who has
completed one Year of Service and has attained age 21 shall
become an Active Participant on the January 1st or July 1st
coincident with or next following the date he meets such
requirements.
(c) A person who is not an Eligible Employee shall not be entitled
to participate in the Plan.
If an individual terminates employment and is later reemployed as
an Eligible Employee, subsequent participation in the Plan shall
be subject to the provisions of Section 2.4.
2.2 Years of Service. Years of Service shall determine an individual's
eligibility to participate in the Plan under Section 2.1 and a
Participant's vested right to retirement benefits accrued under
the Plan, except that upon reaching Normal Retirement Age as an
Employee, a Participant shall be fully vested in his Accrued
Benefit, irrespective of Years of Service. Subject to the One Year
Break in Service rule under subparagraph (c), Years of Service
shall be accumulated as follows:
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Pension Plan
Exec. Ver.
<PAGE>
(a) (i) One Year of Service shall be credited to an Employee for
each 12-month period, whether or not consecutive,
between his Employment Date and his Service Termination
Date, except as provided under (b) below. In no event
shall an Employee receive duplicate service credit for
any single period of employment.
(ii) For periods not already counted in (a) above, a
fractional Year of Service calculated to three decimal
places shall be credited to an Employee for the period
of time (based on the number of days) between his
Employment Date and his Service Termination Date.
(b) The determination of Years of Service and fractional Years of
Service shall also include the following additional periods of
time:
(i) a period of absence between an Employee's Service
Termination Date and subsequent Reemployment Date
provided a One Year Break in Service does not occur
before the Reemployment Date;
(ii) a period of Authorized Leave of Absence before a Service
Termination Date is incurred;
(iii) the first 12-month period of a Parental Absence;
(iv) any period of absence because of service in the military
forces of the United States, provided the Employee
returns to work within 90 days after first becoming
eligible for discharge from active duty; and
(v) any single period of layoff not in excess of one year in
duration.
-15-
Pension Plan
Exec. Ver.
<PAGE>
The determination of Years of Service and fractional Years of
Service shall not include a period of absence, if any, between
the first anniversary of the Parental Absence and the second
anniversary of the Parental Absence.
(c) If an Employee incurs a One Year Break in Service, his Years
of Service accumulated before such break shall be forfeited
unless:
(i) he was vested in Retirement Benefits under the Plan in
accordance with Article VI prior to the One Year Break
in Service or
(ii) the number of consecutive One Year Breaks in Service is
less than the greater of five or the number of his Years
of Service earned before such One Year Breaks in
Service.
(d) No Years of Service or fractional Years of Service shall be
credited for any period between a Service Termination Date and
a Reemployment Date except as provided in (b) above.
Employment with Liberty Mutual shall be counted as employment with
the Employer or an Affiliated Employer, but solely for the purpose
of meeting the participation and vesting requirements of the Plan.
2.3 Years of Credited Service. Credited Service is used in the
calculation of a Participant's Accrued Benefit under Section 3.1.
(a) Subject to the exclusions in Section 2.3(b) below, Years of
Credited Service are equal to Years of Service.
(b) Credited Service shall not include:
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Pension Plan
Exec. Ver.
<PAGE>
(i) any period of time during which an individual is not
actively employed;
(ii) any period of time during which an Employee is not an
Eligible Employee;
(iii) any unpaid period of Parental Absence;
(iv) service before the Participant's 18th birthday;
(v) service prior to January 1, 1980 for Employees who were
employed at that time by Keyport Life Insurance Company;
(vi) service prior to July 17, 1985 for Employees who were
employed at that time by Liberty Investment Services,
Inc., Liberty Real Estate Group, Inc., Copley Venture
Capital, Liberty Financial Services, Inc., Liberty
Securities Corporation or Liberty Asset Management
Company; and
(vii) service prior to March 17, 1988 for Employees who were
employed at that time by the former Liberty PAMCO,
including LSC Insurance Agency of Ohio, Inc., NFS
Agency, Inc., and Liberty Securities Corporation
(PAMCO).
2.4 Reemployment Before Benefits Commence. Upon reemployment before an
Annuity Starting Date, the following rules shall apply:
(a) The individual's Years of Service shall be determined under
Section 2.2 and his Years of Credited Service shall be
determined under Section 2.3.
(b) If the Employee was not vested in his Accrued Benefit and he
has a One Year Break in Service, on his Reemployment Date he
shall be treated as a new
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Pension Plan
Exec. Ver.
<PAGE>
Employee under the Plan. However, if the period of time
between his Service Termination Date and his Reemployment Date
is less than the greater of (i) his Years of Service prior to
the Service Termination Date and (ii) five years, his prior
Years of Service shall be counted and he shall become an
Active Participant on his Reemployment Date, if he is then an
Eligible Employee. If he is not an Eligible Employee, he shall
become an Active Participant on the date he meets the
requirements of Section 2.1.
(c) If the Employee was not vested in his Accrued Benefit but does
not have a One Year Break in Service, his prior Years of
Service, if any, shall be counted and he shall become an
Active Participant on his Reemployment Date, if otherwise
eligible as provided in Section 2.1. If he does not meet the
requirements of Section 2.1 on his Reemployment Date, he shall
become an Active Participant on the date he meets such
requirements.
(d) If the individual was a Vested Inactive Participant
immediately prior to his Reemployment Date, he shall become a
Participant on his Reemployment Date, if otherwise eligible as
provided in Section 2.1. If he does not meet the requirements
of Section 2.1 on his Reemployment Date, he shall become an
Active Participant on the date he meets such requirements.
(e) Upon reemployment, the Accrued Benefit of an individual
covered by this Section 2.4 is determined under Section 3.6.
2.5 Postponed Retirement or Reemployment After Benefits Commence. If
an Employee works beyond his Normal Retirement Date or if a
Retired Participant returns to work with a Participating Employer
after Retirement Benefits had become payable to him, the following
rules shall apply:
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Pension Plan
Exec. Ver.
<PAGE>
(a) If he is a Retired Participant returning to work and he is an
Eligible Employee, he shall become an Active Participant on
his Reemployment Date; if he is an Active Participant
continuing to work he shall remain an Active Participant as
long as he is an Eligible Employee;
(b) (i) if he has attained Normal Retirement Age and his
Retirement Benefit was being paid, or had not yet
commenced because of continued employment, such benefit
shall be suspended upon proper notification, during any
calendar month in which he is scheduled to complete 40
or more Hours of Service.
Retirement Benefits shall resume (or commence) as
hereinafter provided if the Employee is thereafter
scheduled to complete less than 40 Hours of Service in
any calendar month;
(ii) if he has not attained Normal Retirement Age at the time
of his reemployment with a Participating Employer, all
Retirement Benefits shall automatically cease upon such
reemployment;
(c) He shall be eligible for additional Years of Service and
Credited Service as a result of his reemployment in accordance
with the provisions of the Plan;
(d) Any Retirement Benefit subsequently paid shall be reduced to
reflect the Actuarial Equivalent of the benefits previously
received before Normal Retirement Age as provided under
Section 3.5, but in the event that Section 2.5(b)(i) applies,
the reduction in any month shall not exceed 25% of the
Retirement Benefits payable to the Participant without regard
to the reduction, except as provided in Section 2530.203-3 of
the Code of Federal Regulations;
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Pension Plan
Exec. Ver.
<PAGE>
(e) If he shall die during the period of subsequent or continuing
employment, death benefits, if any, shall be payable only in
accordance with the provisions of Article VII and shall be
reduced to reflect the Actuarial Equivalent of the Retirement
Benefits previously received but in no event shall the
reduction exceed 25% of the Retirement Benefits payable to the
Participant without regard to the reduction, except as
provided in Section 2530.203-3 of the Code of Federal
Regulations.
(f) If an Employee is covered by this Section 2.5, then his
Retirement Benefit prior to any adjustment under Sections
2.5(c), 3.5 or 5.2, shall be based on the greater of:
(i) his benefit determined under Section 3.1 hereof
considering all his Years of Credited Service; and
(ii) his benefit determined under the Plan in effect when
such One Year Break in Service commenced, considering
only his Years of Credited Service earned up to such
time.
2.6 Suspension of Benefits.
(a) During the first calendar month in which an Employee's
benefits are suspended pursuant to Section 2.5(b)(i), the Plan
Administrator shall deliver to the Employee, by personal
delivery or first class mail, a notice setting forth a
description of the specific reasons why benefit payments are
being suspended, a general description of the Plan provisions
relating to the suspension of benefits, a copy of the Plan
provisions relating to the suspension of benefits, the
statement that applicable Department of Labor Regulations may
be found in Section 2530.203-3 of the Code of Federal
Regulations, a description of the procedures set forth in the
Plan for obtaining a review of the suspension of benefits, and
a description of any notice procedure (including any forms
which must be filed by the Employee) as a prerequisite for the
Employee's obtaining the resumption or commencement of benefit
payments.
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Pension Plan
Exec. Ver.
<PAGE>
The notice shall also set forth the periods of employment
which gave rise to the offset, the suspendable amounts which
are subject to offset, and the manner in which the Plan
Administrator intends to offset the suspendable amounts. In no
event shall the amount of benefits offset by the Plan
Administrator in any month exceed 25% of the benefits to which
an Employee would have been entitled but for the offset.
(b) (i) If, during a calendar month, an Employee's Retirement
Benefits are no longer suspendable pursuant to Section
2.5(b)(i), such payments shall resume to the Employee no
later than the first day of the third calendar month
after such calendar month. The initial payment upon
resumption shall include the payment scheduled to occur
in the calendar month when payments resume, less any
offset for payments when benefits should have been
suspended.
(ii) If a Participant's Retirement Benefits were suspended
prior to Normal Retirement Age, pursuant to Section
2.5(b)(ii), Retirement Benefits to the Participant shall
resume after the Participant's subsequent retirement,
except as required under Section 8.6(b).
(c) In the event an Employee submits a written request to the Plan
Administrator for a review of the suspension of his benefits,
such request shall be deemed to be a request for a review of
the denial of a claim for benefits for purposes of the benefit
claims procedure set forth in Article IX.
In the event an Employee submits a written request to the Plan
Administrator for a determination whether specific
contemplated employment will result in the suspension of
benefits, the Plan Administrator shall, within 30 days of the
receipt
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Pension Plan
Exec. Ver.
<PAGE>
of such request, notify the Employee in writing whether said
employment will result in suspension of benefits.
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Pension Plan
Exec. Ver.
<PAGE>
2.7 Transfers.
(a) Any individual who ceases to be an Eligible Employee by reason
of employment with an Affiliated Employer or a change in
employment classification, either prior to or subsequent to
commencement of his participation in this Plan, shall be
credited with Years of Service during such period of
employment pursuant to Sections 2.2 and 2.4 solely for
purposes of vesting and eligibility to receive benefits.
Credited Service for determining a Participant's Accrued
Benefit under Section 2.3 shall not be credited during such
period of employment. Credited Service shall only be earned
for periods during which the Employee is an Eligible Employee.
Such Participant shall be entitled only to benefits under the
provisions of the Plan as in effect while he is eligible to
participate in the Plan. Notwithstanding any other provisions
of the Plan to the contrary, Earnings shall include all
compensation, subject to the restrictions of Section 1.16,
paid by the Employer or an Affiliated Employer, whether or not
the individual is an Eligible Employee.
It is recognized that in the case of an Employee who is not an
Eligible Employee, it may be difficult or impracticable to
obtain Monthly Earnings information for periods of employment
when the Employee is not an Eligible Employee. In determining
Earnings for such period, the Plan Administrator may use
reasonable approximations to determine Monthly Earnings. For
example, in the discretion of the Plan Administrator,
annualized rates of earnings divided by 12 may be used to
determine the base Monthly Earnings paid to the Employee
rather than the Employee's actual compensation for one or more
months.
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Pension Plan
Exec. Ver.
<PAGE>
ARTICLE III
NORMAL RETIREMENT BENEFIT
3.1 Normal Retirement Benefit. Subject to the minimum benefit
provisions under Section 3.2 and the maximum benefit limitations
under Section 3.3, the amount of monthly Retirement Benefit
payable to a Participant in the Normal Form beginning on his
Normal Retirement Date shall be equal to one-twelfth of the sum of
(a) plus (b) plus (c) plus (d) (if applicable), as follows:
(a) (i) 1.35% of the Participant's Average Earnings not
exceeding the Covered Compensation
multiplied by
(ii) his Years of Credited Service up to 25 such years.
(b) (i) 1.80% of the Participant's Average Earnings which exceed
the Covered Compensation
multiplied by
(ii) his Years of Credited Service up to 25 such years.
(c) (i) 2/3% of the Participant's Average Earnings
multiplied by
(ii) his Years of Credited Service in excess of 25 such
years, if any, up to 15 such excess years.
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Pension Plan
Exec. Ver.
<PAGE>
(d) 25% of the Participant's accrued benefit under the Prior
Plan determined as of June 30, 1992 under the terms of the
Prior Plan in effect on such date. This subsection (d)
shall only apply to Participants employed by Keyport Life
Insurance Company as of July 1, 1992.
The Participant's Retirement Benefit shall be paid pursuant to
Article VIII.
3.2 Minimum Accrued Benefit.
(a) (i) For a Participant who was a participant under the Prior
Plan and who is a "super highly compensated employee"
(an individual described under Code Section 414(q)(1)(A)
or (B)) for the Plan Year ending December 12, 1989, the
Accrued Benefit payable at Normal Retirement Date
hereunder shall not be less than:
(A) such Participant's accrued benefit on December 12,
1989 under the formula of the Prior Plan on such
date, plus
(B) the amount determined under Section 3.1(d) above;
(ii) For a Participant who was a participant under the Prior
Plan and who first becomes a "super highly compensated
employee" (an individual described under Code Section
414(q)(1)(A) or (B)) between the period December 13,
1989 and June 30, 1992 (both dates inclusive), the
Accrued Benefit payable at Normal Retirement Date
hereunder shall not be less than:
(A) such Participant's accrued benefit on the last day
of the Plan Year during which the Participant became
a "super highly compensated employee" under the
formula of the Prior Plan in effect on such date,
plus
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Exec. Ver.
<PAGE>
(B) the amount determined under Section 3.1(d) above.
(b) For any other individual who was a participant under the Prior
Plan after December 12, 1989, the Accrued Benefit payable at
Normal Retirement Date shall not be less than (A) such
individual's accrued benefit under the Prior Plan of such
participant determined as of June 30, 1992 under the formula
of the Prior Plan in effect on such date, plus (B) the amount
determined under Section 3.1(d) above.
(c) Notwithstanding any other provision of this Plan to the
contrary, the monthly Accrued Benefit payable at Normal
Retirement Date shall not be less than one-twelfth of the
Grandfathered Keyport Benefit, as defined in and determined
according to Appendix A of the Plan.
(d) Effective January 1, 1994, each "Section 401(a)(17)
Employee's" Accrued Benefit as of any determination date will
be the greater of (i) or (ii) below where:
(i) equals the Employee's Accrued Benefit calculated as of
such determination date using the Employee's total Years
of Credited Service, and
(ii) equals the sum of (A) plus (B) where:
(A) equals the Employees Accrued Benefit determined as
of December 31, 1993, frozen in accordance with
Treasury Regulation Section 1.401(a)(4)-13, and
(B) equals the Employee's Accrued Benefit calculated as
of such determination date using the Employee's
Years of Credited Service attributable solely to
Plan Years beginning on or after January 1, 1994.
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Pension Plan
Exec. Ver.
<PAGE>
A "Section 401(a)(17) Employee" means an Employee
whose Accrued Benefit as of December 31, 1993 is
based on Compensation for a year beginning prior to
January 1, 1994 that exceeded $150,000.
3.3 Maximum Benefit. Effective January 1, 1987, notwithstanding any
other provision of the Plan to the contrary, a Participant's
annual retirement benefit under the Plan and any other defined
benefit pension plan of an Employer or an Affiliated Employer may
not exceed the lesser of (a) or (b) below, except as provided in
(c) below:
(a) The lesser of (i) or (ii) below, but subject to subparagraphs
(iii) through (x) below:
(i) 100% of his average compensation in the three
consecutive highest paid calendar years while a
Participant in the Plan.
(ii) $90,000 (as adjusted for increases in the cost of
living as provided in rules and regulations adopted by
the Secretary of the Treasury) hereinafter referred to
as the "Dollar Limitation".
(iii) In the case where a benefit is payable prior to the
Participant's Social Security Retirement Age (defined
in (x) below), the Dollar Limitation in subsection (ii)
above shall be adjusted so that it is the actuarial
equivalent of the Dollar Limitation, beginning at the
Participant's Social Security Retirement Age. For the
period between age 62 and the Participant's Social
Security Retirement Age, the actuarial equivalence
adjustment provided for in the preceding sentence shall
be made in such manner as the Secretary of the Treasury
may prescribe which is consistent with the reduction
for old-age insurance benefits commencing before the
Social Security Retirement Age under the Social
Security Act. For benefit commencing prior to age 62,
the Dollar Limitation shall be the actuarial
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Exec. Ver.
<PAGE>
equivalent of the limitation for benefits commencing at
age 62 (as adjusted in accordance with the preceding
sentence). For purposes of determining actuarial
equivalence hereunder, the interest assumption shall
not be less than the greater of 5% per year or the
underlying rate used to determine the reduction of
benefits for early payment under the Early Retirement
provisions of Section 4.2.
(iv) In the case where a benefit commences after a
Participant has attained Social Security Retirement
Age, the Dollar Limitation shall be adjusted so that it
is the Actuarial Equivalent of the Dollar Limitation
beginning at the Social Security Retirement Age by
multiplying an adjustment factor as prescribed by the
Secretary of the Treasury. For purposes of determining
Actuarial Equivalence hereunder, the interest
assumption shall not be greater than the lesser of 5%
per year or the rate specified in Section 1.3.
(v) Unless subsection (vi) applies to a Participant, the
limits of subsections (i) and (ii) above shall be
deemed met if:
(A) the annual benefit payable to the Participant from
this Plan and all other qualified defined benefit
plans of the Employer does not exceed $10,000; and
(B) the individual has never participated in a qualified
defined contribution plan sponsored by the Employer
or an Affiliated Employer.
(vi) If a Participant has completed less than ten years of
participation in the Plan, the Participant's Accrued
Benefit shall not exceed the Dollar Limitation as
adjusted by multiplying such amount by a fraction, the
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Exec. Ver.
<PAGE>
numerator of which is the Participant's number of years
(or part thereof) of participation in the Plan, and the
denominator of which is ten.
(vii) If a Participant has completed less than ten Years of
Service, the limitations described in Code Sections
415(b) (1)(B) and 415(b)(4) shall be adjusted by
multiplying such amounts by a fraction, the numerator
of which is the Participant's number of Years of
Service (or part thereof), and the denominator of which
is ten.
(viii) In no event shall subsections (vi) and (vii) above
reduce the limitations provided under (i), (ii) and (v)
above to an amount less than one-tenth of the
applicable limitation.
(ix) Except in the case where a benefit is payable pursuant
to Section 8.1(a), if a benefit is payable in a benefit
form other than a life annuity, the amount otherwise
determined under this subparagraph (a) shall be the
actuarial equivalent of the amount payable as a life
annuity. For this purpose, the interest rate assumption
shall not be less than the greater of 5% or the rate
specified in Section 1.3 and the applicable mortality
table under Code Section 417(e).
(x) For purposes of this Section 3.3, Social Security
Retirement Age shall mean such age as defined in Code
Section 415(b)(8).
(b) In the case of a Participant who has participated in a defined
contribution plan maintained by an Employer or an Affiliated
Employer, the amount determined pursuant to subparagraph (a)
above shall be multiplied by 1.40 in the event (a)(i) applies
or by 1.25 in the event (a)(ii) applies and shall further be
multiplied by a fraction equal to one minus a fraction with a
numerator equal to (i) below and a denominator equal to (ii)
below:
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Pension Plan
Exec. Ver.
<PAGE>
(i) The sum of the annual additions made to the
Participant's account under all defined contribution
plans maintained by the Employer and its Affiliated
Employers, where the annual additions are equal to the
sum of (A) Employer contributions allocated to the
Employee's account, (B) any forfeitures allocated to the
Employee's account, (C) the portion of the Employee's
after-tax contributions made prior to January 1, 1987,
that represented the lesser of one-half of such
contributions or the amount of such contributions in
excess of 6% of his compensation, (D) all Employee
after-tax contributions made after December 31, 1986,
and (e) amounts described in Code Sections 415(l)(1) and
419(A)(d)(2).
(ii) The sum for each calendar year of the Participant's
employment with an Employer or an Affiliated Employer of
the lesser of (A) 1.4 multiplied by 25% of the
Participant's compensation for the calendar year, or (B)
1.25 multiplied by $30,000, as adjusted for increases in
the cost of living as provided under rules and
regulations adopted by the Secretary of the Treasury.
(c) The provisions of subsection (a) above shall not reduce a
Participant's benefit under the Plan to an amount which is
less than either
(i) the Participant's Accrued Benefit on December 31, 1982;
or
(ii) the Participant's Accrued Benefit on December 31, 1986.
For purposes of this subsection (c), the Participant's Accrued
Benefit on either of the foregoing dates shall be the Accrued
Benefit as restricted by the Code Section 415 limitations in
effect on each such respective date.
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Exec. Ver.
<PAGE>
Similarly, the combined plan limits of subsection (b) above
shall be modified to protect the combined plan limits in
effect on December 31, 1982 and December 31, 1986
respectively, for those Participants whose combined plan
benefits were within the Code Section 415 limits on each such
respective date.
(d) If, in any limitation year, the benefit under this Plan
exceeds the lesser of (a) or (b) above, then appropriate
reductions shall first be applied to the Participant's Accrued
Benefit under this Plan in order to reduce such benefit to the
lesser of (a) or (b).
For the purpose of this Section 3.3, an Affiliated Employer
shall be determined by assuming the phrase "more than 50%" is
substituted for the phrase "at least 80%" wherever it appears
in Code Section 1563, as it may be amended from time to time
and limitation year shall mean Plan Year.
3.4 Continuing Employment. The retirement of any Participant under
this Article III shall not become effective while he is in the
employment of an Employer or an Affiliated Employer, except as
provided in Section 2.5. If an Employee continues to work for the
Employer or an Affiliated Employer beyond his Normal Retirement
Date, the provisions of Article V and Article VIII shall be
applicable.
3.5 Accrued Benefit Upon Reemployment After An Annuity Starting Date.
If a Retired Participant has a Reemployment Date after an Annuity
Starting Date, the following shall be applicable:
(a) if he is an Eligible Employee upon his reemployment and he had
previously received all or some of his Retirement Benefit and
such benefits are suspended pursuant to Section 2.5(b):
(i) his prior Years of Service and Credited Service shall
be restored;
-31-
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Exec. Ver.
<PAGE>
(ii) his Accrued Benefit prior to his Reemployment Date
shall be restored; and
(iii) the Retirement Benefit payable after a subsequent
Service Termination Date shall be reduced by the
Actuarial Equivalent value of all Retirement Benefit(s)
previously distributed, provided however that the net
Retirement Benefit payable upon subsequent retirement
shall not be less than the Actuarial Equivalent value
of the Participant's prior Retirement Benefit.
For this purpose, the prior Retirement Benefit is the
benefit last being paid before its suspension. Its
Actuarial Equivalent value, however, is determined as
of the date Retirement Benefits recommence.
(b) if he is an Eligible Employee upon his reemployment and his
Retirement Benefits continue to be paid because he is working
less than 40 hours per month or because he is over age 70-1/2,
(i) the Retirement Benefit currently in pay status shall
continue to be paid;
(ii) his prior Years of Service and Credited Service shall
be restored;
(iii) as of the last day of each Plan Year during which
Retirement Benefits continue, an adjusted Accrued
Benefit shall be calculated for such Participant as
prescribed under Section 5.2(c). If there is a net
increase in the Participant's Accrued Benefit as
determined under Section 5.2(c), such additional
Accrued Benefit shall be converted to the "current form
of payment" and commence to be paid as soon as
practicable, provided such form of payment remains
"appropriate". The following conditions must be in
place for the "current form of payment" to remain
"appropriate":
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Exec. Ver.
<PAGE>
(A) the Annuity Starting Date applicable to the
"current form of payment" occurred on or after the
Participant's 65th birthday;
(B) all aspects of the Participant's marital status are
the same as when the "current form of payment"
commenced; and
(C) the Spouse, Beneficiary or Contingent Annuitant
under the "current form of payment" is not
deceased.
If one or more of the foregoing conditions is not
present, the net increase in the Accrued Benefit,
if any, will be treated as a separate benefit and
paid in accordance with Article VIII. For purposes
of this paragraph, "current form of payment" means
the form under which the most recent net increase
in the Participant's Accrued Benefit, if any, is
being paid. If there has been no net increase in
the Participant's Accrued Benefit, "current form of
payment" means the form of payment under which the
entire Retirement Benefit is currently being paid.
3.6 Accrued Benefit Upon Reemployment Before An Annuity Starting Date.
Upon the Reemployment Date of an individual who is either a Vested
Inactive Participant or a former Participant whose prior Credited
Service is restored under Section 2.3, his Accrued Benefit before
application of adjustments under Section 2.5 or 5.2 shall be the
greater of:
(a) his Accrued Benefit under the terms in effect on his
Reemployment Date considering all his Years of Credited
Service; and
(b) his Accrued Benefit under the terms of the Plan when his
employment last terminated considering only his Years of
Credited Service, Average Earnings and Covered Compensation at
such time.
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Exec. Ver.
<PAGE>
If the individual's prior Credited Service is not restored
pursuant to Section 2.3, he shall have no Accrued Benefit as of
his Reemployment Date.
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Exec. Ver.
<PAGE>
ARTICLE IV
EARLY RETIREMENT DATE AND EARLY RETIREMENT BENEFIT
4.1 Early Retirement Date. A Participant may retire prior to his
Normal Retirement Date on the first day of any month coincident
with or next following the earlier of:
(a) his attainment of age 55 and his completion of ten or more
Years of Service; or
(b) his attainment of age 60 and his completion of five or more
Years of Service.
If a Participant intends to retire early under this Article
IV, he must file a written notice of his intent with the Plan
Administrator. The date of his retirement must be stated in
the notice.
The date on which a Participant retires under this Paragraph 4.1
shall be his Early Retirement Date.
4.2 Early Retirement Benefit. Subject to the minimum benefit
provisions of Sections 3.2 and 4.3 and the maximum benefit
limitations of Section 3.3, a Participant may elect to retire on
an Early Retirement Date and receive a Retirement Benefit. The
monthly amount of the Retirement Benefit payable in the Normal
Form shall be equal to his Accrued Benefit multiplied by a
percentage as set forth in the following schedule:
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Exec. Ver.
<PAGE>
<TABLE>
<CAPTION>
Number of Years Early Retirement Date
Precedes Normal Retirement Date Percentage of Benefit
<S> <C>
1 100%
2 100%
3 100%
4 97.5%
5 95%
6 90%
7 85%
8 80%
9 75%
10 70%
</TABLE>
If the period between Early and Normal Retirement Dates is not a
whole number of years, the percentage to be applied shall be the
percentage for the next lower whole number of years decreased by a
proportionate part of the difference between that percentage and
the percentage for the next higher whole number of years.
A Participant retiring on an Early Retirement Date may elect the
form of payment of his Retirement Benefit in accordance with
Article VIII.
4.3 Minimum Benefit. In no event shall the early retirement income
payable under this Plan be less than the Accrued Benefit
determined under the provisions of the Plan immediately before the
adoption of this amended and restated Plan, adjusted to reflect
early receipt based on the early retirement reduction factors
specified in the Plan as of such date.
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Exec. Ver.
<PAGE>
ARTICLE V
POSTPONED RETIREMENT DATE AND POSTPONED RETIREMENT BENEFIT
5.1 Postponed Retirement Date. The Postponed Retirement Date of a
Participant will be the day of his actual retirement after his
Normal Retirement Date.
5.2 Postponed Retirement Benefit.
(a) If a Participant attained age 70-1/2 prior to January 1, 1988
or if his Postponed Retirement Date occurs during or prior to
the calendar year in which he attained age 70-1/2, his Accrued
Benefit under Section 3.1 (subject to the minimum benefit
provisions of Section 3.2 and maximum benefit limitations of
Section 3.3) shall be determined and payable as of his
Postponed Retirement Date.
(b) If a Participant's Postponed Retirement Date has not occurred
by the end of the calendar year in which he attains age 70-1/2
and Retirement Benefits must commence pursuant to Section
8.6(b), then his Retirement Benefit shall be his Accrued
Benefit calculated pursuant to Article III as of the close of
the calendar year in which he attains age 70-1/2, adjusted, if
applicable, under Section 3.5(a) for previous benefit
payments. For subsequent required distributions, his Accrued
Benefit shall be recalculated at the end of each calendar year
thereafter until his actual Postponed Retirement Date or his
date of death. Recalculation of the Accrued Benefit is
described in the following subparagraph (c).
Once Retirement Benefits commence under this Section 5.2, a
Participant may not elect a different form of payment,
Beneficiary or Contingent Annuitant for any additional Accrued
Benefit which is calculated hereunder. If there is a net
increase in the Accrued Benefit hereunder and the Participant
dies before such increase has been added to the benefit in pay
status, such increase will be added to the benefit in pay
status once payments, if any, begin to the Spouse, Contingent
Annuitant or
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Exec. Ver.
<PAGE>
Beneficiary under that form of payment. No Pre-Retirement
Survivor's benefit under Article VII shall be payable with
respect to such net increase.
(c) The recalculation of the Participant's Accrued Benefit under
Section 5.2(b) shall be performed as follows:
(i) a new Accrued Benefit shall be calculated using the
Participant's Average Earnings and Years of Credited
Service at the close of the calendar year;
(ii) the new Accrued Benefit as determined under (i) above
shall be adjusted, as applicable, under Section 3.5(a)
for any benefits received prior to the first required
distribution under this Section 5.2. Following such
adjustment, if any, the Accrued Benefit for the
calendar year shall be reduced by the Actuarial
Equivalent value of the sum of Retirement Benefits
received by the Participant between age 65 and the
close of such calendar year during months in which
Retirement Benefits could otherwise have been suspended
pursuant to Section 2.5(b), provided that the resulting
benefit shall not be less than the Actuarial Equivalent
value of the Accrued Benefit before it is recalculated
under (i) above;
(iii) if there is a net increase in the Participant's Accrued
Benefit, as determined under (ii) above, it shall be
converted to the form of payment in which the current
Retirement Benefit is being paid considering the
current age of the Participant and, if applicable, his
Spouse, Beneficiary or Contingent Annuitant. This
amount, if any, shall be added to the Retirement
Benefit already in pay status; no change of payment
form is permitted.
(d) Notwithstanding the foregoing, any adjustment to the
Participant's postponed Retirement Benefits due to the
mandatory commencement of benefits required
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Pension Plan
Exec. Ver.
<PAGE>
under Code Section 401(a)(9) shall be made in accordance with
regulations prescribed by the Secretary of the Treasury.
(e) Postponed Retirement Benefits hereunder shall commence to the
Participant upon the earlier of
(i) his Postponed Retirement Date, or
(ii) if required pursuant to Section 8.6(b), the April 1
following the calendar year in which he has attained
age 70-1/2.
The Participant's Postponed Retirement Benefit shall be paid
pursuant to Article VIII.
5.3 Death Prior to Postponed Retirement Date. If a Participant dies
after his Normal Retirement Date, but prior to retiring on his
Postponed Retirement Date, his Spouse, Contingent Annuitant or
Beneficiary shall be entitled to benefits under the Plan in
accordance with the applicable provisions of Sections 7.1 and 7.3.
Pursuant to such provisions, there may be separate and distinct
death benefits payable with respect to Retirement Benefits which
have already commenced and to those which have accrued, but have
not yet started to be paid.
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Exec. Ver.
<PAGE>
ARTICLE VI
TERMINATION OF EMPLOYMENT
6.1 Non-Vested Termination. Effective January 1, 1989, a Participant
whose employment is terminated with the Employer and all
Affiliated Employers prior to:
(a) his Normal Retirement Age,
(b) his completion of five Years of Service, and
(c) the complete or partial termination of the Plan with respect
to such Participant, shall have no vested interest in his
Accrued Benefit and shall not be entitled to receive a
Retirement Benefit from the Plan.
Upon the Service Termination Date of a Participant who has no
vested right to his Accrued Benefit, the entire value of his
vested benefit hereunder shall be deemed to be distributed to him.
In the event such Participant is credited with an Hour of Service
before incurring five consecutive One Year Breaks in Service
following his Service Termination Date, his vested benefit
previously deemed to be distributed to him hereunder will be
deemed repaid to the Plan.
6.2 Vested Termination. Effective January 1, 1989, a Participant shall
have a nonforfeitable right to his Accrued Benefit upon the
earliest of the following events:
(a) his Normal Retirement Age if he is then an Employee,
(b) his completion of five Years of Service, or
(c) the complete or partial termination of the Plan with respect
to such Participant.
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Exec. Ver.
<PAGE>
A Vested Inactive Participant who is no longer an Employee shall
be entitled to receive a deferred Retirement Benefit commencing on
his Normal Retirement Date in an amount equal to his Accrued
Benefit. For purposes of determining such Accrued Benefit, only
the provisions of the Plan in effect at the time of the
Participant's Service Termination Date shall be considered. The
Participant's Retirement Benefit shall be paid pursuant to Article
VIII.
6.3 Early Payment. In lieu of the deferred Retirement Benefit
described in Section 6.2, a Vested Inactive Participant who has
completed at least 10 Years of Service and is no longer an
Employee may elect in writing to receive a reduced benefit
commencing on the first day of any month between his 55th birthday
and his Normal Retirement Date, and a Vested Inactive Participant
who has completed at least five Years of Service and is no longer
an Employee may elect in writing to receive a reduced benefit
commencing on the first day of any month between his 60th birthday
and his Normal Retirement Date. If the Vested Inactive Participant
elects to receive his Retirement Benefit before his Normal
Retirement Date, his Accrued Benefit shall be reduced by 5/12% for
each calendar month by which commencement of his Retirement
Benefit precedes his Normal Retirement Date.
The Vested Inactive Participant's Retirement Benefit shall be paid
pursuant to Article VIII.
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Exec. Ver.
<PAGE>
ARTICLE VII
DEATH AND DISABILITY BENEFITS
7.1 Pre-Retirement Surviving Spouse Benefit For Death Occurring On or
After Early Retirement Eligibility. If a Participant who is
eligible to retire on an Early Retirement Date pursuant to Section
4.1 or is eligible to early payment of his Retirement Benefit
under Section 6.3 dies before his Annuity Starting Date, a monthly
Retirement Benefit shall be payable to his surviving Spouse. The
amount of the benefit is the amount that would have been payable
to the Spouse had the Participant retired on the date of his death
with an immediate benefit payable under the 50% Joint and Survivor
annuity form described in Article VIII with his Spouse as
Contingent Annuitant. If the Participant had not reached his
Normal Retirement Date, such benefit shall reflect the reduction
for early payment provided under Section 4.2(a) or Section 6.3,
whichever is applicable.
Unless Section 8.7 applies, such Spouse's benefit shall commence
on the first day of the month coincident with or next following
the Participant's date of death and continue for the surviving
Spouse's lifetime.
If the involuntary cash-out provisions of Section 8.7 apply, a
monthly death benefit which becomes due hereunder but which has
not yet commenced shall be paid in one lump sum amount to the
Spouse in lieu of all other benefits under the Plan.
If the Participant had no Spouse on the date of his death, no
benefits are payable hereunder.
7.2 Pre-Retirement Surviving Spouse Benefit For Death Occurring Before
Early Retirement Eligibility. If a Participant who has completed
five Years of Service dies before he is eligible for early
retirement under Section 4.1 or Section 6.3 and before his Annuity
Starting Date, a monthly Retirement Benefit shall be payable to
his surviving Spouse.
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Exec. Ver.
<PAGE>
The amount of such benefit is the amount that would have been
payable to the Spouse as Contingent Annuitant had:
(a) the Participant terminated employment with the Employer and
all Affiliated Employers on the day before his death (or
actual termination date if earlier) and elected Retirement
Benefits to begin at Early Retirement Age, and
(b) his Accrued Benefit had been payable in the 50% Joint and
Survivor annuity form described in Article VIII with his
Spouse as Contingent Annuitant, entitled to receive 50% of the
amount of the Participant's Retirement Benefit subject to the
early payment reductions in Section 4.2(a), if the Participant
was an Employee on his date of death, or Section 6.3 if the
Participant was a Vested Inactive Participant on his date of
death.
Unless Section 8.7 applies, such Spouse's benefit shall be payable
commencing on the first day of the month coincident with or next
following the date the Participant would have been eligible to
elect early payment of benefits and continue for the surviving
Spouse's lifetime.
If the involuntary cash-out provisions of Section 8.7 are
operative, a monthly death benefit which becomes due hereunder but
which has not yet commenced shall be paid in one lump sum amount
to the Spouse in lieu of all other benefits.
If the Participant had no Spouse on the date of his death, no
benefits are payable hereunder.
7.3 Death Benefits After Retirement Benefits Have Commenced. If a
Participant dies at any time after Retirement Benefits have begun,
death benefits, if any, shall be payable as follows:
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Exec. Ver.
<PAGE>
(a) if Retirement Benefits were being paid to the Participant
immediately before his death,
(i) no death benefit shall be payable to anyone unless the
form in which the Retirement Benefit was being paid
provided for a continuing payment. If the Retirement
Benefit form of payment provided for a continuing
payment, the death benefit shall be the amount payable
under such form of payment;
(ii) if there is a net increase in the Participant's Accrued
Benefit as determined under Section 5.2(c) and such net
increase has not begun to be paid to the Participant as
a Retirement Benefit upon the Participant's death, such
increase in the Participant's Accrued Benefit shall be
added to the benefit form in pay status when
determining the amount payable to any Spouse,
Beneficiary or Contingent Annuitant under such form of
payment. The pre-retirement death benefit provisions of
Section 7.1 shall not be effective.
(b) if Retirement Benefits had commenced, but were suspended
pursuant to Section 2.5(b), Sections 7.1 and 7.2 shall apply
with respect to the Participant's Accrued Benefit, as adjusted
under Section 3.5 and, if applicable, Section 5.2(c).
7.4 Disability. The following individuals shall be considered disabled
for purposes of this Plan:
(a) Active Participants under the Prior Plan on June 30, 1992 who
continue to be Active Participants on July 1, 1992 and were
considered disabled under the terms of the Prior Plan, and
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Exec. Ver.
<PAGE>
(b) Eligible Employees who become Active Participants on or after
July 1, 1992, who are eligible to receive disability benefits
under the long-term disability plan of the Participating
Employer for which they work due to a disability which occurs
on or after July 1, 1992.
Such individual's rights to disability benefits are described in
the following Sections 7.5, 7.6, 7.7 and 7.8.
7.5 Continued Benefit Accruals. During the time a Participant is
receiving benefits under the long-term disability plan of a
Participating Employer, he shall continue to accrue Years of
Service and Years of Credited Service for any concurrent period
during which Retirement Benefits are not being paid hereunder. For
purposes of determining the Participant's Accrued Benefit, the
Participant's Earnings in the last full calendar year of
employment before disability was incurred shall be deemed to be
the Participant's Earnings for each year during which he remains
disabled and eligible for long-term disability plan payments.
Providing the Participant does not return to active employment
with the Employer or an Affiliated Employer, Retirement Benefits
hereunder will commence on the Participant's Normal Retirement
Date or, if later, the date benefits under the Participating
Employer's Long Term Disability Plan cease. A Participant may,
however, elect to commence Retirement Benefits prior to such date
as provided in Section 7.6. In no event may payments be deferred
beyond the required beginning date in Section 8.6(b).
7.6 Payment of Disability Pension. In lieu of continuing benefit
accruals as provided in Section 7.5, a Participant who continues
to be eligible to receive benefits under a Participating
Employer's Long-Term Disability Plan may elect to receive: (a) his
Retirement Benefit on or after his Normal Retirement Date; or (b)
a reduced Retirement
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Benefit prior to his Normal Retirement Date providing he meets the
requirements for early retirement under Section 4.1.
In the event the Participant elects to commence such Retirement
Benefit prior to his Normal Retirement Date, his Accrued Benefit,
including benefit accruals which continued under Paragraph 7.5
until the Participant's Annuity Starting Date shall be determined
in accordance with Section 4.2.
7.7 Form of Payment of Disability Pension. Any Retirement Benefit
payable because of a Participant's disability shall be paid in
accordance with the provisions of Article VIII.
7.8 Cessation of Disability Pension. Disability Retirement Benefits
shall continue hereunder until the earlier of
(a) The date the Participant recovers from his disability, which
shall be the date he is deemed to be recovered from disability
under the Participating Employer's long-term disability plan,
and
(b) the date of the Participant's death.
In the event that a Participant's disability payments terminate in
accordance with paragraph (a), he may be eligible for Retirement
Benefits under Articles III, IV, V or VI. Such Retirement Benefits
will be adjusted for the disability benefits previously received
in the manner prescribed under Section 3.5(a)(iii).
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ARTICLE VIII
PAYMENT OF RETIREMENT BENEFITS
8.1 Automatic Payment Forms. Unless the involuntary cash-out
provisions of Section 8.7 apply, the automatic form of Retirement
Benefit shall be as described in this Section 8.1. A Participant
may, however, elect an optional form of Retirement Benefit in
accordance with Section 8.2.
(a) A Participant who has a Spouse on the Annuity Starting Date
shall receive a reduced retirement income which shall be the
Actuarial Equivalent of the Retirement Benefit payable in the
Normal Form as described in (b) below. Such Retirement Benefit
shall be payable monthly commencing on the first day of the
month coincident with or next following the date his
retirement occurs, and if he shall die prior to such Spouse,
continuing to the Spouse at 50% of the reduced amount and
ending with the payment due for the month in which the death
of the Spouse occurs.
(b) A Participant who does not have a Spouse on the Annuity
Starting Date shall receive the Retirement Benefit to which he
is entitled under the Plan, payable monthly commencing on the
first day of the month coincident with or next following the
date his retirement occurs and ending with the payment due for
the month in which his death occurs. Such form of benefit
shall be the Normal Form of payment.
8.2 Election of Optional Forms. Prior to an Annuity Starting Date, a
Participant may elect an optional form of payment for his
Retirement Benefit as may be available under Section 8.3, 8.4, or
8.5. Such election will not take effect unless the Participant's
Spouse consents to the election if required under Section 8.6(e).
The Plan Administrator shall provide an election form to each such
eligible Participant. Such form shall describe in plain
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language the terms and conditions of the normal form of payment
described in Section 8.1 and the optional forms of benefit and
shall provide for election of optional forms of benefit and a
benefit commencement date. The completed election form must be
returned to the Plan Administrator within the 90 day period ending
on the designated Annuity Starting Date. In addition, the form
will provide a description of the Participant's right to reinstate
coverage under the normal form of benefit described in Section 8.1
prior to his Annuity Starting Date by revoking an election of an
optional form of benefit. If a Participant files a subsequent
election form prior to the date benefits commence, the prior form
shall be of no effect. If no election has been made at the
expiration of the election period, Retirement Benefits will be
payable in accordance with Section 8.1. Election of optional forms
of benefits under the following Sections 8.3, 8.4, and 8.5 shall
be subject to the restrictions of Section 8.6. After an Annuity
Starting Date, no other option may be elected, changed or revoked,
except as provided in Section 3.5(b).
The Plan Administrator may, on a uniform and nondiscriminatory
basis, provide for such other election periods as comply with
regulations issued under Code Sections 401(a)(11) and 417. Subject
to the provisions of Section 8.6, the Plan Administrator shall
defer a Participant's Annuity Starting Date for a period of up to
90 days if the Plan Administrator determines that the deferral is
desirable in order to provide for an orderly election procedure or
if it is necessary to do so in order to comply with applicable
regulations.
8.3 Joint and Survivor Option. Subject to Section 8.6(c):
(a) A Participant may elect, by submitting an election form to the
Plan Administrator, to have his Retirement Benefit converted
to the Actuarial Equivalent of the Normal Form under Section
8.1(b) and paid monthly during his life with the provision
that after his death, 50% or 100% of such reduced Retirement
Benefit will be payable to his Contingent Annuitant during the
remaining life of such Contingent Annuitant.
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(b) If a Participant elects the Joint and Survivor Option and his
Contingent Annuitant dies before such Participant's benefit
actually commences and the Participant does not change his
election in accordance with Section 8.2, his Retirement
Benefit shall be paid under the normal form under Section 8.1.
(c) If a Participant elects the Joint and Survivor Option and dies
before benefits commence to be paid to him, his Contingent
Annuitant will not be entitled to any rights or benefits under
the Plan, except as may be provided under Article VII.
(d) If a Participant elects the Joint and Survivor Option and his
Contingent Annuitant dies before the Participant, but after
the retirement of such Participant, such Participant will
continue to receive the reduced Retirement Benefit payable to
him in accordance with such option.
8.4 Life Annuity Option. Subject to Section 8.6(c), a Participant may
elect, by submitting an election form to the Plan Administrator,
to have his Retirement Benefit paid in the Normal Form under
Section 8.1(b). The Normal Form provides for monthly payments
during the Participant's life, ending with the payment due for the
month in which his death occurs.
8.5 Life Annuity With Guaranteed Payment Period Option. Subject to
Section 8.6(e), a Participant may elect, by submitting an election
form to the Plan Administrator, to have his Retirement Benefit
paid as a life annuity as described in Section 8.4, but guaranteed
for a period of 120 months, with the provision that if the
Participant dies before payment of the guaranteed installments,
payment of any remaining installments shall be paid to his
Beneficiary. Such form of payment shall be the Actuarial
Equivalent of the normal form of payment under Section 8.1(b).
8.6 General Provisions.
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(a) Anything in the foregoing to the contrary notwithstanding, no
method of distribution of Retirement Benefit may be made under
this Article which would violate the requirements of Code
Section 401(a)(9) and related regulations.
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(b) Effective January 1, 1999, and notwithstanding any other
provision of the Plan to the contrary, an Employee who attains
age 70 1/2 and who has not commenced receiving his benefit
hereunder shall commence receiving his benefit on the April 1
following the calendar year in which he attains age 70 1/2,
and any additional benefit he may accrue shall commence to be
paid no later than the April 1 following the calendar year in
which the benefit accrues. Any Employee who commenced
receiving distributions according to the corresponding rules
of the Plan as in effect prior to January 1, 1999 shall
continue to receive distributions pursuant to those rules.
In any event, distributions hereunder shall be made in
accordance with Code Section 401(a)(9), including the
incidental death benefit requirements of such Code Section,
and regulations thereunder, including Treasury Regulation
1.401(a)(9)-2. Such regulations and applicable rulings or
announcements, including any grandfather provisions or
provisions delaying the effective date of Code Section
401(a)(9), are hereby incorporated by reference. The
provisions of Code Section 401(a)(9) override any distribution
options under the Plan that are inconsistent with the
requirements of such Code Section.
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(c) Upon the death of a Participant any remaining interest he may
have in the Plan shall be distributed within the later of five
years after his death or after the death of his Beneficiary,
unless another form of payment was already in effect at the
time of his death, in which case benefits may be made in
accordance with such form of payment.
(d) If the Actuarial Equivalent value of any Plan benefit is in
excess of $5,000, such benefit may not be immediately
distributed prior to the Participant's Normal Retirement Date
unless the Participant consents in writing.
(e) If a married Participant elects to receive his Retirement
Benefit in any form other than the automatic form for married
individuals as described in Section 8.1(a) or under the Joint
and Survivor annuity form described in Section 8.3 with his
Spouse as the Contingent Annuitant, then such election shall
not take effect unless either:
(i) the Participant's Spouse consents in writing to such
election and the Spouse's consent acknowledges the
effect of such election and is witnessed by a notary
public or
(ii) it is established to the satisfaction of the Plan
Administrator that the Participant has no Spouse, or
that the Spouse's consent cannot be obtained because
the Spouse cannot be located, or because of such other
circumstances as may be prescribed in regulations
issued pursuant to Code Section 417.
(f) It is the intent of the Plan that all benefits be paid
promptly when due. In the absence of any inability to
determine the amount of benefit payable or the eligibility for
a benefit due to the lack of adequate information with respect
to the
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Participant or Spouse, the first benefit shall be paid no
later than the 60th day after the close of the latest Plan
Year in which:
(i) the Participant attains age 65;
(ii) the Participant reaches the 10th anniversary of his
date of commencement of participation in the Plan, or
(iii) the Participant's Service Termination Date occurs.
8.7 Small Benefit Cash-Out Provision. In the event that benefits
become due or payable under the Plan because of the occurrence of
a Service Termination Date, such benefits shall be cashed out if
the Actuarial Equivalent present value of any such benefit is
$5,000 or less and the benefit has not yet commenced. A lump sum
payment of such Actuarial Equivalent present value shall be made
to the appropriate individual as soon as practicable following the
Participant's Service Termination Date, in lieu of all other
benefits hereunder.
Subject to the spousal consent requirements described in Section
8.6(e) in the event the Actuarial Equivalent present value of the
Participant's benefit is greater than $5,000 but less than
$10,000, the Participant may elect to receive a lump sum payment
of such Actuarial Equivalent Present Value as soon as practicable
following his Service Termination Date, in lieu of all other
benefits hereunder.
A Participant who terminates employment without a vested benefit
shall be deemed to have received a lump sum distribution of his
benefit under the rules of this Section 8.7 even though no actual
benefit payment is due or made.
8.8 Missing Persons. If the Plan Administrator shall be unable, within
five years after any amount becomes due and payable from the Plan
to a Participant, Retired Participant,
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<PAGE>
Contingent Annuitant, Spouse or Beneficiary, to make payment
because the identity or whereabouts of such person cannot be
ascertained, the Plan Administrator may mail a notice by
registered mail to the last known address of such person outlining
the action to be taken unless such person makes written reply to
the Plan Administrator within 60 days from the mailing of such
notice. The Plan Administrator may direct that such amount and all
further benefits with respect to such person shall be forfeited
and all liability for the payment thereof shall terminate.
However, in the event of the subsequent reappearance of the
Participant, Retired Participant, Spouse, Beneficiary or
Contingent Annuitant prior to termination of the Plan, the benefit
which was forfeited (but not any earnings attributable to such
forfeiture) shall be reinstated in full.
8.9 Restrictions on Distributions. This Section 8.9 shall apply to the
amount of Annual Benefits (defined below) under this Plan for any
Participant who is considered a Restricted Participant as defined
hereunder. Such Annual Benefits shall be limited to an amount
equal to the payments that would have been made on behalf of the
Restricted Participant under the life annuity form of payment
described in Section 8.4 that is the Actuarial Equivalent of the
Restricted Participant's Accrued Benefit under the Plan plus any
Social Security supplement which may be payable under the Plan.
For purposes of this Section 8.9, the term Restricted Participant
shall mean all highly compensated employees as defined in Code
Section 414(q) and highly compensated former employees. In any one
Plan Year, the total number of Participants whose benefits are
subject to restriction under this Section 8.9 shall be limited by
the Plan to a group of not less than 25 highly compensated
employees and highly compensated former employees with the
greatest Earnings.
For purposes of this Section 8.9, the term Annual Benefits shall
include Retirement Benefits provided by the Plan and any death
benefits not provided for by insurance on the Participant's life.
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The limitations set forth in this Section 8.9 shall not restrict
the current payment of the full amount of Retirement Benefits
provided by the Plan if:
(a) after payment to a Restricted Participant of all of the Annual
Benefits described above, the value of Plan assets equals or
exceeds 110% of the value of current liabilities, as defined
in Code Section 412(l)(7), or
(b) the value of the Annual Benefits described above for a
Restricted Participant is less than 1% of the value of current
liabilities, as defined in Code Section 412(l)(7), or.
(c) the value of the Annual Benefits described above for a
Restricted Participant does not exceed $3,500 or such higher
amount described in Code Section 411(a)(11)(A).
8.10 Direct Rollovers. Effective January 1, 1993, notwithstanding any
provision of the Plan to the contrary, a "distributee" may elect,
at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an "eligible rollover
distribution" paid directly to an "eligible retirement plan"
specified by the distributee as a "direct rollover". The Plan
Administrator may require evidence that the Plan to which the
rollover is intended to be made is, in fact an "eligible
retirement plan". The Plan is not required to make wire transfers
nor to make direct rollovers to more than one eligible retirement
plan on behalf of a distributee.
The following definitions shall apply for purposes of this Section
8.10:
(a) an "eligible rollover distribution" is any distribution of all
or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary,
or for a specified period of
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<PAGE>
ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code;
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities);
(b) an "eligible retirement plan" is an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity;
(c) a "distributee" includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse
or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are distributees with regard to the interest of the
spouse or former spouse.
(d) a "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
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ARTICLE IX
PLAN ADMINISTRATION
9.1 Responsibility for Plan and Trust Administration. The Employer
shall have the sole authority to appoint and remove the Trustee,
the Plan Administrator and any investment manager which may be
provided for under the Trust, and to amend or terminate, in whole
or in part this Plan or the Trust. The Employer, through the Plan
Administrator, shall have the responsibility for the
administration of this Plan, which is specifically described in
this Plan and the related Trust Agreement. The Employer shall be
the "named fiduciary" for purposes of the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
9.2 Plan Administrator. The Plan shall be administered by the Employer
through a Plan Administrator, within the meaning of Section 3(16)A
of ERISA, appointed by and to serve at the pleasure of the Board
of Directors of the Employer. Any person or persons appointed as
the Plan Administrator may resign by delivering his written
resignation to the Board of Directors of the Employer.
9.3 Agents of the Plan Administrator. The Plan Administrator may
delegate specific responsibilities to other persons as the Plan
Administrator shall determine. The Plan Administrator may
authorize any agent to execute or deliver any instrument or to
make any payment in their behalf. The Plan Administrator may
employ and rely on the advice of counsel, accountants, and such
other persons as may be necessary in administering the Plan.
9.4 Plan Administrator Procedures. The Plan Administrator may adopt
such rules as it deems necessary, desirable, or appropriate. All
rules and decisions of the Plan Administrator shall be uniformly
and consistently applied to all Participants in similar
circumstances. When making a determination or calculation, the
Plan Administrator shall be entitled to
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<PAGE>
rely upon information furnished by a Participant, Retired
Participant, Spouse, Contingent Annuitant, Beneficiary, the
Employer, the legal counsel of the Employer or the Trustee.
9.5 Administrative Powers of the Plan Administrator. The Plan
Administrator may from time to time establish rules for the
administration of the Plan. Except as otherwise herein expressly
provided, the Plan Administrator will have the exclusive right and
discretionary authority, to the fullest extent provided by law, to
interpret the Plan and decide any matters arising hereunder in the
administration and operation of the Plan, and any interpretations
or decisions so made will be conclusive and binding on all persons
having an interest in the Plan; provided, however, that all such
interpretations and decisions will be applied in a uniform and
nondiscriminatory manner to all Employees. The Plan Administrator
shall have no right to modify any provisions of the Plan as herein
set forth.
9.6 Benefit Claims Procedures. All claims for benefits under the Plan
shall be in writing and shall be submitted to the Plan
Administrator. If any application for payment of a benefit under
the Plan shall be denied, the Plan Administrator shall notify the
claimant within 90 days of such application setting forth the
specific reasons therefor and shall afford such claimant a
reasonable opportunity for a full and fair review of the decision
denying his claim. If special circumstances require an extension
of time for processing the claim, the claimant will be furnished
with a written notice of the extension prior to the termination of
the initial 90-day period. In no event shall such extension exceed
a period of 90 days from the end of such initial period. The
extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Plan
Administrator expects to render its decision.
Notice of such denial shall set forth, in addition to the specific
reasons for the denial, the following:
(a) reference to pertinent provisions of the Plan;
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(b) such additional information as may be relevant to the denial
of the claim;
(c) an explanation of the claims review procedure; and
(d) notice that such claimant may request the opportunity to
review pertinent Plan documents and submit a statement of
issues and comments.
Within 60 days following notice of denial of his claim, upon
written request made by any claimant for a review of such denial
to the Plan Administrator, the Plan Administrator shall take
appropriate steps to review its decision in light of any further
information or comments submitted by such claimant.
The Plan Administrator shall render a decision within 60 days
after the claimant's request for review and shall advise said
claimant in writing of its decision on such review, specifying its
reasons and identifying appropriate provisions of the Plan. If
special circumstances require an extension of time for processing,
a decision will be rendered as soon as possible, but not later
than 120 days after receipt of a request for the review. If the
extension of time for review is required because of special
circumstances, written notice of the extension shall be furnished
to the claimant prior to the commencement of the extension. If the
decision is not furnished within such time, the claim shall be
deemed denied on review. The decision on review shall be in
writing and shall include specific reasons for the decision,
written to the best of the Plan Administrator's ability in a
manner calculated to be understood by the claimant without legal
counsel, as well as specific references to the pertinent Plan
provisions on which the decision is based. In the event of
continued disagreement, the claimant may thereafter appeal to the
Employer, whose decision is final.
9.7 Reliance on Reports and Certificates. The Employer (or the Plan
Administrator if so designated by the Employer) will be entitled
to rely conclusively upon all valuations, certificates, opinions,
and reports which may be furnished by the Actuary, or any
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<PAGE>
accountant, controller, counsel, or other person who is employed
or engaged for such purposes and shall exercise the authority and
responsibility as it deems appropriate to comply with all of the
legal and governmental regulations affecting this Plan.
9.8 Other Plan Administrator Powers and Duties. The Plan Administrator
shall have such duties and powers as may be necessary to discharge
its duties hereunder, including, but not by way of limitation, the
following:
(a) to prescribe written procedures to be followed by
Participants, Retired Participants, Spouses, Contingent
Annuitants and Beneficiaries filing applications for benefits;
(b) to prepare and distribute, in such manner as the Plan
Administrator determines to be appropriate, information
explaining the Plan;
(c) to receive from the Employer, Participants, Retired
Participants, Spouses, Contingent Annuitants and Beneficiaries
such information as shall be necessary for the proper
administration of the Plan;
(d) to furnish the Employer, upon request, such annual reports
with respect to the administration of the Plan as are
reasonable and appropriate;
(e) to receive and review the periodic valuations of the Plan made
by the Actuary;
(f) to compute and certify (or have the Actuary do so) the amount
of Retirement Benefit payable to any person hereunder;
(g) to designate an Actuary to perform all actuarial calculations
required in connection with the Plan; and
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(h) to receive, review and keep on file (as it deems convenient or
proper) reports of benefit payments by the Trustee and reports
of disbursements for expenses directed by the Plan
Administrator.
The Plan Administrator shall have no power to add to, subtract
from or modify any of the terms of the Plan, or to change or add
to any benefits provided by the Plan, or to waive or fail to apply
any requirements of eligibility for a benefit under the Plan.
9.9 Compensation of Plan Administrator. If the person or persons
serving as Plan Administrator is an Employee, such individual(s)
will not receive any compensation for his services as such, but
will be reimbursed for reasonable expenses incident to the
performance of such services. The reimbursement of expenses shall
be paid in whole or in part by the Employer, and any expenses not
paid by the Employer shall be paid by the Trustee out of the
principal or income of the Trust Fund.
9.10 Plan Administrator's Own Participation. The Plan Administrator may
not act, vote, or otherwise influence a decision relating to his
own participation under the Plan.
9.11 Liability of Plan Administrator. The Plan Administrator will not
be liable for any act of omission or commission except as provided
by federal law.
9.12 Indemnification. The Board of Directors of the Employer and the
Plan Administrator shall be indemnified by the Employer and not
the Trust Fund against any and all expenses, costs, and
liabilities arising by reason of any act or failure to act, unless
such act or failure to act is judicially determined to be gross
negligence or willful misconduct.
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ARTICLE X
FUNDING AND CONTRIBUTIONS
10.1 Establishment of Fund. The Fund shall be held and administered by
the Trustee in accordance with the terms of the Trust. The Fund
shall hold all contributions made by the Employer and earnings and
other income attributable thereto. All benefits payable under the
Plan shall be disbursed from the Fund.
10.2 Contributions to the Fund; Plan Expenses. The Employer will
contribute to the Fund such sums and at such times as may be
determined by the Board of Directors of the Employer in accordance
with the funding method and policy to be established by the Board
which are consistent with Plan objectives. The Board of Directors
of the Employer, in consultation with the Actuary and the Plan
Administrator, shall have the right to change the method of
funding, subject only to any contractual restrictions of the
existing method of funding. Forfeitures arising from termination
of service will be used to reduce Employer contributions and will
not be applied to increase any benefits under the Plan. Except as
provided in Section 10.3 and Article XII, all contributions when
made to the Fund and all property and assets of the Fund,
including income from investments and from all other sources, will
be retained for the exclusive benefit of Participants, Spouses,
Contingent Annuitants and Beneficiaries included in the Plan and
will be used to pay benefits provided hereunder or to pay expenses
of administration of the Plan and the Fund to the extent not paid
by the Employer. The Employer shall not be required to make, but
may make, any contributions to the Fund in an amount which is
greater than the amount which is deductible for federal income tax
purposes.
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10.3 Contributions Conditional. Each Employer contribution to the Plan
is expressly conditioned on its deductibility. If any Employer
contribution is deemed to be nondeductible or made by the Employer
by a mistake of fact, such contribution shall be returned to the
Employer within one year of the date of the disallowance of such
deduction or the date the contribution was made to the Fund,
respectively.
10.4 Employee Contributions. No Employee will be required or permitted
to make any contributions under this Plan.
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ARTICLE XI
FIDUCIARY RESPONSIBILITIES
11.1 Basic Responsibilities. Any Fiduciary under the Plan, whether
specifically designated or not, shall:
(a) discharge all duties solely in the interest of Participants,
Spouses, Contingent Annuitants and Beneficiaries and for the
exclusive purpose of providing benefits and defraying
reasonable administrative expenses under the Plan;
(b) discharge his responsibilities with the care, skill, prudence,
and diligence a prudent man would use in similar
circumstances; and
(c) conform with the provisions of the Plan.
No person who is ineligible by law will be permitted to serve as
Fiduciary.
11.2 Actions of Fiduciaries. Any Fiduciary:
(a) may serve in more than one fiduciary capacity with respect to
the Plan;
(b) may employ one or more persons to render advice with regard to
or to carry out any responsibility that such Fiduciary has
under the Plan; and
(c) may rely upon any discretion, information, or action of any
other Fiduciary, acting within the scope of its
responsibilities under the Plan, as being proper under the
Plan.
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11.3 Fiduciary Liability. No Fiduciary shall be personally liable for
any losses resulting from his action except as provided by federal
law. Each Fiduciary shall have only the authority and duties which
are specifically allocated to him, shall be responsible for the
proper exercise of his own authority and duties, and shall not be
responsible for any act or failure to act of any other Fiduciary.
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ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Right to Amend or Terminate. The Employer reserves the right to
amend, modify, suspend, or terminate the Plan in whole or in part
at any time through action by the Board (or its delegate). No
amendment will be effective unless the Plan, as so amended, is for
the exclusive benefit of Participants, Spouses, Contingent
Annuitants and Beneficiaries, and no amendment will deprive any
Participant without his consent of any benefit to which he was
previously entitled, provided that any and all amendments may be
made which are necessary to maintain the qualification of the Plan
under the Code and provided further that such amendments may be
retroactively effective. The Plan shall not be automatically
terminated by any Employer's acquisition by or merger or
consolidation into any other corporation. In the event of a
reorganization, consolidation, dissolution or merger of an
Employer, the Plan can be continued by the successor, and in such
event the successor shall be substituted for such Employer and
shall assume all of the Plan liabilities and all of the powers,
duties and responsibilities of such Employer under the Plan.
12.2 Partial Termination. Upon a partial termination of the Plan with
respect to a group of Participants, as determined by a ruling of
the Internal Revenue Service as to which all rights to appeal have
expired, the Employer shall direct the Actuary to determine the
proportionate share of the assets for Participants affected by
such partial termination. After such proportionate share has been
determined, the Trustees shall segregate the assets of the Fund
allocable to such group of Participants for payment of benefits in
accordance with the provisions of Section 12.3.
12.3 Vesting and Distribution of Funds Upon Termination. Upon
termination of the Plan by the Employer, in whole or in part, all
affected Participants will become fully vested and entitled to
their Accrued Benefits under the Plan. In such event, the assets
in the Fund (or
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the portion of the Fund determined in accordance with Section
12.2) will be allocated as follows:
(a) There shall first be credited to each Participant who was
receiving Retirement Benefits or who was eligible to receive
Retirement Benefits at least three years prior to the date of
Plan termination and to each Spouse, Contingent Annuitant and
Beneficiary who was receiving Retirement Benefits or who was
eligible to receive Retirement Benefits at least three years
prior to the date of Plan termination an amount which will
provide for him the amount of Retirement Benefits then accrued
to him under the Plan, but not in excess of the benefit
insured by the Pension Benefit Guaranty Corporation.
(b) There shall next be credited to each Participant who was
receiving Retirement Benefits or who was eligible to receive
Retirement Benefits on the date of Plan termination and to
each Spouse, Contingent Annuitant and Beneficiary who was
receiving Retirement Benefits or who was eligible to receive
Retirement Benefits on the date of Plan termination an amount
which will provide for him the amount of Retirement Benefits
then accrued to him under the Plan, but not in excess of the
benefit insured by the Pension Benefit Guaranty Corporation.
(c) There shall next be credited to each other Participant who, on
the date on which the Plan shall terminate, is eligible for
Retirement Benefits in accordance with Article VI an amount
which will provide for him the amount of the Retirement
Benefits then accrued to him under the Plan, but not in excess
of the benefit insured by the Pension Benefit Guaranty
Corporation.
(d) There shall next be credited to each other Participant who
would be entitled to additional Retirement Benefits in
accordance with (a), (b), and (c) above, were such additional
income not in excess of the amount insured by the Pension
Benefit
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Guaranty Corporation, an amount which will provide for him the
amount of retirement income then accrued to him under the
Plan.
(e) There shall next be credited to each other Participant an
amount which will provide for him the amount of Retirement
Benefits then accrued to him under the Plan.
Allocation in any of the above classes shall be adjusted for any
allocation made to the same Participant under a prior class.
12.4 Determination of Funds Upon Termination.
(a) The application of the Fund on the foregoing basis shall be
calculated as of the date on which the Plan shall
terminate. When the calculation shall be completed, the
respective interest in the Fund will be distributed to or
on behalf of the respective Participants, Spouses,
Contingent Annuitants and Beneficiaries under the Plan in
the order stated in Section 12.3 only after the Employer
has sent written notice to the Trustee, that all of the
applicable requirements governing the termination of
qualified retirement plans have been, or are being complied
with or that appropriate authorizations, waivers,
exemptions or variances have been, or are being, obtained.
(b) If the assets in the Fund on the date the Plan is terminated
are not sufficient to provide in full the amounts required
within classes (a), (b), (c), and (d) of Section 12.3, any
benefit in excess of $10,000 paid within a 12-month period
during the 36- month period immediately preceding the date of
termination of the Plan to a Participant, Spouse, Contingent
Annuitant or Beneficiary who owns 10% or more of the
outstanding voting stock of any Employer may be deemed a part
of the Fund for purposes of allocation.
(c) If the assets are not sufficient to provide in full for the
amounts required for a class in the order listed in Section
12.3, the balance of the assets shall be allocated to
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each member of a class in the proportion which his amount
bears to the total amount in such class.
(d) Distribution upon termination of the Plan may be in the form
of an annuity contract, cash, or securities or other assets in
kind as determined by the Plan Administrator in a uniform,
nondiscriminatory manner and applicable to all Participants.
(e) Any funds remaining after the satisfaction of all liabilities
to Participants, Spouses, Contingent Annuitants and
Beneficiaries under the Plan shall be returned to the
Employer.
12.5 Restriction on Benefits. In the event of plan termination, the
benefit of any highly compensated employee as defined in Code
Section 414(q) and highly compensated former employee is limited
to a benefit that is nondiscriminatory under Code Section
401(a)(4).
12.6 Right to Accrued Benefits. Any other provision of the Plan
notwithstanding, upon termination or partial termination of the
Plan, the right of each Participant to benefits accrued to the
date of such termination or partial termination to the extent then
funded or to the extent guaranteed by the Pension Benefit Guaranty
Corporation shall be nonforfeitable.
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ARTICLE XIII
TOP-HEAVY PLAN PROVISIONS
13.1 General Rule. For any Plan Year for which this Plan is a
"top-heavy plan" as defined in Section 13.5, any other provisions
of the Plan to the contrary notwithstanding, the Plan shall be
subject to the following provisions:
(a) The vesting provisions of Section 13.2.
(b) The minimum benefit provisions of Section 13.3.
(c) The limitation on benefits set by Section 13.4.
13.2 Vesting Provisions. Each Participant who (a) has completed at
least three Years of Service and (b) has completed an Hour of
Service during any Plan Year in which the plan is "top-heavy",
shall have a nonforfeitable right to his Accrued Benefit. If the
Plan ceases to be "top-heavy", the vesting provisions of Section
6.2 shall be applicable. This provision shall not cause a
Participant's vested percentage to be reduced.
Each such Participant shall have the right to elect the applicable
schedule within 60 days after the day the Participant is issued
written notice by the Plan Administrator, or as otherwise provided
in accordance with regulations issued under the provision of the
Code, relating to changes in the vesting schedule.
13.3 Minimum Benefit Provisions. Each Participant who (a) is a "non-key
employee" (as defined in Section 13.7) and (b) has completed 1,000
Hours of Service in any Plan Year shall be entitled to an annual
retirement income equal to 2% of the Participant's average annual
Earnings in the "testing period" multiplied by his Years of
Service during which the Plan is top heavy, up to a maximum of
20%. For purposes of this Section 13.3, "testing period" means the
period of five consecutive Years of Service during which the
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Participant had the highest aggregate Earnings, provided that
Earnings for any Plan Year after the close of the Plan Year in
which the Plan was last top-heavy shall be disregarded.
13.4 Limitation on Benefits. In the event that the Employer also
maintains a defined contribution plan providing contributions on
behalf of Participants in this Plan, then a Participant's annual
retirement benefit will be limited by:
(a) the denominator of both the defined contribution plan fraction
and the defined benefit plan fraction shall be calculated as
set forth in Section 3.3(b) for such Plan Year by substituting
"1.0" for "1.25" in each place such figure appears.
(b) Paragraph (a) shall not apply if conditions (i) and (ii) below
are met:
(i) if for the Plan Year the Plan would not be a "top-heavy
plan" (as defined in Section 13.5) if "90 percent" were
substituted for "60 percent", and
(ii) if the minimum benefit described in Section 13.3 is
increased to 3% of average annual compensation in the
"testing period" multiplied by the Participant's Years
of Service during which the Plan is a "top-heavy plan",
up to a maximum of 30%.
13.5 Top-heavy Plan Definition. This Plan shall be a "top-heavy plan"
for any Plan Year if, as of the determination date, the present
value of the Accrued Benefits under the Plan for Participants
(including former Participants) who are "key employees" (as
defined in Section 13.6) exceeds 60% of the present value of
Accrued Benefits for all Participants (excluding former "key
employees"), or if this Plan is required to be in an aggregation
group which for such Plan Year is a "top-heavy group." For
purposes of this Article XIII,
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(a) "Determination date" means for any Plan Year the last day of
the immediately preceding Plan Year (except that for the first
Plan Year the determination date means the last day of such
Plan Year).
(b) "Present value of Accrued Benefits" shall be determined as of
the most recent valuation date that is within the 12-month
period ending on the determination date and as described under
the Code.
(c) "Aggregate of the Accounts" means the sum of (i) the Accounts
determined as of the most recent Valuation Date that is within
the 12-month period ending on the determination date, and (ii)
the adjustment for contributions due as of the determination
date, and as described in the regulations under the Code.
(d) "Aggregation group" means the group of plans, if any, that
includes both the group of plans that are required to be
aggregated and the group of plans that are permitted to be
aggregated.
(i) The group of plans that are required to be aggregated
(the "required aggregation group") includes: each plan
of the Employer in which a key employee is a
participant, including collectively-bargained plans;
and each other plan of the Employer including
collectively-bargained plans, which enables a plan in
which a key employee is a participant to meet the
requirements of the Code Sections 401(a)(4) and 410(b).
(ii) The group of plans that are permitted to be aggregated
(the "permissive aggregation group") includes the
required aggregation group plus one or more plans of
the Employer that is not part of the required
aggregation group and that the Plan Administrator
certifies as constituting a plan within the permissive
aggregation group. Such plan or plans may be added to
the permissive aggregation group only if, after the
addition, the
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aggregation group as a whole continues not to
discriminate as to contributions or benefits in favor
of officers, shareholders or the highly-compensated and
to meet the minimum participation standards under the
Code.
(e) "Top-heavy group" means the aggregation group, if as of the
applicable determination date, the sum of the present value of
the cumulative accrued benefits for "key employees" under all
defined benefit plans included in the aggregation group plus
the aggregate of the accounts of "key employees" under all
defined contribution plans included in the aggregation group
exceeds 60% of the sum of the present value of the cumulative
accrued benefits for all employees, excluding former "key
employees," under all such defined benefit plans plus the
aggregate accounts for all employees, under such defined
contribution plans. If the aggregation group that is a
top-heavy group is a required aggregation group, each plan in
the group will be top-heavy. If the aggregation group that is
a top-heavy group is a permissive aggregation group, only
those plans that are part of the required aggregation group
will be treated as top-heavy. If the aggregation group is not
a top-heavy group, no plan within such group will be
top-heavy.
(f) In determining whether this Plan constitutes a "top-heavy
plan", the Plan Administrator shall make the following
adjustments in connection therewith:
(i) When more than one plan is aggregated, the Plan
Administrator shall determine separately for each plan
as of each plan's determination date the present value
of the accrued benefits or account balance. The results
shall then be aggregated by adding the results of each
plan as of the determination dates for such plans that
fall within the same calendar year.
(ii) In determining the present value of the Accrued Benefit
or the amount of the account of any Employee, such
present value or account shall include
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the dollar value of the aggregate distributions made to
such Employee under the applicable plan during the
five-year period ending on the determination date,
unless reflected in the value of the accrued benefit or
account balance as of the most recent valuation date.
Such amounts shall include distributions to Employees
which represented the entire amount credited to their
accounts under the applicable plan.
(iii) Further, in making such determination, such present
value or such account shall include any rollover
contribution (or similar transfer), as follows:
(A) If the rollover contribution (or similar transfer)
is initiated by the Employee and made to or from a
plan maintained by another employer the plan
providing the distribution shall include such
distribution in the value of such account; the plan
accepting the distribution shall not include such
distribution in the value of such account unless
the plan accepted it before December 31, 1983.
(B) If the rollover contribution (or similar transfer)
is not initiated by the Employee or made from a
plan maintained by another employer the plan
accepting the distribution shall include such
distribution in the value or such account, whether
the plan accepted the distribution before or after
December 31, 1983; the plan making the distribution
shall not include such distribution in the value of
such account.
(iv) Further, in making such determination, in any case
where an individual is a "non-key employee" (as defined
in Section 13.7) with respect to an applicable plan,
but was a "key employee" with respect to such plan for
any prior plan year, any Accrued Benefit and any
account of such Employee shall be altogether
disregarded. For this purpose, to the extent that a key
employee is deemed to be a "key employee" if he met the
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definition thereof within any of the four preceding
plan years, this provision shall apply following the
end of such period of time.
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(v) Further, in making such determination, the accrued
benefit of an Employee other than a Key Employee shall
be determined under (A) the method, if any, that
uniformly applies for accrual purposes under all plans
maintained by the Employer and its Affiliated
Employers, or (B) if there is no such method, as if
such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional accrual
rule of Code Section 411(b)(1)(C).
13.6 Key Employee. The term "key employee" means any Employee or former
Employee who would be considered a key employee under Code Section
416(i)(1) excluding any individual who has not performed services
for the Employer or any of its Affiliated Employers during the
five-year period ending on a particular "determination date".
13.7 Non-Key Employee. The term "non-key employee" means any Employee
(and any beneficiary of an Employee) who is not a "key employee".
An individual who has not performed services for the Employer or
any of its Affiliated Employers during the five-year period ending
on a particular "determination date", however, shall not be
considered a "non-key employee".
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ARTICLE XIV
GENERAL PROVISIONS
14.1 Plan Voluntary. Although it is intended that the Plan shall be
continued and that contributions shall be made as herein provided,
this Plan is entirely voluntary on the part of each Participating
Employer and the continuance of this Plan and the payment of
contributions hereunder are not to be regarded as contractual
obligations of any Employer, and no Employer guarantees or
promises to pay or to cause to be paid any of the benefits
provided by this Plan. Each person who shall claim the right to
any payment or benefit under this Plan shall be entitled to look
only to the Fund for any such payment or benefit and shall not
have any right, claim, or demand therefore against any Employer,
except as provided by federal law. The Plan shall not be deemed to
constitute a contract between any Employer and any Employee or to
be a consideration for, or an inducement for, the employment of
any Employee by any Employer. Nothing contained in the Plan shall
be deemed to give any Employee the right to be retained in the
service of any Employer or to interfere with the right of any
Employer to discharge or to terminate the service of any Employee
at any time without regard to the effect such discharge or
termination may have on any rights under the Plan.
14.2 Payments to Minor and Incompetents. If any Participant, Spouse,
Contingent Annuitant, or Beneficiary entitled to receive any
benefits hereunder is a minor or is deemed by the Plan
Administrator or is adjudged to be legally incapable of giving
valid receipt and discharge for such benefits, they will be paid
to such person or institution as the Plan Administrator may
designate or to the duly appointed guardian. Such payment shall,
to the extent made, be deemed a complete discharge of any
liability for such payment under the Plan.
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14.3 Non-Alienation of Benefits.
(a) No amount payable to, or held under the Plan for the account
of, any Participant shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge
the same shall be void; nor shall any amount payable to, or
held under the Plan for the account of, any Participant be in
any manner liable for his debts, contracts, liabilities,
engagements, or torts, or be subject to any legal process to
levy upon or attach, except as may be provided under a
qualified domestic relations order as defined in Code Section
414(p).
However, upon authority of any Retired Participant and with
the consent of the Employer, the Plan Administrator may direct
the Trustee to withhold a portion of any benefit payable to
the Retired Participant under this Plan for the purpose of
paying the costs or premiums by the Retired Participant as a
result of being included in another plan of an Employer, such
as a hospital-surgical plan. The Trust shall not in any manner
be liable for, or subject to, the debts, contracts,
liabilities, engagements or torts of any person entitled to
benefits hereunder.
(b) Under a qualified domestic relations order, an alternate payee
who had been married to the Participant for at least one year
may be treated as a Spouse with respect to the portion of the
Participant's benefit in which such alternate payee has an
interest provided that the qualified domestic relations order
provides for such treatment. However, under no circumstances
may the spouse of any alternate payee (who is not a
Participant hereunder) be treated as a Spouse under the terms
of the Plan.
Upon receipt of any judgement, decree or order (including
approval of a property settlement agreement) relating to the
provision of payment by the Plan to an alternate payee
pursuant to a state domestic relations law, the Plan
Administrator
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shall promptly notify the affected Participant and any
alternate payee of the receipt of such judgement, decree or
order and shall notify the affected Participant and any
alternate payee of the Plan Administrator's procedure for
determining whether or not the judgement, decree or order is a
qualified domestic relations order.
The Plan Administrator shall establish a procedure to
determine the status of a judgement, decree or order as a
qualified domestic relations order and to administer Plan
distributions in accordance with qualified domestic relations
orders. Such procedure shall be in writing, shall include a
provision specifying the notification requirements enumerated
in the preceding paragraph, shall permit an alternate payee to
designate a representative for receipt of communications from
the Plan Administrator and shall include such other provisions
as the Plan Administrator shall determine, including
provisions describing the interest rate to be used in making
present value determinations as well as provisions required
under regulations promulgated by the Secretary of the
Treasury.
During any period in which the issue of whether a judgement,
decree or order is a qualified domestic relations order is
being determined (by the Plan Administrator, a court of
competent jurisdiction or otherwise), the Plan Administrator
shall separately account for the amount, if any, which would
have been payable to the alternate payee during such period if
the judgement, decree or order had been determined to be a
qualified domestic relations order.
If the judgement, decree or order is determined by the Plan
Administrator to be a qualified domestic relations order
before the first payments would otherwise be due under such
order, then payment of the appropriate amount shall be paid to
the alternate payee(s) as required under the order. If a
domestic relations order is determined by the Plan
Administrator to be a qualified order within the 18 month
period beginning on the date that the first payment would have
been due under such order, the separately accounted for
amounts (plus reasonable interest thereon) shall
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be retroactively paid to the alternate payee(s) named in the
order. Subsequent payments shall not include any interest
component. If the Plan Administrator first determines that the
order is a qualified domestic relations order after the
18-month period beginning on the date on which the first
payment would have been due under the order, then the
provisions of such order shall be applied on a prospective
basis only.
14.4 Use of Masculine and Feminine; Singular and Plural. Wherever used
in this Plan, the masculine gender will include the feminine
gender and the singular will include the plural, unless the
context indicates otherwise.
14.5 Merger, Consolidation, or Transfer. In the event that the Plan is
merged or consolidated with any other plan, or should the assets
or liabilities of the Plan be transferred to any other plan, each
Participant shall be entitled to a benefit immediately after such
merger, consolidation, or transfer if the Plan should then
terminate equal to or greater than the benefit he would have been
entitled to receive immediately before such merger, consolidation,
or transfer if the Plan had then terminated.
14.6 Leased Employees. Any individual who performs services for the
Employer and who, by application of Code Section 414(n)(2) and
regulations issued pursuant thereto, would be considered a "leased
employee", shall, for purposes of the requirements enumerated in
Code Section 414(n)(3), be considered an Employee of the Employer
with regard to services performed after December 31, 1986.
When the total of all leased employees constitutes less than 20%
of the Employer's non-highly compensated work force within the
meaning of Code Section 414(n)(5)(c)(ii), however, a "leased
employee" shall not be considered an Employee of the Employer if
the organization from which the individual is leased maintains a
qualified safe harbor plan (as defined in Code Section 414(n)(5))
in which such individual participates.
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"Leased employees" who are deemed to be Employees of the Employer
for purposes of this Section 14.7 shall not be eligible to
participate in the Plan unless specifically provided for in
Article II.
14.7 Governing Law. The provisions of the Plan will be construed,
administered, and enforced in accordance with the Code and the
Employee Retirement Income Security Act of 1974, as amended from
time to time, and, to the extent applicable, the laws of the
Commonwealth of Massachusetts.
14.8 Severability. If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability will not affect
any other provision of the Plan, and the Plan will be construed
and enforced as if such provision had not been included.
14.9 Captions. The captions contained in the Plan are inserted only as
a matter of convenience and for reference and in no way define,
limit, enlarge, or describe the scope or intent of the Plan nor in
any way affect the construction of any provision of the Plan.
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<PAGE>
APPENDIX A
GRANDFATHERING FOR KEYPORT LIFE INSURANCE COMPANY
Pension Plan
Exec. Ver.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
<S> <C> <C> <C>
SECTION A1 DEFINITIONS
A1.1 "Grandfathered Keyport Employee" 81
A1.2 "Social Security Benefit" 81
A1.3 "Social Security Bridge Benefit" 82
SECTION A2 ELIGIBILITY
A2.1 Eligibility Requirements 83
A2.2 Grandfathered Keyport Employee 83
SECTION A3 NORMAL RETIREMENT BENEFIT
A3.1 Normal Retirement Benefit 84
A3.2 Maximum Benefit 85
SECTION A4 EARLY RETIREMENT DATE AND
EARLY RETIREMENT BENEFIT
A4.1 Early Retirement Date 86
A4.2 Early Retirement Benefit 86
A4.3 Social Security Bridge Benefit 86
</TABLE>
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SECTION A1
DEFINITIONS
All words and phrases used in this Appendix shall have the meanings as defined
in Articles I through XIV of the Plan unless such words and phrases are defined
in this Section A1.
The following words and phrases when used in this Appendix shall have the
meanings indicated below unless a different meaning is plainly required by the
context:
A1.1 "Grandfathered Keyport Employee" shall mean a Participant who
meets the additional requirements of Section A2.
A1.2 "Social Security Benefit" shall mean the annual amount of the
Participant's Primary Insurance Amount determined in accordance
with the provisions of Title II of the Social Security Act as now
in effect subject to such automatic change or subsequent amendment
as may occur in accordance with the rules as set forth in (a) or
(b) below:
(a) If the Participant retires under the Plan, the Social Security
Benefit to be used in determining the retirement benefit in
accordance with Section A3 shall be the Primary Insurance
Amount to which the Participant would be entitled, if applied
for when first entitled, at or after retirement, other than
for disqualification for earnings. For purposes of determining
Social Security entitlement, the Participant's Primary
Insurance Amount shall be determined in accordance with Title
II of the Federal Social Security Act as in effect as of the
Participant's date of retirement.
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(b) If the Participant terminates employment prior to eligibility
for retirement under the Plan, but is entitled to a benefit
under the provisions of Article VI, the Primary Insurance
Amount to be used in the accrued benefit calculation as set
forth in Section A4 shall be the Primary Insurance Amount to
which the Participant would be entitled, other than for
disqualification for earnings, if first applied for at the
later of the Participant's Normal Retirement Date or date of
termination of employment. For the purpose of determining
Social Security entitlement, the Participant's Primary
Insurance Amount shall be determined in accordance with Title
II of the Federal Social Security Act as in effect as of the
Participant's date of termination of employment assuming that
he continued to receive earnings at the rate being received at
termination of employment. If such Participant is subsequently
reemployed by the Employer, the Primary Insurance Amount shall
not include amounts in respect of any Social Security increase
effective during the period beginning with his termination of
employment and ending upon his reemployment with the Employer.
A1.3 "Social Security Bridge Benefit" shall mean the benefit determined
in accordance with Section A4.
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SECTION A2
ELIGIBILITY
A2.1 Eligibility Requirements. Each Employee:
(a) who was employed by Keyport Life Insurance Company as of July
1, 1992;
(b) who was a Participant in the Prior Plan as of June 30, 1992;
and
(c) whose age plus Years of Service as of January 1, 1989 were at
least equal to 55
shall be eligible for benefits under this Appendix A.
A2.2 Grandfathered Keyport Employee. Each Participant who meets the
eligibility requirements under Section A2.1 above shall be
entitled to receive benefits under this Appendix A. The following
Employees are Grandfathered Keyport Employees:
<TABLE>
<CAPTION>
Factor to
Social Age & be Used in
Security Date of Date of Service on Section
Number Name Birth Hire January 1, 1989 A3.1(d)(ii)
------ ---- ----- ---- --------------- -----------
<S> <C> <C> <C> <C> <C>
###-##-#### I. Chiuchiolo 11/10/28 06/16/69 69.14 9.00
###-##-#### E. Edminster 08/18/23 01/05/76 74.37 9.00
###-##-#### I. Larkin 01/07/39 04/01/69 58.98 3.98
###-##-#### A. Mills 07/23/26 11/24/80 70.54 8.10
###-##-#### C. Paulis 03/28/38 06/14/82 57.31 2.31
</TABLE>
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SECTION A3
NORMAL RETIREMENT BENEFIT
A3.1 Normal Retirement Benefit. The amount of annual Grandfathered
Keyport Benefit payable to a Participant who is a Grandfathered
Employee in the Normal Form beginning on his Normal Retirement
Date shall be equal to the sum of (a) minus (b) plus (c) plus (d)
plus (e), as follows:
(a) (i) 2.0% of the Participant's Average Earnings
multiplied by
(ii) his Years of Credited Service up to 25 such years.
(b) (i) 2.0% of the Participant's Social Security Benefit
multiplied by
(ii) his Years of Credited Service up to 25 such years.
(c) (i) 2/3% of the Participant's Average Earnings
multiplied by
(ii) his Years of Credited Service in excess of 25 such
years, if any, up to 15 such excess years.
-87-
Pension Plan
Exec. Ver.
<PAGE>
(d) (i) 0.55% of the Participant's Average Earnings
multiplied by
(ii) the excess, if any, of his age plus Years of Credited
Service as of January 1, 1989 over 55, but not more
than his Years of Credited Service as of January 1,
1989.
A3.2 Maximum Benefit. As of July 1, 1992 no Employee listed in Section
A2.2 was a "highly compensated employee" (as defined in Code
Section 414(q)). If, however, for any Plan Year an Employee listed
in Section A2.2 becomes a "highly compensated employee", the
Employee shall not accrue additional benefits under Section A3.1
for such Plan Year or any subsequent Plan Year in which the
Employee remains a "highly compensated employee". Such
Participant's monthly Accrued Benefit under the Plan shall be the
greater of (i) the benefit determined under this Appendix
determined as of the end of the Plan Year preceding the Plan Year
in which the Participant became a "highly compensated employee",
and (ii) his accrued benefit as determined under Section 3.1 of
the Plan.
-88-
Pension Plan
Exec. Ver.
<PAGE>
SECTION A4
EARLY RETIREMENT DATE AND EARLY RETIREMENT BENEFIT
A4.1 Early Retirement Date. A Participant's Early Retirement Date prior
to his Normal Retirement Date for purposes of this Appendix A is
the Early Retirement Date as determined under Section 4.1 of the
Plan. The date of early payment for a Vested Inactive Participant
for purposes of this Appendix A is the date determined under
Section 6.3 of the Plan.
A4.2 Early Retirement Benefit. The Retirement Benefit payable on an
Early Retirement Date to a Participant who is a Grandfathered
Keyport Employee equals the Benefit determined under Section 4.2
of the Plan.
The Retirement Benefit payable on an early payment date to a
Vested Inactive Participant who is a Grandfathered Keyport
Employee equals the Benefit determined under Section 6.3 of the
Plan.
A4.3 Social Security Bridge Benefit. A Participant who is a
Grandfathered Keyport Employee and whose Early Retirement Date is
earlier than July 1, 1999 and is earlier than his 62nd birthday
shall receive, in addition to all other benefits under the Plan, a
Social Security Bridge Benefit. The amount of monthly Social
Security Bridge Benefit payable on the life annuity basis shall be
equal to one-twelfth of the benefit determined under Section
A3.1(b) multiplied by the applicable percentage determined under
Section 4.2 of the Plan.
The Social Security Bridge Benefit shall be paid monthly with the
final payment being made on the first day of the month coincident
with or immediately preceding the earlier of:
-89-
Pension Plan
Exec. Ver.
<PAGE>
(a) the Grandfathered Keyport Employee's date of death;
(b) the Grandfathered Keyport Employee's 62nd birthday; or
(c) June 1, 1999.
-90-
Pension Plan
Exec. Ver.
<PAGE>
IN WITNESS WHEREOF, Liberty Financial Companies, Inc. has caused this instrument
to be executed by its duly authorized officer this _________________________ day
of ___________________, 19___.
LIBERTY FINANCIAL COMPANIES, INC.
By:________________________________
-91-
Pension Plan
Exec. Ver.
Third Amendment to Lease
This Third Amendment to Lease (this "Amendment"), is made as of the 15th
day of December, 1997, by and between ONE TWENTY FIVE HIGH STREET LIMITED
PARTNERSHIP, a Massachusetts limited partnership, with an address c/o The
Travelers Insurance Company-Real Estate Investments, One Tower Square-9PB,
Hartford, Connecticut 06183-2030, Attn: Asset Manager-RE JVN-NO. 00070 (the
"Landlord") and KEYPORT LIFE INSURANCE COMPANY, a Rhode Island Corporation,
having a business address of 125 High Street, Oliver Street Tower, Boston,
Massachusetts 02110 (the "Tenant").
WITNESSETH:
Reference is hereby made to the following facts:
A. Landlord and Tenant entered into that certain lease (as heretofore
amended, and modified and amended hereby, the "Lease"), dated May 21, 1991, as
amended by that certain First Amendment to Lease, dated August 28, 1992, and
that certain Second Amendment to Lease, dated as of September 21, 1994, for
certain premises (the "Existing Premises") located on the 11th, 12th, 13th and
14th floors of the building commonly known as the Oliver Street Tower in the
project known as 125 High Street in Boston, Massachusetts (as more particularly
described in the Lease, the "Project"), all as more particularly described in
the Lease. All capitalized words and phrases not otherwise defined herein shall
have the meanings ascribed to them in the Lease.
B. Landlord and Tenant have agreed to extend the term of the Lease, to add
an additional 39,905 square feet of Gross Rentable Area located in the building
in the Project commonly known as 131 Oliver Street ("131 Oliver Street") to the
premises demised under the Lease, to remove the portion of the premises located
on the 11th floor of the Oliver Street Tower (containing 24,256 square feet of
Gross Rentable Area) from the premises, and to modify and amend the Lease, all
in the manner hereinafter set forth.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt, sufficiency and delivery of which are
hereby acknowledged, the parties hereby agree that the Lease is hereby further
amended as follows:
1. Extension of Term. The term of the Lease is hereby extended for an
additional seventy-five (75) month period, commencing on January 1, 2002 and
continuing through March 31, 2008 (the "Extension Period"), unless sooner
terminated, all in accordance with and subject to the terms and conditions set
forth in the Lease. Without limitation, all references in the Lease to the
"Lease Term" shall be deemed to include the Extension Period in all respects.
2. Renewal Term: Expiration of Early Termination Right. Sections 23.1.1,
23.1.2 and 23.2 of the Lease are hereby deleted in their entirety, and none of
the provisions contained in said Sections shall be of any further force or
effect. Section 23.1.1 of the Lease is restated in its entirety with the
following:
<PAGE>
"Tenant shall have the option (the "Renewal Option") to extend the Lease
Term for an additional 5-year period (the "Renewal Term"), which Renewal
Term shall commence on April 1, 2008 and end on March 31, 2013, provided
that this Lease is in full force and effect on the date Tenant gives
Landlord notice (the "Renewal Notice") of Tenant's election to exercise
the Renewal Option. The Renewal Option shall be exercisable by Tenant
delivering the Renewal Notice to Landlord not later than April 1, 2007. If
Tenant exercises the Renewal Option in accordance with the terms of this
Section 23.1.1, the Renewal Term shall become part of the Lease Term and
be upon the same terms, covenants and conditions as those contained in
this Lease, except that (i) the Base Rent for the Renewal Term shall be
determined in accordance with Section 23.1.3; (ii) there shall be no Base
Rent Concession or Supplemental Base Rent Concession; and (iii) Article
III and this Section 23.1.1 shall not apply to the Renewal Term."
The first sentence of Section 23.1.3 of the Lease is hereby deleted in its
entirety and replaced with the following:
"Landlord and Tenant shall attempt to mutually agree upon the Fair Market
Rent (as hereinafter defined) for the Renewal Term during the 90-day
period commencing on April 1, 2007."
Except as provided in this Paragraph 2, Tenant acknowledges that it has no
further rights or options to extend the Lease Term, and that the early
termination right afforded to Tenant pursuant to Section 23.2 of the Lease has
expired and is of no further force or effect. Without limiting the foregoing,
(i) all references in the Lease to the "First Renewal Term" shall mean the
"Renewal Term" and all references in the Lease to the "Second Renewal Term" are
hereby deleted, and (11) except as provided in this Paragraph 2, Tenant shall
have no further rights or options of any kind, pursuant to Sections 23.1 and
23.2 of the Lease.
3. Surrender and Yield Up of Premises on Eleventh Floor of Oliver Street
Tower. The "l1th Floor Surrender Date" shall mean the date which is the earlier
to occur of (i) forty-five (45) days after Substantial Completion (hereinafter
defined) of the TI Work (hereinafter defined) required to prepare the Third
Amendment Additional Premises (hereinafter defined) for occupancy or (ii) June
3O, 1998. As used herein, "Substantial Completion" shall mean completion of the
TI Work to the point where the Third Amendment Additional Premises are ready for
occupancy without material interference to Tenant's use thereof, and an
occupancy certificate may be issued with respect to the Third Amendment
Additional Premises. Notwithstanding any provision in the Lease to the contrary,
by not later than the 11th Floor Surrender Date, the Tenant shall yield up and
surrender the portion of the Premises located on the eleventh (11th) floor of
the Oliver Street Tower, containing 24,256 square feet of Gross Rentable Area
(the "11th Floor Premises"). The Tenant shall surrender and deliver the 11th
Floor Premises to Landlord in broom-clean condition and otherwise in the
condition in which
<PAGE>
the Premises are required to be surrendered pursuant to the Lease at the
expiration of the term thereof. Without limitation, Tenant shall remove from the
11th Floor Premises all of its personal property, trade fixtures (excluding
permanent leasehold improvements), inventory and equipment located therein and
shall repair any and all damage caused by such removal. All property of any
kind, nature or description contained in the 11th Floor Premises on or after the
11th Floor Surrender Date shall be and become the property of the Landlord,
without payment from Landlord and without the necessity to account therefor in
any manner whatsoever to Tenant.
Effective as of the 11th Floor Surrender Date, the 11th Floor Premises
shall be removed from the Premises, and the rights of the Tenant with respect
thereto shall terminate and expire with the same force and effect as if such
date had originally been specified in the Lease as the expiration date of the
term for and with respect to the 11th Floor Premises. Through the period ending
on the 11th Floor Surrender Date, the Tenant shall comply with all of the terms
and provisions of the Lease relating thereto, and shall fully perform all of its
obligations thereunder, including, without limitation, the payment of Base Rent,
Escalation Rent, and all other Additional Rent due under the Lease on account
thereof. Effective as of the 11th Floor Surrender Date, Landlord shall be
released from any and all obligations to Tenant thereafter accruing under the
Lease relating to the 11th Floor Premises.
Provided that Tenant performs all of its obligations under the Lease and
this Amendment, including, without limitation, the obligation to surrender the
11th Floor Premises on the 11th Floor Surrender Date in the condition required
by the Lease and this Amendment, Tenant shall be released from all liabilities
and obligations under the Lease relating to the 11th Floor Premises which first
accrue after the 11th Floor Surrender Date. The portions of the Existing
Premises located on the twelfth (12th), thirteenth (13th) and fourteenth (14th)
floors of the Oliver Street Tower are sometimes referred to herein collectively
as the "Oliver Street Tower Premises." Nothing contained herein shall
constitute, a waiver, limitation or modification of any of the liabilities and
obligations of the Tenant or Landlord relating to the 11th Floor Premises which
accrue prior to the 11th Floor Surrender Date, or a waiver or limitation of any
of the liabilities and obligations of the Tenant or Landlord relating to the
Oliver Street Tower Premises.
4. Rent for the Oliver Street Tower Premises for the Extension Period. For
and with respect to the Oliver Street Tower Premises, during the Extension
Period the Tenant shall pay Base Rent, Escalation Rent and all other Additional
Rent payable pursuant to the Lease, all in accordance with the terms and
provisions of the Lease.
The Base Rent payable with respect to the Oliver Street Tower Premises for
the Extension Period shall be as follows: (a) for and with respect to the period
commencing on January 1, 2002 and terminating on June 30, 2004, at the per annum
rate of Forty Dollars ($40.00) per square foot of Gross Rentable Area of the
Oliver Street Tower Premises; (b) for and with respect to the period commencing
on July 1, 2004 and terminating on December 31, 2005, at the per annum rate of
Forty-One Dollars ($41.00) per square foot of Gross Rentable Area of the Oliver
Street Tower Premises; and (c) for and with respect to the period
<PAGE>
commencing on January 1, 2006 and terminating on March 31, 2008, at the per
annum rate of Forty-Two and 50/100 Dollars ($42.50) per square foot of Gross
Rentable Area of the Oliver Street Tower Premises.
For purposes of determining the Escalation Rent payable with respect to
the Oliver Street Tower Premises during the Extension Period, (i) the Operating
Expense Base for the Oliver Street Tower Premises shall be the actual
unextrapolated amount of Operating Expenses attributable to the Oliver Street
Tower incurred with respect to calendar year 1998, and (ii) the Tax Base shall
be the actual unextrapolated real estate taxes (excluding all other components
of the definition of Taxes) attributable to the Oliver Street Tower for the 1998
tax fiscal year, which commenced on July 1, 1997 and ends on June 30, 1998.
5. Demise of Third Amendment Additional Premises. Landlord hereby demises
and leases to Tenant, and Tenant hereby hires and takes from Landlord, from and
after December 12, 1997 (the "Delivery Date"), additional premises consisting of
39,905 square feet of Gross Rentable Area within 131 Oliver Street ("the Third
Amendment Additional Premises"), which Third Amendment Additional Premises are
depicted on the plans attached hereto as Exhibit B-1 and incorporated herein by
this reference, for a term commencing on the Delivery Date and terminating on
the expiration or earlier termination of the Lease Term. The demise and use of
the Third Amendment Additional Premises shall be upon and subject to all of the
other terms and conditions of the Lease, except as expressly set forth in this
Amendment. Without limitation, in accordance with the provisions of this
Amendment, Tenant shall not be obligated to commence paying Base Rent for the
Third Amendment Additional Premises prior to the Rent Commencement Date
(hereunder defined).
From and after the Delivery Date, the Third Amendment Additional Premises
shall be considered to be part of the Premises in all respects. From and after
the Delivery Date, all references contained in the Lease to the "Premises" shall
be deemed to refer to the Existing Premises and the Third Amendment Additional
Premises, collectively. From and after the 11th Floor Surrender Date, all
references contained in the Lease to the "Premises" shall be deemed to refer to
the Oliver Street Tower Premises and the Third Amendment Additional Premises,
collectively. From and after the Delivery Date, all references in the Lease to
the "Building" shall be deemed to refer to the Oliver Street Tower and 131
Oliver Street, collectively and individually, as the context requires.
6. Rent for Third Amendment Additional Premises. For and with respect to
the Third Amendment Additional Premises, the Tenant shall commence paying Base
Rent, Escalation Rent and all other Additional Rent payable pursuant to the
Lease on the earlier to occur of (i) the date Tenant first occupies the Third
Amendment Additional Premises, or (ii) April 1, 1998 (the "Rent Commencement
Date"). All such amounts shall be payable in accordance with the terms and
provisions of the Lease.
The Base Rent payable with respect to the Third Amendment Additional
Premises shall be as follows: (a) for and with respect to the period commencing
on the Rent Commencement Date and terminating on January 31, 2001, at the per
annum rate of Twenty Five Dollars
<PAGE>
($25.00) per square foot of Gross Rentable Area of the Third Amendment
Additional Premises; (b) for and with respect to the period commencing on
February 1, 2001 and terminating on January 31, 2005, at the per annum rate of
Twenty Seven Dollars ($27.00) per square foot of Gross Rentable Area of the
Third Amendment Additional Premises; and (c) for and with respect to the period
commencing on February 1, 2005 and terminating on March 1, 2008, at the per
annum rate of Twenty Nine Dollars ($29.00) per square foot of Gross Rentable
Area of the Third Amendment Additional Premises.
For purposes of determining the Escalation Rent payable with respect to
the Third Amendment Additional Premises, (i) the Operating Expense Base for the
Third Amendment Additional Premises shall be the Operating Expenses attributable
to 131 Oliver Street with respect to the twelve (12) month period immediately
following the date on which Tenant first occupies the Third Amendment Additional
Premises (or any part thereof), and (ii) the Tax Base shall be ninety seven
percent (97%) of the actual unextrapolated real estate taxes (excluding all
other components of the definition of Taxes) attributable to 131 Oliver Street
for the 1999 tax fiscal year, which commences on July 1, 1998 and ends on June
30, 1999.
Notwithstanding any provision to the contrary contained in the Lease or in
this Amendment, the provisions of Section 2.4.10 of the Lease shall have no
applicability and be of no force or effect with respect to the Third Amendment
Additional Premises, or the payment of Rent on account thereof, and none of the
Rent Concessions shall apply to the payment of Base Rent, Escalation Rent and
other Additional Rent payable with respect to the Third Amendment Additional
Premises. Tenant shall make all payments of Base Rent and Escalation Rent with
respect to the Third Amendment Additional Premises on the due date thereof,
without giving effect to the provisions of Section 2.4.10 of the Lease.
7. As-Is Condition. Notwithstanding anything contained in the Lease to the
contrary, the Landlord shall deliver and Tenant shall take the Third Amendment
Additional Premises "-as-is", "where is", and in all respects in the condition
in which the Third Amendment Additional Premises are in as of the Delivery Date,
without any obligation on the part of Landlord to prepare or construct the Third
Amendment Additional Premises for Tenant's occupancy, or to construct any
additional improvements therein or in 131 Oliver Street or in the Oliver Street
Tower, and without any representation or warranty (express or implied) on the
part of Landlord as to the condition of the Third Amendment Additional Premises.
8. Construction of Tenant Improvements. Tenant shall, subject to and in
accordance with the provisions of the Lease (including, without limitation,
Article VII thereof) perform all leasehold improvement work required to prepare
the Third Amendment Additional Premises for occupancy (collectively, the "TI
Work"), in accordance with the terms and provisions of the Work Letter Agreement
attached hereto as Exhibit A (the "Work Letter Agreement") and by this reference
made a part hereof and incorporated herein. Notwithstanding the foregoing, the
provisions of Article III of the Lease shall have no applicability and be of no
force and effect with respect to the Third Amendment Additional Premises. Except
for the Tenant Allowance (as defined in the Work Letter Agreement), the Tenant
shall be responsible for all costs and expenses of preparing the Third Amendment
<PAGE>
Additional Premises for its occupancy. In the event of any conflict between the
provisions of this Amendment and the provisions of the Work Letter Agreement,
the provisions of the Work Letter Agreement shall govern and control.
9. Reference Information. Effective as of the Delivery Date, Section 1.1
of the Lease is hereby amended by deleting subsections 1.1.2, 1.1.3, 1.1.8.,
1.1.9, 1.1.10, 1.1.11, 1.1.12, 1.1.13, 1.1.14 and 1.1.15, and replacing said
definitions with the following:
1.1.2. LANDLORD'S ORIGINAL
ADDRESS: c/o Tishman Speyer Properties
Office of the Building
125 High Street
Boston, Massachusetts 021 10
Attn: Property Management
1.1.3 LANDLORD'S
CONSTRUCTION
REPRESENTATIVE: John Karnath
1.1.8 PROJECT: The three (3) buildings bearing the
following addresses: 125 High Street-Oliver
Street Tower, 125 High Street-Oliver Street
Tower, and 131 Oliver Street, including,
without limitation, the atrium ("Atrium")
joining one or more of such buildings,
together with all appurtenant site
improvements situated upon the Site. A City
of Boston fire station and ambulance
facility are located physically within the
Project and a garage for tenant and visitor
vehicles is located below-grade within the
Project (the "Garage"). The land upon which
the Project has been constructed, as more
particularly described in Exhibit A attached
hereto and incorporated herein by this
reference, is sometimes referred to herein
as the "Site." The Site, the Project, and
all other improvements now or hereafter
constructed on the Site are sometimes
referred to herein as the "Property."
1.1.9 PREMISES: (i) the "Oliver Street Tower Premises"
consisting of the following: 23,614 square
feet of Gross Rentable Area located on the
12th Floor of the Oliver Street Tower;
24,604 square feet of Gross Rentable Area
located on the 13th Floor of the Oliver
Street Tower; 3,808 square feet of Gross
Rentable Area located on the 14th Floor of
the Oliver Street Tower, all as depicted on
the floor
<PAGE>
plans attached hereto as Exhibit B and
incorporated herein by this reference; (ii)
the "Third Amendment Additional Premises"
consisting of 39,905 square feet of Gross
Rentable Area located in 131 Oliver Street;
and (iii) the "11th Floor Premises"
consisting of 24,256 square feet of Gross
Rentable Area located on the 11th floor of
the Oliver Street Tower, as depicted on the
floor plan attached hereto as Exhibit B-1.
The Oliver Street Tower Premises and the
11th Floor Premises are sometimes referred
to herein collectively as the "Existing
Premises." From and after the 11th Floor
Surrender Date, all references in the Lease
to the "Premises" shall be deemed to refer
to the Oliver Street Tower Premises and the
Third Amendment Additional Premises,
collectively.
1.1.11 ANNUAL BASE RENT: (i) $27.00 per square foot of Gross
Rentable Area of the Existing Premises for
each of Lease Years 1-5; $33.00 per square
foot of Gross Rentable Area of the Existing
Premises for each of Lease Years 6-10;
$40.00 per square foot of Gross Rentable
Area of the Oliver Street Tower Premises for
the period commencing on January 1, 2002 and
terminating on June 30, 2004; $41.00 per
square foot of Gross Rentable Area of the
Oliver Street Tower Premises for the period
commencing on July 1, 2004 and terminating
on December 31, 2005; and $42.50 per square
foot of Gross Rentable Area of the Oliver
Street Tower Premises for the period
commencing on January 1, 2006 and
terminating on March 31, 2008; (ii) $25.00
per square foot of Gross Rentable Area of
the Third Amendment Additional Premises for
the period commencing on the Rent
Commencement Date (as defined in this
Amendment) and terminating on January 31,
2001; $27.00 per square foot of Gross
Rentable Area of the Third Amendment
Additional Premises for the period
commencing on February 1, 2001 and
terminating on January 31, 2005; and $29.00
per square foot of Gross Rentable Area of
the Third Amendment Additional Premises for
the period commencing
<PAGE>
on February 1, 2005 and terminating on March
31, 2008.
1.1.12 GROSS RENTABLE AREA
OF THE PREMISES: 116,187 square feet of Gross Rentable Area;
after the surrender of the 11th Floor
Premises and the removal thereof from the
Premises in accordance with the provisions
of this Amendment, the Premises shall
consist of 91,931 square feet of Gross
Rentable Area.
1.1.13 GROSS RENTABLE
AREA OF BUILDING: (1) Oliver Street Tower-508,157 square feet
of Gross Rentable Area; (ii) 131 Oliver
Street- 41,679 square feet of Gross Rentable
Area.
1.1.14 TAX BASE: (i) For and with respect to the Existing
Premises for each of Lease Years 1-10, an
amount equal to the greater of (a) the
product of $5.50 times the number of square
feet of Gross Rentable Area of the Oliver
Street Tower, or (b) the actual
unextrapolated amount of real estate taxes
attributable to the Oliver Street Tower for
the 1993 Fiscal Tax Year, which commenced
July 1, 1992 and ended on June 30, 1993,
excluding all other components of the
definition of Taxes (as hereinafter
defined); (ii) for and with respect to the
Oliver Street Tower Premises for the
Extension Period, the actual unextrapolated
real estate taxes (excluding all other
components of the definition of Taxes)
attributable to the Oliver Street Tower for
the 1998 Tax Fiscal Year, which commences on
July 1, 1997 and ends on June 30, 1998;
(iii) for and with respect to the Third
Amendment Additional Premises, 97% of the
actual unextrapolated real estate taxes
(excluding all other components of the
definition of Taxes) attributable to 131
Oliver Street for the 1999 Tax Fiscal Year,
which commences on July 1, 1998 and ends on
July 30, 1999.
1.1.15 OPERATING EXPENSE
BASE: (i) For and with respect to the Existing
Premises for each of Lease Years 1-10, an
amount equal to the greater of (a) the
product of $5.50 times the
<PAGE>
number of square feet of Gross Rentable Area
of the Oliver Street Tower, or (b) the
actual unextrapolated amount of Operating
Expenses (as hereinafter defined)
attributable to the Oliver Street Tower
incurred with respect to calendar year 1992;
(ii) for and with respect to the Oliver
Street Tower Premises for the Extension
Period, the actual unextrapolated amount of
Operating Expenses attributable to the
Oliver Street Tower incurred with respect to
calendar year 1998; (iii) for and with
respect to the Third Amendment Additional
Premises, the actual unextrapolated
Operating Expenses attributable to 131
Oliver Street incurred with respect to the
twelve (12) month period immediately
following the date on which Tenant first
occupies the Third Amendment Additional
Premises (or any part thereof).
10. Floor Plans. Exhibit B attached to the Lease is hereby amended by
adding thereto the floor plan(s) set forth in Exhibit "B-1" attached to this
Amendment and incorporated herein by this reference.
11. Brokerage. Tenant warrants and represents to Landlord, and Landlord
warrants and represents to Tenant, that it has dealt with no broker or agent in
connection with this Amendment, other than Tishman Speyer Properties and/or
Spaulding & Slye. Each of Tenant and Landlord shall indemnify and hold harmless
the other from and against any and all loss, cost and expense (including
attorneys' fees) involving any claims for a brokerage commission, finder's fee
or similar compensation made by any person other than Tishman Speyer Properties
and/or Spaulding & Slye, arising out of or in connection with this Amendment.
The Landlord shall be responsible for payment of all fees payable to Tishman
Speyer Properties and/or Spaulding & Slye arising out of and in connection with
this Amendment.
12. Miscellaneous. Landlord and Tenant represent and warrant to each other
that the execution and delivery of this Amendment have been duly authorized by
all required partnership and corporation actions, as applicable. Except as
expressly and specifically set forth herein, the Lease is hereby ratified and
confirmed, and all of the terms, covenants, agreements and provisions of the
Lease shall remain unaltered and unmodified and in full force and effect
throughout the balance of the term of the Lease, as extended hereby. Except as
expressly set forth herein, all of the covenants, representations and warranties
made by the Tenant contained in the Lease are hereby remade, reaffirmed and
ratified as of the date hereof.
<PAGE>
EXECUTED as an instrument under seal as of the date first above-written.
ONE TWENTY FIVE HIGH STREET
LIMITED PARTNERSHIP
By: The Prospect Company, d/b/a
The Prospect - Massachusetts
Company, General Partner
By: ---------------------------------
Name: BERNARD O'CONNELL
------------------------
Title: DIRECTOR
------------------------
KEYPORT LIFE INSURANCE COMPANY,
a Rhode Island Corporation
By: -------------------------------
Name: -------------------------
Title: ------------------------
<PAGE>
Fourth Amendment to Lease
This Fourth Amendment to Lease (this "Amendment"), is made as of the 1st
day of May, 1998, by and between TST 125 HIGH STREET, L.L.C., a Delaware limited
liability company, with an address c/o Tishman Speyer Properties, 520 Madison
Avenue, New York, NY 10022 (the "Landlord") and KEYPORT LIFE INSURANCE COMPANY,
a Rhode Island Corporation, having a business address of 125 High Street, Oliver
Street Tower, Boston, Massachusetts 02110 (the "Tenant").
WITNESSETH:
Reference is hereby made to the following facts:
A. The predecessor-in-interest to Landlord and Tenant entered into that
certain lease (as heretofore amended, and modified and amended hereby, the
"Lease"), dated May 21, 1991, as amended by that certain First Amendment to
Lease, dated August 28, 1992, that certain Second Amendment to Lease, dated as
of September 21, 1994, and that certain Third Amendment to Lease, dated as of
December _, 1997, for certain premises (the "Existing Premises") located on the
12th, 13th and 14th floors of the building commonly known as the Oliver Street
Tower and in the building commonly known as 131 Oliver Street, both in the
project known as 125 High Street in Boston, Massachusetts (as more particularly
described in the Lease, the "Project"), all as more particularly described in
the Lease. All capitalized words and phrases not otherwise defined herein shall
have the meanings ascribed to them in the Lease.
B. Landlord and Tenant have agreed to add an additional 4,520 square feet
of Gross Rentable Area located in the Oliver Street Tower to the premises
demised under the Lease, and to modify and amend the Lease, all in the manner
hereinafter set forth.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt, sufficiency and delivery of which are
hereby acknowledged, the parties hereby agree that the Lease is hereby further
amended as follows:
1. Demise of Fourth Amendment Additional Premises. Landlord hereby demises
and leases to Tenant, and Tenant hereby hires and takes from Landlord, from and
after May 1, 1998 (the "Delivery Date"), additional premises consisting of 4,520
square feet of Gross Rentable Area on the 14th floor of the Oliver Street Tower
(the "Fourth Amendment Additional Premises"), which Fourth Amendment Additional
Premises are depicted on the plans attached hereto as Exhibit B-2 and
incorporated herein by this reference, for a term commencing on the Delivery
Date and terminating on the expiration or earlier termination of the Lease Term.
The demise and use of the Fourth Amendment Additional Premises shall be upon and
subject to all of the other terms and conditions of the Lease, except as
expressly set forth in this Amendment.
<PAGE>
From and after the Delivery Date, the Fourth Amendment Additional Premises
shall be considered to be part of the Premises in all respects. From and after
the Delivery Date, all references contained in the Lease to the "Premises" shall
be deemed to refer to the Existing Premises and the Fourth Amendment Additional
Premises, collectively.
2. Rent for Fourth Amendment Additional Premises. For and with respect to
the Fourth Amendment Additional Premises, the Tenant shall commence paying Base
Rent, Escalation Rent and all other Additional Rent payable pursuant to the
Lease on the Delivery Date. All such amounts shall be payable in accordance with
the terms and provisions of the Lease,
The Base Rent payable with respect to the Fourth Amendment Additional
Premises shall be as follows: (a) for and with respect to the period commencing
on the Delivery Date and terminating on December 31, 2001, at the per annum rate
of Fifty Dollars ($50.00) per square foot of Gross Rentable Area of the Fourth
Amendment Additional Premises; (b) for and with respect to the period commencing
on January 1, 2002 and terminating on June 30, 2004, at the per annum rate of
Fifty-Two Dollars ($52.00) per square foot of Gross Rentable Area of the Fourth
Amendment Additional Premises; (c) for and with respect to the period commencing
on July 1, 2004 and terminating on December 31, 2005, at the per annum rate of
Fifty-Four Dollars ($54.00) per square foot of Gross Rentable Area of the Fourth
Amendment Additional Premises; and (d) for and with respect to the period
commencing on January 1, 2006 and terminating on March 31, 2008 at the per annum
rate of Fifty-Seven Dollars ($57.00) per square foot of Gross Rentable Area of
the Fourth Amendment Additional Premises.
For purposes of determining the Escalation Rent payable with respect to
the Fourth Amendment Additional Premises, (i) the Operating Expense Base for the
Fourth Amendment Additional Premises shall be the Operating Expenses
attributable to the Oliver Street Tower with respect to the twelve (12) month
period between January 1, 1998 and December 31, 1998, and (ii) the Tax Base
shall be the actual unextrapolated real estate taxes (excluding all other
components of the definition of Taxes) attributable to the Oliver Street Tower
for the 1998 Tax Fiscal Year, which commences on July 1, 1997 and ends on June
30, 1998.
Notwithstanding any provision to the contrary contained in the Lease or in
this Amendment, the provisions of Section 2.4.10 of the Lease shall have no
applicability and be of no force or effect with respect to the Fourth Amendment
Additional Premises, or the payment of Rent on account thereof, and none of the
Rent Concessions shall apply to the payment of Base Rent, Escalation Rent and
other Additional Rent payable with respect to the Fourth Amendment Additional
Premises. Tenant shall make all payments of Base Rent and Escalation Rent with
respect to the Fourth Amendment Additional Premises on the due date thereof,
without giving effect to the provisions of Section 2.4.10 of the Lease.
3. As-Is Condition. Notwithstanding anything contained in the Lease to the
contrary, the Landlord shall deliver and Tenant shall take the Fourth Amendment
Additional Premises "as-is", "where is", and in all respects in the condition in
which the Fourth
<PAGE>
Amendment Additional Premises are in as of the Delivery Date, without any
obligation on the part of Landlord to prepare or construct the Fourth Amendment
Additional Premises for Tenant's occupancy, or to construct any additional
improvements therein or in the Oliver Street Tower, and without any
representation or warranty (express or implied) on the part of Landlord as to
the condition of the Fourth Amendment Additional Premises.
4. Construction of Tenant Improvements. Tenant shall, subject to and in
accordance with the provisions of the Lease (including, without limitation,
Article VII thereof) perform all leasehold improvement work required to prepare
the Fourth Amendment Additional Premises for occupancy (collectively, the "TI
Work"), in accordance with the terms and provisions of the Work Letter Agreement
attached hereto as Exhibit A (the "Work Letter Agreement") and by this reference
made a part hereof and incorporated herein. Notwithstanding the foregoing, the
provisions of Article III of the Lease shall have no applicability and be of no
force and effect with respect to the Fourth Amendment Additional Premises.
Except for the Tenant Allowance (as defined in the Work Letter Agreement), the
Tenant shall be responsible for all costs and expenses of preparing the Fourth
Amendment Additional Premises for its occupancy. In the event of any conflict
between the provisions of this Amendment and the provisions of the Work Letter
Agreement, the provisions of the Work Letter Agreement shall govern and control.
5. Reference Information. Effective as of the Delivery Date, Section 1.1
of the Lease is hereby amended by deleting subsections 1.1.9, 1.1.10, 1.1.11,
1.1.12, 1.1.14, and 1.1.15, and replacing said definitions with the following:
1.1.9 PREMISES: (i) the "Oliver Street Tower Premises"
consisting of the following: 23,614 square
feet of Gross Rentable Area located on the
12th Floor of the Oliver Street Tower;
24,604 square feet of Gross Rentable Area
located on the 13th Floor of the Oliver
Street Tower; 3,808 square feet of Gross
Rentable Area located on the 14th Floor of
the Oliver Street Tower, all as depicted on
the floor plans attached hereto as Exhibit B
and incorporated herein by this reference;
(ii) the "Third Amendment Additional
Premises" consisting of 39,905 square feet
of Gross Rentable Area located in 131 Oliver
Street, as depicted on the floor plan
attached hereto as Exhibit B-1; and (iii)
the "Fourth Amendment Additional Premises"
consisting of 4,520 square feet of Gross
Rentable Area located on the 14th floor of
the Oliver Street Tower, as depicted on the
floor plan attached hereto as Exhibit B-2.
1.1.11 ANNUAL BASE
RENT: (i) $27.00 per square foot of Gross Rentable
Area of the Existing Premises for each of
Lease Years 1-5; $33.00 per square foot of
Gross Rentable Area of the Existing Premises
<PAGE>
for each of Lease Years 6-10; $40.00 per
square foot of Gross Rentable Area of the
Oliver Street Tower Premises for the period
commencing on January 1, 2002 and
terminating on June 30, 2004; $41.00 per
square foot of Gross Rentable Area of the
Oliver Street Tower Premises for the period
commencing on July 1, 2004 and terminating
on December 31, 2005; and $42.50 per square
foot of Gross Rentable Area of the Oliver
Street Tower Premises for the period
commencing on January 1, 2006 and
terminating on March 31, 2008; (ii) $25.00
per square foot of Gross Rentable Area of
the Third Amendment Additional Premises for
the period commencing on the Rent
Commencement Date (as defined in the Third
Amendment) and terminating on January 31,
2001; $27.00 per square foot of Gross
Rentable Area of the Third Amendment
Additional Premises for the period
commencing on February 1, 2001 and
terminating on January 31, 2005; and $29.00
per square foot of Gross Rentable Area of
the Third Amendment Additional Premises for
the period commencing on February 1, 2005
and terminating on March 31, 2008; and (iii)
$50.00 per square foot of Gross Rentable
Area of the Fourth Amendment Additional
Premises for the period commencing on the
Delivery Date (as defined in this Fourth
Amendment) and termination on December 1,
2001; $52.00 per square foot of Gross
Rentable Area of the Fourth Amendment
Additional Premises for the period
commencing on January 1, 2002 and
terminating on June 30, 2004; $54.00 per
square foot of Gross Rentable Area of the
Fourth Amendment Additional Premises for the
period commencing on July 1, 2004 and
terminating on December 31, 2005; and $57.00
per square foot of Gross Rentable Area of
the Fourth Amendment Additional Premises for
the period commencing on January 1, 2006 and
terminating on March 31, 2008.
1.1.12 GROSS RENTABLE
AREA OF THE
PREMISES: The Premises consist of 96,451 square feet
of Gross Rentable Area.
1.1.14 TAX BASE: (i) For and with respect to the Oliver
Street Tower Premises for each of Lease
Years 1-10, an amount equal to the greater
of (a) the product of $5.50 times the number
of square feet of Gross Rentable Area of the
Oliver Street Tower, or (b) the actual
unextrapolated amount of real
<PAGE>
estate taxes attributable to the Oliver
Street Tower for the 1993 Fiscal Tax Year,
which commenced July 1, 1992 and ended on
June 30, 1993, excluding all other
components of the definition of Taxes (as
hereinafter defined); (ii) for and with
respect to the Oliver Street Tower Premises
for the Extension Period. the actual
unextrapolated real estate taxes (excluding
all other components of the definition of
Taxes) attributable to the Oliver Street
Tower for the 1998 Tax Fiscal Year, which
commences on July 1, 1997 and ends on June
30, 1998; (iii) for and with respect to the
Third Amendment Additional Premises, 97% of
the actual unextrapolated real estate taxes
(excluding all other components of the
definition of Taxes) attributable to 131
Oliver Street for the 1999 Tax Fiscal Year,
which commences on July 1, 1998 and ends on
June 30, 1999; and (iv) for and with respect
to the Fourth Amendment Additional Premises,
the actual unextrapolated real estate taxes
(excluding all other components of the
definition of Taxes) attributable to the
Oliver Street Tower for the 1998 Tax Fiscal
Year, which commences on July 1, 1997 and
ends on June 30, 1998.
1.1.15 OPERATING EXPENSE
BASE: (i) For and with respect to the Existing
Premises for each of Lease Years 1-10, an
amount equal to the greater of (a) the
product of $5.50 times the number of square
feet of Gross Rentable Area of the Oliver
Street Tower, or (b) the actual
unextrapolated amount of Operating Expenses
(as hereinafter defined) attributable to the
Oliver Street Tower incurred with respect to
calendar year 1992; (ii) for and with
respect to the Oliver Street Tower Premises
for the Extension Period, the actual
unextrapolated amount of Operating Expenses
attributable to the Oliver Street Tower
incurred with respect to calendar year 1998;
(iii) for and with respect to the Third
Amendment Additional Premises, the actual
unextrapolated Operating Expenses
attributable to 131 Oliver Street incurred
with respect to the twelve (12) month period
immediately following the date on which
Tenant first occupies the Third Amendment
Additional Premises (or any part thereof);
and (iv) for and with respect to the Fourth
Amendment Additional Premises, the actual
unextrapolated amount of Operating Expenses
attributable to the Oliver Street Tower
incurred with respect to calendar year 1998.
<PAGE>
6. Floor Plans. Exhibit B attached to the Lease is hereby amended by
adding thereto the floor plan(s) set forth in Exhibit "B-2" attached to this
Amendment and incorporated herein by this reference.
7. Brokerage. Tenant warrants and represents to Landlord, and Landlord
warrants and represents to Tenant, that it has dealt with no broker or agent in
connection with this Amendment, other than Tishman Speyer Properties. Each of
Tenant and Landlord shall indemnify and hold harmless the other from and against
any and all loss, cost and expense (including attorneys' fees) involving any
claims for a brokerage commission, finder's fee or similar compensation made by
any person other than Tishman Speyer Properties, arising out of or in connection
with this Amendment. The Landlord shall be responsible for payment of all fees
payable to Tishman Speyer Properties arising out of and in connection with this
Amendment.
8. Miscellaneous. Landlord and Tenant represent and warrant to each other
that the execution and delivery of this Amendment have been duly authorized by
all required partnership and corporation actions, as applicable. Except as
expressly and specifically set forth herein, the Lease is hereby ratified and
confirmed, and all of the terms, covenants, agreements and provisions of the
Lease shall remain unaltered and unmodified and in full force and effect
throughout the balance of the term of the Lease, as extended hereby. Except as
expressly set forth herein, all of the covenants, representations and warranties
made by the Tenant contained in the Lease are hereby remade, reaffirmed and
ratified as of the date hereof.
EXECUTED as an instrument under seal as of the date first above-written.
TST 125 HIGH STREET, L.L.C.,
a Delaware limited liability company
By: _____________________________________
Name:
Its:
KEYPORT LIFE INSURANCE COMPANY,
a Rhode Island Corporation
By: _____________________________________
Name:
Its:
Exhibit 10.22
[Liberty Financial letterhead]
[logo: LIBERTY Liberty Financial Companies, Inc.
F I N A N C I A L] Federal Reserve Plaza
600 Atlantic Avenue
Boston, MA 02210-2214
www.lib.com
617-722-6000
February 1, 1999
CONFIDENTIAL
Stephen E. Gibson
President and Chief Executive Officer
The Colonial Group
One Financial Center, 12th Floor
Boston, MA 02111
Dear Steve:
This letter sets forth the terms of an additional bonus you will receive
as part of your annual bonus for 1998 and 1999 in connection with the settlement
of a dispute with your former employer. This letter supersedes and replaces our
letter agreement dated October 29, 1998 which dealt with the same bonus.
You will receive an additional bonus for 1998 and 1999, as follows:
o In February 1999, Colonial will increase the bonus you otherwise
would receive by $167,471.21.
o In February 2000, Colonial will increase the bonus you otherwise
would receive by $187,216.04, plus interest from October 28, 1998 at
the rate used to credit returns under the Liberty Financial deferred
compensation plan.
These additional payments are subject to the approval of the Liberty
Financial Compensation Committee. Liberty Financial will recommend to the
Committee that it approve these payments.
Colonial shall deduct from all payments to be made to you under this
letter any federal, state or local withholding or other taxes or charges that
Colonial is required to deduct under applicable law, and all amounts stated or
calculated in this letter are presented herein prior to any such deduction.
<PAGE>
Stephen E. Gibson
February 1, 1999
Page 2
You will be entitled to receive any theretofore unpaid amounts under this
letter if your employment with Colonial terminates due to (i) your death, (ii)
your permanent disability (such that any Liberty Financial stock awards you own
would immediately vest under the terms of Liberty Financial's Amended and
Restated 1995 Stock Incentive Plan), (iii) Colonial's termination of your
employment without Cause or (iv) your voluntary termination of your employment
for Good Reason. "Cause" shall mean (i) any material act of dishonesty committed
by you against Colonial or any other member of the Liberty Group (defined as any
subsidiary or affiliate of Liberty Financial Companies, Inc.), (ii) your chronic
absence from work other than by reason of illness, vacations and other excused
absences, (iii) your use of alcohol, drugs or other controlled substances in
such a manner as to interfere materially with the performance of your duties,
(iv) commission by you of conduct requiring an affirmative response to be made
by Colonial Management Associates, Inc., Colonial Advisory Services, Inc., Stein
Roe & Farnham Incorporated, Liberty Funds Distributor, Inc. or any of their
affiliates to item 11 of Form ADV or item 22 of Form U-4 (or any successor
provisions of such forms), or (v) violations by you of Colonial's Code of
Ethics, Insider Trading Policy or other firm policies and procedures (including,
without limitation, policies and procedures relating to non-discrimination,
sexual harassment or other unlawful conduct) which would otherwise result in
termination of employment. "Good Reason" shall mean your ceasing to be the Chief
Executive Officer of The Colonial Group, Inc. or a successor entity or a
material reduction in the nature and scope of your duties from their current
level.
This letter agreement is not an employment agreement; it does not create
any rights or benefits on your part except as expressly provided above.
This letter and the Annex hereto constitutes the complete agreement
between you and the Liberty Group with respect to the subject matter of this
letter (there being no other agreements pertinent to the subject matter of this
letter with any other member of the Liberty Group), and this letter supercedes
all prior discussions or agreements with respect thereto.
This letter may be amended, but only by a subsequent written agreement
between the parties. Your rights and benefits under this letter cannot be
assigned, except under the laws of descent and distribution. Liberty Financial
cannot assign its rights and obligations under this letter without your prior
written consent. This letter agreement shall be binding on and inure to the
benefit of each of the parties and their respective successors and permitted
assigns. This letter agreement shall be governed by and construed in accordance
with the domestic substantive laws of The Commonwealth of Massachusetts without
giving
<PAGE>
Stephen E. Gibson
February 1, 1999
Page 3
effect to any choice or conflicts of laws rule or provision that would result in
the application of the domestic substantive laws of any other jurisdiction.
If you agree to and accept the foregoing, please sign below in the space
provided.
Sincerely,
LIBERTY FINANCIAL COMPANIES, INC.
By ____________________________
Title:
I agree to and accept the foregoing:
____________________________
Stephen E. Gibson
Execution Copy
- --------------------------------------------------------------------------------
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THE COLONIAL GROUP, INC.
CREDIT AGREEMENT
Dated as of April 10, 1998
BANKBOSTON, N.A., Agent
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Definitions; Certain Rules of Construction....................................................................1
2. The Credits..................................................................................................21
2.1. Term Credit A.....................................................................................21
2.1.1. Term Loan A............................................................................21
2.1.2. Term Loan A Notes......................................................................21
2.2. Revolving Credit..................................................................................21
2.2.1. Revolving Loan.........................................................................21
2.2.2. Borrowing Requests.....................................................................22
2.2.3. Revolving Note.........................................................................22
2.3. Term Credit B.....................................................................................22
2.3.1. Term Loan B............................................................................22
2.3.2. Term Loan B Notes......................................................................23
2.4. Application of Proceeds...........................................................................23
2.4.1. Term Loan A............................................................................23
2.4.2. Revolving Loan.........................................................................23
2.4.3. Term Loan B............................................................................23
2.4.4. Specifically Prohibited Applications...................................................23
2.5. Nature of Obligations of Lenders to Extend Credit.................................................23
2.6. Increase in Stated Maximum Amount of Credit.......................................................23
2.7. Option to Extend Maturities.......................................................................24
3. Interest; Pricing Options; Fees..............................................................................24
3.1. Interest..........................................................................................24
3.2. Pricing Options...................................................................................25
3.2.1. Election of Pricing Options............................................................25
3.2.2. Notice to Lenders and Company..........................................................25
3.2.3. Selection of Interest Periods..........................................................26
3.2.4. Additional Interest....................................................................26
3.2.5. Change in Applicable Laws, Regulations, etc............................................26
3.2.6. Taxes..................................................................................27
3.2.7. Funding Procedure......................................................................27
3.3. Commitment Fees...................................................................................27
3.4. Capital Adequacy..................................................................................27
3.5. Computations of Interest and Fees.................................................................28
4. Payment......................................................................................................28
4.1. Payment at Maturity...............................................................................28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.1.1. Term Loan A............................................................................28
4.1.2. Revolving Loan.........................................................................29
4.1.3. Term Loan B...........................................................................29
4.2. Contingent Required Prepayments...................................................................29
4.2.1. Excess Credit Exposure.................................................................29
4.2.2. Class B Share Collection Amount........................................................29
4.3. Mandatory Prepayment of Term Loan B...............................................................29
4.4. Voluntary Prepayments.............................................................................30
4.5. Reborrowing; Application of Payments..............................................................30
4.6. Payment with Accrued Interest, etc................................................................30
5. Conditions to Extending Credit...............................................................................30
5.1. Conditions on Effective Date......................................................................30
5.1.1. Notes..................................................................................30
5.1.2. Payment of Fees........................................................................30
5.1.3. Legal Opinions.........................................................................30
5.1.4. Guarantees.............................................................................31
5.1.5. Investment Assets Under Management.....................................................31
5.2. Conditions to Each Extension of Credit............................................................31
5.2.1. Officer's Certificate..................................................................31
5.2.2. Proper Proceedings.....................................................................31
5.2.3. Legality, etc..........................................................................31
6. General Covenants............................................................................................32
6.1. Taxes and Other Charges; Accounts Payable.........................................................32
6.1.1. Taxes and Other Charges................................................................32
6.1.2. Accounts Payable.......................................................................32
6.2. Conduct of Business, etc..........................................................................32
6.2.1. Types of Business......................................................................32
6.2.2. Maintenance of Properties..............................................................32
6.2.3. Compliance with Material Agreements....................................................33
6.2.4. Statutory Compliance...................................................................33
6.3. Insurance.........................................................................................34
6.3.1. Business Interruption Insurance........................................................34
6.3.2. Errors and Omissions Insurance.........................................................34
6.3.3. Directors and Officers Insurance.......................................................34
6.3.4. Property Insurance.....................................................................34
6.3.5. Liability Insurance....................................................................34
6.4. Financial Statements and Reports..................................................................34
6.4.1. Annual Reports.........................................................................35
6.4.2. Quarterly Reports......................................................................36
6.4.3. Borrowing Base Reports.................................................................37
6.4.4. Other Reports..........................................................................37
</TABLE>
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<TABLE>
<S> <C>
6.4.5. Notice of Litigation; Notice of Defaults...............................................38
6.4.6. ERISA Reports..........................................................................38
6.4.7. Other Information......................................................................38
6.5. Certain Financial Tests...........................................................................39
6.5.1. Consolidated Net Worth.................................................................39
6.5.2. Consolidated Net Income................................................................39
6.6. Financing Debt. .................................................................................39
6.7. [Intentionally omitted.]..........................................................................39
6.8. Liens.............................................................................................39
6.9. Investments and Acquisitions......................................................................41
6.10. Distributions....................................................................................41
6.11. Merger, Consolidation and Dispositions of Assets.................................................42
6.12. Issuance of Stock by Subsidiaries; Subsidiary Distributions; Subsidiary
Guarantors.....................................................................................42
6.12.1. Issuance of Stock by Subsidiaries.....................................................42
6.12.2. No Restrictions on Subsidiary Distributions...........................................42
6.12.3. Subsidiary Guarantors.................................................................42
6.13. ERISA, etc.......................................................................................43
6.14. Maintenance of Fee Structure.....................................................................43
7. Representations and Warranties...............................................................................43
7.1. Organization and Business.........................................................................43
7.1.1. Company................................................................................43
7.1.2. Subsidiaries...........................................................................44
7.1.3. Qualification..........................................................................44
7.2. Financial Statements and Other Information; Material Agreements...................................44
7.2.1. Financial Statements and Other Information.............................................44
7.2.2. Material Agreements....................................................................45
7.2.3. Investment Assets Under Management.....................................................46
7.3. Changes in Condition..............................................................................46
7.4. Class B Shares Systems............................................................................46
7.5. Title to Assets...................................................................................46
7.6. Licenses, etc.....................................................................................46
7.7. Litigation........................................................................................47
7.8. Tax Returns.......................................................................................47
7.9. Authorization and Enforceability..................................................................47
7.10. No Legal Obstacle to Agreements..................................................................48
7.11. Defaults.........................................................................................48
7.12. Certain Business Representations.................................................................48
7.12.1. Labor Relations.......................................................................48
7.12.2. Antitrust.............................................................................49
7.12.3. Consumer Protection...................................................................49
7.12.4. Certain Other Agreements..............................................................49
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.12.5. Certain Laws..........................................................................49
7.12.6. Burdensome Obligations................................................................49
7.13. Pension Plans....................................................................................49
7.14. Foreign Trade Regulations; Government Regulation.................................................50
7.14.1. Foreign Trade Regulations.............................................................50
7.14.2. Government Regulation.................................................................50
7.15. Disclosure.......................................................................................50
8. Defaults.....................................................................................................50
8.1. Events of Default.................................................................................50
8.2. Certain Actions Following an Event of Default.....................................................53
8.2.1. No Obligation to Extend Credit.........................................................53
8.2.2. Specific Performance; Exercise of Rights...............................................53
8.2.3. Acceleration...........................................................................53
8.2.4. Enforcement of Payment; Credit Security; Setoff........................................54
8.2.5. Cumulative Remedies....................................................................54
8.3. Annulment of Defaults.............................................................................54
8.4. Waivers...........................................................................................54
9. Expenses; Indemnity..........................................................................................55
9.1. Expenses..........................................................................................55
9.2. General Indemnity.................................................................................55
10. Operations..............................................................................................56
10.1. Interests in Credits.............................................................................56
10.2. Agent's Authority to Act, etc....................................................................56
10.3. Company to Pay Agent, etc........................................................................57
10.4. Lender Operations for Advances, etc..............................................................57
10.4.1. Advances..............................................................................57
10.4.2. Agent to Allocate Payments, etc.......................................................57
10.4.3. Delinquent Lenders; Nonperforming Lenders.............................................57
10.5. Sharing of Payments, etc.........................................................................58
10.6. Amendments, Consents, Waivers, etc...............................................................59
10.7. Agent's Resignation..............................................................................60
10.8. Concerning the Agent.............................................................................60
10.8.1. Action in Good Faith, etc.............................................................60
10.8.2. No Implied Duties, etc................................................................61
10.8.3. Validity, etc.........................................................................61
10.8.4. Compliance............................................................................61
10.8.5. Employment of Agents and Counsel......................................................61
10.8.6. Reliance on Documents and Counsel.....................................................62
10.8.7. Agent's Reimbursement.................................................................62
10.8.8. Agent's Fees..........................................................................62
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.9. Rights as a Lender..................................................................................62
10.10. Independent Credit Decision.....................................................................62
10.11. Indemnification.................................................................................63
11. Successors and Assigns; Lender Assignments and Participations...............................................63
11.1. Assignments by Lenders...........................................................................63
11.1.1. Assignees and Assignment Procedures...................................................63
11.1.2. Terms of Assignment and Acceptance....................................................64
11.1.3. Register..............................................................................65
11.1.4. Acceptance of Assignment and Assumption...............................................65
11.1.5. Federal Reserve Bank..................................................................66
11.1.6. Further Assurances....................................................................66
11.2. Credit Participants..............................................................................66
12. Confidentiality.............................................................................................67
13. Foreign Persons.............................................................................................67
14. Notices.....................................................................................................68
15. Course of Dealing; Amendments and Waivers...................................................................68
16. Defeasance..................................................................................................69
17. Venue; Service of Process...................................................................................69
18. WAIVER OF JURY TRIAL........................................................................................69
19. General.....................................................................................................70
</TABLE>
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<PAGE>
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<PAGE>
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<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 2.1.2 - Term Loan A Note
Exhibit 2.2.3 - Revolving Note
Exhibit 2.3.2 - Term Loan B Note
Exhibit 5.1.4 - Subsidiary Guarantee
Exhibit 5.2.1 - Officer's Certificate
Exhibit 6.4.3 - Fund Reconciliation Report
Exhibit 6.14 - CDSC Fee Structure
Exhibit 7.1 - Company and the Subsidiaries
Exhibit 11.1.1 - Assignment and Acceptance
</TABLE>
<PAGE>
THE COLONIAL GROUP, INC.
CREDIT AGREEMENT
This Credit Agreement, dated as of April 10, 1998 is among The Colonial
Group, Inc., a Massachusetts corporation, and the Lenders (as defined below) and
BankBoston, N.A., as agent for itself and the other Lenders, and is effective as
of the Effective Date. The parties agree as follows:
1. Definitions; Certain Rules of Construction. Except as otherwise explicitly
specified to the contrary, (a) the capitalized term "Section" refers to sections
of this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation," (e) accounting terms not otherwise defined herein shall have the
meaning provided under GAAP and (f) terms defined in the UCC and not otherwise
defined herein shall have the meaning provided under the UCC. Certain
capitalized terms are used in this Agreement as specifically defined as follows:
1.1. "Accumulated Benefit Obligations" means the actuarial present
value of the accumulated benefit obligations under any Plan, calculated in a
manner consistent with Statement No. 87 of the Financial Accounting Standards
Board.
1.2. "Affiliate" means, with respect to the Company (or other specified
Person), any other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with the Company, and shall include (a)
any officer or director or general partner of the Company and (b) any Person of
which the Company or any Affiliate (as defined in clause (a) above) of the
Company shall, directly or indirectly, beneficially own either (i) at least 10%
of the outstanding equity securities having the general power to vote or (ii) at
least 10% of all equity interests; provided, however, that in any event, Liberty
Mutual Insurance Company shall be considered an Affiliate of the Company and the
Subsidiaries.
1.3. "Agent" means BankBoston in its capacity as agent for the Lenders
hereunder, as well as its successors and assigns in such capacity pursuant to
Section 10.7.
<PAGE>
1.4. "Applicable Margin" means, with respect to any Pricing Option with
respect to the Revolving Loan or Term Loan B, the greater of (a) the percentage
specified in the table below set forth opposite the S&P's Rating for Liberty
Mutual Capital Corporation specified in such table or (b) the percentage
specified in the table below set forth opposite the Moody's Rating for Liberty
Mutual Capital Corporation specified in such table, in each case as such rating
is reported on the third Banking Day prior to the commencement of the Interest
Period applicable to such Pricing Option; provided, however, that on and after
the Conversion Date the percentages specified in the table below shall increase
by 0.125%:
<TABLE>
<CAPTION>
S&P's Moody's
Rating Percentage Rating
------ ---------- ------
<S> <C> <C>
AA- or higher 0.140% Aa3 or higher
A+ or higher 0.160% A1 or higher
A or higher 0.205% A2 or higher
A- or higher 0.225% A3 or higher
BBB+ or lower 0.260% Baa1 or lower
</TABLE>
1.5. "Applicable Rate" means, at any date,
(a) with respect to each portion of the Term Loan A subject to
a Pricing Option, the sum of (i) 0.225% plus (ii) the Eurodollar Rate
with respect to such Pricing Option;
(b) with respect to each portion of the Revolving Loan or Term
Loan B subject to a Pricing Option, the sum of (i) the Applicable
Margin with respect to such Pricing Option plus (ii) the Eurodollar
Rate with respect to such Pricing Option; and
(c) with respect to each other portion of the Loan, the Base
Rate.
1.6. "Assignee" is defined in Section 11.1.1.
1.7. "Assignment and Acceptance" is defined in Section 11.1.1.
1.8. "BankBoston" means BankBoston, N.A.
1.9. "Banking Day" means any day other than Saturday, Sunday or a day
on which banks in Boston, Massachusetts or New York, New York are authorized or
required by law or other governmental action to close and, if such term is used
with reference to a Pricing Option, any day on which dealings are effected in
the Eurodollars in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York and at the location of the applicable Eurodollar
Office.
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<PAGE>
1.10. "Bankruptcy Code" means Title 11 of the United States Code (or
any successor statute) and the rules and regulations thereunder, all as from
time to time in effect.
1.11. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.11.
1.12. "Base Rate" means, on any day, the greater of (a) the rate of
interest announced by BankBoston at the Boston Office as its Base Rate or (b)
the sum of 1/2% plus the Federal Funds Rate.
1.13. "Basic Eurodollar Rate" means, as applied to any Interest Period,
the rate of interest at which Eurodollar deposits in an amount comparable to the
Percentage Interest of BankBoston in the portion of the Loan as to which a
Pricing Option has been elected and which have a term corresponding to the
Interest Period in question are offered to BankBoston by first class banks in
the inter-bank Eurodollar market for delivery in immediately available funds at
a Eurodollar Office on the first day of such Interest Period as determined by
the Agent at approximately 10:00 a.m. (Boston time) two Banking Days prior to
the date upon which the Interest Period in question is to commence, which
determination by the Agent shall, in the absence of manifest error, be
conclusive.
1.14. "Boston Office" means the principal banking office of BankBoston
in Boston, Massachusetts.
1.15. "Broker" means any broker, dealer, bank or other person or entity
(other than any Subsidiary or any director, officer or employee of the Company
or any Subsidiary) that sells or arranges for the sale of Class B Shares and is
entitled to receive from the Company or any Subsidiary any commission or other
compensation in respect of such sales.
1.16. "By-laws" means all written by-laws of any Person other than an
individual or similar governance documents of such Person, all as from time to
time in effect.
1.17. "Capital Expenditures" means, for any period, amounts added or
required to be added to the property, plant and equipment or other fixed assets
account on the Consolidated balance sheet of the Company and the Subsidiaries,
prepared in accordance with GAAP, in respect of (a) the acquisition,
construction, improvement or replacement of land, buildings, machinery,
equipment, leaseholds and any other real or personal property, (b) to the extent
not included in clause (a) above, materials, contract labor and direct labor
relating thereto (excluding amounts properly expensed as repairs and maintenance
in accordance with GAAP) and (c) software development costs to the extent not
expensed.
1.18. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
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<PAGE>
1.19. "Capitalized Lease Obligations" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with GAAP, including Statement Nos.
13 and 98 of the Financial Accounting Standards Board.
1.20. "Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
issued by any United States financial institution having capital and
surplus and undivided profits aggregating at least $100,000,000 and
rated Prime-1 by Moody's Investors Service, Inc. or A-1 by Standard &
Poor's Corporation (or equivalently rated by any other nationally
recognized rating organization) or issued by any Lender;
(b) short-term corporate obligations rated Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation (or
equivalently rated by any other nationally recognized rating
organization) or issued by any Lender;
(c) any direct obligation of the United States of America or
any agency or instrumentality thereof, or of any state or municipality
thereof, (i) which has a remaining maturity at the time of purchase of
not more than one year or (ii) which is subject to a repurchase
agreement with any Lender (or any other financial institution referred
to in clause (a) above) exercisable within one year from the time of
purchase and (iii) which, in the case of obligations of any state or
municipality, is rated AA or better by Moody's Investors Service, Inc.
or equivalently rated by any other nationally recognized rating
organization; and
(d) any mutual fund or other pooled investment vehicle rated
AA or better by Moody's Investors Service, Inc. or equivalently rated
by any other nationally recognized rating organization which invests
principally in obligations described above.
1.21. "CDSC Funds" means the Funds set forth on Exhibit 6.14, with
dealer commissions no more favorable to the Brokers and Redemption Fees and
Distribution Fees no more favorable to the shareholders of such Funds than as
specified in Exhibit 6.14.
1.22. "Charter" means the articles of organization, certificate of
incorporation, joint venture agreement, partnership agreement, trust indenture
or other charter document of any Person other than an individual, each as from
time to time in effect.
1.23. "CISC" means Colonial Investors Service Center, Inc., a
Massachusetts corporation, and its successors and assigns.
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<PAGE>
1.24. "Class B Share Collection Amount" means, for any period, the sum
of Distribution Fees plus Redemption Fees.
1.25. "Class B New Shares" means Class B Shares sold on or after April
1, 1998.
1.26. "Class B Old Shares" means Class B Shares sold before April 1,
1998.
1.27. "Class B Shares" means any shares (or class of shares) of
beneficial interest or capital stock of any CDSC Fund, upon the redemption of
which a Redemption Fee may be payable at any time, and that are set forth on
Exhibit 6.14.
1.28. "Closing Date" means the Effective Date and each subsequent date
on which any extension of credit is made pursuant to Section 2.
1.29. "Code" means, collectively, the federal Internal Revenue Code of
1986 (or any successor statute) and the rules and regulations thereunder, all as
from time to time in effect.
1.30. "Colonial Management" means Colonial Management Associates,
Inc., a Massachusetts corporation and a Wholly Owned Subsidiary.
1.31. "Commitment" means, with respect to any Lender, such Lender's
Percentage Interest in the obligations to extend the credits contemplated by the
Credit Documents.
1.32. "Commitment Fee Rate" means the greater of (a) the percentage
specified in the table below set forth opposite the S&P's Rating for Liberty
Mutual Capital Corporation specified in such table or (b) the percentage
specified in the table below set forth opposite the Moody's Rating for Liberty
Mutual Capital Corporation specified in such table, in each case as such rating
is reported on the immediately preceding Payment Date:
<TABLE>
<CAPTION>
S&P's Moody's
Rating Percentage Rating
------ ---------- ------
<S> <C> <C>
AA- or higher 0.060% Aa3 or higher
A+ or higher 0.065% A1 or higher
A or higher 0.070% A2 or higher
A- or higher 0.075% A3 or higher
BBB+ or lower 0.090% Baa1 or lower
</TABLE>
1.33. "Commodities Act" means, collectively, the federal Commodities
Exchange Act (or any successor statute), the rules and regulations thereunder
and the rules and regulations of the Commodity Futures Trading Commission (or
any successor), all as from time to time in effect.
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<PAGE>
1.34. "Company" means The Colonial Group, Inc., a Massachusetts
corporation, and its successors and assigns, including any successor by merger.
1.35. "Computation Covenants" means Sections 6.5, 6.9.7 and 6.13.
1.36. "Consolidated" and "Consolidating," when used with reference to
any term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified, consolidated (or
combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries, as required by GAAP.
1.37. "Consolidated Contingent Redemption Amount" means, on any date,
the aggregate Redemption Fees that would then be payable to the Company and the
Subsidiaries if all holders of Class B Shares redeemed such shares on such date.
1.38. "Consolidated Net Income" means, for any period, the net income
(or loss) of the Company and the Subsidiaries, determined in accordance with
GAAP on a Consolidated basis; provided, however, that Consolidated Net Income
shall not include:
(a) the income (or loss) of any Person accrued prior to the
date such Person becomes a Subsidiary or is merged into or consolidated
with the Company or any Subsidiary;
(b) the income (or loss) of any Person (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest; provided, however, that (i) Consolidated Net Income shall
include amounts in respect of the income of such Person when actually
received in cash by the Company or such Subsidiary in the form of
dividends or similar Distributions and (ii) Consolidated Net Income
shall be reduced by the aggregate amount of all Investments, regardless
of the form thereof, made by the Company or any Subsidiary in such
Person for the purpose of funding any deficit or loss of such Person;
(c) all amounts included in computing such net income (or
loss) in respect of the write-up of any asset (and any depreciation and
amortization charges resulting from any such write-up of assets) or the
retirement of any Indebtedness at less than face value after December
31, 1997;
(d) extraordinary and nonrecurring gains; and
(e) any after-tax gains or losses attributable to returned
surplus assets of any Plan.
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<PAGE>
1.39. "Consolidated Net Worth" means, at any date, the total of:
(a) stockholders' equity of the Company and the Subsidiaries
(excluding the effect of any foreign currency translation adjustments
and excluding any depreciation and amortization charges resulting from
the write-up of any asset after December 31, 1997) determined in
accordance with GAAP on a Consolidated basis,
minus (b) the amount by which such stockholders' equity has
been increased by the write-up of any asset of the Company and the
Subsidiaries after December 31, 1997.
1.40. "Consolidated Revenues" means, for any period, the total revenues
of the Company and the Subsidiaries determined in accordance with GAAP on a
Consolidated basis.
1.41. "Consolidated Unreimbursed Sales Commissions" means, for any
period, in each case with respect only to Class B New Shares:
(a) for the first such period after April 1, 1998 the total
of:
(i) Prepaid Brokerage Commissions paid by the
Company and the Subsidiaries during such period;
minus (ii) the sum of Distribution Fees and Redemption Fees
received by the Company and the Subsidiaries during such
period.
(b) for each subsequent period,
(i) Consolidated Unreimbursed Sales Commissions as of
the last day of the previous period;
plus (ii) Prepaid Brokerage Commissions paid by the
Company and the Subsidiaries during such period;
minus (iii) the sum of Distribution Fees and
Redemption Fees received by the Company and the
Subsidiaries during such period.
1.42. "Conversion Date" means April 9, 1999 or such later date as
determined in accordance with Section 2.7.
1.43. "Credit Documents" means:
(a) this Agreement, the Notes, the letter agreement dated as
of April 10, 1998, between the Agent and the Company, the Subsidiary
Guarantee and the Liberty Mutual Guarantee, each as from time to time
in effect;
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<PAGE>
(b) all financial statements, reports, notices and
certificates delivered to any of the Lenders by the Company or any
Subsidiary in connection herewith or therewith; and
(c) any other present or future agreement or instrument from
time to time entered into among the Company, any Subsidiary or any of
their respective Affiliates on the one hand, and the Agent or all the
Lenders, on the other hand, relating to, amending or modifying this
Agreement or any other Credit Document referred to above or which is
stated to be a Credit Document, each as from time to time in effect.
1.44. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company, any Subsidiary or any of their
Affiliates party to a Credit Document owing to any Lender under or in connection
with this Agreement or any other Credit Document, including obligations in
respect of principal, interest, commitment fees, amounts provided for in
Sections 3.2.4, 3.2.6, 3.4 and 9 and other fees, charges, indemnities and
expenses from time to time owing hereunder or under any other Credit Document
(whether accruing before or after a Bankruptcy Default).
1.45. "Credit Participant" is defined in Section 11.2.
1.46. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default.
1.47. "Delinquency Period" is defined in Section 10.4.3.
1.48. "Delinquent Lender" is defined in Section 10.4.3.
1.49. "Delinquent Payment" is defined in Section 10.4.3.
1.50. "Distribution" means, with respect to the Company (or other
specified Person):
(a) the declaration or payment of any dividend, including
dividends payable in shares of capital stock of the Company, on or in
respect of any shares of any class of capital stock of the Company;
(b) the purchase, redemption or other retirement of any shares
of any class of capital stock of the Company (or of options, warrants
or other rights for the purchase of such shares), directly, indirectly
through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of
any class of equity of or beneficial interest in the Company;
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<PAGE>
(d) any payment of principal or interest with respect to, or
any purchase, redemption or defeasance of, any Indebtedness of the
Company which by its terms or the terms of any agreement is
subordinated to the payment of the Credit Obligations; and
(e) any payment, loan or advance by the Company to, or any
other Investment by the Company in, the holder of any shares of any
class of capital stock of or equity or interest in the Company or any
Affiliate of such holder;
provided, however, that the term "Distribution" shall not include payments in
the ordinary course of business in respect of (i) reasonable compensation paid
to employees, officers and directors (including pursuant to the Company's
Profit-Sharing Plan), (ii) advances to employees for travel expenses, drawing
accounts and similar expenditures, (iii) rent paid to or accounts payable for
services rendered or goods sold by non-Affiliates or (iv) intercompany accounts
payable and real property leases to non-Affiliates.
1.51. "Distribution Agreement" means any distribution agreement of
which a Distribution Plan is a part.
1.52. "Distribution Fees" means fees (other than Redemption Fees) paid
by the CDSC Funds to the Company or any Subsidiary, typically at an annual rate
of 0.75% of net asset value attributable to Class B Shares of the CDSC Funds,
pursuant to a Distribution Plan, but not including any "service fee" as defined
in section 26 of Article III of the Rules of Fair Practice (or any successor
provision) of the NASD or any fees remitted by the Company or any Subsidiary to
a Broker as concessions, trailing compensation or service fees, typically
payable at the annual rate of an additional 0.25% of net asset value of the CDSC
Funds.
1.53. "Distribution Fees Collectible" means, on any date, the aggregate
Distribution Fees that would be collected by the Company or any Subsidiary on
the total Class B Shares outstanding on such date over the remaining life of the
Class B Shares, assuming no redemption of the Class B Shares and assuming no
change in the asset value of the Class B Shares in the future.
1.54. "Distribution Plan" means any plan duly adopted by any CDSC Fund
and validly in effect pursuant to Rule 12b-1 under the Investment Company Act
(or similar or successor provisions) pursuant to which such CDSC Fund may make
payments to the Company or any Subsidiary in connection with the distribution of
Class B Shares.
1.55. "Effective Date" means the date on which all the conditions set
forth in Section 5 have been satisfied, which date may not be later than April
10, 1998.
1.56. "ERISA" means, collectively, the Employee Retirement Income
Security Act of 1974 (or any successor statute) and the rules and regulations
thereunder, all as from time to time in effect.
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<PAGE>
1.57. "ERISA Group Person" means the Company, any Subsidiary and any
Person which is a member of the controlled group or under common control with
the Company or any Subsidiary within the meaning of section 414 of the Code or
section 4001(a)(14) of ERISA.
1.58. "Eurodollar Office" means such non-United States office or
international banking facility of any Lender as such Lender may from time to
time select.
1.59. "Eurodollar Rate" for any Interest Period means the rate, rounded
to the nearest 1/100%, obtained by dividing (a) the Basic Eurodollar Rate for
such Interest Period by (b) an amount equal to 1 minus the Eurodollar Reserve
Rate; provided, however, that if at any time during such Interest Period the
Eurodollar Reserve Rate applicable to any outstanding Pricing Option changes,
the Eurodollar Rate for such Interest Period shall automatically be adjusted to
reflect such change, effective as of the date of such change.
1.60. "Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic, supplemental,
marginal or emergency reserve or any reserve asset), if any, as from time to
time in effect, required by any Legal Requirement to be maintained by any Lender
against (a) "Eurocurrency liabilities" as specified in Regulation D of the Board
of Governors of the Federal Reserve System (or any successor regulation)
applicable to a Pricing Option, (b) any other category of liabilities that
includes Eurodollar deposits by reference to which the interest rate on portions
of the Loan subject to a Pricing Option is determined, (c) the principal amount
of or interest on any portion of the Loan subject to a Pricing Option or (d) any
other category of extensions of credit, or other assets, that includes portions
of the Loan subject to a Pricing Option by a non-United States office of any of
the Lenders to United States residents.
1.61. "Eurodollars" means, with respect to any Lender, deposits of
United States Funds in a non-United States office or an international banking
facility of such Lender.
1.62. "Event of Default" means each of (a) the events referred to as
Events of Default in Section 8.1 and (b) the events described in Sections 3(a)
through 3(f) of the Liberty Mutual Guarantee.
1.63. "Exchange Act" means, collectively, the federal Securities
Exchange Act of 1934 (or any successor statute) and the rules and regulations
thereunder, all as from time to time in effect.
1.64. "Executive Officer" means the chief executive officer, chief
operating officer or president of the Company (or other specified Person) or any
vice president of the Company who is not a Financial Officer.
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<PAGE>
1.65. "Federal Funds Rate" means, for any day, (a) the rate equal to
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as such
weighted average is published for such day (or, if such day is not a Banking
Day, for the immediately preceding Banking Day) by the Federal Reserve Bank of
New York or (b) if such rate is not so published for such Banking Day, as
determined by the Agent using any reasonable means of determination. Each
determination by the Agent of the Federal Funds Rate shall, in the absence of
manifest error, be conclusive.
1.66. "Final Term Loan A Maturity Date" means April 9, 1999.
1.67. "Final Term Loan B Maturity Date" means April 9, 2004 or such
later date as determined in accordance with Section 2.7.
<PAGE>
1.68. "Financial Officer" means the chief financial officer, treasurer
or assistant treasurer of the Company (or other specified Person) or a vice
president whose primary responsibility is for the financial affairs of the
Company.
1.69. "Financing Debt" means:
(a) Indebtedness in respect of borrowed money;
(b) Indebtedness evidenced by notes, debentures or similar
instruments;
(c) Indebtedness in respect of Capitalized Leases;
(d) Indebtedness in respect of the deferred purchase price of
assets (other than normal trade accounts payable in the ordinary course
of business);
(e) Indebtedness in respect of mandatory redemption or
dividend rights on capital stock (or other equity);
(f) Indebtedness in respect of unfunded pension liabilities;
and
(g) Indebtedness in respect of financial Guarantees and
letters of credit.
1.70. "Foreign Trade Regulations" means, collectively and as from time
to time in effect (including any successor statutes or regulations), (a) any act
that prohibits or restricts, or empowers the President or executive agencies of
the United States of America to prohibit or restrict, exports to or financial
transactions with any foreign country or foreign national, (b) the regulations
with respect to certain prohibited foreign trade transactions set forth at 15
C.F.R. Parts 730 et seq., 22 C.F.R. Parts 120-130 and 31 C.F.R. Parts 500 et
seq. and (c) any order, regulation, ruling, interpretation, direction,
instruction or notice relating to any of the foregoing.
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<PAGE>
1.71. "Fund" means (a) with respect to any Trust that has more than one
portfolio, the individual portfolios, interests in which are represented by
series of shares of beneficial interest or capital stock of each Trust having
series, for which portfolio the Company or any of its Subsidiaries provides
investment advisory services pursuant to Investment Advisory Contracts and (b)
with respect to any Trust that does not have more than one portfolio, such
Trust.
1.72. "GAAP" means generally accepted accounting principles, as defined
by the United States Financial Accounting Standards Board, as from time to time
in effect; provided, however, that for purposes of compliance with Section 6
(other than Section 6.4) and the related definitions, "GAAP" means such
principles as in effect on December 31, 1997 as applied by the Company and the
Subsidiaries in the preparation of the December 31, 1997 financial statements
previously furnished to the Agent, and consistently followed, without giving
effect to any subsequent changes therein other than changes consented to in
writing by the Required Lenders.
1.73. "Guarantee" means, with respect to the Company (or other
specified Person):
(a) any guarantee by the Company of the payment or performance
of, or any contingent obligation by the Company in respect of, any
Indebtedness or other obligation of any other Person;
(b) any other arrangement whereby credit is extended to a
Person on the basis of any promise or undertaking of the Company
(including any "comfort letter" or "keep well agreement" written by the
Company to a creditor or prospective creditor of such Person) to (i)
pay the Indebtedness of such Person, (ii) purchase an obligation owed
by such Person, (iii) pay for the purchase or lease of assets or
services regardless of the actual delivery thereof or (iv) maintain the
capital, working capital, solvency or general financial condition of
such Person, in each case whether or not such arrangement is disclosed
in the balance sheet of the Company or referred to in a footnote
thereto;
(c) any liability of the Company as a general partner of a
partnership in respect of Indebtedness or other obligations of such
partnership;
(d) any liability of the Company as a joint venturer of a
joint venture in respect of Indebtedness or other obligations of such
joint venture; and
(e) reimbursement obligations with respect to letters of
credit, surety bonds and other financial guarantees;
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Guarantee and the amount of Indebtedness resulting from such Guarantee shall be
the amount which should be carried on the balance sheet of the obligor whose
obligations were guaranteed in respect of such obligations (but without giving
effect to any limitations on recourse against such obligor), determined in
accordance with GAAP.
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1.74. "Guarantor" means any Subsidiary from time to time party to the
Subsidiary Guarantee as a Guarantor thereunder.
1.75. "Inactive Subsidiary" means any Subsidiary that conducts no
business and which has total assets with a fair market value (or book value, if
greater) of less than $25,000.
1.76. "Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the balance
sheet of the Company (or other specified Person) as liabilities, but in any
event including:
(a) liabilities secured by any Lien existing on property owned
or acquired by the Company or any Subsidiary, whether or not the
liability secured thereby shall have been assumed;
(b) Capitalized Lease Obligations;
(c) mandatory redemption, repurchase or dividend obligations
with respect to capital stock (or other evidence of beneficial
interest); and
(d) all endorsements in respect of Indebtedness of others.
1.77. "Indemnified Party" is defined in Section 9.2.
1.78. "Interest Period" means any period, selected as provided in
Sections 3.2.1 and 3.2.3, of one or four weeks or one, two, three or six months,
commencing on any Banking Day and ending on the corresponding day in the
subsequent calendar week or the corresponding date in the subsequent calendar
month so indicated (or, if such subsequent calendar month has no corresponding
date, on the last day of such subsequent calendar month); provided, however,
that subject to Section 3.2.4, if any Interest Period so selected would
otherwise begin or end on a date which is not a Banking Day, such Interest
Period shall instead begin or end, as the case may be, on the immediately
preceding or succeeding Banking Day as determined by the Agent in accordance
with the then current banking practice in the inter-bank Eurodollar market with
respect to Eurodollar deposits at the applicable Eurodollar Office, which
determination by the Agent shall, in the absence of manifest error, be
conclusive.
1.79. "Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap or other contractual arrangement protecting a Person
against increases in variable interest rates on Financing Debt.
1.80. "Investment" means, with respect to the Company (or other
specified Person):
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(a) any share of capital stock, evidence of Indebtedness or
other security issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any acquisition of all or any part of the business of any
other Person or the assets comprising such business or part thereof;
(d) any commitment or option to make any Investment; and
(e) any other similar investment.
The investments described in the foregoing clauses (a) through (e)
shall be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) current trade and customer accounts
receivable for property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with customary trade
terms, (ii) advances and prepayments to suppliers for property leased, goods
furnished and services rendered in the ordinary course of business, (iii)
advances to employees for travel expenses, drawing accounts and similar
expenditures, (iv) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due to the Company or any
Subsidiary or as security for any such Indebtedness or claim or (v) demand
deposits in banks or trust companies.
In determining the amount of outstanding Investments for purposes of
Section 6.9:
(1) the amount of any Investment (other than Investments
referred to in the following clause (2) or (3)) shall be the cost
thereof minus any returns of capital on such Investment (determined in
accordance with GAAP without regard to amounts realized as income on
such Investment);
(2) the amount of any Investment in respect of a commitment or
option to make a purchase shall be the amount of any nonrefundable down
payment or acquisition price plus the amount of any additional fixed
payment obligation;
(3) the amount of any Investment in respect of a Guarantee
shall be the maximum amount that the guarantor may become obligated to
pay in respect of the obligations guaranteed (whether or not such
obligations are outstanding at the time of computation);
(4) the amount of any Investment in respect of a purchase
described in clause (c) above shall be increased by the amount of any
Indebtedness assumed in connection with such purchase or secured by any
asset acquired in such purchase (whether or not any Indebtedness is
assumed) or for which any Person that becomes a Subsidiary is liable on
the date on which the securities of such Person are acquired; and
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(5) no Investment shall be increased as the result of an
increase in the undistributed retained earnings of the Person in which
the Investment was made or decreased as a result of an equity interest
in the losses of such Person.
1.81. "Investment Advisers Act" means, collectively, the federal
Investment Advisers Act of 1940 (or any successor statute) and the rules and
regulations thereunder, all as from time to time in effect.
1.82. "Investment Advisory Contracts" means binding written contractual
agreements under which the Company or any of its Subsidiaries provides
investment advisory services to a Fund or Trust under the Investment Company Act
or the Investment Advisers Act.
1.83. "Investment Company Act" means, collectively, the federal
Investment Company Act of 1940 (or any successor statute) and the rules and
regulations thereunder, all as from time to time in effect.
1.84. "Legal Requirement" means any requirement imposed upon any of the
Lenders by any law of the United States of America or any jurisdiction in which
any Eurodollar Office is located or by any regulation, order, interpretation,
ruling or official directive of the Board of Governors of the Federal Reserve
System or any other board or governmental or administrative agency of the United
States of America, of any jurisdiction in which any Eurodollar Office is
located, or of any political subdivision of any of the foregoing. Any
requirement imposed by any such regulation, order, ruling or official directive
not having the force of law shall be deemed to be a Legal Requirement if any of
the Lenders reasonably believes that compliance therewith is in the best
interest of such Lender.
1.85. "Lenders" means the Agent and the other Persons owning a
Percentage Interest in the Credit Obligations or having a Commitment and their
respective Assignees permitted by Section 11.1.
1.86. "Lending Officer" means such officers or employees of the Agent
as from time to time designated by it in writing to the Company.
1.87. "LFII" means Liberty Financial Investments, Inc., a
Massachusetts corporation and a Wholly Owned Subsidiary.
1.88. "Liberty Mutual Guarantee" means the Guarantee dated as of April
10, 1998, as amended, modified and in effect from time to time, among the
Company, Liberty Mutual Insurance Company and the Agent.
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1.89. "Lien" means, with respect to the Company (or any other
specified Person):
(a) Any encumbrance, mortgage, pledge, lien, charge or
security interest of any kind upon any property or assets of the
Company, whether now owned or hereafter acquired, or upon the income or
profits therefrom.
(b) Any arrangement or agreement which prohibits the Company
from creating encumbrances, mortgages, pledges, liens, charges or
security interests.
(c) The acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease).
(d) The sale, assignment, pledge or transfer for security of
any accounts, general intangibles or chattel paper of the Company, with
or without recourse.
(e) The transfer of any tangible property or assets for the
purpose of subjecting such items to the payment of Indebtedness in
priority to payment of the general creditors of the Company.
(f) The existence for a period of more than 90 consecutive
days of any Indebtedness against the Company which if unpaid would by
law or upon a Bankruptcy Default be given any priority over general
creditors.
1.90. "Loan" means each of the Revolving Loan and the Term Loans.
1.91. "Margin Stock" means "margin stock" within the meaning of
Regulation G, T, U or X (or any successor provisions) of the Board of Governors
of the Federal Reserve System, or any regulations, interpretations or rulings
thereunder, all as from time to time in effect.
1.92. "Material Adverse Change" means a material adverse change since
December 31, 1997 in the business, assets, financial condition or prospects of
the Company (on an individual basis) or the Company and the Subsidiaries (on a
Consolidated basis) (or any other specified Persons), whether as a result of:
(a) general economic conditions affecting the mutual fund
industry,
(b) fire, flood or other natural calamities,
(c) regulatory changes, judicial decisions, war or other
governmental action,
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(d) termination of the Company's or any Subsidiary's status as
a registered investment adviser under the Investment Advisers Act or,
on an involuntary basis, under the laws of states material to the
Company or such Subsidiary's business,
(e) involuntary termination of the status of the Company or
any Subsidiary as a registered broker/dealer in good standing under the
Exchange Act or laws of states material to the Company's or such
Subsidiary's business, or as a member of the NASD in good standing,
(f) termination of the qualification of any Trust or Fund as a
regulated investment company taxed under the rules of subchapter M of
the Code (other than as a result of merger or other voluntary
termination of any Trust or Fund),
(g) the issuance by the Securities and Exchange Commissions of
a stop order suspending the effectiveness of a Trust's or Fund's
registration statement under the Securities Act,
(h) suspension or termination of the registration or approval
of the Company or any Subsidiary under the Commodities Act, or
(i) any other event or development, whether or not related to
those enumerated above.
1.93. "Material Agreements" is defined in Section 7.2.2.
1.94. "Maximum Amount of Credit" means, on any date, the least of:
(a) the Stated Maximum Amount of Credit;
(b) the Consolidated Unreimbursed Sales Commissions for Class
B New Shares as reported for the most recent month for which such
report is required to be furnished to the Lenders in accordance with
Section 6.4.3;
(c) the Consolidated Contingent Redemption Amount for Class B
New Shares as reported for the most recent month for which such report
is required to be furnished to the Lenders in accordance with Section
6.4.3;
(d) the Distribution Fees Collectible for Class B New Shares
as reported for the most recent month for which such report is required
to be furnished to the Lenders in accordance with Section 6.4.3; and
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(e) to the extent less than the Maximum Amount of Credit then
in effect, such amount (in a minimum amount of $10,000,000 and an
integral multiple of $1,000,000) specified by irrevocable notice from
the Company to the Lenders.
1.95. "Multiemployer Plan" means any Plan that is a "multiemployer
plan" as defined in section 4001(a)(3) of ERISA.
1.96. "Moody's Rating" means, at any time, the rating issued by Moody's
Investors Service, Inc. (or any successor thereto) with respect to the senior
unsecured debt of Liberty Mutual Capital Corporation.
1.97. "NASD" means The National Association of Securities Dealers,
Inc. (or any successor self-regulatory organization).
1.98. "Nonperforming Lender" is defined in Section 10.4.3.
1.99. "Notes" means the Revolving Notes and the Term Notes.
1.100. "Payment Agreement" is defined in Section 7.2.2.
1.101. "Payment Date" means the last Banking Day of each March, June,
September and December occurring after the Effective Date.
1.102. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
1.103. "Percentage Interest" is defined in Section 10.1.
1.104. "Performing Lender" is defined in Section 10.4.3.
1.105. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, company, business trust,
trust, organization, business or government or any governmental agency or
political subdivision thereof.
1.106. "Plan" means, at any time, any pension benefit plan subject to
Title IV of ERISA maintained, or to which contributions have been made or are
required to be made, by any ERISA Group Person within six years prior to such
time.
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1.107. "Prepaid Brokerage Commissions" means commissions or other
selling compensation paid or payable by the Company or any Subsidiary to Brokers
in respect of sales of Class B Shares at the respective commission rates for
each CDSC Fund set forth in Exhibit 6.14 without giving effect to any increases
permitted in the ordinary course of business under Section 6.14 or otherwise.
1.108. "Pricing Options" means the options granted pursuant to Section
3.2.1 to have the interest on any portion of the Loan computed on the basis of a
Eurodollar Rate.
1.109. "Prior Credit Agreement" means the Credit Agreement dated as of
May 5, 1993, as amended and restated as of December 17, 1993 and as in effect
prior to the Effective Date, among the Company, the Lenders and BankBoston,
N.A., as agent for itself and the other Lenders.
1.110. "Qualified Institutional Buyer" means:
(a) a duly authorized domestic bank, savings and loan
association, registered investment company, registered investment
adviser or registered dealer, acting for its own account or the
accounts of other Qualified Institutional Buyers, which in the
aggregate owns and invests on a discretionary basis at least $100
million in securities and (if a bank or savings and loan association)
which has a net worth of at least $25 million; or
(b) a foreign bank or savings and loan association or
equivalent institution, acting for its own account or the account of
other Qualified Institutional Buyers, which in the aggregate owns and
invests on a discretionary basis at least $100 million in securities
and has a net worth of at least $25 million; or
(c) any other entity which also constitutes a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act.
1.111. "Redemption Fee" means any amount that is or may be payable to
the Company or any Subsidiary or to any Fund by any holder of Class B Shares in
such capacity upon redemption of all or a portion of the Class B Shares.
1.112. "Register" is defined in Section 11.1.3.
1.113. "Required Lenders" means, with respect to any consent or other
action to be taken by the Agent or the Lenders under the Credit Documents, such
Lenders as own at least the portion of the Percentage Interests required by
Section 10.6 with respect to such consent or other action.
1.114. "Revolving Loan" is defined in Section 2.2.1.
1.115. "Revolving Note" is defined in Section 2.2.3.
1.116. "S&P's Rating" means, at any time, the rating issued by Standard
& Poor's Ratings Group (or any successor thereto) with respect to the senior
unsecured debt of Liberty Mutual Capital Corporation.
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1.117. "Securities Act" means, collectively, the federal Securities Act
of 1933 (or any successor statute) and the rules and regulations thereunder, all
as from time to time in effect.
1.118. "Stated Maximum Amount of Credit" means (i) $40,000,000 or (ii)
such greater amount up to $60,000,000 as determined in accordance with Section
2.6.
1.119. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer.
1.120. "Subsidiary Guarantee" means the guarantee of the Credit
Obligations in substantially the form of Exhibit 5.1.4 from CISC and any other
Subsidiaries (other than Inactive Subsidiaries) that are not broker/dealers for
purposes of the Exchange Act to the Agent for the benefit of the Lenders.
1.121. "Tax" means any tax, levy, duty, deduction, withholding or other
charges of whatever nature at any time required by any Legal Requirement (a) to
be paid by any Lender or (b) to be withheld or deducted from any payment
otherwise required hereby to be made to any Lender, in each case on or with
respect to (i) any Eurodollar deposit which was used (or deemed by Section 3.2.6
to have been used) to fund any portion of the Loan subject to a Pricing Option,
(ii) any portion of the Loan subject to a Pricing Option funded (or deemed by
Section 3.2.6 to have been funded) with the proceeds of any such Eurodollar
deposit, (iii) the principal amount of or interest on any portion of the Loan
subject to a Pricing Option or (iv) funds transferred from a non-United States
office or an international banking facility of such Lender to a United States
office of such Lender in order to fund (or deemed by Section 3.2.6 to have
funded) a portion of the Loan subject to a Pricing Option; provided, however,
that the term "Tax" shall not include (1) taxes imposed upon or measured by the
net income of such Lender, (2) taxes which would have been imposed even if no
provision for Pricing Options appeared in this Agreement or (3) amounts required
to be withheld by such Lender from payments of interest to Persons from whom
Eurodollar deposits were purchased by such Lender.
1.122. "Term Loan A" is defined in Section 2.1.1.
1.123. "Term Loan B" is defined in Section 2.3.1.
1.124. "Term Loans" means Term Loan A and Term Loan B.
1.125. "Term Loan A Note" is defined in Section 2.1.2.
1.126. "Term Loan B Note" is defined in Section 2.3.2.
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1.127. "Term Notes" means each of the Term Loan A Notes and the Term
Loan B Notes.
1.128. "Trust" means each registered investment company under the
Investment Company Act for which the Company or any of its Subsidiaries provides
investment advisory services pursuant to Investment Advisory Contracts and for
which the Company or any Subsidiary is the principal underwriter.
1.129. "UCC" means the Uniform Commercial Code, as in effect from time
to time in The Commonwealth of Massachusetts.
1.130. "Wholly Owned Subsidiary" means any Subsidiary of which all of
the outstanding capital stock (or other shares of beneficial interest) entitled
to vote generally (other than directors' qualifying shares) is owned by the
Company (or other specified Person) directly, or indirectly through one or more
Wholly Owned Subsidiaries.
20 The Credits.
2.1. Term Credit A.
2.1.1. Term Loan A. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, on the Effective Date
the Lenders will lend to the Company as a term loan, in accordance with
their respective Percentage Interests, the aggregate principal amount
of $18,000,000. The aggregate principal amount of the loan made
pursuant to this Section 2.1.1 at any time outstanding is referred to
as "Term Loan A".
2.1.2. Term Loan A Notes. Term Loan A shall be made at the
Boston Office by crediting the amount of such loan to the general
account of the Company with the Agent against delivery to the Agent of
the separate term notes of the Company in substantially the form of
Exhibit 2.1.2 (each a "Term Loan A Note") payable to the respective
Lenders. The Term Loan A Note issued to each Lender shall be in a
principal amount equal to such Lender's Percentage Interest in Term
Loan A. In connection with Term Loan A, the Company shall furnish to
the Agent a certificate in substantially the form of Exhibit 5.2.1,
together with any other documents required by Section 5.
2.2. Revolving Credit.
2.2.1. Revolving Loan. Subject to all of the terms and
conditions of this Agreement and so long as no Default exists, the
Lenders, in accordance with their respective Percentage Interests, will
make loans to the Company in an aggregate principal amount requested in
accordance with Section 2.2.2, but not to exceed at any time
outstanding the Maximum Amount of Credit. The Maximum Amount of Credit
shall be calculated based on the following information with respect to
the Class B New Shares as
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of the respective dates referred to below: (i) on the Consolidated
Unreimbursed Sales Commissions as of the most recently ended month as
reported in accordance with Section 6.4.3(a); (ii) on the Consolidated
Contingent Redemption Amount as of the most recently ended month as
reported in accordance with Section 6.4.3(b); and (iii) on the
Distribution Fees Collectible as of the most recently ended month as
reported in accordance with Section 6.4.3(b); provided, however, that
in each case the calculation of such amounts shall not be made more
than 31 days prior to the date of such calculation. The aggregate
principal amount of the loans made pursuant to this Section 2.1 from
time to time outstanding is referred to as the "Revolving Loan."
2.2.2. Borrowing Requests. Loans will be made to the Company
by the Lenders under this Section 2.1 in any month prior to the
Conversion Date as requested by the Company on the earlier of the
following days, provided that the statements required by Section 6.4.3
are received by the Lenders prior to the time of borrowing on such day:
(i) the sixth Banking Day of such month or (ii) the day of such month
when the statements are received by the Lenders. Not later than 12:00
p.m. (Boston time) on the same Banking Day (third Banking Day if any
portion of such loan will be subject to a Pricing Option on the
requested Closing Date) of each requested Closing Date for any such
loan, the Company will give the Agent notice of its request for a loan
(which may be given by a telephone call received by a Lending Officer
and promptly confirmed in writing), specifying (a) the amount of the
requested loan (not less than $1,000,000 and an integral multiple of
$500,000) and (b) the requested Closing Date therefor. Each such loan
will be made at the Boston Office by depositing the amount thereof to
the general account of the Company with the Agent, or as the Company
may otherwise direct. In connection with each such loan, the Company
shall furnish to the Agent a certificate dated the applicable Closing
Date in substantially the form of Exhibit 5.2.1, together with any
other documents required by Section 5.
2.2.3. Revolving Note. The Revolving Loan shall be evidenced
by the separate revolving notes of the Company in substantially the
form of Exhibit 2.1.3 (each a "Revolving Note") payable to the
respective Lenders in an amount equal to such Lender's Percentage
Interest in the Revolving Loan. Each Lender shall keep a record of the
date and amount of (a) each loan made by such Lender pursuant to this
Section 2.1 and (b) each payment of principal made to such Lender on
the Revolving Loan pursuant to Section 4. Prior to any transfer of any
Revolving Note, the Lender holding such Revolving Note shall record on
a schedule thereto appropriate notations evidencing such dates and
amounts; provided, however, that the failure of any Lender to make any
such recordation shall not affect the obligations of the Company under
this Agreement, the Revolving Notes or any other Credit Document.
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2.3. Term Credit B.
2.3.1. Term Loan B. Subject to all the terms and conditions
hereof and so long as no Default exists, on the Conversion Date the
Lenders will lend to the Company as a term loan, in accordance with
their respective Percentage Interests, an aggregate amount equal to the
principal amount of the Revolving Loan outstanding on such date, which
shall not in any event exceed the Maximum Amount of Credit. The
aggregate principal amount of the loans made pursuant to this Section
2.3.1 at any time outstanding is referred to as "Term Loan B."
2.3.2. Term Loan B Notes. The Term Loan B shall be made at the
Boston Office by crediting the amount of such loan to the Revolving
Loan against delivery to the Agent of the separate term notes of the
Company in substantially the form of Exhibit 2.3.2 (each a "Term Loan B
Note") payable to the respective Lenders. The Term Loan B Note sent to
each Lender shall be in a principal amount equal to such Lender's
respective Percentage Interest in Term Loan B. In connection with the
Term Loan B, the Company shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1, together with any other
documents required by Section 5. Upon issuance of the Term Loan B Notes
in accordance with this Section 2.2, the Revolving Notes shall be
deemed to be canceled.
2.4. Application of Proceeds.
2.4.1. Term Loan A. The Company will apply the proceeds of
Term Loan A to prepay the Revolving Loan under the Prior Credit
Agreement.
2.4.2. Revolving Loan. Subject to Section 2.4.4, the Company
will apply the proceeds of the Revolving Loan only to pay Prepaid
Brokerage Commissions for sales of Class B New Shares.
2.4.3. Term Loan B. The Company will apply the proceeds of the
Term Loan B solely as provided in Section 2.3.2.
2.4.4. Specifically Prohibited Applications. The Company will
not, directly or indirectly, apply any part of the proceeds of any
extension of credit made pursuant to this Agreement to purchase or to
carry Margin Stock or to any transaction prohibited by the Foreign
Trade Regulations, by other Legal Requirements applicable to the
Lenders or by the Credit Documents.
2.5. Nature of Obligations of Lenders to Extend Credit. The Lenders'
obligations under this Agreement to make Term Loan A, the Revolving Loan or Term
Loan B are several and are not joint or joint and several. If any Lender shall
fail to perform its obligations to extend any such credit, the amount of the
commitment of the Lender so failing to perform may be assumed
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by the other Lenders, in their sole discretion, in such proportions as such
Lenders may agree among themselves and the Percentage Interests of each other
Lender shall be appropriately adjusted, but such assumption and adjustment shall
not relieve the Lenders from any of their obligations to make any such extension
of credit or to repay any Delinquent Payment required by Section 10.4.3.
2.6. Increase in Stated Maximum Amount of Credit.
The Company may elect, on any one occasion prior to the
Conversion Date, to increase the Stated Maximum Amount of Credit to an amount
(in integral multiples of $10,000,000) up to $60,000,000, provided that, at the
time of the Agent's receipt of such request, no Default or Event of Default
shall exist. Such election shall be made in writing to the Agent which shall, in
turn, promptly deliver a copy thereof to each Lender. Upon receipt of the
Company's election to increase the Stated Maximum Amount of Credit, any Lender
may (but is not obligated to) elect to increase its maximum principal amount in
the Loan set forth in Section 10.1 and, with the written consent of the Agent
(such consent not to be unreasonably withheld), any one or more additional banks
or financial institutions may become Lenders by undertaking any portion of such
increase in the Stated Maximum Amount of Credit. If, and to the extent that,
existing Lenders and acceptable additional banks or other financial institutions
are not willing to undertake such increase in the Stated Maximum Amount of
Credit in the amount elected by the Company, the Stated Maximum Amount of Credit
shall not be increased. On and as of the date upon which an increase in the
Stated Maximum Amount of Credit pursuant to this Section shall become effective,
each Lender increasing its maximum principal amount in the Loan set forth in
Section 10.1 and each new Lender undertaking any portion of such increase shall
pay to the Agent, for the account of the Lenders, an amount specified by the
Agent that shall be required, upon distribution of such amounts by the Agent to
the Lenders, to cause the outstanding principal balance of each Lender's
Revolving Credit loans to be equal to such Lender's Percentage Interest in all
outstanding Revolving Credit loans. Upon any such increase in the Stated Maximum
Amount of Credit pursuant to this Section, (i) the Company will duly execute and
deliver to each new Lender a Revolving Note, and (ii) the Agent will deliver to
each Lender a revised Section 10.1 to this Agreement reflecting the maximum
principal amount in the Loan and Percentage Interests of the Lenders after
giving effect to such increase.
2.7. Option to Extend Maturities. So long as no Default exists, the
Company may request by notice to each Lender delivered no later than 90 days
prior to the Conversion Date that the Conversion Date be extended for a 364-day
period, commencing on the date the Lenders grant such request, and that the
Final Term Loan B Maturity Date be extended to the fifth anniversary of the new
Conversion Date. The Lenders shall inform the Company by written notice
delivered no later than 60 days prior to the Conversion Date whether the Lenders
will grant such request. In no event shall the Conversion Date and the Final
Maturity Date be extended without the written consent of each Lender in its sole
discretion.
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3. Interest; Pricing Options; Fees.
3.1. Interest. The Loan shall accrue and bear daily interest at a rate
per annum which shall at all times equal the Applicable Rate. Prior to any
stated or accelerated maturity of the Loan, the Company will, on each Payment
Date, pay the accrued and unpaid interest on the portion of the Loan which was
not subject to a Pricing Option. On the last day of each Interest Period or on
any earlier termination of any Pricing Option, the Company will pay the accrued
and unpaid interest on the portion of the Loan which was subject to the Pricing
Option which expired or terminated on such date; provided, however, that in the
case of any Interest Period longer than three months, the Company will also pay
the accrued and unpaid interest on the portion of the Loan subject to the
Pricing Option having such Interest Period on the Banking Day constituting the
90th day after the commencement of such Interest Period (or if such day is not a
Banking Day, the Banking Day immediately preceding such 90th day). On any stated
or accelerated maturity of the Loan, the Company will pay all accrued and unpaid
interest on the Loan, including any accrued and unpaid interest on such portion
of the Loan which is subject to a Pricing Option. In addition, the Company will
on demand pay daily interest on any overdue installments of principal and, to
the extent not prohibited by applicable law, on any overdue installments of
interest and fees owed under any Credit Document at a rate per annum which
equals the sum of 2% plus the highest Applicable Rate then in effect. All
payments of interest hereunder shall be made to the Agent for the account of
each Lender in accordance with the Lenders' respective Percentage Interests.
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3.2. Pricing Options.
3.2.1. Election of Pricing Options. Subject to all of the
terms and conditions hereof and so long as no Default exists, the
Company may from time to time, by irrevocable notice to the Agent
received not less than three Banking Days prior to the commencement of
the Interest Period selected in such notice, elect to have such portion
of the Loan as the Company may specify in such notice accrue and bear
daily interest during the Interest Period so selected at the Applicable
Rate computed on the basis of the Eurodollar Rate. No such election
shall become effective if, prior to the commencement of any such
Interest Period, the Agent determines that (a) the electing or granting
of the Pricing Option in question would violate a Legal Requirement or
(b) Eurodollar deposits in an amount comparable to the principal amount
of the Loan as to which such Pricing Option has been elected and which
have a term corresponding to the proposed Interest Period are not
readily available in the inter-bank Eurodollar market for delivery at
any Eurodollar Office or, by reason of circumstances affecting such
market, adequate and reasonable methods do not exist for ascertaining
the interest rate applicable to such deposits for the proposed Interest
Period. For purposes of determining ready availability of Eurodollar
deposits with respect to a proposed Interest Period, such Eurodollar
deposits shall not be deemed readily available if any Lender shall have
advised the Agent by telephone, confirmed in writing, at or prior to
noon (Boston time) on the second Banking Day prior to the commencement
of such proposed Interest Period that, based upon the knowledge of such
Lender of the Eurodollar market and after reasonable efforts to
determine the availability of such Eurodollar deposits, such Lender
reasonably anticipates that Eurodollar deposits in an amount equal to
the respective Percentage Interest of such Lender in the portion of the
Loan as to which such Pricing Option has been elected and which have a
term corresponding to the Interest Period in question will not be
offered in the Eurodollar market to such Lender at a rate of interest
that does not exceed the Basic Eurodollar Rate.
3.2.2. Notice to Lenders and Company. The Agent will promptly
inform each Lender (by telephone or otherwise) of each notice received
by it from the Company pursuant to Section 3.2.1 and of the Interest
Period specified in such notice. Upon determination by the Agent of the
Eurodollar Rate for such Interest Period or in the event that no such
election shall become effective, the Agent will promptly notify the
Company and each Lender (by telephone or otherwise) of the Eurodollar
Rate so determined.
3.2.3. Selection of Interest Periods. Interest Periods shall
be selected so that:
(a the minimum portion of the Loan subject to any Pricing
Option shall be $1,000,000 and an integral multiple of $500,000;
(b no more than 10 Pricing Options shall be outstanding at
any one time; and
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(c no Interest Period with respect to any part of the Loan
subject to a Pricing Option shall expire later than the Final Maturity
Date.
If on the Conversion Date all or any portion of the Revolving Loan is
subject to one or more effective Pricing Options, then each such
Pricing Option shall apply to an equal amount of the Term Loan until
the expiration of the Interest Period for such Pricing Option.
3.2.4. Additional Interest. If any portion of the Loan which
is subject to a Pricing Option is repaid, or any Pricing Option is
terminated for any reason, on a date which is prior to the last Banking
Day of the Interest Period applicable to such Pricing Option, the
Company will pay to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests, in
addition to any amounts of interest otherwise payable hereunder, an
amount equal to daily interest for the unexpired portion of such
Interest Period on the portion of the Loan so repaid, or as to which a
Pricing Option was so terminated, at a per annum rate equal to the
excess, if any, of (a) the Applicable Rate calculated on the basis of
the rate applicable to such Pricing Option minus (b) the rate of
interest obtainable by the Agent upon the purchase of debt securities
customarily issued by the Treasury of the United States of America
which have a maturity date approximating the last Banking Day of such
Interest Period. For purposes of this Section 3.2.4, if any portion of
the Loan which was to have been subject to a Pricing Option is not
outstanding on the first day of the Interest Period applicable to such
Pricing Option other than for reasons described in Section 3.2.1 or the
failure to advance funds by a Delinquent Lender, the Company shall be
deemed to have terminated such Pricing Option. The determination by the
Agent of such amount of interest shall, in the absence of manifest
error, be conclusive.
3.2.5. Change in Applicable Laws, Regulations, etc. If any
Legal Requirement shall prevent any Lender from funding through the
purchase of deposits any portion of the Loan subject to a Pricing
Option or otherwise from giving effect to such Lender's obligations as
contemplated hereby, (a) the Agent may by notice to the Company
terminate all of the affected Pricing Option, (b) the portion of the
Loan subject to such terminated Pricing Option shall immediately bear
interest thereafter at the Applicable Rate computed on the basis of the
Base Rate and (c) the Company shall make any payment required by
Section 3.2.4.
3.2.6. Taxes. If (a) any Lender shall be subject to any Tax or
(b) the Company shall be required to withhold or deduct any Tax, the
Company will on demand by the Agent or such Lender, accompanied by the
certificate referred to below, pay to the Agent for such Lender's
account such additional amount as is necessary to enable such Lender to
receive net of any Tax the full amount of all payments of principal of,
interest on and fees payable pursuant to a Credit Document. Each Lender
agrees that if, after the payment by the Company of any such additional
amount, any amount identifiable as a part of any Tax
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related thereto is subsequently recovered or used as a credit by such
Lender, such Lender shall reimburse the Company to the extent of the
amount so recovered or used. A certificate of an officer of such Lender
setting forth the amount of such Tax or recovery or use and the basis
therefor shall, in the absence of manifest error, be conclusive.
3.2.7. Funding Procedure. The Lenders may fund any portion of
the Loan subject to a Pricing Option out of any funds available to the
Lenders. Regardless of the source of the funds actually used by any of
the Lenders to fund any portion of the Loan subject to a Pricing
Option, however, all amounts payable hereunder, including the interest
rate applicable to any such portion of the Loan and the amounts payable
under Sections 3.2.4 and 3.2.6, shall be computed as if each Lender had
actually funded such Lender's Percentage Interest in such portion of
the Loan through the purchase of deposits in such amount with a
maturity the same as the applicable Interest Period relating thereto
and through the transfer of such deposits from an office of such Lender
having the same location as the applicable Eurodollar Office to one of
such Lender's offices in the United States of America.
3.3. Commitment Fees. In consideration of the Lenders' commitments to
make extensions of credit provided for in Section 2, while such commitments are
outstanding, the Company will pay to the Agent for the account of the Lenders in
accordance with their respective Percentage Interests, in arrears on (a) each
Payment Date on or prior to the Conversion Date and (b) the Conversion Date, an
amount equal to daily interest, computed at the Commitment Fee Rate, on the
Stated Maximum Amount of Credit.
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3.4. Capital Adequacy. If any Lender shall have determined that (a)
compliance by such Lender with any applicable law, governmental rule, regulation
or order regarding capital adequacy of banks or bank holding companies, or any
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital as a consequence of such Lender's obligations
hereunder to a level below that which such Lender could have achieved but for
such compliance (taking into consideration such Lender's policies with respect
to capital adequacy immediately before such compliance and assuming that such
Lender's capital was fully utilized prior to such compliance) by an amount
deemed by such Lender to be material, or (b) any change in any Legal Requirement
after the date hereof shall directly or indirectly (i) reduce the amount of any
sum received or receivable by such Lender with respect to the Loan, (ii) impose
a cost on such Lender that is attributable to the making or maintaining of, or
such Lender's commitment to make, its portion of the Loan, or (iii) require such
Lender to make any payment on or calculated by reference to the gross amount of
any amount received by such Lender under any Credit Document, then, in the case
of clause (a) or (b), the Company will on demand by the Agent, accompanied by
the certificate referred to below, pay to the Agent from
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time to time as specified by such Lenders as are so affected such additional
amounts as shall be sufficient to compensate such Lenders for such reduced
return, reduction, increased cost or payment together with interest on each such
amount from five Banking Days after the date demanded until payment in full
thereof at the rate of interest on overdue installments of principal provided in
Section 3.1. A certificate of an officer of any such Lender setting forth the
amount to be paid to it and the basis for computation thereof hereunder shall,
in the absence of manifest error, be conclusive. In determining such amount,
such Lender may use any reasonable averaging and attribution methods to allocate
any increased costs in good faith on a reasonably equitable basis. The Company
may at its option elect to seek a substitute Lender (which may be one or more of
the Lenders and which shall be reasonably satisfactory to the Required Lenders
other than the Lender demanding such compensation) to purchase the portion of
the Loan then held by, and to assume the Commitments hereunder of, such Lender.
Until such substitution shall be consummated, the Company shall continue to pay
to such Lender being replaced any amounts required by this Agreement, including
this Section 3.4. Upon any such substitution, the Company (or such substitute
Lender, as applicable) shall pay to such Lender being replaced all principal,
interest and other amounts accrued or owing to such Lender hereunder through the
date of substitution.
3.5. Computations of Interest and Fees. For purposes of this Agreement,
interest and commitment fees (and any amount expressed as interest or such fees)
shall be computed on a daily basis and (a) with respect to any portion of the
Loan subject to a Pricing Option, on the basis of a 360-day year and (b) with
respect to fees or any other portion of the Loan, on the basis of a 365- or
366-day year, as the case may be.
4. Payment.
4.1. Payment at Maturity.
4.1.1. Term Loan A. On the Final Term Loan A Maturity Date or
any accelerated maturity of Term Loan A, the Company will pay to the
Agent for the account of the Lenders an amount equal to Term Loan A
then due, together with all accrued and unpaid interest thereon and all
other Credit Obligations in respect of Term Loan A then outstanding.
4.1.2. Revolving Loan. On the Conversion Date or any
accelerated maturity of the Revolving Loan, the Company will pay to the
Agent for the account of the Lenders an amount equal to the Revolving
Loan then due, together with all accrued and unpaid interest thereon
and all other Credit Obligations in respect of the Revolving Loan then
outstanding.
4.1.3. Term Loan B. On the Final Term Loan B Maturity Date or
any accelerated maturity of Term Loan B, the Company will pay to the Agent for
the account of the Lenders an amount equal to Term Loan B then due, together
with all accrued and unpaid interest thereon and all other Credit Obligations in
respect of Term Loan B then outstanding.
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4.2. Contingent Required Prepayments.
4.2.1. Excess Credit Exposure. If at any time the Revolving
Loan or Term Loan B exceeds the Maximum Amount of Credit either prior
to the Conversion Date or thereafter, whether as a result of changes
with respect to the Class B New Shares in Consolidated Unreimbursed
Sales Commissions, in Distribution Fees Collectible or in the
Consolidated Contingent Redemption Amount or otherwise, the Company
will promptly pay the amount of such excess to the Agent for the
account of the Lenders without premium (except as provided in Section
3.2.4), for credit to the Loan.
4.2.2. Class B Share Collection Amount. Within three days
after furnishing statements required by Section 6.4.3, and in any event
by the ninth Banking Day of each month, the Company will, as a
mandatory prepayment on account of Term Loan A with respect to the
Class B Old Shares and the Revolving Loan or Term Loan B with respect
to the Class B New Shares, pay to the Agent for the account of each
Lender, without premium (except as provided in Section 3.2.4), an
amount equal to the Class B Share Collection Amount for the period
covered by the statements so required to be furnished with respect to
the Class B Old Shares and Class B New Shares, respectively (giving
credit for any payments made in accordance with Section 4.2.1 on the
Revolving Loan or Term Loan B as a result of decreases in Consolidated
Unreimbursed Sales Commissions with respect to the Class B New Shares
during such period) minus any voluntary prepayments with respect to
such Loan made since the beginning of such period.
4.3. Mandatory Prepayment of Term Loan B. In addition to any amounts
paid in accordance with Section 4.2, the Company will, as a mandatory prepayment
of the Term Loan B, pay to the Agent for the Lenders' accounts on each Payment
Date, commencing on the last Banking Day of the first full calendar quarter
after the Conversion Date, an amount equal to the lesser of (a) the amount, if
any, by which (i) 5% of the Term Loan B outstanding on the Conversion Date
exceeds (ii) any prepayments made since the prior Payment Date under Section 4.2
or (b) the amount of the Term Loan B.
4.4. Voluntary Prepayments. In addition to the prepayments required by
Sections 4.2 and 4.3, the Company may from time to time prepay all or any
portion of the Loan (in integral multiples of $1,000,000), without premium
(except as provided in Section 3.2.4 with respect to Pricing Options). Any
prepayments of Term Loan A and Term Loan B shall be applied in the inverse order
of maturity with respect to such Term Loan. The Company shall give the Agent at
least five Banking Days' prior notice of its intention to prepay, specifying the
date of payment, which Loan is to be prepaid, the total principal amount of such
Loan to be paid on such date and the amount of interest to be paid with such
prepayment.
4.5. Reborrowing; Application of Payments. The amounts of the Revolving
Loan prepaid pursuant to Section 4.4 may be reborrowed from time to time prior
to the Conversion
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Date in accordance with Section 2.1. No portion of the Term Loans prepaid
hereunder may be reborrowed. Any prepayment of the Loan shall be applied first
to the portion of the Loan not then subject to Pricing Options, then the balance
of any such prepayment shall be applied to the portion of the Loan then subject
to Pricing Options, in the chronological order of the respective maturities
thereof, together with any payments required by Section 3.2.4. All payments of
principal hereunder shall be made to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests.
4.6. Payment with Accrued Interest, etc. Upon all prepayments of the
Term Loan, the Company shall pay to the Agent for each Lender's account the
principal amount to be prepaid together with unpaid interest in respect thereof
accrued to the date of prepayment. Notice of prepayment having been given in
accordance with Section 4.4, and whether or not notice is given of prepayments
pursuant to Sections 4.2 and 4.3, the amount specified to be prepaid shall
become due and payable on the date specified for prepayment.
5. Conditions to Extending Credit.
5.1. Conditions on Effective Date. The obligations of the Lenders to
make any extension of credit pursuant to Section 2 shall be subject to the
satisfaction, on or before the Effective Date, of the following conditions (in
addition to the further conditions in Section 5.2):
5.1.1. Notes. The Company shall have duly executed the Term
Loan A Notes and the Revolving Notes and delivered them to the Agent
for each Lender.
5.1.2. Payment of Fees. The Company shall have paid to the
Agent (a) for the Lenders' accounts, the commitment fee required by
Section 3.3 and (b) for the Agent's account, the fees as separately
agreed between the Company and the Agent.
5.1.3. Legal Opinions. On the Effective Date, the Lenders
shall have received from the following counsel their respective
opinions with respect to the transactions contemplated by the Credit
Documents, which opinions shall be in form and substance satisfactory
to the Lenders:
(a Nancy L. Conlin, Vice President and Counsel of the Company
and the Subsidiaries.
(b Ropes & Gray, special counsel for the Agent.
5.1.4. Guarantees. The Liberty Mutual Guarantee and
Subsidiary Guarantee shall be in full force and effect.
5.1.5. Investment Assets Under Management. On the Effective
Date, the aggregate investment assets under management by the Company
and the Subsidiaries
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shall equal or exceed $17,000,000,000, and the Company shall have
furnished to the Agent on such date a certificate to such effect signed
by an Executive Officer or a Financial Officer.
5.2. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of credit,
of the following conditions:
5.2.1. Officer's Certificate. The representations and
warranties contained in Section 7 shall be true and correct on and as
of the Closing Date with the same force and effect as though originally
made on and as of such date; no Default shall exist on such Closing
Date prior to or immediately after giving effect to the requested
extension of credit; as of such Closing Date, no Material Adverse
Change shall have occurred; and the Company shall have furnished to the
Agent on such Closing Date a certificate to these effects, in
substantially the form of Exhibit 5.2.1, signed by an Executive Officer
or a Financial Officer.
5.2.2. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall
have been authorized by all necessary proceedings of the Company and
any of its Affiliates party thereto. All necessary consents, approvals
and authorizations of any governmental or administrative agency or any
other Person of any of the transactions contemplated hereby or by any
other Credit Document shall have been obtained and shall be in full
force and effect.
5.2.3. Legality, etc. The making of the requested extension of
credit shall not (a) subject any Lender to any penalty or special tax
(other than a Tax for which the Company has reimbursed the Lenders
under Section 3.2.6), (b) be prohibited by any law or governmental
order or regulation applicable to any Lender or the Company or (c)
violate any voluntary credit restraint program of the executive branch
of the government of the United States of America, the Board of
Governors of the Federal Reserve System or any other governmental or
administrative agency so long as any Lender reasonably believes that
compliance therewith is in the best interests of such Lender.
6. General Covenants. The Company covenants that, until all of the Credit
Obligations shall have been paid in full and until the Lenders' commitments to
extend credit under this Agreement and any other Credit Document shall have been
irrevocably terminated, the Company and the Subsidiaries will comply with such
of the following provisions as are applicable to the Person in question:
6.1. Taxes and Other Charges; Accounts Payable.
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6.1.1. Taxes and Other Charges. Each of the Company and the
Subsidiaries will duly pay and discharge, or cause to be paid and
discharged, before the same shall become in arrears, all taxes,
assessments and other governmental charges imposed upon such Person and
its properties, sales or activities, or upon the income or profits
therefrom, as well as all claims for labor, materials or supplies which
if unpaid might by law become a Lien upon any of its property;
provided, however, that any such tax, assessment, charge or claim need
not be paid if the validity or amount thereof shall at the time be
contested in good faith by appropriate proceedings and if such Person
shall, in accordance with GAAP, have set aside on its books adequate
reserves with respect thereto; and provided, further, that each of the
Company and the Subsidiaries will pay or bond, or cause to be paid or
bonded, all such taxes, assessments, charges or other governmental
claims immediately upon the commencement of proceedings to foreclose
any Lien which may have attached as security therefor (except to the
extent such proceedings have been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Company and the
Subsidiaries will promptly pay when due, or in conformity with
customary trade terms, all other Indebtedness incident to the
operations of such Person; provided, however, that any such
Indebtedness need not be paid if the validity or amount thereof shall
at the time be contested in good faith and if such Person shall, in
accordance with GAAP, have set aside on its books adequate reserves
with respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Company and the Subsidiaries
will engage only in the business of providing investment advisory,
distribution, portfolio execution, administration and transfer agency
services, pricing and bookkeeping services and other services
incidental or closely related to the investment advisory and investment
company complex business.
6.2.2. Maintenance of Properties. Each of the Company and
the Subsidiaries:
(a will keep its properties in such repair, working order and
condition, and will from time to time make such repairs, replacements,
additions and improvements thereto for the efficient operation of its
businesses and will comply at all times in all material respects with
all franchises, licenses and leases to which it is party so as to
prevent any loss or forfeiture thereof or thereunder, unless compliance
is at the time being contested in good faith by appropriate
proceedings; and
(b except to the extent permitted under Section 6.11, will do
all things necessary to preserve, renew and keep in full force and
effect and in good standing its legal existence and authority necessary
to continue its business (other than in the case of an Inactive
Subsidiary).
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6.2.3. Compliance with Material Agreements. Each of the
Company and the Subsidiaries will comply in all material respects with
the provisions of the Material Agreements (to the extent not
inconsistent with this Agreement or any other Credit Document). Without
the prior written consent of the Required Lenders, no Material
Agreement shall be amended, modified, waived or terminated in any
manner that would have in any material respect an adverse effect on the
interests of the Lenders.
6.2.4. Statutory Compliance. Each of the Company and the
Subsidiaries will comply, and will use reasonable efforts to cause the
Trusts and Funds to comply to the extent applicable (subject to the
discretion of their trustees and directors and other than a reasonable
business decision to merge or terminate any Trust or Fund), in all
material respects with the Investment Company Act (including (a)
receipt of financial statements accompanied by an auditor's report of
Price Waterhouse (or other independent public accountants of nationally
recognized standing), (b) maintenance of a fidelity bond to secure the
Funds from larceny and embezzlement and (c) continued registration in
full force and effect of each Trust as a registered investment
company), the Investment Advisers Act (including Colonial Management's
continued status as a registered investment adviser), the Exchange Act,
the Securities Act (including the continued registration of the shares
representing beneficial interests of, or common stock in, each Fund or
Trust), the rules and regulations of the NASD, subchapter M of the Code
(to the extent of each Fund's or Trust's continued qualification as a
regulated investment company thereunder and subject to the Company's
reasonable business judgment that such compliance is not in the
interests of the Fund or Trust), the Commodities Act, any other law,
statute, rule or regulation governing investment advisers, investment
companies, broker-dealers, underwriters, custodians or transfer agents,
including capital requirements, and all other valid and applicable
statutes, ordinances, zoning and building codes and other rules and
regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions
applicable to such Person, except where compliance therewith shall at
the time be contested in good faith by appropriate proceedings or where
failure so to comply has not resulted, or does not pose a material risk
of resulting, in the aggregate in any Material Adverse Change.
6.3. Insurance.
6.3.1. Business Interruption Insurance. Each of the Company
and the Subsidiaries will maintain with financially sound and reputable
insurers insurance related to interruption of business, either for loss
of revenues or for extra expense, in the manner customary for similar
businesses similarly situated.
6.3.2. Errors and Omissions Insurance. Each of the Company and
the Subsidiaries will maintain a joint errors and omissions policy
insuring the Company and
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each Subsidiary for losses arising from any breach of duty, error or
omission arising from the performance of transfer agency services in
such amounts as are customarily carried by Persons of established
reputation engaged in the same or a similar business and similarly
situated.
6.3.3. Directors and Officers Insurance. Each of the Company
and the Subsidiaries will maintain directors and officers liability
insurance insuring the Company and each Subsidiary in such amounts as
are customarily carried by Persons of established reputation employed
in the same or a similar business and similarly situated.
6.3.4. Property Insurance. Each of the Company and the
Subsidiaries will keep its assets which are of an insurable character
insured by financially sound and reputable insurers against theft and
fraud and against loss or damage by fire, explosion or hazards to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities. Such insurance shall provide extended coverage in amounts
sufficient to prevent such Person from becoming a co-insurer.
6.3.5. Liability Insurance. Each of the Company and the
Subsidiaries will maintain with financially sound and reputable
insurers insurance against liability for hazards, risks and liability
to persons and property, including product liability insurance, to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities; provided, however, that it may effect workers' compensation
insurance or similar coverage with respect to operations in any
particular state or other jurisdiction through an insurance fund
operated by such state or jurisdiction or by meeting the self-insurance
requirements of such state or jurisdiction.
6.4. Financial Statements and Reports. Each of the Company and the
Subsidiaries will maintain a system of accounting in which correct entries will
be made of all transactions in relation to their business and affairs in
accordance with GAAP. The fiscal year of the Company and the Subsidiaries will
end on December 31 in each year.
6.4.1. Annual Reports. The Company will furnish to the Lenders
as soon as available, and in any event within 90 days after the end of
each fiscal year of the Company, the internally prepared Consolidated
balance sheet of the Company and the Subsidiaries as at the end of such
fiscal year and the Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and the
Subsidiaries for such fiscal year (all in reasonable detail), together
with comparative figures for the preceding fiscal year or fiscal year
end, all accompanied by:
(a A report by Ernst & Young LLP (or, if they cease to be
auditors of Liberty Financial Companies, Inc., other independent
certified public accountants of recognized
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national standing reasonably satisfactory to the Required Lenders) that
in the course of their annual audit of Liberty Financial Companies,
Inc. and its Subsidiaries nothing came to their attention that caused
them to believe that the Company failed to comply with the terms,
covenants, provisions and conditions of Section 6.5, as calculated on
an annual basis that coincides with the Company's fiscal year end,
insofar as they relate to accounting matters. The report is furnished
by such accountants with the understanding that their audit was not
directed primarily toward obtaining knowledge of such noncompliance.
Further, it is understood that the report is intended solely for the
information and use of (i) the management of the Company and (ii) the
Lenders hereunder, and cannot be used for any other purpose without the
prior written consent of such accountants.
(b A certificate of the Company signed by a Financial Officer
to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Company and the Subsidiaries covered thereby
at the dates thereof and the results of their operations for the
periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(c A certificate of the Company signed by a Financial Officer
to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof, and
what action the Company has taken, is taking or proposes to take with
respect thereto.
(d In the event of a change in GAAP after the date hereof,
computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements referred to above with financial statements prepared in
accordance with GAAP as applied to the other covenants in Section 6 and
the related definitions.
(e Computations by the Company demonstrating, as of the end of
such fiscal year, compliance with the Computation Covenants.
(f Calculations, as at the end of the fiscal year covered by
such financial statements, of (i) the Accumulated Benefit Obligations
for each Plan covered by Title IV of ERISA (other than Multiemployer
Plans) and (ii) the fair market value of the assets of such Plan
allocable to such benefits.
(g Supplements to Exhibit 7.1 showing any changes in the
information set forth in such Exhibits during the last quarter of such
fiscal year, as well as any changes in the Charter, Bylaws or
incumbency of officers of the Company and the Subsidiaries from those
previously certified to the Agent.
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6.4.2. Quarterly Reports. The Company will furnish to the
Lenders as soon as available and, in any event, within 45 days after
the end of each of the first three fiscal quarters of the Company, the
internally prepared Consolidated balance sheet of the Company and the
Subsidiaries as of the end of such fiscal quarter and the Consolidated
statements of income, changes in shareholders' equity and cash flows of
the Company and the Subsidiaries for such fiscal quarter and for the
portion of the fiscal year then ending (all in reasonable detail),
together with comparative figures for the same date or period in the
preceding fiscal year, all accompanied by:
(a A certificate of the Company signed by a Financial Officer
to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Company and the Subsidiaries covered thereby
at the dates thereof and the results of their operations for the
periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(b In the event of a change in GAAP after the date hereof,
computations by the Company, certified by a Financial Officer,
reconciling the financial statements referred to above with financial
statements prepared in accordance with GAAP as applied to the other
covenants in Section 6 and related definitions.
(c Computations by the Company demonstrating, as of the end
of such quarter, compliance with the Computation Covenants.
(d Supplements to Exhibits 7.1 and 7.4 showing any changes in
the information set forth in such Exhibits during such fiscal quarter,
as well as any changes in the Charter, Bylaws or incumbency of officers
of the Company and the Subsidiaries from those previously certified to
the Agent.
(e A certificate of the Company signed by a Financial Officer
to the effect that such officer has caused this Agreement to be
reviewed and has no knowledge of any Default, or if such officer has
such knowledge, specifying such Default and the nature thereof and what
action the Company has taken, is taking or proposes to take with
respect thereto.
6.4.3. Borrowing Base Reports. The Company will furnish to
the Lenders:
(a on the sixth Banking Day of each month, a certificate of an
Executive Officer or Financial Officer supplying computations of
Consolidated Unreimbursed Sales Commissions with respect to the Class B
New Shares and the Class B Old Shares, respectively, for the preceding
month and ending on such date; and
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(b on the sixth Banking Day of each month, a certificate of an
Executive Officer or Financial Officer supplying:
(i) computations of the Consolidated Contingent
Redemption Amount and Distribution Fees Collectible with
respect to the Class B New Shares and the Class B Old Shares,
respectively, at the last day of the preceding month; and
(ii) reconciliation of beginning and ending balances
of the Funds on an aggregate basis with respect to the Class B
New Shares and the Class B Old Shares, respectively, showing
sales and redemptions as set forth in Exhibit 6.4.3.
(c the above reports shall not be required for the Class B Old
Shares when Term Loan A has been paid in full.
6.4.4. Other Reports. The Company will promptly furnish to
the Lenders:
(a As soon as prepared and in any event before January 31 in
each year, an annual budget and operating projections for such fiscal
year of the Company and the Subsidiaries, prepared in a manner
consistent with the manner in which the financial projections described
in Section 7.2.1 were prepared.
(b Any material updates of such budget and projections.
(c Any management letters furnished to the Company or any
Subsidiary by the Company's auditors.
(d All budgets, projections, Consolidated statements of
operations and other reports furnished by the Company or any Subsidiary
generally to the shareholders of the Company in such capacity.
(e Such registration statements, proxy statements and reports,
including Forms 10-K, 10-Q, 8-K, ADV and BD, as may be filed by the
Company or any Subsidiary (but in no event including the Trusts and
Funds) with the Securities and Exchange Commission.
(f Any 90-day letter or 30-day letter from the federal
Internal Revenue Service asserting tax deficiencies against the Company
and the Subsidiaries.
(g Upon the request of the Agent or the Required Lenders, the
Trust financial statements and auditor opinions required by Section
6.2.4.
6.4.5. Notice of Litigation; Notice of Defaults. The Company
will promptly furnish to the Lenders notice of any litigation or any
administrative or arbitration
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proceeding to which the Company or any Subsidiary may hereafter become
a party which poses a material risk of resulting, after giving effect
to any applicable insurance, in the payment by the Company and the
Subsidiaries of at least $500,000 or which seeks to enjoin or questions
the validity or enforceability of any Credit Document. Promptly upon
acquiring knowledge thereof, the Company will notify the Lenders of the
existence of any Default, specifying the nature thereof and what action
the Company or any Subsidiary has taken, is taking or proposes to take
with respect thereto.
6.4.6. ERISA Reports. The Company will furnish to the Lenders
as soon as available the following items with respect to any Plan:
(a any request for a waiver of the funding standards or an
extension of the amortization period,
(b any reportable event (as defined in section 4043 of ERISA),
unless the notice requirement with respect thereto has been waived by
regulation,
(c any notice received by any ERISA Group Person that the PBGC
has instituted or intends to institute proceedings to terminate any
Plan, or that any Multiemployer Plan is insolvent or in reorganization,
(d notice of the possibility of the termination of any Plan
by its administrator pursuant to section 4041 of ERISA, and
(e notice of the intention of any ERISA Group Person to
withdraw, in whole or in part, from any Multiemployer Plan.
6.4.7. Other Information. From time to time upon request of
any authorized officer of any Lender, each of the Company and the
Subsidiaries will furnish to the Lenders such other information
regarding the business, assets, financial condition, income or
prospects of the Company and the Subsidiaries as such officer may
reasonably request, including copies of all tax returns, licenses,
agreements, contracts, leases and instruments to which any of the
Company or the Subsidiaries is party, including copies of the
Investment Advisory Contracts, Distribution Plans or Distribution
Agreements, principal underwriting agreements and custodian, registrar,
transfer agent and shareholder services contracts of the Company, the
Subsidiaries and the Funds. The Lenders' authorized officers and
representatives shall have the right during normal business hours upon
reasonable notice and at reasonable intervals to examine the books and
records of the Company and the Subsidiaries, to make copies, notes and
abstracts therefrom and to make an independent examination of their
books and records, for the purpose of verifying the accuracy of the
reports delivered by any of the Company and the Subsidiaries pursuant
to this Section 6.4 or otherwise and ascertaining compliance with or
obtaining enforcement of this Agreement or any other Credit Document.
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6.5. Certain Financial Tests.
6.5.1. Consolidated Net Worth. Consolidated Net Worth shall
at all times equal or exceed $150,000,000.
6.5.2. Consolidated Net Income. For each period of four
consecutive fiscal quarters of the Company, Consolidated Net Income
shall exceed $0.
6.6. Financing Debt. So long as immediately before or after giving
effect thereto any Default shall exist, neither the Company nor any Subsidiary
will create, incur, assume or otherwise become liable with respect to any
Financing Debt.
6.7. [Intentionally omitted.]
6.8. Liens. Neither the Company nor any Subsidiary shall create, incur
or enter into, or suffer to be created or incurred or to exist, any Lien
(including any arrangement or agreement which prohibits it from creating any
Lien), except the following:
6.8.1. Restrictions on transfer and Liens contained in the
Credit Documents.
6.8.2. Liens to secure taxes, assessments and other
governmental charges, to the extent that payment thereof shall not at
the time be required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection with, or to
secure payment of, workers' compensation, unemployment insurance, old
age pensions or other social security, (b) in connection with casualty
insurance maintained in accordance with Section 6.3, (c) to secure the
performance of bids, tenders, contracts (other than contracts relating
to Financing Debt) or leases, (d) to secure statutory obligations or
surety or appeal bonds, (e) to secure indemnity, performance or other
similar bonds in the ordinary course of business or (f) in connection
with contested payments to the extent that payment thereof shall not at
that time be required by Section 6.1.
6.8.4. Liens in respect of judgments or awards, to the extent
that such judgments or awards are permitted by Section 6.6.5.
6.8.5. Liens of carriers, warehousemen, mechanics and similar
Liens, in each case (a) in existence less than 90 days from the date of
creation thereof or (b) being contested in good faith by the Company or
any Subsidiary in appropriate proceedings (so long as the Company or
such Subsidiary shall, in accordance with GAAP, have set aside on its
books adequate reserves with respect thereto).
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6.8.6. Encumbrances in the nature of (a) zoning restrictions,
(b) easements, (c) restrictions of record on the use of real property,
(d) landlords' and lessors' Liens on rented premises and (e)
restrictions on transfers or assignments of leases, which in each case
do not materially detract from the value of the encumbered property or
impair the use thereof in the business of the Company or any
Subsidiary.
6.8.7. Restrictions under federal and state securities laws on
the transfer of securities.
6.8.8. Restrictions under Foreign Trade Regulations on the
transfer or licensing of certain assets of the Company and the
Subsidiaries.
6.8.9. Set-off rights of depository institutions with which
the Company or any Subsidiary maintains deposit accounts.
6.8.10. Liens constituting (a) purchase money security
interests (including mortgages, conditional sales, Capitalized Leases
and any other title retention or deferred purchase devices) in real
property, interests in leases or tangible personal property existing or
created on the date on which such property is acquired, and (b) the
renewal, extension or refunding of any security interest referred to in
the foregoing clause (a) in an amount not to exceed the amount thereof
remaining unpaid immediately prior to such renewal, extension or
refunding; provided, however, that each such security interest shall
attach solely to the particular item of property so acquired, and the
principal amount of Indebtedness (including Indebtedness in respect of
Capitalized Lease Obligations) secured thereby shall not exceed the
cost (including all such Indebtedness secured thereby, whether or not
assumed) of such item of property; and provided, further, that the
aggregate principal amount of all Indebtedness secured by Liens
permitted by this Section 6.8.10 shall not exceed the amount permitted
by Sections 6.6.9 and 6.6.12.
6.8.11. Any prohibition imposed by applicable law, including
section 15(a) of the Investment Company Act and section 205 of the
Investment Advisers Act, or any regulatory agency, on the creation of
Liens and the assignment of contracts.
6.8.12. Restrictive covenants limiting the Company and the
Subsidiaries from creating or allowing to exist Liens customarily
included in agreements for Financing Debt permitted by Section 6.6.12,
but in no event including any restrictions on the creation or existence
of Liens on Distribution Fees or Redemption Fees with respect to Class
B Shares sold on or prior to the Conversion Date.
6.9. Investments and Acquisitions. Neither the Company nor any
Subsidiary will have outstanding, acquire, commit itself to acquire or hold any
Investment (including any Investment consisting of the acquisition of any
business) except for the following:
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6.9.1. Investments of the Company and the Subsidiaries in
Wholly Owned Subsidiaries; provided, however, that so long as
immediately before and after giving effect thereto no Default exists,
Investments in Wholly Owned Subsidiaries may be made only to the extent
reasonably necessary for the conduct of the business permitted by
Section 6.2.1.
6.9.2. Investments in Cash Equivalents.
6.9.3. Intercompany loans and advances by and among the
Company and the Guarantors.
6.9.4. Other intercompany loans and advances from the Company
or any Subsidiary to any other Subsidiary which is not a Guarantor or
the Company, but only to the extent reasonably necessary for
Consolidated tax planning and working capital management.
6.9.5. Prepaid royalties and fees paid in the ordinary course
of business.
6.9.6. Investments in investment companies sponsored by the
Company for which the Company or any Subsidiary is or will become the
investment adviser.
6.9.7. Other Investments in an amount not exceeding
$75,000,000 in the aggregate.
6.10. Distributions. So long as immediately before or after giving
effect thereto any Default shall exist, neither the Company nor any of the
Subsidiaries shall make any Distribution.
6.11. Merger, Consolidation and Dispositions of Assets. Neither the
Company nor any of the Subsidiaries will become party to any merger or
consolidation or will sell, lease, sell and lease back, sublease or otherwise
dispose of any of its assets, except the following:
6.11.1. The Company and any Subsidiary may sell or otherwise
dispose of (a) inventory in the ordinary course of business, (b)
tangible assets to be replaced in the ordinary course of business by
other tangible assets of equal or greater value and (c) tangible assets
or stock or assets of Inactive Subsidiaries that are no longer used or
useful in the business of the Company or such Subsidiary; provided,
however, that the aggregate fair market value (or book value if
greater) of such assets, rights or stock no longer being used or useful
shall not exceed $5,000,000 in any fiscal year.
6.11.2. Any Subsidiary may merge or be liquidated into the
Company or any other Subsidiary.
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6.11.3. The Company may license software rights related to its
fund and shareholder accounting systems to other Persons in the
ordinary course of business and transfer source code to such software
in accordance with customary license terms.
6.11.4. So long as immediately before and after giving effect
thereto no Default exists, the Company may dispose, after the
Conversion Date, of its rights to receive Distribution Fees and
Redemption Fees in respect of Class B Shares or any similar shares of
any Fund sold after the Conversion Date.
6.12. Issuance of Stock by Subsidiaries; Subsidiary Distributions;
Subsidiary Guarantors.
6.12.1. Issuance of Stock by Subsidiaries. No Subsidiary shall
issue or sell any shares of its capital stock or other evidence of
beneficial ownership to any Person other than the Company or any Wholly
Owned Subsidiary of the Company.
6.12.2. No Restrictions on Subsidiary Distributions. Neither
the Company nor any Subsidiary will enter into or be bound by any
agreement (including covenants requiring the maintenance of specified
amounts of net worth or working capital) restricting the right of any
Subsidiary to make Distributions or extensions of credit to the Company
(directly or indirectly through another Subsidiary).
6.12.3. Subsidiary Guarantors. The Company agrees to cause any
Subsidiary that is not a broker/dealer for purposes of the Exchange Act
or an Inactive Subsidiary to enter into the Subsidiary Guarantee
pursuant to a joinder satisfactory to the Agent.
6.13. ERISA, etc. Each of the Company and the Subsidiaries will comply,
and will cause all ERISA Group Persons to comply, in all material respects, with
the provisions of ERISA and the Code applicable to each Plan. Each of the
Company and the Subsidiaries will meet, and will cause all ERISA Group Persons
to meet, all minimum funding requirements applicable to them with respect to any
Plan pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $1,000,000. The Company and the Subsidiaries will not withdraw, and will
cause all other ERISA Group Persons not to withdraw, in whole or in part, from
any Multiemployer Plan so as to give rise to withdrawal liability exceeding
$1,000,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $1,000,000.
6.14. Maintenance of Fee Structure. With respect to the Class B Shares,
neither the Company nor any Subsidiary shall cause dealer commissions to be
amended to be more
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favorable to the Brokers or Redemption Fees to be amended to be more favorable
to the shareholders of the CDSC Funds. The Company or any Subsidiary, as the
case may be, shall continue to receive Distribution Fees at rates no less
favorable than the minimum amounts set forth on Exhibit 6.14 and shall continue
to act as sole distributor of each Fund and to be the only Person to whom the
Funds are permitted to make any payments under the respective Distribution Plan
or Distribution Agreement. Exhibit 6.14 may be amended from time to time by the
Company upon 60 days prior notice to the Agent, and the Agent shall give prompt
notice thereof to the other Lenders, only to add to such Exhibit a Fund with
dealer reallowances no more favorable to the Brokers and Redemption Fees and
Distribution Fees no more favorable to the shareholders of such Fund than those
applicable to the Funds set forth on Exhibit 6.14 on the date hereof. The
Company may offer increases in the commission rates for the sale of Class B
Shares by Brokers in the ordinary course of business, but may not use the
proceeds of the Revolving Loan to pay such increases in the commissions.
7. Representations and Warranties. In order to induce the Lenders to extend
credit to the Company hereunder, the Company represents and warrants that:
7.1. Organization and Business.
7.1.1. Company. The Company is a duly organized and validly
existing corporation, in good standing under the laws of Massachusetts,
with all power and authority, corporate or otherwise, necessary to (a)
enter into and perform this Agreement and each other Credit Document to
which it is party and make the borrowings hereunder and (b) own its
properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charter and By-laws of the
Company have been previously delivered to the Agent and are correct and
complete. Exhibit 7.1, as from time to time hereafter supplemented in
accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the end of
the most recent fiscal year or quarter for which such financial
statements are required to be furnished, (i) the jurisdiction of
incorporation of the Company, (ii) the address of the Company's
principal executive office and chief place of business and (iii) the
name under which the Company conducts its business and the
jurisdictions in which the name is used.
7.1.2. Subsidiaries. Each Subsidiary is duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party and (b)
own its properties and carry on the business now conducted or proposed
to be conducted by it. Certified copies of the Charter and By-laws of
Colonial Management and each Subsidiary that is party to the Subsidiary
Guarantee have been previously delivered to the Agent and are correct
and complete. Exhibit 7.1, as from time to time hereafter supplemented
in accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the end
of the most recent fiscal year or quarter for which such financial
statements are required to be furnished, (i) the name and jurisdiction
of organization of each Subsidiary, (ii) the address of the chief
executive office and principal place of business of each Subsidiary,
(iii) each name under which each Subsidiary conducts its business and
the jurisdictions in which each such name is used and (iv) the number
of authorized and issued shares and ownership of each Subsidiary.
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7.1.3. Qualification. Except as set forth on Exhibit 7.1, as
from time to time supplemented in accordance with Sections 6.4.1 and
6.4.2, each of the Company and each Subsidiary is duly and legally
qualified to do business as a foreign corporation or other entity and
is in good standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified and
licensed under all laws, regulations, ordinances or orders of public
authorities, or otherwise, to carry on its business in the places and
in the manner in which it is conducted, except for failures to be so
qualified, authorized or licensed which would not in the aggregate
result, or pose a material risk of resulting, in any Material Adverse
Change.
7.2. Financial Statements and Other Information; Material Agreements.
7.2.1. Financial Statements and Other Information. The
Company has previously furnished to the Lenders copies of the
following:
(a) The unaudited Consolidated balance sheet of the Company
and the Subsidiaries as at December 31, 1997 and the audited
Consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and the Subsidiaries for the fiscal year of
the Company then ended.
(b) The annual statement of the Liberty Mutual Insurance
Company as of the end of December 31, 1997, as filed with (and in the
form required under applicable laws and regulations of) the insurance
regulatory authorities of The Commonwealth of Massachusetts and the
audited statutory balance sheet of the Liberty Mutual Insurance Company
as of the end of such fiscal year and the related audited statutory
statements of income, surplus and special reserves, and cash flows for
such fiscal year.
(c) The annual budget and operating projections for the fiscal
year ending December 31, 1998 of the Company and the Subsidiaries.
The financial statements referred to in clause (a) above (or
delivered pursuant to Section 6.4.1 or 6.4.2) were prepared in
accordance with GAAP and fairly present the financial position of each
of the Company and the Subsidiaries, respectively, covered thereby at
the respective dates thereof and the results of their operations for
the periods covered thereby. Neither the Company nor any Subsidiary has
any known contingent liability material to the Company and the
Subsidiaries on a Consolidated basis which is not reflected in the most
recent balance sheet referred to in clause (a) above (or delivered
pursuant to Section 6.4.1 or 6.4.2) or the notes thereto.
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The financial statements referred to in clause (b) above (or
delivered pursuant to Section 2.12 of the Liberty Mutual Guarantee) are
in the form required under applicable laws and regulations of the
insurance regulatory authorities of The Commonwealth of Massachusetts,
consistent with respect to accounting and actuarial policies and such
annual statement is a full and true statement of all the assets and
liabilities and of the condition and affairs of the Liberty Mutual
Insurance Company as of the end of such fiscal year and of its income
and deductions therefrom for such fiscal year (within the meaning of
applicable regulations and practices of the insurance regulatory
authorities of The Commonwealth of Massachusetts).
In the Company's judgment, the annual budget and operating
projections referred to in clause (c) above constitute a reasonable
basis as of the date hereof for the assessment of the future
performance of the Company and the Subsidiaries during the periods
indicated therein, it being understood that any projected financial
information represents an estimate, based on various assumptions, of
future results of operations and factors outside of its control which
may or may not in fact occur.
7.2.2. Material Agreements. The Company has previously
furnished to the Lenders correct and complete copies, including all
exhibits, schedules and amendments thereto, of the following agreements
(the "Material Agreements"):
(a) the Agreement dated April 14, 1995 between LFII and the
Company assigning the right to receive Distribution Fees and Redemption
Fees to the Company (as from time to time amended in accordance with
Section 6.2.3, the "Payment Agreement");
(b) the form of Distribution Plan or Distribution Agreement;
(c) the form of transfer agency agreement between CISC and the
Funds; and
(d) the Liberty Mutual Guarantee.
7.2.3. Investment Assets Under Management. The aggregate
investment assets under management by the Company and the Subsidiaries
were at least $17,000,000,000 on March 31, 1998.
7.3. Changes in Condition. No Material Adverse Change has occurred, and
since December 31, 1997, neither the Company nor any Subsidiary has entered into
any material transaction outside the ordinary course of business except for the
transactions contemplated by this Agreement and the Material Agreements or as
specifically described to the Lenders in writing.
7.4. Class B Shares Systems. The Company has in place all systems
necessary to segregate and report (a) separately for the Class B New Shares and
the Class B Old Shares, the
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Class B Share Collection Amount with the Distribution Fees and the Redemption
Fees and (b) separately for the Class B New Shares, the Maximum Amount of Credit
with the Consolidated Unreimbursed Sales Commissions, Consolidated Contingent
Redemption Amount and the Distribution Fees Collectible.
7.5. Title to Assets. The Company and the Subsidiaries have good and
marketable title to or valid leases of all material assets necessary for or used
in the operations of their business as now conducted by them and reflected in
the most recent balance sheet referred to in Section 7.2.1(i) (or the balance
sheet most recently furnished to the Lenders pursuant to Section 6.4.1 or
6.4.2), and to all material assets acquired subsequent to the date of such
balance sheet, subject to no Liens except for those permitted by Section 6.8 and
except for assets disposed of as permitted by Section 6.11.
7.6. Licenses, etc.
(a) Colonial Management is a registered investment adviser under the
Investment Advisers Act, with similar registrations with state authorities
required to conduct its business as currently conducted and proposed to be
conducted except to the extent immaterial to the Company's business, assets,
financial condition or prospects; and LFII is a registered broker/dealer under
the Exchange Act and a member in good standing of the NASD, with similar
registrations with state authorities required to conduct its business as
currently conducted and proposed to be conducted except to the extent immaterial
to the Company's business, assets, financial condition or prospects.
(b) The Company and the Subsidiaries have all material patents, patent
applications, patent rights, service marks, service mark rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, licenses,
franchises, permits, authorizations, including authorizations under state
securities laws, and other material rights as are necessary for the conduct of
the business of the Company and the Subsidiaries. All of the foregoing are in
full force and effect, and each of the Company and the Subsidiaries is in
substantial compliance with the foregoing without any known conflict with the
valid rights of others which has resulted, or poses a material risk of
resulting, in any Material Adverse Change. No event has occurred which permits,
or after notice or lapse of time or both would permit, the revocation or
termination of any such license, franchise or other right or affects the rights
of any of the Company and the Subsidiaries thereunder so as to result in any
Material Adverse Change. No litigation or other proceeding or dispute with
respect to the validity or, where applicable, the extension or renewal, of any
of the foregoing has resulted, or poses a material risk of resulting, in any
Material Adverse Change.
7.7. Litigation. No litigation, at law or in equity, or any proceeding
before any court, board or other governmental or administrative agency or any
arbitrator is pending or, to the knowledge of the Company, threatened which
involves any material risk of any final judgment, order or liability which,
after giving effect to any applicable insurance, has resulted, or poses a
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material risk of resulting, in any Material Adverse Change (except for the
investigation by the federal Securities and Exchange Commission into Colonial
Management's compliance with net capital rules under the Exchange Act) or which
seeks to enjoin the consummation, or which questions the validity or
enforceability, of any of the transactions contemplated by this Agreement or any
other Credit Document. No judgment, decree or order of any court, board or other
governmental or administrative agency or any arbitrator has been issued against
or binds the Company or any Subsidiary which has resulted, or poses a material
risk of resulting, in any Material Adverse Change.
7.8. Tax Returns. Each of the Company and the Subsidiaries has filed
all material tax and information returns which are required to be filed by it
and has paid, or made adequate provision for the payment of, all taxes which
have or may become due pursuant to such returns or to any assessment received by
it. Neither the Company nor any Subsidiary knows of any material additional
assessments or any basis therefor. The Company reasonably believes that the
charges, accruals and reserves on the books of the Company and the Subsidiaries
in respect of taxes or other governmental charges are adequate.
7.9. Authorization and Enforceability. Each of the Company and any
Subsidiary party to the Subsidiary Guarantee has taken all corporate action
required to execute, deliver and perform this Agreement and each other Credit
Document, including the borrowings, to which it is party. Each of this Agreement
and each other Credit Document constitutes the legal, valid and binding
obligation of the Company or such Subsidiary party thereto and is enforceable
against such Person in accordance with its terms.
7.10. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the consummation of any transaction referred to in or
contemplated by this Agreement or any other Credit Document, nor the fulfillment
of the terms hereof or thereof or of any other agreement, instrument, deed or
lease contemplated by this Agreement or any other Credit Document, has
constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any
Subsidiary is a party or by which it is bound, or of the Charter or
By-laws of the Company or any Subsidiary;
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company or any
Subsidiary;
(c) the creation under any agreement, instrument, deed or
lease of any Lien upon any of the assets of the Company or any
Subsidiary; or
(d) any redemption, retirement or other repurchase obligation
of the Company or any Subsidiary under any Charter, By-law, agreement,
instrument, deed or lease.
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No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company or any Subsidiary in connection with the
execution, delivery and performance of this Agreement, the Notes or any other
Credit Document, the transactions contemplated hereby or thereby or the making
of any borrowing hereunder.
7.11. Defaults. Neither the Company nor any Subsidiary is in default
under any provision of its Charter or By-laws or of this Agreement or any other
Credit Document. Neither the Company nor any Subsidiary is in default under any
provision of any agreement, instrument, deed or lease to which it is party or by
which it or its property is bound, or has violated any law, judgment, decree or
governmental order, rule or regulation, in each case so as to result, or pose a
material risk of resulting, in any Material Adverse Change.
7.12. Certain Business Representations.
7.12.1. Labor Relations. No dispute or controversy between the
Company or any Subsidiary and any of their respective employees has
resulted, or is reasonably likely to result, in any Material Adverse
Change, and neither the Company nor any Subsidiary anticipates that its
relationships with its unions or employees will result, or are
reasonably likely to result, in any Material Adverse Change. The
Company and each of the Subsidiaries is in compliance in all material
respects with all federal and state laws with respect to (a)
non-discrimination in employment with which the failure to comply, in
the aggregate, has resulted in, or poses a material risk of resulting
in, a Material Adverse Change and (b) the payment of wages.
7.12.2. Antitrust. Each of the Company and the Subsidiaries is
in compliance in all material respects with all federal and state
antitrust laws relating to its business and the geographic
concentration of its business.
7.12.3. Consumer Protection. Neither the Company nor any of
its Subsidiaries is in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending), with which the failure to
comply, in the aggregate, has resulted in, or poses a material risk of
resulting in, a Material Adverse Change.
7.12.4. Certain Other Agreements. Each of the Funds has
entered into Investment Advisory Contracts and shareholder services
agreements, and in the case of CDSC Funds, a Distribution Plan or
Distribution Agreement with the Company or another Subsidiary of the
Company, which agreements are in full force and effect. The Company has
furnished to the trustees, directors or managing partners, as the case
may be, of each Fund and Trust such information as may be reasonably
necessary to evaluate
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the terms of each Investment Advisory Contract and Distribution Plan or
Distribution Agreement in accordance with sections 15(c) and 12(b) of
the Investment Company Act.
7.12.5. Certain Laws. Each of the Company and the Subsidiaries
is in compliance with the Investment Company Act, the Investment
Advisers Act, the Exchange Act, the Commodities Act and the rules and
regulations of the NASD and similar state laws, except to the extent
that noncompliance would not result, or pose a material risk of
resulting, in any Material Adverse Change. Each Trust and Fund is in
compliance with the Investment Company Act and the Securities Act and
similar state laws, except to the extent that noncompliance would not
result, or pose a material risk of resulting, in any Material Adverse
Change.
7.12.6. Burdensome Obligations. Neither the Company nor any
Subsidiary is party to or bound by any agreement, instrument, deed or
lease or is subject to any Charter, By-law or other restriction or
commitment or requirement for future expenditures which, in the opinion
of the management of such Person, is so burdensome as in the
foreseeable future to result in, or pose a material risk of resulting
in, a Material Adverse Change.
7.13. Pension Plans. Neither the Company nor any Subsidiary has any
Plan as of the date hereof except for (a) the Company's defined benefit plan
terminated on June 30, 1987 in accordance in all material respects with the Code
and ERISA and which was fully funded at such termination and (b) Plans of which
the Agent has been notified in writing and are in compliance with Section 6.13.
7.14. Foreign Trade Regulations; Government Regulation.
7.14.1. Foreign Trade Regulations. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making
by the Company of any borrowings hereunder has constituted or resulted
in or will constitute or result in the violation of any Foreign Trade
Regulation.
7.14.2. Government Regulation. Neither the Company nor any
Subsidiary, nor any Person controlling the Company or any Subsidiary or
under common control with the Company or any Subsidiary is subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or any statute or
regulation which regulates the incurring by the Company or any
Subsidiary of Financing Debt as contemplated by this Agreement and the
other Credit Documents.
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7.15. Disclosure. Neither this Agreement nor any other Credit Document
to be furnished to the Lenders by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated hereby or by such other Credit
Document contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
No fact is actually known to the Company or any Subsidiary which has resulted,
or in the future (so far as the Company or any Subsidiary can reasonably
foresee) will result, or poses a material risk of resulting, in any Material
Adverse Change, except to the extent that present or future general economic
conditions may result in a Material Adverse Change.
8. Defaults.
8.1. Events of Default. The following events are referred to as "Events
of Default":
8.1.1. The Company shall fail to make any payment in respect
of: (a) interest or any fee on or in respect of any of the Credit
Obligations as the same shall become due and payable, and such failure
shall continue for a period of three Banking Days or (b) principal of
any of the Credit Obligations as the same shall become due, whether at
maturity or by acceleration or otherwise.
8.1.2. The Company or any Subsidiary shall fail to perform or
observe any of the provisions (a) of Section 6.4.3 and such failure
shall continue for a period of two Banking Days or (b) of Sections 6.5
through 6.14.
8.1.3. The Company or any Subsidiary or any of their
respective Affiliates party to any Credit Document shall fail to
perform or observe any other covenant, agreement or provision to be
performed or observed by it under this Agreement or any other Credit
Document, and such failure shall not be rectified or cured to the
written satisfaction of the Required Lenders within 30 days after
notice thereof by the Agent to the Company.
8.1.4. Any representation or warranty of or with respect to
the Company, any Subsidiary or any of their respective Affiliates party
to any Credit Document made to the Lenders in, pursuant to or in
connection with this Agreement or any other Credit Document shall be
materially false on the date as of which it was made.
8.1.5. (a) The Company or any Subsidiary shall fail to make
any payment when due (after giving effect to any applicable grace
periods) in respect of any Financing Debt (other than the Credit
Obligations) outstanding in an aggregate amount of principal and
accrued interest exceeding $1,000,000;
(b) The Company or any Subsidiary shall fail to perform or
observe the terms of any agreement relating to such Financing Debt, and
such failure shall continue, without having been duly cured, waived or
consented to, beyond the period of grace, if any,
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specified in such agreement, and such failure shall permit the
acceleration of such Financing Debt;
(c) Any such Financing Debt of the Company or any Subsidiary
shall be accelerated or become due or payable prior to its stated
maturity for any reason whatsoever (other than voluntary prepayments
thereof);
(d) Any Lien on any property of the Company or any Subsidiary
securing any such Financing Debt shall be enforced by foreclosure or
similar action.
8.1.6. Except as permitted by Section 6.11:
(a) The Company shall cease to own, directly or indirectly,
all the capital stock of the Subsidiaries; or
(b) The Company or any Subsidiary shall initiate any action to
dissolve, liquidate or otherwise terminate its existence.
8.1.7. Any Credit Document or Material Agreement shall cease,
for any reason (other than the scheduled termination thereof in
accordance with its terms), to be in full force and effect; or the
Company, any Subsidiary or any of their respective Affiliates party
thereto shall so assert in a judicial or similar proceeding.
8.1.8. A final judgment (a) which, with other outstanding
final judgments against the Company, the Subsidiaries and any of their
Affiliates party to any Credit Document, exceeds an aggregate of
$1,000,000 shall be rendered against the Company or any of the
Subsidiaries or Affiliates party to any Credit Document, or (b) which
grants injunctive relief that results in, or poses a material risk of
resulting in, a Material Adverse Change, and if, within 30 days after
entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal, or if, within 30 days after
the expiration of any such stay, such judgment shall not have been
discharged.
8.1.9. (a) In any four consecutive fiscal quarters of the
Company, Investment Advisory Contracts that contributed more than 10%
of Consolidated Revenues arising from all Investment Advisory Contracts
for the four fiscal quarters of the Company completed immediately prior
to the commencement of the four consecutive fiscal quarters in question
shall have been terminated during the four fiscal quarters in question
and shall not have been extended or replaced (by merger of a Fund or
Trust into another Fund or Trust or otherwise) with other Investment
Advisory Contracts with terms not materially less favorable to the
Company and the Subsidiaries and applicable fee rates not less than the
previous terms and applicable fee rates.
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(b) Any Distribution Plan or Distribution Agreement shall have
been terminated and shall not have been extended or replaced with
another Distribution Plan or Distribution Agreement with terms not
materially less favorable to the Company and the Subsidiaries and
applicable fee rates not less than the terms and fee rates applicable
to Distribution Fees of the previous Distribution Plan or Distribution
Agreement so terminated.
8.1.10. ERISA Group Persons shall fail to pay when due amounts
(other than amounts being contested in good faith through appropriate
proceedings) aggregating in excess of $1,000,000 for all ERISA Group
Persons for which they shall have become liable under Title IV of ERISA
to pay to the PBGC or to a Plan; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee
to be appointed to administer any Plan or a proceeding shall be
instituted by a fiduciary of any Plan against any ERISA Group Person to
enforce section 515 or 4219(c)(5) of ERISA and such proceeding shall
not have been dismissed within 30 days thereafter; or a condition shall
exist which would require the PBGC to obtain a decree adjudicating that
any Plan must be terminated.
8.1.11. The Company, any Subsidiary or any of their respective
Affiliates obligated with respect to any Credit Obligation shall:
(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(b) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code which shall not have been dismissed
within 60 days after the date on which such petition is filed; or file
an answer or other pleading within such 60-day period admitting or
failing to deny the material allegations of such a petition or seeking,
consenting to or acquiescing in the relief therein provided;
(c) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(d) seek relief as a debtor under any applicable law, other
than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(e) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering
or approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
portion of its property; or
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(f) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
8.1.12. Liberty Mutual Insurance Company shall fail to perform
or observe any covenant, agreement or provision to be performed or
observed by it under the Liberty Mutual Guarantee.
8.2. Certain Actions Following an Event of Default. If any one or more
Events of Default shall occur, then in each and every such case:
8.2.1. No Obligation to Extend Credit. The Agent may (and upon
written request of the Required Lenders shall) terminate the
obligations of the Lenders to make any further extensions of credit
under the Credit Documents by furnishing notice thereof to the Company;
provided, however, that if a Bankruptcy Default shall have occurred,
such obligations shall automatically terminate.
8.2.2. Specific Performance; Exercise of Rights. The Agent may
(and upon written request of the Required Lenders shall) proceed to
protect and enforce the Lenders' rights by suit in equity, action at
law and/or other appropriate proceeding, either for specific
performance of any covenant or condition contained in this Agreement or
any other Credit Document or in any instrument or assignment delivered
to the Lenders pursuant to this Agreement or any other Credit Document,
or in aid of the exercise of any power granted in this Agreement or any
other Credit Document or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the Lenders may
(and upon written request of the Required Lenders shall) by notice in
writing to the Company declare all or any part of the unpaid balance of
the Credit Obligations then outstanding to be immediately due and
payable, and thereupon such unpaid balance or part thereof shall become
so due and payable without presentment, protest or further demand or
notice of any kind, all of which are expressly waived; provided,
however, that if a Bankruptcy Default shall have occurred, the unpaid
balance of the Credit Obligations shall automatically become
immediately due and payable without presentment, protest or further
demand or notice of any kind, all of which are expressly waived.
8.2.4. Enforcement of Payment; Credit Security; Setoff. The
Agent may (and upon written request of the Required Lenders shall)
proceed to enforce payment of the Credit Obligations in such manner as
it may elect. The Lenders may offset and apply toward the payment of
the Credit Obligations (and/or toward the curing of any Event of
Default) any Indebtedness from the Lenders to the Company and its
Subsidiaries, including any Indebtedness represented by deposits in any
account maintained with the
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Lenders, regardless of the adequacy of any security for the Credit
Obligations. The Lenders shall have no duty to determine the adequacy
of any such security in connection with any such offset.
8.2.5. Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.
8.3. Annulment of Defaults. Any Default or Event of Default shall be
deemed to exist and to be continuing for any purpose of this Agreement until the
Required Lenders or the Agent (with any consent of the Required Lenders) shall
have waived such Default or Event of Default in writing, stated in writing that
the same has been cured to such Lenders' reasonable satisfaction or entered into
an amendment to this Agreement which by its express terms cures such Default or
Event of Default. No such action by the Lenders or the Agent shall extend to or
affect any subsequent Default or Event of Default or impair any rights of the
Lenders upon the occurrence thereof. The making of any extension of credit
during the existence of any Default or Event of Default shall not constitute a
waiver thereof.
8.4. Waivers. The Company waives to the extent not prohibited by the
provisions of applicable law that cannot be waived:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions of this
Agreement or any other Credit Document), protests, notices of protest
and notices of dishonor;
(b) any requirement of diligence or promptness on the part of
any Lender in the enforcement of its rights under this Agreement, the
Notes or any other Credit Document;
(c) any and all notices of every kind and description which
may be required to be given by any statute or rule of law; and
(d) any defense (other than indefeasible payment in full)
which it may now or hereafter have with respect to the Credit
Obligations.
9. Expenses; Indemnity.
9.1. Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company will pay:
(a) all reasonable expenses of the Agent (including the
out-of-pocket expenses related to forming the group of Lenders and
reasonable fees and disbursements of the special counsel to the Agent)
in connection with the preparation and duplication of this Agreement
and each other Credit Document, examinations by, and reports of, the
Agent's commercial financial examiners (limited to not more than one
per year prior to the
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existence of a Default), the transactions contemplated hereby and
thereby and operations hereunder and thereunder (other than for
assignments pursuant to Section 11.1.1);
(b) all recording and filing fees and transfer and documentary
stamp and similar taxes at any time payable in respect of this
Agreement, any other Credit Document or the incurrence of the Credit
Obligations; and
(c) to the extent not prohibited by applicable law that cannot
be waived, all other reasonable expenses incurred by the Lenders or the
holder of any Credit Obligation in connection with the enforcement of
any rights hereunder or under any other Credit Document, including
costs of collection and reasonable attorneys' fees (including a
reasonable allowance for the hourly cost of attorneys employed by the
Lenders on a salaried basis) and expenses.
9.2. General Indemnity. The Company will indemnify the Lenders and hold
them harmless from any liability, loss or damage resulting from the violation by
the Company of Section 2.4. The Company will also indemnify each Lender, each of
the Lenders' directors, officers and employees, and each Person, if any, who
controls any Lender (each Lender and each of such directors, officers, employees
and control Persons is referred to as an "Indemnified Party") and hold each of
them harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) such Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any Subsidiary or their Affiliates arising from this Agreement or any
other Credit Document, the transactions contemplated hereby and thereby or the
operations hereunder or thereunder or (b) any litigation or investigation
involving the Company, any Subsidiaries or their Affiliates, or any officer,
director or employee thereof, other than litigation commenced by the Company
against the Lenders which seeks enforcement of any of the rights of the Company
hereunder or under any other Credit Document and is determined adversely to the
Lenders in a final nonappealable judgment and except to the extent such claims,
damages, liabilities and expenses result from the Agent's or a Lender's, as the
case may be, gross negligence or willful misconduct.
10. Operations.
10.1. Interests in Credits. The percentage interest of each Lender in
the Loan, including Term Loan A and the Revolving Loan or Term Loan B in the
aggregate, shall be computed based on the maximum principal amount for each
Lender as follows:
<TABLE>
<CAPTION>
Maximum Principal Percentage
Lender Amount Interest
------ ------ --------
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<S> <C> <C>
BankBoston, N.A. $11,277,752 19.4444%
Bank of America National $17,077,752 29.4444%
Trust and Savings Association
The Bank of New York $ 7,411,124 12.7778%
Credit Lyonnais
New York Branch $ 7,411,124 12.7778%
Fleet National Bank $ 7,411,124 12.7778%
Mellon Bank, N.A. $ 7,411,124 12.7778%
----------- ----------
Total $58,000,000 100.0000%
</TABLE>
The foregoing percentage interests, as otherwise adjusted as the Lenders may
from time to time agree among themselves, or pursuant to Section 11, are
referred to as the "Percentage Interests" with respect to all or any portion of
the Loan. References in any Credit Document to the Lenders' respective
Percentage Interests are to such interests as from time to time in effect.
10.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
authorizes the Agent to act for the Lenders as the Lenders' Agent in connection
with the transactions contemplated by this Agreement and the other Credit
Documents on the terms set forth herein. In acting hereunder, the Agent is
acting for its own account to the extent of its Percentage Interest and for the
accounts of each other Lender to the extent of the Lenders' respective
Percentage Interests, and all action in connection with the enforcement of, or
the exercise of any remedies (other than the Lenders' rights of set-off as
provided in Section 8.2.4 or in any Credit Document) in respect of the Credit
Obligations and Credit Documents shall be taken by the Agent.
10.3. Company to Pay Agent, etc. The Company shall be fully protected
in making all payments in respect of the Credit Obligations to the Agent, in
relying upon consents, modifications and amendments executed by the Agent
purportedly on the Lenders' behalf, and in dealing with the Agent as herein
provided. The Agent shall charge the accounts of the Company, on the dates when
the amounts thereof become due and payable, with the amounts of the principal of
and interest on the Loan, commitment fees, agent's fees and upon notice to the
Company, any other fees and amounts owing under any Credit Document.
10.4. Lender Operations for Advances, etc.
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10.4.1. Advances. On each Closing Date, each Lender, upon
notice by the Agent, given promptly after its receipt of the borrowing
request, shall advance to the Agent in immediately available funds such
Lender's Percentage Interest in the portion of the Loan advanced on
such Closing Date prior to 1:00 p.m. (Boston time). If such funds are
not received at such time, but all the conditions set forth in Section
5 have been satisfied, each Lender hereby authorizes and requests the
Agent to advance for such Lender's account, pursuant to the terms
hereof, such Lender's respective Percentage Interest in such portion of
the Loan and agrees to reimburse the Agent in immediately available
funds for the amount thereof prior to 3:00 p.m. (Boston time) on the
day such portion of the Loan is advanced hereunder; provided, however,
that the Agent is not authorized to make any such advance for the
account of any Lender who has previously notified the Agent in writing
that such Lender will not be performing its obligations to make further
advances hereunder.
10.4.2. Agent to Allocate Payments, etc. All payments of
principal and interest in respect of the extensions of credit made
pursuant to this Agreement, commitment fees and other fees under this
Agreement shall, as a matter of convenience, be made by the Company to
the Agent in immediately available funds. Under no circumstances shall
any Lender be required to produce or present its Notes as evidence of
its interests in the Credit Obligations in any action or proceeding
relating to the Credit Obligations. The share of each Lender shall be
credited to such Lender by the Agent in immediately available funds in
such manner that the principal amount of the Credit Obligations to be
paid shall be paid proportionately in accordance with the Lenders'
respective Percentage Interests in such Credit Obligations, except as
otherwise provided in this Agreement.
<PAGE>
10.4.3. Delinquent Lenders; Nonperforming Lenders. In the
event that any Lender fails to reimburse the Agent pursuant to Section
10.4.1 for the Percentage Interest of such Lender (a "Delinquent
Lender") in any credit advanced by the Agent pursuant hereto, overdue
amounts (the "Delinquent Payment") due from the Delinquent Lender to
the Agent shall bear interest, payable by the Delinquent Lender on
demand, at a per annum rate equal to (a) the Federal Funds Rate for the
first three days overdue and (b) the sum of 2% plus the Federal Funds
Rate for any longer period. Such interest shall be payable to the Agent
for its own account for the period commencing on the date of the
Delinquent Payment and ending on the date the Delinquent Lender
reimburses the Agent on account of the Delinquent Payment (to the
extent not paid by the Company as provided below) and the accrued
interest thereon (the "Delinquency Period"), whether pursuant to the
assignments referred to below or otherwise. Upon notice by the Agent,
the Company will pay to the Agent the principal (but not the interest)
portion of the Delinquent Payment. During the Delinquency Period, in
order to make reimbursements for the Delinquent Payment and accrued
interest thereon, the Delinquent Lender shall be deemed to have
assigned to the Agent all payments made by the Company under Section 4
which would have thereafter otherwise been payable under the Credit
Documents to the Delinquent Lender. During any other period in which
any Lender is not performing its
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obligations to extend credit under Section 2 (a "Nonperforming
Lender"), the Nonperforming Lender shall be deemed to have assigned to
each Lender that is not a Nonperforming Lender (a "Performing Lender")
all payments made by the Company under Section 4 which would have
thereafter otherwise been payable under the Credit Documents to the
Nonperforming Lender, and the Agent shall credit a portion of such
payments to each Performing Lender in an amount equal to the Percentage
Interest of such Performing Lender divided by one minus the Percentage
Interest of the Nonperforming Lender until the respective portions of
the Loan owed to all the Lenders are the same as the Percentage
Interests of the Lenders immediately prior to the failure of the
Nonperforming Lender to perform its obligations under Section 2. The
foregoing provisions shall be in addition to any other remedies the
Agent, the Performing Lenders or the Company may have under law or
equity against the Delinquent Lender as a result of the Delinquent
Payment or against the Nonperforming Lender as a result of its failure
to perform its obligations under Section 2.
10.5. Sharing of Payments, etc. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of a proportion of the aggregate amount of principal, interest and fees
due with respect to its Percentage Interest in the Loan which is greater than
the proportion received by any other Lender in respect of the aggregate amount
of principal, interest and fees due with respect to the Percentage Interest of
such other Lender and (b) if such inequality shall continue for more than 10
days, the Lender receiving such proportionately greater payment shall purchase
participations in the Percentage Interests in the Loan held by the other
Lenders, and such other adjustments shall be made from time to time (including
rescission of such purchases of participations in the event the unequal payment
originally received is recovered from such Lender through bankruptcy proceedings
or otherwise), as may be required so that all such payments of principal,
interest and fees with respect to the Loan held by the Lenders shall be shared
by the Lenders pro rata in accordance with their respective Percentage
Interests; provided, however, that this Section 10.5 shall not impair the right
of any Lender to exercise any right of set-off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of Indebtedness of
the Company other than the Company's Indebtedness with respect to the Loan. The
Company agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to this Section 10.5 may exercise all rights of payment (including the
right of set-off), and shall be obligated to share payments under this Section
10.5, with respect to its participation as fully as if such Credit Participant
or such Lender were the direct creditor of the Company and a Lender hereunder in
the amount of such participation.
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10.6. Amendments, Consents, Waivers, etc. Except as otherwise set forth
herein and subject to Section 10.4.2(c), the Agent may (and upon the written
request of the Required Lenders described in paragraph (a) or (b) below, the
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document, including giving its written consent to any modification
of or amendment to and waiving in writing compliance with any covenant or
condition in this Agreement or any other Credit Document or any Default or Event
of Default, all of which actions shall be binding upon all of the Lenders;
provided, however, that:
(a) Except as provided below, without the written consent of
Lenders owning at least a majority of the Percentage Interests, no
modification of or amendment to, or consent with respect to or waiver
of compliance with, any of the Credit Documents or waiver of a Default
or Event of Default shall be made.
(b) Without the written consent of Lenders owning at least two
thirds of the Percentage Interests, (i) no modification of, amendment
to, consent with respect to or waiver of compliance with or of a
Default under Sections 6.2.3 or 6.5 of this Section 10.6(b) (and
related defined terms) shall be made, and (ii) no exercise by the
Lenders of their rights under Section 8.2 shall be taken.
(c) Without the written consent of such Lenders as own 100% of
the Percentage Interests (other than Delinquent Lenders during the
existence of a Delinquency Period so long as such Delinquent Lender is
treated the same as the other Lenders with respect to any actions
enumerated below):
(i) No reduction in the interest rate on the Loan or
in commitment fees shall be made.
(ii) No extension or postponement of the stated time
of payment of all or any portion of the Loan or interest
thereon or any commitment fees shall be made.
(iii) No waiver or forgiveness of payment of any
portion of the Loan shall be made.
(iv) No increase in the amount, or extension of the
term, of the Commitments beyond that provided for under
Section 2 shall be made.
(v) No alteration of the Lenders' rights of set-off
contained in Section 8.2.4 shall be made.
(vi) No amendment to or modification of Section 6.14
(and Exhibit 6.14 to the extent not amended in accordance
with Section 6.14) or this Section 10.6(c) shall be made.
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(vii) No assignment by the Company of its rights or
delegation of its duties under any Credit Document shall be
made.
(viii) No assignment by Liberty Mutual Insurance
Company of its obligations under the Liberty Mutual Guarantee
shall be made.
(ix) No release of Liberty Mutual Insurance Company
as guarantor under the Liberty Mutual Guarantee shall be made.
(x) No termination of the Liberty Mutual Guarantee
shall be made.
10.7. Agent's Resignation. The Agent may resign at any time by giving
at least 60 days' prior written notice of its intention to do so to each other
of the Lenders and upon the appointment by the Required Lenders of a successor
Agent satisfactory to the Company. If no successor Agent shall have been so
appointed and shall have accepted such appointment within 45 days after the
retiring Agent's giving of such notice of resignation, then the retiring Agent
may with the consent of the Company, which shall not be unreasonably withheld,
appoint a successor Agent which shall be a bank or a trust company organized
under the laws of the United States of America or any state thereof and having a
combined capital, surplus and undivided profit of at least $500,000,000;
provided, however, that any successor Agent appointed under this sentence may be
removed upon the written request of the Required Lenders, which request shall
also appoint a successor Agent satisfactory to the Company. Upon the appointment
of a new Agent hereunder, the term "Agent" shall for all purposes of this
Agreement thereafter mean such successor. After any retiring Agent's resignation
hereunder as Agent, or the removal hereunder of any successor Agent, the
provisions of this Agreement shall continue to inure to the benefit of such
Agent as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
10.8. Concerning the Agent.
10.8.1. Action in Good Faith, etc. The Agent and its officers,
directors, employees and agents shall be under no liability to any of
the Lenders or to any future holder of any interest in the Credit
Obligations for any action or failure to act taken or suffered in good
faith, and any action or failure to act in accordance with an opinion
of its counsel shall conclusively be deemed to be in good faith. The
Agent shall in all cases be entitled to rely, and shall be fully
protected in relying, on instructions given to the Agent by the
required holders of Credit Obligations as provided in this Agreement.
10.8.2. No Implied Duties, etc. The Agent shall have and may
exercise such powers as are specifically delegated to the Agent under
this Agreement or any other Credit Document together with all other
powers incidental thereto. The Agent shall have no implied duties to
any Person or any obligation to take any action under this Agreement or
any other Credit Document except for action specifically provided for
in this
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Agreement or any other Credit Document to be taken by the Agent. Before
taking any action under this Agreement or any other Credit Document,
the Agent may request an appropriate specific indemnity satisfactory to
it from each Lender in addition to the general indemnity provided for
in Section 10.11; provided, however, that no such indemnity shall
extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct. Until the Agent has received such
specific indemnity, the Agent shall not be obligated to take (although
it may in its sole discretion take) any such action under this
Agreement or any other Credit Document. Each Lender confirms that the
Agent does not have a fiduciary relationship to it under the Credit
Documents. The Company confirms that neither the Agent nor any other
Lender has a fiduciary relationship to it under the Credit Documents.
10.8.3. Validity, etc. Subject to Section 10.8.1, the Agent
shall not be responsible to any Lender or any future holder of any
interest in the Credit Obligations (a) for the legality, validity,
enforceability or effectiveness of this Agreement or any other Credit
Document, (b) for any recitals, reports, representations, warranties or
statements contained in or made in connection with this Agreement or
any other Credit Document, (c) for the existence or value of any assets
included in any security for the Credit Obligations, (d) for the
perfection or effectiveness of any Lien purported to be included in
such security or (e) for the specification or failure to specify any
particular assets to be included in such security.
10.8.4. Compliance. The Agent shall not be obligated to
ascertain or inquire as to the performance or observance of any of the
terms of this Agreement or any other Credit Document; and in connection
with any extension of credit under this Agreement or any other Credit
Document, the Agent shall be fully protected in relying on a
certificate of the Company as to the fulfillment by the Company of any
conditions to such extension of credit.
10.8.5. Employment of Agents and Counsel. The Agent may
execute any of its duties as Agent under this Agreement or any other
Credit Document by or through employees, agents and attorneys-in-fact
and shall not be responsible to any of the Lenders, the Company or any
Subsidiary (except as to money or securities received by the Agent or
the Agent's authorized agents) for the default or misconduct of any
such agents or attorneys-in-fact selected by the Agent with reasonable
care. The Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties
hereunder or under any other Credit Document.
10.8.6. Reliance on Documents and Counsel. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype
message or writing reasonably believed in good faith by the Agent to be
genuine and correct and to have been signed, sent or made by the Person
in question, including any
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telephonic or oral statement made by such Person, and, with respect to
legal matters, upon the opinion of counsel selected by the Agent.
10.8.7. Agent's Reimbursement. Each of the Lenders severally
agrees to reimburse the Agent, in the amount of such Lender's
Percentage Interest, for any reasonable expenses not reimbursed by the
Company (without limiting the obligation of the Company to make such
reimbursement): (a) for which the Agent is entitled to reimbursement by
the Company under this Agreement or any other Credit Document, and (b)
after the occurrence of a Default, for any other reasonable expenses
incurred by the Agent on the Lenders' behalf in connection with the
enforcement of the Lenders' rights under this Agreement or any other
Credit Document.
10.8.8. Agent's Fees. The Company shall pay to the Agent for
its own account the amounts prior to the Effective Date, as provided in
the Prior Credit Agreement and thereafter as separately agreed between
the Company and the Agent.
10.9. Rights as a Lender. With respect to any credit extended by it
hereunder, BankBoston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, BankBoston
shall be treated in its individual capacity as though it were not the Agent
hereunder. Without limiting the generality of the foregoing, the Percentage
Interest of BankBoston shall be included in any computations of Percentage
Interests. BankBoston and its Affiliates may accept deposits from, lend money
to, act as trustee for and generally engage in any kind of banking or trust
business with the Company, any Subsidiary or any Affiliate of any of them and
any Person who may do business with or own an equity interest in the Company,
any of the Subsidiaries or any Affiliate of any of them, all as if BankBoston
were not the Agent and without any duty to account therefor to the other
Lenders.
10.10. Independent Credit Decision. Each of the Lenders acknowledges
that it has independently and without reliance upon the Agent, based on the
financial statements and other documents referred to in Section 7.2, on the
other representations and warranties contained herein and on such other
information with respect to the Company and the Subsidiaries as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to enter
into this Agreement and to make the extensions of credit provided for hereunder.
Each Lender represents to the Agent that such Lender will continue to make its
own independent credit and other decisions in taking or not taking action under
this Agreement or any other Credit Document. Each Lender expressly acknowledges
that neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agent taken under this Agreement or any other
Credit Document, including any review of the affairs of the Company and the
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent. Except for notices, reports and other documents expressly required to
be furnished to each Lender by the Agent under this Agreement or any other
Credit Document, the Agent shall not have any duty or responsibility to
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provide any Lender with any credit or other information concerning the business,
operations, property, condition, financial or otherwise, or credit worthiness of
the Company or any Subsidiary which may come into the possession of the Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
10.11. Indemnification. The holders of the Credit Obligations hereby
agree to indemnify the Agent (to the extent not reimbursed by the Company and
without limiting the obligation of the Company to do so), pro rata according to
their respective Percentage Interests, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Agent relating to or arising out
of this Agreement, any other Credit Document, the transactions contemplated
hereby or thereby, or any action taken or omitted by the Agent in connection
with any of the foregoing; provided, however, that the foregoing shall not
extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct.
11. Successors and Assigns; Lender Assignments and Participations. Any reference
in this Agreement to any of the parties hereto shall be deemed to include the
successors and assigns of such party, and all covenants and agreements by or on
behalf of the Company, the Agent or the Lenders that are contained in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns; provided, however, that (a) the Company may not assign its rights or
obligations under this Agreement, and (b) the Lenders shall be not entitled to
assign their respective Percentage Interests in the Loan hereunder except as set
forth below in this Section 11.
11.1. Assignments by Lenders.
11.1.1. Assignees and Assignment Procedures. Each Lender may
(a) without the consent of the Agent or the Company if the proposed
assignee is already a Lender or an Affiliate of a Lender hereunder or
(b) otherwise with the consents of the Agent and the Company (which
consents will not be unreasonably withheld), in compliance with
applicable laws in connection with such assignment, assign to one or
more commercial banks or other financial institutions (other than
mutual funds) (each, an "Assignee") all or a portion of its interests,
rights and obligations under this Agreement and the other Credit
Documents, including its Percentage Interest in the Loan; provided,
however, that:
(i) the aggregate amount of the Commitment of the assigning
Lender subject to each such assignment to any Assignee other than
another Lender (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Agent) shall be not
less than $10,000,000 and in increments of $1,000,000; and
(ii) the parties to each such assignment shall execute and deliver
to the Agent an Assignment and Acceptance (the "Assignment and
Acceptance") substantially in the form of Exhibit 11.1.1 together with
the Note or Notes subject to such assignment and a
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processing and recordation fee of $3,000 from the Lenders; provided,
however, that no such processing and recording fee shall be payable
upon an assignment effected pursuant to Section 3.4.
Upon acceptance and recording pursuant to Section 11.1.4, from and
after the effective date specified in each Assignment and Acceptance
(which effective date shall be at least five Banking Days after the
execution thereof unless waived by the Agent):
(1) the Assignee shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and
(2) the assigning Lender shall, to the extent
provided in such assignment, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections
3.2.4, 3.2.6, 3.4 and 9, as well as to any fees accrued for
its account hereunder and not yet paid).
11.1.2. Terms of Assignment and Acceptance. By executing and
delivering an Assignment and Acceptance, the assigning Lender and
Assignee shall be deemed to confirm to and agree with each other and
the other parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement, any other Credit Document or any other
instrument or document furnished pursuant hereto or thereto or the
execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, any other Credit Document or any other
instrument or document furnished pursuant hereto or thereto;
(b) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition
of the Company and the Subsidiaries or the performance or observance by
the Company or any Subsidiary of any of their obligations under this
Agreement, any other Credit Document or any other instrument or
document furnished pursuant hereto or thereto;
(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.4 and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
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(d) such Assignee will independently and without reliance upon
the Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement;
(e) such Assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in accordance
with the terms of this Agreement all the obligations which are required
to be performed by it as a Lender, including any requirements under
Section 13.
11.1.3. Register. The Agent shall maintain at the Boston
Office a register (the "Register") for the recordation of (a) the names
and addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in Section 10.1
and (c) the amount of the Loan owing to each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Agent and the Lenders may treat
each Person whose name is registered therein for all purposes as a
party to this Agreement. The Register shall be available for inspection
by the Company or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
11.1.4. Acceptance of Assignment and Assumption. Upon its
receipt of a completed Assignment and Acceptance executed by an
assigning Lender and an Assignee together with the Note or Notes
subject to such assignment, and the processing and recordation fee
referred to in Section 11.1.1, the Agent shall (a) accept such
Assignment and Acceptance, (b) record the information contained therein
in the Register and (c) give prompt notice thereof to the Company.
Within five Banking Days after receipt of notice, the Company shall
execute and deliver to the Agent, in exchange for the surrendered Note
or Notes, a new Note or Notes to the order of such Assignee in a
principal amount equal to the applicable Commitment and Loan assumed by
it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Commitment and Loan, a new Note to the order of
such assigning Lender in a principal amount equal to the applicable
Commitment and Loan retained by it. Such new Note or Notes shall be in
an aggregate principal amount equal to the aggregate principal amount
of such surrendered Note or Notes, and shall be dated the date of the
surrendered Notes which they replace.
11.1.5. Federal Reserve Bank. Notwithstanding the foregoing
provisions of this Section 11, any Lender may at any time pledge or
assign all or any portion of such
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Lender's rights under this Agreement and the other Credit Documents to
a Federal Reserve Bank; provided, however, that no such pledge or
assignment shall release such Lender from such Lender's obligations
hereunder or under any other Credit Document.
11.1.6. Further Assurances. The Company and the Subsidiaries
shall sign such documents and take such other actions from time to time
reasonably requested by an Assignee to enable it to share in the
benefits of the rights created by the Credit Documents.
11.2. Credit Participants. Each Lender may, without the consent of the
Company or the Agent, in compliance with applicable laws in connection with such
participation, sell to one or more Qualified Institutional Buyers (each a
"Credit Participant") participations in all or a portion of its interests,
rights and obligations under this Agreement and the other Credit Documents
(including all or a portion of its Commitment and the Loan owing to it and the
Notes held by it); provided, however, that:
(a) such Lender's obligations under this Agreement shall
remain unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of
the cost protection provisions contained in Sections 3.2.4, 3.2.6, 3.4
and 9, but shall not be entitled to receive any greater payment
thereunder than the selling Lender would have been entitled to receive
with respect to the interest so sold if such interest had not been
sold; and
(d) the Company, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right to enforce the obligations of
the Company relating to the Loan and to approve any amendment,
modification or waiver of any provision of this Agreement (other than
amendments, modifications or waivers with respect to any fees payable
hereunder or the amount of principal of or the rate at which interest
is payable on the Loan, or the stated dates for payments of principal
of or interest on the Loan).
Such Lender shall promptly give notice of such participation to the Company and
the Agent.
12. Confidentiality. Each Lender agrees that it will make no disclosure of
confidential information furnished to it by the Company or any Subsidiary unless
such information shall have become public other than by the actions of such
Lender, except:
(a) in connection with operations under or the enforcement of
this Agreement or any other Credit Document;
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(b) to the applicable bank regulatory or other governmental
agencies relating to such Lender or pursuant to any statutory or
regulatory requirement or any mandatory court order, subpoena or other
legal process of which the Lender will give, if practicable, prompt
notice to the Company;
(c) to any parent or corporate Affiliate of such Lender or to
any Credit Participant, proposed Credit Participant or proposed
Assignee; provided, however, that any such Person shall agree to comply
with the restrictions set forth in this Section 12 with respect to such
information;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to keep such
information confidential;
(e) in connection with any litigation or arbitration
proceedings to which such Lender is a party arising out of this
Agreement or any other Credit Document; and
(f) with the prior written consent of the Company, to any
other Person.
13. Foreign Persons. If any assignment is made under Section 11.1 to any Person
that is not incorporated or organized under the laws of the United States of
America or a state thereof, the Lender making such assignment shall cause such
Person to agree that, on or prior to the date of such assignment, it will
deliver to the Company and the Agent the following:
(a) Two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor form, as the case may
be, certifying in each case that such Person is entitled to receive
payments under this Agreement and the Notes payable to it, without
deduction or withholding of any United States federal income taxes.
(b) A duly completed Internal Revenue Service Form W-8 or W-9
or successor form, as the case may be, to establish an exemption from
United States backup withholding tax.
Each such Person that delivers to the Company and the Agent a Form 1001
or 4224 and Form W-8 or W-9 pursuant to this Section 13 further undertakes to
deliver to the Company and the Agent two further copies of Form 1001 or 4224 and
Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Company and the
Agent. Such Form 1001 or 4224 shall certify that such Person is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes. The foregoing documents need not be
delivered in the event any change in treaty, law or regulation or official
interpretation thereof has occurred which renders all such forms inapplicable or
which
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would prevent such transferee from delivering any such form with respect to it,
or such transferee advises the Company that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax, and in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax. Until such time as the Company and the Agent have
received such forms indicating that payments hereunder are not subject to United
States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, the Company shall withhold taxes from such payments at
the applicable statutory rate.
14. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, demand or other communication in connection with this Agreement shall be
deemed to be given if given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually received by the
addressor), and if either (a) actually delivered in fully legible form to such
address (evidenced in the case of a telex by receipt of the correct answerback)
or (b) in the case of a letter, five days shall have elapsed after the same
shall have been deposited in the United States mails, with first-class postage
prepaid and registered or certified.
If to the Company or any Subsidiary, to it at its address set forth in
Exhibit 7.1 (as supplemented pursuant to Sections 6.4.1 and 6.4.2), to the
attention of the chief financial officer, with a copy to the attention of the
chief legal officer.
If to the Agent or any Lender, to it at its address set forth on the
signature page of this Agreement, to the attention of the account officer
specified on the signature page, with a copy to the Agent.
15. Course of Dealing; Amendments and Waivers. No course of dealing between any
Lender, on the one hand, and the Company or any Subsidiary or Affiliate of the
Company, on the other hand, shall operate as a waiver of any of the Lenders'
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. The Company acknowledges that if the Lenders, without being
required to do so by this Agreement or any other Credit Document, give any
notice or information to, or obtain any consent from, any of the Company and the
Subsidiaries or any of their respective Affiliates, the Lenders shall not by
implication have amended, waived or modified any provision of this Agreement or
any other Credit Document, or created any duty to give any such notice or
information or to obtain any such consent on any future occasion. No delay or
omission in exercising any right, or any partial exercise of any right, on the
part of any Lender under this Agreement or any other Credit Document or with
respect to the Credit Obligations shall operate as a waiver of such right or any
other right hereunder or thereunder. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
No waiver, consent or amendment with respect to this Agreement or any other
Credit Document shall be binding unless it is in writing and signed by the Agent
or the holders of the required Credit Obligations.
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16. Defeasance. When all Credit Obligations have been paid, performed and
reasonably determined by the Lenders to have been indefeasibly discharged in
full, and if at the time no Lender continues to be committed to extend any
credit to the Company hereunder or under any other Credit Document, this
Agreement shall terminate; provided, however, that Sections 3.2.4, 3.2.6, 3.4,
9, 10.8.7, 10.11, 12, 17 and 18 shall survive the termination of this Agreement.
17. Venue; Service of Process. Each of the Company and the Lenders:
(a) Irrevocably submits to the nonexclusive jurisdiction of
the state courts of The Commonwealth of Massachusetts and to the
nonexclusive jurisdiction of the United States District Court for the
District of Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or any other
Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise, in
any such proceeding brought in any of the above-named courts, any claim
that it is not subject personally to the jurisdiction of such court,
that its property is exempt or immune from attachment or execution,
that such proceeding is brought in an inconvenient forum, that the
venue of such proceeding is improper, or that this Agreement or any
other Credit Document, or the subject matter hereof or thereof, may not
be enforced in or by such court.
Each of the Company and the Lenders consents to service of process in any such
proceeding in any manner permitted by Chapter 223A of the General Laws of The
Commonwealth of Massachusetts and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified in or
pursuant to Section 14 is reasonably calculated to give actual notice.
18. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY AND THE LENDERS WAIVES, AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF
OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF
THE LENDERS OR THE COMPANY IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR
OTHERWISE. The Company acknowledges that it has been informed by the Lenders
that the provisions of this Section 18 constitute a material inducement upon
which each of the Lenders has relied and will rely in entering into this
Agreement and any other Credit Document, and that it has reviewed the provisions
of this Section 18 with its counsel. Any Lender or the Company may file an
original
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counterpart or a copy of this Section 18 with any court as written evidence of
the consent of the Company and the Lenders to the waiver of their rights to
trial by jury.
19. General. All covenants, agreements, representations and warranties made in
this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Credit Documents
constitute the entire understanding of the parties with respect to the subject
matter hereof and thereof and supersede all prior and current understandings and
agreements, whether written or oral, with respect to such subject matter. This
Agreement may be executed in any number of counterparts which together shall
constitute one instrument. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE
COMMONWEALTH OF MASSACHUSETTS.
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Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
THE COLONIAL GROUP, INC.
By _________________________________
Title:
BANKBOSTON, N.A.
By _________________________________
Title:
Financial Institutions Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By _________________________________
Title:
231 South LaSalle Street
Chicago, Illinois 60697
Telecopy: (312) 987-0889
Telex:
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THE BANK OF NEW YORK
By _________________________________
Title:
One Wall Street
Securities Industry Division
New York, New York 10286
Telecopy: (212) 809-9575
Telex:
CREDIT LYONNAIS NEW YORK BRANCH
By _________________________________
Authorized Signature
c/o Credit Lyonnais
Representative Office
53 State Street
Boston, Massachusetts 02109
Telecopy: (617) 723-4803
Telex:
FLEET NATIONAL BANK
By _________________________________
Title:
777 Main Street
Hartford, Connecticut 06115
Telecopy:
Telex:
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MELLON BANK, N.A.
By _________________________________
Title:
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Telecopy: (412) 234-8087
Telex:
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Execution Copy
THE COLONIAL GROUP, INC.
CREDIT AGREEMENT
Amendment No. 1
This Agreement, dated as of December 23, 1998, is among The Colonial
Group, Inc., a Massachusetts corporation ("CGI"), COGRA, LLC, a newly organized
Delaware limited liability company to be the successor by merger (the "Merger")
to CGI ("COGRA, LLC"), the other Lenders (as defined below) and BankBoston, N.A.
("BankBoston"), as agent (the "Agent") for itself and the other Lenders. The
parties agree as follows:
1. Reference to Credit Agreement; Definitions. Reference is made to the Credit
Agreement dated as of April 10, 1998 (the "Credit Agreement"), among the
Company, the Lenders and the Agent. Terms defined in the Credit Agreement, as
amended hereby (the "Amended Credit Agreement"), and not otherwise defined
herein are used herein with the meanings so defined. Except as the context
otherwise explicitly requires, the capitalized terms "Section" and "Exhibit"
refer to sections hereof and exhibits hereto.
2. Amendments to Credit Agreement. Subject to all of the terms and conditions
hereof and in reliance upon the representations and warranties set forth or
incorporated by reference in Section 3, the Credit Agreement is amended as
follows, effective upon the date (the "Amendment Date") that the conditions in
Section 4 are satisfied, which conditions must be satisfied no later than
December 31, 1998 or this Agreement shall be of no force or effect:
2.1. Amendment to Section 1.21A. A new Section 1.21A is added to the
Credit Agreement immediately after Section 1.21 of the Credit Agreement to read
in its entirety as follows:
"1.21A. "CGI" means The Colonial Group, Inc., a Massachusetts
corporation, which is a Wholly Owned Subsidiary of Liberty Financial
Companies, Inc., which in turn is an indirect, majority owned Subsidiary
of Liberty Mutual Insurance Company, and to which COGRA, LLC will be the
successor by the Merger."
2.2. Amendment to Section 1.22. Section 1.22 of the Credit Agreement is
amended to read in its entirety as follows:
"1.22. "Charter" means the articles of organization, certificate of
incorporation, limited liability company agreement, joint venture
agreement, partnership agreement, trust indenture or other charter
document of any person other than an individual, each as from time to time
in effect."
<PAGE>
2.3. Deletion of Section 1.23. Section 1.23 (definition of CISC) of the
Credit Agreement is deleted and all references to "CISC" in the Amended Credit
Agreement shall be deemed to be references to "LFSI" which means Liberty Funds
Services, Inc., and its successors and assigns.
2.4. Addition of Section 1.29A. A new Section 1.29A is added to the Credit
Agreement immediately after Section 1.29 of the Credit Agreement to read in its
entirety as follows:
"1.29A. "COGRA, LLC" means a newly organized Delaware limited
liability company to be the successor by the Merger to CGI, which new
limited liability company shall be a Wholly Owned Subsidiary of Liberty
Financial Services, Inc., which in turn shall remain a Wholly Owned
Subsidiary of Liberty Financial Companies, Inc., which in turn shall
remain an indirect, majority owned Subsidiary of Liberty Mutual Insurance
Company."
2.5. Amendment to Section 1.34. Section 1.34 of the Credit Agreement is
amended to read in its entirety as follows:
"1.34. "Company" means (a) prior to the Merger, CGI and
(b) from and after the Merger, COGRA, LLC, and their successors
and assigns, including any successor by merger."
2.6. Amendment to Section 1.39. Section 1.39 of the Credit Agreement is
amended to read in its entirety as follows:
"1.39. "Consolidated Net Worth" means, at any date, the
total of:
(a) partners' capital of the Company and the Subsidiaries (excluding
the effect of any foreign currency translation adjustments and excluding
any depreciation and amortization charges resulting from the write-up of
any asset after December 31, 1997) determined in accordance with GAAP on a
Consolidated basis, minus
(b) the amount by which such partners' capital has been increased by
the write-up of any asset of the Company and the Subsidiaries after
December 31, 1997."
2.7. Amendment to Section 1.88. Section 1.88 of the Credit Agreement is
amended to read in its entirety as follows:
"1.88. "Liberty Mutual Guarantee" means the Guarantee
dated as of April 10, 1998, as amended, modified and in effect
from time to time, among the Company, Liberty Mutual Insurance
Company and the Agent."
2
<PAGE>
2.8. Addition of Section 1.94A. A new Section 1.94A is added to the Credit
Agreement immediately after Section 1.94 of the Credit Agreement to read in its
entirety as follows:
"1.94A. "Merger" means the merger of CGI into COGRA, LLC,
whereby COGRA, LLC shall be the surviving entity, occurring on or
before December 31, 1998."
2.9. Deletion of Section 2.1.1. Section 2.1.1 (Term Loan A) and all
references thereto, including Term Loan A Note and Term Loan A Maturity Date is
deleted from the Credit Agreement in its entirety, including the related defined
terms, "Term Loan A", "Term Loan A Note" and "Term Loan A Maturity Date."
2.10. Amendment to Section 6.4.1. The introductory paragraph of Section
6.4.1 of the Credit Agreement is amended to read in its entirety as follows:
"6.4.1. Annual Reports. The Company will furnish to the Lenders as
soon as available, and in any event within 90 days after the end of each
fiscal year of the Company, the internally prepared Consolidated balance
sheet of the Company and the Subsidiaries as at the end of such fiscal
year and the Consolidated statements of income, of changes in partners'
capital and of cash flows of the Company and the Subsidiaries for such
fiscal year (all in reasonable detail), together with comparative figures
(in the case of partners' capital in fiscal year 1999, to shareholders'
equity prior to the Merger) for the preceding fiscal year end, all
accompanied by:"
2.11. Amendment to Section 6.4.2. The introductory paragraph of Section
6.4.2 of the Credit Agreement is amended to read in its entirety as follows:
"6.4.2. Quarterly Reports. The Company will furnish to the Lenders
as soon as available and, in any event, within 45 days after the end of
each of the first three fiscal quarters of the Company, the internally
prepared Consolidated balance sheet of the Company and the Subsidiaries as
of the end of such fiscal quarter and the Consolidated states of income,
of changes in partners' capital in fiscal year 1999 and of cash flows of
the Company and the Subsidiaries for such fiscal quarter and for the
portion of the fiscal year then ending (all in reasonable detail),
together with comparative figures (in the case of partners' capital in
fiscal year 1999, to shareholders' equity prior to the Merger) for the
same date or period in the preceding fiscal year, all accompanied by:"
2.12. Amendment to Section 6.9.1. Section 6.9.1 of the Credit Agreement is
amended to read in its entirety as follows:
3
<PAGE>
"6.9.1. Investments of the Company and the Subsidiaries in Wholly
Owned Subsidiaries; provided, however, that so long as immediately before
and after giving effect thereto no Default exists, Investments in Wholly
Owned Subsidiaries may be made only (a) to the extent reasonably necessary
for the conduct of the business permitted by Section 6.2.1 and (b) to form
COGRA, LLC for purposes of effecting the Merger with CGI."
2.13. Addition of Section 6.11.5. A new Section 6.11.5 is added to the
Credit Agreement immediately after Section 6.11.4 of the Credit Agreement to
read in its entirety as follows:
"6.11.5. In connection with the Merger, CGI may (a) contribute all
of its assets and liabilities to COGRA, LLC in exchange for 100% of the
ownership and economic interests in COGRA, LLC and (b) subsequently effect
the Merger into COGRA, LLC."
2.14. Amendment to Section 7.1.1. Section 7.1.1 of the Credit Agreement is
amended to read in its entirety as follows:
"7.1.1. Company. The Company is prior to the Merger, a duly
organized and validly existing corporation, in good standing under the
laws of Massachusetts (and from and after the Merger, a duly organized and
validly existing limited liability company, in good standing under the
laws of Delaware), with all power and authority, corporate or otherwise,
necessary to (a) enter into and perform this Agreement and each other
Credit Document to which it is a party and make the borrowings hereunder
and (b) own its property and carry on the business conducted or proposed
to be conducted by it. Certified copies of the Charter and By-laws of the
Company have been previously delivered to the Agent and are correct and
complete. Exhibit 7.1, as from time to time hereafter supplemented in
accordance with Sections 6.4.1 and 6.4.2, sets forth, as of the end of the
most recent fiscal year or quarter for which such financial statements are
required to be furnished, (i) the jurisdiction of formation of the
Company, (ii) the address of the Company's principal executive office and
chief place of business and (iii) the name under which the Company
conducts its business and the jurisdiction in which the name is used."
2.15. Amendment to Section 10.1. Section 10.1 of the Credit
Agreement is amended to read in its entirety as follows:
"10.1. Interests in Credits. The percentage interest of each Lender
in the Loan, including the Revolving Loan or Term Loan B in the aggregate,
shall be computed based on the maximum principal amount for each Lender as
follows:
4
<PAGE>
<TABLE>
<CAPTION>
Maximum Principal Percentage
Lender Amount Interest
------ ----------------- ----------
<S> <C> <C>
BankBoston, N.A. $11,666,640 19.4444%
Bank of America National $17,666,640 29.4444%
Trust and Savings Association
The Bank of New York $ 7,666,680 12.7778%
Credit Lyonnais $ 7,666,680 12.7778%
New York Branch
Fleet National Bank $ 7,666,680 12.7778%
Mellon Bank, N.A. $ 7,666,680 12.7778%
----------- ---------
Total $60,000,000 100.0000%
</TABLE>
The foregoing percentage interests, as otherwise adjusted as the Lenders
may from time to time agree among themselves, or pursuant to Section 11,
are referred to as the "Percentage Interests" with respect to all or any
portion of the Loan. References in any Credit Document to the Lenders'
respective Percentage Interests are to such interests as from time to time
in effect."
2.16. Amendment to Exhibit 2.2.3. Exhibit 2.2.3 (Revolving Note) of
the Credit Agreement is amended to read in its entirety as set forth on
Exhibit 2.2.3 hereto.
2.17. Amendment to Exhibit 2.3.2. Exhibit 2.3.2 (Term Loan B Note)
of the Credit Agreement is amended to read in its entirety as set forth on
Exhibit 2.3.2 hereto.
2.18. Amendment to Exhibit 5.1.4. Exhibit 5.1.4 (Subsidiary
Guarantee) of the Credit Agreement is amended by Amendment No. 1 to the
Subsidiary Guarantee in substantially the form of Exhibit 4.4 hereto.
2.19. Amendment to Exhibit 7.1. Exhibit 7.1 of the Credit Agreement
(Company and the Subsidiaries) is amended to read in its entirety as set
forth on Exhibit 7.1 hereto.
3. Representations and Warranties. In order to induce the Lenders to enter
into
5
<PAGE>
this Agreement, CGI and COGRA, LLC each represents and warrants to each of
the Lenders that:
3.1. Organization and Business. CGI is a duly organized and validly
existing corporation in good standing under the laws of Massachusetts, and
COGRA, LLC is a duly organized and validly existing limited liability
company, in good standing under the laws of Delaware, each with all power
and authority, corporate and otherwise, necessary to (a) enter into and
perform this Agreement and perform the Amended Credit Agreement and each
other Credit Document to which it is a party and make the borrowings under
the Amended Credit Agreement and (b) own its properties and carry on the
business now conducted or proposed to be conducted by it. Certified copies
of the Charters and By-laws of CGI and COGRA have been previously
delivered to the Agent and are correct and complete. Exhibit 7.1 attached
hereto sets forth, as of the Amendment Date after giving effect to the
Merger, (i) the jurisdiction of formation COGRA, LLC, (ii) the address of
the principal executive office and chief place of business for COGRA, LLC
and (iii) the name under which COGRA, LLC conducts its business and the
jurisdiction in which the name is used.
3.2. Title to Assets. Prior to the Merger, CGI and the Subsidiaries
have (and from and after the Merger, COGRA, LLC and the Subsidiaries shall
have) good and marketable title to or valid leases of all material assets
necessary for or used in the operations of their business now conducted by
them and reflected in the balance sheet most recently furnished to the
Lenders pursuant to Section 6.4.2, and all material assets acquired
subsequent to the date of such balance sheet, subject to no Liens except
for those permitted by Section 6.8 and except for assets disposed of as
permitted by Section 6.11.
3.3. Enforceability. Each of CGI and COGRA, LLC has duly executed
and delivered this Agreement. Each of this Agreement and the Amended
Credit Agreement is the legal, valid and binding obligation of each of CGI
and COGRA, LLC and is enforceable in accordance with its terms.
3.4. No Legal Obstacle to Agreements. Neither the execution,
delivery or performance of this Agreement, the New Notes or the amendment
to the Subsidiary Guarantee, nor the performance of the Amended Credit
Agreement, nor the consummation of any other transaction referred to in or
contemplated by this Agreement or the Amended Credit Agreement, nor the
fulfillment of the terms hereof or thereof, has constituted or resulted in
or will constitute or result in:
(1) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which either CGI or COGRA, LLC or any
Subsidiary is a party or by which it is bound, or of the Charter or
By-laws, of CGI or COGRA, LLC or any Subsidiary;
6
<PAGE>
(2) the violation of any law, judgment, decree or governmental order, rule
or regulation applicable to CGI or COGRA, LLC or any Subsidiary;
(3) the creation under any agreement, instrument, deed or lease of any
Lien upon any of the assets of CGI or COGRA, LLC or any Subsidiary; or
(4) any redemption, retirement or other repurchase obligation of CGI or
COGRA, LLC or any Subsidiary under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by CGI or COGRA, LLC or any Subsidiary in
connection with the execution, delivery and performance of this Agreement,
or the amendment to the Subsidiary Guarantee, the New Notes, or the
amendments to the Subsidiary Guarantee or the performance of the Amended
Credit Agreement, or the consummation of the transactions contemplated
hereby or thereby.
3.5. No Default. Immediately prior to and after giving effect
to the amendments set forth in Section 2, no Default will exist.
3.6. Incorporation of Representations and Warranties. The representations
and warranties set forth in Section 7 of the Credit Agreement are true and
correct on the date hereof as if originally made on and as of the date hereof.
4. Conditions. The effectiveness of this Agreement shall be subject to the
satisfaction of the following conditions:
4.1. The Merger. The Merger shall have occurred contemporaneously with
the effectiveness of this Agreement on the Amendment Date.
4.2. New Notes. The Revolving Notes of CGI dated as of April 10, 1998
payable by the CGI to each of the Lenders as required by Section 2.2.3 of the
Credit Agreement shall be replaced with new Revolving Notes of COGRA, LLC, to be
dated as of the Closing Date (the "New Notes"), substantially in the form of
Exhibit 2.2.3 hereto, and each such New Note shall be in full force and effect.
4.3. Amendment to the Liberty Mutual Guarantee. The Liberty Mutual
Guarantee among CGI, Liberty Mutual Insurance Company and the Agent shall be
amended to reflect the Merger by Amendment No. 1 to the Liberty Mutual
Guarantee, substantially in the form of Exhibit 4.3 hereto, and shall be in full
force and effect.
4.4. Amendment to the Subsidiary Guarantee and the Guarantors Contribution
Agreement. Each of (i) the Subsidiary Guarantee dated as of April 10, 1998 among
Colonial
7
<PAGE>
Management, Liberty Funds Services, Inc. (f/k/a Colonial Investors Service
Center, Inc.), Colonial Advisory Services, Inc., Liberty Financial Advisers,
Inc. (collectively, the "Subsidiary Guarantors") and the Agent for itself and
the other Lenders and (ii) the Guarantors Contribution Agreement dated as of
April 10, 1998 among CGI and the Subsidiary Guarantors, shall be amended to
reflect the Merger by Amendment No. 1 to the Subsidiary Guarantee and Amendment
No. 1 to the Guarantors Contribution Agreement, substantially in the form of
Exhibit 4.4 hereto, and the Subsidiary Guarantee shall be in full force and
effect.
4.5. Legal Opinions. The Lenders shall have received from Nancy L. Conlin,
Senior Vice President and General Counsel of the Company and the Subsidiaries,
her opinion with respect to the transaction contemplated by this Amendment,
which opinion shall be in form and substance satisfactory to the Lenders.
4.6. Officer's Certificate. The representations and warranties contained
in Section 3 shall be true and correct as of the Amendment Date with the same
force and effect as though originally made on and as of such date; no Default
shall exist on the Amendment Date immediately prior to and after giving effect
to this Agreement; as of the Amendment Date, no Material Adverse Change shall
have occurred; and the Company shall have furnished to the Agent on the
Amendment Date a certificate to these effects, in substantially the form of
Exhibit 4.6, signed by an Executive Officer or a Financial Officer.
4.7. Execution by Lenders. Each of the Lenders shall have executed and
delivered this Agreement to the Company.
4.8. Fees. The Company shall have paid all fees due to the Agent or other
Lenders and all reasonable fees and disbursements of Ropes & Gray, special
counsel to the Lenders.
4.9. Proper Proceedings. All proper corporate proceedings shall have been
taken by each of CGI, COGRA, LLC, the Subsidiaries and Liberty Mutual Insurance
Company to authorize this Agreement, the Credit Agreement, the Liberty Mutual
Guarantee, the Subsidiary Guarantee and the transactions contemplated hereby and
thereby. The Agent shall have received copies of all documents, including legal
opinions of counsel and records of corporate proceedings which the Agent may
have requested in connection therewith, such documents, where appropriate, to be
certified by proper corporate or governmental authorities.
5. Further Assurances. Each of CGI and COGRA, LLC will, promptly upon request of
the Agent from time to time, execute, acknowledge and deliver, and file and
record, all such instruments and notices, and take all such action, as the Agent
deems necessary or advisable to carry out the intent and purposes of this
Agreement.
6. General. The Amended Credit Agreement and all of the Credit Documents,
including the Liberty Mutual Guarantee and the Subsidiary Guarantee, each as
amended, are each confirmed as being in full force and effect. This Agreement,
the Amended Credit Agreement
8
<PAGE>
and the other Credit Documents referred to herein or therein constitute the
entire understanding of the parties with respect to the subject matter hereof
and thereof and supersede all prior and current understandings and agreements,
whether written or oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit or
otherwise affect the meaning hereof. Each of this Agreement and the Amended
Credit Agreement is a Credit Document and may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties and their respective successors and assigns,
including as such successors and assigns all holders of any Note. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN THE
CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
9
<PAGE>
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
THE COLONIAL GROUP, INC.
By _________________________________
Title:
COGRA, LLC
By _________________________________
Title:
BANKBOSTON, N.A.
By _________________________________
Title:
Financial Institutions Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-1537
Telex: 940581
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By _________________________________
Title:
231 South LaSalle Street
Chicago, Illinois 60697
Telecopy: (312) 987-0889
Telex: (312) 828-3734
10
<PAGE>
THE BANK OF NEW YORK
By _________________________________
Title:
One Wall Street
Mutual Funds Banking Division
New York, New York 10286
Telecopy: (212) 635-6958
Telex:
CREDIT LYONNAIS NEW YORK BRANCH
By _________________________________
Authorized Signature
1301 Avenue of the Americas
New York, New York 10019
Telecopy: (212) 261-3401
Telex:
FLEET NATIONAL BANK
By _________________________________
Title:
777 Main Street
Hartford, Connecticut 06115
Telecopy:
Telex:
11
<PAGE>
MELLON BANK, N.A.
By _________________________________
Title:
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Telecopy: (412) 234-8087
Telex:
12
LIBERTY FINANCIAL COMPANIES, INC.
EXHIBIT 12 - Statement re Computation of Ratios
($ in millions)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Pretax income $ 178.9 $ 192.1 $ 150.3
Add fixed charges:
Interest on indebtedness 24.1 21.4 19.7
Portion of rent representing
the interest factor 4.1 3.7 4.0
Accretion to face value of redeemable
convertible preferred stock 0.8 0.8 0.9
-------- -------- --------
Sub-total of income as adjusted 207.9 218.0 174.9
Interest on fixed annuities and financial products 562.2 594.1 572.7
-------- -------- --------
Total income as adjusted $ 770.1 $ 812.1 $ 747.6
======== ======== ========
Fixed charges:
Interest on indebtedness $ 24.1 $ 21.4 $ 19.7
Portion of rent representing
the interest factor 4.1 3.7 4.0
Accretion to face value of redeemable
convertible preferred stock 0.8 0.8 0.9
-------- -------- --------
Sub-total of fixed charges 29.0 25.9 24.6
Interest on fixed annuities and financial products 562.2 594.1 572.7
-------- -------- --------
Sub-total of fixed charges 591.2 620.0 597.3
Preferred stock dividends 1.4 1.4 1.4
-------- -------- --------
Total fixed charges $ 592.6 $ 621.4 $ 598.7
======== ======== ========
Ratio of earnings to fixed charges:
Excluding interest on fixed annuities and
financial products 7.17x 8.42x 7.11x
======== ======== ========
Including interest on fixed annuities and
financial products 1.30x 1.31x 1.25x
======== ======== ========
Ratio of earnings to combined fixed charges and
preferred stock dividends:
Excluding interest on fixed annuities and
financial products 6.84x 7.99x 6.73x
======== ======== ========
Including interest on fixed annuities and
financial products 1.30x 1.31x 1.25x
======== ======== ========
</TABLE>
Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA(1)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Investment income $ 820.9 $ 853.1 $ 796.4 $ 761.8 $ 695.1
Interest credited to policyholders (562.2) (594.1) (572.7) (555.8) (481.9)
- --------------------------------------------------------------------------------------------------------------------------
Investment spread 258.7 259.0 223.7 206.0 213.2
- --------------------------------------------------------------------------------------------------------------------------
Net realized investment gains (losses) 2.4 25.9 8.0 (4.0) (8.2)
- --------------------------------------------------------------------------------------------------------------------------
Fee income:
Investment advisory and administrative fees 237.7 217.9 196.4 155.8 95.9
Distribution and service fees 52.7 49.2 44.9 28.9 --
Transfer agency fees 49.0 47.7 43.9 30.8 4.0
Surrender charges and net commissions 33.7 36.1 34.7 23.4 20.0
Separate account fees 20.6 17.1 16.0 13.2 12.5
- --------------------------------------------------------------------------------------------------------------------------
Total fee income 393.7 368.0 335.9 252.1 132.4
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating expenses (328.2) (309.7) (277.9) (225.1) (174.9)
Amortization of deferred policy acquisition costs (69.2) (75.9) (60.2) (58.5) (52.2)
Amortization of deferred distribution costs (40.1) (34.2) (33.9) (18.8) --
Amortization of value of insurance in force (8.2) (10.5) (10.2) (9.5) (17.0)
Amortization of intangible assets (15.3) (13.5) (15.4) (12.2) (5.8)
Interest expense, net (14.9) (17.0) (19.7) (16.2) (4.2)
- --------------------------------------------------------------------------------------------------------------------------
Total expenses (475.9) (460.8) (417.3) (340.3) (254.1)
- --------------------------------------------------------------------------------------------------------------------------
Pretax income 178.9 192.1 150.3 113.8 83.3
Income tax expense (54.4) (62.6) (49.6) (39.9) (32.5)
- --------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 124.5 129.5 100.7 73.9 50.8
Extraordinary loss on extinguishment of
debt, net of tax (9.7) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 114.8 $ 129.5 $ 100.7 $ 73.9 $ 50.8
==========================================================================================================================
Per Share Data(2)
Net income per share--basic $ 2.51 $ 2.94 $ 2.36 $ 1.85 $ 1.49
Net income per share--assuming dilution 2.42 2.77 2.24 1.76 1.43
Dividends on common stock(3) 0.40 0.40 0.40 0.30 --
Dividends on convertible preferred stock 2.88 2.88 2.88 2.21 --
Book value 27.41 26.82 24.42 23.03 18.25
Other Operating Data
Net operating income(4) $ 122.6 $ 112.4 $ 94.8 $ 76.5 $ 56.2
Extraordinary loss on extinguishment of debt,
net of tax (9.7) -- -- -- --
Net realized investment gains (losses), net of taxes 1.9 17.1 5.9 (2.6) (5.4)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 114.8 $ 129.5 $ 100.7 $ 73.9 $ 50.8
==========================================================================================================================
Balance Sheet Data
Total investments $ 12,598.3 $ 12,343.5 $ 11,537.9 $ 10,144.7 $ 8,590.2
Intangible assets 292.8 199.0 205.4 192.3 29.3
Total assets 16,519.1 15,851.6 14,427.7 12,749.4 10,968.8
Notes payable to affiliates -- 229.0 229.0 229.0 75.0
Notes payable 486.4 26.5 52.5 61.0 --
Series A redeemable convertible preferred stock 15.3 14.6 13.8 13.0 --
Stockholders' equity 1,271.3 1,198.9 1,051.4 956.4 624.7
Shares of common stock outstanding(2) 46.4 44.7 43.1 41.5 34.2
</TABLE>
1 Includes data for acquired entities from and after the applicable acquisition
date (the most significant being Colonial, which was acquired on March 24,
1995). The data presented should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and other financial
information included herein and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION."
2 Share and per share amounts have been adjusted for a three-for-two common
stock split effected in the form of a 50 percent stock dividend distributed
on December 10, 1997.
3 The amount for 1995 does not include a non-cash dividend of $30.0 million to
an affiliate of Liberty Mutual. See Note 5 of Notes to the Consolidated
Financial Statements.
4 Net operating income is defined as net income, excluding extraordinary items
and net realized investment gains and losses, net of related income taxes.
27
<PAGE>
Management's Discussion
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Income was $114.8 million or $2.42 per share in 1998 compared to $129.5
million or $2.77 per share in 1997 and $100.7 million or $2.24 per share in
1996. The decrease in 1998 compared to 1997 resulted primarily from lower net
realized investment gains and higher operating expenses. Partially offsetting
these items were increased fee income and decreased amortization expense,
interest expense, net and income tax expense. In addition, net income for 1998
included an extraordinary loss on extinguishment of debt, net of tax, of $9.7
million. The increase in 1997 compared to 1996 resulted primarily from higher
investment spread, higher fee income, higher net realized investment gains and
lower interest expense, net. Partially offsetting these items were increased
operating expenses, amortization expense and income tax expense.
Pretax Income was $178.9 million in 1998 compared to $192.1 million in
1997 and $150.3 million in 1996. The lower pretax income in 1998 compared to
1997 resulted primarily from lower net realized investment gains and higher
operating expenses. Partially offsetting these items were increased fee income
and decreased amortization expense and interest expense, net. The higher pretax
income in 1997 compared to 1996 resulted primarily from higher investment
spread, higher fee income, higher net realized investment gains and lower
interest expense, net. Partially offsetting these items were increased operating
expenses and amortization expense.
Investment Spread is the amount by which investment income earned on the
Company's investments exceeds interest credited on policyholder balances.
Investment spread was $258.7 million in 1998 compared to $259.0 million in 1997
and $223.7 million in 1996. The amount by which the average yield on investments
exceeds the average interest credited rate on policyholder balances is the
investment spread percentage. The investment spread percentage in 1998 was 1.83%
compared to 1.96% for 1997 and 1.89% for 1996.
Investment income was $820.9 million in 1998 compared to $853.1 million in
1997 and $796.4 million in 1996. The decrease of $32.2 million in 1998 compared
to 1997 primarily relates to a $66.0 million decrease as a result of a lower
average investment yield, partially offset by a $33.8 million increase resulting
from a higher level of average invested assets. The 1998 investment income was
net of $70.8 million of S&P 500 Index call option amortization expense related
to the Company's equity-indexed annuities compared to $47.6 million in 1997. The
average investment yield was 6.41% in 1998 compared to 6.95% in 1997. The
increase of $56.7 million in 1997 compared to 1996 primarily relates to an $86.2
million increase as a result of the higher level of average invested assets,
partially offset by a $29.5 million decrease resulting from a lower average
investment yield. The 1996 investment income was net of $14.0 million of S&P 500
Index call option amortization expense. The average investment yield was 7.21%
in 1996.
Interest credited to policyholders totaled $562.2 million in 1998 compared
to $594.1 million in 1997 and $572.7 million in 1996. The decrease of $31.9
million in 1998 compared to 1997 primarily relates to a $48.6 million decrease
resulting from a lower average interest credited rate, partially offset by a
$16.8 million increase as a result of a higher level of average policyholder
balances. Policyholder balances averaged $12.3 billion (including $10.5 billion
of fixed products, consisting of fixed annuities and a closed block of single
premium whole life insurance, and $1.8
28
<PAGE>
billion of equity-indexed annuities) in 1998 compared to $11.9 billion
(including $10.8 billion of fixed products and $1.1 billion of equity-indexed
annuities) in 1997. The average interest credited rate was 4.58% (5.23% on
fixed products and 0.85% on equity-indexed annuities) in 1998 compared to 4.99%
(5.45% on fixed products and 0.85% on equity-indexed annuities) in 1997.
Keyport's equity-indexed annuities credit interest to the policyholder at a
"participation rate" equal to a portion (ranging for existing policies from 25%
to 95%) of the change in value of the S&P 500 Index. Keyport's equity-indexed
annuities also provide a full guarantee of principal if held to term, plus
interest at 0.85% annually. For each of the periods presented, the interest
credited to equity-indexed policyholders related to the participation rate was
offset by investment income recognized on the S&P 500 Index call options and
futures, resulting in a 0.85% net credited rate. The increase of $21.4 million
in 1997 compared to 1996 primarily relates to a $56.4 million increase as a
result of a higher level of average policyholder balances, partially offset by
a $35.0 million decrease resulting from a lower average interest credited rate.
Policyholder balances averaged $10.8 billion (including $10.4 billion of fixed
products and $0.4 billion of equity-indexed annuities) in 1996. The average
interest credited rate was 5.32% (5.50% on fixed products and 0.85% on
equity-indexed annuities) in 1996.
Average investments in the Company's general account (computed without
giving effect to Statement of Financial Accounting Standards No. 115),
including a portion of the Company's cash and cash equivalents, were $12.8
billion in 1998 compared to $12.3 billion in 1997 and $11.0 billion in 1996.
The increase of $0.5 billion in 1998 compared to 1997 was primarily due to the
reinvestment of portfolio earnings. The increase of $1.3 billion in 1997
compared to 1996 was primarily due to a 100 percent coinsurance agreement with
respect to a $954.0 million block of single premium deferred annuities
("SPDAs") entered into with Fidelity & Guaranty Life Insurance Company ("F&G
Life") during the third quarter of 1996 and the reinvestment of portfolio
earnings of $0.7 billion.
Net Realized Investment Gains were $2.4 million in 1998 compared to $25.9
million in 1997 and $8.0 million in 1996. The net realized investment gains in
1998 were net of losses of $28.3 million for certain fixed maturity investments
where the decline in value was determined to be other than temporary.
Investment Advisory and Administrative Fees are based on the market value
of assets managed for mutual funds, wealth management and institutional
investors. Investment advisory and administrative fees were $237.7 million in
1998 compared to $217.9 million in 1997 and $196.4 million in 1996. These
increases primarily reflect a higher level of average fee-based assets under
management.
Average fee-based assets under management were $41.9 billion in 1998
compared to $37.2 billion in 1997 and $33.9 billion in 1996. The increase
during 1998 compared to 1997 resulted from acquisitions, market appreciation
and net sales for the year ended December 31, 1998. The increase during 1997
compared to 1996 was primarily due to market appreciation. Investment advisory
and administrative fees were 0.57% of average fee-based assets under management
in 1998, 0.59% in 1997 and 0.58% in 1996.
The amount of fee-based assets under management are affected by product
sales and redemptions, acquisitions, and by changes in the market values of
such assets under management. Fee-based assets under management and changes in
such assets are set forth in the tables below (in billions).
29
<PAGE>
Fee-Based Assets Under Management
<TABLE>
<CAPTION>
As of December 31
------------------------------
1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Funds:
Intermediary-distributed $ 17.9 $ 16.1 $ 16.1
Direct-marketed 6.8 7.2 6.6
Closed-end 2.4 2.2 1.9
Variable annuity 1.5 1.3 1.1
- -------------------------------------------------------------------------
28.6 26.8 25.7
Private Capital Management 7.9 6.6 5.3
Institutional 11.4 5.3 4.9
- -------------------------------------------------------------------------
Total fee-based assets under management* $ 47.9 $ 38.7 $ 35.9
=========================================================================
</TABLE>
* As of December 31, 1998, 1997 and 1996, Keyport's insurance assets of $13.1
billion, $12.8 billion and $12.1 billion, respectively, bring total assets
under management to $61.0 billion, $51.5 billion and $48.0 billion,
respectively.
Changes in Fee-Based Assets Under Management
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee-based assets under management--beginning $ 38.7 $ 35.9 $ 31.9
Sales and reinvestments 8.5 6.6 7.5
Redemptions and withdrawals ( 6.8) ( 6.6) ( 5.7)
Acquisitions 5.4 -- 0.3
Market appreciation 2.1 2.8 1.9
- -------------------------------------------------------------------------------
Fee-based assets under management--ending $ 47.9 $ 38.7 $ 35.9
===============================================================================
</TABLE>
Distribution and Service Fees are based on the market value of the Company's
intermediary-distributed mutual funds. Distribution fees of 0.75% are generally
earned on the average assets attributable to such funds sold with 12b-1
distribution fees and contingent deferred sales charges and service fees of
0.25% (net of amounts passed on to selling brokers) are generally earned on the
total of such average mutual fund assets. These fees totaled $52.7 million in
1998 compared to $49.2 million in 1997 and $44.9 million in 1996. These
increases in 1998 and 1997 were primarily attributable to the higher asset
levels of mutual funds with 12b-1 distribution fees and contingent deferred
sales charges. As a percentage of weighted average assets, distribution and
service fees were approximately 0.71% in 1998, 0.71% in 1997 and 0.69% in 1996.
Transfer Agency Fees are based on the market value of the assets managed in the
Company's intermediary-distributed and direct-marketed mutual funds. Such fees
were $49.0 million on average assets of $24.9 billion in 1998, $47.7 million on
average assets of $24.1 billion in 1997 and $43.9 million on average assets of
$22.6 billion in 1996. These increases in 1998 and 1997 were primarily due to
higher average assets. As a percentage of total average mutual fund assets
under management, transfer agency fees were approximately 0.20%, 0.20% and
0.19% in 1998, 1997 and 1996, respectively.
30
<PAGE>
Surrender Charges and Net Commissions are revenues earned on: a) the early
withdrawal of annuity policyholder balances and redemptions of the
intermediary-distributed mutual funds which were sold with 12b-1 distribution
fees and contingent deferred sales charges; b) the distribution of the
Company's intermediary-distributed mutual funds (net of the substantial portion
of commissions that is passed on to the selling brokers); and c) the sales of
non-proprietary products in the Company's bank marketing businesses (net of
commissions that are paid to the Company's client banks and brokers). Total
surrender charges and net commissions were $33.7 million in 1998 compared to
$36.1 million in 1997 and $34.7 million in 1996.
Surrender charges on fixed and variable annuity withdrawals generally are
assessed at declining rates applied to policyholder withdrawals during the
first five to seven years of the contract; contingent deferred sales charges on
mutual fund redemptions are assessed at declining rates on amounts redeemed
generally during the first six years. Such charges totaled $21.9 million, $21.4
million and $19.8 million in 1998, 1997 and 1996, respectively. Total annuity
withdrawals represented 13.2%, 11.6% and 11.6% of the total average annuity
policyholder and separate account balances in 1998, 1997 and 1996,
respectively. Net commissions were $11.8 million in 1998, $14.7 million in 1997
and $14.9 million in 1996.
Separate Account Fees are primarily mortality and expense charges earned
on variable annuity and variable life policyholder balances. These fees, which
are based on the market values of the assets in separate accounts supporting
the contracts, were $20.6 million in 1998 compared to $17.1 million in 1997 and
$16.0 million in 1996. Such fees represented 1.44%, 1.54% and 1.68% of average
variable annuity and variable life separate account balances in 1998, 1997 and
1996, respectively.
Operating Expenses primarily represent compensation, marketing and other
general and administrative expenses. These expenses were $328.2 million in 1998
compared to $309.7 million in 1997 and $277.9 million in 1996. These increases
were primarily due to increases in compensation and marketing expenses.
Operating expenses expressed as a percent of average total assets under
management were 0.60%, 0.63% and 0.62% in 1998, 1997 and 1996, respectively.
Amortization of Deferred Policy Acquisition Costs relates to the costs of
acquiring new business which vary with, and are primarily related to, the
production of new annuity business. Such costs include commissions, costs of
policy issuance and underwriting and selling expenses. Amortization was $69.2
million in 1998 compared to $75.9 million in 1997 and $60.2 million in 1996.
The decrease in amortization in 1998 compared to 1997 was primarily related to
revisions in investment spread assumptions, partially offset by increased
amortization from the growth of business in force associated with increased
sales of variable annuity products during 1998. The increase in amortization in
1997 compared to 1996 was primarily related to the increase in investment
spread from the growth of business in force associated with fixed and indexed
products and the increased sales of variable annuity products during 1997.
Amortization expense represented 24.8%, 27.5% and 25.1% of investment spread
and separate account fees in 1998, 1997 and 1996, respectively.
Amortization of Deferred Distribution Costs relates to the distribution of
mutual fund shares sold with 12b-1 distribution fees and contingent deferred
sales charges. Amortization was $40.1 million in 1998 compared to $34.2 million
in 1997 and $33.9 million in 1996. The increase in amortization in 1998
compared to 1997 was primarily attributable to the continuing sales of such
fund shares during 1998 and 1997. The increase in amortization in 1997
31
<PAGE>
compared to 1996 was primarily attributable to the continuing sales of such
fund shares during 1997 and 1996, partially offset by a $3.8 million charge in
the fourth quarter of 1996 relating to a reduction in the amortization period.
Amortization of Value of Insurance in Force relates to the
actuarially-determined present value of projected future gross profits from
policies in force at the date of acquisition. Amortization totaled $8.2 million
in 1998 compared to $10.5 million in 1997 and $10.2 million in 1996. The
decrease in amortization in 1998 compared to 1997 was primarily due to lower
amortization related to the F&G Life block of SPDAs. The increase in
amortization in 1997 compared to 1996 included increased amortization of $4.0
million related to the F&G Life block of SPDAs partially offset by decreased
amortization related to a change in mortality assumptions.
Amortization of Intangible Assets relates to goodwill and certain
identifiable intangible assets arising from business combinations accounted for
as purchases. Amortization was $15.3 million in 1998 compared to $13.5 million
in 1997 and $15.4 million in 1996. The increase in amortization in 1998
compared to 1997 was primarily attributable to acquisitions during 1998. The
decrease in amortization in 1997 compared to 1996 was primarily attributable to
certain assets becoming fully amortized in the third quarter of 1996.
Interest Expense, Net was $14.9 million in 1998 compared to $17.0 million
in 1997 and $19.7 million in 1996. The decrease in 1998 compared to 1997 was
due largely to higher interest income, which is netted against interest
expense, and lower interest expense related to Colonial's revolving credit
facility which is utilized to finance deferred sales commissions paid in
connection with the distribution of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges. Partially offsetting
these items was higher interest expense on debt. The decrease in 1997 compared
to 1996 was due to lower interest expense related to Colonial's credit facility
and to higher interest income which is netted against interest expense.
Income Tax Expense was $54.4 million or 30.4% of pretax income in 1998
compared to $62.6 million or 32.6% of pretax income in 1997 and $49.6 million
or 33.0% of pretax income in 1996. The Company expects its effective tax rate
on pretax income in 1999 to approximate 38.5%. The significantly lower
effective tax rates on pretax income in 1998, 1997 and 1996 were primarily
attributable to reductions in the deferred tax asset valuation allowance on
federal net operating loss carryforwards. At December 31, 1998, the valuation
allowance on federal net operating loss carryforwards has been reduced to zero.
FINANCIAL CONDITION
Stockholders' Equity as of December 31, 1998 was $1.27 billion compared to
$1.20 billion as of December 31, 1997. Net income in 1998 was $114.8 million
and cash dividends on the Company's preferred and common stock totaled $5.9
million. Common stock totaling $8.9 million was issued in connection with the
acquisition of Crabbe Huson and common stock totaling $7.3 million was issued
in connection with the exercise of stock options. In addition, the exercise of
certain stock options resulted in a federal income tax benefit to the Company
of $2.5 million which was credited to additional paid-in capital. A decrease in
accumulated other comprehensive income which consists of net unrealized
investment gains, net of adjustments to deferred policy acquisition costs,
value of insurance in force and income taxes, during the period decreased
stockholders' equity by $55.8 million.
Book Value Per Share amounted to $27.41 at December 31, 1998 compared to
$26.82 at December 31, 1997. Excluding net unrealized gains on investments,
book value per share amounted to $26.82 at December 31, 1998 and
32
<PAGE>
$24.97 at December 31, 1997. As of December 31, 1998, there were 46.4 million
common shares outstanding compared to 44.7 million common shares outstanding as
of December 31, 1997.
Investments not including cash and cash equivalents, totaled $12.6 billion
at December 31, 1998 compared to $12.3 billion at December 31, 1997. The
increase primarily reflects the reinvestment of portfolio earnings.
The Company manages the majority of its invested assets internally. The
Company's general investment policy is to hold fixed maturity securities for
long-term investment and, accordingly, the Company does not have a trading
portfolio. To provide for maximum portfolio flexibility and appropriate tax
planning, the Company classifies its entire portfolio of fixed maturity
securities as "available for sale" and accordingly carries such investments at
fair value. The Company's total investments at December 31, 1998 and 1997
reflected net unrealized gains of $105.3 million and $283.8 million,
respectively, relating to its fixed maturity and equity portfolios.
Approximately $11.3 billion or 84.9% of the Company's general account
investments at December 31, 1998 were rated by Standard & Poor's Corporation,
Moody's Investors Service or under comparable statutory rating guidelines
established by the National Association of Insurance Commissioners ("NAIC"). At
December 31, 1998, the carrying value of investments in below investment grade
securities totaled $1.1 billion or 8.1% of general account investments of $13.3
billion. Below investment grade securities generally provide higher yields and
involve greater risks than investment grade securities because their issuers
typically are more highly leveraged and more vulnerable to adverse economic
conditions than investment grade issuers. In addition, the trading market for
these securities may be more limited than for investment grade securities.
The Company routinely reviews its portfolio of investment securities. The
Company identifies monthly any investments that require additional monitoring,
and carefully reviews the carrying value of such investments at least quarterly
to determine whether specific investments should be placed on a nonaccrual
basis and to determine declines in value that may be other than temporary. In
making these reviews, the Company principally considers the adequacy of
collateral (if any), compliance with contractual covenants, the borrower's
recent financial performance, news reports, and other externally generated
information concerning the borrower's affairs. In the case of publicly traded
fixed maturity securities, management also considers market value quotations if
available. As of December 31, 1998, the carrying value of fixed maturity
securities that were non-income producing was $30.0 million, which constituted
0.2% of investments.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market-Sensitive Instruments and Risk Management
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The Company's primary market risk exposures
are to changes in interest rates and to changes in equity prices.
The active management of market risk is integral to the Company's
operations. The Company may use the following approaches to manage its exposure
to market risk within defined tolerance ranges: rebalance its existing asset
and liability portfolios, change the character of future investment purchases,
or use derivative instruments to modify the market risk characteristics of
existing assets and liabilities or assets expected to be purchased.
33
<PAGE>
Corporate Oversight
The Company generates substantial investable funds from its annuity operations.
The Company believes that its fixed and indexed policyholder balances should be
backed by investments, principally comprised of fixed maturities, which
generate predictable rates of return. The Company does not have a specific
target rate of return. Instead, its rates of return vary over time depending on
the current interest rates, the slope of the yield curve and the excess at
which fixed maturities are priced over the yield curve. The Company's portfolio
strategy is designed to achieve acceptable risk-adjusted returns by effectively
managing portfolio liquidity and credit quality.
The Company administers and oversees the investment risk management
processes primarily through its Investment Committee and its Board of
Directors. The Investment Committee and Board of Directors provide executive
oversight of investment activities. The Investment Committee is a committee
consisting of the Chief Executive Officer and other members of senior
management of the Company. The Investment Committee meets monthly to provide
detailed oversight of investment risk, including market risk.
The Company has investment guidelines that define the overall framework
for managing market and other investment risks, including the accountability
and control over these activities. In addition, the Company has specific
investment policies that delineate the investment limits and strategies that
are appropriate given the Company's liquidity, product and regulatory
requirements.
The Company monitors and manages its exposure to market risk through asset
allocation limits, duration limits, and stress tests. Asset allocation limits
place restrictions on the aggregate fair value which may be invested within an
asset class. Duration limits on the aggregate investment portfolio, and, as
appropriate, on individual components of the portfolio, place restrictions on
the amount of interest rate risk that may be taken. Stress tests measure
downside risk to fair value and earnings over longer time intervals and for
adverse market scenarios.
The day-to-day management of market risk within defined tolerance ranges
occurs as portfolio managers buy and sell within their respective markets based
upon the acceptable boundaries established by asset allocation, duration and
other limits, including but not limited to credit and liquidity.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due
to adverse changes in interest rates. This risk arises from the Company's
primary activities, as the Company invests substantial funds in
interest-sensitive assets and also has interest-sensitive liabilities. The
Company's asset/liability management emphasizes a conservative approach, which
is oriented toward reducing downside risk in adverse markets, as opposed to
maximizing spread in favorable markets.
The Company manages the interest rate risk inherent in its assets relative
to the interest rate risk inherent in its liabilities. One of the measures the
Company uses to quantify this exposure is effective duration. Effective
duration is a common measure for the price sensitivity of assets and
liabilities to changes in interest rates. It measures the approximate
percentage change in the market value of assets and liabilities when interest
rates change by 100 basis points. This measure includes the impact of estimated
changes in portfolio cash flows from features such as prepayments and bond
calls. The effective duration of assets and related liabilities are produced
using standard financial valuation techniques. At December 31, 1998, the
estimated difference between the Company's asset and
34
<PAGE>
liability duration was approximately 1.2. This positive duration gap indicates
that the fair value of the Company's assets is somewhat more sensitive to
interest rate movements than the fair value of its liabilities.
The Company seeks to invest premiums and deposits to create future cash
flows that will fund future benefits, claims, and expenses, and earn stable
margins across a wide variety of interest rate and economic scenarios. In order
to achieve this objective and limit its exposure to interest rate risk, the
Company adheres to a philosophy of managing the effective duration of assets and
related liabilities. The Company uses interest rate swaps, futures and caps to
reduce the interest rate risk resulting from effective duration mismatches
between assets and liabilities. To the extent that actual results differ from
the assumptions utilized, the Company's effective duration could be
significantly impacted. Important assumptions include the timing of cashflows on
mortgage-related assets and liabilities subject to policyholder surrenders.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
The Company's potential exposure due to a 10% increase in prevailing
interest rates from their December 31, 1998 levels is a loss of $87.0 million
in fair value of its fixed-rate assets that is not offset by a decrease in the
fair value of its fixed-rate liabilities. Because the Company actively manages
its assets and liabilities and has strategies in place to minimize its exposure
to loss as interest rate changes occur, it expects that actual losses would be
less than the estimated potential loss.
Equity Price Risk
Equity price risk is the risk that the Company will incur economic losses due
to adverse changes in a particular stock or stock index. At December 31, 1998,
the Company had approximately $24.6 million in common stocks and $535.1 million
in other equity investments (primarily equity options and equity futures).
At December 31, 1998, the Company had $2.0 billion in equity-indexed
annuity liabilities which provide customers with contractually guaranteed
participation in price appreciation of the Standard & Poor's 500 Composite
Price Index ("S&P 500 Index"). The Company purchases equity-indexed options and
futures to hedge the risk associated with the price appreciation component of
equity-indexed annuity liabilities.
The Company manages the equity risk inherent in its assets relative to the
equity risk inherent in its liabilities by conducting detailed computer
simulations that model its S&P 500 Index derivatives and its equity-indexed
annuity liabilities under stress-test scenarios in which both the index level
and the index option implied volatility are varied through a wide range.
Implied volatility is a value derived from standard option valuation models
representing an implicit forecast of the standard deviation of the returns on
the underlying asset over the life of the option or future. The fair values of
S&P 500 Index linked securities, derivatives, and annuities are produced using
standard derivative valuation techniques. The derivatives portfolio is
constructed to maintain acceptable interest margins under a variety of possible
future S&P 500 Index levels and option and futures cost environments. In order
to achieve this objective and limit its exposure to equity price risk, the
Company measures and manages these exposures using methods based on the fair
value of assets and the price appreciation component of related liabilities.
The Company uses derivatives, including futures and options, to modify its net
exposure to fluctuations in the S&P 500 Index.
35
<PAGE>
Based upon the information and assumptions the Company uses in its
stress-test scenarios at December 31, 1998, management estimates that if the
S&P 500 Index increases by 10%, the net fair value of its assets and
liabilities described above would decrease by approximately $2.0 million. If
option implied volatilities increase by 100 basis points, management estimates
that the net fair value of its assets and liabilities will decrease by
approximately $6.0 million.
The simulations do not consider the effects of other changes in market
conditions that could accompany changes in the equity option and futures
markets including the effects of changes in implied dividend yields, interest
rates, and equity-indexed annuity policy surrenders.
DERIVATIVES
As a component of its investment strategy and to reduce its exposure to
interest rate risk, the Company utilizes interest rate swap agreements and
interest rate cap agreements to match assets more closely to liabilities.
Interest rate swap agreements are agreements to exchange with a counterparty
interest rate payments of differing character (e.g., fixed-rate payments
exchanged for variable-rate payments) based on an underlying principal balance
(notional principal) to hedge against interest rate changes. The Company
currently utilizes interest rate swap agreements to reduce asset duration and
to better match interest earned on longer-term fixed-rate assets with interest
credited to policyholders. The Company had 42 and 45 outstanding interest rate
swap agreements with an aggregate notional principal amount of $2.4 billion and
$2.6 billion as of December 31, 1998 and 1997, respectively.
Interest rate cap agreements are agreements with a counterparty which
require the payment of a premium for the right to receive payments for the
difference between the cap interest rate and a market interest rate on
specified future dates based on an underlying principal balance (notional
principal) to hedge against rising interest rates. The Company had interest
rate cap agreements with an aggregate notional amount of $250.0 million as of
December 31, 1998 and 1997.
With respect to the Company's equity-indexed annuities, the Company buys
call options and futures on the S&P 500 Index to hedge its obligations to
provide returns based upon this index. The Company had call options with a
carrying value of $535.7 million and $323.3 million as of December 31, 1998 and
1997, respectively. The Company had futures with a carrying value of $(0.6)
million and $0.8 million as of December 31, 1998, and 1997, respectively.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap, cap
and call option agreements is counterparty non-performance. The Company
believes that the counterparties to its swap, cap and call option agreements
are financially responsible and that the counterparty risk associated with
these transactions is minimal. Futures contracts trade on organized exchanges
and therefore, have minimal credit risk. In addition, swap and cap agreements
have interest rate risk and call options and futures have stock market risk.
These swap and cap agreements hedge fixed-rate assets and the Company expects
that any interest rate movements that adversely affect the market value of swap
and cap agreements would be offset by changes in the market values of such
fixed rate assets. However, there can be no assurance that these hedges will be
effective in offsetting the potential adverse effects of changes in interest
rates. Similarly, the call options and futures hedge the Company's obligations
to provide returns on equity-indexed annuities based upon the S&P 500 Index,
and the Company believes that any stock market movements that adversely affect
the market value
36
<PAGE>
of S&P 500 Index call options and futures would be substantially offset by a
reduction in policyholder liabilities. However, there can be no assurance that
these hedges will be effective in offsetting the potentially adverse effects of
changes in S&P 500 Index levels. The Company's profitability could be adversely
affected if the value of its swap and cap agreements increase less than (or
decrease more than) the change in the market value of its fixed rate assets
and/or if the value of its S&P 500 Index call options and futures increase less
than (or decrease more than) the value of the guarantees made to equity-indexed
policyholders.
In June 1998, Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued. This
statement standardizes the accounting for derivative instruments and the
derivative portion of certain other contracts that have similar characteristics
by requiring that an entity recognize those instruments on the balance sheet at
fair value. This statement also requires a new method of accounting for hedging
transactions, prescribes the type of items and transactions that may be hedged,
and specifies detailed criteria to be met to qualify for hedge accounting. This
statement is effective for fiscal years beginning after June 15, 1999. Earlier
adoption is permitted. The Company is evaluating the impact of this statement.
Upon adoption, the Company will be required to record a cumulative effect
adjustment to reflect this accounting change. At this time, the Company has not
completed its analysis and evaluation of the requirements and impact of this
statement.
LIQUIDITY
The Company is a holding company whose liquidity needs include the following:
(i) operating expenses; (ii) debt service; (iii) dividends on preferred stock
and common stock; (iv) acquisitions; and (v) working capital where needed by
its operating subsidiaries. The Company's principal sources of cash are
dividends from its operating subsidiaries, and, in the case of funding for
acquisitions and certain long-term capital needs of its subsidiaries, long-term
borrowings and offerings of preferred and common stock. In connection with the
Crabbe Huson acquisition, the Company entered into a $100.0 million revolving
credit facility with a commercial bank (the "Bridge Facility"). The Bridge
Facility matures on March 30, 1999 and bears interest at a per annum rate equal
to LIBOR plus twenty-five basis points. The Company borrowed $90.0 million
under the Bridge Facility to finance the acquisition of Crabbe Huson. In
November 1998, the Company issued $450.0 million of senior debt securities. The
offering consisted of $300.0 million of 6-3/4% 10-year notes due November 15,
2008 and $150.0 million of 7-5/8% 30-year debentures due November 15, 2028. The
proceeds were utilized to repay the $90.0 million borrowed under the Bridge
Facility and to repay the $229.0 million notes payable to affiliates. The
balance of the proceeds will be utilized for general corporate purposes.
The Company also has a $60.0 million revolving credit facility (the
"Facility") which is utilized to finance deferred sales commissions paid in
connection with the distribution of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges. This Facility is
subject to annual renewal. If not renewed, effective April 11, 1999 this
Facility converts to a term loan which matures on April 11, 2004. Upon such
conversion, minimum quarterly payments of principal equal to 5.0% of
outstanding borrowings as of the conversion date are required. Interest accrues
on the outstanding borrowings of the Facility at floating rates based upon
LIBOR plus 0.225%. The terms of the Facility place certain restrictions on
Colonial's ability to pay dividends. Under the terms of the Facility, Colonial
could pay dividends of up to $32.3 million as of December 31, 1998.
37
<PAGE>
Current Rhode Island insurance law applicable to Keyport permits the
payment of dividends or distributions, which, together with dividends and
distributions paid during the preceding 12 months, do not exceed the lesser of
(i) 10% of Keyport's statutory surplus as of the preceding December 31 or (ii)
Keyport's statutory net gain from operations for the preceding fiscal year. Any
proposed dividend in excess of this amount is called an "extraordinary
dividend" and may not be paid until it is approved by the Commissioner of
Insurance of the State of Rhode Island. As of December 31, 1998, the amount of
dividends that Keyport could pay without such approval was $59.1 million.
Keyport paid dividends of $20.0 million during 1998 but had not previously paid
any dividends since its acquisition in 1988. Future regulatory changes and
credit agreements may create additional limitations on the ability of the
Company's subsidiaries to pay dividends.
Based upon the historical cash flow of the Company, the Company's current
financial condition and the Company's expectation that there will not be a
material adverse change in the results of operations of the Company and its
subsidiaries during the next twelve months, the Company believes that cash flow
provided by operating activities over this period will provide sufficient
liquidity for the Company to meet its working capital, capital investment and
other operational cash needs, its debt service obligations, its obligations to
pay dividends on the preferred stock and its intentions to pay dividends on the
common stock. The Company may require external sources of liquidity in order to
finance material acquisitions where the purchase price is not paid in equity.
Each of the Company's business segments has its own liquidity needs and
financial resources. In the Company's annuity insurance operations, liquidity
needs and financial resources pertain to the management of the general account
assets and policyholder balances. In the Company's asset management business,
liquidity needs and financial resources pertain to the investment management
and distribution of mutual funds, private capital management and institutional
accounts. The Company expects that, based upon their historical cash flow and
current prospects, these operating subsidiaries will be able to meet their
liquidity needs from internal sources and, in the case of Colonial, from its
credit facility used to finance sales of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges.
Keyport uses cash for the payment of annuity and life insurance benefits,
operating expenses and policy acquisition costs, and the purchase of
investments. Keyport generates cash from annuity premiums and deposits, net
investment income, and from the sales and maturities of fixed investments.
Annuity premiums, maturing investments and net investment income have
historically been sufficient to meet Keyport's cash requirements. Keyport
monitors cash and cash equivalents in an effort to maintain sufficient
liquidity and has strategies in place to maintain sufficient liquidity in
changing interest rate environments. Consistent with the nature of its
obligations, Keyport has invested a substantial amount of its general account
assets in readily marketable securities. As of December 31, 1998, $9.7 billion,
or 73.3% of Keyport's general account investments are considered readily
marketable.
To the extent that unanticipated surrenders cause Keyport to sell for
liquidity purposes a material amount of securities prior to their maturity,
such surrenders could have a material adverse effect on the Company. Although
no assurances can be given, Keyport believes that liquidity to fund anticipated
withdrawals would be available through incoming cash flow and the sale of
short-term or floating-rate instruments, thereby precluding the sale of fixed
maturity investments in a potentially unfavorable market. In addition, the
Company's fixed-rate products incorporate
38
<PAGE>
surrender charges to encourage persistency and to make the cost of its
policyholder balances more predictable. Approximately 80.6% of the Company's
fixed annuity policyholder balances were subject to surrender charges or
restrictions as of December 31, 1998.
YEAR 2000
Many companies and organizations have computer programs that use only two
digits to identify a year in the date field. These programs were designed and
developed without considering the impact of the upcoming change in the century.
The Company relies significantly on computer systems and applications in its
operations. Some of these systems are not presently Year 2000 compliant. If not
corrected, this could cause system failures. Such failures could have an
adverse effect on the Company causing disruption of operations, including,
among other things, an inability to process transactions.
In addressing the Year 2000 issue, the Company has completed an inventory
of its information technology systems and assessed its Year 2000 readiness. The
Company's systems include internally developed programs, third-party purchased
programs and third-party custom developed programs. For programs which were
identified as not being Year 2000 compliant, the Company has implemented a
remediation plan which includes repairing or replacing the programs and testing
for Year 2000 compliance. The remediation plan is substantially complete and is
currently in the final testing phase. The Company also identified its
non-information technology systems affected by Year 2000 issues. The Company
initiated remediation efforts in this area and expects to complete this phase
during 1999.
The Company has initiated communication with third parties to determine
the extent to which the Company's systems are vulnerable to those third
parties' failure to remediate their own Year 2000 issues. The Company received
feedback from such parties and is in the process of requesting confirmation
from these parties with respect to remediation of their Year 2000 issues.
The Company is developing, and will continue to develop, contingency plans
for dealing with adverse effects that are known in the event the Company's
remediation plans are not successful or third parties fail to remediate their
own Year 2000 issues. The Company expects contingency planning to be
substantially complete by June, 1999. If necessary modifications and
conversions are not made, or are not timely completed, or if the systems of the
companies on which the Company's systems rely are not timely converted, the
Year 2000 issues could have a material impact on the operations of the Company.
However, the Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems.
Through December 31, 1998, the external cost of the Year 2000 project was
approximately $2.5 million, which was primarily related to consultants and
replacement hardware and software. The additional external costs to complete
the project are currently expected to be approximately $4.0 million, which are
primarily related to testing and contingency plan development. All of the costs
of the Year 2000 project are funded through operating cash flows. In the
opinion of management, the cost of addressing the Year 2000 issue is not
expected to have a material adverse effect on the Company's financial condition
or its results of operations.
39
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's consolidated results
of operations to date. The Company manages its investment portfolio in part to
reduce its exposure to interest rate fluctuations. In general, the market value
of the Company's fixed maturity portfolio increases or decreases in inverse
relationship with fluctuations in interest rates, and the Company's net
investment income increases or decreases in direct relationship with interest
rate changes. For example, if interest rates decline, the Company's fixed
maturity investments generally will increase in market value, while net
investment income will decrease as fixed maturity investments mature or are
sold and the proceeds are reinvested at reduced rates. Inflation may result in
increased operating expenses that may not be readily recoverable in the prices
of the services charged by the Company.
FORWARD-LOOKING STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Investors
are cautioned that all statements, trend analyses and other information
contained in this report or in any of the Company's filings under Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), relative to
the markets for the Company's products and trends in the Company's operations
or financial results, as well as other statements including words such as
"anticipate", "believe", "plan", "estimate", "expect", "intend" and other
similar expressions, constitute forward-looking statements under the Reform
Act. These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors, many of which are beyond the Company's
control, that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and market factors, such as
prevailing interest rate levels, stock market performance and fluctuations in
the market for retirement-oriented savings products and investment management
products, which may adversely affect the ability of the Company to sell its
products and services and the market value of the Company's investments and
assets under management and, therefore, the portion of its revenues that are
based on a percentage of assets under management; (2) the Company's ability to
manage effectively its investment spread (i.e. the amount by which investment
income exceeds interest credited to annuity and life insurance policyholders)
as a result of changes in interest rates and crediting rates to policyholders,
market conditions and other factors (the Company's results of operations and
financial condition are significantly dependent on the Company's ability to
manage effectively its investment spread); (3) levels of surrenders,
withdrawals and net redemptions of the Company's retirement-oriented insurance
products and investment management products; (4) relationships with investment
management clients, including levels of assets under management; (5) the
ability of the Company to manage effectively certain risks with respect to its
investment portfolio, including risks relating to holding below investment
grade securities and the ability to dispose of illiquid and/or restricted
securities at desired times and prices, and the ability to manage and hedge
against interest rate changes through asset/liability management techniques;
(6) competition in the sale of the Company's products and services, including
the Company's ability to establish and maintain relationships with distributors
of its products; (7) changes in financial ratings of Keyport or those of its
competitors; (8) the Company's ability to attract and retain key employees,
including senior officers, portfolio managers and sales executives; (9) the
impact of and compliance by the Company with existing and future regulation,
including restrictions on the ability of
40
<PAGE>
certain subsidiaries to pay dividends and any obligations of the Company under
any guaranty fund assessment laws; (10) changes in applicable tax laws which
may affect the relative tax advantages and attractiveness of some of the
Company's products; (11) the result of any litigation or legal proceedings
involving the Company; (12) changes in generally accepted accounting principles
and the impact of accounting principles and pronouncements on the Company's
financial condition and results of operation; (13) the impact of Year 2000
issues on the operations of the Company and its subsidiaries; (14) changes in
the Company's senior debt ratings; and (15) the other risk factors or
uncertainties contained from time to time in any document incorporated by
reference in this report or otherwise filed by the Company under the Exchange
Act. Given these uncertainties, prospective investors are cautioned not to
place undue reliance on such forward-looking statements and no assurances can
be given that the estimates and expectations reflected in such statements will
be achieved.
41
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
($ IN MILLIONS)
DECEMBER 31 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Assets:
Investments $ 12,598.3 $ 12,343.5
Cash and cash equivalents 984.1 1,290.1
Accrued investment income 161.0 165.0
Deferred policy acquisition costs 341.0 232.0
Value of insurance in force 66.6 53.3
Deferred distribution costs 130.2 108.1
Intangible assets 292.8 199.0
Other assets 179.6 131.4
Separate account assets 1,765.5 1,329.2
- ---------------------------------------------------------------------------------------------------------
$ 16,519.1 $ 15,851.6
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder balances $ 12,504.1 $ 12,086.1
Notes payable to affiliates -- 229.0
Notes payable 486.4 26.5
Payable for investments purchased and loaned 240.4 722.1
Other liabilities 278.4 310.4
Separate account liabilities 1,723.2 1,264.0
- ---------------------------------------------------------------------------------------------------------
Total liabilities 15,232.5 14,638.1
- ---------------------------------------------------------------------------------------------------------
Series A redeemable convertible preferred stock, par value $.01; authorized,
issued and outstanding 324,759 shares in 1998 and 327,006 shares in 1997 15.3 14.6
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000 shares; issued
46,384,015 shares in 1998 and 44,706,398 shares in 1997 0.5 0.4
Additional paid-in capital 901.5 866.2
Retained earnings 346.4 251.5
Accumulated other comprehensive income 27.2 83.0
Unearned compensation (4.3) (2.2)
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,271.3 1,198.9
- ---------------------------------------------------------------------------------------------------------
$ 16,519.1 $ 15,851.6
=========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42
<PAGE>
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income $ 820.9 $ 853.1 $ 796.4
Interest credited to policyholders (562.2) (594.1) (572.7)
- ------------------------------------------------------------------------------------------
Investment spread 258.7 259.0 223.7
- ------------------------------------------------------------------------------------------
Net realized investment gains 2.4 25.9 8.0
- ------------------------------------------------------------------------------------------
Fee income:
Investment advisory and administrative fees 237.7 217.9 196.4
Distribution and service fees 52.7 49.2 44.9
Transfer agency fees 49.0 47.7 43.9
Surrender charges and net commissions 33.7 36.1 34.7
Separate account fees 20.6 17.1 16.0
- ------------------------------------------------------------------------------------------
Total fee income 393.7 368.0 335.9
- ------------------------------------------------------------------------------------------
Expenses:
Operating expenses (328.2) (309.7) (277.9)
Amortization of deferred policy acquisition costs (69.2) (75.9) (60.2)
Amortization of deferred distribution costs (40.1) (34.2) (33.9)
Amortization of value of insurance in force (8.2) (10.5) (10.2)
Amortization of intangible assets (15.3) (13.5) (15.4)
Interest expense, net (14.9) (17.0) (19.7)
- ------------------------------------------------------------------------------------------
Total expenses (475.9) (460.8) (417.3)
- ------------------------------------------------------------------------------------------
Pretax income 178.9 192.1 150.3
Income tax expense (54.4) (62.6) (49.6)
- ------------------------------------------------------------------------------------------
Income before extraordinary item 124.5 129.5 100.7
Extraordinary loss on extinguishment of debt (9.7) -- --
- ------------------------------------------------------------------------------------------
Net income $ 114.8 $ 129.5 $ 100.7
==========================================================================================
Net income per share--basic:
Income before extraordinary item $ 2.72 $ 2.94 $ 2.36
- ------------------------------------------------------------------------------------------
Net income $ 2.51 $ 2.94 $ 2.36
- ------------------------------------------------------------------------------------------
Net income per share--assuming dilution:
Income before extraordinary item $ 2.63 $ 2.77 $ 2.24
- ------------------------------------------------------------------------------------------
Net income $ 2.42 $ 2.77 $ 2.24
- ------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
43
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Unearned Stockholders'
(IN MILLIONS) Stock Capital Earnings Income Compensation Equity
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 0.3 $ 810.5 $ 59.4 $ 87.1 $ (0.9) $ 956.4
---------
Comprehensive income:
Net income 100.7 100.7
Other comprehensive income, net of taxes:
Net unrealized losses on securities (12.7) (12.7)
---------
Total comprehensive income 88.0
---------
Common stock issued for acquisition 8.5 8.5
Effect of stock-based compensation plans 2.4 0.9 3.3
Accretion to face value of preferred stock (0.9) (0.9)
Common stock dividends 13.9 (16.9) (3.0)
Preferred stock dividends (0.9) (0.9)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 0.3 835.3 141.4 74.4 -- 1,051.4
---------
Comprehensive income:
Net income 129.5 129.5
Other comprehensive income, net of taxes:
Net unrealized gains on securities 8.6 8.6
---------
Total comprehensive income 138.1
---------
3 for 2 common stock split effected in the
form of a 50 percent stock dividend 0.1 (0.1) --
Common stock issued for acquisition 2.5 2.5
Effect of stock-based compensation plans 14.8 (2.2) 12.6
Accretion to face value of preferred stock (0.8) (0.8)
Common stock dividends 13.6 (17.6) (4.0)
Preferred stock dividends (0.9) (0.9)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 0.4 866.2 251.5 83.0 (2.2) 1,198.9
---------
Comprehensive income:
Net income 114.8 114.8
Other comprehensive income, net of taxes:
Net unrealized losses on securities (55.8) (55.8)
---------
Total comprehensive income 59.0
---------
Common stock issued for acquisition 8.9 8.9
Effect of stock-based compensation plans 0.1 13.2 (2.1) 11.2
Accretion to face value of preferred stock (0.8) (0.8)
Common stock dividends 13.2 (18.2) (5.0)
Preferred stock dividends (0.9) (0.9)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 0.5 $ 901.5 $ 346.4 $ 27.2 $ (4.3) $ 1,271.3
==========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN MILLIONS)
YEAR ENDED DECEMBER 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 114.8 $ 129.5 $ 100.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt, net of tax 9.7 -- --
Depreciation and amortization 81.6 74.4 74.3
Interest credited to policyholders 562.2 594.1 572.7
Net realized investment gains (2.4) (25.9) (8.0)
Net amortization (accretion) on investments 75.4 29.9 (29.1)
Change in deferred policy acquisition costs (33.7) (10.3) (24.4)
Change in current and deferred income taxes (3.8) 71.9 7.3
Net change in other assets and liabilities (115.1) (8.2) (62.5)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 688.7 855.4 631.0
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investments purchased available for sale (6,789.0) (4,548.4) (4,365.4)
Investments sold available for sale 5,406.0 2,563.5 1,714.0
Investments matured available for sale 1,273.5 1,531.6 1,387.7
Increase in policy loans, net (24.1) (21.9) (34.5)
Decrease in mortgage loans, net 5.5 6.4 7.5
Acquisitions, net of cash acquired (98.7) -- (41.5)
Other (9.7) (73.9) (149.5)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (236.5) (542.7) (1,481.7)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Withdrawals from policyholder accounts (1,690.0) (1,320.8) (1,154.1)
Deposits to policyholder accounts 1,225.0 950.5 2,134.5
Securities lending (510.6) 495.2 (119.2)
Repayment of notes payable to affiliates (244.0) -- --
Change in notes payable 459.9 (26.0) (8.5)
Exercise of stock options 7.4 7.6 2.4
Dividends paid (5.9) (4.9) (3.9)
- --------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (758.2) 101.6 851.2
- --------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (306.0) 414.3 0.5
Cash and cash equivalents at beginning of year 1,290.1 875.8 875.3
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 984.1 $ 1,290.1 $ 875.8
========================================================================================================
</TABLE>
Noncash Financing Activities: Noncash financing activities relate to dividends
paid in common stock, primarily to an affiliate of Liberty Mutual, in the
amount of $13.2 million, $13.6 million and $13.9 million in 1998, 1997 and
1996, respectively, pursuant to the Company's dividend reinvestment plan.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
45
<PAGE>
LIBERTY FINANCIAL COMPANIES, INC.
Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Organization
Liberty Financial Companies, Inc. (the "Company") is an asset accumulation and
management company providing investment management products and retirement-
oriented insurance products through multiple distribution channels.
The Company is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company ("Liberty Mutual").
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, including Keyport Life Insurance Company ("Keyport"), Stein
Roe & Farnham Incorporated ("Stein Roe"), The Colonial Group ("Colonial"),
Newport Pacific Management, Inc. ("Newport") and, from the date of acquisition:
The Crabbe Huson Group, Inc. ("Crabbe Huson"), Progress Investment Management
Company ("Progress") and Independent Holdings, Inc. ("Independent"). All
significant intercompany balances and transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Investments
Investments in debt and equity securities which are classified as available for
sale are carried at fair value, and unrealized gains and losses (net of
adjustments to deferred policy acquisition costs, value of insurance in force
and income taxes) are reported as a separate component of stockholders' equity.
The cost basis of securities is adjusted for declines in value that are
determined to be other than temporary. Realized investment gains and losses are
calculated on a first-in, first-out basis, net of adjustment for amortization
of deferred policy acquisition costs and value of insurance in force.
For the mortgage-backed bond portion of the fixed maturity investment
portfolio, the Company recognizes income using a constant effective yield based
on anticipated prepayments over the estimated economic life of the security.
When actual prepayments differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to date and
anticipated future payments; and any resulting adjustment is included in
investment income.
Mortgage loans are carried at amortized cost. Policy loans are carried at
the unpaid principal balances plus accrued interest. Partnerships are generally
accounted for by using the equity method of accounting. Partnership investments
totaled $126.8 million and $117.3 million at December 31, 1998 and 1997,
respectively.
46
<PAGE>
Derivatives
The Company uses interest rate swap and cap agreements to manage its interest
rate risk and call options and futures on the Standard & Poor's 500 Composite
Stock Price Index ("S&P 500 Index") to hedge its obligations to provide returns
based upon this index.
The Company utilizes interest rate swap agreements ("swap agreements") and
interest rate cap agreements ("cap agreements") to match assets more closely to
liabilities. Swap agreements are agreements to exchange with a counterparty
interest rate payments of differing character (e.g., fixed-rate payments
exchanged for variable-rate payments) based on an underlying principal balance
(notional principal) to hedge against interest rate changes. The Company
currently utilizes swap agreements to reduce asset duration and to better match
interest rates earned on longer-term fixed rate assets with interest rates
credited to policyholders.
Cap agreements are agreements with a counterparty which require the
payment of a premium for the right to receive payments for the difference
between the cap interest rate and a market interest rate on specified future
dates based on an underlying principal balance (notional principal) to hedge
against rising interest rates.
Hedge accounting is applied after the Company determines that the items to
be hedged expose it to interest rate or price risk, designates the instruments
as hedges and assesses whether the instruments reduce the indicated risks
through the measurement of changes in the value of the instruments and the
items being hedged at both inception and throughout the hedge period. From time
to time, interest rate swap agreements, cap agreements, call options and
futures are terminated. If the terminated position was accounted for as a
hedge, realized gains or losses are deferred and amortized over the remaining
lives of the hedged assets or liabilities. Conversely, if the terminated
position was not accounted for as a hedge, or the assets and liabilities that
were hedged no longer exist, the position is "marked to market" and realized
gains or losses are immediately recognized in income.
The net differential to be paid or received on interest rate swap
agreements is recognized as a component of net investment income. Premiums paid
for interest rate cap agreements are deferred and amortized to net investment
income on a straight-line basis over the terms of the agreements. The
unamortized premium is included in other invested assets. Amounts earned on
interest rate cap agreements are recorded as an adjustment to net investment
income. Interest rate swap agreements and cap agreements hedging investments
designated as available for sale are adjusted to fair value with the resulting
unrealized gains and losses included in stockholders' equity.
Premiums paid on call options are amortized to net investment income over
the terms of the contracts. The call options are included in other invested
assets and are carried at amortized cost plus intrinsic value, if any, of the
call options as of the valuation date. Changes in intrinsic value of the call
options are recorded as an adjustment to interest credited to policyholders.
Futures are carried at fair value and require daily cash settlement. Changes in
the fair value of futures that qualify as hedges are deferred and recognized as
an adjustment to the hedged asset or liability. Call options and futures that
do not qualify as hedges are carried at fair value; changes in value are
immediately recognized in income.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. This
statement standardizes the accounting for derivative instruments and the
derivative portion of certain other contracts that have similar characteristics
by requiring that an entity recognize those instruments on the balance sheet at
fair value. This statement also requires a new method of accounting for hedging
47
<PAGE>
transactions, prescribes the type of items and transactions that may be hedged,
and specifies detailed criteria to be met to qualify for hedge accounting. This
statement is effective for fiscal years beginning after June 15, 1999. Earlier
adoption is permitted. The Company is evaluating the impact of this statement.
Upon adoption, the Company will be required to record a cumulative effect
adjustment to reflect this accounting change. At this time, the Company has not
completed its analysis and evaluation of the requirements and impact of this
statement.
Fee Income
Fees from asset management and investment advisory services and from transfer
agent, bookkeeping, 12b-1 distribution and service fees are recognized as
revenues when services are provided. Revenues from fixed and variable annuities
and single premium whole life policies include mortality charges, surrender
charges, policy fees and contract fees and are recognized when earned under the
respective contracts. Net commission revenue is recognized on the trade date.
Deferred Policy Acquisition Costs
Policy acquisition costs are the costs of acquiring new business which vary
with, and are primarily related to, the production of new annuity business.
Such costs include commissions, costs of policy issuance and underwriting and
selling expenses. These costs are deferred and amortized in relation to the
present value of estimated gross profits from mortality, investment spread and
expense margins. Deferred policy acquisition costs are adjusted for amounts
relating to unrealized gains and losses on fixed maturity securities the
Company has designated as available for sale. This adjustment, net of tax, is
included with the change in net unrealized investment gains or losses that is
credited or charged directly to stockholders' equity. Deferred policy
acquisition costs were decreased by $56.0 million at December 31, 1998 and
$126.9 million at December 31, 1997, respectively, relating to this adjustment.
Value of Insurance in Force
Value of insurance in force represents the actuarially-determined present value
of projected future gross profits from policies in force at the date of their
acquisition. This amount is amortized in proportion to the projected emergence
of profits over periods not exceeding 15 years for annuities and 25 years for
life insurance.
The value of insurance in force is adjusted for amounts relating to the
recognition of unrealized investment gains and losses. This adjustment, net of
tax, is included with the change in net unrealized investment gains or losses
that is credited or charged directly to stockholders' equity. Value of
insurance in force was decreased by $10.3 million and $31.8 million at December
31, 1998 and 1997, respectively, relating to this adjustment.
Deferred Distribution Costs
Sales commissions and other direct costs related to the sale of Company-
sponsored intermediary-distributed mutual funds which charge 12b-1 distribution
fees and contingent deferred sales commissions are recorded as deferred
distribution costs. Amortization is provided on a straight-line basis over
periods up to six years to match the estimated period in which the associated
fees will be earned. Contingent deferred sales charges (back-end loads) received
are applied to deferred distribution costs to the extent of the estimated
unamortized portion of such costs, with the remainder recognized as additional
distribution fee income.
48
<PAGE>
Intangible Assets
Intangible assets consist of goodwill and certain identifiable intangible
assets arising from business combinations accounted for as a purchase.
Amortization is provided on a straight-line basis over estimated lives of the
acquired intangibles which range from 5 to 30 years.
Separate Account Assets and Liabilities
The assets and liabilities resulting from variable annuity and variable life
policies are segregated in separate accounts. Separate account assets, which
are carried at fair value, consist principally of investments in mutual funds.
Investment income and changes in asset values are allocated to the
policyholders, and therefore, do not affect the operating results of the
Company. The Company provides administrative services and bears the mortality
risk related to these contracts. Keyport also classified as separate account
assets investments in Company-sponsored mutual funds and other investments of
$42.3 million and $65.2 million at December 31, 1998 and 1997, respectively.
Policy Liabilities
Policy liabilities consist of deposits received plus interest credited, less
accumulated policyholder charges, assessments, and withdrawals related to
deferred annuities and single premium whole life policies. Policy benefits that
are charged to expense include benefit claims incurred in the period in excess
of related policy account balances.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Income Taxes
Effective July 18, 1997, the Company and its non-life insurance subsidiaries
file a consolidated federal income tax return and the Company's life insurance
subsidiaries file separate life company returns. Prior to July 18, 1997, the
Company was included in the consolidated federal income tax return filed by
Liberty Mutual. Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," and, for periods prior to July 18, 1997, were
calculated as if the Company filed its own consolidated income tax return.
Earnings Per Share
Basic earnings per share is calculated using income available to common
shareholders divided by the weighted average of common shares outstanding
during the year. Diluted earnings per share is similar to basic earnings per
share except that the weighted average of common shares outstanding is
increased to include the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued.
Cash Equivalents
Short-term investments having an original maturity of three months or less are
classified as cash equivalents.
49
<PAGE>
Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130,"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. SFAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in accumulated other comprehensive
income. The adoption of SFAS 130 had no impact on the Company's net income or
stockholders' equity. Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
2. ACQUISITIONS
On August 31, 1998, the Company acquired certain assets and assumed certain
liabilities of Progress Investment Management Company, a registered investment
adviser to institutional accounts with approximately $2.1 billion in assets
under management as of that date. On September 30, 1998, the Company acquired
certain assets and assumed certain liabilities of The Crabbe Huson Group, Inc.,
a registered investment adviser with approximately $3.3 billion in assets under
management as of that date. The combined purchase price for these transactions
was approximately $104.0 million and consisted of $95.1 million in cash and
$8.9 million in the Company's common stock. In addition, the Company has agreed
to pay up to an additional approximate $71.5 million in cash and common stock
over five years, contingent upon the attainment of certain earnings objectives.
These transactions were accounted for as purchases and resulted in the
recording of goodwill and other intangible assets of approximately $101.6
million.
3. INVESTMENTS
Investments, all of which pertain to the Company's annuity insurance
operations, were comprised of the following
(in millions):
<TABLE>
<CAPTION>
December 31 1998 1997
- ---------------------------------------------------
<S> <C> <C>
Fixed maturities $ 11,277.2 $ 11,246.5
Equity securities 24.6 40.8
Policy loans 578.9 554.7
Other invested assets 717.6 501.5
- ---------------------------------------------------
$ 12,598.3 $ 12,343.5
===================================================
</TABLE>
As of December 31, 1998, the Company did not have a material concentration
of financial instruments in a single investee, industry or geographic location
and no investment in any person or its affiliates (other than bonds issued by
agencies of the United States government) exceeded ten percent of stockholders'
equity.
As of December 31, 1998, $1.1 billion of fixed maturities were below
investment grade. These securities represented 8.1% of the Company's total
investments, including certain cash and cash equivalents.
50
<PAGE>
Fixed Maturities
The amortized cost, gross unrealized gains and losses and fair value of fixed
maturity securities are as follows
(in millions):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
December 31, 1998 Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 90.8 $ 3.1 $ (0.2) $ 93.7
Mortgage backed securities of U.S. government
corporations and agencies 940.1 28.4 (2.9) 965.6
Debt securities issued by foreign governments 251.1 9.4 (16.2) 244.3
Corporate securities 5,396.3 185.1 (156.3) 5,425.1
Other mortgage backed securities 2,286.6 65.1 (19.5) 2,332.2
Asset backed securities 1,942.0 25.9 (16.5) 1,951.4
Senior secured loans 267.8 1.2 (4.1) 264.9
- --------------------------------------------------------------------------------------------------
Total fixed maturities $ 11,174.7 $ 318.2 $ (215.7) $ 11,277.2
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
December 31, 1997 Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 128.6 $ 1.1 $ -- $ 129.7
Mortgage backed securities of U.S. government
corporations and agencies 1,089.8 49.5 (1.6) 1,137.7
Debt securities issued by foreign governments 272.5 12.7 (5.0) 280.2
Corporate securities 4,744.2 189.4 (83.6) 4,850.0
Other mortgage backed securities 2,325.9 81.9 (2.6) 2,405.2
Asset backed securities 2,200.7 26.2 (3.1) 2,223.8
Senior secured loans 219.9 -- -- 219.9
- --------------------------------------------------------------------------------------------------
Total fixed maturities $ 10,981.6 $ 360.8 $ (95.9) $ 11,246.5
==================================================================================================
</TABLE>
At December 31, 1998 and 1997, gross unrealized gains on equity
securities, interest rate cap agreements and investments in separate accounts
aggregated $7.8 million and $27.4 million, and gross unrealized losses
aggregated $3.6 million and $6.9 million, respectively.
Net unrealized gains (losses) on securities included in other
comprehensive income in 1998, 1997 and 1996 include: gross unrealized gains
(losses) on securities of $(182.1) million, $73.7 million and $(64.4) million,
respectively; reclassification adjustments for realized (gains) losses in net
income of $3.6 million, $(31.3) million and $(7.7) million, respectively; and
adjustments to deferred policy acquisition costs and value of insurance in
force of $92.5 million, $(29.1) million and $54.2 million, respectively. The
above amounts are shown before income tax expense (benefit) of $(30.2) million,
$4.7 million and $(5.2) million, respectively.
51
<PAGE>
Deferred tax liabilities for the Company's unrealized investment gains and
losses, net of adjustments to deferred policy acquisition costs and value of
insurance in force, were $14.1 million and $44.3 million at December 31, 1998
and 1997, respectively.
Contractual Maturities
The amortized cost and estimated fair value of fixed maturities by contractual
maturity as of December 31, 1998 are as follows (in millions):
<TABLE>
<CAPTION>
Amortized Fair
December 31, 1998 Cost Value
- ------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 334.9 $ 335.2
Due after one year through five years 2,998.4 3,005.1
Due after five years through ten years 1,638.5 1,656.2
Due after ten years 1,034.3 1,031.5
- ------------------------------------------------------------------
6,006.1 6,028.0
Mortgage and asset backed securities 5,168.6 5,249.2
- ------------------------------------------------------------------
$ 11,174.7 $ 11,277.2
==================================================================
</TABLE>
Actual maturities may differ from those shown above because borrowers may
have the right to call or prepay obligations.
Net Investment Income
Net investment income is summarized as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 810.5 $ 811.7 $ 737.4
Equity securities 4.4 5.4 4.5
Policy loans 33.2 32.2 30.2
Other invested assets 18.2 27.8 11.4
Cash and cash equivalents 38.3 34.5 36.1
- --------------------------------------------------------------------------------------
Gross investment income 904.6 911.6 819.6
Investment expenses (11.6) (9.2) (6.7)
Amortization of call options and interest rate caps (72.1) (49.3) (16.5)
- --------------------------------------------------------------------------------------
Net investment income $ 820.9 $ 853.1 $ 796.4
======================================================================================
</TABLE>
As of December 31, 1998, the carrying value of fixed maturity investments
that were non-income producing was $30.0 million.
52
<PAGE>
Net Realized Investment Gains (Losses)
Net realized investment gains (losses) primarily relate to the Company's fixed
maturity investments. Gross realized gains were $88.5 million, $51.6 million
and $28.3 million for 1998, 1997 and 1996, respectively. Gross realized losses
were $90.4 million, $19.2 million and $18.6 million for 1998, 1997 and 1996,
respectively. Gross realized losses in 1998 included $28.3 million for certain
fixed maturity investments where the decline in value was determined to be
other than temporary.
Proceeds from sales of fixed maturities available for sale were $5.3
billion, $2.6 billion and $1.7 billion in 1998, 1997 and 1996, respectively.
4. DERIVATIVES
Outstanding derivatives are as follows (in millions):
<TABLE>
<CAPTION>
Assets (Liabilities)
---------------------------------------------------
Notional Amounts 1998 1997
----------------------------- ---------------------------------------------------
Carrying Fair Carrying Fair
December 31 1998 1997 Value Value Value Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swap agreements $ 2,369.0 $ 2,575.0 $ (71.2) $ (71.2) $ (42.1) $ (42.1)
Interest rate cap agreements 250.0 250.0 -- -- 0.1 0.1
S&P 500 Index call options -- -- 535.7 607.0 323.3 345.3
S&P 500 Index futures -- -- ( 0.6) ( 0.6) 0.8 0.8
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The interest rate swap agreements expire in 1999 through 2005. The
interest rate cap agreements expire in 1999 through 2000. The S&P 500 call
options and futures maturities range from 1999 to 2002.
The Company currently utilizes interest rate swap agreements to reduce
asset duration and to better match interest rates earned on longer-term fixed
rate assets with interest credited to policyholders. Cap agreements are used to
hedge against rising interest rates. With respect to the Company's equity-
indexed annuities, the Company buys call options and futures on the S&P 500
Index to hedge its obligations to provide returns based upon this index. At
December 31, 1998 and 1997, the Company had approximately $156.4 million and
$155.0 million, respectively, of unamortized premium in call option contracts.
Fair values for swap and cap agreements are based on current settlement
values. The current settlement values are based on quoted market prices and
brokerage quotes, which utilize pricing models or formulas using current
assumptions. Fair values for call options and futures are based upon quoted
market prices.
There are risks associated with some of the techniques the Company uses to
match its assets and liabilities. The primary risk associated with swap, cap
and call option agreements is the risk associated with counterparty
nonperformance. The Company believes that the counterparties to its swap, cap
and call option agreements are financially responsible and that the
counterparty risk associated with these transactions is minimal. Futures trade
on organized exchanges and, therefore, have minimal credit risk.
53
<PAGE>
5. NOTES PAYABLE
Notes payable include the following (in millions):
<TABLE>
<CAPTION>
December 31 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to affiliates:
8.0% promissory note due April 3, 2000 $ -- $ 99.0
8.0% promissory note due March 31, 2000 -- 30.0
8.5% promissory notes due March 24, 2005 -- 100.0
- --------------------------------------------------------------------------------
-- 229.0
6-3/4% notes due 2008, net of unamortized discount of
$2.3 million in 1998, effective rate 6.86% 297.7 --
7-5/8% debentures due 2028, net of unamortized discount of
$0.8 million in 1998, effective rate 7.67% 149.2 --
Revolving credit facility 39.5 26.5
- --------------------------------------------------------------------------------
$486.4 $ 255.5
================================================================================
</TABLE>
In connection with the Crabbe Huson acquisition, the Company entered into
a $100.0 million revolving credit facility with a commercial bank (the "Bridge
Facility"). The Bridge Facility matures on March 30, 1999 and bears interest at
a per annum rate equal to LIBOR plus twenty-five basis points. The Company
borrowed $90.0 million under the Bridge Facility to finance the acquisition of
Crabbe Huson. In November 1998, the Company issued $450.0 million of senior
debt securities. The offering consisted of $300.0 million of 6-3/4% 10-year
notes due November 15, 2008 and $150.0 million of 7-5/8% 30-year debentures due
November 15, 2028. The proceeds were utilized to repay the $90.0 million
borrowed under the Bridge Facility and to discharge the Company's existing
$229.0 million notes payable to affiliates. The early extinguishment of the
notes payable to affiliates resulted in an extraordinary charge of $9.7
million, net of a tax benefit of $5.3 million. The Indenture under which the
senior notes and debentures were issued contains covenants which prohibit the
Company from granting a lien on or disposing of the stock of any subsidiary
which accounts for more than 10% of the consolidated revenues or assets of the
Company.
The Company also has a $60.0 million revolving credit facility (the
"Facility") which is utilized to finance deferred sales commissions paid in
connection with the distribution of mutual fund shares sold with 12b-1
distribution fees and contingent deferred sales charges. This Facility is
subject to annual renewal. If not renewed, effective April 11, 1999 this
Facility converts to a term loan which matures on April 11, 2004. Upon such
conversion, minimum quarterly payments of principal equal to 5.0% of
outstanding borrowings as of the conversion date are required. Interest accrues
on the outstanding borrowings of the Facility at floating rates based upon
LIBOR plus 0.225%. The terms of the Facility place certain restrictions on
Colonial's ability to pay dividends.
Interest paid was $25.5 million, $21.7 million and $22.9 million in 1998,
1997 and 1996, respectively.
54
<PAGE>
6. INCOME TAXES
Income tax expense is summarized as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
Current $ 10.1 $ (42.0) $ 54.8
Deferred 44.3 104.6 (5.2)
- --------------------------------------------------------
$ 54.4 $ 62.6 $ 49.6
========================================================
</TABLE>
A reconciliation of income tax expense with expected federal income tax
expense computed at the applicable federal income tax rate of 35% is as follows
(in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense $ 62.6 $ 67.3 $ 52.6
Increase (decrease) in income taxes resulting from:
Nontaxable investment income (2.1) (1.4) (1.2)
Reduction in deferred tax asset valuation allowance (10.6) (10.0) (6.7)
Amortization of goodwill and other intangible assets 3.8 3.1 2.0
State taxes, net of federal tax benefit 0.7 1.2 2.5
Stock option plan compensation -- -- 0.8
Other, net -- 2.4 (0.4)
- ---------------------------------------------------------------------------------------
Income tax expense $ 54.4 $ 62.6 $ 49.6
=======================================================================================
</TABLE>
55
<PAGE>
The components of deferred federal income taxes are as follows (in
millions):
<TABLE>
<CAPTION>
December 31 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy liabilities $ 107.4 $ 124.3
Guaranty fund expense 2.1 2.8
Stock option plan compensation -- 1.0
Deferred compensation and other benefit plans 16.2 11.4
Net operating loss carryforwards 25.3 13.1
Distribution fees 18.4 17.8
Other 7.4 3.4
- ----------------------------------------------------------------------------
Total deferred tax assets 176.8 173.8
Less: valuation allowance (2.3) (10.6)
- ----------------------------------------------------------------------------
Net deferred tax assets 174.5 163.2
- ----------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs (92.5) (56.3)
Value of insurance in force and intangible assets (23.3) (18.0)
Excess of book over tax basis of investments (141.0) (187.6)
Deferred revenue (24.0) (4.1)
Amortization of deferred distribution costs (35.8) (34.8)
Other (9.1) (1.9)
- ----------------------------------------------------------------------------
Total deferred tax liabilities (325.7) (302.7)
- ----------------------------------------------------------------------------
Net deferred tax liability $ (151.2) $ (139.5)
============================================================================
</TABLE>
As of December 31, 1998, the Company had Federal net operating loss
carryforwards related to certain of the Company's non-insurance operations of
$60.7 million. Of this amount, $10.4 million, which expires through 2003, is
limited to use against future profits in a component of the Company's
non-insurance operations. The remaining Federal non-insurance loss
carryforwards of $50.3 million expire through 2018. As of December 31, 1998,
the Company also had $5.1 million of purchased Federal net operating loss
carryforwards, which expire through 2006, relating to an acquisition in its
insurance operations. Utilization of these loss carryforwards is limited to use
against future profits in a component of the Company's insurance operations.
The Company believes that it is more likely than not that it will realize the
benefit of the deferred tax asset related to its Federal net operating loss
carryforwards. Additionally, as of December 31, 1998, the Company had state net
operating loss carryforwards related to certain of the Company's non-insurance
operations of $48.6 million. Utilization of these loss carryforwards, which
expire through 2008, is limited to use against future profits of a component of
the Company's non-insurance operations. The Company believes that it is not
more likely than not that it will realize the benefit of the deferred tax asset
related to these state net operating loss carryforwards.
56
<PAGE>
Income taxes paid (refunded) were $27.6 million, ($4.2) million and $45.7
million in 1998, 1997 and 1996, respectively.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A Redeemable Convertible Preferred Stock, which has a $50 face
value, has an annual cumulative cash dividend rate of $2.875 per share and is
convertible into shares of Company common stock at a rate of 1.58385 for each
share of such preferred stock. The preferred stock is redeemable at the option
of the Company anytime after March 24, 1998 provided that the market value of
the Company's common stock exceeds a specified amount. The preferred stock may
also be put to the Company by the holders of such preferred stock after March
24, 2000, for a period of sixty days, at face value plus cumulative unpaid
dividends. Each share of preferred stock is entitled to that number of votes
equal to the number of common shares into which it is convertible. The
difference between the face value of the preferred stock and its fair value at
the time of its issuance is being added to the carrying value of the preferred
stock ratably over a five year period by a direct charge to retained earnings.
8. RETIREMENT PLANS
The Company maintains a noncontributory defined benefit pension plan (the
"Plan") covering its employees (except employees of Stein Roe and Colonial, who
participate in separate profit sharing plans, and except employees of
Independent). It is the Company's practice to fund amounts for the Plan
sufficient to meet the minimum requirements of the Employee Retirement Income
Security Act of 1974. Additional amounts are contributed from time to time when
deemed appropriate by the Company. Under the Plan, all employees are vested
after five years of service. Benefits are based on years of service, the
employee's average pay for the highest five consecutive years during the last
ten years of employment and the employee's estimated social security retirement
benefit. The Company also has an unfunded nonqualified Supplemental Pension
Plan (collectively with the Plan, the "Plans") to replace benefits lost due to
limits imposed on Plan benefits under the Internal Revenue Code. Plan assets
consist of investments in certain Company-sponsored mutual funds.
57
<PAGE>
The following table sets forth the Plans' funded status (in millions) as
of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
December 31 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 27.1 $ 23.4
Service cost 1.8 1.6
Interest cost 2.1 1.8
Actuarial loss 2.4 0.7
Benefits paid (0.6) (0.4)
- ----------------------------------------------------------------------------------------
Benefit obligation at end of year 32.8 27.1
- ----------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year 14.7 11.7
Expected return on plan assets 1.1 1.7
Employer contribution 0.9 1.7
Benefits paid (0.6) (0.4)
- ----------------------------------------------------------------------------------------
Fair value of plan assets at end of year 16.1 14.7
- ----------------------------------------------------------------------------------------
Projected benefit obligation in excess of the plans' assets 16.7 12.4
Unrecognized net actuarial loss (4.4) (2.0)
Prior service cost not yet recognized in net periodic pension cost (1.8) (2.2)
- ----------------------------------------------------------------------------------------
Accrued pension cost $ 10.5 $ 8.2
========================================================================================
</TABLE>
Pension cost includes the following components (in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the period $ 1.8 $ 1.6 $ 1.6
Interest cost on projected benefit obligation 2.1 1.8 1.6
Expected return on plan assets (1.2 (1.7) (1.3)
Net amortization and deferred amounts 0.4 1.2 1.1
- ---------------------------------------------------------------------------------------
Total net periodic pension cost $ 3.1 $ 2.9 $ 3.0
- ---------------------------------------------------------------------------------------
</TABLE>
The assumptions used to develop the actuarial present value of the
projected benefit obligation, and the expected long-term rate of return on plan
assets are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.75% 7.25% 7.50%
Rate of increase in compensation level 4.75% 5.00% 5.25%
Expected long-term rate of return on assets 9.00% 8.50% 8.50%
</TABLE>
58
<PAGE>
The Company provides various other funded and unfunded defined
contribution plans, which include savings and investment plans and supplemental
savings plans. Expenses related to these defined contribution plans totaled
$9.5 million, $8.5 million and $7.6 million in 1998, 1997 and 1996,
respectively.
9. STOCKHOLDERS' EQUITY
On December 10, 1997, the Company effected a three-for-two common stock split
in the form of a 50 percent stock dividend.
The Company has two stock-based compensation plans, the 1990 Stock Option
Plan (the "1990 Plan") and the 1995 Stock Incentive Plan (the "1995 Plan"). The
1990 Plan provided for grants of incentive and nonqualified stock options,
which were issued from 1990 through 1994. The 1995 Plan provides for grants of
incentive and nonqualified stock options, stock appreciation rights, nonvested
stock, unrestricted stock and performance shares, as well as cash and other
awards. To date, only stock options and nonvested stock have been granted under
the 1995 Plan. For any year, the Company may issue awards under the 1995 Plan
providing for the issuance of not more than two percent of the total number of
shares outstanding as of December 31 of the preceding year, subject to certain
adjustments and to certain carryovers for expired and forfeited awards. This
amount does not include 911,700 nonqualified options at prices ranging from
$0.67 to $21.00 that were assumed by the Company in connection with the
Colonial acquisition.
All options granted under the 1990 Plan were granted at a price not less
than the fair market value of the Company's Common Stock (determined by the
valuation provisions of the 1990 Plan). All options granted under the 1995 Plan
have been granted at the market price of the Company's Common Stock on the
grant date. All granted options provide for vesting in four equal annual
installments, beginning one year after the date of grant, and expire 10 years
after the grant date. Compensation expense associated with these option plans
was $0.9 million in 1996. There was no such compensation expense in 1998 or
1997.
In April 1997, the Company began to award nonvested stock under the 1995
Plan. The nonvested shares issued to employees vest generally after the end of
six years. Such vesting date may accelerate if the Company achieves certain
performance targets. Upon termination of employment, any nonvested shares would
generally be forfeited. The Company recorded $1.0 million and $0.4 million in
compensation expense related to nonvested stock in 1998 and 1997, respectively.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. As provided
for under SFAS 123, the fair value for these options was estimated using a
Black-Scholes option pricing model with the following assumptions: risk free
interest rate: 4.68% for 1998, 5.73% for 1997 and 6.26% for 1996; dividend
yield: 1.22% for 1998, 1.25% for 1997 and 1.99% for 1996; expected volatility
of the market price of the Company's Common Stock: 23.2% for 1998, 19.1% for
1997 and 15.0% for 1996; and the weighted average life of the options: 6 years
for all three periods.
For pro forma disclosure purposes, the estimated fair value of the options
is amortized to expense over the options' vesting period. Pro forma information
follows (in millions, except for earnings per share information):
59
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary item $ 120.6 $ 127.1 $ 99.3
Extraordinary loss on extinguishment of debt, net of tax (9.7) -- --
- -------------------------------------------------------------------------------------------
Net income $ 110.9 $ 127.1 $ 99.3
===========================================================================================
Net income per share--basic:
Income before extraordinary item $ 2.64 $ 2.88 $ 2.32
Extraordinary loss on extinguishment of debt, net of tax (0.21) -- --
- -------------------------------------------------------------------------------------------
Net income $ 2.43 $ 2.88 $ 2.32
===========================================================================================
Net income per share--assuming dilution:
Income before extraordinary item $ 2.55 $ 2.73 $ 2.21
Extraordinary loss on extinguishment of debt, net of tax (0.21) -- --
- -------------------------------------------------------------------------------------------
Net income $ 2.34 $ 2.73 $ 2.21
===========================================================================================
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect was not fully reflected until 1998.
A summary of the stock option activity, and related information for the
years ended December 31 follows (in thousands, except price data):
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year 4,038 $ 16.31 4,484 $ 12.49 4,133 $ 9.58
Granted 627 36.92 699 28.67 918 22.00
Exercised (936) 8.57 (1,027) 7.56 (489) 4.81
Forfeited -- -- (118) 20.74 (78) 17.95
- -------------------------------------------------------------------------------------------------------
Outstanding--end of year 3,729 $ 21.72 4,038 $ 16.31 4,484 $ 12.49
=======================================================================================================
Exercisable--end of year 2,051 $ 15.72 2,346 $ 11.11 2,709 $ 8.60
=======================================================================================================
Weighted-average fair value of options
granted during year $ 10.62 $ 8.15 $ 5.31
=======================================================================================================
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged
from $0.67 to $38.94. The weighted-average remaining contractual life of these
options is 6.88 years.
60
<PAGE>
10. NET INCOME PER SHARE
The following table sets forth the computation of net income per share--basic
and net income per share--assuming dilution:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator (in millions)
Income before extraordinary item $ 124.5 $ 129.5 $ 100.7
Less: preferred stock dividends (0.9) (0.9) (0.9)
- -----------------------------------------------------------------------------------------------------------
Numerator for income per share--basic--income before
extraordinary item available to common stockholders 123.6 128.6 99.8
Extraordinary loss on extinguishment of debt, net of tax (9.7) -- --
- -----------------------------------------------------------------------------------------------------------
Numerator for net income per share--basic--net income
available to common stockholders $ 113.9 $ 128.6 $ 99.8
- -----------------------------------------------------------------------------------------------------------
Income available to common stockholders $ 123.6 $ 128.6 $ 99.8
Plus: income impact of assumed conversions
Preferred stock dividends 0.9 0.9 0.9
- -----------------------------------------------------------------------------------------------------------
Numerator for income per share--assuming dilution--income
before extraordinary item available to common stockholders
after assumed conversions 124.5 129.5 100.7
Extraordinary loss on extinguishment of debt, net of tax (9.7) -- --
- -----------------------------------------------------------------------------------------------------------
Numerator for net income per share--assuming dilution--net
income available to common stockholders after assumed
conversions $ 114.8 $ 129.5 $ 100.7
- -----------------------------------------------------------------------------------------------------------
Denominator
Denominator for basic--weighted average shares 45,330,561 43,808,904 42,353,927
- -----------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options 1,521,333 2,403,729 2,115,125
Convertible preferred stock 515,657 518,081 519,012
- -----------------------------------------------------------------------------------------------------------
Dilutive potential common shares 2,036,990 2,921,810 2,634,137
- -----------------------------------------------------------------------------------------------------------
Denominator for assuming dilution 47,367,551 46,730,714 44,988,064
===========================================================================================================
Net income per share--basic:
Income before extraordinary item $ 2.72 $ 2.94 $ 2.36
Extraordinary loss on extinguishment of debt, net of tax (0.21) -- --
- -----------------------------------------------------------------------------------------------------------
Net income $ 2.51 $ 2.94 $ 2.36
===========================================================================================================
Net income per share--assuming dilution:
Income before extraordinary item $ 2.63 $ 2.77 $ 2.24
Extraordinary loss on extinguishment of debt, net of tax (0.21) -- --
- -----------------------------------------------------------------------------------------------------------
Net income $ 2.42 $ 2.77 $ 2.24
===========================================================================================================
</TABLE>
61
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in determining
fair values of financial instruments:
Fixed maturities and equity securities: Fair values for fixed maturity
securities are based on quoted market prices, where available. For fixed
maturities not actively traded, the fair values are determined using values
from independent pricing services, or, in the case of private placements, are
determined by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the securities.
The fair values for equity securities are based on quoted market prices.
Policy loans: The carrying value of policy loans approximates fair value.
Other invested assets: The fair values for other invested assets are generally
based on quoted market prices.
Cash and cash equivalents: The carrying value of cash and cash equivalents
approximates fair value.
Policyholder balances: Deferred annuity contracts are assigned fair value equal
to current net surrender value. Annuitized contracts are valued based on the
present value of the future cash flows at current pricing rates.
Notes payable: The fair value of the Company's notes payable is either
estimated based on quoted market prices or using discounted cash flow analyses
based on the Company's incremental borrowing rate.
The fair values and carrying values of the Company's financial instruments are
as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------
Carrying Fair Carrying Fair
December 31 Value Value Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Fixed maturity securities $ 11,277.2 $ 11,277.2 $ 11,246.5 $ 11,246.5
Equity securities 24.6 24.6 40.8 40.8
Policy loans 578.9 578.9 554.7 554.7
Other invested assets 717.6 787.0 501.5 525.7
Cash and cash equivalents 984.1 984.1 1,290.1 1,290.1
Liabilities:
Policyholder balances 12,504.1 11,647.6 12,086.1 11,366.5
Notes payable 486.4 511.7 255.5 271.5
</TABLE>
62
<PAGE>
12. SEGMENT INFORMATION
The Company has two reportable segments: annuity and asset management. Annuity
operations relate principally to the issuance of fixed, indexed and variable
annuity products and a closed block of investment-oriented life insurance
products. Asset management includes mutual funds, private capital management
and institutional asset management. The Company evaluates performance based on
earnings before income taxes, not including net realized gains and losses. The
Company's reportable segments offer different products and are each managed
separately. Information by reported segment for 1998, 1997 and 1996 is shown
below (in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statement of Operations Data
Revenues:
Annuity:
Unaffiliated $ 870.9 $ 922.4 $ 840.8
Intersegment (10.5) (9.3) (8.6)
- ----------------------------------------------------------------------------------------------------
Total annuity 860.4 913.1 832.2
- ----------------------------------------------------------------------------------------------------
Asset management:
Unaffiliated 346.1 324.6 299.5
Intersegment 10.5 9.3 8.6
Total asset management 356.6 333.9 308.1
- ----------------------------------------------------------------------------------------------------
Total revenues $ 1,217.0 $ 1,247.0 $ 1,140.3
====================================================================================================
Income before income taxes and extraordinary item:
Annuity:
Income before net realized investment gains and amortization
of intangible assets $ 155.2 $ 143.1 $ 127.3
Net realized investment gains 0.8 24.7 5.5
Amortization of intangible assets (1.3) (1.1) (1.1)
- ----------------------------------------------------------------------------------------------------
Subtotal annuity 154.7 166.7 131.7
- ----------------------------------------------------------------------------------------------------
Asset management:
Income before net realized investment gains and amortization
of intangible assets 77.0 79.9 68.7
Net realized investment gains 1.3 1.8 2.5
Amortization of intangible assets (13.8) (12.1) (14.1)
- ----------------------------------------------------------------------------------------------------
Subtotal asset management 64.5 69.6 57.1
- ----------------------------------------------------------------------------------------------------
Other:
Loss before net realized investment gains (losses) and
amortization of intangible assets (40.4) (43.3) (38.3)
Net realized investment gains (losses) 0.3 (0.6) --
Amortization of intangible assets (0.2) (0.3) (0.2)
- ----------------------------------------------------------------------------------------------------
Subtotal other (40.3) (44.2) (38.5)
- ----------------------------------------------------------------------------------------------------
Total income before income taxes and extraordinary item $ 178.9 $ 192.1 $ 150.3
====================================================================================================
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Balance Sheet Data
Identifiable Assets:
Annuity $15,742.9 $15,342.2 $13,924.6
Asset management 575.3 477.1 484.0
Other 200.9 34.0 22.0
Intercompany eliminations -- (1.7) (2.9)
- ------------------------------------------------------------------------
Total consolidated assets $16,519.1 $15,851.6 $14,427.7
========================================================================
</TABLE>
All revenues are attributed to the United States. All long-lived assets
are located in the United States.
13. QUARTERLY FINANCIAL DATA, IN MILLIONS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended 1998 March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income $ 207.4 $ 202.3 $ 202.7 $ 208.5
Interest credited to policyholders (142.1) (140.2) (143.3) (136.6)
- --------------------------------------------------------------------------------------------------
Investment spread 65.3 62.1 59.4 71.9
Net realized investment gains (losses) 2.2 (2.4) 4.2 (1.6)
Fee income 94.7 100.0 97.1 101.9
Pretax income 45.4 43.5 49.4 40.6
Income before extraordinary item 31.5 29.7 33.5 29.8
Extraordinary loss on extinguishment of debt,
net of tax -- -- -- (9.7)
Net income 31.5 29.7 33.5 20.1
Net income per share--basic:
Income before extraordinary item $ 0.70 $ 0.65 $ 0.73 $ 0.64
Extraordinary loss on extinguishment of debt,
net of tax -- -- -- (0.21)
- --------------------------------------------------------------------------------------------------
Net income per share--basic $ 0.70 $ 0.65 $ 0.73 $ 0.43
==================================================================================================
Net income per share--assuming dilution:
Income before extraordinary item $ 0.67 $ 0.63 $ 0.71 $ 0.63
Extraordinary loss on extinguishment of debt,
net of tax -- -- -- (0.21)
- --------------------------------------------------------------------------------------------------
Net income per share--assuming dilution $ 0.67 $ 0.63 $ 0.71 $ 0.42
==================================================================================================
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended 1997 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income $ 208.0 $ 212.2 $ 212.0 $ 220.9
Interest credited to policyholders (147.3) (147.2) (150.9) (148.7)
- ------------------------------------------------------------------------------------------
Investment spread 60.7 65.0 61.1 72.2
Net realized investment gains 12.9 3.1 6.1 3.8
Fee income 89.4 89.1 95.2 94.3
Pretax income 51.8 43.9 47.8 48.6
Net income 35.0 30.0 32.9 31.6
Net income per share--basic 0.80 0.68 0.74 0.71
Net income per share--assuming dilution 0.76 0.65 0.70 0.67
</TABLE>
14. STATUTORY INFORMATION
Keyport is domiciled in Rhode Island and prepares its statutory financial
statements in accordance with accounting principles and practices prescribed or
permitted by the State of Rhode Island Insurance Department. Statutory surplus
and statutory net income differ from shareholder's equity and net income
reported in accordance with GAAP primarily because policy acquisition costs are
expensed when incurred, policy liabilities are based on different assumptions,
and income tax expense reflects only taxes paid or currently payable. Keyport's
statutory surplus and net income are as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
Statutory surplus $ 790.9 $ 702.6 $ 567.7
Statutory net income 95.4 107.1 40.2
</TABLE>
15. TRANSACTIONS WITH AFFILIATED COMPANIES
Liberty Mutual from time to time provides management, legal, audit and
financial services to the Company. Reimbursements to Liberty Mutual for these
services totaled $0.6 million, $0.7 million and $0.6 million in 1998, 1997 and
1996, respectively. These reimbursements are based on direct and indirect costs
incurred by Liberty Mutual and are allocated to the Company primarily based
upon the amount of time spent by Liberty Mutual's employees on the Company's
behalf. The Company believes that this allocation methodology is reasonable.
Regulatory authorities permit dividend payments from Keyport to the
Company up to the lesser of (i) 10% of statutory surplus as of the preceding
December 31 or (ii) the net gain from operations for the preceding fiscal year.
As of December 31, 1998, Keyport could pay dividends of up to $59.1 million
without the approval of the Commissioner of Insurance of the State of Rhode
Island. Keyport paid dividends of $20.0 million during 1998 but had not
previously paid any dividends since its acquisition in 1988.
65
<PAGE>
16. COMMITMENTS AND CONTINGENCIES
Leases: The Company leases data processing equipment, furniture and certain
office facilities from others under operating leases expiring in various years
through 2009. Rental expense amounted to $16.5 million, $15.0 million and $16.0
million for the years ended December 31, 1998, 1997 and 1996, respectively. For
each of the next five years, and in the aggregate, as of December 31, 1998, the
following are the minimum future rental payments under noncancelable operating
leases having remaining terms in excess of one year (in millions):
<TABLE>
<CAPTION>
Year Payments
- ------------------------------
<S> <C>
1999 $ 19.0
2000 19.0
2001 18.3
2002 17.1
2003 16.7
Thereafter 42.8
</TABLE>
Legal Matters: The Company is involved at various times in litigation
common to its business. In the opinion of management, the resolution of any
such litigation is not expected to have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
Regulatory Matters: Under existing guaranty fund laws in all states,
insurers licensed to do business in those states can be assessed for certain
obligations of insolvent insurance companies to policyholders and claimants.
The actual amount of such assessments will depend upon the final outcome of
rehabilitation proceedings and will be paid over several years. In 1998, 1997
and 1996, Keyport was assessed $3.2 million, $5.9 million and $10.0 million,
respectively. During 1998, 1997 and 1996, Keyport recorded $1.2 million, $1.0
million and $1.0 million, respectively, of provisions for state guaranty fund
association expense. At December 31, 1998 and 1997, the reserve for such
assessments was $6.0 million and $8.0 million, respectively.
66
<PAGE>
Report of Independent Auditors
[logo: Ernst & Young LLP]
Shareholders and Board of Directors
Liberty Financial Companies, Inc.
We have audited the accompanying consolidated balance sheets of Liberty
Financial Companies, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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 the 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Liberty Financial Companies, Inc. at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 2, 1999
67
Exhibit 21
LIBERTY FINANCIAL COMPANIES, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction of
Immediate Incorporation or
Subsidiary Parent Organization
- ---------- ------ ------------
<S> <C> <C>
Liberty Financial Services, Inc. ("LFS") The Company Massachusetts
Liberty Newport Holdings, Limited ("LNHL") The Company Delaware
Independent Holdings, Inc. ("IHI") The Company Massachusetts
Crabbe Huson Group, Inc. The Company Massachusetts
Progress Investment Management Company The Company California
LREG, Inc. The Company Delaware
The PAMCO Group, Inc. The Company Delaware
SteinRoe Services, Inc. ("SSI") The Company Massachusetts
Stein Roe & Farnham Incorporated ("Stein Roe") SSI Delaware
SteinRoe Futures, Inc. Stein Roe Illinois
Liberty Funds Group LLC ("LFG") LFS Delaware
Colonial Management Associates, Inc. ("CMA") LFG Massachusetts
Colonial Advisory Services, Inc. LFG Massachusetts
Liberty Funds Services, Inc. LFG Massachusetts
Liberty Funds Distributor, Inc. CMA Massachusetts
Liberty Financial Advisors, Inc. CMA Delaware
AlphaTrade, Inc. CMA Massachusetts
Keyport Life Insurance Company ("Keyport") SSI Rhode Island
Keyport Benefit Life Insurance Company Keyport New York
Keyport Financial Services Corp. Keyport Massachusetts
Independence Life & Annuity Company Keyport Rhode Island
Liberty Advisory Services Corp. Keyport Massachusetts
Newport Pacific Management, Inc. ("NPMI") LNHL California
Newport Fund Management, Inc. NPMI Virginia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Immediate Incorporation or
Subsidiary Parent Organization
- ---------- ------ ------------
<S> <C> <C>
Liberty Asset Management Company LFS Delaware
Copley Venture Capital, Inc. LFS Massachusetts
Liberty Investment Services, Inc. LFS Massachusetts
Liberty Securities Corporation LIS Delaware
Financial Centre Insurance Agency, Inc. LIS Massachusetts
LSC Insurance Agency of Arizona, Inc. LIS Arizona
LSC Insurance Agency of Maine, Inc. LIS Maine
LSC Insurance Agency of New Mexico, Inc. LIS New Mexico
LSC Insurance Agency of Nevada, Inc. LIS Nevada
Independent Financial Marketing IHI Delaware
Group, Inc. ("IFMG")
IFS Agencies, Inc. IFMG New York
IFS Agencies of Alabama, Inc. IFMG Alabama
IFMG Agencies of Maine, Inc. IFMG Maine
IFS Agencies of New Mexico, Inc. IFMG New Mexico
</TABLE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Liberty Financial Companies, Inc. of our report dated February 2, 1999,
included in the 1998 Annual Report to Shareholders of Liberty Financial
Companies, Inc.
Our audits also included the financial statement schedules of Liberty Financial
Companies, Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-61511) pertaining to the Liberty Financial Companies, Inc.
Savings and Investment Plan, in the Registration Statements (Form S-8 No.
333-61509 and Form S-8 No. 333-28073) pertaining to the Liberty Financial
Companies Inc. 1995 Stock Incentive Plan, in the Registration Statement (Form
S-8 No. 33-90626) pertaining to the Liberty Financial Companies, Inc. 1990 Stock
Option Plan, 1995 Stock Incentive Plan and 1995 Employee Stock Purchase Plan,
and in the Registration Statement (Form S-3 No. 333-20067 pertaining to the
Liberty Financial Companies Inc. Dividend Reinvestment Plan of our report dated
February 2, 1999, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedules included in this
Annual Report (Form 10-K) of Liberty Financial Companies, Inc.
/s/ Ernst & Young
Boston, MA
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 11,277
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,598
<CASH> 984
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 341
<TOTAL-ASSETS> 16,519
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 12,504
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 486
0
15
<COMMON> 1
<OTHER-SE> 1,270
<TOTAL-LIABILITY-AND-EQUITY> 16,519
0
<INVESTMENT-INCOME> 821
<INVESTMENT-GAINS> 2
<OTHER-INCOME> 394
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 69
<UNDERWRITING-OTHER> 328
<INCOME-PRETAX> 179
<INCOME-TAX> 54
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (10)
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 2.51
<EPS-DILUTED> 2.42
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
