-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E2HlQS2pYdlPCS2lh+l3HTmFOZ1wymYK4NhzdIeZQu6vkDz6PrKUqRMkmtf89Quh 2L1YvlXSeeoQA/JuEeUuLA== 0000950123-00-003258.txt : 20000405 0000950123-00-003258.hdr.sgml : 20000405 ACCESSION NUMBER: 0000950123-00-003258 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METLIFE INC CENTRAL INDEX KEY: 0001099219 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 134075851 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-32074 FILM NUMBER: 592956 BUSINESS ADDRESS: STREET 1: ONE MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10010-3690 BUSINESS PHONE: 2125782211 MAIL ADDRESS: STREET 1: ONE MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10010-3690 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METLIFE CAPITAL TRUST I CENTRAL INDEX KEY: 0001108629 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-32074-01 FILM NUMBER: 592957 BUSINESS ADDRESS: STREET 1: ONE MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10010-3690 BUSINESS PHONE: 2125782211 MAIL ADDRESS: STREET 1: ONE MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10010-3690 S-1/A 1 AMENDMENT NO. 3 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 2000 REGISTRATION NOS. 333-32074 AND 333-32074-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ METLIFE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 6719 13-4075851 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
METLIFE CAPITAL TRUST I (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 6719 13-7233755 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ONE MADISON AVENUE NEW YORK, NEW YORK 10010-3690 (212) 578-2211 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) GARY A. BELLER, ESQ. SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL METLIFE, INC. ONE MADISON AVENUE NEW YORK, NY 10010-3690 (212) 578-2211 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: WOLCOTT B. DUNHAM, JR., ESQ. PHYLLIS G. KORFF, ESQ. JAMES C. SCOVILLE, ESQ. SUSAN J. SUTHERLAND, ESQ. DEBEVOISE & PLIMPTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 875 THIRD AVENUE FOUR TIMES SQUARE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10036 (212) 909-6000 (212) 735-3000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement number for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] ------------------------ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. [MetLife Snoopy Logo] SUBJECT TO COMPLETION. DATED APRIL 4, 2000. 20,000,000 UNITS [METLIFE LOGO] METLIFE CAPITAL TRUST I % EQUITY SECURITY UNITS ------------------------- Each unit will initially consist of (a) a contract to purchase, for $50, shares of common stock of MetLife, Inc. on May 15, 2003 and (b) a capital security of MetLife Capital Trust I, with a stated liquidation amount of $50. The capital securities will initially be held as components of the units and be pledged to secure your obligations under the related purchase contracts. You will receive distributions on the capital securities at the rate of % of $50 per year, paid quarterly, subject to the deferral provisions described in this prospectus. The distribution rate will be reset, and the capital securities remarketed, as described in this prospectus. The units have been approved for listing on the New York Stock Exchange under the symbol "MIU", subject to official notice of issuance. Our common stock has been approved for listing on the New York Stock Exchange under the symbol "MET", subject to official notice of issuance. MetLife, Inc. will, on a senior and unsecured basis, irrevocably guarantee payments on the capital securities to the extent of available trust funds. The offering is being made in connection with the reorganization of Metropolitan Life Insurance Company from a mutual life insurance company to a stock life insurance company in a process known as a demutualization. Concurrently with this offering, we are also: - making an initial public offering of 179,000,000 shares of common stock of MetLife, Inc.; and - issuing 493,476,118 shares of common stock of MetLife, Inc. to the MetLife Policyholder Trust for the benefit of policyholders of Metropolitan Life Insurance Company in connection with the demutualization. In addition, we will issue concurrently with this offering up to 73,000,000 shares in the aggregate of our common stock to Banco Santander Central Hispano, S.A. and Credit Suisse Group or their respective affiliates in private placements. The underwriters have an option to purchase a maximum of 3,000,000 additional units to cover over-allotments of the units. INVESTING IN THE UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 28.
PER UNIT TOTAL -------- -------- Initial public offering price(1)............................ $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to MetLife, Inc. ................ $ $
- --------------- (1) Plus, as applicable, accumulated distributions from , 2000, if settlement occurs after that date. Delivery of the units will be made on or about , 2000. None of the Securities and Exchange Commission, any state securities commission, the New York Superintendent of Insurance or any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Joint Bookrunners CREDIT SUISSE FIRST BOSTON GOLDMAN, SACHS & CO. BANC OF AMERICA SECURITIES LLC DONALDSON, LUFKIN AND JENRETTE LEHMAN BROTHERS MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY Prospectus dated , 2000. 3 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 3 Risk Factors................................................ 28 Use of Proceeds............................................. 46 Dividend Policy............................................. 48 Capitalization.............................................. 49 Ratio of Earnings to Fixed Charges.......................... 50 Selected Financial Information.............................. 51 Pro Forma Consolidated Financial Information................ 58 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 66 The Demutualization......................................... 104 Business.................................................... 117 Management.................................................. 194 Ownership of Common Stock................................... 210 Common Stock Eligible for Future Sale....................... 212 MetLife Capital Trust I..................................... 214 Description of the Units.................................... 216 U.S. Federal Income Tax Consequences........................ 253 Description of Capital Stock................................ 259 Underwriting................................................ 266 Legal Matters............................................... 269 Experts..................................................... 270 Additional Information...................................... 271 Glossary.................................................... G-1 Index to Financial Statements............................... F-1 Opinion of Consulting Actuary............................... A-1
------------------------- Some statements contained in this prospectus, including those containing the words "believes", "expects", "intends", "estimates", "assumes" and "anticipates", are forward looking. Actual results may differ materially from those suggested by the forward looking statements for various reasons, including those discussed under "Risk Factors". You should rely only on the information contained or referred to in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document. DEALER PROSPECTUS DELIVERY OBLIGATION Until , 2000 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. 2 4 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. As a result, it does not contain all of the information that you should consider before investing in the units. You should read the entire prospectus carefully, including the "Risk Factors" section and the consolidated financial statements and the notes to those statements. Unless otherwise stated or the context otherwise requires, references in this prospectus to "we", "our", "us" or "MetLife" refer to MetLife, Inc., together with Metropolitan Life Insurance Company, and their respective direct and indirect subsidiaries. All financial information contained in this prospectus, unless otherwise indicated, has been derived from the consolidated financial statements of Metropolitan Life Insurance Company and its subsidiaries and is presented in conformity with generally accepted accounting principles ("GAAP"). The Glossary beginning on page G-1 of this prospectus includes definitions of certain insurance terms. Each term defined in the Glossary is printed in boldface the first time it appears in this prospectus. Information regarding the number of shares of MetLife, Inc. common stock to be outstanding after this offering of units, the private placements and the concurrent initial public offering does not include shares of common stock issuable upon the settlement of the purchase contracts that are a part of the units offered by this prospectus. METLIFE, INC. We are a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. We currently provide individual insurance, ANNUITIES and investment products to approximately nine million households, or one of every eleven households in the U.S. We also provide group insurance and retirement and savings products and services to approximately 64,000 corporations and other institutions, including 86 of the FORTUNE 100 largest companies. Our institutional clients have approximately 33 million employees and members. We are a leader in each of our major U.S. businesses. We are: - the largest life insurer, with approximately $1.7 trillion of life insurance IN FORCE at December 31, 1999; - the largest individual life insurer, with $11.5 billion in individual life insurance and annuity PREMIUMS and deposits in 1999; - the largest group life insurer, with $5.3 billion of premiums in 1999; - a leading group non-medical health insurer, including the second largest group disability insurer, the second largest commercial dental insurer and the largest group long-term care insurer; - a leading issuer of individual variable life insurance and variable annuities; and - a leading asset manager, with $373.6 billion of total assets under management at December 31, 1999. We believe that our unparalleled franchises and brand names uniquely position us to be the preeminent provider of insurance and financial services in the U.S. businesses in which we compete. We are one of the largest and best capitalized insurance and financial services companies in the U.S. Our revenues for 1999 were $25.4 billion and our net income was $617 million. We had total consolidated assets of $225.2 billion and equity of $13.7 billion at December 31, 1999. We are organized into five major business segments: Individual Business, Institutional Business, Asset Management, Auto & Home and International. 3 5 INDIVIDUAL BUSINESS. Individual Business offers a wide variety of protection and asset accumulation products for individuals, including life insurance and annuities. Individual Business also distributes products provided by our other business segments, including mutual funds and auto and homeowners insurance. Reflecting overall trends in the insurance industry, sales of our traditional life insurance products have declined in recent years, while FIRST-YEAR PREMIUMS AND DEPOSITS from variable life insurance products have grown at a compound annual rate of 33.1% for the five years ended 1999 and represented 67.4% of our total life insurance sales for Individual Business in 1999. Our principal distribution channels are the MetLife career agency and the New England Financial general agency distribution systems and, after our recent acquisition of GenAmerica Corporation, GenAmerica's independent general agency system. We also have dedicated sales forces that market to non-profit organizations and banks and their customers. In total, we had approximately 11,000 active sales representatives in 1999. In addition to these distribution channels, we are increasing the distribution of our products through independent insurance agents and registered representatives. We believe our ability to effectively manage these multiple distribution channels represents a significant competitive advantage. Individual Business had $11.1 billion of revenues, or 43.5% of our total revenues, and $565 million of operating income in 1999. INSTITUTIONAL BUSINESS. Institutional Business offers a broad range of group insurance and retirement and savings products and services. Our group insurance products and services include group life insurance and non-medical health insurance such as short- and long-term disability, long-term care and dental insurance, as well as other related products and services. Our group insurance premiums, fees and other income, which totaled $5.9 billion in 1999, have grown at a compound annual rate of 10.0% for the three years ended 1999. Our retirement and savings products and services include administrative services sold to sponsors of 401(k) and other defined contribution plans, guaranteed interest products and separate account products. We distribute our Institutional Business products through a sales force of approximately 300 MetLife employees that is organized by both customer size and product. In total, we have approximately 64,000 institutional customers, including 86 of the FORTUNE 100 largest companies. Institutional Business had $10.4 billion of revenues, or 40.8% of our total revenues, and $585 million of operating income in 1999. ASSET MANAGEMENT. Through our wholly-owned subsidiary, State Street Research & Management Company, and our controlling interest in Nvest Companies, L.P. and its affiliates, Asset Management provides a broad variety of asset management products and services primarily to third-party institutions and individuals. Our Asset Management segment managed $189.8 billion of our total assets under management at December 31, 1999, including $54.9 billion of assets in mutual funds and in SEPARATE ACCOUNTS supporting individual variable life and annuity products. For the five years ended 1999, this segment's assets under management grew at a compound annual rate of 14.2%. We distribute our asset management products through several distribution channels, including State Street Research's and Nvest's dedicated sales forces, and also through our Individual Business and Institutional Business distribution channels. Asset Management had $0.9 billion of revenues, or 3.5% of our total revenues, and $51 million of operating income in 1999. AUTO & HOME. Auto & Home offers auto insurance, homeowners insurance and other personal property and casualty insurance products. We sell these products directly to employees through employer-sponsored programs, as well as through a variety of retail distribution channels. These channels include the MetLife career agency system, approximately 6,000 independent agents and brokers, which includes those of The St. Paul Companies acquired in 1999, and approximately 385 Auto & Home specialists. We are the leading provider of personal auto and homeowners insurance through employer-sponsored programs in the U.S. Net premiums earned from products sold through employer-sponsored 4 6 programs have grown at a 14.3% compound annual rate for the five years ended 1999. On September 30, 1999, our Auto & Home segment acquired the standard personal lines property and casualty insurance operations of The St. Paul Companies, which had in-force premiums of approximately $1.1 billion, substantially increasing the size of this segment's business, making us the eleventh largest personal property and casualty insurer in the U.S. based on 1998 net premiums written. See "Business -- Auto & Home". Auto & Home had $1.9 billion of revenues, or 7.4% of our total revenues, and $54 million of operating income in 1999. INTERNATIONAL. We have international insurance operations in ten countries, with a focus on the Asia/Pacific region, Latin America and selected European countries. Our International segment offers life insurance, accident and health insurance, annuities and retirement and savings products and services to both individuals and groups, and auto and homeowners coverage to individuals. Assets of our International segment, as adjusted for the recent divestitures of a substantial portion of our U.K. and Canadian operations, have grown at a compound annual rate of 21.4% for the five years ended 1999. International had $0.8 billion of revenues, or 3.1% of our total revenues, and $18 million of operating income in 1999. On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in cash. GenAmerica is a leading provider of life insurance, life reinsurance and other financial services to affluent individuals, businesses, insurers and financial institutions. GenAmerica's products and services include individual life insurance and annuities, life reinsurance, institutional asset management, group life and health insurance and administration, pension benefits administration and software products and technology services for the life insurance industry. GenAmerica distributes its products through approximately 625 agents in its independent general agency system and approximately 1,575 active independent insurance agents and brokers. GenAmerica is a holding company which owns General American Life Insurance Company. GenAmerica's subsidiaries also include Reinsurance Group of America, Inc., one of the largest life reinsurers in the United States, and Conning Corporation, a manager of investments for General American Life and other insurance company and pension clients. Upon completion of the acquisition of GenAmerica, we owned approximately 58% and 61% of the outstanding common stock of Reinsurance Group of America (also known as RGA) and Conning, respectively. Both RGA and Conning are publicly-traded. On March 9, 2000, we announced that we had agreed to acquire all of the outstanding shares of Conning common stock not already owned by us for $12.50 per share in cash, or approximately $65 million. The Conning acquisition is subject to customary terms and conditions, including regulatory approvals. Subsequent to January 6, 2000, the date on which we acquired GenAmerica, GenAmerica's businesses will be incorporated into our business segments as applicable, except for RGA, which will be separately designated as our Reinsurance segment. STRATEGY As we become a public company, we are committed to providing superior stockholder value through the following growth strategies: - - INCREASING OUR REVENUES AND ASSETS UNDER MANAGEMENT BY: Building on widely recognized brand names. We believe that the MetLife name is one of the most well-known brand names in the U.S. and one of our most valuable assets. We have also been successful in utilizing additional brand names, such as New England Financial, Security First Group and State Street Research, for specific market segments. We believe our recent acquisition of GenAmerica and RGA further strengthens our brand portfolio. 5 7 Capitalizing on large customer base. We intend to enhance our relationships with our existing individual customers by offering a broad array of products, improving the training of our agents and developing direct marketing programs in partnership with our agency sales force and increasing sales to our institutional customers by expanding the offering of voluntary, or employee-paid, products. Expanding multiple distribution channels. We believe that our development and successful management of multiple distribution channels represent a significant competitive advantage. We intend to both grow our core distribution channels and to continue to build complementary distribution channels for sales of our products. Continuing to introduce innovative and competitive products. We intend to be at the forefront of the insurance and financial services industries in offering innovative and competitive products to our customers. Recent initiatives include new or revised products covering a substantial portion of our individual product offerings and new voluntary institutional products. Increasing focus on asset accumulation products. We intend to expand our assets under management in both our insurance operations and our Asset Management segment by increasing our focus on sales of asset accumulation products, such as variable life and annuity products, mutual funds and 401(k) products. Focusing international operations on growing markets. We have established insurance operations in selected international markets that are experiencing significant growth in demand for insurance products and where we believe we can gain significant market share. - - GROWING OUR EARNINGS AND OPERATING RETURN ON EQUITY BY: Reducing operating expenses. We are committed to improving profitability by reducing operating expenses through employee reductions, increased integration of operations and enhanced use of technology. Strengthening performance-oriented culture. We have implemented a number of initiatives to significantly enhance the performance of our employees, including establishing a new compensation program, selectively hiring experienced new employees, expanding our training efforts and implementing a new performance measurement and review program. Continuing to optimize returns from investment portfolio. The return on our invested assets has contributed significantly to our earnings growth. We believe that the expertise of our investment department will enable us to continue to optimize the operating returns on our invested assets in the future. Enhancing capital efficiency of our operations. We seek to maximize our operating return on equity by enhancing the capital efficiency of our operations. We have recently implemented a new internal capital allocation system and, consistent with a more disciplined approach to capital allocation, have divested operations that did not meet targeted rates of return or growth. THE DEMUTUALIZATION We are conducting the offerings in connection with the reorganization of Metropolitan Life Insurance Company from a mutual life insurance company to a stock life insurance company in a process commonly known as a demutualization. On the date the plan of reorganization becomes effective, which will be the date of the closing of the initial public offering, the private placements and the offering of units described below, Metropolitan Life Insurance Company will become a wholly-owned subsidiary of MetLife, Inc. In the demutualization, in exchange for their membership interests, policyholders who are eligible to receive consideration under the plan of 6 8 reorganization will be entitled to receive consideration in the form of shares of our common stock or, in some cases, cash or an adjustment to their policy values, referred to as "policy credits". The shares of our common stock allocated to policyholders who do not receive cash or policy credits under the plan will be held through the MetLife Policyholder Trust on behalf of these policyholders. We are establishing the trust to help us efficiently manage the administration of accounts and the costs associated with the approximately nine million eligible policyholders that we estimate will become beneficiaries of the trust. Subject to certain limitations, trust beneficiaries will be permitted, after specified periods, to instruct the trustee to withdraw their allocated shares of our common stock from the trust for sale or to purchase additional shares commission-free through a purchase and sale program established and administered by a program agent. Trust beneficiaries allocated more than 25,000 shares of our common stock may be limited in their ability to sell shares under the purchase and sale program for the first 300 days after the plan effective date. Beginning on the first anniversary of the closing of the initial public offering, trust beneficiaries may also withdraw all, but not less than all, their allocated shares of our common stock held in the trust in order to hold or sell such shares of our common stock on their own. Concurrently with this offering, we are making an initial public offering of 179,000,000 shares of our common stock by means of a separate prospectus. In addition, affiliates of Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed that they or their respective affiliates will purchase from us, at a price per share equal to the initial public offering price, in the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of our common stock in private placements that will close concurrently with the initial public offering and the offering of equity security units described below. We will determine at the time of the pricing of the initial public offering whether to sell any shares to these purchasers in excess of the minimum amount. Any shares in excess of the minimum amount that we determine not to sell to these investors may increase the number of shares available for sale to the general public under this prospectus. The maximum number of shares that each investor, individually, and the investors, in the aggregate, could be obligated to purchase in the private placements represents approximately 4.9% and 9.8%, respectively, of the total number of shares of our common stock to be outstanding upon consummation of the initial public offering and the private placements. Each of these purchasers has entered into an agreement with us that provides that any shares purchased by it will be restricted from sale or transfer for a period of one year after the initial public offering except for sales to affiliates or pursuant to a tender or exchange offer recommended by a board of directors. In addition, each purchaser has agreed that it will not, without our consent, increase its ownership of voting securities beyond 4.9% (or 5.0% with the New York Superintendent of Insurance's approval) of the outstanding shares, except for any increase resulting from transactions in the ordinary course of the business of purchaser as underwriter, broker/dealer, investment manager or investment adviser or from ordinary trading activities, unless such transactions were made with the purpose of changing or influencing the control of MetLife, seek to obtain board representation, solicit proxies in opposition to management or take certain other actions for five years. Although these investors will receive common stock which has not been registered under the Securities Act, they will also receive registration rights with respect to such stock, which rights are not exercisable until one year after the closing of the initial public offering. Pursuant to these registration rights, the purchasers will be able to have their shares of common stock registered for resale under the Securities Act, beginning after the first anniversary of the closing, on not more than one occasion for each purchaser each year, or not more than five occasions for each purchaser in total (known as a "demand" registration right). In addition, we have agreed to use our reasonable efforts to register the shares for resale on a shelf registration statement on Form S-3 as soon as practicable after the first anniversary of the closing. If the shares are registered on a Form S-3, each purchaser will be allowed to make not more than two offerings under the registration 7 9 statement each year, subject to a minimum offering size of $50,000,000 per offering, although underwritten offerings will be subject to the limitations on the number of demand registrations described above. The purchasers will be able to participate, subject to specified limitations, in registrations effected by us for our own account or others. The closings of the initial public offering, the private placements and the offering of the equity security units are each conditioned on the concurrent closings of the others. We will account for the demutualization using the historical carrying values of our assets and liabilities. The board of directors of Metropolitan Life Insurance Company adopted the plan of reorganization on September 28, 1999, and subsequently adopted amendments to the plan. As required by law, the plan was approved by more than two-thirds of the eligible policyholders who voted in voting completed on February 7, 2000. On April , 2000, the New York Superintendent of Insurance approved the Plan after a public hearing. At the public hearing, which was held on January 24, 2000, some policyholders and others raised objections to certain aspects of the plan. Six lawsuits have been filed challenging the fairness of the plan of reorganization and the adequacy and accuracy of Metropolitan Life Insurance Company's disclosures to policyholders regarding the plan. The first of these lawsuits was filed in the Supreme Court of the State of New York for Kings County on January 14, 2000. It was brought on behalf of a putative class consisting of all policyholders of Metropolitan Life Insurance Company who should have membership benefits in Metropolitan Life Insurance Company and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan, as well as other relief. The defendants named in the complaint are Metropolitan Life Insurance Company, the individual members of its board of directors and MetLife, Inc. Discovery is underway in this case. The five other lawsuits were filed between March 10, 2000 and March 29, 2000 in the Supreme Court of the State of New York for New York County. The same defendants are named in these five cases as in the Kings County case, with the addition of the New York Superintendent. All five of the New York County cases are brought on behalf of a putative class consisting of the eligible policyholders of Metropolitan Life Insurance Company as of September 28, 1999, the adoption date of the plan. The claims in these five additional cases are substantially similar to those in the Kings County case, as is the relief sought. Metropolitan Life Insurance Company has entered into a stipulation with the plaintiffs in the five New York County cases in which it does not oppose consolidation of the cases, agrees that the plaintiffs have until April 30, 2000 to file a consolidated amended complaint, and agrees that the defendants' time to answer, move or otherwise respond to the consolidated amended complaint will be thirty days after service of the consolidated amended complaint. Metropolitan Life Insurance Company has agreed to provide certain information to the plaintiffs in three of the New York County cases. Metropolitan Life Insurance Company, MetLife, Inc. and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and intend vigorously to contest all of the plaintiffs' claims in these six lawsuits. See "Risk Factors -- A challenge to the New York Superintendent of Insurance's approval may adversely affect the terms of the demutualization and the market price of our common stock". METLIFE CAPITAL TRUST I MetLife Capital Trust I is a statutory business trust created under Delaware law. The trust will issue two classes of trust securities: capital securities, which are offered by this prospectus, and common securities, which will be issued to MetLife, Inc. The trust securities represent undivided beneficial ownership interests in the assets of the trust. These assets consist solely of debentures issued by MetLife, Inc. to the trust. Although upon issuance of the capital securities a holder of units will initially be the beneficial owner of the related capital securities, those capital 8 10 securities will be pledged with the collateral agent to secure the obligations of the unit holder under the related purchase contracts. The trust's common securities rank on a parity with the capital securities, and payments upon redemption, liquidation or otherwise will be made on a proportionate basis between the two classes. However, upon the occurrence and during the continuance of an event of default under the debenture indenture, the rights of the holders of the common securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the capital securities. The aggregate stated liquidation amount of the common securities will equal at least 3% of the total capital of the trust. We are issuing the debentures through the trust in order to comply with requirements in our plan of reorganization regarding the type of securities that may be offered at the effective date of the demutualization. MetLife, Inc. will, on a senior and unsecured basis, irrevocably guarantee payments on the capital securities to the extent of available trust funds. The financial statements of the trust will be consolidated in our consolidated financial statements, with the capital securities shown on our consolidated balance sheets under the caption "Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent". The notes to our consolidated financial statements will disclose that the sole asset of the trust will be the debentures issued by MetLife, Inc. to the trust. Distributions on the capital securities will be reported as a charge to minority interest in our consolidated statements of income, whether paid or accrued. Before the issuance of shares of our common stock upon settlement of the purchase contracts, the units will be reflected in our diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of our common stock used in calculating earnings per share for any period is deemed to be increased by the excess, if any, of the number of shares issuable upon settlement of the purchase contracts over the number of shares that could be purchased by us in the market, at the average market price during that period, using the proceeds receivable upon settlement. Consequently, there will be no dilutive effect on our earnings per share, except during periods when the average market price of our common stock is above $ per share. ------------------------- MetLife's Inc.'s principal executive offices are located at MetLife, Inc., One Madison Avenue, New York, New York 10010-3690. Our telephone number is (212) 578-2211. The principal offices of the trust will be c/o The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711 and its telephone number will be (302) 451-2500. 9 11 THE OFFERING WHAT ARE THE UNITS? Each unit will initially consist of: - a purchase contract under which you agree to purchase, for $50, shares of common stock of MetLife, Inc. on May 15, 2003. We will determine the number of shares you will receive by the settlement rate described below, based on the average trading price of the common stock at that time; and - a capital security of MetLife Capital Trust I, with a stated liquidation amount of $50. The capital securities will initially be pledged to secure your obligations under the purchase contract. We refer in this prospectus to the purchase contracts, together with the pledged capital securities or, after the remarketing described below, together with the specified pledged treasury securities, as "normal units". Each holder of normal units may elect to withdraw the pledged capital securities or treasury securities underlying the normal units, creating "stripped units". A holder might consider it beneficial to either hold the capital securities directly or to realize income from their sale. These investment choices are facilitated by creating stripped units. To create stripped units, the holder must substitute, as pledged securities, specifically identified treasury securities that will pay $50 on May 15, 2003, the amount due on such date under the purchase contract, and the pledged capital securities or treasury securities will be released from the pledge agreement and delivered to the holder. The stripped units will not generate cash payments to the holder, although holders continuing to hold capital securities separately will receive cash distributions as described below. We will not initially list either the stripped units or the capital securities on any national securities exchange. In the event that either of these securities are separately traded to a sufficient extent that applicable exchange listing requirements are met, we will attempt to list these securities on the exchange on which the normal units are then listed. Holders of stripped units may recreate normal units by re-substituting the capital securities or applicable treasury securities for the treasury securities underlying the stripped units. WHAT ARE THE CAPITAL SECURITIES? The capital securities, and the common securities issued to MetLife, Inc., represent undivided beneficial ownership interests in the assets of MetLife Capital Trust I. These assets consist solely of the debentures issued by MetLife, Inc. to the trust. As a result, holders of capital securities will hold, through the trust, an interest in the debentures, although the trustee of the trust will hold legal title over the debentures. Because each holder has an "undivided" beneficial interest in the trust's assets, the holder has a proportional interest in the collective assets of the trust, rather than in any specific debentures. The debentures will have an interest rate and principal amount that are the same as the distribution rate and stated liquidation amount of the trust securities. WHAT ARE THE PURCHASE CONTRACTS? The purchase contract underlying a unit obligates you to purchase, and us to sell, for $50, on May 15, 2003, a number of newly issued shares of our common stock equal to the settlement rate described below. We will base the settlement rate on the average trading price of the common stock at that time. WHAT PAYMENTS WILL BE MADE TO HOLDERS OF THE UNITS AND THE CAPITAL SECURITIES? If you hold normal units, you will receive payments, consisting of quarterly cumulative cash distributions on the capital securities, at the annual rate of % of the stated liquidation amount of $50 per capital security through and including February 15, 2003. These payments are subject to the deferral provisions described below. On May 15, 2003 you will receive a quarterly 10 12 payment, consisting of a cash payment on the specified pledged treasury securities, at the same annual rate. If you hold stripped units, you will not receive distributions on the units. If you hold capital securities separately from the units, you will receive distributions on the capital securities. The capital securities, whether held separately from or as part of units, will initially pay distributions at the annual rate of % of the stated liquidation amount of $50 per capital security for the quarterly payments payable on and before February 15, 2003, and the capital securities will pay distributions at the reset rate from that date. If the reset agent cannot establish a reset rate meeting the requirements described in this prospectus, the reset agent will not reset the distribution rate and the reset rate will continue to be the initial annual rate of % until the reset agent can establish such a reset rate meeting the requirements described in this prospectus on a later remarketing date prior to May 15, 2003. The distributions on the capital securities are subject to the deferral provisions described below. The trust must pay distributions on the capital securities on the dates payable to the extent that it has funds available for the payment of those distributions. The trust's funds available for distribution to you as a holder of the capital securities will be limited to payments received from MetLife, Inc. on the debentures. MetLife, Inc. will guarantee the payment of distributions on the capital securities out of moneys held by the trust to the extent of available trust funds. WHAT ARE THE PAYMENT DATES? Subject to the deferral provisions described below, distributions will be paid quarterly in arrears on each February 15, May 15, August 15, and November 15, commencing August 15, 2000. WHAT IS THE RESET RATE? In order to facilitate the remarketing of the capital securities at the remarketing price described below, the reset agent will reset the rate of distribution on the capital securities for the quarterly payments payable on and after May 15, 2003. The reset rate is the interest rate on the debentures, and therefore the distribution rate on the capital securities, after February 15, 2003. The reset rate will be the rate sufficient to cause the then current aggregate market value of all the outstanding capital securities to be equal to 100.5% of the remarketing value described below. The reset agent will assume for this purpose, even if not true, that all of the capital securities continue to be components of normal units and will be remarketed. Re-setting the distribution rate of the capital securities at this rate should enable the remarketing agent to sell the capital securities in the remarketing and purchase the necessary treasury securities, the proceeds of which will be applied in settlement of the purchase contracts and to payment of the quarterly payment on the normal units due on May 15, 2003. The reset rate will be determined by the reset agent on the third business day prior to February 15, 2003. If the reset agent cannot establish a reset rate on the remarketing date meeting these requirements, and as a result the capital securities cannot be sold as described below, the distribution rate will not be reset and will continue to be the initial rate of the capital securities. However, the reset agent may thereafter attempt to establish a reset rate meeting these requirements, and the remarketing agent may attempt to remarket the capital securities, on one or more subsequent remarketing dates after the initial remarketing date until May 15, 2003. If a reset rate cannot be established on a given date, the remarketing will not occur on that date. A nationally recognized investment banking firm will act as reset agent. The reset of the distribution rate on the capital securities will not change the rate of distributions received by holders of the normal units, which, as described above, will remain at the initial rate of % of $50 for the quarterly payment payable on May 15, 2003. 11 13 WHEN CAN WE DEFER DISTRIBUTION PAYMENTS? We can, on one or more occasions, defer the interest payments due on the debentures for up to five years, unless an event of default under the debentures has occurred and is continuing. However, we cannot defer interest payments beyond the maturity date of the debentures, which is May 15, 2005, and any deferred period must end on an interest payment date. If we defer interest payments on the debentures, the trust will also defer distributions on the capital securities. The trust will be able to pay distributions on the capital securities only if and to the extent it receives interest payments from us on the debentures. During any deferral period, distributions on the capital securities will continue to accumulate quarterly at the initial annual rate of % of the stated liquidation amount of $50 per capital security through and including February 15, 2003, and at the reset rate from that date to May 15, 2005. Also, the deferred distributions will themselves accumulate additional distributions at the deferred rate, to the extent permitted by law. Distribution payments may be deferred if we do not have funds available to make the interest payments on the debentures or for any other reason. However, during any period in which we defer interest payments on the debentures, in general we cannot: - declare or pay any dividend or distribution on our capital stock; - redeem, purchase, acquire or make a liquidation payment on any of our capital stock; - make any interest, principal or premium payment on, or repurchase or redeem, any of our debt securities that rank equally with or junior to the debentures; or - make any payment on any guarantee of the debt securities of any of our subsidiaries if the guarantee ranks equal or junior to the debentures. If a payment deferral occurs, you will continue to recognize interest income for United States federal income tax purposes in advance of your receipt of any corresponding cash distribution. For more extensive U.S. federal income tax disclosure, see "U.S. Federal Income Tax Consequences". WHAT IS REMARKETING? In order to provide holders of normal units with the necessary collateral to be applied in the settlement of their purchase contracts, the remarketing agent will sell the capital securities of holders of normal units, other than those electing not to participate in the remarketing, and the remarketing agent will use the proceeds to purchase U.S. treasury securities, which the participating normal unitholders will pledge to secure obligations under the related purchase contracts. This will be one way for holders to satisfy their obligations to purchase shares of common stock of MetLife, Inc. under the related purchase contracts. The cash that the pledged treasury securities underlying the normal units of such holders pay will be used to satisfy such holders' obligations to purchase our common stock on May 15, 2003, the stock purchase date. Unless a holder elects not to participate in the remarketing, the remarketing agent will remarket the capital securities that are included in the normal units on the remarketing date, which will be the third business day immediately preceding February 15, 2003, unless the remarketing agent delays the remarketing to a later date as described below. We will enter into a remarketing agreement with a nationally recognized investment banking firm, pursuant to which that firm will agree to use its commercially reasonable best efforts to sell the capital securities which are included in normal units and which are participating in the remarketing on February 15, 2003 at a price equal to 100.5% of the remarketing value. The "remarketing value" will be equal to the sum of: (a) the value at the remarketing date of such amount of U.S. treasury securities that will pay, on or prior to the quarterly payment date falling on the stock purchase date, an amount of cash equal to the aggregate distributions that are scheduled to be payable on 12 14 that quarterly payment date on each capital security which is included in a normal unit and which is participating in the remarketing, assuming for this purpose, even if not true, that (i) no distribution payment will then have been deferred and (ii) the distribution rate on the capital securities remains at the initial rate; (b) the value at the remarketing date of such amount of U.S. treasury securities that will pay, on or prior to the stock purchase date, an amount of cash equal to $50 for each capital security which is included in a normal unit and which is participating in the remarketing; and (c) if distribution payments are being deferred at the remarketing date, an amount of cash equal to the aggregate unpaid deferred payments on each capital security which is included in a normal unit and which is participating in the remarketing, accrued to February 15, 2003. The remarketing agent will use the proceeds from the sale of these capital securities in a successful remarketing described in this section to purchase, in the discretion of the remarketing agent, in open market transactions or at treasury auction, the amount and the types of treasury securities described in (a) and (b) above, which it will deliver through the purchase contract agent to the collateral agent to secure the obligations under the related purchase contracts of the normal unitholders whose capital securities participated in the remarketing. The remarketing agent will deduct as a remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds from such remarketing. The remarketing agent will remit the remaining portion of the proceeds, if any, for the benefit of the holders of the normal units participating in the remarketing. Alternatively, a holder of normal units may elect not to participate in the remarketing and retain the capital securities underlying those units by delivering the treasury securities described in (a) and (b) above, in the amount and types specified by the remarketing agent, applicable to the holder's capital securities, to the purchase contract agent prior to the remarketing date. WHAT HAPPENS IF THE REMARKETING AGENT DOES NOT SELL THE CAPITAL SECURITIES? If, as described above, the reset agent cannot establish a reset rate on the remarketing date that will be sufficient to cause the then current aggregate market value of all the outstanding capital securities to be equal to 100.5% of the remarketing value (assuming, even if not true, that all of the capital securities are held as components of normal units and will be remarketed), and the remarketing agent cannot sell the capital securities offered for remarketing on the remarketing date at a price equal to 100.5% of the remarketing value, determined on the basis of the capital securities being remarketed, the reset agent may thereafter attempt to establish a new reset rate, and the remarketing agent may attempt to remarket the capital securities, on one or more occasions after that date until May 15, 2003. Any such remarketing will be at a price equal to 100.5% of the remarketing value, determined on the basis of the capital securities being remarketed. A holder of normal units may elect not to participate in any such remarketing and retain the capital securities underlying those units by delivering the treasury securities described above to the purchase contract agent prior to the subsequent remarketing date. If the remarketing agent fails to remarket the capital securities underlying the normal units at that price by the business day immediately preceding to the stock purchase date, we will be entitled to exercise our rights as a secured party on that date and, subject to applicable law, retain the securities pledged as collateral or sell them in one or more private sales. IF I AM NOT A PARTY TO A PURCHASE CONTRACT, MAY I STILL PARTICIPATE IN A REMARKETING OF MY CAPITAL SECURITIES? Holders of capital securities that are not included as part of normal units may elect to have their capital securities included in the remarketing in the manner described in "Description of the 13 15 Units -- Description of the Purchase Contracts -- Settlement -- Optional Remarketing". The remarketing agent will use its commercially reasonable best efforts to remarket the separately held capital securities included in the remarketing on the remarketing date at a price equal to 100.5% of the remarketing value, determined on the basis of the separately held capital securities being remarketed. After deducting such remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds from the remarketing, the remaining portion of the proceeds will be remitted to the holders whose separate capital securities were sold in the remarketing. If a holder of capital securities elects to have its capital securities remarketed but the remarketing agent fails to sell the capital securities on any remarketing date, the capital securities will be promptly returned to the holder. WHAT IS THE SETTLEMENT RATE? The settlement rate is the number of newly issued shares of MetLife, Inc. common stock that MetLife, Inc. is obligated to sell and you are obligated to buy upon settlement of a purchase contract on May 15, 2003. The settlement rate for each purchase contract will be as follows, subject to adjustment under specified circumstances: - if the applicable market value of our common stock is equal to or greater than $ , the settlement rate will be shares of our common stock per purchase contract; - if the applicable market value of our common stock is less than $ but greater than $ , the settlement rate will be equal to $50 divided by the applicable market value of our common stock per purchase contract; and - if the applicable market value of our common stock is less than or equal to $ , the settlement rate will be shares of our common stock per purchase contract. BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE WILL MY OBLIGATIONS UNDER THE PURCHASE CONTRACT BE SATISFIED? Your obligations under the purchase contract may also be satisfied: - if you have created stripped units or elected not to participate in the remarketing by delivering specified treasury securities in substitution for the capital securities, through the application of the cash payments received on the pledged treasury securities; - through the early delivery of cash to the purchase contract agent in the manner described in "Description of the Units -- Description of the Purchase Contracts -- Settlement -- Early Settlement"; and - if we are involved in a merger or consolidation prior to the stock purchase date in which at least 30% of the consideration for our common stock consists of cash or cash equivalents, through an early settlement of the purchase contract as described in "Description of the Units -- Description of the Purchase Contracts -- Settlement -- Early Settlement upon Merger". In addition, the purchase contracts, our related rights and obligations and those of the holders of the units, including their obligations to purchase common stock, will automatically terminate upon the occurrence of particular events of our bankruptcy, insolvency or reorganization. Upon such a termination of the purchase contracts, the pledged capital securities or treasury securities will be released and distributed to you. 14 16 WHAT IS THE MATURITY OF THE CAPITAL SECURITIES? The capital securities do not have a stated maturity. However, the debentures issued by MetLife, Inc. to the trust will mature on May 15, 2005. Upon redemption of the debentures on that date, the trust will redeem the capital securities at their aggregate stated liquidation amount plus any accrued and unpaid distributions. WHEN MAY METLIFE, INC. DISSOLVE METLIFE CAPITAL TRUST I? We, as the holder of all the common securities of the trust, have the right at any time to dissolve the trust. If we dissolve the trust, holders of the capital securities will receive, after satisfaction of liabilities of creditors of the trust, debentures of MetLife, Inc. having a principal amount equal to the stated liquidation amount of the capital securities they hold. In such event, the capital securities will no longer be deemed to be outstanding, and a normal unit that had included capital securities would thereafter include a debenture with a $50 principal amount, which will be pledged to secure the normal unitholder's obligations under the related purchase contract. Following dissolution, the distributed debentures would be subject to the remarketing, settlement and other provisions of the normal units. In addition, if at such time you hold capital securities separately from the units, you will receive the debentures in exchange for your capital securities. WHAT IS THE EXTENT OF METLIFE, INC.'S GUARANTEE? MetLife, Inc. will irrevocably guarantee, on a senior and unsecured basis, the payment in full of the following: - distributions on the capital securities to the extent of available trust funds; and - the stated liquidation amount of the capital securities to the extent of available trust funds. The guarantee will be unsecured and rank equally in right of payment to all of our other senior unsecured debt. In addition, we are a holding company and our assets will consist primarily of the common stock of our subsidiaries. Accordingly, we will depend on dividends and other distributions from our subsidiaries in order to make the principal and interest payments on the debentures. See "Risk Factors -- Dividends and payments on our indebtedness may be affected by limitations imposed on Metropolitan Life Insurance Company and our other subsidiaries". Our guarantee is effectively junior to the debt and other liabilities of our subsidiaries. The capital securities, the guarantee and the debentures do not limit MetLife, Inc.'s ability or the ability of its subsidiaries to incur additional indebtedness, including indebtedness that ranks equally with the debentures and the guarantee. MetLife, Inc. will have no senior debt other than the debentures upon completion of this offering of units, but it may incur such indebtedness in the future. The companies that will become subsidiaries of MetLife, Inc. after the demutualization had $6.7 billion of total debt at December 31, 1999. The guarantee, when taken together with our obligations under the debentures and the indenture and our obligations under the declaration of trust for MetLife Capital Trust I, including our obligations to pay costs, expenses, debts and liabilities of the trust, other than with respect to the trust securities, has the effect of providing a full and unconditional guarantee of amounts due on the capital securities. WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATED TO THE UNITS AND CAPITAL SECURITIES? If you purchase units in the offering, you will be treated for United States federal income tax purposes as having acquired the capital securities and purchase contracts constituting those units. You must allocate the purchase price of the units between those capital securities and purchase 15 17 contracts in proportion to their respective fair market values, which will establish your initial tax basis. We expect to report the fair market value of each capital security as $ and the fair market value of each purchase contract as $ . The capital securities will be treated as representing undivided beneficial ownership interests in the debentures. The United States federal income tax treatment of the situation where the fair market value of a capital security exceeds the purchase price of each unit at the time of purchase is unclear. We expect to report the fair market value of each capital security at the time of purchase as $ , which exceeds the $50 purchase price of each unit by $ . To the extent we are required to file information returns, we expect to treat this $ excess amount as taxable income to each U.S. holder and to treat each capital security as having an "issue price" of $ (which would result in a U.S. holder having an initial tax basis of $ in the capital security and zero in the purchase contract). U.S. holders should consult their own tax advisors regarding the foregoing. For United States federal income tax purposes, the debentures will be classified as contingent payment debt instruments subject to the "noncontingent bond method" of accruing original issue discount. As discussed more fully under "U.S. Federal Income Tax Consequences -- Capital Securities -- Interest Income and Original Issue Discount", the effects of this method will be (1) to require you, regardless of your usual method of tax accounting, to use the accrual method with respect to the debentures, (2) for all accrual periods through , 2003, and possibly thereafter, the accrual of interest income by you in excess of distributions actually received by you and (3) generally to result in ordinary rather than capital treatment of any gain or loss on the sale, exchange or disposition of the units to the extent attributable to the capital securities. See "U.S. Federal Income Tax Consequences". WILL THE UNITS BE LISTED ON A STOCK EXCHANGE? The normal units have been approved for listing subject to official notice of issuance on the New York Stock Exchange under the symbol "MIU". Neither the stripped units nor the capital securities will initially be listed; however, in the event that either of these securities are separately traded to a sufficient extent that applicable exchange listing requirements are met, we will endeavor to cause those securities to be listed on the exchange on which the normal units are then listed. WHAT ARE YOUR EXPECTED USES OF PROCEEDS FROM THE OFFERING? We estimate that we will receive net proceeds from the offering of units of $960 million, or $1,104 million if the underwriters' options to purchase additional units as described under "Underwriting" are exercised in full. As required by the plan of reorganization, we will use the net proceeds from this offering, together with an estimated $2,381 million of net proceeds from the initial public offering of common stock, or $2,738 million if the underwriters' options to purchase additional shares are exercised in full, and $1,022 million of proceeds from the private placements (assuming a purchase of 73,000,000 shares at $14.00 per share) as follows: - an estimated $397 million to reimburse Metropolitan Life Insurance Company for the crediting of policy credits to certain policyholders in the demutualization; - an estimated $2,494 million to reimburse Metropolitan Life Insurance Company for the payment of cash to certain policyholders in the demutualization; - an estimated $315 million to reimburse Metropolitan Life Insurance Company for cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998; - an estimated $361 million to reimburse Metropolitan Life Insurance Company for the payment of the fees and expenses incurred in connection with the demutualization; and 16 18 - up to $340 million (unless the New York Superintendent of Insurance approves a larger amount) to be retained by MetLife, Inc. and used for working capital, payment of dividends and other general corporate purposes, including payments on the debentures issued by MetLife, Inc. to MetLife Capital Trust I in connection with the offering of the units, and to pay the fees and expenses of the trustee and custodian of the MetLife Policyholder Trust. We will contribute any remaining proceeds to Metropolitan Life Insurance Company for its general corporate purposes and to repay up to $450 million of short-term debt that Metropolitan Life Insurance Company incurred in connection with the acquisition of GenAmerica Corporation. The plan of reorganization requires that the aggregate net proceeds from the offerings and the private placements be at least equal to specified amounts. See "The Demutualization -- Summary of the Plan of Reorganization". If the actual proceeds raised in the initial public offering, the private placements or the offerings of the units are different from the amount estimated in this prospectus, we will be required to change the sizes of the other transactions, subject to limits set forth in the plan. The amount of proceeds from the offerings and the private placements and the final terms of the units will depend on market conditions and on our capital needs at the time of issuance. THE OFFERING -- EXPLANATORY DIAGRAMS The following diagrams demonstrate some of the key features of the purchase contracts, normal units, stripped units and the capital securities, and the transformation of normal units into stripped units and capital securities. The hypothetical prices and percentages below are for illustration only. There can be no assurance that the actual prices and percentages will be limited by the range of hypothetical prices and percentages shown. PURCHASE CONTRACTS - Normal units and stripped units both include a purchase contract under which the holder agrees to purchase shares of MetLife, Inc. common stock on the stock purchase date. [GRAPHIC] - --------------- (1) For each of the percentage categories shown, the percentage of shares to be delivered at maturity to a holder of normal units or stripped units is determined by dividing (a) the 17 19 related number of shares to be delivered, as indicated in the footnote for each such category, by (b) an amount equal to $50, the stated amount of the unit, divided by the reference price. (2) If the applicable market value of our common stock is less than or equal to $ , the number of shares to be delivered will be calculated by dividing the stated amount by the reference price. The "applicable market value" means the average of the closing price per share of our common stock on each of the twenty consecutive trading days ending on the third trading day immediately preceding May 15, 2003. (3) If the applicable market value of our common stock is between $ and $ , the number of shares to be delivered will be calculated by dividing the stated amount by the applicable market value. (4) If the applicable market value of our common stock is greater than $ , the number of shares to be delivered will be calculated by dividing the stated amount by the threshold appreciation price. (5) The "reference price" is $ , which is the initial public offering price of our common stock. (6) The "threshold appreciation price" is equal to $ , which is % of the reference price. NORMAL UNITS - A normal unit consists of two components as described below: [GRAPHIC] - The capital securities represent undivided beneficial ownership interests in MetLife, Inc.'s debentures, interest on which is subject to deferral. After remarketing, the normal units will include specified U.S. treasury securities in lieu of the capital securities. - The holder owns the capital securities and, after remarketing, the U.S. treasury securities, but will pledge them to us to secure its obligations under the purchase contract. 18 20 STRIPPED UNITS - A stripped unit consists of two components as described below: [GRAPHIC] - The holder owns the U.S. treasury security but will pledge it to us to secure its obligations under the purchase contract. The treasury security is a zero-coupon U.S. treasury security (CUSIP No. 912833FS4) that matures on May 15, 2003. CAPITAL SECURITIES - Capital securities have the terms described below: [FLOW CHART] - The capital securities represent undivided beneficial ownership interests in MetLife, Inc.'s debentures. - The holder of a capital security that is a component of a normal unit has the option to either: - allow the capital security to be included in the remarketing process, the proceeds of which will be used to purchase U.S. treasury securities, which will be applied to settle the purchase contract; or - elect not to participate in the remarketing by delivering treasury securities in substitution for the capital security, the proceeds of which will be applied to settle the purchase contract. 19 21 - The holder of a capital security that is separate and not a component of a normal unit has the option to either: - continue to hold the capital security whose rate has been reset for the quarterly payments payable on and after May 15, 2003; or - deliver the capital security to the remarketing agent to be included in the remarketing. TRANSFORMING NORMAL UNITS INTO STRIPPED UNITS AND CAPITAL SECURITIES - To create a stripped unit, the holder combines the purchase contract with the specified zero-coupon U.S. treasury security that matures on May 15, 2003. - The holder owns the zero coupon U.S. treasury security but will pledge it to us to secure the holder's obligations under the purchase contract. - The zero-coupon U.S. treasury security together with the purchase contract constitutes a stripped unit. The capital security (or, after remarketing, U.S. treasury securities), which was previously a component of the normal unit, is tradeable as a separate security. [FLOW CHART] - After remarketing, the normal units will include specified U.S. treasury securities in lieu of capital securities. - The holder can also transform stripped units and capital securities (or, after remarketing, U.S. treasury securities) into normal units. Following that transformation, the specified zero coupon U.S. treasury security, which was previously a component of the stripped units, is tradeable as a separate security. - The transformation of normal units into stripped units and capital securities (or, after remarketing, U.S. treasury securities) and the transformation of stripped units and capital securities (or, after remarketing, U.S. treasury securities) into normal units requires certain minimum amounts of securities, as more fully provided in this prospectus. 20 22 SUMMARY FINANCIAL INFORMATION The following table sets forth summary consolidated financial information for MetLife. We have derived the consolidated financial information for the years ended December 31, 1999, 1998 and 1997 and at December 31, 1999 and 1998 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the consolidated financial information for the years ended December 31, 1996 and 1995 and at December 31, 1997, 1996 and 1995 from our audited consolidated financial statements not included elsewhere in this prospectus. We have prepared the following consolidated statements of income and consolidated balance sheet data, other than the statutory data, in conformity with generally accepted accounting principles. We have derived the statutory data from Metropolitan Life Insurance Company's ANNUAL STATEMENTS filed with insurance regulatory authorities and we have prepared the statutory data in accordance with STATUTORY ACCOUNTING PRACTICES. You should read the following information in conjunction with the information and consolidated financial statements appearing elsewhere in this prospectus.
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) STATEMENTS OF INCOME DATA Revenues: Premiums(1)................................................ $12,088 $11,503 $11,278 $11,345 $11,178 Universal life and investment-type product policy fees..... 1,438 1,360 1,418 1,243 1,177 Net investment income(1)(2)(3)............................. 9,816 10,228 9,491 8,978 8,837 Other revenues(1).......................................... 2,154 1,994 1,491 1,246 834 Net realized investment gains (losses)(4).................. (70) 2,021 787 231 (157) ------- ------- ------- ------- ------- 25,426 27,106 24,465 23,043 21,869 Total expenses(1)(3)(5).................................... 23,991 25,019 22,794 21,637 21,125 ------- ------- ------- ------- ------- Income before provision for income taxes, discontinued operations and extraordinary item........................ 1,435 2,087 1,671 1,406 744 Provision for income taxes(6).............................. 593 740 468 482 407 ------- ------- ------- ------- ------- Income before discontinued operations and extraordinary item..................................................... 842 1,347 1,203 924 337 (Loss) gain from discontinued operations(7)................ -- -- -- (71) 362 ------- ------- ------- ------- ------- Income before extraordinary item........................... 842 1,347 1,203 853 699 Extraordinary item -- demutualization expense, net of income tax of $35 and $2, respectively................... 225 4 -- -- -- ------- ------- ------- ------- ------- Net income................................................. $ 617 $ 1,343 $ 1,203 $ 853 $ 699 ======= ======= ======= ======= =======
21 23
AT OR FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) BALANCE SHEET DATA General account assets(3)................................ $160,291 $157,278 $154,444 $145,877 $144,277 Separate account assets.................................. 64,941 58,068 48,338 43,399 38,861 -------- -------- -------- -------- -------- Total assets............................................. $225,232 $215,346 $202,782 $189,276 $183,138 Policyholder liabilities(8).............................. $124,955 $124,203 $127,358 $122,895 $122,220 Long-term debt........................................... $ 2,514 $ 2,903 $ 2,884 $ 1,946 $ 2,345 Retained earnings........................................ $ 14,100 $ 13,483 $ 12,140 $ 10,937 $ 10,084 Accumulated other comprehensive income (loss)............ (410) 1,384 1,867 1,046 1,670 -------- -------- -------- -------- -------- Total equity............................................. $ 13,690 $ 14,867 $ 14,007 $ 11,983 $ 11,754 OTHER DATA Operating income(4)(9)................................... $ 990 $ 23 $ 617 $ 818 $ 504 Adjusted operating income(4)(10)......................... $ 1,307 $ 1,226 $ 807 $ 921 $ 613 Operating return on equity(11)........................... 7.2% 0.2% 5.3% 7.8% 5.2% Adjusted operating return on equity(12).................. 9.5% 9.6% 7.0% 8.8% 6.3% Return on equity(13)..................................... 4.5% 10.5% 10.4% 8.1% 7.2% Operating cash flows..................................... $ 3,865 $ 842 $ 2,872 $ 3,688 $ 4,823 Total assets under management(14)........................ $373,646 $360,703 $338,731 $297,570 $288,000 STATUTORY DATA(15) Premiums and deposits.................................... $ 24,643 $ 22,722 $ 20,569 $ 20,611 $ 21,651 Net income (loss)........................................ $ 790 $ 875 $ 589 $ 460 $ (672) Policyholder surplus..................................... $ 7,630 $ 7,388 $ 7,378 $ 7,151 $ 6,785 Asset valuation reserve.................................. $ 3,109 $ 3,323 $ 3,814 $ 2,635 $ 2,038
- --------------- (1) Includes the following combined financial statement data of MetLife Capital Holdings, Inc., which we sold in 1998, and our Canadian operations and U.K. insurance operations, substantially all of which we sold in 1998 and 1997, respectively:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 1995 ---- ---- ---- ---- (DOLLARS IN MILLIONS) Revenues: Premiums................................................ $204 $ 463 $ 456 $ 439 Net investment income................................... 495 914 877 637 Other revenues.......................................... 33 225 164 192 ---- ------ ------ ------ $732 $1,602 $1,497 $1,268 ==== ====== ====== ====== Expenses: Policyholder benefits and claims........................ $240 $ 495 $ 459 $ 492 Other expenses.......................................... 418 861 606 831 ---- ------ ------ ------ $658 $1,356 $1,065 $1,323 ==== ====== ====== ======
As a result of these sales, we recorded net realized investment gains of $520 million and $139 million for the years ended December 31, 1998 and 1997, respectively. In July 1998, Metropolitan Life Insurance Company sold a substantial portion of its Canadian operations to Clarica Life Insurance Company. As part of that sale, we transferred a large block of policies in effect with Metropolitan Life Insurance Company in Canada to Clarica Life, and the holders of the transferred Canadian policies became policyholders of Clarica Life. Those transferred policyholders are no longer policyholders of Metropolitan Life Insurance Company and, therefore, are not entitled to compensation under the plan of reorganization. However, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale, if Metropolitan Life Insurance Company demutualizes, its Canadian branch will make cash payments to those who are, or 22 24 are deemed to be, holders of these transferred Canadian policies. The payments, which will be recorded in other expenses in the same period as the effective date of the plan, will be determined in a manner that is consistent with the treatment of, and fair and equitable to, eligible policyholders of Metropolitan Life Insurance Company. The aggregate amount of the payment is dependent upon the initial public offering price of common stock to be issued at the effective date of the plan. Assuming an initial public offering price of $14.00 per share, and based on actuarial calculations we have made regarding these payments, we estimate that the aggregate payments will be $315 million. (2) During 1997, we changed to the retrospective interest method of accounting for investment income on structured notes in accordance with Emerging Issues Task Force Consensus 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes. As a result, net investment income increased by $175 million. The cumulative effect of this accounting change on prior years' income was immaterial. (3) In 1998, we adopted the provisions of Statement of Financial Accounting Standards 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to our securities lending program. Adoption of the provisions had the effect of increasing assets and liabilities by $3,769 million at December 31, 1998 and increasing revenues and expenses by $266 million for the year ended December 31, 1998. (4) Realized investment gains and losses are presented net of related policyholder amounts. The amounts netted against realized investment gains and losses are the following:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 1996 1995 ------ ------ ------ ----- ----- (DOLLARS IN MILLIONS) Gross realized investment gains (losses).................... $ (137) $2,629 $1,018 $ 458 $ 73 ------ ------ ------ ----- ----- Less amounts allocable to: Future policy benefit loss recognition.................... -- (272) (126) (203) (152) Deferred policy acquisition costs......................... 46 (240) (70) (4) (78) Participating pension contracts........................... 21 (96) (35) (20) -- ------ ------ ------ ----- ----- Total..................................................... 67 (608) (231) (227) (230) ------ ------ ------ ----- ----- Net realized investment gains (losses)...................... $ (70) $2,021 $ 787 $ 231 $(157) ====== ====== ====== ===== =====
Realized investment gains (losses) have been reduced by (1) deferred policy acquisition amortization to the extent that such amortization results from realized investment gains and losses, (2) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains, and (3) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholders' accounts. This presentation may not be comparable to presentations made by other insurers. This presentation affected operating income and adjusted operating income. See note 9 below. (5) Total expenses exclude $(67) million, $608 million, $231 million, $227 million and $230 million for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively, of deferred policy acquisition costs, future policy benefit loss recognition and credits to participating pension contracts that have been charged against realized investment gains and losses as these amounts are directly related to the realized investment gains and losses. This presentation may not be comparable to presentations made by other insurers. (6) Includes $125 million, $18 million, $(40) million, $38 million and $67 million for surplus tax paid (received) by Metropolitan Life Insurance Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. As a stock life insurance company, we will no longer be subject to the surplus tax after the effective date of the demutualization. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". 23 25 (7) The gain (loss) from discontinued operations was primarily attributable to the disposition of our group medical insurance business. (8) Policyholder liabilities include future policy benefits, policyholder account balances, other policyholder funds and policyholder dividends. (9) The following provides a reconciliation of net income to operating income:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 1996 1995 ---- ------- ------- ----- ----- (DOLLARS IN MILLIONS) Net income.................................................. $617 $ 1,343 $ 1,203 $ 853 $ 699 ---- ------- ------- ----- ----- Adjustments to reconcile net income to operating income: Gross realized investment (gains) losses.................. 137 (2,629) (1,018) (458) (73) Income tax on gross realized investment gains and losses.................................................. (92) 883 312 173 26 ---- ------- ------- ----- ----- Realized investment (gains) losses, net of income tax... 45 (1,746) (706) (285) (47) ---- ------- ------- ----- ----- Amounts allocated to investment gains and losses (see note 4)................................................. (67) 608 231 227 230 Income tax on amounts allocated to investment gains and losses.................................................. 45 (204) (71) (86) (83) ---- ------- ------- ----- ----- Amounts allocated to investment gains and losses, net of income tax (benefit) expense.......................... (22) 404 160 141 147 ---- ------- ------- ----- ----- Loss (gain) from discontinued operations.................. -- -- -- 71 (362) ---- ------- ------- ----- ----- Surplus tax............................................... 125 18 (40) 38 67 ---- ------- ------- ----- ----- Extraordinary item -- demutualization expense, net of income tax of $35 and $2, respectively.................. 225 4 -- -- -- ---- ------- ------- ----- ----- Operating income............................................ $990 $ 23 $ 617 $ 818 $ 504 ==== ======= ======= ===== =====
We believe the supplemental operating information presented above allows for a more complete analysis of results of operations. We have excluded realized investment gains and losses due to their volatility between periods and because such data are often excluded when evaluating the overall financial performance of insurers. You should not consider operating income as a substitute for any GAAP measure of performance. Our method of calculating operating income may be different from the method used by other companies and therefore comparability may be limited. (10) The following provides a reconciliation of operating income to adjusted operating income:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 1996 1995 ------ ------- ------ ----- ---- (DOLLARS IN MILLIONS) Operating income............................................ $ 990 $ 23 $ 617 $ 818 $504 Adjustment for charges for sales practices claims and for personal injuries caused by exposure to asbestos-containing products, net of income tax........... 317 1,203 190 103 109 ------ ------- ------ ----- ---- Adjusted operating income................................... $1,307 $ 1,226 $ 807 $ 921 $613 ====== ======= ====== ===== ====
The charge for the year ended December 31, 1999 was principally related to the settlement of a multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The amount reported for the year ended December 31, 1998 includes charges for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. See Note 9 of Notes to Consolidated Financial Statements. We believe that supplemental adjusted operating income data provide information useful in measuring operating trends by excluding the unusual amounts of expenses associated with sales practices and asbestos-related claims. These expenses are not related to our ongoing operations. Adjusted operating income should not be considered as a substitute for any GAAP measure of performance. 24 26 (11) Operating return on equity is defined as operating income divided by average total equity, excluding accumulated other comprehensive income (loss). We believe the operating return on equity information presented supplementally allows for a more complete analysis of results of operations. Accumulated other comprehensive income (loss) has been excluded due to its volatility between periods and because such data are often excluded when evaluating the overall financial performance of insurers. Operating return on equity should not be considered as a substitute for any GAAP measure of performance or liquidity. Our method of calculation of operating return on equity may be different from the calculation used by other companies and, therefore, comparability may be limited. Operating return on equity is only presented for annual periods. (12) Adjusted operating return on equity is defined as adjusted operating income divided by average total equity, excluding accumulated other comprehensive income (loss). We believe that supplemental adjusted operating return on equity data provide information useful in measuring operating trends by excluding the unusual amounts of expenses associated with sales practices and asbestos-related claims. Adjusted operating return on equity should not be considered as a substitute for any GAAP measure of performance. Adjusted operating return on equity is only presented for annual periods. (13) Return on equity is defined as net income divided by average total equity, excluding accumulated other comprehensive income (loss). (14) Includes MetLife's general account and separate account assets and assets managed on behalf of third parties. (15) Metropolitan Life Insurance Company statutory data only. 25 27 SUMMARY PRO FORMA FINANCIAL INFORMATION The following summary pro forma financial information is derived from the pro forma financial information and the notes thereto included elsewhere in this prospectus. This information gives effect to the demutualization, the establishment of the closed block, the offering of 20,000,000 units at $50.00 per unit, the sale of 179,000,000 shares of common stock in the initial public offering at $14.00 per share, and the planned concurrent private placements of 73,000,000 shares at $14.00 per share, as if they each had occurred at December 31, 1999 for purposes of the consolidated balance sheet information and at January 1, 1999 for purposes of the consolidated statement of income information for the year ended December 31, 1999. This information has been prepared based on the terms of the plan of reorganization and the assumptions described in "Pro Forma Consolidated Financial Information". This information assumes, among other things, (a) a total of 699,974,077 shares of common stock is allocated to eligible policyholders under the plan of reorganization and (b) the underwriters' options to purchase additional shares of common stock and units in the offerings are not exercised. We have based the pro forma information on available information and on assumptions management believes are reasonable and that reflect the effects of these transactions. We have provided this information for informational purposes only. The number of shares and units actually sold in the offerings and the private placements and their respective prices may vary from the amounts assumed. The plan of reorganization requires that the aggregate net proceeds from the offerings and the private placements be at least equal to specified amounts. See "The Demutualization -- Summary of the Plan of Reorganization". If the actual proceeds raised in the initial public offering, the private placements or the offering of equity security units are different from the amount estimated in this prospectus, we will be required to change the sizes of the other transactions, subject to the limit in the plan that the proceeds of this offering may not exceed one-third of the combined proceeds of this offering, the initial public offering of MetLife, Inc.'s common stock and the private placements. The amount of proceeds from the offerings and the private placements and the final terms of the units will depend on market conditions and our capital needs at the time of issuance. This information does not necessarily indicate our consolidated financial position or results of operations had the demutualization, the establishment of the closed block, the offering of units, the initial public offering and the private placements been consummated on the dates assumed. It also does not project or forecast our consolidated financial position or results of operations for any future date or period. The data set forth below give effect to gross proceeds of $2,506 million from the issuance of common stock in the initial public offering less an assumed underwriting discount and estimated initial public offering expenses aggregating $125 million, or net proceeds from the initial public offering of $2,381 million, assuming an initial public offering price of $14.00 per share. The data also gives effect to proceeds of $1,022 million from the private placements, assuming a purchase of 73,000,000 shares at an initial public offering price of $14.00 per share, and gross proceeds of $1,000 million from the issuance of the units, less an assumed underwriting discount and offering expenses aggregating $40 million, or net proceeds from the offering of $960 million. Under the plan of reorganization, policyholders eligible to receive consideration in the demutualization will receive interests in the MetLife Policyholder Trust, cash or policy credits. The trust will hold the shares of common stock allocated under the plan to those eligible policyholders receiving trust interests. The information in the table below assumes that an estimated $397 million of the net proceeds will be used to reimburse Metropolitan Life Insurance Company for policy credits made in lieu of 28,331,484 allocated shares, an estimated $2,494 million of the net proceeds will be used to reimburse Metropolitan Life Insurance Company for cash payments made in lieu of 178,166,475 allocated shares and an estimated $315 million will be used to reimburse Metropolitan Life Insurance Company for cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998. We will account for the payments to the transferred Canadian 26 28 policyholders in other expenses in the same period as the effective date of the plan. The consideration an eligible policyholder receives under the plan of reorganization will be based on the number of shares of common stock allocated to the eligible policyholder pursuant to the terms of the plan. For those policyholders receiving policy credits or for those non-electing eligible policyholders who must receive cash in the demutualization, we will translate the share allocations into dollar amounts based on the initial public offering price per share. The pro forma information reflects $397 million of policy credits and $164 million of cash payments that will be distributed to non-electing eligible policyholders that must receive cash in the demutualization, assuming an initial public offering price of $14.00 per share. The pro forma information also reflects elections to receive cash made by eligible policyholders holding approximately 23.8% of the total number of shares allocated to eligible policyholders, representing estimated cash payments of $2,330 million, assuming an initial public offering price of $14.00 per share. See "The Demutualization -- Payment of Consideration to Eligible Policyholders". The pro forma consolidated statement of income also reflects the elimination of the surplus tax on earnings and the inclusion of the minority interest related to the units and is presented before the extraordinary item for demutualization expense. The pro forma consolidated statement of income does not give effect to any pro forma earnings resulting from the use of the net proceeds from the offerings and the private placements or the charge related to the payments to be made to certain transferred Canadian policyholders described above. Share Data: Shares allocated to eligible policyholders................ 699,974,077 Less shares allocated to eligible policyholders who receive cash or policy credits......................... 206,497,959 ----------- Shares issued to the MetLife Policyholder Trust........... 493,476,118 Shares issued in the initial public offering.............. 179,000,000 Shares issued in the private placements................... 73,000,000 ----------- Total shares of common stock outstanding.......... 745,476,118 =========== Percentage Ownership: MetLife Policyholder Trust................................ 66.2% Purchasers in the initial public offering................. 24.0% Purchasers in the private placements...................... 9.8%
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) For the year ended December 31, 1999 Pro forma income before extraordinary item................ $ 912 Pro forma income before extraordinary item per share -- basic and diluted............................. $ 1.22 Pro forma equity.......................................... $13,768 Pro forma book value per share -- basic................... $ 18.47 Pro forma tangible book value per share -- basic(1)....... $ 17.65
- --------------- (1) Excludes goodwill. 27 29 RISK FACTORS Before investing in the units, you should carefully consider the following risk factors relating to the units. YOU WILL BEAR THE ENTIRE RISK OF A DECLINE IN THE PRICE OF OUR COMMON STOCK The market value of the shares of common stock you will receive on May 15, 2003 (which we refer to as the "stock purchase date") may be materially different from the effective price per share paid by you on the stock purchase date. If the average trading price of our common stock on the stock purchase date is less than $ per share, you will, on the stock purchase date, be required to purchase shares of common stock at a loss. Accordingly, a holder of units assumes the entire risk that the market value of our common stock may decline. Any such decline could be substantial. YOU WILL RECEIVE ONLY A PORTION OF ANY APPRECIATION IN OUR COMMON STOCK PRICE The number of shares of common stock that we will issue upon settlement may decline by up to % as the market value of our common stock increases. Therefore, your opportunity for equity appreciation will be less than if you invested directly in common stock. In addition, if the average trading price of our common stock at the stock purchase date exceeds $ but is less than $ per share, you will receive no equity appreciation on our common stock. THE TRADING PRICE FOR OUR COMMON STOCK AND THE GENERAL LEVEL OF INTEREST RATES AND OUR CREDIT QUALITY WILL DIRECTLY AFFECT THE TRADING PRICE FOR THE UNITS The trading prices of our common stock, the general level of interest rates and our credit quality will directly affect the trading prices of units in the secondary market. It is impossible to predict whether the price of our common stock or interest rates will rise or fall. Our operating results and prospects and economic, financial and other factors will affect trading prices of our common stock. In addition, market conditions can affect the capital markets generally, therefore affecting the price of our common stock. These conditions may include the level of, and fluctuations in, the trading prices of stocks generally and sales of substantial amounts of common stock in the market after the offering of the units or the perception that those sales could occur. Fluctuations in interest rates may give rise to arbitrage opportunities based upon changes in the relative value of our common stock underlying the purchase contracts and of the other components of the units. The arbitrage could, in turn, affect the trading prices of the units and our common stock. YOU MAY SUFFER DILUTION OF OUR COMMON STOCK ISSUABLE UPON SETTLEMENT OF YOUR PURCHASE CONTRACT The number of shares of common stock issuable upon settlement of your purchase contract is subject to adjustment only for stock splits and combinations, stock dividends and specified other transactions. The number of shares of common stock issuable upon settlement of each purchase contract is not subject to adjustment for other events, such as employee stock option grants, offerings of common stock for cash or in connection with acquisitions or other transactions which may adversely affect the price of our common stock. The terms of the units do not restrict our ability to offer common stock in the future or to engage in other transactions that could dilute our common stock. We have no obligation to consider the interests of the holders of the units in engaging in any such offering or transaction. YOU HAVE NO RIGHTS AS COMMON STOCKHOLDERS Until you acquire shares of common stock upon settlement of your purchase contract, you will have no rights with respect to our common stock, including voting rights, rights to respond to 28 30 tender offers and rights to receive any dividends or other distributions on our common stock. Upon settlement of your purchase contract, you will be entitled to exercise the rights of a holder of common stock only as to actions for which the record date occurs after the stock purchase date. YOUR PLEDGED SECURITIES WILL BE ENCUMBERED Although holders of units will be beneficial owners of the underlying capital securities or pledged treasury securities, the holders will pledge those securities with the collateral agent to secure their obligations under the related purchase contracts. Therefore, for so long as the purchase contracts remain in effect, holders will not be allowed to withdraw their pledged capital securities or treasury securities from this pledge arrangement, except upon substitution of other securities as described in this prospectus. THE PURCHASE CONTRACT AGREEMENT WILL NOT BE QUALIFIED UNDER THE TRUST INDENTURE ACT; THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT ARE LIMITED The purchase contract agreement relating to the units will not be qualified under the Trust Indenture Act. The purchase contract agent under the purchase contract agreement, who will act as the agent and the attorney-in-fact for the holders of the units, will not be qualified as a trustee under the Trust Indenture Act. Accordingly, holders of the units will not have the benefits of the protections of the Trust Indenture Act. Under the terms of the purchase contract agreement, the purchase contract agent will have only limited obligations to the holders of the units. THE SECONDARY MARKET FOR THE UNITS MAY BE ILLIQUID We are unable to predict how the units will trade in the secondary market or whether that market will be liquid or illiquid. There is currently no secondary market for the units. We will apply to list the normal units on the New York Stock Exchange. We will not initially list either the stripped units or the capital securities; however, in the event that either of these securities are separately traded to a sufficient extent that applicable exchange listing requirements are met, we will attempt to list those securities on the exchange on which the normal units are then listed. We have been advised by the underwriters that they presently intend to make a market for the normal units; however, they are not obligated to do so and any market making may be discontinued at any time. There can be no assurance as to the liquidity of any market that may develop for the normal units, the stripped units or the capital securities, your ability to sell such securities or whether a trading market, if it develops, will continue. In addition, in the event that you were to substitute treasury securities for pledged capital securities or treasury securities, thereby converting your normal units to stripped units, the liquidity of normal units could be adversely affected. We cannot provide assurance that a listing application for stripped units or capital securities will be accepted or, if accepted, that the normal units, stripped units or capital securities will not be delisted from the New York Stock Exchange or that trading in the normal units, stripped units or capital securities will not be suspended as a result of elections to create stripped units or recreate normal units through the substitution of collateral that causes the number of these securities to fall below the applicable requirements for listing securities on the New York Stock Exchange. A DISSOLUTION OF METLIFE CAPITAL TRUST I MAY AFFECT THE NORMAL UNITS' MARKET PRICES A dissolution of MetLife Capital Trust I may affect the normal units' market prices. We will have the right to dissolve the trust at any time. We cannot provide assurance as to the impact on the market prices for normal units if we dissolve the trust and distribute the debentures to holders of capital securities in exchange for those capital securities. Because normal units would then consist of debentures and related 29 31 purchase contracts, you are also making an investment decision with regard to the debentures if you purchase units and should carefully review all the information regarding the debentures contained in this prospectus. WE GUARANTEE PAYMENTS ON THE CAPITAL SECURITIES ONLY IF METLIFE CAPITAL TRUST I HAS CASH AVAILABLE Except as described below, you, as a holder of capital securities, will not be able to exercise directly any other rights with respect to the debentures. The guarantee will be qualified as an indenture under the Trust Indenture Act. The guarantee trustee, The Bank of New York, will act as indenture trustee under the guarantee for the purposes of compliance with the provisions of the Trust Indenture Act. The guarantee trustee will hold the guarantee for your benefit if you hold any of the capital securities. If you hold any of the capital securities, the guarantee will guarantee you, on a senior and unsecured basis, the payment of the following: - any accumulated and unpaid distributions that are required to be paid on the capital securities, to the extent the trust has funds available for this purpose; and - upon a voluntary or involuntary dissolution of the trust, other than in connection with the distribution of debentures to you, the lesser of (a) the total of the stated liquidation amount and all accumulated and unpaid distributions on the capital securities to the date of payment to the extent the trust has funds available for this purpose and (b) the amount of assets of the trust remaining available for distribution to holders of the capital securities in liquidation of the trust. The holders of a majority in stated liquidation amount of the capital securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee trustee or to direct the exercise of any trust or power conferred upon the guarantee trustee under the guarantee. Notwithstanding the above, but only under limited circumstances, holders of the capital securities may institute a legal proceeding directly against us to enforce their rights under the guarantee without first instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. If we were to default on our obligation to pay amounts payable on the debentures or otherwise, the trust would lack funds for the payment of distributions or amounts payable on redemption of the capital securities or otherwise, and, in that event, a holder of capital securities would not be able to rely upon the guarantee for payment of these amounts. Instead, the holder would rely on the enforcement: - by the property trustee of its rights as registered holder of the debentures against us pursuant to the terms of the indenture and the debentures; or - by that holder of the property trustee's or that holder's own rights against us to enforce payments on the debentures. As a holder of capital securities, you will, by your acceptance, be deemed to have agreed to be bound by the provisions of the guarantee and the indenture. Right of the holders of capital securities to receive distributions is subject to the prior claims of creditors of our subsidiaries with respect to those creditors' claims. Because we operate as a holding company, our right to participate in any distribution of assets of any subsidiary upon that subsidiary's dissolution, winding-up, liquidation reorganization or otherwise (and thus the ability of the holders of the capital securities to participate indirectly from the distribution) is subject to the prior claims of the creditors of that subsidiary, except to the extent that we are a creditor of the subsidiary and our claims are recognized. Therefore, the debentures will be effectively subordinated to all indebtedness and other obligations of our subsidiaries. Our subsidiaries are separate legal entities and have no obligations to pay, or make 30 32 funds available for the payment of, any amounts due on the debentures, the capital securities or the guarantee. THE DEFERRAL OF INTEREST PAYMENTS MAY HAVE AN ADVERSE EFFECT ON THE TRADING PRICE OF THE UNITS AND CAPITAL SECURITIES If no event of default under the debentures has occurred and is continuing, we may defer the payment of interest on the debentures, on one or more occasions, for up to five years, but not beyond May 15, 2005. If we defer interest payments on the debentures, MetLife Capital Trust I will defer quarterly distributions on the capital securities. However, distributions will still accumulate quarterly and the deferred distributions will themselves accumulate additional distributions at the deferred rate, to the extent permitted by law. There is no limitation on the number of times that we may elect to defer interest payments. We have no current intention to defer interest payments on the debentures. However, if we exercise our right in the future, the units and, if they are separately traded, the capital securities, may trade at prices that do not fully reflect the value of deferred interest on the debentures. If you sell your units or capital securities during a deferral period, you may not receive the same return on your investment as a holder who continues to hold the securities. In addition, our right to defer interest payments on the debentures may mean that the market price of the units and the capital securities may be more volatile than the market prices of other comparable investments that do not have these rights. If a payment deferral occurs, you will continue to recognize interest income for United States federal income tax purposes in advance of your receipt of any corresponding cash distribution. HOLDERS OF CAPITAL SECURITIES HAVE LIMITED RIGHTS UNDER THE DEBENTURES Except as described below, you, as a holder of capital securities, will not be able to exercise directly any other rights with respect to the debentures. If an event of default under the declaration of trust of MetLife Capital Trust I were to occur and be continuing, holders of capital securities would rely on the enforcement by the property trustee of its rights as registered holder of the debentures against us. In addition, the holders of a majority in stated liquidation amount of the capital securities would have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the property trustee or to direct the exercise of any trust or power conferred upon the property trustee under the declaration, including the right to direct the property trustee to exercise the remedies available to it as the holder of the debentures. The indenture provides that the debenture trustee must give holders of debentures notice of all defaults or events of default within 90 days after occurrence. However, except in the cases of a default or an event of default in payment on the debentures, the debenture trustee will be protected in withholding the notice if its responsible officers determine that withholding of the notice is in the interest of such holders. If the property trustee were to fail to enforce its rights under the debentures in respect of an indenture event of default after a holder of record of capital securities had made a written request, such holder of record of capital securities may, to the extent permitted by applicable law, institute a legal proceeding against us to enforce the property trustee's rights under the debentures. In addition, if we were to fail to pay interest or principal on the debentures on the date that interest or principal is otherwise payable, except for deferrals permitted by the declaration of trust and the indenture, and this failure to pay were continuing, holders of capital securities may directly institute a proceeding for enforcement of payment of the principal of or interest on the debentures having a principal amount equal to the aggregate stated liquidation amount of their capital securities (a direct action) after the respective due dates specified in the 31 33 debentures. In connection with a direct action, we would have the right under the indenture to set off any payment made to that holder by us. THE PROPERTY TRUSTEE, AS HOLDER OF THE DEBENTURES, HAS ONLY LIMITED RIGHTS OF ACCELERATION The property trustee, as holder of the debentures, may accelerate payment of the principal and accrued and unpaid interest on the debentures only upon the occurrence and continuation of an indenture event of default. An indenture event of default is generally limited to payment defaults, breaches of specific covenants and specific events of bankruptcy, insolvency and reorganization relating to us. There is no right to acceleration upon default of our payment obligations under the guarantee. Before investing in the units, you should also carefully consider the following risk factors relating to us. CHANGES IN INTEREST RATES MAY SIGNIFICANTLY AFFECT OUR PROFITABILITY In periods of increasing interest rates, policy loans and surrenders and withdrawals may tend to increase as policyholders seek investments with higher perceived returns. This process may result in cash outflows requiring that we sell invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which may result in realized investment losses. Conversely, during periods of declining interest rates, life insurance and annuity products may be relatively more attractive investments, resulting in increased premium payments on products with flexible premium features, repayment of policy loans and increased PERSISTENCY during a period when our new investments carry lower returns. In addition, borrowers may prepay or redeem mortgages and bonds in our investment portfolio as they seek to borrow at lower market rates, and we might have to reinvest those funds in lower interest-bearing investments. Accordingly, during periods of declining interest rates, a decrease in the spread between interest and dividend rates to policyholders and returns on our investment portfolio may adversely affect our profitability. Additionally, customers for whom we provide asset management services may terminate their relationship with us or reduce the amount of their assets under management with us in response to changes in interest rates. DECLINE IN SECURITIES MARKETS MAY ADVERSELY AFFECT OUR ASSET MANAGEMENT BUSINESS AND SALES OF OUR INVESTMENT PRODUCTS Fluctuations in the securities markets may affect our asset management business, as well as sales of our mutual funds, variable life insurance and variable annuity products. Favorable performance by the U.S. securities markets over the last five years has attracted a substantial increase in the investments in these markets and has benefited our asset management business and increased our assets under management. A decline in the securities markets, failure of the securities markets to sustain their recent levels of growth, or short-term volatility in the securities markets could result in investors withdrawing from the markets or decreasing their rate of investment, either of which could adversely affect our asset management business and sales of our investment products. In addition, because the revenues of our asset management business are, to a large extent, based on the value of assets under management, a decline in the value of these assets would adversely affect our revenues. COMPETITIVE FACTORS MAY ADVERSELY AFFECT OUR MARKET SHARE We believe that competition in our business segments is based on service, product features, price, commission structure, financial strength, claims paying ability ratings and name recognition. We compete with a large number of other insurers, as well as non-insurance financial services companies, such as banks, broker-dealers and asset managers, for individual customers, employer and other group customers and agents and other distributors of insurance and investment products. Some of these companies offer a broader array of products, have more 32 34 competitive pricing or, with respect to other insurers, have higher claims paying ability ratings. Some may also have greater financial resources with which to compete. National banks, with their pre-existing customer bases for financial services products, may increasingly compete with insurers, as a result of court cases that permit national banks to sell annuity products of life insurers in some circumstances and recently-enacted legislation removing restrictions on bank affiliations with insurers. This legislation, the Gramm-Leach-Bliley Act of 1999, permits mergers that combine commercial banks, insurers and securities firms under one holding company. Until passage of the Gramm-Leach-Bliley Act, the Glass-Steagall Act of 1933, as amended, had limited the ability of banks to engage in securities-related businesses, and the Bank Holding Company Act of 1956, as amended, had restricted banks from being affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act, among other things, bank holding companies may acquire insurers, and insurance holding companies may acquire banks. The ability of banks to affiliate with insurers may materially adversely affect all of our product lines by substantially increasing the number, size and financial strength of potential competitors. Additionally, proposed health care reforms could cause medical health insurance providers to enter some of the non-medical health insurance markets in which we do business, thereby increasing competition. Many of our insurance products, particularly those offered by our Institutional Business segment, are UNDERWRITTEN yearly, and, accordingly, group purchasers may be able to obtain more favorable terms from competitors rather than renewing coverage with us. The effect of competition may, as a result, adversely affect the persistency of these and other products, as well as our ability to sell products in the future. The investment management and securities brokerage businesses have relatively few barriers to entry and continually attract new entrants. Many of these competitors offer a broader array of investment products and services and are better known as sellers of annuities and other investment products. WE MAY BE UNABLE TO ATTRACT AND RETAIN SALES REPRESENTATIVES FOR OUR PRODUCTS We must attract and retain productive sales representatives to sell our insurance, annuities and investment products. Strong competition exists among insurers for sales representatives with demonstrated ability. We compete with other insurers for sales representatives primarily on the basis of our financial position, support services and compensation and product features. From 1994 to 1998, the number of agents in the MetLife career agency system declined, from 9,521 to 6,853. We believe that this decline was principally the result of the adverse impact of sales practices litigation brought against us beginning in the early 1990s, the establishment of more stringent company-wide criteria for recruiting and retaining agents and a consolidation of sales offices and changes in compensation practices for our sales force during this period. We have undertaken several initiatives to grow our career agency force in the future. At December 31, 1999, the number of agents in the MetLife career agency system was 6,866. We cannot provide assurance that these initiatives will succeed in attracting and retaining new agents. Sales of individual insurance, annuities and investment products and our business, results of operations and financial condition could be materially adversely affected if we are unsuccessful in attracting and retaining agents. DIFFERENCES BETWEEN ACTUAL CLAIMS EXPERIENCE AND UNDERWRITING AND RESERVING ASSUMPTIONS MAY REQUIRE US TO INCREASE LIABILITIES Our earnings significantly depend upon the extent to which our actual claims experience is consistent with the assumptions used in setting the prices for our products and establishing the liabilities for our obligations for future policy benefits and claims. To the extent that actual claims experience is less favorable than our underlying assumptions used in establishing such liabilities, we could be required to increase our liabilities. Such an increase could have a material adverse effect on our business, results of operations and financial condition. 33 35 Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot determine precisely the amounts which we will ultimately pay to settle these liabilities. Such amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. We evaluate our liabilities periodically, based on changes in the assumptions used to establish the liabilities, as well as our actual policy benefits and claims experience. We charge or credit changes in our liabilities to expenses in the period the liabilities are established or re-estimated. If the liabilities originally established for future policy benefits prove inadequate, we must increase our liabilities, which may have a material adverse effect on our business, results of operations and financial condition. CATASTROPHES MAY ADVERSELY IMPACT LIABILITIES FOR PROPERTY AND CASUALTY POLICYHOLDER CLAIMS AND REINSURANCE AVAILABILITY Our Auto & Home segment has experienced, and will likely in the future experience, CATASTROPHE losses that may have an adverse impact on the business, results of operations and financial condition of this segment. Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hail, tornados, explosions, severe winter weather (including snow, freezing water, ice storms and blizzards) and fires. Due to their nature, we cannot predict the incidence and severity of catastrophes. Historically, substantially all of our catastrophe-related claims have related to homeowners coverages. However, catastrophes may also affect other Auto & Home coverages. For us, areas of major hurricane exposure include coastal sections of the northeastern U.S. (including Long Island and the Connecticut, Rhode Island and Massachusetts shorelines) and Florida. We also have some earthquake exposure, primarily along the New Madrid fault line in the central U.S. Losses incurred by us from catastrophes, net of REINSURANCE but before taxes, were $29.3 million, $56.7 million, $18.0 million, $69.0 million and $38.1 million in 1999, 1998, 1997, 1996 and 1995, respectively. Consistent with industry practices, we establish liabilities for claims arising from a catastrophe only after assessing the exposure and damages arising from the event. We cannot be certain that the liabilities we have established will be adequate to cover actual claims. Furthermore, we cannot assure that the reinsurance we purchased will be adequate to protect us against material catastrophe losses or that such reinsurance will continue to be available to us in the future at commercially reasonable rates. States have from time to time passed legislation that has the effect of limiting the ability of insurers to manage risk, such as legislation restricting an insurer's ability to withdraw from catastrophe-prone areas. While we attempt to limit our exposure to acceptable levels, subject to restrictions imposed by insurance regulatory authorities, a catastrophic event or multiple catastrophic events might have a material adverse effect on our business, results of operations and financial condition. A DOWNGRADE IN OUR RATINGS MAY INCREASE POLICY SURRENDERS AND WITHDRAWALS, ADVERSELY AFFECT RELATIONSHIPS WITH DISTRIBUTORS AND NEGATIVELY IMPACT NEW SALES Claims paying ability and financial strength ratings are a factor in establishing the competitive position of insurers. A rating downgrade (or the potential for such a downgrade) of Metropolitan Life Insurance Company or any of its insurance subsidiaries could, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of CASH VALUES from their policies, adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Metropolitan Life Insurance Company's and its subsidiaries' products and services, negatively impact new sales, adversely affect its ability to compete and thereby have a material adverse effect on our business, results of operations and financial condition. The current claims paying ability and financial strength ratings of Metropolitan Life Insurance Company are listed in the table below: 34 36
RATING AGENCY RATING RATING STRUCTURE Standard & Poor's Ratings Services AA Second highest of nine ratings ("Very Strong") categories and mid-range within the category based on modifiers (e.g., AA+, AA and AA- are "Very Strong") Moody's Investors Service, Inc. Aa2 Second highest of nine ratings ("Excellent") categories and mid-range within the category based on modifiers (e.g., Aa1, Aa2 and Aa3 are "Excellent") A.M. Best Company, Inc. A+ Highest of nine ratings categories and ("Superior") second highest within the category based on modifiers (e.g., A++ and A+ are "Superior" while A and A- are "Excellent") Duff & Phelps Credit Rating Co. AA+ Second highest of eight ratings ("Very High") categories and highest within the category based on modifiers (e.g., AA+, AA and AA- are "Very High")
The foregoing ratings reflect each rating agency's opinion of Metropolitan Life Insurance Company's financial strength, operating performance and ability to meet its obligations to policyholders and are not evaluations directed toward the protection of holders of our common stock or the units. CHANGES IN STATE AND FEDERAL REGULATION MAY AFFECT OUR PROFITABILITY Our insurance business is subject to comprehensive state regulation and supervision throughout the U.S. The primary purpose of such regulation is to protect policyholders, not stockholders. The laws of the various states establish insurance departments with broad powers with respect to such things as licensing companies to transact business, licensing agents, admitting statutory assets, mandating certain insurance benefits, regulating premium rates, approving policy forms, regulating unfair trade and claims practices, establishing statutory reserve requirements and solvency standards, fixing maximum interest rates on life insurance policy loans and minimum rates for accumulation of surrender values, restricting certain transactions between affiliates and regulating the types, amounts and statutory valuation of investments. State insurance regulators and the NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS ("NAIC") continually reexamine existing laws and regulations, and may impose changes in the future that materially adversely affect our business, results of operations and financial condition. The U.S. federal government does not directly regulate the insurance business. However, federal legislation and administrative policies in certain areas can significantly and adversely affect the insurance industry generally and MetLife in particular. These areas include employee benefit plan regulation, financial services regulation and federal taxation and securities laws. Additionally, interpretation of existing laws may change and the passage from time to time of new legislation may adversely affect our claims exposure on our policies. Metropolitan Life Insurance Company, some of its subsidiaries and certain policies and contracts offered by them are subject to various levels of regulation under the federal securities laws administered by the Securities and Exchange Commission. These laws and regulations are primarily intended to protect investors in the securities markets, and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations. We may also be subject to similar laws and regulations in the states and foreign countries in which we provide investment advisory services, offer products or conduct other securities-related activities. 35 37 We cannot predict the impact of future state or federal laws or regulations on our business. Future laws and regulations, or the interpretation thereof, may materially adversely affect our business, results of operations and financial condition. DEMUTUALIZATION RISKS OUR BOARD OF DIRECTORS WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTES ON MANY MATTERS DUE TO THE VOTING PROVISIONS OF THE METLIFE POLICYHOLDER TRUST Under the plan of reorganization, we will establish the MetLife Policyholder Trust to hold the shares of MetLife, Inc. common stock allocated to eligible policyholders not receiving cash or policy credits under the plan. An estimated 493,476,118 shares of our common stock, or 66.2% of the total number of shares expected to be outstanding based upon an estimated initial public offering price of $14.00 per share, will be issued to the trust on the effective date of the plan, to be held on behalf of approximately nine million eligible policyholders. Because of the number of shares held by the trust and the voting provisions of the trust, the trust may affect the outcome of matters brought to a stockholder vote. Except on votes regarding certain fundamental corporate actions described below, the trustee will vote all of the shares of common stock held in the trust in accordance with the recommendations given by our board of directors to our stockholders or, if the board gives no such recommendation, as directed by the board. As a result of the voting provisions of the trust, the board of directors will effectively be able to control votes on all matters submitted to a vote of stockholders, excluding those fundamental corporate actions, so long as the trust holds a substantial number of shares of common stock. If the vote relates to fundamental corporate actions specified in the trust, the trustee will solicit instructions from the trust beneficiaries and vote all shares held in the trust in proportion to the instructions it receives. These actions include: - an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition to a nominee or nominees of our board of directors or a vote on a stockholder's proposal to oppose a board nominee for director, remove a director for cause or fill a vacancy caused by the removal of a director by stockholders, subject to certain conditions; - a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or dissolution, of MetLife, Inc., in each case requiring a vote of our stockholders under applicable Delaware law; - any transaction that would result in an exchange or conversion of shares of common stock held by the trust for cash, securities or other property; - issuances of our common stock during the first year after the effective date of the plan at a price materially less than the then prevailing market price of our common stock, if a vote of our stockholders is required to approve the issuance under Delaware law, other than issuances in an underwritten public offering or pursuant to an employee benefit plan; - for the first year after the effective date of the plan, any matter that requires a supermajority vote of our outstanding stock entitled to vote thereon under Delaware law or our certificate of incorporation or by-laws, and any amendment to our certificate of incorporation or by-laws that is submitted for approval to our stockholders; and - any proposal requiring our board of directors to amend or redeem the rights under our stockholder rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel to the effect that the proposal is not a proper subject for stockholder action under Delaware law. 36 38 If a vote concerns any of these fundamental corporate actions, the trustee will vote all of the shares of common stock held by the trust in proportion to the instructions it receives, which will give disproportionate weight to the instructions actually given by trust beneficiaries. WE MAY NEED TO FUND DEFICIENCIES IN OUR CLOSED BLOCK; ASSETS ALLOCATED TO THE CLOSED BLOCK BENEFIT ONLY THE HOLDERS OF CLOSED BLOCK POLICIES The plan of reorganization requires that Metropolitan Life Insurance Company establish and operate an accounting mechanism, known as a closed block, to ensure that the reasonable dividend expectations of policyholders who own certain individual insurance policies of Metropolitan Life Insurance Company are met. We will allocate assets to the closed block in an amount that will produce cash flows which, together with anticipated revenue from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of the policyholder DIVIDEND SCALES in effect for 1999, if the experience underlying such scales continues, and for appropriate adjustments in such scales if the experience changes. We cannot assure that the closed block assets, the cash flows generated by the closed block assets and the anticipated revenue from the policies included in the closed block will be sufficient to provide for the benefits guaranteed under these policies. If they are not sufficient, we must fund the shortfall. Even if they are sufficient, we may choose, for competitive reasons, to support policyholder dividend payments with our general account funds. See "The Demutualization" for a description of the closed block. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenue from the policies in the closed block will benefit only the holders of those policies. In addition, to the extent that these amounts are greater than the amounts estimated at the time we fund the closed block, dividends payable in respect of the policies included in the closed block may be greater than they would be in the absence of a closed block. Any excess earnings will be available for distribution over time to closed block policyholders but will not be available to our stockholders. A CHALLENGE TO THE PLAN OF REORGANIZATION OR TO THE NEW YORK SUPERINTENDENT OF INSURANCE'S APPROVAL MAY ADVERSELY AFFECT THE TERMS OF THE DEMUTUALIZATION AND THE MARKET PRICE OF OUR COMMON STOCK AND THE EQUITY SECURITY UNITS After a public hearing, which was held on January 24, 2000, the New York Superintendent of Insurance will determine whether the plan of reorganization meets the standards of applicable New York law, including, among other things, whether the plan is fair and equitable to the policyholders of Metropolitan Life Insurance Company. We do not expect that the New York Superintendent's order approving the plan will address the fairness of the plan to purchasers of common stock in the initial public offering or purchasers of the units in this offering. The New York Superintendent's order approving the plan was issued on April , 2000. Section 7312 of the New York Insurance Law provides that any lawsuit challenging the validity of or arising out of acts taken or proposed to be taken under the demutualization statute in connection with the demutualization must be commenced within one year after a copy of the plan of reorganization, with the New York Superintendent's approval endorsed thereon, is filed in the office of the New York Superintendent or six months from the effective date of the plan of reorganization, whichever is later, or if the plan is withdrawn, within six months of such withdrawal. Although Section 326 of the New York Insurance Law provides that orders of the New York Superintendent are subject to judicial review in a proceeding under Article 78 of New York's Civil Practice Law and Rules, the law is not clear whether a lawsuit challenging an order of the New York Superintendent under Section 7312 would have to be commenced within four 37 39 months after the order became final and binding, as is generally the case for an Article 78 proceeding, or within the time period specified in Section 7312, if later. A successful challenge to the order of the New York Superintendent could result in injunctive relief, monetary damages, a modification of the plan of reorganization or the New York Superintendent's approval of the plan being set aside. In order to challenge successfully the New York Superintendent's approval of the plan, a challenging party would have to sustain the burden of showing that approval was arbitrary and capricious, an abuse of discretion, made in violation of lawful procedures or affected by an error of law. In addition, Section 7312 provides that an insurer may require a challenging party to give security for the insurer's reasonable expenses, including attorneys' fees, which may be incurred or for which the insurer may become liable, to which security the insurer will have recourse in such amount as the court shall determine upon the termination of the action. The New York Superintendent held a public hearing on the plan on January 24, 2000. At the public hearing, some policyholders and others raised objections to certain aspects of the plan. These objections alleged, among other things, that the plan was not fair and equitable to policyholders of Metropolitan Life Insurance Company. Six lawsuits have been filed challenging the fairness of the plan of reorganization and the adequacy and accuracy of Metropolitan Life Insurance Company's disclosures to policyholders regarding the plan. The first of these lawsuits was filed in the Supreme Court of the State of New York for Kings County on January 14, 2000. It was brought on behalf of a putative class consisting of all policyholders of Metropolitan Life Insurance Company who should have membership benefits in Metropolitan Life Insurance Company and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan, as well as other relief. The defendants named in the complaint are Metropolitan Life Insurance Company, the individual members of its board of directors and MetLife, Inc. Discovery is underway in this case. The five other lawsuits were filed between March 10, 2000 and March 29, 2000 in the Supreme Court of the State of New York for New York County. The same defendants are named in these five cases as in the Kings County case, with the addition of the New York Superintendent of Insurance. All five of the New York County cases are brought on behalf of a putative class consisting of the eligible policyholders of Metropolitan Life Insurance Company as of September 28, 1999, the adoption date of the plan. The claims in these five additional cases are substantially similar to those in the Kings County case, as is the relief sought. Metropolitan Life Insurance Company has entered into a stipulation with the plaintiffs in the five New York County cases in which it does not oppose consolidation of the cases, agrees that the plaintiffs have until April 30, 2000 to file a consolidated amended complaint, and agrees that the defendants' time to answer, move or otherwise respond to the consolidated amended complaint will be thirty days after service of the consolidated amended complaint. Metropolitan Life Insurance Company has agreed to provide certain information to the plaintiffs in three of the New York County cases. Metropolitan Life Insurance Company, MetLife, Inc. and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and intend vigorously to contest all of the plaintiffs' claims in these six lawsuits. We are not aware of any other lawsuits challenging the plan or the approval thereof. However, there can be no assurance that we are aware of all lawsuits that have been commenced or that additional lawsuits will not be commenced in the future. An injunction or other court order delaying consummation of the plan would likely result in substantial uncertainty relating to the terms and effectiveness of the plan, and a substantial period of time might be required to finally resolve these matters. A successful challenge to the plan or its approval would be materially adverse to purchasers of common stock in the initial public offering and units in the offering of the units and would have a material adverse effect on our business, results of operations and financial condition. 38 40 LITIGATION AND REGULATORY INVESTIGATIONS MAY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION We face significant risks of litigation and regulatory investigations and actions in connection with our activities as an insurer, employer, investment advisor, investor and taxpayer. These types of lawsuits and regulatory actions may be difficult to assess or quantify, may seek recovery of very large and/or indeterminate amounts, including punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action against us could have a material adverse effect on our business, results of operations and financial condition. Metropolitan Life Insurance Company and its affiliates are currently defendants in approximately 500 lawsuits raising allegations of improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." On December 28, 1999, after a fairness hearing, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving a multidistrict litigation proceeding involving alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. This class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. In addition to dismissing the consolidated class actions, the District Court's order also bars sales practices claims by class members for sales by the defendant insurers during the class period, effectively resolving all pending class actions against these insurers. The defendants are in the process of having these claims dismissed. Under the terms of the order, only those class members who excluded themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for sales that occurred during the class period. Approximately 20,000 class members elected to exclude themselves from the settlement. Over 400 of the approximately 500 lawsuits noted above are brought by individuals who elected to exclude themselves from the settlement. We expect that the total cost to us of the settlement will be approximately $957 million. This amount is equal to the amount of the increase in liabilities for the death benefits and policy adjustments and the present value of expected cash payments to be provided to included class members, as well as attorneys' fees and expenses and estimated other administrative costs, but does not include the cost of litigation with policyholders who are excluded from the settlement. We believe that the cost to us of the settlement will be substantially covered by available reinsurance and the provisions made in our consolidated financial statements, and thus will not have a material adverse effect on our business, results of operations or financial position. We have not yet made a claim under those reinsurance agreements and, although there is a risk that the carriers will refuse coverage for all or part of the claim, we believe this is very unlikely to occur. We believe we have made adequate provision in our consolidated financial statements for all probable losses for sales practices claims, including litigation costs involving policyholders who are excluded from the settlement. The class action settlement does not resolve nine purported or certified class actions currently pending against New England Mutual Life Insurance Company with which we merged in 1996, three putative sales practices class actions lawsuits which have been brought against 39 41 General American Life Insurance Company, two putative class actions involving sales practices claims filed against Metropolitan Life Insurance Company in Canada, or a certified class action with conditionally certified subclasses against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad. Metropolitan Life Insurance Company is also a defendant in numerous lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Additional litigation relating to these matters may be commenced in the future. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to provide reasonable ranges of potential losses, it is the opinion of our management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in our consolidated financial statements, are not likely to have a material adverse effect on our consolidated financial condition. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our operating results or cash flows in particular quarterly or annual periods. See "Business -- Legal Proceedings" and Note 9 of Notes to Consolidated Financial Statements for a discussion of the material legal matters in which we are currently involved. INVESTMENT PORTFOLIO RISKS DEFAULTS ON OUR FIXED MATURITY PORTFOLIO MAY ADVERSELY AFFECT OUR PROFITABILITY We are subject to the risk that the issuers of the fixed maturity securities we own may default on principal and interest payments due thereon, particularly if a major economic downturn occurs. At December 31, 1999, fixed maturities that we classify as either "Problem" or "Potential Problem" totaled 0.5% of our fixed maturity investments. In recent years we have increased the percentage of our investments in non-investment grade fixed maturity securities. At December 31, 1999, such securities constituted 9.0% of our total fixed maturities. Our fixed maturity securities of $97.0 billion represented 69.9% of our total cash and invested assets at December 31, 1999. An increase in defaults on these securities could have a material adverse effect on our business, results of operations and financial condition. DEFAULTS ON OUR MORTGAGE LOANS MAY ADVERSELY AFFECT OUR PROFITABILITY Our mortgage loans face default risk. At December 31, 1999, our mortgage loans of $19.7 billion represented 14.2% of our total cash and invested assets. At December 31, 1999, loans that were either delinquent or in process of foreclosure totaled 0.2% of our mortgage loan investments, compared with the industry average of 0.3%, as reported by the American Council of Life Insurance at December 31, 1999. The performance of our mortgage loan investments, however, may fluctuate in the future. In addition, substantially all of our mortgage loans have balloon payment maturities. An increase in the default rate of our mortgage loans could have a material adverse effect on our business, results of operations and financial condition. SOME OF OUR INVESTMENTS ARE RELATIVELY ILLIQUID Our investments in private placement fixed maturities, mortgage loans, equity real estate, including real estate joint ventures and other limited partnership interests are relatively illiquid. If we require significant amounts of cash on short notice in excess of our normal cash requirements, we may have difficulty selling these investments at attractive prices, in a timely manner, or both. 40 42 DERIVATIVES MAY NOT BE HONORED BY COUNTERPARTIES We use derivative instruments to hedge market risk. Our derivative strategy employs a variety of instruments including financial futures, foreign exchange forwards, foreign currency swaps, interest rate swaps, interest rate caps and options. A failure by a counterparty to honor the terms of its derivatives contracts with us could have a material adverse effect on our business, results of operations and financial condition. DIVIDENDS AND PAYMENTS ON OUR INDEBTEDNESS MAY BE AFFECTED BY LIMITATIONS IMPOSED ON METROPOLITAN LIFE INSURANCE COMPANY AND OUR OTHER SUBSIDIARIES After the effective date of the plan, MetLife, Inc. will be an insurance holding company. The assets of MetLife, Inc. will consist primarily of all of the outstanding shares of common stock of Metropolitan Life Insurance Company. Our ongoing ability to pay dividends to our stockholders and meet our obligations, including paying operating expenses, making payments on the debentures issued to MetLife Capital Trust I and any other debt service, primarily depends upon the receipt of dividends from Metropolitan Life Insurance Company and the interest received from Metropolitan Life Insurance Company under its $1 billion mandatorily convertible capital note due 2005 issued to MetLife, Inc. Any inability of Metropolitan Life Insurance Company to pay dividends or interest on the capital note to us in the future in an amount sufficient for us to pay dividends to our stockholders and meet our other obligations could have a material adverse effect on our business, results of operations and financial condition. The payment of dividends by Metropolitan Life Insurance Company is regulated under state insurance law. Under the New York Insurance Law, Metropolitan Life Insurance Company may pay a stockholder dividend to MetLife, Inc. only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Insurance, and the New York Superintendent does not disapprove the dividend. Under the New York Insurance Law, the New York Superintendent has broad discretion in determining whether the financial condition of a stock life insurer would support the payment of dividends to stockholders. The New York Insurance Department has established informal guidelines for the New York Superintendent's determinations that focus on, among other things, an insurer's overall financial condition and profitability under statutory accounting practices. We cannot assure that Metropolitan Life Insurance Company will have statutory earnings to support the payment of dividends to MetLife, Inc. in an amount sufficient to fund our cash requirements and pay cash dividends or that the New York Superintendent will not disapprove any dividends that Metropolitan Life Insurance Company may seek to pay. Our other insurance subsidiaries are also subject to restrictions on the payment of dividends. In addition, from time to time, the NAIC and various state insurance regulators have considered, and may in the future consider and adopt, proposals to further restrict the making of dividend payments by an insurer without regulatory approval. Such proposals, if enacted, could further restrict the ability of Metropolitan Life Insurance Company and its subsidiaries to pay dividends. In connection with the contribution of the net proceeds from the initial public offering, the private placements and the offering of units to Metropolitan Life Insurance Company as described above, Metropolitan Life Insurance Company expects to issue to MetLife, Inc. its $1 billion % mandatorily convertible capital note due 2005 having the same interest and interest payment terms (including reset and deferral provisions) as set forth in the debentures of MetLife, Inc. issued to the MetLife Capital Trust I. The principal amount of the capital note is mandatorily convertible into common stock of Metropolitan Life Insurance Company upon maturity or acceleration of the capital note and without any further action by MetLife, Inc. or Metropolitan Life Insurance Company. As required by the New York Insurance Law, the terms of the capital note must be approved by the New York Superintendent of Insurance as not adverse to the interests of Metropolitan Life Insurance Company's policyholders. The New York Superintendent approved the issuance of the capital note on April , 2000. In addition, the 41 43 capital note will provide that Metropolitan Life Insurance Company may not make any payment of the interest on or the principal of the capital note so long as specified payment restrictions exist and have not been waived by the New York Superintendent. Payment restrictions would exist if the level of Metropolitan Life Insurance Company's statutory total adjusted capital falls below certain thresholds relative to the level of its statutory risk-based capital or the amount of its outstanding capital notes, surplus notes or similar obligations. As of the date hereof, Metropolitan Life Insurance Company's statutory total adjusted capital significantly exceeds these limitations. If the payment of interest is prevented by application of the payment restrictions described above, the interest on the capital note will not be available as a source of liquidity for MetLife, Inc. FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY ADVERSELY IMPACT SYSTEMS OPERATIONS We have modified or replaced portions of our information technology and non-information technology systems to address Year 2000 compliance issues. As of the date of this prospectus, we are not aware of any material Year 2000-related problems experienced by these systems. We have not been informed by any other companies, governmental agencies or entities on which we rely that any such persons experienced any material Year 2000-related problems. However, we cannot guarantee that we or the other companies, governmental agencies or other entities on which we rely will not experience any Year 2000-related problems in the future. If such problems do occur, we cannot assure you that they will not have any material adverse effect on our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness". CHANGES IN FEDERAL INCOME TAXATION COULD ADVERSELY IMPACT SALES OF OUR INSURANCE, ANNUITIES AND INVESTMENT PRODUCTS Current federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products. Taxes, if any, are payable on the accumulated tax-deferred earnings when earnings are actually paid. Congress has, from time to time, considered possible legislation that would eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. The 1994 U.S. Supreme Court ruling in NationsBank of North Carolina v. Variable Annuity Life Insurance Company that annuities are not insurance for purposes of the National Bank Act may cause Congress to consider legislation that would eliminate tax deferral at least for certain annuities. Enactment of other possible legislation, including a simplified "flat tax" income structure with an exemption from taxation for investment income, could also adversely affect purchases of life insurance. We cannot foresee whether Congress will enact legislation or, whether such legislation, if enacted, will contain provisions with possible adverse effects on our life insurance and annuity products. In 1998, the federal income tax rate on capital gains was reduced. Consequently, some of our annuities and investment products that feature tax deferral of earnings appear relatively less attractive in comparison with alternative accumulation products that feature long-term capital gains treatment, particularly if the tax rates on ordinary income that are ultimately applied to such tax-deferred earnings substantially exceed the reduced rate on long-term capital gains. SALES OF SHARES MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK The MetLife Policyholder Trust will hold 493,476,118 shares of MetLife, Inc. common stock on behalf of approximately nine million eligible policyholders, and their permitted assigns, who we estimate will become beneficiaries of the trust. The trust agreement provides that a beneficiary may sell the beneficiary's allocated shares of our common stock through the purchase and sale program that we have established. Sales may be made at any time after the later of (1) termination of any stabilization arrangements and trading restrictions in connection with the initial public offering or (2) the closing of all underwriters' over-allotment options that have been 42 44 exercised and the expiration of all unexercised options in connection with the initial public offering. Generally, sales will be processed on the first or second trading day after sale instructions are received. However, for the first 300 days after the plan effective date, if sales on the open market on behalf of trust beneficiaries holding more than 25,000 trust interests exceed the lesser of (i) 1/20th of 1% of the number of shares of common stock outstanding and (ii) 25% of the average daily trading volume for the 20 trading days (or such shorter period, if fewer than 20 trading days have elapsed since the plan effective date) preceding the trade, sales of such excess shares for those beneficiaries may be deferred to the next trading day (which will then be subject to the same volume limitations on that day) or sold by a nationally-recognized brokerage firm that will sell the shares as agent at market clearing prices or as principal in a block trade. We expect that these sales may begin within approximately 30 days after the plan effective date. In addition, subject to certain limitations, a trust beneficiary may withdraw his or her allocated shares beginning one year after the effective date of the plan. Counsel has advised us that those beneficiaries who are not "affiliates" of MetLife, Inc. within the meaning of Rule 144 under the Securities Act may resell their shares in the purchase and sale program or otherwise without registration under the Securities Act and without compliance with the time, volume, manner of sale and other limitations set forth in Rule 144. Substantially all of the shares allocated in the demutualization will be allocated to non-affiliates of MetLife, Inc. Accordingly, most trust beneficiaries may freely transfer such shares, without limitations, through the purchase and sale program. In addition to the shares issued in the demutualization, the shares of our common stock issued in the initial public offering and the shares issued upon settlement of the units will be freely transferable without restriction in the public market, except to the extent that those shares are acquired by affiliates of MetLife, Inc. and are therefore subject to restrictions under Rule 144. Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed in principle that they or their respective affiliates will purchase from us, at a price per share equal to the initial public offering price in the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of our common stock in private placements that will close concurrently with the initial public offering and the offering of equity security units described below. We will determine at the time of the pricing of the initial public offering whether to sell any shares to these purchasers in excess of the minimum amount. Any shares in excess of the minimum amount that we determine not to sell to these investors may increase the number of shares available for sale to the general public under this prospectus. The maximum number of shares that each investor, individually, and the investors, in the aggregate, could be obligated to purchase in the private placements represents approximately 4.9% and 9.8%, respectively, of the total number of shares of our common stock to be outstanding upon consummation of the initial public offering and the private placements. Each of these purchasers has entered into an agreement with us that provides that any shares purchased by it will be restricted from sale or transfer for a period of one year after the initial public offering, except for sales to affiliates or pursuant to a tender or exchange offer recommended by our board of directors. In addition, each purchaser has agreed that it will not, without our consent, increase its ownership of voting securities above 4.9% of the outstanding shares (or 5.0% with the New York Superintendent's approval), except for any increase resulting from transactions in the ordinary course of the business of purchaser as underwriter, broker/dealer, investment manager or investment adviser or from ordinary trading activities, unless such transactions were made with the purpose of changing or influencing the control of MetLife, seek to obtain board representation, solicit proxies in opposition to management or take certain other actions for five years. Although these investors will receive common stock which has not been registered under the Securities Act, they will also receive registration rights with respect to such stock, which rights are not exercisable until one year after the closing of the initial public offering. Pursuant to these registration rights, the purchasers will be able to have their shares of common stock registered for resale under the Securities Act, beginning after the first anniversary of the closing, on not more than one occasion 43 45 for each purchaser each year, or not more than five occasions for each purchaser in total (known as a "demand" registration right). In addition, we have agreed to use our reasonable efforts to register the shares for resale on a shelf registration statement on Form S-3 as soon as practicable after the first anniversary of the closing. If the shares are registered on a Form S-3, each purchaser will be allowed to make not more than two offerings under the registration statement each year, subject to a minimum offering size of $50,000,000 per offering, although underwritten offerings will be subject to the limitations on the number of demand registrations described above. The purchasers will be able to participate, subject to specified limitations, in registrations effected by us for our own account or others. Sales of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock. THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON STOCK MAY NOT BE INDICATIVE OF THE MARKET PRICE OF OUR STOCK AFTER THE OFFERING The initial public offering price of our common stock will be determined by negotiations among MetLife, Inc., Metropolitan Life Insurance Company and the representatives of the underwriters. In addition, the final terms of the initial public offering, including the initial public offering price, will be subject to the approval of the New York Superintendent of Insurance. The initial public offering price of our common stock will be based on numerous factors and may not be indicative of the market price for our common stock after the initial public offering. Factors such as variations in actual or anticipated operating results, changes in or failure to meet earnings estimates of securities analysts, market conditions in the financial services and insurance industries, regulatory actions and general economic and stock market conditions, among others, may have a significant effect on the market price of our common stock. Accordingly, the market price of our common stock may decline below the initial public offering price. STATE LAWS AND OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DELAY, DETER OR PREVENT TAKEOVERS AND BUSINESS COMBINATIONS THAT STOCKHOLDERS MIGHT CONSIDER IN THEIR BEST INTERESTS State laws and our certificate of incorporation and by-laws may delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. For instance, they may prevent stockholders from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future. The insurance laws and regulations of New York, the jurisdiction in which our principal insurance subsidiary, Metropolitan Life Insurance Company, is organized, may delay or impede a business combination involving us. Under the New York Insurance Law, for a period of five years following the effective date of the demutualization, no person may acquire beneficial ownership of 5% or more of the outstanding shares of our common stock without the prior approval of the New York Superintendent of Insurance. In addition, the New York Insurance Law prohibits any person from acquiring control of us and thus indirect control of Metropolitan Life Insurance Company, without the prior approval of the New York Superintendent. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing 10% or more of our outstanding voting stock, unless the New York Superintendent, upon application, determines otherwise. Even persons who do not acquire beneficial ownership of more than 10% of the outstanding shares of our common stock may be deemed to have acquired such control, if the New York Superintendent determines that such persons, directly or indirectly, exercise a controlling influence over our management or our policies. Therefore, any person seeking to acquire a controlling interest in us would face 44 46 regulatory obstacles which may delay, deter or prevent an acquisition that stockholders might consider in their best interests. In addition, Section 203 of the Delaware General Corporation Law may affect the ability of an "interested stockholder" to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an "interested stockholder". An "interested stockholder" is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. The stockholder rights plan adopted by our board of directors may also have antitakeover effects. The stockholder rights plan is designed to protect our stockholders in the event of unsolicited offers to acquire MetLife, Inc. and other coercive takeover tactics which, in the opinion of our board of directors, could impair its ability to represent stockholder interests. The provisions of the stockholder rights plan may render an unsolicited takeover more difficult or less likely to occur or might prevent such a takeover, even though such takeover may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price and may be favored by a majority of our stockholders. RISKS RELATING TO THE ACQUISITION OF GENAMERICA WE MAY BE EXPOSED TO ADDITIONAL LITIGATION General American Life is a defendant in three putative class action lawsuits involving sales practices claims. These lawsuits would not be covered either by our recent class action settlement pertaining to sales practices claims or by our excess of loss reinsurance agreements covering some of our sales practices claims. We are not indemnified under the stock purchase agreement relating to our acquisition of GenAmerica for any losses relating to such claims against GenAmerica. While it is not feasible to predict or determine the ultimate outcome of these matters, we believe that their outcomes will not have a material adverse effect on our business or financial condition, although it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our operating results or cash flows in any particular period. We or General American Life may also become subject to claims brought by policyholders of General American Life or shareholders of its publicly held subsidiaries in connection with events leading up to the execution of the stock purchase agreement, as well as the acquisition itself. Some transactions leading up to the acquisition and the acquisition itself might be susceptible to challenge if any of the entities involved is placed in liquidation or bankruptcy. No claims arising out of these events have yet been made. However, we cannot assure that claims will not be made in the future. We are indemnified under the terms of the stock purchase agreement for some of those matters. We have a first priority perfected security interest in the purchase price proceeds under the stock purchase agreement to cover losses that we incur for which General American Mutual Holding Company has indemnified us under the stock purchase agreement. Such indemnified losses include breaches of representations and warranties, legal proceedings brought within three years after the date of closing, alleged breaches of General American Life's funding agreements and GUARANTEED INTEREST CONTRACTS ("GICs") and the acceleration of payments under certain compensation arrangements and benefit plans. However, we cannot assure that the purchase price proceeds which may be available for indemnified losses will adequately protect us from liabilities if any claims are brought. WE MAY BE UNABLE TO RESTORE THE ONGOING BUSINESS OF GENAMERICA IN A TIMELY MANNER After General American Life was placed under the supervision of the Missouri Department of Insurance, sales of new insurance policies and annuity contracts by GenAmerica declined significantly and surrender levels for existing policyholders and annuity owners increased. 45 47 Although we intend to quickly integrate GenAmerica into our existing operations following the acquisition, we cannot guarantee that we will be able to do so or that sales by GenAmerica of new insurance policies and annuity contracts and surrender rates for existing policies and contracts will return to pre-supervision levels. GenAmerica incurred a net loss in 1999, principally due to losses from the sale of invested assets to meet funding agreement and other policy obligations and the write-down of other assets to their current market value. There can be no assurance that future profitability of GenAmerica will not be adversely affected. USE OF PROCEEDS MetLife Capital Trust I will invest substantially all of the proceeds from the sale of the capital securities comprising part of the units and all of the proceeds from the sale of the common securities in the debentures issued by MetLife, Inc. The remainder of the proceeds from the sale of the units will be paid directly to MetLife, Inc. as consideration for entering into the purchase contracts. Our net proceeds from the offering of the units are estimated to be $960 million, or $1,104 million if the underwriters' options to purchase additional units as described under "Underwriting" are exercised in full, after deducting an assumed underwriting discount and estimated offering expenses payable by us. Our net proceeds from the initial public offering of common stock are estimated to be $2,381 million, or $2,738 million if the underwriters' options to purchase additional shares of common stock are exercised in full, assuming an initial public offering price of $14.00 per share, and after deducting an assumed underwriting discount and estimated offering expenses payable by us. Our proceeds from the private placements are estimated to be $1,022 million, assuming the purchase of 73,000,000 shares at the initial public offering price of $14.00 per share. As required by the plan of reorganization, we will use the net proceeds from the offerings as follows: - an estimated $397 million to reimburse Metropolitan Life Insurance Company for the crediting of policy credits to certain policyholders in the demutualization; - an estimated $2,494 million to reimburse Metropolitan Life Insurance Company for the payment of cash to certain policyholders in the demutualization; - an estimated $315 million to reimburse Metropolitan Life Insurance Company for cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998; - an estimated $361 million to reimburse Metropolitan Life Insurance Company for the payment of the fees and expenses incurred in connection with the demutualization; and - MetLife, Inc. will retain up to $340 million (unless the New York Superintendent of Insurance approves a larger amount) for working capital, payment of dividends and other general corporate purposes, including payments on the debentures issued by MetLife, Inc. to MetLife Capital Trust I in connection with the offering of the units, and to pay the fees and expenses of the trustee and custodian of the MetLife Policyholder Trust. We will contribute any remaining proceeds to Metropolitan Life Insurance Company for its general corporate purposes and to repay up to $450 million of short-term debt that Metropolitan Life Insurance Company incurred in connection with the acquisition of GenAmerica Corporation. In connection with the contribution of the net proceeds from the initial public offering, the offering of equity security units and the private placements to Metropolitan Life Insurance Company as described above, Metropolitan Life Insurance Company expects to issue to MetLife, Inc. its $1 46 48 billion % mandatorily convertible capital note due 2005 having the principal terms described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- MetLife, Inc." The plan of reorganization requires that the aggregate net proceeds from the offerings and the private placements be at least equal to specified amounts. See "The Demutualization -- Summary of the Plan of Reorganization". If the actual proceeds raised in the initial public offering, the private placements or the offering of units are different than the amount estimated in this prospectus, we will be required to change the sizes of the other transactions, subject to the limit in the plan that the proceeds of the units offering may not exceed one-third of the combined proceeds of the initial public offering of MetLife, Inc.'s common stock, the units offering pursuant to this prospectus and the private placements. The amount of proceeds from the offerings and the private placements and the final terms of the units will depend on market conditions and our capital needs at the time of issuance. We will not receive any proceeds from the issuance of our common stock to the MetLife Policyholder Trust in exchange for policyholders' membership interests. 47 49 DIVIDEND POLICY Our board of directors intends to declare an annual dividend on our common stock of $0.20 per share. The declaration and payment of dividends is subject to the discretion of our board of directors, and will depend on our financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the payment of dividends by Metropolitan Life Insurance Company and our other insurance subsidiaries and other factors deemed relevant by the board. There is no requirement or assurance that we will declare and pay any dividends. In addition, the indenture governing the terms of our debentures issued to MetLife Capital Trust I in connection with the offering of units prohibits the payment of dividends on our common stock during a deferral of interest payments on the debentures or an event of default under the indenture or the related guarantee. For a discussion of our cash sources and needs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- MetLife, Inc." Following the effective date of the plan, we will be an insurance holding company. Our assets will consist primarily of all of the outstanding shares of common stock of Metropolitan Life Insurance Company. Our ongoing ability to pay dividends to our stockholders and to meet our obligations, including paying our operating expenses, making payments on the debentures issued to MetLife Capital Trust I and any other debt service, depends primarily upon the receipt of dividends from Metropolitan Life Insurance Company and the interest received from Metropolitan Life Insurance Company under its $1 billion mandatorily convertible capital note due 2005 issued to MetLife, Inc. The payment of dividends by Metropolitan Life Insurance Company is regulated under the New York Insurance Law. See "Risk Factors -- Dividends and payments on our indebtedness may be affected by limitations imposed on Metropolitan Life Insurance Company" and "Business -- Regulation -- Insurance regulation -- Holding company regulation". 48 50 CAPITALIZATION The information in the following table is derived from and should be read in conjunction with the Consolidated Financial Statements and the related Notes and with the Pro Forma Consolidated Financial Information and Notes thereto included elsewhere in this prospectus. The table presents our consolidated capitalization at December 31, 1999 and after giving effect to (1) the demutualization as if it had occurred at December 31, 1999, (2) the initial public offering of 179,000,000 shares of our common stock, (3) the planned private placements of 73,000,000 shares of common stock, (4) the offering of 20,000,000 equity security units in the offering to be conducted concurrently with the initial public offering and (5) the application of the proceeds from the initial public offering of our common stock, the private placements and the offering of equity security units as described in "Use of Proceeds". The data set forth below assumes that the underwriters' options to purchase additional shares of common stock and units in the offerings are not exercised. See "The Demutualization -- Payment of Consideration to Eligible Policyholders".
AT DECEMBER 31, 1999 ---------------------------------------------------------------------------- THE INITIAL THE THE PUBLIC PRIVATE THE UNIT PRO HISTORICAL DEMUTUALIZATION OFFERING PLACEMENTS OFFERING FORMA ---------- --------------- ----------- ---------- -------- ------- (DOLLARS IN MILLIONS) DEBT: Short-term debt..................... $ 4,208 $ -- $ -- $ -- $ -- $ 4,208 ------- -------- ------ ------ ---- ------- Long-term debt Surplus notes and other........... 1,666 -- -- -- -- 1,666 Investment-related debt........... 369 -- -- -- -- 369 Non-insurance subsidiary debt..... 479 -- -- -- -- 479 ------- -------- ------ ------ ---- ------- Total long-term debt....... 2,514 -- -- -- -- 2,514 ------- -------- ------ ------ ---- ------- COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF PARENT.............. -- -- -- -- 947 947 ------- -------- ------ ------ ---- ------- EQUITY: Preferred stock, par value $.01 per share; 200,000,000 shares authorized; none issued........... -- -- -- -- -- -- Series A Junior Participating Preferred Stock; 10,000,000 shares authorized; none issued........... -- -- -- -- -- -- Common stock, par value $.01 per share; 3,000,000,000 shares authorized; pro forma 493,476,118 shares for the demutualization, 179,000,000 shares for the initial public offering and 73,000,000 shares for the private placements; total pro forma 745,476,118 shares issued and outstanding............ -- 5 2 1 -- 8 Additional paid-in capital.......... -- 10,757 2,379 1,021 13 14,170 Retained earnings................... 14,100 (14,100) -- -- -- -- Accumulated other comprehensive loss.............................. (410) -- -- -- -- (410) ------- -------- ------ ------ ---- ------- Total equity............... 13,690 (3,338) 2,381 1,022 13 13,768 ------- -------- ------ ------ ---- ------- TOTAL CAPITALIZATION....... $16,204 $ (3,338) $2,381 $1,022 $960 $17,229 ======= ======== ====== ====== ==== =======
49 51 RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Ratio of earnings to fixed charges.................... 1.40 1.65 1.56 1.43 1.16 Pro forma ratio of earnings to fixed charges.......... 1.36 -- -- -- --
For purposes of this computation, earnings are defined as income before provision for income taxes, discontinued operations and extraordinary item and excluding undistributed income and losses from equity method investments, minority interest and fixed charges, excluding capitalized interest. Fixed charges are the sum of interest and debt issue costs, interest credited to policyholder account balances and an estimated interest component of rent expense. For purposes of the pro forma ratio of earnings to fixed charges, fixed charges also reflect a charge of $87 million for the issuance of the equity security units at an assumed interest rate of 7.60% ($76 million) and the accretion of the discount ($11 million) on the carrying value of the Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent. The pro forma ratio of earnings to fixed charges has been presented to give effect to the additional fixed charges related to the issuance of the equity security units. The pro forma ratio does not give effect to any pro forma earnings resulting from the use of the net proceeds from the unit offering. 50 52 SELECTED FINANCIAL INFORMATION The following table sets forth selected consolidated financial information for MetLife. The consolidated financial information for the years ended December 31, 1999, 1998 and 1997 and at December 31, 1999 and 1998 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated financial information for the years ended December 31, 1996 and 1995 and at December 31, 1997, 1996 and 1995 has been derived from our audited consolidated financial statements not included elsewhere in this prospectus. The following consolidated statements of income and consolidated balance sheet data, other than the statutory data, have been prepared in conformity with generally accepted accounting principles. The statutory data have been derived from Metropolitan Life Insurance Company's Annual Statements filed with insurance regulatory authorities and have been prepared in accordance with statutory accounting practices. The following information should be read in conjunction with and is qualified in its entirety by the information and consolidated financial statements appearing elsewhere in this prospectus.
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) STATEMENTS OF INCOME DATA Revenues: Premiums(1)..................................... $12,088 $11,503 $11,278 $11,345 $11,178 Universal life and investment-type product policy fees................................... 1,438 1,360 1,418 1,243 1,177 Net investment income(1)(2)(3).................. 9,816 10,228 9,491 8,978 8,837 Other revenues(1)............................... 2,154 1,994 1,491 1,246 834 Net realized investment gains (losses)(4)....... (70) 2,021 787 231 (157) ------- ------- ------- ------- ------- 25,426 27,106 24,465 23,043 21,869 ------- ------- ------- ------- ------- Expenses: Policyholder benefits and claims(1)(5).......... 13,105 12,638 12,403 12,432 12,043 Interest credited to policyholder account balances...................................... 2,441 2,711 2,878 2,868 3,143 Policyholder dividends.......................... 1,690 1,651 1,742 1,728 1,786 Other expenses(1)(3)(6)......................... 6,755 8,019 5,771 4,609 4,153 ------- ------- ------- ------- ------- 23,991 25,019 22,794 21,637 21,125 ------- ------- ------- ------- ------- Income before provision for income taxes, discontinued operations and extraordinary item............................................ 1,435 2,087 1,671 1,406 744 Provision for income taxes(7)..................... 593 740 468 482 407 ------- ------- ------- ------- ------- Income before discontinued operations and extraordinary item.............................. 842 1,347 1,203 924 337 (Loss) gain from discontinued operations(8)....... -- -- -- (71) 362 ------- ------- ------- ------- ------- Income before extraordinary item.................. 842 1,347 1,203 853 699 Extraordinary item -- demutualization expense, net of income tax of $35 and $2, respectively....... 225 4 -- -- -- ------- ------- ------- ------- ------- Net income........................................ $ 617 $ 1,343 $ 1,203 $ 853 $ 699 ======= ======= ======= ======= =======
51 53
AT DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) BALANCE SHEET DATA General account assets(3)................................. $160,291 $157,278 $154,444 $145,877 $144,277 Separate account assets................................... 64,941 58,068 48,338 43,399 38,861 -------- -------- -------- -------- -------- Total assets.............................................. $225,232 $215,346 $202,782 $189,276 $183,138 ======== ======== ======== ======== ======== Liabilities: Life and health policyholder liabilities(9)............. $122,637 $122,726 $125,849 $121,333 $120,782 Property and casualty policyholder liabilities(9)....... 2,318 1,477 1,509 1,562 1,438 Short-term debt......................................... 4,208 3,585 4,587 3,311 3,235 Long-term debt.......................................... 2,514 2,903 2,884 1,946 2,345 Separate account liabilities............................ 64,941 58,068 48,338 43,399 38,861 Other liabilities(3).................................... 14,924 11,720 5,608 5,742 4,723 -------- -------- -------- -------- -------- Total liabilities......................................... 211,542 200,479 188,775 177,293 171,384 -------- -------- -------- -------- -------- Retained earnings......................................... 14,100 13,483 12,140 10,937 10,084 Accumulated other comprehensive income (loss)............. (410) 1,384 1,867 1,046 1,670 -------- -------- -------- -------- -------- Total equity.............................................. 13,690 14,867 14,007 11,983 11,754 -------- -------- -------- -------- -------- Total liabilities and equity.............................. $225,232 $215,346 $202,782 $189,276 $183,138 ======== ======== ======== ======== ========
AT OR FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) OTHER DATA Operating income(4)(10).................................. $ 990 $ 23 $ 617 $ 818 $ 504 Adjusted operating income(4)(11)......................... $ 1,307 $ 1,226 $ 807 $ 921 $ 613 Operating return on equity(12)........................... 7.2% 0.2% 5.3% 7.8% 5.2% Adjusted operating return on equity(13).................. 9.5% 9.6% 7.0% 8.8% 6.3% Return on equity(14)..................................... 4.5% 10.5% 10.4% 8.1% 7.2% Operating cash flows..................................... $ 3,865 $ 842 $ 2,872 $ 3,688 $ 4,823 Total assets under management(15)........................ $373,646 $360,703 $338,731 $297,570 $288,000 STATUTORY DATA(16) Premiums and deposits.................................... $ 24,643 $ 22,722 $ 20,569 $ 20,611 $ 21,651 Net income (loss)........................................ $ 790 $ 875 $ 589 $ 460 $ (672) Policyholder surplus..................................... $ 7,630 $ 7,388 $ 7,378 $ 7,151 $ 6,785 Asset valuation reserve.................................. $ 3,109 $ 3,323 $ 3,814 $ 2,635 $ 2,038
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) OPERATING DATA(21) INDIVIDUAL BUSINESS Total revenues.......................................... $ 11,067 $ 11,753 $ 10,630 Operating income(10).................................... $ 565 $ 631 $ 325 Net income.............................................. $ 555 $ 1,069 $ 599 Total assets............................................ $109,401 $103,614 $ 95,323 Policyholder liabilities(9)............................. $ 72,956 $ 71,571 $ 70,686 Separate account liabilities............................ $ 28,828 $ 23,013 $ 17,345 INSTITUTIONAL BUSINESS Total revenues.......................................... $ 10,380 $ 10,651 $ 9,271 Operating income(10).................................... $ 585 $ 482 $ 310 Net income.............................................. $ 567 $ 846 $ 339 Total assets............................................ $ 88,127 $ 88,741 $ 83,473 Policyholder liabilities(9)............................. $ 47,781 $ 49,406 $ 49,547 Separate account liabilities............................ $ 35,236 $ 35,029 $ 30,473 AUTO & HOME Total revenues.......................................... $ 1,876 $ 1,642 $ 1,459 Operating income(10).................................... $ 54 $ 81 $ 69 Net income.............................................. $ 56 $ 161 $ 74 Total assets............................................ $ 4,443 $ 2,763 $ 2,542 Combined ratio.......................................... 103.7% 100.8% 99.9%
52 54
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) ASSET MANAGEMENT Total revenues.......................................... $ 883 $ 892 $ 760 Operating income(10).................................... $ 51 $ 46 $ 45 Net income.............................................. $ 51 $ 49 $ 45 Assets under management(17)............................. $189,800 $191,000 $175,100 INTERNATIONAL OPERATIONS Total revenues(18)...................................... $ 790 $ 1,179 $ 1,745 Operating income (loss)................................. $ 18 $ (35) $ 6 Net income.............................................. $ 21 $ 56 $ 126 Total assets............................................ $ 4,381 $ 3,432 $ 7,412 Separate account liabilities............................ $ 877 $ 26 $ 520 CORPORATE(19) Total revenues(20)...................................... $ 623 $ 1,472 $ 1,045 Total expenses.......................................... $ 1,031 $ 2,591 $ 966 Net income (loss)....................................... $ (583) $ (695) $ 163
- --------------- (1) Includes the following combined financial statement data of MetLife Capital Holdings, Inc., which was sold in 1998, and our Canadian operations and U.K. insurance operations, substantially all of which were sold in 1998 and 1997, respectively:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 1995 ---- ---- ---- ---- (DOLLARS IN MILLIONS) Revenues: Premiums............................................. $204 $ 463 $ 456 $ 439 Net Investment Income................................ 495 914 877 637 Other revenues....................................... 33 225 164 192 ---- ------ ------ ------ $732 $1,602 $1,497 $1,268 ==== ====== ====== ====== Expenses: Policyholder benefits and claims..................... $240 $ 495 $ 459 $ 492 Other expenses....................................... 418 861 606 831 ---- ------ ------ ------ $658 $1,356 $1,065 $1,323 ==== ====== ====== ======
As a result of these sales, we recorded net realized investment gains of $520 million and $139 million for the years ended December 31, 1998 and 1997, respectively. In July 1998, Metropolitan Life Insurance Company sold a substantial portion of its Canadian operations to Clarica Life Insurance Company. As part of that sale, a large block of policies in effect with Metropolitan Life Insurance Company in Canada were transferred to Clarica Life, and the holders of the transferred Canadian policies became policyholders of Clarica Life. Those transferred policyholders are no longer policyholders of Metropolitan Life Insurance Company and, therefore, are not entitled to compensation under the plan of reorganization. However, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale, if Metropolitan Life Insurance Company demutualizes, its Canadian branch will make cash payments to those who are, or are deemed to be, holders of these transferred Canadian policies. The payments, which will be recorded in other expenses in the same period as the effective date of the plan, will be determined in a manner that is consistent with the treatment of, and fair and equitable to, eligible policyholders of Metropolitan Life Insurance Company. The aggregate amount of the payment is dependent upon the initial public offering price of common stock to be issued at the effective date of the plan. Assuming an initial public offering price of $14.00 per share, and based on actuarial calculations we have made regarding these payments, we estimate that the aggregate payments will be $315 million. (2) During 1997, we changed to the retrospective interest method of accounting for investment income on structured notes in accordance with Emerging Issues Task Force Consensus 96- 53 55 12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes. As a result, net investment income increased by $175 million. The cumulative effect of this accounting change on prior years' income was immaterial. (3) In 1998, we adopted the provisions of Statement of Financial Accounting Standards 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to our securities lending program. Adoption of the provisions had the effect of increasing assets and liabilities by $3,769 million at December 31, 1998, and increasing revenues and expenses by $266 million for the year ended December 31, 1998. (4) Realized investment gains and losses are presented net of related policyholder amounts. The amounts netted against realized investment gains and losses are the following:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) Gross realized investment gains (losses)............ $(137) $2,629 $1,018 $ 458 $ 73 ----- ------ ----- ----- ----- Less amounts allocable to: Future policy benefit loss recognition............ -- (272) (126) (203) (152) Deferred policy acquisition costs................. 46 (240) (70) (4) (78) Participating pension contracts................... 21 (96) (35) (20) -- ----- ------ ----- ----- ----- Total............................................. 67 (608) (231) (227) (230) ----- ------ ----- ----- ----- Net realized investment gains (losses).............. $ (70) $2,021 $ 787 $ 231 $(157) ===== ====== ===== ===== =====
Realized investment gains (losses) have been reduced by (1) deferred policy acquisition amortization to the extent that such amortization results from realized investment gains and losses, (2) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains, and (3) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholders' accounts. This presentation may not be comparable to presentations made by other insurers. This presentation affected operating income and adjusted operating income. See note 10 below. (5) Policyholder benefits and claims exclude $(21) million, $368 million, $161 million, $223 million and $152 million for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively, of future policy benefit loss recognition and credits to participating pension contracts that have been charged against net realized investment gains and losses as such amounts are directly related to such gains and losses. This presentation may not be comparable to presentations made by other insurers. (6) Other expenses exclude $(46) million, $240 million, $70 million, $4 million and $78 million for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively, of amortization of deferred policy acquisition costs that have been charged against net realized investment gains and losses as such amounts are directly related to such gains and losses. This presentation may not be comparable to presentations made by other insurers. (7) Includes $125 million, $18 million, $(40) million, $38 million and $67 million for surplus tax paid (received) by Metropolitan Life Insurance Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. As a stock life insurance company, we will no longer be subject to the surplus tax after the effective date of the demutualization. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". (8) The gain (loss) from discontinued operations was primarily attributable to the disposition of our group medical insurance business. (9) Policyholder liabilities include future policy benefits, policyholder account balances, other policyholder funds and policyholder dividends. 54 56 (10) The following provides a reconciliation of net income to operating income on a consolidated basis:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 1996 1995 ---- ------- ------- ----- ----- (DOLLARS IN MILLIONS) Net income.................................................. $617 $ 1,343 $ 1,203 $ 853 $ 699 ---- ------- ------- ----- ----- Adjustments to reconcile net income to operating income: Gross realized investment (gains) losses.................. 137 (2,629) (1,018) (458) (73) Income tax on gross realized investment gains and losses.................................................. (92) 883 312 173 26 ---- ------- ------- ----- ----- Realized investment (gains) losses, net of income tax... 45 (1,746) (706) (285) (47) ---- ------- ------- ----- ----- Amounts allocated to investment gains and losses (see note 4)...................................................... (67) 608 231 227 230 Income tax on amounts allocated to investment gains and losses.................................................. 45 (204) (71) (86) (83) ---- ------- ------- ----- ----- Amount allocated to investment gains and losses, net of income tax............................................ (22) 404 160 141 147 ---- ------- ------- ----- ----- Loss (gain) from discontinued operations.................. -- -- -- 71 (362) ---- ------- ------- ----- ----- Surplus tax............................................... 125 18 (40) 38 67 ---- ------- ------- ----- ----- Extraordinary item -- demutualization expense, net of income tax of $35 and $2, respectively.................. 225 4 -- -- -- ---- ------- ------- ----- ----- Operating income............................................ $990 $ 23 $ 617 $ 818 $ 504 ==== ======= ======= ===== =====
The following provides a reconciliation of net income to operating income for our Individual Business segment:
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Net income.................................................. $555 $1,069 $ 599 ---- ------ ----- Adjustments to reconcile net income to operating income: Gross realized investment (gains) losses.................. 60 (914) (433) Income tax on gross realized investment gains and losses.................................................. (14) 306 100 ---- ------ ----- Realized investment (gains) losses, net of income tax... 46 (608) (333) ---- ------ ----- Amounts allocated to investment gains and losses (see note 4)........................................................ (46) 255 77 Income tax on amounts allocated to investment gains and losses.................................................... 10 (85) (18) ---- ------ ----- Amount allocated to investment gains and losses, net of income tax.............................................. (36) 170 59 ---- ------ ----- Operating income............................................ $565 $ 631 $ 325 ==== ====== =====
The following provides a reconciliation of net income to operating income for our Institutional Business segment:
FOR THE YEARS ENDED DECEMBER 31, ---------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Net income.................................................. $567 $ 846 $ 339 ---- ----- ----- Adjustments to reconcile net income to operating income: Gross realized investment (gains) losses.................. 53 (943) (181) Income tax on gross realized investment gains and losses.................................................. (22) 324 64 ---- ----- ----- Realized investment (gains) losses, net of income tax... 31 (619) (117) ---- ----- ----- Amounts allocated to investment gains and losses (see note 4)...................................................... (22) 386 136 Income tax on amounts allocated to investment gains and losses.................................................. 9 (131) (48) ---- ----- ----- Amount allocated to investment gains and losses, net of income tax............................................ (13) 255 88 ---- ----- ----- Operating income............................................ $585 $ 482 $ 310 ==== ===== =====
55 57 The following provides a reconciliation of net income to operating income for our Auto & Home segment:
FOR THE YEARS ENDED DECEMBER 31, --------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Net income.................................................. $56 $ 161 $74 --- ----- --- Adjustments to reconcile net income to operating income: Gross realized investment gains........................... (2) (122) (9) Income tax on gross realized investment gains............. -- 42 4 --- ----- --- Realized investment gains, net of income tax............ (2) (80) (5) --- ----- --- Operating income............................................ $54 $ 81 $69 === ===== ===
The following provides a reconciliation of net income to operating income (loss) for our International segment:
FOR THE YEARS ENDED DECEMBER 31, ---------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Net income.................................................. $21 $ 56 $ 126 --- ----- ----- Adjustments to reconcile net income to operating income (loss): Gross realized investments gains.......................... (1) (117) (160) Income tax on gross realized investment gains............. (2) 26 24 --- ----- ----- Realized investment gains, net of income tax............ (3) (91) (136) --- ----- ----- Amounts allocated to investment gains (see note 4)........ -- -- 18 Income tax on amounts allocated to investment gains....... -- -- (2) --- ----- ----- Amount allocated to investment gains, net of income tax................................................... -- -- 16 --- ----- ----- Operating income (loss)..................................... $18 $ (35) $ 6 === ===== =====
We believe the supplemental operating information presented above allows for a more complete analysis of results of operations. Realized investment gains and losses have been excluded due to their volatility between periods and because such data are often excluded when evaluating the overall financial performance of insurers. Operating income should not be considered as a substitute for any GAAP measure of performance. Our method of calculating operating income may be different from the method used by other companies and therefore comparability may be limited. (11) The following provides a reconciliation of operating income to adjusted operating income:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 1996 1995 ------ ------ ---- ---- ---- (DOLLARS IN MILLIONS) Operating income............................................ $ 990 $ 23 $617 $818 $504 Adjustment for charges for sales practices claims and for personal injury claims caused by exposure to asbestos or asbestos-containing products, net of income tax........... 317 1,203 190 103 109 ------ ------ ---- ---- ---- Adjusted operating income................................... $1,307 $1,226 $807 $921 $613 ====== ====== ==== ==== ====
The charge for the year ended December 31, 1999 was principally related to the settlement of a multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The amount reported for the year ended December 31, 1998 includes charges for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. See Note 9 of Notes to Consolidated Financial Statements. We believe that 56 58 supplemental adjusted operating income data provide information useful in measuring operating trends by excluding the unusual amounts of expenses associated with sales practices and asbestos-related claims. These expenses are not related to our ongoing operations. Adjusted operating income should not be considered as a substitute for any GAAP measure of performance. (12) Operating return on equity is defined as operating income divided by average total equity excluding accumulated other comprehensive income (loss). We believe the operating return on equity information presented supplementally allows for a more complete analysis of results of operations. Accumulated other comprehensive income (loss) has been excluded due to its volatility between periods and because such data are often excluded when evaluating the overall financial performance of insurers. Operating return on equity should not be considered as a substitute for any GAAP measure of performance. Our method of calculation of operating return on equity may be different from the calculation used by other companies and, therefore, comparability may be limited. Operating return on equity is only presented for annual periods. (13) Adjusted operating return on equity is defined as adjusted operating income divided by average total equity, excluding accumulated other comprehensive income (loss). We believe that supplemental adjusted operating return on equity data provide information useful in measuring operating trends by excluding the unusual amounts of expenses associated with sales practices and asbestos-related claims. Adjusted operating return on equity should not be considered as a substitute for any GAAP measure of performance. Adjusted operating return on equity is only presented for annual periods. (14) Return on equity is defined as net income divided by average total equity, excluding accumulated other comprehensive income (loss). (15) Includes MetLife's general account and separate account assets and assets managed on behalf of third parties. (16) Metropolitan Life Insurance Company statutory data only. (17) Includes $0.2 billion, $4.2 billion and $5.6 billion of MetLife's general account assets managed by our Asset Management segment at December 31, 1999, 1998 and 1997, respectively, as well as assets managed on behalf of third parties. (18) Includes our Canadian operations and U.K. insurance operations, substantially all of which were sold in 1998 and 1997, respectively. Total revenues for these entities were $469 million, $1,060 million, $1,001 million and $998 million for the years ended December 31, 1998, 1997, 1996 and 1995, respectively. (19) We maintain a Corporate segment through which we report items that are not directly allocable to any of our business segments, including unallocated capital, revenues and expenses. (20) Includes MetLife Capital Holdings, Inc., which was sold in 1998. Total revenues for this entity were $263 million, $542 million, $496 million and $270 million for the years ended December 31, 1998, 1997, 1996 and 1995, respectively. (21) Segment data does not include consolidation and elimination entries related to intersegment amounts. See Note 15 of Notes to Consolidated Financial Statements. 57 59 PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The pro forma consolidated financial information presented below gives effect to: - the demutualization, including the issuance of an estimated 493,476,118 shares of our common stock to the MetLife Policyholder Trust in connection therewith; - the establishment of the closed block; - the sale of 179,000,000 shares of our common stock in the initial public offering at $14.00 per share; - the concurrent private placements of 73,000,000 shares of common stock in the aggregate at $14.00 per share; and - the offering of 20,000,000 units at $50.00 per unit; as if they each had occurred at December 31, 1999, for the purposes of the pro forma consolidated balance sheet, and at January 1, 1999 for the purposes of the pro forma consolidated statement of income for the year ended December 31, 1999. The pro forma financial information excludes the effects of various acquisitions, including the acquisition of GenAmerica Corporation, and dispositions because they are not significant. This pro forma information is presented to depict only the effects of the demutualization, the establishment of the closed block, the offering of the units, the initial public offering and the private placements. Metropolitan Life Insurance Company incurred $900 million of short-term debt in connection with the acquisition of GenAmerica Corporation. We intend to repay up to $450 million of this short-term debt with proceeds from the offerings and the private placements in excess of those amounts required under the plan of reorganization. The pro forma information reflects gross proceeds of $1,000 million from the issuance of the units, less an assumed underwriting discount and offering expenses aggregating $40 million, or net proceeds from the offering of $960 million. The data also gives effect to gross and estimated net proceeds from the initial public offering of $2,506 million and $2,381 million, respectively, and proceeds of $1,022 million from the private placements, assuming an initial public offering price per share of $14.00 and the use of proceeds as set forth elsewhere in this prospectus. We expect to use an estimated $397 million of the aggregate net proceeds of these offerings and the private placements to reimburse Metropolitan Life Insurance Company for policy credits made to certain policyholders in lieu of 28,331,484 allocated shares of our common stock, an estimated $2,494 million of the aggregate net proceeds to reimburse Metropolitan Life Insurance Company for cash payments made to certain policyholders in lieu of 178,166,475 allocated shares of our common stock and an estimated $315 million to reimburse Metropolitan Life Insurance Company for cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998. We will account for the payments to the transferred Canadian policyholders in other expenses in the same period as the effective date of the plan. The consideration an eligible policyholder receives under the plan of reorganization will be based on the number of shares of our common stock allocated to the eligible policyholder pursuant to the terms of the plan. For those policyholders receiving policy credits or for those non-electing eligible policyholders who must receive cash in the demutualization, we will translate the share allocations into dollar amounts based on the initial public offering price per share. The cash payments made in lieu of allocated shares consist of $164 million of cash payments that will be distributed to non-electing eligible policyholders that must receive cash in the demutualization and $2,330 million in cash payments to eligible policyholders holding approximately 23.8% of the total number of shares of our common stock allocated to eligible policyholders who elected to receive cash, assuming an initial public offering price of $14.00 per share. See "The Demutualization -- Payment of Consideration to Eligible Policyholders". The pro forma consolidated statement of income also reflects the elimination of the surplus tax on earnings and the inclusion of the minority interest related to the units and is presented before the 58 60 extraordinary item for demutualization expense. The pro forma consolidated statement of income does not give effect to any pro forma earnings resulting from the use of the net proceeds from the offerings or the charge related to the payments to be made to certain transferred Canadian policyholders described above. We will account for the demutualization using the historical carrying values of our assets and liabilities. We have based the pro forma information on available information and on assumptions management believes are reasonable and that reflect the effects of these transactions. We have provided this information for informational purposes only. The number of shares and units actually sold in the offerings and the private placements and their respective prices may vary from the amounts assumed. The plan of reorganization requires that the aggregate net proceeds from the offerings and the private placements be at least equal to specified amounts. See "The Demutualization -- Summary of the Plan of Reorganization". If the actual proceeds raised in the initial public offering, the private placements or the offering of the equity security units are different than the amount estimated, we will be required to change the sizes of the other transactions, subject to the limit in the plan that the proceeds of this offering may not exceed one-third of the combined proceeds of this offering, the initial public offering of MetLife, Inc.'s common stock and the private placements. The amount of proceeds from the offerings and the private placements and the final terms of the units will depend on market conditions and our capital needs at the time of issuance. This information does not necessarily indicate our consolidated financial position or results of operations had the demutualization, the establishment of the closed block, the offering of units, the initial public offering and the private placements been consummated on the dates assumed. It also does not project or forecast our consolidated financial position or results of operations for any future date or period. You should read the pro forma information in conjunction with our historical consolidated financial statements included elsewhere in this prospectus and with the information set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations", "The Demutualization" and "Business". 59 61 METLIFE, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999
AS ADJUSTED ESTABLISHMENT FOR THE CLOSED THE OF THE THE BLOCK AND THE UNIT HISTORICAL CLOSED BLOCK(1) DEMUTUALIZATION DEMUTUALIZATION OFFERING PRO FORMA ---------- --------------- --------------- --------------- -------- --------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) REVENUES Premiums...................... $12,088 $(3,924) $ -- $ 8,164 $ -- $ 8,164 Universal life and investment- type product policy fees.... 1,438 -- -- 1,438 -- 1,438 Net investment income......... 9,816 (2,177) -- 7,639 -- 7,639 Other revenues................ 2,154 -- -- 2,154 -- 2,154 Net realized investment losses (net of amounts allocable to other accounts of $67)...... (70) 6 -- (64) -- (64) Contribution from the closed block....................... -- (87) -- (87) -- (87) ------- ------- ----- ------- ---- ----------- 25,426 (6,182) -- 19,244 -- 19,244 ------- ------- ----- ------- ---- ----------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net realized investment losses of $21)..................... 13,105 (4,002) -- 9,103 -- 9,103 Interest credited to policyholder account balances.................... 2,441 -- -- 2,441 -- 2,441 Policyholder dividends........ 1,690 (1,456) -- 234 -- 234 Other expenses (excludes amounts directly related to net realized investment losses of $46).............. 6,755 (724) -- 6,031 87(7) 6,118 ------- ------- ----- ------- ---- ----------- 23,991 (6,182) -- 17,809 87 17,896 ------- ------- ----- ------- ---- ----------- Income (loss) before provision (benefit) for income taxes and extraordinary item............ 1,435 -- -- 1,435 (87) 1,348 Provision (benefit) for income taxes......................... 593 -- (125)(9) 468 (32)(7) 436 ------- ------- ----- ------- ---- ----------- Income before extraordinary item.......................... $ 842 $ -- $ 125 $ 967 $(55) $ 912 ======= ======= ===== ======= ==== =========== Per share data: Income before extraordinary item per share -- basic and diluted..................... $ 1.22 =========== Number of shares used in calculation of per share data -- basic and diluted... 745,476,118(2)(3) =========== Ratio of earnings to fixed charges....................... 1.40 1.36 ===========
The accompanying Notes are an integral part of this Pro Forma Consolidated Statement of Income. 60 62 METLIFE, INC. PRO FORMA CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999
AS ADJUSTED FOR ESTABLISHMENT THE CLOSED OF THE CLOSED THE BLOCK AND THE HISTORICAL BLOCK(1) DEMUTUALIZATION DEMUTUALIZATION ---------- ------------- --------------- --------------- (DOLLARS IN MILLIONS) ASSETS Investments: Fixed maturities available-for-sale, at fair value................ $ 96,981 $(21,729) $ -- $ 75,252 Equity securities, at fair value..................... 2,006 -- -- 2,006 Mortgage loans on real estate.................... 19,739 (4,785) -- 14,954 Real estate and real estate joint ventures............ 5,649 -- -- 5,649 Policy loans................ 5,598 (3,747) -- 1,851 Other limited partnership interests................. 1,331 -- -- 1,331 Short-term investments...... 3,055 (8) -- 3,047 Other invested assets....... 1,501 (404) -- 1,097 -------- -------- ------- -------- 135,860 (30,673) -- 105,187 Cash and cash equivalents..... 2,789 (251) (2,809)(2) (271) Accrued investment income..... 1,725 (223) -- 1,502 Premiums and other receivables................. 6,681 (129) -- 6,552 Deferred policy acquisition costs....................... 8,492 (4,076) -- 4,416 Deferred income taxes......... 603 36 -- 639 Other......................... 4,141 -- -- 4,141 Closed block assets........... -- 35,316 -- 35,316 Separate account assets....... 64,941 -- -- 64,941 -------- -------- ------- -------- $225,232 $ -- $(2,809) $222,423 ======== ======== ======= ======== LIABILITIES AND EQUITY LIABILITIES: Future policy benefits........ $ 73,582 $(38,576) $ 397(2) $ 35,403 Policyholder account balances.................... 45,901 (4) -- 45,897 Other policyholder funds...... 4,498 (308) -- 4,190 Policyholder dividends payable..................... 974 (712) -- 262 Short-term debt............... 4,208 -- -- 4,208 Long-term debt................ 2,514 -- -- 2,514 Current income taxes payable..................... 548 (14) (46)(4) 488 Other......................... 14,376 (13) 178(4) 14,541 Closed block liabilities...... -- 39,627 -- 39,627 Separate account liabilities................. 64,941 -- -- 64,941 -------- -------- ------- -------- 211,542 -- 529 212,071 -------- -------- ------- -------- Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent... -- -- -- -- -------- -------- ------- -------- EQUITY: Preferred stock............... -- -- -- -- Common stock.................. -- -- 5(2)(8) 5 Additional paid-in capital.... -- -- 10,757(2)(8) 10,757 Retained earnings............. 14,100 -- (14,100)(8) -- Accumulated other comprehensive loss.......... (410) -- -- (410) -------- -------- ------- -------- 13,690 -- (3,338) 10,352 -------- -------- ------- -------- $225,232 $ -- $(2,809) $222,423 ======== ======== ======= ======== THE INITIAL THE THE PUBLIC PRIVATE UNIT OFFERING PLACEMENTS OFFERING PRO FORMA -------- ---------- -------- --------- (DOLLARS IN MILLIONS) ASSETS Investments: Fixed maturities available-for-sale, at fair value................ $ -- $ -- $ -- $ 75,252 Equity securities, at fair value..................... -- -- -- 2,006 Mortgage loans on real estate.................... -- -- -- 14,954 Real estate and real estate joint ventures............ -- -- -- 5,649 Policy loans................ -- -- -- 1,851 Other limited partnership interests................. -- -- -- 1,331 Short-term investments...... -- -- -- 3,047 Other invested assets....... -- -- -- 1,097 ------ ------ ---- -------- -- -- -- 105,187 Cash and cash equivalents..... 2,381(5) 1,022(6) 960(7) 4,092 Accrued investment income..... -- -- -- 1,502 Premiums and other receivables................. -- -- -- 6,552 Deferred policy acquisition costs....................... -- -- -- 4,416 Deferred income taxes......... -- -- -- 639 Other......................... -- -- -- 4,141 Closed block assets........... -- -- -- 35,316 Separate account assets....... -- -- -- 64,941 ------ ------ ---- -------- $2,381 $1,022 $960 $226,786 ====== ====== ==== ======== LIABILITIES AND EQUITY LIABILITIES: Future policy benefits........ $ -- $ -- $ -- $ 35,403 Policyholder account balances.................... -- -- -- 45,897 Other policyholder funds...... -- -- -- 4,190 Policyholder dividends payable..................... -- -- -- 262 Short-term debt............... -- -- -- 4,208 Long-term debt................ -- -- -- 2,514 Current income taxes payable..................... -- -- -- 488 Other......................... -- -- -- 14,541 Closed block liabilities...... -- -- -- 39,627 Separate account liabilities................. -- -- -- 64,941 ------ ------ ---- -------- -- -- -- 212,071 ------ ------ ---- -------- Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent... -- -- 947(7) 947 ------ ------ ---- -------- EQUITY: Preferred stock............... -- -- -- -- Common stock.................. 2(5) 1(6) -- 8 Additional paid-in capital.... 2,379(5) 1,021(6) 13(7) 14,170 Retained earnings............. -- -- -- -- Accumulated other comprehensive loss.......... -- -- -- (410) ------ ------ ---- -------- 2,381 1,022 13 13,768 ------ ------ ---- -------- $2,381 $1,022 $960 $226,786 ====== ====== ==== ========
The accompanying Notes are an integral part of this Pro Forma Consolidated Balance Sheet. 61 63 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1) The pro forma consolidated balance sheet and pro forma consolidated statement of income reflect the assets which have been set aside to establish the closed block, and the related liabilities, revenues and expenses, in each case based on provisions in the plan of reorganization. Closed block assets and liabilities on the pro forma consolidated balance sheet are reflected at their historical carrying values. See "The Demutualization -- Establishment and Operation of the Closed Block". We have established bookkeeping records to specifically segregate the assets, liabilities, revenues and expenses in the pro forma closed block, as if the closed block had been formed on January 1, 1999. These amounts include any new individual participating policies issued during 1999 and the revenues and expenses associated with individual participating policies eligible to be included in the closed block. The closed block will actually be formed on the effective date of the plan and, accordingly, the actual assets and liabilities ultimately assigned to the closed block and their carrying values will not be final until that date. In management's opinion, the assets and liabilities of the closed block as of the effective date of the plan are not expected to differ materially from the assets and liabilities reflected in the pro forma consolidated balance sheet. The pro forma consolidated statement of income reflects actual revenues and expenses related to the segregated assets and liabilities of the closed block and certain estimates that management believes are reasonable. We have determined the closed block amounts in the pro forma consolidated statement of income using the underlying policyholder administrative records supporting this business. Actual revenues and expenses related to the segregated closed block liabilities and closed block assets were used to derive the pro forma consolidated statement of income for the year ended December 31, 1999. Net investment income and realized investment gains and losses for the year ended December 31, 1999 reflect the actual income from assets set aside for assignment to the closed block. In management's opinion, the revenues and expenses of the individual participating policies to be included in the closed block as of the effective date of the plan are not expected to differ materially from the pro forma consolidated statement of income. The closed block amounts in the pro forma consolidated statement of income for the year ended December 31, 1999 reflect new individual participating policies issued during such period, which will ultimately be included in the closed block if such policies remain in force as of the effective date of the plan. Closed block amounts were determined as follows: (1) premiums and benefits related to the policies to be included within the closed block were used; (2) net investment income for the year ended December 31, 1999 reflects the actual income from assets set aside for assignment to the closed block; (3) policyholder dividends were based on dividend scales of policies to be included within the closed block; (4) maintenance expenses were based on per policy charges provided in the plan of reorganization; and (5) realized investment gains and losses of the closed block for the year ended December 31, 1999 reflect the actual gains and losses from the assets set aside for assignment to the closed block. Deferred policy acquisition costs on business included in the closed block has been reported as an asset of the closed block in the pro forma consolidated balance sheet. Amortization of closed block deferred policy acquisition costs, other than amounts arising from realized investment gains and losses on assets not allocated to the closed block, has been included in other expenses in the closed block. The pre-tax contribution from the closed block will include only those revenues, benefit payments, dividends, premium taxes, administrative expenses and investment expenses considered in funding the closed block. See "The Demutualization -- Establishment and Operation of the Closed Block". We will report the pre-tax contribution from the closed block as a single line item of total revenues. We will reflect income tax expense applicable to the closed block, which the closed block will pay, as a component of income tax expense. The excess of 62 64 closed block liabilities over closed block assets at the effective date of the demutualization will represent the estimated maximum future contribution from the closed block expected to result from operations attributed to the closed block after income taxes. The contribution from the closed block will be recognized in income over the period the policies and contracts in the closed block remain in force. Management believes that over time the actual cumulative contributions from the closed block will approximately equal the expected cumulative contributions, due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative contribution from the closed block is greater than the expected cumulative contribution from the closed block, only such expected contribution will be recognized in income with the excess recorded as a policyholder dividend obligation, because the excess of the actual cumulative contribution from the closed block over such expected cumulative contribution will be paid to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block. If over such period, the actual cumulative contribution from the closed block is less than the expected cumulative contribution from the closed block, only such actual contribution will be recognized in income. However, we may change dividends in the future, which would be intended to increase future actual contributions until the actual cumulative contributions equal the expected cumulative contributions. Pursuant to the plan of reorganization, Metropolitan Life Insurance Company has set aside assets for assignment to the closed block in an amount that produces cash flows which, together with anticipated revenue from the individual life insurance policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The excess of closed block liabilities over closed block assets at the effective date of the demutualization equals the estimated maximum future after tax contribution from the closed block. As noted above, we will recognize in income the contribution from the closed block over the period the policies and contracts in the closed block remain in force. As a result of the establishment of the closed block, certain line items in our consolidated financial statements subsequent to the establishment of the closed block will reflect material reductions in reported amounts, compared with periods prior to the establishment of the closed block. These changes will have no effect on net income. We will reflect the results of the closed block business as a single line item in our consolidated statement of income entitled, "Contribution from the closed block". Prior to the establishment of the closed block, the results from the underlying business were reported in various line items in our consolidated statement of income, including premiums, net investment income, policyholder benefits and claims and other expenses. In addition, all assets and liabilities allocated to the closed block will be reported in our consolidated balance sheet separately under the captions, "Closed block assets" and "Closed block liabilities," respectively. (2) The number of shares of our common stock used in the calculation of pro forma income before extraordinary item per share--basic and diluted is as follows: Shares allocated to eligible policyholders.................. 699,974,077 Less shares allocated to eligible policyholders who receive cash or policy credits.................................... 206,497,959 ----------- Shares issued to the MetLife Policyholder Trust............. 493,476,118 Shares issued in the initial public offering................ 179,000,000 Shares issued in the private placements..................... 73,000,000 ----------- Total shares of common stock outstanding.................... 745,476,118 ===========
63 65 We expect to contribute $4,023 million of the aggregate net proceeds from the offerings and the private placements to Metropolitan Life Insurance Company, of which: - an estimated $397 million will be used to reimburse Metropolitan Life Insurance Company for the crediting of policy credits to certain policyholders in the demutualization in lieu of 28,331,484 allocated shares of our common stock; - an estimated $2,494 million will be used to reimburse Metropolitan Life Insurance Company for cash payments to certain policyholders in the demutualization in lieu of 178,166,475 allocated shares of our common stock; - an estimated $315 million will be used to reimburse Metropolitan Life Insurance Company for cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998. See "The Demutualization -- Transferred Canadian Policies"; - an estimated $361 million to reimburse Metropolitan Life Insurance Company for the payment of fees and expenses incurred in connection with the demutualization; and - an estimated $456 million will be used for general corporate purposes and to repay up to $450 million of short-term debt incurred in connection with our acquisition of GenAmerica. We have reflected the amounts expected to be used to fund those policy credits referred to above as an increase in future policy benefits and a reduction of retained earnings in the pro forma consolidated balance sheet. We have reflected the amounts we expect to use to make the cash payments referred to above as a reduction in retained earnings in the pro forma consolidated balance sheet. In connection with the contribution of the net proceeds from the initial public offering, the private placements and the offering of equity security units to Metropolitan Life Insurance Company as described above, Metropolitan Life Insurance Company expects to issue to MetLife, Inc. its $1 billion % mandatorily convertible capital note due 2005 having the principal terms described under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- MetLife, Inc." (3) Each unit in the unit offering consists of (a) a contract to purchase shares of our common stock and (b) a % capital security of MetLife Capital Trust I. Before the issuance of shares of our common stock upon settlement of the purchase contracts, the units will be reflected in our diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of our common stock used in calculating earnings per share for any period is deemed to be increased by the excess, if any, of the number of shares issuable upon settlement of the purchase contracts over the number of shares that could be purchased by us in the market, at the average market price during that period, using the proceeds receivable upon settlement. Consequently, there will be no dilutive effect on our earnings per share except during periods when the average market price of our common stock is above $ per share. (4) The pro forma consolidated balance sheet reflects estimated additional nonrecurring expenses of $132 million (net of income taxes of $46 million) related to the demutualization assumed to be incurred at the date of the pro forma consolidated balance sheet. The pro forma consolidated statement of income does not reflect such nonrecurring expenses since they will be reported as an extraordinary item. (5) Represents gross proceeds of $2,506 million from the issuance of 179,000,000 shares of our common stock at an assumed initial public offering price of $14.00 per share, less an assumed underwriting discount and estimated offering expenses aggregating $125 million, in the initial public offering. 64 66 (6) Represents proceeds of $1,022 million from the issuance of 73,000,000 shares of our common stock at an assumed initial public offering price of $14.00 in the planned private placements. (7) Represents gross proceeds of $1,000 million from the issuance of the equity security units, less an assumed underwriting discount and estimated offering expenses aggregating $40 million. The financial statements of the trust will be consolidated in our consolidated financial statements, with the capital securities shown on our consolidated balance sheet under the caption "Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent". The proceeds from the units will be allocated to the underlying purchase contracts and capital securities based on their relative fair values at the offering date. For purposes of the pro forma consolidated balance sheet, the fair value of the underlying purchase contracts and capital securities was assumed to be $13 million and $947 million, respectively. The forward contracts will be reported in additional paid-in capital and subsequent changes in fair value will not be recognized. The notes to our consolidated financial statements will disclose that the sole assets of the trust will be the debentures. Distributions on the capital securities will be reported as a charge to minority interest in our consolidated statements of income, whether paid or accrued. The charge to other expenses in the pro forma consolidated statement of income reflects distributions on the capital securities at an assumed rate of 7.60% ($76 million) and the accretion of the discount ($11 million) on the carrying value of the Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent. The income tax benefit related to such charges is $32 million. (8) Represents the reclassification of the retained earnings of Metropolitan Life Insurance Company to reflect the demutualization as follows:
(DOLLARS IN MILLIONS) --------------------- Historical retained earnings............................. $14,100 Less proceeds of offerings used to fund policy credits and cash payments to certain eligible policyholders.... 2,891 Less cash payments made by Metropolitan Life Insurance Company's Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company. We will account for the payments to the transferred Canadian policyholders in other expenses in the same period as the effective date of the plan of reorganization.......................... 315 Less additional demutualization expenses (net of income taxes of $46 million).................................. 132 ------- Retained earnings related to eligible policyholders receiving common stock................................. $10,762 =======
(9) Represents the elimination of the surplus tax. As a stock life insurance company, we will no longer be subject to the surplus tax after the effective date of the plan. 65 67 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the consolidated financial condition and results of operations of MetLife should be read in conjunction with "Selected Financial Information", the consolidated financial statements and notes thereto and "Pro Forma Consolidated Financial Information" included elsewhere in this prospectus. BACKGROUND We are a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. We offer insurance, annuity and investment products to individuals and group insurance and retirement and savings products and services to corporations and other institutions. We derive our revenues principally from: - premiums from individual and group insurance, including those annuities that have a death benefit component; - fees from universal and variable life insurance products, annuity, investment products and administrative services contracts; - premiums from property and casualty insurance; - asset management fees; and - net investment income and realized investment gains or losses on general account assets. Our operating expenses consist of insurance benefits, increases in liabilities, interest credited on general account liabilities, marketing and administrative costs relating to products we sell, including commissions to our sales representatives, net of deferrals, and general business expenses. Our profitability depends largely on the adequacy of our product pricing, underwriting and methodology for the establishment of liabilities for future policyholder benefits, our ability to earn appropriate spreads between earned investment rates on general account assets and dividend and interest credited rates to customers, the amount of assets under management and our ability to manage our expenses. We are organized into five major business segments: Individual Business, Institutional Business, Asset Management, Auto & Home and International. Subsequent to January 6, 2000, the date on which we acquired GenAmerica, GenAmerica's businesses will be incorporated into our business segments as applicable, except for RGA, which will be separately designated as our Reinsurance segment. We also maintain a Corporate segment through which we report items that are not directly allocable to any of our business segments, including unallocated capital, income and expenses. We manage and allocate our general account assets among our business segments through distinct portfolios for each product group. Capital is allocated among each of our business segments based on a percentage of the "risk-based capital" levels of the assets allocated to the segments. RISK-BASED CAPITAL ("RBC") is a regulatory measure designed to aid in the evaluation of the statutory capital and surplus of life and health insurers. We also allocate net investment income to each business segment based upon the assets allocated to the segment. Sales of our insurance, annuity and investment products have been affected by overall trends in the insurance industry generally, as Americans have begun to rely less on traditional life insurance, defined benefit retirement plans, social security and other government programs, and the "baby-boom" generation has begun to enter its prime savings years. Reflecting these trends, as well as the impact of a strong equities market in recent years, sales of our traditional insurance products have declined in recent years, while sales of variable life and annuities, mutual funds and other savings products have increased. During the five years ended 1999, the separate account liabilities related to our individual variable annuity products grew at a 38.2% compound annual rate, and totaled $20.7 billion and $15.8 billion at December 31, 1999 and 1998, respectively. During the five years ended 1999, first-year premiums and deposits from 66 68 variable life insurance products grew at a compound annual rate of 33.1% and were $389 million and $371 million for the years ended December 31, 1999 and 1998, respectively. In addition, as the U.S. employment market has become more competitive, employers are seeking to enhance their ability to hire and retain employees by providing attractive benefit plans. Current trends in the work environment also reflect increasing concern of employees about the future of government-funded retirement and "safety-net" programs, an increasingly mobile workforce and the desire of employers to share the market risk from the investment of pension assets with employees. We believe these trends are facilitating the introduction of new benefits such as long-term care and auto and homeowners insurance, and are leading more employers to adopt defined contribution pension arrangements and 401(k) plans. A related trend has been the increased offering of voluntary products, which provide valued benefits to employees at little or no cost to the employer. These benefits, while paid for by employees, appeal to them because they are generally priced at group rates and are usually paid for by payroll deduction, making them convenient to purchase and maintain. We enter into reinsurance agreements to spread the risk and minimize the effect of losses. The amount of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances, to maximum limits based on characteristics of coverages. In recent periods, in response to the reduced cost of reinsurance coverage, we have increased the amount of MORTALITY risk coverage purchased from third party reinsurers. Since 1996, we have continually entered into reinsurance agreements that CEDED substantially all of the mortality risk on term insurance policies issued during 1996 and subsequent years, and on whole life and survivorship whole life insurance policies issued in 1997 and subsequent years. In 1998, we reinsured substantially all of the mortality risk on universal life policies we issued since 1983. We are continuing to reinsure substantially all of the mortality risk on our universal life policies as well as insurance face amounts which are above our retention limits. Generally, as a result of these transactions, we now reinsure up to 90% of the mortality risk for all new individual insurance policies that we write. We also maintain and manage a significant amount of mortality risk, including through our ownership of RGA, which retains mortality risk from many insurers, including MetLife. Furthermore, many of our individual life products, as well as some of our group insurance and annuity products, include elements of mortality risk. Our reinsurance agreements generally provide for payments to the reinsurers for the risks transferred to them, reduced by reimbursements to us of our policy issuance costs. The amounts presented in our consolidated statements of income for revenues and policyholder benefits are net of amounts ceded to the reinsurers. We report amounts reimbursed related to administrative costs for maintaining policies covered under reinsurance agreements in other revenues. Over the past three years, we have repositioned our investment portfolio in order to provide a higher operating rate of return on our invested assets. In connection with this strategy, we have reduced our investments in treasury securities, corporate equities and equity real estate and increased our investments in fixed maturities with a higher current operating yield. We have selectively acquired and disposed of businesses during the past several years as part of our business strategies and to enhance our overall returns. We expanded the distribution channels of Individual Business in the bank and broker-dealer distribution channels through the acquisitions of Security First Group in 1997 and of Nathan & Lewis in 1998. We became a leading provider of administrative services in the 401(k) market through the acquisitions of Benefit Services Corporation and the defined contribution record-keeping and participant services business formerly owned by Bankers Trust Corporation. We sold our commercial finance subsidiary in 1998 because it was not part of our core business strategy and disposed of a substantial portion of our insurance operations in the U.K. and Canada to exit mature markets with little opportunity for growth. We expect to continue to make selective acquisitions and dispositions that augment our business strategies. 67 69 On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in cash. In connection with our acquisition of the stock of GenAmerica, we incurred $900 million of short-term debt, consisting primarily of commercial paper. We intend to repay up to $450 million of that debt with proceeds from the offerings and the private placements in excess of those amounts required under the plan. In addition, we incurred approximately $3.2 billion of short-term debt, consisting primarily of commercial paper, in connection with our exchange offer to holders of General American Life funding agreements. On September 29, 1999, MetLife Funding, Inc. and Metropolitan Life Insurance Company obtained an additional committed credit facility for $5 billion, which serves as back-up for this commercial paper. For a description of the acquisition and related transactions, see "Business -- Acquisition of GenAmerica". On September 30, 1999, our Auto & Home segment acquired the standard personal lines property and casualty insurance operations of The St. Paul Companies, which had in-force premiums of approximately $1.1 billion and approximately 3,000 independent agencies and brokers. We funded this acquisition, plus an additional investment in the business, with available cash and the issuance of commercial paper. This acquisition substantially increased the size of this segment's business, making us the eleventh largest personal property and casualty insurer in the U.S. based on 1998 net premiums written. In recent years, we have implemented programs to reduce operating expenses and enhance the efficiency of our operations. For the year ended December 31, 1999, we reduced the number of non-sales positions by 1,856, or 7%. These reductions are in addition to the elimination of 2,267, or 11%, of the non-sales positions in 1998. In 1999, we began an internal reorganization to integrate the operations of New England Financial, which since its merger with MetLife had been operated as a separate division, with the individual insurance operations of MetLife. The objective of this internal reorganization is to identify opportunities to eliminate redundant processes and costs, while maintaining the brand identities of our distribution channels and products. THE DEMUTUALIZATION Pursuant to the New York Insurance Law, the board of directors of Metropolitan Life Insurance Company adopted the plan of reorganization on September 28, 1999, and subsequently adopted amendments to the plan. On the date the plan becomes effective, Metropolitan Life Insurance Company will convert from a mutual life insurance company to a stock life insurance company and become a wholly-owned subsidiary of MetLife, Inc. This process is commonly known as a demutualization. We estimate that costs relating to the demutualization, excluding costs relating to the offerings and the private placements, will total $361 million, net of income taxes of $83 million. We have recorded demutualization costs of $229 million, net of income taxes of $37 million, through December 31, 1999. Demutualization expenses consist of our cost of printing and mailing materials to policyholders and our aggregate cost of engaging independent accounting, actuarial, compensation, financial, investment banking and legal advisors and other consultants to advise us in the demutualization process and related matters, as well as other administrative costs. The New York Superintendent of Insurance has also engaged experts to provide actuarial, investment banking, legal and auditing advice. Pursuant to the New York Insurance Law, we must pay the fees and expenses of such consultants, which fees and expenses are included in the above amounts. We have also agreed to indemnify certain of our consultants and consultants to the New York Superintendent against liabilities arising out of their engagements in connection with the demutualization. In addition, if Metropolitan Life Insurance Company demutualizes, we will incur costs related to payments to certain holders of Canadian policies included in the Canadian business sold by Metropolitan Life Insurance Company to Clarica Life Insurance Company in 1998. See "The Demutualization -- Transferred Canadian Policies". These costs will be charged to other expenses in the same period as the effective date of the plan. The payments will be determined in a manner that is consistent with the treatment of, and fair and equitable to, eligible policyholders of Metropolitan Life Insurance Company. The amount to be paid to the holders of 68 70 Canadian policies is dependent upon the initial public offering price of our common stock. Assuming an initial public offering price of $14.00 per share, and based on calculations we have made regarding these payments, we estimate the aggregate payments will be $315 million. The plan of reorganization requires us to complete an initial public offering of our common stock on the effective date of the plan. The plan also permits us to complete one or more private placements and other specified capital raising transactions on the effective date of the plan. Concurrently with this offering, we have agreed to sell not less than 14,900,000 shares nor more than 73,000,000 shares in the aggregate, at a price per share equal to the initial public offering price, to Banco Santander Central Hispano, S.A., and Credit Suisse Group or their respective affiliates in private placements. Under the plan of reorganization, the total proceeds raised in this offering of units cannot exceed one-third of the combined proceeds raised in this offering, the initial public offering of our common stock and the private placements. The amount of proceeds from the offerings and the private placements and final terms of the units will depend on market conditions and our capital needs at the time of issuance. We cannot proceed with any offering relating to the units and the private placements without the approval of the New York Superintendent. The final terms of the initial public offering, the private placements and the offering of units must be approved by the New York Superintendent. The New York Superintendent approved the final terms of the offerings and the private placements as part of its order, issued on April , 2000, approving the plan. We will be required to use the net proceeds from the initial public offering, as well as the net proceeds from this offering of units and the private placements, in the manner set forth under the caption "Use of Proceeds" above. The plan of reorganization requires that Metropolitan Life Insurance Company establish and operate a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life Insurance Company. We will allocate assets to the closed block in an amount that produces cash flows which, together with anticipated revenue from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenue from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience relating to the closed block are, in the aggregate, more or less favorable than assumed in establishing the closed block, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to our stockholders. The closed block will continue in effect as long as any policy in the closed block remains in force. Its expected life is over 100 years. We do not expect the closed block will affect our net income or our liquidity after its establishment. We will use the same accounting principles to account for the PARTICIPATING POLICIES included in the closed block as we used prior to the date of demutualization. However, we will establish a policyholder dividend obligation for earnings that will be paid to policyholders as additional dividends in the amounts described below, unless these earnings are offset by future unfavorable experience of the closed block. The excess of closed block liabilities over closed block assets at the effective date of the demutualization represents the estimated maximum future contributions from the closed block expected to result from operations attributed to the closed block after income taxes. We will recognize the contributions from the closed block in income over the period the policies and contracts in the closed block remain in force. 69 71 Management believes that over time the actual cumulative contributions from the closed block will approximately equal the expected cumulative contributions, due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative contribution from the closed block is greater than the expected cumulative contribution from the closed block, we will recognize only the expected cumulative contribution in income with the excess recorded as a policyholder dividend obligation, because we will pay the excess of the actual cumulative contribution from the closed block over the expected cumulative contribution to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block. If over such period, the actual cumulative contribution from the closed block is less than the expected cumulative contribution from the closed block, we will recognize only the actual contribution in income. However, we may change dividends in the future, which would be intended to increase future actual contributions until the actual cumulative contributions equal the expected cumulative contributions. As required by law, the plan was approved by more than two-thirds of eligible policyholders who voted in voting completed on February 7, 2000. The plan of reorganization will not become effective unless, after conducting a public hearing on the plan, the New York Superintendent of Insurance approves it based on a finding, among other things, that the plan is fair and equitable to policyholders. The New York Superintendent held a public hearing on the plan on January 24, 2000 and issued an order approving the plan on April , 2000. RESULTS OF OPERATIONS The following table presents summary consolidated financial information for the periods indicated:
FOR THE YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Premiums.................................................... $12,088 $11,503 $11,278 Universal life and investment-type product policy fees...... 1,438 1,360 1,418 Net investment income....................................... 9,816 10,228 9,491 Other revenues.............................................. 2,154 1,994 1,491 Net realized investment gains (losses) (net of amounts allocable to other accounts of $(67), $608 and $231, respectively)............................................. (70) 2,021 787 ------- ------- ------- 25,426 27,106 24,465 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net realized investment gains and losses of $(21), $368 and $161, respectively)....................... 13,105 12,638 12,403 Interest credited to policyholder account balances.......... 2,441 2,711 2,878 Policyholder dividends...................................... 1,690 1,651 1,742 Other expenses (excludes amounts directly related to net realized investment gains and losses of $(46), $240 and $70, respectively)........................................ 6,755(1) 8,019(1) 5,771 ------- ------- ------- 23,991 25,019 22,794 ------- ------- ------- Income before provision for income taxes and extraordinary item...................................................... 1,435 2,087 1,671 Provision for income taxes.................................. 593 740 468 ------- ------- ------- Income before extraordinary item............................ 842 1,347 1,203 Extraordinary item -- demutualization expense, net of income tax of $35 and $2, respectively........................... 225 4 -- ------- ------- ------- Net income.................................................. $ 617 $ 1,343 $ 1,203 ======= ======= =======
- --------------- (1) Other expenses in 1999 includes a pre-tax charge of $499 million principally related to the settlement of a multidistrict litigation proceeding involving alleged improper sales practices, 70 72 accruals for sales practices claims not covered by the settlement and other legal costs. During 1998, we obtained certain excess of loss reinsurance and excess insurance policies and agreements providing coverage for risks associated primarily with sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. In 1998, we recorded a pre-tax charge of $1,895 million, included in other expenses, for related insurance and reinsurance premiums and for potential liabilities related to certain of these claims. See "Business -- Legal Proceedings". YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 Premiums increased by 5% to $12,088 million in 1999 from $11,503 million in 1998. This increase was attributable to strong growth in Institutional Business of $366 million, or 7%, and Auto & Home of $348 million, or 25%. These increases were partially offset by decreases in International of $95 million, or 15%, and in Individual Business of $34 million, or 1%. Institutional Business' growth was primarily driven by an increase in non-medical health premiums due to increased sales and improved policyholder retention in our dental and disability businesses. Auto & Home's premium increase was primarily due to the acquisition of the standard personal lines property and casualty insurance operations of The St. Paul Companies, representing $262 million of the premiums, as well as growth in both standard and non-standard auto insurance businesses. International's premium decrease was primarily due to the disposition of a substantial portion of our Canadian operations in July 1998. The Individual Business decrease was primarily attributable to the decline in sales of traditional life insurance policies, which reflected a continued shift in customers' investment preferences from those policies to variable life products as well as decreased sales of supplementary contracts with life contingencies. Universal life and investment-type product policy fees increased by 6% to $1,438 million in 1999 from $1,360 million in 1998. This increase was attributable to increases of $71 million, or 9%, in Individual Business and $27 million, or 6%, in Institutional. These increases were partially offset by a decrease in International of $20 million, or 29%. The Individual Business policy fee increase was primarily due to the continued growth in deposits for investment products as well as stock market appreciation. The $27 million increase in Institutional Business' policy fees was primarily due to continued growth in sales of products used in executive and corporate-owned benefit plans. The majority of International's policy fee decrease resulted from the sale of a substantial portion of our Canadian operations. Net investment income decreased by 4% to $9,816 million in 1999 from $10,228 million in 1998. This decrease was primarily due to reductions in (i) investment income related to mortgage loans on real estate of $93 million, or 6%, (ii) investment income on other invested assets of $340 million, or 40%, (iii) equity securities income of $38 million, or 49%, (iv) policy loan income of $47 million, or 12% and (v) real estate and real estate joint ventures income, after investment expenses and depreciation, of $106 million, or 15%. These reductions in net investment income were partially offset by higher income from fixed maturities of $203 million, or 3%. The reduction in investment income from mortgage loans on real estate to $1,479 million in 1999 from $1,572 million in 1998 was due to a reduction in principal balances in MetLife Capital Holdings, Inc. and a substantial portion of our Canadian operations, which were sold in 1998, the proceeds from which were reinvested in fixed maturities. Likewise, the increase in fixed maturity investment income to $6,766 million in 1999 from $6,563 million in 1998 was primarily attributable to increased average principal balances due, in part, to the reinvestment of proceeds from the sale of MetLife Capital Holdings, as well as from sales of equity securities, the dispositions of which were part of our 1998 year-end asset repositioning program. The reduction in investment income from other invested assets to $501 million in 1999 from $841 million in 1998 was due to a reduction in leveraged lease balances as a result of the sale of MetLife Capital Holdings and lower fees received from bond prepayments, calls and tenders. The reduction in 71 73 real estate and real estate joint ventures income was primarily attributable to the timing of sales of investments held by our real estate joint ventures. Other revenues, which are primarily comprised of expense reimbursements from reinsurers and fees related to investment management and administrative services and securities lending activities, increased by 8% to $2,154 million in 1999 from $1,994 million in 1998. This increase was primarily attributable to growth of $84 million, or 18%, in Individual Business and $54 million, or 9%, in Institutional Business. The Individual Business increase is primarily due to a full year of activity from our acquisition of Nathan & Lewis, which was acquired in April 1998. The increase in Institutional Business is due to increases in our non-medical health and retirement and savings businesses, partially offset by a decrease in our group life business. Our non-medical health business increased $61 million primarily due to growth in our dental administrative service business. The increase in our retirement and savings business of $44 million reflected higher administrative fees derived from separate accounts and our defined contribution record-keeping services. The decrease in the group life business of $51 million was primarily due to lower income in 1999 related to funds used to seed separate accounts. Our realized investment gains and losses are net of related policyholder amounts. The amounts netted against realized investment gains and losses are (i) amortization of deferred policy acquisition costs attributable to the increase or decrease in product gross margins or profits resulting from realized investment gains and losses, (ii) additional policyholder liabilities, which are required when investment gains are realized and we reinvest the proceeds in lower yielding assets ("loss recognition"), and (iii) liabilities for those participating contracts in which the policyholders' accounts are increased or decreased by the related investment gains or losses. Net realized investment gains (losses) decreased by 103% to $(70) million in 1999 from $2,021 million in 1998. This decrease reflected total gross realized investment losses of $(137) million, a decrease of 105%, from total gross realized investment gains of $2,629 million in 1998, before the offsets for the amortization of deferred policy acquisition costs of $46 million and $(240) million, loss recognition of $0 million and $(272) million and credits to participating contracts of $21 million and $(96) million related to assets sold in 1999 and 1998, respectively. A significant portion of our net realized investment gains in 1998 was attributable to a sales program initiated in the fourth quarter of 1998, which we conducted as part of our strategy to reposition our investment portfolio in order to provide a higher operating rate of return on our invested assets. In connection with this repositioning, we reduced our investments in treasury securities and corporate equities and increased our investments in fixed maturities with a higher current yield. Net realized investment losses in 1999 reflect the continuation of our strategy to reposition our investment portfolio in order to provide a higher operating rate of return on our invested assets. We believe the policy of netting related policyholder amounts against realized investment gains and losses provides important information in evaluating our operating performance. Realized investment gains and losses are often excluded by investors when evaluating the overall financial performance of insurers. We believe our presentation enables readers of our consolidated statements of income to easily exclude realized investment gains and losses and the related effects on the consolidated statements of income when evaluating our operating performance. Our presentation of realized investment gains and losses net of related policyholder amounts may be different from the presentation used by other insurance companies and, therefore, amounts in our consolidated statements of income may not be comparable with amounts reported by other insurers. Policyholder benefits and claims increased by 4% to $13,105 million in 1999 from $12,638 million in 1998. This increase reflected total gross policyholder benefits and claims of $13,084 million, an increase of $78 million from $13,006 million in 1998, before the offsets for loss 72 74 recognition of $272 million in 1998 period (there were no offsets for loss recognition in 1999) and (reductions) in or additions to participating contractholder accounts of $(21) million and $96 million directly related to net realized investment gains and losses for the years ended December 31, 1999 and 1998, respectively. This increase was primarily attributable to increases of $296 million, or 5%, in Institutional Business and $272 million, or 26%, in Auto & Home, partially offset by a decrease of $134 million, or 22%, in International. The Institutional Business increase was primarily due to overall premium growth within our group dental and disability businesses. The increase in Auto & Home was primarily due to the St. Paul acquisition of $195 million, a 6% increase in the number of policies in force and $23 million of unfavorable claims development due to lower than expected savings resulting from the implementation of a new technology platform. The decrease in International was attributable to the sale of a substantial portion of our Canadian operations. Interest credited to policyholder account balances decreased by 10% to $2,441 million in 1999 from $2,711 million in 1998. This decrease was attributable to reductions of $169 million, or 14%, in Institutional Business, $64 million, or 4%, in Individual Business and $37 million, or 42%, in International. Group Insurance in Institutional Business decreased $63 million, or 14%, primarily due to cancellations in the leveraged corporate-owned life insurance business attributable to a change in the federal income tax treatment for those products. In addition, retirement and savings products declined by $106 million, or 14%, which reflected a shift in policyholders' investment preferences from guaranteed interest products to separate account alternatives. The decrease in Individual Business was due to a 1998 annuity reinsurance transaction, as well as a shift in policyholders' preferences to separate account alternatives. The International decrease was due to the sale of a substantial portion of our Canadian operations. Policyholder dividends increased by 2% to $1,690 million in 1999 from $1,651 million in 1998. This increase was attributable to increases of $64 million, or 4%, in Individual Business and $17 million, or 12%, in Institutional Business, which were somewhat offset by a $42 million, or 66%, decrease in International. The increase in Individual Business was primarily due to growth in cash values of policies associated with our large block of traditional life insurance business combined with a dividend scale increase on certain mature policies in 1999. Policyholder dividends within Institutional Business vary from period to period based on participating group insurance contract experience. The International decrease was due to the sale of a substantial portion of our Canadian operations. Other expenses decreased by 16% to $6,755 million in 1999 from $8,019 million in 1998. This decrease reflected total gross other expenses of $6,709 million, a decrease of 19%, from $8,259 million in 1998, before the offset for amortization of deferred policy acquisition costs directly attributable to net realized investment gains and losses of $(46) million and $240 million for the years ended December 31, 1999 and 1998, respectively. Excluding the effect of the pay down of debt with proceeds from the sale of MetLife Capital Holdings, Inc. in 1998, other expenses decreased by $1,372 million. This decrease was attributable to a $1,570 million, or 60%, decrease in Corporate. The decrease in Corporate was primarily due to a $1,895 million charge in 1998 for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products, compared with a $499 million charge in 1999. The 1999 charge was principally related to the settlement of a multidistrict litigation proceeding involving alleged improper sale practices, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge of $1,895 million was comprised of $925 million and $970 million for sales practices claims and asbestos-related claims, respectively. We recorded the accrual for sales practices claims based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, we established a liability for asbestos-related claims based on settlement costs for claims that we had settled, estimates of settlement costs for claims pending against us and an estimate of settlement costs for unasserted claims. The 73 75 amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which we believe are only reasonably possible of assertion. Based on this process, our accrual for asbestos-related claims at December 31, 1997 was $386 million. Our potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against us, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty in the number of claims brought against us. During 1998, we decided to pursue the purchase of insurance to limit our exposure to asbestos-related claims. In connection with our negotiations with the casualty insurers to obtain this insurance, we obtained information that caused us to reassess our accruals for asbestos-related claims. This information included: - Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against us in the future was significantly greater than we had assumed in our accruals. The number of claims brought against us is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which we are included as a defendant. The information provided to us relating to other insureds indicated that we had been included as defendants for a significant percentage of total asbestos-related claims and that we may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. - Information derived from actuarial calculations we made in the fourth quarter of 1998 in connection with these negotiations, which helped us to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding our claims and settlement experience (which reflected our decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, we concluded that certain claims that previously were considered as only reasonably possible of assertion were now probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, we increased our liability for asbestos-related claims to $1,278 million at December 31, 1998. During 1998, we paid $1,407 million of premiums for excess of loss reinsurance and insurance policies and agreements, consisting of $529 million for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 million for the excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses of up to $1,500 million, while the excess of loss reinsurance policies provide for recovery of sales practices losses of up to $550 million and for certain mortality losses with a maximum aggregate limit of $650 million. We may recover amounts under the policies annually, with respect to claims paid during the prior calendar year. The policies contain self-insured retentions and, with respect to asbestos-related claims, annual and per-claim sublimits, for which we believe adequate provision has been made in our consolidated financial statements. For additional information regarding the nature of these claims, see "Business -- Legal Proceedings" and Note 9 of Notes to Consolidated Financial Statements. In addition to the decrease in Corporate in 1999, other expenses reflected a $104 million, or 30%, decrease in International, and increases of $128 million, or 33%, in Auto & Home and $142 million, or 6%, in Individual Business. The International decrease was primarily due to the sale of 74 76 a substantial portion of our Canadian operations. The increase in Auto & Home was primarily due to the St. Paul acquisition. The increase in Individual Business was attributable to the net capitalization of deferred acquisition costs, as discussed below. Excluding the net capitalization of deferred acquisition costs, other expenses in Individual Business decreased by $81 million, or 3%. This decrease is primarily attributable to cost reduction initiatives implemented in 1998. Deferred acquisition costs are principally amortized in proportion to gross margins or gross profits, including realized investment gains or losses. The amortization is allocated to realized investment gains (losses) to provide consolidated statement of income information regarding the impact of investment gains and losses on the amount of the amortization, and other expenses to provide amounts related to gross margins or profits originating from transactions other than investment gains and losses. Capitalization of deferred acquisition costs increased by 13% to $1,160 million in 1999 from $1,025 million in 1998, while amortization of such costs decreased slightly to $816 million in 1999 from $827 million in 1998. Amortization of deferred acquisition costs of $862 million and $587 million was allocated to other expenses in 1999 and 1998, respectively, while the remainder of the amortization in each year was allocated to realized investment gains (losses). The increase in amortization of deferred acquisition costs allocated to other expenses was primarily attributable to our Individual Business segment, which increased to $613 million in 1999 from $364 million in 1998. This increase resulted from our reinsurance of mortality risk at a cost that is expected to be less than our previously estimated mortality losses in 1998, as well as refinements in our calculation of estimated gross margins. Income tax expense in 1999 was $593 million, or 41%, of income before provision for income taxes and extraordinary item compared with $740 million, or 35%, in 1998. The 1999 effective tax rate differs from the corporate tax rate of 35% primarily due to the impact of surplus tax. We are subject to surplus tax imposed on mutual life insurance companies under Section 809 of the Internal Revenue Code. The surplus tax results from the disallowance of a portion of a mutual life insurance company's policyholder dividends as a deduction from taxable income. The surplus tax is estimated each year and adjusted the following year based on actual industry experience. As a stock company, we will no longer be subject to the surplus tax after the effective date of the demutualization. Demutualization expenses, net of income taxes, were $225 million in 1999. These costs related to our ongoing demutualization efforts. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 Premiums increased by 2% to $11,503 million in 1998 from $11,278 million in 1997. This increase was attributable to strong growth in Institutional Business of $470 million, or 10%, and in Auto & Home of $49 million, or 4%. These increases were partially offset by a decrease in International of $290 million, or 32%. Institutional Business' premium growth was driven primarily by increases in group life premiums. In addition, Institutional Business' group non-medical health benefited from market share growth in dental products and services and long-term care. Auto & Home's premium increase was primarily due to growth in non-standard auto insurance policies. International's premium decrease was primarily due to the dispositions of substantial portions of our U.K. operations in October 1997 and of our Canadian operations in July 1998. Universal life and investment-type product policy fees decreased by 4% to $1,360 million in 1998 from $1,418 million in 1997. This decrease was attributable to reductions of $69 million, or 50%, in International and $38 million, or 4%, in Individual Business. Substantially all of International's policy fee decrease resulted from the divestitures of substantial portions of our U.K. and Canadian operations. The Individual Business policy fee decrease was primarily due to reinsurance treaties entered into during 1998, related to $86 billion of universal life insurance in-force, which were offset in part by continued growth of $75 million in annuities and investment 75 77 products. These decreases were also offset by a $49 million increase in Institutional Business policy fees, due to an increase in sales of products used in executive and corporate-owned benefit plans during 1998. Net investment income increased by 8% to $10,228 million in 1998 from $9,491 million in 1997, primarily due to higher other investment income of $473 million, or 129%, higher fixed maturities income of $118 million, or 2%, improved real estate income after investment expenses and depreciation of $101 million and reduced investment expenses of $198 million. These increases in net investment income were partially offset by reduced investment income in mortgage loans on real estate of $112 million, or 7%, and other limited partnership interests of $106 million, or 35%. The increase in other investment income to $841 million in 1998 from $368 million in 1997 was principally due to a $289 million increase in revenue attributable to our securities lending program resulting from the implementation of SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities during 1998. This increase was offset by a commensurate increase in other expenses. The remainder of this increase was primarily due to higher fees we received as a result of bond prepayments, calls and tenders, which reflected, in part, declining interest rates in 1998. The increase in fixed maturity investment income to $6,563 million in 1998 from $6,445 million in 1997 was primarily attributable to increased principal balances due, in part, to the reinvestment of proceeds from the sale of MetLife Capital Holdings, Inc. Likewise, the reduction in investment income from mortgage loans on real estate to $1,572 million in 1998 from $1,684 million in 1997 was due to a reduction in principal balances in MetLife Capital Holdings, Inc. and a substantial portion of our Canadian operations, which were sold in 1998, the proceeds from which were reinvested in fixed maturities. The real estate investment income improvement represents the result of real estate expenses reducing more than real estate income in 1998, the final leg of our sales program. Since the inception of our sales program in 1995, the average yield on our holdings of real estate has increased to 10.4% in 1998. Investment income from other limited partnership interests decreased to $196 million in 1998 from $302 million in 1997. Income from other limited partnership interests fluctuate from period to period due to the unpredictable nature of realized gains from these partnerships. Other revenues increased by 34% to $1,994 million in 1998 from $1,491 million in 1997. This increase was primarily attributable to growth of $218 million, or 61%, in Institutional Business, $136 million, or 40%, in Individual Business and $135 million, or 20%, in Asset Management. The Institutional Business increase was due to higher administrative fees of $70 million derived from separate accounts, $56 million from our defined contribution plan record-keeping services and $32 million from funds held on deposit related to a reinsurance agreement entered into during 1997. Individual Business' increase was due to the acquisition of Nathan & Lewis ($62 million of the increase), additional commission and fee income associated with reinsurance treaties ($39 million of the increase) and growth in expense reimbursements from reinsurers for administrative costs incurred related to policies covered under reinsurance agreements ($13 million of the increase). The increase in Asset Management was attributable to higher management and advisory fees related to growth in assets managed. Net realized investment gains increased by 157% to $2,021 million in 1998 from $787 million in 1997. This increase reflected total gross realized investment gains of $2,629 million, an increase of 158%, from $1,018 million in 1997, before the offsets for the additional amortization of deferred acquisition costs of $240 million and $70 million, loss recognition for the policy liabilities of $272 million and $126 million and additional credits to participating contracts of $96 million and $35 million related to the assets sold in 1998 and 1997, respectively. The increase in gross realized investment gains was primarily attributable to a sales program initiated in the fourth quarter of 1998, which we conducted as part of our strategy of repositioning our investment portfolio in order to provide a higher operating rate of return on our invested assets. In connection with this repositioning, we reduced our investments in treasury securities and 76 78 corporate equities and increased our investments in fixed maturities with a higher current yield. We sold approximately $2.2 billion of corporate equities and reinvested these proceeds into other fixed maturity securities, which provide a higher current return. Realized investment gains from fixed maturity and equity securities were $1,567 million in 1998, a 358% increase from $342 million in 1997. Net realized investment gains also increased by $392 million from the sales of MetLife Capital Holdings, Inc. and a substantial portion of our Canadian operations during 1998. Policyholder benefits and claims increased by 2% to $12,638 million in 1998 from $12,403 million in 1997. This increase reflected total gross policyholder benefits and claims of $13,006 million, an increase of 4%, from $12,564 million in 1997, before the offsets for loss recognition of $272 million and $126 million and additions to participating contractholder accounts of $96 million and $35 million directly related to net realized investment gains in 1998 and 1997, respectively. This increase was attributable to increases of $482 million, or 8%, in Institutional Business partially offset by a decrease of $256 million in International attributable to the U.K. and Canadian divestitures. The Institutional Business increase was commensurate with the increase in Institutional Business premiums of $470 million, and was also attributable to less favorable experience on participating group insurance contracts, which were offset by reduced dividends to those policyholders of $163 million. Interest credited to policyholder account balances decreased by 6% to $2,711 million in 1998 from $2,878 million in 1997. This decrease was primarily attributable to declines of $120 million, or 9%, in Institutional Business and $48 million, or 35%, in International. Retirement and savings products in Institutional Business declined by $186 million, or 20%, due to a shift in customers' investment preferences from guaranteed interest products to separate account alternatives and the continuation of the low interest rate environment. The International decline was due to the divestitures of substantial portions of our U.K. and Canadian operations. Policyholder dividends decreased by 5% to $1,651 million in 1998 from $1,742 million in 1997. This decrease was attributable to reductions of $163 million, or 53%, in Institutional Business and $33 million, or 34%, in International. The Institutional Business decrease was due to less favorable claims experience on participating group insurance contracts. The International decrease was due to the U.K. and Canadian divestitures. These decreases were partially offset by a $105 million, or 8%, increase in Individual Business, primarily due to dividend increases from growth in cash values in policies associated with our large block of traditional life insurance business, offset by reductions in policyholder dividend scales. Other expenses increased by 39% to $8,019 million in 1998 from $5,771 million in 1997. This increase reflected total gross other expenses of $8,259 million, an increase of 41%, from $5,841 million in 1997, before the offset for accelerated amortization of deferred policy acquisition costs directly attributable to net realized investment gains of $240 million and $70 million in 1998 and 1997, respectively. This increase was primarily attributable to a charge of $1,895 million in 1998 for sales practices claims and claims for personal injuries caused by exposure to asbestos, or asbestos-containing products, compared with $300 million in 1997. These amounts have been charged to the Corporate segment. In addition, the increase in other expenses in 1998 included $266 million resulting from a change in accounting for our securities lending program. This increase related to our securities lending program, which is reflected in the results of operations for each business segment, is commensurate with a related increase in investment income. Expenses in Institutional Business increased by $435 million, or 37%, due to higher administrative expenses, the majority of which are reimbursed and are reflected in other revenues, related to growth in our administrative service contracts business as well as a full year's expenses attributable to our December 1997 acquisition of the defined contribution and participant services business from Bankers Trust Corporation. Individual Business expenses increased by $183 million, or 8%, from 1997, primarily as a result of the acquisition of Nathan & Lewis and the inclusion of a full year's activity from the October 1997 acquisition of Security First Group. 77 79 Capitalization of deferred acquisition costs increased slightly to $1,025 million in 1998 from $1,000 million in 1997 while amortization of such costs decreased by 2% to $827 million in 1998 from $841 million in 1997. Amortization of deferred acquisition costs of $587 million and $771 million was allocated to other expenses in 1998 and 1997, respectively, while the remainder of the amortization in each year was allocated to realized investment gains and losses. The decrease in amortization of deferred acquisition costs allocated to other expenses was primarily attributable to our individual business segment which decreased to $364 million in 1998 from $546 million in 1997. Approximately $87 million of this decrease was attributable to higher than expected future investment spreads on our traditional business and approximately $96 million of this decrease was attributable to higher estimated gross margins which resulted from the reinsurance of mortality risk at a cost that is expected to be less than our previously estimated mortality losses. Income tax expense in 1998 was $740 million, or 35%, of income before provision for income taxes, discontinued operations and extraordinary item, compared with $468 million, or 28%, of income before provision for income taxes, discontinued operations and extraordinary item in 1997. The difference between the 1998 and 1997 effective tax rates was primarily due to the impact of surplus tax and, in 1997, taxes on sales of subsidiaries. Demutualization expenses, net of income taxes, were $4 million in 1998. These costs related to our ongoing demutualization efforts. INDIVIDUAL BUSINESS The following table presents summary consolidated financial information for Individual Business for the periods indicated:
FOR THE YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Premiums............................................. $ 4,289 $ 4,323 $ 4,327 Universal life and investment-type product policy fees............................................... 888 817 855 Net investment income................................ 5,346 5,480 4,754 Other revenues....................................... 558 474 338 Net realized investment gains (losses)............... (14) 659 356 ------- ------- ------- 11,067 11,753 10,630 ------- ------- ------- EXPENSES Policyholder benefits and claims..................... 4,625 4,606 4,597 Interest credited to policyholder account balances... 1,359 1,423 1,422 Policyholder dividends............................... 1,509 1,445 1,340 Other expenses....................................... 2,719 2,577 2,394 ------- ------- ------- 10,212 10,051 9,753 ------- ------- ------- Income before provision for income taxes............. 855 1,702 877 Provision for income taxes........................... 300 633 278 ------- ------- ------- Net income........................................... $ 555 $ 1,069 $ 599 ======= ======= =======
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 -- INDIVIDUAL BUSINESS Premiums decreased by $34 million, or 1%, to $4,289 million in 1999 from $4,323 million in 1998. Premiums from insurance products decreased by $16 million to $4,215 million in 1999 from 78 80 $4,231 million in 1998. This decrease was primarily due to a decline in sales of traditional life insurance policies, which reflected a continued shift in policyholders' preferences from those policies to variable life products. Premiums from annuity and investment products decreased by $18 million, or 20%, to $74 million in 1999 from $92 million in 1998, primarily due to lower sales of supplementary contracts with life contingencies. The relatively high level of supplemental contract premiums in 1998 reflected the initial offering of a payout annuity feature in that year. Universal life and investment-type product policy fees increased by $71 million, or 9%, to $888 million in 1999 from $817 million in 1998. Policy fees from insurance products increased by $3 million, or 1%, to $571 million in 1999 from $568 million in 1998. This increase is attributable to a $77 million increase in separate account contract fees arising from increased sales of variable life products. This increase was almost entirely offset by reinsurance treaties entered into during 1998 related to $86 billion of universal life insurance in-force, which constituted the majority of our mortality risk on universal life business written subsequent to January 1, 1983. Policy fees from annuity and investment products increased by $68 million, or 27%, to $317 million in 1999 from $249 million in 1998, primarily due to the continued growth in deposits for investment products and stock market appreciation. Other revenues increased by $84 million, or 18%, to $558 million in 1999 from $474 million in 1998. Other revenues for insurance products increased by $85 million, or 19%, to $521 million in 1999 from $436 million in 1998. This increase was primarily attributable to the inclusion of a full year's activity of Nathan & Lewis, as well as increased commission and fee income associated with increased sales of non-proprietary products. Other revenues for annuity and investment products were essentially flat at $37 million in 1999 compared with $38 million in 1998. Policyholder benefits and claims increased by $19 million to $4,625 million in 1999 from $4,606 million in 1998. Policyholder benefits and claims for insurance products increased by $85 million, or 2%, to $4,450 million in 1999 from $4,365 million in 1998. This increase was primarily due to growth in our existing block of traditional life policyholder liabilities. Policyholder benefits and claims for annuity and investment products decreased by $66 million, or 27%, to $175 million in 1999 from $241 million in 1998 consistent with the decreased premiums discussed above. Interest credited to policyholder account balances decreased by $64 million, or 4%, to $1,359 million in 1999 from $1,423 million in 1998. Interest on insurance products decreased by $18 million, or 4%, to $419 million in 1999 from $437 million in 1998. This decrease was primarily due to reduced crediting rates on our universal life products. Interest on annuity and investment products decreased by $46 million, or 5%, to $940 million in 1999 from $986 million in 1998. This decrease was due to a 1998 reinsurance transaction, a shift in policyholders' preferences to separate account alternatives and reduced crediting rates. Policyholder dividends increased by $64 million, or 4%, to $1,509 million in 1999 from $1,445 million in 1998. This increase was due to dividend increases from growth in cash values of policies associated with our large block of traditional individual life insurance business, combined with a dividend scale increase in 1999. Other expenses increased by $142 million, or 6%, to $2,719 million in 1999 from $2,577 million in 1998. Excluding the net capitalization of deferred acquisition costs, other expenses decreased by $81 million, or 3%, to $2,888 million in 1999 from $2,969 million in 1998. Other expenses related to insurance products decreased by $160 million, or 7%, to $2,239 million in 1999 from $2,399 million in 1998. This decrease was attributable to expense management initiatives instituted in 1999 and an adjustment to the allocation of expenses in 1999 between our insurance and annuity products to better match expenses to the mix of our business. These decreases were partially offset by a $44 million increase due to the inclusion of a full year's activity of Nathan & Lewis. Other expenses related to annuity and investment products increased $79 million, or 14%, to $649 million in 1999 from $570 million in 1998, primarily due to the adjustment of expenses noted above. 79 81 Deferred acquisition costs are principally amortized in proportion to gross margins or gross profits, including realized investment gains or losses. The amortization is allocated to realized investment gains (losses) to provide consolidated statement of income information regarding the impact of investment gains and losses on the amount of the amortization, and other expenses to provide amounts related to gross margins or profits originating from transactions other than investment gains and losses. Capitalization of deferred acquisition costs increased to $782 million in 1999 from $756 million in 1998 while total amortization of such costs decreased to $567 million in 1999 from $604 million in 1998. Amortization of deferred acquisition costs of $613 million and $364 million was allocated to other expenses in 1999 and 1998, respectively, while the remainder of the amortization in each year was allocated to realized investment gains (losses). Amortization of deferred acquisition costs allocated to other expenses related to insurance products increased to $515 million in 1999 from $267 million in 1998 attributable to the reinsurance transaction discussed above and refinements in our calculation of estimated gross margins. Amortization of annuity products deferred acquisition costs allocated to other expenses remained essentially unchanged at $98 million in 1999 compared with $97 million in 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 -- INDIVIDUAL BUSINESS Premiums decreased slightly to $4,323 million in 1998 compared with $4,327 million in 1997. Premiums from insurance products decreased 1% to $4,231 million in 1998 compared with $4,266 million in 1997. Higher premiums from insurance riders, which permit the purchase of additional coverage, on our block of traditional individual life insurance business was offset by declines in premiums of traditional life insurance policies of $27 million, reflecting a continued shift in customers' preferences from those policies to variable life products. Premiums from annuities and investment products increased by $31 million, or 51%, to $92 million in 1998 from $61 million in 1997, primarily due to an increase in the number of conversions from annuities to payout annuities with life contingencies related to our traditional business. Universal life and investment-type product policy fees decreased by 4% in 1998 to $817 million from $855 million in 1997. Policy fees from insurance products decreased by $113 million, or 17%, to $568 million in 1998 from $681 million in 1997, primarily due to reinsurance treaties entered into during 1998 relating to $86 billion of universal life insurance in-force, constituting most of our universal life business written subsequent to January 1, 1983. Excluding the impact of the reinsurance treaties, policy fees from insurance products increased by $47 million, or 7%, primarily due to an increase in insurance coverages provided in 1998 compared with 1997. Policy fees from annuities and investment products increased by $75 million, or 43%, to $249 million in 1998 from $174 million in 1997, due primarily to the growth in deposits for tax-advantaged investment products as well as stock market appreciation. Other revenues increased by 40% to $474 million in 1998 from $338 million in 1997. Other revenues for insurance products increased by $127 million, or 41%, to $436 million in 1998 from $309 million in 1997. This increase was primarily due to the acquisition of Nathan & Lewis, additional commission and fee income associated with reinsurance treaties, and an increase in the expense allowance under a reinsurance treaty involving term products resulting from an increase in policies in-force covered by those treaties. Other revenues for annuities and investment products increased by $9 million, or 31%, to $38 million in 1998 from $29 million in 1997, primarily due to the acquisition of Security First Group in October 1997. Policyholder benefits and claims increased slightly to $4,606 million in 1998 compared with $4,597 million in 1997. Policyholder benefits and claims for insurance products decreased by $80 million, or 2%, to $4,365 million in 1998 from $4,445 million in 1997. This decrease was primarily due to an increase in claims ceded of $131 million under the universal life reinsurance treaties 80 82 discussed above offset by the acquisition of Nathan & Lewis. Policyholder benefits and claims for annuity and investment products increased by $89 million, or 59%, to $241 million in 1998 from $152 million in 1997, primarily due to the increase in premiums described above. Interest credited to policyholder account balances increased slightly to $1,423 million in 1998 compared with $1,422 million in 1997. Interest on insurance products increased by $8 million, or 2%, to $437 million in 1998 from $429 million in 1997, primarily due to an increase in policyholder account balances. Interest on annuities and investment products decreased slightly to $986 million in 1998 compared with $993 million in 1997, primarily due to a reduction in crediting rates attributable to the declining general interest rate environment. This decrease was offset by the inclusion of a full year's activity of $94 million related to Security First Group, which was acquired in October 1997. Policyholder dividends increased by 8% to $1,445 million in 1998 from $1,340 million in 1997, primarily due to dividend increases from growth in cash values in policies associated with our large block of traditional individual life insurance business, offset by reductions in dividend scales. Other expenses increased by 8% to $2,577 million in 1998 from $2,394 million in 1997. Excluding the net capitalization of deferred acquisition costs, other expenses increased by 13% to $2,969 million in 1998 from $2,624 million in 1997. Other expenses related to insurance products increased by $158 million, or 7%, to $2,399 million in 1998 from $2,241 million in 1997, primarily due to the acquisition of Nathan & Lewis and higher non-field and sales office expenses. Other expenses related to annuity and investment products increased by $187 million, or 49%, to $570 million in 1998 from $383 million in 1997, $94 million of which was due to the inclusion of a full year's activity from Security First Group. The remaining variance was due to higher general and administrative expenses commensurate with the growth in our businesses. Capitalization of deferred acquisition costs decreased to $756 million in 1998 from $776 million in 1997 and amortization of such costs was essentially unchanged at $604 million in 1998 from $607 million in 1997. Amortization of deferred acquisition costs of $364 million and $546 million was allocated to other expenses in 1998 and 1997, respectively, while the remainder of the amortization in each year was allocated to realized investment gains and losses. Amortization of deferred acquisition costs allocated to other expenses related to insurance products decreased to $267 million in 1998 from $455 million in 1997. Approximately $87 million of this decrease was attributable to higher than expected future investment spreads on our traditional business and approximately $96 million of this decrease was attributable to higher estimated gross margins resulting from the reinsurance of mortality risk at a cost that is expected to be less than our previously estimated mortality losses. Amortization of deferred acquisition costs allocated to other expenses related to annuity products increased in 1998 to $97 million from $91 million in 1997, reflecting growth in the business. 81 83 INSTITUTIONAL BUSINESS The following table presents summary consolidated financial information for Institutional Business for the periods as indicated:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Premiums................................................... $ 5,525 $ 5,159 $4,689 Universal life and investment-type product policy fees..... 502 475 426 Net investment income...................................... 3,755 3,885 3,754 Other revenues............................................. 629 575 357 Net realized investment gains (losses)..................... (31) 557 45 ------- ------- ------ 10,380 10,651 9,271 ------- ------- ------ EXPENSES Policyholder benefits and claims........................... 6,712 6,416 5,934 Interest credited to policyholder account balances......... 1,030 1,199 1,319 Policyholder dividends..................................... 159 142 305 Other expenses............................................. 1,589 1,613 1,178 ------- ------- ------ 9,490 9,370 8,736 ------- ------- ------ Income before provision for income taxes................... 890 1,281 535 Provision for income taxes................................. 323 435 196 ------- ------- ------ Net income................................................. $ 567 $ 846 $ 339 ======= ======= ======
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 -- INSTITUTIONAL BUSINESS Premiums increased by 7% to $5,525 million in 1999 from $5,159 million in 1998. Group insurance premiums increased by $478 million, or 10%, to $5,095 million in 1999 from $4,617 million in 1998. This increase was mainly attributable to strong sales and improved policyholder retention in non-medical health, primarily our dental and disability businesses. Retirement and savings premiums decreased by $112 million, or 21%, to $430 million in 1999 from $542 million in 1998, primarily due to premiums received from several large existing customers in 1998. Universal life and investment-type product policy fees increased by 6%, to $502 million in 1999 from $475 million in 1998. This increase reflected the continued growth in the sale of products used in executive and corporate-owned benefit plans due to the continued favorable tax status associated with these products. Other revenues increased by 9% to $629 million in 1999 from $575 million in 1998. Group life decreased by $51 million, or 77%, to $15 million in 1999 from $66 million in 1998. This decrease was primarily due to lower income in 1999 related to funds used to seed separate accounts. Non-medical health increased by $61 million, or 27%, to $287 million in 1999 from $226 million in 1998. This increase was primarily due to growth in our dental administrative service business. Retirement and savings increased by $44 million, or 16%, to $327 million in 1999 from $283 million in 1998. This increase reflected higher administrative fees derived from separate accounts and our defined contribution record-keeping services. In addition, the 1999 results reflected interest on funds held on deposit related to a reinsurance transaction entered into during December 1998. Policyholder benefits and claims increased by 5% to $6,712 million in 1999 from $6,416 million in 1998. Group insurance increased by $362 million, or 8%, to $4,857 million in 1999 from $4,495 million in 1998. This increase was primarily due to overall growth and is comparable to the growth in premiums discussed above. Retirement and savings decreased by 82 84 $66 million, or 3%, to $1,855 million in 1999 from $1,921 million in 1998. The decrease was commensurate with the premium variance discussed above, partially offset by an increase in liabilities associated with the continued accumulation of interest on liabilities related to our large block of non-participating annuity business. Interest credited to policyholder account balances decreased by 14% to $1,030 million in 1999 from $1,199 million in 1998. Group insurance decreased by $63 million, or 14%, to $398 million in 1999 from $461 million in 1998. This decrease was primarily due to cancellations in our leveraged corporate-owned life insurance business attributable to a change in the federal income tax treatment for these products. Retirement and savings decreased by $106 million, or 14%, to $632 million in 1999 from $738 million in 1998 due to a shift in customers' investment preferences from guaranteed interest products to separate account alternatives and the continuation of the low interest rate environment. Policyholder dividends increased by 12% to $159 million in 1999 from $142 million in 1998. Non-medical health increased by $26 million to $27 million in 1999. Group life and retirement and savings decreased $9 million, or 6%, to $132 million in 1999 from $141 million in 1998. Policyholder dividends vary from period to period based on participating group insurance contract experience. Other expenses decreased by 1% to $1,589 million in 1999 from $1,613 million in 1998. Other expenses related to group life decreased by $14 million, or 4%, to $382 million in 1999 from $396 million in 1998. Other expenses related to non-medical health decreased by $18 million, or 3%, to $673 million in 1999 from $691 million in 1998. These decreases were primarily attributable to reductions in non-sales positions and operational efficiencies. Other expenses related to retirement and savings products increased by $8 million, or 2%, to $534 million in 1999 from $526 million in 1998. This increase was due to higher interest expense of $47 million primarily due to commercial paper issued in connection with amounts placed on deposit related to a 1998 reinsurance transaction and a $15 million increase in volume-related expenses, including premium taxes, separate account investment management expenses and commissions. These increases were partially offset by a $54 million decrease due to reductions in non-sales positions and other administrative expenses. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 -- INSTITUTIONAL BUSINESS Premiums increased by 10% in 1998 to $5,159 million from $4,689 million in 1997. Group insurance premiums increased by $385 million, or 9%, in 1998 to $4,617 million from $4,232 million in 1997. Group life premiums increased by $153 million, or 5%, to $3,274 million in 1998 from $3,121 million in 1997. Group non-medical health premiums increased by $232 million, or 21%, to $1,343 million in 1998 from $1,111 million in 1997, due primarily to market share growth in our dental and long-term care businesses resulting from our expanding network of dentists and our appointment as of January 1, 1998 by the American Association of Retired Persons ("AARP") to offer long-term care products to its members and the effect of a full year's results related to a disability block of business acquired in late 1997. Retirement and savings premiums increased by $85 million, or 19%, to $542 million in 1998 from $457 million in 1997, due primarily to premiums received from one large existing customer. Universal life and investment-type product policy fees increased by 12% in 1998 to $475 million from $426 million in 1997. This increase reflected the growth in the sale of products used in executive and corporate-owned benefit plans during 1998. Other revenues increased by 61% in 1998 to $575 million from $357 million in 1997. Other revenues from group insurance increased by $75 million, or 35%, to $292 million in 1998 from $217 million in 1997. This increase was primarily attributable to increased administrative fee income from significant growth in insurance contracts having separate account features, the 83 85 largest being the in-force AARP block of long-term care business. Other revenues from retirement and savings products increased by $143 million, or 102%, to $283 million in 1998 from $140 million in 1997. This gain reflected increased administrative fees derived from separate accounts of $21 million and $56 million related to our defined contribution record-keeping services. The December 1997 acquisition of the defined contribution record-keeping and participant services business from Bankers Trust Corporation accounted for the majority of the growth in our administrative service fee income during 1998. In addition, the 1998 results reflected an increase of $32 million related to the full-year interest on funds held on deposit related to a reinsurance transaction entered into during December 1997. Policyholder benefits and claims increased by 8% to $6,416 million in 1998 from $5,934 million in 1997. Group insurance increased by $469 million, or 12%, to $4,495 million in 1998 from $4,026 million in 1997. This increase reflected an overall growth in the business and less favorable experience on participating group insurance contracts, and an increase of $20 million related to a full year's results from a disability block of business acquired in late 1997, which is partially offset by reduced dividends of $161 million. Retirement and savings increased slightly to $1,921 million in 1998 compared with $1,908 million in 1997 primarily due to the ongoing accumulation of interest related to our large block of non-participating annuity business. Interest credited to policyholder account balances decreased by 9% to $1,199 million in 1998 from $1,319 million in 1997. Interest on group insurance products increased by $66 million, or 17%, to $461 million in 1998 from $395 million in 1997, primarily due to growth in deposits for tax-advantaged investment products. Interest on retirement and savings products decreased by $186 million, or 20%, to $738 million in 1998 from $924 million in 1997 due to a shift in customers' investment preferences from guaranteed interest products to separate account alternatives. Policyholder dividends decreased by 53% to $142 million in 1998 from $305 million in 1997. These dividends vary from period to period based on the claims experience of participating group insurance contracts. Other expenses increased by 37% to $1,613 million in 1998 from $1,178 million in 1997. Other expenses related to group insurance increased by $204 million, or 23%, to $1,087 million in 1998 from $883 million in 1997. The primary causes of this increase were higher premium taxes and sales commissions related to premium growth; costs incurred in connection with various strategic initiatives, which were intended to expand our penetration of the small and medium case institutional markets; and costs incurred in connection with initiatives that focused on improving our service delivery capabilities through investments in technology. Group insurance also experienced an increase in administrative expenses, the majority of which are reimbursed, as a result of the AARP business. Other expenses related to retirement and savings products increased by $231 million, or 78%, to $526 million in 1998 from $295 million in 1997. This increase was due to $45 million of ongoing expenses attributable to the acquisition of the defined contribution record-keeping and participant services business of Bankers Trust Corporation and a change in the presentation of expenses relating to our securities lending program in 1998 of $65 million. In addition, the increase of cash flows into separate accounts resulted in higher investment management and other administrative expenses. 84 86 ASSET MANAGEMENT The following table presents summary consolidated financial information for Asset Management for the periods indicated:
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Net investment income....................................... $ 80 $ 75 $ 78 Other revenues.............................................. 803 817 682 ---- ---- ---- 883 892 760 OTHER EXPENSES.............................................. 741 740 629 ---- ---- ---- Income before provision for income taxes and minority interest.................................................. 142 152 131 Provision for income taxes.................................. 37 44 36 Minority interest........................................... 54 59 50 ---- ---- ---- Net income.................................................. $ 51 $ 49 $ 45 ==== ==== ====
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 -- ASSET MANAGEMENT Other revenues, which are primarily comprised of management and advisory fees, decreased by $14 million, or 2%, to $803 million in 1999 from $817 million in 1998, reflecting an overall decrease in assets under management of $1 billion, or 1%, to $190 billion in 1999 from $191 billion in 1998. This decrease in assets was primarily attributable to a reduction in assets under management in value-style products. Management and advisory fees are typically calculated based on a percentage of assets under management, and are not necessarily proportionate to average assets managed due to changes in account mix. Other expenses were essentially unchanged in 1999 from 1998. Total compensation and benefits of $424 million consisted of approximately 53% base compensation and 47% variable compensation. Base compensation increased by $10 million, or 5%, to $225 million in 1999 from $215 million in 1998, primarily due to annual salary increases and higher staffing levels. Variable compensation decreased by $15 million, or 7%, to $199 million in 1999 from $214 million in 1998. Variable incentive payments are based upon profitability, investment portfolio performance, new business sales and growth in revenues and profits. The variable compensation plans reward the employees for growth in their businesses, but also require them to share in the impact of any declines. In addition, general and administrative expenses increased $6 million, or 2%, to $317 million in 1999 from $311 million in 1998, primarily due to increased discretionary spending. Minority interest, reflecting the value of third-party ownership interests in Nvest, decreased by $5 million, or 9%, to $54 million in 1999 from $59 million in 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 -- ASSET MANAGEMENT Other revenues, which are primarily comprised of management and advisory fees, increased by 20% to $817 million in 1998 from $682 million in 1997. Management and advisory fees are typically calculated based on a percentage of assets under management, which increased by $16 billion, or 9%, to $191 billion in 1998 from $175 billion in 1997. This increase was mainly attributable to net cash inflows to customers' accounts of $5 billion and overall market 85 87 appreciation of $11 billion during 1998. Management and advisory fees earned are not necessarily proportionate to average assets managed due to changes in account mix. Other expenses increased by 18% to $740 million in 1998 from $629 million in 1997. This increase was primarily due to increases in compensation and benefits of $62 million, or 17%, and general and administrative expenses of $49 million, or 19%. Compensation and benefits of $429 million consisted of 50% base compensation and 50% variable compensation. Base compensation increased by $31 million, or 17%, to $215 million in 1998 from $184 million in 1997, primarily due to annual salary increases and higher staffing. Variable compensation increased by $31 million, or 17%, to $214 million in 1998 from $183 million in 1997, due to increased incentive payments based on profitability, investment portfolio performance, new business sales and growth in revenues and profits. General and administrative expenses increased by $49 million, or 19%, to $311 million in 1998 from $262 million in 1997, due to expanded business activities and distribution and marketing initiatives. Minority interest increased by $9 million, or 18%, to $59 million in 1998 from $50 million in 1997. AUTO & HOME The following table presents summary consolidated financial information for Auto & Home for the periods indicated:
FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Premiums................................................. $1,751 $1,403 $1,354 Net investment income.................................... 103 81 71 Other revenues........................................... 21 36 25 Net realized investment gains............................ 1 122 9 ------ ------ ------ 1,876 1,642 1,459 ------ ------ ------ EXPENSES Policyholder benefits and claims......................... 1,301 1,029 1,003 Other expenses........................................... 514 386 351 ------ ------ ------ 1,815 1,415 1,354 ------ ------ ------ Income before provision for income taxes................. 61 227 105 Provision for income taxes............................... 5 66 31 ------ ------ ------ Net income............................................... $ 56 $ 161 $ 74 ====== ====== ======
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 -- AUTO & HOME Premiums increased by 25% to $1,751 million in 1999 from $1,403 million in 1998 primarily due to the St. Paul acquisition. Excluding the impact of the St. Paul acquisition, premiums increased $88 million, or 6%. Auto premiums increased by $54 million, or 5%, to $1,218 million in 1999 from $1,164 million in 1998. This increase was due to growth in both our standard and non-standard auto insurance books of business. "Non-standard" auto insurance is insurance for risks bearing higher loss experience or loss potential than risks covered by standard auto insurance policies. In addition, the standard auto policyholder retention increased 1% to 88%. Homeowner premiums increased by $30 million, or 13%, to $255 million in 1999 from $225 million in 1998 due to higher new business production, an average premium increase of 1% and increased policyholder retention to 90% in 1999 from 89% in 1998. Premiums from other personal lines increased to $18 million in 1999 from $14 million in 1998. Other revenues decreased by 42% to $21 million in 1999 from $36 million in 1998. This decrease was primarily attributable to a decrease in payments resulting from experience-related 86 88 adjustments under a reinsurance agreement related to the disposition of our reinsurance business in 1990. Expenses increased by 28% to $1,815 million in 1999 from $1,415 million in 1998. This resulted in an increase in the COMBINED RATIO to 103.7% in 1999 from 100.8% in 1998. Excluding the impact of the St. Paul acquisition, expenses increased by $116 million, or 8%, which resulted in an increase in the combined ratio to 102.8% in 1999 from 100.8% in 1998. This increase was primarily due to higher overall loss costs in the auto and homeowners line as discussed below. In addition, both lines experienced modestly elevated acquisition expenses due to increased levels of new business premiums. Policyholder benefits and claims increased by 26% to $1,301 million in 1999 from $1,029 million in 1998. Correspondingly, the auto and homeowners loss ratios increased to 76.1% from 74.9% and to 67.2% from 65.0% in 1999 and 1998, respectively. Excluding the impact of the St. Paul acquisition, policyholder benefits and claims increased by $85 million, or 8%. Auto policyholder benefits and claims increased by $67 million, or 8%, to $939 million in 1999 from $872 million in 1998, due to a 6% increase in the number of policies in force and $23 million of unfavorable claims development due to lower than expected savings resulting from the implementation of a new technology platform. Correspondingly, the AUTO LOSS RATIO increased to 77.1% in 1999 from 74.9% in 1998. Homeowners benefits and claims increased $17 million, or 12%, to $163 million in 1999 from $146 million in 1998 due to increased volume of this book of business. The homeowners loss ratio decreased by 0.6% to 64.4% in 1999 from 65.0% in 1998. Other personal lines benefits and claims increased by $1 million to $12 million in 1999 from $11 million in 1998. Other expenses increased by 33% to $514 million in 1999 from $386 million in 1998, which resulted in an increase in our EXPENSE RATIO to 29.3% in 1999 from 27.4% in 1998. Excluding the impact of the St. Paul acquisition, operating expenses increased $31 million, or 8%, resulting in an increase in our expense ratio to 27.9% in 1999 from 27.4% in 1998. This increase was primarily due to $10 million in additional administration expenses and $23 million in new business acquisition expenses, which were partially offset by a reduction in employee-related expenses. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 -- AUTO & HOME Premiums increased by 4% in 1998 to $1,403 million from $1,354 million in 1997. Auto premiums increased by $41 million, or 4%, to $1,164 million in 1998 from $1,123 million in 1997. This increase was caused by continued growth in premiums from our non-standard auto insurance book of business. In addition, our overall auto policyholder retention increased to 87% from 86%. These increases were offset in part by a mandated rate decrease for standard auto insurance of $9 million, or 4%, in 1998 in Massachusetts, which comprised 19% of our total auto premiums in both 1998 and 1997. Homeowners premiums increased by $8 million, or 4%, to $225 million in 1998 from $217 million in 1997. This increase was attributable to contractual inflationary adjustments of 2% and an average rate increase of 3% in 1998, which outpaced a 1% decline in the number of policies in force. This decline in the number of policies in force, which occurred in states having greater exposure to severe hurricanes, reflects our continued efforts to reduce catastrophe losses. Premiums from other personal lines were stable at $14 million in both 1998 and 1997. Other revenues increased by 44% to $36 million in 1998 from $25 million in 1997. This increase was primarily attributable to an increase of payments to us resulting from experience-related adjustments under a reinsurance agreement related to the disposition of our reinsurance business in 1990. Expenses increased by 5% to $1,415 million in 1998 from $1,354 million in 1997, primarily due to higher catastrophe-related policyholder benefits and claims of $35 million, resulting in our 87 89 combined ratio increasing to 100.8% in 1998 from 99.9% in 1997. The remaining increase in expenses was more than offset by higher net earned premiums, resulting in our combined ratio, excluding catastrophes, decreasing to 96.8% in 1998 from 98.6% in 1997. Policyholder benefits and claims increased by 3% to $1,029 million in 1998 from $1,003 million in 1997. Excluding catastrophes, auto policyholder benefits and claims decreased slightly to $857 million in 1998 compared with $864 million in 1997. Correspondingly, our auto loss ratio decreased to 74.9% in 1998 compared with 77.1% in 1997. These decreases reflect our ongoing efforts to improve the claims adjusting process through technological efficiencies and heightened fraud detection efforts. While the impact of severe weather on auto has historically been low, our auto catastrophe ratio increased to 1.3% of net earned premiums in 1998 compared with 0.2% in 1997, due primarily to Midwestern hail storms. Excluding catastrophes, homeowners policyholder benefits and claims decreased to $104 million in 1998 from $116 million in 1997 and our loss ratio decreased to 46.5% in 1998 from 53.6% in 1997. These decreases reflect changes in our underwriting practices, physical reinspections of selected in-force policies and the use of credit report data for selecting new risks and for reunderwriting at the time of renewal. Reinsurance costs decreased by $5 million, or 23%, to $17 million in 1998 from $22 million in 1997, reflecting the continuing reduction in our exposure to hurricanes and the current competitive pricing environment within the reinsurance market. Homeowners' catastrophes increased by $26 million to $41 million in 1998 from $15 million in 1997, reflecting Midwestern hail storms and spring storms in the southeast. The property and casualty industry as a whole experienced a more typical amount of losses resulting from events classified as catastrophes in 1998 and a lower than average amount of losses in 1997. Other personal lines increased by $9 million to $12 million in 1998 from $3 million in 1997, due to an above average number of new claims. Other expenses increased by 10% to $386 million in 1998 from $351 million in 1997. Other expenses related to auto insurance increased by $27 million, or 10%, to $305 million in 1998 from $278 million in 1997, primarily due to higher general and administrative expenses which resulted in an increase in our expense ratio to 27.4% in 1998 from 25.9% in 1997. Other expenses related to homeowners insurance and other personal lines increased $8 million, or 11%, to $81 million in 1998 from $73 million in 1997, primarily due to increased administrative expenses and new business acquisition expenses. 88 90 INTERNATIONAL The following table presents summary consolidated financial information for International for the periods indicated:
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Premiums................................................... $523 $ 618 $ 908 Universal life and investment-type product policy fees..... 48 68 137 Net investment income...................................... 206 343 504 Other revenues............................................. 12 33 54 Net realized investment gains.............................. 1 117 142 ---- ------ ------ 790 1,179 1,745 ---- ------ ------ EXPENSES Policyholder benefits and claims........................... 463 597 869 Interest credited to policyholder account balances......... 52 89 137 Policyholder dividends..................................... 22 64 97 Other expenses............................................. 248 352 497 ---- ------ ------ 785 1,102 1,600 ---- ------ ------ Income before provision (benefit) for income taxes......... 5 77 145 Provision (benefit) for income taxes....................... (16) 21 19 ---- ------ ------ Net income................................................. $ 21 $ 56 $ 126 ==== ====== ======
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 -- INTERNATIONAL Premiums decreased by 15% to $523 million in 1999 from $618 million in 1998, primarily due to the disposition of a substantial portion of our Canadian operations. Excluding the impact of this sale, premiums increased by $109 million, or 26%, to $523 million from $414 million. Argentina's premiums increased $11 million primarily due to expanded business operations. Korea's and Taiwan's premiums increased $24 and $39 million, respectively, due to improved economic environments. Spain's premiums increased $24 million primarily due to increased sales from our joint venture partnership. Universal life and investment type-product policy fees decreased by 29% to $48 million in 1999 from $68 million in 1998. Excluding the impact of the Canadian divestiture, universal life and investment type-product policy fees increased by $2 million, or 4%, to $48 million in 1999 from $46 million in 1998, primarily due to expanded business operations in Argentina. Other revenues decreased by 64% to $12 million in 1999 from $33 million in 1998. Excluding the impact of the Canadian divestiture, other revenues increased slightly to $12 million in 1999 from $10 million in 1998. Policyholder benefits and claims decreased by 22% to $463 million in 1999 from $597 million in 1998. Excluding the impact of the Canadian divestiture, policyholder benefits and claims increased $106 million, or 30%, to $463 million in 1999 from $357 million in 1998. This increase is commensurate with the aforementioned increase in premiums. Interest credited to policyholder account balances decreased by 42% to $52 million in 1999 from $89 million in 1998. Excluding the impact of the Canadian divestiture, interest credited to 89 91 policyholder account balances increased $1 million, or 2%, to $52 million in 1999 from $51 million in 1998 in line with increased account balances. Policyholder dividends decreased by 66% to $22 million in 1999 from $64 million in 1998. Excluding the impact of the Canadian divestiture, policyholder dividends decreased $1 million, or 5%, to $22 million in 1999 from $21 million in 1998, primarily due to less favorable experience on participating policies in Spain. Other expenses decreased by 30% to $248 million in 1999 from $352 million in 1998. Excluding the impact of the Canadian divestiture, other expenses decreased $7 million, or 3%, to $248 million in 1999 from $255 million in 1998. This decrease was primarily attributable to ongoing cost reduction initiatives. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 -- INTERNATIONAL Premiums decreased by 32% to $618 million in 1998 from $908 million in 1997, primarily due to the dispositions of a substantial portion of our U.K. operations in October 1997 and of our Canadian operations in July 1998. Excluding the impact of these sales, premiums decreased by $31 million, or 7%, to $414 million in 1998 from $445 million in 1997, primarily attributable to a $64 million, or 40%, reduction in premiums in South Korea due to a significant economic downturn in this country. This decrease was partially offset by a $15 million, or 48%, increase in Spain related to the effect of a full year's activity under a revised sales agreement entered into with Banco Santander during September 1997. Universal life and investment-type product policy fees decreased by 50% to $68 million in 1998 from $137 million in 1997, primarily due to the U.K. and Canadian divestitures. Other revenues decreased by 39% to $33 million in 1998 from $54 million in 1997. Excluding the impact of the U.K. and Canadian divestitures, other revenues increased to $10 million in 1998 from $7 million in 1997. Policyholder benefits and claims decreased by 31% to $597 million in 1998 from $869 million in 1997. Excluding the impact of the U.K. and Canadian divestitures, policyholder benefit and claims decreased by 5% to $357 million in 1998 from $374 million in 1997. This decrease was primarily attributable to the decline in premiums of $64 million in South Korea and was offset in part by minor increases in several other countries. Interest credited to policyholder account balances decreased by 35% to $89 million in 1998 from $137 million in 1997. Excluding the impact of the U.K. and Canadian divestitures, interest credited to policyholder account balances decreased by 9% to $51 million in 1998 from $56 million in 1997. This decrease was attributable to lower variable crediting rates in South Korea reflecting a reduction in interest rates. Policyholder dividends decreased by 34% to $64 million in 1998 from $97 million in 1997. Excluding the impact of the U.K. and Canadian divestitures, policyholder dividends were essentially unchanged at $21 million in 1998 compared with $22 million in 1997. Other expenses decreased by 29% to $352 million in 1998 from $497 million in 1997. Excluding the impact of the U.K. and Canadian divestitures, other expenses increased by 5% to $255 million in 1998 from $242 million in 1997. This increase was primarily due to higher business development costs. CORPORATE Total revenues for our Corporate segment, which consisted of net investment income and realized investment gains and losses that are not allocated to our business segments, were $623 million in 1999, a decrease of $849 million, or 58%, from $1,472 million in 1998, primarily due to a 90 92 reduction in investment gains and investment income of $722 million due to the sale of MetLife Capital Holdings, Inc. in 1998. Total Corporate expenses were $1,031 million in 1999, a decrease of $1,560 million, or 60%, from $2,591 million in 1998. This decrease is primarily due to a $1,895 million charge in 1998 for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products as well as the elimination of $270 million of expenses due to the sale of MetLife Capital Holdings. These decreases were partially offset by a $499 million charge in 1999 principally related to the settlement of a multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. Total revenues for our Corporate segment were $1,472 million in 1998, an increase of $427 million, or 41%, from $1,045 million in 1997, primarily due to the realized investment gain from the sale of MetLife Capital Holdings of $433 million. Total Corporate expenses were $2,591 million in 1998, an increase of $1,625 million, or 168%, from $966 million in 1997, primarily due to the aforementioned charges for sales practices claims and asbestos-related claims in 1998. LIQUIDITY AND CAPITAL RESOURCES METLIFE, INC. Following the effective date of the plan, Metropolitan Life Insurance Company will become a wholly-owned subsidiary and the principal asset of MetLife, Inc. The primary uses of liquidity of MetLife, Inc. will include payment of dividends on our common stock, interest payments on our debentures issued to MetLife Capital Trust I and other debt servicing, contributions to our subsidiaries and payment of general operating expenses. The primary source of our liquidity will be dividends we may receive from Metropolitan Life Insurance Company and the interest received from Metropolitan Life Insurance Company under the capital note described below. In addition, we expect to retain up to $340 million from the proceeds of the offerings and the private placements at MetLife, Inc., which will be available to pay dividends to our stockholders, make contributions to our subsidiaries, make payments on the debentures issued to MetLife Capital Trust I and meet our other obligations. Our ability, on a continuing basis, to meet our cash needs depends primarily upon the receipt of dividends and the interest on the capital note from Metropolitan Life Insurance Company. Under the New York Insurance Law, Metropolitan Life Insurance Company will be permitted to pay a stockholder dividend to MetLife, Inc. only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Insurance and the New York Superintendent does not disapprove the distribution. Under the New York Insurance Law, the New York Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of dividends to its stockholders. The New York Insurance Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. We cannot provide assurance that Metropolitan Life Insurance Company will have statutory earnings to support the payment of dividends to MetLife, Inc. in an amount sufficient to fund our cash requirements and pay cash dividends or that the New York Superintendent will not disapprove any dividends that Metropolitan Life Insurance Company may seek to pay. Our other insurance subsidiaries are also subject to restrictions on the payment of dividends. The dividend limitation is based on statutory financial results. Statutory accounting practices differ in certain respects from accounting principles used in financial statements prepared in conformity with generally accepted accounting principles. The significant differences relate to deferred acquisition costs, deferred income taxes, required investment reserves, reserve calculation assumptions and surplus notes. Furthermore, although the impact cannot be determined at this time, the recent adoption of the Codification of Statutory Accounting Principles 91 93 by the NAIC may reduce STATUTORY SURPLUS, thereby making the dividend limitation more restrictive. See "-- Metropolitan Life Insurance Company -- Risk-based capital". See Note 13 of Notes to Consolidated Financial Statements for a reconciliation of the difference between statutory financial results with those determined in conformity with generally accepted accounting principles. In connection with the contribution of the net proceeds from the initial public offering, the private placements and the offering of equity security units to Metropolitan Life Insurance Company as described under "Use of Proceeds", Metropolitan Life Insurance Company expects to issue to MetLife, Inc. its % mandatorily convertible capital note due 2005 having the following principal terms: PRINCIPAL AMOUNT.............. $1 billion MATURITY...................... , 2005 INTEREST...................... % (equal to initial interest rate on MetLife, Inc. debentures issued to MetLife Capital Trust I), payable quarterly, subject to reset and deferral provisions substantially identical to those set forth in the debentures. PAYMENT RESTRICTIONS.......... As required by the New York Insurance Law, the capital note will provide that Metropolitan Life Insurance Company may not make any payment of the interest on or the principal of the capital note so long as specified payment restrictions exist and have not been waived by the New York Superintendent of Insurance. Payment restrictions would exist if the level of Metropolitan Life Insurance Company's statutory total adjusted capital falls below certain thresholds relative to the level of its statutory risk-based capital or the amount of its outstanding capital notes, surplus notes or similar obligations. As of the date hereof, Metropolitan Life Insurance Company's statutory total adjusted capital significantly exceeds these limitations. Interest will continue to accrue while payment restrictions exist. CONVERSION.................... At , 2004 and at the stated maturity of the capital note, the capital note shall be mandatorily convertible, without any further action by MetLife, Inc. or Metropolitan Life Insurance Company, into 500 shares at each such date of common stock of Metropolitan Life Insurance Company. The capital note will also become immediately convertible into 1,000 shares upon an acceleration of the capital note. The issuance of such shares will be in full satisfaction of Metropolitan Life Insurance Company's obligation to pay the principal of the note. RANKING....................... The capital note will be unsecured and will be subordinated to all present and future indebtedness, policy claims and other creditor claims (each as defined in the capital note) of Metropolitan Life Insurance Company. The capital note will rank pari passu with all existing surplus notes of Metropolitan Life Insurance Company and with all capital notes, surplus notes or similar obligations of Metropolitan Life Insurance Company thereafter issued, made or incurred. 92 94 As required by the New York Insurance Law, the terms of the capital note must be approved by the New York Superintendent of Insurance as not adverse to the interests of Metropolitan Life Insurance Company's policyholders. The New York Superintendent approved the issuance of the capital note on April , 2000. If the payment of interest is prevented by application of the payment restrictions described above, the interest on the capital note will not be available as a source of liquidity for MetLife, Inc. Based on the historic cash flows and the current financial results of Metropolitan Life Insurance Company, subject to any dividend limitations which may be imposed upon Metropolitan Life Insurance Company or its subsidiaries by regulatory authorities, we believe that cash flows from operating activities, together with up to $340 million of proceeds from the offerings and the private placements to be retained by MetLife, Inc. and the interest received on the capital note from Metropolitan Life Insurance Company, will be sufficient to enable us to make dividend payments on our common stock as described in "Dividend Policy", to pay all operating expenses, make payments on the debentures issued to MetLife Capital Trust I and meet our other obligations. METROPOLITAN LIFE INSURANCE COMPANY LIQUIDITY SOURCES. Metropolitan Life Insurance Company's principal cash inflows from its insurance activities come from life insurance premiums, annuity considerations and deposit funds. A primary liquidity concern with respect to these cash inflows is the risk of early contract holder and policyholder withdrawal. Metropolitan Life Insurance Company seeks to include provisions limiting withdrawal rights from general account institutional pension products (generally group annuities, including guaranteed interest contracts and certain deposit fund liabilities) sold to employee benefit plan sponsors. Metropolitan Life Insurance Company's principal cash inflows from its investment activities result from repayments of principal and proceeds from maturities and sales of invested assets, investment income, as well as dividends and distributions from subsidiaries. The primary liquidity concerns with respect to these cash inflows are the risks of default by debtors, interest rate and other market volatilities and potential illiquidity of subsidiaries. Metropolitan Life Insurance Company closely monitors and manages these risks. See "Business -- Investments". Additional sources of liquidity to meet unexpected cash outflows are available from Metropolitan Life Insurance Company's portfolio of liquid assets. These liquid assets include substantial holdings of U.S. treasury securities, short-term investments, common stocks and marketable fixed maturity securities. Metropolitan Life Insurance Company's available portfolio of liquid assets was approximately $88 billion and $91 billion at December 31, 1999 and 1998, respectively. Sources of liquidity also include facilities for short- and long-term borrowing as needed, primarily arranged through MetLife Funding, Inc., a subsidiary of Metropolitan Life Insurance Company. See "-- Financing". LIQUIDITY USES. Metropolitan Life Insurance Company's principal cash outflows primarily relate to the liabilities associated with its various life insurance, annuity and group pension products, operating expenses, income taxes, contributions to subsidiaries, principal and interest on its outstanding debt obligations, including the capital note described above, as well as dividend payments that may be declared and are payable to MetLife, Inc. Liabilities arising from its insurance activities primarily relate to benefit payments under the above-named products, as well as payments for policy surrenders, withdrawals and loans. Management of Metropolitan Life Insurance Company believes that its sources of liquidity are more than adequate to meet its current cash requirements. 93 95 LITIGATION. Various litigation claims and assessments against us have arisen in the course of our business, including in connection with our activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. In some of these matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or to provide reasonable ranges of potential losses, it is the opinion of our management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in our consolidated financial statements, are not likely to have a material adverse effect on our consolidated financial condition. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our operating results or cash flows in particular quarterly or annual periods. We have recorded, in other expenses, charges of $499 million ($317 million after-tax), $1,895 million ($1,203 million after-tax) and $300 million ($190 million after-tax) for the years ended December 31, 1999, 1998 and 1997, respectively, for sales practice claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. The charge for the year ended December 31, 1999 was principally related to the settlement of the multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge of $1,895 million was comprised of $925 million and $970 million for sales practices claims and asbestos-related claims, respectively. We recorded the accrual for sales practices claims based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, we established a liability for asbestos-related claims based on settlement costs for claims that we had settled, estimates of settlement costs for claims pending against us and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which we believe are only reasonably possible of assertion. Based on this process, our accrual for asbestos-related claims at December 31, 1997 was $386 million. Our potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against us, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty as to the number of claims brought against us. During 1998, we decided to pursue the purchase of insurance to limit our exposure to asbestos-related claims. In connection with our negotiations with the casualty insurers to obtain this insurance, we obtained information that caused us to reassess our accruals for asbestos-related claims. This information included: - Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against us in the future was significantly greater than we had assumed in our accruals. The number of claims brought against us is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which we are included as a defendant. The information provided to us relating to other insureds indicated that we had been included as defendants for a significant percentage of total asbestos-related claims and that we may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos 94 96 defendants and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. - Information derived from actuarial calculations we made in the fourth quarter of 1998 in connection with these negotiations, which helped us to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding our claims and settlement experience (which reflected our decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, we concluded that certain claims that previously were considered as only reasonably possible of assertion were now probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, we increased our liability for asbestos-related claims to $1,278 million at December 31, 1998. During 1998, we paid $1,407 million of premiums for excess of loss reinsurance and insurance agreements and policies, consisting of $529 million for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 million for the excess insurance policies for asbestos-related claims. We obtained the excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. These reinsurance agreements have a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. This coverage is in excess of an aggregate self-insured retention of $385 million with respect to sales practices claims and $506 million, plus our statutory policy reserves released upon the death of insureds, with respect to life mortality losses. At December 31, 1999, the subject losses under the reinsurance agreements due to sales practices claims and related counsel fees from the time Metropolitan Life Insurance Company entered into the reinsurance agreements did not exceed that self-insured retention. The maximum sublimit of $550 million for sales practices claims was within a range of losses that management believed was reasonably possible at December 31, 1998. Each excess of loss reinsurance agreement for sales practices claims and mortality losses contains an experience fund, which provides for payments to us at the commutation date if experience is favorable at such date. We account for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on our consolidated financial statements in 1998, and in 1999 and 2000, would not be significant. Under reinsurance accounting, the excess of the liability recorded for sales practices losses recoverable under the agreements of $550 million over the premium paid of $529 million results in a deferred gain of $21 million which is being amortized into income over the settlement period from January 1999 through April 2000. Under deposit accounting, the premium would be recorded as an other asset rather than as an expense, and the reinsurance loss recoverable and the deferred gain would not have been recorded. Because the agreements also contain an experience fund which increases with the passage of time, the increase in the experience fund in 1999 and 2000 under deposit accounting would be recognized as interest income in an amount approximately equal to the deferred gain that will be amortized into income under reinsurance accounting. The excess insurance policies for asbestos-related claims provide for recovery of losses of up to $1,500 million, which is in excess of a $400 million self-insured retention ($878 million of which was recorded as a recoverable at December 31, 1999 and 1998). The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies and agreements annually with respect to claims paid during the prior calendar year. Although amounts paid in any given year that are recoverable under the policies and agreements will be reflected as a reduction in our operating cash flow for that year, management believes 95 97 that the payments will not have a material adverse effect on our liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to us at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursement to us if the cumulative return on the reference fund is less than the return specified in the experience fund. We believe that the excess of loss reinsurance agreements should provide coverage for a portion of the multidistrict sales practices settlement described above, although we have yet to file a claim under those agreements. The increase in liabilities for death benefits and policy adjustments and the cash payments to be made under the settlement should be substantially offset by amounts recoverable under those agreements, as well as amounts provided in our consolidated financial statements, and accordingly we do not believe that they will have a material adverse effect on our business, results of operations, financial condition or cash flows in future periods. We believe adequate provision has been made in our consolidated financial statements for all reasonably probable and estimable losses for sales practices and asbestos-related claims. RISK-BASED CAPITAL. Section 1322 of the New York Insurance Law requires that New York life insurers report their RBC based on a formula calculated by applying factors to various asset, premium and statutory reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. Section 1322 gives the New York Superintendent of Insurance explicit regulatory authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not exceed certain RBC levels. At December 31, 1999, Metropolitan Life Insurance Company's total adjusted capital was in excess of each of those RBC levels. See "Business -- Regulation -- Insurance regulation -- Risk-based capital". Each of the U.S. insurance subsidiaries of Metropolitan Life Insurance Company is subject to these same RBC requirements. At December 31, 1999, the total adjusted capital of each of these insurance subsidiaries was in excess of each of these RBC levels. The NAIC has recently adopted the Codification of Statutory Accounting Principles for life insurers, which is to become effective on January 1, 2001. Prior to implementation by Metropolitan Life Insurance Company, the Codification requires adoption by the New York Insurance Department. Based on a study commissioned by the NAIC, the overall impact to life insurers resulting from adoption of the Codification is not expected to be materially adverse; however, a detailed analysis will be necessary to determine the actual impact of the Codification on the statutory results of operations and statutory financial position of Metropolitan Life Insurance Company and its U.S. insurance subsidiaries. FINANCING. MetLife Funding, Inc. serves as a centralized finance unit for Metropolitan Life Insurance Company. Pursuant to a support agreement, Metropolitan Life Insurance Company has agreed to cause MetLife Funding to have a tangible net worth of at least one dollar. At December 31, 1999 and 1998, MetLife Funding had a tangible net worth of $10.5 million and $10.9 million, respectively. MetLife Funding raises funds from various funding sources and uses the proceeds to extend loans to Metropolitan Life Insurance Company and its other subsidiaries. MetLife Funding manages its funding sources to enhance the financial flexibility and liquidity of MetLife. At December 31, 1999 and 1998, MetLife Funding had total outstanding liabilities of $4.2 billion and $3.6 billion, respectively, consisting primarily of commercial paper. In connection with our acquisition of the stock of GenAmerica, we incurred $900 million of short-term debt, consisting primarily of commercial paper. We intend to repay up to $450 million of that debt with proceeds from the offerings and the private placements. We also incurred approximately $3.2 billion of short-term debt, consisting primarily of commercial paper, in connection with our October 1, 1999 exchange offer to holders of General American Life funding 96 98 agreements. Through December 31, 1999, approximately $1.5 billion of this debt was repaid. The remaining $1.7 billion was included in the outstanding liabilities of MetLife Funding at December 31, 1999. See "Business -- Acquisition of GenAmerica". MetLife Funding and Metropolitan Life Insurance Company also maintained $7 billion ($5 billion of which served as back-up for the commercial paper incurred in connection with the exchange offer to holders of General American Life funding agreements) and $2 billion in committed credit facilities at December 31, 1999 and 1998, respectively, which served as back-up for MetLife Funding's commercial paper program and for general corporate purposes. These credit facilities were not utilized during 1999 or 1998. SUPPORT AGREEMENTS. In addition to its support agreement with MetLife Funding, Metropolitan Life Insurance Company has entered into a net worth maintenance agreement with New England Life Insurance Company ("NELICO"), whereby it is obligated to maintain NELICO's statutory capital and surplus at the greater of $10 million or the amount necessary to prevent certain regulatory action by Massachusetts, the state of domicile of this subsidiary. The capital and surplus of NELICO at December 31, 1999 and 1998, respectively, was significantly in excess of the amount that would trigger such an event. Furthermore, Metropolitan Life Insurance Company has never been called upon to provide support to NELICO. In connection with Metropolitan Life Insurance Company's acquisition of GenAmerica Corporation, Metropolitan Life Insurance Company entered into a net worth maintenance agreement with General American Life Insurance Company, whereby Metropolitan Life Insurance Company is obligated to maintain General American Life's statutory capital and surplus at the greater of $10 million or the amount necessary to maintain the capital and surplus of General American Life at a level not less than 180% of the NAIC Risk Based Capitalization Model and to ensure that General American Life's liquidity is sufficient to meet its current obligations on a timely basis. The capital and surplus of General American Life Insurance Company at December 31, 1999 was in excess of the required amount. Metropolitan Life Insurance Company has also entered into arrangements with some of its other subsidiaries and affiliates to assist such subsidiaries and affiliates in meeting various jurisdictions' regulatory requirements regarding capital and surplus. In addition, Metropolitan Life Insurance Company has entered into a support arrangement with respect to reinsurance obligations of its wholly-owned subsidiary, Metropolitan Insurance and Annuity Company. Management does not anticipate that these arrangements will place any significant demands upon MetLife's liquidity resources. CONSOLIDATED CASH FLOWS. Net cash provided by operating activities was $3.9 billion, $0.8 billion and $2.9 billion for the years ended December 31, 1999, 1998 and 1997, respectively. In 1999, the change in cash provided by operating activities was primarily due to strong growth in our Institutional and Auto & Home segments. The growth in our Institutional segment was primarily related to strong sales and improved policyholder retention in non-medical health, primarily in our dental and disability businesses. The growth in Auto & Home was primarily due to the acquisition of the standard personal lines property and casualty insurance operations of The St. Paul Companies, as well as growth in both standard and non-standard auto insurance businesses. In 1998, the change in cash provided by operating activities was primarily attributable to $1.4 billion paid in 1998 for excess insurance policies providing coverage for amounts which may be paid in connection with exposure to asbestos claims and reinsurance agreements providing coverage for, among other things, amounts which may be paid or incurred in connection with specified sales practices claims. Net cash provided by operating activities in 1999, 1998 and 1997 was more than adequate to meet liquidity requirements. Net cash (used in) provided by investing activities were $(2.4) billion, $2.7 billion and $(1.7) billion for the years ended December 31, 1999, 1998 and 1997, respectively. Purchases of investments exceeded sales, maturities and repayments by $0.5 billion, $7.6 billion and $1.6 97 99 billion in 1999, 1998 and 1997, respectively. In 1999, the significant decrease in net purchases of investments resulted from a decrease in the reinvestment of sales proceeds as a result of the funding agreement exchange offer in connection with the GenAmerica acquisition, as well as the purchase of the individual disability income business of Lincoln National Life Insurance Company. In 1998, the significant increase in net purchases of investments resulted from the reinvestment of proceeds from the sale of MetLife Capital Holdings, Inc. and a substantial portion of our Canadian operations and cash from our securities lending program. Prior to 1998, our securities lending program activity was not reflected in our consolidated balance sheets or consolidated statements of cash flows. Cash flows for investing activities also increased by $2.7 billion and $3.8 billion in 1999 and 1998, respectively, as a result of activity from our securities lending program. Net cash used in financing activities was $2.0 billion, $3.1 billion and $0.6 billion for the years ended December 31, 1999, 1998 and 1997, respectively. Withdrawals from policyholders' account balances exceeded deposits by $2.2 billion, $2.3 billion and $2.8 billion in 1999, 1998 and 1997, respectively. Short-term financings increased $0.6 billion in 1999 compared with a decrease of $1.0 billion in 1998, while net reductions in long-term debt were $389 million in 1999 compared with net additions of $212 million in 1998. The operating, investing and financing activities described above resulted in a decrease in cash and cash equivalents of $512 million for the year ended December 31, 1999, compared with increases of $390 million and $586 million for the years ended December 1998 and 1997, respectively. EFFECTS OF INFLATION We do not believe that inflation has had a material effect on our consolidated results of operations, except insofar as inflation may affect interest rates. See "Risk Factors -- Changes in interest rates may significantly affect our profitability". MARKET RISK DISCLOSURE We must effectively manage, measure and monitor the market risk associated with our invested assets and interest rate sensitive insurance contracts. We have developed an integrated process for managing risk, which we conduct through our Corporate Risk Management Department, several asset/liability committees and additional specialists at the business segment level. We have established and implemented comprehensive policies and procedures at both the corporate and business segment level to minimize the effects of potential market volatility. MARKET RISK EXPOSURES We have exposure to market risk through our insurance operations and investment activities. For purposes of this disclosure, "market risk" is defined as the risk of loss resulting from changes in interest rates, equity prices and foreign exchange rates. INTEREST RATES. Our exposure to interest rate changes results from our significant holdings of fixed maturities, as well as our interest rate sensitive liabilities. The fixed maturities include U.S. and foreign government bonds, securities issued by government agencies, corporate bonds and mortgage-backed securities, all of which are mainly exposed to changes in medium- and long-term treasury rates. Our interest rate sensitive liabilities for purposes of this disclosure include guaranteed interest contracts and fixed annuities, which have the same interest rate exposure (medium- and long-term treasury rates) as the fixed maturities. We employ product design, pricing and asset/liability management strategies to reduce the adverse effects of interest rate volatility. Product design and pricing strategies include the use of SURRENDER CHARGES or restrictions on withdrawals in some products. Asset/liability management strategies include the use of derivatives, the purchase of securities structured to protect against prepayments, 98 100 prepayment restrictions and related fees on mortgage loans and consistent monitoring of the pricing of our products in order to better match the duration of the assets and the liabilities they support. EQUITY PRICES. Our investments in equity securities expose us to changes in equity prices. We manage this risk on an integrated basis with other risks through our asset/liability management strategies. We also manage equity price risk through industry and issuer diversification and asset allocation techniques. FOREIGN EXCHANGE RATES. Our exposure to fluctuations in foreign exchange rates against the U.S. dollar results from our holdings in non-U.S. dollar denominated fixed maturity securities and equity securities and through our investments in foreign subsidiaries. The principal currencies which create foreign exchange rate risk in our investment portfolios are Canadian dollars, Euros, German marks, French francs, Spanish pesetas and British pounds. We mitigate the majority of our fixed maturities' foreign exchange rate risk through the utilization of foreign currency swaps and forward contracts. Through our investments in foreign subsidiaries, we are primarily exposed to the Spanish peseta, Mexican peso, Argentinean dollar and Korean won. We have denominated all assets and liabilities of our foreign subsidiaries in their respective local currencies, thereby minimizing our risk to foreign exchange rate fluctuations. RISK MANAGEMENT CORPORATE RISK MANAGEMENT. We have established several financial and non-financial senior management committees as part of our risk management process. These committees manage capital and risk positions, approve asset/liability management strategies and establish appropriate corporate business standards. We also have a separate Corporate Risk Management Department, which is responsible for risk throughout MetLife and reports directly to our Chief Actuary. The Corporate Risk Management Department's primary responsibilities consist of: - implementing a board of directors-approved corporate risk framework, which outlines our approach for managing risk on an enterprise-wide basis; - developing policies and procedures for managing, measuring and monitoring those risks identified in the corporate risk framework; - establishing appropriate corporate risk tolerance levels; - deploying capital on a risk-adjusted basis; and - reporting on a periodic basis to the Audit Committee of the board of directors and our various financial and non-financial senior management committees. ASSET/LIABILITY MANAGEMENT. At MetLife, asset/liability management is the responsibility of the General Account Portfolio Management Department ("GAPM"), the operating business segments and various GAPM boards. The GAPM boards are comprised of senior officers from the investment department, senior managers from each business segment and the Chief Actuary. The GAPM boards' duties include setting broad asset/liability management policy and strategy, reviewing and approving target portfolios, establishing investment guidelines and limits and providing oversight of the portfolio management process. The portfolio managers and asset sector specialists, who have responsibility on a day-to-day basis for risk management of their respective investing activities, implement the goals and objectives established by the GAPM boards. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while ensuring that the assets and liabilities are managed on a cash flow and duration basis. The risk 99 101 management objectives established by the GAPM boards stress quality, diversification, asset/liability matching, liquidity and investment return. Each of our business segments has an asset/liability officer who works with portfolio managers in the investment department to monitor investment, product pricing, hedge strategy and liability management issues. We establish target asset portfolios for each major insurance product, which represent the investment strategies used to profitably fund our liabilities within acceptable levels of risk. These strategies include objectives for effective duration, yield curve sensitivity, convexity, liquidity, asset sector concentration and credit quality. To manage interest rate risk, we perform periodic projections of asset and liability cash flows to evaluate the potential sensitivity of our securities investments and liabilities to interest rate movements. These projections involve evaluating the potential gain or loss on most of our in-force business under various increasing and decreasing interest rate environments. We have developed models of our in-force business that reflect specific product characteristics and include assumptions based on current and anticipated experience regarding lapse, mortality and interest crediting rates. In addition, these models include asset cash flow projections reflecting interest payments, sinking fund payments, principal payments, bond calls, mortgage prepayments and defaults. New York Insurance Department regulations require that we perform some of these analyses annually as part of the annual proof of the sufficiency of our regulatory reserves to meet adverse interest rate scenarios. HEDGING ACTIVITIES. Our risk management strategies incorporate the use of various interest rate derivatives that are used to adjust the overall duration and cash flow profile of our invested asset portfolios to better match the duration and cash flow profile of our liabilities to reduce interest rate risk. Such instruments include interest rate swaps, futures and caps. We also use foreign currency swaps and forward contracts to hedge our foreign currency denominated fixed income investments. RISK MEASUREMENT; SENSITIVITY ANALYSIS We measure market risk related to our holdings of invested assets and other financial instruments, including certain market risk sensitive insurance contracts ("other financial instruments"), based on changes in interest rates, equity prices and foreign currency rates, utilizing a sensitivity analysis. This analysis estimates the potential changes in fair value, cash flows and earnings based on a hypothetical 10% change (increase or decrease) in interest rates, equity prices and currency exchange rates. We believe that a 10% change (increase or decrease) in these market rates and prices is reasonably possible in the near-term. In performing this analysis, we used market rates at December 31, 1999 to re-price our invested assets and other financial instruments. The sensitivity analysis separately calculated each of our market risk exposures (interest rate, equity price and currency rate) related to our non-trading invested assets and other financial instruments. We do not maintain a trading portfolio. The sensitivity analysis we performed included the market risk sensitive holdings described above under "Market Risk Disclosure". We modeled the impact of changes in market rates and prices on the fair values of our invested assets, earnings and cash flows as follows: FAIR VALUES. We base our potential loss in fair values on an immediate change (increase or decrease) in: - the net present values of our interest rate sensitive exposures resulting from a 10% change (increase or decrease) in interest rates; - the U.S. dollar equivalent balances of our currency exposures due to a 10% change (increase or decrease) in currency exchange rates; and 100 102 - the market value of our equity positions due to a 10% change (increase or decrease) in equity prices. EARNINGS AND CASH FLOWS. We calculate the potential loss in earnings and cash flows on the change in our earnings and cash flows over a one-year period based on an immediate 10% change (increase or decrease) in market rates and equity prices. The following factors were incorporated into our earnings and cash flows sensitivity analyses: - the reinvestment of fixed maturity securities; - the reinvestment of payments and prepayments of principal related to mortgage-backed securities; - prepayment rates on mortgage-backed securities were re-estimated for each 10% change (increase or decrease) in the interest rates; and - expected turnover (sales) of fixed maturities and equity securities, including the reinvestment of the resulting proceeds. The sensitivity analysis is an estimate and should not be viewed as predictive of our future financial performance. We cannot assure that our actual losses in any particular year will not exceed the amounts indicated in the table below. Limitations related to this sensitivity analysis include: - the market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including the impact of prepayment rates on our mortgages; - the analysis excludes other significant real estate holdings and liabilities pursuant to insurance contracts; and - the model assumes that the composition of our assets and liabilities remains unchanged throughout the year. Accordingly, we use such models as tools and not substitutes for the experience and judgment of our corporate risk and asset/liability management personnel. Based on our analysis of the impact of a 10% change (increase or decrease) in market rates and prices, we have determined that such a change could have a material adverse effect on the fair value of our interest rate sensitive invested assets. The equity and foreign currency portfolios do not expose us to material market risk. The table below illustrates the potential loss in fair value of our interest rate sensitive financial instruments at December 31, 1999. In addition, the potential loss with respect to fair value of currency exchange rates and our equity price sensitive positions at December 31, 1999 is set forth in the table below. The potential loss in fair value for each market risk exposure of our portfolio, all of which is non-trading, for the periods indicated was (in millions):
AT DECEMBER 31, -------------------- 1999 1998 -------- -------- Interest rate risk............................... $5,044.3 $3,977.1 Equity price risk................................ $ 198.0 $ 247.6 Currency exchange rate risk...................... $ 262.5 $ 260.0
YEAR 2000 READINESS The Year 2000 issue is the result of many computer hardware and software systems using only two digits, rather than four, to represent a calendar year. Without appropriate remediation or 101 103 replacement, such systems may not process dates beyond 1999. This system problem could result in a system failure or miscalculations causing disruptions of operations, including, but not limited to, a temporary inability to process transactions and engage in normal business activities. Given the potential impact of the Year 2000 issue on us, in 1996 we established a centralized Project Management Office within our Information Technology Department. The Project Management Office developed a plan that identified the processes and steps to take so that all of MetLife's own computer applications, as well as our voice and data communication systems, would continue to function properly in and beyond the Year 2000. The scope of our Year 2000 plan included testing the readiness of: applications, operating systems and hardware on mainframes, personal computers and local area network platforms; voice and data network software and hardware; and some non-information technology systems in buildings, facilities and equipment, including, but not limited to, security systems and building controls. In addition, we established procedures to contact key suppliers, customers, joint venture partners and other business parties regarding their Year 2000 readiness. The phases of our Year 2000 plan were: (1) identifying Year 2000 problems and assigning priorities; (2) assessing the Year 2000 compliance of each of our business segments; (3) remediating or replacing items for Year 2000 compliance; (4) testing items for Year 2000 compliance at each of our business segments; and (5) designing and implementing Year 2000 contingency and business continuity plans. We completed phases (1) through (4) by June 30, 1999. We completed phase (5) by the end of 1999. As to our systems certification, each of our business segments conducted testing for Year 2000 compliance. We evaluated and tested each system using a standard certification process and used both internal and external resources in connection with our certification process. The certification process included, among other procedures, testing of future dates near the end of 1999, after the beginning of 2000 and for the leap year. We also conducted tests of our business-critical systems on an enterprise-wide basis. At December 31, 1999, approximately 100% of our information technology applications and systems, security systems, building controls and utilities located in facilities owned and operated by MetLife were Year 2000 compliant. As part of our Year 2000 plan, we initiated formal communications with all of our significant business partners, such as suppliers and customers, to determine the extent to which we may have been vulnerable to those third parties' failure to remediate their own Year 2000 issues. A majority of our significant business partners gave assurances that they were Year 2000 ready by December 31, 1999. As of the date of this prospectus, we are not aware of any material Year 2000-related problems experienced by our information technology and non- information technology systems. We have not been informed by any other companies, governmental agencies or other entities on which we rely that any such parties experienced any material Year 2000-related problems. We cannot guarantee, however, that we or the other companies, governmental agencies or other entities on which we rely will not experience any Year 2000-related problems in the future. If such problems do occur, there can be no assurance that they will not have a material adverse effect on our business, results of operations and financial condition. Through December 31, 1999, we had incurred and expensed approximately $220 million related to assessment and remediation or replacement in connection with our Year 2000 plan. We funded these costs through operating cash flows, expensed as incurred. During 2000, we expect to have additional Year 2000-related expenses of approximately $5 million. Detailed business contingency plans have been developed to address Year 2000 risks that may affect our ability to conduct business. However, we cannot guarantee that such contingency plans will mitigate all future Year 2000 issues or prevent future Year 2000 issues from having a material adverse effect on our business, results of operations and financial condition. 102 104 INSOLVENCY ASSESSMENTS Most of the jurisdictions in which we are admitted to transact business require life insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed life insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. Assessments levied against us from January 1, 1997 through December 31, 1999 aggregated $62 million. We maintained a liability of $31 million at December 31, 1999 for future assessments in respect of currently impaired, insolvent or failed insurers. 103 105 THE DEMUTUALIZATION The following is a summary of the material terms of Metropolitan Life Insurance Company's plan of reorganization. Although we believe the material provisions of the plan of reorganization have been accurately summarized, you should refer to the plan of reorganization itself, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part. PURPOSE The main purpose of the demutualization is to change our corporate structure to increase our potential for long-term growth and financial strength. We believe that our ability, as a stock company, to issue shares of stock will enable us to raise money more efficiently and will provide us with greater flexibility to make business acquisitions and combinations. This will allow us to increase our market leadership, financial strength and strategic position, providing additional security to our policyholders. The demutualization will also make it easier for us to take advantage of changes in laws removing restrictions on affiliations between insurers and other types of financial services companies, such as banks. In addition, the demutualization will provide previously unavailable economic value to eligible policyholders in the form of allocated shares of MetLife, Inc. common stock (which will be held in the MetLife Policyholder Trust), cash or policy credits, in exchange for their policyholders' membership interests in Metropolitan Life Insurance Company. SUMMARY OF THE PLAN OF REORGANIZATION On the date the plan of reorganization becomes effective (which will be the date of the closings of the initial public offering of common stock and this offering of units and the private placements), Metropolitan Life Insurance Company will convert from a mutual life insurance company to a stock life insurance company, and become a wholly-owned subsidiary of MetLife, Inc. Each policyholder's membership interest will be extinguished on the plan effective date and, in consideration thereof, each eligible policyholder will be entitled to receive, in exchange for that interest, trust interests representing shares of common stock, cash or an adjustment to their policy values in the form of policy credits, as provided in the plan. We will allocate consideration among eligible policyholders based on actuarial principles. For a description of the actuarial principles used in this allocation, see "The Demutualization -- Payment of Consideration to Eligible Policyholders". The plan of reorganization requires us to make the initial public offering and to raise proceeds from the initial public offering of common stock, together with this offering of units and the private placements, in an amount, net of underwriting commissions and related expenses, at least equal to the amounts required for us to reimburse Metropolitan Life Insurance Company for the crediting of policy credits and payment of mandatory cash payments to eligible policyholders pursuant to the plan of reorganization and to reimburse Metropolitan Life Insurance Company for the cash payments to be made by its Canadian branch to certain holders of policies included in its Canadian business sold to Clarica Life Insurance Company in 1998, as well as to pay the fees and expenses we have incurred in connection with the demutualization. The plan also permits us to complete one or more private placements and other specified capital raising transactions on the effective date of the plan. Concurrently with this offering, we expect to sell not less than 14,900,000 shares nor more than 73,000,000 shares, at a price per share equal to the initial public offering price, in the aggregate to Banco Santander Central Hispano, S.A. and Credit Suisse Group or their respective affiliates in private placements. In addition, we are making an initial public offering of 179,000,000 shares of common stock for an aggregate offering of $2,506 million, plus up to an additional $376 million if the underwriters' options to purchase additional shares are exercised in full. Under the plan of reorganization, the total proceeds raised in this offering of units cannot exceed one-third of the total proceeds raised 104 106 in this offering, the initial public offering of common stock and the private placements. The amount of proceeds from and final terms of the units will depend on market conditions and our capital needs at the time of issuance. We cannot proceed with any offering relating to the units and the private placements without the approval of the New York Superintendent of Insurance. In addition, the final terms of the initial public offering, the offering of units and the private placements must be approved by the New York Superintendent. Those terms were approved by the New York Superintendent of Insurance in his order issued on April , 2000. Pursuant to the New York Insurance Law, the board of directors of Metropolitan Life Insurance Company adopted the plan of reorganization on September 28, 1999, and subsequently adopted amendments to the plan. The plan of reorganization must also be approved by at least two-thirds of the votes validly cast by the eligible policyholders. The plan of reorganization defines eligible policyholders as the owners on September 28, 1999, the adoption date of the plan, of certain policies and interests issued by Metropolitan Life Insurance Company that were in force on that date. The plan was approved by more than two-thirds of eligible policyholders who voted in voting completed on February 7, 2000. The vote of our policyholders was 2,572,832 votes in favor, 188,914 votes opposed. The plan of reorganization will not become effective unless, after conducting a public hearing on the plan, the New York Superintendent approves it based on a finding, among other things, that the plan is fair and equitable to policyholders. The New York Superintendent held a public hearing on the plan on January 24, 2000 and issued an order approving the plan on April , 2000. At the public hearing, some policyholders and others raised objections to certain aspects of the plan. Six lawsuits have been filed challenging the fairness of the plan of reorganization and the adequacy and accuracy of Metropolitan Life Insurance Company's disclosures to policyholders regarding the plan. The first of these lawsuits was filed in the Supreme Court of the State of New York for Kings County on January 14, 2000. It was brought on behalf of a putative class consisting of all policyholders of Metropolitan Life Insurance Company who should have membership benefits in Metropolitan Life Insurance Company and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan, as well as other relief. The defendants named in the complaint are Metropolitan Life Insurance Company, the individual members of its board of directors and MetLife, Inc. Discovery is underway in this case. The five other lawsuits were filed between March 10, 2000 and March 29, 2000 in the Supreme Court of the State of New York for New York County. The same defendants are named in these five cases as in the Kings County case, with the addition of the New York Superintendent of Insurance. All five of the New York County cases are brought on behalf of a putative class consisting of the eligible policyholders of Metropolitan Life Insurance Company as of September 28, 1999, the adoption date of the plan. The claims in these five additional cases are substantially similar to those in the Kings County case, as is the relief sought. Metropolitan Life Insurance Company has entered into a stipulation with the plaintiffs in the five New York County cases in which it does not oppose consolidation of the cases, agrees that the plaintiffs have until April 30, 2000 to file a consolidated amended complaint, and agrees that the defendants' time to answer, move or otherwise respond to the consolidated amended complaint will be thirty days after service of the consolidated amended complaint. Metropolitan Life Insurance Company has agreed to provide certain information to the plaintiffs in three of the New York County cases. Metropolitan Life Insurance Company, MetLife, Inc. and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and intend vigorously to contest all of the plaintiffs' claims in these six lawsuits. See "Risk Factors -- A challenge to the New York Superintendent of Insurance's approval may adversely affect the terms of the demutualization and the market price of our common stock". We began incurring expenses related directly or indirectly to the demutualization during 1998. We estimate that expenses relating to the demutualization, excluding costs relating to the offerings and the private placements, will total approximately $361 million, net of income taxes of 105 107 $83 million. Demutualization expenses consist of our cost of printing and mailing materials to policyholders and our aggregate cost of engaging independent accounting, actuarial, compensation, financial, investment banking and legal advisors and other consultants to advise us in the demutualization process and related matters, as well as other administrative costs. The New York Superintendent has also engaged experts to provide actuarial, investment banking, legal and auditing advice. Pursuant to the New York Insurance Law, we must pay the fees and expenses of such consultants, which fees and expenses are included in the above amounts. We have also agreed to indemnify certain of our consultants and consultants to the New York Superintendent against liabilities arising out of their engagements in connection with the demutualization. PAYMENT OF CONSIDERATION TO ELIGIBLE POLICYHOLDERS On the effective date of the plan of reorganization: - the policyholders' membership interests will be extinguished and each eligible policyholder will be allocated a number of trust interests equal to the number of shares of our common stock allocated to such policyholder, except that some eligible policyholders will receive cash or an adjustment to their policy values, known as policy credits; and - Metropolitan Life Insurance Company will become a stock life insurance company and a wholly-owned subsidiary of MetLife, Inc. We will distribute cash to: - each eligible policyholder whose mailing address is outside the U.S.; - each eligible policyholder or class of eligible policyholders for whom we determine in good faith, to the satisfaction of the New York Superintendent of Insurance, that it is not reasonably feasible or appropriate to provide consideration in the form that such policyholder would otherwise receive; - each owner of an industrial life insurance policy in reduced paid-up status with respect to whom we have a reasonable belief, after a reasonable effort to locate such policyholder, that the mailing address as shown on our records is an address at which mail to such policyholder is undeliverable; and - each group eligible policyholder that is an owner of an individual retirement annuity or a tax sheltered annuity, and elects to receive cash instead of common stock (but this provision will apply only to that policy). In addition to the cash payments described above, we will make cash payments to any eligible policyholder (other than an eligible policyholder required to receive policy credits or cash) that has affirmatively elected on or before February 7, 2000 to receive cash for such policyholder's allocated shares. There may be a limit to the amount of funds available to pay cash compensation to eligible policyholders that elect to receive cash. The plan provides that the initial public offering, the offering of units and the private placements must raise proceeds, net of underwriting commissions and related expenses, in an amount at least equal to the amount paid by Metropolitan Life Insurance Company to fund mandatory cash payments pursuant to the plan and policy credits to policyholders and to pay fees and expenses incurred by Metropolitan Life Insurance Company related to the demutualization, as well as to reimburse Metropolitan Life Insurance Company for amounts to be paid by its Canadian branch to certain former Canadian policyholders. If the initial public offering, the offering of units and the private placements are not of a sufficient size to fund the payment of cash to all eligible policyholders that elect to receive 106 108 cash, it is possible that the plan will become effective but that cash will not be paid to all eligible policyholders electing to receive cash. If this were to happen, cash will be paid as follows: - each individual eligible policyholder that elects to receive cash will receive consideration in the form of cash; - each group eligible policyholder that elects to receive cash and is allocated not more than 25,000 shares will receive consideration in the form of cash; and - each group eligible policyholder that elects to receive cash and is allocated more than 25,000 shares will receive consideration in the form of: - cash, with respect to the first 25,000 shares allocated to the eligible policyholder; and - either shares of common stock (to be held in the trust) or a combination of cash and shares of common stock (to be held in the trust), with respect to the remaining shares allocated to the eligible policyholder. Such cash will be allocated to each such eligible policyholder on a pro rata basis based on the proportion that the total number of shares in excess of 25,000 shares allocated to such eligible policyholder bears to the total number of shares in excess of 25,000 shares allocated to all eligible policyholders allocated more than 25,000 shares that have elected to receive cash. These proration provisions will not apply to any group eligible policyholder that is an owner of an individual retirement annuity or a tax sheltered annuity who elects to receive cash instead of common stock (to be held in the trust), but only with respect to that policy. The maximum number of allocated shares for which cash will be available will depend on a number of factors, including the number of policyholders that elect to receive cash, market conditions and the size of the initial public offering, the offering of the units and the private placements. Until the second year after the plan effective date, if there is an underwritten public offering by us of common stock, we will offer to each trust beneficiary holding at the time more than 25,000 trust interests and whose cash election was not fully satisfied the opportunity to include a number of shares equal to all of the trust beneficiary's trust interests in the offering. Each such trust beneficiary may then elect whether it wants to include some or all of its common stock (held in the trust) in the offering. We will include all shares desired to be sold in the offering. However, if, based on the advice of a nationally recognized investment banking firm selected by us, our board of directors believes that including all such shares would be likely to have an adverse effect on the price, timing or distribution of the offering, only those shares, if any, that the board of directors determines can be included without adversely affecting the offering will be included. If this were to occur, we will prorate the number of shares that each such trust beneficiary may include in the offering based on the number of trust interests that each such trust beneficiary elected to have included in the offering. We will enter into an underwriting agreement with the underwriters, which will contain indemnification and other terms acceptable to us and the underwriters. We will bear the costs of conducting the offering, including the fees and expenses of the underwriters for the offering. We will establish reasonable procedures for the participation of such trust beneficiaries in any such offering. Eligible policyholders owning policies that are individual retirement annuities, tax sheltered annuities, tax qualified individual life insurance policies and individual annuity contracts, life or health insurance funding accounts and guaranteed life insurance funding accounts are required to receive consideration in the form of policy credits. However, if any such policy has matured by death or otherwise been surrendered or terminated after September 28, 1999, but prior to the date on which the policy credits would have been credited, cash in the amount of the policy credits will be paid in lieu of the policy credits to the person to whom the death benefit, surrender value or other payment at termination was made under such policy. 107 109 The remaining eligible policyholders will be entitled to receive on the effective date of the plan their allocated shares of Metropolitan Life Insurance Company common stock, which will then be exchanged on such date for an equal number of shares of our common stock to be held by the MetLife Policyholder Trust. We will distribute consideration to eligible policyholders receiving cash or policy credits as soon as reasonably practicable following the effective date of the plan, but in any event not later than 60 days after the effective date, or such later date as may be approved by the New York Superintendent of Insurance. Regardless of whether an eligible policyholder is receiving allocated trust interests, cash or policy credits, the consideration an eligible policyholder receives under the plan of reorganization will be based on the number of shares of common stock allocated to the eligible policyholder pursuant to the terms of the plan of reorganization. The formula for allocating shares of common stock among eligible policyholders consists of two components. We will allocate a fixed number of shares of common stock equal to ten shares to each eligible policyholder, regardless of the number of policies owned by that eligible policyholder. Additional shares will also be allocated to each eligible policyholder holding a participating policy -- that is, a policy that is not by its terms ineligible for dividend payments. The number of such additional shares will vary for each such eligible policyholder based upon an actuarial formula, specified in the plan of reorganization, that takes into account, among other things, the past and future contributions to our statutory surplus from policies held by the eligible policyholder, as determined by historical experience and expected future performance. The amount of the consideration to be paid to an eligible policyholder in the form of cash or policy credits will generally equal the number of shares of common stock allocated to the eligible policyholder multiplied by the price per share at which our common stock is offered to the public in the initial public offering. The initial public offering price, which will be established through arm's length negotiations with representatives of the underwriters, will be based on, among other things, prevailing market conditions, our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and consideration of the above factors in relation to market valuations of companies in related businesses. In addition, the final terms of the initial public offering, including the initial public offering price of our common stock, will be subject to the approval of the New York Superintendent of Insurance. We have retained PricewaterhouseCoopers LLP to advise us in connection with actuarial matters involved in the development of the plan of reorganization and the payment of consideration to eligible policyholders. The opinion of Kenneth M. Beck, a principal with the firm of PricewaterhouseCoopers LLP, dated November 16, 1999, states that the plan for allocation of consideration to eligible policyholders (as defined in the plan of reorganization) as set forth in the plan of reorganization is fair and equitable to the policyholders of Metropolitan Life Insurance Company as required by Section 7312 of the New York Insurance Law. This opinion is included as Annex A of this prospectus. ESTABLISHMENT AND OPERATION OF THE METLIFE POLICYHOLDER TRUST Under our plan of reorganization, we will establish the MetLife Policyholder Trust to hold the shares of our common stock allocated to eligible policyholders not receiving cash or policy credits. Each trust beneficiary will have the right to elect to withdraw from the trust shares of common stock for sale, without the payment of commissions or brokerage fees, pursuant to the purchase and sale program described below. Sales may be made at any time after the later of (1) the termination of any stabilization arrangements and trading restrictions in connection with the initial public offering and (2) the closing of all underwriters' over-allotment options which have been exercised and the expiration of all unexercised options in connection with the initial public offering. We expect that these sales may begin within approximately 30 days after the plan 108 110 effective date. In addition, beginning one year after the plan effective date, trust beneficiaries may elect to withdraw all (but not less than all) of their allocated shares of our common stock held through the trust to hold the shares directly, in book entry or certificated form, or to sell the shares themselves independently, if they wish. Each trust beneficiary holding fewer than 1,000 trust interests may also purchase additional shares of our common stock (to be held in the trust) through the purchase and sale program to increase the trust beneficiary's interests up to a maximum of 1,000 interests. The purchase and sale program will be administered by ChaseMellon Shareholder Services, L.L.C., the program agent for the purchase and sale program and the custodian for the trust. Generally, each beneficiary may elect to withdraw from the trust the beneficiary's allocated shares of our common stock for sale through the purchase and sale program, subject to the following limitations: - each trust beneficiary holding 199 or fewer trust interests may elect to withdraw from the trust for sale the number of shares of our common stock held by the trust equal to all, but not less than all, of the beneficiary's trust interests; - each trust beneficiary holding more than 199 trust interests may elect to withdraw from the trust for sale a number of shares of our common stock held by the trust equal to all or part of the beneficiary's trust interests, subject to the limitation that partial withdrawals may be made only in increments of 100 shares, and that following any such withdrawal for sale of part of the trust beneficiary's trust interests the trust beneficiary holds at least 100 trust interests; and - for the first 300 days following the effective date of the plan, each trust beneficiary holding more than 25,000 trust interests will be subject to the volume limitations described below. Under the purchase and sale program procedures, if the total shares of our common stock to be sold on the open market on behalf of trust beneficiaries holding more than 25,000 trust interests on any day exceed the lesser of (i) 1/20th of 1% of the number of shares of our common stock outstanding and (ii) 25% of the average daily trading volume for the 20 trading days (or such shorter period, if fewer than 20 trading days have elapsed since the plan effective date) preceding the trade, the broker-dealer will only process trades on the open market up to that limit for trust beneficiaries holding more than 25,000 shares. The broker-dealer affiliate of the program agent will either defer the excess shares to the next trading day (which will be subject to the same volume limitations on that day) or sell the shares as principal through a block trade or through a nationally recognized brokerage firm that will sell the shares, as agent, at market clearing prices. For a period of 90 days following the plan effective date, only the lead managing underwriters for the initial public offering may sell, as joint agents, the excess shares. After the first 300 days, these limitations will no longer apply and withdrawals for sale may be made as permitted under the trust agreement and the purchase and sale program procedures. Except for the limitations on sales by trust beneficiaries holding more than 25,000 trust interests, purchases and sales will generally be processed on the first or second trading day after the day on which instructions are received, subject to limited exceptions such as an act of God or significant market disruption. In addition, the trust agreement allows trust beneficiaries to instruct the trust custodian to withdraw their allocated trust shares to participate in any tender or exchange offer or counter offer for our common stock and to make any cash or share election, or perfect any dissenter's rights, in connection with a merger of MetLife, Inc. In addition to the sale features of the purchase and sale program, the program will permit trust beneficiaries holding fewer than 1,000 trust interests to elect to purchase additional shares of our common stock (to be held in the trust) on their behalf, subject to the conditions that upon 109 111 completion of the purchase the beneficiary holds no more than 1,000 interests and the total cost for the purchased shares is at least $250 (or such lesser amount required to purchase a number of shares that would cause it to hold the 1,000 maximum number of interests at the closing price of our common stock on the trading day immediately prior to the mailing of such funds). These purchases may be made at any time beginning on the first trading day following the 90th day after the effective date of the plan of reorganization. Trust beneficiaries making such purchase or sale elections will not be required to pay any brokerage commissions, mailing charges, registration fees or other administrative or similar expenses. All purchase and sale elections received by the program agent for the purchase and sale program will be processed pursuant to policies and procedures set forth as Exhibit J to the plan of reorganization, a copy of which has been filed as an exhibit to the Registration Statement of which this prospectus forms a part. These procedures may be amended in the future. Trust beneficiaries will be notified of any changes to the purchase and sale program procedures in the future. Any changes to the procedures before the first anniversary of the effective date of the plan of demutualization would require the approval of the New York Superintendent of Insurance. The trustee has the exclusive and absolute right to vote, assent or consent the shares of common stock held in the trust at all times during the term of the trust. Generally, on all matters brought to our stockholders for a vote, the trustee will vote in accordance with the recommendation given by our board of directors to our stockholders or, if no such recommendation is given, as directed by our board. However, if the matter concerns any of the matters described below, the trustee will solicit instructions from the trust beneficiaries and will vote, assent or consent all trust shares, including for purposes of determining a quorum, in favor of, in opposition to or abstaining from the matter in the same ratio as trust interests of the trust beneficiaries who returned voting instructions to the trustee indicated preferences for voting in favor of, in opposition to or abstaining from such matter. If any such calculation of votes would require a fractional vote, the trustee will vote the next lower number of whole shares. In these matters, instructions actually given by trust beneficiaries would have disproportionate weight in the voting. These matters are: - an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition to a nominee or nominees of our board of directors or a vote on a stockholder's proposal to oppose a board nominee for director, remove a director for cause or fill the vacancy caused by the removal of a director by stockholders, provided that the stockholder making the nomination or proposal deposits funds for the payment of postage and other expenses for mailing proxy materials to all of the trust beneficiaries, or such lesser number, holding at least a majority of the trust interests, that the stockholder seeks to solicit; - a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or dissolution of, MetLife, Inc., in each case requiring a vote of our stockholders under applicable Delaware law; - any transaction that would result in an exchange or conversion of shares of common stock held by the trust for cash, securities or other property; - issuances of our common stock during the first year after the effective date of the plan at a price materially less than the then prevailing market price of our common stock, if a vote of our stockholders is required to approve the issuance under Delaware law, other than issuances in an underwritten public offering or pursuant to an employee benefit plan; - for the first year after the effective date of the plan, any matter that requires a supermajority vote of our outstanding stock entitled to vote thereon under Delaware law or our certificate of incorporation or by-laws, and any amendment to our certificate of incorporation or by-laws that is submitted for approval to our stockholders; and 110 112 - any proposal requiring our board of directors to amend or redeem the rights under our stockholder rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel to the effect that the proposal is not a proper subject for stockholder action under Delaware law. In the event that voting instructions are required to be solicited from trust beneficiaries, trust beneficiaries will be mailed proxy statements, annual reports and other materials with respect to any matter upon which they will direct the voting of the shares held by the trust. In addition, the custodian will prepare and mail to each beneficiary (1) an annual statement regarding the status of such beneficiary's trust interests and any dividends and distributions received by the trustee with respect to such interests, as well as any interest earned by the trust with respect to such dividends and distributions, and the procedures for notifying the custodian of any discrepancies or errors with respect to such statement, and (2) a notice of the beneficiary's right to make purchase, sale and withdrawal elections. The custodian will also prepare, file and mail to each beneficiary all information reports required under federal, state and local law in respect of the trust beneficiaries. The trustee will register the trust interests under the Securities Exchange Act of 1934, as amended, and will prepare and file all periodic and other reports and other documents pursuant to that Act, including annual reports on Form 10-K containing financial information regarding the trust, including the amount of dividends received on the shares of our common stock held by the trust, income from investments made by the trust and the distribution of those amounts to trust beneficiaries. The trust will file a similar report on Form 8-K whenever non-annual distributions are made to trust beneficiaries. The custodian will inform trust beneficiaries annually, in connection with the expected annual mailing of dividend checks and account statements, of the availability of the annual report, and trust beneficiaries who telephone the toll-free number in order to participate in the purchase and sale program or to obtain further information will be informed that the annual report is available on our website or by mail upon request. Beneficiaries will be prohibited from selling, transferring, assigning, encumbering, or granting any option or any other interest in, or otherwise disposing of, their trust interests, except in limited circumstances set forth in the trust agreement. Cash dividends, if any, collected or received by the trustee with respect to the shares of our common stock held by the trust will be invested by the trustee and distributed, together with interest earned thereon and net of any applicable withholding taxes, through the custodian of the trust to the beneficiaries. Regular cash dividends, including interest net of income taxes, received by June 30 in any calendar year will be distributed on the following July 31, and those received by December 31 will be distributed on the following January 31, provided that in no event will such distribution be made more than 90 days after the receipt of dividends by the trustee. Notwithstanding this provision, we currently expect to pay dividends directly to the trust beneficiaries at the same time they are paid to stockholders. Dividends or other distributions in common stock will be allocated to the beneficiaries pro rata in accordance with their respective interests in the trust and held by the trustee as part of the corpus of the trust. All other distributions we may make to stockholders will be held by the trustee and distributed through the custodian of the trust as provided in the trust agreement. We will reimburse the trustee and the custodian for all taxes, fees, commissions and other reasonable out-of-pocket expenses incurred by the trustee and the custodian, respectively, except that we will not reimburse the trustee and the custodian for the expense of mailing to beneficiaries any proxy or other materials received by the trustee on behalf of persons other than us. Unless it shall have been previously terminated, the trust will terminate upon the earlier of: - 90 days after the trustee receives notice from us that the number of shares of our common stock held by the trust is 10% or less of the number of issued and outstanding shares of our common stock; or 111 113 - the date on which the last share of our common stock held by the trust has been withdrawn, distributed or exchanged. The trust may be terminated earlier upon the first to occur of the following: - the 90th day after the trustee receives written notice from us, given in our discretion, that the number of shares of our common stock held by the trust is 25% or less of the number of issued and outstanding shares of our common stock; - the trustee receives written notice that our board of directors has determined that continuation of the trust is or is reasonably expected to become burdensome to us or the trust beneficiaries because of changes in law or other circumstances; - any rights issued under a stockholder rights plan adopted by us and held by the trust pursuant to the trust agreement become separately tradeable from the shares of our common stock held by the trust to which they relate; or - the entry of a final order for termination or dissolution of the trust or similar relief by a court of competent jurisdiction. If the trust has not otherwise terminated, it will terminate on the date necessary to avoid a violation of the rule against perpetuities, if such rule is applicable. Upon termination of the trust, the remaining shares of our common stock held by the trust will be distributed to the trust beneficiaries pro rata, in accordance with their respective interests in the trust, in book entry form, to the extent permitted by applicable law, or as otherwise directed by each trust beneficiary, together with the trust beneficiaries' pro rata share of all unpaid distributions and dividends and interest earned thereon. The trust provides that, concurrently with the winding up of the trust, we may, in our discretion, offer to purchase all or a portion of the shares of our common stock from the trust at a price equal to the average of the closing prices of our common stock on the 20 consecutive trading days preceding such offer. ESTABLISHMENT AND OPERATION OF THE CLOSED BLOCK The closed block is an accounting mechanism established to ensure that the reasonable dividend expectations of policyholders who own certain individual insurance policies are met. As set forth in the closed block memorandum included as a schedule to the plan of reorganization, a copy of which has been filed as an exhibit to the Registration Statement of which this prospectus forms a part, we will allocate assets to the closed block in an amount that produces cash flows which, together with anticipated revenue from the closed block policies, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes and for continuation of policyholder dividend scales in effect for 1999, if the experience underlying such scales continues, and for appropriate adjustments in such scales if the experience changes. The establishment and operation of the closed block will not modify or amend the provisions of the policies included therein. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies included in the closed block. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to our stockholders. See Note 1 of "Notes to Pro Forma Consolidated Financial Information" for a more detailed description of the manner in which the financial results of the closed block will affect the accounting presentation of our results of operations. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience relating to the closed block are, in the aggregate, more or less favorable than assumed in establishing the closed block, total dividends paid to closed block policyholders in the future may be greater than 112 114 or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Dividends on policies included in the closed block, as in the past, will be declared at the discretion of the board of directors of Metropolitan Life Insurance Company, may vary from time to time, reflecting changes in investment income, mortality, persistency and other experience factors, and are not guaranteed. We will not be required to support the payment of dividends on closed block policies from Metropolitan Life Insurance Company's general funds, although we could choose to provide such support. Metropolitan Life Insurance Company will continue to pay guaranteed benefits under all policies in accordance with their terms, including the policies included in the closed block. If the assets allocated to the closed block, the investment cash flows from those assets and the revenues from the policies included in the closed block prove to be insufficient to pay the benefits guaranteed under the policies included in the closed block, Metropolitan Life Insurance Company will be required to make such payments from its general funds. Since the closed block has been funded to provide for payment of guaranteed benefits, as well as for continuation of policyholder dividend scales in effect for 1999, if experience underlying such scales continues, it should not be necessary to use general funds to pay guaranteed benefits, unless the policies included in the closed block experience substantial adverse deviations in investment income, mortality, persistency or other experience factors. We will use our best efforts to support the policies included in the closed block with the assets allocated to the closed block. The assets allocated to the closed block will be subject to the same liabilities (with the same priority in liquidation) as assets outside the closed block. As specified in the plan of reorganization, the policies included in the closed block will generally consist of all classes of United States dollar denominated individual life insurance policies for which Metropolitan Life Insurance Company has a dividend scale in effect for 1999, but generally only to the extent such policies are in force on any date between December 31, 1998 and the effective date of the plan. A policy may be within a class for which there is an experience-based dividend scale in effect for 1999 even if it does not receive a 1999 dividend, and, therefore, the policy would be included in the closed block. Experience-based dividend scales are actuarial formulas used by life insurers to determine amounts payable as dividends on participating policies based on experience factors relating to, among other things, investment results, mortality, lapse rates, expenses, premium taxes and policy loan interest and utilization rates. The fact that a policy is included in the closed block has no bearing on whether the holder of that policy is entitled to receive consideration under the plan or the amount of consideration allocated to the policyholder. The closed block includes policies of New England Mutual Life Insurance Company that were participating policies at the time of its merger with Metropolitan Life Insurance Company in 1996. Under the terms of the merger, Metropolitan Life Insurance Company agreed to establish a separate segment within its general account consisting of assets associated with those policies plus additional assets. In the aggregate, such assets had a value of $226.4 million at December 31, 1998. As provided in the plan of reorganization, Metropolitan Life Insurance Company will add to the closed block premiums and other amounts received by, and withdraw from the closed block policy benefits and other amounts paid by, Metropolitan Life Insurance Company on the policies included in the closed block. Metropolitan Life Insurance Company will charge the closed block with federal income taxes, state and local premium taxes, and other additive state or local taxes, as well as investment management expenses relating to the closed block as provided in the plan of reorganization. Metropolitan Life Insurance Company will also charge the closed block for expenses of maintaining the policies included in the closed block. Cash payments with respect to certain reinsurance will be withdrawn from or paid to the closed block. 113 115 The board of directors of Metropolitan Life Insurance Company will set the dividends on the closed block policies annually, in accordance with applicable law and consistent with the objective of minimizing tontine effects and exhausting the assets of the closed block with the final payment made to the last policy included in the closed block. Metropolitan Life Insurance Company will retain an independent actuary to review the operations of the closed block every five years as required by the plan. Additionally, Metropolitan Life Insurance Company will review the operation of, and prepare an internal report regarding, the investment operations of the closed block annually. The closed block will continue in effect until the last policy in the closed block is no longer in force. The expected life of the closed block is over 100 years. CLOSED BLOCK ASSETS AND LIABILITIES In accordance with the plan of reorganization, we will allocate a portion of Metropolitan Life Insurance Company's invested assets, as well as cash and short-term investments, to the closed block. If we had established the closed block at December 31, 1999, cash and invested assets and their carrying values would have been as follows:
AT DECEMBER 31, 1999 ---------------------------- CARRYING VALUE % OF TOTAL -------------- ---------- (DOLLARS IN MILLIONS) Fixed maturities available-for-sale, at fair value.......... $21,729 70% Mortgage loans on real estate............................... 4,785 16 Policy loans................................................ 3,747 12 Other invested assets....................................... 404 1 Short-term investments...................................... 8 0 Cash and cash equivalents................................... 251 1 ------- --- Total....................................................... $30,924 100% ======= ===
The composition of assets in the closed block will change over time as a result of new investments. New investments for the closed block acquired on and after December 31, 1999 with closed block cash flows will be allocated to the closed block upon acquisition and will consist only of investments permitted by the plan of reorganization. The assets allocated to the closed block will be subject to the same liabilities (with the same priority in liquidation) as all assets in the general account of Metropolitan Life Insurance Company. If we had established the closed block at December 31, 1999, the policy liabilities and accruals associated with the closed block would have aggregated $39,627 million. This amount would have included $38,888 million of policyholder liabilities, $712 million of dividends payable to policyholders, current income taxes payable of $14 million and other liabilities of $13 million. See "Pro Forma Consolidated Financial Information -- Pro Forma Consolidated Balance Sheet". We have retained PricewaterhouseCoopers LLP to advise us in connection with actuarial matters involved in the establishment and operation of the closed block. The opinion of Kenneth M. Beck, a principal with the firm of PricewaterhouseCoopers LLP, dated November 16, 1999, states (in reliance upon the matters and subject to the limitations described in such opinion), among other things, that MetLife's assets set aside as of December 31, 1998 (including subsequent adjustments as provided for in the plan), to establish the closed block, as set forth in the plan, are adequate because they are expected to produce cash flows which, together with anticipated revenues from the closed block business, are reasonably expected to be sufficient to support the closed block business including, but not limited to, provisions for payment of claims and certain expenses and taxes, and to provide for continuation of dividend scales payable in 1999, if the experience underlying such scales continues. This opinion is included as Annex A of this prospectus. 114 116 TRANSFERRED CANADIAN POLICIES In July 1998, Metropolitan Life Insurance Company sold a substantial portion of its Canadian operations to Clarica Life Insurance Company. As part of that sale, a large block of policies in effect with Metropolitan Life Insurance Company in Canada were transferred to Clarica Life, and the holders of the transferred Canadian policies became policyholders of Clarica Life. Those transferred policyholders are no longer policyholders of Metropolitan Life Insurance Company and, therefore, are not entitled to compensation under the plan of reorganization. However, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale, if Metropolitan Life Insurance Company demutualizes, its Canadian branch will make cash payments to those who are, or are deemed to be, holders of these transferred Canadian policies. The payments, which will be recorded in other expenses in the same period as the effective date of the plan, will be determined in a manner that is consistent with the treatment of, and fair and equitable to, eligible policyholders of Metropolitan Life Insurance Company. The proceeds of the initial public offering, as well as the net proceeds from the offering of the units, must be sufficient to reimburse Metropolitan Life Insurance Company for those payments, as well as to fund mandatory cash payments pursuant to the plan and policy credits to policyholders and to pay fees and expenses incurred by Metropolitan Life Insurance Company related to the demutualization. See Notes 2 and 7 of Notes to Pro Forma Consolidated Financial Information. FEDERAL INCOME TAX CONSEQUENCES OF THE DEMUTUALIZATION We have received a private letter ruling from the Internal Revenue Service to the effect that: - The MetLife Policyholder Trust will be treated as a "grantor trust" for federal income tax purposes, and each beneficiary of the trust will be treated for federal income tax purposes as if the beneficiary were the direct owner of a proportionate interest in the shares of our common stock (or other property) held in the trust; - Beneficiaries of the trust will not recognize gain or loss for federal income tax purposes as a result of the deposit of shares of our common stock in the trust or their withdrawal of shares from the trust; and - The deposit of shares of our common stock in the trust under the terms of the plan of reorganization will not adversely affect the federal income tax treatment to eligible policyholders of consideration received under the plan, or of MetLife, resulting from the conversion of Metropolitan Life Insurance Company from a mutual life insurance company into a stock life insurance company owned by MetLife, Inc. The Internal Revenue Service rulings are based on the accuracy of certain representations made by us. Under the terms of the plan of reorganization, the demutualization will not become effective unless we receive an opinion of our special tax counsel, Debevoise & Plimpton (or other nationally-recognized tax counsel), to the effect that: - Policies issued by Metropolitan Life Insurance Company before the effective date of the plan will not be treated as newly-issued policies for any material federal income tax purpose as a result of the demutualization of Metropolitan Life Insurance Company under the plan; - Eligible policyholders receiving solely interests in the trust will not recognize gain or loss for federal income tax purposes as a result of the demutualization of Metropolitan Life Insurance Company under the plan; - The consummation of the plan of reorganization, including the crediting of policy credits to a policy under the terms of the plan, will not adversely affect any tax-favored status 115 117 accorded to the policy under the Internal Revenue Code, and will not be treated as a contribution or distribution that results in penalties to the holder; and - The summary of the principal U.S. federal income tax consequences to eligible policyholders of their receipt of consideration under the plan of reorganization that is contained under the heading "Federal Income Tax Consequences" in the information booklet provided to policyholders is correct and complete in all material respects. In addition to the required opinion described above regarding the federal income tax treatment to policyholders, it is also a condition to the effectiveness of the plan that we receive an opinion from our special tax counsel to the effect that: - MetLife, Inc. will not recognize any gain or loss for federal income tax purposes as a result of (1) its issuance of its common stock to the trust; (2) its receipt of shares of Metropolitan Life Insurance Company common stock; (3) its cancellation, for no consideration, of its common stock previously issued to and held by the Metropolitan Life Insurance Company immediately prior to the effective date of the plan; or (4) its sale of shares of its common stock in the initial public offering for cash; and - The conversion of Metropolitan Life Insurance Company from a mutual life insurance company to a stock life insurance company will qualify as a "reorganization" under the Internal Revenue Code. We have received an additional opinion from Debevoise & Plimpton, our special tax counsel, which is not required under the terms of the plan, to the effect that, under the Internal Revenue Code, the regulations issued thereunder, and current Internal Revenue Service and judicial interpretations of the Internal Revenue Code and regulations: - The affiliated federal income tax group of which Metropolitan Life Insurance Company is the common parent immediately before the demutualization will remain in existence after the effectiveness of the plan, with MetLife, Inc. as the common parent; and - Following its conversion from a mutual life insurance company to a stock life insurance company, Metropolitan Life Insurance Company will continue to be an eligible member for inclusion in that affiliated federal income tax group. Based on the Internal Revenue Service rulings we have received and the opinions of our special tax counsel described above, we believe that MetLife will not realize significant income, gain or loss for federal income tax purposes as a result of the consummation of the demutualization under the terms of the plan of reorganization. The opinions of special tax counsel described above are based on the accuracy of representations and undertakings made by us. We have not sought a private letter ruling from the Internal Revenue Service regarding the matters addressed by the opinions of special tax counsel described above. 116 118 BUSINESS We are a leading provider of insurance and financial services to a broad spectrum of individual and institutional customers. We currently provide individual insurance, annuities and investment products to approximately nine million households, or one of every eleven households in the U.S. We also provide group insurance and retirement and savings products and services to approximately 64,000 corporations and other institutions, including 86 of the FORTUNE 100 largest companies. Our institutional clients have approximately 33 million employees and members. We are a leader in each of our major U.S. businesses. We believe that our unparalleled franchises and brand names uniquely position us to be the preeminent provider of insurance and financial services in the U.S. businesses in which we compete. We are one of the largest and best capitalized insurance and financial services companies in the U.S. Our revenues for 1999 were $25.4 billion and our net income was $617 million. We had total consolidated assets of $225.2 billion and equity of $13.7 billion at December 31, 1999. We are organized into five major business segments: Individual Business, Institutional Business, Asset Management, Auto & Home and International. INDIVIDUAL BUSINESS. Individual Business offers a wide variety of protection and asset accumulation products for individuals, including life insurance and annuities. Individual Business also distributes products provided by our other business segments, including mutual funds and auto and homeowners insurance. Reflecting overall trends in the insurance industry, sales of our traditional life insurance products have declined in recent years, while first-year premiums and deposits from variable life insurance products have grown at a compound annual rate of 33.1% for the five years ended 1999 and represented 67.4% of our total life insurance sales for Individual Business in 1999. Our principal distribution channels are the MetLife career agency and the New England Financial general agency distribution systems and, after our recent acquisition of GenAmerica Corporation, GenAmerica's independent general agency system. We also have dedicated sales forces that market to non-profit organizations and banks and their customers. In total, we had approximately 11,000 active sales representatives in 1999. In addition to these distribution channels, we are increasing the distribution of our products through independent insurance agents and registered representatives. We believe our ability to effectively manage these multiple distribution channels represents a significant competitive advantage. Individual Business had $11.1 billion of revenues, or 43.5% of our total revenues, and $565 million of operating income in 1999. INSTITUTIONAL BUSINESS. Institutional Business offers a broad range of group insurance and retirement and savings products and services. Our group insurance products and services include group life insurance and non-medical health insurance such as short- and long-term disability, long-term care and dental insurance, as well as other related products and services. Our group insurance premiums, fees and other income, which totaled $5.9 billion in 1999, have grown at a compound annual rate of 10.0% for the three years ended 1999. Our retirement and savings products and services include administrative services sold to sponsors of 401(k) and other defined contribution plans, guaranteed interest products and separate account products. We distribute our Institutional Business products through a sales force of approximately 300 MetLife employees that is organized by both customer size and product. In total, we have approximately 64,000 institutional customers, including 86 of the FORTUNE 100 largest companies. Institutional Business had $10.4 billion of revenues, or 40.8% of our total revenues, and $585 million of operating income in 1999. ASSET MANAGEMENT. Through our wholly-owned subsidiary, State Street Research & Management Company, and our controlling interest in Nvest Companies, L.P. and its affiliates, Asset Management provides a broad variety of asset management products and services primarily to third-party institutions and individuals. Our Asset Management segment 117 119 managed $189.8 billion of our total assets under management at December 31, 1999, including $54.9 billion of assets in mutual funds and in separate accounts supporting individual variable life and annuity products. For the five years ended 1999, this segment's assets under management grew at a compound annual rate of 14.2%. We distribute our asset management products through several distribution channels, including State Street Research's and Nvest's dedicated sales forces and also through our Individual Business and Institutional Business distribution channels. Asset Management had $0.9 billion of revenues, or 3.5% of our total revenues, and $51 million of operating income in 1999. AUTO & HOME. Auto & Home offers auto insurance, homeowners insurance and other personal property and casualty insurance products. We sell these products directly to employees through employer-sponsored programs, as well as through a variety of retail distribution channels. These channels include agents in the MetLife career agency system, approximately 6,000 independent agents and brokers, which includes those of The St. Paul Companies acquired in 1999, and approximately 385 Auto & Home specialists. We are the leading provider of personal auto and homeowners insurance through employer-sponsored programs in the U.S. Net premiums earned from products sold through employer-sponsored programs have grown at a 14.3% compound annual rate for the five years ended 1999. On September 30, 1999, our Auto & Home segment acquired the standard personal insurance operations of The St. Paul Companies, which had in-force premiums of approximately $1.1 billion, substantially increasing the size of our personal lines business, making us the eleventh largest personal property and casualty insurer in the U.S. based on 1998 net premiums written. See "Business -- Auto & Home". Auto & Home had $1.9 billion of revenues, or 7.4% of our total revenues, and $54 million of operating income in 1999. INTERNATIONAL. We have international insurance operations in ten countries, with a focus on the Asia/Pacific region, Latin America and selected European countries. Our International segment offers life insurance, accident and health insurance, annuities and retirement and savings products and services to both individuals and groups and auto and homeowners coverage to individuals. Assets of our International segment, as adjusted for the recent divestitures of a substantial portion of our U.K. and Canadian operations, have grown at a compound annual rate of 21.4% for the five years ended 1999. International had $0.8 billion of revenues, or 3.1% of our total revenues, and $18 million of operating income in 1999. STRATEGY Our mission is to build financial freedom for everyone. Consistent with this mission, our goal is to be the preeminent provider of insurance and financial services in each of the U.S. businesses in which we compete. In order to achieve that goal, we will pursue the following strategies across all of our business segments: BUILD ON WIDELY RECOGNIZED BRAND NAMES Our widely recognized brand names are among our most valuable assets. We believe that our leading market share positions in the insurance and financial services industries, our long history of innovation, integrity and reliability, and our reputation for high quality products and services to individuals and institutions have resulted in the MetLife name becoming one of the most well-known brand names in the U.S. We have also been successful in utilizing additional brand names, such as New England Financial, Security First Group and State Street Research, for specific market segments. We believe our recent acquisition of GenAmerica and RGA further strengthens our brand portfolio. In addition, we believe that our brand names give us a key competitive advantage, allowing us to continue to build and maintain strong relationships with our customers and distributors. We intend to continue to aggressively capitalize on our brand recognition across multiple products, distribution channels and customer groups. 118 120 CAPITALIZE ON LARGE CUSTOMER BASE As a leading provider of insurance and financial services for over 130 years, we have built an unparalleled base of customers, including nine million households, or one of every eleven households in the U.S., and approximately 64,000 institutional customers with approximately 33 million employees and members. We believe that our large, existing customer base represents a significant growth opportunity. We intend to pursue the following growth initiatives: - enhancing our relationships with our existing individual customers by: - offering a broad array of products that meets the needs of our customers throughout their entire life cycle of financial needs; - improving the training of our agents and other financial services representatives to strengthen their ability to serve the needs of our customers; - developing direct marketing programs in partnership with our agency sales force to identify additional sales opportunities among our existing customers; and - providing banking and related services, as early as the first quarter of 2001, to serve the banking needs of our individual customers; - offering financial advice and education, retirement planning and beneficiary assistance services directly to employees of our institutional customers; and - increasing sales to our institutional customers by expanding the offering of voluntary (employee-paid) products, including auto and homeowners and long-term care insurance and pre-paid legal services plans. EXPAND MULTIPLE DISTRIBUTION CHANNELS We believe that our development and successful management of multiple distribution channels represent a significant competitive advantage. Our multiple distribution channels include our proprietary career and general agency distribution systems and our nationwide Institutional Business sales force, as well as a wide variety of other distribution channels in each of our business segments. We intend to grow our core distribution channels and to continue to build complementary distribution channels for sales of our products. We believe our career agency and general agency systems provide us with important advantages, allowing us to more effectively control our distribution and build and maintain long-term relationships with our customers. Our objective is to increase the size and productivity of our agency distribution systems by: - expanding our investment in the recruiting, training and retention of agents, including changing our compensation practices to improve incentives for more productive agents and increasing our recruiting of agencies as well as individual agents; and - enhancing the technology that supports agents, including improving their access to product and client information and offering more sophisticated client management systems to enable them to service larger numbers of clients and prospects more effectively. Our four-year agent retention rate has improved from 10.2% in 1995 to 24.2% in 1999. The industry average in 1998 was 14.2%. During the period from 1995 to 1999, the productivity of our career and general agency distribution systems, as measured by NET SALES CREDITS per agent, an industry measure for agent productivity, has grown at a compound annual rate of 12.0%. In addition to our core distribution channels, we have also developed and seek to expand additional complementary distribution channels that provide opportunities for further growth. Examples of our initiatives include: - our recent acquisition of GenAmerica, which sells its life insurance and annuity products through multiple distribution channels; 119 121 - our recent acquisitions of Security First Group and the Nathan & Lewis companies, which increased our presence in the fast-growing bank and broker-dealer distribution channels; - expanding our marketing efforts to the independent agency community by introducing new products and programs; - establishing the Small Business Center, which has offices located throughout the U.S., to better access the rapidly growing small-sized institutional markets; - entering into joint ventures and other arrangements with third parties to expand the marketing and distribution opportunities of our Institutional Business products and services; - establishing additional distribution channels for Asset Management, including the development of a dedicated sales force for State Street Research and increased coordination of distribution among Nvest's investment managers; and - introducing a direct response marketing program to generate additional Auto & Home sales. Complementary distribution channels within Individual Business accounted for 2.4% of first-year life insurance premiums and deposits and 32.2% of annuity premiums and deposits in 1999. In addition, premiums and other income from products sold through Institutional Business' Small Business Center have grown at a compound annual rate of 28.1% for the three years ended 1999 and totaled $328 million in 1999. CONTINUE TO INTRODUCE INNOVATIVE AND COMPETITIVE PRODUCTS The products and services offered by the financial services industry continue to evolve as the financial needs of consumers change. We intend to be at the forefront of the insurance and financial services industries in offering innovative and competitive products to our customers. Recent initiatives include: - new or revised products covering a substantial portion of our individual product offerings, including the introduction of a new variable universal life product, a long-term care insurance product and an equity additions feature to our traditional participating whole life insurance product, which allows policyholder dividends to be invested in an equity index account; and - new voluntary institutional products, including long-term care and auto and homeowners insurance, as well as pre-paid legal services plans, for employees of our Institutional Business customers. INCREASE FOCUS ON ASSET ACCUMULATION PRODUCTS We intend to expand our assets under management in both our insurance operations and our Asset Management segment by increasing our focus on sales of asset accumulation products, including variable life and annuity products, mutual funds and 401(k) plan products, which we believe provide a stable source of fee income as well as a higher operating return on equity compared with traditional insurance products. During the five years ended 1999, the separate account liabilities related to our individual variable annuity products grew at a 38.2% compound annual rate, and totaled $20.7 billion at December 31, 1999. Assets under management for mutual funds and separate accounts supporting individual variable life and annuity products grew at a compound annual rate of 16.7% for the five years ended 1999, and totaled $54.9 billion at December 31, 1999. In addition, primarily through two recent acquisitions, our Institutional Business segment has become a leading provider of administrative services in the defined contribution 401(k) plan market. We intend to use this position to attract more 401(k) plan assets for our Asset Management segment. 120 122 REDUCE OPERATING EXPENSES We are committed to improving profitability by reducing operating expenses. As part of an overall program to reduce operating expenses and enhance the efficiency of our operations, we have implemented the following programs: - during 1998, we reduced the number of non-sales positions by 2,267, an 11% reduction, and during 1999, we reduced the number of non-sales positions by 1,856, or 7%; - in 1999, as part of an internal reorganization, we began to integrate the operations of New England Financial, which since its merger with MetLife had been operated as a separate division, with the individual insurance operations of MetLife, and further consolidate administrative services throughout our organization; we believe this will reduce operating expenses by eliminating redundancies; and - we have made substantial investments in technological improvements in recent years, totaling approximately $925 million for the three years ended 1999, which we believe will enhance the efficiency of our operations, as well as improve our customer service and financial reporting. STRENGTHEN PERFORMANCE-ORIENTED CULTURE Our management team intends to strengthen the performance-oriented culture throughout our organization. We have implemented a number of initiatives to significantly enhance the performance of our employees, including: - establishing a new compensation program to better align compensation with individual and MetLife performance; - enhancing the expertise of our management and workforce by selectively hiring experienced new employees at all levels of our organization, with 28% of new officer appointments for the three years ended 1999 coming from outside MetLife; - expanding our training effort, including new management training programs for all of our officers and expanded training for our employees; and - implementing a new performance measurement and review program for our employees to increase individual accountability and better align individual and corporate goals. CONTINUE TO OPTIMIZE OPERATING RETURNS FROM INVESTMENT PORTFOLIO The return on our invested assets has contributed significantly to our earnings growth. Over the past three years, we have repositioned our investment portfolio in order to provide a higher operating rate of return on our invested assets. In connection with that repositioning, we reduced our investments in treasury securities and corporate equities and have increased our investments in fixed maturities with higher current yields. At the same time, we have continued to maintain a prudent asset mix, with investment grade fixed maturities constituting 91.0% of our total fixed maturities at December 31, 1999. We believe that the expertise of our investment department will enable us to continue to optimize the operating returns on our invested assets in the future. ENHANCE CAPITAL EFFICIENCY OF OUR OPERATIONS We seek to maximize our operating return on equity by enhancing the capital efficiency of our operations. We have recently implemented a new internal capital allocation system that we believe will allow us to more effectively invest our capital. Consistent with a more disciplined approach to capital allocation, we have divested operations that did not meet targeted rates of return or growth, including our medical insurance operations, substantial portions of our U.K. and Canadian operations and our commercial leasing business. We also intend to increase sales of 121 123 asset accumulation products, such as variable life and annuity products, that require less capital than traditional insurance products. In addition, as a publicly traded stock company, we will have a greater ability to make acquisitions and raise external capital in a more efficient manner, which we believe will increase our adjusted operating return on equity and enhance stockholder value. FOCUS INTERNATIONAL OPERATIONS ON GROWING MARKETS We have established insurance operations in selected international markets that are experiencing significant growth in demand for insurance products and where we believe we can gain significant market share. We intend to expand our international operations by continuing to make capital investments in countries in which we have existing operations, as well as in selected new markets, either through start-up operations or by acquisition. We now have operations in ten emerging insurance markets, including Indonesia and Uruguay, which we entered in 1998, and Brazil, which we entered in 1999. In addition, at the end of 1999, we obtained a license to sell life insurance in Poland. As part of our strategy to focus on growth markets, as well as to divest operations that would not meet our financial objectives, we disposed of substantial portions of our operations in the U.K. in 1997 and in Canada in 1998. INDIVIDUAL BUSINESS Our Individual Business segment offers a wide variety of protection and asset accumulation products aimed at serving the financial needs of our customers throughout their entire life cycle. Products offered by Individual Business include insurance products such as traditional, universal and variable life insurance, individual disability insurance and long-term care insurance and annuities and investment products such as variable and fixed annuities and mutual funds. Our principal distribution channels are the MetLife career agency and the New England Financial general agency distribution systems and, after our recent acquisition of GenAmerica Corporation, GenAmerica's independent general agency system. We also have dedicated sales forces that market to non-profit organizations and banks and their customers. In total, we had approximately 11,000 active sales representatives in 1999. In addition to these distribution channels, we are increasing the distribution of our products through independent insurance agents and registered representatives. Our broadly recognized brand names and strong distribution channels have allowed us to maintain our position as the largest provider of individual life insurance and annuities in the U.S., with $11.5 billion of total individual life and annuity premiums and deposits in 1999. Through September 30, 1999 we were also the largest issuer of individual variable life insurance in the U.S. with $278.7 million in first-year premiums and deposits, and the seventh largest variable annuity writer with approximately $24.1 billion in variable annuity assets managed. The U.S. individual life insurance industry had approximately $12.7 trillion of insurance in force and $1.3 trillion of total annuity assets at or for the year ended December 31, 1998. The U.S. insurance and investment market has undergone tremendous change in recent years, as Americans have begun to rely less on traditional life insurance, defined benefit retirement plans, social security and other government programs and the "baby-boom" generation has begun to enter their prime savings years. At the same time, technology advances have greatly increased the availability and timeliness of information so consumers are better informed about financial products and the state of their financial affairs. As a result of these trends, sales of mutual funds, variable annuities and other savings products have increased. We believe that the growth of annuities and investment products will continue and that, as the baby-boom generation begins to retire, asset payout products will also increase in importance. We believe that, as these trends continue, the types of products we offer, including variable life insurance, fixed and variable annuities and long-term care insurance, will become the products of choice for the protection and transfer of wealth. 122 124 INDIVIDUAL BUSINESS STRATEGY BUILD ON WIDELY RECOGNIZED BRAND NAMES. We believe we have one of the most well-known brand names in the U.S., built through our leading market share positions in the insurance and financial services industries, our reputation for high quality products and services and our long practice of advertising the MetLife name and Peanuts(TM) characters. We have also successfully used additional brand names in our Individual Business segment, such as New England Financial, Security First Group and Texas Life, to focus on specific market segments. We believe our recent acquisition of GenAmerica further strengthens our brand portfolio. In addition, we believe that our brand names give us a key competitive advantage, allowing us to continue to build and maintain strong relationships with our customers and distributors. We intend to continue to aggressively capitalize on our brand recognition across multiple products, distribution channels and customer groups. CAPITALIZE ON LARGE CUSTOMER BASE. We believe consumers increasingly seek comprehensive financial advice and information regarding their financial affairs and superior products that serve them throughout the different stages of their lives. We believe that building long-term relationships with our large existing customer base represents a significant growth opportunity. Approximately nine million households, or one of every eleven households in the U.S., own a MetLife individual product. Our goal is to obtain a larger share of the individual insurance, annuities and investment products purchased by these households by providing them with the best products and services that are available to meet their needs. We intend to pursue the following key initiatives: - offering a broad array of products that meet the financial needs of our customers throughout their entire life cycle, including protection products, such as life and disability insurance; asset accumulation products, such as annuities and mutual funds; asset distribution products, such as payout annuities; and wealth transfer products, such as life insurance and long-term care insurance; - improving the training of our agents and other financial services representatives to strengthen their ability to offer sophisticated financial advice to our customers; and - developing direct marketing programs in partnership with our agency sales force to identify additional sales opportunities among our existing customers. We also seek to utilize our historically strong position among our institutional customers to provide programs offering financial advice and education, retirement planning and beneficiary assistance services to their employees. GROW CORE DISTRIBUTION CHANNELS. Although we utilize a number of different distribution channels to market our individual products, we believe that our core career agency and general agency distribution systems are among our most valuable assets, allowing us to more effectively control our distribution and build and maintain long-term relationships with our customers. We intend to increase the size and productivity of our agency distribution systems by: - expanding our investment in the recruiting, training and retention of agents, including changing our compensation practices to improve incentives for more productive agents and increasing our recruiting of agencies as well as individual agents; and - enhancing the technology that serves agents, including improving their access to product and client information and offering more sophisticated client management systems to enable them to service larger groups of clients and prospects more effectively. The productivity of our career and general agency distribution systems, as measured by net sales credits per agent, an industry measure for agent productivity, has grown at a compound annual rate of 12.0% for the five years ended 1999. During that period, our four-year agent retention rate has improved from 10.2% in 1995 to 24.2% in 1999. The industry average in 1998 was 14.2%. 123 125 INCREASE DISTRIBUTION THROUGH OTHER CHANNELS. We expect to continue aggressively seeking opportunities to expand our distribution capabilities in attractive markets. In 1997, we acquired Security First Group, which expanded our distribution through the rapidly growing bank market for annuities and investment products and to the nonprofit, educational and health care markets. In 1998, we purchased Nathan & Lewis, which increased our presence in the fast-growing broker-dealer distribution channel. Our recent acquisition of GenAmerica added its multiple distribution channels, including its independent general agency system. We also expect to increase our use of independent life agents and registered representatives in the future. Sales through additional channels represented 2.4% of annualized first-year life insurance premiums and deposits and 32.2% of individual annuity premiums and deposits in 1999. CONTINUE TO INTRODUCE INNOVATIVE AND COMPETITIVE PRODUCTS. The products offered by the financial services industry continue to evolve as the financial needs of consumers change and as technology improves. We intend to be at the forefront of the insurance and financial services industries in offering innovative and competitive products to our customers. Recent initiatives include: - continuing to enhance the competitiveness of our products, such as the 1998 introduction of new or revised products covering a substantial portion of our product offerings; - creating products to reflect the needs of specific distribution channels and by marketing products under several brand names, including MetLife, New England Financial, Security First, Texas Life and General American Life; and - distributing products created by others, such as mutual funds and 401(k) plans, which may be offered under one of our own brand names or carry the name of the company that created them. MARKETING AND DISTRIBUTION We target the large, middle-income market, as well as affluent individuals, owners of small businesses and executives of small to medium-sized companies. We have also been successful in selling our products in various multicultural markets. We distribute our individual products nationwide through multiple channels, with the primary distribution systems being the MetLife career agency system and the New England Financial general agency system. While continuing to invest in our traditional distribution channels, we have also expanded into additional channels in order to supplement our growth or penetrate specific target markets. During the year ended December 31, 1999, the MetLife career agency and the New England Financial general agency systems and our additional distribution channels accounted for 49.8%, 47.8% and 2.4%, respectively, of first-year premiums and deposits for individual life insurance and 54.9%, 12.9% and 32.2%, respectively, of individual annuity deposits. METLIFE CAREER AGENCY SYSTEM. The MetLife career agency system had 6,866 agents in 318 agencies at December 31, 1999. Our career agency sales force focuses on the large, middle-income market, including multicultural markets. The average face amount of a life insurance policy sold through the career agency system in 1999 was approximately $160,000. Agents in our career agency system are full-time MetLife employees whom we compensate primarily with commissions based on sales. As our employees, they also receive certain benefits. Agents in our career agency system may not offer products of other insurers without our approval. At December 31, 1999, approximately 93% of the agents in our career agency system were licensed to sell one or more of the following products: variable life insurance, variable annuities or mutual funds. We support our efforts in multicultural markets through targeted advertising, specially trained agents and sales literature written in non-English languages. We estimate sales in multicultural markets represent one-fourth of MetLife's career agency individual life sales. 124 126 From 1994 to 1998, the number of agents in the MetLife career agency system declined, from 9,521 to 6,853. Most of this decline was due to a reduction in the number of less experienced agents, with the number of agents having at least five years of experience at MetLife declining from approximately 4,100 to approximately 3,400 during this period. We believe that this decline was principally the result of the adverse impact of sales practices litigation brought against us beginning in the early 1990s, the establishment of more stringent company-wide criteria for recruiting and retaining agents and a consolidation of sales offices and changes in compensation practices for our sales force during this period. We have undertaken several initiatives to grow our career agency force in the future, including expanding our investment in the recruiting, training and retention of agents, changing our compensation practices to improve incentives for more productive agents and increasing our recruiting of agencies as well as individual agents. At December 31, 1999, the number of agents in the MetLife career agency system was 6,866. In addition, our career agency system is increasingly productive, with net sales credits per agent, an industry measure for agent productivity, growing at a compound annual rate of 10.6% for the five years ended 1999. NEW ENGLAND FINANCIAL GENERAL AGENCY SYSTEM. In 1996, we merged with the parent company of New England Life Insurance Company, which afforded us better access to its target market of affluent individuals, owners of small businesses and executives of small- to medium-sized companies. We operate the New England Life Insurance Company business through our New England Financial division. The average face amount of a life insurance policy sold through the New England Financial general agency system in 1999 was approximately $310,000. At December 31, 1999, New England Financial's sales force comprised 76 general agencies providing support to 2,825 agents and a network of independent brokers throughout the U.S. The compensation of both agents, who are independent contractors, and general agents, who have exclusive contracts with New England Financial, is based on sales, although we also provide general agents with an allowance for benefits and other expenses. New England Financial has a highly trained general agency sales force and, according to The American College, in 1998 ranked third in the insurance industry in the percentage of agents who are Chartered Life Underwriters and Chartered Financial Consultants. Approximately 92% of New England Financial's general agents are licensed to sell variable products and mutual funds. New England Financial's general agency sales force increased total agent count by 123 agents in 1999; we believe it is one of the few life insurance organizations to register a significant increase in agents in 1999. To capitalize on its distribution strengths and achieve even higher levels of performance and agent retention, New England Financial is creating a compensation system in which the interests of the company and its top performing agents and field managers are more closely aligned. Productivity of the New England Financial general agency force, as measured by net sales credits, has grown at a compound annual rate of 13.8% for the five years ended 1999. ADDITIONAL DISTRIBUTION CHANNELS. We also distribute our individual insurance and investment products through several additional distribution channels, including Nathan & Lewis, MetLife Brokerage, New England Financial's Independent Producer Network, the Security First Group, MetLife Resources and Texas Life. Nathan & Lewis. Nathan & Lewis Securities, Inc., a MetLife subsidiary acquired in 1998, is a broker-dealer that markets mutual funds and other securities, as well as variable life insurance and variable annuity products, through approximately 1,000 independent registered representatives. With the acquisition, we obtained the use of Nathan & Lewis's account information and client management systems, which we intend to integrate into our other broker-dealer operations. Independent Distribution Network. In 1999, Individual Business combined MetLife Brokerage, a division of MetLife, and New England Financial's Independent Producer Network to create the Independent Distribution Network (IDN). IDN will market integrated, 125 127 specially-designed insurance products to upper income customers in the wealth preservation market through approximately 1,000 independent retail and wholesale insurance brokerage agencies, independent producers and agents in the career and general agency systems. Security First Group. Security First Group, a MetLife subsidiary acquired in 1997, distributes proprietary and third-party fixed and variable annuity products and mutual funds to customers of approximately 65 national, regional and community banks. MetLife Resources. MetLife Resources, a division of MetLife, markets retirement, annuity and other financial products on a national basis through approximately 415 agents and independent brokers. MetLife Resources targets the nonprofit, educational and health care markets. Texas Life. Texas Life, a MetLife subsidiary, markets whole life and universal life insurance products under the Texas Life name through approximately 1,585 active independent insurance brokers. These brokers are independent contractors that sell insurance for Texas Life on a nonexclusive basis. Recently, a number of MetLife career agents have also begun to market Texas Life products. Texas Life sells permanent life insurance policies with low cash values that are marketed through the use of brochures, as well as payroll deduction life insurance products. PRODUCTS We offer a wide variety of individual insurance, annuities and investment products aimed at serving our customers' financial needs throughout their entire life cycle. Our individual insurance products consist of variable life, universal life, whole life, term life and other insurance products. Our individual annuities and investment products consist of variable and fixed annuities and mutual funds. The following table sets forth selected financial information regarding our individual insurance, annuities and investment products at the dates or for the periods indicated: INDIVIDUAL INSURANCE, ANNUITIES AND INVESTMENT PRODUCTS
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) INSURANCE PRODUCTS: Variable life: First-year premiums/Deposits.............................. $ 389.1 $ 371.0 $ 242.2 Premiums/Deposits......................................... $ 997.7 $ 857.1 $ 657.3 Number of policies........................................ 480,107 415,933 360,790 Future policy benefits/Policy account balance............. $ 381.4 $ 289.7 $ 226.8 Separate account liability................................ $ 4,160.0 $ 3,148.4 $ 2,063.1 Life insurance in force................................... $ 81,146.8 $ 65,902.1 $ 52,647.2 Universal life: First-year premiums/Deposits.............................. $ 14.8 $ 20.7 $ 28.7 Premiums/Deposits......................................... $ 556.1 $ 578.0 $ 613.6 Number of policies........................................ 907,214 1,058,081 1,097,026 Future policy benefits/Policy account balance............. $ 5,870.0 $ 5,793.2 $ 5,688.0 Life insurance in force................................... $ 78,729.0 $ 82,330.3 $ 86,016.9 Whole life: First-year premiums/Deposits.............................. $ 135.8 $ 162.2 $ 198.7 Premiums/Deposits......................................... $ 3,834.2 $ 3,843.7 $ 3,859.4 Number of policies........................................ 7,788,905 8,160,567 8,532,166 Future policy benefits/Policy account balance............. $ 36,887.6 $ 35,725.8 $ 34,589.8 Life insurance in force................................... $193,522.8 $193,819.5 $196,785.8
126 128
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Term life: First-year premiums/Deposits.............................. $ 37.2 $ 42.6 $ 29.7 Premiums/Deposits......................................... $ 312.3 $ 307.6 $ 284.8 Number of policies........................................ 659,742 675,362 689,767 Future policy benefits/Policy account balance............. $ 483.6 $ 454.0 $ 435.6 Life insurance in force................................... $126,511.6 $123,561.8 $117,443.2 Other Individual insurance products:(1) First-year premiums/Deposits.............................. $ 432.9 $ 295.7 $ 269.0 Premiums/Deposits......................................... $ 1,221.3 $ 1,082.2 $ 1,011.5 Number of policies........................................ 3,004,914 3,173,831 3,411,881 Future policy benefits/Policy account balance............. $ 5,213.4 $ 5,186.2 $ 5,549.9 Separate account liability................................ $ 3,950.1 $ 4,020.8 $ 3,457.3 ANNUITIES AND INVESTMENT PRODUCTS: Annuities: Premiums/Deposits......................................... $ 4,547.0 $ 3,992.6 $ 3,167.1 Number of contracts....................................... 1,483,874 1,453,943 1,411,103 Future policy benefits/policy account balance............. $ 21,022.3 $ 21,100.2 $ 21,313.2 Separate account liability................................ $ 20,718.2 $ 15,844.0 $ 11,686.4 Mutual funds: Deposits.................................................. $ 3,848.2 $ 3,303.1 $ 2,540.4
- --------------- (1) Consists of individual disability insurance products; individual long-term care insurance products; small face amount life insurance policies sold by our agents until 1964, known as industrial policies; and employee benefit products and group pension products sold through New England Financial. Reflecting trends in the insurance industry, sales of mutual funds, variable annuities, variable life insurance policies and other savings products have increased in recent years, while sales of our traditional insurance products have declined. During the five years ended 1999, the separate account liabilities related to our individual variable annuity products grew at a 38.2% compound annual rate, and totaled $20.7 billion at December 31, 1999. First-year premiums and deposits for variable life insurance products have grown at a 33.1% compound annual rate and were $389.1 million in 1999. During this same period, mutual fund sales have grown at a 29.7% compound annual rate and in 1999 accounted for $3.8 billion of deposits. Sales of whole and term life insurance products, however, declined during this period, to $173.0 million of first-year premiums and deposits in 1999 from $341.6 million in 1995, which represented an annual rate of decline of 15.6%. INSURANCE PRODUCTS Our individual insurance products include variable life products, universal life products, traditional life products, including whole life and term insurance, and other insurance products, including individual disability insurance and long-term care insurance products, which are designed to meet a multitude of consumer needs. We continually review and update our products. We have introduced new products and features designed to increase the competitiveness of our portfolio and the flexibility of our products to meet the broad range of asset accumulation, protection and distribution needs of our customers. Some of these updates have included the introduction of a new variable universal life product, a long-term care insurance product and an equity additions feature to our traditional participating whole life insurance product, which allows policyholder dividends to be invested in a stock index investment account. 127 129 Distribution options under life policies and under both fixed and variable annuities include level payments guaranteed for the lifetime of the owner or beneficiary, for a specified term or combinations of these two options. Distribution options may be accessed through an immediate annuity or following the accumulation phase of a deferred annuity. VARIABLE LIFE. Variable life products provide insurance coverage through a contract which gives the policyholder flexibility in investment choices and, depending on the product, in premium payments and coverage amounts, with certain guarantees. For example, we retain the right within limits to adjust the fees we assess for providing administrative services and death benefit coverage. Most importantly, with variable life products, premiums and cash value can be directed by the policyholder into a variety of separate investment accounts or directed to our general account. In the separate investment accounts, the policyholder bears the entire risk of the investment results. We collect specified fees for the management of these various investment accounts and any net return is credited directly to the policyholder's account. In some instances, third-party money management firms manage investment accounts that support variable insurance products. With some products, by maintaining a certain premium level, policyholders may have the benefit of various death benefit guarantees that may protect the death benefit from adverse investment experience. UNIVERSAL LIFE. Universal life products provide insurance coverage on the same basis as variable life, except that they allow premiums, and the resulting accumulated balances, to be allocated only to our general account. Universal life products may allow the insured to increase or decrease the amount of death benefit coverage over the term of the contract and may allow the owner to adjust the frequency and amount of premium payments. We credit premiums, net of specified expenses, to an account maintained for the policyholder, as well as interest, at rates we determine, subject to specified minimums. Specific charges are made against the account for the cost of insurance protection and for expenses. WHOLE LIFE INSURANCE. Whole life insurance products provide a guaranteed benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Premium payments may be required for the whole of the contract period, to a specified age or for a specified period, and may be level or change in accordance with a predetermined schedule. Whole life insurance includes policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash or apply them to increase death benefits, increase cash values available upon surrender or reduce the premiums required to maintain the contract in force. In certain jurisdictions, dividends may be directed into an equity investment account. Because the use of dividends is specified by the policyholder, this group of products provides significant flexibility to individuals to tailor the product to suit their specific needs and circumstances, while at the same time providing guaranteed benefits. We intend to continue offering participating policies after the demutualization. We will be subject to statutory restrictions that limit to 10% the amount of statutory profits on participating policies written after the demutualization (measured before dividends to policyholders) that can inure to the benefit of stockholders. We believe that the impact of these restrictions on our earnings will not be significant. TERM INSURANCE. Term insurance provides a guaranteed benefit upon the death of the insured within a specified time period in return for the periodic payment of premiums. Specified coverage periods range from one year to 20 years, but in no event are longer than the period over which premiums are paid. Death benefits may be level over the period or decreasing. Decreasing coverage is used principally to provide for loan repayment in the event of death. Premiums may be guaranteed at a level amount for the coverage period or may be non-level and non-guaranteed. Term insurance products are sometimes referred to as pure protection products, in that there are normally little or no savings or investment elements. Term contracts expire without value at the end of the coverage period if the insured party is still alive. 128 130 OTHER INDIVIDUAL INSURANCE PRODUCTS. Individual disability insurance. Individual disability products provide a benefit in the event of the disability of the insured. In most instances, this benefit is in the form of a monthly income paid to age 65. In addition to income replacement, the product may be used to provide for the payment of business overhead expenses for disabled business owners or mortgage payment protection. We also distribute individual disability policies through a joint venture between New England Financial and Provident Companies, Inc. Although policies are issued in New England Financial's name, all underwriting, administration and servicing is handled by Provident, and 80% of the risk on all these new disability policies is reinsured by Provident. Individual long-term care insurance. Our long-term care insurance provides reimbursement for certain costs associated with nursing home care and other services that may be provided to older individuals unable to perform the activities of daily living. Other products. In addition to these products, we operate a closed block of small face amount life insurance policies that our agents sold until 1964, known as industrial policies. New England Financial also sells a small amount of employee benefit products and group pension products, which are included in the financial results of our Individual Business segment. ANNUITIES AND INVESTMENT PRODUCTS We offer a variety of individual annuities and investment products, including variable and fixed annuities and mutual funds. VARIABLE ANNUITIES. We offer variable annuities for both asset accumulation and asset distribution needs. Variable annuities allow the contractholder to make deposits into various investment accounts, as determined by the contractholder. The investment accounts are separate accounts of MetLife or New England Financial, and risks associated with investments in the separate accounts are borne entirely by the contractholders. Contractholders may also choose to allocate all or a portion of their account to our general account, in which case we credit interest at rates we determine, subject to certain minimums. They may also elect certain death benefit guarantees. Separate account investments may be managed by us or by various unaffiliated third-party portfolio managers. Third-party managers include such well-known names as Janus Capital Corp., T. Rowe Price Associates, Inc., Scudder Kemper Investments, Inc., Neuberger Berman Management Inc. and Fidelity Investments. The availability of these managers depends on the particular product series and distribution channel used by the contractholder. At December 31, 1999, $15.0 billion of variable annuity assets were allocated to separate accounts managed by us, $5.7 billion to separate accounts managed by third parties and $8.0 billion to our general account. FIXED ANNUITIES. Fixed annuities are used for both asset accumulation and asset distribution needs. Fixed annuities do not allow the same investment flexibility provided by variable annuities but provide guarantees related to preservation of principal and credited interest. Deposits made into these contracts are allocated to the general account and are credited with interest at rates we determine, subject to certain minimums. Credited interest rates may be guaranteed not to change for certain limited periods of time, normally one year. MUTUAL FUNDS AND SECURITIES. We offer both proprietary and non-proprietary mutual funds. Proprietary funds include those of State Street Research and the Nvest Funds Group. We also offer investment accounts for mutual funds and general securities that allow customers to buy, sell and retain holdings in one centralized location, as well as brokerage accounts that offer the accessibility and liquidity of a money market mutual fund. Of the mutual funds we sold in 1999, $1,667 million of the deposited assets were managed by our Asset Management segment and $2,181 million by third parties. 129 131 INSTITUTIONAL BUSINESS Our Institutional Business segment offers a broad range of group insurance and retirement and savings products and services to corporations and other institutions. Our group insurance products and services include group life insurance, non-medical health insurance, such as short- and long-term disability, long-term care and dental insurance and related administrative services, as well as other benefits such as employer-sponsored auto and homeowners insurance provided through our Auto & Home segment and prepaid legal services plans. We sell these products either as an employer-paid benefit or as a voluntary benefit in which the premiums are paid by the employee. Revenues from our group insurance products and services were $7 billion in 1999, representing 67.3% of total Institutional Business revenues of $10.4 billion. Group insurance operating income was $334 million in 1999. Our retirement and savings products and services include administrative services sold to sponsors of 401(k) and other defined contribution plans, guaranteed interest products and other retirement and savings products and services, including separate account contracts for the investment of defined benefit and defined contribution plan assets. Revenues from our retirement and savings products were $3.4 billion in 1999, representing 32.7% of total Institutional Business revenues. Retirement and savings operating income was $251 million in 1999. We are a leader in the U.S. group insurance market. In 1999, we were: - the largest group life insurer, with $5.3 billion of total statutory direct premiums written; - the second largest group long-term disability carrier and the largest provider of group short-term disability and group long-term care based on premiums and equivalents. In addition, we were the second largest commercial dental carrier based on premiums and equivalents with the largest commercial preferred provider organization in the U.S., having approximately 44,000 participating dentists at December 31, 1999; - a leading provider of administrative services to 401(k) and other defined contribution plans, with 1.6 million participants; and - one of the largest insurer managers of retirement and savings products, as measured by assets under management, with approximately $64.2 billion in retirement and savings assets under management at December 31, 1999. We have built this position through long-standing relationships with many of the largest corporate employers in the U.S. In 1999, 86 of the FORTUNE 100 largest companies purchased our products; these companies have been our customers for an average of approximately 20 years. We believe that these large customers provide an important and stable base from which to grow our institutional business. The employee benefit market served by Institutional Business has begun to change dramatically in recent years. As the U.S. employment market has become more competitive, employers are seeking to enhance their ability to hire and retain employees by providing attractive benefit plans. The market also reflects increasing concern of employees about the future of government-funded retirement and safety-net programs, an increasingly mobile workforce and the desire of employers to share the market risk of retirement benefits with employees. We believe these trends are facilitating the introduction of new "voluntary" products, such as long-term care and auto and homeowners insurance, as well as leading more employers to adopt defined contribution pension arrangements such as 401(k) plans. Voluntary products, which give valued benefits to employees at little or no cost to the employer, are attractive to employees since they are generally priced at group rates and are usually paid through payroll deduction, making them convenient to purchase and maintain. Voluntary products are particularly popular as workforces become more diverse and prefer to 130 132 tailor benefits to their individual circumstances. Voluntary products have become an increasingly important part of our group insurance product offerings. A substantial portion of our group insurance products are offered on a voluntary basis. Premiums for our voluntary products, which include employer-sponsored auto and homeowners insurance, were $2.1 billion in 1999. INSTITUTIONAL BUSINESS STRATEGY INCREASE EMPHASIS ON VOLUNTARY PRODUCTS. We seek to increase sales to our institutional customers by expanding the offering of voluntary, or employee-paid products, including auto and homeowners and long-term care insurance and prepaid legal services plans. We believe that voluntary products represent a substantial growth area. Although many employers still do not offer these products, we believe that they will be an increasingly important part of the benefits offered to attract and retain employees as the cost and convenience advantages receive more recognition in the marketplace. Since they are generally paid through payroll deduction, we believe they provide us with a stable customer base and source of revenues. FOCUS ON DEFINED CONTRIBUTION MARKET. With the acquisitions of Benefit Services Corporation, which specializes in the small and mid-size markets, and the defined contribution record keeping and participant services business formerly owned by Bankers Trust Corporation, which focuses on the large corporate market, we have become a leading provider of administrative services in the 401(k) plan market. At December 31, 1999, we provided administrative services for $85.9 billion of defined contribution plan assets. We intend to use our position as a leading administrator of defined contribution plans to capture more assets under management for our Asset Management segment. INCREASE OUR PRESENCE IN SMALL AND MID-SIZE EMPLOYER MARKET. We believe there is an opportunity to build on our strong brand name and experience to increase our sales to small and mid-size employers. To address this opportunity, we formed the Small Business Center in 1994 to focus on small employers and the brokers and intermediaries who service them and expanded our marketing to mid-sized employers through this channel in 1999. From 1997 to 1999, our premiums and other income from products currently sold through the Small Business Center have grown from $200 million to $328 million, a compound annual rate of 28.1%. MARKETING AND DISTRIBUTION Institutional Business markets our products through separate sales forces, comprised of MetLife employees, for both our group insurance and retirement and savings lines. We distribute our group insurance products and services through a regional sales force that is segmented by the size of the target customer. Marketing representatives sell either directly to corporate and other institutional customers or through an intermediary, such as a broker or a consultant. Voluntary products are sold through the same sales channels, as well as by specialists for these products. As of December 31, 1999, the group insurance sales channels had approximately 300 marketing representatives. Our group insurance products are distributed through the following channels: - The National Accounts unit focuses exclusively on our largest 125 customers, generally those having more than 25,000 employees. This unit assigns account executives and other administrative and technical personnel to a discrete customer or group of customers in order to provide them with individualized products and services; - Our regional sales force operates from 27 offices and generally concentrates on sales to employers with fewer than 25,000 employees, through selected national and regional brokers, as well as through consultants; and 131 133 - The Small Business Center focuses on improving our position in the smaller end of the market. Currently, seventeen individual offices staffed with sales and administrative employees are located throughout the U.S. These centers provide comprehensive support services on a local basis to brokers and other intermediaries by providing an array of products and services designed for smaller businesses. We distribute our retirement and savings products primarily through separate sales forces for each of our major product groups. We market pension and other investment-related products to sponsors of retirement and savings plans covering employees of large private sector companies with plan assets in excess of $600 million, mid-size and smaller private sector companies, plans covering public employees, collective bargaining units, nonprofit organizations and other institutions and individuals. Pension and other investment-related products are marketed and sold through approximately 50 marketing representatives. Defined contribution services are marketed through several distribution channels depending on the target market. For mid- and large-size employers, a dedicated sales force focuses on new relationships and cross-selling opportunities with other Institutional Business distribution channels. With respect to the small plan segment, generally those with less than 500 lives, defined contribution services are distributed through the agency system, the Small Business Center and our group regional sales force. We have entered into several joint ventures and other arrangements with third parties to expand the marketing and distribution opportunities of our Institutional Business products and services. - In February 1998, in cooperation with the AXA Group of France, we launched the MAXIS Employee Benefits Network to better serve our multinational clients. The MAXIS Network consists of insurers in more than 50 countries, including MetLife and AXA and their international affiliates, offering multinational customers the ability to pool the experience of local insurance plans and to obtain their insurance needs through a single program. - In April 1998, we formed an alliance with Travelers Property Casualty Corp. to offer Synchrony(SM), a product which combines administration of short- and long-term disability benefits with workers' compensation benefits from Travelers. - In 1998, we entered into an agreement with American Express Company to offer our 401(k) plan investment management and administrative services to their small employer customers. We also seek to sell our Institutional Business products and services through sponsoring organizations and affinity groups. In 1998, AARP, the nation's leading organization for people 50 years and older, selected us to offer long-term care insurance to its members. In 1999, we had $75.3 million in long-term care premiums from this group. In addition, we were selected in 1998 as the preferred provider of long-term care products by the National Long Term Care Coalition, a national organization of large companies. GROUP INSURANCE PRODUCTS AND SERVICES Our group insurance products and services include group life insurance and non-medical health insurance such as short- and long-term disability, long-term care and dental insurance. Other products include employer-sponsored auto and homeowners insurance provided through our Auto & Home segment and prepaid legal plans. The following table sets forth premiums and 132 134 fees and other selected data for each of our group insurance products and services for the periods indicated: GROUP INSURANCE PRODUCTS(1)
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS, EXCEPT AS INDICATED) Group Life: Premiums, fees and other income........................ $ 3,985 $ 3,815 $ 3,592 Policyholder liabilities............................... $12,176 $11,656 $10,598 Life insurance in-force (in billions).................. $ 1,196 $ 1,096 $ 1,135 Group Non-Medical Health: Premiums, fees and other income........................ $ 1,913 $ 1,570 $ 1,281 Policyholder liabilities............................... $ 3,854 $ 3,178 $ 3,169
- --------------- (1) Premiums from our employer-sponsored auto and homeowners insurance are reported in our Auto & Home segment. GROUP LIFE. Group life insurance products and services include group term, group universal life, group variable universal life, dependent life and survivor benefits. These products and services can be standard products or tailored to meet specific customer needs. This category also includes high face amount life insurance products covering senior executives for compensation-related or benefit-funding purposes. GROUP NON-MEDICAL HEALTH. Group non-medical health insurance consists of short- and long-term disability, long-term care, dental and accidental death and dismemberment. We also sell excess risk and administrative services only arrangements to some employers. We sold our medical insurance operations in 1995. OTHER PRODUCTS AND SERVICES. We are the market leader in auto and homeowners insurance programs that are sponsored by employers and offered on a voluntary basis. Through our Auto & Home segment, we offer auto and homeowners insurance to employees in the workplace, which is usually paid for through payroll deduction. See "-- Auto & Home". Other products and services include prepaid legal plans, which are offered through approximately 250 corporate sponsors. Prepaid legal plans are generally voluntary products that provide employees with access to covered legal services at competitive prices. RETIREMENT AND SAVINGS PRODUCTS AND SERVICES Our retirement and savings products and services include administrative services sold to 401(k) and other defined contribution plans, guaranteed interest products and other retirement and savings products and services. The following table sets forth selected data for each of our retirement and savings products and services for the periods indicated: RETIREMENT AND SAVINGS PRODUCTS AND SERVICES
AT DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN BILLIONS) Defined Contribution Plans Services: Number of participants (in millions)...................... 1.6 1.7 1.6 Assets administered....................................... $85.9 $79.4 $67.1 Liabilities for guaranteed interest products................ $20.4 $21.8 $20.6 Liabilities for other retirement and savings products....... $41.2 $43.1 $42.6
133 135 DEFINED CONTRIBUTION PLAN SERVICES. Since 1996, we have made a number of key acquisitions in the defined contribution marketplace, making us a leading provider of administrative services to 401(k) and other defined contribution plans. We provide full service defined contribution programs to companies of all sizes in the expanding 401(k) plan market, as well as to the nonprofit, educational and health care markets. Our programs involve a full range of record-keeping (including employee communications) services, either on a stand-alone basis or combined with asset management services. GUARANTEED INTEREST PRODUCTS. We offer guaranteed interest contracts, known as GICs, our Met Managed GIC and similar products. In traditional GICs and funding agreements, corporations and other institutions invest their funds in products in which the principal and interest are guaranteed by the issuing insurance company for a specified period of time. We also sell annuity guarantee products, generally in connection with the termination of pension plans, funds available from defined contribution plans or the funding of structured settlements. Sales of guaranteed interest products declined in 1999 and 1998, primarily as a result of a shift in customers' investment preferences from guaranteed interest products to separate account alternatives as interest rates declined in those years. Substantially all of our GICs contain provisions limiting early terminations, including penalties for early terminations and minimum notice requirements. Included in our guaranteed interest products at December 31, 1999 are $2.5 billion of funding agreements, $0.6 billion of which we assumed from General American Life Insurance Company. Of the $2.5 billion of funding agreements, $29 million, $708 million, $452 million and $1,117 million may be terminated after 1-day, 7-day, 30-day and 90-day notice periods, respectively. The remaining $176 million of the $2.5 billion of funding agreements may not be put by the holder prior to their maturity. Excluded from this total is $5.1 billion of funding agreements assumed from General American Life Insurance Company, which were terminated on October 1, 1999 in connection with our exchange offer. See "Business -- Acquisition of GenAmerica". The Met Managed GIC is an investment product that complements traditional GICs through the added feature of customer participation in the investment results of the funds underlying the Met Managed GIC product. We are the industry leader in assets under management for this type of product with assets of $11.9 billion in 1999. The Met Managed GICs allow the contractholders to receive, at termination, the market value of their accounts or to transfer their accounts at book value to a traditional GIC product, in which case the interest rate credited will be adjusted to reflect any difference between the market value of the transferred account and its book value. OTHER RETIREMENT AND SAVINGS PRODUCTS AND SERVICES. Other retirement and savings products and services include separate account contracts for the investment and management of defined benefit and defined contribution plans on behalf of corporations and other institutions. Customer funds are deposited in separate accounts managed by us or by an independent manager, and invested in a variety of assets including fixed income instruments, common stock and real estate. In 1999, 88.3% of our institutional separate account assets were managed by a MetLife affiliate and 11.7% were managed by non-affiliates. We report asset management fees for assets managed by us in our Asset Management segment, while administrative fees are reported in our Institutional Business segment. ASSET MANAGEMENT Through our wholly-owned subsidiary State Street Research and our controlling interest in Nvest Companies, L.P. and its affiliates, Asset Management provides a broad variety of asset management products and services primarily to third-party institutions and individuals. Asset Management had total assets under management of $189.8 billion at December 31, 1999, growing at a compound annual rate of 14.2% for the five years ended 1999. Included in this total was $54.9 billion in mutual funds and separate accounts supporting individual variable life and annuity products, which have grown at a compound annual rate of 16.7% for the five years ended 1999. At December 31, 1999, Asset Management's assets under management consisted of 134 136 equities, representing 44% of Asset Management's total assets under management, fixed income investments (45%), money market investments (6%) and real estate (5%). We distribute our asset management products and services through numerous distribution channels, including State Street Research's and Nvest's dedicated sales forces, and also through our Individual Business and Institutional Business distribution channels. The investment management industry, which includes both retail mutual funds and institutional asset management, has experienced strong growth over the last ten years. Mutual fund assets have grown at a compound annual rate of 23.8% for the ten years ended December 31, 1998. During the same period, institutional assets, including corporate, government and endowments and foundations, have grown at a compound annual rate of 10.3%. The number of prime savers (persons aged 40 to 60 years) has grown 37% between 1988 and 1998. While overall industry growth has been strong, there has been a shift in preference from defined benefit plans to defined contribution plans and mutual funds due to favorable legislation regarding individual savings, a more transient workforce for whom defined benefit plans are not the best solution and uncertainty surrounding the long-term viability of Social Security. We believe we are well-positioned to benefit from this shift due to our broad offering of both institutional and retail products and our multi-channel distribution network. ASSET MANAGEMENT STRATEGY The primary objective of our asset management strategy is to grow assets under management. To attain this goal, we have implemented the following strategies: OFFER EXPANDED LINE OF PRODUCTS AND SERVICES. We seek to grow Asset Management by offering customers a diverse line of products and services that focus on the distinct capabilities of each of our subsidiaries. Each of Nvest's investment management firms implements an independent investment specialty and philosophy. We believe this approach fosters an entrepreneurial environment that encourages the development of new, innovative investment management products and services, while maintaining access to the significant resources of the larger organization. State Street Research seeks to grow its business by targeting markets outside its core large institutional retirement plan market, including the fast growing mid-size plan market and mutual funds. EXECUTE STRATEGIC ACQUISITIONS. Each of our Asset Management subsidiaries seeks acquisition opportunities that provide diversification of asset classes and methods of distribution. We believe Nvest's public holding company structure provides it with an opportunity to make acquisitions that enhance the overall business while retaining the acquired company's independent identity. Key employees are generally expected to continue as active participants in the acquired business and the acquired firm's executive personnel are responsible for reviewing their firm's results, plans and budgets. State Street Research also seeks acquisitions that will enhance the products and services it offers. For instance, in 1997 a team of professionals specializing in managing money for professional athletes joined State Street Research, and it has since expanded its distribution to high net worth individuals through financial services supermarkets, brokers and financial planners. ENHANCED DISTRIBUTION SYSTEMS. We seek to increase sales of our products and services through enhanced distribution systems, including improved coordination of the independent distribution systems of Nvest, and through increased utilization of our Individual Business and Institutional Business distribution channels. We believe that further opportunities exist to increase sales in many of the markets served by these channels, including sales of mutual funds to individuals and asset management services to 401(k) plans served by Institutional Business. 135 137 NVEST Nvest Companies, L.P. offers a broad array of investment management products and services across a wide range of asset categories to institutions, mutual funds and private accounts. Nvest operates as a holding company for twelve investment management firms and six principal distribution and consulting firms, all but one of which are wholly owned by Nvest. The twelve investment management firms operate as independent entities, with each company having responsibility for its own investment strategy and decisions, business plans, product development and management fee schedules. Through its distribution and consulting firms, Nvest makes available certain distribution, consulting and administrative services that Nvest's subsidiary investment management firms draw on as needed. These services include marketing, product development and administrative support such as financial, management information and employee benefits services. We are the general partner and, at December 31, 1999, owned approximately 48% of the total economic interest of Nvest and its affiliates. Through Nvest, L.P., a New York Stock Exchange-listed limited partnership, approximately 14% of the economic interest in Nvest is publicly traded, with the remaining 38% owned by others. We acquired our interest in Nvest in August 1996 as part of our merger with New England Mutual Life Insurance Company. During the five years ended 1999, Nvest's assets under management have grown at a compound annual rate of 14.6% to $133 billion. At December 31, 1999, Nvest's assets under management consisted of equities, representing 44% of Nvest's total assets under management, fixed income investments (43%), money market investments (8%) and real estate (5%). The following table summarizes Nvest's assets under management by investor type at the dates indicated:
AT DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN BILLIONS) Institutional............................................... $ 86 $ 87 $ 80 Mutual Funds................................................ 36 36 33 Private Accounts............................................ 11 12 12 ---- ---- ---- $133 $135 $125 ==== ==== ====
INVESTMENT MANAGEMENT FIRMS Each of the following twelve investment management firms pursues an independent investment strategy and philosophy: - Loomis, Sayles & Company, L.P. actively manages portfolios of publicly traded fixed-income securities, equity securities and other financial instruments for a client base consisting of institutional clients, endowments, foundations and third-party corporate investment portfolios, manages assets for high net worth individuals and advises the Loomis Sayles Funds. - Harris Associates L.P. is primarily a value-equity style investment advisory firm with institutional, private account and multi-manager product offerings; it also serves as the investment advisor for The Oakmark Family of Funds. - AEW Capital Management, L.P. is a real estate advisory firm which utilizes its real estate, research and capital markets expertise to focus on high-yield equity and debt strategies, real estate securities and directly held interests in real estate portfolios. - Back Bay Advisors, L.P., which manages mutual funds in two mutual fund groups sponsored by Nvest affiliates, as well as institutional funds for the pension and foundation marketplace, specializes in fixed-income management. 136 138 - Jurika & Voyles, L.P. provides investment advisory services to institutions, individuals and mutual funds utilizing a fundamental, research-driven investment approach which seeks to invest at opportunistic prices in the stock of companies exhibiting growth in cash flow. - Kobrick Funds, LLC provides investment management services for equity mutual funds. - Reich & Tang Funds, a division of Reich & Tang Asset Management L.P., manages money market mutual funds that are marketed primarily through brokerage houses and regional commercial banks and acts as administrator for mutual funds advised by third parties and for the equity funds managed by Reich & Tang Capital Management. - Reich & Tang Capital Management, a division of Reich & Tang Asset Management L.P., manages mutual funds, private investment partnerships and equity funds for institutions and individuals. - Snyder Capital Management, L.P. provides investment advisory services primarily to institutions and high net worth individuals and families, and specializes in investing in small- to mid-capitalization equities. - Vaughan, Nelson, Scarborough & McCullough, L.P. manages equity, fixed income and balanced portfolios for foundations, endowments, institutions and high net worth individuals. - Westpeak Investment Advisors, L.P. provides customized equity management for institutional investors, such as pension plans, foundations and endowments, and mutual funds, utilizing an active, quantitative research capability. - Capital Growth Management Limited Partnership provides investment management services for mutual funds and for a limited number of large institutions and individual clients. Nvest's investment management firms market their services to institutions, individually managed private accounts for high net worth individuals and mutual funds. The institutional market for investment management services includes corporate, government and union pension plans, endowments and foundations and corporations purchasing investment management services for their own account. Nvest's management firms also advise or sub-advise approximately 100 mutual funds, the great majority of which are grouped into eight fund "families" and are marketed through a variety of channels. DISTRIBUTION AND CONSULTING FIRMS Nvest and its six principal distribution and consulting firms listed below provide distribution, marketing and administrative services to Nvest's investment management firms: - Nvest Funds Distributor, L.P. serves as the distributor and is responsible for all sales-related activities of the Nvest Funds Group, a proprietary group of mutual funds. It distributes mutual funds through retail sales networks of regional and national brokerage firms and other distribution channels, including our Individual and Institutional channels. - Nvest Associates, Inc. provides institutional marketing and consulting services to Nvest's investment management firms. - Nvest Advisor Services assists in the marketing and distribution of mutual funds advised by several of Nvest's investment management firms through financial planners and advisors. - Nvest Managed Account Services assists in the marketing and distribution of investment products to mutual fund wrap programs. - Nvest Retirement Services assists in the marketing and distribution of mutual funds advised by several of Nvest's investment management firms to retirement plan sponsors, large 401(k) plan providers and consultants. 137 139 - Nvest Services Company, Inc. provides fund administration, legal and compliance and human resources services to the Nvest Funds Group. It also provides its services, on a voluntary basis, to Nvest's other affiliates and fund families. STATE STREET RESEARCH State Street Research conducts its operations through two wholly-owned subsidiaries, State Street Research & Management Company, a full-service investment management firm, and SSR Realty Advisors, Inc., a full-service real estate investment advisor. State Street Research offers investment management services in all major investment disciplines through multiple channels of distribution in both the retail and institutional marketplaces. State Street Research had assets under management of $56.8 billion, having grown at a compound annual rate of 13.2% for the five years ended 1999. At December 31, 1999, State Street Research's assets under management consisted of equities, representing 44% of State Street Research's total assets under management, fixed income investments (50%), money market investments (1%) and real estate (5%). State Street Research is currently an investment manager for ten of the twelve largest U.S. corporate pension plans. The majority of State Street Research's institutional business is concentrated in qualified retirement funds, including both defined benefit and defined contribution plans. State Street Research also provides investment management services to foundations and endowments. In addition, State Street Research serves as advisor or subadvisor for 37 mutual funds, as well as five mutual fund portfolios underlying MetLife's variable life and annuity products, collectively with $18.9 billion of assets under management at December 31, 1999. The following table summarizes State Street Research's assets under management by investor type for the periods indicated:
AT DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN BILLIONS) Institutional............................................... $37.6 $38.8 $35.4 Mutual Funds................................................ 18.9 17.0 14.7 Private Accounts............................................ 0.3 0.2 -- ----- ----- ----- $56.8 $56.0 $50.1 ===== ===== =====
MARKETING AND DISTRIBUTION State Street Research distributes its investment products to institutions through its own institutional sales force, MetLife's institutional sales force and pension consultants. Our Institutional Business sales force is the largest contributor to State Street Research institutional sales, representing 68% of the 1999 total. State Street Research's mutual fund products are distributed primarily through large retail brokerage firms (40.5% of mutual fund sales) and by the MetLife career agency sales force (59.5% of mutual fund sales). In addition to the primary distribution channels, State Street Research has developed distribution capabilities through regional brokerage firms, mutual fund supermarkets, registered investment advisors and financial planners. State Street Research also offers its products to the defined contribution market through Institutional Business' defined contribution group, as well as directly through its own distribution channel. AUTO & HOME Auto & Home, operating primarily through Metropolitan Property and Casualty Insurance Company, a wholly-owned subsidiary of MetLife, offers personal lines property and casualty insurance directly to employees through employer-sponsored programs, as well as through a 138 140 variety of retail distribution channels, including the MetLife career agency system, independent agents and Auto & Home specialists. Auto & Home primarily sells auto insurance, which represented 79.0% of Auto & Home's total net premiums earned in 1999, and homeowners insurance, which represented 19.8% of Auto & Home's total net premiums earned in 1999. Auto insurance includes both standard and non-standard (insurance for risks having higher loss experience or loss potential than risks covered by standard insurance) policies. On September 30, 1999, our Auto & Home segment acquired the standard personal lines property and casualty insurance operations of The St. Paul Companies, which had in-force premiums of approximately $1.1 billion and approximately 3,000 independent agents and brokers. This acquisition substantially increased the size of this segment's business, making us the eleventh largest personal property and casualty insurer in the U.S. based on 1998 net premiums written, and will also give us a strong presence in a number of additional states. AUTO & HOME STRATEGY EXPAND EMPLOYER-SPONSORED PROGRAMS. We believe the employer-sponsored distribution channel represents a significant growth opportunity to expand sales of our Auto & Home products to our Institutional Business clients. The rapid growth and acceptance of employer-sponsored marketing of auto and homeowners insurance is a relatively recent development, and most employers do not currently offer it as a benefit. Currently only a small percentage of our Institutional Business clients offer Auto & Home products. We also anticipate significant growth of existing employer-sponsored programs through greater penetration of the employee base. CONTINUE BUILDING DIRECT MARKETING CAPABILITY. In the third quarter of 1998, Auto & Home launched a direct response marketing distribution channel. We expect the direct marketing distribution channel to generate sales through target mailings, telemarketing, broad advertising, affinity groups, agent referrals, bank relationships and the Internet. We believe that our experience with using direct marketing distribution techniques in the employer-sponsored distribution channel, combined with the strength of the MetLife brand name, should enable us to compete successfully in the direct marketing distribution channel. ENHANCE RETAIL DISTRIBUTION. We currently market our products through retail channels in 46 states. Since 1997, we have emphasized, through additional advertising, pricing, and underwriting efforts, certain states in which we believe we have the most potential for profitable growth. CONTINUE TO REDUCE CATASTROPHE EXPOSURE. Since Hurricane Andrew in 1992, our management has worked actively to reduce Auto & Home's exposure to losses from catastrophes. Actions include a reduction in homeowners policies in force in states having greater exposure to severe hurricanes, in conformity with regulatory requirements. At the same time, Auto & Home has significantly enhanced reinsurance coverage in all regions to limit losses from catastrophes. PRODUCTS Auto & Home's insurance products include: - auto, including both standard and non-standard private passenger; - homeowners, including renters, condominium and dwelling fire; and - other personal lines, including umbrella (protection against losses in excess of amounts covered by other liability insurance policies), recreational vehicles and boat owners. 139 141 The following table sets forth net premiums earned and other operating results for Auto & Home for the periods indicated:
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) AUTO:(1) Net premiums earned...................................... $1,383 $1,164 $1,123 Loss ratio without catastrophes.......................... 75.6% 73.6% 76.9% Loss ratio due to catastrophes........................... 0.5% 1.3% 0.2% ------ ------ ------ Loss ratio............................................... 76.1% 74.9% 77.1% Expense ratio............................................ 27.9% 26.3% 24.8% ------ ------ ------ Combined ratio........................................... 104.0% 101.2% 101.9% Combined ratio without catastrophes...................... 103.5% 99.9% 101.7% HOMEOWNERS:(1) Net premiums earned...................................... $ 347 $ 225 $ 217 Loss ratio without catastrophes.......................... 60.9% 46.5% 53.6% Loss ratio due to catastrophes........................... 6.3% 18.5% 7.1% ------ ------ ------ Loss ratio............................................... 67.2% 65.0% 60.7% Expense ratio............................................ 34.3% 32.3% 30.3% ------ ------ ------ Combined ratio........................................... 101.5% 97.3% 91.0% Combined ratio without catastrophes...................... 95.2% 78.8% 83.9% ALL LINES:(1) Net premiums earned...................................... $1,751 $1,403 $1,354 Loss ratio without catastrophes.......................... 72.7% 69.4% 72.7% Loss ratio due to catastrophes........................... 1.7% 4.0% 1.3% ------ ------ ------ Loss ratio............................................... 74.4% 73.4% 74.0% Expense ratio............................................ 29.3% 27.4% 25.9% ------ ------ ------ Combined ratio........................................... 103.7% 100.8% 99.9% Combined ratio without catastrophes...................... 102.0% 96.8% 98.6%
- --------------- (1) Loss adjustment expenses are reflected in our loss ratio. We believe this presentation is consistent with the presentation of other property and casualty insurers. AUTO COVERAGES. Auto insurance policies include coverages for private passenger automobiles, utility automobiles and vans, motorcycles, motor homes, antique or classic automobiles and trailers. Auto & Home offers common coverages such as liability, uninsured motorist, no fault or personal injury protection and collision and comprehensive coverages. Auto & Home also offers non-standard auto insurance, which accounted for $128 million in net premiums earned in 1999. HOMEOWNERS COVERAGES. Homeowners insurance provides protection for homeowners, renters, condominium owners and residential landlords against losses arising out of damage to dwellings and contents from a wide variety of perils, as well as coverage for liability arising from ownership or occupancy. Traditional insurance policies for dwellings represent most of Auto & Home's homeowners policies providing protection for loss on a "replacement cost" basis. These policies provide additional coverage for reasonable expenses for normal living expenses incurred by policyholders who have been displaced from their homes. MARKETING AND DISTRIBUTION Personal lines auto and homeowners insurance products are directly marketed to employees through employer-sponsored programs. Auto & Home products are also marketed and sold by the MetLife career agency sales force, independent agents and Auto & Home specialists. For the 140 142 year ended December 31, 1999, employer-sponsored programs, independent agents, the MetLife career agency force, Auto & Home specialists and other distribution channels accounted for 32.0%, 30.5%, 25.0%, 7.9% and 4.6%, respectively, of total net premiums earned by the Auto & Home segment. EMPLOYER-SPONSORED PROGRAMS. Net premiums earned through Auto & Home's employer-sponsored distribution channel have grown from $329.2 million in 1995 to $561.6 million in 1999, a compound annual rate of 14.3%. Auto & Home is the leading provider of employer-sponsored auto and homeowners products. At December 31, 1999, over 1,000 employers offered our Auto & Home products to their employees. Institutional Business marketing representatives market the employer-sponsored Auto & Home products to employers through a variety of means, including broker referrals and cross-selling to our group customers. Once endorsed by the employer, we commence marketing efforts to employees. Employees who are interested in the group auto and homeowners products can call a toll-free number for a quote, and can purchase coverage and authorize payroll deduction over the telephone. Auto & Home has also developed proprietary software that permits an employee to obtain a quote for group auto insurance through Auto & Home's Internet website. In the early 1990s, Auto & Home created a multi-tiered pricing structure that permits Auto & Home to underwrite virtually any individual auto risk, allowing us to offer a policy to virtually all of a company's employees. Auto & Home's multi-tiered pricing structure for auto insurance permits us to write classes of business for which other industry participants do not compete, or compete solely by writing through multiple companies, which is less convenient for employees and more expensive to administer. RETAIL DISTRIBUTION CHANNELS. We market and sell Auto & Home products through the MetLife career agency sales force, independent agents and Auto & Home specialists. In recent years, we have increased our use of independent agents and Auto & Home specialists to sell these products. Independent agents. At December 31, 1999, Auto & Home maintained contracts with approximately 6,000 agents and brokers, which includes those of The St. Paul Companies. Independent agents have been the primary source of new business production for Auto & Home's non-standard auto insurance program. Auto & Home specialists. Approximately 385 Auto & Home specialists sell products for Auto & Home in 19 states. Auto & Home's strategy is to utilize Auto & Home specialists, who are our employees, in geographic markets that are underserved by our career agents. Auto & Home intends to increase the number of Auto & Home specialists in many of the selected states on which we focus. MetLife career agency system. Approximately 2,400 agents in the MetLife career agency system sell Auto & Home insurance products. Sales of Auto & Home products by agents have been declining since the early 1990s, due principally to the reduction in the number of agents in our career agency sales force. See "-- Individual Business -- Marketing and Distribution". OTHER DISTRIBUTION CHANNELS. We believe that Auto & Home's experience with direct response marketing in connection with the employer-sponsored marketing distribution channel, plus the strength of the MetLife brand name, give Auto & Home advantages that can successfully be used to establish a direct response marketing operation. During late 1997 and early 1998, Auto & Home developed pricing, underwriting, financial control and sales capabilities and information technology for our auto products needed to enter the direct response marketing distribution channel. In the third quarter of 1998, Auto & Home commenced direct response marketing activities for our auto products in California. During 1999, the direct response channel was extended to Maryland, Michigan and Missouri, and presently represents 5% of new auto insurance sales. The direct response marketing channel will permit sales to be generated through 141 143 sources such as target mailings, broad advertising, affinity groups, career agent referrals, bank relationships and the Internet. In 1999, Auto & Home's lines of business were concentrated in the following states, as measured by net premiums earned: Massachusetts ($265 million or 15.0% of total net premiums earned), New York ($250 million or 14.2%), Connecticut ($100 million or 5.7%), Florida ($99 million or 5.6%) and Illinois ($84 million or 4.8%). CLAIMS Auto & Home's claims department includes approximately 2,100 employees located in Auto & Home's Warwick, Rhode Island home office, fifteen field claim offices, four law department house counsel offices and drive-in inspection and other sites throughout the United States. These employees include claim adjusters, appraisers, attorneys, managers, medical specialists, investigators, customer service representatives, claim financial analysts and support staff. Claim adjusters, representing the majority of employees, investigate, evaluate and settle over 700,000 claims annually, principally by telephone. Auto & Home seeks to control claims severity by using experienced adjusters, medical management resources and preferred provider organizations. Auto & Home also employs an expert software system incorporating a database of expert medical opinions to evaluate the severity of bodily injury and uninsured motorist bodily injury claims. That system is licensed under an agreement that expires in 2002. Auto & Home is currently installing a new proprietary claims handling system that uses technology with data mining capabilities to help claims personnel provide service and control claims severity while limiting personnel costs. The system is being used in all Auto & Home claims offices, and is expected to be installed, by year-end 2000, in the claims offices acquired as a result of the acquisition of The St. Paul standard personal lines. INTERNATIONAL International provides life insurance, accident and health insurance, annuities and savings and retirement products to both individuals and groups, and auto and homeowners coverage to individuals. We focus on the Asia/Pacific region, Latin America and selected European countries. We currently have insurance operations in South Korea, Taiwan, Hong Kong, Indonesia, Mexico, Argentina, Brazil, Uruguay, Spain and Portugal. In addition, at the end of 1999 we obtained a license to sell life insurance in Poland. We operate in international markets through subsidiary and branch operations, as well as through joint ventures. In 1999, International had over six million customers. INTERNATIONAL STRATEGY We seek to develop a presence in international markets that are experiencing significant demand for insurance products and where we believe we can gain significant market share. We evaluate potential markets in terms of the market opportunity, such as our ability to generate long-term profits, the regulatory and competitive environment and related market risk. We believe that such markets provide us with the opportunity to realize higher growth rates and higher profit margins than we might achieve domestically. Accordingly, we seek higher rates of return on these operations. However, because these operations are not yet mature, we focus not only on current earnings, but on building embedded value. Our primary focus is on developing economies in Asia, Latin America and Europe. We intend to expand our international operations by continuing to make investments in countries in which we currently have operations, as well as in selected new markets, either through start-up operations or by acquisition. 142 144 As part of this strategy to focus on growth markets, as well as to divest operations that would not meet our financial objectives, we disposed of substantial portions of our operations in the U.K. in 1997 and in Canada in 1998. Both operations were located in mature, highly competitive and rapidly consolidating markets in which market share gains were very difficult. The following table sets forth selected data for International for the periods indicated: INTERNATIONAL(1)
AT OR FOR THE YEARS ENDED DECEMBER 31, ---------------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Premiums.................................................... $ 518 $ 414 $ 444 Deposits.................................................... $ 303 $ 530 $ 162 Assets...................................................... $3,289 $2,324 $1,707 Number of agents............................................ 6,591 3,680 5,197 Number of countries......................................... 10 8 8
- --------------- (1) Information in table excludes data for the U.K. and Canada. We disposed of substantial portions of our operations in the U.K. in 1997 and in Canada in 1998. ASIA/PACIFIC REGION SOUTH KOREA. MetLife Saengmyoung Ltd., which became a wholly-owned subsidiary in 1998, has more than 200,000 customers and sells individual life insurance, savings and retirement and non-medical health products. The company also sells group life and savings and retirement products. Premiums and deposits for 1999 were $188 million. TAIWAN. We launched our Taiwanese operations through a branch of Metropolitan Insurance and Annuity Company in May 1989. The branch has approximately 3.3 million customers and sells individual life, accident, non-medical health and personal travel insurance products, as well as group life, accident, and non-medical health insurance products. Individual products are primarily sold through career agents and through direct marketing, while group coverages are sold through agents and brokers. Premiums and deposits for 1999 were $124 million. HONG KONG. Metropolitan Life Insurance Company of Hong Kong Limited, which was established in 1995, sells individual life insurance products through sales agents. In 1998, we signed an agreement to distribute our products through an established brokerage network. We also distribute our products in Hong Kong through other brokers and general agents. In addition, we recently entered into a marketing agreement with the local operations of The Chase Manhattan Bank to offer insurance products to the credit card and retail banking customers of Chase in Hong Kong. INDONESIA. P.T. MetLife Sejahtera was established in November 1997 and began selling its products in March 1998. The joint venture sells individual life insurance products through a full-time agency sales force. LATIN AMERICA MEXICO. We expanded into Latin America in 1992 with the launching of Seguros Genesis, S.A., a wholly-owned subsidiary, in Mexico. Seguros Genesis sells individual and group insurance, as well as savings and retirement products, through sales agents and brokers, and is now the fifth largest life insurer in Mexico. Premiums and deposits for 1999 were $207 million. ARGENTINA. We established our Argentine operations through Metropolitan Life Seguros de Vida S.A. and Metropolitan Life Seguros de Retiro S.A. in 1994. Through these affiliates, we sell 143 145 group life insurance products through established brokers and directly to employers, and individual life insurance and disability products through an agency sales force, as well as through other distribution channels, such as direct marketing and independent agent franchises. In 1997, we began to market group insurance and individual deferred and immediate annuities and currently have over 515,000 customers. Premiums and deposits for 1999 were $64 million. BRAZIL. Metropolitan Life Seguros e Previdencia Privada, S.A., based in Sao Paulo, was formed in 1997 and started business in early 1999, focusing on group life and accident products. URUGUAY. In July 1998, we established Metropolitan Life Seguros de Vida S.A., and started business in early 1999, offering individual life insurance products through an agency sales force. EUROPE SPAIN. We operate in Spain through a 50-50 joint venture with Banco Santander Central Hispano, S.A., Spain's largest financial group. Our Spanish affiliates sell personal life insurance, savings and retirement and non-life insurance products through both their own agency sales force and the branch network of Banco Santander. The affiliates operate under the "Genesis" brand. In November 1995, Genesis launched a direct auto business (Genesis Auto) and there are now over 127,000 Genesis Auto policyholders. Premiums and deposits for 1999 were $193 million. PORTUGAL. In late 1992, we entered the market in Portugal through branches of our Spanish joint venture subsidiaries. Genesis in Portugal distributes personal life insurance, savings and retirement and non-life insurance products through its agency sales force and the branch network of Banco Santander Portugal. Premiums and deposits for 1999 were $41 million. In addition, we obtained a license to sell life insurance in Poland in 1999. ACQUISITION OF GENAMERICA BACKGROUND On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in cash. GenAmerica is a leading provider of life insurance, life reinsurance and other financial services to affluent individuals, businesses, insurers and financial institutions. GenAmerica's products and services include individual life insurance and annuities, life reinsurance, institutional asset management, group life and health insurance and administration, pension benefits administration and software products and technology services for the life insurance industry. GenAmerica's subsidiary, General American Life Insurance Company, distributes its life insurance products through approximately 625 agents in its independent general agency system and approximately 1,575 active independent insurance agents and brokers. GenAmerica is a holding company which owns General American Life Insurance Company. GenAmerica's subsidiaries also include Reinsurance Group of America, Inc. ("RGA"), one of the largest life reinsurers in the United States based on in-force premiums, and Conning Corporation ("Conning"), a manager of investments for General American Life and other insurer and pension clients. Upon completion of the acquisition of GenAmerica, we owned approximately 58% and 61% of the outstanding common stock of RGA and Conning, respectively. On March 9, 2000, we announced that we had agreed to acquire all of the outstanding shares of Conning common stock not already owned by us for $12.50 per share in cash, or approximately $65 million. The transaction is subject to customary terms and conditions, including regulatory approvals. Both RGA and Conning are publicly traded. See "Business -- Legal Proceedings" for a description of legal proceedings relating to the Conning offer. We agreed to acquire GenAmerica after it developed liquidity problems and General American Life was placed under administrative supervision by the Missouri Department of 144 146 Insurance. At July 31, 1999, General American Life's outstanding funding agreements aggregated $6.8 billion, of which $3.4 billion and $1.8 billion were reinsured by ARM Financial Group, Inc. and RGA, respectively. These reinsurance transactions were recorded using the deposit method of accounting. These funding agreements guarantee the holder a return on principal at a stated interest rate for a specified period of time. They also allow the holder to "put" the agreement to General American Life for a payout of the principal and interest within designated time periods of 7, 30 or 90 days. In July 1999, Moody's Investors Services, Inc. downgraded the claims paying ability rating of ARM due to the relative illiquidity of certain of its invested assets, which resulted in General American Life recapturing the obligations and assets related to the funding agreements reinsured by ARM. As a result of the recapture, Moody's downgraded General American Life's claims paying ability rating from A2 with a stable outlook to A3. Upon announcement of the downgrade, a large number of funding agreement holders exercised puts of agreements having outstanding principal amounts aggregating approximately $5.0 billion. General American Life was unable to liquidate sufficient assets in an orderly fashion without incurring significant losses. General American Life notified the Missouri Department of Insurance of a liquidity crisis on August 9, 1999 and the Department placed General American Life under administrative supervision. Shortly thereafter, General American Mutual Holding Company, the parent of GenAmerica, entered into discussions with us and several other companies for the sale of GenAmerica. Those discussions culminated in our execution of a stock purchase agreement with General American Mutual Holding Company on August 26, 1999 and our purchase of GenAmerica on January 6, 2000. REASONS FOR THE ACQUISITION GenAmerica offers us a strategic opportunity to expand our Individual Business distribution system. GenAmerica's independent general agency system, which principally targets affluent individuals, complements the current MetLife and New England distribution systems. GenAmerica also provides us with relationships with regional networks of broker-dealers and a strong geographic presence in the midwest. Additionally, GenAmerica has been a leader in supplying technology to the life insurance industry, having developed a number of sophisticated software products and technology services that are used by a number of life insurers. Finally, the acquisition of RGA and Conning allows us to expand our opportunities in the life reinsurance and investment management businesses. TERMS OF ACQUISITION Pursuant to the stock purchase agreement, we have a first priority perfected security interest in the purchase price proceeds to cover losses that we incur for which GenAmerica's parent, General American Mutual Holding Company, has indemnified us. Such indemnified losses include breaches of representations and warranties, certain legal proceedings brought within three years after the date of closing, alleged breaches of General American Life's funding agreements and guaranteed interest contracts and the acceleration of payments under certain compensation arrangements and benefit plans. Amounts will be released to General American Mutual Holding Company over time, but, subject to holdbacks for disputed pending or threatened claims existing at that time, no later than the third anniversary of the closing date. Costs incurred in connection with any matter covered by the seller's indemnification will be recorded as expenses in our consolidated statement of income in the period they are incurred. Recoveries of such costs will be evaluated and estimated independently of the costs incurred and will be recorded in Metropolitan Life Insurance Company's consolidated statement of income for the period recovery is probable. In connection with the acquisition, we offered each holder of a General American Life funding agreement the option to exchange its funding agreement for a MetLife funding agreement with substantially identical terms and conditions or receive cash equal to the principal amount of the 145 147 funding agreement and accrued interest. Holders of approximately $5.1 billion of the total $5.7 billion of General American Life's remaining funding agreement liabilities elected to receive cash. We completed the funding agreement exchange offer on September 29, 1999. In consideration of this exchange offer, General American Life transferred to Metropolitan Life Insurance Company assets selected by Metropolitan Life Insurance Company and General American Life having a market value equal to the market value of the funding agreement liabilities. In addition, Metropolitan Life Insurance Company has coinsured new and certain existing business of General American Life and some of its affiliates. FINANCING We financed the acquisition of GenAmerica stock from available funds and the proceeds from the issuance of $900 million of short-term debt. We expect to use a portion of the proceeds from the offerings and the private placements to repay up to $450 million of this debt. In addition, we incurred approximately $3.2 billion of short-term debt, consisting primarily of commercial paper, in connection with our exchange offer to holders of General American Life funding agreements. During the fourth quarter of 1999, we repaid $1.5 billion of this debt. On September 29, 1999, MetLife Funding, Inc. and Metropolitan Life Insurance Company obtained an additional committed credit facility for $5 billion, which serves as back-up for this commercial paper. 146 148 BUSINESS OF GENAMERICA GenAmerica is organized into four major business segments: Life Insurance and Annuity; Life Reinsurance; Institutional Asset Management; and Insurance Services and Related Businesses. GenAmerica also maintains a Corporate and Consolidation/Elimination segment through which it reports items that are not directly allocable to any of its business segments, primarily home office general and administrative expenses and interest expense on long-term debt. This segment includes the elimination of all inter-segment amounts. The accounting policies of these segments, including inter-segment transactions, are consistent, in all material respects, with those described in MetLife's consolidated financial statements. GenAmerica's businesses will be incorporated into our business segments as applicable, except for RGA, which we will separately designate as our Reinsurance segment. The following table sets forth selected data for GenAmerica and for each of GenAmerica's segments for the periods indicated:
AT OR FOR THE YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- (DOLLARS IN MILLIONS) STATEMENT OF INCOME AND BALANCE SHEET DATA: Total revenues....................................... $ 3,919.5 $ 3,863.6 $ 3,192.9 Operating income(1).................................. $ 28.1 $ 120.9 $ 98.9 Net income (loss).................................... $ (174.3) $ 113.5 $ 96.2 Assets............................................... $23,594.3 $28,949.2 $23,947.2 Policyholder liabilities............................. $14,117.2 $20,559.0 $16,995.7 Separate account liabilities......................... $ 6,892.0 $ 5,194.9 $ 4,052.0 SEGMENT DATA:(2) LIFE INSURANCE AND ANNUITY: Total revenues....................................... $ 1,442.3 $ 1,497.6 $ 1,350.7 Operating income(1).................................. $ 35.9 $ 52.5 $ 41.3 Net income........................................... $ 14.9 $ 51.9 $ 45.1 Assets............................................... $15,154.5 $14,256.9 $13,333.9 LIFE REINSURANCE: Total revenues....................................... $ 1,721.4 $ 1,503.1 $ 1,071.8 Operating income(1).................................. $ 49.1 $ 49.3 $ 43.7 Net income........................................... $ 17.5 $ 34.1 $ 32.5 Assets............................................... $ 5,107.5 $ 6,329.6 $ 4,680.5 INSTITUTIONAL ASSET MANAGEMENT: Total revenues....................................... $ 47.3 $ 191.1 $ 137.1 Operating income(1).................................. $ 9.2 $ 15.9 $ 12.5 Net income (loss).................................... $ (188.6) $ 15.7 $ 13.2 Assets............................................... $ 104.7 $ 7,108.1 $ 4,293.0 INSURANCE SERVICES AND RELATED BUSINESSES: Total revenues....................................... $ 738.2 $ 691.6 $ 645.7 Operating income (loss)(1)........................... $ (13.8) $ 10.8 $ 10.7 Net income........................................... $ 17.0 $ 12.7 $ 12.4 Assets............................................... $ 3,314.0 $ 2,994.8 $ 2,663.0 CORPORATE AND CONSOLIDATION/ELIMINATION: Total revenues....................................... $ (29.7) $ (19.8) $ (12.4) Operating loss....................................... $ (52.3) $ (7.6) $ (9.3) Net loss............................................. $ (35.1) $ (0.9) $ (7.0) Assets............................................... $ (86.4) $(1,740.2) $(1,023.2)
- --------------- (1) Operating income (loss) is calculated as net income (loss) less (i) realized investment gains and losses, (ii) GenAmerica's share of RGA's gains or losses on operations that are 147 149 classified as discontinued in RGA's consolidated financial statements, but included in GenAmerica's operating income (loss), (iii) surplus tax, and (iv) fees to exit the funding agreement business. Realized investment gains and losses have been adjusted for (a) deferred policy acquisition amortization to the extent that such amortization results from realized investment gains and losses and (b) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains. This presentation may not be comparable to presentations made by other insurers. The following provides a reconciliation of net income (loss) to operating income for GenAmerica consolidated:
FOR THE YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ------- ------ ------ (DOLLARS IN MILLIONS) Net income (loss)........................................... $(174.3) $113.5 $ 96.2 Adjustments to reconcile net income (loss) to operating income Gross realized investment (gains) losses.................. 164.0 (12.4) (28.4) Income tax on gross realized investment gains and losses.................................................. (54.4) 3.9 10.0 ------- ------ ------ Realized investment (gains) losses, net of income tax... 109.6 (8.5) (18.4) ------- ------ ------ Amounts allocated to investment gains and losses.......... (8.4) (0.5) 6.8 Income tax on amounts allocated to investment gains and losses.................................................. 3.0 0.2 (2.4) ------- ------ ------ Amount allocated to investment gains and losses, net of income tax............................................ (5.4) (0.3) 4.4 ------- ------ ------ Loss from discontinued operations, net of income tax...... 6.3 16.2 11.4 ------- ------ ------ Surplus tax............................................... -- -- 5.3 ------- ------ ------ Fees to exit funding agreement business, net of income tax of $49.5................................................ 91.9 -- -- ------- ------ ------ Operating income............................................ $ 28.1 $120.9 $ 98.9 ======= ====== ======
The following provides a reconciliation of net income to operating income for the Life Insurance and Annuity segment of GenAmerica:
FOR THE YEARS ENDED DECEMBER 31, ---------------------- 1999 1998 1997 ----- ----- ------ (DOLLARS IN MILLIONS) Net income.................................................. $14.9 $51.9 $ 45.1 Adjustments to reconcile net income to operating income: Gross realized investments (gains) losses................. 36.2 1.1 (15.1) Income tax on gross realized investment gains and losses.................................................. (9.7) (0.3) 5.3 ----- ----- ------ Realized investment (gains) losses, net of income tax... 26.5 0.8 (9.8) ----- ----- ------ Amounts allocated to investment gains and losses.......... (8.5) (0.4) 6.8 Income tax on amounts allocated to investment gains and losses.................................................. 3.0 0.2 (2.4) ----- ----- ------ Amount allocated to investment gains and losses, net of income tax............................................. (5.5) (0.2) 4.4 ----- ----- ------ Surplus tax............................................... -- -- 1.6 ----- ----- ------ Operating income............................................ $35.9 $52.5 $ 41.3 ===== ===== ======
148 150 The following provides a reconciliation of net income to operating income for the Life Reinsurance segment of GenAmerica:
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS) Net income.................................................. $ 17.5 $ 34.1 $ 32.5 Adjustments to reconcile net income to operating income: Gross realized investment (gains) losses.................. 38.9 (1.7) (0.3) Income tax on gross realized investment gains and losses.................................................. (13.6) 0.7 0.1 ------ ------ ------ Realized investment (gains) losses, net of income tax... 25.3 (1.0) (0.2) ------ ------ ------ Loss from discontinued operations, net of income tax...... 6.3 16.2 11.4 ------ ------ ------ Operating income............................................ $ 49.1 $ 49.3 $ 43.7 ====== ====== ======
The following provides a reconciliation of net income (loss) to operating income for the Institutional Asset Management segment of GenAmerica:
FOR THE YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ------- ----- ----- (DOLLARS IN MILLIONS) Net income (loss)........................................... $(188.6) $15.7 $13.2 Adjustments to reconcile net income (loss) to operating income: Gross realized investment (gains) losses.................. 163.0 0.3 (1.3) Income tax on gross realized investment gains and losses.................................................. (57.1) (0.1) 0.4 ------- ----- ----- Realized investment (gains) losses, net of income tax... 105.9 0.2 (0.9) ------- ----- ----- Surplus tax............................................. -- -- 0.2 ------- ----- ----- Fees to exit funding agreement business, net of income tax of $49.5................................................ 91.9 -- -- ------- ----- ----- Operating income............................................ $ 9.2 $15.9 $12.5 ======= ===== =====
The following provides a reconciliation of net income to operating income (loss) for the Insurance Services and Related Businesses segment of GenAmerica:
FOR THE YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ----- ----- (DOLLARS IN MILLIONS) Net income.................................................. $ 17.0 $12.7 $12.4 Adjustments to reconcile net income to operating income (loss): Gross realized investment gains........................... (47.5) (2.1) (3.8) Income tax on gross realized investment gains............. 16.6 0.3 1.3 ------ ----- ----- Realized investment gains, net of income tax............ (30.9) (1.8) (2.5) ------ ----- ----- Amounts allocated to investment gains..................... 0.1 (0.1) -- Income tax on amounts allocated to investment gains....... -- -- -- ------ ----- ----- Amount allocated to investment gains, net of income tax................................................... 0.1 (0.1) -- ------ ----- ----- Surplus tax............................................... -- -- 0.8 ------ ----- ----- Operating income (loss)..................................... $(13.8) $10.8 $10.7 ====== ===== =====
149 151 The following provides a reconciliation of net loss to operating loss for the Corporate and Consolidation/Elimination segment of GenAmerica:
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (DOLLARS IN MILLIONS) Net loss.................................................... $(35.1) $ (0.9) $ (7.0) Adjustments to reconcile net loss to operating loss Gross realized investment gains........................... (26.6) (10.0) (7.9) Income tax on gross realized investment gains............. 9.4 3.3 2.9 ------ ------ ------ Realized investment gains, net of income tax............ (17.2) (6.7) (5.0) ------ ------ ------ Surplus tax............................................... -- -- 2.7 ------ ------ ------ Operating loss.............................................. $(52.3) $ (7.6) $ (9.3) ====== ====== ======
We believe the supplemental operating information presented above allows for a more complete analysis of results of operations. Realized investment gains and losses have been excluded due to their volatility between periods and because such data are often excluded when evaluating the overall financial performance of insurers. Operating income (loss) should not be considered as a substitute for any GAAP measure of performance. Our method of calculating operating income (loss) may be different from the method used by other companies and therefore comparability may be limited. (2) Segment data does not include consolidation and elimination entries related to intersegment amounts. After General American Life was placed under administrative supervision by the Missouri Department of Insurance, sales of new insurance policies and annuity contracts by GenAmerica declined significantly and surrender levels for existing policyholders and annuity owners increased. Although we intend to quickly integrate GenAmerica into our existing operations, we cannot guarantee that we will be able to do so or that sales by GenAmerica of new insurance policies and annuity contracts and surrender rates for existing policies and contracts will return to pre-supervision levels. GenAmerica incurred a net loss in 1999, principally due to losses from the sale of invested assets to meet funding agreement and other policy obligations and the write-down of assets to their current market value; there can be no assurance that future profitability will not be adversely affected. LIFE INSURANCE AND ANNUITY. GenAmerica's Life Insurance and Annuity segment, which represented approximately 37% of GenAmerica's total revenues in 1999, offers a wide variety of life insurance and annuity products to individual customers. GenAmerica's individual life insurance products consist of universal and variable universal life, whole life and term life. GenAmerica's annuity products consist of variable annuities and fixed annuities. GenAmerica sells these products primarily to professionals, business owners and other affluent individuals, resulting in an average face value of approximately $340,000, one of the highest average face values per policy in the insurance industry. GenAmerica uses multiple distribution channels to sell its life insurance and annuity products, including approximately 275 independent general agencies, representing a total of approximately 625 agents in its independent general agency system and approximately 1,575 active independent insurance agents and brokers. GenAmerica markets its various products through additional channels, including consultants, insurance brokers, worksite, affinity group and direct marketing to businesses and affluent individuals. The Life Insurance and Annuity segment's revenues, excluding realized investment gains and losses, grew from $1.3 billion in 1997 to $1.5 billion in 1999, a compound annual rate of 7.4%. In 1999, operating income declined by 31.6% to $35.9 million and net income declined by 71.3% to 150 152 $14.9 million as a result of the effect of GenAmerica's liquidity problems on its sales, expenses and investment performance. LIFE REINSURANCE. GenAmerica's Life Reinsurance segment, which represented approximately 44% of GenAmerica's total revenues in 1999, sells reinsurance products to life insurers in the U.S. and internationally. GenAmerica conducts this business through its publicly traded subsidiary RGA. RGA is one of the largest life reinsurers in North America based on in-force business. It markets life reinsurance primarily to the largest U.S. life insurers and, in 1999, held treaties with most of the top 100 U.S. life insurers. U.S. insurers accounted for 72.2% of RGA's net premiums in 1999. Outside of the U.S., RGA operates principally in Canada, Latin America and the Asia Pacific region. These international operations are rapidly expanding and accounted for 27.8% of RGA's net premiums in 1999. RGA's business principally consists of traditional, mortality-based reinsurance, written on both facultative and automatic treaty bases. RGA also writes non-traditional reinsurance, including asset intensive products and financial reinsurance. RGA distributes these products and services in the U.S. through a regionalized direct sales force and internationally primarily through a direct sales force located in the respective international locations. RGA also makes limited use of reinsurance intermediaries and brokers to help supplement sales to its targeted market. The Life Reinsurance segment's revenues, excluding realized investment gains and losses, grew at a compound annual rate of 27.9% from $1.1 billion in 1997 to $1.8 billion in 1999. Operating income in 1999 was $49.1 million, which was essentially unchanged from the 1998 reported amount. Net income declined 48.7% to $17.5 million in 1999 due to exiting the funding agreement business. INSTITUTIONAL ASSET MANAGEMENT. GenAmerica's Institutional Asset Management segment, which represented approximately 1.2% of GenAmerica's total revenues in 1999, offers asset management and related products and services primarily to the insurance industry. GenAmerica conducts its asset management business through Conning. Conning's assets under management grew from $26.0 billion in 1997 to $33.2 billion in 1999, a compound annual rate of 13.0%. At December 31, 1999, of Conning's $33.2 billion of assets under management, approximately $11.6 billion, or 34.9%, were GenAmerica assets. The products and services provided by Conning consist of: (1) institutional asset management and related services; (2) private equity funds; (3) mortgage loan origination and real estate management; and (4) insurance industry research. Also reported in GenAmerica's Institutional Asset Management segment are the results relating to GenAmerica's funding agreement business. GenAmerica exited the funding agreement business on September 29, 1999. See "-- Terms of Acquisition". The Institutional Asset Management segment's revenues, excluding realized gains and losses, grew from $135.8 million in 1997 to $210.3 million in 1999, a compound annual rate of 24.4%. In 1999, its operating income declined 42.1% to $9.2 million. This segment incurred a net loss of $188.6 million due to exiting the funding agreement business and due to the large investment losses sustained in raising liquidity and transferring assets to MetLife. In March 2000, GenAmerica and its subsidiaries began withdrawing from Conning approximately $7.7 billion of their assets that Conning had managed and transferring the management of those assets to Metropolitan Life Insurance Company. INSURANCE SERVICES AND RELATED BUSINESSES. GenAmerica's Insurance Services and Related Businesses segment, which represented approximately 19% of total revenues in 1999, provides administrative services and insurance products for employers and their employees, as well as software products and technology services to companies in the life insurance industry. 151 153 In its administrative services business, GenAmerica provides administrative support services to employer sponsored health plans and investment products and investment, administrative and consulting services to 401(k) and pension plans. Through its wholly-owned subsidiary NaviSys, GenAmerica also provides software products and technology services that include life and annuity administration systems, insurance underwriting systems, sales illustration software, and electronic commerce and Internet-related products and services. The Insurance Services and Related Businesses segment's revenues, excluding realized investment gains and losses, grew from $641.9 million in 1997 to $690.8 million in 1999, a compound annual rate of 3.7%. This segment incurred an operating loss of $13.8 million as a result of the aforementioned liquidity problem and subsequent sale of the group health business. Net income increased 33.9% to $17.0 million primarily due to a realized investment gain related to the sale of a non-strategic subsidiary. On January 1, 2000, GenAmerica exited the group medical business through a co-insurance agreement with Great-West Life & Annuity Insurance Company (Great-West). This co-insurance agreement also includes any life and health business that is directly associated with the medical business. GenAmerica is required to reimburse Great-West for up to $10 million in net operating losses incurred during 2000. These amounts have been reflected in the 1999 consolidated financial statements of GenAmerica. GenAmerica must also compensate Great-West for certain amounts receivable related to this business should they be deemed uncollectible. GENAMERICA INVESTMENTS GenAmerica had total consolidated assets at December 31, 1999 of $23.6 billion. Of its total consolidated assets, $16.7 billion were held in the general accounts of its insurance subsidiaries while the remaining $6.9 billion were held in the separate accounts of its insurance subsidiaries. Of the $16.7 billion of assets held in the general accounts, $13.1 billion consisted of cash and invested assets. The following table summarizes the consolidated cash and invested assets held in the general accounts of GenAmerica's insurance subsidiaries at the dates indicated. GENAMERICA INVESTED ASSETS
AT DECEMBER 31, ----------------------------------------------- 1999 1998 ---------------------- ---------------------- CARRYING CARRYING VALUE % OF TOTAL VALUE % OF TOTAL -------- ---------- -------- ---------- (DOLLARS IN MILLIONS) Fixed maturities(1)............................... $ 6,959.6 53.0% $11,230.9 65.4% Equity securities(1).............................. 42.5 0.3 38.8 0.2 Commercial mortgage loans......................... 1,678.9 12.8 2,337.5 13.6 Policy loans...................................... 2,243.9 17.1 2,151.0 12.5 Real estate....................................... 131.2 1.0 129.9 0.8 Other invested assets............................. 898.8 6.8 457.6 2.7 Short-term investments............................ 295.3 2.2 200.4 1.2 Cash and cash equivalents......................... 888.3 6.8 619.5 3.6 --------- ----- --------- ----- Total invested assets............................. $13,138.5 100.0% $17,165.6 100.0% ========= ===== ========= =====
- --------------- (1) All fixed maturities and equity securities are classified as available-for-sale and carried at estimated fair value. 152 154 The yield on general account invested assets (including net realized gains and losses on investments) was 6.6%, 7.3% and 7.5% for the years ended December 31, 1999, 1998 and 1997, respectively. FIXED MATURITIES. Fixed maturities consist of publicly traded and privately placed debt securities, primarily of United States corporations, mortgage-backed securities, asset-backed securities and obligations of the Canadian government and provinces. The portion of funds invested in Canadian dollar obligations supports corresponding Canadian liabilities. Fixed maturities represented approximately 53.0% and 65.4% of GenAmerica's total invested assets at December 31, 1999 and 1998, respectively. The following table summarizes GenAmerica's total fixed maturities by NAIC designation or, if not rated by the NAIC, by the comparable rating of Moody's or S&P or, if not rated by Moody's or S&P, by GenAmerica's internal rating system. GENAMERICA TOTAL FIXED MATURITIES BY CREDIT QUALITY
AT DECEMBER 31, --------------------------------------------------------------- 1999 1998 ------------------------------ ------------------------------ NAIC RATING AGENCY EQUIVALENT AMORTIZED % OF ESTIMATED AMORTIZED % OF ESTIMATED DESIGNATION DESIGNATION COST TOTAL FAIR VALUE COST TOTAL FAIR VALUE - ----------- ------------------------ --------- ----- ---------- --------- ----- ---------- (DOLLARS IN MILLIONS) 1 Aaa/Aa/A................. $4,267.3 55.9% $ 3,980.0 $ 6,842.0 62.8% $ 7,157.5 2 Baa...................... 2,802.5 36.7 2,534.5 3,555.4 32.6 3,619.1 3 Bb....................... 421.4 5.6 351.7 400.9 3.7 378.1 4 B........................ 102.3 1.3 66.8 64.1 0.6 47.2 5 Caa and lower............ 22.9 0.3 14.4 31.1 0.3 25.3 6 In or near default....... 15.4 0.2 12.2 4.1 0.0 3.7 -------- ----- --------- --------- ----- --------- Total fixed maturities................ $7,631.8 100.0% $ 6,959.6 $10,897.6 100.0% $11,230.9 ======== ===== ========= ========= ===== =========
Mortgage-backed securities and asset-backed securities represented approximately 16.3% and 20.2% of GenAmerica's total invested assets at December 31, 1999 and 1998, respectively. GenAmerica invests in pass-through and collateralized mortgage obligations collateralized by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, Governmental National Mortgage Association and Canadian Housing Authority collateral. The following table sets forth the types of mortgage-backed securities, as well as other asset-backed securities, held by GenAmerica as of the dates indicated. GENAMERICA MORTGAGE AND ASSET-BACKED SECURITIES
AT DECEMBER 31, ---------------------- 1999 1998 ---- ---- (DOLLARS IN MILLIONS) CMOs........................................................ $ 741.7 $1,584.2 Commercial mortgage-backed securities....................... 145.0 211.9 Principal only/interest only................................ 27.2 1.8 Other mortgage-backed securities............................ 26.9 42.8 Asset-backed securities..................................... 1,198.1 1,632.8 -------- -------- Total mortgage-backed securities and asset-backed securities................................................ $2,138.9 $3,473.5 ======== ========
COMMERCIAL MORTGAGE LOANS. GenAmerica's commercial mortgage loan portfolio comprised 12.8% and 13.6% of its total invested assets at December 31, 1999 and 1998, respectively. 153 155 During the years ended December 31, 1999, 1998 and 1997, the average yield on its commercial mortgage loans was 8.8%, 8.4%, and 9.1% per year, respectively. The carrying value of commercial mortgage loans at December 31, 1999 was $1.7 billion. This amount is net of valuation allowances aggregating $29.1 million. The net valuation allowances represent GenAmerica's best estimate of the cumulative impairments on these loans at that date. However, there can be no assurance that increases in valuation allowances will not be necessary. Any such increases may have a material adverse effect on GenAmerica's financial position and results of operations. At December 31, 1999, the carrying value of potential problem, problem and restructured commercial mortgage loans was $48.8 million, $8.6 million and $12.6 million, respectively, net of valuation allowances of $29.1 million in the aggregate. Gross interest income on restructured commercial mortgage loan balances that would have been recorded in accordance with the loans' original terms was approximately $0.1 million, $1.6 million and $3.7 million for the years ended December 31, 1999, 1998 and 1997, respectively. The following table presents the carrying amounts of potential problem, problem and restructured commercial mortgages relative to the carrying value of all commercial mortgages as of the dates indicated: GENAMERICA POTENTIAL PROBLEM, PROBLEM AND RESTRUCTURED COMMERCIAL MORTGAGES AT CARRYING VALUE
AT DECEMBER 31, ---------------------- 1999 1998 ---- ---- (DOLLARS IN MILLIONS) Total commercial mortgages.................................. $1,678.9 $2,337.5 ======== ======== Potential problem commercial mortgages...................... $ 48.8 $ 85.2 Problem commercial mortgages................................ 8.6 20.1 Restructured commercial mortgages........................... 12.6 29.5 -------- -------- Total potential problem, problem and restructured commercial mortgages................................................. $ 70.0 $ 134.8 ======== ======== Total potential problem, problem and restructured commercial mortgages as a percent of total commercial mortgages...... 4.2% 5.8% ======== ========
FUTURE POLICY BENEFITS For all of our product lines, we establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our policy obligations at such time as an annuitant takes income, a policy matures or surrenders or an insured dies or becomes disabled. We compute the amounts for future policy benefits in our consolidated financial statements in conformity with generally accepted accounting principles. We distinguish between short duration and long duration contracts. Short duration contracts arise from our group life and group dental business. The liability for future policy benefits for short duration contracts consists of gross unearned premiums as of the valuation date and the discounted amount of the future payments on pending claims as of the valuation date. Our long duration contracts consist of traditional life, term, non-participating whole life, individual disability income, group long-term disability and long-term care contracts. We determine future policy benefits for long duration contracts using assumptions based on current experience, plus a margin for adverse deviation for these policies. Where they exist, we amortize deferred policy acquisition costs in relation to the associated premium. We also distinguish between investment contracts, limited pay contracts and universal life type contracts. The future policy benefits for these products primarily consist of policyholders' account balances. We also establish liabilities for future policy benefits (associated with base 154 156 policies and riders, unearned mortality charges and future disability benefits), for other policyholder funds (associated with unearned revenues and claims payable) and for unearned revenue (the unamortized portion of front-end loads charged). Investment contracts primarily consist of individual annuity and certain group pension contracts that have limited or no mortality risk. We amortize the deferred policy acquisition costs on these contracts in relation to estimated gross profits. Limited pay contracts primarily consist of single premium immediate individual and group pension annuities. For limited pay contracts, we defer the excess of the gross premium over the net premium and recognize such excess into income in relation to anticipated future benefit payments. Universal life type contracts consist of universal and variable life contracts. We amortize deferred policy acquisition costs for limited pay and universal type contracts using the product's estimated gross profits. For universal life type contracts with front-end loads, we defer the charge and amortize the unearned revenue using the product's estimated gross profits. The liability for future policy benefits for our participating traditional life insurance is the net level reserve using the policy's guaranteed mortality rates and the dividend fund interest rate or nonforfeiture interest rate, as applicable. We amortize deferred policy acquisition costs in relation to the product's estimated gross margins. We establish liabilities to account for the estimated ultimate costs of losses and LOSS ADJUSTMENT EXPENSES ("LAE") for claims that have been reported but not yet settled, and claims incurred but not reported for the Auto & Home segment. We base unpaid losses and loss adjustment expenses on: - case estimates for losses reported on direct business, adjusted in the aggregate for ultimate loss expectations; - estimates of incurred but not reported losses based upon past experience; - estimates of losses on insurance assumed primarily from involuntary market mechanisms; and - estimates of future expenses to be incurred in settlement of claims. We deduct estimated amounts of salvage and subrogation from unpaid losses and loss adjustment expenses. Implicit in all these estimates are underlying inflation assumptions because we determine all estimates using expected actual amounts to be paid. We derive estimates for development of reported claims and for incurred but not reported claims principally from actuarial analyses of historical patterns of claims and development for each line of business. Similarly, we derive estimates of unpaid loss adjustment expenses principally from actuarial analyses of historical development patterns of the relationship of loss adjustment expenses to losses for each line of business. We anticipate ultimate recoveries from salvage and subrogation principally on the basis of historical recovery patterns. Pursuant to state insurance laws, our insurance subsidiaries also establish STATUTORY RESERVES, carried as liabilities, to meet their obligations on their policies. We establish these statutory reserves in amounts sufficient to meet our policy and contract obligations, when taken together with expected future premiums and interest at assumed rates. Statutory reserves generally differ from liabilities for future policy benefits determined using generally accepted accounting principles. The New York Insurance Law and regulations require us to submit to the New York Superintendent of Insurance, with each annual report, an opinion and memorandum of a "qualified actuary" that the statutory reserves and related actuarial amounts recorded in support of specified policies and contracts, and the assets supporting such statutory reserves and related actuarial amounts, make adequate provision for our statutory liabilities with respect to these obligations. 155 157 Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of our liabilities, we cannot precisely determine the amounts that we will ultimately pay with respect to these liabilities, and the ultimate amounts may vary from the estimated amounts, particularly when payments may not occur until well into the future. However, we believe our liabilities for future benefits adequately cover the ultimate benefits. We periodically review our estimates for liabilities for future benefits and compare them with our actual experience. We revise our estimates when we determine that future expected experience differs from assumptions used in the development of our liabilities. If the liabilities originally recorded prove inadequate, we must increase our liabilities, which may have a material adverse effect on our business, results of operations and financial condition. UNDERWRITING AND PRICING INDIVIDUAL AND INSTITUTIONAL BUSINESSES Our individual and group insurance underwriting involves an evaluation of applications for life, disability, dental, retirement and savings and long-term care insurance products and services by a professional staff of underwriters and actuaries, who determine the type and the amount of risk that we are willing to accept. We employ detailed underwriting policies, guidelines and procedures designed to assist the underwriter to properly assess and quantify risks before issuing a policy to qualified applicants or groups. Individual underwriting considers not only an applicant's medical history, but other factors such as financial profiles, foreign travel, avocations and alcohol, drug and tobacco use. Our group underwriters generally evaluate the risk characteristics of each prospective insured group, although with certain products employees may be underwritten on an individual basis. Generally, we are not obligated to accept any risk or group of risks from, or to issue a policy or group of policies to, any employer or intermediary. Requests for coverage are reviewed on their merits and generally a policy is not issued unless the particular risk or group has been examined and approved for underwriting. Underwriting is generally done on a centralized basis by our employees, although some policies are underwritten by intermediaries under strict guidelines we have established. In order to maintain high standards of underwriting quality and consistency, we engage in a multilevel series of ongoing internal underwriting audits, and are subject to external audits by our reinsurers, at both our remote underwriting offices and our corporate underwriting office. We have established senior level oversight of this process that facilitates quality sales, serving the needs of our customers, while supporting our financial strength and business objectives. Our goal is to achieve the underwriting, mortality and MORBIDITY assumptions in our product pricing. This is accomplished by determining and establishing underwriting policies, guidelines, philosophies and strategies that are competitive and suitable for the customer, the representative and us. Individual and group product pricing reflects our insurance underwriting standards. Product pricing on insurance products is based on the expected payout of benefits calculated through the use of assumptions for mortality, morbidity, expenses, persistency and investment returns, as well as certain macroeconomic factors such as inflation. Investment-oriented products are priced based on various factors, including investment return, expenses and persistency, depending on the specific product features. Product specifications are designed to prevent greater than expected mortality, and we periodically monitor mortality and morbidity assumptions. Unique to group insurance pricing is experience rating, the process by which the rate charged to a group policyholder reflects credit for positive past claim experience or a charge for poor experience. We employ both prospective and retrospective experience rating. Prospective experience rating involves the evaluation of past experience for the purpose of determining 156 158 future premium rates. Retrospective experience rating involves the evaluation of past experience for the purpose of determining the actual cost of providing insurance for the customer for the time period in question. We continually review our underwriting and pricing guidelines so that our policies remain progressive, competitive and supportive of our marketing strategies and profitability goals. Decisions are based on established actuarial pricing and risk selection principles to ensure that our underwriting and pricing guidelines are appropriate. AUTO & HOME Auto & Home's underwriting function has six principal aspects: - evaluating potential worksite marketing employer accounts and independent agencies; - establishing guidelines for the binding of risks by agents with binding authority; - reviewing coverage bound by agents; - on a case by case basis, underwriting potential insureds presented by agents outside the scope of their binding authority; - pursuing information necessary in certain cases to enable Auto & Home to issue a policy within our guidelines; and - ensuring that renewal policies continue to be written at rates commensurate with risk. Subject to very few exceptions, agents in each of our distribution channels have binding authority for risks which fall within Auto & Home's published underwriting guidelines. Risks falling outside the underwriting guidelines may be submitted for approval to the underwriting department; alternatively, agents in such a situation may call the underwriting department to obtain authorization to bind the risk themselves. In most states, Auto & Home generally has the right within a specified period (usually 60 days) to cancel any policy. Auto & Home establishes prices for our major lines of insurance based on our proprietary data base, rather than relying on rating bureaus. Auto & Home determines prices in part from a number of variables specific to each risk. The pricing of personal lines insurance products takes into account, among other things, the expected frequency and severity of losses, the costs of providing coverage (including the costs of acquiring policyholders and administering policy benefits and other administrative and overhead costs), competitive factors and profit considerations. The major pricing variables for personal lines automobile insurance include characteristics of the automobile itself, such as age, make and model, characteristics of insureds, such as driving record and experience, and the insured's personal financial management. Auto & Home's ability to set and change rates is subject to regulatory oversight. As a condition of our license to do business in each state, Auto & Home, like all other automobile insurers, is required to write or share the cost of private passenger automobile insurance for higher risk individuals who would otherwise be unable to obtain such insurance. This "involuntary" market, also called the "shared market," is governed by the applicable laws and regulations of each state, and policies written in this market are generally written at higher than standard rates. In homeowners' insurance, price is driven by, among other factors, the frequency of the occurrence of covered perils, the cost to repair or replace damaged or lost property and the cost of litigation associated with liability claims. Major underwriting considerations include the condition and maintenance of the property, adequacy of fire protection and characteristics of insureds, such as personal financial management. Most homeowners insurance policies have a 157 159 provision for automatic annual adjustments in coverage and premium due to inflation in building and labor costs. Homeowners pricing also includes the consideration of the incidence and severity of natural catastrophes, such as hurricanes and earthquakes, over a long-term period. REINSURANCE We cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a coinsurance, yearly renewable term, excess or catastrophe excess basis. These reinsurance agreements spread the risk and minimize the effect on us of losses. The amount of each risk retained by us depends on our evaluation of the specific risk, subject, in certain circumstances, to maximum limits based on characteristics of coverages. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse us for the ceded amount in the event the claim is paid. However, we remain liable to our policyholders with respect to ceded insurance if any reinsurer fails to meet the obligations assumed by it. Since we bear the risk of nonpayment by one or more of our reinsurers, we cede reinsurance to well-capitalized, highly rated reinsurers. INDIVIDUAL BUSINESS In recent periods, in response to the reduced cost of reinsurance coverage, we have increased the amount of individual mortality risk coverage purchased from third-party reinsurers. Since 1996, we have entered into reinsurance agreements that cede substantially all of the mortality risk on term insurance policies issued during 1996 and subsequent years, and on survivorship whole life insurance policies issued in 1997 and subsequent years. In 1998, we reinsured substantially all of the mortality risk on our universal life policies issued since 1983. We are continuing to reinsure substantially all of the mortality risk on the universal life policies. As a result of these transactions, we now reinsure up to 90% of the mortality risk for all new individual insurance policies that we write. In addition to these reinsurance policies, we reinsure risk on specific coverages. While our retention limit on any one life is $25 million ($30 million for joint life cases), we may cede amounts below those limits on a case-by-case basis depending on the characteristics of a particular risk. In addition, we routinely reinsure certain classes of risks in order to limit our exposure to particular travel, avocation and lifestyle hazards. We have several individual life reinsurance agreements with a diversified group of third-party reinsurers. These automatic pools have permitted us to enhance product performance, while decreasing business risk. INSTITUTIONAL BUSINESS We generally do not utilize reinsurance for our group insurance products, but we do reinsure when capital requirements and the economic terms of the reinsurance make it appropriate to do so. AUTO & HOME Auto & Home purchases reinsurance to control our exposure to large losses (primarily catastrophe losses), to stabilize earnings and to protect surplus. Auto & Home cedes to reinsurers a portion of risks and pays premiums based upon the risk and exposure of the policies subject to reinsurance. To control our exposure to large property and casualty losses, Auto & Home utilizes three varieties of reinsurance agreements in which protection is provided for a specified type or category of risks. First, we utilize property catastrophe excess of loss agreements. Second, we utilize casualty excess of loss agreements. Third, we utilize property per risk excess of loss agreements. 158 160 PROPERTY CATASTROPHE EXCESS OF LOSS. Protection against hurricane losses in Florida is obtained through (1) the state-run Catastrophe Fund, which provides coverage of 90% of $153 million in excess of $36 million, (2) privately placed reinsurance of $52.5 million in excess of $200 million, and (3) a multi-year treaty for Florida second-event coverage in which the maximum recoverable is $46.5 million in excess of $50 million. This multi-year treaty is subject to a 24-month activation period and upon activation the contract period is 36 months. This coverage becomes activated when the aggregate incurred losses for the insurance industry exceed $8 billion or the Florida Hurricane Catastrophe Fund is depleted. For other regions, on January 1, 2000, Auto & Home entered into a multi-year treaty in which the maximum recoverable amounts are $37.5 million for any one loss occurrence in excess of $75 million, $75 million for any one annual period and no more than $112.5 million during the four-year contract term. On January 1, 2000, Auto & Home also entered into an annual treaty in which the maximum recoverable amount is $122.5 million for each and every loss occurrence in excess of $125 million. The aggregate effect of these coverages is to limit Auto & Home's probable maximum after-tax loss from a one in 250-year hurricane in Florida or a one in 100-year hurricane in the Northeast to less than 10% of Auto & Home's statutory surplus. PROPERTY PER RISK EXCESS OF LOSS. Auto & Home's property per risk excess of loss coverage has three layers of protection: each current layer is effective through June 30, 2000. The first layer of coverage provides up to $1 million of recoveries for each loss in excess of $1 million. The second layer provides up to $3 million of coverage for each loss in excess of $2 million. The third layer provides up to $10 million of coverage for each loss in excess of $5 million. For a given occurrence, the entire program provides maximum coverage of $24 million. CASUALTY EXCESS OF LOSS. Auto & Home's casualty excess of loss coverage has three layers of protection: each current layer is effective through June 30, 2000. The first layer covers up to $3 million of losses for each occurrence in excess of $2 million. The second layer covers up to $5 million of losses for each occurrence in excess of $5 million. The third layer covers up to $10 million of losses for each occurrence in excess of $10 million. INVESTMENTS We had total cash and invested assets at December 31, 1999 of $138.6 billion. In addition, we had $64.9 billion held in our separate accounts, for which we generally do not bear investment risk. Our primary investment objective is to maximize after-tax operating income consistent with acceptable risk parameters. We are exposed to three primary sources of investment risk: - credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest; - interest rate risk, relating to the market price and cash flow variability associated with changes in market interest rates; and - market valuation risk for equity holdings. We manage credit risk through in-house fundamental analysis of the underlying obligors, issuers, transaction structures and real estate properties. We also manage credit risk and valuation risk through industry and issuer diversification and asset allocation. For real estate and agricultural assets, we manage credit risk and valuation risk through geographic, property type, and product type diversification and asset allocation. We manage interest rate risk as part of our asset and liability management strategies, product design, such as the use of market value adjustment features and surrender charges, and proactive monitoring and management of certain non-guaranteed elements of our products, such as the resetting of credited interest and dividend rates for policies that permit such adjustments. 159 161 For further information on our management of interest rate risk and market valuation risk, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk Disclosure". The following table summarizes our cash and invested assets at December 31, 1999 and 1998: INVESTED ASSETS
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Fixed maturities available-for-sale, at fair value.......... $ 96,981 69.9% $100,767 72.5% Mortgage loans on real estate............................... 19,739 14.2 16,827 12.1 Equity real estate and real estate joint ventures........... 5,649 4.1 6,287 4.5 Policy loans................................................ 5,598 4.0 5,600 4.0 Equity securities, at fair value............................ 2,006 1.5 2,340 1.7 Cash and cash equivalents................................... 2,789 2.0 3,301 2.4 Other limited partnership interests......................... 1,331 1.0 1,047 0.7 Short-term investments...................................... 3,055 2.2 1,369 1.0 Other invested assets....................................... 1,501 1.1 1,484 1.1 -------- ----- -------- ----- Total cash and invested assets..................... $138,649 100.0% $139,022 100.0% ======== ===== ======== =====
INVESTMENT RESULTS The yield on general account cash and invested assets, excluding net realized investment gains and losses, was 7.3%, 7.5% and 7.1% for the years ended December 31, 1999, 1998 and 1997, respectively. The following table illustrates the yields on average assets for each of the components of our investment portfolio for the years ended December 31, 1999, 1998 and 1997:
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 ------------------ ------------------- ------------------ YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT -------- ------ -------- ------ -------- ------ (DOLLARS IN MILLIONS) FIXED MATURITIES:(2) Investment income.............................. 7.5% $ 7,171 7.4% $ 6,990 7.4% $ 6,481 Net realized gains (losses).................... (538) 573 118 ------- -------- ------- Total........................................ $ 6,633 $ 7,563 $ 6,599 ------- -------- ------- Ending assets.................................. $96,981 $100,767 $92,630 ------- -------- ------- MORTGAGE LOANS:(3) Investment income.............................. 8.1% $ 1,484 8.5% $ 1,580 8.6% $ 1,692 Net realized gains............................. 28 23 56 ------- -------- ------- Total........................................ $ 1,512 $ 1,603 $ 1,748 ------- -------- ------- Ending assets.................................. $19,739 $ 16,827 $20,193 ------- -------- ------- EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES:(4) Investment income, net of expenses............. 9.7% $ 581 10.4% $ 687 7.5% $ 586 Net realized gains............................. 265 424 446 ------- -------- ------- Total........................................ $ 846 $ 1,111 $ 1,032 ------- -------- ------- Ending assets.................................. $ 5,649 $ 6,287 $ 7,080 ------- -------- -------
160 162
AT OR FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 ------------------ ------------------- ------------------ YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT -------- ------ -------- ------ -------- ------ (DOLLARS IN MILLIONS) POLICY LOANS: Investment income.............................. 6.1% $ 340 6.6% $ 387 6.3% $ 368 ------- -------- ------- Ending assets.................................. $ 5,598 $ 5,600 $ 5,846 ------- -------- ------- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: Investment income.............................. 4.2% $ 173 5.3% $ 187 5.1% $ 169 Ending assets.................................. $ 5,844 $ 4,670 $ 3,590 ------- -------- ------- EQUITY SECURITIES: Investment income.............................. 1.8% $ 40 2.0% $ 78 1.4% $ 50 Net realized gains............................. 99 994 224 ------- -------- ------- Total........................................ $ 139 $ 1,072 $ 274 ------- -------- ------- Ending assets.................................. $ 2,006 $ 2,340 $ 4,250 ------- -------- ------- OTHER LIMITED PARTNERSHIP INTERESTS: Investment income.............................. 17.2% $ 199 20.3% $ 196 32.7% $ 302 Net realized gains............................. 33 13 12 ------- -------- ------- Total........................................ $ 232 $ 209 $ 314 ------- -------- ------- Ending assets.................................. $ 1,331 $ 1,047 $ 855 ------- -------- ------- OTHER INVESTED ASSETS: Investment income.............................. 6.0% $ 91 12.2% $ 406 7.3% $ 324 Net realized gains (losses).................... (24) 71 23 ------- -------- ------- Total........................................ $ 67 $ 477 $ 347 ------- -------- ------- Ending assets.................................. $ 1,501 $ 1,484 $ 4,456 ------- -------- ------- TOTAL INVESTMENTS: Investment income before expenses and fees..... 7.5% $10,079 7.7% $ 10,511 7.5% $ 9,972 Investment expenses and fees................... (0.2%) (263) (0.2%) (283) (0.4%) (481) ---- ------- ---- -------- ---- ------- Net investment income.......................... 7.3% $ 9,816 7.5% $ 10,228 7.1% $ 9,491 Net realized gains (losses).................... (137) 2,098 879 Realized gains from sales of subsidiaries...... -- 531 139 Adjustments to realized gains (losses)(5)...... 67 (608) (231) ------- -------- ------- Total........................................ $ 9,746 $ 12,249 $10,278 ======= ======== =======
- --------------- (1) Yields are based on quarterly average asset carrying values for 1999 and 1998, and annual average asset carrying values for 1997 excluding unrealized investment gains(losses), and for yield calculation purposes, average assets exclude fixed maturities associated with our security lending program. Fixed maturity investment income has been reduced by rebates paid under the program. (2) Included in fixed maturities are equity linked notes of $1,079 million, $916 million and $860 million at December 31, 1999, 1998 and 1997, respectively, which include an equity component as part of the notes' return. Investment income for fixed maturities includes prepayment fees and income from the securities lending program that has been reclassed from net investment income. (3) Investment income from mortgage loans includes prepayment fees. (4) Equity real estate and real estate joint venture income is shown net of operating expenses, including depreciation of $247 million, $282 million and $338 million in 1999, 1998 and 1997, respectively. 161 163 (5) Adjustments to realized gains (losses) include accelerated amortization of deferred acquisition costs, loss recognition for policy liabilities related to the assets sold and additional credits to participating contracts. FIXED MATURITIES Fixed maturities consist principally of publicly traded and privately placed debt securities, and represented 69.9% and 72.5% of total cash and invested assets at December 31, 1999 and 1998, respectively. Based on estimated fair value, public fixed maturities and private fixed maturities comprised 82.6% and 17.4% of total fixed maturities at December 31, 1999, respectively, and 83.3% and 16.7% at December 31, 1998, respectively. We invest in privately placed fixed maturities to enhance the overall value of the portfolio, increase diversification and obtain higher yields than can ordinarily be obtained with comparable public market securities. Generally, private placements provide us with protective covenants, call protection features and, where applicable, a higher level of collateral. However, we may not freely trade our private placements because of restrictions imposed by federal and state securities laws and illiquid trading markets. The Securities Valuation Office of the NAIC evaluates the bond investments of insurers for regulatory reporting purposes and assigns securities to one of six investment categories called "NAIC designations". The NAIC designations parallel the credit ratings of the Nationally Recognized Statistical Rating Organizations for marketable bonds. NAIC designations 1 and 2 include bonds considered investment grade (rated "Baa3" or higher by Moody's, or rated "BBB-" or higher by S&P) by such rating organizations. NAIC designations 3 through 6 include bonds considered below investment grade (rated "Ba1" or lower by Moody's, or rated "BB+" or lower by S&P). The following tables present our public, private and total fixed maturities by NAIC designation and the equivalent ratings of the Nationally Recognized Statistical Rating Organizations at December 31, 1999 and 1998, as well as the percentage, based on estimated fair value, that each designation comprises: PUBLIC FIXED MATURITIES BY CREDIT QUALITY
AT DECEMBER 31, ------------------------------------------------------------- 1999 1998 ----------------------------- ----------------------------- ESTIMATED ESTIMATED NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL - ------ ---------------------- --------- --------- ----- --------- --------- ----- (DOLLARS IN MILLIONS) 1 Aaa/Aa/A.................... $55,258 $54,511 68.1% $57,003 $60,735 72.4% 2 Baa......................... 19,908 19,106 23.8 16,472 17,001 20.2 3 Ba.......................... 4,355 4,232 5.3 4,635 4,609 5.5 4 B........................... 2,184 2,153 2.7 1,532 1,477 1.8 5 Caa and lower............... 64 54 0.1 138 106 0.1 6 In or near default.......... 23 23 0.0 2 5 0.0 ------- ------- ----- ------- ------- ----- Total public fixed maturities................ $81,792 $80,079 100.0% $79,782 $83,933 100.0% ======= ======= ===== ======= ======= =====
162 164 PRIVATE FIXED MATURITIES BY CREDIT QUALITY
AT DECEMBER 31, ------------------------------------------------------------- 1999 1998 ----------------------------- ----------------------------- ESTIMATED ESTIMATED NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL - ------ ---------------------- --------- --------- ----- --------- --------- ----- (DOLLARS IN MILLIONS) 1 Aaa/Aa/A...................... $ 7,597 $ 7,696 45.5% $ 7,372 $ 7,865 46.7% 2 Baa........................... 6,975 6,845 40.5 6,637 6,862 40.8 3 Ba............................ 1,453 1,404 8.3 1,391 1,362 8.1 4 B............................. 833 816 4.8 621 606 3.6 5 Caa and lower................. 104 87 0.5 129 110 0.6 6 In or near default............ 45 44 0.3 11 14 0.1 ------- ------- ----- ------- -------- ----- Subtotal...................... 17,007 16,892 99.9 16,161 16,819 99.9 Redeemable preferred stock.... 10 10 0.1 15 15 0.1 ------- ------- ----- ------- -------- ----- Total private fixed maturities.................. $17,017 $16,902 100.0% $16,176 $ 16,834 100.0% ======= ======= ===== ======= ======== =====
TOTAL FIXED MATURITIES BY CREDIT QUALITY
AT DECEMBER 31, ------------------------------------------------------------- 1999 1998 ----------------------------- ----------------------------- ESTIMATED ESTIMATED NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL - ------ ---------------------- --------- --------- ----- --------- --------- ----- (DOLLARS IN MILLIONS) 1 Aaa/Aa/A...................... $62,855 $62,207 64.2% $64,375 $ 68,600 68.1% 2 Baa........................... 26,883 25,951 26.8 23,109 23,863 23.7 3 Ba............................ 5,808 5,636 5.8 6,026 5,971 5.9 4 B............................. 3,017 2,969 3.1 2,153 2,083 2.1 5 Caa and lower................. 168 141 0.1 267 216 0.2 6 In or near default............ 68 67 0.0 13 19 0.0 ------- ------- ----- ------- -------- ----- Subtotal...................... 98,799 96,971 100.0 95,943 100,752 100.0 Redeemable preferred stock.... 10 10 0.0 15 15 0.0 ------- ------- ----- ------- -------- ----- Total fixed maturities........ $98,809 $96,981 100.0% $95,958 $100,767 100.0% ======= ======= ===== ======= ======== =====
Based on estimated fair values, total investment grade public and private placement fixed maturities comprised 91.0% and 91.8% of total fixed maturities in the general account at December 31, 1999 and 1998, respectively. 163 165 The following table shows the amortized cost and estimated fair value of fixed maturities, by contractual maturity dates (excluding scheduled sinking funds), at December 31, 1999 and 1998: FIXED MATURITIES BY CONTRACTUAL MATURITY DATES
AT DECEMBER 31, ----------------------------------------------- 1999 1998 ---------------------- ---------------------- ESTIMATED ESTIMATED AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE --------- --------- --------- --------- (DOLLARS IN MILLIONS) Due in one year or less.......................... $ 3,180 $ 3,217 $ 2,380 $ 2,462 Due after one year through five years............ 18,152 18,061 17,062 17,527 Due after five years through ten years........... 23,755 23,114 23,769 24,714 Due after ten years.............................. 26,316 25,918 26,276 29,070 ------- ------- ------- -------- Subtotal....................................... 71,403 70,310 69,487 73,773 Mortgage-backed and other asset-backed securities..................................... 27,396 26,661 26,456 26,979 ------- ------- ------- -------- Subtotal....................................... 98,799 96,971 95,943 100,752 Redeemable preferred stock....................... 10 10 15 15 ------- ------- ------- -------- Total fixed maturities........................... $98,809 $96,981 $95,958 $100,767 ======= ======= ======= ========
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES. We monitor fixed maturities to identify investments that management considers to be problems or potential problems. We also monitor investments that have been restructured. We define problem securities in the fixed maturities category as securities as to which principal or interest payments are in default or are to be restructured pursuant to commenced negotiations, or as securities issued by a debtor that has subsequently entered bankruptcy. We define potential problem securities in the fixed maturity category as securities of an issuer deemed to be experiencing significant operating problems or difficult industry conditions. We use various criteria, including the following, to identify potential problem securities: - debt service coverage or cash flow falling below certain thresholds which vary according to the issuer's industry and other relevant factors; - significant declines in revenues or margins; - violation of financial covenants; - public securities trading at a substantial discount as a result of specific credit concerns; and - other subjective factors. We define restructured securities in the fixed maturities category as securities to which we have granted a concession that we would not have otherwise considered but for the financial difficulties of the obligor or issuer. We enter into a restructuring when we believe we will realize a greater economic value under the new terms than through liquidation or disposition. The terms of the restructuring may involve some or all of the following characteristics: a reduction in the interest or dividend rate, an extension of the maturity date, an exchange of debt for equity or a partial forgiveness of principal or interest. 164 166 The following table presents the estimated fair value of our total fixed maturities classified as performing, problem, potential problem and restructured fixed maturities at December 31, 1999 and 1998: PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES
AT DECEMBER 31, ------------------------------------------ 1999 1998 ------------------- ------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Performing......................................... $96,464 99.5% $100,409 99.6% Problem............................................ 20 0.0 152 0.2 Potential problem.................................. 482 0.5 192 0.2 Restructured....................................... 15 0.0 14 0.0 ------- ----- -------- ----- Total............................................ $96,981 100.0% $100,767 100.0% ======= ===== ======== =====
We classify all of our fixed maturities as available-for-sale and mark them to market. We write down to management's expectations of ultimate realizable value fixed maturities that we deem to be other than temporarily impaired. We record write-downs as realized losses and include them in earnings and adjust the cost basis of the fixed maturities accordingly. We do not change the revised cost basis for subsequent recoveries in value. Such writedowns were $98 million and $7 million for the years ended December 31, 1999 and 1998, respectively. Cumulative write-downs on fixed maturities owned were $76 million and $16 million at December 31, 1999 and 1998, respectively. FIXED MATURITIES BY SECTOR. We diversify our fixed maturities by security sector. The following tables set forth the estimated fair value of our fixed maturities by sector, as well as the percentage of the total fixed maturities holdings that each security sector comprised at December 31, 1999 and 1998, and show by security type the relative amounts of publicly traded and privately placed securities: FIXED MATURITIES BY SECTOR
AT DECEMBER 31, 1999 -------------------------------------------------------------- PUBLICLY TRADED PRIVATELY PLACED TOTAL ------------------ ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) U.S. treasuries/agencies.......... $ 6,298 7.9% $ 1 0.0% $ 6,299 6.5% Corporate securities.............. 40,207 50.2 15,336 90.7 55,543 57.3 Foreign government securities..... 4,095 5.1 111 0.7 4,206 4.3 Mortgage-backed securities........ 20,032 25.0 247 1.5 20,279 20.9 Asset-backed securities........... 5,715 7.1 667 3.9 6,382 6.6 Other fixed income assets......... 3,732 4.7 540 3.2 4,272 4.4 ------- ----- ------- ----- ------- ----- Total........................... $80,079 100.0% $16,902 100.0% $96,981 100.0% ======= ===== ======= ===== ======= =====
165 167 FIXED MATURITIES BY SECTOR
AT DECEMBER 31, 1998 -------------------------------------------------------------- PUBLICLY TRADED PRIVATELY PLACED TOTAL ------------------ ------------------ ------------------ ESTIMATED % OF ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) U.S. treasuries/agencies.......... $ 7,744 9.2% $ 3 0.0% $ 7,747 7.7% Corporate securities.............. 42,525 50.6 15,453 91.8 57,978 57.5 Foreign government securities..... 4,173 5.0 117 0.7 4,290 4.3 Mortgage-backed securities........ 20,452 24.4 440 2.6 20,892 20.7 Asset-backed securities........... 5,852 7.0 235 1.4 6,087 6.0 Other fixed income assets......... 3,187 3.8 586 3.5 3,773 3.8 ------- ----- ------- ----- -------- ----- Total........................... $83,933 100.0% $16,834 100.0% $100,767 100.0% ======= ===== ======= ===== ======== =====
CORPORATE FIXED MATURITIES. The table below shows the major industry types that comprise our corporate bond holdings at the dates indicated:
AT DECEMBER 31, ------------------------------------------ 1999 1998 ------------------- ------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Industrial.......................................... $26,480 47.6% $28,388 49.0% Utility............................................. 6,487 11.7 7,690 13.2 Finance............................................. 11,631 21.0 11,252 19.4 Yankee/Foreign(1)................................... 10,423 18.8 10,295 17.8 Other............................................... 522 0.9 353 0.6 ------- ----- ------- ----- Total............................................. $55,543 100.0% $57,978 100.0% ======= ===== ======= =====
- --------------- (1) Includes dollar-denominated debt obligations of foreign obligors, known as Yankee bonds, and other foreign investments. We diversify our corporate bond holdings by industry and issuer. The portfolio has no significant exposure to any single issuer. At December 31, 1999, our combined holdings in the ten issuers to which we had the greatest exposure totaled $3,154 million, which was less than 3% of our total invested assets at such date. The exposure to the largest single issuer of corporate bonds we held at December 31, 1999 was $388 million, which was less than 1% of our total invested assets at such date. At December 31, 1999, investments of $4,182 million, or 40.1% of the Yankee/Foreign sector, represented exposure to traditional "Yankee" bonds, which are dollar-denominated debt obligations of foreign obligors. The balance of this exposure is primarily dollar-denominated, foreign private placements and project finance loans. We diversify the Yankee/Foreign portfolio by country and issuer. We do not have material exposure to foreign currency risk in our invested assets. In our international insurance operations, both our assets and liabilities are denominated in local currencies. Foreign currency denominated securities supporting U.S. dollar liabilities are generally swapped back into U.S. dollars. 166 168 MORTGAGE-BACKED SECURITIES. The following table shows the types of mortgage-backed securities we held at December 31, 1999 and 1998: MORTGAGE-BACKED SECURITIES
AT DECEMBER 31, ------------------------------------------ 1999 1998 ------------------- ------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Pass-through securities............................. $ 8,478 41.8% $ 8,546 40.9% ------- ----- ------- ----- Collateralized mortgage obligations Planned amortization class........................ 3,974 19.6 4,593 22.0 Sequential pay class.............................. 3,359 16.5 3,827 18.3 Other............................................. 361 1.8 141 0.7 ------- ----- ------- ----- Subtotal....................................... 7,694 37.9 8,561 41.0 Commercial mortgage-backed securities............... 4,107 20.3 3,785 18.1 ------- ----- ------- ----- Total..................................... $20,279 100.0% $20,892 100.0% ======= ===== ======= =====
At December 31, 1999, pass-through and collateralized mortgage obligations totaled $16,172 million, or 79.7% of total mortgage-backed securities, and a majority of this amount represented agency-issued pass-through and collateralized mortgage obligations guaranteed or otherwise supported by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or Government National Mortgage Association. Other types of mortgage-backed securities comprised the balance of such amounts reflected in the table. At December 31, 1999, approximately $2,614 million, or 63.6% of the commercial mortgage-backed securities and $13,880 million, or 85.9% of the pass-through securities and collateralized mortgage obligations were rated Aaa/AAA by Moody's or S&P. Mortgage-backed securities are purchased to diversify the portfolio risk characteristics from primarily corporate credit risk to a mix of credit risk and cash flow risk. The majority of the mortgage-backed securities in our investment portfolio have relatively low cash flow variability. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash flow will be received. Our active monitoring of our mortgage-backed securities mitigates exposure to losses from cash flow risk associated with interest rate fluctuations. Mortgage-backed pass-through certificates are the most liquid assets in the mortgage-backed sector. Pass-through securities represented 41.8% and 40.9% of our mortgage-backed securities at December 31, 1999 and 1998 respectively. Pass-through securities distribute, on a pro rata basis to their holders, the monthly cash flows of principal and interest, both scheduled and prepayments, generated by the underlying mortgages. We also invested 37.9% and 41.0% of our mortgage-backed securities at December 31, 1999 and 1998, respectively, in collateralized mortgage obligations ("CMOs") which have a greater degree of cash flow stability than pass-throughs. Planned Amortization Class bonds ("PAC") represented 19.6% and 22.0% of our mortgage-backed securities at December 31, 1999 and 1998, respectively. These bonds or tranches are structured to provide more certain cash flows to the investor and therefore are subject to less prepayment and extension risk than other mortgage-backed securities. PAC tranches derive their stability from having a specified principal payment schedule, provided prepayments of the underlying securities remain within their expected range. The other tranches of a CMO absorb 167 169 prepayment variations so that PACs maintain a better defined maturity profile than other mortgage-backed securities. By buying PACs, we accept a lower yield in return for more certain cash flow. The principal risk of holding PACs is that prepayments may differ significantly from expectations and we will not receive the expected yield on the PAC. In contrast, Sequential Pay Class tranches receive principal payments in a prescribed sequence without a pre-determined prepayment schedule. In addition to our PACs and Sequential Pay Class tranches, we had approximately $108 million invested in interest-only or principal-only mortgage-backed securities at December 31, 1999. ASSET-BACKED SECURITIES. The following table below shows the types of asset-backed securities we held at December 31, 1999 and 1998: ASSET-BACKED SECURITIES
AT DECEMBER 31, ------------------------------------------------ 1999 1998 --------------------- --------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Credit card receivables..................... $1,960 30.7% $2,885 47.4% Automobile receivables...................... 1,070 16.8 1,432 23.5 Home equity loans........................... 1,541 24.1 1,026 16.9 Other....................................... 1,811 28.4 744 12.2 ------ ----- ------ ----- Total..................................... $6,382 100.0% $6,087 100.0% ====== ===== ====== =====
Asset-backed securities are purchased both to diversify the overall risks of our fixed maturities assets and to provide attractive returns. Our asset-backed securities are diversified both by type of asset and by issuer. Credit card receivables constitute the largest exposure in our asset-backed securities investments. Except for asset-backed securities backed by home equity loans, the asset-backed securities investments generally have little sensitivity to changes in interest rates. At December 31, 1999, approximately $3,661 million, or 57.4%, of the total was rated Aaa/AAA by Moody's or S&P. The principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the security's priority in the issuer's capital structure, the adequacy of and ability to realize proceeds from the collateral and the potential for prepayments. Credit risks include consumer or corporate credits such as credit card holders, equipment lessees, and corporate obligors. Capital market risks include the general level of interest rates and the liquidity for these securities in the market place. 168 170 MORTGAGE LOANS Our mortgage loans are collateralized by commercial, agricultural and residential properties. Mortgage loans comprised 14.2% and 12.1% of our total cash and invested assets at December 31, 1999 and 1998, respectively. The carrying value of mortgage loans is stated at original cost net of repayments, amortization of premiums, accretion of discounts and valuation allowances. The following table shows the carrying value of our mortgage loans by such types at December 31, 1999 and 1998: MORTGAGE LOANS BY PORTFOLIO
AT DECEMBER 31, -------------------------------------------- 1999 1998 ------------------- ------------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Commercial................................... $14,862 75.3% $12,360 73.5% Agricultural................................. 4,798 24.3 4,227 25.1 Residential.................................. 79 0.4 240 1.4 ------- ----- ------- ----- Total...................................... $19,739 100.0% $16,827 100.0% ======= ===== ======= =====
COMMERCIAL MORTGAGE LOANS. We diversify our commercial mortgage loans by both geographic region and property type, and manage these investments through a network of regional offices overseen by our investment department. The following table presents the distribution across geographic regions and property types for commercial mortgage loans at December 31, 1999 and 1998: COMMERCIAL MORTGAGE LOAN DISTRIBUTION BY GEOGRAPHIC REGION AND PROPERTY TYPE
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) REGION South Atlantic....................................... $ 4,098 27.6% $ 3,463 28.0% Middle Atlantic...................................... 2,703 18.2 2,220 18.0 Pacific.............................................. 2,596 17.5 1,935 15.7 East North Central................................... 1,865 12.5 1,832 14.8 New England.......................................... 1,095 7.4 1,077 8.7 West South Central................................... 1,012 6.8 676 5.5 West North Central................................... 652 4.4 569 4.6 Mountain............................................. 490 3.3 335 2.7 East South Central................................... 149 1.0 152 1.2 International........................................ 202 1.3 101 0.8 ------- ----- ------- ----- Total.............................................. $14,862 100.0% $12,360 100.0% ======= ===== ======= ===== PROPERTY TYPE Office............................................... $ 6,789 45.7% $ 6,118 49.5% Retail............................................... 3,620 24.4 2,286 18.5 Apartments........................................... 2,382 16.0 2,378 19.2 Industrial........................................... 1,136 7.6 848 6.9 Hotel................................................ 843 5.7 657 5.3 Other................................................ 92 0.6 73 0.6 ------- ----- ------- ----- Total.............................................. $14,862 100.0% $12,360 100.0% ======= ===== ======= =====
169 171 The following table presents the scheduled maturities for our commercial mortgage loans at December 31, 1999 and 1998: COMMERCIAL MORTGAGE LOAN SCHEDULED MATURITIES
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Due in 1 year or less................................ $ 806 5.4% $ 808 6.5% Due after 1 year through 2 years..................... 482 3.2 816 6.6 Due after 2 years through 3 years.................... 708 4.8 532 4.3 Due after 3 years through 4 years.................... 787 5.3 679 5.5 Due after 4 years through 5 years.................... 1,608 10.8 881 7.1 Due after 5 years.................................... 10,471 70.5 8,644 70.0 ------- ----- ------- ----- Total.............................................. $14,862 100.0% $12,360 100.0% ======= ===== ======= =====
We monitor our mortgage loans on a continual basis. Through this monitoring process, we review loans that are restructured, delinquent or under foreclosure and identify those that management considers to be potentially delinquent. These loan classifications are generally consistent with those used in industry practice. We define restructured mortgage loans, consistent with industry practice, as loans in which we, for economic or legal reasons related to the debtor's financial difficulties, grant a concession to the debtor that we would not otherwise consider. This definition provides for loans to exit the restructured category under certain conditions. We define delinquent mortgage loans, consistent with industry practice, as loans as to which two or more interest or principal payments are past due. We define mortgage loans under foreclosure, consistent with industry practice, as loans as to which foreclosure proceedings have formally commenced. We define potentially delinquent loans as loans which, in management's opinion, have a high probability of becoming delinquent. We review all mortgage loans on an annual basis. These reviews may include an analysis of the property financial statement and rent roll, lease rollover analysis, property inspections, market analysis and tenant creditworthiness. We also review loan-to-value ratios and debt coverage ratios for restructured loans, delinquent loans, loans under foreclosure, potentially delinquent loans, loans with an existing valuation allowance, loans maturing within two years and loans with a loan-to-value ratio greater than 90% as determined in the prior year. We establish valuation allowances for loans that we deem impaired, as determined through our annual review process. We define impaired loans consistent with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as loans as to which we probably will not collect all amounts due according to applicable contractual terms of the agreement. We base valuation allowances upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the value of the loan's collateral. We record valuation allowances as realized losses and include them in earnings. We record subsequent adjustments to allowances as realized gains or losses and include them in earnings. 170 172 The following table presents the amortized cost and valuation allowances for commercial mortgage loans distributed by loan classification at December 31, 1999 and 1998: COMMERCIAL MORTGAGE LOAN DISTRIBUTION AND VALUATION ALLOWANCE BY LOAN CLASSIFICATION
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998 ----------------------------------------- ----------------------------------------- % OF % OF AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST --------- ----- --------- --------- --------- ----- --------- --------- (DOLLARS IN MILLIONS) Performing.............. $14,098 94.5% $11 0.1% $11,490 91.9% $ 44 0.4% Restructured............ 810 5.4 52 6.4% 953 7.7 85 8.9% Delinquent or under foreclosure........... 17 0.1 4 25.0% 55 0.4 10 18.2% Potentially delinquent............ 6 0.0 2 33.3% 4 0.0 3 75.0% ------- ----- --- ------- ----- ---- ---- Total................. $14,931 100.0% $69 0.5% $12,502 100.0% $142 1.1% ======= ===== === ==== ======= ===== ==== ====
- --------------- (1) Amortized cost is equal to carrying value before valuation allowances. The following table presents the changes in valuation allowances for commercial mortgage loans for the years ended December 31, 1999, 1998 and 1997: CHANGES IN COMMERCIAL MORTGAGE LOAN VALUATION ALLOWANCES
YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Balance, beginning of year.................................. $ 142 $ 259 $ 454 Additions................................................... 36 30 46 Deductions for writedowns and dispositions(1)............... (109) (147) (241) ----- ----- ----- Balance, end of year........................................ $ 69 $ 142 $ 259 ===== ===== =====
- --------------- (1) Includes $26 million related to commercial mortgage loans held by entities sold in 1998. The principal risks in holding commercial mortgage loans are property specific, supply and demand, financial and capital market risks. Property specific risks include the geographic location of the property, the physical condition of the property, the diversity of tenants and the rollover of their leases and the ability of the property manager to attract tenants and manage expenses. Supply and demand risks include changes in the supply and/or demand for rental space which cause changes in vacancy rates and/or rental rates. Financial risks include the overall level of debt on the property and the amount of principal repaid during the loan term. Capital market risks include the general level of interest rates, the liquidity for these securities in the marketplace and the capital available for refinancing of a loan. 171 173 AGRICULTURAL MORTGAGE LOANS. We diversify our agricultural mortgage loans by both geographic region and product type. We manage these investments through a network of regional offices and field professionals overseen by our investment department. The following table presents the distribution across geographic regions and product types for agricultural mortgage loans at December 31, 1999 and 1998: AGRICULTURAL MORTGAGE LOAN DISTRIBUTION BY GEOGRAPHIC REGION AND BY PRODUCT TYPE
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) REGION Pacific................................................ $1,184 24.7% $1,085 25.6% West North Central..................................... 1,053 21.9 931 22.0 South Atlantic......................................... 840 17.5 734 17.4 East North Central..................................... 737 15.4 671 15.9 West South Central..................................... 405 8.5 356 8.4 Mountain............................................... 371 7.7 327 7.7 East South Central..................................... 189 3.9 108 2.6 New England............................................ 19 0.4 15 0.4 ------ ----- ------ ----- Total................................................ $4,798 100.0% $4,227 100.0% ====== ===== ====== ===== PRODUCT TYPE Annual Crop............................................ $2,276 47.4% $2,128 50.3% Permanent.............................................. 932 19.5 848 20.1 Agribusiness........................................... 761 15.8 578 13.7 Livestock.............................................. 655 13.7 564 13.3 Timber................................................. 174 3.6 109 2.6 ------ ----- ------ ----- Total................................................ $4,798 100.0% $4,227 100.0% ====== ===== ====== =====
The following table presents the scheduled maturities for our agricultural mortgage loans at December 31, 1999 and 1998: AGRICULTURAL MORTGAGE LOAN MATURITY PROFILE
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Due in 1 year or less.................................. $ 99 2.1% $ 70 1.7% Due after 1 year through 2 years....................... 74 1.5 76 1.8 Due after 2 years through 3 years...................... 97 2.0 88 2.1 Due after 3 years through 4 years...................... 135 2.8 112 2.6 Due after 4 years through 5 years...................... 134 2.8 161 3.8 Due after 5 years...................................... 4,259 88.8 3,720 88.0 ------ ----- ------ ----- Total................................................ $4,798 100.0% $4,227 100.0% ====== ===== ====== =====
Approximately 62% of the $4,798 million of agricultural mortgage loans outstanding at December 31, 1999 was subject to rate resets prior to maturity. A substantial portion of these loans are successfully renegotiated and remain outstanding to maturity. The process and policies 172 174 for monitoring the agricultural mortgage loans and classifying them by performance status are generally the same as those for the commercial mortgage loans. The following table presents the amortized cost and valuation allowances for agricultural mortgage loans distributed by loan classification at December 31, 1999 and 1998: AGRICULTURAL MORTGAGE LOAN DISTRIBUTION AND VALUATION ALLOWANCE BY LOAN CLASSIFICATION
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998 ----------------------------------------- ----------------------------------------- % OF % OF AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST --------- ----- --------- --------- --------- ----- --------- --------- (DOLLARS IN MILLIONS) Performing............. $4,616 95.8% $ 1 0.0% $4,051 95.2% $10 0.2% Restructured........... 165 3.4 11 6.7% 182 4.3 14 7.7% Delinquent or under foreclosure.......... 27 0.6 2 7.4% 10 0.2 -- 0.0% Potentially delinquent........... 8 0.2 4 50.0% 12 0.3 4 33.3% ------ ----- --- ------ ----- --- Total................ $4,816 100.0% $18 0.4% $4,255 100.0% $28 0.7% ====== ===== === ====== ===== ===
- --------------- (1) Amortized cost is equal to carrying value before valuation allowances. The following table presents the changes in valuation allowances for agricultural mortgage loans for the years ended December 31, 1999, 1998 and 1997: CHANGES IN AGRICULTURAL MORTGAGE LOAN VALUATION ALLOWANCES
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- (DOLLARS IN MILLIONS) Balance, beginning of year.................................. $ 28 $27 $12 Additions................................................... 4 10 15 Deductions for writedowns and dispositions.................. (14) (9) -- ---- --- --- Balance, end of year........................................ $ 18 $28 $27 ==== === ===
The principal risks in holding agricultural mortgage loans are property specific, supply and demand, financial and capital market risks. Property specific risks include the location of the property, soil types, weather conditions and the other factors that may impact the borrower's personal guaranty. Supply and demand risks include the supply and demand for the commodities produced on the specific property and the related price for those commodities. Financial risks include the overall level of debt on the property and the amount of principal repaid during the loan term. Capital market risks include the general level of interest rates, the liquidity for these securities in the marketplace and the capital available for refinancing of a loan. EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES Our equity real estate and real estate joint venture investments consist of commercial and agricultural properties located throughout the U.S. and Canada. We manage these investments through a network of regional offices overseen by our investment department. At December 31, 1999 and 1998, the carrying value of our equity real estate and real estate joint ventures was $5,649 million and $6,287 million, respectively, or 4.1% and 4.5% of total cash and invested assets. The carrying value of equity real estate is stated at depreciated cost net of impairments and valuation allowances. The carrying value of real estate joint ventures is stated at our equity in the real estate joint ventures net of impairments and valuation allowances. These holdings consist of equity real estate, interests in real estate joint ventures and real estate acquired upon foreclosure 173 175 of commercial and agricultural mortgage loans. The following table presents the carrying value of our equity real estate and real estate joint ventures at December 31, 1999 and 1998: EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) TYPE Equity real estate..................................... $5,271 93.3% $5,559 88.5% Real estate joint ventures............................. 331 5.9 574 9.1 ------ ----- ------ ----- Subtotal............................................. 5,602 99.2 6,133 97.6 Foreclosed real estate................................. 47 0.8 154 2.4 ------ ----- ------ ----- Total................................................ $5,649 100.0% $6,287 100.0% ====== ===== ====== =====
These investments are diversified by geographic location and property types. The following table presents the distribution across geographic regions and property types for equity real estate and real estate joint ventures at December 31, 1999 and 1998: EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES DISTRIBUTION BY GEOGRAPHIC REGION AND PROPERTY TYPE
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) REGION East................................................... $1,863 33.0% $1,960 31.2% West................................................... 1,657 29.3 1,828 29.1 South.................................................. 1,416 25.1 1,628 25.9 Midwest................................................ 544 9.6 681 10.8 International.......................................... 169 3.0 190 3.0 ------ ----- ------ ----- Total................................................ $5,649 100.0% $6,287 100.0% ====== ===== ====== ===== PROPERTY TYPE Office................................................. $3,846 68.1% $4,265 67.8% Retail................................................. 587 10.4 640 10.2 Apartments............................................. 474 8.4 418 6.6 Land................................................... 258 4.6 313 5.0 Industrial............................................. 160 2.8 168 2.7 Hotel.................................................. 151 2.7 169 2.7 Agriculture............................................ 96 1.7 195 3.1 Other.................................................. 77 1.3 119 1.9 ------ ----- ------ ----- Total................................................ $5,649 100.0% $6,287 100.0% ====== ===== ====== =====
Office properties representing 68.1% and 67.8% of our equity real estate and real estate joint venture holdings at December 31, 1999 and 1998, respectively, are well diversified geographically. The average occupancy level of office properties was 92% and 93% at December 31, 1999 and 1998, respectively. 174 176 We classify equity real estate and real estate joint ventures as held for investment or held for sale. The following table presents the carrying value of equity real estate and real estate joint ventures by such classifications at December 31, 1999 and 1998: EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES CLASSIFICATION BY HELD FOR INVESTMENT AND HELD FOR SALE
AT DECEMBER 31, ----------------------------------- 1999 1998 ---------------- ---------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Equity real estate and real estate joint ventures held for investment............................................... $5,151 91.2% $5,893 93.7% Equity real estate and real estate joint ventures held for sale..................................................... 498 8.8 394 6.3 ------ ----- -------- ----- Total.................................................... $5,649 100.0% $6,287 100.0% ====== ===== ======== =====
Ongoing management of these investments includes quarterly appraisals, as well as an annual market update and review of each property's budget, financial returns, lease rollover status and our exit strategy. In addition to individual property reviews, we employ an overall strategy of selective dispositions and acquisitions as market opportunities arise. Our current strategy follows the completion of a program to substantially reduce the size of our total real estate holdings. Our disposition effort began in 1995, when the carrying value of our holdings at year end was $9,514 million, and ended in 1998 with a carrying value of our holdings at $6,287 million. We adjust the carrying value of equity real estate and real estate joint ventures held for investment for impairments whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable. We write down impaired real estate to estimated fair value, which we generally compute using the present value of future cash flows from the property, discounted at a rate commensurate with the underlying risks. We record writedowns as realized losses through earnings and we reduce the cost basis of the properties accordingly. We do not change the new cost basis for subsequent recoveries in value. Cumulative writedowns on equity real estate and real estate joint ventures that are held for investment, excluding real estate acquired upon foreclosure of commercial and agricultural mortgage loans, were $289 million and $408 million at December 31, 1999 and 1998, respectively. We record real estate acquired upon foreclosure of commercial and agricultural mortgage loans at the lower of estimated fair value or the carrying value of the mortgage loan at the date of foreclosure. Once we identify a property to be sold and commence a firm plan for marketing the property, we establish and periodically revise, if necessary, a valuation allowance to adjust the carrying value of the property to its expected sales value, less associated selling costs, if it is lower than the property's carrying value. We record allowances as realized losses and include them in earnings. We record subsequent adjustments to allowances as realized gains or losses and include them in earnings. Our carrying value of equity real estate and real estate joint ventures held for sale, including real estate acquired upon foreclosure of commercial and agricultural mortgage loans, in the amounts of $498 million and $394 million at December 31, 1999 and 1998, respectively, are net of impairments of $187 million and $119 million and net of valuation allowances of $34 million and $33 million, respectively. 175 177 EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS Our equity securities primarily consist of investments in common stocks. Substantially all of the common stock is publicly traded on major securities exchanges. The other limited partnership interests primarily represent ownership interests in pooled investment funds that make private equity investments in companies in the U.S. and overseas. We classify our investments in common stocks as available-for-sale and mark them to market except for non-marketable private equities which are generally carried at cost. We account for our investments in limited partnership interests in which we do not have a controlling interest in accordance with the equity method of accounting. Our investments in equity securities represented 1.5% and 1.7% of cash and invested assets at December 31, 1999 and 1998, respectively. The following table presents the carrying values of our investments in equity securities and other limited partnership interests at December 31, 1999 and 1998: INVESTMENTS IN EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
AT DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Equity securities...................................... $2,006 60.1% $2,340 69.1% Other limited partnership interests.................... 1,331 39.9 1,047 30.9 ------ ----- ------ ----- Total................................................ $3,337 100.0% $3,387 100.0% ====== ===== ====== =====
Equity securities include, at December 31, 1999 and 1998, $237 million and $239 million, respectively, of private equity securities. We may not freely trade our private equity securities, because of restrictions imposed by federal and state securities laws and illiquid trading markets. At December 31, 1999 and 1998, approximately $380 million and $452 million, respectively, of our equity securities holdings were effectively fixed at a minimum value of $355 million and $371 million in these respective periods, primarily through the use of convertible securities and other derivatives. In 1998, one exchangeable subordinated debt security was terminated resulting in realized investment gains of $32 million. The remaining exchangeable subordinated debt securities mature through 2002 and we may terminate them earlier at our discretion. PROBLEM AND POTENTIAL PROBLEM EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS We monitor our equity securities and other limited partnership interests on a continual basis. Through this monitoring process, we identify investments that management considers to be problems or potential problems. Problem equity securities and other limited partnership interests are defined as securities (1) in which significant declines in revenues and/or margins threaten the ability of the issuer to continue operating or (2) where the issuer has subsequently entered bankruptcy. Potential problem equity securities and other limited partnership interests are defined as securities issued by a company that is experiencing significant operating problems or difficult industry conditions. Criteria generally indicative of these problems or conditions are (1) cash flows falling below varying thresholds established for the industry and other relevant factors, (2) significant declines in revenues and/or margins, (3) public securities trading at a substantial discount as a result of specific credit concerns and (4) other information that becomes available. Equity securities or other limited partnership interests which are deemed to be other than temporarily impaired are written down to management's expectation of ultimate realizable value. Writedowns are recorded as realized investment losses and are included in earnings and the cost 176 178 basis of the equity securities and other limited partnership interests are adjusted accordingly. The new cost basis is not changed for subsequent recoveries in value. For the years ended December 31, 1999 and 1998, such writedowns were $35 million and $38 million, respectively. Cumulative writedowns on equity securities and other limited partnership interests owned at December 31, 1999 and 1998 were $35 million and $55 million, respectively. OTHER INVESTED ASSETS Our other invested assets consist principally of leveraged leases, which are recorded net of non-recourse debt. We participate in lease transactions which are diversified by geographic area. We regularly review residual values and write down residuals to expected values as needed. Our other invested assets represented 1.1% of cash and invested assets at both December 31, 1999 and 1998. DERIVATIVE FINANCIAL INSTRUMENTS We use derivative instruments to manage market risk through one of four principal risk management strategies: the hedging of invested assets, liabilities, portfolios of assets or liabilities and anticipated transactions. Our derivative strategy employs a variety of instruments including financial futures, financial forwards foreign exchange contracts, foreign currency swaps, interest rate swaps, interest rate caps and options. We held the following positions in derivative financial instruments (other than equity options) at December 31, 1999 and 1998: DERIVATIVE FINANCIAL INSTRUMENTS
AT DECEMBER 31, ------------------------------------ 1999 1998 ---------------- ---------------- NOTIONAL % OF NOTIONAL % OF AMOUNT TOTAL AMOUNT TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Financial futures...................................... $ 3,140 15.1% $ 2,190 17.0% Foreign exchange contracts............................. -- 0.0 136 1.1 Foreign currency swaps................................. 4,002 19.2 580 4.5 Interest rate swaps.................................... 1,316 6.3 1,621 12.5 Interest rate caps..................................... 12,376 59.4 8,391 64.9 ------- ----- ------- ----- Total................................................ $20,834 100.0% $12,918 100.0% ======= ===== ======= =====
SECURITIES LENDING Pursuant to our securities lending program, we lend securities to major brokerage firms. Our policy requires a minimum of 102% of the fair value of the loaned securities as collateral, calculated on a daily basis. Our securities on loan at December 31, 1999 and 1998 had estimated fair values of $6,391 million and $4,552 million, respectively. SEPARATE ACCOUNT ASSETS We manage each separate account's assets in accordance with the prescribed investment policy that applies to that specific separate account. We establish separate accounts on a single client and multi-client commingled basis in conformity with insurance laws. Generally, separate accounts are not chargeable with liabilities that arise from any other business of ours. Separate account assets are subject to our general account's claims only to the extent that the value of such assets exceeds the separate account liabilities, as defined by the account's contract. If we use a separate account to support a contract providing guaranteed benefits, we must comply 177 179 with the asset maintenance requirements stipulated under Regulation 128 of the New York Insurance Department. We monitor these requirements at least monthly and in addition perform cash flow analyses, similar to those conducted for the general account, on an annual basis. We report separately as assets and liabilities investments held in separate accounts and liabilities of the separate accounts. We report substantially all separate account assets at their fair market value. Investment income and gains or losses on the investments of separate accounts accrue directly to contractholders, and, accordingly, we do not reflect them in our consolidated statements of income and cash flows. We reflect in our revenues fees charged to the separate accounts by us, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. REGULATION INSURANCE REGULATION Metropolitan Life Insurance Company is licensed to transact insurance business in, and is subject to regulation and supervision by, all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada and each of its 11 provinces. Each of our other insurance subsidiaries is licensed and regulated in all U.S. and international jurisdictions where it conducts insurance business. The extent of such regulation varies, but most jurisdictions have laws and regulations governing the financial aspects of insurers, including standards of solvency, reserves, reinsurance, capital adequacy and the business conduct of insurers. In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of policy forms and related materials and, for certain lines of insurance, the approval of rates. Such statutes and regulations also prescribe the permitted types and concentration of investments. The New York Insurance Law limits the sales commissions and certain other marketing expenses that may be incurred in connection with the sale of life insurance policies and annuity contracts. Our insurance subsidiaries are each required to file reports, generally including detailed annual financial statements, with insurance regulatory authorities in each of the jurisdictions in which they do business, and their operations and accounts are subject to periodic examination by such authorities. Our subsidiaries must also file, and in many jurisdictions and in some lines of insurance obtain regulatory approval for, rules, rates and forms relating to the insurance written in the jurisdictions in which they operate. The NAIC has established a program of accrediting state insurance departments. NAIC accreditation permits accredited states to conduct periodic examinations of insurers domiciled in such states. NAIC-accredited states will not accept reports of examination of insurers from unaccredited states, except under limited circumstances. As a direct result, insurers domiciled in unaccredited states may be subject to financial examination by accredited states in which they are licensed, in addition to any examinations conducted by their domiciliary states. The accreditation of the New York Insurance Department, our principal insurance regulator, has been suspended as a result of the New York legislature's failure to adopt certain model NAIC laws, including provisions restricting dividends to holding companies. We believe that the suspension of the NAIC accreditation of the Department, even if continued, will not have a significant impact upon our ability to conduct our insurance businesses. State and federal insurance and securities regulatory authorities and other state law enforcement agencies and attorneys general from time to time make inquiries regarding compliance by our insurance subsidiaries with insurance, securities and other laws and regulations regarding the conduct of our insurance and securities businesses. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. HOLDING COMPANY REGULATION. We and our insurance subsidiaries are subject to regulation under the insurance holding company laws of various jurisdictions. The insurance holding company laws and regulations vary from jurisdiction to jurisdiction, but generally require an 178 180 insurance holding company (and insurers that are subsidiaries of insurance holding companies) to register with state regulatory authorities and to file with those authorities certain reports, including information concerning their capital structure, ownership, financial condition, certain intercompany transactions and general business operations. State insurance statutes also typically place restrictions and limitations on the amount of dividends or other distributions payable by insurance company subsidiaries to their parent companies, as well as on transactions between an insurer and its affiliates. See "Risk Factors -- Dividends and payments on our indebtedness may be affected by limitations imposed on Metropolitan Life Insurance Company and our other subsidiaries" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources -- MetLife, Inc." The New York Insurance Law and the regulations thereunder also restrict the aggregate amount of investments Metropolitan Life Insurance Company may make in non-life insurance subsidiaries, and provide for detailed periodic reporting on subsidiaries. GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS. Most of the jurisdictions in which we are admitted to transact business require life insurers doing business within the jurisdiction to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed life insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. In none of the past five years have the aggregate assessments levied against Metropolitan Life Insurance Company and its insurance subsidiaries been material. While the amount and timing of future assessments are not predictable, we have established liabilities for guarantee fund assessments that we consider adequate for assessments with respect to insurers that are currently subject to insolvency proceedings. STATUTORY EXAMINATION. As part of their routine regulatory oversight process, state insurance departments conduct periodic detailed examinations of the books, records and accounts of insurers domiciled in their states. These examinations are generally conducted in cooperation with the departments of two or three other states under guidelines promulgated by the NAIC. The New York Insurance Department recently completed an examination of Metropolitan Life Insurance Company for the five-year period ended December 31, 1993. The New York Insurance Department's Report on Examination of Metropolitan Life Insurance Company as of December 31, 1993 found that, during the five-year examination period 1989 through 1993, Metropolitan Life Insurance Company failed to fully comply with the disclosure requirements of a New York Insurance Department regulation regarding replacements of certain of its insurance policies with other policies issued by it, and used certain policy forms that had not been filed with or approved by the Insurance Department. These findings resulted in a $250,000 fine and other remedies which, in our view, are not material to our business, financial condition or results of operations. The Report contained other findings which did not result in a fine. The New York Insurance Department recently commenced an examination of Metropolitan Life Insurance Company for each of the five years in the period ended December 31, 1998. State insurance departments also periodically conduct market conduct examinations of the sales practices of insurance companies, including our life insurance subsidiaries. Regulatory authorities in a small number of states, including both insurance departments and attorneys general, have ongoing investigations of our sales of individual life insurance policies or annuities, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures as to the period for which premiums would be payable. Over the past several years, we have resolved a number of investigations by 179 181 other regulatory authorities for monetary payments and certain other relief, and may continue to do so in the future. NAIC RATIOS. On the basis of statutory financial statements filed with state insurance regulators, the NAIC calculates annually twelve financial ratios to assist state regulators in monitoring the financial condition of insurers. A "usual range" of results for each ratio is used as a benchmark. Departure from the "usual range" on four or more of the ratios can lead to inquiries from individual state insurance departments. In each of the years 1996 through 1999, at most one ratio for Metropolitan Life Insurance Company fell outside the usual range. POLICY AND CONTRACT RESERVE SUFFICIENCY ANALYSIS. Under the New York Insurance Law, Metropolitan Life Insurance Company is required to conduct annually an analysis of the sufficiency of all life and health insurance and annuity statutory reserves. A qualified actuary must submit an opinion which states that the statutory reserves, when considered in light of the assets held with respect to such reserves, make good and sufficient provision for the associated contractual obligations and related expenses of the insurer. If such an opinion cannot be provided, the insurer must set up additional reserves by moving funds from surplus. Since the inception of this requirement, we have provided this opinion without any qualifications. STATUTORY INVESTMENT RESERVES. Statutory accounting practices require a life insurer to maintain both an asset valuation reserve and an interest maintenance reserve to absorb both realized and unrealized gains and losses on a portion of its investments. The asset valuation reserve is a statutory reserve for fixed maturity securities, equity securities, mortgage loans, equity real estate and other invested assets. The asset valuation reserve is designed to capture all realized and unrealized gains and losses on such assets, other than those resulting from changes in interest rates. The level of the asset valuation reserve is based on both the type of investment and its credit rating. In addition, the reserves required for similar investments, for example, fixed maturity securities, differ according to the credit ratings of the investments, which are based upon ratings established periodically by the NAIC Securities Valuation Office. The interest maintenance reserve applies to all types of fixed maturity securities, including bonds, preferred stocks, mortgage-backed securities, asset-backed securities and mortgage loans. The interest maintenance reserve is designed to capture the net gains which are realized upon the sale of such investments and which result from changes in the overall level of interest rates. The captured net realized gains or losses are then amortized into income over the remaining period to the stated maturity of the investment sold. Any increase in the asset valuation reserve and interest maintenance reserve causes a reduction in our insurance companies' statutory capital and surplus which, in turn, reduces funds available for stockholder dividends. SURPLUS AND CAPITAL. The New York Insurance Law requires Metropolitan Life Insurance Company, as a New York domestic insurer, to maintain at least $300,000 in surplus. After the demutualization, Metropolitan Life Insurance Company will be required to maintain $2,000,000 in capital. In addition, prior to the demutualization, the New York Insurance Law limited the amount of surplus that Metropolitan Life Insurance Company, as a New York domestic mutual insurer, could accumulate. We intend to continue offering participating policies after the demutualization. We will be subject to statutory restrictions that limit to 10% the amount of statutory profits on participating policies written after the demutualization (measured before dividends to policyholders) that can inure to the benefit of stockholders. We believe that the impact of these restrictions on our earnings will not be significant. Our U.S. insurance subsidiaries are subject to the supervision of the regulators in each jurisdiction in which they are licensed to transact business. Regulators have discretionary authority, in connection with the continued licensing of these insurance subsidiaries, to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such insurer has not maintained the minimum surplus or capital or if further transaction of business will be hazardous to policyholders. 180 182 RISK-BASED CAPITAL. Section 1322 of the New York Insurance Law requires that New York life insurers report their RBC based on a formula calculated by applying factors to various asset, premium and reserve items. The formula takes into account the risk characteristics of the insurer, including asset risk, insurance risk, interest rate risk and business risk. The New York Insurance Department uses the formula only as an early warning regulatory tool to identify possibly inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers generally. Section 1322 imposes broad confidentiality requirements on those engaged in the insurance business (including insurers, agents, brokers and others) and on the Insurance Department as to the use and publication of RBC data. Section 1322 gives the New York Superintendent of Insurance explicit regulatory authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not exceed certain RBC levels. At December 31, 1999, Metropolitan Life Insurance Company's total adjusted capital was in excess of each of those RBC levels. The U.S. insurance subsidiaries of Metropolitan Life Insurance Company are also subject, each individually, to these same RBC requirements. At December 31, 1999, the total adjusted capital of each of these insurance subsidiaries also was in excess of each of those RBC levels. The NAIC has recently adopted the Codification of Statutory Accounting Principles for life insurers, which is to become effective on January 1, 2001. Prior to implementation by Metropolitan Life Insurance Company, the Codification requires adoption by the New York Insurance Department, which may adopt the standards, in full or in part, or fail to adopt the standards. Based on a study commissioned by the NAIC, the overall impact to life insurers resulting from adoption of the codification is not expected to have a material adverse impact; however, a detailed analysis will be necessary to determine the actual impact of Codification on the statutory results of operations and statutory financial position of Metropolitan Life Insurance Company. REGULATION OF INVESTMENTS. Metropolitan Life Insurance Company and each of its insurance subsidiaries are subject to state laws and regulations that require diversification of our investment portfolios and limit the amount of investments in certain asset categories such as below investment grade fixed income securities, equity real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would cause investments exceeding regulatory limitations to be treated as NON-ADMITTED ASSETS for purposes of measuring surplus, and, in some instances, would require divestiture of such non-qualifying investments. We believe that the investments made by Metropolitan Life Insurance Company and each of its insurance subsidiaries complied with such regulations at December 31, 1999. FEDERAL INSURANCE INITIATIVES. 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 and minimum solvency requirements. For a discussion of the Gramm-Leach-Bliley Act of 1999, permitting affiliations between banks and insurers, see "Business -- Competition". VALUATION OF LIFE INSURANCE POLICIES MODEL REGULATION. The NAIC has adopted a revision to the Valuation of Life Insurance Policies Model Regulation (known as XXX Regulation). This model regulation would establish new minimum statutory reserve requirements for certain individual life insurance policies written in the future. Before the new reserve standards can become effective, individual states must adopt the model regulation. If these reserve standards were adopted in their current form, insurers selling certain individual life insurance products such as term life insurance with guaranteed premium periods and universal life insurance products with no-lapse guarantees would be required to redesign their products or hold increased reserves to be consistent with the new minimum standards with respect to policies issued after the effective date of the regulation. It is likely that the industry will encourage the states to adopt 181 183 the regulation with an effective date of January 1, 2000. New York State adopted a regulation similar to the model regulation in 1994, and amended its regulation on March 13, 2000 to be consistent with XXX Regulation. BROKER-DEALER AND SECURITIES REGULATION Metropolitan Life Insurance Company, some of its subsidiaries and certain policies and contracts offered by them are subject to various levels of regulation under the federal securities laws administered by the Securities and Exchange Commission. Metropolitan Life Insurance Company and some of its subsidiaries are investment advisers registered under the Investment Advisers Act of 1940, as amended. In addition, some separate accounts and a variety of mutual funds are registered under the Investment Company Act of 1940, as amended. Some annuity contracts and insurance policies issued by Metropolitan Life Insurance Company and some of its subsidiaries are funded by separate accounts, the interests in which are registered under the Securities Act of 1933, as amended. Metropolitan Life Insurance Company and some of its subsidiaries are registered as broker-dealers under the Securities Exchange Act of 1934, as amended, and with the National Association of Securities Dealers, Inc. Metropolitan Life Insurance Company also has certain pooled investment vehicles that are exempt from registration under the Securities Act and the Investment Company Act, but may be subject to certain other provisions of such acts. Federal and state securities regulatory authorities from time to time make inquiries regarding compliance by Metropolitan Life Insurance Company and its subsidiaries with securities and other laws and regulations regarding the conduct of their securities businesses. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. These laws and regulations are primarily intended to protect investors in the securities markets and generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of business for failure to comply with such laws and regulations. We may also be subject to similar laws and regulations in the states and foreign countries in which we provide investment advisory services, offer the products described above or conduct other securities-related activities. ENVIRONMENTAL CONSIDERATIONS As owners and operators of real property, we are subject to extensive federal, state and local environmental laws and regulations. Inherent in such ownership and operation is also the risk that there may be potential environmental liabilities and costs in connection with any required remediation of such properties. In addition, we hold equity interests in companies that could potentially be subject to environmental liabilities, although we routinely have environmental assessments performed with respect to real estate being acquired for investment and real property to be acquired through foreclosure. We cannot provide assurance that unexpected environmental liabilities will not arise. However, based on information currently available to management, management believes that any costs associated with compliance with environmental laws and regulations or any remediation of such properties will not have a material adverse effect on our business, results of operations and financial condition. ERISA CONSIDERATIONS We provide certain products and services to certain employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the Internal Revenue Code of 1986, as amended ("Code"). As such, our activities are subject to the restrictions imposed by ERISA and the Code, including the requirement under ERISA that fiduciaries must perform their duties solely in the interests of ERISA plan participants and beneficiaries and the requirement under ERISA and the Code that fiduciaries may not cause a 182 184 covered plan to engage in certain prohibited transactions with persons who have certain relationships with respect to such plans. The applicable provisions of ERISA and the Code are subject to enforcement by the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation. On December 13, 1993, the U.S. Supreme Court issued its opinion in John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank. The Court held that certain assets in excess of amounts necessary to satisfy guaranteed obligations held by John Hancock in its general account under a participating group annuity contract are "plan assets" and therefore subject to certain fiduciary obligations under ERISA, which specifies that fiduciaries must perform their duties solely in the interest of ERISA plan participants and beneficiaries. The Court limited the imposition of ERISA fiduciary obligations in these instances to certain assets in an insurer's general account that were not reserved to pay benefits of guaranteed benefit policies. On January 5, 2000, the Secretary of Labor issued final regulations providing guidance for the purpose of determining, in cases where an insurer issues one or more policies backed by the insurer's general account to or for the benefit of an employee benefit plan, the extent to which assets of the insurer constitute plan assets for purposes of ERISA and the Code. The regulations apply only with respect to a policy issued by an insurer on or before December 31, 1998 ("Transition Policy"). In the case of such a policy, the regulations generally become applicable on July 5, 2001. Generally, no person will be liable under ERISA or the Code for conduct occurring prior to the applicability dates, where the basis of a claim is that insurance company general account assets constitute plan assets. Insurers issuing new policies after December 31, 1998 that are not guaranteed benefit policies will generally be subject to fiduciary obligations under ERISA. The regulations indicate the requirements that must be met so that assets supporting a Transition Policy will not be considered plan assets for purposes of ERISA and the Code. These requirements include detailed disclosures to be made to the employee benefits plan and the requirement that the insurer must permit the policyholder to terminate the policy on 90 days' notice and receive without penalty, at the policyholder's option, either (1) the unallocated accumulated fund balance (which may be subject to market value adjustment) or (2) a book value payment of such amount in annual installments with interest. We have taken and are continuing to take steps designed to ensure compliance with these regulations, as appropriate. COMPETITION We believe that competition with our business segments is based on a number of factors, including service, product features, price, commission structure, financial strength, claims-paying ratings and name recognition. We compete with a large number of other insurers, as well as non-insurance financial services companies, such as banks, broker-dealers and asset managers, for individual consumers, employer and other group customers and agents and other distributors of insurance and investment products. Some of these companies offer a broader array of products, have more competitive pricing or, with respect to other insurers, have higher claims paying ability ratings. Some may also have greater financial resources with which to compete. National banks, with their pre-existing customer bases for financial services products, may increasingly compete with insurers who sell annuities, as a result of the U.S. Supreme Court's 1994 decision in NationsBank of North Carolina v. Variable Annuity Life Insurance Company. That decision permits national banks to sell annuity products of life insurers in some circumstances. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999, implementing fundamental changes in the regulation of the financial services industry in the U.S. The Act permits mergers that combine commercial banks, insurers and securities firms under one holding company. Under the Act, national banks retain their existing ability to sell insurance products in some circumstances. In addition, bank holding companies that qualify and elect to be treated as "financial holding companies" may engage in activities, and acquire companies engaged in activities, that are "financial" in nature or "incidental" or "complemen- 183 185 tary" to such financial activities, including acting as principal, agent or broker in selling life, property and casualty and other forms of insurance and annuities. A financial holding company can own any kind of insurer or insurance broker or agent, but its bank subsidiary cannot own the insurer. Under state law, the financial holding company would need to apply to the insurance commissioner in the insurer's state of domicile for prior approval of the acquisition of the insurer, and the Act provides that the commissioner, in considering the application, may not discriminate against the financial holding company because it is affiliated with a bank. Under the Act, no state may prevent or interfere with affiliations between banks and insurers, insurance agents or brokers, or the licensing of a bank or affiliate as an insurer or agent or broker. Until passage of the Gramm-Leach-Bliley Act, the Glass-Steagall Act of 1933, as amended, had limited the ability of banks to engage in securities-related businesses, and the Bank Holding Company Act of 1956, as amended, had restricted banks from being affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act, among other things, bank holding companies may acquire insurers, and insurance holding companies may acquire banks. The ability of banks to affiliate with insurers may materially adversely affect all of our product lines by substantially increasing the number, size and financial strength of potential competitors. We must attract and retain productive sales representatives to sell our insurance, annuities and investment products. Strong competition exists among insurers for sales representatives with demonstrated ability. We compete with other insurers for sales representatives primarily on the basis of our financial position, support services and compensation and product features. From 1994 to 1998, the number of agents in the MetLife career agency system declined, from 9,521 to 6,853. We have undertaken several initiatives to grow our career agency force in the future. At December 31, 1999, the number of agents in the MetLife career agency system was 6,866. See "Business -- Individual Business -- Marketing and Distribution". We cannot provide assurance that these initiatives will succeed in attracting and retaining new agents. Sales of individual insurance, annuities and investment products and our results of operations and financial position could be materially adversely affected if we are unsuccessful in attracting and retaining agents. Many of our insurance products, particularly those offered by our Institutional Business segment, are underwritten yearly, and, accordingly, group purchasers may be able to obtain more favorable terms from competitors rather than renewing coverage with us. The effect of competition may, as a result, adversely affect the persistency of these and other products, as well as our ability to sell products in the future. The investment management and securities brokerage businesses have relatively few barriers to entry and continually attract new entrants. Many of our competitors in these businesses offer a broader array of investment products and services and are better known than we as sellers of annuities and other investment products. The Clinton Administration and various members of Congress have also proposed reforms to the nation's health care system. While we do offer non-medical health insurance products (such as group dental insurance, long-term care and disability insurance), we generally do not offer medical indemnity products or managed care products, and, accordingly, do not expect to be directly affected by such proposals to any significant degree. However, the uncertain environment resulting from health care reform could cause group health insurance providers to enter some of the markets in which we do business, thereby increasing competition. CLAIMS PAYING ABILITY RATINGS Claims paying ability and financial strength ratings are a factor in establishing the competitive position of insurers. A ratings downgrade (or the potential for such a downgrade) of Metropolitan Life Insurance Company or any of our other subsidiaries could, among other things, increase the number of policies surrendered and withdrawals by policyholders of cash values 184 186 from their policies, adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of our products and services, negatively impact new sales, adversely affect our ability to compete and thereby have a material adverse effect on our business, results of operations and financial condition. Our current claims paying ability and financial strength ratings are listed in the table below:
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE Standard & Metropolitan Life Insurance AA Second highest of nine Poor's Company, New England Life ("Very Strong") ratings categories and Ratings Insurance Company, Security mid-range within the Services First Life Insurance Company, category based on modifiers Metropolitan Insurance and (e.g., AA+, AA and AA- are Annuity Company, Metropolitan "Very Strong") Property and Casualty Insurance Company and RGA Reinsurance Company General American Life Insurance AA- Second highest of nine Company, COVA Financial ("Very Strong") ratings categories and Services Life Insurance lowest within the category Company, COVA Financial Life based on modifiers Insurance Company, First COVA Life Insurance Company, General Life Insurance Company, General Life Insurance Company of America, Paragon Life Insurance Company and Security Equity Life Insurance Company Moody's Metropolitan Life Insurance Aa2 Second highest of nine Investors Company, New England Life ("Excellent") ratings categories and Service, Insurance Company, General mid-range within the Inc. American Life Insurance Company category based on modifiers and COVA Financial Services (e.g., Aa1, Aa2 and Aa3 are Life Insurance Company "Excellent") Security First Life Insurance Aa3 Second highest of nine Company, Metropolitan Insurance ("Excellent") ratings categories and and Annuity Company and lower-range within the Metropolitan Property and category based on modifiers Casualty Insurance Company RGA Reinsurance Company A1 Third highest of nine ("Good") ratings categories and highest within the category based on modifiers
185 187
RATING AGENCY COMPANIES RATED RATING RATING STRUCTURE A.M. Best Metropolitan Life Insurance A+ Highest of nine ratings Company, Company and Metropolitan Tower ("Superior") categories and second Inc. Life Insurance Company highest within the category based on modifiers (e.g., A++ and A+ are "Superior" while A and A- are "Excellent") New England Life Insurance A Second highest of nine Company, Security First Life ("Excellent") ratings categories and Insurance Company, Metropolitan highest within the category Insurance and Annuity Company, based on modifiers Texas Life Insurance Company, Metropolitan Property and Casualty Insurance Company, General American Life Insurance Company, RGA Reinsurance Company, COVA Financial Services Life Insurance Company, COVA Financial Life Insurance Company, First COVA Life Insurance Company, General Life Insurance Company, General Life Insurance Company of America, Paragon Life Insurance Company and Security Equity Life Insurance Company Duff & Metropolitan Life Insurance AA+ Second highest of eight Phelps Company, New England Life ("Very High") ratings categories and Credit Insurance Company, Security highest within the category Rating Co. First Life Insurance Company, based on modifiers (e.g., General American Life Insurance AA+, AA and AA- are "Very Company, COVA Financial High") Services Life Insurance Company, Paragon Life Insurance Company and Security Equity Life Insurance Company
The foregoing ratings reflect each rating agency's opinion of Metropolitan Life Insurance Company's and our other subsidiaries' financial strength, operating performance and ability to meet our obligations to policyholders, and are not evaluations directed toward the protection of holders of MetLife, Inc.'s common stock or the units. EMPLOYEES At December 31, 1999, we employed approximately 42,300 employees. We believe that our relations with our employees are satisfactory. 186 188 LEGAL PROCEEDINGS Metropolitan Life Insurance Company and its affiliates are currently defendants in approximately 500 lawsuits raising allegations of improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." On December 28, 1999, after a fairness hearing, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving a multidistrict litigation proceeding involving alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. This class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. In addition to dismissing the consolidated class actions, the District Court's order also bars sales practices claims by class members for sales by the defendant insurers during the class period, effectively resolving all pending class actions against these insurers. The defendants are in the process of having these claims dismissed. Under the terms of the order, only those class members who excluded themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for sales that occurred during the class period. Approximately 20,000 class members elected to exclude themselves from the settlement. Over 400 of the approximately 500 lawsuits noted above are brought by individuals who elected to exclude themselves from the settlement. The settlement provides three forms of relief. General relief, in the form of free death benefits, is provided automatically to class members who did not exclude themselves from the settlement or who did not elect the claim evaluation procedures set forth in the settlement. The claim evaluation procedures permit a class member to have a claim evaluated by a third party under procedures set forth in the settlement. Claim awards made under the claim evaluation procedures will be in the form of policy adjustments, free death benefits or, in some instances, cash payments. In addition, class members who have or had an ownership interest in specified policies will also automatically receive deferred acquisition cost tax relief in the form of free death benefits. The settlement fixes the aggregate amounts that are available under each form of relief. We expect that the total cost to us of the settlement will be approximately $957 million. This amount is equal to the amount of the increase in liabilities for the death benefits and policy adjustments and the present value of expected cash payments to be provided to included class members, as well as attorneys' fees and expenses and estimated other administrative costs, but does not include the cost of litigation with policyholders who are excluded from the settlement. We believe that the cost to us of the settlement will be substantially covered by available reinsurance and the provisions made in our consolidated financial statements, and thus will not have a material adverse effect on our business, results of operations or financial position. We have not yet made a claim under those reinsurance agreements and, although there is a risk that the carriers will refuse coverage for all or part of the claim, we believe this is very unlikely to occur. We believe we have made adequate provision in our consolidated financial statements for all probable losses for sales practices claims, including litigation costs involving policyholders who are excluded from the settlement. 187 189 The class action settlement does not resolve nine purported or certified class actions currently pending against New England Mutual Life Insurance Company with which we merged in 1996. Eight of those actions have been consolidated as a multidistrict proceeding for pre-trial purposes in the United States District Court in Massachusetts. That Court certified a mandatory class as to those claims. Following an appeal of that certification, the United States Court of Appeals remanded the case to the District Court for further consideration. We are negotiating a settlement with class counsel. The class action settlement also does not resolve three putative sales practices class action lawsuits which have been brought against General American Life Insurance Company. These lawsuits have been consolidated in a single proceeding in the United States District Court for the Eastern District of Missouri. General American Life Insurance Company and counsel for plaintiffs have negotiated a settlement in principle of this consolidated proceeding. General American Life Insurance Company has not reached agreement with plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are ongoing. In addition, the class action settlement does not resolve two putative class actions involving sales practices claims filed against Metropolitan Life Insurance Company in Canada. The class action settlement also does not resolve a certified class action with conditionally certified subclasses against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad. That lawsuit is pending in a New York federal court. In the past, we have resolved some individual sales practices claims through settlement, dispositive motion or, in a few instances, trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to our marketing and sales of individual life insurance may be commenced in the future. The following table sets forth the number of sales practices claims pending against Metropolitan Life Insurance Company and its affiliates, as of the dates indicated, the number of new claims during the periods ending on those dates and the total settlement payments made to resolve sales practices claims during those periods:
AT OR FOR THE YEARS ENDED DECEMBER 31(1) -------------------------- 1999 1998 1997 ------ ------ ------ Sales practices claims at period end (approximate).......... 447 458 321 Number of new claims during period (approximate)............ 194 136 79 Settlement payments during period (Dollars in $13.7 $15.3 $12.4 millions)(2)..............................................
- ------------------------ (1) The table does not include information concerning sales practices claims against General American Life Insurance Company. (2) Settlement payments represent payments made during the period in connection with settlements made in that period and in prior periods. Amounts do not include our attorneys' fees and expenses. Regulatory authorities in a small number of states, including both insurance departments and one state attorney general, as well as the National Association of Securities Dealers, Inc., have ongoing investigations or inquiries relating to our sales of individual life insurance policies or annuities, including investigations or inquiries of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures as to the period for which premiums would be payable. Over the past several years, we have resolved a number of investigations by other regulatory authorities for monetary payments and certain other relief, and may continue to do so in the future. 188 190 Metropolitan Life Insurance Company is also a defendant in numerous lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. We have never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life Insurance Company's employees during the period from the 1920s through approximately the 1950s and alleging that Metropolitan Life Insurance Company learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against Metropolitan Life Insurance Company have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While Metropolitan Life Insurance Company believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. Metropolitan Life Insurance Company intends to continue to exercise its best judgment regarding settlement or defense of such cases. The number of such cases that may be brought or the aggregate amount of any liability that Metropolitan Life Insurance Company may ultimately incur is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously resolved dispute with Metropolitan Life Insurance Company's primary, umbrella and first level excess liability insurance carriers. Metropolitan Life Insurance Company is presently in litigation with several of its excess liability insurers regarding amounts payable under its policies with respect to coverage for these claims. The trial court has granted summary judgment to these insurers. Metropolitan Life Insurance Company has appealed. There can be no assurances regarding the outcome of this litigation or the amount and timing of recoveries, if any, from these excess liability insurers. Metropolitan Life Insurance Company's asbestos-related litigation with these insurers should have no effect on its recoveries under the excess insurance policies described below. The following table sets forth the total number of asbestos personal injury claims pending against Metropolitan Life Insurance Company as of the dates indicated, the number of new claims during the periods ending on those dates and the total settlement payments made to resolve asbestos personal injury claims during those periods:
AT OR FOR THE YEARS ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ Asbestos personal injury claims at period end (approximate)............................................. 60,000 72,000 71,000 Number of new claims during period (approximate)............ 35,500 31,000 28,000 Settlement payments during period (Dollars in millions)(1).............................................. $113.3 $47.0 $27.3
- --------------- (1) Settlement payments represent payments made during the period in connection with settlements made in that period and in prior periods. Amounts do not include our attorneys' fees and expenses and do not reflect amounts received from insurance carriers. We have recorded, in other expenses, charges of $499 million ($317 million after-tax), $1,895 million ($1,203 million after-tax) and $300 million ($190 million after-tax) for the years ended December 31, 1999, 1998 and 1997, respectively, for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. The charge for the year ended December 31, 1999 was principally related to the settlement of the multidistrict litigation proceeding involving alleged improper sales practices claims, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge of $1,895 million was comprised of $925 million and $970 million for sales practices claims and asbestos- 189 191 related claims, respectively. We recorded the charges for sales practices claims based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, we established a liability for asbestos-related claims based on settlement costs for claims that we had settled, estimates of settlement costs for claims pending against us and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which we believe are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386 million. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against us, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty as to the number of claims that may be brought against us. During 1998, we decided to pursue the purchase of excess insurance to limit our exposure to asbestos-related claims. In connection with our negotiations with the casualty insurers to obtain this insurance, we obtained information that caused us to reassess our accruals for asbestos-related claims. This information included: - Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against us in the future was significantly greater than we had assumed in our accruals. The number of claims brought against us is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which we are included as a defendant. The information provided to us relating to other insureds indicated that we had been included as a defendant for a significant percentage of total asbestos-related claims and that we may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. - Information derived from actuarial calculations we made in the fourth quarter of 1998 in connection with these negotiations, which helped us to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding our claims and settlement experience (which reflected our decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, we concluded that certain claims that previously were considered as only reasonably possible of assertion were now probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, we increased our liability for asbestos-related claims to $1,278 million at December 31, 1998. During 1998, we paid $1,407 million of premiums for excess of loss reinsurance agreements and excess insurance policies, consisting of $529 million for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 million for the excess insurance policies for asbestos-related claims. We obtained the excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. These reinsurance agreements have a maximum aggregate limit of $650 million, with a maximum sublimit of $550 million for losses for sales practices claims. This coverage is in excess of an aggregate self-insured retention of $385 million with respect to sales practices 190 192 claims and $506 million, plus our statutory policy reserves released upon the death of insureds, with respect to life mortality losses. At December 31, 1999, the subject losses under the reinsurance agreements due to sales practices claims and related counsel fees from the time Metropolitan Life Insurance Company entered into the reinsurance agreements did not exceed that self-insured retention. The maximum sublimit of $550 million for sales practices claims was within a range of losses that management believed were reasonably possible at December 31, 1998. Each excess of loss reinsurance agreement for sales practices claims and mortality losses contains an experience fund, which provides for payments to us at the commutation date if experience is favorable at such date. We account for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on our consolidated financial statements in 1998, 1999 and 2000 would not be significant. Under reinsurance accounting, the excess of the liability recorded for sales practices losses recoverable under the agreements of $550 million over the premium paid of $529 million results in a deferred gain of $21 million which is being amortized into income over the settlement period from January 1999 through April 2000. Under deposit accounting, the premium would be recorded as an other asset rather than as an expense, and the reinsurance loss recoverable and the deferred gain would not have been recorded. Because the agreements also contain an experience fund which increases with the passage of time, the increase in the experience fund in 1999 and 2000 under deposit accounting would be recognized as interest income in an amount approximately equal to the deferred gain that will be amortized into income under reinsurance accounting. The excess insurance policies for asbestos-related claims provide for recovery of losses of up to $1,500 million, which is in excess of a $400 million self-insured retention ($878 million of which was recorded as a recoverable at December 31, 1999 and 1998). The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in our operating cash flows for that year, management believes that the payments will not have a material adverse effect on our liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to us at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to time in the loss reimbursements to us if the cumulative return on the reference fund is less than the return specified in the experience fund. We believe that the excess of loss reinsurance agreements should provide coverage for a portion of the multidistrict sales practices settlement described above, although we have yet to file a claim under those agreements. The increase in liabilities for death benefits and policy adjustments and the cash payments to be made under the settlement should be substantially offset by amounts recoverable under those agreements, as well as amounts provided in our consolidated financial statements, and accordingly we do not believe that they will have a material adverse effect on our business, results of operations, financial position or cash flows in future periods. We believe adequate provision has been made in our consolidated financial statements for all reasonably probable and estimable losses for sales practices and asbestos-related claims. A purported class action suit involving policyholders in 32 states has been filed in a Rhode Island state court against Metropolitan Life Insurance Company's subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. A similar "diminished value" allegation was made recently in a Texas Deceptive Trade Practices Act letter and lawsuit which involve a Metropolitan Property and Casualty Insurance Company policyholder. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company and its subsidiary, Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging breach of contract and unfair trade practices with respect to Metropolitan 191 193 Casualty Insurance Company allowing the use of parts not made by the original manufacturer to repair damaged automobiles. These suits are in the early stages of litigation and Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company intend to vigorously defend themselves against these suits. Similar suits have been filed against several other personal lines property and casualty insurers. The U. S., the Commonwealth of Puerto Rico and various hotels and individuals have sued MetLife Capital Corporation, a former subsidiary of Metropolitan Life Insurance Company, seeking damages for clean up costs, natural resource damages, personal injuries and lost profits and taxes based upon, among other things, a release of oil from a barge which was being towed by the M/V Emily S. In connection with the sale of MetLife Capital, we acquired MetLife Capital's potential liability with respect to the M/V Emily S lawsuit. MetLife Capital had entered into a sale and leaseback financing arrangement with respect to the M/V Emily S. The plaintiffs have taken the position that MetLife Capital, as the owner of record of the M/V Emily S, is responsible for all damages caused by the barge, including the oil spill. The governments of the U. S. and Puerto Rico have claimed damages in excess of $150 million. At a mediation, the action brought by the U. S. and Puerto Rico was conditionally settled, provided that the governments have access to additional sums from a fund contributed to by oil companies to help remediate oil spills. We can provide no assurance that this action will be settled in this manner. Three putative class actions have been filed by Conning shareholders alleging that Metropolitan Life Insurance Company's announced offer to purchase the publicly-held Conning shares is inadequate and constitutes a breach of fiduciary duty. We believe the actions are without merit, and expect that they will not materially affect our offer to purchase the shares. In addition, six lawsuits have been filed challenging the fairness of the plan of reorganization and the adequacy and accuracy of Metropolitan Life Insurance Company's disclosures to policyholders regarding the plan. The first of these lawsuits was filed in the Supreme Court of the State of New York for Kings County on January 14, 2000. It was brought on behalf of a putative class consisting of all policyholders of Metropolitan Life Insurance Company who should have membership benefits in Metropolitan Life Insurance Company and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan, as well as other relief. The defendants named in the complaint are Metropolitan Life Insurance Company, the individual members of its board of directors and MetLife, Inc. Discovery is underway in this case. The five other lawsuits were filed between March 10, 2000 and March 29, 2000 in the Supreme Court of the State of New York for New York County. The same defendants are named in these five cases as in the Kings County case, with the addition of the New York Superintendent of Insurance. All five of the New York County cases are brought on behalf of a putative class consisting of the eligible policyholders of Metropolitan Life Insurance Company as of September 28, 1999, the adoption date of the plan. The claims in these five additional cases are substantially similar to those in the Kings County case, as is the relief sought. Metropolitan Life Insurance Company has entered into a stipulation with the plaintiffs in the five New York County cases in which it does not oppose consolidation of the cases, agrees that the plaintiffs have until April 30, 2000 to file a consolidated amended complaint, and agrees that the defendants' time to answer, move or otherwise respond to the consolidated amended complaint will be thirty days after service of the consolidated amended complaint. Metropolitan Life Insurance Company has agreed to provide certain information to the plaintiffs in three of the New York County cases. Metropolitan Life Insurance Company, MetLife, Inc. and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and intend vigorously to contest all of the plaintiffs' claims in these six lawsuits. Various litigation, claims and assessments against us, in addition to those discussed above and those otherwise provided for in our consolidated financial statements, have arisen in the course of our business, including, but not limited to, in connection with our activities as an 192 194 insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, it is the opinion of our management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in our consolidated financial statements, are not likely to have a material adverse effect on our consolidated financial condition. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our operating results or cash flows in particular quarterly or annual periods. PROPERTIES One Madison Avenue in New York, New York, serves as our headquarters, and it, along with the adjacent MetLife Tower, contains approximately 1.1 million rentable square feet, most of which we occupy. In addition to this property, we own 24 other buildings in the U.S. that we use in the operation of our business. These buildings contain approximately 5.5 million rentable square feet and are in the following states: Florida, Illinois, Massachusetts, Minnesota, Missouri, New York, New Jersey, Ohio, Oklahoma, Pennsylvania, Rhode Island and Texas. We also lease space in approximately 1,000 other locations throughout the U.S., and these leased facilities consist of approximately 7.6 million rentable square feet. Approximately 56% of these leases are occupied as sales offices for Individual Business, and we use the balance for our other business activities. We also own several buildings outside the U.S., comprising more than 48,000 rentable square feet. We lease approximately 367,000 rentable square feet in various locations outside the U.S. We believe that our properties are suitable and adequate for our current and anticipated business operations. TRADEMARKS We have a worldwide trademark portfolio that we consider important in the marketing of our products and services, including, among others, the trademarks "MetLife" and the use of the Peanuts(TM) characters. We have the exclusive right to use the Peanuts(TM) characters in the area of financial services and health care services in the U.S. and some foreign countries under an advertising and premium agreement with United Feature Syndicate. The agreement with United Feature Syndicate expires on December 31, 2002. We believe that our rights in our trademarks are adequately protected. 193 195 MANAGEMENT Set forth below is information regarding the directors and executive officers of MetLife, Inc. and Metropolitan Life Insurance Company.
NAME AGE(1) POSITION - ---- ------ -------- Robert H. Benmosche......... 55 Chairman of the Board, President, Chief Executive Officer and Director Curtis H. Barnette.......... 65 Director Gerald Clark................ 56 Vice-Chairman of the Board, Chief Investment Officer and Director Joan Ganz Cooney............ 70 Director Burton A. Dole, Jr.......... 62 Director James R. Houghton........... 63 Director Harry P. Kamen.............. 66 Director Helene L. Kaplan............ 66 Director Charles M. Leighton......... 64 Director Allen E. Murray............. 70 Director Stewart G. Nagler........... 57 Vice-Chairman of the Board, Chief Financial Officer and Director John J. Phelan, Jr.......... 68 Director Hugh B. Price............... 58 Director Ruth J. Simmons............. 54 Director William C. Steere, Jr....... 63 Director Gary A. Beller.............. 61 Senior Executive Vice-President and General Counsel James M. Benson............. 53 President, Individual Business; Chairman of the Board, Chief Executive Officer and President, New England Life Insurance Company C. Robert Henrikson......... 52 President, Institutional Business Richard A. Liddy............ 64 Senior Executive Vice-President Catherine A. Rein........... 57 Senior Executive Vice-President; President and Chief Executive Officer of Metropolitan Property and Casualty Insurance Company William J. Toppeta.......... 51 President, Client Services and Chief Administrative Officer John H. Tweedie............. 54 Senior Executive Vice-President Lisa M. Weber............... 38 Executive Vice-President Judy E. Weiss............... 47 Executive Vice-President and Chief Actuary
- --------------- (1) At February 29, 2000. Set forth below is biographical information for the directors and executive officers of MetLife, Inc. and Metropolitan Life Insurance Company: Robert H. Benmosche has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1997. Mr. Benmosche has been Chairman of the Board, President and Chief Executive Officer of MetLife, Inc. since September 1999. He has been Chairman of the Board, President and Chief Executive Officer of Metropolitan Life Insurance Company since July 1998, was President and Chief Operating Officer from November 1997 to June 1998, and was Executive Vice-President from September 1995 to October 1997. Previously, he was Executive Vice-President of PaineWebber Group Incorporated from 1989 to 1995. 194 196 Curtis H. Barnette has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1994. Mr. Barnette has been Chairman of the Board and Chief Executive Officer of Bethlehem Steel Corporation since November 1992. He is a director of Owens Corning Incorporated. Gerald Clark has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1997. Mr. Clark has been Vice-Chairman of the Board and Chief Investment Officer of MetLife, Inc. since September 1999. He has been Vice-Chairman of the Board and Chief Investment Officer of Metropolitan Life Insurance Company since July 1998, was Senior Executive Vice-President and Chief Investment Officer from December 1995 to July 1998, and was Executive Vice-President and Chief Investment Officer from September 1992 to December 1995. Mr. Clark is a director of Credit Suisse Group. Joan Ganz Cooney has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1980. Ms. Cooney has been Chairman of the Executive Committee of Children's Television Workshop since 1990. Ms. Cooney is a director of Johnson & Johnson Inc. Burton A. Dole, Jr. has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1996. Mr. Dole was Chairman of the Board of Nellcor Puritan Bennett, Incorporated from 1995 until his retirement in 1997. He had been the Chairman of the Board, President and Chief Executive Officer of Puritan Bennett, Incorporated from 1986 to 1995 and the President and Chief Executive Officer of Puritan Bennett, Incorporated from 1980 to 1986. James R. Houghton has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1975. Mr. Houghton has been Chairman of the Board Emeritus of Corning Incorporated since 1996. He was the Chairman of the Board of Corning Incorporated from 1983 until his retirement in 1996. Mr. Houghton is a director of Corning Incorporated, Exxon Mobil Corporation and J.P. Morgan & Co. Incorporated. Harry P. Kamen has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1992. He was the Chairman of the Board and Chief Executive Officer of Metropolitan Life Insurance Company from April 1993 until his retirement in July 1998 and, in addition, was its President from December 1995 to November 1997. Mr. Kamen is a director of Banco Santander Central Hispano SA (Spain), Bethlehem Steel Corporation, the National Association of Securities Dealers, Inc., Nvest Corporation, a subsidiary of Metropolitan Life Insurance Company, and Pfizer, Inc. Helene L. Kaplan has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1987. Ms. Kaplan is of counsel to the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Ms. Kaplan is a director of Bell Atlantic Corporation, The Chase Manhattan Corporation, The May Department Stores Company and Exxon Mobil Corporation. Charles M. Leighton has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1996. Mr. Leighton was the Chairman of the Board and Chief Executive Officer of the CML Group, Inc. from 1969 until his retirement in March 1998. CML Group, Inc. filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in December 1998. Mr. Leighton is a director of Nvest Corporation, a subsidiary of Metropolitan Life Insurance Company. Allen E. Murray has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1983. Mr. Murray was Chairman of the Board, President and Chief Executive Officer of Mobil Corporation from February 1986 until March 1993, and was Chairman of the Board and Chief Executive Officer from March 1993 until his retirement in March 1994. Mr. Murray is a director of Morgan Stanley Dean Witter & Co. and Minnesota Mining & Manufacturing Company. 195 197 Stewart G. Nagler has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1997. Mr. Nagler has been Vice-Chairman of the Board and Chief Financial Officer of MetLife, Inc. since September 1999. He has been Vice-Chairman of the Board and Chief Financial Officer of Metropolitan Life Insurance Company since July 1998, and was its Senior Executive Vice-President and Chief Financial Officer from April 1993 to July 1998. John J. Phelan, Jr. has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1985. Mr. Phelan has been a senior advisor to the Boston Consulting Group since 1992. Prior to that time, Mr. Phelan was Chairman and Chief Executive Officer of the New York Stock Exchange. Mr. Phelan is a director of Eastman Kodak Company and Merrill Lynch & Co., Inc. Hugh B. Price has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1994. Mr. Price has been President and Chief Executive Officer of the National Urban League, Inc. since 1994. Mr. Price is a director of Sears, Roebuck and Co. and Bell Atlantic Corporation. Ruth J. Simmons has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1995. Dr. Simmons has been President of Smith College since 1995. Prior to that time, she was Vice-Provost of Princeton University from 1992 to 1995. Dr. Simmons is a director of Goldman, Sachs & Co., Pfizer Inc. and Texas Instruments, Inc. William C. Steere, Jr. has been a director of MetLife, Inc. since August 1999 and a director of Metropolitan Life Insurance Company since 1997. Mr. Steere has been Chairman of the Board and Chief Executive Officer of Pfizer Inc. since 1992. Mr. Steere is a director of Dow Jones & Company, Inc., Minerals Technologies, Inc. and Texaco Inc. Gary A. Beller has been Senior Executive Vice-President and General Counsel of MetLife, Inc. since September 1999 and of Metropolitan Life Insurance Company since February 1998. He was Executive Vice-President and General Counsel of Metropolitan Life Insurance Company from August 1996 to January 1998. Mr. Beller served as Executive Vice-President and Chief Legal Officer from November 1994 to July 1996. James M. Benson has been President of Individual Business of MetLife, Inc. since September 1999 and of Individual Business of Metropolitan Life Insurance Company since May 1999. He has been Chairman of the Board of New England Life Insurance Company since May 1998, Chief Executive Officer since January 1998, and President since June 1997. He was Chief Operating Officer of New England Life Insurance Company from June 1997 to December 1997. Mr. Benson was the President and Chief Operating Officer of The Equitable Companies Incorporated from February 1996 to May 1997, and was President of The Equitable Life Assurance Society of the United States from February 1994 to May 1997, Chief Executive Officer from February 1996 to May 1997, and Chief Operating Officer from February 1994 to February 1996. C. Robert Henrikson has been President of Institutional Business of MetLife, Inc. since September 1999 and of Institutional Business of Metropolitan Life Insurance Company since May 1999. He was Senior Executive Vice-President, Institutional Business of Metropolitan Life Insurance Company, from December 1997 to May 1999, Executive Vice-President, Institutional Business, from January 1996 to December 1997, Executive Vice-President, Pensions, from January 1995 to January 1996, and Senior Vice-President, Pensions, from January 1991 to January 1995. Richard A. Liddy has been Senior Executive Vice-President of MetLife, Inc. and of Metropolitan Life Insurance Company since February 2000. He has been Chairman, President and Chief Executive Officer of GenAmerica Corporation since January 1997 and has held the same offices at General American Life Insurance Company since 1995. Mr. Liddy is a director of 196 198 Reinsurance Group of America, Inc., Conning Corporation, Brown Shoe Company, Ralston Purina Company, Energizer Holdings, Inc. and Ameren Corporation. Catherine A. Rein has been Senior Executive Vice-President of MetLife, Inc. since September 1999 and President and Chief Executive Officer of Metropolitan Property and Casualty Insurance Company since March 1999. She has been Senior Executive Vice-President of Metropolitan Life Insurance Company since February 1998 and was Executive Vice-President from October 1989 to February 1998. Ms. Rein is a director of Corning Incorporated, The Bank of New York Company, Inc. and GPU, Inc. William J. Toppeta has been President of Client Services and Chief Administrative Officer of MetLife, Inc. since September 1999 and President of Client Services and Chief Administrative Officer of Metropolitan Life Insurance Company since May 1999. He was Senior Executive Vice-President, Head of Client Services, of Metropolitan Life Insurance Company from March 1999 to May 1999, Senior Executive Vice-President, Individual Business, from February 1998 to March 1999, Executive Vice-President, Individual Business, from July 1996 to February 1998, Senior Vice-President from October 1995 to July 1996 and President and Chief Executive Officer, Canadian Operations, from January 1994 to October 1995. John H. Tweedie has been Senior Executive Vice-President of MetLife, Inc. since September 1999 and Senior Executive Vice-President, Finance and International, of Metropolitan Life Insurance Company since March 1999. He was Senior Executive Vice-President of Metropolitan Life Insurance Company from May 1998 to March 1999 and Executive Vice-President from January 1994 to April 1998. Lisa M. Weber has been Executive Vice-President of MetLife, Inc. and Metropolitan Life Insurance Company since December 1999 and head of Human Resources since March 1998. She was Senior Vice-President of MetLife, Inc. from September 1999 to November 1999 and Senior Vice-President of Metropolitan Life Insurance Company from March 1998 to November 1999. Previously, she was Senior Vice-President of Human Resources of PaineWebber Group Incorporated, where she was employed for ten years. Judy E. Weiss has been Executive Vice-President and Chief Actuary of MetLife, Inc. since September 1999 and of Metropolitan Life Insurance Company since February 1998. She was Senior Vice-President and Chief Actuary of Metropolitan Life Insurance Company from June 1996 to February 1998 and Senior Vice-President from May 1991 to June 1996. INFORMATION ABOUT THE BOARD OF DIRECTORS OF METLIFE, INC. RESPONSIBILITIES AND COMPOSITION OF THE BOARD The business of MetLife, Inc. is managed under the direction of its board of directors. The board currently consists of 15 directors, a majority of whom are Outside Directors. An "Outside Director" of MetLife, Inc. is a director who is not an officer or employee of MetLife, Inc. or of any entity controlling, controlled by or under common control with MetLife, Inc., and is not the beneficial owner of a controlling interest in the voting stock of MetLife, Inc. or of any such entity. MetLife, Inc.'s certificate of incorporation provides that the directors will be divided into three classes, as nearly equal in number as possible, with the term of office of each class to be three years. The classes serve staggered terms, such that the term of office of one class of directors expires each year. BOARD COMMITTEES There are five standing committees of MetLife, Inc.'s board of directors that perform essential functions of the Board. The responsibilities of the standing committees are summarized below. Only Outside Directors may be members of the Audit, Compensation and Nominating and 197 199 Corporate Governance committees. From time to time, the board, in its discretion, may form other committees. Not less than one-third of the members of any board committee, including the standing committees, may consist of Outside Directors. THE EXECUTIVE COMMITTEE The Executive Committee, except as otherwise provided in MetLife, Inc.'s certificate of incorporation, in the intervals between meetings of the board of directors, will have and may exercise the powers and authority of the board of directors in the management of the property, affairs and business of MetLife, Inc., including the power to declare dividends. The Executive Committee currently consists of the following seven members: Robert H. Benmosche, Chairman; James R. Houghton; Harry P. Kamen; Helene L. Kaplan; Charles M. Leighton; Allen E. Murray; and John J. Phelan, Jr. THE AUDIT COMMITTEE The Audit Committee, except as otherwise provided in any resolution of the board of directors, will have and may exercise the authority of the board of directors: - to recommend to the board of directors the selection of MetLife, Inc.'s independent certified public accountants; - to review the scope, plans and results relating to the internal and external audits of MetLife, Inc. and its financial statements; - to review the financial condition of MetLife, Inc.; - to monitor and evaluate the integrity of MetLife, Inc.'s financial reporting processes and procedures; - to assess the significant business and financial risks and exposures of MetLife, Inc. and to evaluate the adequacy of its internal controls in connection with such risks and exposures, including, but not limited to, accounting and audit controls over cash, securities, receipts, disbursements and other financial transactions; and - to review MetLife, Inc.'s policies on ethical business conduct and monitor its compliance with those policies. The Audit Committee currently consists of the following six members: James R. Houghton, Chairman; Curtis H. Barnette; Burton A. Dole, Jr.; John J. Phelan, Jr.; Hugh B. Price; and William C. Steere, Jr. THE COMPENSATION COMMITTEE The Compensation Committee, except as otherwise provided in any resolution of the board of directors, will have and may exercise all the authority of the board of directors with respect to compensation, benefits and personnel administration of MetLife, Inc.'s employees, and: - will nominate persons for election or appointment by the board of directors of all principal officers (as determined by the Committee) and such other officers as the Committee may determine to elect or appoint as officers; - will evaluate the performance and recommend to the board of directors the compensation of such principal officers and such other officers as the Committee may determine; - may elect or appoint officers as provided in MetLife, Inc.'s by-laws; 198 200 - may recommend to the board of directors any plan to issue options for the purchase of shares of the stock of MetLife, Inc. to its officers or employees and those of its subsidiaries; and - will administer the MetLife, Inc. 2000 Stock Incentive Plan. The Compensation Committee currently consists of the following seven members: Allen E. Murray, Chairman; Curtis H. Barnette; Joan Ganz Cooney; James R. Houghton; Charles M. Leighton; Ruth J. Simmons; and William C. Steere, Jr. THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE The Nominating and Corporate Governance Committee, except as otherwise provided in any resolution of the board of directors: - will make recommendations to the board of directors with respect to electing directors and filling vacancies on the Board; - will review and make recommendations to the board of directors with respect to the organization, structure, size, composition and operation of the board and its committees, including, but not limited to, the compensation for non-employee directors; - may recommend to the board of directors any plan to issue options for the purchase of shares of the stock of MetLife, Inc. to its non-employee directors; - will administer the MetLife, Inc. 2000 Directors Stock Plan; and - will review and make recommendations with respect to other corporate governance matters and matters that relate to the status of MetLife, Inc. as a publicly-traded company. The Nominating and Corporate Governance Committee currently consists of the following seven members: Helene L. Kaplan, Chairman; Curtis H. Barnette; James R. Houghton; Harry P. Kamen; Allen E. Murray; John J. Phelan, Jr.; and William C. Steere, Jr. THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE The Corporate Social Responsibility Committee, except as otherwise provided in any resolution of the board of directors, will exercise general supervision of MetLife, Inc.'s charitable contributions, public benefit programs and other corporate responsibility matters. The Corporate Social Responsibility Committee currently consists of the following six members: Joan Ganz Cooney, Chairman; Gerald Clark; Burton A. Dole, Jr.; Helene L. Kaplan; Stewart G. Nagler; and Hugh B. Price. COMPENSATION OF DIRECTORS In 1999, Outside Directors received an annual retainer fee of $50,000. At January 1, 2000, the annual retainer increased to $60,000. Each chairman of a board committee who is an Outside Director receives an additional $5,000 annual retainer. Outside Directors are paid attendance fees of $2,000 on days that they attend one or two board or committee meetings held on the same day. If they attend more than two meetings on a single day, they are paid an additional $1,000 for each other meeting they attend on that day. Directors may defer the receipt of the payment of all or a portion of their retainer and attendance fees. MetLife provides $200,000 of life insurance to each Outside Director. MetLife will recover the premiums for each policy upon the death of the Outside Director. The cost to MetLife of providing this life insurance is nominal. MetLife also provides each of the Outside Directors with business travel accident coverage while traveling on MetLife business. The Outside Directors are 199 201 eligible to participate in MetLife's Long-Term Care Insurance Program on a fully contributory basis. Outside Directors elected prior to October 1, 1999 participate in a charitable gift program under which each Outside Director is able to recommend one or more charitable or educational institutions to receive, in the aggregate, a $1 million contribution from MetLife in the name of the Outside Director. In connection with this program, MetLife purchased and pays the premiums on life insurance policies covering such Outside Directors. The death benefits under the policies will be paid to MetLife. The cost to MetLife of providing this program is not significant. Outside Directors elected on or after October 1, 1999 are not eligible to participate in this program. Under the MetLife, Inc. 2000 Directors Stock Plan, the Nominating and Corporate Governance Committee may determine that up to one-half of an Outside Director's retainer and attendance fees be paid in common stock. The Directors Stock Plan also provides that the Nominating and Corporate Governance Committee may, with the board's approval, grant non-qualified stock options to the Outside Directors to purchase shares of MetLife, Inc. common stock at a price no less than the fair market value of a share of common stock on the grant date of the stock option. Any options granted before the fifth anniversary of the effective date of the plan of reorganization will replace all or any portion of the Outside Directors' fees otherwise payable in cash. No stock options may be granted and no stock may be issued under the Directors Stock Plan in lieu of Outside Directors' fees before the first anniversary of the effective date of the plan of reorganization. Up to a maximum of 500,000 shares may be issued under the Directors Stock Plan in lieu of fees and no more than 0.05% of the shares outstanding immediately after the effective date of the plan of reorganization may be issued with respect to stock options under the Directors Stock Plan. Common stock paid in lieu of fees under the Directors Stock Plan may not be sold prior to the second anniversary of the effective date of the plan of reorganization. Stock options granted under the Directors Stock Plan will generally be exercisable on the date of grant, but in no event exercised before the second anniversary of the effective date of the plan of reorganization. Outside Directors may elect to receive all or a portion of their retainer and attendance fees that would otherwise be paid in cash with respect to services rendered after the second anniversary of the effective date of the plan of reorganization in the form of common stock. In addition, an Outside Director may elect to defer receipt of any shares issuable under the terms of the Directors Stock Plan in lieu of their retainer and attendance fees and any dividends payable on the shares, until after he or she is no longer a director of MetLife, Inc. The board of directors may terminate, modify or amend the Directors Stock Plan at any time, subject, in certain instances, to shareholder approval, and prior to the fifth anniversary of the effective date of the plan of reorganization, the approval of the New York Superintendent of Insurance. Unless terminated earlier by action of the board of directors, the 2000 Directors Stock Plan will continue in effect until no more shares are available for issuance pursuant to it. Metropolitan Life Insurance Company entered into an agreement with Harry P. Kamen pursuant to which he served as a consultant from July 1, 1998 to June 30, 1999 for a fee of $500,000. Upon the expiration of that agreement by its terms, a new agreement between Metropolitan Life Insurance Company and Mr. Kamen became effective pursuant to which Mr. Kamen serves as a consultant for the one-year period of July 1, 1999 to June 30, 2000. Mr. Kamen will be paid for services rendered under the agreement up to an aggregate amount of $50,000. Pursuant to the agreement, Metropolitan Life Insurance Company provides Mr. Kamen, at no charge to him, an office and secretarial support, as well as a car for use in connection with the services rendered under the agreement. 200 202 MANAGEMENT COMPENSATION EXECUTIVE COMPENSATION Since the formation of MetLife, Inc., in August 1999, none of its officers or other personnel has received any compensation from MetLife, Inc. All compensation has been paid by Metropolitan Life Insurance Company or New England Financial. It is expected that after the demutualization, all employees of MetLife, Inc., including the executive officers, will continue to be paid only by Metropolitan Life Insurance Company or its subsidiary, as applicable, with an allocation of their compensation to be made for services rendered to MetLife, Inc. MetLife, Inc. will pay the amount of such allocation to Metropolitan Life Insurance Company or its subsidiary, as applicable, pursuant to a cost allocation agreement. The information set forth below describes the components of the total compensation of the Chief Executive Officer and the four other most highly compensated executive officers of Metropolitan Life Insurance Company and MetLife, Inc. for services rendered during the fiscal year ended December 31, 1999 ("Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION --------------------------------------------- ------------ OTHER ANNUAL LTIP(2) ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION PAYOUTS COMPENSATION - --------------------------- ---- ------ -------- ------------ ------- ------------ Robert H. Benmosche...... 1999 $1,000,000 $2,714,200 -- $3,422,200 $225,143(3) Chairman of the Board, President and Chief Executive Officer Stewart G. Nagler........ 1999 630,000 1,100,000 -- 2,387,000 133,741(3) Vice-Chairman of the Board and Chief Financial Officer Gerald Clark............. 1999 630,000 900,000 -- 2,387,000 138,986(3) Vice-Chairman of the Board and Chief Investment Officer James M. Benson.......... 1999 600,000 900,000 737,549(5) 1,800,000 38,130(4) President, Individual Business; Chairman of the Board, Chief Executive Officer and President, New England Life Insurance Company C. Robert Henrikson...... 1999 500,000 875,000 -- 1,743,000 92,543(3) President, Institutional Business
- --------------- (1) Actual annual incentive awards based on 1999 performance were paid in the first quarter of 2000. For all Named Executive Officers, other than Mr. Benson, such award was paid pursuant to the MetLife Annual Variable Incentive Plan. Mr. Benson's award was paid pursuant to The New England Short-Term Incentive Plan. (2) Long-term compensation plan payouts to all Named Executive Officers for services performed during the three-year performance period 1997-1999 were made in the first quarter of 2000. For all Named Executive Officers, other than Mr. Benson, such payouts were made pursuant to the MetLife Long-Term Performance Compensation Plan. Mr. 201 203 Benson's payout was made pursuant to the New England Financial Long-Term Incentive Plan. (3) Includes: MetLife contributions to the Savings and Investment Plan for Employees of MetLife and Participating Affiliates of $6,400 for each of the above named individuals; MetLife contributions to, or with respect to, the Auxiliary Savings and Investment Plan as follows: Mr. Benmosche: $87,077; Mr. Nagler: $54,240; Mr. Clark: $58,240; and Mr. Henrikson: $40,640; payments representing the dollar value of the benefit of the portion of split dollar life insurance premiums paid by MetLife as follows: Mr. Benmosche: $131,666; Mr. Nagler: $73,101; Mr. Clark: $74,346; and Mr. Henrikson: $45,503. (4) Includes: company contributions to The New England 401(k) Plan and Trust of $8,200; $29,660 to The New England Life Insurance Company Select Employees Supplemental 401(k) Plan and $270 representing the premium paid by New England Life Insurance Company with respect to term life insurance covering Mr. Benson. (5) Amount paid on Mr. Benson's behalf pursuant to The New England Financial Relocation Policy. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK OR OTHER PRICE-BASED PLANS PERIOD ---------------------------------------- UNTIL ESTIMATED MATURATION THRESHOLD TARGET MAXIMUM NAME OR PAYOUT PAYMENT PAYMENT(A) PAYMENT - ---- ----------- --------- ---------- ------- Robert H. Benmosche..................... 1999-2001 $0 $2,500,000 $5,000,000 Stewart G. Nagler....................... 1999-2001 0 1,260,000 2,520,000 Gerald Clark............................ 1999-2001 0 1,260,000 2,520,000 James M. Benson......................... 1999-2001 0 1,200,000 2,400,000 C. Robert Henrikson..................... 1999-2001 0 975,000 1,950,000
- --------------- (a) Estimated target payments under the MetLife Long-Term Performance Compensation Plan for all Named Executive Officers other than Mr. Benson, whose payment is made pursuant to the New England Financial Long-Term Incentive Plan. Actual target payments will be based on the average of the year-end annual base salaries over the three-year performance period, except in the case of Mr. Benson, whose target will remain at $1,200,000, regardless of changes in his annual base salary. 202 204 METLIFE RETIREMENT PLAN INFORMATION The following table shows the estimated annual retirement benefits payable at normal retirement age (generally 65) to a person retiring with the indicated final average pay and years of credited service on a 30% joint and survivor basis, if married, and on a straight life annuity basis with a 5-year guarantee, if single, under the Metropolitan Life Retirement Plan for United States Employees ("Retirement Plan"), as supplemented by the Metropolitan Life Supplemental Retirement Benefit Plan ("Supplemental Retirement Plan"), each as described below. Except for Mr. Benson, each of the Named Executive Officers participates in the Retirement Plan and the Supplemental Retirement Plan. Mr. Benson participates in separate New England Financial plans. ESTIMATED ANNUAL BENEFITS AT RETIREMENT WITH INDICATED YEARS OF CREDITED SERVICE
FINAL AVERAGE PAY 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS - ----------- ------- -------- -------- -------- -------- -------- -------- -------- $ 500,000 $ 41,400 $ 82,900 $124,300 $165,800 $ 207,200 $ 248,700 $ 290,100 $ 302,600 750,000 62,700 125,400 188,100 250,800 313,500 376,200 438,900 457,600 1,000,000 83,900 167,900 251,800 335,800 419,700 503,700 587,600 612,600 1,250,000 105,200 210,400 315,600 420,800 526,000 631,200 736,400 767,600 1,500,000 126,400 252,900 379,300 505,800 632,200 758,700 885,100 922,600 1,750,000 147,700 295,400 443,100 590,800 738,500 886,200 1,033,900 1,077,600 2,000,000 168,900 337,900 506,800 675,800 844,700 1,013,700 1,182,600 1,232,600 2,250,000 190,200 380,400 570,600 760,800 951,000 1,141,200 1,331,400 1,387,600 2,500,000 211,400 422,900 634,300 845,800 1,057,200 1,268,700 1,480,100 1,542,600
The annual retirement benefit under the Retirement Plan and the Supplemental Retirement Plan is generally equal to the sum of (a)(i) a percentage of an executive's "final average compensation" up to his or her "covered compensation" (i.e., the average of the social security taxable wage base for the 35 years up to the date the executive attains social security retirement age), plus (ii) a percentage of the executive's "final average compensation" in excess of his or her "covered compensation", and the sum thereof times (iii) years of "credited service" not exceeding 35 years, and (b) a percentage of "final average compensation" multiplied by years of "credited service" in excess of 35 years. "Final average compensation" is defined as the highest average "annual compensation" of an executive for any 60 consecutive months in the 120 months of service prior to the executive's retirement. "Annual Compensation" used to determine the retirement benefit under the Retirement Plan and the Supplemental Retirement Plan consists of "annual basic compensation" which includes annual base salary and "annual variable incentive compensation" which includes payments under the annual variable incentive plan. Such "compensation" is generally the same as the compensation reflected in the "salary" and "bonus" columns of the Summary Compensation Table. The Supplemental Retirement Plan is designed to provide benefits which eligible employees would have received under the Retirement Plan but for limits applicable under the Retirement Plan. Benefits payable under the Retirement Plan and the Supplemental Retirement Plan are not subject to reduction for social security benefits or other offset amounts. At December 31, 1999 (assuming retirement as of such date), the estimated "final average compensation" under the Retirement Plan and the Supplemental Retirement Plan is $1,581,710 for Mr. Benmosche, $1,281,350 for Mr. Nagler, $1,258,000 for Mr. Clark and $904,980 for Mr. Henrikson. The estimated years of credited service under the Retirement Plan and the Supplemental Retirement Plan as of such date is four years for Mr. Benmosche, 37 years for Mr. Nagler, 31 years for Mr. Clark and 27 years for Mr. Henrikson. 203 205 NEW ENGLAND RETIREMENT PLAN INFORMATION The following table shows the estimated annual retirement benefits payable at normal retirement age (generally 65) to a person retiring with the indicated final average pay and years of credited service on a straight life annuity basis under The New England Retirement Plan and Trust, as supplemented by The New England Life Insurance Company Supplemental Retirement Plan and The New England Life Insurance Company Select Employees Supplemental Retirement Plan, each as described below. ESTIMATED ANNUAL BENEFITS AT RETIREMENT WITH INDICATED YEARS OF CREDITED SERVICE
FINAL AVERAGE PAY 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS ----------- ------- -------- -------- -------- -------- -------- -------- -------- $ 500,000 $ 48,300 $ 96,600 $144,800 $193,100 $ 241,400 $ 253,900 $ 253,900 $ 253,900 750,000 73,300 146,600 219,800 293,100 366,400 385,200 385,200 385,200 1,000,000 98,300 196,600 294,800 393,100 491,400 516,400 516,400 516,400 1,250,000 123,300 246,600 369,800 493,100 616,400 647,700 647,700 647,700 1,500,000 148,300 296,600 444,800 593,100 741,400 778,900 778,900 778,900 1,750,000 173,300 346,600 519,800 693,100 866,400 910,200 910,200 910,200 2,000,000 198,300 396,600 594,800 793,100 991,400 1,041,400 1,041,400 1,041,400 2,250,000 223,300 446,600 669,800 893,100 1,116,400 1,172,700 1,172,700 1,172,700 2,500,000 248,300 496,600 744,800 993,100 1,241,400 1,303,900 1,303,900 1,303,900
The annual benefit under The New England Retirement Plan and Trust, The New England Life Insurance Company Supplemental Retirement Plan and The New England Life Insurance Company Select Employees Supplemental Retirement Plan is generally equal to the sum of (a) the product of a percentage of an executive's "final average compensation" times years of service up to 25 and (b) the product of a percentage of an executive's "final average compensation" for years 26 to 30 times such years of service, less (c) the product of a percentage of an executive's age 65 social security benefit times years of service up to 25 years of service. "Final average compensation" is defined as the highest five years of eligible compensation of an executive during the last ten years of service prior to the executive's retirement. "Annual Compensation" used to determine the retirement benefit under The New England Retirement Plan and Trust, The New England Life Insurance Company Supplemental Retirement Plan and The New England Life Insurance Company Select Employees Supplemental Retirement Plan consists of salary paid to an executive. Such Annual Compensation is generally the same as the compensation reflected in the "salary" and "bonus" columns of the Summary Compensation Table. The New England Life Insurance Company Supplemental Retirement Plan and The New England Life Insurance Company Select Employees Supplemental Retirement Plan are designed to provide benefits which eligible employees would have received under The New England Retirement Plan and Trust but for limits applicable under The New England Retirement Plan and Trust. The estimated "final average pay" for Mr. Benson under The New England Retirement Plan and Trust, The New England Life Insurance Company Supplemental Retirement Plan and The New England Life Insurance Company Select Employees Supplemental Retirement Plan at December 31, 1999 (assuming retirement at such date) is $1,419,800 and the estimated years of credited service under such Plans at such date is 2 years. In addition, Mr. Benson's employment agreement provides for an enhanced retirement benefit of $400,000 vesting in equal annual installments over ten years and payable at age 62 as a 20-year continuous and certain annuity. At December 31, 1999, Mr. Benson was vested as to 20% of this benefit, or $80,000 per annum. In the event of a termination by New England Life Insurance Company "without cause" or by Mr. Benson for "good reason" (as each such term is defined in the agreement), the enhanced retirement benefit will retroactively vest at double the above rate. 204 206 LONG-TERM INCENTIVE COMPENSATION PLANS METLIFE LONG-TERM PERFORMANCE COMPENSATION PLAN. All officers at the level of senior vice-president and above and select vice-presidents are eligible to participate in the MetLife Long-Term Performance Compensation Plan ("Long-Term Plan"). The Long-Term Plan is a three-year plan with a new plan period beginning each January 1. Under the Long-Term Plan, performance objectives for the enterprise are established at the beginning of each three-year performance period and may include specific objectives for earnings and return on equity, as well as management performance against select strategic objectives. At the end of the performance period, the performance of MetLife is judged against the set objectives, with some results compared relatively to the results of other companies in the insurance and financial service industries. Actual performance, expressed as a percentage, may range from 0% to 200%. This percentage is multiplied by the participants' total incentive opportunities to establish the aggregate incentive fund for distribution. Individual awards are recommended by management and are reflective of the participant's individual performance and relative contribution to the long-range results of MetLife. Senior management approves all awards before they are submitted to the Compensation Committee of the board, which is comprised of Outside Directors, and to the full board for approval. Any award under the Long-Term Plan in each performance period will become payable only upon approval of the board in its discretion and will be paid in the year immediately following the end of each performance period. NEW ENGLAND FINANCIAL LONG-TERM INCENTIVE PLAN. From 1997 through 1999, New England Financial maintained a substantially similar long-term incentive plan for the benefit of certain of its officers, under which any amounts payable are determined based on the performance of New England Financial and the individual's contribution to its success. The personnel committee awards certain of its officers "growth units" that measure value creation over a three-year performance cycle based on growth in equity computed pursuant to generally accepted accounting principles and the present value of future profits on in-force business. At the end of the three-year performance cycle, the growth in value of the "growth units" is determined by New England Financial's board and paid in cash to each participant still employed with New England Financial. In 2000, New England Financial adopted a long-term incentive plan identical to the MetLife Long-Term Plan. Each of the Named Executive Officers participates in the MetLife Long-Term Plan, except Mr. Benson who participates in The New England Financial Long-Term Incentive Plan. See "-- Management Compensation -- Long-Term Incentive Plan Awards in Last Fiscal Year". SHORT-TERM INCENTIVE PLANS METLIFE ANNUAL VARIABLE INCENTIVE PLAN. Persons exempt from the Fair Labor Standards Act who are not participating in an alternative annual incentive plan are eligible to participate in the Annual Variable Incentive Plan ("Annual Incentive Plan"). Under the Annual Incentive Plan, a formula including performance objectives for operating earnings and return on equity is established at the beginning of each calendar year to determine the maximum aggregate incentive pool for distribution under the Annual Incentive Plan. The actual incentive pool will be established at the end of each year based on the actual operating earnings relative to return on equity target by using the formula. Eighty percent of this pool is distributed based on corporate results, while 20% is distributed based on business unit performance. In all incentive award determinations, individual performance is a significant factor in the manager's determination of the amount of an individual's actual final incentive award. Final approval of individual incentive awards rests with senior management. Awards for certain senior officers (executive vice-president and above) are submitted to the Compensation Committee of the board, comprised of Outside Directors, and to the full board for approval and endorsement. Awards are payable in cash as soon as practicable after individual award amounts have been approved. There is no 205 207 maximum on individual awards, but there is no guarantee an individual will receive an award. The total of all individual awards may not exceed the maximum aggregate incentive pool. Each of the Named Executive Officers participates in the MetLife Annual Incentive Plan, except Mr. Benson, who participates in the New England Short-Term Incentive Plan. THE NEW ENGLAND SHORT-TERM INCENTIVE PLAN. In 1999, New England Financial maintained a substantially similar short-term executive incentive plan ("The New England Short-Term Incentive Plan") for the benefit of certain of its officers, under which any amounts payable are determined based on the performance of New England Financial and the individual's contribution to its success. Under The New England Short-Term Incentive Plan, in determining the amounts available for incentive payments, key considerations include financial results and growth compared to target and business plan, together with non-financial objectives and judgment of the Personnel Committee, and results are compared with the results of other insurance and financial services companies. Specific percentages are established under The New England Short-Term Incentive Plan with respect to the portion of the award that is based on business unit performance, and such performance is an important consideration in determining an individual's award. The maximum award payable to any given individual under The New England Short-Term Incentive Plan is capped at 200% of the target award amount. In 2000, New England Financial adopted a short-term incentive plan identical to the MetLife Annual Incentive Plan. METLIFE, INC. 2000 STOCK INCENTIVE PLAN The Compensation Committee of the board of directors of MetLife, Inc. will administer the MetLife, Inc. 2000 Stock Incentive Plan ("Stock Incentive Plan"). Under the Stock Incentive Plan, the Compensation Committee may from time to time grant stock options for the purchase of common stock to officers (including officers who are also directors), employees and insurance agents of MetLife, Inc. and its subsidiaries, provided that the Compensation Committee may not grant any stock or stock options prior to the first anniversary of the effective date of the plan of reorganization. The Compensation Committee may, in its discretion, delegate its authority and power under the Stock Incentive Plan to MetLife, Inc.'s Chief Executive Officer with respect to individuals who are below the rank of Senior Vice-President. Such delegation of authority is limited to 1.5% of the total number of shares authorized for issuance under the Stock Incentive Plan, and no individual may receive more than 5% of the shares of the Chief Executive Officer's total authorization in any twelve-month period. The maximum number of shares issuable under the Stock Incentive Plan is 5% of the shares outstanding immediately after the effective date of the plan of reorganization, reduced by the shares issuable pursuant to options granted under the MetLife, Inc. 2000 Directors Stock Plan. The maximum number of shares which may be subject to awards under the Stock Incentive Plan may not exceed 60% of the shares available under the Stock Incentive Plan prior to the second anniversary of the effective date of the plan of reorganization or 80% of the shares available under the Stock Incentive Plan prior to the third anniversary of the effective date of the plan of reorganization. No participant in the Stock Incentive Plan may be granted, during any five-year period, options in respect of more than 5% of the shares available for issuance under the Stock Incentive Plan. The shares to be issued under the Stock Incentive Plan may be authorized but unissued shares or treasury shares. Upon the occurrence of certain events that affect the capitalization of MetLife, Inc., appropriate adjustments will be made in the number of shares that may be issued under the Stock Incentive Plan in the future and in the number of shares and the exercise price under outstanding grants made before the event. If any grant is for any reason canceled, terminated or otherwise settled without the issuance of some or all of the shares of common stock subject to the grant, such shares will be available for future grants. The board of directors of MetLife, Inc. may terminate, modify or amend (subject, in some cases, to the approval of its stockholders and, prior to the fifth anniversary of the effective date of the plan of reorganization, to the approval of the New York Superintendent of Insurance) the 206 208 Stock Incentive Plan at any time, but such termination, modification or amendment may not adversely affect any stock option then outstanding under the Stock Incentive Plan without the consent of the recipient thereof. The Stock Incentive Plan will continue in effect until it is terminated by the board of directors or until no more shares are available for issuance, but stock options granted prior to such date will continue in effect until they expire in accordance with their terms. The Compensation Committee may grant nonqualified stock options ("Nonqualified Stock Options") and stock options qualifying as incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended. The exercise price per share of common stock subject to either a Nonqualified Stock Option or an ISO will be not less than the fair market value (as defined in the Stock Incentive Plan) of such share on the date of grant of such option. To exercise an option, a holder may pay the exercise price as permitted by the Compensation Committee (1) in cash, (2) by delivering on the date of exercise other shares of common stock owned by the holder, (3) through an arrangement with a broker approved by MetLife, Inc. for the payment of the exercise price with the proceeds of the sale of shares of common stock owned by the holder, or (4) by a combination of the foregoing. Options generally may not be transferred by the grantee, except in the event of death. The Compensation Committee may, in its discretion, permit the transfer of Nonqualified Stock Options by gift or domestic relations order to the participant's immediate family members. Unless otherwise specified, each option will become exercisable on a cumulative basis in three approximately equal installments on each of the first three anniversaries of the date of grant thereof, provided, that in no event will any option be or become exercisable prior to the second anniversary of the effective date of the plan of reorganization. In addition, the Compensation Committee may establish longer periods of service or performance-based criteria at the time of the grant. The term of each option will be fixed by the Compensation Committee but may not be more than ten years from its date of grant. Any option granted to an insurance agent will comply with the provisions of Section 4228 of the New York Insurance Law and any regulations thereunder. In the event of the termination of service of a grantee by reason of death, any options previously granted to such grantee will become immediately exercisable in full and may be exercised by the grantee's designated beneficiary at any time prior to the expiration of the term of the options or within three years following the grantee's death, whichever occurs first (or such shorter time as the Compensation Committee may determine at the time of grant). In the event of the termination of service of a grantee by reason of disability or approved retirement (as defined in the Stock Incentive Plan), any option previously granted to such grantee will continue to vest as if the grantee's service had not terminated. A grantee may exercise any vested option in full for a period of three years following termination of employment (or such shorter period as the Compensation Committee shall determine at the time of grant) or, if earlier, the expiration of the term of the option. In the event of the termination of service of a grantee for cause (as defined in the Stock Incentive Plan), the grantee will forfeit any outstanding options. In the event of the termination of service of a grantee in connection with a divestiture of a business unit or subsidiary or similar transaction, the Compensation Committee may provide that all or some outstanding options will continue to become exercisable and may be exercised at any time prior to the expiration of the term of the options or within three years following the grantee's termination of service (or such shorter time as the Compensation Committee may determine at or following the time of grant) or, if earlier, the expiration of the term of the option. In general, in the event of the termination of service of a grantee for any reason other than in connection with certain divestitures of a subsidiary or business unit, for disability, death, approved retirement or cause, any options granted to such grantee exercisable at the date of termination will remain exercisable for a period of 30 days (or, if earlier, the expiration of the term of the options). 207 209 Upon a change of control (as defined in the Stock Incentive Plan), each option then outstanding will become fully exercisable regardless of the exercise schedule otherwise applicable. In connection with such change of control, the Compensation Committee may, in its discretion, require that, upon the change of control, each such option be canceled in exchange for a payment in an amount equal to the excess, if any, of the change of control price (as defined in the Stock Incentive Plan) over the exercise price of the option. In addition, no cancellation, acceleration of exercisability, cash settlement or other payment for options will occur upon a change of control if the Compensation Committee determines in good faith that an alternate award (as defined in the Stock Incentive Plan) will be issued by the acquiror in the change of control. FEDERAL INCOME TAX ASPECTS The following is a brief summary of the federal income tax consequences of awards under the Stock Incentive Plan based on the federal income tax laws in effect on the date hereof. This summary is not intended to be exhaustive and does not describe state or local tax consequences. No taxable income is realized by the grantee upon the grant or exercise of an ISO. If a grantee does not sell the stock received upon the exercise of an ISO ("ISO Shares") for at least two years from the date of grant and one year from the date of exercise, when the ISO Shares are sold any gain or loss realized will be treated as long-term capital gain or loss. In such circumstances, no deduction will be allowed to the grantee's employer for federal income tax purposes. If ISO Shares are disposed of prior to the expiration of the holding periods described above, the grantee generally will realize ordinary income at that time equal to the lesser of the excess of the fair market value of the shares at exercise over the price paid for such ISO Shares or the actual gain on the disposition. The grantee's employer will generally be entitled to deduct any such recognized amount. Any further gain or loss realized by the grantee will be taxed as short-term or long-term capital gain or loss. Subject to certain exceptions for disability or death, if an ISO is exercised more than three months following the termination of the grantee's employment, the ISO will generally be taxed as a Nonqualified Stock Option. No income is realized by the grantee at the time a Nonqualified Stock Option is granted. Generally upon exercise of a Nonqualified Stock Option, the grantee will realize ordinary income in an amount equal to the difference between the price paid for the shares and the fair market value of the shares on the date of exercise. The grantee's employer will generally be entitled to a tax deduction in the same amount and at the same time as the grantee recognizes ordinary income. Any appreciation or depreciation after the date of exercise will be treated as either short-term or long-term capital gain or loss, depending upon the length of time that the grantee has held the shares. EMPLOYMENT-RELATED AGREEMENTS Metropolitan Life Insurance Company has entered into employment continuation agreements with several of its key executives, including each of the Named Executive Officers. These agreements, the provisions of which only become effective upon the occurrence of a change of control or a potential change of control (as defined in such agreements), are intended generally to preserve for the covered executives the same duties, responsibilities and compensation opportunities for a period of three years following a change of control as were in effect prior to such an event. Accordingly, after the occurrence of such a change of control event, the agreements provide for certain minimum levels with respect to a covered executive's base salary, incentive compensation opportunities and participation in employee benefit plans. These agreements also generally assure the covered executive that he or she will not incur a significant change in the other terms and conditions of his or her employment. If the successor 208 210 management does not honor these assurances, a covered executive may terminate employment for "good reason". In such case, or in the event that, after these agreements become effective, the executive's employment is terminated without "cause", the executive will receive certain termination benefits, including a lump sum severance payment equal to three times the sum of the executive's: - base salary; - average annual bonus award over the preceding three years; and - average long-term incentive award over the preceding three years (reduced by the value conveyed to the executive in the change of control under any equity compensation awards). Notwithstanding the foregoing, the amount of any such termination benefits will be reduced, to the extent necessary, so that no amount payable to such executives will fail to be deductible by Metropolitan Life Insurance Company (or, in the case of the executives, be subject to a special excise tax) under the so-called "golden parachute" provisions of the Internal Revenue Code of 1986, as amended. In addition, Messrs. Benmosche, Nagler and Clark may also generally elect to terminate employment voluntarily, during the 30-day period beginning six months after the date on which a change of control occurs, and receive the same termination benefits they would receive had such executive's employment terminated without cause. New England Life Insurance Company has entered into an employment agreement with Mr. Benson, which expires on June 16, 2000, pursuant to which Mr. Benson serves as its Chief Executive Officer. Under the agreement, Mr. Benson is entitled to a minimum base salary and participation in the New England Financial annual and long-term incentive plans described above. The agreement also provides Mr. Benson with an enhanced retirement benefit of $400,000 vesting in equal annual installments over ten years and payable at age 62 as a 20-year continuous and certain annuity. At December 31, 1999, Mr. Benson had vested as to 20% of this benefit, or $80,000 per annum. In the event that Mr. Benson's employment is terminated by New England Life Insurance Company "without cause" or by Mr. Benson for "good reason" (as each such term is defined in the agreement), Mr. Benson will receive severance benefits equal to two times the sum of his annual base salary and his target annual bonus for the year of termination, as well as the earned and unpaid salary and the award payable for any long-term incentive period then in effect and an annual bonus for the year of termination, in each case pro-rated to the date of his termination. In addition, the enhanced retirement benefit will retroactively vest at double the above rate. Except in the event that Mr. Benson terminates his employment voluntarily without good reason or his employment is terminated for cause, he and his spouse will be eligible to receive the same retiree medical benefits generally made available to MetLife executives, except that any service requirement to obtain such benefits will be waived and such benefits will be secondary in all circumstances to any other coverage that Mr. Benson or his spouse may be eligible to receive. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Helene L. Kaplan, a director of MetLife, Inc. and Metropolitan Life Insurance Company and the chairman of the Nominating and Compensation Committee of Metropolitan Life Insurance Company in 1999, is of counsel to Skadden, Arps, Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom LLP has in the past performed, and continues to perform, legal services for Metropolitan Life Insurance Company and its affiliates. 209 211 OWNERSHIP OF COMMON STOCK The following table sets forth certain information regarding the beneficial ownership of MetLife, Inc.'s common stock as of the effective date of the plan of reorganization by: - each person who we believe will own beneficially more than 5% of the outstanding shares of MetLife, Inc.'s common stock; - each director and each Named Executive Officer; and - all of our directors and Named Executive Officers as a group. The number of shares of common stock beneficially owned by each director and executive officer is based upon an estimate of the number of shares each director and Named Executive Officer and certain persons and entities affiliated with each director and Named Executive Officer will receive as eligible policyholders pursuant to the plan of reorganization. The plan of reorganization provides that for the first five years after the plan effective date, officers, directors and employees of Metropolitan Life Insurance Company, MetLife, Inc. and their affiliates, including their family members and their spouses, may not acquire common stock in any manner except through the following acquisitions: - officers, directors and employees who are eligible policyholders may receive common stock (to be held in the trust) in exchange for their policyholders' membership interests under the plan of reorganization; - officers and directors and their spouses and family members may purchase common stock through the purchase and sale program (if eligible) or in open market purchases through a broker or dealer registered with the Securities and Exchange Commission beginning two years after the plan effective date; - other employees and their spouses and family members may purchase common stock through the purchase and sale program (if eligible) or in open market purchases through a registered broker or dealer on or after the plan effective date; and - subject to certain limitations as to both the amount and timing of the acquisition of stock, officers, directors, employees and insurance agents may acquire common stock (or interests in common stock) under one or more of the MetLife, Inc. 2000 Stock Incentive Plan, the MetLife, Inc. 2000 Directors Stock Plan and specified other savings and investment plans, incentive compensation plans and deferred compensation plans. 210 212 See "Management -- Management Compensation -- MetLife, Inc. 2000 Stock Incentive Plan" and "Management -- Information about the Board of Directors of MetLife, Inc. -- Compensation of Directors". No person will own more than 5% of the outstanding shares of common stock, other than the MetLife Policyholder Trust, as a result of the shares distributed pursuant to the plan of reorganization. Except as noted below, each holder listed below will have sole investment and voting power with respect to the shares beneficially owned by the holder. The number of shares of common stock owned by the trust is based on our preliminary calculation of the allocation of consideration to be distributed under the plan of reorganization and assumptions described under "Pro Forma Consolidated Financial Information".
NUMBER OF SHARES TO BE NAME BENEFICIALLY OWNED - ---- ------------------ MetLife Policyholder Trust.................................. (1) Robert H. Benmosche......................................... * Curtis H. Barnette.......................................... * Gerald Clark................................................ * Joan Ganz Cooney............................................ * Burton A. Dole, Jr. ........................................ * James R. Houghton........................................... * Harry P. Kamen.............................................. * Helene L. Kaplan............................................ * Charles M. Leighton......................................... * Allen E. Murray............................................. * Stewart G. Nagler........................................... * John J. Phelan, Jr. ........................................ * Hugh B. Price............................................... * Robert G. Schwartz.......................................... * Ruth J. Simmons............................................. * William C. Steere, Jr....................................... * Gary A. Beller.............................................. * James M. Benson............................................. * C. Robert Henrikson......................................... * Catherine A. Rein........................................... * William J. Toppeta.......................................... * John H. Tweedie............................................. * Lisa M. Weber............................................... * Judy E. Weiss............................................... * Board of directors of MetLife, Inc., but not in each director's individual capacity............................ 493,476,118(1) All directors and Named Executive Officers as a group....... * (2)
- --------------- * Number of shares represents less than one percent of the number of shares of common stock expected to be outstanding on the effective date of the plan. (1) The board of directors of MetLife, Inc., but not in each director's individual capacity, is deemed to beneficially own the shares of common stock held by the MetLife Policyholder Trust because the board will direct the voting of these shares on certain matters submitted to a vote of stockholders. See "The Demutualization -- Establishment and Operation of the MetLife Policyholder Trust". The amount shown does not include shares beneficially owned by a director in the director's individual capacity. (2) Does not include shares of common stock held by the MetLife Policyholder Trust beneficially owned by the board of directors, other than in each director's individual capacity. 211 213 COMMON STOCK ELIGIBLE FOR FUTURE SALE The MetLife Policyholder Trust will hold 493,476,118 shares of common stock on behalf of the approximately nine million eligible policyholders that we estimate will become beneficiaries of the trust in the demutualization. The trust provides that a trust beneficiary may sell the beneficiary's allocated shares of MetLife, Inc.'s common stock through the purchase and sale program, subject to certain limitations. Sales may be made at any time beginning on the later of (1) termination of any stabilization arrangements and trading restrictions in connection with the initial public offering or (2) the closing of all underwriters' over-allotment options which have been exercised and the expiration of all unexercised options. We expect that these sales may begin within 30 days after the effective date of the plan of reorganization. In addition, beginning one year after that effective date, trust beneficiaries may also withdraw all (but not less than all) of their allocated shares of MetLife, Inc.'s common stock from the trust and hold or dispose of their shares. Shares withdrawn from the trust will be issued in book-entry form as uncertificated shares, to the extent permitted by applicable law, unless a trust beneficiary requests a certificate for the shares. See "The Demutualization -- Establishment and Operation of the MetLife Policyholder Trust" for a description of the purchase and sale program and its limitations. Counsel has advised us that those beneficiaries who are not "affiliates" of MetLife, Inc. within the meaning of Rule 144 under the Securities Act of 1933, as amended, may resell their shares in the purchase and sale program or otherwise without registration under that Securities Act and without compliance with the time, volume, manner of sale and other limitations set forth in Rule 144. Substantially all of the shares of MetLife, Inc.'s common stock allocated in the demutualization to policyholders that will be beneficiaries of the trust will be allocated to non-affiliates of MetLife, Inc. Accordingly, most trust beneficiaries may freely transfer such shares, without limitations, through the purchase and sale program. In addition to the shares issued in the demutualization, the shares of common stock sold in the initial public offering and the shares issued upon settlement of the units will be freely transferable without restriction in the public market, except to the extent that those shares are acquired by affiliates of MetLife, Inc. and are therefore subject to restrictions under Rule 144. Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed that they or their respective affiliates will purchase from us, at a price per share equal to the initial public offering price, in the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of our common stock in private placements that will close concurrently with the initial public offering and the offering of equity security units described below. We will determine at the time of the pricing of the initial public offering whether to sell any shares to these purchasers in excess of the minimum amount. Any shares in excess of the minimum amount that we determine not to sell to these investors may increase the number of shares available for sale to the general public under this prospectus. The maximum number of shares that each investor, individually, and the investors, in the aggregate, could be obligated to purchase in the private placements represents approximately 4.9% and 9.8%, respectively, of the total number of shares of our common stock to be outstanding upon consummation of the initial public offering and the private placements. Each of these purchasers has entered into an agreement with us that provides that any shares purchased by it will be restricted, subject to certain limited exceptions, from sale or transfer for a period of one year after the initial public offering, except for sales to affiliates or pursuant to a tender or exchange offer recommended by our board of directors. In addition, each purchaser has agreed that it will not, without our consent, increase its ownership of voting securities above 4.9% of the outstanding shares (or 5.0% with the New York Superintendent of Insurance's approval), except for any increase resulting from transactions in the ordinary course of the business of purchaser as underwriter, broker/dealer, investment manager or investment adviser or from ordinary trading activities, unless such transactions were made with the purpose of changing or influencing the control of MetLife, seek to obtain board representation, solicit proxies in opposition to management or take certain other actions for five years. Although these investors will receive common stock which has not been registered under the Securities Act, they 212 214 will also receive registration rights with respect to such stock, which rights are not exercisable until one year after the closing of the initial public offering. Pursuant to these registration rights, the purchasers will be able to have their shares of common stock registered for resale under the Securities Act, beginning after the first anniversary of the closing, on not more than one occasion for each purchaser each year, or not more than five occasions for each purchaser in total (known as a "demand" registration right). In addition, we have agreed to use our reasonable efforts to register the shares for resale on a shelf registration statement on Form S-3 as soon as practicable after the first anniversary of the closing. If the shares are registered on a Form S-3, each purchaser will be allowed to make not more than two offerings under the registration statement each year, subject to a minimum offering price of $50,000,000 per offering, although underwritten offerings will be subject to the limitations on the number of demand registrations described above. The purchasers will also be able to participate, subject to specified limitations, in registrations effected by us for our own account or others. Sales of substantial amounts of MetLife, Inc. common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock. 213 215 METLIFE CAPITAL TRUST I MetLife Capital Trust I is a statutory business trust created under Delaware law according to (1) a declaration of trust and (2) a certificate of trust filed with the Secretary of State of the State of Delaware on March 6, 2000. This declaration will be amended and restated in its entirety substantially in the form filed as an exhibit to the registration statement of which this prospectus forms a part. The declaration will be qualified as an indenture under the Trust Indenture Act. The trust exists for the exclusive purposes of: (a) issuing the trust securities, which include the capital securities offered by this prospectus and the common securities issued to MetLife, Inc., representing undivided beneficial ownership interests in the debentures issued by MetLife, Inc., which will be the sole assets of the trust; (b) investing the proceeds of the trust securities in the debentures; and (c) engaging in only those activities necessary, appropriate, convenient or incidental to the purposes specified in (a) and (b) above. The trust has a term of approximately seven years, but may dissolve earlier as provided in the declaration. Although upon issuance of the capital securities, a holder of units will be the beneficial owner of the related capital securities, those capital securities will be pledged with the collateral agent to secure the obligations of the holder under the related purchase contract. The common securities rank on a parity, and payments upon redemption, liquidation or otherwise will be made on a proportionate basis, with the capital securities. However, upon the occurrence and during the continuance of an event of default under the debenture indenture, the rights of the holders of the common securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the capital securities. The aggregate stated liquidation amount of the common securities owned by MetLife, Inc. will equal at least 3% of the total capital of the trust. MetLife, Inc. will, on a senior and unsecured basis, irrevocably guarantee payments on the trust securities to the extent of available trust funds. The number of the trustees is initially five. Three of the trustees (the administrative trustees) are persons who are our employees or officers or who are affiliated with us. Under the declaration, the fourth trustee will be a financial institution that is unaffiliated with us. This trustee will serve as property trustee under the declaration and as indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act. Initially, The Bank of New York, a New York banking corporation, will be the property trustee until removed or replaced by the holder of the common securities. The fifth trustee will be a financial institution that is unaffiliated with us and that is resident in the State of Delaware for purposes of the Delaware Business Trust Act. Initially, The Bank of New York (Delaware), a Delaware banking corporation, will be the Delaware trustee until removed or replaced by the holder of the common securities. For purposes of compliance with the provisions of the Trust Indenture Act, The Bank of New York will also act as the guarantee trustee. The property trustee will hold title to the debentures for the benefit of the holders of the trust securities and the property trustee will have the power to exercise all rights, powers and privileges under the indenture as the holder of the debentures. In addition, the property trustee will maintain exclusive control of a segregated noninterest bearing bank account to hold all payments made in respect of the debentures for the benefit of the holders of the trust securities. The property trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the trust securities out of funds from this property account. The guarantee trustee will hold the guarantee for the benefit of the holders of the capital securities. 214 216 We, as the direct or indirect holder of all the common securities, will have the right to appoint, remove or replace any trustee and to increase or decrease the number of trustees. However, the number of trustees shall be at least two, at least one of which shall be an administrative trustee. We will pay all fees and expenses related to the trust and the offering of the units. The rights of the holders of the capital securities, including economic rights, rights to information and voting rights, are provided in the declaration of trust of MetLife Capital Trust I, including any amendments thereto, the capital securities, the Delaware Business Trust Act and the Trust Indenture Act. ACCOUNTING TREATMENT The financial statements of MetLife Capital Trust I will be consolidated in our financial statements, with the capital securities shown on our consolidated balance sheet under the caption "Company-obligated mandatorily redeemable securities of subsidiary trust holding solely debentures of Parent". The proceeds from the units will be allocated to the underlying purchase contracts and capital securities based on their relative fair values at the offering date. The forward contracts will be reported in additional paid-in capital and subsequent changes in fair value will not be recognized. The notes to our consolidated financial statements will disclose that the sole asset of the trust will be the debentures. Distributions on the capital securities will be reported as a charge to minority interest in our consolidated statements of income, whether paid or accrued. The purchase contracts are forward transactions in our common stock. Upon settlement of a purchase contract, we will receive $50 on that purchase contract and will issue the requisite number of shares of MetLife, Inc. common stock. The $50 we receive will be credited to shareholders' equity and allocated between the common stock and additional paid-in-capital accounts. Before the issuance of shares of MetLife, Inc. common stock upon settlement of the purchase contracts, the units will be reflected in our diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of common stock used in calculating earnings per share for any period is deemed to be increased by the excess, if any, of the number of shares issuable upon settlement of the purchase contracts over the number of shares that could be purchased by us in the market, at the average market price during that period, using the proceeds receivable upon settlement. Consequently, we anticipate that there will be no dilutive effect on our earnings per share except during periods when the average market price of our common stock is above $ per share. 215 217 DESCRIPTION OF THE UNITS The following is a summary of the principal documents relating to the offering of the units. Copies of those documents are on file with the SEC as part of our registration statement. See "Additional Information" for information on how to obtain copies. Although we believe the material provisions of these documents have been accurately summarized, you should refer to the provisions of each of the underlying agreements. Each unit will have a stated amount of $50. Each unit will initially consist of and represent: (1) a purchase contract under which you agree to purchase, for $50, shares of common stock of MetLife, Inc. on the stock purchase date of May 15, 2003. The number of shares you will receive will be determined by the settlement rate described below, based on the average trading price of the common stock at that time; and (2) beneficial ownership of a capital security of MetLife Capital Trust I with a stated liquidation amount of $50. Each capital security, and each common security issued to MetLife, Inc., represents an undivided beneficial ownership interest in the assets of MetLife Capital Trust I, which will consist solely of the debentures issued by MetLife, Inc. The capital securities will initially be pledged to secure your obligations under the purchase contract. The purchase contracts, together with the pledged capital securities or, after the remarketing, the specified pledged treasury securities, are referred to in this prospectus as "normal units". Each holder of normal units may elect to withdraw the pledged capital securities or treasury securities underlying the normal units by substituting, as pledged securities, specifically identified treasury securities that will pay $50 on May 15, 2003, the amount due on such date under the purchase contract. If a holder of normal units elects to substitute treasury securities as pledged securities, the pledged capital securities or treasury securities will be released from the pledge agreement and delivered to the holder. The normal units would then become "stripped units". The stripped units will not generate cash payments to the holder. Holders of stripped units may recreate normal units by resubstituting the capital securities (or, after the remarketing date, the applicable specified treasury securities) for the treasury securities underlying the stripped units. As a beneficial owner of the units, you will be deemed by your acceptance of the units to have: - irrevocably agreed to be bound by the terms of the purchase contract agreement, pledge agreement and purchase contract for so long as you remain a beneficial owner of such units; and - appointed the purchase contract agent under the purchase contract agreement as your agent and attorney-in-fact to enter into and perform the purchase contract on your behalf. In addition, as a beneficial owner of the units, you will be deemed by your acceptance of the units to have agreed to treat for United States federal, state and local income and franchise tax purposes: - yourself as the owner of the related capital securities, or the treasury securities, as the case may be; and - the debentures as indebtedness that we have issued. At the closing of the offering of the units, the underwriters will purchase the units. The purchase price of each unit will be allocated by MetLife, Inc. between the related purchase contract and the related capital security. The underwriters will fund their purchase of the units by selling the units to the initial investors. MetLife Capital Trust I will use the amount of cash from the offering allocated to the capital securities and any cash it receives from MetLife, Inc. for the common securities, to purchase the debentures from MetLife, Inc. The capital securities will then 216 218 be pledged to the collateral agent to secure the obligations owed to MetLife, Inc. under the purchase contracts. MetLife, Inc. will enter into: - a purchase contract agreement with Bank One Trust Company, N.A., as purchase contract agent, governing the appointment of the purchase contract agent as the agent and attorney-in-fact for the holders of the units, the purchase contracts, the transfer, exchange or replacement of certificates representing the units and certain other matters relating to the units; and - a pledge agreement with The Bank of New York, as collateral agent, custodial agent and securities intermediary creating a pledge and security interest for MetLife, Inc.'s benefit to secure the obligations of holders of units under the purchase contracts. CREATING STRIPPED UNITS AND RECREATING NORMAL UNITS Holders of normal units will have the ability to "strip" those units and take delivery of the pledged capital securities (or after the remarketing date, the pledged treasury securities), creating "stripped units", and holders of stripped units will have the ability to recreate normal units from their stripped units by depositing capital securities (or after the remarketing date, the applicable treasury securities) as described in more detail below. Holders who elect to create stripped units or recreate normal units, shall be responsible for any related fees or expenses. CREATING STRIPPED UNITS. Each holder of normal units may create stripped units and withdraw the pledged capital securities or treasury securities underlying the normal units by substituting, as pledged securities, the U.S. treasury securities described below that will pay $50 on May 15, 2003, the amount due on that date under the purchase contract. Holders of normal units may create stripped units at any time on or before the second business day prior to the stock purchase date, except that they may not create stripped units during the period from four business days prior to any remarketing date until the expiration of three business days after that date. In order to create stripped units, a normal unitholder must substitute, as pledged securities, zero-coupon U.S. Treasury securities (CUSIP No. 912833FS4) which mature on May 15, 2003. Upon creation of the stripped units, the treasury securities will be pledged with the collateral agent to secure the unitholder's obligation to purchase MetLife, Inc. common stock under the purchase contract, and the pledged capital securities or treasury securities underlying the normal units will be released. Because treasury securities are issued in integral multiples of $1,000, holders of normal units may make the substitution only in integral multiples of 20 normal units. However, after a remarketing of the capital securities has occurred, the holders may make the substitution only in integral multiples of normal units such that both the treasury securities to be deposited and the treasury securities to be released are in integral multiples of $1,000. To create stripped units, you must: - deposit with the collateral agent the treasury securities described above, which will be substituted for the pledged capital securities or treasury securities underlying your normal units and pledged with the collateral agent to secure your obligation to purchase our common stock under the purchase contract; - transfer the normal units to the purchase contract agent; and - deliver a notice to the purchase contract agent stating that you have deposited the specified treasury securities with the collateral agent and are requesting that the 217 219 purchase contract agent instruct the collateral agent to release to you the pledged capital securities or treasury securities underlying the normal units. Upon that deposit and the receipt of an instruction from the purchase contract agent, the collateral agent will effect the release to the purchase contract agent of the underlying pledged capital securities or treasury securities from the pledge under the pledge agreement free and clear of our security interest. The purchase contract agent will: - cancel the normal units; - transfer to you the underlying pledged capital securities or treasury securities; and - deliver to you the stripped units. Any capital securities released to you will be tradeable separately from the resulting stripped units. Distributions on the capital securities will continue to be payable in accordance with their terms. RECREATING NORMAL UNITS. Each holder of stripped units may recreate normal units by substituting, as pledged securities, capital securities or the applicable treasury securities then constituting a part of the normal units for the treasury securities underlying the stripped units. Holders may recreate normal units at any time on or before the second business day prior to the stock purchase date, except that they may not recreate normal units during the period from four business days prior to any remarketing date until the expiration of three business days after that date. Upon recreation of the normal units, the capital securities or treasury securities will be pledged with the collateral agent to secure the holder's obligation to purchase our common stock under the purchase contract, and the treasury securities underlying the stripped units will be released. Because treasury securities are issued in integral multiples of $1,000, holders of stripped units may make the substitution only in integral multiples of 20 stripped units. However, after a remarketing of the capital securities has occurred, the holder may make the substitution only in integral multiples of stripped units such that both the treasury securities to be deposited and the treasury securities to be released are in integral multiples of $1,000. To recreate normal units from stripped units, you must: - deposit with the collateral agent: - if the substitution occurs prior to the remarketing of the capital securities, capital securities having an aggregate stated liquidation amount equal to the aggregate stated amount of your stripped units; and - if the substitution occurs after the remarketing of the capital securities, the applicable treasury securities then constituting a part of the normal units; - transfer the stripped units to the purchase contract agent; and - deliver a notice to the purchase contract agent stating that you have deposited the capital securities or treasury securities with the collateral agent and are requesting that the purchase contract agent instruct the collateral agent to release to you the pledged treasury securities underlying those stripped units. The capital securities or treasury securities will be substituted for the treasury securities underlying your stripped units and will be pledged with the collateral agent to secure your obligation to purchase our common stock under your purchase contract. Upon the deposit and receipt of an instruction from the purchase contract agent, the collateral agent will effect the release to the purchase contract agent of the underlying pledged 218 220 treasury securities from the pledge under the pledge agreement free and clear of our security interest. The purchase contract agent will: - cancel the stripped units; - transfer to you the underlying treasury securities; and - deliver to you the normal units. CURRENT PAYMENTS If you hold normal units, you will receive payments, consisting of quarterly cumulative cash distributions on the capital securities, at the annual rate of % of the stated liquidation amount of $50 per capital security through and including February 15, 2003. These payments are subject to the deferral provisions described under "Description of the Capital Securities -- Distributions". On May 15, 2003, you will receive a quarterly payment, consisting of a cash payment on the specified pledged treasury securities, at the same annual rate. If you hold stripped units, you will not receive distributions on the units. If you hold capital securities separately from the units, you will receive distributions on the capital securities. Distributions on the capital securities, whether held separately, or as part of units, will be fixed initially at the annual rate of % of the stated liquidation amount of $50 per capital security. The rate of distribution on the capital securities will be reset for the quarterly payments payable on and after May 15, 2003, and distributions on the capital securities will be made at the reset rate from that date to May 15, 2005. However, if the reset rate meeting the requirements described in this prospectus cannot be established, the distribution rate will not be reset and will continue to be the initial annual rate of % until a reset rate meeting the requirements described in this prospectus can be established on a later remarketing date prior to May 15, 2003. If no remarketing occurs prior to such date, the initial rate will be the distribution rate through May 15, 2005. The distributions on the capital securities are subject to the deferral provisions described under "Description of the Capital Securities -- Distributions". The ability of MetLife Capital Trust I to make the distributions on the capital securities is solely dependent upon the receipt of corresponding payments from MetLife, Inc. on the debentures. MetLife, Inc.'s obligations with respect to the debentures will be senior and unsecured and will rank equally in right of payment to all of its other senior unsecured debt. See "Description of the Debentures -- Ranking". DESCRIPTION OF THE PURCHASE CONTRACTS Each purchase contract underlying a unit, unless earlier terminated, or earlier settled at your option or upon specified mergers and other transactions described below, will obligate you to purchase, and us to sell, for $50, on the stock purchase date of May 15, 2003, a number of newly issued shares of our common stock equal to the settlement rate. The settlement rate, which is the number of newly issued shares of our common stock issuable upon settlement of a purchase contract on the stock purchase date, will, subject to adjustment under certain circumstances as described under "-- Anti-dilution Adjustments", below, be as follows: - If the applicable market value of our common stock (which is the average of the closing prices per share of our common stock on each of the twenty consecutive trading days ending on the third trading day immediately preceding the stock purchase date) is equal to or greater than the threshold appreciation price of $ , which is % above $ , the initial public offering price of our common stock, the settlement rate, which is equal to $50 divided by $ , will be shares of our common stock per purchase contract. Accordingly, if, between the date of this prospectus and the period during which the applicable market value is measured, the market price for our common stock increases to an amount that is 219 221 higher than $ , the aggregate market value of the shares of common stock issued upon settlement of each purchase contract, assuming that this market value is the same as the applicable market value of our common stock, will be higher than $50, and if the market price equals $ , the aggregate market value of those shares, assuming that this market value is the same as the applicable market value of our common stock, will equal $50; - If the applicable market value of our common stock is less than $ but greater than $ , the settlement rate will be equal to $50 divided by the applicable market value of our common stock per purchase contract. Accordingly, if the market price for our common stock increases between the date of this prospectus and the period during which the applicable market value is measured but that market price is less than $ , the aggregate market value of the shares of common stock issued upon settlement of each purchase contract, assuming that this market value is the same as the applicable market value of our common stock, will equal $50; and - If the applicable market value of our common stock is less than or equal to $ , the settlement rate, which is equal to $50 divided by $ , the initial public offering price of our common stock, will be shares of our common stock per purchase contract. Accordingly, if the market price for our common stock decreases between the date of this prospectus and the period during which the applicable market value is measured, the aggregate market value of the shares of common stock issued upon settlement of each purchase contract, assuming that the market value is the same as the applicable market value of our common stock, will be less than $50, and if the market price stays the same, the aggregate market value of those shares, assuming that this market value is the same as the applicable market value of our common stock, will equal $50. For purposes of determining the applicable market value for common stock, the closing price of our common stock on any date of determination means the closing sale price or, if no closing price is reported, the last reported sale price of our common stock on the New York Stock Exchange on that date. If our common stock is not listed for trading on the New York Stock Exchange on any date, the closing price of our common stock on any date of determination means the closing sales price as reported in the composite transactions for the principal U.S. securities exchange on which our common stock is so listed, or if the common stock is not so listed on a U.S. national or regional securities exchange, as reported by the Nasdaq stock market, or, if our common stock is not so reported, the last quoted bid price for our common stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization or, if that bid price is not available, the market value of our common stock on that date as determined by a nationally recognized independent investment banking firm retained by us for this purpose. A trading day is a day on which our common stock (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (b) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of our common stock. SETTLEMENT Settlement of the purchase contracts will occur on the stock purchase date, unless: - you have settled the related purchase contract prior to the stock purchase date through the early delivery of cash to the purchase contract agent, in the manner described in "-- Early Settlement"; - if we are involved in a merger prior to the stock purchase date in which at least 30% of the consideration for our common stock consists of cash or cash equivalents, and 220 222 you have settled the related purchase contract through an early settlement as described in "Description of the Units -- Description of the Purchase Contracts -- Settlement -- Early Settlement upon Merger"; or - an event described under "-- Termination of Purchase Contracts" below has occurred. The settlement of the purchase contracts on the stock purchase date will occur as follows: - for the stripped units or normal units which include pledged treasury securities, the cash payments on the treasury securities will automatically be applied to satisfy in full your obligation to purchase common stock under the purchase contracts; and - for the normal units in which the related capital securities remain a part of the normal units because of a failed remarketing, we will exercise our rights as a secured party to dispose of the capital securities in accordance with applicable law. In either event, our common stock will then be issued and delivered to you or your designee, upon presentation and surrender of the certificate evidencing the units, if the units are held in certificated form, and payment by you of any transfer or similar taxes payable in connection with the issuance of our common stock to any person other than you. Prior to the date on which shares of common stock are issued in settlement of purchase contracts, the common stock underlying the related purchase contracts will not be deemed to be outstanding for any purpose and you will have no rights with respect to the common stock, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the common stock, by virtue of holding the purchase contracts. No fractional shares of common stock will be issued by us pursuant to the purchase contracts. In place of fractional shares otherwise issuable you will be entitled to receive an amount of cash equal to the fractional share, calculated on an aggregate basis in respect of the purchase contracts you are settling, times the applicable market value. REMARKETING. The capital securities held by each normal unitholder will be sold in a remarketing on February 15, 2003, unless the holder elects not to participate in the remarketing. The proceeds of such remarketing will be used to purchase U.S. treasury securities, which will be pledged to secure such participating normal unitholder's obligations under the related purchase contract. Cash payments received on the pledged treasury securities underlying the normal unit of such holder will be used to satisfy such participating holder's obligation to purchase our common stock on May 15, 2003. Unless a holder of normal units delivers treasury securities in a kind and amount designated by the remarketing agent, as described below, the capital securities that are included in the normal units will be remarketed on the remarketing date, unless the remarketing agent delays the remarketing to a later date as described below. The remarketing date will be the third business day preceding February 15, 2003, the last quarterly payment date before the stock purchase date. We will enter into a remarketing agreement with a nationally recognized investment banking firm, pursuant to which that firm will agree, as remarketing agent, to use its commercially reasonable best efforts to sell the capital securities which are included in normal units and which are participating in the remarketing on February 15, 2003 at a price equal to 100.5% of the remarketing value. The "remarketing value" will be equal to the sum of: (a) the value at the remarketing date of such amount of U.S. treasury securities that will pay, on or prior to the quarterly payment date falling on the stock purchase date, an amount of cash equal to the aggregate distributions that are scheduled to be payable on that 221 223 quarterly payment date, on each capital security which is included in a normal unit and which is participating in the remarketing, assuming for this purpose, even if not true, that (i) no distribution payment will then have been deferred and (ii) the distribution rate on the capital securities remains at the initial rate; (b) the value at the remarketing date of such amount of U.S. treasury securities that will pay, on or prior to the stock purchase date, an amount of cash equal to $50 for each capital security which is included in a normal unit and which is participating in the remarketing; and (c) if distribution payments are being deferred at the remarketing date, an amount of cash equal to the aggregate unpaid deferred payments on each capital security which is included in a normal unit and which is participating in the remarketing, accrued to February 15, 2003. For purposes of (a) and (b), above, the value on the remarketing date of the treasury securities will assume that (1) the treasury securities are highly liquid treasury securities maturing on or within 35 days prior to the stock purchase date (as determined in good faith by the remarketing agent in a manner intended to minimize the cash value of the treasury securities) and (2) those treasury securities are valued based on the ask-side price of the treasury securities at a time between 9:00 a.m. and 11:00 a.m. New York City time, selected by the remarketing agent, on the remarketing date (as determined on a third-day settlement basis by a reasonable and customary means selected in good faith by the remarketing agent) plus accrued interest to that date. The remarketing agent will use the proceeds from the sale of these capital securities in a successful remarketing described in this section to purchase in the discretion of the remarketing agent, in open market transactions or at treasury auction, the amount and the types of treasury securities described in (a) and (b), above, which it will deliver through the purchase contract agent to the collateral agent to secure the obligations under the related purchase contracts of the normal unitholders whose capital securities participated in the remarketing. The remarketing agent will deduct as a remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds from such remarketing. The remarketing agent will remit the remaining portion of the proceeds, if any, for the benefit of the holders of the normal units participating in the remarketing. Alternatively, a holder of normal units may elect not to participate in the remarketing and retain the capital securities underlying those units by delivering the treasury securities described in (a) and (b) above, in the amount and types specified by the remarketing agent applicable to the holder's capital securities, to the purchase contract agent on the fourth business day prior to February 15, 2003. The purchase contract agent will give holders notice of remarketing, including the specific treasury securities (including the CUSIP numbers and/or the principal terms thereof) that must be delivered by holders that elect not to participate in the remarketing, on the seventh business day prior to February 15, 2003. A holder electing not to participate in the remarketing must notify the purchase contract agent of such election and deliver such specified treasury securities to the purchase contract agent not later than 10:00 a.m. on the fourth business day prior to February 15, 2003. A holder that does not so deliver the treasury securities will be deemed to have elected to participate in the remarketing. On the stock purchase date the purchase contract agent will apply the cash payments received on the pledged treasury securities to pay the purchase price under the purchase contracts. If the reset agent cannot establish a reset rate on the remarketing date that will be sufficient to cause the then current aggregate market value of the capital securities to be equal to 100.5% of the remarketing value (assuming, even if not true, that all of the capital securities are held as 222 224 components of normal units and will be remarketed), and the remarketing agent cannot remarket the capital securities offered for remarketing on the remarketing date at a price equal to 100.5% of the remarketing value (determined on the basis of the capital securities being remarketed, the reset agent may thereafter attempt to establish a new reset rate, and the remarketing agent may attempt to remarket the capital securities, on one or more occasions after that date until the business day immediately preceding the stock purchase date. Any such remarketing will be at a price equal to 100.5% of the remarketing value, determined on the basis of the capital securities being remarketed) on the subsequent remarketing date. The purchase contract agent will give holders notice of remarketing, including the specific treasury securities (including the CUSIP numbers and/or the principal terms thereof) that must be delivered by holders that elect not to participate in any such remarketing, on the seventh business day prior to the subsequent remarketing date. A holder of normal units may elect not to participate in any such remarketing and retain the capital securities underlying those units by delivering the treasury securities described above to the purchase contract agent not later than 10:00 a.m. on the fourth business day immediately preceding the subsequent remarketing date. If the remarketing agent fails to remarket the capital securities underlying normal units at that price prior to the stock purchase date, we will be entitled to exercise our rights as a secured party on the stock purchase date and, subject to applicable law, retain the securities pledged as collateral or sell them in one or more private sales. OPTIONAL REMARKETING. Under the remarketing agreement, on or prior to the fifth business day immediately preceding February 15, 2003, holders of capital securities that are not included in normal units may elect to have their capital securities included in the remarketing by delivering their capital securities along with a notice of such election to the custodial agent prior to the remarketing date, but no earlier than the payment date immediately preceding February 15, 2003. The custodial agent will hold these capital securities in an account separate from the collateral account in which the securities pledged to secure the holders' obligations under the purchase contracts will be held. Holders of capital securities electing to have their capital securities remarketed will also have the right to withdraw that election on or prior to the fifth business day immediately preceding February 15, 2003. On the fourth business day immediately prior to February 15, 2003, the custodial agent will deliver these separate capital securities to the remarketing agent for remarketing. The remarketing agent will use its commercially reasonable best efforts to remarket the separately held capital securities included in the remarketing on the remarketing date at a price equal to 100.5% of the remarketing value, determined on the basis of the separately held capital securities being remarketed. After deducting as the remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds from such remarketing, the remarketing agent will remit to the collateral agent the remaining portion of the proceeds for payment to such participating holders. If, as described above, the remarketing agent cannot remarket the capital securities on the remarketing date, the remarketing agent will promptly return the capital securities to the custodial agent to release to the holders. Holders of capital securities that are not components of normal units may elect to have their capital securities remarketed on any subsequent remarketing date pursuant to the procedures described above. EARLY SETTLEMENT. At any time not later than 10:00 a.m. on the seventh business day prior to May 15, 2003, a holder of units may settle the related purchase contracts by delivering to the purchase contract agent immediately available funds in an amount equal to $50 multiplied by the number of purchase contracts being settled. No later than the third business day after an early settlement, we will issue, and the holder will be entitled to receive, shares of MetLife, Inc. common stock for each unit (regardless of 223 225 the market price of our common stock on the date of early settlement), subject to adjustment under the circumstances described under "-- Anti-Dilution Adjustments" below. The holder will also receive the capital securities or other securities underlying those units. EARLY SETTLEMENT UPON MERGER. Prior to the stock purchase date, if we are involved in a merger in which at least 30% of the consideration for our common stock consists of cash or cash equivalents ("cash merger"), on or after the date of the cash merger each holder of the units has the right to accelerate and settle the related purchase contract. We refer to this right as the "early settlement right". We will provide each of the holders with a notice of the completion of a cash merger within five business days thereof. The notice will specify a date, which shall be not less than 20 nor more than 30 days after the date of the notice, on which the optional early settlement will occur and a date by which each holder's early settlement right must be exercised. The notice will set forth, among other things, the applicable settlement rate and the amount of the cash, securities and other consideration receivable by the holder upon settlement. To exercise the early settlement right, you must deliver to the purchase contract agent, on or one business day before the early stock purchase date, the certificate evidencing your units, if the units are held in certificated form, and payment of the applicable purchase price in the form of a certified or cashier's check. If you exercise the early settlement right, we will deliver to you on the merger early settlement date the kind and amount of securities, cash or other property that you would have been entitled to receive if you had settled the purchase contract, at the settlement rate in effect at such time, immediately before the cash merger. You will also receive the capital securities or other securities underlying those units. If you do not elect to exercise your early settlement right, your units will remain outstanding and subject to normal settlement on the stock purchase date. ANTI-DILUTION ADJUSTMENTS The formula for determining the settlement rate and the number of shares of our common stock to be delivered upon an early settlement may be adjusted if certain events occur, including: (1) the payment of a stock dividend or other distributions on our common stock; (2) the issuance to all holders of our common stock of rights or warrants, other than any dividend reinvestment or share purchase or similar plans, entitling them to subscribe for or purchase common stock at less than the current market price (as defined below); (3) subdivisions, splits and combinations of our common stock (including an effective subdivision of our common stock through reclassification of our common stock); (4) distributions to all holders of our common stock of evidences of indebtedness of MetLife, Inc., securities, cash or other assets (excluding any dividend or distribution covered by clause (1) or (2) above and any dividend or distribution paid exclusively in cash); (5) distributions consisting exclusively of cash to all holders of our common stock in an aggregate amount that, when combined with (a) other all-cash distributions made within the preceding 12 months and (b) the cash and the fair market value, as of the date of expiration of the tender or exchange offer referred to below, of the consideration paid in respect of any tender or exchange offer by us or a subsidiary of ours for our common stock concluded within the preceding 12 months, exceeds 15% of our aggregate market capitalization (such aggregate market capitalization being the product of the current market price of our common stock multiplied by the number of shares of common stock then outstanding) on the date fixed for the determination of stockholders entitled to receive such distribution; and (6) the successful completion of a tender or exchange offer made by us or any subsidiary of ours for our common stock which involves an aggregate consideration that, when combined with (a) any cash and the fair market value of other consideration payable in respect of any other tender or exchange offer by us or a subsidiary of ours for our common stock concluded 224 226 within the preceding 12 months and (b) the aggregate amount of any all-cash distributions to all holders of our common stock made within the preceding 12 months, exceeds 15% of our aggregate market capitalization on the date of expiration of such tender or exchange offer. The "current market price" per share of our common stock on any day means the average of the daily closing prices for the five consecutive trading days selected by us commencing not more than 20 trading days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which our common stock trades without the right to receive the issuance or distribution. In the case of reclassifications, consolidations, mergers, sales or transfers of assets or other transactions that cause our common stock to be converted into the right to receive other securities, cash or property, each purchase contract then outstanding would, without the consent of the holders of units, become a contract to purchase, on the stock purchase date, only the kind and amount of securities, cash or other property that the holder would be entitled to receive if the holder had settled its purchase contract immediately before the transaction. Holders have the right to settle their obligations under the purchase contracts early in the event of certain cash mergers as described under "Settlement -- Early Settlement Upon Merger". If at any time we make a distribution of property to our common stockholders which would be taxable to the stockholders as a dividend for U.S. federal income tax purposes (that is, distributions, evidences of indebtedness or assets, but generally not stock dividends or rights to subscribe to capital stock), and, pursuant to the settlement rate adjustment provisions of the purchase contract agreement, the settlement rate is increased, that increase may be deemed to be the receipt of taxable income to holders of units. See "U.S. Federal Income Tax Consequences -- Adjustment to Settlement Rate". In addition, we may increase the settlement rate if our board of directors deems it advisable to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of shares (or rights to acquire shares) or from any event treated as a dividend or distribution for income tax purposes or for any other reasons. Adjustments to the settlement rate will be calculated to the nearest 1/10,000th of a share. No adjustment in the settlement rate will be required unless the adjustment would require an increase or decrease of at least one percent in the settlement rate. If any adjustment is not required to be made because it would not change the settlement rate by at least one percent, then the adjustment will be carried forward and taken into account in any subsequent adjustment. We will be required, as soon as practicable following the occurrence of an event that requires or permits an adjustment in the settlement rate, to provide written notice to the holders of units of the occurrence of that event. We will also be required to deliver a statement in reasonable detail setting forth the method by which the adjustment to the settlement rate was determined and setting forth the revised settlement rate. PLEDGED SECURITIES AND PLEDGE AGREEMENT The capital securities or treasury securities underlying the units will be pledged to the collateral agent for our benefit. According to the pledge agreement, the pledged securities will secure the obligations of holders of units to purchase our common stock under the purchase contract. A holder of a unit cannot separate or separately transfer the purchase contract from the pledged securities underlying the unit. Your rights to the pledged securities will be subject to our 225 227 security interest created by the pledge agreement. You will not be permitted to withdraw the pledged securities related to the units from the pledge arrangement except: - to substitute specified treasury securities for the related pledged capital securities or other pledged treasury securities upon creation of a stripped unit; - to substitute capital securities or specified treasury securities for the related pledged treasury securities upon the recreation of a normal unit; - upon delivering specified treasury securities when electing not to participate in a remarketing; or - upon the termination or early settlement of the purchase contracts. Subject to our security interest and the terms of the purchase contract agreement and the pledge agreement: - each holder of units that include capital securities will retain beneficial ownership of the capital securities and will be entitled through the purchase contract agent and the collateral agent to all of the proportional rights and preferences of the capital securities, including distribution, voting, redemption, repayment and liquidation rights; and - each holder of units that include treasury securities will retain beneficial ownership of the treasury securities. We will have no interest in the pledged securities other than our security interest. QUARTERLY PAYMENTS ON PLEDGED SECURITIES Except as described in "Description of the Purchase Contracts", the collateral agent, upon receipt of quarterly interest or distribution payments on the pledged securities underlying the normal units, will distribute those payments to the purchase contract agent, which will, in turn, distribute that amount to the holders of normal units on the record date for the payment. As long as the units remain in book-entry only form, the record date for any payment will be one business day before the payment date. Holders of stripped units will not receive quarterly payments on the units. TERMINATION OF PURCHASE CONTRACTS The purchase contracts, our related rights and obligations and those of the holders of the units, including their obligations to purchase our common stock, will automatically terminate upon the occurrence of particular events of our bankruptcy, insolvency or reorganization. Upon such a termination of the purchase contracts, the collateral agent will release the securities held by it to the purchase contract agent for distribution to the holders. If a holder would otherwise have been entitled to receive less than $1,000 principal amount at maturity of any treasury security upon termination of the purchase contract, the purchase contract agent will dispose of the security for cash and pay the cash to the holder. Upon termination, however, the release and distribution may be subject to a delay. If we become the subject of a case under the federal bankruptcy code, a delay may occur as a result of the automatic stay under the bankruptcy code and continue until the automatic stay has been lifted. THE PURCHASE CONTRACT AGREEMENT Distributions on the units will be payable, purchase contracts will be settled and transfers of the units will be registrable at the office of the purchase contract agent in the Borough of Manhattan, The City of New York. In addition, if the units do not remain in book-entry form, 226 228 payment of distributions on the units may be made, at our option, by check mailed to the address of the persons shown on the unit register. If any quarterly payment date or the stock purchase date is not a business day, then any payment required to be made on that date must be made on the next business day (and so long as the payment is made on the next business day, without any interest or other payment on account of any such delay), except that if the next business day is in the next calendar year, the payment or settlement will be made on the prior business day with the same force and effect as if made on the payment date. A "business day" means any day other than Saturday, Sunday or any other day on which banking institutions in The City of New York are authorized or obligated by law or executive order to be closed. If you fail to surrender the certificate evidencing your units, if your units are held in certificated form, to the purchase contract agent on the stock purchase date, the shares of common stock issuable in settlement of the related purchase contracts will be registered in the name of the purchase contract agent. These shares, together with any distributions on them, will be held by the purchase contract agent as agent for your benefit, until the certificate is presented and surrendered or you provide satisfactory evidence that the certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the purchase contract agent and us. If the purchase contracts have terminated prior to the stock purchase date, the related pledged securities have been transferred to the purchase contract agent for distribution to the holders and you fail to surrender the certificate evidencing your units, if your units are held in certificated form, to the purchase contract agent, the pledged securities that would otherwise be delivered to you and any related payments will be held by the purchase contract agent as agent for your benefit, until you present and surrender the certificate or provide the evidence and indemnity described above. The purchase contract agent will not be required to invest or to pay interest on any amounts held by it before distribution. No service charge will be made for any registration of transfer or exchange of the units, except for any applicable tax or other governmental charge. MODIFICATION The purchase contract agreement, the pledge agreement and the purchase contracts may be amended with the consent of the holders of a majority of the units at the time outstanding. However, no modification may, without the consent of the holder of each outstanding unit affected by the modification: - change any payment date; - change the amount or type of pledged securities required to be pledged to secure obligations under the units, impair the right of the holder of any units to receive distributions on the pledged securities underlying the units or otherwise adversely affect the holder's rights in or to pledged securities; - change the place or currency of payment for any amounts payable in respect of the units, increase any amounts payable by holders in respect of the units or decrease any other amounts receivable by holders in respect of the units; - impair the right to institute suit for the enforcement of any purchase contract; - reduce the number of shares of common stock purchasable under any purchase contract, increase the price to purchase shares of common stock on settlement of any purchase 227 229 contract, change the stock purchase date or otherwise adversely affect the holder's rights under any purchase contract; or - reduce the above stated percentage of outstanding units the consent of whose holders is required for the modification or amendment of the provisions of the purchase contract agreement, the pledge agreement or the purchase contracts. CONSOLIDATION, MERGER, SALE OR CONVEYANCE MetLife, Inc. will agree in the purchase contract agreement that it will not (a) merge with or into or consolidate with any other entity or (b) sell, assign, transfer, lease or convey all or substantially all of its properties and assets to any person, firm or corporation other than, with respect to clause (b), a direct or indirect wholly-owned subsidiary of MetLife, Inc., unless: - MetLife, Inc. is the continuing corporation or the successor corporation is a corporation organized under the laws of the United States of America or any state or the District of Columbia; - the successor entity expressly assumes its obligations under the purchase contract agreement, the pledge agreement, the purchase contracts the remarketing agreement and the guarantee; and - MetLife, Inc. or such corporation is not, immediately after such merger, consolidation, sale, assignment, transfer, lease or conveyance, in default in the performance of any of its obligations under the purchase contract agreement, the pledge agreement, the purchase contracts or the remarketing agreement. TITLE We, the purchase contract agent and the collateral agent may treat the registered holder of any units as the absolute owner of those units for the purpose of making payment and settling the related purchase contracts and for all other purposes. GOVERNING LAW The purchase contract agreement, the pledge agreement and the purchase contracts will be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of laws. BOOK-ENTRY SYSTEM The Depository Trust Company will act as securities depositary for the units. The units will be issued only as fully-registered securities registered in the name of Cede & Co. (the depositary's nominee). One or more fully-registered global security certificates, representing the total aggregate number of units, will be issued and deposited with the depositary and will bear a legend regarding the restrictions on exchanges and registration of transfer referred to below. The laws of some jurisdictions require that some purchasers of securities take physical delivery of securities of definitive form. Those laws may impair the ability to transfer beneficial interests in the units so long as the units are represented by global security certificates. The depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. 228 230 The depositary holds securities that its participants deposit with the depositary. The depositary also facilitates the settlement among participants of securities transactions, including transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thus eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The depositary is owned by a number of its direct participants and by the New York Stock Exchange, the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc., collectively referred to as participants. Access to the depositary system is also available to others, including securities brokers and dealers, bank and trust companies that clear transactions through or maintain a direct or indirect custodial relationship with a direct participant either directly or indirectly, collectively referred to as indirect participants. The rules applicable to the depositary and its participants are on file with the Securities and Exchange Commission. No units represented by global security certificates may be exchanged in whole or in part for units registered, and no transfer of global security certificates in whole or in part for units registered, and no transfer of global security certificates in whole or in part may be registered, in the name of any person other than the depositary or any nominee of the depositary, unless, however, the depositary has notified us that it is unwilling or unable to continue as depositary for the global security certificates, has ceased to be qualified to act as required by the purchase contract agreement or there is a continuing default by as in respect of our obligations under one or more purchase contracts, the indenture, the purchase contract agreement, the debentures, the units, the capital securities, the pledge agreement, the guarantee or any other principal agreements or instruments executed in connection with this offering. All units represented by one or more global security certificates or any portion of them will be registered in those names as the depositary may direct. As long as the depositary or its nominee is the registered owner of the global security certificates, the depositary or that nominee will be considered the sole owner and holder of the global security certificates and all units represented by those certificates for all purposes under the units and the purchase contract agreement. Except in the limited circumstances referred to above, owners of beneficial interests in global security certificates will not be entitled to have the global security certificates or the units represented by those certificates registered in their names, will not receive or be entitled to receive physical delivery of units certificates in exchange and will not be considered to be owners or holders of the global security certificates or any units represented by those certificates for any purpose under the units or the purchase contract agreement. All payments on the units represented by the global security certificates and all related transfers and deliveries of capital securities, treasury securities and common stock will be made to the depositary or its nominee as their holder. Ownership of beneficial interests in the global security certificates will be limited to participants or persons that may hold beneficial interests through institutions that have accounts with the depositary or its nominee. Ownership of beneficial interests in global security certificates will be shown only on, and the transfer of those ownership interests will be effected only through, records maintained by the depositary or its nominee with respect to participants' interests or by the participant with respect to interests of persons held by the participants on their behalf. Procedures for settlement of purchase contracts on the stock purchase date or upon early settlement will be governed by arrangements among the depositary, participants and persons that may hold beneficial interests through participants designed to permit the settlement without the physical movement of certificates. Payments, transfers, deliveries, exchanges and other matters relating to beneficial interests in global security certificates may be subject to various policies and procedures adopted by the depositary from time to time. 229 231 Neither we or any of our agents, nor the purchase contract agent or any of its agents will have any responsibility or liability for any aspect of the depositary's or any participant's records relating to, or for payments made on account of, beneficial interests in global security certificates, or for maintaining, supervising or reviewing any of the depositary's records or any participant's records relating to those beneficial ownership interests. The information in this section concerning the depositary and its book-entry system has been obtained from sources that we and MetLife Capital Trust I believe to be reliable, but neither we nor the trust take responsibility for its accuracy. REPLACEMENT OF UNITS CERTIFICATES If physical certificates are issued, we will replace any mutilated certificate at your expense upon surrender of that certificate to the unit agent. We will replace certificates that become destroyed, lost or stolen at your expense upon delivery to us and the purchase contract agent of satisfactory evidence that the certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the purchase contract agent and us. We, however, are not required to issue any certificates representing units on or after the stock purchase date or after the purchase contracts have terminated. In place of the delivery of a replacement certificate following the stock purchase date, the purchase contract agent, upon delivery of the evidence and indemnity described above, will deliver the common shares issuable pursuant to the purchase contracts included in the units evidenced by the certificate, or, if the purchase contracts have terminated prior to the stock purchase date, transfer the pledged securities related to the units evidenced by the certificate. INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT Bank One Trust Company, N.A. will initially act as purchase contract agent. The purchase contract agent will act as the agent and attorney-in-fact for the holders of units from time to time. The purchase contract agreement will not obligate the purchase contract agent to exercise any discretionary authority in connection with a default under the terms of the purchase contract agreement, the pledge agreement and the purchase contracts, or the pledged securities. The purchase contract agreement will contain provisions limiting the liability of the purchase contract agent. The purchase contract agreement will contain provisions under which the purchase contract agent may resign or be replaced. Resignation or replacement of the purchase contract agent will be effective upon appointment of a successor. The purchase contract agent is one of a number of banks with which we and our subsidiaries maintain ordinary banking and trust relationships. INFORMATION CONCERNING THE COLLATERAL AGENT The Bank of New York will initially act as collateral agent. The collateral agent will act solely as our agent and will not assume any obligation or relationship of agency or trust for or with any of the holders of the units except for the obligations owed by a pledgee of property to the owner thereof under the pledge agreement and applicable law. The pledge agreement will contain provisions limiting the liability of the collateral agent. The pledge agreement will contain provisions under which the collateral agent may resign or be replaced. Resignation or replacement of the collateral agent would be effective upon the appointment of a successor. The collateral agent is one of a number of banks with which we and our subsidiaries maintain ordinary banking and trust relationships. 230 232 MISCELLANEOUS The purchase contract agreement will provide that we will pay all fees and expenses related to: - the offering of the units; - the retention of the collateral agent; - the enforcement by the purchase contract agent of the rights of the holders of the units; and - with certain exceptions, stock transfer and similar taxes attributable to the initial issuance and delivery of the common stock upon settlement of the purchase contracts. Should you elect to create stripped units or recreate normal units, you will be responsible for any fees or expenses payable in connection with the substitution of the applicable pledged securities, as well as any commissions, fees or other expenses incurred in acquiring the pledged securities to be substituted, and we will not be responsible for any of those fees or expenses. DESCRIPTION OF THE CAPITAL SECURITIES The capital securities will be issued according to the terms of the declaration of trust of MetLife Capital Trust I. The declaration will be qualified as an indenture under the Trust Indenture Act. The property trustee, The Bank of New York, will act as indenture trustee for the capital securities under the declaration for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the capital securities will include those stated in the declaration, including any amendments thereto, those made part of the declaration by the Trust Indenture Act and the Delaware Business Trust Act and those which are stated in the capital securities. OVERVIEW The declaration authorizes the administrative trustees to issue, on behalf of the trust, the trust securities, which represent undivided beneficial ownership interests in the assets of the trust. We will own directly or indirectly all of the common securities. The common securities rank on a parity, and payments upon redemption, liquidation or otherwise will be made on a proportionate basis, with the capital securities. However, upon the occurrence and during the continuance of an event of default under the debenture indenture, the rights of the holders of the common securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the capital securities. The declaration does not permit the issuance by the trust of any securities other than the common securities and the capital securities or the incurrence of any indebtedness by the trust. Under the declaration, the property trustee will own the debentures purchased by the trust for the benefit of the holders of the trust securities. The payment of distributions out of money held by the trust, and payments upon redemption of the capital securities or liquidation of the trust, are guaranteed by us to the extent described under "Description of the Guarantee". The guarantee, when taken together with our obligations under the debentures and the indenture and our obligations under the declaration, including our obligations to pay costs, expenses, debts and liabilities of the trust, other than with respect to the trust securities, has the effect of providing a full and unconditional guarantee of amounts due on the capital securities. The Bank of New York, the guarantee trustee, will hold the guarantee for the benefit of the holders of the capital securities. The guarantee does not cover payment of distributions when the trust does not have sufficient available funds to pay those distributions. In that case, except in the limited circumstances in which the holder may take direct action, the remedy of a holder of capital 231 233 securities is to vote to direct the property trustee to enforce the property trustee's rights under the debentures. A holder of stripped units that does not also hold capital securities separately will not receive distributions on the capital securities. DISTRIBUTIONS Distributions on the capital securities will be fixed initially at a rate per year of % of the stated liquidation amount of $50 per capital security. Distributions on the capital securities will be reset to the reset rate on the third business day immediately preceding February 15, 2003. Distributions in arrears for more than one quarter will bear interest at the rate of % per year through and including February 15, 2003 and at the reset rate afterwards, compounded quarterly. The term distribution as used here includes any such interest payable unless otherwise stated. The amount of distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Distributions on the capital securities will be cumulative and will accrue from , 2000 and will be payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, subject to the deferral provisions described below, commencing August 15, 2000, when, as and if funds are available for payment. Distributions will be made by the property trustee, except as otherwise described below. So long as no event of default under the debentures has occurred and is continuing, we have the right to defer the payment of interest on the debentures at any time or from time to time for a period not exceeding five years. However, no deferral period may extend beyond the final stated maturity of the debentures, which is May 15, 2005. See "Description of the Debentures -- Option to Extend Interest Payment Date". As a consequence of any deferral, the trust will defer quarterly distributions on the capital securities during the deferral period. Deferred distributions to which you are entitled will accrue additional distributions, compounded quarterly from the relevant payment date for distributions during any deferral period, at the deferral rate, to the extent permitted by applicable law. The trust must pay distributions on the capital securities on the dates payable to the extent that it has funds available in the property account for the payment of those distributions. The trust's funds available for distribution to you as a holder of the capital securities will be limited to payments received from MetLife, Inc. on the debentures. MetLife, Inc. will guarantee the payment of distributions on the capital securities out of moneys held by the trust to the extent of available trust funds, as described under "Description of the Guarantee". Distributions on the capital securities will be payable to holders, including the collateral agent, as they appear on the books and records of the trust on the relevant record dates. As long as the capital securities remain in book-entry only form, the record dates will be one business day prior to the relevant payment dates. Distributions will be paid through the property trustee, who will hold amounts received in respect of the debentures in the property account for your benefit. Subject to any applicable laws and regulations and the provisions of the declaration, each payment will be made as described under "-- Book-Entry Only Issuance", below. With respect to capital securities not in book-entry form, the administrative trustees will have the right to select relevant record dates, which will be more than one business day but less than 60 business days prior to the relevant payment dates. If any date on which distributions on the capital securities are to be made is not a business day, payment of the distributions payable on that date will be made on the next succeeding day that is a business day, without any interest or other payment in respect of any delay, but if that business day is in the next succeeding calendar year, the payment shall be made on the 232 234 immediately preceding business day, in each case with the same force and effect as if made on that record date. DISTRIBUTION RATE RESET The applicable quarterly distribution rate on the capital securities and the interest rate on the related debentures will be reset on the third business day immediately preceding February 15, 2003 to the reset rate. The reset rate will be the interest rate on the debentures, and thus the distribution rate on the capital securities, determined by the reset agent on the third business day prior to February 15, 2003, that will be sufficient to cause the then current aggregate market value of all then outstanding capital securities to be equal to 100.5% of the remarketing value described under "Description of the Purchase Contracts-- Settlement-- Remarketing", assuming, for this purpose, even if not true, that all of the capital securities are held as components of normal units and will be remarketed. If the reset agent cannot establish a reset rate on the remarketing date that will be sufficient to cause the then current aggregate market value of all capital securities to be equal to 100.5% of the remarketing value described under "Description of the Purchase Contracts-- Settlement-- Remarketing", and as a result the capital securities cannot be sold, the distribution rate will not be reset and will continue to be the initial rate of the capital securities. However, the reset agent may thereafter attempt to establish a reset rate meeting these requirements, and the remarketing agent may attempt to remarket the capital securities, on one or more subsequent remarketing dates after the initial remarketing date until May 15, 2003. The reset rate will be determined by a nationally recognized investment banking firm acting as reset agent. The reset rate will apply to all capital securities, including those held separately from the units. However, the reset of the distribution rate on the capital securities will not change the rate of distributions received by holders of the normal units, which, as described above, will remain at the initial rate of % of $50 for the quarterly payment payable on May 15, 2003. REDEMPTION UPON MATURITY OF DEBENTURES Upon the redemption of the debentures at maturity, the proceeds from the redemption will, after satisfaction of any liabilities to creditors of the trust, be simultaneously applied to redeem trust securities having an aggregate liquidation amount equal to the aggregate principal amount of the debentures so redeemed. The redemption price will be equal to $50 per trust security plus an amount equal to accrued and unpaid distributions at the date of the repayment, payable in cash. DISTRIBUTION OF THE DEBENTURES We, as holder of all of the common securities of the trust, will have the right at any time to dissolve the trust and, after satisfaction of liabilities of creditors of the trust as provided by applicable law, to cause the debentures to be distributed to the holders of the trust securities. As of the date of any distribution of debentures upon dissolution of the trust: - the trust securities will cease to be outstanding; - the depositary or its nominee, as the record holder of the capital securities, will receive a registered global certificate or certificates representing the debentures to be delivered upon the distribution; and - any certificates representing capital securities not held by the depositary or its nominee will be deemed to represent debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid distributions on, 233 235 those capital securities until the certificates are presented to us or our agent for transfer or reissuance. Debentures distributed to the collateral agent in liquidation of the interest of the holders of the capital securities in the trust would be substituted for the capital securities and pledged to secure the unitholders' obligations to purchase our common stock under the purchase contracts. The debentures distributed to the collateral agent would be subject to the remarketing, settlement and other provisions of the purchase contracts described above as if they were capital securities. In addition, if at such time you hold capital securities separately from the units you will also receive the debentures in exchange for your capital securities. We cannot predict the market prices for either the capital securities or the debentures that may be distributed in exchange for the capital securities if a dissolution of the trust were to occur. Accordingly, the capital securities or the debentures that an investor may receive if a dissolution of the trust were to occur may trade at a discount to the price that the investor paid to purchase the capital securities constituting a part of the normal units. LIQUIDATION DISTRIBUTION UPON DISSOLUTION In case of a voluntary or involuntary dissolution of the trust, the then holders of the capital securities will be entitled to receive out of the assets of the trust, after satisfaction of liabilities to creditors, debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid distributions on, the capital securities on a proportionate basis in exchange for those capital securities. The holders of the common securities will be entitled to receive liquidation distributions upon any such dissolution proportionately with the holders of the capital securities. However, if a declaration event of default has occurred and is continuing, the capital securities shall have a preference over the common securities with regard to those distributions. Under the declaration of trust, the trust shall dissolve upon the first to occur of: - May 15, 2005, the expiration of the term of the trust; - our bankruptcy or the bankruptcy of any other holder of the common securities; - our filing of a certificate of dissolution or its equivalent or the revocation of our certificate of incorporation and the expiration of 90 days after the date of revocation without its reinstatement; - the receipt by the property trustee of written direction from us to dissolve the trust or the filing of a certificate of dissolution or its equivalent with respect to the trust; - the distribution of the debentures; - the entry of a decree of a judicial dissolution of the holder of the common securities, us or the trust; or - the redemption of all of the trust securities of the trust. DECLARATION EVENTS OF DEFAULT An event of default under the indenture for the debentures constitutes an event of default under the declaration with respect to the trust securities. However, under the declaration, the holder of the common securities will be deemed to have waived any declaration event of default with respect to the common securities until all declaration events of default with respect to the capital securities have been cured, waived or otherwise eliminated. Until any declaration events of default with respect to the capital securities have been so cured, waived or otherwise 234 236 eliminated, the property trustee will be deemed to be acting solely on behalf of the holders of the capital securities. Only the holders of the capital securities will have the right to direct the property trustee with respect to particular matters under the declaration and, therefore, the indenture. If a declaration event of default with respect to the capital securities is waived by holders of capital securities, the waiver will also constitute the waiver of the declaration event of default with respect to the common securities without any further act, vote or consent of the holders of the common securities. If the property trustee fails to enforce its rights under the debentures in respect of an indenture event of default after a holder of record of capital securities has made a written request, that holder of record of capital securities may, to the fullest extent permitted by applicable law, institute a legal proceeding against us to enforce the property trustee's rights under the debentures without first proceeding against the property trustee or any other person or entity. Notwithstanding the above, if a declaration event of default has occurred and is continuing and that event is attributable to our failure to pay interest or principal on the debentures on the date that interest or principal is otherwise payable, then you, as a holder of capital securities, may directly institute a proceeding after the respective due date specified in the debentures for enforcement of payment (a direct action) to you directly of the principal of or interest on the debentures having a principal amount equal to the aggregate stated liquidation amount of your capital securities. In connection with the direct action, we shall have the right under the indenture to set off any payment made to you. The holders of capital securities will not be able to exercise directly any other remedy available to the holders of the debentures. Upon the occurrence of a declaration event of default, the property trustee, as the sole holder of the debentures, will have the right under the indenture to declare the principal of and interest on the debentures to be immediately due and payable. We and the trust are each required to file annually with the property trustee an officer's certificate as to our compliance with all conditions and covenants under the declaration. VOTING RIGHTS Except as described here, under the Trust Indenture Act and under "Description of the Guarantee -- Modification of the Guarantee; Assignment", and as otherwise required by law and the declaration, the holders of the capital securities will have no voting rights. Subject to the requirement that the property trustee obtain a tax opinion in specific circumstances provided below, the holders of a majority in aggregate stated liquidation amount of the capital securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the property trustee, or direct the exercise of any trust or power conferred upon the property trustee under the declaration, including the right to direct the property trustee, as holder of the debentures, to: (1) exercise the remedies available under the indenture with respect to the debentures; (2) waive any past indenture event of default that is waivable under the indenture; (3) exercise any right to rescind or annul a declaration that the principal of all the debentures shall be due and payable; or (4) consent to any amendment, modification or termination of the indenture or the debentures where that consent shall be required. However, where a consent or action under the indenture would require the consent or act of holders of more than a majority in principal amount of the affected debentures, only the holders of that higher majority in aggregate stated liquidation amount of the capital securities may direct the property trustee to give the consent or take the action. 235 237 The property trustee shall notify all holders of the capital securities of any notice of default received from the debenture trustee with respect to the debentures. The notice shall state that the indenture event of default also constitutes a declaration event of default. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the property trustee shall not take any of the actions described in clause (1), (2) or (3) above unless the property trustee has obtained an opinion of tax counsel experienced in those matters that, as a result of the action, the trust will not fail to be classified as a grantor trust for United States federal income tax purposes. If the consent of the property trustee, as the holder of the debentures, is required under the indenture with respect to any amendment, modification or termination of the indenture or the debentures, the property trustee shall request the direction of the holders of the capital securities and the common securities with respect to that amendment, modification or termination. The indenture trustee shall vote with respect to that amendment, modification or termination as directed by a majority in stated liquidation amount of the capital securities and the common securities voting together as a single class. However, where a consent under the indenture would require the consent of a super-majority, the property trustee may only give that consent at the direction of the holders of at least the proportion in stated liquidation amount of then outstanding capital securities and the common securities which the relevant super-majority represents of the aggregate principal amount of the debentures outstanding. The property trustee shall not take any action in accordance with the directions of the holders of the capital securities and the common securities unless the property trustee has obtained an opinion of tax counsel experienced in those matters that, as a result of the action, the trust will not fail to be classified as a grantor trust for United States federal income tax purposes. A waiver of an indenture event of default will constitute a waiver of the corresponding declaration event of default. Any required approval or direction of holders of capital securities may be given at a separate meeting of holders of capital securities convened for that purpose, at a meeting of all of the holders of trust securities or pursuant to written consent. The administrative trustees will cause a notice of any meeting at which holders of capital securities are entitled to vote, or of any matter upon which action by written consent of those holders is to be taken, to be mailed to each holder of record of capital securities. Each notice will include a statement specifying the following information: - the date of the meeting or the date by which the action is to be taken; - a description of any resolution proposed for adoption at the meeting on which the holders are entitled to vote or of the matter upon which written consent is sought; and - instructions for the delivery of proxies or consents. No vote or consent of the holders of capital securities will be required for the trust to cancel capital securities or distribute debentures in accordance with the declaration. Notwithstanding that holders of capital securities are entitled to vote or consent under any of the circumstances described above, any capital securities that are owned at that time by us or any entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, us, shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if those capital securities were not outstanding. Holders of the capital securities will have no rights to appoint or remove the trustees, who may be appointed, removed or replaced solely by us as the indirect or direct holder of all of the common securities. 236 238 MODIFICATION OF THE DECLARATION The declaration may be modified and amended if approved by the administrative trustees and, in some circumstances, the property trustee or the Delaware trustee or us. However, if any proposed amendment provides for, or the administrative trustees otherwise propose to effect: (1) any action that would materially adversely affect the powers, preferences or special rights of the trust securities, whether by way of amendment to the declaration or otherwise; or (2) the dissolution of the trust other than according to the terms of the declaration; then the holders of the trust securities voting together as a single class will be entitled to vote on that amendment or proposal, and that amendment or proposal shall not be effective except with the approval of at least a majority in such stated liquidation amount of the affected trust securities. If any amendment or proposal referred to in clause (1) above would materially adversely affect only the capital securities or the common securities, then only the affected class will be entitled to vote on that amendment or proposal and that amendment or proposal shall not be effective except with the approval of a majority in stated liquidation amount of that class of securities. In addition, the declaration may be amended without the consent of the holders of the trust securities to, among other things, cause the trust to continue to be classified as a grantor trust for United States federal income tax purposes. Notwithstanding the above, no amendment or modification may be made to the declaration if that amendment or modification would: - cause the trust to be classified as other than a grantor trust for United States federal income tax purposes; - reduce or otherwise adversely affect the powers of the property trustees; or - cause the trust to be deemed an investment company which is required to be registered under the Investment Company Act of 1940, as amended. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS The trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety, to any corporation or other body, except as described below or as described in "--Liquidation Distribution Upon Dissolution". The trust may, with the consent of the administrative trustees and without the consent of the holders of the trust securities, consolidate, amalgamate, merge with or into, or convey, transfer or lease its properties and assets substantially as an entirety, to, or be replaced by a trust organized under the laws of any state except that: - if the trust is not the surviving entity, the successor entity either (1) expressly assumes all of the obligations of the trust under the trust securities or (2) substitutes for the trust securities other securities having substantially the same terms as the trust securities. The successor securities must rank the same as the trust securities with respect to distributions and payments upon liquidation, redemption and otherwise; - we expressly acknowledge a trustee of the successor entity possessing the same powers and duties as the property trustee as the holder of the debentures; - if the capital securities are listed or quoted, any successor securities will be listed or quoted upon notification of issuance, on any national securities exchange or national automated quotation system or with another organization on which the capital securities are then listed or quoted; 237 239 - the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the capital securities, including any successor securities, to be downgraded by any nationally recognized statistical rating organization; - the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect other than with respect to any dilution of the holders' interest in the new entity; - the successor entity has a purpose substantially identical to that of the trust; - prior to the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, we have received an opinion of a nationally recognized independent counsel to the trust experienced in those matters that: - the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect other than with respect to any dilution of the holders' interest in the new entity; - following the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the trust nor the successor entity will be required to register as an investment company under the Investment Company Act of 1940; and - following the merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the trust or the successor entity will continue to be classified as a grantor trust for United States federal income tax purposes; - MetLife, Inc. or any permitted successor or assignee owns, directly or indirectly, all of the common securities of such entity; and - we guarantee the obligations of the successor entity under the successor securities at least to the extent provided by the guarantee and the common securities guarantee. Notwithstanding the above, the trust shall not, except with the consent of holders of 100% in stated liquidation amount of the trust securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if that consolidation, amalgamation, merger or replacement would cause the trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. BOOK-ENTRY ONLY ISSUANCE If any capital securities are held separately from the normal units, those capital securities will be issued as one or more fully-registered global capital securities certificates representing the total aggregate number of those capital securities. In that case, the Depository Trust Company will act as securities depositary for the capital securities, and the capital securities will be issued only as fully-registered securities registered in the name of Cede & Co., the depositary's nominee. However, under some circumstances, the administrative trustees with our consent may decide not to use the system of book-entry transfers through The Depository Trust Company with respect to the capital securities. In that case, certificates of the capital securities will be printed and delivered to the holders. The laws of some jurisdictions require that some purchasers of securities take physical delivery of securities in definitive form. These laws may impair the ability to transfer beneficial interests in the global capital securities as represented by a global certificate. Purchases of capital securities within the depositary's system must be made by or through direct participants, which will receive a credit for the capital securities on the depositary's 238 240 records. The beneficial ownership interest of each actual purchaser of each capital security is in turn to be recorded on the direct and indirect participants' records. Beneficial owners will not receive written confirmation from the depositary of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased capital securities. Transfers of ownership interests in the capital securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the capital securities, except if use of the book-entry system for the capital securities is discontinued. To facilitate subsequent transfers, all the capital securities deposited by participants with the depositary will be registered in the name of the depositary's nominee, Cede & Co. The deposit of capital securities with the depositary and their registration in the name of Cede & Co. cause no change in beneficial ownership. The depositary has no knowledge of the actual beneficial owners of the capital securities. The depositary's records reflect only the identity of the direct participants to whose accounts those capital securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. So long as the depositary or its nominee is the registered owner or holder of a global certificate, the depositary or the nominee will be considered the sole owner or holder of the capital securities represented for all purposes under the declaration and the capital securities. No beneficial owner of an interest in a global certificate will be able to transfer that interest except in accordance with the depositary applicable procedures, in addition to those provided for under the declaration. The depositary has advised us that it will take any action permitted to be taken by a holder of capital securities, including the presentation of capital securities for exchange, only at the direction of one or more participants to whose account the depositary's interests in the global certificates are credited and only in respect of the portion of the stated liquidation amount of capital securities as to which such participant or participants has or have given such directions. However, if there is a declaration event of default under the capital securities, the depositary will exchange the global certificates for certificated securities, which it will distribute to its participants. Conveyance of notices and other communications by the depositary to direct participants and indirect participants and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in force from time to time. Although voting with respect to the capital securities is limited, in those cases where a vote is required, neither the depositary nor Cede & Co. will itself consent or vote with respect to capital securities. Under its usual procedures, the depositary would mail an omnibus proxy to the trust as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the capital securities are credited on the record date. The direct participants are identified in a listing attached to the omnibus proxy. We and the trust believe that the arrangements among the depositary, direct and indirect participants and beneficial owners will enable the beneficial owners to exercise rights equivalent in substance to the rights that can be directly exercised by a record holder of a beneficial interest in the trust. Distribution payments on the capital securities issued in the form of one or more global certificates will be made to the depositary in immediately available funds. The depositary's practice is to credit direct participants' accounts on the relevant payment date in accordance with their respective holdings shown on the depositary's records unless the depositary has reason to 239 241 believe that it will not receive payments on that payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in street name. Those payments will be the responsibility of the participant and not of the depositary, the trust or us, subject to any statutory or regulatory requirements to the contrary that may be in force from time to time. Payment of distributions to the depositary is the responsibility of the trust, disbursement of such payments to direct participants is the responsibility of the depositary, and disbursement of those payments to the beneficial owners is the responsibility of direct and indirect participants. Except as provided here, a beneficial owner in a global capital security certificate will not be entitled to receive physical delivery of capital securities. Accordingly, each beneficial owner must rely on the procedures of the depositary to exercise any rights under the capital securities. Although the depositary has agreed to the above procedures to facilitate transfer of interests in the global certificates among participants, the depositary is under no obligation to perform or continue to perform these procedures and these procedures may be discontinued at any time. Neither us, nor the trust or any trustee will have any responsibility for the performance by the depositary or its participants or indirect participants under the rules and procedures governing the depositary. The depositary may discontinue providing its services as securities depositary with respect to the capital securities at any time by giving reasonable notice to the trust. Under these circumstances, if a successor securities depositary is not obtained, capital securities certificates are required to be printed and delivered to holders. Additionally, the administrative trustees, with our consent, may decide to discontinue use of the system of book-entry transfers through the depositary or any successor depositary, with respect to the capital securities. In that case, certificates for the capital securities will be printed and delivered to holders. In each of the above circumstances, we will appoint a paying agent with respect to the capital securities. The information in this section concerning the depositary and the depositary's book-entry system has been obtained from sources that we and the trust believe to be reliable, but neither we nor the trust take responsibility for its accuracy. REGISTRAR, TRANSFER AGENT AND PAYING AGENT Payments in respect of the capital securities represented by the global certificates shall be made to the depositary. The depositary shall credit the relevant accounts at the depositary on the applicable distribution dates. In the case of certificated securities, those payments shall be made by check mailed to the address of the holder entitled to it as that address appears on the register. The paying agent shall be permitted to resign as paying agent upon 30 days prior written notice to the trustees. If The Bank of New York shall no longer be the paying agent, the administrative trustees shall appoint a successor to act as paying agent, which shall be a bank or trust company. The Bank of New York will act as registrar, transfer agent and paying agent for the capital securities. Registration of transfers of capital securities will be made without charge by or on behalf of the trust. However, payment shall be made and any indemnity as the trust or we may require shall be given in respect of any tax or other government charge which may be imposed in relation to it. INFORMATION CONCERNING THE PROPERTY TRUSTEE The property trustee, prior to the occurrence of a default with respect to the trust securities and after the curing of any defaults that may have occurred, undertakes to perform only those duties that are specified in the declaration. The property trustee, after default, shall exercise the 240 242 same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to those provisions, the property trustee is under no obligation to exercise any of the powers vested in it by the declaration at the request of any holder of capital securities, unless offered indemnity reasonably satisfactory to it by that holder against the costs, expenses and liabilities which it might incur. The holders of capital securities will not be required to offer an indemnity in the case that those holders, by exercising their voting rights, direct the property trustee to take any action it is empowered to take under the declaration following a declaration event of default. The property trustee also serves as trustee under the guarantee. The property trustee is one of a number of banks and trust companies with which we and our subsidiaries maintain ordinary banking and trust relationships. GOVERNING LAW The declaration and the capital securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware, without regard to its principles of conflicts of laws. MISCELLANEOUS The administrative trustees are authorized and directed to operate the trust in a way that the trust will not be required to register as an "investment company" under the Investment Company Act of 1940, as amended, or be characterized as other than a grantor trust for United States federal income tax purposes. We are authorized and directed to conduct our affairs so that the debentures will be treated as our indebtedness for United States federal income tax purposes. In this connection, we and the administrative trustees are authorized to take any action not inconsistent with applicable law, the declaration or certificate of trust of MetLife Capital Trust I or the certificate of incorporation of MetLife, Inc., that we and the administrative trustees determine in our discretion to be necessary or desirable to achieve that end, as long as that action does not adversely affect the interests of the holders of the capital securities or vary its terms. Holders of the capital securities have no preemptive or similar rights. DESCRIPTION OF THE GUARANTEE Provided below is a summary of information concerning the guarantee which will be executed and delivered by us for the benefit of the holders from time to time of capital securities. The guarantee will be qualified as an indenture under the Trust Indenture Act. The Bank of New York will act as the guarantee trustee for the purposes of compliance with the provisions of the Trust Indenture Act. The terms of the guarantee will be those provided in the guarantee and those made part of the guarantee by the Trust Indenture Act. The guarantee will be held by the guarantee trustee for the benefit of the holders of the capital securities. OVERVIEW Under the guarantee, MetLife, Inc. will irrevocably and unconditionally agree, to the extent provided in the guarantee, to pay in full on a senior and unsecured basis, to the holders of the capital securities issued by the trust, the guarantee payments described below. We shall pay the guarantee payments as and when due, regardless of any defense, right of set-off or counterclaim which the trust may have or assert. MetLife, Inc. shall make these payments except to the extent paid by the trust. 241 243 The following payments or distributions with respect to capital securities issued by the trust, to the extent not paid by or on behalf of the trust, will be subject to the guarantee, without duplication: - any accrued and unpaid distributions that are required to be paid on the capital securities, to the extent the trust shall have funds available; and - upon a voluntary or involuntary dissolution of the trust, other than in connection with the distribution of debentures to the holders of capital securities, the lesser of: - the aggregate of the stated liquidation amount of and all accrued and unpaid distributions on the capital securities to the date of payment, to the extent the trust has funds available; and - the amount of assets of the trust remaining available for distribution to holders of the capital securities in liquidation of the trust. Our obligation to make a guarantee payment may be satisfied by direct payment of the required amounts by us to the holders of capital securities or by causing the trust to pay those amounts to the holders. The guarantee will be a full and unconditional guarantee on a senior and unsecured basis with respect to the capital securities issued by the trust, but will not apply to any payment of distributions except to the extent the trust shall have funds available. If we do not make interest payments on the debentures purchased by the trust, the trust will not pay distributions on the capital securities and will not have funds available. The guarantee will rank equally in right of payment to all other senior unsecured debt of MetLife, Inc. Because MetLife, Inc. is principally a holding company, its right to participate in any distribution of assets of any subsidiary, upon the subsidiary's liquidation or reorganization or otherwise (and thus the ability of the holders of capital securities to benefit indirectly from any such distributions), is subject to the prior claims of creditors of the subsidiary, except to the extent MetLife, Inc. may be recognized as a creditor of that subsidiary. Accordingly, MetLife, Inc.'s obligations under the guarantee will be effectively subordinated to all existing and future liabilities of its subsidiaries, and claimants should look only to its assets for payment thereunder. The guarantee does not limit the incurrence or issuance of other secured or unsecured debt by MetLife, Inc., including senior debt. The guarantee, when taken together with MetLife, Inc.'s obligations under the debentures, the indenture and the declaration, will have the effect of providing a full and unconditional guarantee on a senior and unsecured basis by us of payments due on the capital securities. MetLife, Inc. has also agreed separately to irrevocably and unconditionally guarantee the obligations of the trust with respect to the common securities to the same extent as the guarantee. However, in the case of an indenture event of default, holders of capital securities will have priority over holders of common securities with respect to distributions and payments on liquidation, redemption or otherwise. As a holder of capital securities, you will, by your acceptance, be deemed to have agreed to be bound by the provisions of the guarantee and the indenture. MODIFICATION OF THE GUARANTEE; ASSIGNMENT Except with respect to any changes which do not adversely affect the rights of holders of capital securities, in which case no vote will be required, the guarantee may be amended only with the prior approval of the holders of not less than a majority in stated liquidation amount of the outstanding capital securities issued by the trust. All guarantees and agreements contained in the guarantee shall bind the successors, assigns, receivers, trustees and our representatives and shall inure to the benefit of the holders of the capital securities then outstanding. 242 244 TERMINATION The guarantee will terminate: - upon distribution of the debentures held by the trust to the holders of the trust securities; or - upon full payment of the amounts payable in accordance with the declaration upon liquidation of the trust. The guarantee will continue to be effective, or will be reinstated, if at any time any holder of capital securities must return payment of any sums paid under the capital securities or the guarantee. EVENTS OF DEFAULT An event of default under the guarantee will occur upon our failure to perform any of our payment or other obligations under the guarantee, provided, however, that except with respect to a default in payment, we must have received notice of default and not have cured the default within 60 days after receipt of the notice. The holders of a majority in stated liquidation amount of the then-outstanding capital securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee trustee in respect of the guarantee or to direct the exercise of any trust or power conferred upon the guarantee trustee under the guarantee. If the guarantee trustee fails to enforce the guarantee, any holder of capital securities may institute a legal proceeding directly against us to enforce the holder's rights under the guarantee, without first instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. We waive any right or remedy to require that any action be brought first against the trust or any other person or entity before proceeding directly against us. STATUS OF THE GUARANTEE The guarantee will constitute MetLife, Inc.'s senior and unsecured obligation and will rank equally in right of payment to all MetLife, Inc. other senior unsecured debt in the same manner as the debentures. The guarantee does not place a limitation on the amount of additional senior debt that may be incurred by MetLife, Inc. We expect from time to time to incur additional indebtedness, including senior debt. The guarantee will constitute a guarantee of payment and not of collection (i.e., the guaranteed party may institute a legal proceeding directly against us to enforce its right under the guarantee without first instituting a legal proceeding against any other person or entity). The guarantee will be issued and held for your benefit. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The guarantee trustee, prior to the occurrence of a default with respect to the guarantee, undertakes to perform only those duties that are specified in the guarantee. The guarantee trustee, after default, shall exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. According to these provisions, the guarantee trustee is under no obligation to exercise any of the powers vested in it by the guarantee at the request of any holder of capital securities, unless offered indemnity reasonably satisfactory to it against the costs, expenses and liabilities which it might incur. However, this shall not relieve the guarantee trustee, upon the occurrence of an event of default under the guarantee, from exercising the rights and powers vested in it by the guarantee. The guarantee trustee is one of a number of banks and trust companies with which we and our subsidiaries maintain ordinary banking and trust relationships. 243 245 GOVERNING LAW The guarantee will be governed by, and construed in accordance with, the internal laws of the State of New York, without regard to its principles of conflicts of laws. DESCRIPTION OF THE DEBENTURES Provided below is a description of the specific terms of the debentures of MetLife, Inc. in which MetLife Capital Trust I will invest the proceeds from the issuance and sale of the trust securities. The indenture will be qualified as an indenture under the Trust Indenture Act. The Bank of New York will act as the indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act. The terms of the indenture will be those provided in the indenture and those made part of the indenture by the Trust Indenture Act. Under specific circumstances involving the dissolution of the trust, debentures may be distributed to the holders of the trust securities in liquidation of the trust. OVERVIEW The debentures of MetLife, Inc. will be unsecured and will rank equally in right of payment to all of its other senior unsecured debt to the extent provided in the indenture. The debentures will be issued as a separate series of senior debt securities under the indenture, limited to $ (or up to $ , if the underwriters' over-allotment options to purchase additional units are exercised in full) in aggregate principal amount. The debentures will not be subject to a sinking fund provision. The entire principal amount of the debentures will mature and become due and payable, together with any accrued and unpaid interest thereon including compound interest and expenses and taxes of MetLife Capital Trust I, if any, on May 15, 2005. The debentures will be unsecured and will rank equally in right of payment to all other senior unsecured debt of MetLife, Inc. Because MetLife, Inc. is principally a holding company, its right to participate in any distribution of assets of any subsidiary, upon the subsidiary's liquidation or reorganization or otherwise (and thus the ability of the holders of capital securities to benefit indirectly from any such distribution), is subject to the prior claims of creditors of the subsidiary, except to the extent MetLife, Inc. may be recognized as a creditor of that subsidiary. Accordingly, MetLife, Inc.'s obligations under the debentures will be effectively subordinated to all existing and future liabilities of its subsidiaries, and claimants should look only to its assets for payment thereunder. The indenture does not limit the incurrence or issuance of other secured or unsecured debt by MetLife, Inc., including senior debt. MetLife, Inc. will have no senior debt other than the debentures upon completion of the offering of the units but it may incur such indebtedness in the future. The companies that will become subsidiaries of MetLife, Inc. after the demutualization had $6.7 billion of total debt at December 31, 1999. We will have the right at any time to dissolve the trust and cause the debentures to be distributed to the holders of the trust securities. If debentures are distributed to holders of trust securities in liquidation of the holders' interests in the trust, those debentures will initially be issued as a global security. Under specific limited circumstances, debentures may be issued in certificated form in exchange for a global security. In the case that debentures are issued in certificated form, these debentures will be in denominations of $50 and integral multiples of $50 and may be transferred or exchanged at the offices described below. Payments on debentures issued as a global security will be made to the depositary, a successor depositary or, in the case that no depositary is used, to a paying agent for the debentures. In the case that debentures are issued in certificated form, principal and interest will be payable, the transfer of the debentures will be registrable and debentures will be exchangeable for debentures of other denominations of a like 244 246 aggregate principal amount, at the corporate trust office or agency of the property trustee in New York, New York. However, at our option, payment of interest may be made by check mailed to the address of the entitled holder or by wire transfer to an account appropriately designated by the entitled holder. Notwithstanding the above, so long as the holder of any debentures is the property trustee, the payment of principal and interest on the debentures held by the property trustee will be made at the place and to the account as may be designated by the property trustee. The indenture does not contain provisions that afford holders of the debentures protection in case we are involved in a highly leveraged transaction or other similar transaction that may adversely affect those holders. INTEREST Each debenture shall initially bear interest at the rate of % per year, payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, subject to the deferral provisions described below, commencing August 15, 2000 and ending on , 2005. Each debenture shall bear interest to the person in whose name that debenture is registered, subject to certain exceptions, at the close of business on the business day next preceding that interest payment date. If debentures shall not remain in book-entry only form, we shall have the right to select record dates, which shall be more than one business day but less than 60 business days prior to the interest payment date. The applicable interest rate on the debentures and the distribution rate on the related capital securities outstanding on and after February 15, 2003 will be reset on the third business day immediately preceding February 15, 2003, effective for interest accrued from February 15, 2003 to May 15, 2005, to the reset rate described in "Description of the Capital Securities -- Distribution Rate Reset", above. We will cause a notice of the reset rate to be published on the business day following the date the rate is reset by publication in a daily newspaper in the English language of general circulation in The City of New York, which is expected to be The Wall Street Journal. The amount of interest payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed in that 90-day period. In the case that any date on which interest is payable on the debentures is not a business day, then payment of the interest payable on that date will be made on the next succeeding day that is a business day. However, no interest or other payment shall be paid in respect of the delay but if that business day is in the next succeeding calendar year, then that payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on that date. OPTION TO EXTEND INTEREST PAYMENT DATE So long as no indenture event of default has occurred and is continuing, we will have the right under the indenture to defer the payment of interest on the debentures at any time or from time to time for a period not exceeding five years. No deferral period, however, may extend beyond the stated maturity of the debentures and any deferral period must end on an interest payment date. At the end of an extension period, we must pay all interest then accrued and unpaid, together with any interest on the accrued and unpaid interest, to the extent permitted by applicable law. During any deferral period, interest will continue to accrue and holders of debentures, and holders of the related trust securities that are outstanding, will be required to accrue such deferred interest income for United States federal income tax purposes prior to the receipt of cash (in the form of original issue discount) attributable to such income, regardless of the method of accounting used by the holders. 245 247 Prior to the termination of any deferral period, we may extend such deferral period, provided that such extension does not: - cause such extension period to exceed the maximum deferral period; - end on a date other than an interest payment date; or - extend beyond the stated maturity of the debentures. Upon the termination of any deferral period, or any extension of the related deferral period, and the payment of all amounts then due, we may begin a new deferral period, subject to the limitations described above. No interest shall be due and payable during a deferral period except at the end thereof. We must give the debenture trustee notice of our election to begin or extend a deferral period at least five business days prior to the earlier of: - the date cash distributions on the related trust securities would have been payable except for the election to begin or extend the deferral period; or - the date the trust is required to give notice to The New York Stock Exchange or other applicable self-regulatory organization or to holders of the capital securities or the record date of the date cash distributions are payable, but in any event not less than five business days prior to such record date. The debenture trustee shall give notice of our election to begin or extend a deferral period to the holders of the capital securities. Subject to the foregoing limitations, there is no limitation on the number of times that we may begin or extend an extension period. RESTRICTIONS ON CERTAIN PAYMENTS We will covenant that if at any time: - there shall have occurred any event of which we have actual knowledge that is, or with the giving of notice or the lapse of time, or both, would be, an indenture event of default; - we shall be in default with respect to any of our payment obligations under the guarantee; or - we shall have given notice or our election to exercise our right to begin or extend a deferral period as provided in the indenture and shall not have rescinded such notice, and such deferral period, or any extension thereof, shall have commenced and be continuing, then we will not: - declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of our capital stock other than stock dividends which consist of stock of the same class as that on which the dividends are being paid; - make any payment of principal of or premium, if any, on or interest on or repay or repurchase or redeem any of our debt securities, including other debentures, that rank equally with or junior in or make any other payments in respect of right of payment to the debentures; or - make any guarantee payments with respect to any guarantee by us of the debt securities of any of our subsidiaries, including under any guarantees to be issued by us with respect to securities of other trusts or entities to be established by us similar to MetLife Capital Trust I, if such guarantee ranks equally with or junior in right of payment to the debentures, 246 248 in each case other than: - dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, our capital stock; - any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; - payments under the guarantee issued in connection with the offering of the units; - as a result of reclassification of our capital stock or the exchange or conversion of one class or series of our capital stock for another class or series of our capital stock; - the purchase of fractional interests in shares of our capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; and - purchases or acquisition of shares of our common stock, in connection with the satisfaction by us of our obligations under any employee benefit plan or any other contractual obligation (other than a contractual obligation ranking expressly by its terms equal with or junior to the debentures). So long as the trust securities remain outstanding, we also will covenant: - to maintain 100% direct or indirect ownership of the common securities, provided that any permitted successor under the indenture may succeed to our ownership of the common securities; and - to use our best efforts to cause the trust: - to remain a business trust, except in connection with the distribution of debentures to the holders of the trust securities in liquidation of the trust, the conversion, exchange or redemption of all of such trust securities, or certain mergers or consolidations each as permitted by the declaration of trust; - to otherwise continue to be classified as a grantor trust for United States federal income tax purposes; - to cause each holder of trust securities to be treated as owning an undivided beneficial interest in the debentures; and - not to cause, as sponsor of the trust, or to permit, as the common securities holder, the dissolution, liquidation or winding-up of the trust, except as provided in the declaration of trust. INDENTURE EVENTS OF DEFAULT If any indenture event of default shall occur and be continuing, the property trustee, as the holder of the debentures, will have the right to declare the principal of and the interest on the debentures, including any compound interest and expenses and taxes of the trust, if any, and any other amounts payable under the indenture, to be due and payable and to enforce its other rights as a creditor with respect to the debentures. The following are events of default under the indenture with respect to the debentures: - failure to pay interest on the debentures when due, continued for a period of 30 days (subject to the deferral of any due date in the case of a deferral period); - failure to pay the principal of the debentures when due and payable on May 15, 2005, upon redemption or otherwise; 247 249 - failure to comply, within 90 days after notice provided in accordance with the terms of the indenture, with our other obligations under the indenture; and - certain events of bankruptcy, insolvency or reorganization relating to us. Except as described in the second to last sentence of this paragraph, if an event of default occurs and is continuing with respect to the debentures, the debenture trustee or the holders of at least 25% in principal amount of the outstanding debentures may declare the principal of and accumulated but unpaid interest on all the debentures to be due and payable. However, if upon an event of default with respect to the debentures the debenture trustee has failed to declare the principal of, and any accrued interest on, the debentures to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the outstanding capital securities shall have the right to exercise that right by a notice in writing to MetLife, Inc. and the debenture trustee. Upon such a declaration, such principal and interest shall be due and payable immediately. If an event of default relating to specific events of our bankruptcy, insolvency or reorganization occurs and is continuing, the principal of and interest on all the debentures will become and be immediately due and payable without any declaration or other act on the part of the debenture trustee or any holders of the debentures. In addition, in the case of the debentures held by the trust, if an event of default has occurred and is continuing, and that event is attributable to our failure to pay interest or principal, then a holder of capital securities may directly institute a proceeding against us for payment. Under some circumstances, the holders of a majority in principal amount of the then-outstanding debentures may rescind any acceleration and its consequences. Subject to the provisions of the indenture relating to the duties of the debenture trustee, if an event of default occurs and is continuing, the debenture trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders of the debentures, unless those holders have offered to the debenture trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal or interest when due, no debenture holder may pursue any remedy with respect to the indenture or the debentures unless: - that holder has previously given the debenture trustee notice that an event of default is continuing; - holders of at least 25% in principal amount of the outstanding debentures have requested in writing the debenture trustee to pursue the remedy; - those holders have offered the debenture trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense; - the debenture trustee has not complied with such request within 60 days of receiving it with an offer of security or indemnity; and - the holders of a majority in principal amount of the outstanding debentures have not given the debenture trustee a direction inconsistent with such request within such 60-day period. Subject to some restrictions, the holders of a majority in principal amount of the outstanding debentures are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or of exercising any trust or power conferred on the debenture trustee. The debenture trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the debenture trustee determines is unduly prejudicial to the rights of any other debenture holder, or that would involve the debenture trustee in personal liability. The indenture provides that if a default occurs and is continuing with respect to the debentures and is known to the debenture trustee, the debenture trustee must mail notice of the default within 90 days after it occurs to each holder of the debentures. Except in the case of a 248 250 default in the payment of principal of or interest on any debenture, the debenture trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is in the interests of the holders of the debentures. In addition, we must deliver to the debenture trustee, within 120 days after the end of each fiscal year, an officer's certificate indicating whether the signers thereof know of any default that occurred during the previous year. We also are required to deliver to the debenture trustee, within 30 days after its occurrence, written notice of any events which would constitute certain defaults, their status and what action we are taking or propose to take. Prior to the acceleration of the maturity of the debentures, the holders of a majority in aggregate principal amount of the then-outstanding debentures may on behalf of all the debentures waive any past default or event of default, except: - a default in the payment of the principal of or interest on any of the debentures; and - a default that cannot be waived without the consent of each holder affected. A waiver will serve to end such default, to cure any event of default, and to restore us, the debenture trustee and holders of the affected debentures to their former positions and rights. No such waiver will extend to any subsequent or other default. An indenture event of default also constitutes a declaration event of default. The holders of capital securities in some circumstances have the right to direct the property trustee to exercise its rights as the holder of the debentures. Notwithstanding the above, if an event of default has occurred and is continuing and that event is attributable to our failure to pay interest or principal on the debentures on the date that interest or principal is otherwise payable, we acknowledge that a holder of capital securities may directly institute a proceeding for enforcement of payment to that holder directly of the principal of and interest on the debentures having a principal amount equal to the aggregate stated liquidation amount of the capital securities of that holder after the respective due date specified in the debentures. In connection with that action, we shall have the right under the indenture to set-off any payment made to that holder by us. The holders of capital securities will not be able to exercise directly any other remedy available to the holders of the debentures. CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS We may not (a) merge with or into or consolidate with any other entity, or (b) sell, assign, transfer, lease or convey all or substantially all of our properties and assets to any person, firm or corporation, other than, with respect to this clause (b), a direct or indirect wholly-owned subsidiary of MetLife, Inc., and no person shall (x) merge with or into or consolidate with us or (y) except in the case of any direct or indirect wholly-owned subsidiary of MetLife, Inc., sell, assign, transfer, lease or convey all or substantially all of its properties and assets to us, unless: - we are the surviving corporation or in case we merge with or into or consolidate with another entity or sell, assign, transfer, lease or convey all or substantially all of our properties and assets to any person, firm or corporation, the successor person is organized under the laws of the United States of America or any state or the District of Columbia, and such successor person expressly assumes our obligations under the debentures, the indenture and the guarantee; - immediately after giving effect thereto, no indenture event of default, and no event which, after notice or lapse of time or both, would become an indenture event of default, shall have occurred and be continuing; - if at the time any capital securities are outstanding, such transaction is permitted under the declaration of trust and the guarantee; and - certain other conditions as prescribed in the indenture are met. 249 251 SATISFACTION AND DISCHARGE The indenture will cease to be of further effect, except as to our obligations to pay all other sums due pursuant to the indenture and to provide the required officers' certificates and opinions of counsel, and we will be deemed to have satisfied and discharged the indenture, when, among other things, all debentures not previously delivered to the debenture trustee for cancellation: - have become due and payable; or - will become due and payable at maturity or upon redemption within one year; and we deposit or cause to be deposited with the debenture trustee funds, in trust, for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on the debentures not previously delivered to the debenture trustee for cancellation, for the principal and interest to the date of the deposit or to the stated maturity thereof, as the case may be. The capital securities, the guarantee and the debentures do not limit MetLife, Inc.'s ability or the ability of its subsidiaries to incur additional indebtedness, including other senior indebtedness. MetLife, Inc. will have no senior debt other than the debentures upon completion of the offering of the units but it may incur such indebtedness in the future. The companies that will become subsidiaries of MetLife, Inc. after the demutualization had $6.7 billion of total debt at December 31, 1999. BOOK-ENTRY ONLY ISSUANCE The debentures will be issued in fully registered form. Until any dissolution of MetLife Capital Trust I, the debentures will be held in the name of the property trustee in trust for the benefit of the holders of the related trust securities. If distributed to holders of capital securities in connection with the involuntary or voluntary dissolution of the trust, the debentures will be issued in the form of one or more global certificates (each, a global security) registered in the name of the depositary or its nominee. Except under the limited circumstances described below, debentures represented by the global security will not be exchangeable for, and will not otherwise be issuable as, debentures in certificated form. The global securities described above may not be transferred except by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary or to a successor depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in certificated form. These laws may impair the ability to transfer beneficial interests in a global security. Except as provided below, owners of beneficial interests in a global security will not be entitled to receive physical delivery of debentures in certificated form and will not be considered its holders for any purpose under the indenture. No global security representing debentures shall be exchangeable, except for another global security of like denomination and tenor to be registered in the name of the depositary or its nominee or to a successor depositary or its nominee. Accordingly, each beneficial owner must rely on the procedures of the depositary or if that person is not a participant, on the procedures of the participant through which that person owns its interest to exercise any rights of a holder under the indenture. If debentures are distributed to holders of capital securities in liquidation of those holders' interests in the trust, The Depository Trust Company will act as securities depositary for the debentures. As of the date of this prospectus, the description of the depositary's book-entry system and the depositary's practices as they relate to purchases, transfers, notices and payments with respect to the capital securities apply in all material respects to any debt obligations represented by one or more global securities held by the depositary. We may appoint 250 252 a successor to the depositary or any successor depositary if the depositary or a successor depositary is unable or unwilling to continue as a depositary for the global securities. Neither us nor the trust, the property trustee, any paying agents, any of our other agents or the debenture trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global security for the debentures or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests. A global security shall be exchangeable for debentures registered in the names of persons other than the depositary or its nominee only if: - the depositary notifies us that it is unwilling or unable to continue as a depositary for that global security and we do not appoint an eligible successor depositary within 90 days; - the depositary at any time ceases to be a clearing agency registered under the Securities Exchange Act of 1934 at which time the depositary is required to be so registered to act as a depositary and we do not appoint an eligible successor depositary within 90 days; or - we, in our sole discretion, determine that the global security shall be so exchangeable. Any global security that is exchangeable according to the preceding sentence shall be exchangeable for debentures registered in those names as the depositary shall direct. It is expected that these instructions will be based upon directions received by the depositary from its participants with respect to ownership of beneficial interests in the global security. PAYMENT AND PAYING AGENTS Payment of principal of and interest on the debentures will be made at the office of the debenture trustee in the City of New York or at the office of such paying agent or paying agents as we may designate from time to time, except that at our option payment of any interest may be made, except in the case of a global certificate representing debentures, by: - check mailed to the address of the person entitled thereto as such address shall appear in the applicable securities register for debentures; or - wire transfer to an account maintained by the person entitled thereto as specified in such securities register, provided that proper transfer instructions have been received by the relevant record date. Payment of any interest on any debenture will be made to the person in whose name such debenture is registered at the close of business on the record date for such interest, except in the case of defaulted interest. We may at any time designate additional paying agents or rescind the designation of any paying agent; provided, however, we will at all times be required to maintain a paying agent in each place of payment for the debentures. Any money deposited with the debenture trustee or any paying agent, or then held by us in trust, for the payment of the principal of or interest on any debentures and remaining unclaimed for two years after such principal and premium, if any, or interest has become due and payable will, at our request, be repaid to us and the holder of such debentures shall thereafter look, as a general unsecured creditor, only to us for payment thereof. INFORMATION CONCERNING THE DEBENTURE TRUSTEE The debenture trustee shall be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to the foregoing, the debenture trustee will not be under any obligation to exercise any of the powers vested in it by the indenture at the request of any holder of debentures, unless offered indemnity satisfactory to it by such holder against the costs, expenses and liabilities which might be incurred thereby. The 251 253 debenture trustee will not be required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the debenture trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The debenture trustee is one of a number of banks and trust companies with which we and our subsidiaries maintain ordinary banking and trust relationships. GOVERNING LAW The indenture and the debentures will be governed by, and construed in accordance with, the internal laws of the State of New York, without regard to its principles of conflicts of laws. EFFECT OF OBLIGATIONS UNDER THE DEBENTURES AND THE GUARANTEE As provided in the declaration, the sole purpose of MetLife Capital Trust I is to issue the trust securities evidencing undivided beneficial interests in the assets of the trust, and to invest the proceeds from the issuance and sale in the debentures and engage in only other necessary or incidental activities. As long as payments of interest and other payments are made when due on the debentures, those payments will be sufficient to cover distributions and payments due on the trust securities because of the following factors: - the aggregate principal amount of the debentures will be equal to the sum of the aggregate stated liquidation amount of the trust securities; - the interest rate and the interest and other payment dates on the debentures will match the distribution rate and distribution and other payment dates for the trust securities; - we shall pay, and the trust shall not be obligated to pay, directly or indirectly, all costs, expenses, debts, and obligations of the trust, other than with respect to the trust securities; and - the declaration further provides that the trustees shall not take or cause or permit the trust to, among other things, engage in any activity that is not consistent with the purposes of the trust. Payments of distributions, to the extent funds are available, and other payments due on the capital securities, to the extent funds therefor are available, are guaranteed by us as to the extent provided under "Description of the Guarantee". If we do not make interest payments on the debentures purchased by the trust, the trust will not have sufficient funds to pay distributions on the capital securities. The guarantee does not apply to any payment of distributions unless and until the trust has sufficient funds for the payment of such distributions. If we fail to make interest or other payments on the debentures when due, taking account of any deferral period, the declaration provides a mechanism enabling the holders of the capital securities to direct the property trustee to enforce its rights under the indenture. If the property trustee fails to enforce its rights under the indenture in respect of an indenture event of default, a holder of record of capital securities may, to the fullest extent permitted by applicable law, institute a legal proceeding against us to enforce the property trustee's rights under the indenture without first instituting any legal proceeding against the property trustee or any other person or entity. Notwithstanding the above, if a declaration event of default has occurred and is continuing and that event is attributable to our failure to pay interest or principal on the debentures on the date that interest or principal is otherwise payable, then a holder of capital securities may directly institute a proceeding against us for payment. We, under the guarantee, acknowledge that the guarantee trustee shall enforce the guarantee on behalf of the holders of the capital securities. If 252 254 we fail to make payments under the guarantee, the guarantee provides a mechanism enabling the holders of the capital securities to direct the guarantee trustee to enforce its rights under the guarantee. Notwithstanding the above, if we fail to make a payment under the guarantee, any holder of capital securities may institute a legal proceeding directly against us to enforce its rights under the guarantee without first instituting a legal proceeding against the trust, the guarantee trustee, or any other person or entity. The guarantee, when taken together with our obligations under the debentures and the indenture and our obligations under the declaration, including our obligations to pay costs, expenses, debts and liabilities of the trust, other than with respect to the trust securities, has the effect of providing a full and unconditional guarantee of amounts due on the capital securities. U.S. FEDERAL INCOME TAX CONSEQUENCES The following is a discussion of the material United States federal income tax consequences of the purchase, ownership and disposition of units, capital securities and shares of our common stock acquired under a purchase contract to U.S. holders who purchase units in the initial offering at their original offering price and hold the units, capital securities and shares of our common stock as capital assets. Debevoise & Plimpton, our special tax counsel, has advised us that, assuming the transactions described in this prospectus are consummated and performed in the manner described in this prospectus, the discussion, except to the extent of statements as to our expectations or determinations, is its opinion. For purposes of this discussion, "U.S. holder" means a beneficial owner of a unit, capital security or share of our common stock that is (1) an individual citizen or resident of the United States, (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia or (3) a partnership, estate or trust treated, for United States federal income tax purposes, as a domestic partnership, estate or trust. This discussion assumes we will not exercise our right to delay payment of interest on the debentures. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), treasury regulations (including proposed treasury regulations) issued thereunder, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of United States federal income taxation that may be relevant to U.S. holders in light of their particular circumstances, such as U.S. holders who are subject to special tax treatment (for example, (1) banks, regulated investment companies, insurance companies, dealers in securities or currencies or tax-exempt organizations, (2) persons holding units, capital securities or shares of our common stock as part of a straddle, hedge, conversion transaction or other integrated investment or (3) persons whose functional currency is not the U.S. dollar), some of which may be subject to special rules, nor does it address alternative minimum taxes or state, local or foreign taxes. PROSPECTIVE INVESTORS THAT ARE NOT UNITED STATES PERSONS (WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE) ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN UNITS, INCLUDING THE POTENTIAL APPLICATION OF UNITED STATES WITHHOLDING TAXES. No statutory, administrative or judicial authority directly addresses the treatment of units or instruments similar to units for United States federal income tax purposes. As a result, no assurance can be given that the Internal Revenue Service will agree with the tax consequences described herein. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF UNITS, CAPITAL SECURITIES AND SHARES OF OUR COMMON STOCK ACQUIRED UNDER A PURCHASE CONTRACT IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. 253 255 UNITS Ownership of Capital Securities or Treasury Securities. A U.S. holder will be treated as owning the capital securities or treasury securities constituting a part of the units owned by such U.S. holder. Under the terms of the units, we and, by acquiring units, each U.S. holder, agree to treat such U.S. holder as the owner, for United States federal, state and local income and franchise tax purposes, of the capital securities or treasury securities constituting a part of the units owned by such U.S. holder. The remainder of this summary assumes that U.S. holders of units will be treated as the owners of the capital securities or treasury securities constituting a part of such units for United States federal income tax purposes. Allocation of Purchase Price. A U.S. holder's acquisition of a unit will be treated as an acquisition of the capital security and the purchase contract constituting the unit. If the fair market value of a capital security does not exceed the purchase price of each unit at the time of purchase, the purchase price of each unit will be allocated between the capital security and the purchase contract constituting such unit in proportion to their respective fair market values at the time of purchase. Such allocation will establish the U.S. holder's initial tax basis in the capital security and the purchase contract. We expect to report the fair market value of each capital security as $ and the fair market value of each purchase contract as $ . This position will be binding on each U.S. holder (but not on the Internal Revenue Service) unless such U.S. holder explicitly discloses a contrary position on a statement attached to its timely filed United States federal income tax return for the taxable year in which a unit is acquired. Thus, absent such disclosure, a U.S. holder should allocate the purchase price for a unit in accordance with the values reported by us. The remainder of this discussion assumes that this allocation of the purchase price of a unit will be respected for United States federal income tax purposes. There is no direct authority addressing the United States federal income tax treatment of the situation where the fair market value of a capital security exceeds the purchase price of each unit at the time of purchase, and such treatment is unclear. We expect to report the fair market value of each capital security at the time of purchase as $ , which exceeds the $50 purchase price of each unit by $ . To the extent we are required to file information returns, we expect to treat this $ excess amount as taxable income to each U.S. holder and to treat each capital security as having an "issue price" of $ (which would result in a U.S. holder having an initial tax basis of $ in the capital security and zero in the purchase contract). The remainder of this discussion assumes this treatment will be respected for United States federal income tax purposes. Our valuation of the capital security will be binding on each U.S. holder (but not on the Internal Revenue Service) unless such U.S. holder explicitly discloses a contrary position on a statement attached to its timely filed United States federal income tax return for the taxable year in which a unit is acquired. U.S. holders should consult their own tax advisors regarding the foregoing treatment, including the possibility that the excess of the value of the capital security over the purchase price of a unit may be treated as an adjustment, rebate or payment analogous to an option premium, with respect to the underlying purchase contract, rather than being currently included in the U.S. holder's taxable income. Sale, Exchange or Other Disposition of Units. If a U.S. holder sells, exchanges or otherwise disposes of a unit, such U.S. holder will be treated as having sold, exchanged or disposed of the purchase contract and the capital security or treasury securities, as the case may be, that constitute such unit. Such U.S. holder generally will recognize gain or loss equal to the difference between the portion of the proceeds to such U.S. holder allocable to the purchase contract and the capital security or treasury securities, as the case may be (except to the extent such U.S. holder is treated as having received an amount with respect to accrued interest on the treasury securities, which will be treated as ordinary interest income to the extent not previously included in income), and such U.S. holder's respective adjusted tax bases in the purchase contract and the capital security or treasury securities. In the case of the purchase contract and the treasury securities, such gain or loss generally will be capital gain or loss. In the case of treasury 254 256 securities with a term of one year or less, however, such gain will be ordinary income to the extent any acquisition discount has accrued but not been included in income. Capital gains of individuals derived in respect of capital assets held for more than one year are taxed at a maximum rate of 20%. The deductibility of capital losses is subject to limitations. The rules governing the determination of the character of gain or loss on the sale, exchange or other disposition of the capital securities are summarized under "Capital Securities -- Sale, Exchange or Other Disposition of Capital Securities". If the sale, exchange or other disposition of a unit by a U.S. holder occurs when the purchase contract has a negative value, the U.S. holder may be considered to have received additional consideration for the capital security or treasury securities constituting a part of such unit in an amount equal to such negative value, and to have paid such amount to be released from its obligation under the purchase contract. U.S. holders should consult their own tax advisors regarding a disposition of a unit at a time when the purchase contract has a negative value. CAPITAL SECURITIES Classification of the Trust. The trust will be classified for United States federal income tax purposes as a grantor trust and will not be subject to tax as an association (or publicly traded partnership) taxable as a corporation. Accordingly, for United States federal income tax purposes, each U.S. holder of capital securities will be treated as purchasing and owning an undivided beneficial ownership interest in the debentures and will be required to take into account its pro rata share of all items of income, gain, loss or deduction of the trust, including original issue discount with respect to the debentures, as described below. Interest Income and Original Issue Discount. Because of the manner in which the interest rate on the debentures is reset, the debentures will be classified as contingent payment debt instruments subject to the "noncontingent bond method" for accruing original issue discount, as set forth in applicable treasury regulations. As discussed more fully below, the effects of such method will be (1) to require each U.S. holder, regardless of its usual method of tax accounting, to use an accrual method with respect to the debentures, (2) for all accrual periods through February 15, 2003, and possibly for accrual periods thereafter, the accrual of interest income by each U.S. holder in excess of interest payments actually received and (3) generally to result in ordinary rather than capital treatment of any gain or loss on the sale, exchange or other disposition of the capital securities. See "-- Sale, Exchange or Other Disposition of Capital Securities". A U.S. holder of debentures will accrue original issue discount based on the "comparable yield" of the debentures. The comparable yield of the debentures will generally be the rate at which we would issue a fixed rate debt instrument with terms and conditions similar to the debentures. We are required to provide the comparable yield and a projected payment schedule, based on the comparable yield, to holders of the debentures. We have determined that the comparable yield is % and the projected payments for the debentures, per $50 of principal amount, are $ on August 15, 2000, $ for each subsequent quarter ending on or prior to February 15, 2003 and $ for each quarter ending after February 15, 2003. We have also determined that the projected payment for the debentures, per $50 of principal amount, at the maturity date is $ (which includes the stated principal amount of the debentures as well as the final projected interest payment). The amount of original issue discount on a debenture for each accrual period is determined by multiplying the comparable yield of the debenture (adjusted for the length of the accrual period) by the debenture's adjusted issue price at the beginning of the accrual period. Based on the allocation of the purchase price of each unit described above, the adjusted issue price of each debenture, per $50 of principal amount, at the beginning of the first accrual period will be 255 257 $ , and the adjusted issue price of each debenture at the beginning of each subsequent accrual period will be equal to $ , increased by any original issue discount previously accrued by the U.S. holder on such debenture and decreased by payments received on such debenture. The amount of original issue discount so determined will then be allocated on a ratable basis to each day in the accrual period that the U.S. holder holds the debenture. If after February 15, 2003 the remaining amounts of principal and interest payable on the debentures differ from the payments set forth on the foregoing projected payment schedule, negative or positive adjustments reflecting such difference should be taken into account by a U.S. holder as adjustments to interest income in a reasonable manner over the period to which they relate. We expect to account for any such difference with respect to a period as an adjustment for that period. We expect to use the foregoing comparable yield and projected payment schedule for purposes of determining our own taxable income and for any required information reporting. U.S. holders are generally bound by the comparable yield and projected payment schedule provided by us unless either is unreasonable. If a U.S. holder of capital securities does not use this comparable yield and projected payment schedule to determine interest accruals, such U.S. holder must apply the foregoing rules using its own comparable yield and projected payment schedule. A U.S. holder that uses its own comparable yield and projected payment schedule must explicitly disclose this fact and the reason why it has used its own comparable yield and projected payment schedule. In general, this disclosure must be made on a statement attached to the timely filed United States federal income tax return of the U.S. holder for the taxable year that includes the date of its acquisition of the units. The foregoing comparable yield and projected payment schedule is supplied by us solely for computing income under the noncontingent bond method for United States federal income tax purposes, and does not constitute a projection or representation as to the amounts that holders of capital securities or units will actually receive. Because income with respect to the debentures will constitute interest for United States federal income tax purposes, corporate holders of units (or capital securities) will not be entitled to a dividends-received deduction in respect of such income. Adjustment to Tax Basis in Capital Securities. A U.S. holder's tax basis in its capital securities will be increased by the amount of any gross income recognized by such U.S. holder with respect to such capital securities, including original issue discount with respect to the debentures, and decreased by payments received with respect to such capital securities. Sale, Exchange or Other Disposition of Capital Securities. Upon the sale, exchange or other disposition of a capital security (including the remarketing of such security), a U.S. holder will recognize gain or loss in an amount equal to the difference between the amount realized by such U.S. holder and such U.S. holder's adjusted tax basis in the capital security. Gain recognized on the sale, exchange or other disposition of a capital security prior to the remarketing date will be treated as ordinary interest income. Loss realized on the sale, exchange or other disposition of a capital security prior to the remarketing date will be treated as ordinary loss to the extent of such U.S. holder's prior net income inclusions on the capital security. Any loss in excess of such amount will be treated as capital loss. Gain recognized on the sale, exchange or other disposition of a capital security on or after the remarketing date will be ordinary interest income to the extent attributable to the excess, if any, of the total remaining principal and interest payments due on the debenture underlying the capital security over the total remaining payments set forth on the projected payment schedule for such debenture. Any gain recognized in excess of such amount and any loss recognized on such a sale, exchange or disposition generally will be treated as capital gain or loss. Capital gain of individuals derived in respect of capital assets held for more 256 258 than one year is taxed at a maximum rate of 20%. The deductibility of capital losses is subject to limitations. Distribution of Debentures to U.S. Holders of Capital Securities. A distribution by the trust of the debentures, as described under the caption "Description of the Capital Securities -- Liquidation Distribution Upon Dissolution", will be non-taxable to U.S. holders. In such event, a U.S. holder will have an aggregate adjusted tax basis in the debentures received in the liquidation equal to the aggregate adjusted tax basis such U.S. holder had in its capital securities surrendered therefor, and the holding period of such debentures will include the period during which such U.S. holder had held the capital securities. A U.S. holder will continue to include original issue discount in respect of the debentures received from the trust in the manner described under "-- Interest Income and Original Issue Discount" and will recognize gain or loss on the sale, exchange or other disposition of such debentures in the same manner as if the U.S. holder had sold, exchanged or disposed of the capital securities. See "-- Sale, Exchange or Other Disposition of Capital Securities". PURCHASE CONTRACTS Acquisition of our Common Stock Under a Purchase Contract. A U.S. holder of units generally will not recognize gain or loss on the purchase of our common stock under a purchase contract, except with respect to any cash paid in lieu of a fractional share of our common stock. A U.S. holder's aggregate initial tax basis in the common stock received under a purchase contract generally should equal (1) the purchase price paid for such common stock, plus (2) such U.S. holder's adjusted tax basis in the purchase contract, less (3) the portion of such purchase price and tax basis allocable to the fractional share. For tax purposes, the holding period for common stock received under a purchase contract will commence on the day after such common stock is acquired. Early Settlement of a Purchase Contract. A U.S. holder of units will not recognize gain or loss on the receipt of such U.S. holder's proportionate share of capital securities or treasury securities upon early settlement of a purchase contract and will have the same adjusted tax basis in such capital securities or treasury securities as before such early settlement. Termination of a Purchase Contract. If a purchase contract terminates, a U.S. holder of units will recognize a loss equal to such U.S. holder's adjusted tax basis (if any) in the purchase contract at the time of such termination. Any such loss will be capital. The deductibility of capital losses is subject to limitations. A U.S. holder will not recognize gain or loss on the receipt of its proportionate share of capital securities or treasury securities upon termination of the purchase contract and such U.S. holder will have the same adjusted tax basis in such capital securities or treasury securities as before such termination. Adjustment to Settlement Rate. A U.S. holder of units might be treated as receiving a constructive distribution from us if (1) the settlement rate is adjusted and as a result of such adjustment such U.S. holder's proportionate interest in our assets or earnings and profits is increased and (2) the adjustment is not made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the settlement rate would not be considered made pursuant to such a formula if the adjustment were made to compensate a U.S. holder for certain taxable distributions with respect to the common stock. Thus, under certain circumstances, an increase in the settlement rate might give rise to a taxable dividend to a U.S. holder of units even though such U.S. holder would not receive any cash related thereto. OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT Any dividend on our common stock paid by us out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) will be includible in income by a U.S. holder of common stock when received. Any such dividend will be eligible for 257 259 the dividends-received deduction if received by an otherwise qualifying corporate U.S. holder that meets the holding period and other requirements for the dividends-received deduction. Upon a disposition of our common stock, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount realized and such U.S. holder's adjusted tax basis in the common stock. Capital gains of individuals derived in respect of capital assets held for more than one year are taxed at a maximum rate of 20%. The deductibility of capital losses is subject to limitations. SUBSTITUTION OF TREASURY SECURITIES TO CREATE STRIPPED UNITS A U.S. holder of normal units that delivers treasury securities to the collateral agent in substitution for capital securities or other pledged securities generally will not recognize gain or loss upon the delivery of such treasury securities or the release of the capital securities or other pledged securities to such U.S. holder. Such U.S. holder will continue to take into account items of income or deduction otherwise includible or deductible, respectively, by such U.S. holder with respect to such treasury securities and capital securities or other pledged securities. Such U.S. holder's adjusted tax basis in the treasury securities, the capital securities or other pledged securities and the purchase contract will not be affected by such delivery and release. U.S. holders should consult their own tax advisors concerning the tax consequences of purchasing, owning and disposing of the treasury securities so delivered to the collateral agent. SUBSTITUTION OF SECURITIES TO RECREATE NORMAL UNITS A U.S. holder of stripped units that delivers capital securities or treasury securities to the collateral agent in substitution for pledged treasury securities generally will not recognize gain or loss upon the delivery of such capital securities or treasury securities or the release of the pledged treasury securities to such U.S. holder. Such U.S. holder will continue to take into account items of income or deduction otherwise includible or deductible, respectively, by such U.S. holder with respect to such pledged treasury securities and such capital securities or treasury securities. Such U.S. holder's tax basis in the treasury securities, the capital securities, the pledged treasury securities and the purchase contract will not be affected by such delivery and release. U.S. holders should consult their own advisors concerning the tax consequences of purchasing, owning and disposing of the treasury securities so released to them. TREASURY SECURITIES PURCHASED ON REMARKETING A U.S. holder's initial basis in the treasury securities purchased by the collateral agent in connection with a remarketing will be equal to the amount paid for the treasury securities. If a U.S. holder is on the cash method of accounting, it will generally not include income on these treasury securities until payment is received on them. If a U.S. holder is on the accrual method of accounting, it will be required to include acquisition discount in income over the remaining term of the treasury securities and will increase its basis in the treasury securities by the amount of acquisition discount included in income. BACKUP WITHHOLDING TAX AND INFORMATION REPORTING Unless a U.S. holder is an exempt recipient, such as a corporation, payments under units, capital securities, treasury securities or common stock, the proceeds received with respect to a fractional share of common stock upon the settlement of a purchase contract, and the proceeds received from sale of units, capital securities, treasury securities or common stock may be subject to information reporting and may also be subject to United States federal backup withholding tax at the rate of 31% if such U.S. holder fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable United States information reporting or certification requirements. Any amounts so withheld will be allowed as a credit against the U.S. holder's United States federal income tax liability. 258 260 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of MetLife, Inc. consists of 3,000,000,000 shares of common stock and 200,000,000 shares of preferred stock. COMMON STOCK Holders of our common stock are entitled to receive such dividends as may from time to time be declared by our board of directors out of funds legally available therefor. See "Dividend Policy". Holders of our common stock are entitled to one vote per share on all matters on which the holders of common stock are entitled to vote and do not have any cumulative voting rights. Holders of our common stock have no preemptive, conversion, redemption or sinking fund rights. In the event of a liquidation, dissolution or winding up of MetLife, Inc., holders of our common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all liabilities of MetLife, Inc. and the liquidation preference of any outstanding class or series of preferred stock. The outstanding shares of our common stock are, and the shares of common stock issued by us in the demutualization, the initial public offering and the private placements and upon settlement of the purchase contracts comprising the equity security units, when issued, will be fully paid and nonassessable. The rights and privileges of holders of our common stock are subject to any series of preferred stock that we may issue in the future, as described below. PREFERRED STOCK Our board of directors has the authority to issue preferred stock in one or more series and to fix the number of shares constituting any such series and the voting rights, designations, powers, preferences and qualifications, limitations and restrictions of the shares constituting any series, without any further vote or action by stockholders. The issuance of preferred stock by our board of directors could adversely affect the rights of holders of common stock. We have authorized 10,000,000 shares of Series A Junior Participating Preferred Stock for issuance in connection with our stockholder rights plan. See "-- Stockholder Rights Plan". CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS AND IN DELAWARE AND NEW YORK LAW A number of provisions of our certificate of incorporation and by-laws deal with matters of corporate governance and rights of stockholders. The following discussion is a general summary of selected provisions of our certificate of incorporation and by-laws and regulatory provisions that might be deemed to have a potential "anti-takeover" effect. These provisions may have the effect of discouraging a future takeover attempt which is not approved by our board of directors but which individual stockholders may deem to be in their best interests or in which stockholders may receive a substantial premium for their shares over then current market prices. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. Such provisions will also render the removal of the incumbent board of directors or management more difficult. Some provisions of the Delaware General Corporation Law and the New York Insurance Law may also have an antitakeover effect. The following description of selected provisions of our certificate of incorporation and by-laws and selected provisions of the Delaware General Corporation Law and the New York Insurance Law is necessarily general and reference should be made in each case to our certificate of incorporation and by-laws, which are filed as exhibits to our registration statement of which this prospectus forms a part, and to the provisions of those laws. See "Additional Information" for information on where to obtain a copy of our certificate of incorporation and by-laws. UNISSUED SHARES OF CAPITAL STOCK COMMON STOCK. Based upon the assumptions described under "Pro Forma Consolidated Financial Information", we currently plan to issue an estimated 179,000,000 shares of our authorized common stock in the initial public offering, 73,000,000 shares of our common stock in 259 261 the planned private placements and 493,476,118 shares of common stock in the demutualization. This information does not include shares of our common stock issuable upon the settlement of the purchase contracts comprising equity security units. The remaining shares of authorized and unissued common stock will be available for future issuance without additional stockholder approval. While the authorized but unissued shares are not designed to deter or prevent a change of control, under some circumstances we could use the authorized but unissued shares to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control by, for example, issuing those shares in private placements to purchasers who might side with our board of directors in opposing a hostile takeover bid. PREFERRED STOCK. Our board of directors has the authority to issue preferred stock in one or more series and to fix the number of shares constituting any such series and the designations, powers, preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption, redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by stockholders. The existence of authorized but unissued preferred stock could reduce our attractiveness as a target for an unsolicited takeover bid since we could, for example, issue shares of the preferred stock to parties who might oppose such a takeover bid or issue shares of the preferred stock containing terms the potential acquiror may find unattractive. This may have the effect of delaying or preventing a change of control, may discourage bids for our common stock at a premium over the market price of our common stock, and may adversely affect the market price of, and the voting and other rights of the holders of, our common stock. See "-- Stockholder Rights Plan" for a description of our Series A Junior Participating Preferred Stock. CLASSIFIED BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS Pursuant to our certificate of incorporation, the directors are divided into three classes, as nearly equal in number as possible, with each class having a term of three years. The classes serve staggered terms, such that the term of one class of directors expires each year. Any effort to obtain control of our board of directors by causing the election of a majority of the board may require more time than would be required without a staggered election structure. Our certificate of incorporation also provides that, subject to the rights of the holders of any class of preferred stock, directors may be removed only for cause at a meeting of stockholders by a vote of a majority of the shares then entitled to vote. This provision may have the effect of slowing or impeding a change in membership of our board of directors that would effect a change of control. EXERCISE OF DUTIES BY BOARD OF DIRECTORS Our certificate of incorporation provides that while the MetLife Policyholder Trust is in existence, each MetLife, Inc. director is required, in exercising his or her duties as a director, to take the interests of the trust beneficiaries into account as if they were holders of the shares of common stock held in the trust, except to the extent that any such director determines, based on advice of counsel, that to do so would violate his or her duties as a director under Delaware law. RESTRICTION ON MAXIMUM NUMBER OF DIRECTORS AND FILLING OF VACANCIES ON OUR BOARD OF DIRECTORS Pursuant to our by-laws and subject to the rights of the holders of any class of preferred stock, the number of directors may be fixed and increased or decreased from time to time by resolution of the board of directors, but the board of directors will at no time consist of fewer than three directors. Subject to the rights of the holders of any class of preferred stock, stockholders can only remove a director for cause by a vote of a majority of the shares entitled to vote, in which case the vacancy caused by such removal may be filled at such meeting by the stockholders entitled to vote for the election of the director so removed. Any vacancy on the 260 262 board of directors, including a vacancy resulting from an increase in the number of directors or resulting from a removal for cause where the stockholders have not filled the vacancy, subject to the rights of the holders of any class of preferred stock, may be filled by a majority of the directors then in office, although less than a quorum. If the vacancy is not so filled, it will be filled by the stockholders at the next annual meeting of stockholders. The stockholders are not permitted to fill vacancies between annual meetings, except where the vacancy resulted from a removal for cause. These provisions give incumbent directors significant authority that may have the effect of limiting the ability of stockholders to effect a change in management. ADVANCE NOTICE REQUIREMENTS FOR NOMINATION OF DIRECTORS AND PRESENTATION OF NEW BUSINESS AT MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT Our by-laws provide for advance notice requirements for stockholder proposals and nominations for director. In addition, pursuant to the provisions of both the certificate of incorporation and the by-laws, action may not be taken by written consent of stockholders; rather, any action taken by the stockholders must be effected at a duly called meeting. Moreover, the stockholders do not have the power to call a special meeting. Only the chief executive officer or the secretary pursuant to a board resolution or, under some circumstances, the president or a director who also is an officer, may call a special meeting. These provisions make it more procedurally difficult for a stockholder to place a proposal or nomination on the meeting agenda and prohibit a stockholder from taking action without a meeting, and therefore may reduce the likelihood that a stockholder will seek to take independent action to replace directors or with respect to other matters that are not supported by management for stockholder vote. LIMITATIONS ON DIRECTOR LIABILITY Our certificate of incorporation contains a provision that is designed to limit the directors' liability to the extent permitted by the Delaware General Corporation Law and any amendments to that law. Specifically, directors will not be held liable to MetLife, Inc. or our stockholders for an act or omission in their capacity as a director, except for liability as a result of: - a breach of the duty of loyalty to MetLife, Inc. or our stockholders; - acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - payment of an improper dividend or improper repurchase of our stock under Section 174 of the Delaware General Corporation Law; or - actions or omissions pursuant to which the director received an improper personal benefit. The principal effect of the limitation on liability provision is that a stockholder is unable to prosecute an action for monetary damages against a director of MetLife, Inc. unless the stockholder can demonstrate one of the specified bases for liability. This provision, however, does not eliminate or limit director liability arising in connection with causes of action brought under the federal securities laws. Our certificate of incorporation also does not eliminate the directors' duty of care. The inclusion of the limitation on liability provision in the certificate may, however, discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited MetLife, Inc. and its stockholders. This provision should not affect the availability of equitable remedies such as injunction or rescission based upon a director's breach of the duty of care. Our by-laws also provide that we indemnify our directors and officers to the fullest extent permitted by Delaware law. We are required to indemnify our directors and officers for all judgments, fines, settlements, legal fees and other expenses reasonably incurred in connection with pending or threatened legal proceedings because of the director's or officer's position with us or another entity, including Metropolitan Life Insurance Company, that the director or officer serves at our request, subject to certain conditions, and to advance funds to our directors and 261 263 officers to enable them to defend against such proceedings. To receive indemnification, the director or officer must succeed in the legal proceeding or act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of MetLife, Inc. and, with respect to any criminal action or proceeding, in a manner he or she reasonably believed to be lawful. SUPERMAJORITY VOTING REQUIREMENT FOR AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS Some of the provisions of our certificate of incorporation, including those that authorize the board of directors to create stockholder rights plans, that set forth the duties, election and exculpation from liability of directors and that prohibit stockholders from actions by written consent, may not be amended, altered, changed or repealed unless the amendment is approved by the vote of holders of 75% of the then outstanding shares entitled to vote at an election of directors. This requirement exceeds the majority vote of the outstanding stock that would otherwise be required by the Delaware General Corporation Law for the repeal or amendment of such provisions of the certificate of incorporation. Our by-laws may be amended, altered or repealed by the board of directors or by the vote of holders of 75% of the then outstanding shares entitled to vote in the election of directors. These provisions make it more difficult for any person to remove or amend any provisions that have an antitakeover effect. BUSINESS COMBINATION STATUTE In addition, as a Delaware corporation, MetLife, Inc. is subject to Section 203 of the Delaware General Corporation Law, unless it elects in its certificate of incorporation not to be governed by the provisions of Section 203. We have not made that election. Section 203 can affect the ability of an "interested stockholder" of MetLife, Inc. to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares of MetLife, Inc., for a period of three years following the time that the stockholder becomes an "interested stockholder". An "interested stockholder" is defined to mean any person owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. The provisions of Section 203 are not applicable in some circumstances, including those in which (1) the business combination or transaction which results in the stockholder becoming an "interested stockholder" is approved by the corporation's board of directors prior to the time the stockholder becomes an "interested stockholder" or (2) the "interested stockholder", upon consummation of such transaction, owns at least 85% of the voting stock of the corporation outstanding prior to such transaction. RESTRICTIONS ON ACQUISITIONS OF SECURITIES Section 7312 of the New York Insurance Law provides that, for a period of five years after the distribution of consideration pursuant to the plan of reorganization is completed, no person may directly or indirectly offer to acquire or acquire in any manner the beneficial ownership (defined as the power to vote or dispose of, or to direct the voting or disposition of, a security) of 5% or more of any class of voting security (which term includes our common stock) of MetLife, Inc. without the prior approval of the New York Superintendent of Insurance. Pursuant to Section 7312, voting securities acquired in excess of the 5% threshold without such prior approval will be deemed non-voting. The insurance laws and regulations of New York, the jurisdiction in which our principal insurance subsidiary, Metropolitan Life Insurance Company, is organized, may delay or impede a business combination involving us. In addition to the limitations described in the immediately preceding paragraph, the New York Insurance Law prohibits any person from acquiring control of MetLife, Inc., and thus indirect control of Metropolitan Life Insurance Company, without the prior approval of the New York Superintendent of Insurance. That law presumes that control exists where any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies 262 264 representing 10% or more of our outstanding voting stock, unless the New York Superintendent, upon application, determines otherwise. Even persons who do not acquire beneficial ownership of more than 10% of the outstanding shares of MetLife, Inc.'s common stock may be deemed to have acquired such control, if the New York Superintendent determines that such persons, directly or indirectly, exercise a controlling influence over our management and policies. Therefore, any person seeking to acquire a controlling interest in MetLife, Inc. would face regulatory obstacles which may delay, deter or prevent an acquisition that stockholders might consider in their best interests. The insurance holding company law and other insurance laws of many states also regulate changes of control (generally presumed upon acquisitions of 10% or more of voting securities) of insurance holding companies, such as MetLife, Inc. STOCKHOLDER RIGHTS PLAN Our board of directors has adopted a stockholder rights plan under which each outstanding share of our common stock issued between the date on which MetLife, Inc. enters into the underwriting agreement for the initial public offering and the distribution date (as described below) will be coupled with a stockholder right. Initially, the stockholder rights will be attached to the certificates representing outstanding shares of common stock, and no separate rights certificates will be distributed. Each right will entitle the holder to purchase one one-hundredth of a share of our Series A Junior Participating Preferred Stock. Each one one-hundredth of a share of Series A Junior Participating Preferred Stock will have economic and voting terms equivalent to one share of MetLife, Inc.'s common stock. Until it is exercised, the right itself will not entitle the holder thereof to any rights as a stockholder, including the right to receive dividends or to vote at stockholder meetings. The description and terms of the rights are set forth in a rights agreement ("Rights Agreement") to be entered into between MetLife, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent. Although the material provisions of the Rights Agreement have been accurately summarized, the statements below concerning the Rights Agreement are not necessarily complete, and in each instance reference is made to the form of Rights Agreement itself, a copy of which has been filed as an exhibit to the Registration Statement of which this prospectus forms a part. Each statement is qualified in its entirety by such reference. Stockholder rights are not exercisable until the distribution date, and will expire at the close of business on the tenth anniversary of the date on which the initial public offering price is determined, unless earlier redeemed or exchanged by us. A distribution date would occur upon the earlier of: - the tenth day after the first public announcement or communication to us that a person or group of affiliated or associated persons (referred to as an acquiring person) has acquired beneficial ownership of 10% or more of our outstanding common stock (the date of such announcement or communication is referred to as the stock acquisition time); or - the tenth business day after the commencement or announcement of the intention to commence a tender offer or exchange offer that would result in a person or group becoming an acquiring person. If any person becomes an acquiring person, each holder of a stockholder right will be entitled to exercise the right and receive, instead of Series A Junior Participating Preferred Stock, common stock (or, in certain circumstances, cash, a reduction in purchase price, property or other securities of MetLife, Inc.) having a value equal to two times the purchase price of the stockholder right. All stockholder rights that are beneficially owned by an acquiring person or its transferee will become null and void. If at any time after a public announcement has been made or MetLife, Inc. has received notice that a person has become an acquiring person, (1) MetLife, Inc. is acquired in a merger or other business combination or (2) 50% or more of MetLife, Inc.'s assets, cash flow or earning 263 265 power is sold or transferred, each holder of a stockholder right (except rights which previously have been voided as set forth above) will have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the right. The purchase price payable, the number of one one-hundredths of a share of Series A Junior Participating Preferred Stock or other securities or property issuable upon exercise of rights and the number of rights outstanding, are subject to adjustment from time to time to prevent dilution. With certain exceptions, no adjustment in the purchase price or the number of shares of Series A Junior Participating Preferred Stock issuable upon exercise of a stockholder right will be required until the cumulative adjustment would require an increase or decrease of at least one percent in the purchase price or number of shares for which a right is exercisable. At any time until the earlier of (1) the stock acquisition time or (2) the final expiration date of the Rights Agreement, we may redeem all the stockholder rights at a price of $0.01 per right. At any time after a person has become an acquiring person and prior to the acquisition by such person of 50% or more of the outstanding shares of our common stock, we may exchange the stockholder rights, in whole or in part, at an exchange ratio of one share of common stock, or one one-hundredth of a share of Series A Junior Participating Preferred Stock (or of a share of a class or series of preferred stock having equivalent rights, preferences and privileges), per right. The stockholder rights plan is designed to protect stockholders in the event of unsolicited offers to acquire MetLife, Inc. and other coercive takeover tactics which, in the opinion of its board of directors, could impair its ability to represent stockholder interests. The provisions of the stockholder rights plan may render an unsolicited takeover more difficult or less likely to occur or may prevent such a takeover, even though such takeover may offer our stockholders the opportunity to sell their stock at a price above the prevailing market rate and may be favored by a majority of our stockholders. METLIFE POLICYHOLDER TRUST Under the plan of reorganization, we will establish the MetLife Policyholder Trust to hold the shares of common stock allocated to eligible policyholders under the plan. 493,476,118 shares of common stock, or 66.2% of the total number of shares expected to be outstanding based upon an initial public offering price of $14.00 per share, will be issued to the trust on the effective date of the plan, to be held on behalf of approximately nine million eligible policyholders. Because of the number of shares held by the trust and the voting provisions of the trust, the trust may affect the outcome of matters brought to a stockholder vote. The trustee will generally vote all of the shares of common stock held in the trust in accordance with the recommendations given by our board of directors to our stockholders or, if the board gives no such recommendation, as directed by the board, except on votes regarding certain fundamental corporate actions. As a result of the voting provisions of the trust, our board of directors will effectively be able to control votes on all matters submitted to a vote of stockholders, excluding those fundamental corporate actions described below, so long as the trust holds a substantial number of shares of our common stock. If the vote relates to fundamental corporate actions specified in the trust, the trustee will solicit instructions from the beneficiaries and vote all shares held in the trust in proportion to the instructions it receives, which would give disproportionate weight to the instructions actually given by trust beneficiaries. These actions include: - an election or removal of directors in which a stockholder has properly nominated one or more candidates in opposition to a nominee or nominees of our board of directors or a vote on a stockholder's proposal to oppose a board nominee for director, remove a director for cause or fill a vacancy caused by the removal of a director by stockholders, subject to certain conditions; 264 266 - a merger or consolidation, a sale, lease or exchange of all or substantially all of the assets, or a recapitalization or dissolution of, MetLife, Inc., in each case requiring a vote of our stockholders under applicable Delaware law; - any transaction that would result in an exchange or conversion of shares of common stock held by the trust for cash, securities or other property; - issuances of common stock during the first year after the effective date of the plan at a price materially less than the then prevailing market price of our common stock, if a vote of stockholders is required to approve the issuance under Delaware law, other than issuances in an underwritten public offering or pursuant to an employee benefit plan; - for the first year after the effective date of the plan, any matter that requires a supermajority vote of stockholders under Delaware law or our certificate of incorporation or by-laws, and any amendment to our certificate of incorporation or by-laws that is submitted for approval to our stockholders; and - any proposal requiring our board of directors to amend or redeem the rights under our stockholder rights plan, other than a proposal with respect to which we have received advice of nationally-recognized legal counsel to the effect that the proposal is not a proper subject for stockholder action under Delaware law. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is ChaseMellon Shareholder Services, L.L.C. 265 267 UNDERWRITING MetLife, Inc., Metropolitan Life Insurance Company, MetLife Capital Trust I and the underwriters for the offering named below have entered into an underwriting agreement dated , 2000, with respect to the units being offered. Subject to certain conditions, (1) MetLife, Inc. has agreed to enter into the purchase contracts with each of the underwriters named below underlying the respective number of units indicated opposite such underwriter's name below, (2) MetLife, Inc., Metropolitan Life Insurance Company and the trust have agreed that the trust will sell to each of the underwriters the capital securities underlying the respective number of units indicated opposite such underwriter's name below, and (3) each of the underwriters has severally agreed to enter into the purchase contracts with MetLife, Inc., purchase the capital securities from the trust and pledge such capital securities under the pledge agreement.
UNDERWRITERS NUMBER OF UNITS - ------------ --------------- Credit Suisse First Boston Corporation...................... Goldman, Sachs & Co. ....................................... Banc of America Securities LLC.............................. Donaldson, Lufkin and Jenrette Securities Corporation....... Lehman Brothers Inc. ....................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... Morgan Stanley & Co. Incorporated........................... Salomon Smith Barney Inc. .................................. Total....................................................... 20,000,000
The offering of the units is conditioned on the consummation of the demutualization, the consummation of the initial public offering of our common stock and the consummation of the private placements. If the underwriters sell more units than the total number set forth in the table above, the underwriters have an option to buy up to an additional 3,000,000 units from MetLife, Inc. and the trust to cover such sales. They may exercise that option for 30 days following the date of this offering. If any units are purchased pursuant to this option, the underwriters will severally purchase units in approximately the same proportion as set forth in the table above. The following table summarizes the compensation and estimated expenses we will pay.
PER UNIT TOTAL ------------------------------- ------------------------------- WITHOUT WITH WITHOUT WITH OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT -------------- -------------- -------------- -------------- Underwriting Discounts paid by us... $ $ $ $ Expenses payable by us.............. $ $ $ $
Units sold by the underwriters will be offered to the public at the initial public offering price set forth on the cover page of this prospectus. Any units sold by the underwriters to securities dealers may be sold at a discount of up to $ per unit from the initial public offering price. Any such securities dealers may resell any units purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per unit from the initial public offering price. After the initial offering of the units, the representatives of the underwriters may change the offering price and the other selling terms. The underwriters have entered into an agreement in which they agree to restrictions on where and to whom they and any dealer purchasing from them may offer the units as part of the distribution of the units. 266 268 We agreed that during the period beginning from , 2000 and continuing to and including the date 180 days after the date of this prospectus, we will not offer, sell, contract to sell or otherwise dispose of, except as provided under the underwriting agreement, the U.S. and the international common stock underwriting agreements and except for the issuance of common stock pursuant to the private placements and to the MetLife Policyholder Trust pursuant to the plan of reorganization, any units, capital securities, debentures, common stock or any securities that are substantially similar to the units, the capital securities, the debentures or our common stock, including but not limited to any securities that are convertible into or exchangeable for, or represent the right to receive the units, the capital securities, the debentures, shares of our common stock or any such substantially similar securities (other than the common stock to be offered and sold concurrently with this offering of the units and other than pursuant to employee stock option plans existing on the date of the underwriting agreement), without the prior written consent of Credit Suisse First Boston Corporation and Goldman, Sachs & Co. In addition, Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed in principle with us that they will not, without our prior written consent, sell the shares of our common stock that they or their affiliates purchase in the private placements for one year after the initial public offering, except for sales to affiliates or pursuant to a tender or exchange offer recommended by our boards of directors. The units will be a new issue of securities with no established trading market. The underwriters have advised MetLife, Inc. that they intend to make a market in the units, but they are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the units. The units have been approved for listing on the New York Stock Exchange under the symbol "MIU", subject to official notice of issuance. In order to meet the requirements for listing the units on the NYSE, the underwriters have undertaken to sell lots of 100 or more units to a minimum of 400 beneficial holders. The underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934 (the "Exchange Act"). - Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. - Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. - Syndicate covering transactions involve purchases of the units in the open market after the distribution has been completed in order to cover syndicate short positions. - Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the units originally sold by such syndicate member are purchased in a stabilizing transaction or a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the units to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise, and if continued, may be discontinued at any time. Each of the underwriters severally represents and agrees that: - It has not offered or sold and prior to the date six months after the date of issuance of the units will not offer or sell any units, purchase contracts or capital securities to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result 267 269 in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; - It has complied, and will comply with, all applicable provisions of the Financial Services Act of 1986 with respect to anything done by it in relation to the units in, from or otherwise involving the United Kingdom; and - It has only issued or passed on and will only issue and pass on in the United Kingdom any document received by it in connection with the issue of the units, purchase contracts or capital securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended, or is a person to whom such document may otherwise lawfully be issued or passed on. The underwriters may not confirm sales to discretionary accounts without the prior written approval of the customer. The offering will be made in compliance with NASD Conduct Rule 2810 relating to direct participation programs. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of units to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information contained on any underwriter's website and any information contained on any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, have not been approved or endorsed by us or any underwriter in its capacity as an underwriter and should not be relied upon by investors. MetLife, Inc., Metropolitan Life Insurance Company and the trust have agreed to indemnify the several underwriters against liabilities under the Securities Act of 1933, as amended, or to contribute to payments that the underwriters may be required to make in respect thereof. Certain of the underwriters or their affiliates have provided from time to time, and expect to provide in the future, investment banking, financial advisory and other related services to us and our affiliates, for which they have received and may continue to receive customary fees and commissions. We and the underwriters, and our respective affiliates also participate together from time to time in investing activities. The joint-lead managing underwriters, Credit Suisse First Boston Corporation and Goldman, Sachs & Co., are currently acting as financial advisors to us in connection with the demutualization. In addition, we have engaged Merrill Lynch & Co. to render a fairness opinion to our board of directors in connection with the demutualization. In this regard, we have agreed to indemnify each of them against certain liabilities, including liabilities under the Securities Act. In addition, Credit Suisse First Boston Corporation and Goldman, Sachs & Co. may, as principal or agent, assist in the sale of shares of our common stock on behalf of trust beneficiaries who elect to sell shares and, during the first ninety days following the plan effective date, Credit Suisse First Boston Corporation and Goldman, Sachs & Co., jointly have certain rights under such program to assist in sales on behalf of large trust beneficiaries if certain volume limitations are exceeded under the purchase and sale program established by the plan of reorganization. Other relationships we have with certain underwriters for the initial public offering and for this offering include the following: - Some of our directors are members of the boards of directors of certain of the underwriters or their affiliates. See "Management" for a description of these directorships. - We own approximately 3% or less of the outstanding common stock of certain subsidiaries of Banco Santander Central Hispano, S.A. and Credit Suisse Group, certain of which are co-managers of the initial public offering or the offering of the units. We operate in Spain and Portugal through joint venture arrangements with Banco Santander Central Hispano, 268 270 S.A., the indirect parent of Santander Investment Securities Inc. and BSCH Bolsa, Sociedad de Valores, S.A., which are acting as co-managers in the initial public offering. One of our officers is a member of the investment committee of Credit Suisse First Boston International Equity Partners, L.P. We are a limited partner of certain limited partnerships affiliated with Credit Suisse First Boston Corporation. - Our subsidiary Conning & Company will act as a co-manager of the initial public offering. - Certain of the underwriters of the initial public offering and this offering also maintain arrangements with us relating to the lease of office buildings. In addition to the foregoing, Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed in principle that they or their respective affiliates will purchase from us, at a price per share equal to the initial public offering price, in the aggregate not less than 14,900,000 shares, nor more than 73,000,000 shares, of our common stock in private placements that will close concurrently with the initial public offering and the offering of the units. We will determine at the time of the pricing of the initial public offering whether to sell any shares to these purchasers in excess of the minimum amount. Any shares in excess of the minimum amount that we determine not to sell to these investors may increase the number of shares available for sale to the general public. The maximum number of shares that each investor, individually, and the investors, in the aggregate, could be obligated to purchase in the private placements represents approximately 4.9% and 9.8%, respectively, of the total number of shares of our common stock to be outstanding upon consummation of the initial public offering and the private placements. The investors would purchase these shares from us at the initial public offering price. We expect each of these purchasers to enter into an agreement with us that provides that any shares purchased by it will be restricted from sale or transfer for a period of one year after the initial public offering, except for sales to affiliates or pursuant to a tender or exchange offer recommended by our board of directors, and that it will not, without our consent, increase its ownership of voting securities above 4.9% of the outstanding shares (or 5.0% with the New York Superintendent's approval), except for any increase resulting from transactions in the ordinary course of the business of purchaser as underwriter, broker/dealer, investment manager or investment adviser or from ordinary trading activities, unless such transactions were made with the purpose of changing or influencing the control of MetLife, seek to obtain board representation, solicit proxies in opposition to management or take certain other actions for five years. LEGAL MATTERS The validity of the purchase contracts, our common stock issuable upon their settlement and the debentures will be passed upon for MetLife, Inc. by Debevoise & Plimpton, and for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. Several matters of Delaware law with respect to the validity of the capital securities will be passed upon for us and the trust by Richards, Layton & Finger, P.A. Helene L. Kaplan, a director of MetLife, Inc. and Metropolitan Life Insurance Company and the Chairman of the Nominating and Compensation Committee of Metropolitan Life Insurance Company in 1999, is of counsel to Skadden, Arps, Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom LLP has in the past performed, and continues to perform, legal services for Metropolitan Life Insurance Company and our affiliates. 269 271 EXPERTS The consolidated financial statements of Metropolitan Life Insurance Company and its subsidiaries at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999 and the balance sheet of MetLife, Inc. as of February 11, 2000 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. We have retained PricewaterhouseCoopers LLP to advise us in connection with actuarial matters involved in the development of the plan of reorganization and the establishment and operation of the closed block. The opinion of Kenneth Beck, a consulting actuary associated with PricewaterhouseCoopers LLP, dated November 16, 1999, which is subject to the limitations described within the opinion, is included as Annex A of this prospectus in reliance upon his authority as an expert in actuarial matters generally and in the application of actuarial concepts to insurance matters. 270 272 ADDITIONAL INFORMATION We and MetLife Capital Trust I have filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (together with all amendments, exhibits, schedules and supplements thereto, "Registration Statement"), under the Securities Act of 1933, as amended, and the rules and regulations thereunder, for the registration of the units offered hereby. This prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted as permitted by rules and regulations of the Securities and Exchange Commission. For further information with respect to MetLife, Inc., MetLife Capital Trust I and the units offered hereby, please see the Registration Statement. Statements made in this prospectus as to the contents of any contract, agreement or other document referred to including, but not limited to, the certificate of incorporation and by-laws of MetLife, Inc., are not necessarily complete. With respect to statements made as to each such contract, agreement or other document filed as an exhibit to the Registration Statement, please refer to the exhibit for a more complete description of the matter involved, and each such statement will be deemed qualified in its entirety by such reference. The Registration Statement may be inspected and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site, http://www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission. As a result of the initial public offering of common stock and this offering of units, we will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the Securities and Exchange Commission. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by an independent public accounting firm. The normal units have been approved for listing on the New York Stock Exchange subject to official notice of issuance. Upon such listing, copies of the Registration Statement, including all exhibits thereto, and periodic reports, proxy statements and other information will be available for inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. MetLife, Inc. has not included or incorporated by reference separate financial statements of MetLife Capital Trust I into this prospectus. MetLife, Inc. does not consider such financial statements to be material to holders of the capital securities because: - all of the voting securities of MetLife Capital Trust I will be owned, directly or indirectly, by MetLife, Inc., a reporting company under the Exchange Act; - MetLife Capital Trust I is a special purpose entity, has no operating history, has no independent operations and is not engaged in, and does not propose to engage in, any activity other than issuing securities representing undivided beneficial interests in the assets of MetLife Capital Trust I and investing the proceeds thereof in debentures issued by MetLife, Inc.; and - MetLife, Inc.'s obligations described in this prospectus under the declaration of trust of MetLife Capital Trust I, the guarantee issued by MetLife, Inc. with respect to the capital securities, the debentures of MetLife, Inc. purchased by the trust and the applicable indenture pursuant to which such debentures are issued, taken together, constitute direct obligations of MetLife, Inc. and a full and unconditional guarantee of the capital securities. 271 273 GLOSSARY The following Glossary includes definitions of certain insurance terms. Each term defined in this Glossary is printed in boldface type the first time it appears in this prospectus. ACCOUNT VALUE.............. The amount of money held under a contract in either a general account or separate account of an insurer to support policyholder liabilities. ADMITTED ASSETS............ Assets which are included in an insurer's statutory financial statements to measure POLICYHOLDER SURPLUS as determined in accordance with state insurance laws. ANNUAL STATEMENT........... The report filed annually with state insurance regulatory authorities that contains financial and other information on a calendar year basis and is prepared in accordance with statutory accounting practices. The form of the Annual Statement is prescribed by the NAIC. ANNUITY.................... A contract that pays or permits the election of a periodic income benefit for the life of a person, the lives of two or more persons for a specific period of time, or a combination thereof. CASH VALUE................. The amount of cash available to a policyholder on the surrender of or withdrawal from a life insurance policy or annuity contract. CATASTROPHE................ An event that produces pretax losses before reinsurance in excess of $25 million involving multiple first-party policyholders. Common catastrophe events include hurricanes, earthquakes, tornadoes, wind and hail storms, fires and explosions. CEDE, CEDED or CEDING...... The reinsurance of all or a portion of an insurer's risk with another insurer. COMBINED RATIO............. A property and casualty term, meaning the sum of the loss ratio and the expense ratio. A combined ratio below 100 generally indicates profitable underwriting. A combined ratio over 100 generally indicates unprofitable underwriting. DIVIDEND SCALES............ The actuarial formulas used by life insurers to determine amounts payable as dividends on participating policies based on experience factors relating to, among other things, investment results, mortality, lapse rates, expenses, premium taxes and policy loan interest and utilization rates. EXPENSE RATIO.............. The ratio of a property and casualty insurer's operating expenses to net premiums earned. FIRST-YEAR PREMIUMS AND DEPOSITS................. The amount of premiums on insurance policies sold plus the amount of deposits on variable and universal life policies sold or additional premiums or deposits from conversions received over the specified period. This figure does not reflect policies that lapse in their first year. GENERAL ACCOUNT............ The aggregate of a life insurer's assets, other than those allocated to separate accounts. GUARANTEED INTEREST CONTRACTS (GICS)......... Group annuity contracts that guarantee a return on principal and a stated interest rate for a specified period of time. IN FORCE................... A policy that is shown on records to be in force on a given date and that has not matured by death or otherwise or been surrendered or otherwise terminated. G-1 274 LOSS ADJUSTMENT EXPENSES (LAE).................... The expenses of settling property and casualty claims, including legal and other fees and general expenses. LOSS RATIO................. The ratio of incurred losses and LAE to earned premiums. MORBIDITY.................. Incidence rates and duration of disability used in pricing and computing liabilities for disability insurance. Morbidity varies by such parameters as age, gender and duration since disability. MORTALITY.................. Rates of death, varying by such parameters as age, gender and health, used in pricing and computing liabilities for future policyholder benefits for life and annuity products, which contain significant mortality risk. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)................... The National Association of Insurance Commissioners, a national association of state insurance regulators that sets guidelines for statutory policies, procedures and reporting for insurers. NET SALES CREDITS.......... An industry measure of agent productivity. Net sales credits are the annualized first-year commissions, which vary by product, paid to agents and other sales representatives. NON-ADMITTED ASSETS........ Certain assets or portions thereof which are not permitted to be reported as ADMITTED ASSETS in an insurer's Annual Statement. As a result, certain assets which normally would be accorded value in the financial statements of non-insurance corporations are accorded no value and thus reduce the reported statutory policyholder surplus of the insurer. PARTICIPATING POLICY....... Policies or annuity contracts under which the owner is eligible to share in the divisible surplus of the insurer through policyholder dividends, whether or not such dividends are currently payable. For purposes of the plan, participating policies also include policies or annuity contracts that are not by their terms non-participating and certain supplementary contracts. PERSISTENCY................ Measurement of the percentage of insurance policies remaining in force from year to year, as measured by premiums. POLICYHOLDER SURPLUS....... The excess of admitted assets over liabilities, in each case under statutory accounting practices. PREMIUMS................... Payments and considerations received on insurance policies issued or reinsured by an insurer. Under GAAP, premiums on universal life and other investment-type contracts are not accounted for as revenues. RISK-BASED CAPITAL (RBC)... Risk-based capital, which is the regulatory targeted surplus level based on the relationship of statutory capital and surplus, with certain adjustments, to the sum of stated percentages of each element of a specified list of company risk exposures. REINSURANCE................ The acceptance by one or more insurers of a portion of risk underwritten by another insurer that has directly written the coverage in return for a portion of the premium related thereto. The legal rights of the insured generally are not affected by the reinsurance transaction, and the insurer issuing the insurance contract remains liable to the insured for payment of policy benefits. G-2 275 SEPARATE ACCOUNTS.......... Investment accounts maintained by an insurer to which funds have been allocated for certain policies under provisions of relevant state insurance laws. The investments in each separate account are maintained separately from those in other separate accounts and an insurer's general account and generally are not subject to the general liabilities of the insurer. The investment results of the separate account assets generally pass through to the separate account policyholders and contractholders, less management fees, so that an insurer bears limited or no investment risk on such assets. STATUTORY ACCOUNTING PRACTICES................ Those accounting practices prescribed or permitted by an insurer's domiciliary state insurance regulator for purposes of financial reporting to the insurance regulator. STATUTORY RESERVES......... Monetary amounts established by state insurance law that an insurer must have available to provide for future obligations with respect to all policies. Statutory reserves are liabilities on the balance sheet of financial statements prepared in conformity with statutory accounting practices. STATUTORY SURPLUS.......... The excess of admitted assets over statutory liabilities as shown on an insurer's statutory financial statements. SURRENDER CHARGE........... The fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value prior to the end of the surrender charge period. Such charge is intended to recover all or a portion of policy acquisition costs and act as a deterrent to early surrender. Surrender charges typically decrease over a set period of time as a percentage of the ACCOUNT VALUE. UNDERWRITING............... The process of examining, accepting or rejecting insurance risks, and classifying those accepted, in order to charge an appropriate premium for each accepted risk. G-3 276 INDEX TO FINANCIAL STATEMENTS
PAGE ---- METLIFE, INC. Independent Auditors' Report................................ F-2 Balance Sheet at February 11, 2000.......................... F-3 Notes to Balance Sheet...................................... F-4 METROPOLITAN LIFE INSURANCE COMPANY Independent Auditors' Report................................ F-7 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997.......................... F-8 Consolidated Balance Sheets at December 31, 1999 and 1998... F-9 Consolidated Statements of Equity for the years ended December 31, 1999, 1998 and 1997.......................... F-10 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.......................... F-11 Notes to Consolidated Financial Statements.................. F-12
F-1 277 INDEPENDENT AUDITORS' REPORT The Board of Directors of MetLife, Inc.: We have audited the accompanying balance sheet of MetLife, Inc. (the "Company") as of February 11, 2000. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such balance sheet presents fairly, in all material respects, the financial position of MetLife, Inc. at February 11, 2000 in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 11, 2000 F-2 278 METLIFE, INC. BALANCE SHEET FEBRUARY 11, 2000 ASSETS Cash and cash equivalents................................. $100 ==== EQUITY Preferred stock, par value $.01 per share; 200,000,000 shares authorized; none issued......................... $ -- Series A Junior Participating Preferred Stock............. -- Common stock, par value $.01 per share; 3,000,000,000 shares authorized; 100 shares issued and outstanding... 1 Additional paid-in capital................................ 99 ---- $100 ====
See accompanying notes to balance sheet. F-3 279 METLIFE, INC. NOTES TO BALANCE SHEET 1. BUSINESS MetLife, Inc. was incorporated on August 10, 1999, under the laws of Delaware and is a wholly-owned subsidiary of Metropolitan Life Insurance Company ("Metropolitan Life") for the purpose of becoming the parent holding company of Metropolitan Life under a plan of reorganization, as amended (the "plan of demutualization"), whereby Metropolitan Life will convert from a mutual life insurance company to a stock life insurance company. MetLife, Inc. has had no operations since its formation. The only cash transaction has been the receipt of $100 in connection with the issuance of 100 shares of common stock to Metropolitan Life. 2. PLAN OF REORGANIZATION On September 28, 1999, the board of directors of Metropolitan Life adopted, pursuant to the New York Insurance Law, a plan of reorganization, and subsequently adopted amendments to the plan, pursuant to which Metropolitan Life proposes to convert from a mutual life insurance company to a stock life insurance company and become a wholly-owned subsidiary of MetLife, Inc. The plan was approved by Metropolitan Life's voting policyholders on February 7, 2000. The plan will become effective at such time as the New York Superintendent of Insurance ("Superintendent") approves it based on finding, among other things, that the plan is fair and equitable to policyholders. The plan requires an initial public offering of common stock and permits other capital raising transactions on the effective date of the plan. 3. DIVIDEND RESTRICTIONS Assuming the plan of demutualization becomes effective, MetLife, Inc.'s ability to meet its cash requirements and pay dividends depends on the receipt of dividends and other payments from Metropolitan Life. Metropolitan Life will be restricted as to the amounts it may pay as dividends to MetLife, Inc. Under the New York Insurance Law, the Superintendent has broad discretion to determine whether the financial condition of a stock life insurance company would support the payment of dividends to its shareholders. The New York Insurance Department has established informal guidelines for the Superintendent's determination which focus upon, among other things, the overall financial condition and profitability of the insurer under statutory accounting practices. 4. STOCK INCENTIVE PLAN On October 20, 1999, MetLife, Inc. adopted the MetLife, Inc. 2000 stock incentive plan (the "plan"). Under the plan, options granted may be either non-qualified stock options or incentive stock options qualifying under the Internal Revenue Code of 1986, as amended. The maximum number of shares issuable under the plan is equal to 5% of the shares outstanding immediately after the effective date of the plan of reorganization, reduced by the shares issued pursuant to options granted under the MetLife, Inc. 2000 directors stock plan. The maximum number of shares which may be subject to awards under the plan may not exceed 60% of the shares available under the plan prior to the second anniversary of the effective date of the plan of reorganization or 80% of the shares available under the plan prior to the third anniversary of the effective date of the plan of reorganization. No participant in the plan may be granted, during any five-year period, options in respect of more than 5% of the shares available for issuance under the plan. The shares to be issued under the plan may be authorized, but unissued shares or treasury shares. The exercise price per share of common stock subject to either a non-qualified stock option or an incentive stock option will not be less than the fair market value of such F-4 280 METLIFE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) shares on the date of grant. Upon the occurrence of certain events that affect the capitalization of MetLife, Inc., appropriate adjustments will be made in the number of shares that may be issued under the plan in the future and in the number of shares and the exercise price under outstanding grants made before the event. If any grant is for any reason canceled, terminated or otherwise settled without the issuance of some or all the shares of common stock subject to the grant, such shares will be available for future grants. At February 11, 2000, there were no options granted or outstanding relating to the plan. 5. DIRECTORS STOCK PLAN On October 20, 1999, MetLife, Inc. also adopted the MetLife, Inc. 2000 directors stock plan (the "director's plan"). Under the director's plan, up to one-half of an outside director's retainer and attendance fees can be paid in common stock. The director's plan also provides that, with board approval, outside directors can be granted non-qualified stock options to purchase shares of MetLife, Inc. common stock at a price no less than the fair market value of a share of common stock on the grant date of the stock option. Up to a maximum of 500,000 shares may be issued under the director's plan in lieu of fees and no more than .05% of the shares outstanding immediately after the effective date of the plan of reorganization may be issued with respect to stock options under the directors plan. Common stock paid in lieu of fees under the director's plan may not be sold prior to the second anniversary of the effective date of the plan of reorganization. Stock options granted under the director's plan will generally be exercisable on the date of grant, but in no event exercised before the second anniversary of the effective date of the plan of reorganization. Outside directors may elect to receive all or a portion of their retainer and attendance fees that would otherwise be paid in cash with respect to services rendered after the second anniversary of the effective date of the plan of reorganization in the form of common stock. In addition, an outside director may elect to defer receipt of any shares issuable under the terms of the directors plan in lieu of their retainer and attendance fees and any dividends payable on the shares, until he or she is no longer a director of MetLife, Inc. At February 11, 2000 there were no options granted or outstanding relating to this plan. 6. STOCKHOLDER RIGHTS PLAN On September 29, 1999, MetLife, Inc. also approved a stockholder rights plan (the "rights plan"). Under the rights plan, each outstanding share of common stock issued between the entry into the underwriting agreement for the initial public offering and the distribution date (as defined in the rights plan) will be coupled with a stockholder right. Each right will entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock. Each one one-hundredth of a share of Series A Junior Participating Preferred Stock will have economic and voting terms equivalent to one share of common stock. Until it is exercised, the right itself will not entitle the holder thereof to any rights as a stockholder, including the right to receive dividends or to vote at stockholder meetings. Stockholder rights are not exercisable until the distribution date, and will expire at the close of business on the tenth anniversary of the date on which the initial public offering price is determined, unless earlier redeemed or exchanged by MetLife, Inc. 7. COMMITMENTS AND CONTINGENCIES The New York Superintendent held a public hearing relating to the plan of demutualization on January 24, 2000. At the public hearing, some policyholders and others raised objections to certain aspects of the plan. These objections alleged, among other things, that the plan was not fair and equitable to policyholders of Metropolitan Life. In addition, a civil complaint challenging F-5 281 METLIFE, INC. NOTES TO BALANCE SHEET -- (CONTINUED) the fairness of the plan and the adequacy and accuracy of the disclosures to policyholders regarding the plan has been filed in New York Supreme Court for Kings County on behalf of the alleged class consisting of the policyholders of Metropolitan Life who should have membership benefits in Metropolitan Life and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan and seeks other relief. The defendants named in the compliant are Metropolitan Life, the individual members of its board of directors, and MetLife, Inc. The management of Metropolitan Life and MetLife, Inc. believe that the allegations made in the compliant are wholly without merit, and intend to vigorously contest the complaint. F-6 282 INDEPENDENT AUDITORS' REPORT The Board of Directors and Policyholders of Metropolitan Life Insurance Company: We have audited the accompanying consolidated balance sheets of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Metropolitan Life Insurance Company and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. Deloitte & Touche LLP New York, New York February 7, 2000 F-7 283 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
1999 1998 1997 ---- ---- ---- REVENUES Premiums.................................................... $12,088 $11,503 $11,278 Universal life and investment-type product policy fees...... 1,438 1,360 1,418 Net investment income....................................... 9,816 10,228 9,491 Other revenues.............................................. 2,154 1,994 1,491 Net realized investment gains (losses) (net of amounts allocable to other accounts of $(67), $608 and $231, respectively)............................................. (70) 2,021 787 ------- ------- ------- 25,426 27,106 24,465 ------- ------- ------- EXPENSES Policyholder benefits and claims (excludes amounts directly related to net realized investment gains (losses) of $(21), $368 and $161, respectively)....................... 13,105 12,638 12,403 Interest credited to policyholder account balances.......... 2,441 2,711 2,878 Policyholder dividends...................................... 1,690 1,651 1,742 Other expenses (excludes amounts directly related to net realized investment gains (losses) of $(46), $240 and $70, respectively)............................................. 6,755 8,019 5,771 ------- ------- ------- 23,991 25,019 22,794 ------- ------- ------- Income before provision for income taxes and extraordinary item...................................................... 1,435 2,087 1,671 Provision for income taxes.................................. 593 740 468 ------- ------- ------- Income before extraordinary item............................ 842 1,347 1,203 Extraordinary item -- demutualization expense............... 225 4 -- ------- ------- ------- Net income.................................................. $ 617 $ 1,343 $ 1,203 ======= ======= =======
See accompanying notes to consolidated financial statements. F-8 284 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN MILLIONS)
1999 1998 ---- ---- ASSETS Investments: Fixed maturities available-for-sale, at fair value........ $ 96,981 $100,767 Equity securities, at fair value.......................... 2,006 2,340 Mortgage loans on real estate............................. 19,739 16,827 Real estate and real estate joint ventures................ 5,649 6,287 Policy loans.............................................. 5,598 5,600 Other limited partnership interests....................... 1,331 1,047 Short-term investments.................................... 3,055 1,369 Other invested assets..................................... 1,501 1,484 -------- -------- 135,860 135,721 Cash and cash equivalents................................... 2,789 3,301 Accrued investment income................................... 1,725 1,994 Premiums and other receivables.............................. 6,681 5,972 Deferred policy acquisition costs........................... 8,492 6,538 Deferred income taxes....................................... 603 -- Other....................................................... 4,141 3,752 Separate account assets..................................... 64,941 58,068 -------- -------- $225,232 $215,346 ======== ======== LIABILITIES AND EQUITY Liabilities: Future policy benefits...................................... $ 73,582 $ 72,701 Policyholder account balances............................... 45,901 46,494 Other policyholder funds.................................... 4,498 4,061 Policyholder dividends payable.............................. 974 947 Short-term debt............................................. 4,208 3,585 Long-term debt.............................................. 2,514 2,903 Current income taxes payable................................ 548 403 Deferred income taxes payable............................... -- 545 Other....................................................... 14,376 10,772 Separate account liabilities................................ 64,941 58,068 -------- -------- 211,542 200,479 -------- -------- Commitments and contingencies (Note 9) Equity: Retained earnings........................................... 14,100 13,483 Accumulated other comprehensive income (loss)............... (410) 1,384 -------- -------- 13,690 14,867 -------- -------- $225,232 $215,346 ======== ========
See accompanying notes to consolidated financial statements. F-9 285 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ----------------------------------------- NET FOREIGN MINIMUM UNREALIZED CURRENCY PENSION COMPREHENSIVE RETAINED INVESTMENT TRANSLATION LIABILITY TOTAL INCOME (LOSS) EARNINGS GAINS (LOSSES) ADJUSTMENT ADJUSTMENT ----- ------------- -------- -------------- ----------- ---------- Balance at January 1, 1997....... $11,983 $10,937 $ 1,028 $ 18 $ -- Comprehensive income: Net income..................... 1,203 $ 1,203 1,203 ------- Other comprehensive income: Unrealized investment gains, net of related offsets, reclassification adjustments and income taxes...................... 870 870 Foreign currency translation adjustments................ (49) (49) ------- Other comprehensive income... 821 821 ------- Comprehensive income........... $ 2,024 ======= ------- ------- ------- ----- ---- Balance at December 31, 1997..... 14,007 12,140 1,898 (31) -- Comprehensive income: Net income..................... 1,343 $ 1,343 1,343 ------- Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes...................... (358) (358) Foreign currency translation adjustments................ (113) (113) Minimum pension liability adjustment................. (12) (12) ------- Other comprehensive loss..... (483) (483) ------- Comprehensive income........... $ 860 ======= ------- ------- ------- ----- ---- Balance at December 31, 1998..... 14,867 13,483 1,540 (144) (12) Comprehensive loss: Net income..................... 617 $ 617 617 ------- Other comprehensive loss: Unrealized investment losses, net of related offsets, reclassification adjustments and income taxes...................... (1,837) (1,837) Foreign currency translation adjustments................ 50 50 Minimum pension liability adjustment................. (7) (7) ------- Other comprehensive loss..... (1,794) (1,794) ------- Comprehensive loss............. $(1,177) ======= ------- ------- ------- ----- ---- Balance at December 31, 1999..... $13,690 $14,100 $ (297) $ (94) $(19) ======= ======= ======= ===== ====
See accompanying notes to consolidated financial statements. F-10 286 METROPOLITAN LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 617 $ 1,343 $ 1,203 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expenses.................. 173 56 (36) (Gains) losses from sales of investments and businesses, net................................................... 137 (2,629) (1,018) Change in undistributed income of real estate joint ventures and other limited partnership interests...... (322) (91) 157 Interest credited to policyholder account balances...... 2,441 2,711 2,878 Universal life and investment-type product policy fees.................................................. (1,438) (1,360) (1,418) Change in accrued investment income..................... 269 (181) (215) Change in premiums and other receivables................ (619) (2,681) (792) Change in deferred policy acquisition costs, net........ (389) (188) (159) Change in insurance related liabilities................. 2,248 1,481 2,364 Change in income taxes payable.......................... 22 251 (99) Change in other liabilities............................. 857 2,390 (206) Other, net.............................................. (131) (260) 213 -------- -------- -------- Net cash provided by operating activities................... 3,865 842 2,872 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturities........................................ 73,120 57,857 75,346 Equity securities....................................... 760 3,085 1,821 Mortgage loans on real estate........................... 1,992 2,296 2,784 Real estate and real estate joint ventures.............. 1,062 1,122 2,046 Other limited partnership interests..................... 469 146 166 Purchases of: Fixed maturities........................................ (72,253) (67,543) (76,603) Equity securities....................................... (410) (854) (2,121) Mortgage loans on real estate........................... (4,395) (2,610) (4,119) Real estate and real estate joint ventures.............. (341) (423) (624) Other limited partnership interests..................... (465) (723) (338) Net change in short-term investments...................... (1,577) (761) 63 Net change in policy loans................................ 2 133 17 Purchase of businesses, net of cash received.............. (2,972) -- (430) Proceeds from sales of businesses......................... -- 7,372 135 Net change in investment collateral....................... 2,692 3,769 -- Other, net................................................ (73) (183) 191 -------- -------- -------- Net cash provided by (used in) investing activities......... (2,389) 2,683 (1,666) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits................................................ 18,428 19,361 16,061 Withdrawals............................................. (20,650) (21,706) (18,831) Short-term debt, net...................................... 623 (1,002) 1,265 Long-term debt issued..................................... 44 693 989 Long-term debt repaid..................................... (433) (481) (104) -------- -------- -------- Net cash used in financing activities....................... (1,988) (3,135) (620) -------- -------- -------- Change in cash and cash equivalents......................... (512) 390 586 Cash and cash equivalents, beginning of year................ 3,301 2,911 2,325 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 2,789 $ 3,301 $ 2,911 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest.................................................. $ 388 $ 367 $ 422 ======== ======== ======== Income taxes.............................................. $ 587 $ 579 $ 589 ======== ======== ========
See accompanying notes to consolidated financial statements. F-11 287 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED.) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the "Company") is a leading provider of insurance and financial services to a broad section of institutional and individual customers. The Company offers life insurance, annuities and mutual funds to individuals and group insurance and retirement and savings products and services to corporations and other institutions. PLAN OF REORGANIZATION On September 28, 1999, the board of directors of MetLife adopted, pursuant to the New York Insurance Law, a plan of reorganization, and subsequently adopted amendments to the plan, pursuant to which MetLife proposes to convert from a mutual life insurance company to a stock life insurance company and become a wholly-owned subsidiary of MetLife, Inc. The plan was approved by MetLife's voting policyholders on February 7, 2000. The plan will become effective at such time as the New York Superintendent of Insurance ("Superintendent") approves it based on finding, among other things, that the plan is fair and equitable to policyholders. The plan requires an initial public offering of common stock and provides for other capital raising transactions on the effective date of the plan. On the date the plan of reorganization becomes effective, each policyholder's membership interest will be extinguished and each eligible policyholder will be entitled to receive, in exchange for that interest, trust interests representing shares of common stock of MetLife, Inc. to be held in a trust, cash or an adjustment to their policy values in the form of policy credits, as provided in the plan. In addition, when MetLife demutualizes, MetLife's Canadian branch will make cash payments to holders of certain policies transferred to Clarica Life Insurance Company ("Clarica Life") in connection with the sale of a substantial portion of MetLife's Canadian operations in 1998. See Note 9. The plan of reorganization requires that MetLife establish and operate a closed block for the benefit of holders of certain individual life insurance policies of MetLife. Assets will be allocated to the closed block in an amount that is expected to produce cash flows which, together with anticipated revenue from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and for the continuation of policyholder dividend scales in effect for 1999, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if the experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of these policies included in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience relating to the closed block are, in the aggregate, more or less favorable than assumed in establishing the closed block, total dividends paid to the closed block policyholders in the future may be greater than or less than which would have been paid to these policyholders if the policyholder dividend scales in effect for 1999 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. The closed block will continue in effect until the last policy in the closed block is no longer in force. F-12 288 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The accounting principles to account for the participating policies included in the closed block will be those used prior to the date of the demutualization. However, a policyholder dividend obligation will be established for earnings that will be paid to policyholders as additional dividends in the amounts described below, unless these earnings are offset by future unfavorable experience in the closed block. Although all of the cash flows of the closed block are for the benefit of closed block policyholders, the excess of closed block liabilities over closed block assets at the effective date will represent the estimated maximum future contributions from the closed block expected to be reported in income as the contribution from the closed block after income taxes. The contribution from the closed block will be recognized in income over the period the policies and contracts in the closed block remain in force. Management believes that over time the actual cumulative contributions from the closed block will approximately equal the expected cumulative contributions, due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative contribution from the closed block is greater than the expected cumulative contribution from the closed block, the expected cumulative contribution will be recognized in income with the excess recorded as a policyholder dividend obligation, because the excess of the actual cumulative contribution from the closed block over the expected cumulative contribution will be paid to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block. If over such period, the actual cumulative contribution from the closed block is less than the expected cumulative contribution from the closed block, the actual contribution will be recognized in income. However, dividends in the future may be changed, which would be intended to increase future actual contribution until the actual contribution equal the expected cumulative contribution. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The New York State Insurance Department (the "Department") recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining solvency under the New York Insurance Law. No consideration is given by the Department to financial statements prepared in accordance with GAAP in making such determination. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates include those used in determining deferred policy acquisition costs, investment allowances and the liability for future policyholder benefits. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of MetLife and its subsidiaries, partnerships and joint ventures in which MetLife has a majority voting interest or general partner interest with limited removal rights by limited partners. All material intercompany accounts and transactions have been eliminated. The Company accounts for its investments in real estate joint ventures and other limited partnership interests in which it does not have a controlling interest, but more than a minimal interest, under the equity method of accounting. F-13 289 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minority interest related to consolidated entities included in other liabilities was $245 and $274 at December 31, 1999 and 1998, respectively. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform with the 1999 presentation. INVESTMENTS The Company's fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on securities are recorded as a separate component of other comprehensive income (loss), net of policyholder related amounts and deferred income taxes. The cost of fixed maturity and equity securities is adjusted for impairments in value deemed to be other than temporary. These adjustments are recorded as realized losses on investments. Realized gains and losses on sales of securities are determined on a specific identification basis. All security transactions are recorded on a trade date basis. Mortgage loans on real estate are stated at amortized cost, net of valuation allowances. Valuation allowances are established for the excess carrying value of the mortgage loan over its estimated fair value when it is probable that, based upon current information and events, the Company will be unable to collect all amounts due under the contractual terms of the loan agreement. Valuation allowances are based upon the present value of expected future cash flows discounted at the loan's original effective interest rate or the collateral value if the loan is collateral dependent. Interest income earned on impaired loans is accrued on the net carrying value amount of the loan based on the loan's effective interest rate. Real estate, including related improvements, is stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 20 to 40 years). Cost is adjusted for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Impaired real estate is written down to estimated fair value with the impairment loss being included in realized losses on investments. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks. Real estate acquired in satisfaction of debt is recorded at estimated fair value at the date of foreclosure. Valuation allowances on real estate held-for-sale are computed using the lower of depreciated cost or estimated fair value, net of disposition costs. Policy loans are stated at unpaid principal balances. Short-term investments are stated at amortized cost, which approximates fair value. DERIVATIVE INSTRUMENTS The Company uses derivative instruments to manage market risk through one of four principal risk management strategies: the hedging of invested assets, liabilities, portfolios of assets or liabilities and anticipated transactions. The Company's derivative strategy employs a variety of instruments including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options. The Company's derivative program is monitored by senior management. The Company's risk of loss is typically limited to the fair value of its derivative instruments and not to the notional or contractual amounts of these derivatives. Risk arises from changes in the fair value of the F-14 290 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) underlying instruments and, with respect to over-the-counter transactions, from the possible inability of counterparties to meet the terms of the contracts. The Company has strict policies regarding the financial stability and credit standing of its major counterparties. The Company's derivative instruments are designated as hedges and are highly correlated to the underlying risk at contract inception. The Company monitors the effectiveness of its hedges throughout the contract term using an offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge effectiveness. Derivative instruments that lose their effectiveness are marked to market through net investment income. Gains or losses on financial futures contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, recorded as an adjustment to the basis of the purchased assets or to the proceeds on disposition. Gains or losses on financial futures used in asset risk management are deferred and amortized into net investment income over the remaining term of the investment. Gains or losses on financial futures used in portfolio risk management are deferred and amortized into net investment income or policyholder benefits over the remaining life of the hedged sector of the underlying portfolio. Financial forward contracts that are entered into to purchase securities are marked to fair value through other comprehensive income (loss), similar to the accounting for the investment security. Such contracts are accounted for at settlement by recording the purchase of the specified securities at the contracted value. Gains or losses resulting from the termination of forward contracts are recognized immediately as a component of net investment income. Interest rate and certain foreign currency swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net receipts or payments are accrued and recognized over the term of the swap agreement as an adjustment to net investment income or other expense. Gains or losses resulting from swap terminations are amortized over the remaining term of the underlying asset or liability. Gains and losses on swaps and certain foreign forward exchange contracts entered into in anticipation of investment transactions are deferred and, at the time of the ultimate investment purchase or disposition, reflected as an adjustment to the basis of the purchased assets or to the proceeds of disposition. In the event the asset or liability underlying a swap is disposed of, the swap position is closed immediately and any gain or loss is recorded as an adjustment to the proceeds from disposition. The Company periodically enters into collars, which consist of purchased put and written call options, to lock in unrealized gains on equity securities. Collars are marked to market through other comprehensive income (loss), similar to the accounting for the underlying equity securities. Purchased interest rate caps and floors are used to offset the risk of interest rate changes related to insurance liabilities. Premiums paid on floors, caps and options are split into two components, time value and intrinsic value. Time value is amortized over the life of the applicable derivative instrument. The intrinsic value and any gains or losses relating to these derivative instruments adjust the basis of the underlying asset or liability and are recognized as a component of net investment income over the term of the underlying asset or liability being hedged as an adjustment to the yield. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. F-15 291 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements, which are included in other assets, are stated at cost, less accumulated depreciation and amortization. Depreciation is determined using either the straight-line or sum-of-the-years-digits method over the estimated useful lives of the assets. Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for all other property and equipment. Accumulated depreciation of property and equipment and accumulated amortization on leasehold improvements was $1,130 and $1,098 at December 31, 1999 and 1998, respectively. Related depreciation and amortization expense was $103, $116 and $103 for the years ended December 31, 1999, 1998 and 1997, respectively. DEFERRED POLICY ACQUISITION COSTS The costs of acquiring new insurance business that vary with, and are primarily related to, the production of new business are deferred. Such costs, which consist principally of commissions, agency and policy issue expenses, are amortized with interest over the expected life of the contract for participating traditional life, universal life and investment-type products. Generally, deferred policy acquisition costs are amortized in proportion to the present value of estimated gross margins or profits from investment, mortality, expense margins and surrender charges. Interest rates are based on rates in effect at the inception of the contracts. Actual gross margins or profits can vary from management's estimates resulting in increases or decreases in the rate of amortization. Management periodically updates these estimates and evaluates the recoverability of deferred policy acquisition costs. When appropriate, management revises its assumptions of the estimated gross margins or profits of these contracts, and the cumulative amortization is re-estimated and adjusted by a cumulative charge or credit to current operations. Deferred policy acquisition costs for non-participating traditional life, non-medical health and annuity policies with life contingencies are amortized in proportion to anticipated premiums. Assumptions as to anticipated premiums are made at the date of policy issuance and are consistently applied during the lives of the contracts. Deviations from estimated experience are included in operations when they occur. For these contracts, the amortization period is typically the estimated life of the policy. Deferred policy acquisition costs related to internally replaced contracts are expensed at date of replacement. Deferred policy acquisition costs for property and casualty insurance contracts, which are primarily comprised of commissions and certain underwriting expenses, are deferred and amortized on a pro rata basis over the applicable contract term or reinsurance treaty. On September 28, 1999, the Company's Board of Directors adopted a plan of reorganization. Consequently, in the fourth quarter of 1999, the Company was able to commit to state insurance regulatory authorities that it would establish investment sub-segments to further align investments with the traditional individual life business of the Individual segment. As a result, future dividends for the traditional individual life business will be determined based on the results of the new investment sub-segments. Additionally, estimated future gross margins used to determine amortization of deferred policy acquisition costs and the amount of unrealized investment gains and losses relating to these products are based on investments in the new sub-segments. Using the investments in the sub-segments to determine estimated gross margins and unrealized investment gains and losses increased 1999 amortization of deferred policy acquisition costs by $56 (net of income taxes of $32) and decreased other comprehensive loss in 1999 by $123 (net of income taxes of $70). F-16 292 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information regarding deferred policy acquisition costs is as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- Balance at January 1.................................. $ 6,538 $6,436 $7,227 Capitalized during the year........................... 1,160 1,025 1,000 ------- ------ ------ Total............................................ 7,698 7,461 8,227 ------- ------ ------ Amortization allocated to: Net realized investment gains (losses).............. (46) 240 70 Unrealized investment gains (losses)................ (1,628) (216) 727 Other expenses...................................... 862 587 771 ------- ------ ------ Total amortization............................... (812) 611 1,568 ------- ------ ------ Dispositions and other................................ (18) (312) (223) ------- ------ ------ Balance at December 31................................ $ 8,492 $6,538 $6,436 ======= ====== ======
Amortization of deferred policy acquisition costs is allocated to (1) realized investment gains and losses to provide consolidated statement of income information regarding the impact of such gains and losses on the amount of the amortization, (2) unrealized investment gains and losses to provide information regarding the amount of deferred policy acquisition costs that would have been amortized if such gains and losses had been realized and (3) other expenses to provide amounts related to the gross margins or profits originating from transactions other than investment gains and losses. Realized investment gains and losses related to certain products have a direct impact on the amortization of deferred policy acquisition costs. Presenting realized investment gains and losses net of related amortization of deferred policy acquisition costs provides information useful in evaluating the operating performance of the Company. This presentation may not be comparable to presentations made by other insurers. INTANGIBLE ASSETS The excess of cost over the fair value of net assets acquired ("goodwill") and other intangible assets, including the value of business acquired, are included in other assets. Goodwill is amortized on a straight-line basis over a period ranging from 10 to 30 years. The Company continually reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments are recognized in operating results if a permanent diminution in value is deemed to have occurred. Other intangible assets are amortized over the expected policy or contract duration in relation to the present value of estimated gross profits from such policies and contracts.
GOODWILL OTHER INTANGIBLE ASSETS -------------------- -------------------------- 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- YEARS ENDED DECEMBER 31 Net Balance at January 1.............. $404 $359 $136 $1,006 $1,055 $ 767 Acquisitions.......................... 237 67 240 156 39 355 Amortization.......................... (30) (22) (17) (114) (88) (67) ---- ---- ---- ------ ------ ------ Net Balance at December 31............ $611 $404 $359 $1,048 $1,006 $1,055 ==== ==== ==== ====== ====== ====== DECEMBER 31 Accumulated amortization.............. $118 $ 88 $ 392 $ 278 ==== ==== ====== ======
F-17 293 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES Future policy benefit liabilities for participating traditional life insurance policies are equal to the aggregate of (a) net level premium reserves for death and endowment policy benefits (calculated based upon the nonforfeiture interest rate, ranging from 3% to 10%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts), (b) the liability for terminal dividends and (c) premium deficiency reserves, which are established when the liabilities for future policy benefits plus the present value of expected future gross premiums are insufficient to provide for expected future policy benefits and expenses after deferred policy acquisition costs are written off. Future policy benefit liabilities for traditional annuities are equal to accumulated contractholder fund balances during the accumulation period and the present value of expected future payments after annuitization. Interest rates used in establishing such liabilities range from 3% to 8%. Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rates used in establishing such liabilities range from 3% to 10%. Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rates used in establishing such liabilities range from 3% to 10%. Policyholder account balances for universal life and investment-type contracts are equal to the policy account values, which consist of an accumulation of gross premium payments plus credited interest, ranging from 2% to 17%, less expenses, mortality charges and withdrawals. The liability for unpaid claims and claim expenses for property and casualty insurance represents the amount estimated for claims that have been reported but not settled and claims incurred but not reported. Liabilities for unpaid claims are estimated based upon the Company's historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs. Revisions of these estimates are included in operations in the year such refinements are made. RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS Premiums related to traditional life and annuity policies with life contingencies are recognized as revenues when due. Benefits and expenses are provided against such revenues to recognize profits over the estimated lives of the policies. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred and recognized into operations in a constant relationship to insurance in-force or, for annuities, the amount of expected future policy benefit payments. Premiums related to non-medical health contracts are recognized on a pro rata basis over the applicable contract term. Premiums related to universal life and investment-type products are credited to policyholder account balances. Revenues from such contracts consist of amounts assessed against policyholder account balances for mortality, policy administration and surrender charges. Amounts that are charged to operations include interest credited and benefit claims incurred in excess of related policyholder account balances. Premiums related to property and casualty contracts are recognized as revenue on a pro rata basis over the applicable contract term. Unearned premiums are included in other liabilities. F-18 294 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DIVIDENDS TO POLICYHOLDERS Dividends to policyholders are determined annually by the board of directors. The aggregate amount of policyholders' dividends is related to actual interest, mortality, morbidity and expense experience for the year, as well as management's judgment as to the appropriate level of statutory surplus to be retained by MetLife and its insurance subsidiaries. DIVIDEND RESTRICTIONS MetLife, when it converts from a mutual life insurance company to a stock life insurance company, may be restricted as to the amounts it may pay as dividends to MetLife, Inc. Under the New York Insurance Law, the Superintendent has broad discretion to determine whether the financial condition of a stock life insurance company would support the payment of dividends to its shareholders. The Department has established informal guidelines for the Superintendent's determinations which focus upon, among other things, the overall financial condition and profitability of the insurer under statutory accounting practices. PARTICIPATING BUSINESS Participating business represented approximately 19% and 21% of the Company's life insurance in-force, and 84% and 81% of the number of life insurance policies in-force, at December 31, 1999 and 1998, respectively. Participating policies represented approximately 42% and 44%, 39% and 40%, and 41% and 41% of gross and net life insurance premiums for the years ended December 31, 1999, 1998 and 1997, respectively. INCOME TAXES MetLife and its includable life insurance and non-life insurance subsidiaries file a consolidated U.S. federal income tax return in accordance with the provisions of the Internal Revenue Code, as amended (the "Code"). Under the Code, the amount of federal income tax expense incurred by mutual life insurance companies includes an equity tax calculated based upon a prescribed formula that incorporates a differential earnings rate between stock and mutual life insurance companies. MetLife will not be subject to the equity tax when it converts to a stock life insurance company. The future tax consequences of temporary differences between financial reporting and tax bases of assets and liabilities are measured at the balance sheet dates and are recorded as deferred income tax assets and liabilities. REINSURANCE The Company has reinsured certain of its life insurance and property and casualty insurance contracts with other insurance companies under various agreements. Amounts due from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Policy and contract liabilities are reported gross of reinsurance credits. Deferred policy acquisition costs are reduced by amounts recovered under reinsurance contracts. Amounts received from reinsurers for policy administration are reported in other revenues. SEPARATE ACCOUNTS Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds F-19 295 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the separate account liabilities. Investments (stated at estimated fair value) and liabilities of the separate accounts are reported separately as assets and liabilities. Deposits to separate accounts, investment income and realized and unrealized gains and losses on the investments of the separate accounts accrue directly to contractholders and, accordingly, are not reflected in the Company's consolidated statements of income and cash flows. Mortality, policy administration and surrender charges to all separate accounts are included in revenues. See Note 6. FOREIGN CURRENCY TRANSLATION Balance sheet accounts of foreign operations are translated at the exchange rates in effect at each year-end and income and expense accounts are translated at the average rates of exchange prevailing during the year. The local currencies of foreign operations are the functional currencies unless the local economy is highly inflationary. Translation adjustments are charged or credited directly to other comprehensive income (loss). Gains and losses from foreign currency transactions are reported in other expenses and were insignificant for all years presented. EXTRAORDINARY ITEM -- DEMUTUALIZATION EXPENSE The accompanying consolidated statements of income include extraordinary charges of $225 (net of income taxes of $35) and $4 (net of income taxes of $2) for the years ended December 31, 1999 and 1998, respectively, related to costs associated with the demutualization. APPLICATION OF ACCOUNTING PRONOUNCEMENTS Effective January 1, 1999, the Company adopted Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 broadly defines start-up activities. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. Adoption of SOP 98-5 did not have a material effect on the Company's consolidated financial statements. Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance for determining when an entity should capitalize or expense external and internal costs of computer software developed or obtained for internal use. Adoption of the provisions of SOP 98-1 had the effect of increasing other assets by $82 at December 31, 1999. Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97-3"). SOP 97-3 provides guidance on accounting by insurance and other enterprises for assessments related to insurance activities including recognition, measurement and disclosure of guaranty fund and other insurance related assessments. Adoption of SOP 97-3 did not have a material effect on the Company's consolidated financial statements. In 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS 125") which were deferred by SFAS 127, Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125. The deferred provisions provide accounting and reporting standards related to repurchase agreements, dollar rolls, securities lending and similar transactions. Adoption of the provisions had the effect of increasing assets and liabilities by $3,769 at December 31, 1998 and increasing other revenues and other expenses by $266 for the year ended December 31, 1998. F-20 296 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1997, the Company changed to the retrospective interest method of accounting for investment income on structured notes in accordance with Emerging Issues Task Force Consensus No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes. This accounting change increased 1997 net investment income by $175, which included an immaterial amount related to prior years. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 defers the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS 133 requires, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in income. The Company is in the process of quantifying the impact of SFAS 133 on its consolidated financial statements. In October 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP 98-7 provides guidance on the method of accounting for insurance and reinsurance contracts that do not transfer insurance risk, defined in the SOP as the deposit method. SOP 98-7 classifies insurance and reinsurance contracts for which the deposit method is appropriate into those that 1) transfer only significant timing risk, 2) transfer only significant underwriting risk, 3) transfer neither significant timing or underwriting risk and 4) have an indeterminate risk. The Company is required to adopt SOP 98-7 as of January 1, 2000. Adoption of SOP 98-7 is not expected to have a material effect on the Company's consolidated financial statements. 2. INVESTMENTS The components of net investment income were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Fixed maturities.................................... $ 6,766 $ 6,563 $ 6,445 Equity securities................................... 40 78 50 Mortgage loans on real estate....................... 1,479 1,572 1,684 Real estate and real estate joint ventures.......... 1,426 1,529 1,718 Policy loans........................................ 340 387 368 Other limited partnership interests................. 199 196 302 Cash, cash equivalents and short-term investments... 173 187 169 Other............................................... 501 841 368 ------- ------- ------- 10,924 11,353 11,104 Less: Investment expenses........................... 1,108 1,125 1,613 ------- ------- ------- $ 9,816 $10,228 $ 9,491 ======= ======= =======
F-21 297 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net realized investment gains (losses), including changes in valuation allowances, were as follows:
YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ---- ---- ---- Fixed maturities........................................ $(538) $ 573 $ 118 Equity securities....................................... 99 994 224 Mortgage loans on real estate........................... 28 23 56 Real estate and real estate joint ventures.............. 265 424 446 Other limited partnership interests..................... 33 13 12 Sales of businesses..................................... -- 531 139 Other................................................... (24) 71 23 ----- ------ ------ (137) 2,629 1,018 Amounts allocable to: Future policy benefit loss recognition................ -- (272) (126) Deferred policy acquisition costs..................... 46 (240) (70) Participating contracts............................... 21 (96) (35) ----- ------ ------ $ (70) $2,021 $ 787 ===== ====== ======
Realized investment gains (losses) have been reduced by (1) additions to future policy benefits resulting from the need to establish additional liabilities due to the recognition of investment gains, (2) deferred policy acquisition cost amortization to the extent that such amortization results from realized investment gains and losses, and (3) additions to participating contractholder accounts when amounts equal to such investment gains and losses are credited to the contractholders' accounts. This presentation may not be comparable to presentations made by other insurers. The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Fixed maturities.................................... $(1,828) $ 4,809 $ 4,766 Equity securities................................... 875 832 1,605 Other invested assets............................... 165 154 294 ------- ------- ------- (788) 5,795 6,665 ------- ------- ------- Amounts allocable to: Future policy benefit loss recognition............ (249) (2,248) (2,189) Deferred policy acquisition costs................. 697 (931) (1,147) Participating contracts........................... (118) (212) (312) Deferred income taxes............................... 161 (864) (1,119) ------- ------- ------- 491 (4,255) (4,767) ------- ------- ------- $ (297) $ 1,540 $ 1,898 ======= ======= =======
F-22 298 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The changes in net unrealized investment gains (losses) were as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- Balance at January 1.................................. $ 1,540 $1,898 $1,028 Unrealized investment gains (losses) during the year................................................ (6,583) (870) 3,402 Unrealized investment (gains) losses relating to: Future policy benefit loss recognition.............. 1,999 (59) (970) Deferred policy acquisition costs................... 1,628 216 (727) Participating contracts............................. 94 100 (303) Deferred income taxes................................. 1,025 255 (532) ------- ------ ------ Balance at December 31................................ $ (297) $1,540 $1,898 ======= ====== ====== Net change in unrealized investment gains (losses).... $(1,837) $ (358) $ 870 ======= ====== ======
FIXED MATURITIES AND EQUITY SECURITIES Fixed maturities and equity securities at December 31, 1999 were as follows:
COST OR GROSS UNREALIZED AMORTIZED ---------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 5,990 $ 456 $ 147 $ 6,299 States and political subdivisions.... 1,583 4 45 1,542 Foreign governments.................. 4,090 210 94 4,206 Corporate............................ 47,505 585 1,913 46,177 Mortgage and asset-backed securities......................... 27,396 112 847 26,661 Other................................ 12,235 313 462 12,086 ------- ------ ------ ------- 98,799 1,680 3,508 96,971 Redeemable preferred stocks............. 10 -- -- 10 ------- ------ ------ ------- $98,809 $1,680 $3,508 $96,981 ======= ====== ====== ======= Equity Securities: Common stocks........................... $ 980 $ 921 $ 35 $ 1,866 Nonredeemable preferred stocks.......... 151 -- 11 140 ------- ------ ------ ------- $ 1,131 $ 921 $ 46 $ 2,006 ======= ====== ====== =======
F-23 299 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fixed maturities and equity securities at December 31, 1998 were as follows:
COST OR GROSS UNREALIZED AMORTIZED ----------------- ESTIMATED COST GAIN LOSS FAIR VALUE --------- ---- ---- ---------- Fixed Maturities: Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 6,640 $1,117 $ 10 $ 7,747 States and political subdivisions.... 597 26 -- 623 Foreign governments.................. 3,435 254 88 3,601 Corporate............................ 46,377 2,471 260 48,588 Mortgage and asset-backed securities......................... 26,456 569 46 26,979 Other................................ 12,438 1,069 293 13,214 ------- ------ ---- -------- 95,943 5,506 697 100,752 Redeemable preferred stocks............. 15 -- -- 15 ------- ------ ---- -------- $95,958 $5,506 $697 $100,767 ======= ====== ==== ======== Equity Securities: Common stocks........................... $ 1,286 $ 923 $ 77 $ 2,132 Nonredeemable preferred stocks.......... 222 4 18 208 ------- ------ ---- -------- $ 1,508 $ 927 $ 95 $ 2,340 ======= ====== ==== ========
The Company held foreign currency derivatives with notional amounts of $4,002 and $716 to hedge the exchange rate risk associated with foreign bonds at December 31, 1999 and 1998, respectively. The Company also held options with fair values of $(11) to hedge the market value of common stocks at December 31, 1998. At December 31, 1999, fixed maturities held by the Company that were below investment grade or not rated by an independent rating agency had an estimated fair value of $8,813. At December 31, 1999, non-income producing fixed maturities were insignificant. The amortized cost and estimated fair value of bonds at December 31, 1999, by contractual maturity date, are shown below:
AMORTIZED ESTIMATED COST FAIR VALUE --------- ---------- Due in one year or less............................... $ 3,180 $ 3,217 Due after one year through five years................. 18,152 18,061 Due after five years through ten years................ 23,755 23,114 Due after ten years................................... 26,316 25,918 ------- ------- 71,403 70,310 Mortgage and asset-backed securities.................. 27,396 26,661 ------- ------- $98,799 $96,971 ======= =======
Fixed maturities not due at a single maturity date have been included in the above table in the year of final maturity. Actual maturities may differ from contractual maturities due to the exercise of prepayment options. F-24 300 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Sales of securities were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Securities classified as available-for-sale: Proceeds.......................................... $59,852 $46,913 $69,275 Gross realized gains.............................. $ 605 $ 2,053 $ 965 Gross realized losses............................. $ 911 $ 486 $ 627 Fixed maturities classified as held-to-maturity: Proceeds.......................................... $ -- $ -- $ 352 Gross realized gains.............................. $ -- $ -- $ 5 Gross realized losses............................. $ -- $ -- $ 1
Gross realized losses above exclude writedowns recorded during 1999 for permanently impaired available-for-sale securities of $133. During 1997, fixed maturities with an amortized cost of $11,682 were transferred from held-to-maturity to available-for-sale. Other comprehensive income at the date of reclassification was increased by $198 excluding the effects of deferred income taxes and policyholder related amounts. Excluding investments in U.S. governments and agencies, the Company is not exposed to any significant concentration of credit risk in its fixed maturities portfolio. SECURITIES LENDING PROGRAM The Company participates in securities lending programs whereby large blocks of securities, which are returnable to the Company on short notice and included in investments, are loaned to third parties, primarily major brokerage firms. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $6,458 and $4,005 and estimated fair value of $6,391 and $4,552 were on loan under the program at December 31, 1999 and 1998, respectively. The Company was liable for cash collateral under its control of $6,461 and $3,769 at December 31, 1999 and 1998, respectively. This liability is included in other liabilities. Security collateral on deposit from securities borrowers is returnable to them on short notice and is not reflected in the consolidated financial statements. STATUTORY DEPOSITS The Company had investment assets on deposit with regulatory agencies of $476 and $466 at December 31, 1999 and 1998, respectively. F-25 301 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) MORTGAGE LOANS ON REAL ESTATE Mortgage loans were categorized as follows:
DECEMBER 31, ---------------------------------------- 1999 1998 ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Commercial mortgage loans.................. $14,931 75% $12,503 74% Agricultural mortgage loans................ 4,816 24% 4,256 25% Residential mortgage loans................. 82 1% 241 1% ------- --- ------- --- 19,829 100% 17,000 100% === === Less: Valuation allowances................. 90 173 ------- ------- $19,739 $16,827 ======= =======
Mortgage loans on real estate are collateralized by properties primarily located throughout the United States. At December 31, 1999, approximately 16%, 8% and 8% of the properties were located in California, New York and Florida, respectively. Generally, the Company (as the lender) requires that a minimum of one-fourth of the purchase price of the underlying real estate be paid by the borrower. Certain of the Company's real estate joint ventures have mortgage loans with the Company. The carrying values of such mortgages were $547 and $606 at December 31, 1999 and 1998, respectively. Changes in mortgage loan valuation allowances were as follows:
YEARS ENDED DECEMBER 31, --------------------------- 1999 1998 1997 ---- ---- ---- Balance at January 1................................. $ 173 $ 289 $ 469 Additions............................................ 40 40 61 Deductions for writedowns and dispositions........... (123) (130) (241) Deductions for disposition of affiliates............. -- (26) -- ----- ----- ----- Balance at December 31............................... $ 90 $ 173 $ 289 ===== ===== =====
A portion of the Company's mortgage loans on real estate was impaired and consisted of the following:
DECEMBER 31, -------------- 1999 1998 ---- ---- Impaired mortgage loans with valuation allowances.......... $540 $ 823 Impaired mortgage loans without valuation allowances....... 437 375 ---- ------ 977 1,198 Less: Valuation allowances................................. 83 149 ---- ------ $894 $1,049 ==== ======
The average investment in impaired mortgage loans on real estate was $1,134, $1,282 and $1,680 for the years ended December 31, 1999, 1998 and 1997, respectively. Interest income on impaired mortgages was $101, $109 and $110 for the years ended December 31, 1999, 1998 and 1997, respectively. F-26 302 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The investment in restructured mortgage loans on real estate was $980 and $1,140 at December 31, 1999 and 1998, respectively. Interest income of $80, $74 and $91 was recognized on restructured loans for the years ended December 31, 1999, 1998 and 1997, respectively. Gross interest income that would have been recorded in accordance with the original terms of such loans amounted to $92, $87 and $116 for the years ended December 31, 1999, 1998 and 1997, respectively. Mortgage loans on real estate with scheduled payments of 60 days (90 days for agriculture mortgages) or more past due or in foreclosure had an amortized cost of $44 and $65 at December 31, 1999 and 1998, respectively. REAL ESTATE AND REAL ESTATE JOINT VENTURES Real estate and real estate joint ventures consisted of the following:
DECEMBER 31, ---------------- 1999 1998 ---- ---- Real estate and real estate joint ventures held-for-investment....................................... $5,440 $6,301 Impairments................................................. (289) (408) ------ ------ 5,151 5,893 ------ ------ Real estate and real estate joint ventures held-for-sale.... 719 546 Impairments................................................. (187) (119) Valuation allowance......................................... (34) (33) ------ ------ 498 394 ------ ------ $5,649 $6,287 ====== ======
Accumulated depreciation on real estate was $2,235 and $2,065 at December 31, 1999 and 1998, respectively. Related depreciation expense was $247, $282 and $338 for the years ended December 31, 1999, 1998 and 1997, respectively. Real estate and real estate joint ventures were categorized as follows:
DECEMBER 31, -------------------------------------- 1999 1998 ----------------- ----------------- AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- Office........................................ $3,846 68% $4,265 68% Retail........................................ 587 10% 640 10% Apartments.................................... 474 8% 418 7% Land.......................................... 258 5% 313 5% Agriculture................................... 96 2% 195 3% Other......................................... 388 7% 456 7% ------ --- ------ --- $5,649 100% $6,287 100% ====== === ====== ===
The Company's real estate holdings are primarily located throughout the United States. At December 31, 1999, approximately 25%, 24% and 10% of the Company's real estate holdings were located in New York, California and Texas, respectively. F-27 303 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Changes in real estate and real estate joint ventures held-for-sale valuation allowance were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Balance at January 1....................................... $ 33 $110 $ 661 Additions charged (credited) to operations................. 36 (5) (76) Deductions for writedowns and dispositions................. (35) (72) (475) ---- ---- ----- Balance at December 31..................................... $ 34 $ 33 $ 110 ==== ==== =====
Investment income related to impaired real estate and real estate joint ventures held-for-investment was $61, $105 and $28 for the years ended December 31, 1999, 1998 and 1997, respectively. Investment income related to real estate and real estate joint ventures held-for-sale was $14, $3 and $11 for the years ended December 31, 1999, 1998 and 1997, respectively. The carrying value of non-income producing real estate and real estate joint ventures was $22 and $1 at December 31, 1999 and 1998, respectively. The Company owned real estate acquired in satisfaction of debt of $47 and $154 at December 31, 1999 and 1998, respectively. Real estate of $37, $69 and $151 was acquired in satisfaction of debt during the years ended December 31, 1999, 1998 and 1997, respectively. LEVERAGED LEASES Leveraged leases, included in other invested assets, consisted of the following:
DECEMBER 31, ---------------- 1999 1998 ---- ---- Investment............................................... $1,016 $1,067 Estimated residual values................................ 559 607 ------ ------ 1,575 1,674 Unearned income.......................................... (417) (471) ------ ------ $1,158 $1,203 ====== ======
The investment amounts set forth above are generally due in monthly installments. The payment periods generally range from four to 15 years, but in certain circumstances are as long as 30 years. Average yields range from 7% to 12%. These receivables are generally collateralized by the related property. F-28 304 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. DERIVATIVE INSTRUMENTS The table below provides a summary of the carrying value, notional amount and current market or fair value of derivative financial instruments (other than equity options) held at December 31, 1999 and 1998:
1999 1998 ------------------------------------------ ------------------------------------------ CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE CARRYING NOTIONAL -------------------- CARRYING NOTIONAL -------------------- VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES -------- -------- ------ ----------- -------- -------- ------ ----------- Financial futures.................. $ 27 $ 3,140 $37 $ 10 $ 3 $ 2,190 $ 8 $ 6 Foreign exchange contracts......... -- -- -- -- -- 136 -- 2 Interest rate swaps................ (32) 1,316 11 40 (9) 1,621 17 50 Foreign currency swaps............. -- 4,002 26 103 (1) 580 3 62 Caps............................... 1 12,376 3 -- -- 8,391 -- -- ---- ------- --- ---- --- ------- --- ---- Total contractual commitments...... $ (4) $20,834 $77 $153 $(7) $12,918 $28 $120 ==== ======= === ==== === ======= === ====
The following is a reconciliation of the notional amounts by derivative type and strategy at December 31, 1999 and 1998:
DECEMBER 31, 1998 TERMINATIONS/ DECEMBER 31, 1999 NOTIONAL AMOUNT ADDITIONS MATURITIES NOTIONAL AMOUNT ----------------- --------- ------------- ----------------- BY DERIVATIVE TYPE Financial futures................... $ 2,190 $18,259 $17,309 $ 3,140 Foreign exchange contracts.......... 136 702 838 -- Interest rate swaps................. 1,621 429 734 1,316 Foreign currency swaps.............. 580 3,501 79 4,002 Caps................................ 8,391 5,860 1,875 12,376 ------- ------- ------- ------- Total contractual commitments....... $12,918 $28,751 $20,835 $20,834 ======= ======= ======= ======= BY STRATEGY Liability hedging................... $ 8,741 $ 5,865 $ 2,035 $12,571 Invested asset hedging.............. 864 4,288 937 4,215 Portfolio hedging................... 2,830 13,920 14,729 2,021 Anticipated transaction hedging..... 483 4,678 3,134 2,027 ------- ------- ------- ------- Total contractual commitments....... $12,918 $28,751 $20,835 $20,834 ======= ======= ======= =======
The following table presents the notional amounts of derivative financial instruments by maturity at December 31, 1999:
REMAINING LIFE ------------------------------------------------------------------- ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL -------- ------------------ ----------------- --------------- ----- Financial futures......... $3,140 $ -- $ -- $ -- $ 3,140 Interest rate swaps....... 833 483 -- -- 1,316 Foreign currency swaps.... 7 3,371 503 121 4,002 Caps...................... 3,426 8,930 20 -- 12,376 ------ ------- ---- ---- ------- Total contractual commitments............. $7,406 $12,784 $523 $121 $20,834 ====== ======= ==== ==== =======
F-29 305 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In addition to the derivative instruments above, the Company uses equity option contracts as invested asset hedges. There were ninety-two thousand equity option contracts outstanding with a carrying value of $(11) and a market value of $(11) at December 31, 1998. 4. FAIR VALUE INFORMATION The estimated fair values of financial instruments have been determined by using available market information and the valuation methodologies described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Amounts related to the Company's financial instruments were as follows:
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 1999 AMOUNT VALUE FAIR VALUE - ----------------- -------- -------- ---------- Assets: Fixed maturities.................................. $96,981 $96,981 Equity securities................................. 2,006 2,006 Mortgage loans on real estate..................... 19,739 19,452 Policy loans...................................... 5,598 5,618 Short-term investments............................ 3,055 3,055 Cash and cash equivalents......................... 2,789 2,789 Mortgage loan commitments......................... $465 -- (7) Liabilities: Policyholder account balances..................... 37,170 36,893 Short-term debt................................... 4,208 4,208 Long-term debt.................................... 2,514 2,466 Investment collateral............................. 6,451 6,451
NOTIONAL CARRYING ESTIMATED DECEMBER 31, 1998 AMOUNT VALUE FAIR VALUE - ----------------- -------- -------- ---------- Assets: Fixed maturities................................. $100,767 $100,767 Equity securities................................ 2,340 2,340 Mortgage loans on real estate.................... 16,827 17,793 Policy loans..................................... 5,600 6,143 Short-term investments........................... 1,369 1,369 Cash and cash equivalents........................ 3,301 3,301 Mortgage loan commitments........................ $472 -- 14 Liabilities: Policyholder account balances.................... 37,448 37,664 Short-term debt.................................. 3,585 3,585 Long-term debt................................... 2,903 3,006 Investment collateral............................ 3,769 3,769
F-30 306 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The methods and assumptions used to estimate the fair values of financial instruments are summarized as follows: FIXED MATURITIES AND EQUITY SECURITIES The fair value of fixed maturities and equity securities are based upon quotations published by applicable stock exchanges or received from other reliable sources. For securities in which the market values were not readily available, fair values were estimated using quoted market prices of comparable investments. MORTGAGE LOANS ON REAL ESTATE AND MORTGAGE LOAN COMMITMENTS Fair values for mortgage loans on real estate are estimated by discounting expected future cash flows, using current interest rates for similar loans with similar credit risk. For mortgage loan commitments, the estimated fair value is the net premium or discount of the commitments. POLICY LOANS Fair values for policy loans are estimated by discounting expected future cash flows using U.S. treasury rates to approximate interest rates and the Company's past experiences to project patterns of loan accrual and repayment characteristics. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The carrying values for cash and cash equivalents and short-term investments approximated fair market values due to the short-term maturities of these instruments. POLICYHOLDER ACCOUNT BALANCES The fair value of policyholder account balances are estimated by discounting expected future cash flows, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the agreements being valued. SHORT-TERM AND LONG-TERM DEBT AND INVESTMENT COLLATERAL The fair values of short-term and long-term debt and investment collateral are determined by discounting expected future cash flows, using risk rates currently available for debt with similar terms and remaining maturities. DERIVATIVE INSTRUMENTS The fair value of derivative instruments, including financial futures, financial forwards, interest rate and foreign currency swaps, floors, foreign exchange contracts, caps and options are based upon quotations obtained from dealers or other reliable sources. See Note 3 for derivative fair value disclosures. 5. EMPLOYEE BENEFIT PLANS PENSION BENEFIT AND OTHER BENEFIT PLANS The Company is both the sponsor and administrator of defined benefit pension plans covering all eligible employees and sales representatives of MetLife and certain of its subsidiaries. Retirement benefits are based upon years of credited service and final average earnings history. F-31 307 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company also provides certain postemployment benefits and certain postretirement health care and life insurance benefits for retired employees through insurance contracts. Substantially all of the Company's employees may, in accordance with the plans applicable to the postretirement benefits, become eligible for these benefits if they attain retirement age, with sufficient service, while working for the Company.
DECEMBER 31, ------------------------------------ PENSION BENEFITS OTHER BENEFITS ---------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in projected benefit obligation: Projected benefit obligation at beginning of year.... $3,920 $3,573 $1,708 $1,763 Service cost....................................... 100 90 28 31 Interest cost...................................... 271 257 107 114 Actuarial (gains) losses........................... (260) 212 (281) (74) Divestitures, curtailments and terminations........ (22) 24 10 (13) Change in benefits................................. -- 12 -- -- Benefits paid........................................ (272) (248) (89) (113) ------ ------ ------ ------ Projected benefit obligation at end of year.......... 3,737 3,920 1,483 1,708 ------ ------ ------ ------ Change in plan assets: Contract value of plan assets at beginning of year... 4,403 4,056 1,123 1,004 Actuarial return on plan assets.................... 575 680 141 171 Employer contribution.............................. 20 15 24 61 Benefits paid...................................... (272) (248) (89) (113) Other payments..................................... -- (100) -- -- ------ ------ ------ ------ Contract value of plan assets at end of year......... 4,726 4,403 1,199 1,123 ------ ------ ------ ------ Over (under) funded.................................. 989 483 (284) (585) ------ ------ ------ ------ Unrecognized net asset at transition................. (66) (98) -- -- Unrecognized net actuarial gains..................... (564) (78) (487) (322) Unrecognized prior service cost...................... 127 145 (2) (2) ------ ------ ------ ------ Prepaid (accrued) benefit cost....................... $ 486 $ 452 $ (773) $ (909) ====== ====== ====== ====== Qualified plan prepaid pension cost.................. $ 632 $ 568 $ -- $ -- Non-qualified plan accrued pension cost.............. (146) (116) -- -- ------ ------ ------ ------ Prepaid benefit cost................................. $ 486 $ 452 $ -- $ -- ====== ====== ====== ======
The aggregate projected benefit obligation and aggregate contract value of plan assets for the pension plans were as follows:
NON-QUALIFIED QUALIFIED PLAN PLAN TOTAL ---------------- -------------- ---------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Aggregate projected benefit obligation...................... $3,482 $3,697 $ 255 $ 223 $3,737 $3,920 Aggregate contract value of plan assets (principally Company contracts)...................... 4,726 4,403 -- -- 4,726 4,403 ------ ------ ----- ----- ------ ------ Over (under) funded............... $1,244 $ 706 $(255) $(223) $ 989 $ 483 ====== ====== ===== ===== ====== ======
F-32 308 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The assumptions used in determining the aggregate projected benefit obligation and aggregate contract value for the pension and other benefits were as follows:
PENSION BENEFITS OTHER BENEFITS ---------------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Weighted average assumptions at December 31, Discount rate....................... 6.25% - 7.75% 6.5% - 7.25% 6% - 7.75% 7% Expected rate of return on plan assets............................ 8% - 10.5% 8.5% - 10.5% 6% - 9% 7.25% - 9% Rate of compensation increase....... 4.5% - 8.5% 4.5% - 8.5% N/A N/A
The assumed health care cost trend rates used in measuring the accumulated nonpension postretirement benefit obligation were 6.5% for pre-Medicare eligible claims and 6% for Medicare eligible claims in both 1999 and 1998. Assumed health care cost trend rates may have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:
ONE PERCENT ONE PERCENT INCREASE DECREASE ----------- ----------- Effect on total of service and interest cost components.... $ 14 $ 11 Effect of accumulated postretirement benefit obligation.... $134 $111
The components of periodic benefit costs were as follows:
PENSION BENEFITS OTHER BENEFITS --------------------- ------------------ 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Service cost............................... $ 100 $ 90 $ 74 $ 28 $ 31 $ 30 Interest cost.............................. 271 257 247 107 114 122 Expected return on plan assets............. (363) (337) (324) (89) (79) (66) Amortization of prior actuarial gains...... (6) (11) (5) (11) (13) (4) Curtailment (credit) cost.................. (17) (10) -- 10 4 -- ----- ----- ----- ---- ---- ---- Net periodic benefit cost (credit)......... $ (15) $ (11) $ (8) $ 45 $ 57 $ 82 ===== ===== ===== ==== ==== ====
SAVINGS AND INVESTMENT PLANS The Company sponsors savings and investment plans for substantially all employees under which the Company matches a portion of employee contributions. The Company contributed $45, $43 and $44 for the years ended December 31, 1999, 1998 and 1997, respectively. 6. SEPARATE ACCOUNTS Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts totaling $47,618 and $39,490 at December 31, 1999 and 1998, respectively, for which the policyholder assumes the investment risk, and guaranteed separate accounts totaling $17,323 and $18,578 at December 31, 1999 and 1998, respectively, for which MetLife contractually guarantees either a minimum return or account value to the policyholder. F-33 309 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Fees charged to the separate accounts by the Company (including mortality charges, policy administration fees and surrender charges) are reflected in the Company's revenues as universal life and investment-type product policy fees and totaled $485, $413 and $287 for the years ended December 31, 1999, 1998 and 1997, respectively. Guaranteed separate accounts consisted primarily of Met Managed Guaranteed Interest Contracts and participating close out contracts. The average interest rates credited on these contracts were 6.5% and 7% at December 31, 1999 and 1998, respectively. The assets that support these liabilities were comprised of $16,874 and $16,639 in fixed maturities at December 31, 1999 and 1998, respectively. The portfolios are segregated from other investments and are managed to minimize liquidity and interest rate risk. In order to minimize the risk of disintermediation associated with early withdrawals, these investment products carry a graded surrender charge as well as a market value adjustment. 7. DEBT Debt consisted of the following:
DECEMBER 31, ---------------- 1999 1998 ---- ---- MetLife: 6.300% surplus notes due 2003.......................... $ 397 $ 397 7.000% surplus notes due 2005.......................... 249 249 7.700% surplus notes due 2015.......................... 198 198 7.450% surplus notes due 2023.......................... 296 296 7.785% surplus notes due 2024.......................... 148 148 7.800% surplus notes due 2025.......................... 248 248 Other.................................................... 130 207 ------ ------ 1,666 1,743 ------ ------ Investment related: Floating rate debt, interest based on LIBOR............ -- 212 Exchangeable debt, interest rates ranging from 4.90% to 5.80%, due 2001 and 2002............................ 369 371 ------ ------ 369 583 ------ ------ Total MetLife............................................ 2,035 2,326 ------ ------ Nvest: 7.060% senior notes due 2003........................... 110 110 7.290% senior notes due 2007........................... 160 160 ------ ------ 270 270 ------ ------ Other Affiliated Companies: Fixed rate notes, interest rates ranging from 6.96% to 8.51%, maturity dates ranging from 2000 to 2008..... 170 179 Other.................................................. 39 128 ------ ------ 209 307 ------ ------ Total long-term debt..................................... 2,514 2,903 Total short-term debt.................................... 4,208 3,585 ------ ------ $6,722 $6,488 ====== ======
F-34 310 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Short-term debt consisted of commercial paper with a weighted average interest rate of 6.05% and 5.31% and a weighted average maturity of 74 and 44 days at December 31, 1999 and 1998, respectively. The Company maintains unsecured credit facilities aggregating $7,000 (five-year facility of $1,000 expiring in April 2003; 364-day facility of $1,000 expiring in April 2000; 364-day facility of $5,000 expiring in September 2000). Both $1,000 facilities bear interest at LIBOR plus 20 basis points. The $5,000 facility bears interest at various rates under specified borrowing scenarios. The facilities can be used for general corporate purposes and also provide backup for the Company's commercial paper program. At December 31, 1999, there were no outstanding borrowings under any of the facilities. Payments of interest and principal on the surplus notes, subordinated to all other indebtedness, may be made only with the prior approval of the Superintendent. Subject to the prior approval of the Superintendent, the 7.45% surplus notes may be redeemed, in whole or in part, at the election of the Company at any time on or after November 1, 2003. Each issue of investment related debt is payable in cash or by delivery of an underlying security owned by the Company. The amount payable at maturity of the debt is greater than the principal of the debt if the market value of the underlying security appreciates above certain levels at the date of debt repayment as compared to the market value of the underlying security at the date of debt issuance. The aggregate maturities of long-term debt are $93 in 2000, $194 in 2001, $210 in 2002, $415 in 2003, $126 in 2004 and $1,477 thereafter. Interest expense related to the Company's outstanding indebtedness was $358, $333 and $344 for the years ended December 31, 1999, 1998 and 1997, respectively. 8. ACQUISITIONS AND DISPOSITIONS In 1999 and 1997, respectively, the Company acquired assets of $4,832 and $3,777 and assumed liabilities of $1,860 and $3,347 through the acquisition of certain insurance and non-insurance operations. The aggregate purchase prices were allocated to the assets and liabilities acquired based on their estimated fair values. During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial financing company) and a substantial portion of its Canadian and Mexican insurance operations, which resulted in a realized investment gain of $531. During 1997, the Company sold its United Kingdom insurance operations, which resulted in a realized investment gain of $139. Such sales caused a reduction in assets of $10,663 and $4,342 and liabilities of $3,691 and $4,207 in 1998 and 1997, respectively. See Note 16 for information regarding the Company's acquisition of GenAmerica Corporation. 9. COMMITMENTS AND CONTINGENCIES LITIGATION The Company is currently a defendant in approximately 500 lawsuits raising allegations of improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims". F-35 311 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On December 28, 1999, after a fairness hearing, the United States District Court for the Western District of Pennsylvania approved a class action settlement resolving a multidistrict litigation proceeding involving alleged sales practices claims. The settlement class includes most of the owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. This class includes owners of approximately six million in-force or terminated insurance policies and approximately one million in-force or terminated annuity contracts or certificates. In addition to dismissing the consolidated class actions, the District Court's order also bars sales practices claims by class members for sales by the defendant insurers during the class period, effectively resolving all pending class actions against these insurers. The defendants are in the process of having these claims dismissed. Under the terms of the order, only those class members who excluded themselves from the settlement may continue an existing, or start a new, sales practices lawsuit against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for sales that occurred during the class period. Approximately 20,000 class members elected to exclude themselves from the settlement. Over 400 of the approximately 500 lawsuits noted above are brought by individuals who elected to exclude themselves from the settlement. The settlement provides three forms of relief. General relief, in the form of free death benefits, is provided automatically to class members who did not exclude themselves from the settlement or who did not elect the claim evaluation procedures set forth in the settlement. The claim evaluation procedures permit a class member to have a claim evaluated by a third party under procedures set forth in the settlement. Claim awards made under the claim evaluation procedures will be in the form of policy adjustments, free death benefits or, in some instances, cash payments. In addition, class members who have or had an ownership interest in specified policies will also automatically receive deferred acquisition cost tax relief in the form of free death benefits. The settlement fixes the aggregate amounts that are available under each form of relief. The Company expects that the total cost of the settlement will be approximately $957. This amount is equal to the amount of the increase in liabilities for the death benefits and policy adjustments and the present value of expected cash payments to be provided to included class members, as well as attorneys' fees and expenses and estimated other administrative costs, but does not include the cost of litigation with policyholders who are excluded from the settlement. The Company believes that the cost of the settlement will be substantially covered by available reinsurance and the provisions made in its consolidated financial statements, and thus will not have a material adverse effect on its business, results of operations or financial position. The Company has not yet made a claim under those reinsurance agreements and, although there is a risk that the carriers will refuse coverage for all or part of the claim, the Company believes this is very unlikely to occur. The Company believes it has made adequate provision in its consolidated financial statements for all probable losses for sales practices claims, including litigation costs involving policyholders who are excluded from the settlement. The class action settlement does not resolve nine purported or certified class actions currently pending against New England Mutual Life Insurance Company with which the Company merged in 1996. Eight of those actions have been consolidated as a multidistrict proceeding for pre-trial purposes in the United States District Court in Massachusetts. That Court certified a mandatory class as to those claims. Following an appeal of that certification, the United States F-36 312 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Court of Appeals remanded the case to the District Court for further consideration. The Company is negotiating a settlement with class counsel. The class action settlement also does not resolve three putative sales practices class action lawsuits which have been brought against General American Life Insurance Company. These lawsuits have been consolidated in a single proceeding in the United States District Court for the Eastern District of Missouri. General American Life Insurance Company and counsel for plaintiffs have negotiated a settlement in principle of this consolidated proceeding. General American Life Insurance Company has not reached agreement with plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are ongoing. In addition, the class action settlement does not resolve two putative class actions involving sales practices claims filed against Metropolitan Life Insurance Company in Canada. The class action settlement also does not resolve a certified class action with conditionally certified subclasses against Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company, Metropolitan Tower Life Insurance Company and various individual defendants alleging improper sales abroad. That lawsuit is pending in a New York federal court. In the past, the Company has resolved some individual sales practices claims through settlement, dispositive motion or, in a few instances, trial. Most of the current cases seek substantial damages, including in some cases punitive and treble damages and attorneys' fees. Additional litigation relating to the Company's marketing and sales of individual life insurance may be commenced in the future. Regulatory authorities in a small number of states, including both insurance departments and one state attorney general, as well as the National Association of Securities Dealers, Inc., have ongoing investigations or inquiries relating to the Company's sales of individual life insurance policies or annuities, including investigations of alleged improper replacement transactions and alleged improper sales of insurance with inaccurate or inadequate disclosures as to the period for which premiums would be payable. Over the past several years, the Company has resolved a number of investigations by other regulatory authorities for monetary payments and certain other relief, and may continue to do so in the future. MetLife is also a defendant in numerous lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. MetLife has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits, currently numbering in the thousands, have principally been based upon allegations relating to certain research, publication and other activities of one or more of MetLife's employees during the period from the 1920s through approximately the 1950s and alleging that MetLife learned or should have learned of certain health risks posed by asbestos and, among other things, improperly publicized or failed to disclose those health risks. Legal theories asserted against MetLife have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. While MetLife believes it has meritorious defenses to these claims, and has not suffered any adverse judgments in respect of these claims, most of the cases have been resolved by settlements. MetLife intends to continue to exercise its best judgment regarding settlement or defense of such cases. The number of such cases that may be brought or the aggregate amount of any liability that MetLife may ultimately incur is uncertain. Significant portions of amounts paid in settlement of such cases have been funded with proceeds from a previously resolved dispute with MetLife's primary, umbrella and first level excess liability insurance carriers. MetLife is presently in litigation with several of its excess F-37 313 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) liability insurers regarding amounts payable under its policies with respect to coverage for these claims. The trial court has granted summary judgment to these insurers. MetLife has appealed. There can be no assurances regarding the outcome of this litigation or the amount and timing of recoveries, if any, from these excess liability insurers. MetLife's asbestos-related litigation with these insurers should have no effect on recoveries under the excess insurance policies described below. The Company has recorded, in other expenses, charges of $499 ($317 after-tax), $1,895 ($1,203 after-tax) and $300 ($190 after-tax) for the years ended December 31, 1999, 1998 and 1997, respectively, for sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products. The 1999 charge was principally related to the settlement of the multidistrict litigation proceeding involving alleged improper sales practices, accruals for sales practices claims not covered by the settlement and other legal costs. The 1998 charge was comprised of $925 and $970 for sales practices claims and asbestos-related claims, respectively. The Company recorded the charges for sales practices claims based on preliminary settlement discussions and the settlement history of other insurers. Prior to the fourth quarter of 1998, the Company established a liability for asbestos-related claims based on settlement costs for claims that the Company had settled, estimates of settlement costs for claims pending against the Company and an estimate of settlement costs for unasserted claims. The amount for unasserted claims was based on management's estimate of unasserted claims that would be probable of assertion. A liability is not established for claims which management believes are only reasonably possible of assertion. Based on this process, the accrual for asbestos-related claims at December 31, 1997 was $386. Potential liabilities for asbestos-related claims are not easily quantified, due to the nature of the allegations against the Company, which are not related to the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products, adding to the uncertainty as to the number of claims that may be brought against the Company. During 1998, the Company decided to pursue the purchase of excess insurance to limit its exposure to asbestos-related claims. In connection with the negotiations with the casualty insurers to obtain this insurance, the Company obtained information that caused management to reassess the accruals for asbestos-related claims. This information included: - Information from the insurers regarding the asbestos-related claims experience of other insureds, which indicated that the number of claims that were probable of assertion against the Company in the future was significantly greater than it had assumed in its accruals. The number of claims brought against the Company is generally a reflection of the number of asbestos-related claims brought against asbestos defendants generally and the percentage of those claims in which the Company is included as a defendant. The information provided to the Company relating to other insureds indicated that the Company had been included as a defendant for a significant percentage of total asbestos-related claims and that it may be included in a larger percentage of claims in the future, because of greater awareness of asbestos litigation generally by potential plaintiffs and plaintiffs' lawyers and because of the bankruptcy and reorganization or the exhaustion of insurance coverage of other asbestos defendants; and that, although volatile, there was an upward trend in the number of total claims brought against asbestos defendants. - Information derived from actuarial calculations the Company made in the fourth quarter of 1998 in connection with these negotiations, which helped to frame, define and quantify this liability. These calculations were made using, among other things, current information regarding the Company's claims and settlement experience (which reflected the F-38 314 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's decision to resolve an increased number of these claims by settlement), recent and historic claims and settlement experience of selected other companies and information obtained from the insurers. Based on this information, the Company concluded that certain claims that previously were considered as only reasonably possible of assertion were now probable of assertion, increasing the number of assumed claims to approximately three times the number assumed in prior periods. As a result of this reassessment, the Company increased its liability for asbestos-related claims to $1,278 at December 31, 1998. During 1998, the Company paid $1,407 of premiums for excess of loss reinsurance agreements and excess insurance policies, consisting of $529 for the excess of loss reinsurance agreements for sales practices claims and excess mortality losses and $878 for the excess insurance policies for asbestos-related claims. The Company obtained the excess of loss reinsurance agreements to provide reinsurance with respect to sales practices claims made on or prior to December 31, 1999 and for certain mortality losses in 1999. These reinsurance agreements have a maximum aggregate limit of $650, with a maximum sublimit of $550 for losses for sales practices claims. This coverage is in excess of an aggregate self-insured retention of $385 with respect to sales practices claims and $506, plus the Company's statutory policy reserves released upon the death of insureds, with respect to life mortality losses. At December 31, 1999, the subject losses under the reinsurance agreements due to sales practices claims and related counsel fees from the time the Company entered into the reinsurance agreements did not exceed that self-insured retention. The maximum sublimit of $550 for sales practices claims was within a range of losses that management believed were reasonably possible at December 31, 1998. Each excess of loss reinsurance agreement for sales practices claims and mortality losses contains an experience fund, which provides for payments to the Company at the commutation date if experience is favorable at such date. The Company accounts for the aggregate excess of loss reinsurance agreements as reinsurance; however, if deposit accounting were applied, the effect on the Company's consolidated financial statements in 1998, 1999 and 2000 would not be significant. Under reinsurance accounting, the excess of the liability recorded for sales practices losses recoverable under the agreements of $550 over the premium paid of $529 results in a deferred gain of $21 which is being amortized into income over the settlement period from January 1999 through April 2000. Under deposit accounting, the premium would be recorded as an other asset rather than as an expense, and the reinsurance loss recoverable and the deferred gain would not have been recorded. Because the agreements also contain an experience fund which increases with the passage of time, the increase in the experience fund in 1999 and 2000 under deposit accounting would be recognized as interest income in an amount approximately equal to the deferred gain that will be amortized into income under reinsurance accounting. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500, which is in excess of a $400 self-insured retention ($878 of which was recorded as a recoverable at December 31, 1999 and 1998). The asbestos-related policies are also subject to annual and per-claim sublimits. Amounts are recoverable under the policies annually with respect to claims paid during the prior calendar year. Although amounts paid in any given year that are recoverable under the policies will be reflected as a reduction in the Company's operating cash flows for that year, management believes that the payments will not have a material adverse effect on the Company's liquidity. Each asbestos-related policy contains an experience fund and a reference fund that provides for payments to the Company at the commutation date if experience under the policy to such date has been favorable, or pro rata reductions from time to F-39 315 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) time in the loss reimbursements to the Company if the cumulative return on the reference fund is less than the return specified in the experience fund. A purported class action suit involving policyholders in 32 states has been filed in a Rhode Island state court against MetLife's subsidiary, Metropolitan Property and Casualty Insurance Company, with respect to claims by policyholders for the alleged diminished value of automobiles after accident-related repairs. A similar "diminished value" allegation was made recently in a Texas Deceptive Trade Practices Act letter and lawsuit which involve a Metropolitan Property and Casualty Company policyholder. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company and its subsidiary, Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging breach of contract and unfair trade practices with respect to Metropolitan Casualty Insurance Company allowing the use of parts not made by the original manufacturer to repair damaged automobiles. These suits are in the early stages of litigation and Metropolitan Property and Casualty Insurance Company and Metropolitan Casualty Insurance Company intend to vigorously defend themselves against these suits. Similar suits have been filed against several other personal lines property and casualty insurers. The United States, the Commonwealth of Puerto Rico and various hotels and individuals have sued MetLife Capital Corporation, a former subsidiary of the Company, seeking damages for clean up costs, natural resource damages, personal injuries and lost profits and taxes based upon, among other things, a release of oil from a barge which was being towed by the M/V Emily S. In connection with the sale of MetLife Capital, the Company acquired MetLife Capital's potential liability with respect to the M/V Emily S lawsuit. MetLife Capital had entered into a sale and leaseback financing arrangement with respect to the M/V Emily S. The plaintiffs have taken the position that MetLife Capital, as the owner of record of the M/V Emily S, is responsible for all damages caused by the barge, including the oil spill. The governments of the United States and Puerto Rico have claimed damages in excess of $150. At a mediation, the action brought by the United States and Puerto Rico was conditionally settled, provided that the governments have access to additional sums from a fund contributed to by oil companies to help remediate oil spills. The Company can provide no assurance that this action will be settled in this manner. Three putative class actions have been filed by Conning Corporation shareholders alleging that the Company's announced offer to purchase the publicly-held Conning shares is inadequate and constitutes a breach of fiduciary duty (see Note 16). The Company believes the actions are without merit, and expects that they will not materially affect its offer to purchase the shares. A civil complaint challenging the fairness of the plan of reorganization and the adequacy and accuracy of the disclosures to policyholders regarding the plan has been filed in New York Supreme Court for Kings County on behalf of an alleged class consisting of the policyholders of MetLife who should have membership benefits in MetLife and were and are eligible to receive notice, vote and receive consideration in the demutualization. The complaint seeks to enjoin or rescind the plan and seeks other relief. The defendants named in the complaint are MetLife and the individual members of its board of directors and MetLife, Inc. MetLife believes that the allegations made in the complaint are wholly without merit, and intends to vigorously contest the complaint. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other Federal and state authorities regularly F-40 316 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, it is the opinion of the Company's management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in the Company's consolidated financial statements, are not likely to have a material adverse effect on the Company's consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular quarterly or annual periods. TRANSFERRED CANADIAN POLICIES In July 1998, MetLife sold a substantial portion of its Canadian operations to Clarica Life. As part of that sale, a large block of policies in effect with MetLife in Canada were transferred to Clarica Life, and the holders of the transferred Canadian policies became policyholders of Clarica Life. Those transferred policyholders are no longer policyholders of MetLife and, therefore, are not entitled to compensation under the plan of reorganization. However, as a result of a commitment made in connection with obtaining Canadian regulatory approval of that sale, if MetLife demutualizes, its Canadian branch will make cash payments to those who are, or are deemed to be, holders of those transferred Canadian policies. The payments, which will be recorded in other expenses in the same period as the effective date of the plan, will be determined in a manner that is consistent with the treatment of, and fair and equitable to, eligible policyholders of MetLife. The amount of the payment is dependent upon the initial public offering price of common stock to be issued on the effective date of the plan of demutualization. YEAR 2000 The Year 2000 issue was the result of the widespread use of computer programs written using two digits (rather than four) to define the applicable year. Such programming was a common industry practice designed to avoid the significant costs associated with additional mainframe capacity necessary to accommodate a four-digit field. As a result, any of the Company's computer systems that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major system failures or miscalculations. The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 issue and has implemented a plan to resolve the issue. There can be no assurances that the Year 2000 plan of the Company or that of its vendors or third parties have resolved all Year 2000 issues. Further, there can be no assurance that there will not be any future system failure or that such failure, if any, will not have a material impact on the operations of the Company. LEASES In accordance with industry practice, certain of the Company's income from lease agreements with retail tenants is contingent upon the level of the tenants' sales revenues. Additionally, the Company, as lessee, has entered into various lease and sublease agreements F-41 317 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for office space, data processing and other equipment. Future minimum rental and subrental income and minimum gross rental payments relating to these lease agreements were as follows:
GROSS RENTAL SUBLEASE RENTAL INCOME INCOME PAYMENTS ------ -------- -------- 2000......................................... $ 817 $13 $156 2001......................................... 740 12 135 2002......................................... 689 11 111 2003......................................... 612 9 90 2004......................................... 542 9 69 Thereafter................................... 2,032 27 299
10. INCOME TAXES The provision for income taxes was as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Current: Federal................................................... $643 $668 $370 State and local........................................... 24 60 10 Foreign................................................... 4 99 26 ---- ---- ---- 671 827 406 ---- ---- ---- Deferred: Federal................................................... (78) (25) 28 State and local........................................... 2 (8) 9 Foreign................................................... (2) (54) 25 ---- ---- ---- (78) (87) 62 ---- ---- ---- Provision for income taxes.................................. $593 $740 $468 ==== ==== ====
Reconciliations of the income tax provision at the U.S. statutory rate to the provision for income taxes as reported were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Tax provision at U.S. statutory rate........................ $502 $730 $585 Tax effect of: Tax exempt investment income.............................. (39) (40) (30) Surplus tax............................................... 125 18 (40) State and local income taxes.............................. 18 31 15 Tax credits............................................... (5) (25) (15) Prior year taxes.......................................... (31) 4 (2) Sale of businesses........................................ -- (19) (41) Other, net................................................ 23 41 (4) ---- ---- ---- Provision for income taxes.................................. $593 $740 $468 ==== ==== ====
F-42 318 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes represent the tax effect of the differences between the book and tax basis of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following:
DECEMBER 31, ---------------- 1999 1998 ---- ---- Deferred income tax assets: Policyholder liabilities and receivables............... $3,042 $3,108 Net operating losses................................... 72 22 Net unrealized investment losses....................... 161 -- Employee benefits...................................... 192 174 Litigation related..................................... 468 312 Other.................................................. 242 158 ------ ------ 4,177 3,774 Less: Valuation allowance.............................. 72 21 ------ ------ 4,105 3,753 ------ ------ Deferred income tax liabilities: Investments............................................ 1,472 1,529 Deferred policy acquisition costs...................... 1,967 1,887 Net unrealized investment gains........................ -- 864 Other.................................................. 63 18 ------ ------ 3,502 4,298 ------ ------ Net deferred income tax asset (liability)................ $ 603 $ (545) ====== ======
Foreign net operating loss carryforwards generated deferred income tax benefits of $72 and $21 at December 31, 1999 and 1998, respectively. The Company has recorded a valuation allowance related to these tax benefits. The valuation allowance reflects management's assessment, based on available information, that it is more likely than not that the deferred income tax asset for foreign net operating loss carryforwards will not be realized. The benefit will be recognized when management believes that it is more likely than not that the portion of the deferred income tax asset is realizable. The Company has been audited by the Internal Revenue Service for the years through and including 1993. The Company is being audited for the years 1994, 1995 and 1996. The Company believes that any adjustments that might be required for open years will not have a material effect on the Company's consolidated financial statements. 11. REINSURANCE The Company assumes and cedes insurance with other insurance companies. The Company continually evaluates the financial condition of its reinsurers and monitors concentration of credit risk in an effort to minimize its exposure to significant losses from reinsurer insolvencies. The Company is contingently liable with respect to ceded reinsurance should any reinsurer be unable to meet its obligations under these agreements. The amounts in the consolidated statements of income are presented net of reinsurance ceded. The Company's life insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks and to provide additional capacity for future growth. During F-43 319 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1998, the Company began reinsuring, under yearly renewal term policies, 90 percent of the mortality risk on universal life policies issued after 1983. The Company also reinsures 90 percent of the mortality risk on term life insurance policies issued after 1995 under yearly renewal term policies and coinsures 100 percent of the mortality risk in excess of $25 and $35 on single and joint survivorship policies, respectively. During 1997, the Company obtained a 100 percent coinsurance policy to provide coverage for contractual payments generated by certain portions of the Company's non-life contingency long-term guaranteed interest contracts and structured settlement lump sum contracts issued during the periods 1991 through 1993. The policy was amended in 1998 to include structured settlement lump sum payments issued during the period 1983 through 1990, 1994 and 1995. Reinsurance recoverables under the contract, which has been accounted for as a financing transaction, were $1,372 and $1,374 at December 31, 1999 and 1998, respectively. See Note 9 for information regarding certain excess of loss reinsurance agreements providing coverage for risks associated primarily with sales practices claims. The Company has exposure to catastrophes, which are an inherent risk of the property and casualty insurance business and could contribute to material fluctuations in the Company's results of operations. The Company uses excess of loss and quota share reinsurance arrangements to limit its maximum loss, provide greater diversification of risk and minimize exposure to larger risks. The Company's reinsurance program is designed to limit a catastrophe loss to no more than 10% of the Auto & Home segment's statutory surplus. The effects of reinsurance were as follows:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Direct premiums..................................... $13,249 $12,763 $12,728 Reinsurance assumed................................. 484 409 360 Reinsurance ceded................................... (1,645) (1,669) (1,810) ------- ------- ------- Net premiums........................................ $12,088 $11,503 $11,278 ======= ======= ======= Reinsurance recoveries netted against policyholder benefits.......................................... $ 1,626 $ 1,744 $ 1,648 ======= ======= =======
The effects of reinsurance with GenAmerica Corporation ("GenAmerica") were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Premiums ceded to GenAmerica.............................. $108 $113 $61 ==== ==== === Reinsurance recoveries from GenAmerica netted against policyholder benefits................................... $ 74 $ 28 $24 ==== ==== ===
Reinsurance recoverables, included in other receivables, were $2,898 and $3,134 at December 31, 1999 and 1998, respectively, of which $5 and $5, respectively, were recoverable from GenAmerica. Reinsurance and ceded commissions payables, included in other liabilities, were $148 and $105 at December 31, 1999 and 1998, respectively. F-44 320 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following provides an analysis of the activity in the liability for benefits relating to property and casualty and group accident and non-medical health policies and contracts:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Balance at January 1................................ $ 3,320 $ 3,655 $ 3,345 Reinsurance recoverables.......................... (233) (229) (215) ------- ------- ------- Net balance at January 1............................ 3,087 3,426 3,130 Acquisition of business............................. 204 -- -- ------- ------- ------- Incurred related to: Current year...................................... 3,129 2,726 2,855 Prior years....................................... (16) (245) 88 ------- ------- ------- 3,113 2,481 2,943 ------- ------- ------- Paid related to: Current year...................................... (2,128) (1,967) (1,832) Prior years....................................... (759) (853) (815) ------- ------- ------- (2,887) (2,820) (2,647) ------- ------- ------- Balance at December 31.............................. 3,517 3,087 3,426 Add: Reinsurance recoverables..................... 272 233 229 ------- ------- ------- Balance at December 31.............................. $ 3,789 $ 3,320 $ 3,655 ======= ======= =======
12. OTHER EXPENSES Other expenses were comprised of the following:
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Compensation........................................ $ 2,590 $ 2,478 $ 2,078 Commissions......................................... 937 902 766 Interest and debt issue costs....................... 405 379 453 Amortization of policy acquisition costs (excludes amortization of $(46), $240 and $70, respectively, related to realized investment gains and (losses))......................................... 862 587 771 Capitalization of policy acquisition costs.......... (1,160) (1,025) (1,000) Rent, net of sublease income........................ 239 155 179 Minority interest................................... 55 67 56 Restructuring charge................................ -- 81 -- Other............................................... 2,827 4,395 2,468 ------- ------- ------- $ 6,755 $ 8,019 $ 5,771 ======= ======= =======
During 1998, the Company recorded charges of $81 to restructure headquarters operations and consolidate certain agencies and other operations. These costs have been fully paid at December 31, 1999. F-45 321 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. STATUTORY FINANCIAL INFORMATION The reconciliations of MetLife's statutory surplus and net change in statutory surplus, determined in accordance with accounting practices prescribed or permitted by insurance regulatory authorities, with equity and net income determined in conformity with generally accepted accounting principles were as follows:
DECEMBER 31, ------------------ 1999 1998 ---- ---- Statutory surplus........................................... $ 7,630 $ 7,388 GAAP adjustments for: Future policy benefits and policyholder account balances............................................... (4,167) (6,830) Deferred policy acquisition costs......................... 8,381 6,560 Deferred income taxes..................................... 886 (190) Valuation of investments.................................. (2,102) 3,981 Statutory asset valuation reserves........................ 3,189 3,381 Statutory interest maintenance reserves................... 1,114 1,486 Surplus notes............................................. (1,602) (1,595) Other, net................................................ 361 686 ------- ------- Equity...................................................... $13,690 $14,867 ======= =======
YEARS ENDED DECEMBER 31, ------------------------- 1999 1998 1997 ---- ---- ---- Net change in statutory surplus......................... $ 242 $ 10 $ 227 GAAP adjustments for: Future policy benefits and policyholder account balances........................................... 556 127 (38) Deferred policy acquisition costs..................... 379 224 149 Deferred income taxes................................. 154 234 62 Valuation of investments.............................. 473 1,158 (387) Statutory asset valuation reserves.................... (226) (461) 1,136 Statutory interest maintenance reserves............... (368) 312 53 Other, net............................................ (593) (261) 1 ----- ------ ------ Net income.............................................. $ 617 $1,343 $1,203 ===== ====== ======
F-46 322 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. OTHER COMPREHENSIVE INCOME (LOSS) The following table sets forth the reclassification adjustments required for the years ended December 31, 1999, 1998 and 1997 to avoid double-counting in other comprehensive income (loss) items that are included as part of net income for the current year that have been reported as a part of other comprehensive income (loss) in the current or prior year:
1999 1998 1997 ---- ---- ---- Holding (losses) gains on investments arising during the year...................................................... $(6,314) $ 1,493 $ 4,257 Income tax effect of holding gains or losses................ 2,262 (617) (1,615) Transfer of securities from held-to-maturity to available-for-sale: Holding gains on investments.............................. -- -- 198 Income tax effect......................................... -- -- (75) Reclassification adjustments: Realized holding (gains) losses included in current year net income............................................. 38 (2,013) (844) Amortization of premium and discount on investments....... (307) (350) (209) Realized holding (losses) gains allocated to other policyholder amounts................................... (67) 608 231 Income tax effect......................................... 120 729 312 Allocation of holding losses (gains) on investments relating to other policyholder amounts............................. 3,788 (351) (2,231) Income tax effect of allocation of holding gains and losses to other policyholder amounts............................. (1,357) 143 846 ------- ------- ------- Net unrealized investment (losses) gains.................... (1,837) (358) 870 ------- ------- ------- Foreign currency translation adjustments arising during the year...................................................... 50 (115) (46) Reclassification adjustment for sale of investment in foreign operation......................................... -- 2 (3) ------- ------- ------- Foreign currency translation adjustment..................... 50 (113) (49) ------- ------- ------- Minimum pension liability adjustment........................ (7) (12) -- ------- ------- ------- Other comprehensive income (loss)........................... $(1,794) $ (483) $ 821 ======= ======= =======
15. BUSINESS SEGMENT INFORMATION The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, Europe and Asia. The Company's business is divided into six segments: Individual, Institutional, Auto & Home, International, Asset Management and Corporate. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. Institutional offers a broad range of group insurance and retirement and savings products and services, including group life insurance, non-medical health insurance such as short and long-term disability, long-term care and dental insurance and other insurance products and services. Auto & Home provides insurance coverages including private passenger automobile, homeowners and personal excess liability insurance. International provides life insurance, accident and health insurance, annuities and retirement and savings F-47 323 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) products to both individuals and groups, and auto and homeowners coverage to individuals. Asset Management provides a broad variety of asset management products and services to individuals and institutions such as mutual funds for savings and retirement needs, commercial real estate advisory and management services, and institutional and retail investment management. Through its Corporate segment, the Company reports items that are not allocated to any of the business segments. Set forth in the tables below is certain financial information with respect to the Company's operating segments for the years ended December 31, 1999, 1998 and 1997. The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except for the method of capital allocation. The Company allocates capital to each segment based upon an internal capital allocation system that allows the Company to more effectively manage its capital. The Company has divested operations that did not meet targeted rates of return, including its commercial leasing business (Corporate segment) and substantial portions of its Canadian operations (International segment), and insurance operations in the United Kingdom (International segment). The Company evaluates the performance of each operating segment based upon income or loss from operations before provision for income taxes and non-recurring items (e.g. items of unusual or infrequent nature). The Company allocates non-recurring items (primarily consisting of sales practices claims and claims for personal injuries caused by exposure to asbestos or asbestos-containing products) and prior to its sale in 1998, the results of MetLife Capital Holdings, Inc. to the Corporate segment.
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1999 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL - ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- ----- Premiums................ $ 4,289 $ 5,525 $1,751 $ 523 $ -- $ -- $ -- $ 12,088 Universal life and investment-type product policy fees... 888 502 -- 48 -- -- -- 1,438 Net investment income... 5,346 3,755 103 206 80 605 (279) 9,816 Other revenues.......... 558 629 21 12 803 59 72 2,154 Net realized investment gains (losses)........ (14) (31) 1 1 -- (41) 14 (70) Policyholder benefits and claims............ 4,625 6,712 1,301 463 -- -- 4 13,105 Interest credited to policyholder account balances.............. 1,359 1,030 -- 52 -- -- -- 2,441 Policyholder dividends............. 1,509 159 -- 22 -- -- -- 1,690 Other expenses.......... 2,719 1,589 514 248 795 1,031 (141) 6,755 Income (loss) before provision for income taxes and extraordinary item.... 855 890 61 5 88 (408) (56) 1,435 Income (loss) after provision for income taxes before extraordinary item.... 555 567 56 21 51 (358) (50) 842 Total assets............ 109,401 88,127 4,443 4,381 1,036 19,834 (1,990) 225,232 Deferred policy acquisition costs..... 8,049 106 93 244 -- -- -- 8,492 Separate account assets................ 28,828 35,236 -- 877 -- -- -- 64,941 Policyholder liabilities........... 72,956 47,781 2,318 2,187 -- 6 (293) 124,955 Separate account liabilities........... 28,828 35,236 -- 877 -- -- -- 64,941
F-48 324 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1998 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- Premiums...................... $ 4,323 $ 5,159 $1,403 $ 618 $ -- $ -- $ -- Universal life and investment- type product policy fees.... 817 475 -- 68 -- -- -- Net investment income......... 5,480 3,885 81 343 75 682 (318) Other revenues................ 474 575 36 33 817 111 (52) Net realized investment gains....................... 659 557 122 117 -- 679 (113) Policyholder benefits and claims...................... 4,606 6,416 1,029 597 -- (10) -- Interest credited to policyholder account balances.................... 1,423 1,199 -- 89 -- -- -- Policyholder dividends........ 1,445 142 -- 64 -- -- -- Other expenses................ 2,577 1,613 386 352 799 2,601 (309) Income (loss) before provision for income taxes and extraordinary item.......... 1,702 1,281 227 77 93 (1,119) (174) Income (loss) after provision for income taxes before extraordinary item.......... 1,069 846 161 56 49 (691) (143) Total assets.................. 103,614 88,741 2,763 3,432 1,164 20,852 (5,220) Deferred policy acquisition costs....................... 6,194 82 57 205 -- -- -- Separate account assets....... 23,013 35,029 -- 26 -- -- -- Policyholder liabilities...... 71,571 49,406 1,477 2,043 -- 1 (295) Separate account liabilities................. 23,013 35,029 -- 26 -- -- -- AT OR FOR THE YEAR ENDED DECEMBER 31, 1998 TOTAL ------------------------ ----- Premiums...................... $11,503 Universal life and investment- type product policy fees.... 1,360 Net investment income......... 10,228 Other revenues................ 1,994 Net realized investment gains....................... 2,021 Policyholder benefits and claims...................... 12,638 Interest credited to policyholder account balances.................... 2,711 Policyholder dividends........ 1,651 Other expenses................ 8,019 Income (loss) before provision for income taxes and extraordinary item.......... 2,087 Income (loss) after provision for income taxes before extraordinary item.......... 1,347 Total assets.................. 215,346 Deferred policy acquisition costs....................... 6,538 Separate account assets....... 58,068 Policyholder liabilities...... 124,203 Separate account liabilities................. 58,068
AUTO AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/ DECEMBER 31, 1997 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- Premiums....................... $4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- Universal life and investment- type product policy fees..... 855 426 -- 137 -- -- -- Net investment income.......... 4,754 3,754 71 504 78 700 (370) Other revenues................. 338 357 25 54 682 19 16 Net realized investment gains........................ 356 45 9 142 -- 326 (91) Policyholder benefits and claims....................... 4,597 5,934 1,003 869 -- -- -- Interest credited to policyholder account balances..................... 1,422 1,319 -- 137 -- -- -- Policyholder dividends......... 1,340 305 -- 97 -- -- -- Other expenses................. 2,394 1,178 351 497 679 966 (294) Income before provision for income taxes................. 877 535 105 145 81 79 (151) Income after provision for income taxes................. 599 339 74 126 45 163 (143) Total assets................... 95,323 83,473 2,542 7,412 1,136 18,641 (5,745) Deferred policy acquisition costs........................ 5,912 40 56 428 -- -- -- Separate account assets........ 17,345 30,473 -- 520 -- -- -- Policyholder liabilities....... 70,686 49,547 1,509 5,615 -- 1 -- Separate account liabilities... 17,345 30,473 -- 520 -- -- -- AT OR FOR THE YEAR ENDED DECEMBER 31, 1997 TOTAL ------------------------ ----- Premiums....................... $11,278 Universal life and investment- type product policy fees..... 1,418 Net investment income.......... 9,491 Other revenues................. 1,491 Net realized investment gains........................ 787 Policyholder benefits and claims....................... 12,403 Interest credited to policyholder account balances..................... 2,878 Policyholder dividends......... 1,742 Other expenses................. 5,771 Income before provision for income taxes................. 1,671 Income after provision for income taxes................. 1,203 Total assets................... 202,782 Deferred policy acquisition costs........................ 6,436 Separate account assets........ 48,338 Policyholder liabilities....... 127,358 Separate account liabilities... 48,338
The Individual segment includes an equity ownership interest in Nvest Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has been included within the Asset Management segment due to the types of products and strategies employed by the entity. The individual segment's equity in earnings of Nvest, which is included in net investment income, was F-49 325 METROPOLITAN LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $48, $49 and $45 for the years ended December 31, 1999, 1998 and 1997, respectively. The investment in Nvest was $196, $252 and $216 at December 31, 1999, 1998 and 1997, respectively. Net investment income and net realized investment gains are based upon the actual results of each segment's specifically identifiable asset portfolio. Other costs and operating costs were allocated to each of the segments based upon: (1) a review of the nature of such costs, (2) time studies analyzing the amount of employee compensation costs incurred by each segment, and (3) cost estimates included in the Company's product pricing. The consolidation/elimination column includes the elimination of all intersegment amounts and the Individual segment's ownership interest in Nvest. The principal component of the intersegment amounts related to intersegment loans, which bore interest at rates commensurate with related borrowings. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $24,637, $25,643 and $22,664 for the years ended December 31, 1999, 1998 and 1997, respectively, which represented 97%, 96% and 93%, respectively, of consolidated revenues. 16. SUBSEQUENT EVENTS On January 6, 2000, the Company acquired GenAmerica for $1.2 billion. In connection with this acquisition, the Company incurred $900 of short-term debt. GenAmerica is a holding company which includes General American Life Insurance Company, 48.3% of the outstanding shares of Reinsurance Group of America ("RGA") common stock, a provider of reinsurance, and 61.0% of the outstanding shares of Conning Corporation common stock, an asset manager. On January 18, 2000, the Company announced that it had proposed to acquire all of the outstanding shares of Conning common stock not already owned by it for $10.50 per share in cash, or approximately $55. At December 31, 1999, the Company owned 9.6% of the outstanding shares of RGA common stock which were acquired on November 24, 1999 for $125. Subsequent to the GenAmerica acquisition, the Company owned 57.9% of the outstanding shares of RGA common stock. Total assets, revenues and net loss of GenAmerica were $23,594, $3,916 and $(174), respectively, at or for the year ended December 31, 1999. As part of the acquisition agreement, in September 1999 the Company assumed $5,752 of General American Life funding agreements and received cash of $1,926 and investment assets with a market value of $3,826. In October 1999, as part of the assumption arrangement, the holders of General American Life funding agreements aggregating $5,136 elected to have the Company redeem the funding agreements for cash. General American Life agreed to pay the Company a fee of $120 in connection with the assumption of the funding agreements. The fee will be considered as part of the purchase price to be allocated to the fair value of assets and liabilities acquired. The Company also agreed to make a capital contribution of $120 to General American Life after the completion of the acquisition. At the date of the acquisition agreement, the Company and GenAmerica were parties to a number of reinsurance agreements. In addition, as part of the acquisition, the Company entered into agreements effective as of July 25, 1999, which coinsured new and certain existing business of General American Life and some of its affiliates. See Note 11. F-50 326 ANNEX A [PRICEWATERHOUSECOOPERS LETTERHEAD] PRICEWATERHOUSECOOPERS LLP 600 Lee Road Wayne PA 19087 Telephone (610) 993 3864 Direct Fax (610) 993 3900
November 16, 1999 The Board of Directors The Metropolitan Life Insurance Company One Madison Avenue New York, NY 10010-3690 Re: Plan of Reorganization of the Metropolitan Life Insurance Company (MetLife), dated, September 28, 1999 as amended and restated on November 16, 1999 STATEMENT OF ACTUARIAL OPINION QUALIFICATIONS I, Kenneth M. Beck, a Principal with the firm of PricewaterhouseCoopers LLP (PwC) and a member of the American Academy of Actuaries, am qualified under the Academy's Qualification Standards to render the opinions set forth herein. This opinion is provided pursuant to the Engagement Letter between PwC and MetLife dated January 1, 1998. MetLife's Plan of Reorganization is carried out under Section 7312 of the New York Insurance Law. This opinion is not a legal opinion regarding the Plan, and does not address the overall fairness of the Plan. Rather, it reflects the application of actuarial concepts and standards of practice to the requirements set forth in Section 7312. RELIANCE I and other PwC staff acting under my direction received from MetLife extensive information concerning MetLife's past and present financial experience and the characteristics of its policies. In all cases, we were provided with the information we required. We relied on the accuracy and completeness of the data and assumptions supplied by MetLife and did not independently verify that information. Where possible, the information was reviewed for general reasonableness and in certain circumstances the data was reconfirmed with MetLife. Certain information was provided to me under the direction of MetLife's Executive Vice President and Chief Actuary, Judy Weiss, F.S.A., M.A.A.A. Information included: a) expected future cash flows from assets held by MetLife; and b) MetLife's experience underlying its 1999 dividend scales. I relied on the completeness and accuracy of the data provided by Ms. Weiss. My opinion depends upon the substantial accuracy of the information described above that was provided by MetLife (the "MetLife Data"). PROCESS In all cases, I and other PwC staff acting under my direction either derived the results on which my opinions rest or reviewed derivations carried out by MetLife employees. A-1 327 Board of Directors Page 2 MetLife Actuarial Opinion November 16, 1999 - -------------------------------------------------------------------------------- OPINION #1 In my opinion, the plan for allocation of consideration to Eligible Policyholders (as defined in the Plan) as set forth in Article VII of the Plan of Reorganization is fair and equitable to MetLife policyholders as required by Section 7312 of the New York Insurance Law. DISCUSSION The distribution described in Article VII of the Plan takes into account the ratio of the positive sum of the estimated past and future contributions to MetLife surplus, if any, of each participating Policy and Contract owned by each Eligible Policyholder to the total of all such positive sums. Most of the consideration to be distributed to policyholders is allocated on this basis. Under Section 7312 of the New York Insurance Law, there is no specific guidance given for the allocation of consideration in a "Method Four" reorganization, but policyholder contributions are specifically identified as an acceptable approach to allocation of consideration under other methods of reorganization within this section of the law. In addition, the contribution method is recognized in the actuarial literature as an appropriate method. I therefore find that the use of "actuarial contribution" as the principal basis underlying the allocation of consideration is fair and equitable. The distribution to policyholders also takes into account, to a lesser extent, the fact that policyholders have intangible membership rights that are independent of their actuarial contributions. Each Eligible Policyholder (participating or non-participating) is, under the Plan, allocated a fixed number of shares of common stock without regard to the contribution of that policyholder or of the class or classes in which policies held by the policyholder happen to reside. Under the Plan, the percentage of the total consideration that is allocated in this manner is significantly less than that allocated in proportion to positive contributions, which is appropriate as well as consistent with the approach used in previous demutualizations. OPINION #2 The Closed Block is described in Article VIII of the MetLife Plan of Reorganization (the "Plan"). In my opinion: 1. The objective of the Closed Block as being for the exclusive benefit of the policies included therein for policyholder dividend purposes only as set forth in Article VIII of the Plan is consistent with Section 7312 of the New York Insurance Law. 2. The operations of the Closed Block as set forth in Article VIII of the Plan and described in the Closed Block Memorandum, including the determination of the required initial funding and the manner in which cash flows are charged and credited to the Closed Block, are consistent with the objectives of the Closed Block. 3. MetLife's assets (Closed Block funding) set aside as of December 31, 1998 (including subsequent adjustments as provided for in the Closed Block Memorandum), to establish the Closed Block, as set forth in Article VIII of the Plan (including the Closed Block Memorandum), are adequate because they are expected to produce cash flows which, together with anticipated revenues from the Closed Block Business, is reasonably expected to be sufficient to support the Closed Block Business including, but not limited to, provisions for payment of claims and certain expenses and taxes, and to provide for continuation of dividend scales payable in 1999, if the experience underlying such scales continues. 4. The Plan is consistent with the objective of the Closed Block as it provides a vehicle for MetLife's management to make appropriate adjustments to future dividend scales, where necessary, if the underlying experience changes from the experience underlying such dividend scales. A-2 328 Board of Directors Page 3 MetLife Actuarial Opinion November 16, 1999 - -------------------------------------------------------------------------------- DISCUSSION As to (1) above, Section 7312 of the New York Insurance Law provides for a Mutual Life Insurance Company to convert to a Stock Life Insurance Company using one of four "methods" as outlined in the law. MetLife is converting to a stock company using Method Four. Method Four within Section 7312 does not contain specific language that addresses the establishment of a Closed Block. Methods One and Two of Section 7312 both contain language that address the establishment of a Closed Block. The establishment of a Closed Block by MetLife, as set forth in Article VIII of the Plan, is consistent with (a) the objectives and guidelines contained in Methods One and Two of Section 7312, (b) with prior demutualizations of mutual life insurance companies domiciled in New York and, (c) current Actuarial Standards of Practice. As to (2) above, my opinion is based on my findings that those matters are consistent with the objective of the Closed Block. I have specifically considered that the cash flow items to be charged against or credited to the Closed Block as set forth in Article VIII of the Plan (including the Closed Block Memorandum), have been incorporated on a consistent basis in the determination of the Closed Block funding amount. As to (3) above, the Closed Block was funded as of January 1, 1999 (including a planned final adjustment after the Effective Date of the conversion), based on a projection as of that date. The opinion above rests in part on that projection, which extends over the future life of all policies assigned to the Closed Block. That projection, which is based on the experience underlying the 1999 Dividend Scale and on the cash flows expected from assets allocable to the Closed Block, indicates that the assets, together with anticipated revenues from the Closed Block Business, are reasonably expected to be sufficient to provide for the continuation of that scale if the experience is unchanged. As to (4) above, the criteria set forth in Article VIII of the Plan for modifying the dividend scales if the experience changes (from that underlying the 1999 Dividend Scale) are such that, if followed, the Closed Block policyholders will be treated in a manner consistent with the contribution principle for dividend determination. The operation of the Closed Block as set forth in Article VIII is consistent with actuarial practices as described in Actuarial Standard of Practice #15. Sincerely, /s/ Kenneth M. Beck Kenneth M. Beck, F.S.A., M.A.A.A. Principal for PricewaterhouseCoopers LLP KMB/eam Sincerely, /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP A-3 329 [METLIFE LOGO] 330 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses expected to be incurred in connection with the issuance and distribution of the securities registered hereby, all of which expenses, except for the SEC registration fee, the New York Stock Exchange listing fee and the NASD filing fee, are estimates:
DESCRIPTION AMOUNT - ----------- ------ SEC registration fee........................................ $ 303,600 New York Stock Exchange listing fee and expenses............ 110,800 NASD filing fee............................................. 30,500 Blue Sky fees and expenses (including legal fees)........... 5,000 Printing and engraving expenses............................. 1,500,000 Legal fees and expenses (other than Blue Sky)............... 400,000 Accounting fees and expenses................................ 250,000 Rating agency fees.......................................... 560,000 Trustees' and agents' fees and expenses..................... 24,000 Miscellaneous............................................... 16,100 ---------- TOTAL............................................. $3,200,000 ==========
- --------------- * To be furnished by amendment All of the above expenses have been or will be paid by MetLife, Inc. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Our directors and officers may be indemnified against liabilities, fines, penalties and claims imposed upon or asserted against them as provided in the Delaware General Corporation Law and our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws. Such indemnification covers all costs and expenses incurred by a director or officer in his capacity as such. The Board of Directors, by a majority vote of a quorum of disinterested directors or, under certain circumstances, independent counsel appointed by the Board of Directors, must determine that the director or officer seeking indemnification was not guilty of willful misconduct or a knowing violation of the criminal law. In addition, the Delaware General Corporation Law and our Amended and Restated Certificate of Incorporation may under certain circumstances eliminate the liability of directors and officers in a stockholder or derivative proceeding. If the person involved is not a director or officer of MetLife, Inc., the Board of Directors may cause MetLife, Inc. to indemnify, to the same extent allowed for our directors and officers, such person who was or is a party to a proceeding by reason of the fact that he is or was our employee or agent, or is or was serving at our request as director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. We have in force and effect policies insuring our directors and officers against losses which they or any of them will become legally obligated to pay by reason of any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty by the directors and officers in the discharge of their duties, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers. Such coverage is limited by the specific terms and provisions of the insurance policies. II-1 331 Pursuant to the underwriting agreements, in the forms filed as exhibits to this Registration Statement, the underwriters will agree to indemnify directors and officers of MetLife, Inc. and persons controlling MetLife, Inc., within the meaning of the Securities Act of 1933, as amended (the "Act"), against certain liabilities that might arise out of or are based upon certain information furnished to us by any such underwriter. The declaration of trust of MetLife Capital Trust I provides that no trustee, affiliate of any trustee or any officers, directors, stockholders, members, partners, employees, representatives or agents of any trustee or any employee or agent of MetLife Capital Trust I or its affiliates, each referred to as an indemnified person, shall be liable, responsible or accountable in damages or otherwise to any employee or agent of MetLife Capital Trust I or its affiliates or any officers, directors, stockholders, employees, representatives or agents of MetLife, Inc. or its affiliates, or to any holders of trust securities of MetLife Capital Trust I for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such indemnified person in good faith on behalf of MetLife Capital Trust I and in a manner such indemnified person reasonably believed to be within the scope of the authority conferred on such indemnified person by the declaration of trust or by law, except that an indemnified person shall be liable for any such loss, damage or claim incurred by reason of such indemnified person's gross negligence (or, in the case of the property trustee of MetLife Capital Trust I, negligence) or willful misconduct with respect to such acts or omissions. The declaration of trust also provides that, to the fullest extent permitted by applicable law, MetLife, Inc. shall indemnify and hold harmless each indemnified person from and against any loss, damage or claim incurred by such indemnified person by reason of any act or omission performed or omitted by such indemnified person in good faith on behalf of MetLife Capital Trust I and in a manner such indemnified person reasonably believed to be within the scope of authority conferred on such indemnified person by the declaration of trust, except that no indemnified person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such indemnified person by reason of gross negligence (or, in the case of the property trustee of MetLife Capital Trust I, negligence) or willful misconduct with respect to such acts or omissions. Each declaration of trust further provides that to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an indemnified person in defending any claim, demand, action, suit or the final disposition of such claim, demand, action, suit or proceeding shall, from time to time, be advanced by MetLife, Inc. prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by MetLife, Inc. of an undertaking by or on behalf of the indemnified person to repay such amount if it shall be determined that the indemnified person is not entitled to be indemnified pursuant to the declaration of trust. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Upon the effective date of the plan of reorganization, MetLife, Inc. will distribute approximately 493,476,118 shares of common stock to the MetLife Policyholder Trust for the benefit of eligible policyholders in the demutualization. Exemption from registration under the Act for such distribution will be claimed under Section 3(a)(10) of the Act based on the New York Superintendent of Insurance's approval of the plan of reorganization. Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed that they or their respective affiliates will purchase from us in the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of our common stock in private placements exempt from the registration requirements under the Act. II-2 332 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. See Exhibit Index following the signature pages to this Registration Statement. (b) Financial Statement Schedules.
PAGE ---- Independent Auditors' Report................................ II-4 Schedule I -- Summary of Investments -- Other Than Investments In Affiliates at December 31, 1999............ II-5 Schedule III -- Supplementary Insurance Information for the years ended December 31, 1999, 1998 and 1997.............. II-6 Schedule IV -- Reinsurance for the years ended December 31, 1999, 1998 and 1997....................................... II-7
II-3 333 INDEPENDENT AUDITORS' REPORT The Board of Directors and Policyholders of Metropolitan Life Insurance Company: We have audited the consolidated financial statements of Metropolitan Life Insurance Company and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, equity and cash flows for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated February 7, 2000; such consolidated financial statements and report are included in the Prospectus which is a part of this Registration Statement of MetLife, Inc. on Form S-1. Our audits also included the consolidated financial statement schedules of the Company, listed in Item 16(b). These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP New York, New York February 7, 2000 II-4 334 METROPOLITAN LIFE INSURANCE COMPANY SCHEDULE I SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN AFFILIATES AT DECEMBER 31, 1999 (IN MILLIONS)
AMOUNT AT ESTIMATED WHICH SHOWN ON TYPE OF INVESTMENT COST (A) FAIR VALUE BALANCE SHEET - ------------------ -------- ---------- -------------- Fixed maturities: Bonds: United States Government and government agencies and authorities............................... $ 5,990 $ 6,299 $ 6,299 States, municipalities and political subdivisions.................................. 1,583 1,542 1,542 Foreign governments............................. 4,090 4,206 4,206 Public utilities................................ 6,798 6,602 6,602 Convertibles and bonds with warrants attached... -- -- -- All other corporate bonds....................... 40,707 39,575 39,575 Mortgage and asset-backed securities............... 27,396 26,661 26,661 International...................................... 12,235 12,086 12,086 Redeemable preferred stocks........................ 10 10 10 -------- -------- -------- Total fixed maturities.......................... 98,809 96,981 96,981 Equity securities: Common stocks: Public utilities................................ 7 13 13 Banks, trust and insurance companies............ 132 331 331 Industrial, miscellaneous and all other......... 841 1,522 1,522 Nonredeemable preferred stocks..................... 151 140 140 -------- -------- -------- Total equity securities......................... 1,131 2,006 2,006 Mortgage loans on real estate........................ 19,829 19,452 19,739 Policy loans......................................... 5,598 5,618 5,598 Real estate and real estate joint ventures........... 5,602 -- 5,602 Real estate acquired in satisfaction of debt......... 47 -- 47 Limited partnership interests........................ 1,331 -- 1,331 Short-term investments............................... 3,055 3,055 3,055 Other invested assets................................ 1,501 -- 1,501 -------- -------- -------- TOTAL INVESTMENTS.................................. $136,903 $135,860 ======== ======== ========
- --------------- (A) Cost for fixed maturities and mortgage loans on real estate represents original cost, reduced by repayments and writedowns and adjusted for amortization of premiums or accretion of discount; for equity securities, cost represents original cost; for real estate, cost represents original cost reduced by writedowns and adjusted for depreciation; for real estate joint ventures and limited partnership interests, cost represents original cost adjusted for equity in earnings and distributions and reduced for writedowns. II-5 335 METROPOLITAN LIFE INSURANCE COMPANY SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION AT AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
DEFERRED POLICY FUTURE POLICY POLICYHOLDER POLICYHOLDER ACQUISITION BENEFITS AND OTHER ACCOUNT DIVIDENDS UNEARNED PREMIUM REVENUE SEGMENT COSTS POLICYHOLDER FUNDS BALANCES PAYABLE REVENUE AND POLICY CHARGES ------- --------------- ------------------ ------------ ------------ -------- ------------------ 1999 Individual................... $8,049 $44,962 $27,280 $ 714 $799 $ 5,177 Institutional................ 106 29,895 17,627 259 6 6,027 Auto & Home.................. 93 2,318 -- -- -- 1,751 International................ 244 1,192 994 1 15 571 Asset Management............. -- -- -- -- -- -- Corporate.................... -- 6 -- -- -- -- Consolidation/Elimination.... -- (293) -- -- -- -- ------ ------- ------- ------ ---- ------- $8,492 $78,080 $45,901 $ 974 $820 $13,526 ====== ======= ======= ====== ==== ======= 1998 Individual................... $6,194 $43,775 $27,109 $ 687 $749 $ 5,140 Institutional................ 82 30,905 18,253 248 5 5,634 Auto & Home.................. 57 1,477 -- -- -- 1,403 International................ 205 899 1,132 12 8 686 Asset Management............. -- -- -- -- -- -- Corporate.................... -- 1 -- -- -- -- Consolidation/Elimination.... -- (295) -- -- -- -- ------ ------- ------- ------ ---- ------- $6,538 $76,762 $46,494 $ 947 $762 $12,863 ====== ======= ======= ====== ==== ======= 1997 Individual................... $5,912 $42,836 $27,222 $ 628 $562 $ 5,182 Institutional................ 40 30,039 19,167 341 4 5,115 Auto & Home.................. 56 1,509 -- -- -- 1,354 International................ 428 3,461 2,154 -- 3 1,045 Asset Management............. -- -- -- -- -- -- Corporate.................... -- 1 -- -- -- -- Consolidation/Elimination.... -- -- -- -- -- -- ------ ------- ------- ------ ---- ------- $6,436 $77,846 $48,543 $ 969 $569 $12,696 ====== ======= ======= ====== ==== =======
AMORTIZATION OF AMORTIZATION OF DEFERRED POLICY DEFERRED POLICY ACQUISITION COSTS ACQUISITION COSTS CHARGED AGAINST NET OTHER INVESTMENT POLICYHOLDER BENEFITS CHARGED TO REALIZED INVESTMENT OPERATING SEGMENT INCOME, NET AND INTEREST CREDITED OTHER EXPENSES GAINS (LOSSES) EXPENSES ------- ----------- --------------------- ----------------- ------------------- --------- 1999 Individual................. $ 5,346 $ 5,984 $613 $ (46) $3,616 Institutional.............. 3,755 7,742 17 -- 1,730 Auto & Home................ 103 1,301 213 -- 301 International.............. 206 515 19 -- 251 Asset Management........... 80 -- -- -- 795 Corporate.................. 605 -- -- -- 1,031 Consolidation/Elimination... (279) 4 -- -- (141) ------- ------- ---- ----- ------ $ 9,816 $15,546 $862 $ (46) $7,583 ======= ======= ==== ===== ====== 1998 Individual................. $ 5,480 $ 6,029 $364 $ 240 $3,657 Institutional.............. 3,885 7,615 9 -- 1,747 Auto & Home................ 81 1,029 166 -- 220 International.............. 343 686 48 -- 368 Asset Management........... 75 -- -- -- 799 Corporate.................. 682 (10) -- -- 2,601 Consolidation/Elimination... (318) -- -- -- (309) ------- ------- ---- ----- ------ $10,228 $15,349 $587 $ 240 $9,083 ======= ======= ==== ===== ====== 1997 Individual................. $ 4,754 $ 6,019 $546 $ 61 $3,166 Institutional.............. 3,754 7,253 3 -- 1,502 Auto & Home................ 71 1,003 166 -- 185 International.............. 504 1,006 56 9 538 Asset Management........... 78 -- -- -- 679 Corporate.................. 700 -- -- -- 966 Consolidation/Elimination... (370) -- -- -- (294) ------- ------- ---- ----- ------ $ 9,491 $15,281 $771 $ 70 $6,742 ======= ======= ==== ===== ====== PREMIUMS WRITTEN SEGMENT (EXCLUDING LIFE) ------- ---------------- 1999 Individual................. $ N/A Institutional.............. N/A Auto & Home................ 2,109 International.............. 64 Asset Management........... N/A Corporate.................. N/A Consolidation/Elimination.. N/A ------ $2,173 ====== 1998 Individual................. $ N/A Institutional.............. N/A Auto & Home................ 1,422 International.............. 44 Asset Management........... N/A Corporate.................. N/A Consolidation/Elimination.. N/A ------ $1,466 ====== 1997 Individual................. $ N/A Institutional.............. N/A Auto & Home................ 1,359 International.............. 12 Asset Management........... N/A Corporate.................. N/A Consolidation/Elimination.. N/A ------ $1,371 ======
II-6 336 METROPOLITAN LIFE INSURANCE COMPANY SCHEDULE IV REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN MILLIONS)
PERCENTAGE CEDED TO ASSUMED OF AMOUNT GROSS OTHER FROM OTHER NET ASSUMED AMOUNT COMPANIES COMPANIES AMOUNT TO NET ------ --------- ---------- ------ ---------- FOR THE YEAR ENDED DECEMBER 31, 1999 Life insurance in force............................. $1,743,945 $217,358 $12,168 $1,538,755 0.8% ========== ======== ======= ========== ==== INSURANCE PREMIUMS Life insurance.................................. $ 9,503 $ 1,269 $ 217 $ 8,451 2.6% Accident and health insurance................... 2,102 323 48 1,827 2.6% Property and casualty insurance................. 1,644 53 219 1,810 12.1% ---------- -------- ------- ---------- ---- TOTAL INSURANCE PREMIUMS..................... $ 13,249 $ 1,645 $ 484 $ 12,088 4.0% ========== ======== ======= ========== ==== FOR THE YEAR ENDED DECEMBER 31, 1998 Life insurance in force............................. $1,652,179 $167,941 $11,435 $1,495,673 0.8% ========== ======== ======= ========== ==== INSURANCE PREMIUMS Life insurance.................................. $ 9,572 $ 1,281 $ 313 $ 8,604 3.6% Accident and health insurance................... 1,718 301 53 1,470 3.6% Property and casualty insurance................. 1,473 87 43 1,429 3.0% ---------- -------- ------- ---------- ---- TOTAL INSURANCE PREMIUMS..................... $ 12,763 $ 1,669 $ 409 $ 11,503 3.6% ========== ======== ======= ========== ==== FOR THE YEAR ENDED DECEMBER 31, 1997 Life insurance in force............................. $1,699,690 $ 49,452 $17,748 $1,667,986 1.1% ========== ======== ======= ========== ==== INSURANCE PREMIUMS Life insurance.................................. $ 9,556 $ 1,210 $ 227 $ 8,573 2.6% Accident and health insurance................... 1,753 497 83 1,339 6.2% Property and casualty insurance................. 1,419 103 50 1,366 3.7% ---------- -------- ------- ---------- ---- TOTAL INSURANCE PREMIUMS..................... $ 12,728 $ 1,810 $ 360 $ 11,278 3.2% ========== ======== ======= ========== ====
II-7 337 All schedules, other than those listed above, are omitted because the information is not required or because the information is included in the Consolidated Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS. Each registrant hereby undertakes: (a) To provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended ("Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (d) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 338 SIGNATURES Pursuant to the requirements of the Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on April 4, 2000. MetLife, Inc. By: /s/ ROBERT H. BENMOSCHE ------------------------------------ Name: Robert H. Benmosche Title: Chairman, President and Chief Executive Officer II-9 339 SIGNATURES Pursuant to the requirements of the Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on April 4, 2000. METLIFE CAPITAL TRUST I By MetLife, Inc., as sponsor By: /s/ GWENN L. CARR ------------------------------------ Name: Gwenn L. Carr Title: Vice President and Secretary II-10 340 POWER OF ATTORNEY Each person whose signature appears below hereby authorizes and appoints Robert H. Benmosche and Gary A. Beller, or any of them, as such person's attorney-in-fact, with full power of substitution and resubstitution, to sign and file on such person's behalf individually and in each capacity stated below any and all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed by MetLife, Inc. pursuant to Rule 462(b) of the Securities Act of 1933, as amended, as fully as such person could do in person, hereby verifying and confirming all that such attorney-in-fact, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman, President, Chief Executive April 4, 2000 - --------------------------------------------- Officer and Director Robert H. Benmosche * Director April 4, 2000 - --------------------------------------------- Curtis H. Barnette * Vice-Chairman, Chief Investment Officer April 4, 2000 - --------------------------------------------- and Director Gerald Clark * Director April 4, 2000 - --------------------------------------------- Joan Ganz Cooney * Director April 4, 2000 - --------------------------------------------- Burton A. Dole, Jr. * Director April 4, 2000 - --------------------------------------------- James R. Houghton * Director April 4, 2000 - --------------------------------------------- Harry P. Kamen * Director April 4, 2000 - --------------------------------------------- Helene L. Kaplan * Director April 4, 2000 - --------------------------------------------- Charles M. Leighton * Director April 4, 2000 - --------------------------------------------- Allen E. Murray
II-11 341
SIGNATURE TITLE DATE --------- ----- ---- * Vice-Chairman, Chief Financial Officer April 4, 2000 - --------------------------------------------- and Director Stewart G. Nagler * Director April 4, 2000 - --------------------------------------------- John J. Phelan, Jr. * Director April 4, 2000 - --------------------------------------------- Hugh B. Price * Director April 4, 2000 - --------------------------------------------- Robert G. Schwartz * Director April 4, 2000 - --------------------------------------------- Ruth J. Simmons * Director April 4, 2000 - --------------------------------------------- William C. Steere, Jr. *By /s/ ROBERT H. BENMOSCHE - -------------------------------------------- Attorney-in-fact
II-12 342 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.1 Form of Underwriting Agreement+ 2.1 Plan of Reorganization (Incorporated by reference to Exhibit 2.1 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 2.2 Amendment to Plan of Reorganization dated as of March 9, 2000 (Incorporated by reference to Exhibit 2.2 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 3.1 Form of Amended and Restated Certificate of Incorporation of MetLife, Inc. (incorporated by reference to Exhibit 3.1 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 3.2 Form of Amended and Restated By-Laws of MetLife, Inc. (incorporated by reference to Exhibit 3.2 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 4.1 Form of Indenture between MetLife, Inc. and The Bank of New York, as trustee, relating to the debt securities 4.2 Form of First Supplemental Indenture between MetLife, Inc. and The Bank of New York, as trustee, relating to the Debentures 4.3 Certificate of Trust of MetLife Capital Trust I+ 4.4 Declaration of Trust of MetLife Capital Trust I+ 4.5 Form of Amended and Restated Declaration of Trust of MetLife Capital Trust I 4.6 Form of Capital Securities Guarantee Agreement for MetLife Capital Trust I 4.7 Form of Capital Security Certificate of MetLife Capital Trust I (included in Exhibit 4.5) 4.8 Form of Purchase Contract Agreement 4.9 Form of Pledge Agreement 4.10 Form of Debenture (included in Exhibit 4.2) 4.11 Form of Normal Unit (Included in Exhibit 4.8) 4.12 Form of Stripped Unit (Included in Exhibit 4.8) 4.13 Form of Common Securities Guarantee Agreement 5.1 Opinion of Debevoise & Plimpton+ 5.2 Opinion of Richards, Layton & Finger, P.A.+ 8.1 Opinion of Debevoise & Plimpton as to certain tax matters+ 10.1 MetLife Deferred Compensation Plan 2000 for Senior Officers (Incorporated by reference to Exhibit 10.1 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.2 MetLife Deferred Compensation Plan 2000 for Officers (Incorporated by reference to Exhibit 10.2 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.3 Form of Employment Continuation Agreement with Messrs. Benmosche, Nagler and Clark (Incorporated by reference to Exhibit 10.3 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.4 Form of Employment Continuation Agreement with Mr. Henrikson and other executive officers (Incorporated by reference to Exhibit 10.4 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.5 Employment Agreement between Mr. Benson and New England Life Insurance Company (Incorporated by reference to Exhibit 10.5 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+
343
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.6 Form of Stockholder Rights Agreement (Incorporated by reference to Exhibit 10.6 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.7 MetLife, Inc. 2000 Stock Incentive Plan as amended and restated March 28, 2000 (Incorporated by reference to Exhibit 10.7 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.8 MetLife, Inc. 2000 Directors Stock Plan as amended and restated March 28, 2000 (Incorporated by reference to Exhibit 10.8 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.9 Amended and Restated Employment Continuation Agreement with Ms. Rein (Incorporated by reference to Exhibit 10.9 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.10 Employment Continuation Agreement between Ms. Rein and Metropolitan Property and Casualty Insurance Company, dated March 3, 2000 (Incorporated by reference to Exhibit 10.10 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.11 Employment Agreement between New England Life Insurance Company and James M. Benson (Incorporated by reference to Exhibit 10.11 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.12 Policyholder Trust Agreement (Incorporated by reference to Exhibit 10.12 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.13 Restatement of the Excess Asbestos Indemnity Insurance Policy, dated as of December 31, 1998, between Stockwood Reinsurance Company, Ltd. and Metropolitan Life Insurance Company (Incorporated by reference to Exhibit 10.13 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.14 Restatement of the Excess Asbestos Indemnity Insurance Policy, dated as of December 31, 1998, between European Reinsurance Corporation of America and Metropolitan Life Insurance Company (Incorporated by reference to Exhibit 10.14 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.15 Restatement of the Aggregate Excess of Loss Reinsurance Agreement, dated as of December 31, 1998, between Stockwood Reinsurance Company, Ltd. and Metropolitan Life Insurance Company (Incorporated by reference to Exhibit 10.15 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.16 Restatement of the Excess Asbestos Indemnity Insurance Policy, dated as of December 31, 1998, between Granite State Insurance Company and Metropolitan Life Insurance Company (Incorporated by reference to Exhibit 10.16 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.17 Restatement of the Aggregate Excess of Loss Reinsurance Agreement, dated as of December 31, 1998, between American International Life Assurance Company of New York and Metropolitan Life Insurance Company (Incorporated by reference to Exhibit 10.17 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.18 Five-Year Credit Agreement, dated as of April 27,1998, and as amended as of April 26, 1999, among Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto (Incorporated by reference to Exhibit 10.18 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.19 364-Day Credit Agreement, dated as of April 27, 1998, as amended and restated as of April 26, 1999, among Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto (Incorporated by reference to Exhibit 10.19 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+
344
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.20 364-Day Credit Agreement, dated as of September 29, 1999, among Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto (Incorporated by reference to Exhibit 10.20 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.21 Stipulation of Settlement, as amended, relating to Metropolitan Life Insurance Company Sales Practices Litigation (Incorporated by reference to Exhibit 10.21 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.22 Consulting Agreement with Harry P. Kamen, effective July 1, 1999 (Incorporated by reference to Exhibit 10.22 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.23 Consulting Agreement with Harry P. Kamen, effective July 1, 1998 (Incorporated by reference to Exhibit 10.23 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.24 Metropolitan Life Insurance Company Long Term Performance Compensation Plan (for performance periods starting on or after January 1, 2000) (Incorporated by reference to Exhibit 10.24 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.25 Metropolitan Life Insurance Company Long Term Performance Compensation Plan (for performance periods starting on or after January 1, 1999) (Incorporated by reference to Exhibit 10.25 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.26 Metropolitan Life Insurance Company Long Term Performance Compensation Plan (for performance periods starting on or after January 1, 1998) (Incorporated by reference to Exhibit 10.26 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.27 Metropolitan Life Insurance Company Long Term Performance Compensation Plan (for performance periods starting on or after January 1, 1997) (Incorporated by reference to Exhibit 10.27 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.28 Metropolitan Life Insurance Company Annual Variable Incentive Plan (for performance periods starting on or after January 1, 2000) (Incorporated by reference to Exhibit 10.28 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.29 The New Metropolitan Life Auxiliary Retirement Benefits Plan, as amended and restated, effective January 1,1996 (Incorporated by reference to Exhibit 10.29 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.30 The New Metropolitan Life Supplemental Auxiliary Retirement Benefits Plan, effective January 1,1996, and Amendment thereto (Incorporated by reference to Exhibit 10.30 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.31 Metropolitan Life Auxiliary Savings and Investment Plan, restated effective through August 15, 1998 (Incorporated by reference to Exhibit 10.31 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.32 Metropolitan Life Supplemental Auxiliary Savings and Investment Plan (as amended and restated as of September 1, 1998) and Amendment thereto (Incorporated by reference to Exhibit 10.32 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.33 Supplemental Auxiliary Savings and Investment Plan of Participating Metropolitan Affiliates, effective January 1, 1996 (Incorporated by reference to Exhibit 10.33 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+
345
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.34 Metropolitan Life Supplemental Retirement Benefits Plan and Amendment thereto, effective January 1, 1995 (Incorporated by reference to Exhibit 10.34 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.35 New England Financial Annual Variable Incentive Plan (for performance periods starting on or after January 1, 2000) (Incorporated by reference to Exhibit 10.35 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.36 New England Financial Long Term Performance Compensation Plan (for performance periods starting on or after January 1, 2000) (Incorporated by reference to Exhibit 10.36 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.37 New England Life Insurance Company Select Employees Supplemental 401(k) Plan, as amended and restated effective January 1, 2000 (Incorporated by reference to Exhibit 10.37 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.38 New England Life Insurance Company Supplemental Retirement Plan, as amended and restated effective January 1, 2000 (Incorporated by reference to Exhibit 10.38 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.39 The New England Life Insurance Company Select Employees Supplemental Retirement Plan, as amended and restated effective January 1, 2000 (Incorporated by reference to Exhibit 10.39 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.40 The New England Life Insurance Company Senior Executive Nonqualified Elective Deferral Plan, effective January 1, 1998 (Incorporated by reference to Exhibit 10.40 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.41 New England Financial Long Term Performance Compensation Plan (for each of the three-year performance periods commencing on January 1, 1997, 1998 and 1999, respectively) (Incorporated by reference to Exhibit 10.41 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.42 The New England Short-Term Incentive Plan (for performance periods starting on or after January 1, 1999) (Incorporated by reference to Exhibit 10.42 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.43 Metropolitan Life Insurance Company Annual Variable Incentive Plan (for performance periods starting on or after January 1, 1999) (Incorporated by reference to Exhibit 10.43 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.44 Form of Capital Note (Incorporated by reference to Exhibit 10.44 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.45 1993 Fiscal Agency Agreement between Metropolitan Life Insurance Company and The Chase Manhattan Bank, N.A. dated as of November 1, 1993 -- Metropolitan Life Ins. Co. (Incorporated by reference to Exhibit 10.45 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.46 1995 Fiscal Agency Agreement between Metropolitan Life Insurance Company and The Chase Manhattan Bank, N.A. dated as of November 13, 1995 -- Metropolitan Life Ins. Co. (Incorporated by reference to Exhibit 10.46 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.47 Fiscal Agency Agreement between New England Mutual Insurance Company and The First National Bank of Boston dated as of February 10, 1994 (Incorporated by reference to Exhibit 10.47 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))
346
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.48 Fiscal Agency Agreement between General American Life Insurance Company and The Bank of New York dated as of January 24, 1994 (Incorporated by reference to Exhibit 10.48 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.49 Amended and Restated Trust Agreement among GenAmerica Corporation and Wilmington Trust Company, David L. Herzog, John W. Hayden and Christopher A. Martin dated as of June 6, 1997 (Incorporated by reference to Exhibit 10.49 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 10.50 Employment Continuation Agreement with Ms. Weber (Incorporated by reference to Exhibit 10.50 to Met Life, Inc.'s Registration Statement on Form S-1 (No. 333- 91517))+ 10.51 Form of Stock Purchase Agreement among MetLife, Inc., Metropolitan Life Insurance Company, Credit Suisse Group or its affiliates and Banco Santander Central Hispano S.A. or its affiliates (Incorporated by reference to Exhibit 10.51 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517)) 12.1 Statement of Ratio of Earnings to Fixed Charges+ 21.1 Subsidiaries of MetLife, Inc. (Incorporated by reference to Exhibit 21.1 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+ 23.1 Consent of Deloitte & Touche LLP 23.2 Consent of PricewaterhouseCoopers LLP+ 23.3 Consent of Debevoise & Plimpton (included in Exhibit 5.1)+ 23.4 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2)+ 24.1 Powers of Attorney (included on the signature page of this Registration Statement)+ 24.2 Powers of Attorney for MetLife, Inc., as sponsor, to sign the Registration Statement on behalf of MetLife Capital Trust I (included on the signature page to this Registration Statement)+ 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York, as trustee under the Indenture+ 25.2 Form T-1 Statement of Eligibility for The Bank of New York, as property trustee under the Amended and Restated Declaration of Trust for MetLife Capital Trust I+ 25.3 Form T-1 Statement of Eligibility for The Bank of New York, as guarantee trustee under the Capital Securities Guarantee Agreement+ 27.1 Financial Data Schedule (Incorporated by reference to Exhibit 27.1 to MetLife, Inc.'s Registration Statement on Form S-1 (No. 333-91517))+
- --------------- + Previously filed. EX-4.1 2 FORM OF INDENTURE 1 Exhibit 4.1 METLIFE, INC., AS ISSUER AND THE BANK OF NEW YORK, AS TRUSTEE INDENTURE DATED AS OF APRIL __, 2000 DEBENTURES 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions................................................... 1 Section 1.2 Other Definitions............................................. 6 Section 1.3 Incorporation by Reference of TIA............................. 7 Section 1.4 Rules of Construction......................................... 8 Section 1.5 Acts of Holders and Holders of Capital Securities............. 8 ARTICLE 2 THE DEBENTURES Section 2.1 Amount Unlimited; Issuable in Series.......................... 9 Section 2.2 Payment of Principal and Interest............................. 12 Section 2.3 Execution, Authentication and Delivery........................ 14 Section 2.4 Registrar and Paying and Conversion Agents.................... 17 Section 2.5 Paying Agent to Hold Money in Trust........................... 18 Section 2.6 Debentureholder Lists......................................... 18 Section 2.7 Transfer and Exchange......................................... 18 Section 2.8 Replacement Debentures........................................ 20 Section 2.9 Outstanding Debentures; Determinations of Holders' Action..... 20 Section 2.10 Temporary Debentures......................................... 21 Section 2.11 Book-Entry System............................................ 22 Section 2.12 Cancellation................................................. 23 Section 2.13 CUSIP Numbers................................................ 24 Section 2.14 Record Date.................................................. 24 ARTICLE 3 REDEMPTION Section 3.1 Redemption; Notice to Trustee................................. 24 Section 3.2 Selection of Debentures to Be Redeemed........................ 25 Section 3.3 Notice of Redemption.......................................... 25 Section 3.4 Effect of Notice of Redemption................................ 26 Section 3.5 Deposit of Redemption Price................................... 26 Section 3.6 Debentures Redeemed in Part................................... 27 i 3 ARTICLE 4 COVENANTS Section 4.1 Payment of Principal, Premium and Interest.................... 27 Section 4.2 Limitation on Dividends....................................... 28 Section 4.3 Periodic Reports to Trustee................................... 29 Section 4.4 Compliance Certificates....................................... 29 Section 4.5 Further Instruments and Acts.................................. 29 Section 4.6 Payment of Expenses of Each Trust............................. 29 Section 4.7 Ownership of Common Securities................................ 30 Section 4.8 Statement by Officers as to Default........................... 30 ARTICLE 5 SUCCESSOR CORPORATION Section 5.1 When the Company May Merge, Etc............................... 30 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1 Events of Default............................................. 31 Section 6.2 Acceleration.................................................. 33 Section 6.3 Other Remedies................................................ 34 Section 6.4 Waiver of Past Defaults....................................... 34 Section 6.5 Control by Holders............................................ 35 Section 6.6 Limitation on Suits........................................... 35 Section 6.7 Unconditional Right of Holders to Receive Principal, Premium and Interest................................................. 36 Section 6.8 Direct Action Right of Holders of Capital Securities.......... 36 Section 6.9 Collection Suits by the Trustee............................... 36 Section 6.10 Trustee May File Proofs of Claim............................. 37 Section 6.11 Priorities................................................... 38 Section 6.12 Undertaking for Costs........................................ 38 ii 4 ARTICLE 7 THE TRUSTEE Section 7.1 Duties and Responsibilities of the Trustee.................... 39 Section 7.2 Rights of the Trustee......................................... 40 Section 7.3 Not Responsible for Recitals or Issuances of Debentures....... 41 Section 7.4 May Hold Securities........................................... 42 Section 7.5 Notice of Defaults............................................ 42 Section 7.6 Reports by Trustee to Holders................................. 42 Section 7.7 Compensation and Indemnity.................................... 43 Section 7.8 Eligibility; Disqualification................................. 44 Section 7.9 Resignation and Removal; Appointment of Successor............. 44 Section 7.10 Acceptance of Appointment by Successor....................... 46 Section 7.11 Successor Trustee by Merger.................................. 47 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 8.1 Satisfaction and Discharge of Indenture....................... 47 Section 8.2 Application by Trustee of Funds Deposited for Payment of Debentures................................................ 49 Section 8.3 Repayment of Moneys Held by Paying Agent...................... 49 Section 8.4 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Two Years.............................................. 50 ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.1 Supplemental Indentures Without Consent of Holders............ 50 Section 9.2 Supplemental Indentures with Consent of Holders............... 51 Section 9.3 Compliance with Trust Indenture Act........................... 53 Section 9.4 Revocation and Effect of Consents, Waivers and Actions........ 53 Section 9.5 Notation on or Exchange of Debentures......................... 54 Section 9.6 Execution of Supplemental Indentures.......................... 54 Section 9.7 Effect of Supplemental Indentures............................. 54 iii 5 ARTICLE 10 SINKING FUNDS Section 10.1 Applicability of Article..................................... 54 Section 10.2 Satisfaction of Sinking Fund Payments with Debentures........ 55 Section 10.3 Redemption of Debentures for Sinking Fund.................... 55 ARTICLE 11 MEETINGS OF DEBENTUREHOLDERS Section 11.1 Purposes for Which Meetings May Be Called.................... 56 Section 11.2 Call, Notice and Place of Meetings........................... 56 Section 11.3 Persons Entitled to Vote at Meetings......................... 57 Section 11.4 Quorum; Action............................................... 57 Section 11.5 Determination of Voting Rights; Conduct and Adjournment of Meetings............................................................. 58 Section 11.6 Counting Votes and Recording Action of Meetings.............. 59 ARTICLE 12 MISCELLANEOUS Section 12.1 Trust Indenture Act Controls................................. 59 Section 12.2 Notices...................................................... 59 Section 12.3 Communication by Holders with Other Holders.................. 61 Section 12.4 Certificate and Opinion as to Conditions Precedent........... 61 Section 12.5 Statements Required in Certificate or Opinion................ 61 Section 12.6 Severability Clause.......................................... 62 Section 12.7 Rules by Trustee, Paying Agent and Registrar................. 62 Section 12.8 Legal Holidays............................................... 62 Section 12.9 Governing Law................................................ 62 Section 12.10 No Recourse Against Others.................................. 62 Section 12.11 Successors and Assigns...................................... 62 Section 12.12 Counterparts................................................ 63 Section 12.13 No Adverse Interpretation of Other Agreements............... 63 Section 12.14 Table of Contents, Headings, Etc............................ 63 Section 12.15 Benefits of the Indenture................................... 63 iv 6 MetLife, Inc. Indenture Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939
Trust Indenture Indenture Act Section Section ----------- ------- ss.310(a)(1) .................................. 2.3; 7.8 (a)(2) .................................. 2.3; 7.8 (a)(3) .................................. Not Applicable (a)(4) .................................. Not Applicable (a)(5) .................................. Not Applicable (b) .................................. 7.8; 7.9 (c) .................................. Not Applicable ss.311(a) .................................. Not Applicable (b) .................................. Not Applicable (c) .................................. Not Applicable ss.312(a) .................................. 2.6. (b) .................................. 13.3 (c) .................................. 13.3 ss.313(a) .................................. 7.6. (b)(1) .................................. Not Applicable (b)(2) .................................. Not Applicable (c) .................................. 7.6. (d) .................................. 7.6. ss.314(a) .................................. 4.3; 4.4 (b) .................................. Not Applicable (c)(1) .................................. 2.3; 13.4; 13.5 (c)(2) .................................. 2.3; 13.4; 13.5 (c)(3) .................................. Not Applicable (d) .................................. Not Applicable (e) .................................. 13.5 .................................. Not Applicable ss.315(a) .................................. 7.1(b); 7.2 (b) .................................. 7.2; 7.4; 13.2 (c) .................................. 7.1(a); 7.2 (d) .................................. 7.1(c); 7.2 (e) .................................. 6.12
v 7 ss.316(a)(1)(A) .................................. 6.5. (a)(1)(B) .................................. 6.2; 6.4 (a)(2) .................................. Not Applicable (a)(last sentence).................................. 2.9. (b) .................................. 6.7. (c) .................................. 1.5. ss.317(a)(1) .................................. 6.9. (a)(2) .................................. 6.10 (b) .................................. 2.5. ss.318(a) .................................. 13.1 (b) .................................. Not Applicable (c) .................................. 13.1
- -------------------- Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to be a part of the Indenture. vi 8 INDENTURE, dated as of April __, 2000, by and between MetLife, Inc., a corporation duly organized and existing under the laws of the State of Delaware, or any successor thereto (the "Company"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company may from time to time create or establish one or more statutory business trusts for the purpose of issuing undivided beneficial interests in the assets thereof (the "Trust Securities") and using the proceeds thereof to acquire the Company's Debentures (as hereinafter defined), and to provide therefor, the Company has duly authorized the execution and delivery of this Debenture. WHEREAS, all things necessary to make the Debentures, when duly issued and executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, enforceable in accordance with its terms, have been done. NOW THEREFORE: Each of the Company and the Trustee, intending to be legally bound hereby, agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders (as hereinafter defined) of the securities issued hereunder: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. When used with respect to any Person, "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or other wise; and the terms "controlling" and "controlled" and "under common control with" have meanings correlative to the foregoing. "Board of Directors" means either the Board of Directors of the Company or the Executive Committee of such Board or any other committee of such Board duly authorized to act generally or in any particular respect for the Board hereunder. 9 "Board Resolution" means (i) a copy of a resolution certified by the Secretary or the Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, (ii) a copy of a unanimous written consent of the Board of Directors or (iii) a certificate signed by the authorized officer or officers to whom the Board of Directors has delegated its authority, and in each case, delivered to the Trustee. "Business Day" means any day that is not a Saturday, a Sunday or day on which banking institutions and trust companies in The City of New York are authorized or required by law, regulation or executive order to close. "Capital Securities" means the securities of a Trust, representing undivided beneficial interests in the assets of such Trust and designated as capital securities pursuant to the declaration of such Trust. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated, whether voting or non-voting) corporate stock or similar interests in other types of entities. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company Order" means a written request or order signed in the name of the Company by an Officer of the Company and delivered to the Trustee. "Corporate Trust Office" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the dated hereof is located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the designated office of any successor Trustee (or such other address as a successor Trustee may designate from time to time by notice to the Holders and the Company). "Debentureholder" or "Holder" means a Person in whose name a Debenture is registered on the Registrar's books. "Debentures" means any of the debentures of any series issued, authenticated and delivered under this Indenture, as the same may now or hereafter exist or may hereafter be amended, modified, supplemented, extended, renewed, restated, substituted for or replaced. 2 10 "Debt" means (i) the principal of and premium and interest, if any, on indebted ness for money borrowed, (ii) purchase money and similar obligations, (iii) obligations under capital leases, (iv) guarantees, assumptions or purchase commitments relating to, or other transactions as a result of which the Company is responsible for the payment of, such indebtedness of others, (v) renewals, extensions and refunding of any such indebtedness, (vi) interest or obligations in respect of any such indebtedness accruing after the commencement of any insolvency or bankruptcy proceedings and (vii) obligations associated with derivative products such as interest rate and currency exchange contracts, foreign exchange contracts, commodity contracts and similar arrangements. "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default pursuant to Section 6.1. "Deferral Period," with respect to any series of Debentures, means any period during which the Company elects to extend the interest payment period on such series of Debentures pursuant to Section 4.1(b); provided that a Deferral Period (or any extension thereof) may not extend beyond the Stated Maturity Date or the Redemption Date of any Debenture of such series and must end on an Interest Payment Date or, if the Debentures are redeemed, on an Interest Payment Date or the Redemption Date for such Debentures. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Guarantee" means each guarantee agreement executed by the Company with respect to the Capital Securities issued by any Trust pursuant to which the Company agrees to pay the guarantee payments under any such guarantee agreement to the holders of such Capital Securities. "Indenture" means this indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. "Interest Payment Date," when used with respect to the Debentures of any series, means the date or dates in each year on which any interest on the Debentures of that series is paid or made available for payment. "Issue Date," with respect to a series of Debentures, means the date on which the Debentures of such series are originally authenticated and delivered under this Indenture. "Office" or "Agency," with respect to any Debentures, means an office or agency of the Company maintained or designated as a place of payment for such Debentures 3 11 pursuant to Section 2.4 or, to the extent designated or required by Section 2.4 in lieu of such office or agency, the Corporate Trust Office of the Trustee. "Officer" means, with respect to any Person, the Chief Executive Officer, the Chief Financial Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of such corporation. "Officer's Certificate" means a certificate signed on behalf of the Company by the Chief Executive Officer, the Chief Financial Officer, the President, a Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, that complies with the requirements of Sections 13.4 and 13.5 and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of legal counsel, who may be an employee of the Company, or any other legal counsel who shall be reasonably acceptable to the Trustee and provided that the General Counsel and the Assistant General Counsel of the Company shall be deemed to be reasonably acceptable to the Trustee, containing the applicable information specified in Sections 13.4 and 13.5. "Paying Agent" means any Person authorized by the Company to pay the principal of and premium, if any, and interest on the Debentures of any series on behalf of the Company. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Predecessor Debentures" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and for purposes of this definition, any Debenture authenticated and delivered under Section 2.8 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "Record Date," with respect to any series of the Debentures, means the Regular Record Date, the Special Record Date or any date set to determine the Holders of Debentures of such series entitled to vote, consent, make a request or exercise any other right associated with such Debentures. 4 12 "Redemption Date," with respect to the Debentures of any series to be redeemed, means the date specified for the redemption thereof in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Redemption Price," with respect to the Debentures of any series to be redeemed, means the price at which such Debentures are to be redeemed in accordance with the terms thereof and pursuant to Article 3 of this Indenture. "Regular Record Date," with respect to an Interest Payment Date for the Debentures of any series, means the date specified for the determination of Holders of such Debentures entitled to receive the payment of interest on such Interest Payment Date. "Responsible Officer" means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee (or any successor of the Trustee), including any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, any trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Exchange," when used with respect to the Debentures of any series which are held as assets of a Trust pursuant to the Trust Agreement of such Trust, means the distribution of the Debentures of such series by such Trust to the holders of the Trust Securities of such Trust in exchange for such Trust Securities upon certain events described in the applicable Trust Agreement. A "series" of Debentures means all Debentures denoted as part of the same series authorized by or pursuant to a particular Board Resolution or a supplemental indenture. "Special Record Date" for the payment of any Defaulted Interest on the Debentures of any series means the date determined pursuant to Section 2.2. "Stated Maturity Date," with respect to the Debentures of any series, means the date specified for such Debentures as the date on which the principal of such Debenture is due and payable. 5 13 "Subsidiary" means any corporation, association, partnership, trust, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or the governing individuals or body thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries, or (iii) one or more Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended. "Trust" means any statutory business trust created or established by the Company to issue Trust Securities and to use the proceeds from the sale thereof to purchase Debentures. "Trust Agreement" means the amended and restated trust agreement for a Trust, among the Company, as sponsor, the property trustee named therein, the Delaware trustee named therein and the administrative trustees named therein, as the same may be amended and modified from time to time. "Trust Securities" means the common securities of a Trust and the Capital Securities, collectively, representing undivided beneficial interests in the assets of such Trust. "Trustee" means the Person named as "Trustee" in the first paragraph of this Indenture, until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor, and if at any time there is more than one such Person, "Trustee" as used with respect to Debentures of any series shall mean the Trustee with respect to Debentures of that series. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of, or obligations guaranteed by, the United States of America (including any agency or instrumentality thereof) for the payment of which obligations or guarantee the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. Section 1.2 Other Definitions.
Term Defined in Section "Act"..................................................... 1.5 "Bankruptcy Law".......................................... 6.1
6 14 "Conversion Agent"........................................ 2.4 "Custodian"............................................... 6.1 "Defaulted Interest"...................................... 2.2 "Depository".............................................. 2.11 "Direct Action"........................................... 6.8 "Event of Default"........................................ 6.1 "Global Debenture"........................................ 2.11 "Legal Holiday"........................................... 13.8 "Notice of Default"....................................... 6.1 "Property Trustee"........................................ 3.1 "Register"................................................ 2.4 "Registrar"............................................... 2.4 "Successor"............................................... 5.1
Section 1.3 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Debentures. "indenture security holder" means a Debentureholder or Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Debentures means the Company and any other successor obligor on the Debentures. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings assigned to them by such definitions. 7 15 Section 1.4 Rules of Construction. Unless the context otherwise requires: (a) each capitalized term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in the United States; (c) "or" is not exclusive; (d) "including" means including, but not limited to; (e) words in the singular include the plural, and words in the plural include the singular; (f) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (g) references to sections of or rules under the Securities Act or the TIA shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. Section 1.5 Acts of Holders and Holders of Capital Securities. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders or by holders of Capital Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders or holders of Capital Securities, as applicable, in person or by an agent duly appointed in writing and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders or holders of Capital Securities signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. Without limiting the generality of this Section, unless otherwise provided in or pursuant to this Indenture, a Holder, including a Depository that is a Holder of a Global Debenture, may make, give or take, by a proxy, or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be made, given or taken by Holders, and a Depository that is a Holder of a Global Debenture may provide its proxy or proxies to the beneficial 8 16 owners of interests in any such Global Debenture through such Depository's standing instructions and customary practices. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (c) The ownership of Debentures shall be proved by the Register. (d) Any Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (e) If the Company solicits from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a Record Date for the determination of Holders entitled to give such Act, but the Company shall have no obligation to do so. If such a Record Date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after such Record Date, but only Holders of record at the close of business on such Record Date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Debentures have authorized or agreed or consented to such Act, and for that purpose the outstanding Debentures shall be computed as of such Record Date. ARTICLE 2 THE DEBENTURES Section 2.1 Amount Unlimited; Issuable in Series. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series in an amount not to exceed the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution, or established pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. With respect to any Debentures of each series to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution, and set forth in 9 17 an Officer's Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Debentures of such series: (a) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); (b) any limit upon the aggregate principal amount of the Debentures of that series which may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series); (c) the Stated Maturity Date or Dates, which may be serial, and the Company's option, if any, to change the Stated Maturity Date or Dates; (d) the rate or rates (which may be fixed or variable) at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; (e) the basis upon which interest shall be computed if other than a 360-day year composed of twelve 30-day months; (f) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination and frequency of such Interest Payment Dates and the Regular Record Dates therefor; (g) the right, if any, to extend the interest payment periods and the duration of any such Deferral Period, including the maximum consecutive period during which interest payment periods may be extended; (h) Issue Date or Dates; (i) authorized denominations; (j) the place or places for the payment of principal and premium, if any, and interest; (k) the date or dates on which or the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (l) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments 10 18 made in cash in anticipation of future sinking fund obligations) or at the option of a Holder and the date or dates on which or the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (m) the form of the Debentures of the series, including the form of the Certificate of Authentication for such series; (n) the right or obligation of any Holder or the Company or the applicable Trust to convert or exchange any Debenture into other securities of the Company or such Trust and the terms and conditions of any such conversion or exchange and, if so provided, the terms and conditions upon which such conversion or exchange will be effected, including, the conversion or exchange price, the conversion or exchange date(s) or period(s), provisions as to whether conversion or exchange will be at the option of the Holder or the Company or such Trust, the events requiring adjustment of the conversion or exchange price and provisions affecting conversion or exchange in the event of redemption of the Debenture of any series and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Debentures or the administration thereof; (o) whether the Debentures are issuable as a Global Debenture and, in such case, the identity of the Depository for such series; (p) any and all other terms with respect to such series (which terms shall not be inconsistent with the terms of this Indenture); (q) the name of the applicable Trust (which shall distinguish such statutory business trust from all other Trusts) to which the Debentures of such series are to be deposited as assets and the date of its Trust Agreement; and (r) any trustees, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Debentures of such series. The Debentures of any series and the Trustee's Certificate of Authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officer's Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock 11 19 exchange on which Debentures of that series may be listed, or to conform to usage, all as may be determined by the Officers executing such Debentures, as evidenced by their execution of such Debentures. All Debentures of any one series shall be substantially identical except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officer's Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Debentures. The terms of the Debentures of any series may provide, but not limited to, that the Debentures shall be authenticated and delivered by the Trustee on original issue from time to time upon written order of persons designated in the Officer's Certificate or supplemental indenture (telephonic instructions to be promptly confirmed in writing by such person) and that such persons are authorized to determine, consistent with such Officer's Certificate or any applicable supplemental indenture, such terms and conditions of the Debentures of such series as are specified in such Officer's Certificate or supplemental indenture. All Debentures of any one series need not be issued at the same time and, unless otherwise so provided by the Company, a series may be reopened for issuances of additional Debentures of such series or to establish additional terms of such series of Debentures. If any of the terms of the Debentures of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officer's Certificate setting forth the terms of such series. Section 2.2 Payment of Principal and Interest. Unless otherwise specified pursuant to Section 2.1(e), interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. Unless otherwise provided with respect to a series of Debentures, (a) the principal and Redemption Price of and interest on each Debenture shall be payable in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts; (b) the principal and Redemption Price of any Debenture and interest payable on the Stated Maturity Date (if other than an Interest Payment Date) or Redemption Date shall be payable upon surrender of such Debenture at the Office or Agency of any Paying Agent therefor; and (c) interest on any Debenture shall be paid on each Interest Payment Date therefor, such interest to be payable by check mailed to the address of the Person 12 20 entitled thereto as such address appears on the Register; provided however, that (i) at the written request of any Holder of at least $100,000,000 aggregate principal amount of Debentures received by the Registrar not later than the Regular Record Date for such Interest Payment Date, interest accrued on such Debentures will be payable by wire transfer within the continental United States in immediately available funds to the bank account number of such Holder specified in such request and entered on the Register by the Registrar and (ii) payments made in respect of Global Debentures shall be made in immediately available funds to the Depository. Except as specified pursuant to Section 2.1 or Section 4.1(b), interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (i) and (ii) below: (i) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall, not less than 25 Business Days prior to the date of the proposed payment, notify the Trustee and the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Paying Agent in the Paying Agent's sole discretion for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this clause. The Special Record Date for the payment of such Defaulted Interest shall be the close of business not more than 15 nor less than 10 days prior to the date of the proposed payment. The Trustee shall, in the name and at the expense of the Company, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to the Holders thereof, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been given, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective 13 21 Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (ii). (ii) The Company may make payment of any Defaulted Interest on the Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee and the Paying Agent of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Paying Agent. Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, which were carried by such other Debenture. If any convertible Debenture of any series is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Debenture with respect to which the Stated Maturity Date is prior to such Interest Payment Date), interest that is due on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Debenture is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Debenture that is converted, interest shall not be payable if the Regular Record Date is after the date of conversion of such Debenture. Section 2.3 Execution, Authentication and Delivery. (a) The Debentures shall be executed on behalf of the Company by its Chief Executive Officer, its Chief Financial Officer, its President or one of its Vice Presidents, its Treasurer or one of its Assistant Treasurers under its corporate seal imprinted or reproduced thereon, and attested by its Secretary or one of its Assistant Secretaries. The signature of any such Officer on the Debentures may be manual or facsimile. (b) Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures. 14 22 (c) No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a Certificate of Authentication duly executed by the Trustee by manual signature of an authorized signatory, and such Certificate of Authentication upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and made available for delivery hereunder. (d) The Trustee shall authenticate and deliver Debentures of a series, for original issue, at one time or from time to time in accordance with the Company Order referred to below, upon receipt by the Trustee of: (i) a Board Resolution as required by Section 2.1; (ii) a Company Order requesting the authentication and delivery of such Debentures and stating the identity of the applicable Trust and the aggregate liquidation amount of the Trust Securities to be issued by such Trust concurrently with such Debentures; (iii) an Officer's Certificate or, unless previously delivered, a supplemental indenture hereto setting forth the form of such Debentures and, except as set forth in a Board Resolution, establishing the terms thereof; (iv) such Debentures, executed on behalf of the Company in accordance with clause (a) of this Section; (v) an Opinion of Counsel to the effect that: (1) the form or forms and the terms of such Debentures have been duly authorized by the Company and have been established in conformity with the provisions of this Indenture; (2) such Debentures, when authenticated and delivered by the Trustee and issued and delivered by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will have been duly issued under this Indenture and will constitute valid and legally binding obligations of the Company, entitled to the benefits provided by this Indenture, and enforceable in accordance with their terms, subject, as to enforcement to laws relating to or affecting generally the enforcement of creditors' rights, including bankruptcy and insolvency laws, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); 15 23 (3) any supplemental indenture referred to in clause (iii) above has been duly authorized, executed and delivered by the Company and is a valid instrument legally binding upon the Company, enforceable in accordance with its terms, subject as to enforcement to laws relating to or affecting generally the enforcement of creditors' rights, including, bankruptcy and insolvency laws, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (4) all consents, approvals and orders of any commission, governmental authority or agency required in connection with the issuance and delivery of such Debentures have been obtained; and (vi) an Officer's Certificate delivered in accordance with 12.4 and certifying that no Default or Event of Default has occurred and is continuing. The Trustee shall have the right to decline to authenticate and deliver any Debentures under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if the Trustee in good faith shall determine that such action would expose the Trustee to personal liability to existing Holders. (e) The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent. Each authenticating agent shall be accept able to the Company and, except as provided in or pursuant to this Indenture, shall at all times be a corporation that would be permitted by the TIA to act as trustee under an indenture qualified under the TIA, is authorized under applicable law and by its charter to act as an authenticating agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the TIA) of at least $50,000,000. If at any time an authenticating agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section. An authenticating agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by an authenticating agent. The Company shall pay any authenticating agent appointed by the Trustee reasonable compensation for its services. The provisions set forth in Sections 7.2, 7.3 and 7.7 shall be applicable to any authenticating agent. (f) If all the Debentures of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officer's Certificate at the time of issuance of each Debenture, but such opinion and certificate, with appropriate modifications, shall be delivered at or before the time of issuance of the first Debenture of such series. After any such first delivery, any separate request by the Company that the Trustee authenticate Debentures of such series for original issue will be deemed to be a certifica- 16 24 tion by the Company that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Debentures continue to have been complied with. Section 2.4 Registrar and Paying and Conversion Agents. The Company shall maintain or cause to be maintained, in The City of New York, an Office or Agency where the Debentures may be presented for registration of transfer or for exchange ("Registrar"), a Paying Agent at whose Office the Debentures may be presented or surrendered for payment, a conversion agent at whose Office the Debentures may be presented and surrendered in the event of a conversion or exchange ("Conversion Agent"), and an Office or Agency where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Registrar shall keep a register (the "Register") of the Debentures and of their transfer and exchange. The Company may have one or more co-Registrars and one or more additional Paying Agents and Conversion Agents. The term Registrar includes any additional registrar, the term Paying Agent includes any additional paying agent and the term Conversion Agent includes any additional conversion agent. Unless otherwise specified in or pursuant to this Indenture or the Debentures, the Trustee shall be the initial Registrar and Paying Agent for each series of Debentures. The Company shall have the right to remove and replace with or without cause from time to time the Registrar or Paying Agent for any series of Debentures; provided that no such removal or replacement shall be effective until a successor Registrar or Paying Agent, as the case may be, with respect to such series of Debentures shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Registrar with respect to a series of Debentures, it shall have the right to examine the Register for such series at all reasonable times. There shall be only one Register for each series of Debentures. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-Registrar (if not the Company or the Trustee or an Affiliate of the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall give prompt written notice to the Trustee and to the Holders of any change of location of the Office or Agency of such Registrar, Paying Agent, Conversion Agent or co-Registrar. If at any time the Company shall fail to maintain or cause to be maintained any such required Office or Agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 13.2 hereof. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company or any Affiliate 17 25 of the Company may act as Paying Agent, Registrar, Conversion Agent or co-Registrar or agent for service of notices and demands. The Company may also from time to time designate one or more other Offices or Agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee and to the Holders of any such designation or rescission and of any change in location of any such other Office or Agency. Section 2.5 Paying Agent to Hold Money in Trust. Except as otherwise provided herein, prior to 10:00 a.m. New York City time on each due date of the principal of and premium, if any, and interest on any Debenture, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall (i) hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of and premium, if any, and interest on the Debentures and shall notify the Trustee of any default by the Company in making any such payment; and (ii) at any time during the continuance of any such default, upon the request of the Trustee, pay to the Trustee all money so held in trust and account for any money disbursed by it. The Company at any time may require the Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent (if other than the Company) shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund for the benefit of the Holders. Section 2.6 Debentureholder Lists. The Trustee shall preserve, in as current a form as is reasonably practicable, the most recent list available to it of the names and addresses of Debentureholders and shall otherwise comply with TIA Section 312. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before the Record Date for each Interest Payment Date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Debentureholders. Section 2.7 Transfer and Exchange. When Debentures are presented to the Registrar or a co-Registrar with a request to register the transfer thereof or to exchange them for an equal principal amount of Debentures of the same series of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transactions are met. To permit registrations of 18 26 transfer and exchanges, the Company shall execute and the Trustee shall authenticate Debentures, all at the Registrar's request. Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Registrar duly executed by the Holder or his attorney duly authorized in writing. The Company shall not require payment of a service charge for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the registration of the transfer or exchange of Debentures from the Debentureholder requesting such transfer or exchange (other than any exchange of a temporary Debenture for a definitive Debenture not involving any change in ownership). The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) any Debenture for a period beginning at the opening of business 15 days before the mailing or first publication of a notice of redemption of Debentures of such series to be redeemed and ending at the close of business on the day of such mailing or (b) any Debenture selected, called or being called for redemption, except, in the case of any Debenture to be redeemed in part, the portion thereof not to be redeemed. All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange. Prior to due presentment for the registration of a transfer of any Debenture, the Company, the Trustee, the Registrar and any other agent may deem and treat the Person in whose name any Debenture is registered as the absolute owner of such Debenture for the purpose of receiving payment of principal of and premium, if any, and interest on such Debentures and for all other purposes, and none of the Company, the Trustee, the Registrar or any other agent shall be affected by notice to the contrary. Each Debentureholder agrees to indemnify the Company, the Registrar and the Trustee against any liability that may result from the transfer or exchange of such Holder's Debenture in violation of any provision of this Indenture and/or applicable United States federal or state securities law. 19 27 Section 2.8 Replacement Debentures. If (a) any mutilated Debenture is surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Debenture, and there is delivered to the Company and the Trustee such Debenture or indemnity as may reasonably be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute in exchange for any such mutilated Debenture, or in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of the same series and of like tenor and principal amount, bearing a number not contemporaneously outstanding, and the Trustee shall authenticate and make such new Debenture available for delivery. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3, the Company in its discretion may, instead of issuing a new Debenture, pay or purchase such Debenture, as the case may be. Upon the issuance of any new Debentures under this Section, the Company or the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Trustee) in connection therewith. Every new Debenture issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company (whether or not the mutilated, destroyed, lost or stolen Debenture shall be at any time enforceable) and shall be entitled to all benefits of this Indenture equally and ratably with any and all other Debentures duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. Section 2.9 Outstanding Debentures; Determinations of Holders' Action. Debentures outstanding at any time are all the Debentures authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those mutilated, destroyed, lost or stolen Debentures referred to in Section 2.8, those redeemed by the Company pursuant to Article 3, and those described in this Section as not outstanding. A Debenture does not cease to be outstanding because the Company or a Subsidiary or Affiliate thereof holds the Debenture; provided, however, that in determining whether the Holders of the requisite principal amount of Debentures have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, 20 28 Debentures owned by the Company or a Subsidiary or Affiliate (other than any Trust so long as any of the Capital Securities of such Trust are outstanding) shall be disregarded and deemed not to be outstanding. Subject to the foregoing, only Debentures outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 3, 6 and 9). If a Debenture is replaced pursuant to Section 2.8, it ceases to be outstanding unless the Trustee receives proof reasonably satisfactory to it that the replaced Debenture is held by a bona fide purchaser. If the principal amount of any Debenture is paid under Section 4.1, it ceases to be outstanding and interest on such Debenture shall cease to accrue. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at the Stated Maturity Date or on a Redemption Date, money sufficient to pay all of the principal, premium, if any, and interest on the Debentures payable on that date, then immediately on the Stated Maturity Date or such Redemption Date, as the case may be, such Debentures shall cease to be outstanding, and interest, if any, on such Debentures shall cease to accrue. Section 2.10 Temporary Debentures. The Company may execute temporary Debentures, and upon the Company's Order, the Trustee shall authenticate and make such temporary Debentures available for delivery. Temporary Debentures shall be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, in the same series and principal amount and of like tenor as the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Debentures may determine, as conclusively evidenced by their execution of such Debentures. Such temporary Debentures may be in global form. Except in the case of temporary Debentures in global form, which shall be exchanged in accordance with the provisions thereof, after the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures of the same series upon surrender of the temporary Debentures at the Office or Agency of the Company designated for such purpose pursuant to Section 2.4, without charge to the Holders thereof. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute a like principal amount of definitive Debentures of the same series of authorized denominations, and the Trustee, upon receipt of a Company Order, shall authenticate and make such Debentures available for delivery in exchange 21 29 therefor. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures. Section 2.11 Book-Entry System. In order to utilize a book-entry-only system for all or any portion of the Debentures of any series, all or a portion of the Debentures of any series may be issued in the form of one or more fully registered Debentures of the same series for the aggregate principal amount of such Debentures (a "Global Debenture"), which Global Debenture shall be registered in the name of the depository (the "Depository") selected by the Company or in the name of such Depository's nominee. The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Debentures. The Trustee is authorized to enter into a letter of representation with DTC on a form provided to the Trustee by the Company and to act in accordance with such letter. Each Global Debenture shall be delivered by the Trustee to the Depository or pursuant to the Depository's instruction and shall bear a legend substantially to the following effect: "THIS DEBENTURE IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY OR A NOMINEE OF THE DEPOSITORY. THIS DEBENTURE IS EXCHANGEABLE FOR DEBENTURES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS DEBENTURE (OTHER THAN A TRANSFER OF THIS DEBENTURE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES." Notwithstanding any other provision of this Section or of Section 2.7, a Global Debenture may be transferred in whole but not in part and in the manner provided in Section 2.7, only by a nominee of the Depository for such series, or by the Depository or any such nominee of a successor Depository for such series selected or approved by the Company or to a nominee of such successor Depository. If (a) at any time the Depository for Global Debentures of any series of Debentures notifies the Company that it is unwilling or unable to continue as Depository for such Global Debentures or if at any time the Depository for such Global Debentures shall no longer be a clearing agency registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depository for such Global Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (b) the Company 22 30 determines in its sole discretion that the Debentures of any series shall no longer be represented by one or more Global Debentures and delivers to the Trustee an Officer's Certificate evidencing such determination, then the provisions of this Section shall no longer apply to the Debentures of such series. In such event, the Company will execute and the Trustee, upon receipt of an Officer's Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of such series and of like tenor in definitive registered form, in authorized denominations, and in aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for Global Debentures pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Persons in whose names such Debentures are so registered. Except as provided above or as provided in any supplemental indenture, owners of beneficial interests in a Global Debenture shall not be entitled to receive physical delivery of Debentures in definitive form and will not be considered the Holders thereof for any purpose under this Indenture. Members of or participants in the Depository shall have no rights under this Indenture with respect to any Global Debenture held on their behalf by the Depository, and such Depository or its nominee, as the case may be, may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the Holder of such Global Debentures for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its members or participants, the operation of customary practices governing exercise of the rights of a Holder of any Debenture, including but not limited to the granting of proxies or other authorization of participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under this Indenture. Section 2.12 Cancellation. All Debentures surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and made available for delivery hereunder which the Company may have 23 31 acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. The Company may not reissue or issue new Debentures to replace Debentures it has paid or delivered to the Trustee for cancellation. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures, and the Trustee shall upon written request deliver a certificate to the Company of such disposition. Section 2.13 CUSIP Numbers. The Company in issuing the Debentures may use CUSIP numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. Section 2.14 Record Date. The Record Date for purposes of determining the identity of Debentureholders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). ARTICLE 3 REDEMPTION Section 3.1 Redemption; Notice to Trustee. (a) The Company may redeem the Debentures of any series issued hereunder on and after the dates and in accordance with the terms established for such series pursuant to Section 2.1. (b) If any or all of the Debentures are to be redeemed pursuant to this Section, the Company shall deliver to the Trustee no more than 60 and no less than 45 days prior to the Redemption Date a Company Order specifying the series and principal amount of Debentures to be redeemed and the Redemption Date, Redemption Price and any of the other information to be provided pursuant to Section 3.3 for such Debentures. Such Company Order shall be accompanied by a Board Resolution authorizing such redemption. If the Debentures of a series are held by a Trust, the Company shall also deliver a copy of such Company Order to the property trustee for such Trust (the "Property Trustee"). 24 32 Section 3.2 Selection of Debentures to Be Redeemed. If less than all the outstanding Debentures of a series are to be redeemed at any time, the Trustee shall select the Debentures of such series to be redeemed by lot or by any other method the Trustee considers fair and appropriate. Such method of redemption shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Debentures are listed. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Debentures of such series not previously called for redemption. The Trustee shall notify the Company promptly in writing of the Debentures or portions of Debentures to be redeemed and, in the case of any Debentures selected for partial redemption, the principal amount thereof to be redeemed. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. Section 3.3 Notice of Redemption. At least 30 days but not more than 60 days before the Redemption Date, the Trustee, in the Company's name and at the Company's expense, shall mail or cause to be mailed a notice of redemption by first-class mail, postage prepaid, to each Holder of Debentures to be redeemed at such Holder's last address as it appears in the Register. The notice of redemption shall identify the Debentures to be redeemed, the provision of the Debentures or this Indenture pursuant to which the Debentures called for redemption are being redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) the name and address of the Paying Agent; (d) that payment of the Redemption Price of Debentures called for redemption will be made only upon surrender of such Debentures to the Paying Agent; (e) if any Debenture is being redeemed in part, the portion of the principal amount of such Debenture to be redeemed and that, after the Redemption Date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Debenture; (f) that, unless the Company defaults in paying the Redemption Price of the Debentures called for redemption, including accrued interest thereon to the 25 33 Redemption Date, interest will cease to accrue on such Debentures on and after the Redemption Date; (g) that the redemption is for a sinking fund, if such is the case; (h) in the case of Debentures of any series that are convertible or exchangeable into Capital Stock, the conversion or exchange price or rate, the date or dates on which or the period or periods during which the right to convert or exchange the principal of the Debentures of such series to be redeemed will commence or terminate and the place or places where such Debentures may be surrendered for conversion or exchange; and (i) the CUSIP numbers, if any. Any notice of redemption given in the manner provided herein shall be conclusively presumed to have been given, whether or not such notice is actually received. Failure to mail any notice or defect in the mailed notice or the mailing thereof in respect of any Debenture shall not affect the validity of the redemption of any other Debenture. Section 3.4 Effect of Notice of Redemption. After notice of redemption has been given, Debentures called for redemption shall become due and payable on the Redemption Date at the Redemption Price and from and after the Redemption Date (unless the Company shall default in the payment of the Redemption Price and accrued interest), such Debentures shall cease to bear interest. Upon the later of the Redemption Date and the date such Debentures are surrendered to the Paying Agent, such Debentures shall be paid at the Redemption Price, plus accrued interest to the Redemption Date, provided that installments of interest on Debentures with an Interest Payment Date which is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, registered as such at the close of business on the Regular Record Dates therefor according to their terms and provisions. Section 3.5 Deposit of Redemption Price. Prior to 10:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company or an Affiliate is the Paying Agent, shall segregate and hold in trust or cause such Affiliate to segregate and hold in trust) money sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed on that Redemption Date. The Paying Agent shall return to the Company any money in excess of the amount sufficient to pay the Redemption Price of, and accrued interest on, all Debentures to be redeemed and any interest accrued on the amount deposited pursuant to this Section. 26 34 Section 3.6 Debentures Redeemed in Part. Upon surrender of a Debenture that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder a new Debenture of the same series and in a principal amount equal to the unredeemed portion of such Debenture. ARTICLE 4 COVENANTS Section 4.1 Payment of Principal, Premium and Interest. (a) The Company shall pay or cause to be paid the principal of and premium, if any, and interest (including interest accruing during any Deferral Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Debentures on or prior to the dates and in the manner provided in such Debentures or pursuant to this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the applicable due date if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. With respect to any Debenture, the Company shall pay interest on overdue principal and interest on overdue installments of interest (including interest accruing during any Deferral Period and/or on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at the rate accruing on such Debenture, compounded with the same frequency as interest is payable on such Debentures. Interest on overdue interest shall accrue from the date such amounts become overdue. (b) Notwithstanding the provisions of Section 4.1(a) or any other provision herein to the contrary, the Company shall have the right, as provided in an Officer's Certificate or supplemental indenture issued pursuant to Section 2.1, in its sole and absolute discretion at any time and from time to time while the Debentures of any series are outstanding, so long as no Event of Default with respect to such series of Debentures has occurred and is continuing, to defer payments of interest by extending the interest payment period for such series of Debentures for the maximum consecutive period, if any, specified for such series of Debentures, provided that such Deferral Period (or any extension thereof) may not extend beyond the Stated Maturity Date or Redemption Date of any Debenture of such series, and must end on an Interest Payment Date or, if the Debentures are redeemed, on an Interest Payment Date or the Redemption Date for such Debentures, and provided further that at the end of each Deferral Period the Company shall pay all interest then accrued and unpaid (together with interest thereon to the extent permitted by applicable law at the rate accruing on such Debentures). Prior to the 27 35 termination of a Deferral Period, the Company may shorten or may further extend the interest payment period for such series of Debentures, provided that such Deferral Period together with all such previous and further extensions may not exceed the maximum consecutive period specified for such series of Debentures, end on a date other than an Interest Payment Date or extend beyond the Stated Maturity Date or Redemption Date of any Debenture of such series. The Company shall give the Trustee written notice of the Company's election to begin a Deferral Period for any series of Debentures and any shortening or extension thereof at least five Business Days prior to the earlier of (i) the date the interest on such Debentures or distributions on the related Capital Securities are payable or (ii) the date the trustees of a Trust are required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of Capital Securities of such Trust of the record date or the date such distributions are payable, but in any event not less than five Business Days prior to such record date. The Company shall give or cause the Trustee to give notice (a form of which shall be provided by the Company to the Trustee) of the Company's election to begin a Deferral Period to the Holders by first class mail, postage prepaid. Section 4.2 Limitation on Dividends. If at such time (a) there shall have occurred an event of which an Officer of the Company has actual knowledge that is, or after notice or passage of time, or both, would be, an Event of Default, (b) the Company shall be in default with respect to its payment on other obligations under the related Guarantee or (c) the Company shall have given notice of its election to begin a Deferral Period as provided in this Indenture and shall not have rescinded such notice, and such Deferral Period shall be continuing, the Company covenants that the Company shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's Capital Stock (which includes common and preferred stock) other than stock dividends which consist of stock of the same class as that on which the dividends are being paid, (ii) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem or make any other payment in respect of any debt securities of the Company that rank pari passu with or junior in interest to the Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Debentures. Restrictions referred to in clauses (i) through (iii) of this Section 4.2 shall not apply to: (A) dividends or distributions in shares of, or warrants or rights to subscribe for or purchase shares of, the Company's Capital Stock, (B) any declaration of a dividend in connection with the implementation of a stockholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (C) payments under any Guarantee, (D) as a result of a reclassification of the Company's Capital Stock or the exchange or conversion of one class or series of the Company's Capital Stock for another class or series of the Company's Capital Stock, 28 36 (E) the purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the security being converted or exchanged or (F) purchases or acquisitions of shares of the Common Stock in connection with the satisfaction by the Company of its obligations under any employee benefit plan or any other contractual obligation of the Company (other than a contractual obligation ranking expressly by its terms pari passu with or junior in interest to the Debentures). Section 4.3 Periodic Reports to Trustee. The Company shall provide to the Trustee such documents, reports and information as required by Section 314 of the TIA (if any) and the compliance certificate required by Section 314 of the TIA in the form, in the manner and at the times required by Section 314 of the TIA. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). Section 4.4 Compliance Certificates. (a) The Company shall deliver to the Trustee, within 120 days after the end of each of the Company's fiscal years, an Officer's Certificate stating whether or not the signer knows of any Default or Event of Default. Such certificate shall contain a certification from the Officer signing the certificate as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If such Officer does know of such a Default or Event of Default, the Officer's Certificate shall describe any such Default or Event of Default, and its status. Such Officer's Certificate need not comply with Sections 13.4 and 13.5. (b) The Company shall deliver to the Trustee any information reasonably requested by the Trustee in connection with the compliance by the Trustee or the Company with the TIA. Section 4.5 Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. Section 4.6 Payment of Expenses of Each Trust. The Company covenants for the benefit of the Holders of each series of Debentures to pay all of the obligations, costs and expenses of a Trust (other than payments in respect of Trust Securities) in accordance 29 37 with the provisions of its Trust Agreement and to pay the taxes (other than all United States withholding taxes attributable to such Trust or its assets) of such Trust in accordance with the provisions of its Trust Agreement in order to permit such Trust to make distributions on and redemptions of its Capital Securities in accordance with such Trust Agreement. The Company agrees to execute those additional agreements as may be necessary or desirable to give full effect to the agreements set forth in this Section 4.6. Section 4.7 Ownership of Common Securities. So long as the Trust Securities of each Trust remain outstanding, the Company hereby covenants (a) to maintain 100% direct or indirect ownership of the common securities issued by such Trust (it being understood that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of such common securities), (b) to use its best efforts to cause each Trust (i) to remain a business trust, except in connection with the distribution of Debentures to the holders of related Trust Securities in liquidation of such Trust, the conversion, exchange or redemption of all of such Trust Securities, or certain mergers, consolidations or amalgamations, each as permitted by the applicable Trust Agreement, and (ii) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes, (c) to use its best efforts to cause each holder of each Trust's Trust Securities to be treated as owning an undivided beneficial interest in the Debentures and (d) to use its best efforts not to cause, as sponsor of each Trust, or to permit, as holder of the common securities, the dissolution, liquidation or winding-up of any Trust, except as provided in the applicable Trust Agreement. Section 4.8 Statement by Officers as to Default. The Company shall deliver to the Trustee, as soon as possible and in any event within 30 days after the Company becomes aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officer's Certificate setting forth the details of such Event of Default or default and the action which the Company proposes to take with respect thereto. ARTICLE 5 SUCCESSOR CORPORATION Section 5.1 When the Company May Merge, Etc. The Company may not (a) merge with or into or consolidate with, or (b) sell, assign, transfer, lease or convey all or substantially all of its properties and assets to, any Person, other than with respect to this clause (b), a direct or indirect wholly-owned subsidiary of the Company, and no Person shall (x) merge with or into or consolidate with the Company, or (y) except in the case of any direct or indirect wholly-owned subsidiary of the Company, sell, assign, 30 38 transfer, lease or convey all or substantially all of its properties and assets to the Company, unless: (a) the Company is the surviving corporation or the Person formed by or surviving such merger or consolidation or to which such sale, assignment, transfer, lease or conveyance shall have been made (the "Successor") if other than the Company (i) is organized and existing under the laws of the United States of America or any state thereof or the District of Columbia, and (ii) shall expressly assume by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures, this Indenture, the Guarantees and the Remarketing Agreement; (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (c) if at the time any capital securities are outstanding, such transaction is permitted under the Declaration and the relevant Guarantee; and (d) the Company delivers to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such merger, consolidation, sale, assignment, transfer, lease or conveyance and such supplemental indenture comply with this Indenture. The Successor will be the successor to the Company, and will be substituted for, and may exercise every right and power and become the obligor on the Debentures with the same effect as if the Successor had been named as the Company herein but, in the case of a sale, assignment, transfer, lease or conveyance of all or substantially all of the properties and assets of the Company, the predecessor Company will not be released from its obligation to pay the principal of and premium, if any, and interest on the Debentures. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1 Events of Default. "Event of Default," wherever used herein with respect to Debentures of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, 31 39 Board Resolution or Officer's Certificate establishing the terms of such series pursuant to this Indenture: (a) default in the payment, when due, of interest on any Debenture of that series and the default continues for a period of 30 days; provided, that during any Deferral Period for the Debentures of that series, failure to pay interest on the Debentures of that series shall not constitute a Default or Event of Default hereunder, or (b) default in the payment of the principal of or premium, if any, on any Debenture of such series when it becomes due, whether at maturity, upon any redemption, by declaration of acceleration of maturity or otherwise; or (c) default in the performance or breach of any covenant or agreement of the Company in this Indenture (other than a covenant or agreement a default in the performance or the breach of which is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Debentures), and continuance of such breach or default for a period of 90 days after receipt by the Company of a "Notice of Default"; or (d) a court of competent jurisdiction enters: (i) a decree or order for relief in respect of the Company in an involuntary proceeding under any applicable Bankruptcy Law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (ii) a decree or order adjudging the Company to be insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (iii) a final and non-appealable order appointing a Custodian of the Company or of any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company; or (e) the Company pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iii) files a petition or answer or consent seeking reorganization or relief or consents to such filing or to the appointment of or taking possession by a Custodian of it or for all or substantially all of its property, and such Custodian is not discharged within 60 days; (iv) makes a 32 40 general assignment for the benefit of its creditors; or (v) admits in writing its inability to pay its debts generally as they become due; or (f) any other Event of Default provided in or pursuant to this Indenture with respect to Debentures of such series. The term "Bankruptcy Law" means Title 11 of the United States Code, or any similar federal or state bankruptcy, insolvency, reorganization or other law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (c) above is not an Event of Default until (i) the Trustee or the Holders of at least 25% in aggregate principal amount of the Debentures of that series at the time outstanding and provides a "Notice of Default" to the Company (ii) the Company does not cure such Default within the time specified in clause (c) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." Section 6.2 Acceleration. If any Event of Default with respect to the Debentures of any series other than an Event of Default under clause (d) or (e) of Section 6.1 occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Debentures of that series then outstanding may declare the principal of, and any accrued interest on, all the Debentures of that series due and payable immediately; provided that in the case of a series of Debentures then held by a Trust, if upon an Event of Default with respect to the Debentures of that series the Trustee has, or the Holders of at least 25% in aggregate principal amount of the Debentures of that series then outstanding have, failed to declare the principal of, and any accrued interest on, the Debentures of that series to be immediately due and payable, the holders of at least 25% in aggregate liquidation amount of the outstanding Capital Securities of that Trust shall have such right by a notice in writing to the Company and the Trustee. Upon any such declaration such series of Debentures shall become due and payable immediately. If an Event of Default specified in clause (d) or (e) of Section 6.1 occurs, the principal of, and any accrued interest on, all the Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Debentureholders. The foregoing paragraph, however, is subject to the condition that if, at any time after the principal of the Debentures of that series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of that series and the principal of and premium, if any, on all Debentures of 33 41 that series which shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate accruing on the Debentures of that series to the date of such payment or deposit) and the amount payable to the Trustee under Section 7.7, and any and all Defaults under the Indenture, other than the nonpayment of principal of and interest on Debentures of that series which shall not have become due by their terms, shall have been remedied or waived as provided in Section 6.4, then and in every such case the Holders of at least a majority in aggregate principal amount of the Debentures of that series then outstanding, by written notice to the Company and to the Trustee, may on behalf of all of the Holders of such series of Debentures rescind and annul such declaration and its consequences with respect to that series of Debentures; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. Section 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may, in its own name or as trustee of an express trust, institute, pursue and prosecute any proceeding, including but not limited to, any action at law or suit in equity or other judicial or administrative proceeding to collect the payment of principal of or premium, if any, or interest on the Debentures of the series that is in default, to enforce the performance of any provision of the Debentures of that series or this Indenture or to obtain any other available remedy. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of the Debentures in the proceeding. A delay or omission by the Trustee or any Debentureholder in exercising any right or remedy accruing upon an Event of Default shall not impair such right or remedy or constitute a waiver of, or acquiescence in, such Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.4 Waiver of Past Defaults. If a Default or Event of Default with respect to a series of Debentures has occurred and is continuing, the Holders of at least a majority in aggregate principal amount of the Debentures of that series at the time outstanding, by notice to the Trustee and the Company, may waive an existing Default or Event of Default and its consequences hereunder except a continuing Default or Event of Default in the payment of the principal of or premium, if any, or interest on any Debenture of that series (unless such Event of Default has been cured and a sum sufficient to pay all matured installments of interest and premium, if any and principal due otherwise than by acceleration has been deposited with the Trustee) or a Default or Event of Default in respect of a covenant or provision which under this Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture of that series. When a Default or Event of Default is waived, it is deemed cured and shall cease to exist, 34 42 but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. Section 6.5 Control by Holders. The Holders of at least a majority in aggregate principal amount of the Debentures of a series at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred on the Trustee, in respect of such series of Debentures. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Debentureholders or may involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, including withholding notice to the Holders of the Debentures of a continuing Default (except in the payment of the principal of (other than any mandatory sinking fund payment) or premium, if any, or interest on any Debentures) if the Trustee considers it in the interest of the Holders of the Debentures to do so. Section 6.6 Limitation on Suits. Except as provided in Section 6.7 or 6.8, no Holder of Debentures of any series may pursue any remedy with respect to this Indenture or the Debentures unless: (a) the Holders of Debentures of such series give to the Trustee written notice stating that an Event of Default with respect to the corresponding Debentures of such series has occurred and is continuing; (b) the Holders of at least 25% in aggregate principal amount of the outstanding Debentures of that series make a written request to the Trustee to pursue a remedy; (c) the Holders of Debentures of such series provide to the Trustee security and indemnity reasonably satisfactory to the Trustee against any loss, liability or expense satisfactory to the Trustee; (d) the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security and indemnity; and (e) during such 60 day period, the Holders of at least a majority in aggregate principal amount of the Debentures of that series do not give the Trustee a direction inconsistent with the request. No one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Debenture to affect, disturb or prejudice the rights of any other such Holders, or to obtain or seek to obtain priority or preference 35 43 over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 6.7 Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision of this Indenture, the Holder of any Debenture shall have the right which is absolute and unconditional to receive payment of the principal of, premium, if any, and (subject to Section 2.2) interest on such Debenture on the respective due dates expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to convert or exchange such Debentures in accordance with its terms, if applicable, and to institute suit for the enforcement of such payment or conversion or exchange, and such right shall not be impaired without the consent of such Holder. Section 6.8 Direct Action Right of Holders of Capital Securities. If an Event of Default has occurred and is continuing and is attributable either to (a) the failure of the Company to pay the principal of or premium, if any, or interest on the Debentures on the due date therefor or (b) the failure by the Company to deliver the required securities or other rights upon an appropriate conversion or exchange right election, and an event of default has occurred and is continuing under the applicable Trust Agreement, a holder of the related Capital Securities, in lieu of any action that may otherwise be taken hereunder as a Holder of Debentures, may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or premium, if any, or interest on such Debentures having a principal amount equal to the liquidation amount of the Capital Securities held by such holder or for enforcement of such conversion or exchange rights, as the case may be (a "Direct Action"). Notwithstanding anything contained herein to the contrary, the Company may not amend this Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Capital Securities outstanding. Notwithstanding any payments made to a holder of Capital Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of and premium, if any, or interest on the related Debentures, and the Company shall be subrogated to the rights of the holder of such Capital Securities with respect to payments on the Capital Securities to the extent of any payments made by the Company to such holder in any Direct Action. Section 6.9 Collection Suits by the Trustee. The Company covenants that if (a) default is made in the payment of any interest on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or 36 44 (b) default is made in the payment of the principal of or premium, if any, on any Debenture on the Stated Maturity Date or Redemption Date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of such Debenture, the whole amount then due and payable on such Debenture for principal, premium, if any, and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, if any, and on any overdue interest, at the rate or rates prescribed therefor in such Debenture and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Debenture and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Debenture, wherever situated. If an Event of Default with respect to Debentures of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Debentures of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or such Debentures or in aid of the exercise of any power granted herein, or to enforce any other remedy available under this Indenture or by law. Section 6.10 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or its properties or assets, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of the principal of and premium, if any, and interest on the Debentures and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Debentures allowed in such judicial proceeding; and 37 45 (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Debenture any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.11 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall, subject to Article 10, pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.7; SECOND: to Holders of Debentures in respect of which or for the benefit of which such money has been collected for amounts due and unpaid on such Debentures for the principal thereof or premium, if any, or interest, if any, thereon ratably, without preference or priority of any kind, according to such amounts due and payable on such Debentures; and THIRD: the balance, if any, to the Company. Except as otherwise set forth in the Debentures, the Trustee may fix a Record Date and payment date for any payment to Debentureholders pursuant to this Section. Section 6.12 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant (other than the Trustee) in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of Debentures or holder of Capital Securities pursuant to Section 6.7 or 6.8 or a suit by Holders of Debentures of more than 10% in aggregate principal amount of the outstanding Debentures of any series or, if a series of 38 46 Debentures is held by a Trust, the holders of more than 10% in aggregate liquidation amount of the Capital Securities of that Trust. ARTICLE 7 THE TRUSTEE Section 7.1 Duties and Responsibilities of the Trustee. (a) If an Event of Default occurs and is continuing with respect to the Debentures of any series, the Trustee shall exercise the rights and powers vested in it by this Indenture with respect to that series and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Except during the continuance of an Event of Default with respect to the Debentures of any series, (i) the Trustee need perform only those duties with respect to that series that are specifically set forth in this Indenture or the TIA and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but shall not be required to confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this clause (c) does not limit the effect of Section 7.1(b); (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction (A) received by it pursuant to Section 6.5 or (B) of the Holders of a majority in principal amount of any series of Debentures. 39 47 (d) Every provision of this Indenture that in any way relates to the Trustee is subject to Section 7.1 (a), (b), (c) and (e) and Section 7.2. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives security and indemnity reasonably satisfactory to it against any loss, liability or expense (including reasonable counsel fees). (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or indemnity reasonably satisfactory to the Trustee against such risk or liability is not reasonably assured to it. (g) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall not be liable for interest on any money held by it hereunder except as otherwise agreed in writing with the Company. Section 7.2 Rights of the Trustee. Subject to Section 7.1: (a) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other evidence of indebtedness or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Order (in each case, other than delivery of any Debenture to the Trustee for authentication and delivery pursuant to Section 2.3 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of negligence or bad faith on its part, conclusively rely upon an Officer's Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and 40 48 protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Debentures of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company, personally or by agent or attorney at the reasonable cost of the Company; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Debentures and this Indenture; and (i) the rights, privileges, protections, immunities and benefits given to the Trustee, including, but not limited to, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. Section 7.3 Not Responsible for Recitals or Issuances of Debentures. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures. The Trustee shall not be accountable for the Company's use of the proceeds from the Debentures, and the Trustee shall not be responsible for any statement in this Indenture or the Debentures or any report or certificate issued by the Company hereunder 41 49 or any registration statement relating to the Debentures (other than the Trustee's Certificate of Authentication and the Trustee's Statement of Eligibility on Form T-1), or the determination as to which beneficial owners are entitled to receive any notices hereunder. Section 7.4 May Hold Securities. The Trustee, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to TIA Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent. Section 7.5 Notice of Defaults. If a Default or Event of Default occurs and is continuing with respect to the Debentures of any series and if it is known to the Trustee, the Trustee shall mail to each Holder of a Debenture of that series notice of the Default within 90 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.1(a) or (b), the Trustee may withhold such notice if and so long, as a committee of Responsible Officers in good faith determines that the withholding of such notice is in the interests of the Holders of the Debentures of that series. The Trustee shall not be charged with knowledge of any Default or Event of Default unless a Responsible Officer of the Trustee shall have actual knowledge of the Default. The second sentence of this Section shall be in lieu of the proviso to TIA Section 315(b). Said proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. Section 7.6 Reports by Trustee to Holders. Within 60 days after each [September 1], beginning with the [September 1] next following the date of this Indenture, and for so long as Debentures remain outstanding, the Trustee shall mail to each Debentureholder, and such other holders that have submitted their names to the Trustee for such purpose, a brief report dated as of such [September 1] in accordance with and to the extent required under TIA Section 313. A copy of each report at the time of its mailing to Debentureholders shall be filed with the Company, the SEC and any securities exchange on which the Debentures are listed in accordance with TIA Section 313(d). The Company agrees to promptly notify the Trustee whenever the Debentures become listed on any securities exchange and of any delisting thereof. 42 50 Section 7.7 Compensation and Indemnity. The Company covenants and agrees: (a) to pay to the Trustee from time to time such reasonable compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) to reimburse the Trustee upon its request for reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, and advances of its agents and counsel), including all reasonable expenses and advances incurred or made by the Trustee in connection with any Default or Event of Default or any membership on any creditors' committee, except any such expense or advance as may be attributable to its negligence, willful misconduct or bad faith; and (c) to the fullest extent permitted by law, to indemnify each of the Trustee, or any predecessor Trustee, its officers, employees, directors, shareholders and agents, for, and to hold them harmless against, any and all loss, damage, claim, liability or expense, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee or any predecessor Trustee), incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreason ably withheld. Before, after or during an Event of Default with respect to the Debentures of a series, the Trustee shall have a claim and lien prior to the Debentures of that series as to all property and funds held by it hereunder for any amount owing it for its fees and expenses or any predecessor Trustee pursuant to this Section, except with respect to funds held by the Trustee or any Paying Agent in trust for the payment of principal of or premium, if any, or interest on Debentures pursuant to Section 2.5 or Section 8.1. 43 51 The Company's payment and indemnity obligations pursuant to this Section are not subject to Article 10 of this Indenture and shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.1(d) or (e), the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.8 Eligibility; Disqualification. (a) The Trustee shall at all times satisfy the requirements of the TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee (or any Affiliate thereof which has unconditionally guaranteed the obligations of the Trustee hereunder) shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recently published annual report of condition. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) The Trustee shall comply with TIA Section 310(b). In determining whether the Trustee has conflicting interests as defined in TIA Section 310(b)(1), the provisions contained in the proviso to TIA Section 310(b)(1) and the Trustee's Statement of Eligibility on Form T-1 shall be deemed incorporated herein. Section 7.9 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 7.10. (b) The Trustee may resign at any time with respect to the Debentures of one or more series by giving written notice thereof to the Company. Upon receiving such notice of resignation the Company shall promptly appoint a successor trustee in accordance with Section 7.10. If the instrument of acceptance by a successor Trustee required by Section 7.10 shall not have been delivered to the Trustee within 60 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (c) If the Trustee has or shall acquire any conflicting interest, as defined in Section 310(b) of the TIA, with respect to the Debentures of any series, it shall, within 90 days after ascertaining it has such conflicting interest, either eliminate the conflicting 44 52 interest or resign with respect to the Debentures of that series in the manner set forth in this Section. (d) The Trustee may be removed at any time with respect to the Debentures of any series by Act of the Holders of at least a majority in principal amount of the outstanding Debentures of such series, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (e) If at any time: (i) the Trustee shall fail to comply with clause (c) of this Section after written request therefor by the Company or by any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months, or (ii) the Trustee shall cease to be eligible under Section 7.8(a) and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent, or a receiver of Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (1) the Company by a Board Resolution may remove the Trustee with respect to all Debentures, or (2) subject to Section 6.12, any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Debentures of such series and the appointment of a successor Trustee or Trustees. (f) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Debentures of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Debentures of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debentures of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debentures of any particular series) and shall comply with the applicable requirements of Section 7.10. If, within one year after such resigna- 45 53 tion, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debentures of any series shall be appointed by Act of the Holders of at least a majority in principal amount of the outstanding Debentures of such series, notice of such appointment shall be delivered to the Company and the retiring Trustee. The successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 7.10, become the successor Trustee with respect to the Debentures of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debentures of any series shall have been so appointed by the Company or the Holders of Debentures and accepted appointment in the manner required by Section 7.10, any Holder of a Debenture who has been a bona fide Holder of a Debenture of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (g) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debentures of any series and each appointment of a successor Trustee with respect to the Debentures of any series in the manner provided in Section 13.2. Each notice shall include the name of the successor Trustee with respect to the Debentures of such series and the address of its Corporate Trust Office. Section 7.10 Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Debentures, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Debentures of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (i) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and deeds of the Trustee with respect to the Debentures of that or those series which the appointment of such successor Trustee relates, (ii) if the retiring Trustee 46 54 is not retiring with respect to all Debentures, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees as co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Debentures of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 7.11 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 8.1 Satisfaction and Discharge of Indenture. Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect with 47 55 respect to any series of Debentures as specified in such Company Order, and the Trustee, on receipt of a Company Order, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when (a) either (i) all Debentures of such series theretofore authenticated and delivered (other than (1) Debentures of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.8, and (2) Debentures of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 8.4) have been delivered to the Trustee for cancellation; or (ii) all Debentures of such series not theretofore delivered to the Trustee for cancellation (1) have become due and payable, or (2) will become due and payable at their stated maturity within one year, or (3) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (1), (2) or (3) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, (a) cash (which may be held in an interest bearing account insured by the Federal Deposit Insurance Corporation) in an amount, or (b) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will ensure the availability of cash, or (c) a combination thereof, in an amount sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, including the principal of, and premium, if any, and interest on such Debentures, to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity Date or Redemption Date thereof, as the case may be; and 48 56 (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the outstanding Debentures of such series. In the event there are Debentures of two or more series outstanding hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Debentures of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture, with respect to any series of Debentures, the obligations of the Company to the Trustee under Section 7.7 and, if money shall have been deposited with the Trustee pursuant to clause (a)(ii) of this Section, the following obligations of the Company and the Trustee with respect to the Debentures of such series, shall survive: (i) the rights of registration of transfer and exchange of Debentures of such series, (ii) the replacement of apparently mutilated, defaced, destroyed, lost or stolen Debentures of such series, (iii) the rights of the Holders of the Debentures of such series to receive payments of the principal of and premium, if any, interest on the Debentures of such series, (iv) the rights of the Holders of the Debentures of such series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, (v) the obligation of the Company to maintain an Office or Agency for payments on and registration of transfer of the Debentures of such series, (vi) the rights, obligations and immunities of the Trustee hereunder, and (vii) any rights to convert or exchange the Debentures of such series into other securities or rights in accordance with their terms. Section 8.2 Application by Trustee of Funds Deposited for Payment of Debentures. Subject to Section 8.4, all moneys deposited with the Trustee pursuant to Section 8.1 shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Holders of the Debentures of the series for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 8.1 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Debentures outstanding hereunder. Section 8.3 Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent 49 57 under this Indenture shall, upon demand of the Company, be repaid to it [or paid to the Trustee], and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Section 8.4 Return of Moneys Held by the Trustee and Paying Agent Unclaimed for Two Years. Any moneys deposited with or paid to the Trustee or any Paying Agent for the payment of the principal of and premium, if any, or interest on the Debentures of any series and not applied but remaining unclaimed for two years after the date when such principal, premium, if any, or interest shall have become due and payable shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holders of such Debentures shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect as a general unsecured creditor, and all liability of the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.1 Supplemental Indentures Without Consent of Holders. From time to time, when authorized by a resolution of the Board of Directors, the Company and the Trustee, without notice to or the consent of any Holders of the Debentures, may amend or supplement this Indenture: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Debentures; or (b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Debentures (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company; provided, however, that in respect of any such additional covenant, or restriction or condition on the Company, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate, enforcement upon such default or may limit the remedies available to the Trustee upon such default; or 50 58 (c) to add any additional Events of Default with respect to all or any series of Debentures (as shall be specified in such supplemental indenture); or (d) to change or eliminate any of the provisions of this Indenture, provided, that any such change or elimination shall become effective only when there is no Debenture outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or (e) to establish the form or terms of Debentures of any series as permitted by Section 2.1 or, in lieu of any such supplemental indenture, the Company may provide the Trustee with an Officer's Certificate with respect to the form or terms of such Debentures; or (f) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Debentures of one or more series, and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (g) to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture which may be defective or inconsistent with any other provision herein or in any supplemental indenture, or to make any other provisions with respect to matters or questions arising under this Indenture or under any supplemental indenture, which shall not adversely affect the interests of the Holders of Debentures of any series then outstanding in any material respect; or (h) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Debentures as herein set forth; or (i) to comply with requirements of the SEC in order to effect or maintain qualification of this Indenture under the TIA; or (j) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Debentures provided that any such action shall not adversely affect the interests of any Holder of a Debenture of such series or any other Debenture in any material respect. Section 9.2 Supplemental Indentures with Consent of Holders. The Company and the Trustee may amend this Indenture in any manner not permitted by Section 9.1 or may waive future compliance by the Company with any provisions of this Indenture with 51 59 the consent of the Holders of at least a majority in aggregate principal amount of the Debentures of each series affected thereby then outstanding. However, such an amend ment or waiver may not, without the consent of each Holder of any Debenture affected thereby: (a) reduce the principal amount of such Debentures; (b) reduce the percentage of the principal amount of such Debentures the Holders of which must consent to an amendment of this Indenture or a waiver; (c) change (i) the stated maturity of the principal of or the interest on such Debentures, except in connection with any Deferral Period, (ii) the rate of interest (or the manner of calculation thereof) on such Debentures, or (iii) the duration of the maximum consecutive period that payments of interest on such Debentures may be deferred; (d) change adversely to the Holders the redemption, conversion or exchange provisions applicable to such Debentures, if any; (e) change the currency in respect of which the payments on such Debentures are to be made; (f) make any change in Article 10 that adversely affects the rights of the Holders of the Debentures or any change to any other Section hereof that adversely affects their rights under Article 10; or (g) change Section 6.7 or 6.8. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect. A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of one or more particular series of Debentures, or which modifies the rights of the Holders of 52 60 Debentures of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Debentures of any other series. It shall not be necessary for the consent of the Holders of Debentures under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent approves the substance thereof. If certain Holders agree to defer or waive certain obligations of the Company hereunder with respect to Debentures held by them, such deferral or waiver shall not affect the rights of any other Holder to receive the payment or performance required hereunder in a timely manner. After an amendment or waiver under this Section becomes effective, the Company shall mail to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notices, or any defect therein, shall not, however, in any way impair or affect the validity of such amendment or waiver. Section 9.3 Compliance with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article 9 shall comply with the TIA. Section 9.4 Revocation and Effect of Consents, Waivers and Actions. Until an amendment, supplement, waiver or other action by Holders becomes effective, a consent, waiver or any other action by a Holder of a Debenture hereunder is a continuing consent by the Holder and every subsequent Holder of that Debenture or portion of the Debenture that evidences the same obligation as the consenting Holder's Debenture, even if notation of the consent, waiver or action is not made on such Debenture. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Debenture or portion of the Debenture if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of such Debentures then outstanding has been obtained and not revoked. After an amendment, waiver or action becomes effective, it shall bind every Holder of the Debentures of the related series, except as provided in Section 9.2. The Company may, but shall not be obligated to, fix a Record Date for the purpose of determining the Persons entitled to consent to any amendment or waiver. If a Record Date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, only Holders of Debentures on such Record Date or their duly designated proxies, and only those Persons, shall be entitled to consent to such amend ment, supplement or waiver or to revoke any consent previously given, whether or not 53 61 such Persons continue to be such after such Record Date. No such consent shall be valid or effective for more than 90 days after such Record Date. Section 9.5 Notation on or Exchange of Debentures. Debentures of the related series authenticated and made available for delivery after the execution of any supple mental indenture pursuant to this Article 9 may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supple mental indenture. If the Company shall so determine, new Debentures so modified to conform to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for outstanding Debentures. Failure to make the appropriate notification or issue a new Debenture shall not affect the validity and effect of such supplemental indenture. Section 9.6 Execution of Supplemental Indentures. The Trustee shall execute any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, execute it. In executing such supplemental indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officer's Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. Section 9.7 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article 9, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes and every Holder of Debentures of the related series theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SINKING FUNDS Section 10.1 Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Debentures of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Debenture of such series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of Debentures of any series is herein referred to as a "mandatory sinking fund payment," and 54 62 any payment in excess of such minimum amount provided for by the terms of Debentures of such series is herein referred to as an "optional sinking fund payment." If provided for by the terms of Debentures of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.2. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series and this Indenture. Section 10.2 Satisfaction of Sinking Fund Payments with Debentures. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of any series to be made pursuant to the terms of such Debentures (a) deliver outstanding Debentures of such series (other than any of such Debentures previously called for redemption or any of such Debentures in respect of which cash shall have been released to the Company), and (b) apply as a credit Debentures of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Debentures or through the application of permitted optional sinking fund payments pursuant to the terms of such Debentures, provided that such series of Debentures have not been previously so credited. Such Debentures shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Debentures for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Debentures of any series in lieu of cash payments pursuant to this Section, the principal amount of Debentures of such series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Debentures of such series for redemption, except upon a Company Order, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment on Debentures of such series, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Debentures of that series purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company. Section 10.3 Redemption of Debentures for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Debentures, the Company shall deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Debentures of that series pursuant to Section 11.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Debentures to be so credited and not theretofore delivered. If such Officer's 55 63 Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Debentures to be redeemed upon such sinking fund payment date in the manner specified in Section 3.2 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.3. Such notice having been duly given, the redemption of such Debentures shall be made upon the terms and in the manner stated in Sections 3.4 and 3.6. ARTICLE 11 MEETINGS OF DEBENTUREHOLDERS Section 11.1 Purposes for Which Meetings May Be Called. A meeting of Holders of Debentures of any series may be called at any time and from time to time pursuant to this Article 12 to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Debentures of such series. Section 11.2 Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Debentures of any series for any purpose specified in Section 12.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or in such other place as the Trustee shall determine. Notice of every meeting of Holders of Debentures of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 13.2, not less than 20 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, by or pursuant to a Board Resolution, or the Holders of at least 25% in principal amount of the outstanding Debentures of any series shall have requested the Trustee to call a meeting of the Holders of Debentures of such series for any purpose specified in Section 12.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Debentures of such series in the amount above specified, as the case may be, may determine the time and the place for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (a) of this Section. 56 64 Section 11.3 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Debentures of any series, a Person shall be (a) a Holder of one or more outstanding Debentures of such series, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more outstanding Debentures of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Debentures of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 11.4 Quorum; Action. The Persons entitled to vote at least a majority in principal amount of the outstanding Debentures of a series shall constitute a quorum for a meeting of Holders of Debentures of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of more than a majority in principal amount of the outstanding Debentures of a series, the Persons entitled to vote such percentage in principal amount of the outstanding Debentures of such series shall constitute a quorum. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Debentures of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 12.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the outstanding Debentures of such series which shall constitute a quorum. Except as may be limited by Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of at least a majority in principal amount of the outstanding Debentures of that series; provided, however, that, except as may be limited by Section 9.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture or any supplemental indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of the outstanding Debentures of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the outstanding Debentures of such series. 57 65 Any resolution passed or decision taken at any meeting of Holders of Debentures of any series duly held in accordance with this Section shall be binding on all the Holders of Debentures of such series, whether or not such Holders were present or represented at the meeting. Section 11.5 Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Debentures of a series in regard to proof of the holding of Debentures of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Debentures shall be proved in the manner specified in Section 1.5 and the appointment of any proxy shall be proved in the manner specified in Section 1.5. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.5 or other proof. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Debentures as provided in Section 12.2(b), in which case the Company or the Holders of Debentures of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote at least a majority in principal amount of the outstanding Debentures of such series represented at the meeting. (c) At any meeting each Holder of a Debenture of such series or proxy shall be entitled to one vote for each $25 principal amount of the outstanding Debentures of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Debenture of such series or proxy. (d) Any meeting of Holders of Debentures of any series duly called pursuant to Section 12.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote at least a majority in principal amount of the outstanding Debentures of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. 58 66 Section 11.6 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Debentures of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Debentures of such series or of their representatives by proxy and the principal amounts and serial numbers of the outstanding Debentures of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Debentures of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 12.2 and, if applicable, Section 12.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE 12 MISCELLANEOUS Section 12.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by operation of Section 318(c) of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, they are, expressly excluded from this Indenture, as permitted by the TIA. Section 12.2 Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing and delivered in person, by first-class mail, postage prepaid, telecopier or overnight air courier guaranteeing next day delivery, addressed as follows: 59 67 if to the Company: MetLife, Inc. One Madison Avenue New York, New York 10010-3690 Attention: Treasurer Fax: (212) 578-0266 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: James C. Scoville Fax: (212) 909-6863 if to the Trustee: The Bank of New York 101 Barclay Street, Floor 21W New York, New York 10286 Attention: Corporate Trust Administration The Company or the Trustee, by giving notice to the other, may designate additional or different addresses for subsequent notices of communications. Any notice or communication given to a Debentureholder shall be mailed or delivered to the Debentureholder at the Debentureholder's address as it appears on the Register of the Registrar and shall be sufficiently given if mailed within the time prescribed. Any notice or communication shall also be so mailed to any person described in TIA Section 313(c) to the extent required by the TIA. Failure to give a notice or communication to a Debentureholder or any defect in it shall not affect its sufficiency with respect to other Debentureholders. If a notice or communication is given in the manner provided above, it is duly given, whether or not received by the addressee. Any notice or communication to the Trustee shall be deemed to have been duly given when received by the Corporate Trust Office of the Trustee. 60 68 If the Company gives a notice or communication to the Debentureholders, it shall deliver a copy to the Trustee and each Registrar, Paying Agent or co-Registrar. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Debentureholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 12.3 Communication by Holders with Other Holders. Debentureholders may communicate pursuant to Section 312(b) of the TIA with other Debentureholders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection Section 312(c) of the TIA. Section 12.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officer's Certificate (complying with Section 13.5) stating that, in the opinion of such Officer, all conditions precedent to the taking of such action have been complied with; and (b) if applicable, an Opinion of Counsel (complying with Section 13.5) stating that, in the opinion of such counsel all such conditions precedent to the taking of such action have been complied with. Section 12.5 Statements Required in Certificate or Opinion. Each Officer's Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that each Person making such Officer's Certificate or Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officer's Certificate or Opinion of Counsel are based; 61 69 (c) a statement that, in the opinion of such Person, such Person has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact not involving any legal conclusion, an Opinion of Counsel may rely on an Officer's Certificate or certificates of public officials. Section 12.6 Severability Clause. If any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.7 Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Debentureholders. The Registrar and Paying Agent may make reasonable rules for their functions. Section 12.8 Legal Holidays. A "Legal Holiday" is any day other than a Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action to be taken on such date shall be taken on the next succeeding day that is not a Legal Holiday, and if such action is a payment in respect of the Debentures, unless other wise specified pursuant to Section 2.1 no principal, premium, if any, or interest shall accrue in respect of such payment for the intervening period. Section 12.9 Governing Law. THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. Section 12.10 No Recourse Against Others. No director, officer, employee or stockholder, as such, of the Company shall have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations. By accepting a Debenture, each Debentureholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issuance and sale of the Debentures. Section 12.11 Successors and Assigns. All agreements of the Company in this Indenture and Debentures shall bind its successors and assigns. All agreements of the Trustee in this Indenture shall bind its successors and assigns. 62 70 Section 12.12 Counterparts. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Any signed copy shall be sufficient proof of this Indenture. Section 12.13 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.14 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 12.15 Benefits of the Indenture. Except as otherwise expressly provided herein with respect to holders of Capital Securities, nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of the Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture. [remainder of page intentionally left blank] 63 71 SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. METLIFE, INC., as Issuer By: ___________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By: ___________________________ Name: Title: 64 EX-4.2 3 FORM OF FIRST SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.2 FIRST SUPPLEMENTAL INDENTURE Dated as of April , 2000 between METLIFE, INC., AS ISSUER and THE BANK OF NEW YORK, AS TRUSTEE 2 TABLE OF CONTENTS Page ----
ARTICLE I DEFINITIONS Section 1.1 Definition of Terms............................................2 ARTICLE II GENERAL TERMS AND CONDITIONS OF THE DEBENTURES Section 2.1 Designation, Principal Amount and Authorized Denomination......3 Section 2.2 Maturity.......................................................4 Section 2.3 Form and Payment...............................................4 Section 2.4 Global Debenture...............................................4 Section 2.5 Interest.......................................................6 ARTICLE III EXPENSES Section 3.1 Expenses.......................................................8 Section 3.2 Payment Upon Resignation or Removal............................9 Section 3.3 Indemnification................................................9 ARTICLE IV FORM OF DEBENTURE Section 4.1 Form of Debenture.............................................12 ARTICLE V ORIGINAL ISSUE OF DEBENTURES Section 5.1 Original Issue of Debentures..................................20 Section 5.2 Calculation of Original Issue Discount........................21
i 3 ARTICLE VI MISCELLANEOUS Section 6.1 Ratification of Base Indenture................................21 Section 6.2 Governing Law.................................................21 Section 6.3 Counterparts..................................................21 ii 4 FIRST SUPPLEMENTAL INDENTURE, dated as of April __, 2000 (the "First Supplemental Indenture"), between METLIFE, INC., a corporation duly organized and existing under the laws of the State of Delaware, (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company executed and delivered the indenture, dated as of April __, 2000 (the "Base Indenture"), to the Trustee to provide for the future issuance of the Company's debentures (the "Securities"), to be issued from time to time in one or more series as might be determined by the Company under the Base Indenture; WHEREAS, pursuant to the terms of the Base Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its -% Debentures due 2005 (the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this First Supplemental Indenture (together, the "Indenture"); WHEREAS, MetLife Capital Trust I, a Delaware statutory business trust (the "Trust"), has offered to the public its -% Capital Securities (the "Capital Securities"), representing undivided beneficial interests in the assets of the Trust, and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of its -% Common Securities (the "Common Securities" and together with the Capital Securities, the "Trust Securities"), in the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this First Supplemental Indenture and satisfy all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company and all acts and things necessary have been done and performed to make this First Supplemental Indenture enforceable in accordance with its terms, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects: NOW THEREFORE, in consideration of the purchase and acceptance of the Debentures by the Holders thereof, and for the purpose of setting forth, as provided in the Indenture, the form and substance of the Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: 5 ARTICLE I DEFINITIONS Section 1.1 Definition of Terms. Unless the context otherwise requires: (a) a term defined in the Indenture has the same meaning when used in this First Supplemental Indenture; (b) a term defined anywhere in this First Supplemental Indenture has the same meaning throughout; (c) the singular includes the plural and vice versa; (d) headings are for convenience of reference only and do not affect interpretation; (e) the following terms have the meanings given to them in the Declaration: Administrative Trustee; Capital Security Certificate; Delaware Trustee; Property Trustee; Purchase Contract Agreement; Remarketing Agent; Reset Agent; Reset Rate; and Underwriting Agreement. (f) the following terms have the meanings given to them in this Section 1.1(f): "Business Day" means any day that is not a Saturday, Sunday or day on which banking institutions and trust companies in The City of New York are authorized or required by law, regulation or executive order to close. "Collateral Agent" has the meaning set forth in the Purchase Contract Agreement. "Company Indemnified Person" has the meaning specified in the Declaration. "Declaration" means the Amended and Restated Declaration of Trust of MetLife Capital Trust I, a Delaware statutory business trust, dated as of April __, 2000. "Dissolution Event" means the dissolution of the Trust and the distribution of the Debentures held by the Property Trustee to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. 2 6 "Failed Remarketing" has the meaning set forth in the Purchase Contract Agreement. "Global Debentures" shall have the meaning set forth in Section 2.4. "Interest Rate" shall have the meaning set forth in Section 2.5. "Non Book-Entry Capital Securities" shall have the meaning set forth in Section 2.4. "Normal Units" has the meaning set forth in the Purchase Contract Agreement. "Over-Allotment Option" shall mean the option granted to the underwriters pursuant to the Underwriting Agreement to purchase up to an additional - Normal Units. "Purchase Contract" shall have the meaning set forth in the Purchase Contract Agreement. "Purchase Contract Agreement" shall mean that certain agreement dated as of April __, 2000 between the Company and Bank One Trust Company, N.A., as purchase contract agent. "Remarketing Date" has the meaning set forth in Purchase Contract Agreement. "Subsequent Remarketing Date" has the meaning set forth in the Purchase Contract Agreement. ARTICLE II GENERAL TERMS AND CONDITIONS OF THE DEBENTURES Section 2.1 Designation, Principal Amount and Authorized Denomination. There is hereby authorized a series of Securities designated the - -% Debentures due 2005 (the "Debentures"), limited in aggregate principal amount to $1,000,000,000 (or up to $1,150,000,000, if the Over-Allotment Option is exercised in full), which amount to be issued shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to the Base Indenture. The denominations in which Debentures shall be issuable is $50 and integral multiples thereof. 3 7 Section 2.2 Maturity. The Stated Maturity Date will be May 15, 2005. Section 2.3 Form and Payment. Except as provided in Section 2.4, the Debentures shall be issued in fully registered certificated form without interest coupons bearing identical terms. Principal, premium (if any) and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Register or by wire transfer in immediately available funds to the bank account number of the Holder specified in writing by the Holder and entered in the Register by the Registrar. Notwithstanding the foregoing, so long as the Holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including expenses and taxes of the Trust set forth in Section 3.1 hereof, if any) on such Debentures held by the Property Trustee will be made at such place and to such account as may be designated in writing by the Property Trustee. Section 2.4 Global Debenture. (a) The Depository Trust Company shall serve as the initial Depository for the Debentures. (b) In connection with a Dissolution Event, (i) the Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for a global Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Debentures (a "Global Debenture"), to be registered in the name of the Depository, or its nominee, and delivered by the Property Trustee to the Depository for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture. The Trustee, upon receipt of such Global Debenture, together with an Officers' Certificate requesting authentication, will authenticate such Global Debenture. Payments on the Debentures issued as a Global Debenture will be made to the Depository; and (ii) if any Capital Securities are held in non book-entry certificated form, the Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Capital Security Certificate which represents Capital Securities other than Capital Securities held by the Depository or its nominee ("Non Book-Entry Capital Securities") will be deemed to represent beneficial interests in the Debentures presented to the Trustee by the Property Trustee having an aggregate principal 4 8 amount equal to the aggregate liquidation amount of the Non Book-Entry Capital Securities until such Capital Security Certificates are presented to the Property Trustee for transfer or reissuance at which time such Capital Security Certificates will be cancelled and a Debenture, registered in the name of the Holder of the Capital Security Certificate or the transferee of the Holder of such Capital Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Capital Security Certificate cancelled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture to such Holder. The Trustee, upon receipt of such Debenture together with an Officers' Certificate requesting authentication, shall authenticate such Debenture. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been cancelled. (c) Unless and until it is exchanged for the Debentures in registered form, a Global Debenture may be transferred, in whole but not in part, only to another nominee of the Depository, or to a successor Depository selected or approved by the Company or to a nominee of such successor Depository. (d) If (a) at any time the Depository for Global Debentures notifies the Company that it is unwilling or unable to continue as Depository for such Global Debentures or if at any time the Depository for such Global Debentures shall no longer be a clearing agency registered or in good standing under the Exchange Act or other applicable statute or regulation, and a successor Depository for such Global Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (b) the Company determines in its sole discretion that the Debentures shall no longer be represented by one or more Global Debentures and delivers to the Trustee an Officer's Certificate evidencing such determination, then the Company will execute and the Trustee, upon receipt of an Officer's Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of like tenor in definitive registered form, in authorized denominations, and in aggregate principal amount equal to the principal amount of the Global Debentures in exchange for such Global Debentures. Upon the exchange of Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for Global Debentures pursuant to this Section shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Persons in whose names such Debentures are so registered. 5 9 Section 2.5 Interest. (a) Each Debenture will bear interest initially at the rate of -% per annum (the "Interest Rate") from the original date of issuance through and including February 15, 2003, and thereafter at the Reset Rate in accordance with Section 2.5(b) and notified to the Trustee by the Company (the "Reset Rate"), until the principal thereof becomes due and payable, and on any overdue principal, premium (if any) and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Interest Rate through and including February 15, 2003 and at the Reset Rate thereafter, compounded quarterly, payable (subject to the provisions of Section 2.5(c) and Article III herein) quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each, an "Interest Payment Date") commencing on August 15, 2000, to the Person in whose name such Debenture or any predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which, in respect of (i) Debentures of which the Property Trustee is the Holder and the Capital Securities are in book-entry only form or (ii) a Global Debenture, shall be the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if (i) the Debentures are held by the Property Trustee and the Capital Securities are no longer in book-entry only form or (ii) the Debentures are not represented by a Global Debenture, the Company may select a regular record date for such interest installment which shall be more than one Business Day but less than 60 Business Days prior to an Interest Payment Date. (b) The interest rate on the Debentures will be reset on the Remarketing Date or any Subsequent Remarketing Date, as the case may be, to the Reset Rate determined by the Reset Agent in accordance with Annex I to the Declaration (which Reset Rate will become effective from and after February 16, 2003); provided, however, if there has been a Failed Remarketing, the Reset Rate will be equal to the Interest Rate until the Capital Securities are successfully remarketed pursuant to the Purchase Contract Agreement. (c) So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time, and from time to time, during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not extending, in the aggregate, beyond the Stated Maturity Date (the "Deferral Period"), during which Deferral Period no interest shall be due and payable. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 2.5(c), will bear interest thereon at the Interest Rate through and including February 15, 2003, and, subject to paragraph (b) above, at the Reset Rate thereafter, compounded quarterly for each quarter of the Deferral Period ("Compounded Interest"). At the end of the Deferral Period, the Company shall pay all interest accrued and unpaid on the Debentures and Compounded Interest (together, "Deferred Interest") that shall be payable to the Holders of the Debentures in whose names the Debentures are registered in the Register 6 10 on the first record date after the end of the Deferral Period. Prior to the termination of any Deferral Period, the Company may further extend such period, provided that such period together with all such previous and further extensions thereof shall not extend beyond the Stated Maturity Date. Upon the termination of any Deferral Period and the payment of all Deferred Interest then due, the Company may commence a new Deferral Period, subject to the foregoing requirements. No interest shall be due and payable during a Deferral Period, except at the end thereof, but the Company, at its option, may prepay on any Interest Payment Date all or any portion of the interest accrued during the then elapsed portion of a Deferral Period. The Company shall give the Trustee written notice of the Company's election to begin a Deferral Period for the Debentures and any shortening or extension thereof at least five Business Days prior to the earlier of (i) the date the interest on such Debentures or distributions on the Capital Securities are payable or (ii) the date the trustees of the Trust are required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Capital Securities of the record date or the date such distributions are payable, but in any event not less than five Business Days prior to such record date. The Company shall give or cause the Trustee to give notice at the expense of the Company (a form of which shall be provided by the Company to the Trustee) of the Company's election to begin a Deferral Period to the Holders by first class mail, postage prepaid. (d) The amount of interest payable for any period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed in such a 90-day period. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (e) The Debentures are not entitled to any sinking fund payments. 7 11 ARTICLE III EXPENSES Section 3.1 Expenses. In connection with the offering, sale and issuance of the Debentures to the Property Trustee and in connection with the sale of the Securities by the Trust, the Company, in its capacity as borrower with respect to the Debentures, shall: (a) pay all costs and expenses relating to the offering, sale and issuance of the Debentures, including commissions to the underwriters payable pursuant to the Underwriting Agreement and compensation of the Trustee under this Indenture in accordance with the provisions of this Indenture; (b) be responsible for and shall pay all debts and obligations (other than with respect to the Securities and other than with respect to taxes) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust), the offering, sale and issuance of the Securities (including commissions to the underwriters in connection therewith), the fees and expenses (including reasonable counsel fees and expenses) of the Property Trustee, the Delaware Trustee and the Administrative Trustees (including any amounts payable under Section 3.3 hereof and Article X of the Declaration), the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets and the enforcement by the Property Trustee of the rights of the Holders of the Securities; (c) be primarily liable for any indemnification obligations arising under Section 3.3 with respect to this Indenture; and (d) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. The Company's obligations under this Section 3.1 shall be for the benefit of, and shall be enforceable by, any person to whom such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Company's obligations under this Section 3.1 directly against the Company and the Company irrevocably waives any right or remedy to require 8 12 that any such Creditor take any action against the Trust or any other Person before proceeding against the Company. The Company agrees to execute such additional agreements as may be necessary or desirable in order to give full effect to the provisions of this Section 3.1. Section 3.2 Payment Upon Resignation or Removal. Upon termination of this First Supplemental Indenture or the Base Indenture or the removal or resignation of the Trustee, the Company shall pay to the Trustee all amounts then owing to the Trustee under Section 7.7 of the Base Indenture. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Property Trustee, as the case may be, pursuant to Section 5.6 of the Declaration, the Company shall pay to the Delaware Trustee or the Property Trustee, as the case may be, all amounts accrued to the date of such termination, removal or resignation. Section 3.3 Indemnification. (a) (i) The Company shall indemnify, to the fullest extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Company Indemnified Person against expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Company shall indemnify, to the fullest extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person against expenses (including reasonable attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that 9 13 the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) Any indemnification under paragraphs (i) and (ii) of this Section 3.3(a) (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Administrative Trustees by a majority vote of a quorum consisting of such Administrative Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (iv) Expenses (including reasonable attorneys' fees) incurred by a Company Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 3.3(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 3.3(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Administrative Trustees by a majority vote of a quorum of disinterested Administrative Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrative Trustees so directs, by independent legal counsel in a written opinion or (iii) the Common Security Holder of the Trust, that, based upon the facts known to the Administrative Trustees, independent legal counsel or Common Security Holder at the time such determination is made, such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrative Trustees, independent legal counsel or Common Security Holder reasonably determine that such person deliberately breached such person's duty to the Trust or its Common or Capital Security Holders. (v) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 3.3(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may 10 14 be entitled under any agreement, vote of shareholders or disinterested directors of the Company or Capital Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 3.3(a) shall be deemed to be provided by a contract between the Company and each Company Indemnified Person who serves in such capacity at any time while this Section 3.3(a) is in effect. Any repeal or modification of this Section 3.3(a) shall not affect any rights or obligations then existing. (vi) The Company or the Trust may purchase and maintain insurance on behalf of any person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Section 3.3(a). (vii) For purposes of this Section 3.3(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 3.3(a) with respect to the resulting or surviving entity as such person would have with respect to such constituent entity if its separate existence had continued. (viii) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 3.3(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the successors, heirs, executors and administrators of such a person. (b) To the fullest extent permitted by law, the Company agrees to indemnify the (i) Property Trustee including in its individual capacity, (ii) the Delaware Trustee (including in its individual capacity), (iii) any Affiliate of the Property Trustee or the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Property Trustee or the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense to the extent incurred without gross negligence and, in the case of the Property Trustee, pursuant to Section 3.9, negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim (whether asserted by the issuer, any 11 15 Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 3.3(b) shall survive the satisfaction and discharge of this Declaration and any resignation or removal of the Property Trustee or the Delaware Trustee, as the case may be. ARTICLE IV FORM OF DEBENTURE Section 4.1 Form of Debenture. The Debentures and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a nominee of the Depository. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] 12 16 No. ___________________ CUSIP No. ______________ $_____________________ METLIFE, INC. -% DEBENTURE DUE 2005 METLIFE, INC., a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________________, the principal sum of ($______________) on May 15, 2005 (such date is hereinafter referred to as the "Stated Maturity Date"), and to pay interest on said principal sum from ____________ __, 2003, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly in arrears (subject to deferral as set forth herein) on February 15, May 15, August 15, and November 15 of each year, commencing on August 15, 2000, initially at the rate of -% per annum through and including February 15, 2003, and at the Reset Rate thereafter, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the rate of -% through and including February 15, 2003, and at the Reset Rate thereafter, until the principal hereof shall have become due and payable, compounded quarterly. The interest rate will be reset on the third Business Day preceding February 15, 2003 to the Reset Rate (as determined by the Reset Agent); provided, however, if there has been a Failed Remarketing, the Reset Rate will be equal to the Interest Rate until the Capital Securities are successfully remarketed pursuant to the Purchase Contract Agreement. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year consisting of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture is registered at the close of business on the regular record date for such interest installment, which in the case of a Global Debenture shall be the close of business on the Business Day next preceding such Interest Payment Date; provided, however, if pursuant to the terms of the Indenture the Debentures are no longer represented by a Global Debenture, the Company may select such regular record date for such interest installment which shall be more than one Business Day but less than 13 17 60 Business Days prior to an Interest Payment Date. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such regular record date and may be paid to the Person in whose name this Debenture is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Register or by wire transfer to an account appropriately designated by the Holder entitled thereto. Notwithstanding the foregoing, so long as the Holder of this Debenture is the Property Trustee or the Collateral Agent, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated in writing by the Property Trustee. So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time, and from time to time, during the term of this Debenture, to defer payments of interest by extending the interest payment period of such Debenture for a period not extending, in the aggregate, beyond the Stated Maturity Date (the "Deferral Period"), during which Deferral Period no interest shall be due and payable. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to the provisions of this Debenture, will bear interest thereon at the rate of -% through and including February 15, 2003, and at the Reset Rate thereafter, compounded quarterly for each quarter of the Deferral Period ("Compounded Interest"). At the end of the Deferral Period, the Company shall pay all interest accrued and unpaid on this Debenture and Compounded Interest (together, "Deferred Interest") that shall be payable to the Holders of this Debenture in whose names this Debenture are registered in the Register on the first record date after the end of the Deferral Period. Prior to the termination of any Deferral Period, the Company may further extend such period, provided that such period together with all such previous and further extensions thereof shall not extend beyond the Stated Maturity Date. Upon the termination of any Deferral Period and the payment of all Deferred Interest then due, the Company may commence a new Deferral Period, subject to the foregoing requirements. No interest shall be due and payable during an Deferral Period, except at the end thereof, but the Company, at its option, may prepay on any Interest Payment Date all or any portion of the interest accrued during the then elapsed 14 18 portion of a Deferral Period. The Company shall give the Trustee written notice of the Company's election to begin a Deferral Period for this Debenture and any shortening or extension thereof at least five Business Days prior to the earlier of (i) the date the interest on such Debenture or distributions on the Capital Securities are payable or (ii) the date the trustees of the Trust are required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Capital Securities of the record date or the date such Distributions are payable, but in any event not less than five Business Days prior to such record date. The Company shall give or cause the Trustee to give notice at the Company's expense (a form of which shall be provided by the Company to the Trustee) of the Company's election to begin a Deferral Period to the Holders by first class mail, postage prepaid. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. 15 19 IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated: METLIFE, INC. By: _________________________ Name: Title: By: _________________________ Name: Title: Attest By: ___________________________ Name: Title: CERTIFICATE OF AUTHENTICATION This is one of the Debentures of the series designated therein referred to in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee By: _________________________ Authorized Signatory 16 20 (FORM OF REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of the debentures of the Company (herein sometimes referred to as the "Securities"), specified in the Indenture hereinafter referred to, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of April __, 2000 (the "Base Indenture"), duly executed and delivered between the Company and The Bank of New York, as Trustee (the "Trustee") (such Base Indenture as supplemented by the First Supplemental Indenture, dated April __, 2000, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Securities. By the terms of the Indenture, the Securities are issuable in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Securities is limited in aggregate principal amount as specified in said First Supplemental Indenture. The Debentures are not entitled to the benefit of any sinking fund. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of, among other things, adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Securities; provided, however, that, among other things, no such supplemental indenture shall (i) reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Security then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Securities of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Securities of such series, to waive a Default or Event of Default with respect to such series, and its consequences, except a Default or Event of Default in the payment of the principal of or premium, if any, or interest on any of the Securities of such series or a 17 21 Default in respect of a provision that under Section 6.4 of the Base Indenture cannot be amended without the consent of each holder affected thereby. Any such consent or waiver by the registered Holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Debenture and of any Debenture issued in exchange for or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered Holder hereof on the Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee in the City of New York and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, shareholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. 18 22 The Indenture imposes certain limitations on the ability of the Company to, among other things, merge or consolidate with any other Person or sell, assign, transfer, lease or convey all or substantially all of its properties and assets. All such covenants and limitations are subject to a number of important qualifications and exceptions. The Company must report periodically to the Trustee on compliance with the covenants in the Indenture. The Debentures of this series are issuable only in registered form without coupons, in denominations of $50 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Debentures of this series so issued are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. This Debenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to its principles of conflicts of laws. 19 23 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) agent to transfer this Debenture on the books of the Trust. The agent may substitute another to act for him or her. Dated: Signature: Signature Guarantee: (Sign exactly as your name appears on the other side of this Debenture) Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Debt Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. ARTICLE V ORIGINAL ISSUE OF DEBENTURES Section 5.1 Original Issue of Debentures. Debentures in the aggregate principal amount of $1,000,000,000 (or up to $1,150,000,000, if the Over-Allotment Option is exercised) may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures in accordance with a Company Order. The Issue Date of the Debentures shall be April __, 2000. 20 24 ARTICLE VI MISCELLANEOUS Section 6.1 Ratification of Base Indenture. The Base Indenture as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein and therein provided. Section 6.2 Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE AND EACH DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. Section 6.3 Counterparts. This First Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 21 25 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized, on the date or dates indicated in the acknowledgments and as of the day and year first above written. METLIFE, INC., as Issuer By: Name: Title: THE BANK OF NEW YORK, as Trustee By: Name: Title: 22 EX-4.5 4 FORM OF DECLARATION OF TRUST 1 Exhibit 4.5 - -------------------------------------------------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST OF METLIFE CAPITAL TRUST I April , 2000 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS ARTICLE I. INTERPRETATION AND DEFINITIONS SECTION 1.1 DEFINITIONS.......................................... 2 ARTICLE II. TRUST INDENTURE ACT SECTION 2.1 TRUST INDENTURE ACT; APPLICATION..................... 10 SECTION 2.2 LISTS OF HOLDERS OF SECURITIES....................... 10 SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE...................... 11 SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE................. 11 SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT............................................ 11 SECTION 2.6 EVENTS OF DEFAULT; WAIVER............................ 11 SECTION 2.7 EVENT OF DEFAULT; NOTICE............................. 13 ARTICLE III. ORGANIZATION SECTION 3.1 NAME................................................. 14 SECTION 3.2 OFFICE............................................... 14 SECTION 3.3 PURPOSE.............................................. 15 SECTION 3.4 AUTHORITY............................................ 15 SECTION 3.5 TITLE TO PROPERTY OF THE TRUST....................... 15 SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES............................................. 16 SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES............................................. 19 SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE............ 20 SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE..................................... 22 SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE................... 24 SECTION 3.11 DELAWARE TRUSTEE..................................... 26 SECTION 3.12 EXECUTION OF DOCUMENTS............................... 27 SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES........................................... 27 SECTION 3.14 DURATION OF TRUST.................................... 27 i 3 SECTION 3.15 MERGERS.............................................. 27 ARTICLE IV. SPONSOR SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.............. 30 SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR........... 30 SECTION 4.3 RIGHT TO PROCEED..................................... 31 SECTION 4.4 [Intentionally Deleted.]............................. 31 ARTICLE V. TRUSTEES SECTION 5.1 NUMBER OF TRUSTEES................................... 31 SECTION 5.2 DELAWARE TRUSTEE..................................... 31 SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY........................ 32 SECTION 5.4 CERTAIN QUALIFICATIONS OF ADMINISTRATIVE TRUSTEES AND DELAWARE TRUSTEE GENERALLY.............. 33 SECTION 5.5 ADMINISTRATIVE TRUSTEES.............................. 33 SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES............................................. 33 SECTION 5.7 VACANCIES AMONG TRUSTEES............................. 35 SECTION 5.8 EFFECT OF VACANCIES.................................. 35 SECTION 5.9 MEETINGS............................................. 36 SECTION 5.10 DELEGATION OF POWER.................................. 36 SECTION 5.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS............................... 37 ARTICLE VI. DISTRIBUTIONS SECTION 6.1 DISTRIBUTIONS........................................ 37 ARTICLE VII. ISSUANCE OF SECURITIES SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES.............. 37 SECTION 7.2 PAYING AGENT/REGISTRAR............................... 38 ii 4 ARTICLE VIII. TERMINATION OF TRUST SECTION 8.1 DISSOLUTION OF TRUST................................. 39 ARTICLE IX. TRANSFER OF INTERESTS SECTION 9.1 TRANSFER OF SECURITIES............................... 40 SECTION 9.2 TRANSFER OF CERTIFICATES............................. 41 SECTION 9.3 DEEMED SECURITY HOLDERS.............................. 41 SECTION 9.4 BOOK ENTRY INTERESTS................................. 41 SECTION 9.5 NOTICES TO CLEARING AGENCY........................... 42 SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY............. 43 SECTION 9.7 DEFINITIVE CAPITAL SECURITY CERTIFICATES............. 43 SECTION 9.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES......................................... 44 ARTICLE X. LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 LIABILITY............................................ 44 SECTION 10.2 EXCULPATION.......................................... 45 SECTION 10.3 FIDUCIARY DUTY....................................... 45 SECTION 10.4 [Intentionally Deleted.]............................. 46 SECTION 10.5 OUTSIDE BUSINESSES................................... 46 ARTICLE XI. ACCOUNTING SECTION 11.1 FISCAL YEAR.......................................... 47 SECTION 11.2 CERTAIN ACCOUNTING MATTERS........................... 47 SECTION 11.3 BANKING.............................................. 48 SECTION 11.4 WITHHOLDING.......................................... 48 ARTICLE XII. AMENDMENTS AND MEETINGS SECTION 12.1 AMENDMENTS........................................... 49 iii 5 SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT................................... 51 ARTICLE XIII. REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.............................................. 52 SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.............................................. 53 ARTICLE XIV. MISCELLANEOUS SECTION 14.1 NOTICES.............................................. 54 SECTION 14.2 GOVERNING LAW........................................ 56 SECTION 14.3 INTENTION OF THE PARTIES............................. 56 SECTION 14.4 HEADINGS............................................. 56 SECTION 14.5 SUCCESSORS AND ASSIGNS............................... 56 SECTION 14.6 PARTIAL ENFORCEABILITY............................... 56 SECTION 14.7 COUNTERPARTS......................................... 56 SECTION 14.8 CUSIP NUMBERS........................................ 57 iv 6 AMENDED AND RESTATED DECLARATION OF TRUST OF METLIFE CAPITAL TRUST I April , 2000 AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration") dated and effective as of April ___, 2000, by the Trustees (as defined herein), the Sponsor (as defined herein) and by the Holders (as defined herein), from time to time, of the securities representing undivided beneficial interests in the assets of the Trust (as defined herein) to be issued pursuant to this Declaration; WHEREAS, certain of the Trustees and the Sponsor established MetLife Capital Trust I (the "Trust"), a trust under the Business Trust Act (as defined herein) pursuant to a Declaration of Trust dated as of March 3, 2000 (the "Original Declaration"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on March 6, 2000, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in certain Debentures of the Debenture Issuer (each, as defined herein); WHEREAS, all of the parties hereto, by this Declaration, amend and restate each and every term and provision of the Original Declaration; and NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the Trust and Holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. 7 ARTICLE I. INTERPRETATION AND DEFINITIONS SECTION 1.1 DEFINITIONS. UNLESS THE CONTEXT OTHERWISE REQUIRES: (a) capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act (as defined herein) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Administrative Trustee" has the meaning set forth in Section 5.1. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. When used with respect to any Person, "control" means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" and "under common control with" have meanings correlative to the foregoing. "Agent" means any Paying Agent or Registrar. "Authorized Officer" means (i) with respect to the Sponsor, the Chief Executive Officer, the Chief Financial Officer, the President, a Vice President, the Treasurer, an 2 8 Assistant Treasurer, the Secretary or an Assistant Secretary of the Sponsor and (ii) with respect to any other Person, any Person that is authorized to bind such Person. "Book Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "Business Day" means any day other than Saturday, Sunday or a day on which banking institutions and trust companies in The City of New York are authorized or required by law, regulation or executive order to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time to time, or any successor legislation. "Capital Security" has the meaning set forth in Section 7.1. "Capital Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Capital Security Certificate" means a certificate representing a Capital Security substantially in the form of Exhibit A-1. "Capital Securities Guarantee" means the guarantee agreement to be dated as of April __, 2000 of the Sponsor in respect of the Capital Securities. "Certificate" means a Common Security Certificate or a Capital Security Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Capital Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Capital Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. 3 9 "Closing Date" means the date of "First Time of Delivery" and the date of each "Time of Delivery" under the Underwriting Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "Commission" means the Securities and Exchange Commission. "Common Security" has the meaning set forth in Section 7.1. "Common Securities Guarantee" means the guarantee agreement to be dated as of April ___, 2000 of the Sponsor in respect of the Common Securities. "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Exhibit A-2. "Corporate Trust Office" means the office of the Property Trustee at which the corporate trust business of the Property Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Declaration is located at 101 Barclay Street, Floor 21W, NY, NY 10286, Attention: Corporate Trust Administration. "Coupon Rate" has the meaning set forth in the Purchase Contract Agreement. "Covered Person" means (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "Creditor" has the meaning set forth in Section 4.4. "Debenture Issuer" means MetLife, Inc., a Delaware corporation, in its capacity as issuer of the Debentures under the Indenture. "Debenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Debentures" means the series of -% debentures to be issued by the Debenture Issuer under the Indenture, a specimen certificate for such series of Debentures being Exhibit B. 4 10 "Definitive Capital Security Certificates" has the meaning set forth in Section 9.4. "Delaware Trustee" has the meaning set forth in Section 5.2. "Direction" by a Person means a written direction signed: (a) if the Person is a natural person, by that Person; or (b) in any other case, in the name of such Person by one or more Authorized Officers of that Person. "Direct Action" has the meaning set forth in Section 3.8(e). "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.1. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Securities means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Debentures. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "Failed Remarketing" has the meaning set forth in the Purchase Contract Agreement. "Fiduciary Indemnified Person" has the meaning set forth in Section 10.4(b). "Global Certificate" has the meaning set forth in Section 9.4. "Holder" or "holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Indemnified Person" means a Sponsor Indemnified Person or a Fiduciary Indemnified Person. "Indenture" means the Indenture dated as of April ___, 2000, among the Debenture Issuer and the Debenture Trustee, and any indenture supplemental thereto pursuant to which the Debentures are to be issued. 5 11 "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Legal Action" has the meaning set forth in Section 3.6(f). "Liquidation Distribution" has the meaning set forth in Annex I. "Majority in liquidation amount of the Securities" means, except as provided in the terms and conditions of the Capital Securities set forth in Annex I hereto or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount of all outstanding Securities of the relevant class. "Ministerial Action" has the meaning set forth in the terms of the Securities as set forth in Annex I. "Officer's Certificate" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that the officer signing the Officer's Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by the officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "Paying Agent" has the meaning set forth in Section 7.2. "Payment Amount" has the meaning set forth in Section 6.1. 6 12 "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.3. "Property Trustee Account" has the meaning set forth in Section 3.8(c). "Purchase Contract Agent" means Bank One Trust Company, N.A., as purchase contract agent under the Purchase Contract Agreement until a successor is appointed thereunder, and thereafter means such successor Purchase Contract Agent. "Purchase Contract Agreement" means the Purchase Contract Agreement dated as of April ___, 2000 between the Purchase Contract Agent and the Sponsor. "Quorum" means a majority of the Administrative Trustees or, if there are only two Administrative Trustees, both of them. "Registrar" has the meaning set forth in Section 7.2. "Related Party" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "Remarketing Agent" has the meaning set forth in the Purchase Contract Agreement. "Remarketing Agreement" means the form of Remarketing Agreement to be entered into by and among the Sponsor, the Trust, the Remarketing Agent and the Purchase Contract Agent in connection with the remarketing of the capital securities. "Remarketing Date" means the third business day preceding February 15, 2003. "Remarketing Value" has the meaning set forth in the Purchase Contract Agreement. "Reset Agent" means a nationally recognized investment banking firm chosen by the Sponsor to determine the Reset Rate. 7 13 "Reset Rate" means the lowest distribution rate per annum (rounded to the nearest one-thousandth (0.001) of one percent per annum), to be determined by the Reset Agent, that the Capital Securities should bear in order for the Capital Securities to have a market value at the Remarketing Date or any Subsequent Remarketing Date, as the case may be, of 100.5% of the Remarketing Value, assuming, for this purpose, even if not true, that all of the Capital Securities are held as components of Normal Units and will be remarketed; provided, however, that if there has been a Failed Remarketing, the Reset Rate will be equal to the Coupon Rate, as defined in Annex I hereto, until the Capital Securities are successfully remarketed pursuant to the Purchase Contract Agreement and Remarketing Agreement. "Responsible Officer" means, with respect to the Property Trustee, any officer within the Corporate Trust Office of the Property Trustee (or any successor of the Property Trustee), including, but not limited to, any vice-president, any assistant vice-president, any assistant secretary, any assistant treasurer or other officer of the Corporate Trust Office of the Property Trustee assigned by the Property Trustee to administer its corporate trust matters and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject, in each case who shall have direct responsibility for the administration of this Declaration. "Securities" means the Common Securities and the Capital Securities. "Securities Guarantees" means the Common Securities Guarantee and the Capital Securities Guarantee. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Sponsor" means MetLife, Inc., a Delaware corporation, or any successor entity in a merger or consolidation, in its capacity as sponsor of the Trust. "Sponsor Indemnified Person" means (a) any Administrative Trustee; (b) any Affiliate of any Administrative Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrative Trustee or any Affiliate of any Administrative Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "Subsequent Remarketing Date" has the meaning set forth in the Purchase Contract Agreement. "Successor Delaware Trustee" has the meaning set forth in Section 5.6(b)(ii). 8 14 "Successor Entity" has the meaning set forth in Section 3.15(b)(i). "Successor Property Trustee" has the meaning set forth in Section 3.8(f)(ii). "Super Majority" has the meaning set forth in Section 2.6(a)(ii). "10% in liquidation amount of the Securities" means, except as provided in the terms of the Capital Securities set forth in Annex I hereto or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Capital Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount of all outstanding Securities of the relevant class. "Termination Event" has the meaning set forth in the Purchase Contract Agreement. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Underwriting Agreement" means the Underwriting Agreement for the offering and sale of the Units. "Units" has the meaning set forth in the Purchase Contract Agreement. 9 15 ARTICLE II. TRUST INDENTURE ACT SECTION 2.1 TRUST INDENTURE ACT; APPLICATION. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) Any application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.2 LISTS OF HOLDERS OF SECURITIES. (a) Each of the Sponsor and the Administrative Trustees, on behalf of the Trust, shall provide the Property Trustee (i) within 15 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that neither the Sponsor nor the Administrative Trustees, on behalf of the Trust, shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request by the Property Trustee for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in the Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity), provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. 10 16 SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE. Within 60 days after [September 1] of each year, commencing [September 1], 2000, the Property Trustee shall provide to the Holders of the Capital Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the Sponsor and the Administrative Trustees, on behalf of the Trust, shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Sponsor's or Administrative Trustees' compliance with any of its covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Sponsor and the Administrative Trustees, on behalf of the Trust, shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officer's Certificate. SECTION 2.6 EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in liquidation amount of Capital Securities may, by vote, on behalf of the Holders of all of the Capital Securities, waive any past Event of Default in respect of the Capital Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: 11 17 (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in principal amount of the holders of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Capital Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.6(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Capital Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Capital Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Capital Securities or impair any right consequent thereon. Any waiver by the Holders of the Capital Securities of an Event of Default with respect to the Capital Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b) and Section 2.6(c), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; 12 18 provided further, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Capital Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Capital Securities and only the Holders of the Capital Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Capital Securities constitutes a waiver of the corresponding Event of Default with respect to the Capital Securities under this Declaration. Any waiver of an Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Capital Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of the corresponding Event of Default under this Declaration with respect to the Common Securities for all purposes of this Declaration without further act, vote or consent of the Holders of the Common Securities. The foregoing provisions of this Section 2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.7 EVENT OF DEFAULT; NOTICE. (a) The Property Trustee shall, within 90 days after a Responsible Officer of the Property Trustee obtains actual knowledge of the occurrence of an Event of Default, actually known to such Responsible Officer of the Property Trustee, transmit by mail, first class postage prepaid, to the Holders of the Securities, notices of all such defaults with respect to the Securities, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of (or premium, if any) or 13 19 interest on any of the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 6.1(a) and 6.1(b) of the Indenture provided that the Property Trustee is also the Paying Agent under the Indenture; or (ii) any default as to which the Property Trustee shall have received written notice which references the Securities and this Declaration at its Corporate Trust Office or of which a Responsible Officer of the Property Trustee charged with the administration of this Declaration shall have actual knowledge. The Sponsor and the Administrative Trustee shall file annually with the Property Trustee a certification as to whether or not they are in compliance with all the conditions applicable to them under this Declaration. ARTICLE III. ORGANIZATION SECTION 3.1 NAME. The Trust is named "MetLife Capital Trust I," as such name may be modified from time to time by the Administrative Trustees following written notice to the Delaware Trustee, the Property Trustee and Holders of the Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrative Trustees. SECTION 3.2 OFFICE. The address of the principal office of the Trust, for purposes of the Delaware Business Trust Act, is c/o The Bank of New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711. On ten Business Days written notice to the Property Trustee and Holders of the Securities, the Administrative Trustees may designate another principal office. 14 20 SECTION 3.3 PURPOSE. The exclusive purposes and functions of the Trust are (a) to issue and sell the Securities and use the gross proceeds from such sale to acquire the Debentures, and (b) except as otherwise set forth herein, to engage in only those other activities necessary, appropriate, convenient or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. It is the intent of the parties to this Declaration for the Trust to be classified as a grantor trust for United States federal income tax purposes under Subpart E of Subchapter J of the Code, pursuant to which the owners of the Capital Securities and the Common Securities will be the owners of the Trust for United States federal income tax purposes, and such owners will include directly in their gross income the income, gain, deduction or loss of the Trust as if the Trust did not exist. By the acceptance of this Declaration the Trustees, the Sponsor, the Capital Security Beneficial Owners and the holders of the Common Securities agree that they will not take any position for United States federal income tax purposes which is contrary to the classification of the Trust as a grantor trust. SECTION 3.4 AUTHORITY. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Administrative Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Administrative Trustees on behalf of the Trust in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. SECTION 3.5 TITLE TO PROPERTY OF THE TRUST. Except as provided in Section 3.8 with respect to the Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. A Holder shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. 15 21 SECTION 3.6 POWERS AND DUTIES OF THE ADMINISTRATIVE TRUSTEES. The Administrative Trustees shall have the exclusive power, duty and authority and are hereby authorized and directed to cause the Trust to engage in the following activities: (a) to execute, deliver, issue and sell the Capital Securities and the Common Securities in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Capital Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities, and the issuance of Securities shall be limited to a simultaneous issuance of both Capital Securities and Common Securities on each Closing Date; (b) in connection with the issue and sale of the Capital Securities to: (i) execute and file with the Commission the registration statement and the prospectus relating to the registration statement on Form S-1 prepared by the Sponsor, including any amendments or supplements thereto, pertaining to the Capital Securities and to take any other action relating to the registration and sale of the Capital Securities and the Units under federal and state securities laws; (ii) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Capital Securities in any State in which the Sponsor has determined to qualify or register such Capital Securities for sale; (iii) execute and file an application, prepared by the Sponsor, to the New York Stock Exchange, Inc. or any other national stock exchange or the Nasdaq Stock Market's National Market for listing upon notice of issuance of any Capital Securities; (iv) execute and file with the Commission a registration statement on Form 8-A, including any amendments thereto, prepared by the Sponsor, relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act; (v) execute and enter into and deliver the Underwriting Agreement providing for the sale of the Capital Securities and the Remarketing Agreement; and 16 22 (vi) execute and deliver letters, documents or instruments with DTC and other Clearing Agencies relating to the Capital Securities. (c) to acquire the Debentures with the proceeds of the sale of the Capital Securities and the Common Securities; provided, however, that the Administrative Trustees shall cause legal title to the Debentures to be held of record in the name of the Property Trustee for the benefit of the Trust and the Holders of the Capital Securities and the Holders of Common Securities; (d) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, repayments, redemptions and exchanges, and to issue relevant notices to the Holders of Capital Securities and Holders of Common Securities as to such actions and applicable record dates; (e) to take all actions and perform such duties as may be required of the Administrative Trustees pursuant to the terms of the Securities and this Declaration; (f) to the fullest extent permitted by law, to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e) the Property Trustee has the exclusive power to bring such Legal Action; (g) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (h) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (i) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by any Administrative Trustee; (j) to incur expenses that are necessary, appropriate, convenient or incidental to carry out any of the purposes of the Trust; (k) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities; 17 23 (l) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; (m) to take any action, not inconsistent with this Declaration or with applicable law, that the Administrative Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (iii) cooperating with the Debenture Issuer to ensure that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes, provided that such action relating to this clause (iii) does not adversely affect the interests of Holders; (n) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Administrative Trustees, on behalf of the Trust; (o) instruct the Purchase Contract Agent in order to enable the Purchase Contract Agent to vote such Securities; and (p) to execute all documents or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary, appropriate, convenient or incidental to the foregoing. The Administrative Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Administrative Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Administrative Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. No permissive 18 24 power or authority available to the Administrative Trustees shall be construed to be a duty. SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES. The Trust shall not and the Administrative Trustees shall cause the Trust not to, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Administrative Trustees shall cause the Trust not to: (i) invest any proceeds received by the Trust with respect to the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness for borrowed money, other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required, unless, in the case of clauses (B), (C) and (D), the Trust shall have received an opinion of counsel to the effect that for United States federal income tax purposes the Trust will not be classified as other than a grantor trust as a result of such action. 19 25 SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Trust and the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Administrative Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Property Trustee Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Trust and the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make payments to the Holders of the Capital Securities and Holders of the Common Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is rated at least "A" or above by a "nationally recognized statistical rating organization," as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary, appropriate, convenient or incidental to effect the repayment of the Capital Securities and the Common Securities to the extent the Debentures mature or are redeemed; and (iii) upon written notice of distribution issued by the Administrative Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary, appropriate, convenient or incidental to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain special events (as may be defined in the terms of the Securities) arising from a change in law or a change in legal interpretation or other specified circumstances pursuant to the terms of the Securities. 20 26 (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities and this Declaration. (e) The Property Trustee shall take any Legal Action which arises out of or in connection with an Event of Default of which a Responsible Officer of the Property Trustee has actual knowledge or the Property Trustee's duties and obligations under this Declaration, or the Trust Indenture Act; provided, however, that if the Property Trustee fails to enforce its rights under the Debentures after a Holder of Capital Securities has made a written request, such Holder of Capital Securities may, to the fullest extent permitted by applicable law, institute a legal proceeding against the Debenture Issuer without first instituting any legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest on or principal of the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such holder (a "Direct Action") on or after the due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of Common Securities will be subordinated to the rights of such Holders of Capital Securities. In connection with such Direct Action, the Debenture Issuer shall be subrogated to the rights of such Holder of Capital Securities with respect to payments on the Capital Securities under this Declaration to the extent of any payment made by the Debenture Issuer to such Holder of Capital Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Capital Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures. (f) The Property Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.6 (a "Successor Property Trustee"). (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Property Trustee occurs and is 21 27 continuing, the Property Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities and this Declaration. (h) The Property Trustee shall be authorized to undertake any actions set forth in Section 317(a) of the Trust Indenture Act. (i) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 3.6. The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE. (a) The Property Trustee, before the occurrence of any Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants or obligations shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the Property Trustee has actual knowledge, the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no 22 28 implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not on their face they conform to the requirements of this Declaration (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds is not reasonably assured to it under the terms of this Declaration or if indemnity reasonably satisfactory to the Property Trustee against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its fiduciary accounts generally, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration, the Business Trust Act and the Trust Indenture Act; 23 29 (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for any default or misconduct of the Administrative Trustees or the Sponsor. SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may in absence of bad faith conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document reasonably believed by it to be genuine (and with respect to the certificates, reports, statements and opinions, are, in the absence of bad faith, believed by it to be true and accurate) and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Administrative Trustees contemplated by this Declaration shall be sufficiently evidenced by a Direction or an Officer's Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of negligence or bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrative Trustees; 24 30 (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or re-registration thereof; (v) the Property Trustee may consult with counsel or other experts of its selection and the advice or opinion of such counsel and experts with respect to matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, reasonably satisfactory to the Property Trustee, against the reasonable costs, expenses (including reasonable attorneys' fees and expenses and the reasonable expenses of the Property Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee, provided that nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall be under no obligation to conduct an investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder in compliance with this Declaration; 25 31 (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Property Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions; (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Property Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11 DELAWARE TRUSTEE. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Trustees (except as required 26 32 under the Business Trust Act) described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. In the event that the Delaware Trustee shall at any time be required to take any action or perform any duty hereunder, the Delaware Trustee shall be entitled to the benefits of Section 3.9(b)(ii) through (viii) and Section 3.10. No implied covenants or obligations shall be read into this Declaration against the Delaware Trustee. SECTION 3.12 EXECUTION OF DOCUMENTS. Except as otherwise required by applicable law, any Administrative Trustee is authorized to execute on behalf of the Trust any documents that the Administrative Trustees have the power and authority to execute pursuant to Section 3.6. SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. SECTION 3.14 DURATION OF TRUST. The Trust, unless dissolved pursuant to the provisions of Article VIII hereof, shall dissolve on April 7, 2007. SECTION 3.15 MERGERS. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.15(b) and (c) and Section (3) of Annex I. (b) The Trust may, with the consent of the Administrative Trustees or, if there are more than two, a majority of the Administrative Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State: 27 33 (i) provided that if the Trust is not the surviving entity, the successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Capital Securities other securities having substantially the same terms as the Capital Securities (the "Successor Securities"), so long as the Successor Securities rank the same as the Capital Securities rank with respect to Distributions and payments upon liquidation, redemption, repayment and otherwise and substitutes for the Common Securities other securities having substantially the same terms as the Common Securities (the "Successor Common Securities"), so long as the Successor Common Securities rank the same as the Common Securities rank with respect to Distributions and payments upon liquidation, redemption, repayment and otherwise; (ii) the Debenture Issuer expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) if the Capital Securities are listed or quoted, any Successor Securities will be listed or quoted upon notification of issuance, on any national securities exchange, national automated quotation system or with another organization on which the Capital Securities are then listed or quoted; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Capital Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities and any Successor Common Securities) in any material respect (other than with respect to any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose substantially identical to that of the Trust; 28 34 (vii) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); (B) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States federal income tax purposes; (viii) the Sponsor owns, directly or indirectly, all of the common securities of such Successor Entity; (ix) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Securities Guarantees; and (x) there shall have been furnished to the Property Trustee an Officer's Certificate and an Opinion of Counsel, each to the effect that all conditions precedent in this Declaration to such transaction have been satisfied. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. 29 35 ARTICLE IV. SPONSOR SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES. On the Closing Date the Sponsor will purchase all of the Common Securities issued by the Trust, in an amount at least equal to 3.0% of the capital of the Trust, at the same time as the Capital Securities are sold. SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR. In connection with the issue, sale and, if necessary, the remarketing of the Capital Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare for filing by the Trust with the Commission a registration statement on Form S-1 in relation to the Capital Securities and/or the Units, including any amendments thereto; (b) if necessary, to determine the States in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and/or the Units and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust), as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (c) if necessary, to prepare for filing by the Trust of an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq Stock Market's National Market for listing upon notice of issuance of the Units and, if applicable, of the Capital Securities; (d) if necessary, to prepare for filing by the Trust with the Commission of a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) of the Exchange Act, including any amendments thereto; and (e) to negotiate the terms of the Remarketing Agreement and the Underwriting Agreement providing for the sale of the Capital Securities. 30 36 SECTION 4.3 RIGHT TO PROCEED. The Sponsor acknowledges the rights of Holders to institute a Direct Action as set forth in Section 3.8(e) hereto. SECTION 4.4 [Intentionally Deleted.] ARTICLE V. TRUSTEES SECTION 5.1 NUMBER OF TRUSTEES. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; provided, however, that, the number of Trustees shall in no event be less than two (2), provided further that (1) one Trustee shall meet the requirements of Section 5.2(a) and (b); (2) there shall be at least one Trustee who is an employee or officer of, or is affiliated with the Sponsor (an "Administrative Trustee"); and (3) one Trustee shall be the Property Trustee for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, and such Property Trustee may also serve as Delaware Trustee if it meets the applicable requirements. SECTION 5.2 DELAWARE TRUSTEE. If required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be: (a) a natural person who is a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. 31 37 (c) The initial Delaware Trustee shall be: The Bank of New York (Delaware) White Clay Center, Route 273 Newark, Delaware 19711 Attn: Corporate Trust Administration SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at all times be one Trustee which shall act as Property Trustee for so long as this Declaration is required to qualify as an Indenture under the Trust Indenture Act, which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as a Property Trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Capital Securities Guarantee and the Indenture shall be deemed to be specifically described in this Declaration and the Indenture for purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. 32 38 (e) The initial Property Trustee shall be: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attn: Corporate Trust Administration SECTION 5.4 CERTAIN QUALIFICATIONS OF ADMINISTRATIVE TRUSTEES AND DELAWARE TRUSTEE GENERALLY. Each Administrative Trustee and the Delaware Trustee (unless the Property Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 5.5 ADMINISTRATIVE TRUSTEES. The initial Administrative Trustees shall be: William J. Wheeler William H. Nugent Janet Morgan (a) Except as otherwise expressly set forth in this Declaration and except if a meeting of the Administrative Trustees is called with respect to any matter over which the Administrative Trustees have power to act, any power of the Administrative Trustees may be exercised by, or with the consent of, any one such Administrative Trustee. (b) Except as otherwise required by applicable law, any Administrative Trustee is authorized to execute on behalf of the Trust any documents which the Administrative Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6. SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES. (a) Subject to Section 5.6(b), Trustees may be appointed or removed with or without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and 33 39 (ii) after the issuance of any Securities, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.6(a) until a Successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.3 has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Administrative Trustees and the Sponsor; and (ii) The Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Delaware Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Administrative Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until such Trustee's successor shall have been appointed or until such Trustee's death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Administrative Trustee, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective: (A) until a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Administrative Trustee, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. 34 40 (d) The Holders of the Common Securities shall use all reasonable efforts to promptly appoint a Successor Delaware Trustee or Successor Property Trustee, as the case may be, if the Property Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation, the resigning Property Trustee or Delaware Trustee, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. (f) No Property Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Property Trustee or Successor Delaware Trustee, as the case may be. (g) At the time of resignation or removal of the Property Trustee or the Delaware Trustee, the Sponsor shall pay to such Trustee any amounts that may be owed to such Trustee pursuant to the Indenture. SECTION 5.7 VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Administrative Trustees or, if there are more than two Administrative Trustees, a majority of the Administrative Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8 EFFECT OF VACANCIES. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy among the Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 5.6, the Administrative Trustees in office, regardless of their number, shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Declaration. 35 41 SECTION 5.9 MEETINGS. If there is more than one Administrative Trustee, meetings of the Administrative Trustees shall be held from time to time upon the call of any Administrative Trustee. Regular meetings of the Administrative Trustees may be held at a time and place fixed by resolution of the Administrative Trustees. Notice of any in-person meetings of the Administrative Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Administrative Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of an Administrative Trustee at a meeting shall constitute a waiver of notice of such meeting except where an Administrative Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Administrative Trustees may be taken at (i) a meeting by vote of a majority of the Administrative Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or (ii) without a meeting and without prior notice by the unanimous written consent of the Administrative Trustees. In the event there is only one Administrative Trustee, any and all action of such Administrative Trustee shall be evidenced by a written consent of such Administrative Trustee. SECTION 5.10 DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents that the Administrative Trustees have power and authority to cause the Trust to execute pursuant to Section 3.6, including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) the Administrative Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. 36 42 SECTION 5.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Property Trustee or the Delaware Trustee, as the case may be, may be merged or converted or with which either may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Property Trustee or the Delaware Trustee, as the case may be, shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Property Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Property Trustee or the Delaware Trustee, as the case may be, hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE VI. DISTRIBUTIONS SECTION 6.1 DISTRIBUTIONS. Holders shall receive Distributions (as defined herein) in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Capital Securities and the Common Securities in accordance with the preferences set forth in their respective terms attached hereto as Annex I. If and to the extent that the Debenture Issuer makes a payment of interest (including compounded interest), premium and/or principal on the Debentures held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent it has actually received such funds which are available for that purpose, to make a distribution (a "Distribution") of the Payment Amount to Holders. ARTICLE VII. ISSUANCE OF SECURITIES SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES. (a) The Administrative Trustees shall, on behalf of the Trust, issue one class of capital securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Capital Securities") and one class of common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "Common Securities"). The Trust shall issue no securities or other interests in the assets of the Trust other than the Capital Securities and the Common Securities. 37 43 (b) The Certificates shall be signed on behalf of the Trust by an Administrative Trustee. Such signature shall be the manual or facsimile signature of any present or any future Administrative Trustee. In case any Administrative Trustee who shall have signed any of the Securities shall cease to be such Administrative Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the Person who signed such Certificates had not ceased to be such Administrative Trustee; and any Certificate may be signed on behalf of the Trust by such Persons who, at the actual date of execution of such Certificate, shall be the Administrative Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such Person was not such an Administrative Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Administrative Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation of any stock exchange on which Securities may be listed, or to conform to usage. The Capital Securities Certificates shall also be authenticated by the Property Trustee. Such signature shall be an original signature of the Property Trustee. (c) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) Upon issuance of the Securities as provided in this Declaration, subject to Section 10.1(b), the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable undivided beneficial interests in the assets of the Trust. (e) Every Person, by virtue of having become a Holder or a Capital Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. SECTION 7.2 PAYING AGENT/REGISTRAR. In the event that the Capital Securities are not in book-entry only form, the Trust shall maintain an office or agency where the Capital Securities may be presented for payment ("Paying Agent"), and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. The Administrative Trustee on behalf of the Trust may appoint the Paying Agent and may appoint one or more additional paying agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent. The Administrative Trustee may change any Paying Agent without prior notice to 38 44 any Holder. The Administrative Trustee shall notify the Property Trustee of the name and address of any Paying Agent not a party to this Declaration. If the Administrative Trustee fails to appoint or maintain another entity as Paying Agent, the Property Trustee shall act as such. The Administrative Trustee or any of its Affiliates (including the Sponsor) may act as Paying Agent. The Property Trustee at its Corporate Trust Office shall initially act as Paying Agent for the Capital Securities and the Common Securities. The Trust shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Capital Securities may be presented for registration of transfer ("Registrar"). The Registrar shall keep a register of the Capital Securities and of their transfer. The Administrative Trustee may appoint the Registrar and the Paying Agent and may appoint one or more co-registrars and one or more additional paying agents in such other locations as it shall determine. The term "Registrar" includes any additional registrar. The Administrative Trustee may change any Registrar or co-registrar without prior notice to any Holder. The Administrative Trustee shall notify the Property Trustee of the name and address of any Agent not a party to this Declaration. If the Administrative Trustee fails to appoint or maintain another entity as Registrar, the Property Trustee shall act as such. The Administrative Trustee or any of its Affiliates may act as Registrar. The Trust shall act as Registrar for the Common Securities. Notwithstanding Sections 3.6(b)(vi) and 3.6(k), the Trust initially appoints the Property Trustee as Registrar for the Capital Securities and authorizes it to execute and deliver letters, documents and instruments with DTC and other Clearing Agencies relating to the Capital Securities. ARTICLE VIII. TERMINATION OF TRUST SECTION 8.1 DISSOLUTION OF TRUST. (a) The Trust shall dissolve upon the first of the following to occur: (i) upon a Termination Event; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor; or the revocation of the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities, the Sponsor or the Trust; 39 45 (iv) when all the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (v) upon the written consent to dissolve of all of the Administrative Trustees and the Sponsor; or (vi) the expiration of the term of the Trust provided in Section 3.14 of this Declaration. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and upon completion of the winding-up of the Trust, the Administrative Trustees shall file a certificate of cancellation of the certificate of trust of the Trust with the Secretary of State of the State of Delaware. (c) The provisions of Section 4.4 and Article X shall survive the termination of the Trust. ARTICLE IX. TRANSFER OF INTERESTS SECTION 9.1 TRANSFER OF SECURITIES. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. To the fullest extent permitted by law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Capital Securities shall be freely transferable. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such transfer is subject to the condition precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; and (ii) the Trust would be an Investment Company or the transferee would become an Investment Company. 40 46 SECTION 9.2 TRANSFER OF CERTIFICATES. The Registrar shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Registrar shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Property Trustee duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Registrar. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.3 DEEMED SECURITY HOLDERS. The Trustees may treat the Person in whose name any Certificate shall be registered in the register maintained by the Registrar or on the books and records of the Trust as the sole Holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4 BOOK ENTRY INTERESTS. The Capital Securities Certificates, on original issuance, in addition to being issued in the form of one or more definitive, fully registered Capital Securities Certificates (each a "Definitive Capital Securities Certificate") registered initially in the books and records of the Trust in the name of Bank One Trust Company, N.A., as Purchase Contract Agent, will be issued in the form of one or more, fully registered, global Capital Security Certificates (each a "Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificate(s) shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Capital Security Beneficial Owner will receive a definitive Capital Security Certificate representing such Capital Security Beneficial Owner's interests in such Global Certificate(s), except as provided in Section 9.7. Except for the Definitive Capital Security Certificates as specified herein and the definitive, fully registered Capital 41 47 Securities Certificates, if any, that have been issued to the Capital Security Beneficial Owners pursuant to Section 9.7: (a) the provisions of this Section 9.4 shall be in full force and effect; (b) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificate(s) and receiving approvals, votes or consents hereunder) as the Holder of the Capital Securities and the sole holder of the Global Certificate(s) and shall have no obligation to the Capital Security Beneficial Owners; (c) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (d) the rights of the Capital Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Capital Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants to receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants; provided, that, solely for the purposes of determining whether the Holders of the requisite amount of Capital Securities have voted on any matter provided for in this Declaration, so long as Definitive Capital Security Certificates have not been issued, the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Capital Security Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. SECTION 9.5 NOTICES TO CLEARING AGENCY. Whenever a notice or other communication to the Capital Security Holders is required under this Declaration, unless and until definitive fully registered Capital Security Certificates shall have been issued to the Capital Security Beneficial Owners pursuant to Section 9.7 or otherwise, the Trustees shall give all such notices and communications specified herein to be given to the Capital Security Holders to the Clearing Agency, and the Trustees shall have no notice obligations to the Capital Security Beneficial Owners. 42 48 SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities, the Administrative Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Capital Securities. SECTION 9.7 DEFINITIVE CAPITAL SECURITY CERTIFICATES. If: (a) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Capital Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.6; or (b) the Administrative Trustees elect after consultation with the Sponsor to terminate the book-entry system through the Clearing Agency with respect to the Capital Securities, then: (c) definitive fully registered Capital Security Certificates shall be prepared by the Administrative Trustees on behalf of the Trust with respect to such Capital Securities; and (d) upon surrender of the Global Certificate(s) by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees on behalf of the Trust shall cause definitive fully registered Capital Securities Certificates to be delivered to Capital Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, said instructions of the Clearing Agency. The definitive fully registered Capital Security Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Administrative Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Capital Securities may be listed, or to conform to usage. 43 49 SECTION 9.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If: (a) any mutilated Certificate should be surrendered to the Administrative Trustees, or if the Administrative Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Administrative Trustees, the Property Trustee and any Registrar such security or indemnity as may be required by them to keep each of them and the Trust harmless, then, in the absence of notice that such Certificate shall have been acquired by a protected purchaser, any Administrative Trustee on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.8, the Administrative Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X. LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1 LIABILITY. (a) Except as expressly set forth in this Declaration, the Debentures, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities, which shall be made solely from assets of the Trust; or (ii) required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Capital Securities shall be entitled to the same limitation of personal liability extended to 44 50 stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence, bad faith or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3 FIDUCIARY DUTY. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust, any other Indemnified Person or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Person and an Indemnified Person; or 45 51 (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "sole discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4 [Intentionally Deleted.] SECTION 10.5 OUTSIDE BUSINESSES. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee (subject to Section 5.3(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a 46 52 character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. The Sponsor agrees: (1) to pay to the Property Trustee and Delaware Trustee from time to time such compensation as the Sponsor and the Property Trustee and Delaware Trustee shall from time to time agree in writing for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Property Trustee and the Delaware Trustee upon request for all reasonable expenses, disbursements and advances incurred or made by the Property Trustee or Delaware Trustee in accordance with any provision of this Declaration (including the compensation and the expenses and disbursements of agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith. The provisions of this Section shall survive the termination of this Declaration, the dissolution of the Trust and the resignation or removal of the Property Trustee or Delaware Trustee. ARTICLE XI. ACCOUNTING SECTION 11.1 FISCAL YEAR. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2 CERTAIN ACCOUNTING MATTERS. (a) At all times during the existence of the Trust, the Trust shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained 47 53 on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Administrative Trustees. (b) The Trust shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrative Trustee(s) on behalf of the Trust shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (c) The Administrative Trustees on behalf of the Trust shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Trust with any state or local taxing authority. SECTION 11.3 BANKING. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Administrative Trustees; provided, however, that the Property Trustee shall designate the signatories for the Property Trustee Account. SECTION 11.4 WITHHOLDING. The Administrative Trustees on behalf of the Trust shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrative Trustees on behalf of the Trust shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit 48 54 amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE XII. AMENDMENTS AND MEETINGS SECTION 12.1 AMENDMENTS. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by the Administrative Trustees (or, if there are more than two Administrative Trustees, a majority of the Administrative Trustees); and (i) if the amendment affects the rights, powers, duties, obligations or immunities of the Property Trustee, also by the Property Trustee; and (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, also by the Delaware Trustee; (b) no amendment shall be made: (i) unless, in the case of any proposed amendment, the Property Trustee shall have first received; (A) an Officer's Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (ii) to the extent the result of such amendment would be to: (A) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; 49 55 (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (c) at such time after the Trust has issued any Securities that remain outstanding, any amendment that would materially and adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (d) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities; (e) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; (f) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and (g) notwithstanding Section 12.1(c), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; (iv) to conform to any change in the Investment Company Act or the rules and regulations promulgated thereunder or any written change in interpretation or application of such act or such rules or regulations by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the right, preferences or privileges of the Holders; (v) to modify, eliminate and add to any provision of the Declaration to such extent as may be necessary; and 50 56 (vi) cause the Trust to continue to be classified for United States federal income tax purposes as a grantor trust. SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrative Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading. The Administrative Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Administrative Trustees one or more requests to call a meeting in writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration, the terms of the Securities or the rules of any stock exchange on which the Capital Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Administrative Trustees may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a 51 57 meeting shall be returned to the Trust within the time specified by the Administrative Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Securities shall be conducted by the Administrative Trustees or by such other Person that the Administrative Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Capital Securities are then listed or traded otherwise provides, the Administrative Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII. REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE. The Trustee that acts as initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee, that: 52 58 (a) the Property Trustee is a banking corporation, a national banking association or a bank with trust powers, duly organized, validly existing and in good standing under the laws of the United States of America or any State of the United States, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; (b) the Property Trustee satisfies the requirements set forth in Section 5.3(a); (c) the execution, delivery and performance by the Property Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee, and it constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (d) the execution, delivery and performance of the Declaration by the Property Trustee does not conflict with or constitute a breach of the Articles of Organization or By-laws of the Property Trustee; and (e) no consent, approval or authorization of, or registration with or notice to, any New York State or Federal banking authority is required for the execution, delivery or performance by the Property Trustee, of the Declaration. SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee, that: (a) the Delaware Trustee is a banking corporation or national banking association, duly organized, validly existing and in good standing under the laws of the State of Delaware or the United States, as the case may be, with power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; 53 59 (b) the execution, delivery and performance by the Delaware Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Delaware Trustee. The Declaration has been duly executed and delivered by the Delaware Trustee, and it constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) no consent, approval or authorization of, or registration with or notice to, any State of Delaware or Federal banking authority is required for the execution, delivery or performance by the Delaware Trustee of the Declaration; (d) the execution, delivery and performance of the Declaration by the Delaware Trustee does not conflict with or constitute a breach of the Articles of Organization or By-laws of the Delaware Trustee; and (e) the Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. ARTICLE XIV. MISCELLANEOUS SECTION 14.1 NOTICES. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered by first class mail, telecopied or sent by overnight courier as follows: (a) if given to the Trust, for purposes of the Delaware Business Trust Act in care of the Delaware Trustee at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): The Bank of New York (Delaware) White Clay Center, Route 273 Newark, Delaware 19711 Attn: Corporate Trust Administration 54 60 with a copy to: MetLife, Inc. One Madison Avenue New York, New York 10010 Attn: Treasurer's Office (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): The Bank of New York (Delaware) White Clay Center, Route 273 Newark, Delaware 19711 Attn: Corporate Trust Administration with a copy to: The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Attn: Corporate Trust Administration (c) if given to the Property Trustee, at its Corporate Trust Office to the attention of Corporate Trust Administration (or such other address as the Property Trustee may give notice of to the Holders of the Securities): The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Attn: Corporate Trust Administration (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): MetLife, Inc. One Madison Avenue New York, New York 10010 Attn: Treasurer (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice 55 61 was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.2 GOVERNING LAW. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.3 INTENTION OF THE PARTIES. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4 HEADINGS. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5 SUCCESSORS AND ASSIGNS. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether or not so expressed. SECTION 14.6 PARTIAL ENFORCEABILITY. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7 COUNTERPARTS. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 56 62 SECTION 14.8 CUSIP NUMBERS. The Trust in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustees shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Administrative Trustees will promptly notify the Property Trustee of any change in the "CUSIP" numbers. 57 63 IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. ------------------------------------------------- William J. Wheeler, as Administrative Trustee of the Trust ------------------------------------------------- William H. Nugent, as Administrative Trustee of the Trust ------------------------------------------------- Janet Morgan, as Administrative Trustee of the Trust THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: ---------------------------------------------- Name: Title: THE BANK OF NEW YORK, as Property Trustee By: ---------------------------------------------- Name: Title: METLIFE, INC. as Sponsor By: ---------------------------------------------- Name: Title: 64 ANNEX I TERMS AND CONDITIONS OF ___% CAPITAL SECURITIES ___% COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of April __, 2000 (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration or, if not defined in the Declaration, as defined in the Prospectus referred to below): (1) Designation and Number. (a) Capital Securities. _________________Capital Securities of the Trust, with an aggregate liquidation amount with respect to the assets of the Trust of _____ million Dollars ($____________________) and a liquidation amount with respect to the assets of the Trust of $50 per Capital Security, are hereby designated for the purposes of identification only as "_______% Capital Securities" (the "Capital Securities"). The Capital Security Certificates evidencing the Capital Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by applicable law or the rules of any stock exchange on which the Capital Securities are listed or to conform to ordinary usage, custom or practice. (b) Common Securities. Common Securities of the Trust, with an aggregate liquidation amount with respect to the assets of the Trust of ___ million Dollars ($__________) and a liquidation amount with respect to the assets of the Trust of $50 per Common Security, are hereby designated for the purposes of identification only as "________% Common Securities" (the "Common Securities"). The Common Security Certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by applicable law or to conform to ordinary usage, custom or practice. (2) Distributions. (a) Distributions payable on each Security will be fixed initially at a rate per annum of __% (the "Coupon Rate") of the stated liquidation amount of $50 per Security I-1 65 through and including February 15, 2003, and at the Reset Rate thereafter, such rates also being the rates of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears will bear interest thereon compounded quarterly at the Coupon Rate through and including February 15, 2003, and at the Reset Rate thereafter (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions, any such interest payable and any additional Distributions accrued during a Deferral Period (as defined below) unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has received funds therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year consisting of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed in such 90-day quarter based on 30-day months. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding five years (each a "Deferral Period") and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with additional Distributions thereon (to the extent permitted by applicable law) at the Coupon Rate through and including February 15, 2003, and at the Reset Rate thereafter, compounded quarterly during any such Deferral Period. Prior to the termination of any such Deferral Period, the Sponsor may further extend such Deferral Period; provided that such Deferral Period together with all such previous and further deferrals thereof may not exceed five years or extend beyond the maturity of the Debentures under the Indenture. Payments of deferred and additional Distributions will be payable on an Interest Payment Date (as defined in the Indenture) elected by the Sponsor to Holders as they appear on the books and records of the Trust on the record date fixed for such Interest Payment Date. Upon the termination of any Deferral Period and the payment of all amounts then due, the Sponsor may commence a new Deferral Period, subject to the above requirements. (b) Distributions on the Securities will be cumulative, will accrue from April __, 2000, and will be payable (subject to Section 2(a)) quarterly in arrears, on February 15, May 15, August 15, and November 15 of each year, commencing on August 15, 2000, except as otherwise described below. (c) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust at the close of business on the Business Day immediately preceding each of the relevant payment dates on the Securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each such payment in respect of the Capital Securities will be made as described under the heading "Description of the Units--Description of the Capital Securities--Book-Entry Only I-2 66 Issuance" in the Prospectus dated April __, 2000 (the "Prospectus") of the Trust relating to the Registration Statement on Form S-1 (file nos. 333-32074 and 333-32074-01) of the Sponsor and the Trust. The relevant record dates for the Common Securities shall be the same record date as for the Capital Securities. If the Capital Securities shall not continue to remain in book-entry only form or are not in book-entry only form at issuance, the relevant record dates for the Capital Securities shall conform to the rules of any securities exchange on which the Capital Securities are listed and, if none, as shall be selected by the Administrative Trustees, which dates shall be at least more than one, but less than 60 Business Days before the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, will cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. So long as the Holder of any Capital Securities is the Collateral Agent, the payment of Distributions on such Capital Securities held by the Collateral Agent will be made at such place and to such account as may be designated by the Collateral Agent. (d) On the Remarketing Date and any Subsequent Remarketing Date, the Reset Agent will attempt to establish the Reset Rate as of such date (which Reset Rate will be in effect from and after February 16, 2003). By approximately 4:30 p.m., New York City time, on the Remarketing Date and any Subsequent Remarketing Date, provided that the Reset Agent has successfully established a Reset Rate on such date, the Reset Agent shall advise, by telephone the Depositary, the Property Trustee, the Purchase Contract Agent, the Debenture Trustee and the Sponsor of the Reset Rate determined in the reset. The Sponsor will cause a notice of the Reset Rate to be published on the second Business Day following the Remarketing Date and any such Subsequent Remarketing Date in a daily newspaper in the English language of general circulation in The City of New York, which is expected to be The Wall Street Journal. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. I-3 67 (3) Liquidation Distribution Upon Dissolution. In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Securities on the date of the dissolution will be entitled to receive out of the assets of the Trust, after satisfaction (whether by payment or reasonable provision for payment) of liabilities to creditors of the Trust, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Securities, with an interest rate equal to the Coupon Rate through and including February 15, 2003, and the Reset Rate thereafter, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on such Securities and which shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities (such amount being "Liquidation Distribution"). If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. (4) Voting Rights - Capital Securities. (a) Except as provided under Sections 4(b) and 6 and as otherwise required by law and the Declaration, the Holders of the Capital Securities will have no voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Capital Securities, voting separately as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waiving any past default and its consequences that is waivable under the Indenture, (iii) exercising any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, or (iv) consenting to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required, provided, however, that, where a consent or action under the Indenture specifically would require the consent or act of the Holders of greater than a majority of the holders in principal amount of Debentures affected thereby (a "Super Majority"), the Property Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Capital Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The Property Trustee shall not revoke any action previously I-4 68 authorized or approved by a vote of the Holders of the Capital Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Debenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Capital Securities under this paragraph unless the Property Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Debentures after a Holder of Capital Securities has made a written request, such Holder of Capital Securities may, to the fullest extent permitted by applicable law, institute a legal proceeding directly against the Debenture Issuer to enforce the Property Trustee's rights under the Debentures without first instituting a legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable, then a Holder of Capital Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Capital Securities of such Holder on or after the respective due date specified in the Debentures. Except as provided in the preceding sentence, the Holders of Capital Securities shall not exercise directly any other remedy available to the holders of the Debentures. Any approval or direction of Holders of Capital Securities may be given at a separate meeting of Holders of Capital Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Capital Securities are entitled to vote to be mailed to each Holder of record of Capital Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of the Capital Securities will be required for the Trust to repay and cancel Capital Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Capital Securities are entitled to vote or consent under any of the circumstances described above, any of the Capital Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. (5) Voting Rights - Common Securities. I-5 69 (a) Except as provided under Sections 5(b), 5(c) and 6 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration and only after any Event of Default with respect to the Capital Securities has been cured, waived, or otherwise eliminated the Property Trustee shall not (i) direct the time, method, and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, without in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of Common Securities, provided that, where a consent under the Indenture specifically would require the consent of the Holders of a Super Majority, the Property Trustee may only give such consent at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Pursuant to this Section 5(c), the Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Capital Securities. The Property Trustee shall not take any of the foregoing actions under this paragraph unless the Property Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may, to the fullest extent permitted by law, institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrative Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. I-6 70 No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. (6) Amendments to Declaration and Indenture. (a) In addition to any requirements under Section 12.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Administrative Trustees otherwise propose to effect, (i) any action that would materially adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Securities as a class will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in liquidation amount of the Securities, voting together as a single class; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Capital Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities. (b) In the event the consent of the Property Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination on the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture specifically would require a Super Majority, the Property Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities which the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that the Property Trustee shall not take any action in accordance with the directions of the Holders of the Securities under Section 6(a) or this Section 6(b) unless (i) the Property Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action or (ii) such action would not reduce or otherwise adversely affect the powers of the Property Trustee or cause the Trust to be deemed an "investment company" which is required to be registered under the Investment Company Act. (7) Redemption At Maturity of the Debentures. I-7 71 Upon the redemption of the Debentures in whole (but not in part), at maturity, the proceeds from such redemption shall, after satisfaction of liabilities to creditors, be simultaneously applied to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed at a redemption price of $50 per Security plus an amount equal to accrued and unpaid Distributions thereon at the date of the repayment, payable in cash. (8) Pro Rata. A reference in these terms of the Securities to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Declaration has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Capital Securities pro rata according to the aggregate liquidation amount of Capital Securities held by the relevant Holder relative to the aggregate liquidation amount of all Capital Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Capital Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. (9) Ranking. The Capital Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default occurs and is continuing under the Indenture in respect of the Debentures held by the Property Trustee, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Capital Securities. (10) Acceptance of Securities Guarantee and Indenture. Each Holder of Capital Securities and Common Securities by the acceptance thereof, agrees to the provisions of the Capital Securities Guarantee and the Common Securities Guarantee, respectively. (11) No Preemptive Rights. The Holders of the Securities shall have no preemptive or similar rights to subscribe for any additional Securities. I-8 72 (12) Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee or the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. Capitalized terms used but not otherwise defined in this Annex I shall have the meanings assigned thereto in the Declaration. I-9 73 EXHIBIT A-1 FORM OF CAPITAL SECURITY CERTIFICATE [IF THE CAPITAL SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This Capital Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depositary") or a nominee of the Depositary. This Capital Security is exchangeable for Capital Securities registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Declaration and no transfer of this Capital Security (other than a transfer of this Capital Security as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. Unless this Capital Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the Trust or its agent for registration of transfer, exchange or payment, and any Capital Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] Certificate Number____________ Number of Capital Securities___________ CUSIP NO. 591562301 A1-1 74 Certificate Evidencing Capital Securities of MetLife Capital Trust I ___% Capital Securities (liquidation amount $50 per Capital Security) MetLife Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that____________ ______ (the "Holder") is the registered owner of ____________________ capital securities of the Trust representing preferred undivided beneficial interests in the assets of the Trust designated as the ___% Capital Securities (liquidation amount $50 per capital security) (the "Capital Securities"). The Capital Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Capital Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of April __, 2000, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Capital Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Capital Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Capital Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this certificate or a beneficial interest in this certificate, the Holder and the Capital Security Beneficial Owner agree to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Capital Securities as evidence of indirect beneficial ownership in the Debentures. A1-2 75 IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of --------, ----. METLIFE CAPITAL TRUST I By: ---------------------------------------- Name: Title: Administrative Trustee PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Capital Securities Certificates referred to in the within-mentioned Declaration. THE BANK OF NEW YORK Property Trustee By: ---------------------------------------- Name: Title: A1-3 76 [FORM OF REVERSE OF SECURITY] Distributions payable on each Capital Security will be fixed at a rate per annum of ___% (the "Coupon Rate") of the stated liquidation amount of $50 per Capital Security through and including February 15, 2003, and at the Reset Rate thereafter. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate through and including February 15, 2003, and at the Reset Rate thereafter. The term "Distributions" as used herein includes such cash distributions, any such interest payable and any additional Distributions accrued during a Deferral Period (as defined below) unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has received funds therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year consisting of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed in such 90-day quarter based on 30-day months. The Sponsor has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding five years (each a "Deferral Period") and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with additional Distributions thereon (to the extent permitted by applicable law) at the Coupon Rate through and including February 15, 2003, and at the Reset Rate thereafter, compounded quarterly during any such Deferral Period. Prior to the termination of any such Deferral Period, the Sponsor may further extend such Deferral Period; provided that such Deferral Period together with all such previous and further deferrals thereof may not exceed five years or extend beyond the maturity of the Debentures under the Indenture. Payments of deferred and additional Distributions will be payable on an Interest Payment Date (as defined in the Indenture) elected by the Sponsor to Holders as they appear on the books and records of the Trust on the record date fixed for such Interest Payment Date. Upon the termination of any Deferral Period and the payment of all amounts then due, the Sponsor may commence a new Deferral Period, subject to the above requirements. Except as otherwise described in the Declaration, Distributions on the Capital Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears, on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2000, to holders of record, if in book-entry only A1-4 77 form, one Business Day prior to such payment date, which payment dates shall correspond to the interest payment dates on the Debentures. In the event that the Capital Securities are not in book-entry form, the Administrative Trustees will have the right to select relevant record dates, which will be more than one Business Day but less than 60 Business Days prior to the relevant payment dates. A1-5 78 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Capital Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Dated: Signature: Signature Guarantee: (Sign exactly as your name appears on the other side of this Capital Security Certificate) A1-6 79 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE THE COMMON SECURITIES MAY ONLY BE TRANSFERRED BY THE DEBENTURE ISSUER AND ANY RELATED PARTY TO THE DEBENTURE ISSUER OR A RELATED PARTY OF THE DEBENTURE ISSUER; PROVIDED THAT, ANY SUCH TRANSFER IS SUBJECT TO THE CONDITION PRECEDENT THAT THE TRANSFEROR OBTAIN THE WRITTEN OPINION OF NATIONALLY RECOGNIZED INDEPENDENT COUNSEL EXPERIENCED IN SUCH MATTERS THAT SUCH TRANSFER WOULD NOT CAUSE MORE THAN AN INSUBSTANTIAL RISK THAT: (a) THE TRUST WOULD NOT BE CLASSIFIED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AS A GRANTOR TRUST; AND (b) THE TRUST WOULD BE AN INVESTMENT COMPANY OR THE TRANSFEREE WOULD BECOME AN INVESTMENT COMPANY. Certificate Number____________ Number of Capital Securities_____________ CUSIP NO.______________ Certificate Evidencing Common Securities of MetLife Capital Trust I ___% Common Securities (liquidation amount $50 per Common Security) MetLife Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that MetLife, Inc. (the "Holder") is the registered owner of common securities of the Trust representing common undivided beneficial interests in the assets of the Trust designated as the ___% Common Securities A2-1 80 (liquidation amount $50 per common security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of April __, 2000, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to a Holder without charge upon written request to the Sponsor at its principal place of business. Upon receipt of this certificate, the Sponsor is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. A2-2 81 IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of -------------, ----. METLIFE CAPITAL TRUST I By: ------------------------------------- Name: Title: Administrative Trustee A2-3 82 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of ___% (the "Coupon Rate") of the stated liquidation amount of $50 per Common Security through and including February 15, 2003, and at the Reset Rate thereafter. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate until February 15, 2003, and at the Reset Rate thereafter. The term "Distributions" as used herein includes such cash distributions and any such interest payable and any additional Distributions accrued during a Deferral Period (as defined below) unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. The Sponsor has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding five years (each a "Deferral Period") and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with additional Distributions thereon (to the extent permitted by applicable law) at the Coupon Rate through and including February 15, 2003, and at the Reset Rate thereafter, compounded quarterly during any such Deferral Period. Prior to the termination of any such Deferral Period, the Sponsor may further extend such Deferral Period; provided that such Deferral Period together with all such previous and further deferrals thereof may not exceed five years or extend beyond the maturity of the Debentures under the Indenture. Payments of deferred and additional Distributions will be payable on an Interest Payment Date (as defined in the Indenture) elected by the Sponsor to Holders as they appear on the books and records of the Trust on the record date fixed for such Interest Payment Date. Upon the termination of any Deferral Period and the payment of all amounts then due, the Sponsor may commence a new Deferral Period, subject to the above requirements. Except as otherwise described in the Declaration, distributions on the Common Securities will be cumulative, will accrue from the date of original issuance and will be payable quarterly in arrears, on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2000, to Holders of record one Business Day prior to such payment dates, which payment dates shall correspond to the interest payment dates on the Debentures. A2-4 83 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Dated: Signature: Signature Guarantee: (Sign exactly as your name appears on the other side of this Common Security Certificate) A2-5 84 EXHIBIT B SPECIMEN OF DEBENTURE B-1 EX-4.6 5 FORM OF CAPITAL SECURITIES GUARANTEE AGREEMENT 1 Exhibit 4.6 CAPITAL SECURITIES GUARANTEE AGREEMENT MetLife Capital Trust I Dated as of April __, 2000 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND INTERPRETATIONS...............................................2 SECTION 1.1 Definitions and Interpretation................................................2 ARTICLE II TRUST INDENTURE ACT...........................................................6 SECTION 2.1 Trust Indenture Act: Application..............................................6 SECTION 2.2 List of Holders of Securities.................................................6 SECTION 2.3 Reports by the Capital Securities Guarantee Trustee...........................6 SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee......................7 SECTION 2.5 Evidence of Compliance with Conditions Precedent..............................7 SECTION 2.6 Events of Default; Waiver.....................................................7 SECTION 2.7 Event of Default; Notice......................................................7 SECTION 2.8 Conflicting Interests.........................................................8 ARTICLE III POWERS, DUTIES AND RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE........................................................................8 SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee.................8 SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee.......................10 SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee........................12 ARTICLE IV CAPITAL SECURITIES GUARANTEE TRUSTEE....................................................13 SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility............................13 SECTION 4.2 Appointment, Removal and Resignation of Capital Securities Guarantee Trustees...........................................................13 ARTICLE V GUARANTEE...............................................................................14 SECTION 5.1 Guarantee....................................................................14 SECTION 5.2 Waiver of Notice and Demand..................................................15 SECTION 5.3 Obligations Not Affected.....................................................15 SECTION 5.4 Rights of Holders............................................................16 SECTION 5.5 Guarantee of Payment.........................................................16 SECTION 5.6 Subrogation..................................................................16 SECTION 5.7 Independent Obligations......................................................17 ARTICLE VI [Intentionally Deleted].................................................................17 ARTICLE VII TERMINATION.............................................................................17
i 3 ARTICLE VIII INDEMNIFICATION..............................................................17 SECTION 8.1 Exculpation..................................................................17 SECTION 8.2 Indemnification..............................................................18 ARTICLE IX MISCELLANEOUS...........................................................................18 SECTION 9.1 Successors and Assigns.......................................................18 SECTION 9.2 Amendments...................................................................19 SECTION 9.3 Notices......................................................................19 SECTION 9.4 Benefit......................................................................20 SECTION 9.5 Governing Law................................................................20
ii 4 CAPITAL SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "Capital Securities Guarantee"), dated as of April __, 2000, is executed and delivered by MetLife, Inc., a Delaware corporation (the "Guarantor"), and The Bank of New York, as trustee (the "Capital Securities Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Capital Securities (as defined herein) of MetLife Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of April __, 2000, among the trustees of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 20,000,000 capital securities (23,000,000 if the underwriters' overallotment option to purchase additional capital securities is exercised), liquidation amount $50 per capital security, having an aggregate liquidation amount of $1,000,000,000 ($1,150,000,000 if the underwriters' overallotment option to purchase additional capital securities is exercised), designated the ___% Capital Securities (the "Capital Securities"); WHEREAS, as incentive for the Holders to purchase the Capital Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Capital Securities Guarantee, to pay on a senior basis to the Holders the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Common Securities Guarantee") in substantially identical terms to this Capital Securities Guarantee for the benefit of the holders of the Common Securities (as defined herein), except that if an event of default under the Indenture (as defined herein), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee are subordinated to the rights of Holders to receive Guarantee Payments under this Capital Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Capital Securities Guarantee for the benefit of the Holders. 5 ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretation In this Capital Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Capital Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Capital Securities Guarantee has the same meaning throughout; (c) all reference to "the Capital Securities Guarantee" or "this Capital Securities Guarantee" are to this Capital Securities Guarantee as modified, supplemented or amended from time to time; (d) all references in this Capital Securities Guarantee to Articles and Sections are to Articles and Sections of this Capital Securities Guarantee, unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Capital Securities Guarantee, unless otherwise defined in this Capital Securities Guarantee or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given in the Indenture. "Authorized Officer" of a Person means any Person that is authorized to bind such Person. "Business Day" means any day that is not a Saturday, Sunday or day on which banking institutions and trust companies in The City of New York are authorized or required by law, regulation or executive order to close. "Capital Securities Guarantee Trustee" means The Bank of New York, until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such 2 6 appointment pursuant to the terms of this Capital Securities Guarantee, and thereafter means each such Successor Capital Securities Guarantee Trustee. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer. "Corporate Trust Office" means the office of the Capital Securities Guarantee Trustee at which the corporate trust business of the Capital Securities Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Administration. "Covered Person" means any Holder or beneficial owner of Capital Securities. "Debenture Issuer" means the Guarantor in its capacity as the issuer of the Debentures. "Debentures" means the series of debentures of the Guarantor designated the ___% Debentures due May 15, 2005 held by the Property Trustee (as defined in the Declaration) of the Issuer. "Direction" by a person means a written direction signed: (a) if the Person is a natural person, by that Person; or (b) in any other case in the name of such Person by one or more Authorized Officers of that Person. "Distribution" has the same meaning as given in the Declaration. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Capital Securities Guarantee. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Capital Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Capital Securities to the extent the Issuer shall have funds available therefor, and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders in exchange for Capital Securities as provided in the Declaration), the 3 7 lesser of (a) the aggregate of the liquidation amount of such Capital Securities plus all accrued and unpaid Distributions on such Capital Securities to and including the date of payment, to the extent the Issuer shall have funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (amounts in clause (a) or (b), the "Liquidation Distribution"). If an event of default under the Indenture has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders to receive Guarantee Payments. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Capital Securities; provided, however, that, in determining whether the holders of the requisite percentage of Capital Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Capital Securities Guarantee Trustee including in its individual capacity, any Affiliate of the Capital Securities Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Capital Securities Guarantee Trustee. "Indenture" means the Indenture dated as of April __, 2000, among the Debenture Issuer and The Bank of New York, as trustee, and any indenture supplemental thereto pursuant to which certain debt securities of the Debenture Issuer are to be issued to the Property Trustee of the Issuer. "Majority in liquidation amount of the Capital Securities" means, except as provided by the Trust Indenture Act, a vote by Holders of Capital Securities, voting separately as a class, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on liquidation or otherwise) of all Capital Securities. "Officer's Certificate" means, with respect to any Person, a certificate signed by one Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Capital Securities Guarantee shall include: (a) a statement that the officer signing the Officer's Certificate has read the covenant or condition and the definition relating thereto; 4 8 (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Responsible Officer" means, when used with respect to the Capital Securities Guarantee Trustee, any officer within the corporate trust department of the Capital Securities Guarantee Trustee (or any successor of the Capital Securities Guarantee Trustee), including any vice president, any assistant vice president, any assistant secretary, any assistant treasurer, any trust officer or any other officer of the Capital Securities Guarantee Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Capital Securities Guarantee. "Successor Capital Securities Guarantee Trustee" means a successor Capital Securities Guarantee Trustee possessing the qualifications to act as Capital Securities Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. 5 9 ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act: Application (a) This Capital Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Capital Securities Guarantee and shall, to the extent applicable, be governed by such provisions; and (b) If and to the extent that any provision of this Capital Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2 List of Holders of Securities (a) The Guarantor shall provide the Capital Securities Guarantee Trustee with a list, in such form as the Capital Securities Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such date, (i) within 15 days after each record date for payment of Distributions, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Capital Securities Guarantee Trustee, provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Capital Securities Guarantee Trustee by the Guarantor. The Capital Securities Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Capital Securities Guarantee Trustee shall comply with its obligations under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Capital Securities Guarantee Trustee Within 60 days after [September 1] of each year, commencing [September 1, 2000,] the Capital Securities Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Capital Securities Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. 6 10 SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee The Guarantor shall provide to the Capital Securities Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Capital Securities Guarantee Trustee is for informational purposes only and the Capital Securities Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Capital Securities Guarantee Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 2.5 Evidence of Compliance with Conditions Precedent The Guarantor shall provide to the Capital Securities Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Capital Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officer's Certificate. SECTION 2.6 Events of Default; Waiver The Holders of a Majority in liquidation amount of Capital Securities may, by vote, on behalf of all Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Capital Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 Event of Default; Notice (a) The Capital Securities Guarantee Trustee shall, within 90 days after a Responsible Officer of the Capital Securities Guarantee Trustee obtains actual knowledge of the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all such Events of Default actually known to such Responsible Officer of the Capital Securities Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, the Capital Securities Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Capital Securities Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. 7 11 (b) The Capital Securities Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Capital Securities Guarantee Trustee shall have received written notice thereof, or a Responsible Officer of the Capital Securities Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge thereof. SECTION 2.8 Conflicting Interests The Declaration and the Indenture shall be deemed to be specifically described in this Capital Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee (a) This Capital Securities Guarantee shall be held by the Capital Securities Guarantee Trustee for the benefit of the Holders, and the Capital Securities Guarantee Trustee shall not transfer this Capital Securities Guarantee to any Person except a Holder exercising his or her rights pursuant to Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee on acceptance by such Successor Capital Securities Guarantee Trustee of its appointment to act as Successor Capital Securities Guarantee Trustee. The right, title and interest of the Capital Securities Guarantee Trustee shall automatically vest in any Successor Capital Securities Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Capital Securities Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Capital Securities Guarantee Trustee has occurred and is continuing, the Capital Securities Guarantee Trustee shall enforce this Capital Securities Guarantee for the benefit of the Holders. (c) The Capital Securities Guarantee Trustee, before the occurrence of any Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Capital Securities Guarantee, and no implied covenants or obligations shall be read into this Capital Securities Guarantee against the Capital Securities Guarantee Trustee. In case 8 12 an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall exercise such of the rights and powers vested in it by this Capital Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Capital Securities Guarantee shall be construed to relieve the Capital Securities Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, its own bad faith or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of such Events of Default that may have occurred: (A) the duties and obligations of the Capital Securities Guarantee Trustee shall be determined solely by the express provisions of this Capital Securities Guarantee, and the Capital Securities Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Capital Securities Guarantee, and no implied covenants or obligations shall be read into this Capital Securities Guarantee against the Capital Securities Guarantee Trustee; and (B) in the absence of bad faith on the part of the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Capital Securities Guarantee Trustee and conforming to the requirements of this Capital Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Capital Securities Guarantee Trustee, the Capital Securities Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Capital Securities Guarantee; (ii) the Capital Securities Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Capital Securities Guarantee Trustee, unless it shall be proved that the Capital Securities Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; 9 13 (iii) the Capital Securities Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Capital Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Capital Securities Guarantee Trustee, or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Capital Securities Guarantee; and (iv) no provision of this Capital Securities Guarantee shall require the Capital Securities Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Capital Securities Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Capital Securities Guarantee or if indemnity reasonably satisfactory to the Capital Securities Guarantee Trustee against such risk or liability is not reasonably assured to it. SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee (a) Subject to the provisions of Section 3.1: (i) The Capital Securities Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Capital Securities Guarantee shall be sufficiently evidenced by a Direction or an Officer's Certificate. (iii) Whenever, in the administration of this Capital Securities Guarantee, the Capital Securities Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Capital Securities Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of negligence, bad faith or willful misconduct on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. 10 14 (iv) The Capital Securities Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or reregistration thereof). (v) The Capital Securities Guarantee Trustee may consult with competent legal counsel of its selection, and the advice or written opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Capital Securities Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Capital Securities Guarantee from any court of competent jurisdiction. (vi) The Capital Securities Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Capital Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Capital Securities Guarantee Trustee such security and indemnity, reasonably satisfactory to the Capital Securities Guarantee Trustee, against the reasonable costs, expenses (including reasonable attorneys' fees and reasonable expenses and the expenses of the Capital Securities Guarantee Trustees, agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Capital Securities Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Capital Securities Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Capital Securities Guarantee. (vii) The Capital Securities Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Capital Securities Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Capital Securities Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Capital Securities 11 15 Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Capital Securities Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Capital Securities Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Capital Securities Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Capital Securities Guarantee, both of which shall be conclusively evidenced by the Capital Securities Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Capital Securities Guarantee the Capital Securities Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Capital Securities Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Capital Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (b) No provision of this Capital Securities Guarantee shall be deemed to impose any duty or obligation on the Capital Securities Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Capital Securities Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Capital Securities Guarantee Trustee shall be construed to be a duty. SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Capital Securities Guarantee Trustee does not assume any responsibility for their correctness. The Capital Securities Guarantee Trustee makes no representation as to the validity or sufficiency of this Capital Securities Guarantee. 12 16 ARTICLE IV CAPITAL SECURITIES GUARANTEE TRUSTEE SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility (a) There shall at all times be a Capital Securities Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an Property Trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Capital Securities Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Capital Securities Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Capital Securities Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Capital Securities Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2 Appointment, Removal and Resignation of Capital Securities Guarantee Trustees (a) Subject to Section 4.2(b), the Capital Securities Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Capital Securities Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Capital Securities Guarantee Trustee has 13 17 been appointed and has accepted such appointment by written instrument executed by such Successor Capital Securities Guarantee Trustee and delivered to the Guarantor. (c) The Capital Securities Guarantee Trustee appointed to office shall hold office until a Successor Capital Securities Guarantee Trustee shall have been appointed or until its removal or resignation. The Capital Securities Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Capital Securities Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Capital Securities Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Capital Securities Guarantee Trustee and delivered to the Guarantor and the resigning Capital Securities Guarantee Trustee. (d) If no Successor Capital Securities Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after the Capital Securities Guarantee Trustee has received notice of removal or delivery to the Guarantor of an instrument of resignation, the Capital Securities Guarantee Trustee being removed or resigning, whichever the case may be, may petition any court of competent jurisdiction for appointment of a Successor Capital Securities Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Capital Securities Guarantee Trustee. (e) No Capital Securities Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Capital Securities Guarantee Trustee. (f) Upon termination of this Capital Securities Guarantee or removal or resignation of the Capital Securities Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1 Guarantee The Guarantor irrevocably and unconditionally agrees to pay in full on a senior unsecured basis to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a 14 18 Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.2 Waiver of Notice and Demand The Guarantor hereby waives notice of acceptance of this Capital Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 Obligations Not Affected The obligations, covenants, agreements and duties of the Guarantor under this Capital Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Capital Securities to be performed or observed by the Issuer; (b) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Capital Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (d) any invalidity of, or defect or deficiency in, the Capital Securities; (e) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (f) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. 15 19 There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 Rights of Holders (a) The Holders of a Majority in liquidation amount of the Capital Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Capital Securities Guarantee Trustee in respect of this Capital Securities Guarantee or exercising any trust or power conferred upon the Capital Securities Guarantee Trustee under this Capital Securities Guarantee. (b) If the Capital Securities Guarantee Trustee fails to enforce this Capital Securities Guarantee, any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Capital Securities Guarantee, without first instituting a legal proceeding against the Issuer, the Capital Securities Guarantee Trustee or any other Person. Notwithstanding the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder may directly institute a proceeding against the Guarantor for enforcement of the Capital Security Guarantee for such payment. The Guarantor waives any right or remedy to require that any action on this Capital Securities Guarantee be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. SECTION 5.5 Guarantee of Payment This Capital Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6 Subrogation The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Capital Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Capital Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Capital Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. 16 20 SECTION 5.7 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Capital Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Capital Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 5.3 hereof. ARTICLE VI [Intentionally Deleted] ARTICLE VII TERMINATION This Capital Securities Guarantee shall terminate upon (i) the distribution of the Debentures to all Holders or (ii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Capital Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Capital Securities or under this Capital Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1 Exculpation (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Capital Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Capital Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence, bad faith or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements 17 21 presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders might properly be paid. SECTION 8.2 Indemnification (a) To the fullest extent permitted by applicable law, the Guarantor agrees to indemnify and hold harmless each Indemnified Person from and against any and all loss, damage, claim, liability or expense incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Capital Securities Guarantee and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Capital Securities Guarantee, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage, claim, liability or expense incurred by such Indemnified Person by reason of negligence, bad faith or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, reasonable out-of-pocket expenses (including reasonable legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.2(a). (c) The provisions set forth in this Section 8.2 shall survive the termination of the Capital Securities Guarantee and any resignation or removal of the Capital Securities Guarantee Trustee. ARTICLE IX MISCELLANEOUS SECTION 9.1 Successors and Assigns All guarantees and agreements contained in this Capital Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Capital Securities then outstanding. 18 22 SECTION 9.2 Amendments Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Capital Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation amount of the outstanding Capital Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders apply to the giving of such approval. SECTION 9.3 Notices All notices provided for in this Capital Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered by registered or certified mail, as follows: (a) If given to the Capital Securities Guarantee Trustee, at the Capital Securities Guarantee Trustee's mailing address set forth below (or such other address as the Capital Securities Guarantee Trustee may give notice of to the Holders of the Capital Securities): The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders): MetLife, Inc. One Madison Avenue New York, New York 10010-3690 Attention: Corporate Treasurer with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: James C. Scoville, Esq. (c) If given to any Holder, at the address set forth on the books and records of the Issuer. 19 23 All such notices shall be deemed to have been given when received in person, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4 Benefit This Capital Securities Guarantee is solely for the benefit of the Holders and, subject to Section 3.1(a), is not separately transferable from the Capital Securities. SECTION 9.5 Governing Law THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year first above written. METLIFE, INC. as Guarantor By: Name: Title: THE BANK OF NEW YORK as Capital Securities Guarantee Trustee By: Name: Title: 20 EX-4.8 6 FORM OF PURCHASE CONTRACT AGREEMENT 1 Exhibit 4.8 METLIFE, INC. AND BANK ONE TRUST COMPANY, N.A., AS PURCHASE CONTRACT AGENT PURCHASE CONTRACT AGREEMENT Dated as of April , 2000 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1 Definitions................................................... 1 Section 1.2 Compliance Certificates and Opinions.......................... 12 Section 1.3 Form of Documents Delivered to Agent.......................... 12 Section 1.4 Acts of Holders; Record Dates................................. 13 Section 1.5 Notices....................................................... 14 Section 1.6 Notice to Holders; Waiver..................................... 16 Section 1.7 Effect of Headings and Table of Contents...................... 16 Section 1.8 Successors and Assigns........................................ 16 Section 1.9 Separability Clause........................................... 16 Section 1.10 Benefits of Agreement........................................ 16 Section 1.11 Governing Law................................................ 17 Section 1.12 Legal Holidays............................................... 17 Section 1.13 Counterparts................................................. 17 Section 1.14 Inspection of Agreement...................................... 17 ARTICLE II CERTIFICATE FORMS Section 2.1 Forms of Certificates Generally............................... 17 Section 2.2 Form of Agent's Certificate of Authentication................. 19 ARTICLE III THE UNITS Section 3.1 Title and Terms; Denominations................................ 19 Section 3.2 Rights and Obligations Evidenced by the Certificates.......... 19 Section 3.3 Execution, Authentication, Delivery and Dating................ 20 Section 3.4 Temporary Certificates........................................ 21 Section 3.5 Registration; Registration of Transfer and Exchange........... 21 Section 3.6 Book-Entry Interests.......................................... 23 Section 3.7 Notices to Holders............................................ 23 Section 3.8 Appointment of Successor Clearing Agency...................... 24 Section 3.9 Definitive Certificates....................................... 24 i 3 Section 3.10 Mutilated, Destroyed, Lost and Stolen Certificates........... 24 Section 3.11 Persons Deemed Owners........................................ 25 Section 3.12 Cancellation................................................. 26 Section 3.13 Establishment of Stripped Units.............................. 26 Section 3.14 Reestablishment of Normal Units.............................. 28 Section 3.15 Transfer of Collateral upon Occurrence of Termination Event.. 29 Section 3.16 No Consent to Assumption..................................... 30 ARTICLE IV THE CAPITAL SECURITIES Section 4.1 Payment of Distribution; Rights to Distributions Preserved; Notice............................................. 30 Section 4.2 Notice and Voting............................................. 31 Section 4.3 Distribution of Debentures.................................... 31 ARTICLE V THE PURCHASE CONTRACTS; THE REMARKETING Section 5.1 Purchase of Shares of Common Stock............................ 32 Section 5.2 Payment of Purchase Price; Remarketing........................ 34 Section 5.3 Issuance of Shares of Common Stock............................ 38 Section 5.4 Adjustment of Settlement Rate................................. 39 Section 5.5 Notice of Adjustments and Certain Other Events................ 44 Section 5.6 Termination Event; Notice..................................... 45 Section 5.7 Early Settlement.............................................. 45 Section 5.8 Early Settlement Upon Merger.................................. 47 Section 5.9 Charges and Taxes............................................. 48 Section 5.10 No Fractional Shares......................................... 49 ARTICLE VI REMEDIES Section 6.1 Unconditional Right of Holders to Purchase Common Stock....... 49 Section 6.2 Restoration of Rights and Remedies............................ 49 Section 6.3 Rights and Remedies Cumulative................................ 50 Section 6.4 Delay or Omission Not Waiver.................................. 50 Section 6.5 Undertaking for Costs......................................... 50 Section 6.6 Waiver of Stay or Extension Laws.............................. 50 ii 4 ARTICLE VII THE AGENT Section 7.1 Certain Duties and Responsibilities........................... 51 Section 7.2 Notice of Default............................................. 52 Section 7.3 Certain Rights of Agent....................................... 52 Section 7.4 Not Responsible for Recitals or Issuance of Units............. 53 Section 7.5 May Hold Units................................................ 53 Section 7.6 Money Held in Custody......................................... 53 Section 7.7 Compensation and Reimbursement................................ 53 Section 7.8 Corporate Agent Required; Eligibility......................... 54 Section 7.9 Resignation and Removal; Appointment of Successor............. 54 Section 7.10 Acceptance of Appointment by Successor....................... 55 Section 7.11 Merger, Conversion, Consolidation or Succession to Business.. 56 Section 7.12 Preservation of Information; Communications to Holders....... 56 Section 7.13 No Obligations of Agent...................................... 57 Section 7.14 Tax Compliance............................................... 57 ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.1 Supplemental Agreements Without Consent of Holders............ 57 Section 8.2 Supplemental Agreements with Consent of Holders............... 58 Section 8.3 Execution of Supplemental Agreements.......................... 59 Section 8.4 Effect of Supplemental Agreements............................. 59 Section 8.5 Reference to Supplemental Agreements.......................... 59 ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Except Under Certain Conditions...................... 60 Section 9.2 Rights and Duties of Successor Corporation.................... 60 Section 9.3 Opinion of Counsel Given to Agent............................. 61 iii 5 ARTICLE X COVENANTS Section 10.1 Performance Under Purchase Contracts......................... 61 Section 10.2 Maintenance of Office or Agency.............................. 61 Section 10.3 Company to Reserve Common Stock.............................. 62 Section 10.4 Covenants as to Common Stock................................. 62 Section 10.5 Statements of Officer of the Company as to Default........... 62 EXHIBITS EXHIBIT A Form of Normal Units Certificate EXHIBIT B Form of Stripped Units Certificate EXHIBIT C Instruction from Purchase Contract Agent to Collateral Agent EXHIBIT D Instruction to Purchase Contract Agent EXHIBIT E Form of Remarketing Agreement iv 6 PURCHASE CONTRACT AGREEMENT, dated as of April, 2000, between MetLife, Inc., a Delaware corporation (the "Company"), and Bank One Trust Company, N.A., a national banking association, acting as purchase contract agent for the Holders of Units from time to time (the "Agent"). RECITALS The Company has duly authorized the execution and delivery of this Agreement and the Certificates evidencing the Units. All things necessary to make the Purchase Contracts, when the Certificates are executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Agent, as provided in this Agreement, the valid obligations of the Company, and to constitute this Agreement a valid agreement of the Company, in accordance with its terms, have been done. WITNESSETH: For and in consideration of the premises and the purchase of the Units by the Holders thereof, it is mutually agreed as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; and nouns and pronouns of the masculine gender include the feminine and neuter genders; (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States; (c) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; 7 (d) the following terms have the meanings given to them in the Declaration: (i) Capital Securities Guarantee; (ii) Indenture and (iii) Liquidation Distribution; and (e) the following terms have the meanings given to them in this Section 1.1(e); "Act" when used with respect to any Holder, has the meaning specified in Section 1.4. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "Agent" means the Person named as the "Agent" in the first paragraph of this instrument until a successor Agent shall have become such pursuant to the applicable provisions of this Agreement, and thereafter "Agent" shall mean such Person. "Agent-purchased Treasury Consideration" has the meaning specified in Section 5.2(b)(i). "Agreement" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto entered into pursuant to the applicable provisions hereof. "Applicable Market Value" has the meaning specified in Section 5.1. "Bankruptcy Code" means title 11 of the United States Code, or any other law of the United States that from time to time provides a uniform system of bankruptcy laws. "Beneficial Owner" means, with respect to a Book-Entry Interest, a Person who is the beneficial owner of such Book-Entry Interest as reflected on the books of the Clearing Agency or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Board of Directors" means either the Board of Directors of the Company or the Executive Committee of such Board or any other committee of such Board duly authorized to act generally or in any particular respect for the Board hereunder. "Board Resolution" means (i) a copy of a resolution certified by the Secretary or the Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, (ii) a copy 2 8 of a unanimous written consent of the Board of Directors or (iii) a certificate signed by the authorized officer or officers to whom the Board of Directors has delegated its authority, and in each case, delivered to the Agent. "Book-Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 3.6. "Business Day" means any day that is not a Saturday, Sunday or day on which banking institutions and trust companies in The City of New York or at a place of payment are authorized or required by law, regulation or executive order to close. "Capital Securities" means the -% Capital Securities of the Trust, each having a stated liquidation amount of $50, representing, together with the Common Securities, undivided beneficial interests in the assets of the Trust. "Cash Merger" has the meaning set forth in Section 5.8. "Certificate" means a Normal Units Certificate or a Stripped Units Certificate. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as a depositary for the Units and in whose name, or in the name of a nominee of that organization, shall be registered a Global Certificate and which shall undertake to effect book-entry transfers and pledges of the Units. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Price" has the meaning specified in Section 5.1. "Collateral" has the meaning specified in Section 2.1 of the Pledge Agreement. "Collateral Agent" means The Bank of New York, as Collateral Agent under the Pledge Agreement until a successor Collateral Agent shall have become such pursuant to the applicable provisions of the Pledge Agreement, and thereafter "Collateral Agent" shall mean the Person who is then the Collateral Agent thereunder. "Collateral Substitution" has the meaning specified in Section 3.13. 3 9 "Common Securities" has the meaning specified in Section 7.1 of the Declaration. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provision of this Agreement, and thereafter "Company" shall mean such successor. "Constituent Person" has the meaning specified in Section 5.4(b). "Corporate Trust Office" means the principal corporate trust office of the Agent at which, at any particular time, its corporate trust business shall be administered, which office at the date hereof is located at One North State Street, 9th Floor, Chicago, Illinois 60602, except that for purposes of Section 10.2, such term shall mean the office or agency of the Agent in the Borough of Manhattan, The City of New York, which office at the date hereof is located at 14 Wall Street, 8th Floor, New York, New York 10005. "Coupon Rate" means the percentage rate per annum at which each Debenture will bear interest initially. "Current Market Price" has the meaning specified in Section 5.4(a)(8). "Custodial Agent" means The Bank of New York, as Custodial Agent under the Pledge Agreement until a successor Custodial Agent shall have become such pursuant to the applicable provisions of the Pledge Agreement, and thereafter "Custodial Agent" shall mean the Person who is then the Custodial Agent thereunder. "Debentures" means the series of senior debt securities of the Company designated the -% Debentures due 2005, to be issued under the First Supplemental Indenture, dated as of the date hereof, between the Company and The Bank of New York, as trustee. "Declaration" means the Amended and Restated Declaration of Trust, dated April __, 2000, of MetLife Capital Trust I, among the Company, as the sponsor, the trustees named therein and the holders from time to time of undivided beneficial interests in the assets of the Trust. "Depositary" means, initially, DTC, until another Clearing Agency becomes its successor. 4 10 "DTC" means The Depository Trust Company, the initial Clearing Agency. "Early Settlement" has the meaning specified in Section 5.7(a). "Early Settlement Amount" has the meaning specified in Section 5.7(a). "Early Settlement Date" has the meaning specified in Section 5.7(a). "Early Settlement Rate" has the meaning specified in Section 5.7(b). "Exchange Act" means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder. "Expiration Date" has the meaning specified in Section 1.4. "Expiration Time" has the meaning specified in Section 5.4(a)(6). "Failed Remarketing" has the meaning specified in Section 5.2(b)(ii). "First Supplemental Indenture" means the First Supplemental Indenture, dated as of April __, 2000, between the Company and The Bank of New York, as trustee. "Global Certificate" means a Certificate that evidences all or part of the Units and is registered in the name of a Depositary or a nominee thereof. "Global Capital Security Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Capital Securities specified on such certificate and which is registered in the name of a Clearing Agency or a nominee thereof. "Holder" means the Person in whose name the Unit evidenced by a Normal Units Certificate and/or a Stripped Units Certificate is registered in the related Normal Units Register and/or the Stripped Units Register, as the case may be. "Indenture" means the Indenture, dated as of April __, 2000, between the Company and The Bank of New York, as trustee. "Indenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture and the First Supplemental Indenture, or any successor thereto. 5 11 "Issuer Order" or "Issuer Request" means a written order or request signed in the name of the Company by the Chief Executive Officer, the Chief Financial Officer, the President, any Vice-President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary (or other officer performing similar functions) of the Company and delivered to the Agent. "Merger Early Settlement" has the meaning specified in Section 5.8. "Merger Early Settlement Amount" has the meaning specified in Section 5.8. "Merger Early Settlement Date" has the meaning specified in Section 5.8. "NYSE" has the meaning specified in Section 5.1. "Normal Unit" means the collective rights and obligations of a Holder of a Normal Units Certificate in respect of a Capital Security or the appropriate Treasury Consideration, as the case may be, subject in each case to the Pledge thereof, and the related Purchase Contract. "Normal Units Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Normal Units specified on such certificate, substantially in the form of Exhibit A hereto. "Normal Units Register" and "Normal Units Registrar" have the respective meanings specified in Section 3.5. "Officer's Certificate" means a certificate signed by the Chief Executive Officer, the Chief Financial Officer, the President, any Vice-President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary (or other officer performing similar functions) of the Company and delivered to the Agent. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company or an Affiliate and who shall be reasonably acceptable to the Agent. "Opt-out Securities Treasury Consideration" has meaning specified in Section 5.2(b)(iv). "Outstanding" or "Outstanding Securities" means, as of the date of determination, all Normal Units or Stripped Units evidenced by Certificates theretofore authenticated, executed and delivered under this Agreement, except: 6 12 (i) If a Termination Event has occurred, (A) Stripped Units and (B) Normal Units for which the related Capital Security or the appropriate Treasury Consideration, or a Liquidation Distribution in respect of such Capital Security, as the case may be, has been theretofore deposited with the Agent in trust for the Holders of such Normal Units; (ii) Normal Units and Stripped Units evidenced by Certificates theretofore cancelled by the Agent or delivered to the Agent for cancellation or deemed cancelled pursuant to the provisions of this Agreement; and (iii) Normal Units and Stripped Units evidenced by Certificates in exchange for or in lieu of which other Certificates have been authenticated, executed on behalf of the Holder and delivered pursuant to this Agreement, other than any such Certificate in respect of which there shall have been presented to the Agent proof satisfactory to it that such Certificate is held by a bona fide purchaser in whose hands the Normal Units or Stripped Units evidenced by such Certificate are valid obligations of the Company; provided, that in determining whether the Holders of the requisite number of the Normal Units or Stripped Units have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Normal Units or Stripped Units owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be outstanding, except that, in determining whether the Agent shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Normal Units or Stripped Units which a Responsible Officer of the Agent knows to be so owned shall be so disregarded. Normal Units or Stripped Units so owned which have been pledged in good faith may be regarded as Outstanding Securities if the pledgee establishes to the satisfaction of the Agent the pledgee's right so to act with respect to such Normal Units or Stripped Units and that the pledgee is not the Company or any Affiliate of the Company. "Payment Date" means each February 15, May 15, August 15 and November 15, commencing August 15, 2000. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge" means the pledge under the Pledge Agreement of the Capital Securities, the Treasury Securities or the appropriate Treasury Consideration, in each case constituting a part of the Units, property, cash, securities, financial assets and security 7 13 entitlements of the Collateral Agreement (as defined in the Pledge Agreement), the Debentures delivered to the Collateral Agent upon liquidation of the Trust, and any proceeds of any of the foregoing. "Pledge Agreement" means the Pledge Agreement, dated as of the date hereof, by and among the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Agent, on its own behalf and as attorney-in-fact for the Holders from time to time of the Units. "Pledged Capital Securities" has the meaning set forth in the Pledge Agreement. "Pledged Treasury Consideration" has the meaning set forth in the Pledge Agreement. "Pledged Treasury Securities" has the meaning set forth in the Pledge Agreement. "Predecessor Certificate" means a Predecessor Normal Units Certificate or a Predecessor Stripped Units Certificate. "Predecessor Stripped Units Certificate" of any particular Stripped Units Certificate means every previous Stripped Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Stripped Units evidenced thereby; and, for the purposes of this definition, any Stripped Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Stripped Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Stripped Units Certificate. "Predecessor Normal Units Certificate" of any particular Normal Units Certificate means every previous Normal Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Normal Units evidenced thereby; and, for the purposes of this definition, any Normal Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Normal Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Normal Units Certificate. "Property Trustee" means The Bank of New York, as property trustee under the Declaration, or any successor thereto that is a financial institution unaffiliated with the Company. 8 14 "Purchase Contract," when used with respect to any Unit, means the contract forming a part of such Unit and obligating the Company to sell and the Holder of such Unit to purchase Common Stock on the terms and subject to the conditions set forth in Article Five. "Purchase Contract Settlement Fund" has the meaning specified in Section 5.3. "Purchase Price" has the meaning specified in Section 5.1. "Purchased Shares" has the meaning specified in Section 5.4(a)(6). "Quarterly Payment Date" means each February 15, May 15, August 15 and November 15 commencing August 15, 2000. "Record Date" for the distribution payable on any Payment Date means, as to any Global Certificate, the Business Day next preceding such Payment Date, and as to any other Certificate, a day selected by the Company which shall be more than one Business Day but less than 60 Business Days prior to such Payment Date. "Register" means the Normal Units Register and the Stripped Units Register. "Registrar" means the Normal Units Registrar and the Stripped Units Registrar. "Remarketing Agent" has the meaning specified in Section 5.2(b)(i). "Remarketing Agreement" means the Remarketing Agreement to be entered into by and among the Company, the Trust, the Remarketing Agent and the Agent. "Remarketing Date" means the third business day preceding February 15, 2003. "Remarketing Fee" has the meaning specified in Section 5.2(b)(i). "Remarketing Value" has the meaning specified in Section 5.2(b)(i). "Reorganization Event" has the meaning specified in Section 5.4(b). "Responsible Officer" means, when used with respect to the Agent, any officer within the corporate trust department of the Agent (or any successor of the Agent), including any Vice President, any assistant Vice President, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or any other officer of the Agent who customarily performs functions similar to those performed by the Persons who at 9 15 the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Securities Intermediary" means The Bank of New York, in its capacity as Securities Intermediary under the Pledge Agreement, together with its successors in such capacity. "Separate Capital Securities" has the meaning set forth in the Pledge Agreement. "Settlement Date" means any Early Settlement Date or Merger Early Settlement Date or the Stock Purchase Date. "Settlement Rate" has the meaning specified in Section 5.1. "Stated Amount" means, with respect to any one Capital Security, Normal Unit or, Stripped Unit or $50. "Stock Purchase Date" means May 15, 2003. "Stripped Unit" means the collective rights and obligations of a holder of a Stripped Units Certificate in respect of a 1/20 undivided beneficial interest in a Treasury Security, subject in each case to the Pledge thereof, and the related Purchase Contract. "Stripped Units Certificate" means a certificate evidencing the rights and obligations of a Holder in respect of the number of Stripped Units specified on such certificate, substantially in the form of Exhibit B hereto. "Stripped Units Register" and "Stripped Units Registrar" have the respective meanings specified in Section 3.5. "Subsequent Remarketing Date" means, provided there has been one or more Failed Remarketings, the date on which the Remarketing Agent has consummated a successful remarketing in accordance with Section 5.2 hereof, such date in no event hereby later than four business days immediately preceding the Stock Purchase Date. "Termination Date" means the date, if any, on which a Termination Event occurs. 10 16 "Termination Event" means the occurrence of any of the following events: (i) at any time on or prior to the Stock Purchase Date, a judgment, decree or court order shall have been entered granting relief under the Bankruptcy Code or any other similar Federal or state law, adjudicating the Company to be insolvent, or approving as properly filed a petition seeking reorganization or liquidation of the Company, and, unless such judgment, decree or order shall have been entered within 60 days prior to the Stock Purchase Date, such decree or order shall have continued undischarged and unstayed for a period of 60 days; or (ii) a judgment, decree or court order for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of its property, or for the winding up or liquidation of its affairs, shall have been entered, and, unless such judgment, decree or order shall have been entered within 60 days prior to the Stock Purchase Date, such judgment, decree or order shall have continued undischarged and unstayed for a period of 60 days, or (iii) at any time on or prior to the Stock Purchase Date the Company shall file a petition for relief under the Bankruptcy Code or any other similar federal or state law, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or liquidation under the Bankruptcy Code or any other similar federal or state law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due. "Threshold Appreciation Price" has the meaning specified in Section 5.1. "TIA" means the Trust Indenture Act of 1939, as amended. "Trading Day" has the meaning specified in Section 5.1. "Treasury Consideration" means the Agent-purchased Treasury Consideration or the Opt-out Treasury Consideration. "Treasury Security" means a zero coupon U.S. Treasury security (CUSIP Number 912833FS4) maturing on May 15, 2003 that will pay $1,000 on such maturity date. "Trust" means MetLife Capital Trust I, a statutory business trust formed under the laws of the State of Delaware, or any successor thereto by merger or consolidation. 11 17 "Underwriting Agreement" means the Underwriting Agreement dated April __, 2000 among the Company, Metropolitan Life Insurance Company, the Trust and the underwriters named therein, as representatives of the underwriters. "Unit" means a Normal Unit or a Stripped Unit. "Vice-President" means any vice-president, whether or not designated by a number or a word or words added before or after the title "vice-president." Section 1.2 Compliance Certificates and Opinions. Except as otherwise expressly provided by this Agreement, upon any application or request by the Company to the Agent to take any action under any provision of this Agreement, the Company shall furnish to the Agent an Officer's Certificate stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with and, if requested by the Agent, an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Agreement relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement shall include: (1) a statement that the individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he or she has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with. Section 1.3 Form of Documents Delivered to Agent. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only 12 18 one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument. Section 1.4 Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Agent and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and (subject to Section 7.1) conclusive in favor of the Agent and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Agent deems sufficient. (c) The ownership of Units shall be proved by the Normal Units Register or the Stripped Units Register, as the case may be. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Certificate shall bind every future Holder of the same 13 19 Certificate and the Holder of every Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Certificate. (e) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Agreement to be given, made or taken by Holders of Units. If any record date is set pursuant to this paragraph, the Holders of the Outstanding Normal Units and the Outstanding Stripped Units, as the case may be, on such record date, and no other Holders, shall be entitled to take the relevant action with respect to the Normal Units or the Stripped Units, as the case may be, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite number of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite number of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Agent in writing and to each Holder of Units in the manner set forth in Section 1.6. With respect to any record date set pursuant to this Section, the Company may designate any date as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the Agent in writing, and to each Holder of Units in the manner set forth in Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the Company shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Section 1.5 Notices. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with: 14 20 (1) the Agent by any Holder or by the Company shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if made, given, furnished or filed in writing and personally delivered, mailed, first-class postage prepaid, telecopied or delivered by overnight air courier guaranteeing next day delivery, to the Agent at One North State Street, 9th Floor, Chicago, Illinois 60602, Attn: Corporate Trust Administration, telecopy: (312) 407-1708, or at any other address furnished in writing by the Agent to the Holders and the Company; or (2) the Company by the Agent or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if made, given, furnished or filed in writing and personally delivered, mailed, first-class postage prepaid, telecopied or delivered by overnight air courier guaranteeing next day delivery, to the Company at MetLife, Inc., One Madison Avenue, New York, New York 10010-3690, telecopy: (212) 578-0266, Attention: Treasurer, or at any other address furnished in writing to the Agent by the Company; or (3) the Collateral Agent by the Agent, the Company or any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if made, given, furnished or filed in writing and personally delivered, mailed, first-class postage prepaid, telecopied or delivered by overnight air courier guaranteeing next day delivery, addressed to the Collateral Agent at The Bank of New York, 101 Barclay Street, Floor 21 East, New York, New York 10286, Attention: Dealing and Trading Group, David Kolibachuk, telecopy: (212) 815-7157, or at any other address furnished in writing by the Collateral Agent to the Agent, the Company and the Holders; or (4) the Property Trustee by the Company shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if made, given, furnished or filed in writing and personally delivered, mailed, first-class postage prepaid, telecopied or delivered by overnight air courier guaranteeing next day delivery, addressed to the Property Trustee at The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust Administration, telecopy: (212) 815-5915 or at any other address furnished in writing by the Property Trustee to the Company; or (5) the Indenture Trustee by the Company shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if made, given, furnished or filed in writing and personally delivered or mailed, first-class postage prepaid, telecopied or delivered by overnight air courier guaranteeing next day delivery, addressed to the Indenture Trustee at The Bank of New York, 101 Barclay Street, Floor 21W, New York, New York 10286, Attention: Corporate Trust 15 21 Administration, telecopy: (212) 815-5915 or at any other address furnished in writing by the Indenture Trustee to the Company. Section 1.6 Notice to Holders; Waiver. Where this Agreement provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the applicable Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Agent, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Agent shall constitute a sufficient notification for every purpose hereunder. Section 1.7 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.8 Successors and Assigns. All covenants and agreements in this Agreement by the Company shall bind its successors and assigns, whether so expressed or not. Section 1.9 Separability Clause. In case any provision in this Agreement or in the securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof and thereof shall not in any way be affected or impaired thereby. Section 1.10 Benefits of Agreement. Nothing in this Agreement or in the Units, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and, to the extent provided hereby, the Holders, any benefits or any legal or equitable right, remedy or claim under this Agreement. The Holders from time to time shall be beneficiaries of this Agreement and shall be bound by all of the terms and 16 22 conditions hereof and of the Units evidenced by their Certificates by their acceptance of delivery of such Certificates. Section 1.11 Governing Law. This Agreement and the Units shall be governed by and construed in accordance with the laws of the State of New York, without regard to its principles of conflicts of laws. Section 1.12 Legal Holidays. In any case where any Payment Date shall not be a Business Day, then (notwithstanding any other provision of this Agreement or the Normal Units Certificates) payments on the Capital Securities shall not be made on such date, but such payments shall be made on the next succeeding Business Day with the same force and effect as if made on such Payment Date, provided that no interest or distributions shall accrue or be payable by the Company for the period from and after any such Payment Date, except that, if such next succeeding Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day with the same force and effect as if made on such Payment Date. In any case where the Stock Purchase Date shall not be a Business Day, then (notwithstanding any other provision of this Agreement or the Certificates), the Purchase Contracts shall not be performed on such date, but the Purchase Contracts shall be performed on the immediately following Business Day with the same force and effect as if performed on the Stock Purchase Date. Section 1.13 Counterparts. This Agreement may be executed in any number of counterparts by the parties hereto, each of which, when so executed and delivered, shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. Section 1.14 Inspection of Agreement. A copy of this Agreement shall be available at all reasonable times during normal business hours at the Corporate Trust Office for inspection by any Holder. ARTICLE II CERTIFICATE FORMS Section 2.1 Forms of Certificates Generally. The Normal Units Certificates (including the form of Purchase Contract forming part of the Normal Units evidenced thereby) shall be in substantially the form set forth in Exhibit A hereto, with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as may be required by the rules of any securities 17 23 exchange or quotation system on which the Normal Units are listed or quoted for trading or any depositary therefor, or as may, consistently herewith, be determined by the officers of the Company executing such Normal Units Certificates, as evidenced by their execution of the Normal Units Certificates. The definitive Normal Units Certificates shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Normal Units Certificates, consistent with the provisions of this Agreement, as evidenced by their execution thereof. The Stripped Units Certificates (including the form of Purchase Contracts forming part of the Stripped Units evidenced thereby) shall be in substantially the form set forth in Exhibit B hereto, with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as may be required by the rules of any securities exchange or the quotation system on which the Stripped Units may be listed or quoted for trading or any depositary therefor, or as may, consistently herewith, be determined by the officers of the Company executing such Stripped Units Certificates, as evidenced by their execution of the Stripped Units Certificates. The definitive Stripped Units Certificates shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Stripped Units Certificates, consistent with the provisions of this Agreement, as evidenced by their execution thereof. Every Global Certificate authenticated, executed on behalf of the Holders and delivered hereunder shall bear a legend in substantially the following form: THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT. 18 24 Section 2.2 Form of Agent's Certificate of Authentication. The form of the Agent's certificate of authentication of the Normal Units shall be in substantially the form set forth on the form of the Normal Units Certificates. The form of the Agent's certificate of authentication of the Stripped Units shall be in substantially the form set forth on the form of the Stripped Units Certificates. ARTICLE III THE UNITS Section 3.1 Title and Terms; Denominations. The aggregate number of Normal Units and Stripped Units, if any, evidenced by Certificates authenticated, executed on behalf of the Holders and delivered hereunder is limited to 20,000,000 (23,000,000 if the Underwriters' over-allotment option pursuant to the Underwriting Agreement is exercised in full), except for Certificates authenticated, executed and delivered upon registration of transfer of, in exchange for, or in lieu of, other Certificates pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.7 or 8.5. The Certificates shall be issuable only in registered form and only in denominations of a single Unit and any integral multiple thereof. Section 3.2 Rights and Obligations Evidenced by the Certificates. Each Normal Units Certificate shall evidence the number of Normal Units specified therein, with each such Normal Unit representing the ownership by the Holder thereof of a beneficial interest in a Capital Security or the appropriate Treasury Consideration, as the case may be, subject to the Pledge of such Capital Security or such Treasury Consideration, as the case may be, by such Holder pursuant to the Pledge Agreement, and the rights and obligations of the Holder thereof and the Company under one Purchase Contract. The Agent as attorney-in-fact for, and on behalf of, the Holder of each Normal Unit shall pledge, pursuant to the Pledge Agreement, the Capital Security or the appropriate Treasury Consideration, as the case may be, forming a part of such Normal Unit, to the Collateral Agent and grant to the Collateral Agent a security interest in the right, title, and interest of such Holder in such Capital Security or such Treasury Consideration, as the case may be, for the benefit of the Company, to secure the obligation of the Holder under each Purchase Contract to purchase the Common Stock of the Company. Prior to the purchase of shares of Common Stock under each Purchase Contract, such Purchase Contracts shall not entitle the Holders of Normal Units Certificates to any of the rights of a holder of shares of Common Stock, including, without limitation, the right to vote or receive any dividends or other payments or to consent or to receive notice as stockholders in respect 19 25 of the meetings of stockholders or for the election of directors of the Company or for any other matter, or any other rights whatsoever as stockholders of the Company. Each Stripped Units Certificate shall evidence the number of Stripped Units specified therein, with each such Stripped Unit representing the ownership by the Holder thereof of a 1/20 undivided beneficial interest in a Treasury Security, subject to the Pledge of such interest in such Treasury Security by such Holder pursuant to the Pledge Agreement, and the rights and obligations of the Holder thereof and the Company under one Purchase Contract. Prior to the purchase of shares of Common Stock under each Purchase Contract, such Purchase Contracts shall not entitle the Holders of Stripped Units Certificates to any of the rights of a holder of shares of Common Stock, including, without limitation, the right to vote or receive any dividends or other payments or to consent or to receive notice as stockholders in respect of the meetings of stockholders or for the election of directors of the Company or for any other matter, or any other rights whatsoever as stockholders of the Company. Section 3.3 Execution, Authentication, Delivery and Dating. Subject to the provisions of Sections 3.13 and 3.14, upon the execution and delivery of this Agreement, and at any time and from time to time thereafter, the Company may deliver Certificates executed by the Company to the Agent for authentication, execution on behalf of the Holders and delivery, together with its Issuer Order for authentication of such Certificates, and the Agent in accordance with such Issuer Order shall authenticate, execute on behalf of the Holders and deliver such Certificates. The Certificates shall be executed on behalf of the Company by the Chief Executive Officer, the Chief Financial Officer, the President, any Vice-President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary (or other officer performing similar functions) of the Company and delivered to the Agent. The signature of any of these officers on the Certificates may be manual or facsimile. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates. No Purchase Contract evidenced by a Certificate shall be valid until such Certificate has been executed on behalf of the Holder by the manual signature of an authorized signatory of the Agent, as such Holder's attorney-in-fact. Such signature by an authorized signatory of the Agent shall be conclusive evidence that the Holder of such Certificate has entered into the Purchase Contracts evidenced by such Certificate. 20 26 Each Certificate shall be dated the date of its authentication. No Certificate shall be entitled to any benefit under this Agreement or be valid or obligatory for any purpose unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by an authorized signatory of the Agent by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. Section 3.4 Temporary Certificates. Pending the preparation of definitive Certificates, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the Holders, and deliver, in lieu of such definitive Certificates, temporary Certificates which are in substantially the form set forth in Exhibit A or Exhibit B hereto, as the case may be, with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as may be required by the rules of any securities exchange on which the Normal Units or Stripped Units, as the case may be, are listed, or as may, consistent herewith, be determined by the officers of the Company executing such Certificates, as evidenced by their execution of the Certificates. If temporary Certificates are issued, the Company will cause definitive Certificates to be prepared without unreasonable delay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon surrender of the temporary Certificates at the Corporate Trust Office, at the expense of the Company and without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the Holder, and deliver in exchange therefor, one or more definitive Certificates of like tenor and denominations and evidencing a like number of Normal Units or Stripped Units, as the case may be, as the temporary Certificate or Certificates so surrendered. Until so exchanged, the temporary Certificates shall in all respects evidence the same benefits and the same obligations with respect to the Normal Units or Stripped Units, as the case may be, evidenced thereby as definitive Certificates. Section 3.5 Registration; Registration of Transfer and Exchange. The Agent shall keep at the Corporate Trust Office a register (the "Normal Units Register") in which, subject to such reasonable regulations as it may prescribe, the Agent shall provide for the registration of Normal Units Certificates and of transfers of Normal Units Certificates (the Agent, in such capacity, the "Normal Units Registrar") and a register (the "Stripped Units Register") in which, subject to such reasonable regulations as it may prescribe, the Agent 21 27 shall provide for the registration of the Stripped Units Certificates and transfers of Stripped Units Certificates (the Agent, in such capacity, the "Stripped Units Registrar"). Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the designated transferee or transferees, and deliver, in the name of the designated transferee or transferees, one or more new Certificates of like tenor and denominations, and evidencing a like number of Normal Units or Stripped Units, as the case may be. At the option of the Holder, Certificates may be exchanged for other Certificates, of like tenor and denominations and evidencing a like number of Normal Units or Stripped Units, as the case may be, upon surrender of the Certificates to be exchanged at the Corporate Trust Office. Whenever any Certificates are so surrendered for exchange, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the Holder, and deliver the Certificates which the Holder making the exchange is entitled to receive. All Certificates issued upon any registration of transfer or exchange of a Certificate shall evidence the ownership of the same number of Normal Units or Stripped Units, as the case may be, and be entitled to the same benefits and subject to the same obligations, under this Agreement as the Normal Units or Stripped Units, as the case may be, evidenced by the Certificate surrendered upon such registration of transfer or exchange. Every Certificate presented or surrendered for registration of transfer or for exchange shall (if so required by the Agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Agent duly executed, by the Holder thereof or its attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of a Certificate, but the Company and the Agent may require payment from the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates, other than any exchanges pursuant to Sections 3.6, 3.9 and 8.5 not involving any transfer. Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Agent, and the Agent shall not be obligated to authenticate, execute on behalf of the Holder and deliver any Certificate presented or surrendered for registration of transfer or for exchange on or after the Business Day immediately preceding the earlier of the Stock Purchase Date or the Termination Date. In lieu of delivery of a new 22 28 Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Agent shall (i) if the Stock Purchase Date has occurred, deliver the shares of Common Stock issuable in respect of the Purchase Contracts forming a part of the Units evidenced by such Certificate, (ii) in the case of Normal Units, if a Termination Event shall have occurred prior to the Stock Purchase Date, transfer the Capital Securities or the appropriate Treasury Consideration, as applicable, relating to such Normal Units, or (iii) in the case of Stripped Units, if a Termination Event shall have occurred prior to the Stock Purchase Date, transfer the Treasury Securities relating to such Stripped Units, in each case subject to the applicable conditions and in accordance with the applicable provisions of Article Five. Section 3.6 Book-Entry Interests. The Certificates, on original issuance, will be issued in the form of one or more, fully registered Global Certificates, to be delivered to the Depositary by, or on behalf of, the Company. Such Global Certificate shall initially be registered on the books and records of the Company in the name of Cede & Co., the nominee of the Depositary, and no Beneficial Owner will receive a definitive Certificate representing such Beneficial Owner's interest in such Global Certificate, except as provided in Section 3.9. The Agent shall enter into an agreement with the Depositary if so requested by the Company. Unless and until definitive, fully registered Certificates have been issued to Beneficial Owners pursuant to Section 3.9: (a) the provisions of this Section 3.6 shall be in full force and effect; (b) the Company shall be entitled to deal with the Clearing Agency for all purposes of this Agreement (including receiving approvals, votes or consents hereunder) as the Holder of the Units and the sole holder of the Global Certificate(s) and shall have no obligation to the Beneficial Owners; (c) to the extent that the provisions of this Section 3.6 conflict with any other provisions of this Agreement, the provisions of this Section 3.6 shall control; and (d) the rights of the Beneficial owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Beneficial owners and the Clearing Agency and/or the Clearing Agency Participants. The Clearing Agency will make book-entry transfers among Clearing Agency Participants. Section 3.7 Notices to Holders. Whenever a notice or other communication to the Holders is required to be given under this Agreement, the Company or the Company's agent shall give such notices and communications to the Holders and, with respect to any 23 29 Units registered in the name of a Clearing Agency or the nominee of a Clearing Agency, the Company or the Company's agent shall, except as set forth herein, have no obligations to the Beneficial owners. Section 3.8 Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Units, the Company may, in its sole discretion, appoint a successor Clearing Agency with respect to the Units. Section 3.9 Definitive Certificates. If (i) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Units and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 3.8, (ii) the Company elects to terminate the book-entry system through the Clearing Agency with respect to the Units, or (iii) there shall have occurred and be continuing a default by the Company in respect of its obligations under one or more Purchase Contracts, then upon surrender of the Global Certificates representing the Book-Entry Interests with respect to the Units by the Clearing Agency, accompanied by registration instructions, the Company shall cause definitive Certificates to be delivered to Beneficial Owners in accordance with the instructions of the Clearing Agency. The Company shall not be liable for any delay in delivery of such instructions and may conclusively rely on and shall be protected in relying on, such instructions. Section 3.10 Mutilated, Destroyed, Lost and Stolen Certificates. If any mutilated Certificate is surrendered to the Agent, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the Holder, and deliver in exchange therefor, a new Certificate at the cost of the Holder, evidencing the same number of Normal Units or Stripped Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding. If there shall be delivered to the Company and the Agent (i) evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) such security or indemnity at the cost of the Holder as may be required by them to hold each of them and any agent of any of them harmless, then, in the absence of notice to the Company or the Agent that such Certificate has been acquired by a bona fide purchaser, the Company shall execute and deliver to the Agent, and the Agent shall authenticate, execute on behalf of the Holder, and deliver to the Holder, in lieu of any such destroyed, lost or stolen Certificate, a new Certificate, evidencing the same number of Normal Units or Stripped Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding. 24 30 Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Agent, and the Agent shall not be obligated to authenticate, execute on behalf of the Holder, and deliver to the Holder, a Certificate on or after the Business Day immediately preceding the earlier of the Stock Purchase Date or the Termination Date. In lieu of delivery of a new Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Agent shall (i) if the Stock Purchase Date has occurred, deliver the shares of Common Stock issuable in respect of the Purchase Contracts forming a part of the Units evidenced by such Certificate, or (ii) if a Termination Event shall have occurred prior to the Stock Purchase Date, transfer the Capital Securities, the appropriate Treasury Consideration or the Treasury Securities, as the case may be, evidenced thereby, in each case subject to the applicable conditions and in accordance with the applicable provisions of Article Five. Upon the issuance of any new Certificate under this Section, the Company and the Agent may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Agent) connected therewith. Every new Certificate issued pursuant to this Section in lieu of any destroyed, lost or stolen Certificate shall constitute an original additional contractual obligation of the Company and of the Holder in respect of the Unit evidenced thereby, whether or not the destroyed, lost or stolen Certificate (and the Units evidenced thereby) shall be at any time enforceable by anyone, and shall be entitled to all the benefits and be subject to all the obligations of this Agreement equally and proportionately with any and all other Certificates delivered hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates. Section 3.11 Persons Deemed Owners. Prior to due presentment of a Certificate for registration of transfer, the Company and the Agent, and any agent of the Company or the Agent, may treat the Person in whose name such Certificate is registered as the owner of the Units evidenced thereby, for the purpose of receiving distributions on the Capital Securities, performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any such distributions shall be overdue and notwithstanding any notice to the contrary, and neither the Company nor the Agent, nor any agent of the Company or the Agent, shall be affected by notice to the contrary. 25 31 Notwithstanding the foregoing, with respect to any Global Certificate, nothing herein shall prevent the Company, the Agent or any agent of the Company or the Agent, from giving effect to any written certification, proxy or other authorization furnished by any Clearing Agency (or its nominee), as a Holder, with respect to such Global Certificate or impair, as between such Clearing Agency and owners of beneficial interests in such Global Certificate, the operation of customary practices governing the exercise of rights of such Clearing Agency (or its nominee) as Holder of such Global Certificate. Section 3.12 Cancellation. All Certificates surrendered (a) for delivery of shares of Common Stock on or after any Settlement Date; (b) upon the transfer of Capital Securities, the appropriate Treasury Consideration or Treasury Securities, as the case may be, after the occurrence of a Termination Event; (c) upon the registration of a transfer or exchange of a Unit shall, if surrendered to any Person other than the Agent, be delivered to the Agent and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Agent for cancellation any Certificates previously authenticated, executed and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Certificates so delivered shall, upon Issuer Order, be promptly cancelled by the Agent. No Certificates shall be authenticated, executed on behalf of the Holder and delivered in lieu of or in exchange for any Certificates cancelled as provided in this Section, except as expressly permitted by this Agreement. All cancelled Certificates held by the Agent shall be destroyed by the Agent unless otherwise directed by Issuer Order. If the Company or any Affiliate of the Company shall acquire any Certificate, such acquisition shall not operate as a cancellation of such Certificate unless and until such Certificate is delivered to the Agent cancelled or for cancellation. Section 3.13 Establishment of Stripped Units. A Holder may separate the Pledged Capital Securities or Pledged Treasury Consideration, as applicable, from the related Purchase Contracts in respect of the Normal Units held by such Holder by substituting for such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, Treasury Securities that will pay an amount equal to the aggregate Stated Amount of such Normal Units (a "Collateral Substitution"), at any time from and after the date of this Agreement and on or prior to the second Business Day immediately preceding the Stock Purchase Date, by (a) depositing with the Collateral Agent Treasury Securities having an aggregate principal amount equal to the aggregate Stated Amount of such Normal Units, and (b) transferring the related Normal Units to the Agent accompanied by a notice to the Agent, substantially in the form of Exhibit D hereto, stating that the Holder has transferred the relevant amount of Treasury Securities to the Collateral Agent and requesting that the Agent instruct the Collateral Agent to release the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, underlying such Normal 26 32 Units, whereupon the Agent shall promptly give such instruction to the Collateral Agent, substantially in the form of Exhibit C hereto. Notwithstanding the foregoing, a Holder may not separate the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, from the related Purchase Contracts in respect of the Normal Units held by such Holder during the periods beginning on the fourth Business Day prior to the Remarketing Date or any Subsequent Remarketing Date, as the case may be, and ending on the third business day following such dates. Upon receipt of the Treasury Securities described in clause (a) above and the instruction described in clause (b) above, in accordance with the terms of the Pledge Agreement, the Collateral Agent will release to the Agent, on behalf of the Holder, such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, from the Pledge, free and clear of the Company's security interest therein, and upon receipt thereof the Agent shall promptly: (i) cancel the related Normal Units; (ii) transfer the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, to the Holder; and (iii)authenticate, execute on behalf of such Holder and deliver a Stripped Units Certificate executed by the Company in accordance with Section 3.3 evidencing the same number of Purchase Contracts as were evidenced by the cancelled Normal Units. Holders who elect to separate the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, from the related Purchase Contract and to substitute Treasury Securities for such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, shall be responsible for any fees or expenses payable to the Collateral Agent for its services as Collateral Agent in respect of the substitution, and the Company shall not be responsible for any such fees or expenses. Holders may make Collateral Substitutions (i) if Treasury Securities are being substituted for Pledged Capital Securities, only in integral multiples of 20 Normal Units, or (ii) if the Collateral Substitutions occur after the Remarketing Date or any Subsequent Remarketing Date, as the case may be, only in integral multiples of Normal Units such that the Treasury Securities to be deposited and the Treasury Consideration to be released are in integral multiples of $1,000. In the event a Holder making a Collateral Substitution pursuant to this Section 3.13 fails to effect a book-entry transfer of the Normal Units or fails to deliver a Normal Units Certificate to the Agent after depositing Treasury Securities with the Collateral Agent, the Pledged Capital Securities or Pledged Treasury Consideration, as the 27 33 case may be, constituting a part of such Normal Units, and any distributions on such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, shall be held in the name of the Agent or its nominee in trust for the benefit of such Holder, until such Normal Units are so transferred or the Normal Units Certificate is so delivered, as the case may be, or, with respect to a Normal Units Certificate, such Holder provides evidence satisfactory to the Company and the Agent that such Normal Units Certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the Agent and the Company. Except as described in this Section 3.13, for so long as the Purchase Contract underlying a Normal Unit remains in effect, such Normal Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Normal Unit in respect of the Capital Security or the appropriate Treasury Consideration, as the case may be, and the Purchase Contract comprising such Normal Unit may be acquired, and may be transferred and exchanged, only as a Normal Unit. Section 3.14 Reestablishment of Normal Units. A Holder of Stripped Units may reestablish Normal Units at any time from and after the date of this Agreement and on or prior to the second Business Day immediately preceding the Stock Purchase Date, by (a) depositing with the Collateral Agent the Capital Securities or the appropriate Treasury Consideration (and identified by reference to the Treasury Consideration then comprising Normal Units, as the case may be, then comprising such number of Normal Units as is equal to such Stripped Units and (b) transferring such Stripped Units to the Agent accompanied by a notice to the Agent, substantially in the form of Exhibit D hereto, stating that the Holder has transferred the relevant amount of Capital Securities or the appropriate Treasury Consideration, as the case may be, to the Collateral Agent and requesting that the Agent instruct the Collateral Agent to release the Pledged Treasury Securities underlying such Stripped Unit, whereupon the Agent shall promptly give such instruction to the Collateral Agent, substantially in the form of Exhibit C hereto. Notwithstanding the foregoing, a Holder may not reestablish Normal Units during the periods beginning on the fourth Business Day prior to the Remarketing Date or any Subsequent Remarketing Date, as the case may be, and ending on the third business day following such dates. Upon receipt of the Capital Securities or the appropriate Treasury Consideration, as the case may be, described in clause (a) above and the instruction described in clause (b) above, in accordance with the terms of the Pledge Agreement, the Collateral Agent will release to the Agent, on behalf of the Holder, such Pledged Treasury Securities from the Pledge, free and clear of the Company's security interest therein, and upon receipt thereof the Agent shall promptly: (i) cancel the related Stripped Units; 28 34 (ii) transfer the Pledged Treasury Securities to the Holder; and (iii) authenticate, execute on behalf of such Holder and deliver a Normal Units Certificate executed by the Company in accordance with Section 3.3 evidencing the same number of Purchase Contracts as were evidenced by the cancelled Stripped Units. Holders of Stripped Units may reestablish Normal Units (i) only in integral multiples of 20 Stripped Units for 20 Normal Units or (ii) if the reestablishment occurs after the Remarketing Date or any Subsequent Remarketing Date, only in integral multiples of Stripped Units such that the Treasury Consideration to be deposited and the Treasury Securities to be released are in integral multiples of $1,000. Except as provided in this Section 3.14, for so long as the Purchase Contract underlying a Stripped Unit remains in effect, such Stripped Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Stripped Unit in respect of the Treasury Security and Purchase Contract comprising such Stripped Unit may be acquired, and may be transferred and exchanged, only as a Stripped Unit. Section 3.15 Transfer of Collateral upon Occurrence of Termination Event. Upon the occurrence of a Termination Event and the transfer to the Agent of the Capital Securities, the appropriate Treasury Consideration or the Treasury Securities, as the case may be, underlying the Normal Units and the Stripped Units pursuant to the terms of the Pledge Agreement, the Agent shall request transfer instructions with respect to such Capital Securities or the appropriate Treasury Consideration or Treasury Securities, as the case may be, from each Holder by written request mailed to such Holder at its address as it appears in the Normal Units Register or the Stripped Units Register, as the case may be. Upon book-entry transfer of the Normal Units or Stripped Units or delivery of a Normal Units Certificate or Stripped Units Certificate to the Agent with such transfer instructions, the Agent shall transfer the Capital Securities, the appropriate Treasury Consideration or Treasury Securities, as the case may be, underlying such Normal Units or Stripped Units, as the case may be, to such Holder by book-entry transfer, or other appropriate procedures, in accordance with such instructions. In the event a Holder of Normal Units or Stripped Units fails to effect such transfer or delivery, the Capital Securities, the appropriate Treasury Consideration or Treasury Securities, as the case may be, underlying such Normal Units or Stripped Units, as the case may be, and any distributions thereon, shall be held in the name of the Agent or its nominee in trust for the benefit of such Holder, until such Normal Units or Stripped Units are transferred or the Normal Units Certificate or Stripped Units Certificate is surrendered or such Holder provides satisfactory evidence that such Normal Units Certificate or Stripped Units Certificate has 29 35 been destroyed, lost or stolen, together with any indemnity that may be required by the Agent and the Company. Section 3.16 No Consent to Assumption. Each Holder of a Unit, by acceptance thereof, shall be deemed expressly to have withheld any consent to the assumption under Section 365 of the Bankruptcy Code or otherwise, of the Purchase Contract by the Company, any receiver, liquidator or person or entity performing similar functions or its trustee in the event that the Company becomes the debtor under the Bankruptcy Code or subject to other similar state or federal law providing for reorganization or liquidation. ARTICLE IV THE CAPITAL SECURITIES Section 4.1 Payment of Distribution; Rights to Distributions Preserved; Notice. A distribution on any Capital Security or a payment on any Treasury Consideration, as the case may be, which is paid on any Payment Date shall, subject to receipt thereof by the Agent from the Collateral Agent as provided by the terms of the Pledge Agreement, be paid to the Person in whose name the Normal Units Certificate (or one or more Predecessor Normal Units Certificates) of which such Capital Security or the appropriate Treasury Consideration, as the case may be, is a part is registered at the close of business on the Record Date for such Payment Date. Each Normal Units Certificate evidencing Capital Securities delivered under this Agreement upon registration of transfer of or in exchange for or in lieu of any other Normal Units Certificate shall carry the rights to distributions accumulated and unpaid, and to accumulate distributions, which were carried by the Capital Securities underlying such other Normal Units Certificate. In the case of any Normal Unit with respect to which Early Settlement of the underlying Purchase Contract is effected on an Early Settlement Date, or with respect to which Merger Early Settlement of the underlying Purchase Contract is effected on a Merger Early Settlement Date, or with respect to which a Collateral Substitution is effected, in each case on a date that is after any Record Date and on or prior to the next succeeding Payment Date, distributions on the Capital Security or payments on the appropriate Treasury Consideration, as the case may be, underlying such Normal Unit otherwise payable on such Payment Date shall be payable on such Payment Date notwithstanding such Early Settlement, Merger Early Settlement or Collateral Substitution, as the case may be, and such distributions shall, subject to receipt thereof by the Agent, be payable to the Person in whose name the Normal Units Certificate (or one or more Predecessor Normal Unit Certificates) was registered at the close of business on 30 36 the Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Normal Unit with respect to which Early Settlement or Merger Early Settlement of the underlying Purchase Contract is effected, or with respect to which a Collateral Substitution has been effected, distributions on the related Capital Securities or payments on the appropriate Treasury Consideration, as the case may be, that would otherwise be payable after the applicable Settlement Date or after such Collateral Substitution, as the case may be, shall not be payable hereunder to the Holder of such Normal Unit; provided, that to the extent that such Holder continues to hold the separated Capital Securities that formerly comprised a part of such Holder's Normal Units, such Holder shall be entitled to receive the distributions on such separated Capital Securities. Section 4.2 Notice and Voting. Under the terms of the Pledge Agreement, the Agent will be entitled to exercise the voting and any other consensual rights pertaining to the Pledged Capital Securities but only to the extent instructed by the Holders as described below. Upon receipt of notice of any meeting at which holders of Capital Securities are entitled to vote or upon any solicitation of consents, waivers or proxies of holders of Capital Securities, the Agent shall, as soon as practicable thereafter, mail to the Holders of Normal Units a notice (a) containing such information as is contained in the notice or solicitation, (b) stating that each Holder on the record date set by the Agent therefor (which, to the extent possible, shall be the same date as the record date for determining the holders of Capital Securities entitled to vote) shall be entitled to instruct the Agent as to the exercise of the voting rights pertaining to the Pledged Capital Securities underlying their Normal Units and (c) stating the manner in which such instructions may be given. Upon the written request of the Holders of Normal Units on such record date, the Agent shall endeavor insofar as practicable to vote or cause to be voted, in accordance with the instructions set forth in such requests, the maximum number of Pledged Capital Securities as to which any particular voting instructions are received. In the absence of specific instructions from the Holder of a Normal Unit, the Agent shall abstain from voting the Pledged Capital Security underlying such Normal Unit. The Company hereby agrees, if applicable, to solicit Holders of Normal Units to timely instruct the Agent in order to enable the Agent to vote such Pledged Capital Securities and the Trust shall covenant to such effect in the Declaration. Section 4.3 Distribution of Debentures. Upon a voluntary or involuntary dissolution of the Trust in accordance with the Declaration, the Liquidation Distribution shall be delivered to the Collateral Agent in exchange for the Pledged Capital Securities. Thereafter, the applicable part of the Liquidation Distribution (as defined in the Declaration) will be substituted for the Pledged Capital Securities, and will be held by the Collateral Agent in accordance with the terms of the Pledge Agreement to secure the obligations of each Holder of Normal Units to purchase the Common Stock of the 31 37 Company under the Purchase Contracts constituting a part of such Normal Units. The remaining portion of the Liquidation Distribution shall be distributed to the Holders of Separate Capital Securities (as defined in the Pledge Agreement). Following a voluntary or involuntary dissolution of the Trust, the Holders and the Collateral Agent shall have such security interests, rights and obligations with respect to the Liquidation Distribution as the Holders and the Collateral Agent had in respect of the Pledged Capital Securities as provided in Articles II, III, IV, V and VI of the Pledge Agreement, and, unless the context otherwise requires, any reference herein to the Capital Securities or Pledged Capital Securities shall be deemed to be a reference to such Debentures. The Company may cause to be made in any Normal Units Certificates thereafter to be issued such change in phraseology and form (but not in substance) as may be appropriate to reflect the liquidation of the Trust and the substitution of Debentures for Capital Securities as Collateral. ARTICLE V THE PURCHASE CONTRACTS; THE REMARKETING Section 5.1 Purchase of Shares of Common Stock. Each Purchase Contract shall, unless an Early Settlement has occurred in accordance with Section 5.7, or a Merger Early Settlement has occurred in accordance with Section 5.8, obligate the Holder of the related Unit to purchase, and the Company to sell, on the Stock Purchase Date at a price equal to $50 (the "Purchase Price"), a number of newly issued shares of Common Stock equal to the Settlement Rate unless, on or prior to the Stock Purchase Date, there shall have occurred a Termination Event with respect to the Unit of which such Purchase Contract is a part. The "Settlement Rate" is equal to (a) if the Applicable Market Value (as defined below) is greater than $- (the "Threshold Appreciation Price"), - shares of Common Stock per Purchase Contract, (b) if the Applicable Market Value is less than the Threshold Appreciation Price, but is greater than $-, the number of shares of Common Stock per Purchase Contract equal to the Stated Amount of the related Unit divided by the Applicable Market Value and (c) if the Applicable Market Value is less than $-, -shares of Common Stock per Purchase Contract, in each case subject to adjustment as provided in Section 5.4 (and in each case rounded upward or downward to the nearest 1/10,000th of a share). As provided in Section 5.10, no fractional shares of Common Stock will be issued upon settlement of Purchase Contracts. The "Applicable Market Value" means the average of the Closing Price per share of Common Stock on each of the 20 consecutive Trading Days ending on the third Trading Day immediately preceding the Stock Purchase Date. The "Closing Price" of the Common Stock on any date of determination means the closing sale price (or, if no closing price is reported, the last reported sale price) of the Common Stock on the New York 32 38 Stock Exchange (the "NYSE") on such date or, if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, or if the Common Stock is not so listed on a United States national or regional securities exchange, as reported by The Nasdaq Stock Market, or, if the Common Stock is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of the Common Stock on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company. A "Trading Day" means a day on which the Common Stock (A) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. Each Holder of a Unit, by its acceptance thereof, irrevocably authorizes the Agent to enter into and perform the related Purchase Contract on its behalf as its attorney-in-fact (including the execution of Certificates on behalf of such Holder), agrees to be bound by the terms and provisions thereof, covenants and agrees to perform its obligations under such Purchase Contracts, and consents to the provisions hereof, irrevocably authorizes the Agent as its attorney-in-fact to enter into and perform the Pledge Agreement on its behalf as its attorney-in-fact, and consents to and agrees to be bound by the Pledge of the Capital Securities, the appropriate Treasury Consideration or the Treasury Securities pursuant to the Pledge Agreement; provided that upon a Termination Event, the rights of the Holder of such Unit under the Purchase Contract may be enforced without regard to any other rights or obligations. Each Holder of a Unit, by its acceptance thereof, further covenants and agrees, that, to the extent and in the manner provided in Section 5.2 and the Pledge Agreement, but subject to the terms thereof, payments in respect of the Capital Securities, the appropriate Treasury Consideration or the Treasury Securities to be paid upon settlement of such Holder's obligations to purchase Common Stock under the Purchase Contract, shall be paid on the Stock Purchase Date by the Collateral Agent to the Company in satisfaction of such Holder's obligations under such Purchase Contract. Upon registration of transfer of a Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee) under the terms of this Agreement, the Purchase Contracts underlying such Certificate and the Pledge Agreement, and the transferor shall be released from the obligations under this Agreement, the Purchase Contracts underlying the Certificates so transferred and the Pledge Agreement. The Company covenants and agrees, and each Holder of a Certificate, by its 33 39 acceptance thereof, likewise covenants and agrees, to be bound by the provisions of this paragraph. Section 5.2 Payment of Purchase Price; Remarketing. (a) Unless a Termination Event has occurred or a Holder of a Unit has settled the underlying Purchase Contract through an Early Settlement pursuant to Section 5.7 or a Merger Early Settlement pursuant to Section 5.8, the settlement of the Purchase Contract underlying a Unit will be made in accordance with this Section 5.2. (b) (i) The Company shall engage a nationally recognized investment bank (the "Remarketing Agent") pursuant to the Remarketing Agreement (substantially in the form attached hereto as Exhibit E, with such changes and modifications as the parties thereto may agree on) to sell the Capital Securities of Holders of Normal Units, other than Holders that have elected not to participate in the remarketing pursuant to (iv) below and holders of Separate Capital Securities, that have elected to participate in the remarketing, pursuant to (iv) below. On the seventh day prior to February 15, 2003, the Agent shall give Holders of Normal Units and holders of Separate Capital Securities notice of remarketing in a daily newspaper in the English language of general circulation in The City of New York, which is expected to be The Wall Street Journal, including the specific U.S. Treasury security or securities (including the CUSIP number and/or the principal terms of such Treasury security or securities) described in clause (iv) below, that must be delivered by Holders of Normal Units that elect not to participate in the remarketing pursuant to (iv) below, no later than 10:00 a.m. on the fourth Business Day immediately preceding the Remarketing Date. The Agent shall notify, by 10:00 a.m., New York City time, on the third Business Day immediately preceding the Remarketing Date, the Remarketing Agent and the Collateral Agent of the aggregate number of Capital Securities of Normal Unit Holders to be remarketed. On the third Business Day immediately preceding the Remarketing Date, no later than by 10:00 a.m. New York City time, pursuant to the terms of the Pledge Agreement, the Custodial Agent will notify the Remarketing Agent of the aggregate number of Separate Capital Securities to be remarketed. On the first Business Day immediately preceding the Remarketing Date, the Collateral Agent and the Custodial, pursuant to the terms of the Pledge Agreement, will deliver for remarketing to the Remarketing Agent all Capital Securities to be remarketed. Upon receipt of such notice from the Agent and the Custodial Agent and such Capital Securities from the Collateral Agent and the Custodial Agent, the Remarketing Agent will, on the third Business Day following the Remarketing Date, use its reasonable best efforts to sell such Capital Securities on such date at a price equal to 100.5% of the Remarketing Value. The Remarketing Agent will use the proceeds from a successful remarketing to purchase the appropriate U.S. Treasury securities (the "Agent-purchased Security Treasury Consideration") with the CUSIP numbers, if any, selected by Remarketing Agent, described in clauses (i)(1) and (ii)(1) of the definition of Remarketing Value related to the 34 40 Capital Securities of Holders of Normal Units that were remarketed. On or prior to the third Business Day following the Remarketing Date, the Remarketing Agent shall deliver such Agent-purchased Treasury Consideration to the Agent, which shall thereupon deliver such Agent-purchased Treasury Consideration to the Collateral Agent. The Collateral Agent, for the benefit of the Company, will thereupon apply such Agent-purchased Treasury Consideration, in accordance with the Pledge Agreement, to secure such Holders' obligations under the Purchase Contracts. The Remarketing Agent will deduct as a remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds from the remarketing. The Remarketing Agent will remit (1) the portion of the proceeds from the remarketing attributable to the Separate Capital Securities to the holders of Separate Capital Securities that were remarketed and (2) the remaining portion of the proceeds, less those proceeds used to purchase the Agent-purchased Treasury Consideration, to the Agent for the benefit of the Holders of the Normal Units that were remarketed, all determined on a pro rata basis, in each case, on or prior to the third Business Day following the Remarketing Date. Holders whose Capital Securities are so remarketed will not otherwise be responsible for the payment of any Remarketing Fee in connection therewith. The "Remarketing Value" means the sum of (i) the value at the Remarketing Date or the Subsequent Remarketing Date, as the case may be, of U.S. Treasury securities that will pay, on or prior to the Quarterly Payment Date falling on the Stock Purchase Date, an amount of cash equal to the aggregate distributions that are scheduled to be payable on that Quarterly Payment Date, on (1) the Capital Securities which are included in Normal Units and (2) the Separate Capital Securities, in each case, which are participating in the remarketing, assuming for that purpose that (x) no distribution payment on the Capital Securities will then have been deferred and (y) the distribution rate on the Capital Securities is equal to the Coupon Rate, (ii) the value at the Remarketing Date or the Subsequent Remarketing Date, as the case may be, of U.S. Treasury securities that will pay, on or prior to the Stock Purchase Date, an amount of cash equal to the Stated Amount of (1) such Capital Securities that are included in Normal Units and (2) the Separate Capital Securities, in each case, which are participating in the remarketing, and (iii) if distribution payments on the Capital Securities are then being deferred, the amount equal to the aggregate unpaid distribution payments on (1) the Capital Securities that are included in Normal Units and (2) the Separate Capital Securities, in each case, which are participating in the remarketing accrued to the third business day following the Remarketing Date or the Subsequent Remarketing Date, as the case may be; provided that for purposes of clauses (i) and (ii), above, the Remarketing Value shall be calculated on the assumptions that (x) the U.S. Treasury securities are highly liquid and mature on or within 35 days prior to the Stock Purchase Date, as determined in good faith by the Remarketing Agent in a manner intended to minimize the Remarketing Value, and (y) the U.S. Treasury securities are valued based on the ask-side price of the Treasury securities at a time 35 41 between 9:00 a.m. and 11:00 a.m., New York City time, selected by the Remarketing Agent, on the Remarketing Date or Subsequent Remarketing Date, as the case may be, as determined on a third-day settlement basis by a reasonably and customary means selected in good faith by the Remarketing Agent, plus accrued interest to that date. (ii) If, in spite of using its commercially reasonable best efforts, the Remarketing Agent cannot remarket the Capital Securities included in the remarketing at a price equal to at least 100.5% of the Remarketing Value, the remarketing will be deemed to have failed (a "Failed Remarketing"). If a Failed Remarketing occurs, within three Business Days following the Remarketing Date, the Remarketing Agent shall return any Capital Securities delivered to it to the Collateral Agent and the Custodial Agent, as applicable. The Remarketing Agent may make one or more attempts to remarket the Capital Securities in accordance with the procedures set forth in this Section 5.2(b) and the Remarketing Agreement, provided that (i) the notice of any Subsequent Remarketing cannot be given until the Failed Remarketing notice (referred to below) has been published in respect of any immediately preceding Failed Remarketing and (ii) the settlement date in respect of any Subsequent Remarketing must fall no later than on the Business Day immediately preceding the Stock Purchase Date. If by the Stock Purchase Date the Remarketing Agent has failed to remarket the Capital Securities at 100.5% of the Remarketing Value, in accordance with the terms of the Pledge Agreement the Collateral Agent, for the benefit of the Company, may exercise its rights as a secured party with respect to such Capital Securities, including those actions specified in (b) (iii) below; provided, that if upon a Failed Remarketing, the Collateral Agent exercises such rights for the benefit of the Company with respect to such Capital Securities, any accumulated and unpaid distributions on such Capital Securities will become payable by the Company to the Agent for payment to the Holder of the Normal Units to which such Capital Securities relates. Such payment will be made by the Company on or prior to 11 a.m., New York City time, on the Stock Purchase Date in lawful money of the United States by certified or cashiers' check or wire transfer in immediately available funds payable to or upon the order of the Agent. The Company will cause a notice of any Failed Remarketing to be published on the second Business Day following the Remarketing Date and any Subsequent Remarketing Date, as the case may be, in a daily newspaper in the English language of general circulation in The City of New York, which is expected to be The Wall Street Journal. (iii) With respect to any Capital Securities which constitute part of Normal Units which are subject to a Failed Remarketing, the Collateral Agent for the benefit of the Company reserves all of its rights as a secured party with respect thereto and, subject to applicable law and paragraph (e) below, may, among other things, (x) retain such Capital Securities in full satisfaction of the Holders obligations under the Purchase Contracts or (y) sell such Capital Securities in one or more public or private sales. 36 42 (iv) A Holder of Normal Units may elect not to participate in the remarketing and retain the Capital Securities underlying such Units by notifying the Agent of such election and delivering the specific U.S. Treasury security or securities (including the CUSIP number and/or the principal terms of such security or securities) identified by the Agent that constitute the U.S. Treasury securities described in clauses (i) and (ii) of the definition of Remarketing Value relating to the retained Capital Securities (as if only such Capital Securities were being remarketed) (the "Opt-out Treasury Consideration") to the Agent not later than 10:00 a.m. on the fourth Business Day prior to the Remarketing Date (or, in the case of a Failed Remarketing, not later than 10:00 a.m. on the Business Day immediately prior to the Subsequent Remarketing Date). Upon receipt thereof by the Agent, the Agent shall deliver such Opt-out Treasury Consideration to the Collateral Agent, which will, for the benefit of the Company, thereupon apply such Opt-out Treasury Consideration to secure such Holder's obligations under the Purchase Contracts. On the first Business Day immediately preceding the Remarketing Date, the Collateral Agent, pursuant to the terms of the Pledge Agreement, will deliver the Pledged Capital Securities of such Holder to the Agent. Within three Business Days following the Remarketing Date, (i) if the remarketing was successful, the Agent shall distribute such Capital Securities to the Holders thereof, and (ii) if there was a Failed Remarketing on such date, the Agent will deliver such Capital Securities to the Collateral Agent, which will, for the benefit of the Company, thereupon apply such Capital Securities to secure such Holders' obligations under the Purchase Contract and return the Opt-out Treasury Consideration delivered by such Holders to such Holders. A Holder that does not so deliver the Opt-out Treasury Consideration pursuant to this clause (iv) shall be deemed to have elected to participate in the remarketing. (c) Upon the maturity of the Pledged Treasury Securities underlying the Stripped Units and the Pledged Treasury Consideration underlying the Normal Units, on the Stock Purchase Date, the Collateral Agent shall remit to the Company an amount equal to the aggregate Purchase Price applicable to such Units, as payment for the Common Stock issuable upon settlement thereof without receiving any instructions from the Holders of such Units. In the event the payments in respect of the Pledged Treasury Securities or the Pledged Treasury Consideration, underlying a Unit is in excess of the Purchase Price of the Purchase Contract being settled thereby, the Collateral Agent will distribute such excess to the Agent for the benefit of the Holder of such Unit when received. (d) Any distribution to Holders of excess funds and interest described in paragraphs (b) and (c) above shall be payable at the office of the Agent in The City of New York maintained for that purpose or, at the option of the Holder or the holder of separate Capital Securities, as applicable, by check mailed to the address of the Person entitled thereto at such address as it appears on the Register or by wire transfer to an account specified by the Holder or the holder of separate Capital Securities, as applicable. 37 43 (e) The obligations of each Holder to pay the Purchase Price are non-recourse obligations and except to the extent paid by Early Settlement or Merger Early Settlement, are payable solely out of the proceeds of any Collateral pledged to secure the obligations of the Holders and in no event will Holders be liable for any deficiency between such payments and the Purchase Price. (f) Notwithstanding anything to the contrary herein, the Company shall not be obligated to issue any Common Stock in respect of a Purchase Contract or deliver any certificates therefor to the Holder of the related Unit unless the Company shall have received payment in full of the aggregate Purchase Price for the shares of Common Stock to be purchased thereunder by such Holder in the manner herein set forth. Section 5.3 Issuance of Shares of Common Stock. Unless a Termination Event shall have occurred on or prior to the Stock Purchase Date or an Early Settlement or a Merger Early Settlement shall have occurred, on the Stock Purchase Date, upon its receipt of payment in full of the Purchase Price for the shares of Common Stock purchased by the Holders pursuant to the foregoing provisions of this Article and subject to Section 5.4(b), the Company shall issue and deposit with the Agent, for the benefit of the Holders of the Outstanding Securities, one or more certificates representing the newly issued shares of Common Stock registered in the name of the Agent (or its nominee) as custodian for the Holders (such certificates for shares of Common Stock, together with any dividends or distributions for which a record date and payment date for such dividend or distribution has occurred after the Stock Purchase Date, being hereinafter referred to as the "Purchase Contract Settlement Fund") to which the Holders are entitled hereunder. Subject to the foregoing, upon surrender of a Certificate to the Agent on or after the Stock Purchase Date, together with settlement instructions thereon duly completed and executed, the Holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Common Stock which such Holder is entitled to receive pursuant to the provisions of this Article V (after taking into account all Units then held by such Holder) together with cash in lieu of fractional shares as provided in Section 5.10 and any dividends or distributions with respect to such shares constituting part of the Purchase Contract Settlement Fund, but without any interest thereon, and the Certificate so surrendered shall forthwith be cancelled. Such shares shall be registered in the name of the Holder or the Holder's designee as specified in the settlement instructions provided by the Holder to the Agent. If any shares of Common Stock issued in respect of a Purchase Contract are to be registered to a Person other than the Person in whose name the Certificate evidencing such Purchase Contract is registered, no such registration shall be made unless the Person requesting such registration has paid any transfer and other taxes required by reason of such registration in a name other than that of the registered Holder of such Certificate or has established to the satisfaction of the Company that such tax either has been paid or is not payable. 38 44 Section 5.4 Adjustment of Settlement Rate. (a) Adjustments for Dividends, Distributions, Stock Splits, Etc. (1) In case the Company shall pay or make a dividend or other distribution on the Common Stock in Common Stock, the Settlement Rate, as in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by dividing such Settlement Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (1), the number of shares of Common Stock at the time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) In case the Company shall issue rights, options or warrants to all holders of its Common Stock (not being available on an equivalent basis to Holders of the Units upon settlement of the Purchase Contracts underlying such Units) entitling them, for a period expiring within 45 days after the record date for the determination of stockholders entitled to receive such rights, options or warrants, to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price per share of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than pursuant to a dividend reinvestment plan), the Settlement Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Settlement Rate by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Current Market Price and the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not issue any such rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. 39 45 (3) In case outstanding shares of Common Stock shall be subdivided or split into a greater number of shares of Common Stock, the Settlement Rate in effect at the opening of business on the day following the day upon which such subdivision or split becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Settlement Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision, split or combination becomes effective. (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in paragraph (2) of this Section, any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in paragraph (1) of this Section), the Settlement Rate shall be adjusted so that the same shall equal the rate determined by dividing the Settlement Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction, the numerator of which shall be the Current Market Price per share of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Agent) of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator of which shall be such Current Market Price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. In any case in which this paragraph (4) is applicable, paragraph (2) of this Section shall not be applicable. (5) In case the Company shall, (i) by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed in a Reorganization Event to which Section 5.4(b) applies or as part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (ii) the aggregate amount of any other distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) or paragraph (6) of this Section has been made and (iii) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender or exchange offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of the 40 46 distribution described in clause (i) above and in respect of which no adjustment pursuant to this paragraph (5) or paragraph (6) of this Section has been made, exceeds 15% of the product of the Current Market Price per share of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date for determination, the Settlement Rate shall be increased so that the same shall equal the rate determined by dividing the Settlement Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the Current Market Price per share of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the combined amount distributed or payable in the transactions described in clauses (i), (ii) and (iii) above and (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the Current Market Price per share of the Common Stock on such date for determination. (6) In case (i) a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of Purchased Shares) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (ii) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer, by the Company or any subsidiary of the Company for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (5) of this Section or this paragraph (6) has been made and (iii) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (5) of this Section or this paragraph (6) has been made, exceeds 15% of the product of the Current Market Price per share of the Common Stock as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender or exchange offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Settlement Rate shall be adjusted so that the same shall equal the rate determined by dividing the Settlement Rate immediately prior to the close of business on the date of the Expiration 41 47 Time by a fraction (i) the numerator of which shall be equal to (A) the product of (i) the Current Market Price per share of the Common Stock on the date of the Expiration Time and (ii) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the amount of cash plus the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the transactions described in clauses (i), (ii) and (iii) above (assuming in the case of clause (i) the acceptance, up to any maximum specified in the terms of the tender or exchange offer, of Purchased Shares), and (ii) the denominator of which shall be equal to the product of (A) the Current Market Price per share of the Common Stock as of the Expiration Time and (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities including securities other than Common Stock (other than any reclassification upon a Reorganization Event to which Section 5.4(b) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision, split or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision or split becomes effective" or "the day upon which such combination becomes effective," as the case may be, and "the day upon which such subdivision, split or combination becomes effective" within the meaning of paragraph (3) of this Section). (8) The "Current Market Price" per share of Common Stock on any day means the average of the daily Closing Prices for the 5 consecutive Trading Days selected by the Company commencing not more than 30 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "ex date," when used with respect to any issuance or distribution, shall mean the first date on which the Common Stock trades regular way on such exchange or in such market without the right to receive such issuance or distribution. (9) All adjustments to the Settlement Rate shall be calculated to the nearest 1/10,000th of a share of Common Stock (or if there is not a nearest 1/10,000th of a share to the next lower 1/10,000th of a share). No adjustment in the Settlement Rate shall be 42 48 required unless such adjustment would require an increase or decrease of at least one percent therein; provided, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. If an adjustment is made to the Settlement Rate pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10) of this Section 5.4(a), an adjustment shall also be made to the Applicable Market Value solely to determine which of clauses (a), (b) or (c) of the definition of Settlement Rate in Section 5.1 will apply on the Stock Purchase Date. Such adjustment shall be made by multiplying the Applicable Market Value by a fraction, the numerator of which shall be the Settlement Rate immediately after such adjustment pursuant to paragraph (1), (2), (3), (4), (5), (6), (7) or (10) of this Section 5.4(a) and the denominator of which shall be the Settlement Rate immediately before such adjustment; provided, that if such adjustment to the Settlement Rate is required to be made pursuant to the occurrence of any of the events contemplated by paragraph (1), (2), (3), (4), (5), (7) or (10) of this Section 5.4(a) during the period taken into consideration for determining the Applicable Market Value, appropriate and customary adjustments shall be made to the Settlement Rate. (10) The Company may make such increases in the Settlement Rate, in addition to those required by this Section, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. (b) Adjustment for Consolidation, Merger or Other Reorganization Event. In the event of (i) any consolidation or merger of the Company with or into another Person (other than a merger or consolidation in which the Company is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation is not exchanged for cash, securities or other property of the Company or another corporation), (ii) any sale, transfer, lease or conveyance to another Person of the property of the Company as an entirety or substantially as an entirety, (iii) any statutory exchange of securities of the Company with another Person (other than in connection with a merger or acquisition) or (iv) any liquidation, dissolution or winding up of the Company other than as a result of or after the occurrence of a Termination Event (any such event, a "Reorganization Event"), the Settlement Rate will be adjusted to provide that each Holder of Units will receive on the Stock Purchase Date with respect to each Purchase Contract forming a part thereof, the kind and amount of securities, cash and other property receivable upon such Reorganization Event (without any interest thereon, and without any right to dividends or distribution thereon which have a record date that is prior to the Stock Purchase Date) by a Holder of the number of shares of Common Stock issuable on account of each Purchase Contract if the Stock Purchase Date had occurred immediately 43 49 prior to such Reorganization Event assuming such Holder of Common Stock is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (any such Person, a "Constituent Person"), or an Affiliate of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Stock held by Affiliates of the Company and non-Affiliates and such Holder failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Reorganization Event (provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each share of Common Stock held immediately prior to such Reorganization Event by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section the kind and amount of securities, cash and other property receivable upon such Reorganization Event by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). In the event of such a Reorganization Event, the Person formed by such consolidation, merger or exchange or the Person which acquires the assets of the Company or, in the event of a liquidation or dissolution of the Company, the Company or a liquidating trust created in connection therewith, shall execute and deliver to the Agent an agreement supplemental hereto providing that the Holder of each Outstanding Security shall have the rights provided by this Section 5.4. Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section. The above provisions of this Section shall similarly apply to successive Reorganization Events. Section 5.5 Notice of Adjustments and Certain Other Events. (a) Whenever the Settlement Rate is adjusted as herein provided, the Company shall: (i) forthwith compute the Settlement Rate in accordance with Section 5.4 and prepare and transmit to the Agent an Officer's Certificate setting forth the Settlement Rate, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and (ii) within 10 Business Days following the occurrence of an event that requires an adjustment to the Settlement Rate pursuant to Section 5.4 (or if the Company is not aware of such occurrence, as soon as practicable after becoming so aware), provide a written notice to the Holders of the Units of the occurrence of such event and a statement in reasonable detail setting forth the method by which the adjustment to the Settlement Rate was determined and setting forth the adjusted Settlement Rate. 44 50 (b) The Agent shall not at any time be under any duty or responsibility to any Holder of Units to determine whether any facts exist which may require any adjustment of the Settlement Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed in making the same. The Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at the time be issued or delivered with respect to any Purchase Contract; and the Agent makes no representation with respect thereto. The Agent shall not be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock pursuant to a Purchase Contract or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article. Section 5.6 Termination Event; Notice. The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder, including the rights and obligations of Holders to purchase Common Stock, shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Agent or the Company, if, on or prior to the Stock Purchase Date, a Termination Event shall have occurred. Upon and after the occurrence of a Termination Event, the Normal Units shall thereafter represent the right to receive the Capital Securities or the appropriate Treasury Consideration, as the case may be, forming a part of such Normal Units, and the Stripped Units shall thereafter represent the right to receive the Treasury Securities forming a part of such Stripped Units, in each case in accordance with the provisions of Section 4.3 of the Pledge Agreement. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Agent, the Collateral Agent and to the Holders, at their addresses as they appear in the Register. Section 5.7 Early Settlement. (a) Subject to and upon compliance with the provisions of this Section 5.7, Purchase Contracts underlying Units having an aggregate Stated Amount equal to $1,000 or an integral multiple thereof, may, at the option of the Holder thereof, be settled early ("Early Settlement") on or prior to the seventh Business Day immediately preceding the Remarketing Date or any Subsequent Remarketing Date. In order to exercise the right to effect Early Settlement with respect to any Purchase Contracts, the Holder of the Certificate evidencing the related Units shall deliver such Certificate to the Agent at the Corporate Trust office duly endorsed for transfer to the Company or in blank with the form of Election to Settle Early on the reverse thereof duly completed and accompanied by payment (payable to the Company in immediately available funds in an amount (the "Early Settlement Amount") equal to the product of (A) the Stated Amount of such Units times (B) the number of Purchase Contracts with respect to which the Holder has elected to effect Early Settlement. No payment or adjustment shall be made upon Early Settlement of any Purchase Contract on account of any dividends on 45 51 the Common Stock issued upon such Early Settlement. If the foregoing requirements are first satisfied with respect to Purchase Contracts underlying any Unit at or prior to 5:00 p.m., New York City time, on a Business Day, such day shall be the "Early Settlement Date" with respect to such Unit and if such requirements are first satisfied after 5:00 p.m., New York City time, on a Business Day or on a day that is not a Business Day, the "Early Settlement Date" with respect to such Units shall be the next succeeding Business Day. (b) Upon Early Settlement of any Purchase Contract by the Holder of the related Units, the Company shall issue, and the Holder shall be entitled to receive, - shares of Common Stock on account of such Purchase Contract (the "Early Settlement Rate"). The Early Settlement Rate shall be adjusted in the same manner and at the same time as the Settlement Rate is adjusted. As promptly as practicable after Early Settlement of Purchase Contracts in accordance with the provisions of this Section 5.7, the Company shall issue and shall deliver to the Agent at the Corporate Trust Office a certificate or certificates for the full number of shares of Common Stock issuable upon such Early Settlement together with payment in lieu of any fraction of a share, as provided in Section 5.10. (c) No later than the third Business Day after the applicable Early Settlement Date the Company shall cause (i) the shares of Common Stock issuable upon Early Settlement of Purchase Contracts to be issued and delivered, and (ii) the related Pledged Capital Securities or Pledged Treasury Consideration, in the case of Normal Units, or the related Pledged Treasury Securities, in the case of Stripped Units, to be released from the Pledge by the Collateral Agent and transferred, in each case, to the Agent for delivery to the Holder thereof or the Holder's designee. (d) Upon Early Settlement of any Purchase Contracts, and subject to receipt of shares of Common Stock from the Company and the Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, from the Collateral Agent, as applicable, the Agent shall, in accordance with the instructions provided by the Holder thereof on the applicable form of Election to Settle Early on the reverse of the Certificate evidencing the related Units, (i) transfer to the Holder the Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, forming a part of such Units, and (ii) deliver to the Holder a certificate or certificates for the full number of shares of Common Stock issuable upon such Early Settlement together with payment in lieu of any fraction of a share, as provided in Section 5.10. (e) In the event that Early Settlement is effected with respect to Purchase Contracts underlying less than all the Units evidenced by a Certificate, upon such Early Settlement the Company shall execute and the Agent shall authenticate, countersign and 46 52 deliver to the Holder thereof, at the expense of the Company, a Certificate evidencing the Units as to which Early Settlement was not effected. Section 5.8 Early Settlement Upon Merger. (a) In the event of a merger or consolidation of the Company of the type described in clause (i) of Section 5.4(b) in which the Common Stock outstanding immediately prior to such merger or consolidation is exchanged for consideration consisting of at least 30% cash or cash equivalents (any such event a "Cash Merger"), then the Company (or the successor to the Company hereunder) shall be required to offer the Holder of each Unit the right to settle the Purchase Contract underlying such Unit prior to the Stock Purchase Date ("Merger Early Settlement") as provided herein. On or before the fifth Business Day after the consummation of a Cash Merger, the Company or, at the request and expense of the Company, the Agent, shall give all Holders notice of the occurrence of the Cash Merger and of the right of Merger Early Settlement arising as a result thereof. The Company shall also deliver a copy of such notice to the Agent and the Collateral Agent. Each such notice shall contain: (i) the date, which shall be not less than 20 nor more than 30 calendar days after the date of such notice, on which the Merger Early Settlement will be effected (the "Merger Early Settlement Date"); (ii) the date, which shall be three Business Days prior to the Merger Early Settlement Date, by which the Merger Early Settlement right must be exercised; (iii) the Settlement Rate in effect as a result of such Cash Merger and the kind and amount of securities, cash and other property receivable by the Holder upon settlement of each Purchase Contract pursuant to Section 5.4(b); (iv) a statement to the effect that all or a portion of the Purchase Price payable by the Holder to settle the Purchase Contract will be offset against the amount of cash so receivable upon exercise of Merger Early Settlement, as applicable; and (v) the instructions a Holder must follow to exercise the Merger Early Settlement right. (b) To exercise a Merger Early Settlement right, a Holder shall deliver to the Agent at the Corporate Trust Office on or before 5:00 p.m., New York City time on the date specified in the notice the Certificate(s) evidencing the Units with respect to which 47 53 the Merger Early Settlement right is being exercised duly endorsed for transfer to the Company or in blank with the form of Election to Settle Early on the reverse thereof duly completed and accompanied by payment (payable to the Company in immediately available funds in an amount equal to the Early Settlement Amount less the amount of cash that otherwise would be deliverable by the Company or its successor upon settlement of the Purchase Contract in lieu of Common Stock pursuant to Section 5.4(b) and as described in the notice to Holders (the "Merger Early Settlement Amount"). (c) On the Merger Early Settlement Date the Company shall deliver or cause to be delivered (i) the net cash, securities and other property to be received by such exercising Holder, equal to the Settlement Rate as adjusted pursuant to Section 5.4, in respect of the number of Purchase Contracts for which such Merger Early Settlement right was exercised, and (ii) the related Pledged Capital Securities or Pledged Treasury Consideration, in the case of Normal Units, or Pledged Treasury Securities, in the case of Stripped Units, to be released from the Pledge by the Collateral Agent and transferred, in each case, to the Agent for delivery to the Holder thereof or its designee. In the event a Merger Early Settlement right shall be exercised by a Holder in accordance with the terms hereof, all references herein to Stock Purchase Date shall be deemed to refer to such Merger Early Settlement Date. (d) Upon Merger Early Settlement of any Purchase Contracts, and subject to receipt of such net cash, securities or other property from the Company and the Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, from the Collateral Agent, as applicable, the Agent shall, in accordance with the instructions provided by the Holder thereof on the applicable form of Election to Settle Early on the reverse of the Certificate evidencing the related Units, (i) transfer to the Holder the Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, forming a part of such Units, and (ii) deliver to the Holder such net cash, securities or other property issuable upon such Merger Early Settlement together with payment in lieu of any fraction of a share, as provided in Section 5.10. (e) In the event that Merger Early Settlement is effected with respect to Purchase Contracts underlying less than all the Units evidenced by a Certificate, upon such Merger Early Settlement the Company (or the successor to the Company hereunder) shall execute and the Agent shall authenticate, countersign and deliver to the Holder thereof, at the expense of the Company, a Certificate evidencing the Units as to which Merger Early Settlement was not effected. Section 5.9 Charges and Taxes. The Company will pay all stock transfer and similar taxes attributable to the initial issuance and delivery of the shares of Common 48 54 Stock pursuant to the Purchase Contracts; provided, that the Company shall not be required to pay any such tax or taxes which may be payable in respect of any exchange of or substitution for a Certificate evidencing a Unit or any issuance of a share of Common Stock in a name other than that of the registered Holder of a Certificate surrendered in respect of the Units evidenced thereby, other than in the name of the Agent, as custodian for such Holder, and the Company shall not be required to issue or deliver such share certificates or Certificates unless and until the Person or Persons requesting the transfer or issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 5.10 No Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued or delivered upon settlement on the Stock Purchase Date or upon Early Settlement or Merger Early Settlement of any Purchase Contracts. If Certificates evidencing more than one Purchase Contract shall be surrendered for settlement at one time by the same Holder, the number of full shares of Common Stock which shall be delivered upon settlement shall be computed on the basis of the aggregate number of Purchase Contracts evidenced by the Certificates so surrendered. Instead of any fractional share of Common Stock which would otherwise be deliverable upon settlement of any Purchase Contracts on the applicable Settlement Date or upon Early Settlement or Merger Early Settlement, the Company, through the Agent, shall make a cash payment in respect of such fractional shares in an amount equal to the value of such fractional shares times the Applicable Market Value. The Company shall provide the Agent from time to time with sufficient funds to permit the Agent to make all cash payments required by this Section 5.10 in a timely manner. ARTICLE VI REMEDIES Section 6.1 Unconditional Right of Holders to Purchase Common Stock. The Holder of any Unit shall have the right, which is absolute and unconditional, to purchase Common Stock pursuant to the Purchase Contract constituting a part of such Unit and to institute suit for the enforcement of any such right to purchase Common Stock, and such rights shall not be impaired without the consent of such Holder. Section 6.2 Restoration of Rights and Remedies. If any Holder has instituted any proceeding to enforce any right or remedy under this Agreement and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to such Holder, then and in every such case, subject to any determination in such proceeding, the Company and such Holder shall be restored severally and respectively to their former 49 55 positions hereunder and thereafter all rights and remedies of such Holder shall continue as though no such proceeding had been instituted. Section 6.3 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates in the last paragraph of Section 3.10, no right or remedy herein conferred upon or reserved to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.4 Delay or Omission Not Waiver. No delay or omission of any Holder to exercise any right or remedy upon a default shall impair any such right or remedy or constitute a waiver of any such right. Every right and remedy given by this Article or by law to the Holders may be exercised from time to time, and as often as may be deemed expedient, by such Holders. Section 6.5 Undertaking for Costs. All parties to this Agreement agree, and each Holder of a Unit, by its acceptance of such Unit shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Agreement, or in any suit against the Agent for any action taken, suffered or omitted by it as Agent, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Agent, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of distributions on any Capital Securities on any Purchase Contract on or after the respective Payment Date therefor in respect of any Unit held by such Holder, or for enforcement of the right to purchase shares of Common Stock under the Purchase Contract constituting part of any Unit held by such Holder. Section 6.6 Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Agreement; and the Company (to the extent that it may lawfully 50 56 do so) hereby expressly waives all benefit or advantage of any such law, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VII THE AGENT Section 7.1 Certain Duties and Responsibilities. (a)(1) The Agent undertakes to perform, with respect to the Units and Separate Capital Securities, such duties and only such duties as are specifically set forth in this Agreement and the Pledge Agreement, and no implied covenants or obligations shall be read into this Agreement against the Agent; and (2) in the absence of bad faith, willful misconduct or negligence on its part, the Agent may, with respect to the Units and Separate Capital Securities, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Agent and conforming to the requirements of this Agreement, but in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Agent, the Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. (b) No provision of this Agreement shall be construed to relieve the Agent from liability for its own negligent action, its own negligent failure to act, its own bad faith, or its own willful misconduct, except that: (1) this paragraph shall not be construed to limit the effect of paragraph (a) of this Section; (2) the Agent shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Agent was negligent in ascertaining the pertinent facts; and (3) no provision of this Agreement shall require the Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if adequate indemnity is not provided to it. (c) Whether or not therein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Agent shall be subject to the provisions of this Section. 51 57 (d) The Agent is authorized to execute and deliver the Pledge Agreement in its capacity as Agent. Section 7.2 Notice of Default. Within 30 days after the occurrence of any default by the Company hereunder of which a Responsible Officer of the Agent has actual knowledge, the Agent shall transmit by mail to the Company and the Holders of Units, as their names and addresses appear in the Register, notice of such default hereunder, unless such default shall have been cured or waived. Section 7.3 Certain Rights of Agent. Subject to the provisions of Section 7.1: (a) the Agent may, in absence of bad faith, conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by an Officer's Certificate, Issuer Order or Issuer Request, and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Agreement the Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate of the Company; (d) the Agent may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Agent, in its discretion, may make reasonable further inquiry or investigation into such facts or matters related to the execution, delivery and performance of the Purchase Contracts as it may see fit, and, if the Agent shall determine to make such further inquiry or investigation, it shall be 52 58 given a reasonable opportunity to examine the books, records and premises of the Company, personally or by agent or attorney; and (f) the Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or an Affiliate of the Agent and the Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney or an Affiliate appointed with due care by it hereunder. Section 7.4 Not Responsible for Recitals or Issuance of Units. The recitals contained herein and in the Certificates shall be taken as the statements of the Company and the Agent assumes no responsibility for their accuracy. The Agent makes no representations as to the validity or sufficiency of either this Agreement or of the Units, or of the Pledge Agreement or the Pledge. The Agent shall not be accountable for the use or application by the Company of the proceeds in respect of the Purchase Contracts. Section 7.5 May Hold Units. Any Registrar or any other agent of the Company, or the Agent and its Affiliates, in their individual or any other capacity, may become the owner or pledgee of Units and may otherwise deal with the Company, the Collateral Agent or any other Person with the same rights it would have if it were not Registrar or such other agent, or the Agent. Section 7.6 Money Held in Custody. Money held by the Agent in custody hereunder need not be segregated from the Agent's other funds except to the extent required by law or provided herein. The Agent shall be under no obligation to invest or pay interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 7.7 Compensation and Reimbursement. The Company agrees: (1) to pay to the Agent from time to time reasonable compensation for all services rendered by it hereunder; (2) except as otherwise expressly provided herein, to reimburse the Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Agent in accordance with any provision of this Agreement (including the reasonable compensation and the reasonable expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, willful misconduct or bad faith; and (3) to indemnify the Agent and any predecessor Agent for, and to hold it harmless against, any loss, liability or expense incurred without negligence, willful 53 59 misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The provisions of this Section 7.7 shall survive the termination of this Agreement. Section 7.8 Corporate Agent Required; Eligibility. There shall at all times be an Agent hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having (or being a member of a bank holding company having) a combined capital and surplus of at least $50,000,000, subject to supervision or examination by federal or state authority and having a Corporate Trust Office in the Borough of Manhattan, The City of New York, if there be such a corporation, qualified and eligible under this Article and willing to act on reasonable terms. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 7.9 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Agent and no appointment of a successor Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Agent in accordance with the applicable requirements of Section 7.10. (b) The Agent may resign at any time by giving written notice thereof to the Company 60 days prior to the effective date of such resignation. If the instrument of acceptance by a successor Agent required by Section 7.10 shall not have been delivered to the Agent within 30 days after the giving of such notice of resignation, the resigning Agent may petition any court of competent jurisdiction for the appointment of a successor Agent. (c) The Agent may be removed at any time by Act of the Holders of a majority in number of the Outstanding Securities delivered to the Agent and the Company. 54 60 (d) If at any time (1) the Agent fails to comply with Section 310(b) of the TIA, as if the Agent were an indenture trustee under an indenture qualified under the TIA, after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Unit for at least six months, or (2) the Agent shall cease to be eligible under Section 7.8 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Agent shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Agent or of its property shall be appointed or any public officer shall take charge or control of the Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (x) the Company by a Board Resolution may remove the Agent, or (y) any Holder who has been a bona fide Holder of a Unit for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Agent and the appointment of a successor Agent. (e) If the Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Agent for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Agent and shall comply with the applicable requirements of Section 7.10. If no successor Agent shall have been so appointed by the Company and accepted appointment in the manner required by Section 7.10, any Holder who has been a bona fide Holder of a Unit for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Agent. (f) The Company shall give, or shall cause such successor Agent to give, notice of each resignation and each removal of the Agent and each appointment of a successor Agent by mailing written notice of such event by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the applicable Register. Each notice shall include the name of the successor Agent and the address of its Corporate Trust Office. Section 7.10 Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Agent, every such successor Agent so appointed shall execute, acknowledge and deliver to the Company and to the retiring Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Agent shall become effective and such successor Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, agencies and duties 55 61 of the retiring Agent; but, on the request of the Company or the successor Agent, such retiring Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Agent all the rights, powers and trusts of the retiring Agent and shall duly assign, transfer and deliver to such successor Agent all property and money held by such retiring Agent hereunder. (b) Upon request of any such successor Agent, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Agent all such rights, powers and agencies referred to in paragraph (a) of this Section. (c) No successor Agent shall accept its appointment unless at the time of such acceptance such successor Agent shall be qualified and eligible under this Article. Section 7.11 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Agent shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Agent, shall be the successor of the Agent hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Certificates shall have been authenticated and executed on behalf of the Holders, but not delivered, by the Agent then in office, any successor by merger, conversion or consolidation to such Agent shall adopt such authentication and execution and deliver the Certificates so authenticated and executed with the same effect as if such successor Agent had itself authenticated and executed such Units. Section 7.12 Preservation of Information; Communications to Holders. (a) The Agent shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders received by the Agent in its capacity as Registrar. (b) If three or more Holders (herein referred to as "applicants") apply in writing to the Agent, and furnish to the Agent reasonable proof that each such applicant has owned a Unit for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Agreement or under the Units and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Agent shall mail to all the Holders copies of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Agent of the materials to be mailed and of payment, or provision, in the 56 62 absence of bad faith, satisfactory to the Agent for the payment, of the reasonable expenses of such mailing. Section 7.13 No Obligations of Agent. Except to the extent otherwise provided in this Agreement, the Agent assumes no obligation and shall not be subject to any liability under this Agreement, the Pledge Agreement or any Purchase Contract in respect of the obligations of the Holder of any Unit thereunder. The Company agrees, and each Holder of a Certificate, by such Holder's acceptance thereof, shall be deemed to have agreed, that the Agent's execution of the Certificates on behalf of the Holders shall be solely as agent and attorney-in-fact for the Holders, and that the Agent shall have no obligation to perform such Purchase Contracts on behalf of the Holders, except to the extent expressly provided in Article Five. Section 7.14 Tax Compliance. (a) The Agent, on its own behalf and on behalf of the Company, will comply with all applicable certification, information reporting and withholding (including "backup" withholding) requirements imposed by applicable tax laws, regulations or administrative practice with respect to (i) any payments made with respect to the Units or (ii) the issuance, delivery, holding, transfer, redemption or exercise of rights under the Units. Such compliance shall include, without limitation, the preparation and timely filing of required returns and the timely payment of all amounts required to be withheld to the appropriate taxing authority or its designated agent. (b) The Agent shall comply with any reasonable written direction timely received from the Company with respect to the application of such requirements to particular payments or Holders or in other particular circumstances, and may for purposes of this Agreement rely on any such direction in accordance with the provisions of Section 7.1(a)(2). (c) The Agent shall maintain all appropriate records documenting compliance with such requirements, and shall make such records available, on written request, to the Company or its authorized representative within a reasonable period of time after receipt of such request. ARTICLE VIII SUPPLEMENTAL AGREEMENTS Section 8.1 Supplemental Agreements Without Consent of Holders. Without the consent of any Holders, the Company and the Agent, at any time and from time to time, may enter into one or more agreements supplemental hereto, in form satisfactory to the Company and the Agent, for any of the following purposes: 57 63 (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Certificates; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to evidence and provide for the acceptance of appointment hereunder by a successor Agent; or (4) to make provision with respect to the rights of Holders pursuant to the requirements of Section 5.4(b) or 5.8; or (5) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein, or to make any other provisions with respect to such matters or questions arising under this Agreement, provided such action shall not adversely affect the interests of the Holders. Section 8.2 Supplemental Agreements with Consent of Holders. With the consent of the Holders of not less than a majority of the outstanding Purchase Contracts voting together as one class, by Act of said Holders delivered to the Company and the Agent, the Company, when authorized by a Board Resolution, and the Agent may enter into an agreement or agreements supplemental hereto for the purpose of modifying in any manner the terms of the Purchase Contracts, or the provisions of this Agreement or the rights of the Holders in respect of the Units; provided, that, except as contemplated herein, no such supplemental agreement shall, without the consent of the Holder of each Outstanding Security affected thereby: (1) change any Payment Date; (2) change the amount or the type of Collateral required to be Pledged to secure a Holder's Obligations under the Purchase Contract, impair the right of the Holder of any Purchase Contract to receive distributions on the related Collateral (except for the rights of Holders of Normal Units to substitute the Treasury Securities for the Pledged Capital Securities or Pledged Treasury Consideration or the rights of holders of Stripped Units to substitute Capital Securities or appropriate Treasury Consideration for the Pledged Treasury Securities) or otherwise adversely affect the Holder's rights in or to such Collateral or materially adversely alter the rights in or to such Collateral; 58 64 (3) impair the right to institute suit for the enforcement of any Purchase Contract; (4) reduce the number of shares of Common Stock to be purchased pursuant to any Purchase Contract, increase the price to purchase shares of Common Stock upon settlement of any Purchase Contract, change the Stock Purchase Date or otherwise materially adversely affect the Holder's rights under any Purchase Contract; or (5) reduce the percentage of the outstanding Purchase Contracts the consent of whose Holders is required for any such supplemental agreement; provided, that if any amendment or proposal referred to above would adversely affect only the Normal Units or the Stripped Units, then only the affected class of Holder as of the record date for the Holders entitled to vote thereon will be entitled to vote on such amendment or proposal, and such amendment or proposal shall not be effective except with the consent of Holders of not less than a majority of such class. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such Act shall approve the substance thereof. Section 8.3 Execution of Supplemental Agreements. In executing, or accepting the additional agencies created by, any supplemental agreement permitted by this Article or the modifications thereby of the agencies created by this Agreement, the Agent shall be provided and (subject to Section 7.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental agreement is authorized or permitted by this Agreement. The Agent may, but shall not be obligated to, enter into any such supplemental agreement which affects the Agent's own rights, duties or immunities under this Agreement or otherwise. Section 8.4 Effect of Supplemental Agreements. Upon the execution of any supplemental agreement under this Article, this Agreement shall be modified in accordance therewith, and such supplemental agreement shall form a part of this Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated, executed on behalf of the Holders and delivered hereunder shall be bound thereby. Section 8.5 Reference to Supplemental Agreements. Certificates authenticated, executed on behalf of the Holders and delivered after the execution of any supplemental agreement pursuant to this Article may, and shall if required by the Agent, bear a notation in form approved by the Agent as to any matter provided for in such supplemental agreement. If the Company shall so determine, new Certificates so modified as to 59 65 conform, in the opinion of the Agent and the Company, to any such supplemental agreement may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Agent in exchange for Outstanding Certificates. ARTICLE IX CONSOLIDATION, MERGER, SALE OR CONVEYANCE Section 9.1 Covenant Not to Merge, Consolidate, Sell or Convey Property Except Under Certain Conditions. The Company covenants that it will not (a) merge or consolidate with any other Person or (b) sell, assign, transfer, lease or convey all or substantially all of its properties and assets to any Person or group of affiliated Persons in one transaction or a series of related transactions other than, with respect to clause (b), a direct or indirect wholly-owned subsidiary of the Company, unless (i) either the Company shall be the continuing corporation, or the successor (if other than the Company) shall be a corporation organized and existing under the laws of the United States of America or a State thereof or the District of Columbia and such corporation shall expressly assume all the obligations of the Company under the Purchase Contracts, the Debentures, the Capital Securities Guarantee, this Agreement, the Remarketing Agreement, and the Pledge Agreement by one or more supplemental agreements in form reasonably satisfactory to the Agent and the Collateral Agent, executed and delivered to the Agent and the Collateral Agent by such corporation, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale, assignment, transfer, lease or conveyance, be in default in the performance of any covenant or condition hereunder, under any of the Units or under the Pledge Agreement. Section 9.2 Rights and Duties of Successor Corporation. In case of any such consolidation, merger, sale, assignment, transfer, lease or conveyance and upon any such assumption by a successor corporation in accordance with Section 9.1, such successor corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as the Company. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any or all of the Certificates evidencing Units issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Agent; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Agreement prescribed, the Agent shall authenticate and execute on behalf of the Holders and deliver any Certificates which previously shall have been signed and delivered by the officers of the Company to the Agent for authentication and execution, and any Certificate evidencing Units which such successor corporation thereafter shall cause to be signed and delivered to the Agent for that purpose. All the Certificates so issued shall in all respects have the same legal rank and benefit under this 60 66 Agreement as the Certificates theretofore or thereafter issued in accordance with the terms of this Agreement as though all of such Certificates had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, assignment, transfer, lease or conveyance such change in phraseology and form (but not in substance) may be made in the Certificates evidencing Units thereafter to be issued as may be appropriate. Section 9.3 Opinion of Counsel Given to Agent. The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, assignment, transfer, lease or conveyance, and any such assumption, complies with the provisions of this Article and that all conditions precedent to the consummation of any such consolidation, merger, sale, assignment, transfer, lease or conveyance have been met. ARTICLE X COVENANTS Section 10.1 Performance Under Purchase Contracts. The Company covenants and agrees for the benefit of the Holders from time to time of the Units that it will duly and punctually perform its obligations under the Purchase Contracts in accordance with the terms of the Purchase Contracts and this Agreement. Section 10.2 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York an office or agency where Certificates may be presented or surrendered for acquisition of shares of Common Stock upon settle ment of the Purchase Contracts on any Settlement Date and for transfer of Collateral upon occurrence of a Termination Event, where Certificates may be surrendered for registration of transfer or exchange, for a Collateral Substitution or reestablishment of Normal Units and where notices and demands to or upon the Company in respect of the Units and this Agreement may be served. The Company will give prompt written notice to the Agent of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Agent with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Company hereby appoints the Agent as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where Certificates may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, that no such designation 61 67 or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Agent of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates as the place of payment for the Units the Corporate Trust Office and appoints the Agent at its Corporate Trust Office as paying agent in such city. Section 10.3 Company to Reserve Common Stock. The Company shall at all times prior to the Stock Purchase Date reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock the full number of shares of Common Stock issuable against tender of payment in respect of all Purchase Contracts constituting a part of the Units evidenced by Outstanding Certificates. Section 10.4 Covenants as to Common Stock. The Company covenants that all shares of Common Stock which may be issued against tender of payment in respect of any Purchase Contract constituting a part of the Outstanding Securities will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable. Section 10.5 Statements of Officer of the Company as to Default. The Company will deliver to the Agent, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officer's Certificate, stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions hereof, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which such Officer may have knowledge. 62 68 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. METLIFE, INC. By: ---------------------------------- Name: Title: BANK ONE TRUST COMPANY, N.A. as Purchase Contract Agent By: ---------------------------------- Name: Title: 63 69 EXHIBIT A THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT. Unless this Certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the Company or its agent for registration of transfer, exchange or payment, and any Certificate issued is registered in the name of Cede & Co., or such other name as requested by an authorized representative of The Depository Trust Company, and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. No. Cusip No. 59156R207 Number of Normal Units Form of Face of Normal Units Certificate This Normal Units Certificate certifies that Cede & Co. is the registered Holder of the number of Normal Units set forth above. Each Normal Unit represents (i) either (a) beneficial ownership by the Holder of one -% Capital Security (the "Capital Security") of MetLife Capital Trust I, a Delaware statutory business trust (the "Trust"), having a stated liquidation amount of $50, subject to the Pledge of such Capital Security by such Holder pursuant to the Pledge Agreement, or (b) if the Capital Security has been remarketed by the Remarketing Agent (or if the Holder has elected not to have the Capital Security remarketed by delivering the appropriate Treasury Consideration specified by the Remarketing Agent), the appropriate Treasury Consideration, subject to the Pledge of such Treasury Consideration by such Holder pursuant to the Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with MetLife, Inc., a Delaware corporation (the "Company"). All capitalized terms used herein which are defined in the Purchase Contract Agreement have the meaning set forth therein. 70 Pursuant to the Pledge Agreement, the Capital Security or the appropriate Treasury Consideration, as the case may be, constituting part of each Normal Unit evidenced hereby has been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising a part of such Normal Unit. The Pledge Agreement provides that all payments in respect of the Pledged Capital Securities or Pledged Treasury Consideration received by the Collateral Agent shall be paid by the Collateral Agent by wire transfer in same day funds (i) in the case of (A) quarterly cash distributions on Normal Units which include Pledged Capital Securities or Pledged Treasury Consideration and (B) any payments of the Capital Securities or Treasury Consideration, as the case may be, that have been released from the Pledge pursuant to the Pledge Agreement, to the Agent to the account designated by the Agent, no later than 10:00 a.m., New York City time, on the Business Day such payment is received by the Collateral Agent (provided that in the event such payment is received by the Collateral Agent on a day that is not a Business Day or after 9:00 a.m., New York City time, on a Business Day, then such payment shall be made no later than 9:30 a.m., New York City time, on the next succeeding Business Day) and (ii) in the case of payments in respect of any Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, to be paid upon settlement of such Holder's obligations to purchase Common Stock under the Purchase Contract, to the Company on the Stock Purchase Date (as defined herein) in accordance with the terms of the Pledge Agreement, in full satisfaction of the respective obligations of the Holders of the Normal Units of which such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, are a part under the Purchase Contracts forming a part of such Normal Units. Quarterly distributions on Normal Units which include Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, which are payable quarterly in arrears on February 15, May 15, August 15 and November 15 each year, commencing August 15, 2000 (a "Payment Date"), shall, subject to receipt thereof by the Agent from the Collateral Agent, be paid to the Person in whose name this Normal Units Certificate (or a Predecessor Normal Units Certificate) is registered at the close of business on the Record Date for such Payment Date. Each Purchase Contract evidenced hereby obligates the Holder of this Normal Units Certificate to purchase, and the Company to sell, on May 15, 2003 (the "Stock Purchase Date"), at a price equal to $50 (the "Stated Amount"), a number of shares of common stock, $0.01 par value per share ("Common Stock"), of the Company, equal to the Settlement Rate, unless on or prior to the Stock Purchase Date there shall have occurred a Termination Event or an Early Settlement or Merger Early Settlement with respect to the Normal Units of which such Purchase Contract is a part, all as provided in the Purchase Contract Agreement and more fully described on the reverse hereof. The A-2 71 Purchase Price (as defined herein) for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby, if not paid earlier, shall be paid on the Stock Purchase Date by application of payments received in respect of the Pledged Capital Securities or the Pledged Treasury Consideration, as the case may be, pledged to secure the obligations of the Holder under such Purchase Contract. Distributions on the Capital Securities or payments on the appropriate Treasury Consideration (as specified in clause (i) of the definition of the Remarketing Value), as the case may be, will be payable at the office of the Agent in The City of New York or, at the option of the Company, by check mailed to the address of the Person entitled thereto as such address appears on the Normal Units Register or by wire transfer to an account specified by the Company. Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Agent by manual signature, this Normal Units Certificate shall not be entitled to any benefit under the Pledge Agreement or the Purchase Contract Agreement or be valid or obligatory for any purpose. A-3 72 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. METLIFE, INC. By: __________________________________ Name: Title: By: __________________________________ Name: Title: HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts evidenced hereby) By: Bank One Trust Company, N.A., not individually but solely as Attorney-in-Fact of such Holder By: __________________________________ Name: Title: Dated: A-4 73 AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Normal Units Certificates referred to in the within mentioned Purchase Contract Agreement. BANK ONE TRUST COMPANY, N.A., as Purchase Contract Agent By: __________________________________ Authorized officer A-5 74 (Form of Reverse of Normal Units Certificate) Each Purchase Contract evidenced hereby is governed by a Purchase Contract Agreement, dated as of April , 2000 (as may be supplemented from time to time, the "Purchase Contract Agreement"), between the Company and Bank One Trust Company, N.A., as Purchase Contract Agent (including its successors thereunder, herein called the "Agent"), to which Purchase Contract Agreement and supplemental agreements thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Agent, the Company, and the Holders and of the terms upon which the Normal Units Certificates are, and are to be, executed and delivered. Each Purchase Contract evidenced hereby obligates the Holder of this Normal Units Certificate to purchase, and the Company to sell, on the Stock Purchase Date at a price equal to $50 (the "Purchase Price"), a number of shares of Common Stock of the Company equal to the Settlement Rate, unless, on or prior to the Stock Purchase Date, there shall have occurred a Termination Event or an Early Settlement or Merger Early Settlement with respect to the Unit of which such Purchase Contract is a part. The "Settlement Rate" is equal to (a) if the Applicable Market Value (as defined below) is greater than $- (the "Threshold Appreciation Price"), - shares of Common Stock per Purchase Contract, (b) if the Applicable Market Value is less than the Threshold Appreciation Price but is greater than $-, the number of shares of Common Stock per Purchase Contract equal to the Stated Amount divided by the Applicable Market Value and (c) if the Applicable Market Value is less than $-, - shares of Common Stock per Purchase Contract, in each case subject to adjustment as provided in the Purchase Contract Agreement. No fractional shares of Common Stock will be issued upon settlement of Purchase Contracts, as provided in the Purchase Contract Agreement. The "Applicable Market Value" means the average of the Closing Price per share of Common Stock on each of the 20 consecutive Trading Days ending on the third Trading Day immediately preceding the Stock Purchase Date. The "Closing Price" of the Common Stock on any date of determination means the closing sale price (or, if no closing price is reported, the last reported sale price) of the Common Stock on the New York Stock Exchange (the "NYSE") on such date or, if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, or if the Common Stock is not so listed on a United States national or regional securities exchange, as reported by The Nasdaq Stock Market, or, if the Common Stock is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar A-6 75 organization, or, if such bid price is not available, the market value of the Common Stock on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company. A "Trading Day" means a day on which the Common Stock (A) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. Each Purchase Contract evidenced hereby may be settled prior to the Stock Purchase Date through Early Settlement or Merger Early Settlement, in accordance with the terms of the Purchase Contract Agreement. In accordance with the terms of the Purchase Contract Agreement, the Holder of this Normal Units Certificate shall pay the Purchase Price for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby (i) by effecting an Early Settlement or Merger Early Settlement, (ii) by application of payments received in respect of the Pledged Treasury Consideration acquired from the proceeds of a remarketing of the related Pledged Capital Securities underlying the Normal Units represented by this Normal Units Certificate or (iii) if the Holder has elected not to participate in the remarketing, by application of payments received in respect of the Pledged Treasury Consideration deposited by such Holder in respect of such Purchase Contract. If, as provided in the Purchase Contract Agreement, upon the occurrence of a Failed Remarketing the Collateral Agent, for the benefit of the Company, exercises its rights as a secured creditor with respect to the Pledged Capital Securities related to this Normal Units Certificate, any accumulated and unpaid distributions on such Pledged Capital Securities will become payable by the Company to the Holder of this Normal Units Certificate in the manner provided for in the Purchase Contract Agreement. The Company shall not be obligated to issue any shares of Common Stock in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment in full of the aggregate Purchase Price for the shares of Common Stock to be purchased thereunder in the manner herein set forth. Under the terms of the Pledge Agreement, the Agent will be entitled to exercise the voting and any other consensual rights pertaining to the Pledged Capital Securities. Upon receipt of notice of any meeting at which holders of Capital Securities are entitled to vote or upon the solicitation of consents, waivers or proxies of holders of Capital Securities, the Agent shall, as soon as practicable thereafter, mail to the Holders of Normal Units a notice (a) containing such information as is contained in the notice or A-7 76 solicitation, (b) stating that each such Holder on the record date set by the Agent therefor (which, to the extent possible, shall be the same date as the record date for determining the holders of Capital Securities entitled to vote) shall be entitled to instruct the Agent as to the exercise of the voting rights pertaining to the Pledged Capital Securities constituting a part of such Holder's Normal Units and (c) stating the manner in which such instructions may be given. Upon the written request of the Holders of Normal Units on such record date, the Agent shall endeavor insofar as practicable to vote or cause to be voted, in accordance with the instructions set forth in such requests, the maximum number of Pledged Capital Securities as to which any particular voting instructions are received. In the absence of specific instructions from the Holder of a Normal Unit, the Agent shall abstain from voting the Pledged Capital Security evidenced by such Normal Unit. Upon a voluntary or involuntary dissolution of the Trust, a principal amount of the Debentures constituting the assets of the Trust and underlying the Pledged Capital Securities equal to the aggregate Stated Amount of the Pledged Capital Securities shall be delivered to the Collateral Agent in exchange for Pledged Capital Securities. Thereafter, the Debentures shall be held by the Collateral Agent to secure the obligations of each Holder of Normal Units to purchase shares of Common Stock under the Purchase Contracts constituting a part of such Normal Units. Following a voluntary or involuntary dissolution of the Trust, the Holders and the Collateral Agent shall have such security interests, rights and obligations with respect to the Debentures as the Holders and the Collateral Agent had in respect of the Pledged Capital Securities, and any reference in the Purchase Contract Agreement or Pledge Agreement to the Capital Securities or Pledged Capital Securities shall be deemed to be a reference to the Debentures. The Normal Units Certificates are issuable only in registered form and only in denominations of a single Normal Unit and any integral multiple thereof. The transfer of any Normal Units Certificate will be registered and Normal Units Certificates may be exchanged as provided in the Purchase Contract Agreement. The Normal Units Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents permitted by the Purchase Contract Agreement. No service charge shall be required for any such registration of transfer or exchange, but the Company and the Agent may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Holder of a Normal Unit may substitute for the Pledged Capital Securities or Pledged Treasury Consideration securing its obligations under the related Purchase Contract Treasury Securities in accordance with the terms of the Purchase Contract Agreement and the Pledge Agreement. From and after such Collateral Substitution, the Unit for which such Pledged Treasury Securities secures the Holder's obligation under the Purchase Contract shall be referred to as a "Stripped Unit." A Holder that elects to substitute a Treasury Security for Pledged Capital Securities or Pledged Treasury Consideration, thereby creating Stripped Units, shall be responsible for A-8 77 any fees or expenses payable in connection therewith. Except as provided in the Purchase Contract Agreement, for so long as the Purchase Contract underlying a Normal Unit remains in effect, such Normal Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Normal Units in respect of the Pledged Capital Security or Pledged Treasury Consideration, as the case may be, and Purchase Contract constituting such Normal Unit may be transferred and exchanged only as a Normal Unit. A Holder of Stripped Units may reestablish Normal Units by delivering to the Collateral Agent Capital Securities or the appropriate Treasury Consideration in exchange for the release of the Pledged Treasury Securities in accordance with the terms of the Purchase Contract Agreement and the Pledge Agreement. The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Agent or the Company, if, on or prior to the Stock Purchase Date, a Termination Event shall have occurred. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Agent, the Collateral Agent and to the Holders, at their addresses as they appear in the Normal Units Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, from the Pledge in accordance with the provisions of the Pledge Agreement. Upon registration of transfer of this Normal Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Agent pursuant to the Purchase Contract Agreement), under the terms of the Purchase Contract Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Normal Units Certificate. The Company covenants and agrees, and the Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph. The Holder of this Normal Units Certificate, by its acceptance hereof, authorizes the Agent to enter into and perform the related Purchase Contracts forming part of the Normal Units evidenced hereby on his behalf as his attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform such Holder's obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract Agreement, authorizes the Agent to enter into A-9 78 and perform the Pledge Agreement on such Holder's behalf as attorney-in-fact, and consents to the Pledge of the Capital Securities or the appropriate Treasury Consideration, as the case may be, underlying this Normal Units Certificate pursuant to the Pledge Agreement. The Holder further covenants and agrees, that, to the extent and in the manner provided in the Purchase Contract Agreement and the Pledge Agreement, but subject to the terms thereof, payments in respect of the Pledged Capital Securities or the Pledged Treasury Consideration, as the case may be, to be paid upon settlement of such Holder's obligations to purchase Common Stock under the Purchase Contract, shall be paid on the Stock Purchase Date by the Collateral Agent to the Company in satisfaction of such Holder's obligations under such Purchase Contract and such Holder shall acquire no right, title or interest in such payments. Each Holder of any Unit, and each Beneficial Owner thereof, by its acceptance thereof or of its interest therein, further agrees to treat (i) itself as the owner of the related Capital Securities, Treasury Consideration or Treasury Securities, as the case may be, and (ii) the Debentures as indebtedness of the Company, in each case, for United States federal, state and local income and franchise tax purposes. Subject to certain exceptions, the provisions of the Purchase Contract Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts. The Purchase Contracts shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of laws. The Company, the Agent and its Affiliates and any agent of the Company or the Agent may treat the Person in whose name this Normal Units Certificate is registered as the owner of the Normal Units evidenced hereby for the purpose of receiving payments of distributions payable quarterly on the Capital Securities or the Treasury Portfolio, as the case may be, performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and neither the Company, the Agent, such Affiliates nor any such agent shall be affected by notice to the contrary. The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock. A copy of the Purchase Contract Agreement is available for inspection at the offices of the Agent. A-10 79 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ---------------------------------------------- (cust) (minor) Under Uniform Gifts to Minors Act ---------------------------------------------- (State) TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee) (Please Print or Type Name and Address Including Postal Zip Code of Assignee) the within Normal Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing A-11 80 attorney to transfer said Normal Units Certificates on the books of MetLife, Inc. with full power of substitution in the premises. Dated: Signature NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Normal Units Certificates in every particular, without alteration or enlargement or any change whatsoever. Signature Guarantee: A-12 81 SETTLEMENT INSTRUCTIONS The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon settlement on or after the Stock Purchase Date of the Purchase Contracts underlying the number of Normal Units evidenced by this Normal Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee: (if assigned to another person) If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person's name and address and (ii) provide a guarantee of your signature: REGISTERED HOLDER Please print name and address of Registered Holder: Name Name Address Address Social Security or other Taxpayer Identification Number, if any A-13 82 ELECTION TO SETTLE EARLY The undersigned Holder of this Normal Units Certificate hereby irrevocably exercises the option to effect Early Settlement in accordance with the terms of the Purchase Contract Agreement with respect to the Purchase Contracts underlying the number of Normal Units evidenced by this Normal Units Certificate specified below. The option to effect Early Settlement may be exercised only with respect to Purchase Contracts underlying Normal Units with an aggregate Stated Amount equal to $1,000 or an integral multiple thereof. The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon such Early Settlement be registered in the name of, and delivered, together with a check in payment for any fractional share and any Normal Units Certificate representing any Normal Units evidenced hereby as to which Early Settlement of the related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, deliverable upon such Early Settlement will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee: A-14 83 Number of Units evidenced hereby as to which Early Settlement of the related Purchase Contracts is being elected: If shares of Common Stock or Income Certificates are to be registered in the name of and delivered to and Pledged Capital Securities, or Pledged Consideration, as the case may be, are to be transferred to a Person other than the Holder, please print such Person's name and address: Name Address REGISTERED HOLDER Please print name and address of Registered Holder: Name Address Social Security or other Taxpayer Identification Number, if any Transfer instructions for Pledged Capital Securities, or Pledged Treasury Consideration, as the case may be, transferable upon Early Settlement or a Termination Event: A-15 84 [TO BE ATTACHED TO GLOBAL CERTIFICATES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE The following increases or decreases in this Global Certificate have been made:
Stated Amount of the Global Signature of Amount of Amount of Certificate authorized decrease in Stated increase in Stated following such officer of Amount of the Amount of the decrease or Trustee or Date Global Certificate Global Certificate increase Units Custodian
A-16 85 EXHIBIT B THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE NAME OF A CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT. Unless this Certificate is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the Company or its agent for registration of transfer, exchange or payment, and any Certificate issued is registered in the name of Cede & Co., or such other name as requested by an authorized representative of The Depository Trust Company, and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. No. Cusip No. 59156R306 Number of Stripped Units Form of Face of Stripped Units Certificate This Stripped Units Certificate certifies that Cede & Co. is the registered Holder of the number of Stripped Units set forth above. Each Stripped Unit represents (i) a 1/20 undivided beneficial ownership interest in a Treasury Security, subject to the Pledge of such interest in such Treasury Security by such Holder pursuant to the Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with MetLife, Inc., a Delaware corporation (the "Company"). All capitalized terms used herein which are defined in the Purchase Contract Agreement have the meaning set forth therein. Pursuant to the Pledge Agreement, the Treasury Security constituting part of each Stripped Unit evidenced hereby has been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising a part of such Stripped Unit. 86 Each Purchase Contract evidenced hereby obligates the Holder of this Stripped Units Certificate to purchase, and the Company to sell, on May 15, 2003 (the "Stock Purchase Date"), at a price equal to $50 (the "Stated Amount"), a number of shares of common stock, $0.01 par value per share ("Common Stock"), of the Company, equal to the Settlement Rate, unless on or prior to the Stock Purchase Date there shall have occurred a Termination Event or an Early Settlement or Merger Early Settlement with respect to the Stripped Units of which such Purchase Contract is a part, all as provided in the Purchase Contract Agreement and more fully described on the reverse hereof. The Purchase Price (as defined herein) for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby, if not paid earlier, shall be paid on the Stock Purchase Date by application of payments received in respect of the Pledged Treasury Securities pledged to secure the obligations under such Purchase Contract in accordance with the terms of the Pledge Agreement. Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Agent by manual signature, this Stripped Units Certificate shall not be entitled to any benefit under the Pledge Agreement or the Purchase Contract Agreement or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. METLIFE, INC. By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: B-2 87 HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts) By: Bank One Trust Company, N.A., not individually but solely as Attorney-in- Fact of such Holder By: ------------------------------------------- Name: Title: Dated: B-3 88 AGENT'S CERTIFICATE OF AUTHENTICATION This is one of the Stripped Units referred to in the within-mentioned Purchase Contract Agreement. BANK ONE TRUST COMPANY, N.A., as Purchase Contract Agent By: ---------------------------------- Authorized officer B-4 89 (Reverse of Stripped Units Certificate) Each Purchase Contract evidenced hereby is governed by a Purchase Contract Agreement, dated as of April, 2000 (as may be supplemented from time to time, the "Purchase Contract Agreement"), between the Company and Bank One Trust Company, N.A., as Purchase Contract Agent (including its successors thereunder, herein called the "Agent"), to which the Purchase Contract Agreement and supplemental agreements thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Agent, the Company and the Holders and of the terms upon which the Stripped Units Certificates are, and are to be, executed and delivered. Each Purchase Contract evidenced hereby obligates the Holder of this Stripped Units Certificate to purchase, and the Company to sell, on the Stock Purchase Date at a price equal to the Stated Amount (the "Purchase Price"), a number of shares of Common Stock of the Company equal to the Settlement Rate, unless, on or prior to the Stock Purchase Date, there shall have occurred a Termination Event or an Early Settlement or Merger Early Settlement with respect to the Unit of which such Purchase Contract is a part. The "Settlement Rate" is equal to (a) if the Applicable Market Value (as defined below) is greater than $- (the "Threshold Appreciation Price"), - shares of Common Stock per Purchase Contract, (b) if the Applicable Market Value is less than the Threshold Appreciation Price but is greater than $-, the number of shares of Common Stock per Purchase Contract equal to the Stated Amount divided by the Applicable Market Value and (c) if the Applicable Market Value is less than $-, - shares of Common Stock per Purchase Contract, in each case subject to adjustment as provided in the Purchase Contract Agreement. No fractional shares of Common Stock will be issued upon settlement of Purchase Contracts, as provided in the Purchase Contract Agreement. The "Applicable Market Value" means the average of the Closing Prices per share of Common Stock on each of the 20 consecutive Trading Days ending on the third Trading Day immediately preceding the Stock Purchase Date. The "Closing Price" of the Common Stock on any date of determination means the closing sale price (or, if no closing price is reported, the last reported sale price) of the Common Stock on the New York Stock Exchange (the "NYSE") on such date or, if the Common Stock is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which the Common Stock is so listed, or if the Common Stock is not so listed on a United States national or regional securities exchange, as reported by The Nasdaq Stock Market, or, if the Common Stock is not so reported, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar B-5 90 organization, or, if such bid price is not available, the market value of the Common Stock on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company. A "Trading Day" means a day on which the Common Stock (A) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (B) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. Each Purchase Contract evidenced hereby may be settled prior to the Stock Purchase Date through Early Settlement or Merger Early Settlement, in accordance with the terms of the Purchase Contract Agreement. In accordance with the terms of the Purchase Contract Agreement, the Holder of this Stripped Units Certificate shall pay the Purchase Price for the shares of Common Stock purchased pursuant to each Purchase Contract evidenced hereby (i) by effecting an Early Settlement or Merger Early Settlement or (ii) by application of payments received in respect of the Pledged Treasury Securities underlying the Stripped Units represented by this Stripped Units Certificate. The Company shall not be obligated to issue any shares of Common Stock in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment in full of the aggregate Purchase Price for the shares of Common Stock to be purchased thereunder in the manner herein set forth. The Stripped Units Certificates are issuable only in registered form and only in denominations of a single Stripped Unit and any integral multiple thereof. The transfer of any Stripped Units Certificate will be registered and Stripped Units Certificates may be exchanged as provided in the Purchase Contract Agreement. The Stripped Units Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents permitted by the Purchase Contract Agreement. No service charge shall be required for any such registration of transfer or exchange, but the Company and the Agent may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Holder of a Stripped Unit may substitute for the Pledged Treasury Securities securing its obligations under the related Purchase Contract Capital Securities or the appropriate Treasury Consideration in accordance with the terms of the Purchase Contract Agreement and the Pledge Agreement. From and after such substitution, the Unit for which such Pledged Capital Securities or Pledged Treasury Consideration secures the Holder's obligation under the Purchase Contract shall be referred to as a "Normal Unit." A Holder that elects to substitute Capital Securities or the B-6 91 appropriate Treasury Consideration, as the case may be, for Pledged Treasury Securities, thereby reestablishing Normal Units, shall be responsible for any fees or expenses payable in connection therewith. Except as provided in the Purchase Contract Agreement, for so long as the Purchase Contract underlying a Stripped Unit remains in effect, such Stripped Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Stripped Unit in respect of the Pledged Treasury Security and the Purchase Contract constituting such Stripped Unit may be transferred and exchanged only as a Stripped Unit. The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Agent or the Company, if, on or prior to the Stock Purchase Date, a Termination Event shall have occurred. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two business days thereafter give written notice to the Agent, the Collateral Agent and to the Holders, at their addresses as they appear in the Stripped Units Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Pledged Treasury Securities from the Pledge in accordance with the provisions of the Pledge Agreement. Upon registration of transfer of this Stripped Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Agent pursuant to the Purchase Contract Agreement), under the terms of the Purchase Contract Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Stripped Units Certificate. The Company covenants and agrees, and the Holder, by his acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph. The Holder of this Stripped Units Certificate, by his acceptance hereof, authorizes the Agent to enter into and perform the related Purchase Contracts forming part of the Stripped Units evidenced hereby on his behalf as its attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform such Holder's obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract Agreement, authorizes the Agent to enter into and perform the Pledge Agreement on such Holder's behalf as attorney-in-fact, and consents to the Pledge of the Treasury Securities underlying this Stripped Units Certificate pursuant to the Pledge Agreement. The Holder further covenants and agrees, that, to the extent and in the manner provided in the Purchase B-7 92 Contract Agreement and the Pledge Agreement, but subject to the terms thereof, payments in respect of the Pledged Treasury Securities, to be paid upon settlement of such Holder's obligations to purchase Common Stock under the Purchase Contract, shall be paid on the Stock Purchase Date by the Collateral Agent to the Company in satisfaction of such Holder's obligations under such Purchase Contract and such Holder shall acquire no right, title or interest in such payments. Each Holder of any Unit, and each Beneficial Owner thereof, by its acceptance thereof or of its interest therein, further agrees to treat (i) itself as the owner of the related Capital Securities, Treasury Consideration or Treasury Securities, as the case may be, and (ii) the Debentures as indebtedness of the Company, in each case, for United States federal, state and local income and franchise tax purposes. Subject to certain exceptions, the provisions of the Purchase Contract Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts. The Purchase Contracts shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of laws. The Company, the Agent and its Affiliates and any agent of the Company or the Agent may treat the Person in whose name this Stripped Units Certificate is registered as the owner of the Stripped Units evidenced hereby for the purpose of performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and neither the Company, the Agent, such Affiliate, nor any such agent shall be affected by notice to the contrary. The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock. A copy of the Purchase Contract Agreement is available for inspection at the offices of the Agent. B-8 93 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ---------------------------------------------- (cust) (minor) Under Uniform Gifts to Minors Act ---------------------------------------------- (State) TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee) (Please Print or Type Name and Address Including Postal Zip Code of Assignee) the within Stripped Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing B-9 94 attorney to transfer said Stripped Units Certificates on the books of MetLife, Inc. with full power of substitution in the premises. Dated: Signature NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Stripped Units Certificates in every particular, without alteration or enlargement or any change whatsoever. Signature Guarantee: B-10 95 SETTLEMENT INSTRUCTIONS The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon settlement on or after the Stock Purchase Date of the Purchase Contracts underlying the number of Stripped Units evidenced by this Stripped Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee: If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person's name and address and (ii) provide a guarantee of your signature: Name Address REGISTERED HOLDER Please print name and address of Registered Holder: Name Address Social Security or other Taxpayer Identification Number, if any B-11 96 ELECTION TO SETTLE EARLY The undersigned Holder of this Stripped Units Certificate hereby irrevocably exercises the option to effect Early Settlement in accordance with the terms of the Purchase Contract Agreement with respect to the Purchase Contracts underlying the number of Stripped Units evidenced by this Stripped Units Certificate specified below. The option to effect Early Settlement may be exercised only with respect to Purchase Contracts underlying Stripped Units with an aggregate Stated Amount equal to $1,000 or an integral multiple thereof. The undersigned Holder directs that a certificate for shares of Common Stock deliverable upon such Early Settlement be registered in the name of, and delivered, together with a check in payment for any fractional share and any Stripped Units Certificate representing any Stripped Units evidenced hereby as to which Early Settlement of the related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Pledged Treasury Securities deliverable upon such Early Settlement will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee: B-12 97 Number of Units evidenced hereby as to which Early Settlement of the related Purchase Contracts is being elected: If shares of Common Stock or Stripped Units Certificates are to be registered in the name of and delivered to and Pledged Treasury Securities are to be transferred to a Person other than the Holder, please print such Person's name and address: Name Address REGISTERED HOLDER Please print name and address of Registered Holder: Name Address Social Security or other Taxpayer Identification Number, if any Transfer instructions for Pledged Treasury Securities transferable upon Early Settlement or a Termination Event: B-13 98 [TO BE ATTACHED TO GLOBAL CERTIFICATES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE The following increases or decreases in this Global Certificate have been made:
Stated Amount of the Global Signature of Amount of Amount of Certificate authorized decrease in Stated increase in Stated following such officer of Amount of the Amount of the decrease or Trustee or Date Global Certificate Global Certificate increase Units Custodian
B-14 99 EXHIBIT C INSTRUCTION FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT The Bank of New York 101 Barclay Street, Floor 12 East New York, New York 10286 Attn: Dealing and Trading Group Re: Equity Security Units of MetLife, Inc. (the "Company"), and MetLife Capital Trust I We hereby notify you in accordance with Section 4.1 of the Pledge Agreement, dated as of April, 2000, among the Company, yourselves, as Collateral Agent, Custodial Agent and Securities Intermediary, and ourselves, as Purchase Contract Agent and as attorney-in-fact for the holders of [Normal Units] [Stripped Units] from time to time, that the holder of securities listed below (the "Holder") has elected to substitute [$ _______ aggregate principal amount of Treasury Securities (CUSIP No. _____)] [$_______ stated liquidation amount of Capital Securities or the appropriate Treasury Consideration, as the case may be,] in exchange for the related [Pledged Capital Securities or Pledged Treasury Consideration, as the case may be (CUSIP No. ____),] [Pledged Treasury Securities] held by you in accordance with the Pledge Agreement and has delivered to us a notice stating that the Holder has transferred [Treasury Securities] [Capital Securities or the appropriate Treasury Consideration, as the case may be,] to you, as Collateral Agent. We hereby instruct you, upon receipt of such [Pledged Treasury Securities] [Pledged Capital Securities or Pledged Treasury Consideration, as the case may be], and upon the payment by such Holder of any applicable fees, to release the [Capital Securities or Treasury Consideration, as the case may be,] [Treasury Securities] related to such [Normal Units] [Stripped Units] to us in accordance with the Holder's instructions. Date: BANK ONE TRUST COMPANY, N.A. By: Name: Title: 100 Please print name and address of Registered Holder electing to substitute [Treasury Securities] [Capital Securities or Pledged Treasury Consideration, as the case may be,] for the [Pledged Capital Securities or Pledged Treasury Consideration, as the case may be,] [Pledged Treasury Securities]: Name Social Security or other Taxpayer Identification Number, if any Address C-2 101 EXHIBIT D INSTRUCTION TO PURCHASE CONTRACT AGENT Bank One Trust Company, N.A. One North State Street, 9th Floor Chicago, Illinois 60602 Attention: Corporate Trust Services Division Re: Equity Security Units of MetLife, Inc. (the "Company"), and MetLife Capital Trust I The undersigned Holder hereby notifies you that it has delivered to The Bank of New York, as Collateral Agent, Custodial Agent and Securities Intermediary [$_________ aggregate principal amount of Treasury Securities] [$_________ stated liquidation amount of Capital Securities or the appropriate Treasury Consideration, as the case may be,] in exchange for the related [Pledged Capital Securities or Pledged Treasury Consideration as the case may be,] [Pledged Treasury Securities] held by the Collateral Agent, in accordance with Section 4.1 of the Pledge Agreement, dated ___________, 2000, among you, the Company and the Collateral Agent. The undersigned Holder has paid the Collateral Agent all applicable fees relating to such exchange. The undersigned Holder hereby instructs you to instruct the Collateral Agent to release to you on behalf of the undersigned Holder the [Pledged Capital Securities or Pledged Treasury Consideration, as the case may be,] [Pledged Treasury Securities] related to such [Normal Units] [Stripped Units]. Date: By: Signature Guarantee: Dated: Please print name and address of Registered Holder: Name Social Security or other Taxpayer Identification Number, if any Address 102 EXHIBIT E FORM OF REMARKETING AGREEMENT EX-4.9 7 FORM OF PLEDGE AGREEMENT 1 Exhibit 4.9 METLIFE, INC. THE BANK OF NEW YORK as Collateral Agent, Custodial Agent and Securities Intermediary AND BANK ONE TRUST COMPANY, N.A. as Purchase Contract Agent PLEDGE AGREEMENT Dated as of April ___, 2000 2 TABLE OF CONTENTS Page ARTICLE I Definitions Section 1.1 Definitions................................................ 2 ARTICLE II Pledge; Control and Perfection Section 2.1 The Pledge................................................. 6 Section 2.2 Control and Perfection..................................... 7 ARTICLE III Distributions on Pledged Collateral ARTICLE IV Substitution, Release, Repledge and Settlement of Capital Securities Section 4.1 Substitution for Capital Securities or Treasury Consideration and the Creation of Stripped Units........... 11 Section 4.2 Substitution for Treasury Securities and the Creation of Normal Units................................... 11 Section 4.3 Termination Event.......................................... 12 Section 4.4 Early Settlement; Merger Early Settlement.................. 13 Section 4.5 Remarketing; Application of Proceeds; Settlement........... 13 ARTICLE V Voting Rights -- Capital Securities i 3 ARTICLE VI Rights and Remedies; Distribution of the Debentures Section 6.1 Rights and Remedies of the Collateral Agent................ 16 Section 6.2 Distribution of the Debentures............................. 17 Section 6.3 Substitutions.............................................. 18 ARTICLE VII Representations and Warranties; Covenants Section 7.1 Representations and Warranties............................. 18 Section 7.2 Covenants.................................................. 19 ARTICLE VIII The Collateral Agent Section 8.1 Appointment, Powers and Immunities......................... 19 Section 8.2 Instructions of the Company................................ 21 Section 8.3 Reliance by Collateral Agent............................... 21 Section 8.4 Rights in Other Capacities................................. 21 Section 8.5 Non-Reliance on Collateral Agent........................... 22 Section 8.6 Compensation and Indemnity................................. 22 Section 8.7 Failure to Act............................................. 23 Section 8.8 Resignation of Collateral Agent............................ 23 Section 8.9 Right to Appoint Agent or Advisor.......................... 24 Section 8.10 Survival................................................... 24 Section 8.11 Exculpation................................................ 24 ARTICLE IX Amendment Section 9.1 Amendment Without Consent of Holders....................... 25 Section 9.2 Amendment with Consent of Holders.......................... 25 Section 9.3 Execution of Amendments.................................... 26 Section 9.4 Effect of Amendments....................................... 26 Section 9.5 Reference to Amendments.................................... 26 ii 4 ARTICLE X Miscellaneous Section 10.1 No Waiver.................................................. 27 Section 10.2 GOVERNING LAW.............................................. 27 Section 10.3 Notices.................................................... 28 Section 10.4 Successors and Assigns..................................... 28 Section 10.5 Counterparts............................................... 28 Section 10.6 Severability............................................... 28 Section 10.7 Expenses, Etc.............................................. 28 Section 10.8 Security Interest Absolute................................. 29 EXHIBIT A Instruction from Purchase Contract Agent to Collateral Agent............... A-1 EXHIBIT B Instruction to Purchase Contract Agent..................................... B-1 EXHIBIT C Instruction to Custodial Agent Regarding Remarketing....................... C-1 EXHIBIT D Instruction to Custodial Agent Regarding Withdrawal from Remarketing....... D-1 iii 5 PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of April __, 2000 (this "Agreement"), among MetLife, Inc., a Delaware corporation (the "Company"), The Bank of New York, a New York banking corporation, not individually but solely as collateral agent (in such capacity, together with its successors in such capacity, the "Collateral Agent"), as custodial agent (in such capacity, together with its successors in such capacity, the "Custodial Agent") and as "securities intermediary" as defined in Section 8-102(a)(14) of the Code (as defined herein) (in such capacity, together with its successors in such capacity, the "Securities Intermediary"), and Bank One Trust Company, N.A., not individually but solely as purchase contract agent and as attorney-in-fact of the Holders (as defined in the Purchase Contract Agreement) from time to time of the Securities (as hereinafter defined) (in such capacity, together with its successors in such capacity, the "Purchase Contract Agent") under the Purchase Contract Agreement (as hereinafter defined). RECITALS The Company and the Purchase Contract Agent are parties to the Purchase Contract Agreement, dated as of the date hereof (as modified and supplemented and in effect from time to time, the "Purchase Contract Agreement"), pursuant to which there may be issued up to - Units of the Company (- if the Underwriters' over-allotment option pursuant to the Underwriting Agreement (as defined in the Declaration) is exercised in full), having a Stated Amount of $50 per Unit, all of which will initially be Normal Units. Each Normal Unit will be comprised of (a) a stock purchase contract (the "Purchase Contract") under which the holder will be required to purchase from the Company and the Company will be required to sell to such holder not later than May 15, 2003 (the "Stock Purchase Date"), for $50.00, a number of shares of common stock, $0.01 par value per share (the "Common Stock"), of the Company equal to the Settlement Rate (as defined below), and (b) either beneficial ownership of (x) a Capital Security (as defined below) or (y) following the remarketing of the Capital Securities in accordance with the Purchase Contract Agreement and the Remarketing Agreement (as defined below), the appropriate Treasury Consideration (as defined in the Purchase Contract Agreement). In accordance with the terms of the Purchase Contract Agreement, a holder of Normal Units may separate the Capital Securities or the appropriate Treasury Consideration, as applicable, from the related Purchase Contracts by substituting for such Capital Securities or the appropriate Treasury Consideration, as the case may be, Treasury Securities (as defined in the Purchase Contract Agreement) that will pay in the aggregate 6 an amount equal to the aggregate Stated Amount (as defined below) of such Normal Units. Upon such separation, the Normal Units will become Stripped Units. Each Stripped Unit will be comprised of (a) a Purchase Contract under which the holder will purchase from the Company not later than the Stock Purchase Date, for $50.00, a number of shares of Common Stock of the Company equal to the Settlement Rate, and (b) a 1/20 undivided beneficial interest in a zero-coupon U.S. Treasury Security (CUSIP No. -) maturing on May 15, 2003 that will pay $1,000 on such maturity date (the "Treasury Securities"). Pursuant to the terms of the Declaration (as defined below), MetLife Capital Trust I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), will issue - (- if the Underwriters' over-allotment option pursuant to the Underwriting Agreement is exercised in full) -% Capital Securities, (the "Capital Securities") and -% common securities (the "Common Securities"), in each case having a stated liquidation value equal to the Stated Amount. Pursuant to the terms of the Purchase Contract Agreement and the Purchase Contracts, the Holders, from time to time, of the Securities have irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such Holders, among other things, to execute and deliver this Agreement on behalf of such Holders and to grant the pledge provided hereby of the Capital Securities, any Treasury Consideration and any Treasury Securities delivered in exchange therefor to secure each Holder's obligations under the related Purchase Contract, as provided herein and subject to the terms hereof. Upon such pledge, the Capital Securities, any Treasury Consideration and the Treasury Securities will be beneficially owned by the Holders but will be owned of record by the Purchase Contract Agent subject to the Pledge hereunder. Accordingly, the Company, the Collateral Agent, the Securities Intermediary, the Custodial Agent and the Purchase Contract Agent, on its own behalf and as attorney-in-fact of the Holders from time to time of the Securities, agree as follows: ARTICLE I Definitions Section 1.1 Definitions. For all purposes of this agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 2 7 (b) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; and (c) the following terms have the meanings assigned to them in the Purchase Contract Agreement: (i) Act, (ii) Certificate, (iii) Debentures, (iv) Early Settlement, (v) Early Settlement Amount, (vi) Failed Remarketing, (vii) First Supplemental Indenture, (viii) Holder, (ix) Indenture, (x) Merger Early Settlement, (xi) Merger Early Settlement Amount, (xii) Normal Unit, (xiii) Opinion of Counsel, (xiv) Outstanding Securities, (xv) Remarketing Agent, (xvi) Remarketing Agreement, (xvii) Settlement Rate, (xviii) Stated Amount, (xix) Stripped Unit, (xx) Subsequent Remarketing Date, (xxi) Treasury Consideration, (xxii) Termination Event, and (xxiii) Unit; "Agreement" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto entered into pursuant to the applicable provisions hereof. "Bankruptcy Code" means Title 11 of the United States Code, or any other law of the United States that from time to time provides a uniform system of bankruptcy laws. "Business Day" means any day that is not a Saturday, Sunday or day on which banking institutions and trust companies in The City of New York or at a place of payment are authorized or required by law, regulation or executive order to close. "Capital Securities" has the meaning specified in the Recitals. "Code" has the meaning specified in Section 6.1 hereof. "Collateral" has the meaning specified in Section 2.1 hereof. "Collateral Account" means the securities account (number - ) maintained at The Bank of New York in the name "Bank One Trust Company, N.A., as Purchase Contract Agent on behalf of the holders of certain securities of MetLife Capital Trust I, Collateral Account subject to the security interest of The Bank of New York, as Collateral Agent, for the benefit of MetLife, Inc., as pledgee" and any successor account. "Collateral Agent" has the meaning specified in the first paragraph of this Agreement. "Common Stock" has the meaning specified in the Recitals. 3 8 "Company" means the Person named as the "Company" in the first paragraph of this Agreement until a successor shall have become such, and thereafter "Company" shall mean such successor. "Custodial Agent" has the meaning specified in the first paragraph of this Agreement. "Debenture Trustee" means The Bank of New York, as trustee under the Indenture (as defined in the Purchase Contract Agreement) and First Supplemental Indenture (as defined in the Purchase Contract Agreement) until a successor is appointed thereunder, and thereafter means such successor trustee. "Declaration" means the Amended and Restated Declaration of Trust, dated as of April __, 2000 among the Company, as sponsor, the trustees named therein and the holders from time to time of undivided beneficial interests in the assets of the Trust. "Intermediary" means any entity that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge" has the meaning specified in Section 2.1 hereof. "Pledged Capital Securities" has the meaning specified in Section 2.1 hereof. "Pledged Treasury Consideration" has the meaning specified in Section 2.1 hereof. "Pledged Treasury Securities" has the meaning specified in Section 2.1 hereof. "Proceeds" means all interest, dividends, cash, instruments, securities, financial assets (as defined in Sections 8-102(a)(9) of the Code) and other property from time to time received, receivable or otherwise distributed upon the sale, exchange, collection or disposition of the Collateral or any proceeds thereof. "Purchase Contract" has the meaning specified in the Recitals. "Purchase Contract Agent" has the meaning specified in the first paragraph of this Agreement. 4 9 "Purchase Contract Agreement" has the meaning specified in the Recitals. "Securities" means the Normal Units and Stripped Units collectively. "Securities Intermediary" has the meaning specified in the first paragraph of this Agreement. "Security Entitlement" has the meaning set forth in Section 8-102(a) (17) of the Code. "Separate Capital Securities" means any Capital Securities that are not Pledged Capital Securities. "Stock Purchase Date" has the meaning specified in the Recitals. "TRADES" means the Treasury/Reserve Automated Debt Entry System maintained by the Federal Reserve Bank of New York pursuant to the TRADES Regulations. "TRADES Regulations" means the regulations of the United States Department of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein, all terms defined in the TRADES Regulations are used herein as therein defined. "Transfer" means, with respect to the Collateral and in accordance with the instructions of the Collateral Agent, the Purchase Contract Agent or the Holder, as applicable: (i) in the case of Collateral consisting of securities which cannot be delivered by book-entry or which the parties agree are to be delivered in physical form, delivery in appropriate physical form to the recipient accompanied by any duly executed instruments of transfer, assignments in blank, transfer tax stamps and any other documents necessary to constitute a legally valid transfer to the recipient; (ii) in the case of Collateral consisting of securities maintained in book-entry form by causing a "securities intermediary" (as defined in Section 8-102(a)(14) of the Code) to (a) credit a "security entitlement" (as defined in Section 8-102(a)(17) of the Code) with respect to such securities to a "securities account" (as defined in Section 8-501(a) of the Code) maintained by or on behalf of the recipient and (b) to issue a confirmation to the recipient with respect to such credit. In the case of Collateral to 5 10 be delivered to the Collateral Agent, the securities intermediary shall be the Securities Intermediary and the securities account shall be the Collateral Account. "Treasury Security" has the meaning specified in the Recitals. "Trust" has the meaning specified in the Recitals. ARTICLE II Pledge; Control and Perfection Section 2.1 The Pledge. The Holders from time to time acting through the Purchase Contract Agent, as their attorney-in-fact, and the Purchase Contract Agent, as such attorney-in-fact, hereby pledge and grant to the Collateral Agent, for the benefit of the Company, as collateral security for the performance when due by such Holders of their respective obligations under the related Purchase Contracts, a security interest in all of the right, title and interest of the Purchase Contract Agent and such Holders (a) in (i) the Capital Securities, Treasury Consideration and Treasury Securities constituting a part of the Securities, (ii) any Treasury Securities delivered in exchange for any Capital Securities or Treasury Consideration, as applicable, in accordance with Section 4.1 hereof, and (iii) any Capital Securities or Treasury Consideration, as applicable, delivered in exchange for any Treasury Securities in accordance with Section 4.2 hereof, in each case that have been Transferred to or otherwise received by the Collateral Agent and not released by the Collateral Agent to such Holders under the provisions of this Agreement; (b) in the Collateral Account and all securities, financial assets, security entitlements, cash and other property credited thereto and all Security Entitlements related thereto; (c) in any Debentures delivered to the Collateral Agent upon the occurrence of a liquidation of the Trust as provided in Section 6.2; and (d) all Proceeds of the foregoing (all of the foregoing, collectively, the "Collateral"). Prior to or concurrently with the execution and delivery of this Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the Securities, shall cause the Capital Securities comprising a part of the Normal Units to be Transferred to the Collateral Agent for the benefit of the Company. Such Capital Securities shall be Transferred by physically delivering such securities to the Securities Intermediary indorsed in blank and causing the Securities Intermediary to credit the Collateral Account with such securities and sending the Collateral Agent a confirmation of the deposit of such securities. Treasury Securities and Treasury Consideration, as applicable, shall be Transferred to the Collateral Account maintained by the Collateral Agent at the Securities Intermediary by book-entry transfer to the Collateral Account in accordance with the TRADES Regulations and other applicable law and by the notation by the Securities Intermediary on its books that a Security Entitlement with respect to 6 11 such Treasury Securities or Treasury Consideration, has been credited to the Collateral Account. For purposes of perfecting the pledge under applicable law, including, to the extent applicable, the TRADES Regulations or the Uniform Commercial Code as adopted and in effect in any applicable jurisdiction, the Collateral Agent shall be the agent of the Company as provided herein. The pledge provided in this Section 2.1 is herein referred to as the "Pledge" and the Capital Securities (or the Debentures that are delivered pursuant to Section 6.2 hereof), Treasury Consideration or Treasury Securities subject to the Pledge, excluding any Capital Securities (or the Debentures that are delivered pursuant to Section 6.2 hereof), Treasury Consideration or Treasury Securities released from the Pledge as provided in Sections 4.1 and 4.2 hereof, respectively, are hereinafter referred to as "Pledged Capital Securities," "Pledged Treasury Consideration" or the "Pledged Treasury Securities," respectively. Subject to the Pledge and the provisions of Section 2.2 hereof, the Holders from time to time shall have full beneficial ownership of the Collateral. Whenever directed by the Collateral Agent acting on behalf of the Company, the Securities Intermediary shall have the right to reregister the Capital Securities or any other Securities held in physical form in its name. Except as may be required in order to release Capital Securities or Treasury Consideration, as applicable, in connection with a Holder's election to convert its investment from a Normal Unit to a Stripped Unit, or except as otherwise required to release Capital Securities as specified herein, neither the Collateral Agent, the Custodial Agent nor the Securities Intermediary shall relinquish physical possession of any certificate evidencing a Capital Security prior to the termination of this Agreement. If it becomes necessary for the Securities Intermediary to relinquish physical possession of a certificate in order to release a portion of the Capital Securities evidenced thereby from the Pledge, the Securities Intermediary shall use its best efforts to obtain physical possession of a replacement certificate evidencing any Capital Securities remaining subject to the Pledge hereunder registered to it or endorsed in blank within fifteen days of the date it relinquished possession. The Securities Intermediary shall promptly notify the Company and the Collateral Agent of the Securities Intermediary's failure to obtain possession of any such replacement certificate as required hereby. Section 2.2 Control and Perfection. (a) In connection with the Pledge granted in Section 2.1, and subject to the other provisions of this Agreement, the Holders from time to time acting through the Purchase Contract Agent, as their attorney-in-fact, hereby authorize and direct the Securities Intermediary (without the necessity of obtaining the further consent of the Purchase Contract Agent or any of the Holders), and the Securities Intermediary agrees, to comply with and follow any instructions and entitlement orders (as defined in Section 8-102(a)(8) of the Code) that the Collateral Agent may deliver upon the written direction of the Company with respect to the Collateral Account, the Collateral credited thereto and any Security Entitlements with respect to any thereof. In the event the Securities Intermediary receives from the Holders or the Purchase Contract Agent entitlement orders which conflict with entitlement orders received from the Collateral Agent, the Securities Intermediary shall follow the entitlement orders received from the Collateral Agent. Such 7 12 instructions and entitlement orders may, without limitation, direct the Securities Intermediary to transfer, redeem, assign, or otherwise deliver the Capital Securities, the Treasury Consideration, the Treasury Securities, and any Security Entitlements with respect thereto or sell, liquidate or dispose of such assets through a broker designated by the Company, and to pay and deliver any income, proceeds or other funds derived therefrom to the Company. The Holders from time to time acting through the Purchase Contract Agent hereby further authorize and direct the Collateral Agent, as agent of the Company, to, upon written direction of the Company, itself issue instructions and entitlement orders, and to otherwise take action, with respect to the Collateral Account, the Collateral credited thereto and any Security Entitlements with respect thereto, pursuant to the terms and provisions hereof, all without the necessity of obtaining the further consent of the Purchase Contract Agent or any of the Holders. The Collateral Agent shall be the agent of the Company and shall act as directed in writing by the Company. Without limiting the generality of the foregoing, the Collateral Agent shall issue entitlement orders to the Securities Intermediary when and as directed in writing by the Company. (b) The Securities Intermediary hereby confirms and agrees that: (i) all securities or other property underlying any financial assets credited to the Collateral Account shall be registered in the name of the Securities Intermediary, or its nominee, indorsed to the Securities Intermediary, or its nominee, or in blank or credited to another Collateral Account maintained in the name of the Securities Intermediary and in no case will any financial asset credited to the Collateral Account be registered in the name of the Purchase Contract Agent, the Collateral Agent, the Company or any Holder, payable to the order of, or specially indorsed to, the Purchase Contract Agent, the Collateral Agent, the Company or any Holder except to the extent the foregoing have been specially indorsed to the Securities Intermediary or in blank; (ii) all property delivered to the Securities Intermediary pursuant to this Pledge Agreement (including, without limitation, any Capital Securities, the Treasury Consideration or Treasury Securities) will be promptly credited to the Collateral Account; (iii) the Collateral Account is an account to which financial assets are or may be credited, and the Securities Intermediary shall, subject to the terms of this Agreement, treat the Purchase Contract Agent as entitled to exercise the rights of any financial asset credited to the Collateral Account; (iv) the Securities Intermediary has not entered into, and until the termination of this Agreement will not enter into, any agreement with any other person relating to the Collateral Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the Code) of such other person; and (v) the Securities Intermediary has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Company, the Collateral Agent or the Purchase Contract Agent purporting to limit or condition the obligation of the Securities Intermediary to comply with entitlement orders as set forth in this Section 2.2 hereof. 8 13 (c) The Securities Intermediary hereby agrees that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Collateral Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the Code. (d) In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail. (e) The Purchase Contract Agent hereby irrevocably constitutes and appoints the Collateral Agent and the Company, with full power of substitution, as the Purchase Contract Agent's attorney-in-fact to take on behalf of, and in the name, place and stead of the Purchase Contract Agent and the Holders, any action necessary or desirable to perfect and to keep perfected the security interest in the Collateral referred to in Section 2.1. The grant of such power-of-attorney shall not be deemed to require of the Collateral Agent any specific duties or obligations not otherwise assumed by the Collateral Agent hereunder. Notwithstanding the foregoing, in no event shall the Collateral Agent or Securities Intermediary be responsible for the preparation or filing of any financing or continuation statements in the appropriate jurisdictions or responsible for maintenance or perfection of any Security Interest hereunder. ARTICLE III Distributions on Pledged Collateral So long as the Purchase Contract Agent is the registered owner of the Pledged Capital Securities or Pledged Treasury Consideration, it shall receive all payments thereon. If the Pledged Capital Securities are reregistered, such that the Collateral Agent becomes the registered holder, all payments of the Stated Amount of or cash distributions on the Pledged Capital Securities and all payments of the principal of, or cash distributions on, any Pledged Treasury Consideration or Pledged Treasury Securities, that are received by the Collateral Agent and that are properly payable hereunder shall be paid by the Collateral Agent by wire transfer in same day funds: (i) In the case of (A) quarterly cash distributions on Normal Units which include Pledged Capital Securities or Pledged Treasury Consideration and (B) any payments with respect to any Capital Securities or Treasury Consideration, as the case may be, that have been released from the Pledge pursuant to Section 4.3 hereof, to the Purchase Contract Agent, for the benefit of the relevant Holders of the Normal Units, to the account designated by the Purchase Contract Agent for such purpose, no later 9 14 than 10:00 a.m., New York City time, on the Business Day such payment is received by the Collateral Agent (provided that in the event such payment is received by the Collateral Agent on a day that is not a Business Day or after 9:00 a.m., New York City time, on a Business Day, then such payment shall be made no later than 9:30 a.m., New York City time, on the next succeeding Business Day); (ii) In the case of any payments with respect to any Treasury Securities that have been released from the Pledge pursuant to Section 4.3 hereof, to the Holders of the Stripped Units to the accounts designated by them in writing for such purpose no later than 2:00 p.m., New York City time, on the Business Day such payment is received by the Collateral Agent (provided that in the event such payment is received by the Collateral Agent on a day that is not a Business Day or after 10 a.m., New York City time, on a Business Day, then such payment shall be made no later than 10:30 a.m., New York City time, on the next succeeding Business Day); and (iii) In the case of payments in respect of any Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, to be paid upon settlement of such Holder's obligations to purchase Common Stock under the Purchase Contract, to the Company on the Stock Purchase Date in accordance with the procedure set forth in Section 4.5(a) or 4.5(b) hereof, in full satisfaction of the respective obligations of the Holders under the related Purchase Contracts. All payments received by the Purchase Contract Agent as provided herein shall be applied by the Purchase Contract Agent pursuant to the provisions of the Purchase Contract Agreement. If, notwithstanding the foregoing, the Purchase Contract Agent shall receive any payments of the Stated Amount on account of any Capital Security or principal of any Treasury Consideration, as applicable, that, at the time of such payment, is a Pledged Capital Security or Pledged Treasury Consideration, as the case may be, or a Holder of a Stripped Unit shall receive any payments of principal on account of any Treasury Securities that, at the time of such payment, are Pledged Treasury Securities, the Purchase Contract Agent or such Holder shall hold the same as trustee of an express trust for the benefit of the Company (and promptly deliver the same over to the Company) for application to the obligations of the Holders under the related Purchase Contracts, and the Holders shall acquire no right, title or interest in any such payments of Stated Amount or principal so received. 10 15 ARTICLE IV Substitution, Release, Repledge and Settlement of Capital Securities Section 4.1 Substitution for Capital Securities or Treasury Consideration and the Creation of Stripped Units. At any time on or prior to the second Business Day immediately preceding the Stock Purchase Date, a Holder of Normal Units shall have the right to substitute Treasury Securities for the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, securing such Holder's obligations under the Purchase Contracts comprising a part of such Normal Units, in integral multiples of 20 Normal Units, or after a remarketing of the Capital Securities pursuant to the Purchase Contract Agreement, in integral multiples of Normal Units such that Treasury Securities to be deposited and the applicable Treasury Consideration to be released are in integral multiples of $1,000, by (a) Transferring to the Collateral Agent Treasury Securities having an aggregate principal amount equal to the aggregate Stated Amount of such Normal Units and (b) delivering such Normal Units to the Purchase Contract Agent, accompanied by a notice, substantially in the form of Exhibit B hereto, to the Purchase Contract Agent stating that such Holder has Transferred Treasury Securities to the Collateral Agent pursuant to clause (a) above (stating the principal amount, the maturities and the CUSIP numbers of the Treasury Securities Transferred by such Holder) and requesting that the Purchase Contract Agent instruct the Collateral Agent to release from the Pledge the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, related to such Normal Units, whereupon the Purchase Contract Agent shall promptly give such instruction to the Collateral Agent in the form provided in Exhibit A. Upon receipt of Treasury Securities from a Holder of Normal Units and the related instruction from the Purchase Contract Agent, the Collateral Agent shall release the Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, and shall promptly Transfer such Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, free and clear of any lien, pledge or security interest created hereby, to the Purchase Contract Agent. All items Transferred and/or substituted by any Holder pursuant to this Section 4.1, Section 4.2 or any other Section of this Agreement shall be Transferred and/or substituted free and clear of all liens, claims and encumbrances. Section 4.2 Substitution for Treasury Securities and the Creation of Normal Units. At any time on or prior to the second Business Day immediately preceding the Stock Purchase Date, a Holder of Stripped Units shall have the right to reestablish Normal Units (a) consisting of the Purchase Contracts and Capital Securities in integral multiples of 20 Normal Units, or (b) after a remarketing of the Capital Securities pursuant to the Purchase Contract Agreement, consisting of the Purchase Contracts and the appropriate Treasury Consideration (identified and calculated by reference to the Treasury Consideration then comprising Normal Units) in integral multiples of Stripped Units such 11 16 that the Treasury Consideration to be deposited and the Treasury Securities to be released are in integral multiples of $1,000, by (x) Transferring to the Collateral Agent Capital Securities or the appropriate Treasury Consideration, as the case may be, then comprising such number of Normal Units as is equal to such Stripped Units and (y) delivering such Stripped Units to the Purchase Contract Agent, accompanied by a notice, substantially in the form of Exhibit B hereto, to the Purchase Contract Agent stating that such Holder has transferred Capital Securities or Treasury Consideration to the Collateral Agent pursuant to clause (a) above and requesting that the Purchase Contract Agent instruct the Collateral Agent to release from the Pledge the Pledged Treasury Securities related to such Stripped Units, whereupon the Purchase Contract Agent shall give such instruction to the Collateral Agent in the form provided in Exhibit A. Upon receipt of the Capital Securities or the appropriate Treasury Consideration, as the case may be, from such Holder and the instruction from the Purchase Contract Agent, the Collateral Agent shall release the Pledged Treasury Securities and shall promptly Transfer such Treasury Securities, free and clear of any lien, pledge or security interest created hereby, to the Purchase Contract Agent. Section 4.3 Termination Event. Upon receipt by the Collateral Agent of written notice from the Company or the Purchase Contract Agent that there has occurred a Termination Event, the Collateral Agent shall release all Collateral from the Pledge and shall promptly Transfer any Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, and Pledged Treasury Securities to the Purchase Contract Agent for the benefit of the Holders of the Normal Units and the Stripped Units, respectively, free and clear of any lien, pledge or security interest or other interest created hereby. If such Termination Event shall result from the Company's becoming a debtor under the Bankruptcy Code, and if the Collateral Agent shall for any reason fail promptly to effectuate the release and Transfer of all Pledged Capital Securities, Pledged Treasury Consideration or of the Pledged Treasury Securities, as the case may be, as provided by this Section 4.3, the Purchase Contract Agent shall (i) use its best efforts to obtain an opinion of a nationally recognized law firm reasonably acceptable to the Collateral Agent to the effect that, as a result of the Company's being the debtor in such a bankruptcy case, the Collateral Agent will not be prohibited from releasing or Transferring the Collateral as provided in this Section 4.3, and shall deliver such opinion to the Collateral Agent within ten days after the occurrence of such Termination Event, and if (y) the Purchase Contract Agent shall be unable to obtain such opinion within ten days after the occurrence of such Termination Event or (z) the Collateral Agent shall continue, after delivery of such opinion, to refuse to effectuate the release and Transfer of all Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, as provided in this Section 4.3, then the Purchase Contract Agent shall within fifteen days after the occurrence of such Termination Event commence an action or proceeding in the 12 17 court with jurisdiction of the Company's case under the Bankruptcy Code seeking an order requiring the Collateral Agent to effectuate the release and transfer of all Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, as provided by this Section 4.3 or (ii) commence an action or proceeding like that described in subsection (i)(z) hereof within ten days after the occurrence of such Termination Event. Section 4.4 Early Settlement; Merger Early Settlement. Upon written notice to the Collateral Agent by the Purchase Contract Agent that one or more Holders of Securities have elected to effect Early Settlement or Merger Early Settlement of their respective obligations under the Purchase Contracts forming a part of such Securities in accordance with the terms of the Purchase Contracts and the Purchase Contract Agreement (setting forth the number of such Purchase Contracts as to which such Holders have elected to effect Early Settlement or Merger Early Settlement), and that the Purchase Contract Agent has received from such Holders, and paid to the Company as confirmed in writing by the Company, the related Early Settlement Amounts or Merger Early Settlement Amounts, as the case may be, pursuant to the terms of the Purchase Contracts and the Purchase Contract Agreement and that all conditions to such Early Settlement or Merger Early Settlement, as the case may be, have been satisfied, then the Collateral Agent shall release from the Pledge, (a) Pledged Capital Securities or Pledged Treasury Consideration, as the case may be, in the case of a Holder of Normal Units or (b) Pledged Treasury Securities, in the case of a Holder of Stripped Units, relating to such Purchase Contracts as to which such Holders have elected to effect Early Settlement or Merger Early Settlement, and shall Transfer all such Pledged Capital Securities, Pledged Treasury Consideration or Pledged Treasury Securities, as the case may be, free and clear of the Pledge created hereby, to the Purchase Contract Agent for the benefit of the Holders. Section 4.5 Remarketing; Application of Proceeds; Settlement. (a) Pursuant to the Purchase Contract Agreement, the Purchase Contract Agent shall notify, by 10:00 a.m., New York City time, on the third Business Day immediately preceding the Remarketing Date or any Subsequent Remarketing Date, as the case may be, the Remarketing Agent and the Collateral Agent of the aggregate number of Capital Securities comprising part of Normal Units to be remarketed. The Collateral Agent shall, by 10:00 a.m., New York City time, on the first Business Day immediately preceding the Remarketing Date or any Subsequent Remarketing Date, as the case may be, without any instruction from Holders of Normal Units, deliver (i) the Pledged Capital Securities to be remarketed to the Remarketing Agent for remarketing and (ii) the remaining Pledged Capital Securities to the Purchase Contract Agent for distribution to the Holders that have elected not to participate in the remarketing in accordance with the Purchase Contract Agreement. The Remarketing Agent will deliver the Agent-purchased Treasury Consideration (as defined in the Purchase Contract Agreement) purchased from the 13 18 proceeds of the remarketing to the Purchase Contract Agent, which shall thereupon deliver such Agent-purchased Treasury Consideration to the Collateral Agent. Upon receipt of the Agent-purchased Treasury Consideration from the Purchase Contract Agent following a successful remarketing, the Collateral Agent, for the benefit of the Company, shall thereupon apply such Treasury Consideration to secure such Holders' obligations under the Purchase Contracts. On the Stock Purchase Date, the Collateral Agent shall apply that portion of the payments received in respect of the Pledged Treasury Consideration equal to the aggregate Stated Amount of the related Normal Units to satisfy in full the obligations of such Holders of Normal Units to pay the Purchase Price under the related Purchase Contracts. The remaining portion of such Proceeds, if any, shall be distributed by the Collateral Agent to the Purchase Contract Agent for payment to such Holders. Within three Business Days following a Failed Remarketing, the Capital Securities delivered to the Remarketing Agent and the Purchase Contract Agent pursuant to Section 4.5(a) shall be returned to the Collateral Agent, together with written notice from the Remarketing Agent of the Failed Remarketing. The Collateral Agent, for the benefit of the Company, shall thereupon apply such Capital Securities to secure the Normal Units Holders' obligations under the Purchase Contracts. The Remarketing Agent may make one or more attempts to remarket the Capital Securities in accordance with the procedures set forth in the Purchase Contract Agreement and the Remarketing Agreement between the Remarketing Date and the Stock Purchase Date, provided that the requirements of Section 5.2(b)(ii) have been met. If by the Stock Purchase Date the Remarketing Agent has failed to remarket the Capital Securities at 100.5% of the Remarketing Value (as described in the Purchase Contract Agreement), the Remarketing Agent shall advise the Collateral Agent in writing that it cannot remarket the related Pledged Capital Securities of such Holders of Normal Units. The Collateral Agent, for the benefit of the Company will, at the written direction of the Company, retain or dispose of the Pledged Capital Securities in accordance with applicable law and satisfy in full, from any such disposition or retention, such Holders' obligations to pay the Purchase Price for the Common Stock; provided, that if upon a Failed Remarketing, the Collateral Agent exercises such rights for the benefit of the Company with respect to such Capital Securities, any accumulated and unpaid distributions on such Capital Securities will become payable by the Company to the Purchase Contract Agent for payment to the Holder of the Normal Units to which such Capital Securities relates in accordance with the Purchase Contract Agreement. 14 19 (b) In the event a Holder of Stripped Units has not made an Early Settlement or Merger Early Settlement of the Purchase Contracts underlying its Stripped Units, such Holder shall be deemed to have elected to pay for the shares of Common Stock to be issued under such Purchase Contracts from the payments received in respect of the related Pledged Treasury Securities. Without receiving any instruction from any such Holder of Stripped Units, the Collateral Agent shall apply such payments to the settlement of such Purchase Contracts on the Stock Purchase Date. In the event the payments received in respect of the related Pledged Treasury Securities are in excess of the aggregate Purchase Price of the Purchase Contracts being settled thereby, the Collateral Agent shall distribute such excess, when received, to the Purchase Contract Agent for the benefit of the Holders. (c) Pursuant to the Remarketing Agreement, on or prior to the fourth Business Day immediately preceding the Remarketing Date, but no earlier than the Payment Date immediately preceding the Remarketing Date, holders of Separate Capital Securities may elect to have their Separate Capital Securities remarketed by delivering their Separate Capital Securities, together with a notice of such election, substantially in the form of Exhibit C hereto, to the Custodial Agent. On the third Business Day prior to the Remarketing Date, by 10 a.m. NYC time, the Custodial Agent shall notify the Remarketing Agent of the number of such Separate Capital Securities to be remarketed. The Custodial Agent will hold such Separate Capital Securities in an account separate from the Collateral Account. A holder of Separate Capital Securities electing to have its Separate Capital Securities remarketed will also have the right to withdraw such election by written notice to the Custodial Agent, substantially in the form of Exhibit D hereto, on or prior to the first Business Day immediately preceding the Remarketing Date and any Subsequent Remarketing Date, upon which notice the Custodial Agent will return such Separate Capital Securities to such holder. On the first Business Day immediately preceding the Remarketing Date and any Subsequent Remarketing Date, the Custodial Agent will deliver to the Remarketing Agent for remarketing all Separate Capital Securities delivered to the Custodial Agent pursuant to this Section 4.5(c) and not withdrawn pursuant to the terms hereof prior to such date. The portion of the proceeds from such remarketing equal to the amount calculated in respect of such Separate Capital Securities as set forth in Section 5.2(b) of the Purchase Contract Agreement will automatically be remitted by the Remarketing Agent to the Custodial Agent for the benefit of the holders of such Separate Capital Securities. In addition, after deducting as the remarketing fee an amount not exceeding 25 basis points (.25%) of the total proceeds of such remarketing, the Remarketing Agent will remit to the Custodial Agent the remaining portion of the proceeds, if any, for the benefit of such holders. If, despite using its reasonable best efforts, the Remarketing Agent advises the Custodial Agent in writing that there has been a Failed Remarketing, the Remarketing Agent will promptly return such Capital Securities to the Custodial Agent for redelivery to such holders. In the event of a dissolution of the Trust and the distribution of the Debentures as described in the Declaration, all references 15 20 to "Separate Capital Securities" in this Section 4.5(c) shall be deemed to be references to Debentures which are not pledged hereunder or required to be part of the Collateral. ARTICLE V Voting Rights -- Capital Securities The Purchase Contract Agent may exercise, or refrain from exercising, any and all voting and other consensual rights pertaining to the Pledged Capital Securities or any part thereof for any purpose not inconsistent with the terms of this Agreement and in accordance with the terms of the Purchase Contract Agreement; provided, that the Purchase Contract Agent shall not exercise or, as the case may be, shall not refrain from exercising such right if, in the judgment of the Company, such action would impair or otherwise have a material adverse effect on the value of all or any of the Pledged Capital Securities; and provided, further, that the Purchase Contract Agent shall give the Company and the Collateral Agent at least five days' prior written notice of the manner in which it intends to exercise, or its reasons for refraining from exercising, any such right. Upon receipt of any notices and other communications in respect of any Pledged Capital Securities, including notice of any meeting at which holders of Capital Securities are entitled to vote or solicitation of consents, waivers or proxies of holders of Capital Securities, the Collateral Agent shall use reasonable efforts to send promptly to the Purchase Contract Agent such notice or communication, and as soon as reasonably practicable after receipt of a written request therefor from the Purchase Contract Agent, execute and deliver to the Purchase Contract Agent such proxies and other instruments in respect of such Pledged Capital Securities (in form and substance satisfactory to the Collateral Agent) as are prepared by the Purchase Contract Agent with respect to the Pledged Capital Securities. ARTICLE VI Rights and Remedies; Distribution of the Debentures Section 6.1 Rights and Remedies of the Collateral Agent. (a) In addition to the rights and remedies available at law or in equity, after an event of default hereunder, the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (or any successor thereto) as in effect in the State of New York from time to time (the "Code") (whether or not the Code is in effect in the jurisdiction where the rights and remedies are asserted) and the TRADES Regulations and such additional rights and remedies to which a secured party is entitled 16 21 under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted. Wherever reference is made in this Agreement to any section of the Code, such reference shall be deemed to include a reference to any provision of the Code which is a successor to, or amendment of, such section. Without limiting the generality of the foregoing, such remedies may include, to the extent permitted by applicable law, (i) retention of the Pledged Capital Securities or other Collateral in full satisfaction of the Holders' obligations under the Purchase Contracts or (ii) sale of the Pledged Capital Securities or other Collateral in one or more public or private sales at the written direction of the Company. (b) Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, in the event the Collateral Agent is unable to make payments to the Company on account of any Pledged Treasury Consideration or Pledged Treasury Securities as provided in Article III hereof in satisfaction of the obligations of the Holder of the Securities of which such Pledged Treasury Consideration or Pledged Treasury Securities, as applicable, is a part under the related Purchase Contracts, the inability to make such payments shall constitute an event of default hereunder and the Collateral Agent shall have and may exercise, with reference to such Pledged Treasury Securities or such Pledged Treasury Consideration, as applicable, and such obligations of such Holder, any and all of the rights and remedies available to a secured party under the Code and the TRADES Regulations after default by a debtor, and as otherwise granted herein or under any other law. (c) Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably authorized to receive and collect all payments of (i) the Stated Amount of or, cash distributions on, the Pledged Capital Securities, or (ii) the principal amount of the Pledged Treasury Consideration or Pledged Treasury Securities, subject, in each case, to the provisions of Article III, and as otherwise granted herein. (d) The Purchase Contract Agent, individually and as attorney-in-fact for each Holder of Securities, agrees that, from time to time, upon the written request of the Company or the Collateral Agent (acting upon the written request of the Company), the Purchase Contract Agent or such Holder shall execute and deliver such further documents and do such other acts and things as the Company or the Collateral Agent (acting upon the written request of the Company) may reasonably request in order to maintain the Pledge, and the perfection and priority thereof, and to confirm the rights of the Collateral Agent hereunder. The Purchase Contract Agent shall have no liability to any Holder for executing any documents or taking any such acts requested by the Company or the Collateral Agent (acting upon the written request of the Company) hereunder, except for 17 22 liability for its own negligent act, its own negligent failure to act, its bad faith or its own willful misconduct. Section 6.2 Distribution of the Debentures. Upon the occurrence of a voluntary or involuntary dissolution of the Trust, a principal amount of the Debentures constituting the assets of the Trust and underlying the Capital Securities equal to the aggregate Stated Amount of the Pledged Capital Securities shall be delivered to the Collateral Agent in exchange for the Pledged Capital Securities. In the event the Collateral Agent receives such Debentures in respect of Pledged Capital Securities upon the occurrence of a voluntary or involuntary dissolution of the Trust, the Collateral Agent shall Transfer such Debentures to the Collateral Account in the manner specified herein (including, without limitation, physical delivery thereof as set forth in Section 2.1) for Pledged Capital Securities to secure the obligations of the Holders of Normal Units to purchase the Company's Common Stock under the related Purchase Contracts. Thereafter, the Collateral Agent shall have such security interests, rights and obligations with respect to such Debentures as it had in respect of the Pledged Capital Securities as provided in Articles II, III, IV, V and VI hereof, and any reference herein to the Capital Securities or Pledged Capital Securities shall be deemed to be referring to such Debentures. Section 6.3 Substitutions. Whenever a Holder has the right to substitute Treasury Securities, Capital Securities or Treasury Consideration, as the case may be, for Collateral held by the Collateral Agent, such substitution shall not constitute a novation of the security interest created hereby. ARTICLE VII Representations and Warranties; Covenants Section 7.1 Representations and Warranties. The Holders from time to time, acting through the Purchase Contract Agent as their attorney-in-fact (it being understood that the Purchase Contract Agent shall not be liable for any representation or warranty made by or on behalf of a Holder), hereby represent and warrant to the Collateral Agent, which representations and warranties shall be deemed repeated on each day a Holder Transfers Collateral that: (a) such Holder has the power to grant a security interest in and lien on the Collateral; (b) such Holder is the sole beneficial owner of the Collateral and, in the case of Collateral delivered in physical form, is the sole holder of such Collateral and is the 18 23 sole beneficial owner of, or has the right to Transfer, the Collateral it Transfers to the Collateral Agent, free and clear of any security interest, lien, encumbrance, call, liability to pay money or other restriction other than the security interest and lien granted under Section 2.1 hereof; (c) upon the Transfer of the Collateral to the Collateral Account, the Collateral Agent, for the benefit of the Company, will have a valid and perfected first priority security interest therein (assuming that any central clearing operation or any Intermediary or other entity not within the control of the Holder involved in the Transfer of the Collateral, including the Collateral Agent, gives the notices and takes the action required of it hereunder and under applicable law for perfection of that interest and assuming the establishment and exercise of control pursuant to Section 2.2 hereof); and (d) the execution and performance by the Holder of its obligations under this Agreement will not result in the creation of any security interest, lien or other encumbrance on the Collateral other than the security interest and lien granted under Section 2.1 hereof or violate any provision of any existing law or regulation applicable to it or of any mortgage, charge, pledge, indenture, contract or undertaking to which it is a party or which is binding on it or any of its assets. Section 7.2 Covenants. The Holders from time to time, acting through the Purchase Contract Agent as their attorney-in-fact (it being understood that the Purchase Contract Agent shall not be liable for any covenant made by or on behalf of a Holder), hereby covenant to the Collateral Agent that for so long as the Collateral remains subject to the Pledge: (a) neither the Purchase Contract Agent nor such Holders will create or purport to create or allow to subsist any mortgage, charge, lien, pledge or any other security interest whatsoever over the Collateral or any part of it other than pursuant to this Agreement; and (b) neither the Purchase Contract Agent nor such Holders will sell or otherwise dispose (or attempt to dispose) of the Collateral or any part of it except for the beneficial interest therein, subject to the pledge hereunder, transferred in connection with the Transfer of the Securities. 19 24 ARTICLE VIII The Collateral Agent Section 8.1 Appointment, Powers and Immunities. The Collateral Agent shall act as Agent for the Company hereunder with such powers as are specifically vested in the Collateral Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Each of the Collateral Agent, the Custodial Agent and the Securities Intermediary: (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and no implied covenants or obligations shall be inferred from this Agreement against any of them, nor shall any of them be bound by the provisions of any agreement by any party hereto beyond the specific terms hereof; (b) shall not be responsible for any recitals contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by it under, this Agreement, the Securities or the Purchase Contract Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement (other than as against the Collateral Agent), the Securities or the Purchase Contract Agreement or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person (except the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be) to perform any of its obligations hereunder or thereunder or for the perfection, priority or, except as expressly required hereby, existence, validity, perfection or maintenance of any security interest created hereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder (except in the case of the Collateral Agent, pursuant to directions furnished under Section 8.2 hereof, subject to Section 8.6 hereof); (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith or therewith, except for its own gross negligence, bad faith or willful misconduct; and (e) shall not be required to advise any party as to selling or retaining, or taking or refraining from taking any action with respect to, the Securities or other property deposited hereunder. Subject to the foregoing, during the term of this Agreement, the Collateral Agent shall take all reasonable action in connection with the safekeeping and preservation of the Collateral hereunder. No provision of this Agreement shall require the Collateral Agent, the Custodial Agent or the Securities Intermediary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. In no event shall the Collateral Agent, the Custodial Agent or the Securities Intermediary be liable for any amount in excess of the value of the Collateral or for any special, indirect, individual, consequential damages or lost profits or loss of business, arising in connection with this Agreement. Notwithstanding the foregoing, the Collateral Agent, the Custodial Agent, 20 25 the Purchase Contract Agent and Securities Intermediary, each in its individual capacity, hereby waive any right of setoff, bankers lien, liens or perfection rights as securities intermediary or any counterclaim with respect to any of the Collateral. The Collateral Agent, Custodial Agent and Securities Intermediary shall have no liability whatsoever for the action or inaction of the Book-Entry System or any Clearing Corporation. In no event shall the Book-Entry System or any Clearing Corporation be deemed an agent or subcustodian of the Collateral Agent, Custodial Agent and Securities Intermediary. The Collateral Agent, Custodial Agent and Securities Intermediary shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority; governmental actions; inability or obtain labor, material, equipment or transportation. Section 8.2 Instructions of the Company. The Company shall have the right, by one or more instruments in writing executed and delivered to the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, to direct the time, method and place of conducting any proceeding for the realization of any right or remedy available to the Collateral Agent, or of exercising any power conferred on the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, or to direct the taking or refraining from taking of any action authorized by this Agreement; provided, however, that (i) such direction shall not conflict with the provisions of any law or of this Agreement and (ii) the Collateral Agent, the Custodial Agent and the Securities Intermediary shall receive indemnity satisfactory to it as provided herein. Nothing in this Section 8.2 shall impair the right of the Collateral Agent in its discretion to take any action or omit to take any action which it deems proper and which is not inconsistent with such direction. Section 8.3 Reliance by Collateral Agent. Each of the Securities Intermediary, the Custodial Agent and the Collateral Agent shall be entitled conclusively to rely upon any certification, order, judgment, opinion, notice or other communication (including, without limitation, any thereof by telephone or facsimile) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons (without being required to determine the correctness of any fact stated therein), and upon advice and statements of legal counsel and other experts selected by the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be. As to any matters not expressly provided for by this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall in all cases be fully protected in acting, or in 21 26 refraining from acting, hereunder in accordance with instructions given by the Company in accordance with this Agreement. Section 8.4 Rights in Other Capacities. The Collateral Agent, the Custodial Agent and the Securities Intermediary and their affiliates may (without having to account therefor to the Company) accept deposits from, lend money to, make their investments in and generally engage in any kind of banking, trust or other business with the Purchase Contract Agent, any Holder of Securities and any holder of Separate Capital Securities (and any of their respective subsidiaries or affiliates) as if it were not acting as the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, and the Collateral Agent, the Custodial Agent and the Securities Intermediary and their affiliates may accept fees and other consideration from the Purchase Contract Agent, any Holder of Securities or any holder of Separate Capital Securities without having to account for the same to the Company; provided that each of the Securities Intermediary, the Custodial Agent and the Collateral Agent covenants and agrees with the Company that it shall not accept, receive or permit there to be created in favor of itself (and waives any right of set-off or banker's lien with respect to) and shall take no affirmative action to permit there to be created in favor of any other Person, any security interest, lien or other encumbrance of any kind in or upon the Collateral and the Collateral shall not be commingled with any other assets of any such Person. Section 8.5 Non-Reliance on Collateral Agent. None of the Securities Intermediary, the Custodial Agent or the Collateral Agent shall be required to keep itself informed as to the performance or observance by the Purchase Contract Agent or any Holder of Securities of this Agreement, the Purchase Contract Agreement, the Securities or any other document referred to or provided for herein or therein or to inspect the properties or books of the Purchase Contract Agent or any Holder of Securities. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall not have any duty or responsibility to provide the Company or the Remarketing Agent with any credit or other information concerning the affairs, financial condition or business of the Purchase Contract Agent, any Holder of Securities or any holder of Separate Capital Securities (or any of their respective subsidiaries or affiliates) that may come into the possession of the Collateral Agent, the Custodial Agent or the Securities Intermediary or any of their respective affiliates. Section 8.6 Compensation and Indemnity. The Company agrees: (i) to pay each of the Collateral Agent and the Custodial Agent from time to time such compensation as shall be agreed in writing between the Company and the Collateral Agent or the Custodial Agent, as the case may be, for all services rendered by each of them hereunder and (ii) to indemnify the Collateral Agent, the Custodial Agent and the Securities Intermediary for, and to hold each of them harmless from and against, any loss, liability or reasonable out-of-pocket expense incurred without gross negligence, willful misconduct or bad faith 22 27 on its part, arising out of or in connection with the acceptance or administration of its powers and duties under this Agreement, including the reasonable out-of-pocket costs and expenses (including reasonable fees and expenses of counsel) of defending itself against any claim or liability in connection with the exercise or performance of such powers and duties or collecting such amounts. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall each promptly notify the Company of any third party claim which may give rise to the indemnity hereunder and give the Company the opportunity to participate in the defense of such claim with counsel reasonably satisfactory to the indemnified party, and no such claim shall be settled without the written consent of the Company, which consent shall not be unreasonably withheld. Section 8.7 Failure to Act. In the event of any ambiguity in the provisions of this Agreement or any dispute between or conflicting claims by or among the parties hereto or any other Person with respect to any funds or property deposited hereunder, the Collateral Agent and the Custodial Agent shall be entitled, after prompt notice to the Company and the Purchase Contract Agent, at its sole option, to refuse to comply with any and all claims, demands or instructions with respect to such property or funds so long as such dispute or conflict shall continue, and neither the Collateral Agent nor the Custodial Agent shall be or become liable in any way to any of the parties hereto for its failure or refusal to comply with such conflicting claims, demands or instructions. The Collateral Agent and the Custodial Agent shall be entitled to refuse to act until either (i) such conflicting or adverse claims or demands shall have been finally determined by a court of competent jurisdiction or settled by agreement between the conflicting parties as evidenced in a writing, satisfactory to the Collateral Agent or the Custodial Agent, as the case may be, or (ii) the Collateral Agent or the Custodial Agent, as the case may be, shall have received security or an indemnity satisfactory to the Collateral Agent or the Custodial Agent, as the case may be, sufficient to save the Collateral Agent or the Custodial Agent, as the case may be, harmless from and against any and all loss, liability or reasonable out-of-pocket expense which the Collateral Agent or the Custodial Agent, as the case may be, may incur by reason of its acting without bad faith, willful misconduct or gross negligence. The Collateral Agent or the Custodial Agent may in addition elect to commence an interpleader action or seek other judicial relief or orders as the Collateral Agent or the Custodial Agent, as the case may be, may deem necessary. Notwithstanding anything contained herein to the contrary, neither the Collateral Agent nor the Custodial Agent shall be required to take any action that is in its opinion contrary to law or to the terms of this Agreement, or which would in its opinion subject it or any of its officers, employees or directors to liability. Section 8.8 Resignation of Collateral Agent. Subject to the appointment and acceptance of a successor Collateral Agent or Custodial Agent as provided below, (a) the Collateral Agent and the Custodial Agent may resign at any time by giving notice thereof 23 28 to the Company and the Purchase Contract Agent as attorney-in-fact for the Holders of Securities, (b) the Collateral Agent and the Custodial Agent may be removed at any time by the Company and (c) if the Collateral Agent or the Custodial Agent fails to perform any of its material obligations hereunder in any material respect for a period of not less than 20 days after receiving written notice of such failure by the Purchase Contract Agent and such failure shall be continuing, the Collateral Agent or the Custodial Agent may be removed by the Purchase Contract Agent. The Purchase Contract Agent shall promptly notify the Company of any removal of the Collateral Agent pursuant to clause (c) of the immediately preceding sentence. Upon any such resignation or removal, the Company shall have the right to appoint a successor Collateral Agent or Custodial Agent, as the case may be. If no successor Collateral Agent or Custodial Agent, as the case may be, shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Collateral Agent's or Custodial Agent's giving of notice of resignation or such removal, then the retiring Collateral Agent or Custodial Agent, as the case may be, may at the Company's expense petition any court of competent jurisdiction for the appointment of a successor Collateral Agent or Custodial Agent, as the case may be. Each of the Collateral Agent and the Custodial Agent shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Collateral Agent or Custodial Agent, as the case may be, hereunder by a successor Collateral Agent or Custodial Agent, as the case may be, such successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent or Custodial Agent, as the case may be, and the retiring Collateral Agent or Custodial Agent, as the case may be, shall take all appropriate action to transfer any money and property held by it hereunder (including the Collateral) to such successor. The retiring Collateral Agent or Custodial Agent shall, upon such succession, be discharged from its duties and obligations as Collateral Agent or Custodial Agent hereunder. After any retiring Collateral Agent's or Custodial Agent's resignation hereunder as Collateral Agent or Custodial Agent, the provisions of this Section 8.8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent or Custodial Agent. Any resignation or removal of the Collateral Agent hereunder shall be deemed for all purposes of this Agreement as the simultaneous resignation or removal of the Custodial Agent and the Securities Intermediary. Section 8.9 Right to Appoint Agent or Advisor. The Collateral Agent shall have the right to appoint agents or advisors in connection with any of its duties hereunder, and the Collateral Agent shall not be liable for any action taken or omitted by, or in reliance upon the advice of, such agents or advisors selected in good faith. The appointment of agents (other than legal counsel) pursuant to this Section 8.9 shall be subject to prior consent of the Company, which consent shall not be unreasonably withheld. 24 29 Section 8.10 Survival. The provisions of this Article VIII shall survive termination of this Agreement and the resignation or removal of the Collateral Agent or the Custodial Agent. Section 8.11 Exculpation. Anything in this Agreement to the contrary notwithstanding, in no event shall any of the Collateral Agent, the Custodial Agent or the Securities Intermediary or their officers, employees or agents be liable under this Agreement to any third party for indirect, special, punitive or consequential loss or damage of any kind whatsoever, including lost profits, whether or not the likelihood of such loss or damage was known to the Collateral Agent, the Custodial Agent or the Securities Intermediary, or any of them, incurred without any act or deed that is found to be attributable to gross negligence, bad faith or willful misconduct on the part of the Collateral Agent, the Custodial Agent or the Securities Intermediary. ARTICLE IX Amendment Section 9.1 Amendment Without Consent of Holders. Without the consent of any Holders or the holders of any Separate Capital Securities, the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, at any time and from time to time, may amend this Agreement, in form satisfactory to the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company so long as such covenants or such surrender do not adversely affect the validity, perfection or priority of the security interests granted or created hereunder; or (3) to evidence and provide for the acceptance of appointment hereunder by a successor Collateral Agent, Securities Intermediary or Purchase Contract Agent; or (4) to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other such provisions herein, or to make any other provisions with respect to such matters or questions arising under this Agreement, provided such action shall not adversely affect the interests of the Holders. 25 30 Section 9.2 Amendment with Consent of Holders. With the consent of the Holders of not less than a majority of the Purchase Contracts at the time outstanding, by Act of said Holders delivered to the Company, the Purchase Contract Agent or the Collateral Agent, as the case may be, the Company, when duly authorized, the Purchase Contract Agent, the Collateral Agent, the Custodial Agent and the Securities Intermediary may amend this Agreement for the purpose of modifying in any manner the provisions of this Agreement or the rights of the Holders in respect of the Securities; provided, however, that no such supplemental agreement shall, without the consent of the Holder of each Outstanding Security adversely affected thereby, (1) change the amount or type of Collateral underlying a Security (except for the rights of holders of Normal Units to substitute the Treasury Securities for the Pledged Capital Securities or the Pledged Treasury Consideration, as the case may be, or the rights of Holders of Stripped Units to substitute Capital Securities or the appropriate Treasury Consideration, as applicable, for the Pledged Treasury Securities), impair the right of the Holder of any Security to receive distributions on the underlying Collateral or otherwise adversely affect the Holder's rights in or to such Collateral; or (2) otherwise effect any action that would require the consent of the Holder of each Outstanding Security affected thereby pursuant to the Purchase Contract Agreement if such action were effected by an agreement supplemental thereto; or (3) reduce the percentage of Purchase Contracts the consent of whose Holders is required for any such amendment. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3 Execution of Amendments. In executing any amendment permitted by this Section, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent shall receive and (subject to Section 6.1 hereof, with respect to the Collateral Agent, and Section 7.1 of the Purchase Contract Agreement, with respect to the Purchase Contract Agent) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such amendment is authorized or permitted by this Agreement and that all conditions precedent, if any, to the execution and delivery of such amendment have been satisfied and, in the case of an amendment pursuant to Section 9.1, that such amendment does no adversely affect the validity, perfection or priority of the security interests granted or created hereunder. 26 31 Section 9.4 Effect of Amendments. Upon the execution of any amendment under this Article IX, this Agreement shall be modified in accordance therewith, and such amendment shall form a part of this Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated, executed on behalf of the Holders and delivered under the Purchase Contract Agreement shall be bound thereby. Section 9.5 Reference to Amendments. Security Certificates authenticated, executed on behalf of the Holders and delivered after the execution of any amendment pursuant to this Section may, and shall if required by the Collateral Agent or the Purchase Contract Agent, bear a notation in form approved by the Purchase Contract Agent and the Collateral Agent as to any matter provided for in such amendment. If the Company shall so determine, new Security Certificates so modified as to conform, in the opinion of the Collateral Agent, the Purchase Contract Agent and the Company, to any such amendment may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent in accordance with the Purchase Contract Agreement in exchange for outstanding Security Certificates. ARTICLE X Miscellaneous Section 10.1 No Waiver. No failure on the part of any party hereto or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by any party hereto or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. Section 10.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. Without limiting the foregoing, the above choice of law is expressly agreed to by the Securities Intermediary, the Collateral Agent, the Custodial Agent and the Holders from time to time acting through the Purchase Contract Agent, as their attorney-in-fact, in connection with the establishment and maintenance of the Collateral Account, which law, for purposes of the Code, shall be deemed to be the law governing all security entitlements related thereto. In addition, such parties agree that, for purposes of the Code, New York shall be the Securities Intermediary's jurisdiction. The Company, the Collateral Agent and the Holders from time to time of the Securities, acting through the Purchase Contract Agent as their attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of 27 32 all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company, the Collateral Agent and the Holders from time to time of the Securities, acting through the Purchase Contract Agent as their attorney-in-fact, irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 10.3 Notices. Unless otherwise stated herein, all notices, requests, consents and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to the other parties. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when personally delivered or, in the case of a mailed notice or notice transmitted by telecopier, upon receipt, in each case given or addressed as aforesaid. Section 10.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, and the Holders from time to time of the Securities, by their acceptance of the same, shall be deemed to have agreed to be bound by the provisions hereof and to have ratified the agreements of, and the grant of the Pledge hereunder by, the Purchase Contract Agent. Section 10.5 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 10.6 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. Section 10.7 Expenses, Etc. The Company agrees to reimburse the Collateral Agent, the Securities Intermediary and the Custodial Agent for: (a) all reasonable out-of-pocket costs and expenses of the Collateral Agent, the Securities Intermediary and the Custodial Agent (including, without limitation, the reasonable fees and expenses of 28 33 counsel to the Collateral Agent and the Securities Intermediary and the Custodial Agent), in connection with (i) the negotiation, preparation, execution and delivery or performance of this Agreement and (ii) any modification, supplement or waiver of any of the terms of this Agreement; (b) all reasonable costs and expenses of the Collateral Agent (including, without limitation, reasonable fees and expenses of counsel) in connection with (i) any enforcement or proceedings resulting or incurred in connection with causing any Holder of Securities to satisfy its obligations under the Purchase Contracts forming a part of the Securities and (ii) the enforcement of this Section 10.7; and (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated hereby. Section 10.8 Security Interest Absolute. All rights of the Collateral Agent and security interests hereunder, and all obligations of the Holders from time to time hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of the Purchase Contracts or the Securities or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or any other term of, or any increase in the amount of, all or any of the obligations of Holders of Securities under the related Purchase Contracts, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Purchase Contract Agreement or any Purchase Contract or any other agreement or instrument relating thereto; or (c) any other circumstance which might otherwise constitute a defense available to, or discharge of, a borrower, a guarantor or a pledgor. Section 10.9 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 29 34 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. METLIFE, INC. By: ------------------------------------ Name: Title: Address for Notices: MetLife, Inc. One Madison Avenue New York, New York 10010 Attention: Treasurer's Office Telecopy: (212) 578-0266 BANK ONE TRUST COMPANY, N.A., as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Securities By: ------------------------------------ Name: Title: Address for Notices: Bank One Trust Company, N.A. One North State Street, 9th Floor Chicago, Illinois 60602 Attention: Corporate Trust Services Division Telecopy: (312) 407-1708 THE BANK OF NEW YORK, as Collateral Agent, Custodial Agent and as Securities Intermediary 30 35 By: Name: Title: Address for Notices: 101 Barclay Street, Floor 12 East New York, New York 10286 Attention: Corporate Trust Administration, Dealing and Trading Group, David Kolibachuk Telecopy: (212) 815-7157 31 36 EXHIBIT A INSTRUCTION FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT The Bank of New York 101 Barclay Street, Floor 12E New York, NY 10286 Attention: Dealing and Trading Group Re: Equity Security Units of MetLife, Inc. (the "Company"), and MetLife Capital Trust I We hereby notify you in accordance with Section [4.1] [4.2] of the Pledge Agreement, dated as of April __, 2000, (the "Pledge Agreement") among the Company, yourselves, as Collateral Agent, Custodial Agent and Securities Intermediary and ourselves, as Purchase Contract Agent and as attorney-in-fact for the holders of [Normal Units] [Stripped Units] from time to time, that the holder of Securities listed below (the "Holder") has elected to substitute [$_____ aggregate principal amount of Treasury Securities (CUSIP No. _____)] [$_______stated liquidation amount of Capital Securities or $_____ principal amount of Treasury Consideration (CUSIP No. _____)] in exchange for the related [Pledged Capital Securities or Pledged Treasury Consideration] [Pledged Treasury Securities] held by you in accordance with the Pledge Agreement and has delivered to us a notice stating that the Holder has Transferred [Treasury Securities] [Capital Securities or the Treasury Consideration] to you, as Collateral Agent. We hereby instruct you, upon receipt of such [Pledged Treasury Securities] [Pledged Capital Securities or Pledged Treasury Consideration], to release the [Capital Securities or the Treasury Consideration] [Treasury Securities] related to such [Normal Units] [Stripped Units] to us in accordance with the Holder's instructions. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement. Date: _____________________ By:Bank One Trust Company, N.A. Name: Title: A-1 37 Please print name and address of Registered Holder electing to substitute [Treasury Securities] [Capital Securities or Treasury Consideration] for the [Pledged Capital Securities or the Pledged Treasury Consideration] [Pledged Treasury Securities]: Name Social Security or other Taxpayer Identification Number, if any Address A-2 38 EXHIBIT B INSTRUCTION TO PURCHASE CONTRACT AGENT Bank One Trust Company, N.A. One North State Street, 9th Floor Chicago, Illinois 60602 Attention: Corporate Trust Services Division Re: Equity Security Units of MetLife, Inc. (the "Company"), and MetLife Capital Trust I The undersigned Holder hereby notifies you that it has delivered to The Bank of New York, as Collateral Agent, [$_______ aggregate principal amount of Treasury Securities (CUSIP No. _____)] [$_______ aggregate stated liquidation amount of Capital Securities or $_____ principal amount of Treasury Consideration (CUSIP No. _____)] in exchange for the related [Pledged Capital Securities or Pledged Treasury Consideration] [Pledged Treasury Securities] held by the Collateral Agent, in accordance with Section 4.1 of the Pledge Agreement, dated_________, 2000 (the "Pledge Agreement"), between you, the Company and the Collateral Agent. The undersigned Holder hereby instructs you to instruct the Collateral Agent to release to you on behalf of the undersigned Holder the [Pledged Capital Securities or the Pledged Treasury Consideration] [Pledged Treasury Securities] related to such [Normal Units] [Stripped Units]. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement. Date: _________________________ Signature Guarantee: Please print name and address of Registered Holder: Name Social Security or other Taxpayer Identification Number, if any Address B-1 39 EXHIBIT C INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING The Bank of New York 101 Barclay Street, Floor 12E New York, New York 10286 Attention: Corporate Trust Administration, Dealing and Trading Group Re: Capital Securities of MetLife, Inc. (the "Company") and MetLife Capital Trust I The undersigned hereby notifies you in accordance with Section 4.5(c) of the Pledge Agreement, dated as of April __, 2000 (the "Pledge Agreement"), among the Company, yourselves, as Collateral Agent, Securities Intermediary and Custodial Agent, and Bank One Trust Company, N.A., as Purchase Contract Agent and as attorney-in-fact for the Holders of Normal Units and Stripped Units from time to time, that the undersigned elects to deliver $__________ stated liquidation amount of Capital Securities for delivery to the Remarketing Agent on the fourth Business Day immediately preceding the Remarketing Date or any Subsequent Remarketing Date for remarketing pursuant to Section 4.5(c) of the Pledge Agreement. The undersigned will, upon request of the Remarketing Agent, execute and deliver any additional documents deemed by the Remarketing Agent or by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Capital Securities tendered hereby. The undersigned hereby instructs you, upon receipt of the proceeds of such remarketing from the Remarketing Agent, net of amounts payable to the Remarketing Agent in accordance with the Pledge Agreement, to deliver such proceeds to the undersigned in accordance with the instructions indicated herein under "A. Payment Instructions." The undersigned hereby instructs you, in the event of Failed Remarketing, upon receipt of the Capital Securities tendered herewith from the Remarketing Agent, to be delivered to the person(s) and the address(es) indicated herein under "B. Delivery Instructions." With this notice, the undersigned hereby (i) represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Capital Securities tendered hereby and that the undersigned is the record owner of any Capital Securities tendered herewith in physical form or a participant in The Depositary Trust Company ("DTC") and the beneficial owner of any Capital Securities tendered herewith by C-1 40 book-entry transfer to your account at DTC and (ii) agrees to be bound by the terms and conditions of Section 4.5(c) of the Pledge Agreement. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement. Date: By: Name: Title: Signature Guarantee: Name Social Security or other Taxpayer Identification Number, if any Address A. PAYMENT INSTRUCTIONS Proceeds of the remarketing should be paid by check in the name of the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Tax Identification or Social Security Number) C-2 41 B. DELIVERY INSTRUCTIONS In the event of a Failed Remarketing, Capital Securities which are in physical form should be delivered to the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Tax Identification or Social Security Number) In the event of a Failed Remarketing, Capital Securities which are in book-entry form should be credited to the account at The Depository Trust Company set forth below. DTC Account Number Name of Account Party: C-3 42 EXHIBIT D INSTRUCTION TO CUSTODIAL AGENT REGARDING WITHDRAWAL FROM REMARKETING The Bank of New York 101 Barclay Street, Floor 12E New York, New York 10286 Attention: Corporate Trust Administration, Dealing and Trading Group Re: Capital Securities of MetLife, Inc. (the "Company") and MetLife Capital Trust I The undersigned hereby notifies you in accordance with Section 4.5(c) of the Pledge Agreement, dated as of April __, 2000 (the "Pledge Agreement"), among the Company, yourselves, as Collateral Agent, Securities Intermediary and Custodial Agent and Bank One Trust Company, N.A., as Purchase Contract Agent and as attorney-in-fact for the Holders of Normal Units and Stripped Units from time to time, that the undersigned elects to withdraw the $_____ aggregate stated liquidation amount of Capital Securities delivered to the Custodial Agent on ___________, 2003 for remarketing pursuant to Section 4.5(c) of the Pledge Agreement. The undersigned hereby instructs you to return such Capital Securities to the undersigned in accordance with the undersigned's instructions. With this notice, the Undersigned hereby agrees to be bound by the terms and conditions of Section 4.5(c) of the Pledge Agreement. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement. Date: By: Name: Title: Signature Guarantee: Name Social Security or other Taxpayer Identification Number, if any Address D-1 43 A. DELIVERY INSTRUCTIONS In the event of a Failed Remarketing, Capital Securities which are in physical form should be delivered to the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Tax Identification or Social Security Number) In the event of a Failed Remarketing, Capital Securities which are in book-entry form should be credited to the account at The Depository Trust Company set forth below. DTC Account Number Name of Account Party: D-2 EX-4.13 8 FORM OF COMMON SECURITIES GUARANTEE AGREEMENT 1 Exhibit 4.13 - -------------------------------------------------------------------------------- COMMON SECURITIES GUARANTEE AGREEMENT MetLife Capital Trust I Dated as of April __, 2000 - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND INTERPRETATIONS................................... 2 SECTION 1.1 Definitions and Interpretation............... 2 ARTICLE II GUARANTEE......................................................... 4 SECTION 2.1 Guarantee.................................... 4 SECTION 2.2 Waiver of Notice and Demand.................. 5 SECTION 2.3 Obligations Not Affected..................... 5 SECTION 2.4 Rights of Holders............................ 6 SECTION 2.5 Guarantee of Payment......................... 6 SECTION 2.6 Subrogation.................................. 6 SECTION 2.7 Independent Obligations...................... 6 ARTICLE III RANKING........................................................... 7 ARTICLE IV TERMINATION....................................................... 7 ARTICLE V MISCELLANEOUS..................................................... 7 SECTION 5.1 Successors and Assigns....................... 7 SECTION 5.2 Amendments................................... 7 SECTION 5.3 Notices...................................... 8 SECTION 5.4 Benefit...................................... 8 SECTION 5.5 Governing Law................................ 8 i 3 COMMON SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "Common Securities Guarantee"), dated as of April __, 2000, is executed and delivered by MetLife, Inc., a Delaware corporation (the "Guarantor") for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined herein) of MetLife Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of April __, 2000, among the trustees of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 20,000,000 capital securities (23,000,000 if the underwriters' overallotment option to purchase additional capital securities is exercised), liquidation amount $50 per capital security, having an aggregate liquidation amount of $1,000,000,000 ( $1,150,000,000 if the underwriters' overallotment to purchase additional capital securities is exercised), designated the ___% Capital Securities (the "Capital Securities"); WHEREAS, pursuant to the Declaration, the Issuer is issuing on the date hereof -__ % Common Securities, having an aggregate liquidation amount of ___ (the "Common Securities"); WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Common Securities Guarantee, to pay on a senior basis to the Holders the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Capital Securities Guarantee") in substantially identical terms to this Common Securities Guarantee for the benefit of the holders of the Capital Securities, except that if an event of default under the Indenture (as defined herein), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders to receive Guarantee Payments under the Capital Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Common Securities Guarantee for the benefit of the Holders. 4 ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretation In this Common Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Common Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Common Securities Guarantee has the same meaning throughout; (c) all reference to "the Common Securities Guarantee" or "this Common Securities Guarantee" are to this Common Securities Guarantee as modified, supplemented or amended from time to time; (d) all references in this Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Common Securities Guarantee, unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Common Securities Guarantee, unless otherwise defined in this Common Securities Guarantee or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Debentures" means the series of debentures of the Guarantor designated the ___% Debentures due May 15, 2005 held by the Property Trustee (as defined in the Declaration) of the Issuer. "Debenture Issuer" means the Guarantor in its capacity as the issuer of the Debentures. 2 5 "Distribution" has the same meaning as given in the Declaration. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Common Securities Guarantee. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Common Securities to the extent the Issuer shall have funds available therefor, and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to the Holders in exchange for Common Securities as provided in the Declaration), the lesser of (a) the aggregate of the liquidation amount of such Common Securities plus all accrued and unpaid Distributions on such Common Securities to and including the date of payment, to the extent the Issuer shall have funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (amounts in clause (a) or (b), the "Liquidation Distribution"). If an event of default under the Indenture has occurred and is continuing, the rights of Holders of the Common Securities to receive payments under this Common Securities Guarantee Agreement are subordinated to the rights of holders of Capital Securities to receive Guarantee Payments under the Capital Securities Guarantee Agreement. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Common Securities. "Indenture" means the Indenture dated as of April __, 2000, among the Debenture Issuer and The Bank of New York, as trustee, and any indenture supplemental thereto pursuant to which certain debt securities of the Debenture Issuer are to be issued to the Property Trustee of the Issuer. 3 6 "Majority in liquidation amount of the Common Securities" means, except as provided by the Trust Indenture Act, a vote by Holders of Common Securities, voting separately as a class, of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on liquidation or otherwise) of all Common Securities. ARTICLE II GUARANTEE SECTION 2.1 Guarantee The Guarantor irrevocably and unconditionally agrees to pay in full on a senior basis to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. If an event of default under the Indenture has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders to receive Guarantee Payments under the Capital Securities Guarantee. 4 7 SECTION 2.2 Waiver of Notice and Demand The Guarantor hereby waives notice of acceptance of this Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.3 Obligations Not Affected The obligations, covenants, agreements and duties of the Guarantor under this Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (d) any invalidity of, or defect or deficiency in, the Common Securities; (e) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (f) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. 5 8 SECTION 2.4 Rights of Holders (a) The Holders of a Majority in liquidation amount of Common Securities may by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Common Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. (b) Any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Common Securities Guarantee, without first instituting a legal proceeding against the Issuer or any other Person. Notwithstanding the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder may directly institute a proceeding against the Guarantor for enforcement of the Common Securities Guarantee for such payment. The Guarantor waives any right or remedy to require that any action on this Common Securities Guarantee be brought first against the Issuer or any other person or entity before proceeding directly against the Guarantor. SECTION 2.5 Guarantee of Payment This Common Securities Guarantee creates a guarantee of payment and not of collection. SECTION 2.6 Subrogation The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Common Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 2.7 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities, and that the 6 9 Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (f), inclusive, of Section 2.3 hereof. ARTICLE III [Intentionally Deleted] ARTICLE IV TERMINATION This Common Securities Guarantee shall terminate upon (i) the distribution of the Debentures to all Holders or (ii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Common Securities or under this Common Securities Guarantee. ARTICLE V MISCELLANEOUS SECTION 5.1 Successors and Assigns All guarantees and agreements contained in this Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. SECTION 5.2 Amendments Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Common Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation amount of the outstanding Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders apply to the giving of such approval. 7 10 SECTION 5.3 Notices All notices provided for in this Common Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered by registered or certified mail, as follows: (a) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders): MetLife, Inc. One Madison Avenue New York, New York 10010-3690 Attention: Corporate Treasurer with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Attention: James C. Scoville, Esq. (b) If given to any Holder, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 5.4 Benefit This Common Securities Guarantee is solely for the benefit of the Holders and is not separately transferable from the Capital Securities. SECTION 5.5 Governing Law THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF 8 11 NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. 9 12 THIS COMMON SECURITIES GUARANTEE is executed as of the day and year first above written. METLIFE, INC. as Guarantor By: -------------------------------------- Name: Title: 10 EX-23.1 9 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Policyholders of Metropolitan Life Insurance Company: We consent to the use in this Amendment No. 3 to Registration Statement No. 333-32074 of our reports dated February 7, 2000 and February 11, 2000, relating to the consolidated financial statements of Metropolitan Life Insurance Company and subsidiaries and the balance sheet of MetLife, Inc. appearing in the Prospectus, which is part of such Registration Statement, and of our report dated February 7, 2000 relating to the consolidated financial statement schedules of Metropolitan Life Insurance Company and subsidiaries appearing elsewhere in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP New York, New York April 3, 2000 -----END PRIVACY-ENHANCED MESSAGE-----