-----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, B8yp9p7hYtmJ8i47cZG4M/0r7Yd+04xKw7oDJqcZzj5Rod5gMMpHgoewnRK7VSQI tYzXMWQGwR7xdQ6yhab5ZQ== 0000950123-04-009182.txt : 20040803 0000950123-04-009182.hdr.sgml : 20040803 20040803171803 ACCESSION NUMBER: 0000950123-04-009182 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040803 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15787 FILM NUMBER: 04949316 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2125782211 MAIL ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 10-Q 1 y99162e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ___________________ COMMISSION FILE NUMBER: 001-15787 METLIFE, INC. (Exact name of registrant as specified in its charter) Delaware 13-4075851 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 Park Avenue, New York, NY 10166 (Address of principal (Zip Code) executive offices) (212) 578-2211 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ] At July 29, 2004, 750,141,288 shares of the Registrant's Common Stock, $.01 par value per share, were outstanding. TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS .................................................................. 4 Unaudited Interim Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003 ........................................................................ 4 Unaudited Interim Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2004 and 2003 ...................................................... 5 Unaudited Interim Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2004 ...................................................................... 6 Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 ........................................................................ 7 Notes to Unaudited Interim Condensed Consolidated Financial Statements ........................ 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . 36 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................ 81 ITEM 4. CONTROLS AND PROCEDURES ............................................................... 81 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ..................................................................... 82 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES ...... 86 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................................... 87 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................................... 88 SIGNATURES .................................................................................... 89
2 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to trends in the operations and financial results and the business and the products of the Registrant and its subsidiaries, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions. "MetLife" or the "Company" refers to MetLife, Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan Life"). Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those included in the forward-looking statements as a result of risks and uncertainties including, but not limited to, the following: (i) changes in general economic conditions, including the performance of financial markets and interest rates; (ii) heightened competition, including with respect to pricing, entry of new competitors and the development of new products by new and existing competitors; (iii) unanticipated changes in industry trends; (iv) MetLife, Inc.'s primary reliance, as a holding company, on dividends from its subsidiaries to meet debt payment obligations and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends; (v) deterioration in the experience of the "closed block" established in connection with the reorganization of Metropolitan Life; (vi) catastrophe losses; (vii) adverse results or other consequences from litigation, arbitration or regulatory investigations; (viii) regulatory, accounting or tax changes that may affect the cost of, or demand for, the Company's products or services; (ix) downgrades in the Company's and its affiliates' claims paying ability, financial strength or credit ratings; (x) changes in rating agency policies or practices; (xi) discrepancies between actual claims experience and assumptions used in setting prices for the Company's products and establishing the liabilities for the Company's obligations for future policy benefits and claims; (xii) discrepancies between actual experience and assumptions used in establishing liabilities related to other contingencies or obligations; (xiii) the effects of business disruption or economic contraction due to terrorism or other hostilities; (xiv) the Company's ability to identify and consummate on successful terms any future acquisitions, and to successfully integrate acquired businesses with minimal disruption; and (xv) other risks and uncertainties described from time to time in MetLife, Inc.'s filings with the U.S. Securities and Exchange Commission, including its S-1 and S-3 registration statements. The Company specifically disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS METLIFE, INC. UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2004 AND DECEMBER 31, 2003 (DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31, 2004 2003 --------- ------------ ASSETS Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $164,902 and $158,333, respectively) $ 170,192 $ 167,752 Equity securities, at fair value (cost: $1,437 and $1,222, respectively) 1,744 1,598 Mortgage loans on real estate 28,118 26,249 Policy loans 8,766 8,749 Real estate and real estate joint ventures held-for-investment 4,110 3,848 Real estate held-for-sale 44 832 Other limited partnership interests 2,805 2,600 Short-term investments 2,089 1,826 Other invested assets 5,119 4,645 --------- --------- Total investments 222,987 218,099 Cash and cash equivalents 4,459 3,733 Accrued investment income 2,330 2,186 Premiums and other receivables 7,566 7,047 Deferred policy acquisition costs 13,885 12,943 Other assets 7,255 7,077 Separate account assets 79,747 75,756 --------- --------- Total assets $ 338,229 $ 326,841 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Future policy benefits $ 96,021 $ 94,148 Policyholder account balances 79,943 75,901 Other policyholder funds 6,773 6,343 Policyholder dividends payable 1,064 1,049 Policyholder dividend obligation 1,330 2,130 Short-term debt 3,218 3,642 Long-term debt 6,226 5,703 Shares subject to mandatory redemption 277 277 Current income taxes payable 756 652 Deferred income taxes payable 1,931 2,399 Payables under securities loaned transactions 28,132 27,083 Other liabilities 11,495 10,609 Separate account liabilities 79,747 75,756 --------- --------- Total liabilities 316,913 305,692 --------- --------- Stockholders' Equity: Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; none issued -- -- Common stock, par value $0.01 per share; 3,000,000,000 shares authorized; 786,766,664 shares issued at June 30, 2004 and December 31, 2003; 750,056,018 shares outstanding at June 30, 2004 and 757,186,137 shares outstanding at December 31, 2003 8 8 Additional paid-in capital 15,013 14,991 Retained earnings 5,663 4,193 Treasury stock, at cost; 36,710,646 shares at June 30, 2004 and 29,580,527 shares at December 31, 2003 (1,085) (835) Accumulated other comprehensive income 1,717 2,792 --------- --------- Total stockholders' equity 21,316 21,149 --------- --------- Total liabilities and stockholders' equity $ 338,229 $ 326,841 ========= =========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 METLIFE, INC. UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- --------------------- 2004 2003 2004 2003 -------- -------- -------- -------- REVENUES Premiums $ 5,331 $ 5,083 $ 10,698 $ 9,915 Universal life and investment-type product policy fees 728 603 1,404 1,175 Net investment income 3,117 2,864 6,092 5,737 Other revenues 356 355 709 653 Net investment gains (losses) 47 (42) 163 (294) -------- -------- -------- -------- Total revenues 9,579 8,863 19,066 17,186 -------- -------- -------- -------- EXPENSES Policyholder benefits and claims 5,335 4,970 10,795 9,895 Interest credited to policyholder account balances 751 761 1,494 1,508 Policyholder dividends 471 507 913 1,010 Other expenses 1,916 1,841 3,797 3,580 -------- -------- -------- -------- Total expenses 8,473 8,079 16,999 15,993 -------- -------- -------- -------- Income from continuing operations before provision for income taxes 1,106 784 2,067 1,193 Provision for income taxes 254 212 557 327 -------- -------- -------- -------- Income from continuing operations 852 572 1,510 866 Income from discontinued operations, net of income taxes 95 8 118 76 -------- -------- -------- -------- Income before cumulative effect of a change in accounting 947 580 1,628 942 Cumulative effect of a change in accounting, net of income taxes -- -- (158) -- -------- -------- -------- -------- Net income $ 947 $ 580 $ 1,470 $ 942 ======== ======== ======== ======== Income from continuing operations available to common shareholders per share Basic $ 1.13 $ 0.78 $ 2.00 $ 1.18 ======== ======== ======== ======== Diluted $ 1.12 $ 0.78 $ 1.99 $ 1.18 ======== ======== ======== ======== Net income available to common shareholders per share Basic $ 1.26 $ 0.79 $ 1.95 $ 1.29 ======== ======== ======== ======== Diluted $ 1.25 $ 0.79 $ 1.94 $ 1.29 ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 5 METLIFE, INC. UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2004 (DOLLARS IN MILLIONS)
Accumulated Other Comprehensive Income (Loss) ----------------------------------------- Net Foreign Minimum Additional Treasury Unrealized Currency Pension Common Paid-in Retained Stock Investment Translation Liability Stock Capital Earnings at Cost Gains (Losses) Adjustment Adjustment Total ------- ---------- -------- -------- -------------- ----------- ---------- -------- Balance at December 31, 2003 $ 8 $ 14,991 $ 4,193 $ (835) $ 2,972 $ (52) $ (128) $ 21,149 Treasury stock transactions, net 22 (250) (228) Comprehensive income (loss): Net income 1,470 1,470 Other comprehensive income (loss): Unrealized gains (losses) on derivative instruments, net of income taxes 85 85 Unrealized investment gains (losses), net of related offsets, reclassification adjustments and income taxes (1,155) (1,155) Cumulative effect of a change in accounting, net of income taxes 90 90 Foreign currency translation adjustments (95) (95) -------- Other comprehensive income (loss) (1,075) -------- Comprehensive income (loss) 395 ------- -------- ------- -------- ------ -------- -------- -------- Balance at June 30, 2004 $ 8 $ 15,013 $ 5,663 $ (1,085) $1,992 $ (147) $ (128) $ 21,316 ======= ======== ======= ======== ====== ======== ======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6 METLIFE, INC. UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, --------------------- 2004 2003 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,380 $ 3,201 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturities 36,504 33,578 Equity securities 545 147 Mortgage loans on real estate 1,379 1,611 Real estate and real estate joint ventures 982 253 Other limited partnership interests 278 154 Purchases of: Fixed maturities (41,981) (45,608) Equity securities (596) (22) Mortgage loans on real estate (3,175) (1,766) Real estate and real estate joint ventures (205) (142) Other limited partnership interests (411) (203) Net change in short-term investments (141) (722) Proceeds from sales of businesses 29 -- Net change in payable under securities loaned transactions 1,049 5,166 Other, net (561) (495) -------- -------- Net cash used in investing activities (6,304) (8,049) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Policyholder account balances: Deposits 19,115 17,902 Withdrawals (15,307) (13,064) Net change in short-term debt (425) 2,282 Long-term debt issued 615 161 Long-term debt repaid (91) (51) Treasury stock acquired (275) -- Settlement of common stock purchase contracts -- 1,006 Stock options exercised 18 3 -------- -------- Net cash provided by financing activities 3,650 8,239 -------- -------- Change in cash and cash equivalents 726 3,391 Cash and cash equivalents, beginning of period 3,733 2,323 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,459 $ 5,714 ======== ======== Supplemental disclosures of cash flow information: Net cash paid during the period for: Interest $ 176 $ 266 ======== ======== Income taxes $ 142 $ 222 ======== ======== Non-cash transactions during the period: Business dispositions - assets $ 820 $ -- ======== ======== Business dispositions - liabilities $ 820 $ -- ======== ======== Purchase money mortgage on real estate sale $ -- $ 50 ======== ======== MetLife Capital Trust I transactions $ -- $ 1,037 ======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 7 METLIFE, INC. NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES BUSINESS "MetLife" or the "Company" refers to MetLife, Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan Life"). MetLife is a leading provider of insurance and other financial services to a broad spectrum of individual and institutional customers. The Company offers life insurance, annuities, automobile and homeowners insurance and mutual funds and retail banking services to individuals, as well as group insurance, reinsurance and retirement and savings products and services to corporations and other institutions. BASIS OF PRESENTATION The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the unaudited interim condensed consolidated financial statements. The most critical estimates include those used in determining: (i) investment impairments; (ii) the fair value of investments in the absence of quoted market values; (iii) the fair value of derivatives; (iv) the capitalization and amortization of deferred policy acquisition costs; (v) the liability for future policyholder benefits; (vi) the liability for litigation and regulatory matters; and (vii) accounting for reinsurance transactions, derivatives and employee benefit plans. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Actual results could differ from those estimates. The accompanying unaudited interim condensed consolidated financial statements include the accounts of (i) the Holding Company and its subsidiaries; (ii) partnerships and joint ventures in which the Company has control; and (iii) variable interest entities ("VIEs") for which the Company is deemed to be the primary beneficiary. Closed block assets, liabilities, revenues and expenses are combined on a line-by-line basis with the assets, liabilities, revenues and expenses outside the closed block based on the nature of the particular item (See Note 5). The 2004 financial statement presentation includes assets, liabilities, revenues and expenses relating to certain separate accounts and are also combined with the assets, liabilities, revenues and expenses of the general account. See "-- Application of Recent Accounting Pronouncements." Intercompany accounts and transactions have been eliminated. The Company uses the equity method of accounting for investments in equity securities, real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than minor influence over the partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for interests in which it has a minor equity investment and virtually no influence over the partnership's operations. Minority interest related to consolidated entities included in other liabilities was $951 million and $950 million at June 30, 2004 and December 31, 2003, respectively. Certain amounts in the prior year period's unaudited interim condensed consolidated financial statements have been reclassified to conform with the 2004 presentation. The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at June 30, 2004, its consolidated results of operations for the three months and six months ended June 30, 2004 and 2003, its consolidated cash flows for the six months ended June 30, 2004 and 2003 and its consolidated statement of stockholders' equity for the six months ended June 30, 2004, in accordance with GAAP. Interim results are not necessarily indicative of full year performance. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2003 included in MetLife, Inc.'s 2003 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC"). 8 FEDERAL INCOME TAXES Federal income taxes for interim periods have been computed using an estimated annual effective income tax rate. This rate is revised, if necessary, at the end of each successive interim period to reflect the current estimate of the annual effective income tax rate. APPLICATION OF RECENT ACCOUNTING PRONOUNCEMENTS In March 2004, the Emerging Issues Task Force ("EITF") reached further consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should be considered other-than-temporary and recognized in income. An EITF 03-1 consensus reached in November 2003 also requires certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The disclosure requirements of EITF 03-1 were effective December 31, 2003. The accounting guidance of EITF 03-1 will be effective in the third quarter of 2004 and is not expected to have a material impact on the Company's unaudited interim condensed consolidated financial statements. In March 2004, the EITF reached consensus on Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 ("EITF 03-6"). EITF 03-6 provides guidance in determining whether a security should be considered a participating security for purposes of computing earnings per share and how earnings should be allocated to the participating security. EITF 03-6, which was effective for the Company in the second quarter of 2004, did not have an impact on the Company's earnings per share calculations. In March 2004, the EITF reached consensus on Issue No. 03-16, Accounting for Investments in Limited Liability Companies ("EITF 03-16"). EITF 03-16 provides guidance regarding whether a limited liability company should be viewed as similar to a corporation or similar to a partnership for purposes of determining whether a noncontrolling investment should be accounted for using the cost method or the equity method of accounting. EITF 03-16, which will be effective in the third quarter of 2004, is not expected to have a material impact on the Company's unaudited interim condensed consolidated financial statements. Effective January 1, 2004, the Company adopted Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance on (i) the classification and valuation of long-duration contract liabilities; (ii) the accounting for sales inducements; and (iii) separate account presentation and valuation. At adoption, the Company increased future policyholder benefits for changes in the methodology relating to various guaranteed death and annuitization benefits and for determining reserves for certain universal life insurance contracts by approximately $68 million, which has been reported as a cumulative effect of a change in accounting. This amount is net of corresponding changes in deferred policy acquisition costs ("DAC"), including value of business acquired and unearned revenue liability ("offsets") under certain variable annuity and life contracts and income taxes. In June 2004, the Financial Accounting Standards Board ("FASB") released Staff Position paper No. 97-1, Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require Accrual of an Unearned Revenue Liability ("FSP 97-1") which included clarification that unearned revenue liabilities should be considered in determining the necessary insurance benefit liability required under SOP 03-1. FSP 97-1 is effective July 1, 2004. However, additional industry guidance related to SOP 03-1 continues to evolve. Although currently evaluating FSP 97-1 and the possible additional accounting guidance, the Company anticipates a reduction of the initial liability established under SOP 03-1 in subsequent accounting periods. Certain other contracts sold by the Company provide for a return through periodic crediting rates, surrender adjustments or termination adjustments based on the total return of a contractually referenced pool of assets owned by the Company. To the extent that such contracts are not accounted for under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") and not already credited to the contract account balance, under SOP 03-1 the change relating to the fair value of the referenced pool of assets is recorded as a liability through policyholder benefits and claims. Prior to the adoption of SOP 03-1, the Company recorded the change in such liability as other comprehensive income. At adoption, this change decreased net income and increased other comprehensive income by $63 million, net of income taxes, which were recorded as cumulative effects of a change in accounting. Effective with the adoption of SOP 03-1, costs associated with enhanced or bonus crediting rates to contractholders must be deferred and amortized over the life of the related contract using assumptions consistent with the amortization of DAC. Since the Company followed a similar approach prior to adoption of SOP 03-1, the provisions of SOP 03-1 relating to sales inducements had no significant impact on the Company's unaudited interim condensed consolidated financial statements. At adoption, the Company reclassified $155 million of ownership in its own separate accounts from other assets to fixed maturities, equity securities and cash and cash equivalents. This reclassification had no significant impact on net income or other comprehensive income at adoption. In accordance with SOP 03-1's guidance for the reporting of certain separate accounts, at adoption, the Company also reclassified $1.7 billion of separate account assets to general account investments and $1.7 billion of separate account liabilities to future policy benefits and policyholder account balances. This reclassification decreased net income and increased other comprehensive income by $27 million, net of income taxes, which were reported as cumulative effects of a change in accounting. For the three months and six months 9 ended June 30, 2004, the impact of SOP 03-1 increased the Company's net income by $78 million and $64 million, respectively. (See Note 4). In December 2003, FASB revised SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits -- an Amendment of FASB Statements No. 87, 88 and 106 ("SFAS 132(r)"). SFAS 132(r) retains most of the disclosure requirements of SFAS 132 and requires additional disclosure about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined postretirement plans. SFAS 132(r) was primarily effective for fiscal years ending after December 15, 2003; however, certain disclosures about foreign plans and estimated future benefit payments are effective for fiscal years ending after June 15, 2004. The Company's adoption of SFAS 132(r) on December 31, 2003 did not have a significant impact on its consolidated financial statements since it only revised disclosure requirements. In May 2004, the FASB issued FASB Staff Position ("FSP") No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("FSP 106-2"), which provides accounting guidance to a sponsor of a postretirement health care plan that provides prescription drug benefits. The Company expects to receive subsidies on prescription drug benefits beginning in 2006 under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 based on the Company's determination that the prescription drug benefits offered under certain postretirement plans are actuarially equivalent to the benefits offered under Medicare Part D. FSP 106-2 is effective for interim periods beginning after June 15, 2004 and provides for either retroactive application to the date of enactment of the legislation or prospective application from the date of adoption of FSP 106-2. The Company is in the process of evaluating the alternatives, however, neither alternative is expected to have a significant impact on the Company's unaudited interim condensed consolidated financial statements. Effective October 1, 2003, the Company adopted Statement 133 Implementation Issue No. B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("Issue B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or receivable under certain reinsurance arrangements, and (ii) a debt instrument that incorporates credit risk exposures that are unrelated or only partially related to the creditworthiness of the obligor include an embedded derivative feature that is not clearly and closely related to the host contract. Therefore, the embedded derivative feature is measured at fair value on the balance sheet and changes in fair value are reported in income. As a result of the adoption of Issue B36, the Company recognized net income of $22 million and $13 million, net of amortization of DAC and income taxes, for the three months and six months ended June 30, 2004, respectively. Effective July 1, 2003, the Company adopted SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amended and clarified the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Except for certain previously issued and effective guidance that was incorporated in SFAS 149, SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Company's adoption of SFAS 149 did not have a significant impact on its unaudited interim condensed consolidated financial statements. During 2003, the Company adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities -- An Interpretation of ARB No. 51 ("FIN 46"), and its December 2003 revision ("FIN 46(r)"). Certain of the Company's asset-backed securitizations, collateralized debt obligations, structured investment transactions, and investments in real estate joint ventures and other limited partnership interests meet the definition of a VIE and must be consolidated, in accordance with the transition rules and effective dates, because the Company is deemed to be the primary beneficiary. A VIE is defined as (i) any entity in which the equity investments at risk in such entity do not have the characteristics of a controlling financial interest, or (ii) any entity that does not have sufficient equity at risk to finance its activities without additional subordinated support from other parties. Effective February 1, 2003, the Company adopted FIN 46 for VIEs created or acquired on or after February 1, 2003 and, effective December 31, 2003, the Company adopted FIN 46(r) with respect to interests in entities formerly considered special purpose entities ("SPEs"), including interests in asset-backed securities and collateralized debt obligations. The adoption of FIN 46 as of February 1, 2003 did not have a significant impact on the Company's unaudited interim condensed consolidated financial statements. The adoption of the provisions of FIN 46(r) at December 31, 2003 did not require the Company to consolidate any additional VIEs that were not previously consolidated. In accordance with the provisions of FIN 46(r), the Company elected to defer until March 31, 2004 the consolidation of interests in VIEs for non SPEs acquired prior to February 1, 2003 for which it is the primary beneficiary. The transition effect recorded at March 31, 2004 as a result of such consolidations was insignificant. As of June 30, 2004, the Company consolidated assets and liabilities relating to real estate joint ventures of $16 million and $3 million, respectively, and assets and liabilities relating to other limited partnerships of $82 million and $15 million, respectively, for VIEs for which the Company was deemed to be the primary beneficiary. 10 2. INVESTMENTS NET INVESTMENT GAINS (LOSSES) Net investment gains (losses), including changes in valuation allowances, and related policyholder amounts were as follows: - ----------
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 2004 2003 2004 2003 ---- ---- ---- ---- (DOLLARS IN MILLIONS) Fixed maturities $ (3) $ (43) $ 31 $(192) Equity securities 89 (3) 97 (8) Mortgage loans on real estate -- (8) -- (22) Real estate and real estate joint ventures (1) 2 (6) 2 (4) Other limited partnership interests (2) 4 (10) (62) Sales of businesses -- -- 23 -- Derivatives (2) (29) 9 (38) (17) Other (10) 5 58 11 ----- ----- ----- ----- Total net investment gains (losses) $ 47 $ (42) $ 163 $(294) ===== ===== ===== =====
(1) The amounts presented exclude net investment gains related to sales of real estate held-for-sale presented as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144") of $131 million and $152 million, respectively, for the three months and six months ended June 30, 2004 and $0 million and $90 million, respectively, for the three months and six months ended June 30, 2003. (2) The amounts presented include net investment gains related to scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") of $22 million and $36 million, respectively, for the three months and six months ended June 30, 2004 and $12 million and $20 million, respectively, for the three months and six months ended June 30, 2003. 11 The following tables show the estimated fair values and gross unrealized losses of the Company's fixed maturities in an unrealized loss position, aggregated by sector and length of time that the securities have been in a continuous unrealized loss position, at June 30, 2004 and December 31, 2003:
JUNE 30, 2004 ------------------------------------------------------------------------------------------ LESS THAN 12 MONTHS EQUAL TO OR GREATER THAN 12 MONTHS TOTAL -------------------- ---------------------------------- ------------------------- ESTIMATED GROSS ESTIMATED GROSS ESTIMATED GROSS FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE LOSS VALUE LOSS VALUE LOSS ----- ---- ----- ---- ----- ---- (DOLLARS IN MILLIONS) U.S. corporate securities $17,711 $ 509 $ 1,205 $ 91 $18,916 $ 600 Residential mortgage-backed securities 16,774 273 283 17 17,057 290 Foreign corporate securities 7,378 243 415 17 7,793 260 U.S. treasuries/agencies 7,773 160 74 6 7,847 166 Asset-backed securities 4,814 53 502 17 5,316 70 Commercial mortgage-backed securities 5,757 137 329 6 6,086 143 Foreign government securities 2,050 94 57 9 2,107 103 State and political subdivisions 1,149 36 69 6 1,218 42 Other fixed income assets 50 50 31 2 81 52 ------- ------- ------- ------- ------- ------- Total bonds 63,456 1,555 2,965 171 66,421 1,726 Redeemable preferred stocks 519 71 -- -- 519 71 ------- ------- ------- ------- ------- ------- Total fixed maturities $63,975 $ 1,626 $ 2,965 $ 171 $66,940 $ 1,797 ======= ======= ======= ======= ======= =======
DECEMBER 31, 2003 ------------------------------------------------------------------------------------- LESS THAN 12 MONTHS EQUAL TO OR GREATER THAN 12 MONTHS TOTAL ------------------- ---------------------------------- ----------------------- ESTIMATED GROSS ESTIMATED GROSS ESTIMATED GROSS VALUE UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR LOSS VALUE LOSS VALUE LOSS ---- ---- ----- ---- ----- ---- (DOLLARS IN MILLIONS) U.S. corporate securities $ 7,214 $ 152 $ 1,056 $ 100 $ 8,270 $ 252 Residential mortgage-backed securities 8,372 98 27 4 8,399 102 Foreign corporate securities 2,583 65 355 14 2,938 79 U.S. treasuries/agencies 3,697 26 -- -- 3,697 26 Asset-backed securities 2,555 34 861 26 3,416 60 Commercial mortgage-backed securities 2,449 20 282 2 2,731 22 Foreign government securities 331 28 2 -- 333 28 State and political subdivisions 389 12 38 3 427 15 Other fixed income assets 130 73 40 10 170 83 ------- ------- ------- ------- ------- ------- Total bonds 27,720 508 2,661 159 30,381 667 Redeemable preferred stocks 222 62 278 14 500 76 ------- ------- ------- ------- ------- ------- Total fixed maturities $27,942 $ 570 $ 2,939 $ 173 $30,881 $ 743 ======= ======= ======= ======= ======= =======
At June 30, 2004 and December 31, 2003, the Company had gross unrealized losses of $29 million and $6 million, respectively, from equity securities that had been in an unrealized loss position for less than twelve months. The amount of unrealized losses from equity securities that had been in an unrealized loss position for twelve months or greater is less than $1 million at both June 30, 2004 and December 31, 2003. The fair value of those equity securities that had been in an unrealized loss position for less than twelve months is $389 million and $53 million at June 30, 2004 and December 31, 2003, respectively. The fair value of those equity securities that had been in an unrealized loss position for twelve months or greater is $2 million and $22 million at June 30, 2004 and December 31, 2003, respectively. STRUCTURED INVESTMENT TRANSACTIONS The Company invests in structured notes and similar type instruments, which generally provide equity-based returns on debt securities. The carrying value of such investments was approximately $906 million and $880 million at June 30, 2004 and December 31, 2003, respectively. The related income recognized was $28 million and $21 million for the three months ended June 30, 2004 and 2003, respectively, and $33 million and $24 million for the six months ended June 30, 2004 and 2003, respectively. 12 VARIABLE INTEREST ENTITIES As discussed in Note 1, the Company has adopted the provisions of FIN 46(r). The adoption of FIN 46(r) required the Company to consolidate certain VIEs for which it is the primary beneficiary. The following table presents the total assets of and maximum exposure to loss relating to VIEs for which the Company has concluded that (i) it is the primary beneficiary and which are consolidated in the Company's unaudited interim condensed consolidated financial statements at June 30, 2004, and (ii) it holds significant variable interests but it is not the primary beneficiary and which have not been consolidated:
JUNE 30, 2004 ----------------------------------------------- PRIMARY BENEFICIARY NOT PRIMARY BENEFICIARY ---------------------- ----------------------- MAXIMUM MAXIMUM TOTAL EXPOSURE TO TOTAL EXPOSURE TO ASSETS(1) LOSS(2) ASSETS(1) LOSS(2) --------- ----------- --------- ----------- (DOLLARS IN MILLIONS) Asset-backed securitizations and collateralized debt obligations $ -- $ -- $2,355 $ 16 Real estate joint ventures (3) 16 13 75 -- Other limited partnerships (4) 82 84 587 60 ------ ------ ------ ------ Total $ 98 $ 97 $3,017 $ 76 ====== ====== ====== ======
- ---------- (1) The assets of the asset-backed securitizations and collateralized debt obligations are reflected at fair value as of June 30, 2004. The assets of the real estate joint ventures and other limited partnerships are reflected at the carrying amounts at which such assets would have been reflected on the Company's balance sheet had the Company consolidated the VIE from the date of its initial investment in the entity. (2) The maximum exposure to loss of the asset-backed securitizations and collateralized debt obligations is equal to the carrying amounts of retained interests. In addition, the Company provides collateral management services for certain of these structures for which it collects a management fee. The maximum exposure to loss relating to real estate joint ventures and other limited partnerships is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by other partners. (3) Real estate joint ventures include partnerships and other ventures, which engage in the acquisition, development, management and disposal of real estate investments. (4) Other limited partnerships include partnerships established for the purpose of investing in real estate funds, public and private debt and equity securities, as well as limited partnerships established for the purpose of investing in low-income housing that qualifies for federal tax credits. 3. DERIVATIVE INSTRUMENTS The Company uses derivative instruments to manage risk through one of five principal strategies, the hedging of: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; (iv) net investments in certain foreign operations; and (v) firm commitments and forecasted transactions. Additionally, the Company enters into income generation and replication derivative transactions as permitted by its insurance subsidiaries' Derivatives Use Plans approved by the applicable state insurance departments. The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate swaps, caps and floors, credit default swaps and foreign currency swaps and foreign currency forwards and options. On the date the Company enters into a derivative contract for hedging purposes, management designates the derivative as a hedge of the identified exposure (fair value, cash flow or foreign currency). If a derivative does not qualify for hedge accounting, according to SFAS 133, the changes in its fair value and all scheduled periodic settlement receipts and payments are reported in net investment gains (losses). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, 13 liability, firm commitment, foreign operation, or forecasted transaction that has been designated as a hedged item, states how the hedging instrument is expected to hedge the risks related to the hedged item, and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method that will be used to measure hedge ineffectiveness. The Company generally determines hedge effectiveness based on total changes in fair value of a derivative instrument. The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; (iii) the derivative is de-designated as a hedge instrument; (iv) it is probable that the forecasted transaction will not occur; (v) a hedged firm commitment no longer meets the definition of a firm commitment; or (vi) management determines that designation of the derivative as a hedge instrument is no longer appropriate. The table below provides a summary of the notional amount and fair value of derivatives by type of hedge designation at:
JUNE 30, 2004 DECEMBER 31, 2003 ---------------------------------------- ---------------------------------------- FAIR VALUE FAIR VALUE NOTIONAL ------------------------ NOTIONAL ------------------------ AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------ ----------- ------ ------ ----------- (DOLLARS IN MILLIONS) BY TYPE OF HEDGE Fair value $ 5,666 $ 77 $ 228 $ 4,027 $ 27 $ 297 Cash flow 14,472 136 403 13,173 59 449 Foreign operations 519 2 8 527 -- 10 Non qualifying 21,689 122 133 21,807 170 142 ------- ------- ------- ------- ------- ------- Total $42,346 $ 337 $ 772 $39,534 $ 256 $ 898 ======= ======= ======= ======= ======= =======
Non-qualifying derivatives are comprised of derivative instruments which do not meet the requirements for, or for which the Company does not seek, hedge accounting under SFAS 133. These include certain interest rate, foreign currency, credit default and total return swaps, interest rate caps, foreign currency forwards, purchased options and futures, embedded conversion options, and derivatives held in consolidated separate accounts. The non-qualifying notional amount at June 30, 2004 and December 31, 2003, includes $5,459 million and $5,177 million, respectively, related to synthetic guaranteed investment product contracts that meet the definition of a derivative, but are not considered to be accounting hedges. The market value of such contracts at June 30, 2004 and December 31, 2003 exceeds the contract value. During the three months and six months ended June 30, 2004, the Company recognized net investment expense of $38 million and $70 million, respectively, from the periodic settlement and amortization, and net investment losses of $13 million and $72 million, respectively, from disposals of interest rate caps, options, futures and interest rate, foreign currency and credit default swaps that qualify for hedge accounting. During the three and six months ended June 30, 2003 the Company recognized net investment expense of $10 million and $16 million, respectively, from the periodic settlement and amortization, and net investment gains of $24 million and $27 million, respectively, from disposals of interest rate caps and interest rate, foreign currency and credit default swaps that qualify for hedge accounting. The following table represents fair value hedges for the:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 2004 2003 2004 2003 ---- ---- ---- ---- (DOLLARS IN MILLIONS) Changes in the fair value of qualifying hedges $ 133 $ (83) $ 122 $ (92) Changes in the hedged items reclassified into net investment gains (losses) (130) 74 (99) 86 ----- ----- ----- ----- Net ineffectiveness gains (losses) from fair value hedging activities $ 3 $ (9) $ 23 $ (6) ===== ===== ===== =====
There were no discontinued fair value hedges during the three months and six months ended June 30, 2004 or 2003. 14 The following table represents cash flow hedges for the:
THREE MONTHS SIX MONTHS YEAR THREE MONTHS SIX MONTHS ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 2004 2004 2003 2003 2003 ------------ ---------- ------------ ------------ ---------- (DOLLARS IN MILLIONS) Changes in the fair value of qualifying hedges $ 115 $ 130 $(456) $(109) $(122) Less: Gains (losses) deferred in other comprehensive income on the effective portion of cash flow hedges 158 154 (387) (103) (116) ----- ----- ----- ----- ----- Net ineffectiveness recorded in net investment gains (losses) from cash flow hedging activities $ (43) $ (24) $ (69) $ (6) $ (6) ===== ===== ===== ===== ===== Other comprehensive income balance at the beginning of the period $(415) $(417) $ (24) $ (19) $ (24) Gains (losses) deferred in other comprehensive income on the effective portion of cash flow hedges 158 154 (387) (103) (116) Amounts reclassified to net investment income 1 1 2 1 1 Amounts reclassified to net investment gains (losses) (15) (5) -- (8) 12 Amortization of transition adjustment (2) (6) (8) (2) (4) ----- ----- ----- ----- ----- Other comprehensive income balance at the end of the period $(273) $(273) $(417) $(131) $(131) ===== ===== ===== ===== =====
The Company uses forward exchange contracts to provide a hedge on portions of its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the three months and six months ended June 30, 2004, the Company experienced net unrealized gains of $0 million and $4 million, respectively, related to hedges of its investments in foreign operations. Unrealized losses of $6 million and $10 million were recorded as components of accumulated other comprehensive income at June 30, 2004 and December 31, 2003, respectively. There were no hedges of the net investment in foreign operations at June 30, 2003. For the three months and six months ended June 30, 2004, the Company recognized as net investment gains the scheduled periodic settlement payments of derivative instruments of $22 million and $36 million, respectively, and net investment gains (losses) of $2 million and $(1) million, respectively, from derivatives not qualifying as accounting hedges. For the three months and six months ended June 30, 2003, the Company recognized as net investment gains the scheduled periodic settlement payments of derivative instruments of $12 million and $20 million, respectively, and net investment losses of $12 million and $52 million, respectively, from derivatives not qualifying as accounting hedges. The use of these non-speculative derivatives is permitted by the applicable insurance departments. 4. INSURANCE CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS The Company issues variable annuity contracts which may include contractual guarantees to the contractholder for: (i) return of no less than total deposits made to the contract less any partial withdrawals ("return of net deposits") and (ii) the highest contract value on a specified anniversary date minus any withdrawals following the contract anniversary, or total deposits made to the contract less any partial withdrawals plus a minimum return ("anniversary contract value" or "minimum return"). The Company also issues annuity contracts that apply a lower rate of funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize ("two tier annuities"). These guarantees include benefits that are payable in the event of death or at annuitization. The Company also issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid up benefit. The assets supporting the variable portion of contracts with guarantees are carried at fair value and reported in total separate account assets with an equivalent amount reported in separate account liabilities in the unaudited interim condensed consolidated balance sheets. Net investment income, net realized gains (losses) and net unrealized gains (losses) relating to such separate accounts accrue directly to the contractholders and, accordingly, are reflected net in the Company's unaudited interim condensed consolidated financial statements. Amounts assessed against the contractholders for mortality, administrative, and other services are included in universal life and investment-type policy fees. Liabilities for guarantees and changes in such liabilities are included in future policy benefits and policyholder benefits and claims in the unaudited interim condensed consolidated balance sheets and statements of income, respectively. 15 The Company had the following types of guarantees relating to annuity and universal and variable life contracts at:
ANNUITY CONTRACTS JUNE 30, 2004 ------------------------------- IN THE AT EVENT OF DEATH ANNUITIZATION -------------- ------------- (DOLLARS IN MILLIONS) RETURN OF NET DEPOSITS Separate account value $ 5,557 N/A Net amount at risk $ 23 (1) N/A Average attained age of contractholders 60 years N/A ANNIVERSARY CONTRACT VALUE OR MINIMUM RETURN Separate account value $ 39,923 $ 11,571 Net amount at risk $ 1,267 (1) $ 92 (2) Average attained age of contractholders 61 years 59 years TWO TIER ANNUITIES General account value N/A $ 300 Net amount at risk N/A $ 36 (3) Average attained age of contractholders N/A 58 years
UNIVERSAL AND VARIABLE LIFE CONTRACTS JUNE 30, 2004 ------------------------------ SECONDARY PAID UP GUARANTEES GUARANTEES ---------- ---------- (DOLLARS IN MILLIONS) Account value (general and separate account) $ 3,135 $ 4,886 Net amount at risk $ 66,489 (1) $ 43,805 (1) Average attained age of policyholders 44 years 52 years
- ---------- (1) The net amount at risk for guarantees of amounts in the event of death is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. (2) The net amount at risk for guarantees of amounts at annuitization is defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. (3) The net amount at risk for two tier annuities is based on the excess of the upper tier, adjusted for a profit margin, less the lower tier. The net amount at risk is based on the direct amount at risk (excluding reinsurance). The Company's annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive. 16 Liabilities for guarantees (excluding base policy liabilities) relating to annuity and universal and variable life contracts are as follows:
ANNUITY CONTRACTS UNIVERSAL AND VARIABLE LIFE CONTRACTS ------------------------------- ------------------------------------- GUARANTEED GUARANTEED PAID DEATH ANNUITIZATION SECONDARY UP BENEFITS BENEFITS GUARANTEES GUARANTEES TOTAL ---------- ------------- ---------- ---------- ------ (DOLLARS IN MILLIONS) Balance at January 1, 2004 $ 9 $ 17 $ 13 $ 22 $ 61 Incurred guaranteed benefits 4 3 2 1 10 Paid guaranteed benefits (2) 0 (1) 0 (3) ---- ---- ---- ---- ---- Balance at March 31, 2004 11 20 14 23 68 ---- ---- ---- ---- ---- Incurred guaranteed benefits 2 3 6 1 12 Paid guaranteed benefits (2) 0 (1) 0 (3) ---- ---- ---- ---- ---- Balance at June 30, 2004 $ 11 $ 23 $ 19 $ 24 $ 77 ==== ==== ==== ==== ====
The guaranteed death benefit liabilities are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the liability at June 30, 2004 are consistent with those used for amortizing DAC, including the mean reversion assumption. The assumptions of investment performance and volatility are consistent with historical S&P experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. The guaranteed annuitization benefit liabilities are determined by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used for calculating such guaranteed annuitization benefit liabilities at June 30, 2004 are consistent with those used for calculating the guaranteed death benefit liabilities. In addition, the calculation of the guaranteed annuitization benefit liabilities incorporates a percentage of the potential annuitizations that may be elected by the contractholder. The liabilities for universal and variable life secondary guarantees and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. The Company regularly evaluates estimates used and adjusts the additional liability balances, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the secondary and paid up guarantee liabilities at June 30, 2004 are consistent with those used for amortizing deferred acquisition costs. The assumptions of investment performance and volatility for variable products are consistent with historical S&P experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios. 17 SEPARATE ACCOUNTS Account balances of contracts with guarantees are invested in separate account asset classes as follows at:
JUNE 30, 2004 JANUARY 1, 2004 ------------- --------------- (DOLLARS IN MILLIONS) Equity securities (including mutual funds) Equity $27,656 $23,784 Bond 3,934 3,531 Balanced 1,487 1,368 Money Market 511 501 Specialty 179 55 ------- ------- TOTAL $33,767 $29,239 ======= =======
At June 30, 2004, equity securities, fixed maturities and cash and cash equivalents include $77 million, $57 million and $4 million, respectively, of the Company's proportional interest in separate accounts. During the three months and six months ended June 30, 2004, there were no investment gains (losses) on transfers of assets from the general account to the separate account. SALES INDUCEMENTS The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The Company has two different types of sales inducements: (i) a bonus whereby the policyholder's initial account balance is increased by an amount equal to a specified percentage of the customer's deposit and (ii) the policyholder receives a higher interest rate than the normal general account interest rate credited on money in the enhanced dollar cost averaging program. Changes in deferred sales inducements are as follows:
SALES INDUCEMENTS ----------------- (DOLLARS IN MILLIONS) Balance at January 1, 2004 $ 196 Capitalization 40 Amortization (1) ----- Balance at March 31, 2004 235 ===== Capitalization 24 Amortization (3) ----- Balance at June 30, 2004 $ 256 =====
5. CLOSED BLOCK On April 7, 2000, (the "date of demutualization"), Metropolitan Life converted from a mutual life insurance company to a stock life insurance company and became a wholly-owned subsidiary of MetLife, Inc. The conversion was pursuant to an order by the New York Superintendent of Insurance (the "Superintendent") approving Metropolitan Life's plan of reorganization, as amended (the "plan"). On the date of demutualization, Metropolitan Life established a closed block for the benefit of holders of certain individual life insurance policies of Metropolitan Life. 18 Liabilities and assets designated to the closed block are as follows:
JUNE 30, DECEMBER 31, 2004 2003 -------- -------- (DOLLARS IN MILLIONS) CLOSED BLOCK LIABILITIES Future policy benefits $ 42,061 $ 41,928 Other policyholder funds 255 260 Policyholder dividends payable 728 682 Policyholder dividend obligation 1,330 2,130 Payables under securities loaned transactions 5,135 6,418 Other liabilities 156 180 -------- -------- Total closed block liabilities 49,665 51,598 -------- -------- ASSETS DESIGNATED TO THE CLOSED BLOCK Investments: Fixed maturities available-for-sale, at fair value (amortized cost: $29,243 and $30,381, respectively) 30,400 32,348 Equity securities, at fair value (cost: $323 and $217, respectively) 368 250 Mortgage loans on real estate 7,785 7,431 Policy loans 4,045 4,036 Short-term investments 62 123 Other invested assets 235 108 -------- -------- Total investments 42,895 44,296 Cash and cash equivalents 326 531 Accrued investment income 522 527 Deferred income taxes 946 1,043 Premiums and other receivables 93 164 -------- -------- Total assets designated to the closed block 44,782 46,561 -------- -------- Excess of closed block liabilities over assets designated to the closed block 4,883 5,037 -------- -------- Amounts included in accumulated other comprehensive loss: Net unrealized investment gains, net of deferred income tax of $443 and $730, respectively 787 1,270 Unrealized derivative gains (losses), net of deferred income tax benefit of ($23) and ($28), respectively (38) (48) Allocated from policyholder dividend obligation, net of deferred income tax benefit of ($464) and ($778), respectively (827) (1,352) -------- -------- (78) (130) -------- -------- Maximum future earnings to be recognized from closed block assets and liabilities $ 4,805 $ 4,907 ======== ========
Information regarding the policyholder dividend obligation is as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------- ----------------- (DOLLARS IN MILLIONS) Balance at beginning of period $ 2,130 $ 1,882 Impact on revenues, net of expenses and income taxes 40 -- Change in unrealized investment and derivative gains (losses) (840) 248 ------- ------- Balance at end of period $ 1,330 $ 2,130 ======= =======
19 Closed block revenues and expenses are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------- ------------------------- 2004 2003 2004 2003 ------- ------- ------- ------- (DOLLARS IN MILLIONS) REVENUES Premiums $ 776 $ 825 $ 1,524 $ 1,624 Net investment income and other revenues 631 623 1,263 1,265 Net investment gains (losses) 11 (19) (15) (52) ------- ------- ------- ------- Total revenues 1,418 1,429 2,772 2,837 ------- ------- ------- ------- EXPENSES Policyholder benefits and claims 877 911 1,703 1,764 Policyholder dividends 364 392 730 786 Change in policyholder dividend obligation 39 -- 40 -- Other expenses 69 76 140 152 ------- ------- ------- ------- Total expenses 1,349 1,379 2,613 2,702 ------- ------- ------- ------- Revenues net of expenses before income taxes 69 50 159 135 Income taxes 25 18 57 49 ------- ------- ------- ------- Revenues net of expenses and income taxes $ 44 $ 32 $ 102 $ 86 ======= ======= ======= =======
The change in maximum future earnings of the closed block is as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 ------- ------- ------- ------- (DOLLARS IN MILLIONS) Balance at end of period $ 4,805 $ 5,028 $ 4,805 $ 5,028 Balance at beginning of period 4,849 5,060 4,907 5,114 ------- ------- ------- ------- Change during period $ (44) $ (32) $ (102) $ (86) ======= ======= ======= =======
Metropolitan Life charges 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 demutualization. Metropolitan Life also charges the closed block for expenses of maintaining the policies included in the closed block. Many of the derivative instrument strategies used by the Company are also used for the closed block. The table below provides a summary of the notional amount and fair value of derivatives by type of hedge designation at:
JUNE 30, 2004 DECEMBER 31, 2003 -------------------------------- -------------------------------- FAIR VALUE FAIR VALUE NOTIONAL --------------------- NOTIONAL --------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES ------ ------ ----------- -------- ------ ----------- (DOLLARS IN MILLIONS) BY TYPE OF HEDGE Fair value $ 31 $ 1 $ 2 $ 6 $ -- $ 1 Cash flow 661 2 75 473 -- 80 Non qualifying 115 -- 10 90 -- 12 ---- ---- ---- ---- ---- ---- Total $807 $ 3 $ 87 $569 $ -- $ 93 ==== ==== ==== ==== ==== ====
During both the three months and six months ended June 30, 2004, the closed block recognized net investment expense of $1 million, from periodic settlement and amortization, and net investment losses of $1 million, from disposals of interest rate, foreign currency and credit default swaps that qualify for hedge accounting. During both the three and six months ended June 30, 2003 the Company recognized net investment income of $2 million, from periodic settlement and amortization, and net investment gains of $5 million, from disposals of interest rate caps and interest rate, foreign currency and credit default swaps that qualify for hedge accounting. 20 During the three months and six months ended June 30, 2004 and 2003, net investment gains (losses) from ineffective fair value hedging activities were insignificant. There were no discontinued fair value hedges during the three months and six months ended June 30, 2004 and 2003. The following table represents cash flow hedges for the:
THREE SIX THREE SIX MONTHS ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, DECEMBER 31, JUNE 30, JUNE 30, 2004 2004 2003 2003 2003 ------------ ------------ ------------ ------------ ------------ (DOLLARS IN MILLIONS) Changes in the qualifying hedges $ 2 $ 8 $(106) $(29) $(48) Less: Gains (losses) deferred in other comprehensive income on the effective portion of cash flow hedges 7 17 (93) (29) (48) ---- ---- ---- ---- ---- Net ineffectiveness recorded in net investment gains (losses) from cash flow hedging activities $ (5) $ (9) $(13) $ -- $ -- ==== ==== ==== ==== ==== Other comprehensive income balance at the beginning of the period $(67) $(76) $ 20 $ 1 $ 20 Gains (losses) deferred in other comprehensive income on the effective portion of cash flow hedges 7 17 (93) (29) (48) Amounts reclassified to net investment income -- Amounts reclassified to net investment gains (losses) -- Amortization of transition adjustment (1) (2) (3) (1) (1) ---- ---- ---- ---- ---- Other comprehensive income balance at the end of the period $(61) $(61) $(76) $(29) $(29) ==== ==== ==== ==== ====
For the three months and six months ended June 30, 2004, the closed block recognized no amounts as net investment gains from the scheduled periodic settlement payments of derivative instruments and net investment gains of $14 million and $9 million, respectively, from derivatives not qualifying as accounting hedges. For the three months and six months ended June 30, 2003, the Company recognized as net investment losses the scheduled periodic settlement payments of derivative instruments of $1 million and $1 million, respectively, and net investment losses of $20 million and $21 million, respectively, from derivatives not qualifying as accounting hedges. The use of these non-speculative derivatives is permitted by the applicable insurance department. 6. COMMITMENTS, CONTINGENCIES AND GUARANTEES The Company is a defendant in a large number of litigation matters. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the United States permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants to not specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrate to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Thus, unless stated below, the specific monetary relief sought is not noted. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be inherently impossible to ascertain with any degree of certainty. Inherent uncertainties can include how fact finders will view individually and in their totality documentary evidence, the credibility and effectiveness of witnesses' testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. In this context, unless stated below, estimates of possible additional losses or ranges of loss for particular matters cannot in the ordinary course be made with a reasonable degree of certainty. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. SALES PRACTICES CLAIMS Over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." 21 In December 1999, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies and annuity contracts or certificates issued pursuant to individual sales in the United States by Metropolitan Life, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life Insurance Company between January 1, 1982 and December 31, 1997. The 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. Similar sales practices class actions against New England Mutual, with which Metropolitan Life merged in 1996, and General American, which was acquired in 2000, have been settled. In October 2000, a federal court approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by New England Mutual between January 1, 1983 through August 31, 1996. The class includes owners of approximately 600,000 in-force or terminated policies. A federal court has approved a settlement resolving sales practices claims on behalf of a class of owners of permanent life insurance policies issued by General American between January 1, 1982 through December 31, 1996. An appellate court has affirmed the order approving the settlement. The class includes owners of approximately 250,000 in-force or terminated policies. Certain class members have opted out of the class action settlements noted above and have brought or continued non-class action sales practices lawsuits. In addition, other sales practices lawsuits have been brought. As of June 30, 2004, there are approximately 331 sales practices lawsuits pending against Metropolitan Life; approximately 40 sales practices lawsuits pending against New England Mutual, New England Life Insurance Company, and New England Securities Corporation (collectively, "New England"); and approximately 51 sales practices lawsuits pending against General American. Metropolitan Life, New England and General American continue to defend themselves vigorously against these lawsuits. Some individual sales practices claims have been resolved through settlement, won by dispositive motions, or, in a few instances, have gone to 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. The Metropolitan Life class action settlement did not resolve two putative class actions involving sales practices claims filed against Metropolitan Life in Canada, and these actions remain pending. The Company believes adequate provision has been made in its unaudited interim condensed consolidated financial statements for all probable and reasonably estimable losses for sales practices claims against Metropolitan Life, New England and General American. Regulatory authorities in a small number of states have had investigations or inquiries relating to Metropolitan Life's, New England's or General American's sales of individual life insurance policies or annuities. Over the past several years, these and a number of investigations by other regulatory authorities were resolved for monetary payments and certain other relief. The Company may continue to resolve investigations in a similar manner. ASBESTOS-RELATED CLAIMS Metropolitan Life is also a defendant in thousands of lawsuits seeking compensatory and punitive damages for personal injuries allegedly caused by exposure to asbestos or asbestos-containing products. Metropolitan Life has never engaged in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products nor has Metropolitan Life issued liability or workers' compensation insurance to companies in the business of manufacturing, producing, distributing or selling asbestos or asbestos-containing products. Rather, these lawsuits have principally been based upon allegations relating to certain research, publication and other activities of one or more of Metropolitan Life's employees during the period from the 1920's through approximately the 1950's and have alleged that Metropolitan Life 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. Metropolitan Life believes that it should not have legal liability in such cases. Legal theories asserted against Metropolitan Life have included negligence, intentional tort claims and conspiracy claims concerning the health risks associated with asbestos. Although Metropolitan Life believes it has meritorious defenses to these claims, and has not suffered any adverse monetary judgments in respect of these claims, due to the risks and expenses of litigation, almost all past cases have been resolved by settlements. Metropolitan Life's defenses (beyond denial of certain factual allegations) to plaintiffs' claims include that: (i) Metropolitan Life owed no duty to the plaintiffs -- it had no special relationship with the plaintiffs and did not manufacture, produce, distribute or sell the asbestos products that allegedly injured plaintiffs; (ii) plaintiffs cannot demonstrate justifiable detrimental reliance; and (iii) plaintiffs cannot demonstrate proximate causation. In defending asbestos cases, Metropolitan Life selects various strategies depending upon the jurisdictions in which such cases are brought and other factors which, in 22 Metropolitan Life's judgment, best protect Metropolitan Life's interests. Strategies include seeking to settle or compromise claims, motions challenging the legal or factual basis for such claims or defending on the merits at trial. In 2002, 2003 and 2004, trial courts in California, Utah, Texas and Georgia granted motions dismissing claims against Metropolitan Life on some or all of the above grounds. Other courts have denied motions brought by Metropolitan Life to dismiss cases without the necessity of trial. There can be no assurance that Metropolitan Life will receive favorable decisions on motions in the future. Metropolitan Life intends to continue to exercise its best judgment regarding settlement or defense of such cases, including when trials of these cases are appropriate. See Note 12 of Notes to Consolidated Financial Statements for the year ended December 31, 2003 included in the MetLife, Inc. Annual Report on Form 10-K for information regarding historical asbestos claims information and the increase of its recorded liability at December 31, 2002. Metropolitan Life continues to study its claims experience, review external literature regarding asbestos claims experience in the United States and consider numerous variables that can affect its asbestos liability exposure, including bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the recorded asbestos liability. Recent bankruptcies of other companies involved in asbestos litigation, as well as advertising by plaintiffs' asbestos lawyers, may result in an increase in the number of claims and the cost of resolving claims, as well as the number of trials and possible adverse verdicts Metropolitan Life may experience. Plaintiffs are seeking additional funds from defendants, including Metropolitan Life, in light of such recent bankruptcies by certain other defendants. In addition, publicity regarding legislative reform efforts may result in an increase in the number of claims. As reported in MetLife, Inc.'s Annual Report on Form 10-K, Metropolitan Life received approximately 60,300 asbestos-related claims in 2003. During the first six months of 2004 and 2003, Metropolitan Life received approximately 13,560 and 48,000 asbestos-related claims, respectively. The Company believes adequate provision has been made in its unaudited interim condensed consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. The ability of Metropolitan Life to estimate its ultimate asbestos exposure is subject to considerable uncertainty due to numerous factors. The availability of data is limited and it is difficult to predict with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. The number of asbestos cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its unaudited interim condensed consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. During 1998, Metropolitan Life paid $878 million in premiums for excess insurance policies for asbestos-related claims. The excess insurance policies for asbestos-related claims provide for recovery of losses up to $1,500 million, which is in excess of a $400 million self-insured retention. 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 by Metropolitan Life in any given year that may be recoverable in the next calendar year under the policies will be reflected as a reduction in the Company's operating cash flows for the year in which they are paid, 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 Metropolitan Life at the commutation date if the reference fund is greater than zero at commutation or pro rata reductions from time to time in the loss reimbursements to Metropolitan Life if the cumulative return on the reference fund is less than the return specified in the experience fund. The return in the reference fund is tied to performance of the Standard & Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. A claim was made under the excess insurance policies in 2003 and 2004 for the amounts paid with respect to asbestos litigation in excess of the retention. As the performance of the indices impact the return in the reference fund, it is possible that loss reimbursements to the Company and the recoverable with respect to later periods may be less than the amount of the recorded losses. Such foregone loss reimbursements may be recovered upon commutation depending upon future performance of the reference fund. If at some point in the future, the Company believes the liability for probable and reasonably estimable losses for asbestos-related claims should be increased, an expense would be recorded and the insurance recoverable would be adjusted subject to the terms, conditions 23 and limits of the excess insurance policies. Portions of the change in the insurance recoverable would be recorded as a deferred gain and amortized into income over the estimated remaining settlement period of the insurance policies. Metropolitan Life also has been named as a defendant in a small number of silicosis, welding and mixed dust cases. The cases are pending in Mississippi, Texas, Ohio, Pennsylvania, West Virginia, Louisiana, Kentucky, Georgia, Alabama, Illinois, Colorado, Indiana and Arkansas. The Company intends to defend itself vigorously against these cases. PROPERTY AND CASUALTY ACTIONS A purported class action has been filed against Metropolitan Property and Casualty Insurance Company's subsidiary, Metropolitan Casualty Insurance Company, in Florida alleging breach of contract and unfair trade practices with respect to allowing the use of parts not made by the original manufacturer to repair damaged automobiles. Discovery is ongoing and a motion for class certification is pending. During the first quarter of 2004, a purported class action was filed against Metropolitan Property and Casualty Insurance Company in Florida on behalf of medical practitioners who provide MRI services. The suit claims breach of contract and unjust enrichment arising out of the alleged failure to include a consumer price index adjustment when paying MRI provider fees. Metropolitan Property and Casualty Insurance Company is vigorously defending itself against this lawsuit. Two purported nationwide class actions have been filed against Metropolitan Property and Casualty Insurance Company in Illinois. One suit claims breach of contract and fraud due to the alleged underpayment of medical claims arising from the use of a purportedly biased provider fee pricing system. A motion for class certification has been filed and discovery is ongoing. The second suit claims breach of contract and fraud arising from the alleged use of preferred provider organizations to reduce medical provider fees covered by the medical claims portion of the insurance policy. A motion to dismiss has been filed. A purported class action has been filed against Metropolitan Property and Casualty Insurance Company in Montana. This suit alleges breach of contract and bad faith for not aggregating medical payment and uninsured coverages provided in connection with the several vehicles identified in insureds' motor vehicle policies. Metropolitan Property and Casualty Insurance Company is vigorously defending itself against this lawsuit. Certain plaintiffs' lawyers have alleged that the use of certain automated databases to provide total loss vehicle valuation methods was improper. Metropolitan Property and Casualty Insurance Company, along with a number of other insurers, has tentatively agreed in January 2004 to resolve this issue in a class action format. The amount to be paid in resolution of this matter will not be material to Metropolitan Property and Casualty Insurance Company. DEMUTUALIZATION ACTIONS Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization, as amended (the "plan") and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions named as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance (the "Superintendent") and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the New York State court in New York County were consolidated within the commercial part of the New York State court. In addition, there remained a separate purported class action in New York State court in New York County. On February 21, 2003, the defendants' motions to dismiss both the consolidated action and separate action were granted; leave to replead as a proceeding under Article 78 of New York's Civil Practice Law and Rules has been granted in the separate action. On April 27, 2004, the appellate court modified the trial court's order by reinstating certain claims against Metropolitan Life, the Holding Company and the individual directors. Another purported class action in New York State court in Kings County has been voluntarily held in abeyance by plaintiffs. The plaintiffs in the state court class actions seek injunctive, declaratory and compensatory relief, as well as an accounting and, in some instances, punitive damages. Some of the plaintiffs in the above described actions also have brought a proceeding under Article 78 of New York's Civil Practice Law and Rules challenging the Opinion and Decision of the Superintendent who approved the plan. In this proceeding, petitioners seek to vacate the Superintendent's Opinion and Decision and enjoin him from granting final approval of the plan. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933 in connection with the plan. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended complaint adding a fraud claim under the Securities Exchange Act of 1934. Plaintiffs served a second consolidated amended complaint on April 2, 2004, and continue to assert violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. On June 22, 2004, the court denied the defendants' motion to dismiss the claim of violation of the Securities Exchange Act of 1934. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. 24 In 2001, a lawsuit was filed in the Superior Court of Justice, Ontario, Canada on behalf of a proposed class of certain former Canadian policyholders against the Holding Company, Metropolitan Life, and Metropolitan Life Insurance Company of Canada. Plaintiffs' allegations concern the way that their policies were treated in connection with the demutualization of Metropolitan Life; they seek damages, declarations, and other non-pecuniary relief. The defendants believe they have meritorious defenses to the plaintiffs' claims and will contest vigorously all of plaintiffs' claims in this matter. On April 30, 2004, a lawsuit was filed in New York state court in New York County against the Holding Company and Metropolitan Life on behalf of a proposed class comprised of the settlement class in the Metropolitan Life sales practices class action settlement approved in December 1999 by the United States District Court for the Western District of Pennsylvania. The complaint challenges the treatment of the cost of the sales practices settlement in the demutualization of Metropolitan Life and asserts claims of breach of fiduciary duty, common law fraud, and unjust enrichment. Plaintiffs seek compensatory and punitive damages, as well as attorneys' fees and costs. On May 24, 2004, the Holding Company and Metropolitan Life served a motion to dismiss the complaint. In October 2003, the United States District Court for the Western District of Pennsylvania dismissed plaintiffs' similar complaint alleging that the demutualization breached the terms of the 1999 settlement agreement and unjustly enriched the Holding Company and Metropolitan Life. In January 2004, plaintiffs' appeal of that decision to the United States Court of Appeals for the Third Circuit was dismissed. The Holding Company and Metropolitan Life intend to contest this matter vigorously. RACE-CONSCIOUS UNDERWRITING CLAIMS Insurance departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its affiliates. The New York Insurance Department concluded its examination of Metropolitan Life concerning possible past race-conscious underwriting practices. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies were consolidated in the United States District Court for the Southern District of New York. On April 28, 2003, the United States District Court approved a class action settlement of the consolidated actions. Several persons filed notices of appeal from the order approving the settlement, but subsequently the appeals were dismissed. Metropolitan Life also entered into settlement agreements to resolve the regulatory examination. Twenty lawsuits involving approximately 140 plaintiffs were filed in federal and state court in Alabama, Mississippi and Tennessee alleging federal and/or state law claims of racial discrimination in connection with the sale, formation, administration or servicing of life insurance policies. Metropolitan Life resolved the claims of some of these plaintiffs through settlement, and some additional plaintiffs have voluntarily dismissed their claims. Metropolitan Life resolved claims of some additional persons who opted out of the settlement class referenced in the preceding paragraph but who had not filed suit. The actions filed in Alabama and Tennessee have been dismissed; two actions filed in Mississippi remain pending. Metropolitan Life is contesting plaintiffs' claims vigorously. The Company believes that adequate provision has been made to cover the costs associated with the resolution of these matters. OTHER In 2001, a putative class action was filed against Metropolitan Life in the United States District Court for the Southern District of New York alleging gender discrimination and retaliation in the MetLife Financial Services unit of the Individual segment. The plaintiffs were seeking unspecified compensatory damages, punitive damages, a declaration that the alleged practices were discriminatory and illegal, injunctive relief requiring Metropolitan Life to discontinue the alleged discriminatory practices, an order restoring class members to their rightful positions (or appropriate compensation in lieu thereof), and other relief. In August 2003, the court granted preliminary approval to a settlement of the lawsuit. At the fairness hearing held on November 6, 2003, the court approved the settlement of the lawsuit. Implementation of the settlement commenced in 2004. A putative class action lawsuit is pending in the United States District Court for the District of Columbia, in which plaintiffs allege that they were denied certain ad hoc pension increases awarded to retirees under the Metropolitan Life retirement plan. The ad hoc pension increases were awarded only to retirees (i.e., individuals who were entitled to an immediate retirement benefit upon their termination of employment) and not available to individuals like these plaintiffs whose employment, or whose spouses' employment, had terminated before they became eligible for an immediate retirement benefit. The plaintiffs seek to represent a class consisting of former Metropolitan Life employees, or their surviving spouses, who are receiving deferred vested annuity payments under the 25 retirement plan and who were allegedly eligible to receive the ad hoc pension increases awarded in 1977, 1980, 1989, 1992, 1996 and 2001, as well as increases awarded in earlier years. Metropolitan Life is vigorously defending itself against these allegations. As previously reported, the SEC is conducting a formal investigation of New England Securities Corporation ("NES"), a subsidiary of New England Life Insurance Company ("NELICO"), in response to NES informing the SEC that certain systems and controls relating to one NES advisory program were not operating effectively. NES is cooperating fully with the SEC. Prior to filing the Company's June 30, 2003 Form 10-Q, MetLife announced a $31 million after-tax charge resulting from certain improperly deferred expenses at an affiliate, New England Financial. MetLife notified the SEC about the nature of this charge prior to its announcement. The SEC is pursuing a formal investigation of the matter and MetLife is fully cooperating with the investigation. The American Dental Association and two individual providers have sued MetLife, Mutual of Omaha and Cigna in a purported class action lawsuit brought in a Florida federal district court. The plaintiffs purport to represent a nationwide class of in-network providers who allege that their claims are being wrongfully reduced by downcoding, bundling, and the improper use and programming of software. The complaint alleges federal racketeering and various state law theories of liability. MetLife is vigorously defending the case and a motion to dismiss has been filed and argued. A purported class action in which two policyholders seek to represent a class of owners of participating life insurance policies is pending in state court in New York. Plaintiffs assert that Metropolitan Life breached their policies in the manner in which it allocated investment income across lines of business during a period ending with the 2000 demutualization. In August 2003, an appellate court affirmed the dismissal of fraud claims in this action. Plaintiffs have served their motion to certify a litigation class. MetLife is vigorously defending the case. Regulatory bodies have contacted the Company and have requested information relating to market timing and late trading of mutual funds and variable insurance products and, generally, the marketing of products. The Company believes that many of these inquiries are similar to those made to many financial services companies as part of industry-wide investigations by various regulatory agencies. State Street Research Investment Services, one of the Company's indirect broker/dealer subsidiaries, has entered into a settlement with the NASD resolving all outstanding issues relating to its investigation. The SEC has commenced an investigation with respect to market timing and late trading in a limited number of privately-placed variable insurance contracts that were sold through General American. As previously reported, in May 2004, General American received a so-called "Wells Notice" stating that the SEC staff is considering recommending that the SEC bring a civil action alleging violations of the U.S. securities laws against General American. Under the SEC procedures, General American can avail itself of the opportunity to respond to the SEC staff before it makes a formal recommendation regarding whether any action alleging violations of the U.S. securities laws should be considered. General American has responded to the Wells Notice. The Company is fully cooperating with regard to these information requests and investigations. The Company at the present time is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the Company's consolidated financial position. As previously reported, the Company has received from the Office of the Attorney General of the State of New York a subpoena seeking information regarding certain compensation agreements between insurance brokers and the Company. The Company is fully cooperating with the inquiry. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's unaudited interim condensed 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 make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. SUMMARY 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, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. 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 26 certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. COMMITMENTS TO FUND PARTNERSHIP INVESTMENTS The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were approximately $1.4 billion at both June 30, 2004 and December 31, 2003, respectively. The Company anticipates that these amounts will be invested in the partnerships over the next three to five years. GUARANTEES In the course of its business, the Company has provided certain indemnities, guarantees and commitments to third parties pursuant to which it may be required to make payments now or in the future. In the context of acquisition, disposition, investment and other transactions, the Company has provided indemnities and guarantees, including those related to tax, environmental and other specific liabilities, and other indemnities and guarantees that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. In addition, in the normal course of business, the Company provides indemnifications to counterparties in contracts with triggers similar to the foregoing, as well as for certain other liabilities, such as third party lawsuits. These obligations are often subject to time limitations that vary in duration, including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. In some cases, the maximum potential obligation under the indemnities and guarantees is subject to a contractual limitation ranging from less than $1 million to $800 million, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, the Company does not believe that it is possible to determine the maximum potential amount due under these guarantees in the future. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Also, the Company indemnifies other of its agents for liabilities incurred as a result of their representation of the Company's interests. Since these indemnities are generally not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under these indemnities in the future. For the six months ended June 30, 2004, the Company recorded liabilities of $10 million with respect to indemnities provided in certain dispositions. The approximate term for these liabilities is 12 to 18 months. The maximum potential amount of future payments that MetLife could be required to pay for these liabilities is $73 million. Due to the uncertainty in assessing changes to the liabilities over the term, the liability on the balance sheet will remain until either expiration or settlement of the guarantee unless evidence clearly indicates that the estimates should be revised. The fair value of the remaining indemnities, guarantees and commitments entered into was insignificant and thus, no liabilities were recorded. The Company's recorded liability at June 30, 2004 and December 31, 2003 for indemnities, guarantees and commitments provided to third parties, excluding amounts recorded during the first six months of 2004, is insignificant. The Company writes credit default swap obligations requiring payment of principal due in exchange for the reference credit obligation, depending on the nature or occurrence of specified credit events for the referenced entities. In the event of a specified credit event, the Company's maximum amount at risk, assuming the value of the referenced credits become worthless, is $1.3 billion at June 30, 2004. The credit default swaps expire at various times during the next ten years. 7. EMPLOYEE BENEFIT PLANS PENSION BENEFIT AND OTHER BENEFIT PLANS The Company is both the sponsor and administrator of defined benefit pension plans covering eligible employees and sales representatives of the Company. Retirement benefits are based upon years of credited service and final average or career average earnings history. 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. 27 The Company uses December 31 as the measurement date for all of its pension and postretirement benefit plans. The components of net periodic benefit cost were as follows:
PENSION BENEFITS PENSION BENEFITS OTHER BENEFITS OTHER BENEFITS ---------------- ---------------- ---------------- --------------- FOR THE THREE FOR THE SIX FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, ---------------- ---------------- ---------------- --------------- 2004 2003 2004 2003 2004 2003 2004 2003 ----- ----- ----- ----- ----- ----- ----- ----- (DOLLARS IN MILLIONS) Service cost $ 32 $ 31 $ 65 $ 62 $ 9 $ 10 $ 18 $ 20 Interest cost 78 79 156 158 31 31 62 62 Expected return on plan assets (108) (84) (215) (168) (19) (18) (38) (36) Amortization of prior actuarial gains (losses) 30 26 58 52 (1) (3) (2) (6) Curtailment (credit) cost -- 3 -- 6 -- 1 -- 2 ----- ----- ----- ----- ----- ----- ----- ----- Net periodic benefit (credit) cost $ 32 $ 55 $ 64 $ 110 $ 20 $ 21 $ 40 $ 42 ===== ===== ===== ===== ===== ===== ===== =====
EMPLOYER CONTRIBUTIONS As of June 30, 2004, contributions of $485 million have been made to the pension plans and the Company presently anticipates contributing an additional $33 million to fund its pension plans in 2004 for a total of $518 million. Contributions to the postretirement benefit plans are expected to be $89 million. 8. STOCK COMPENSATION PLANS Under the MetLife, Inc. 2000 Stock Incentive Plan, as amended, (the "Stock Incentive Plan"), awards granted may be in the form of non-qualified or incentive stock options qualifying under Section 422A of the Internal Revenue Code. Under the MetLife, Inc. 2000 Directors Stock Plan, as amended (the "Directors Stock Plan"), awards granted may be in the form of stock awards, non-qualified stock options, or a combination of the foregoing to outside Directors of the Company. The aggregate number of options to purchase shares of stock that may be awarded under the Stock Incentive Plan and the Directors Stock Plan is subject to a maximum limit of 37,823,333, of which no more than 378,233 may be awarded under the Directors Stock Plan. The Directors Stock Plan has a maximum limit of 500,000 stock awards. All options granted have an exercise price equal to the fair market value price of the Company's common stock on the date of grant, and an option's maximum term is ten years. Certain options under the Stock Incentive Plan become exercisable over a three year period commencing with the date of grant, while other options become exercisable three years after the date of grant. Options issued under the Directors Stock Plan are exercisable immediately. 28 The Company has elected to apply the fair value method of accounting for stock options granted by the Company subsequent to December 31, 2002. Options granted prior to January 1, 2003 continue to be accounted for under the intrinsic value method. Had compensation costs for grants prior to January 1, 2003 been determined based on fair value at the date of grant, the Company's earnings and earnings per share amounts would have been reduced to the following pro forma amounts for the:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ----------------------- ----------------------- 2004 2003 2004 2003 ------- ------- ------- ------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) Net Income $ 947 $ 580 $ 1,470 $ 942 Charge for conversion of company-obligated mandatorily redeemable securities of a subsidiary trust (1) -- -- -- (21) ------- ------- ------- ------- Net income available to common shareholders 947 580 1,470 921 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 7 3 13 6 Deduct: Total Stock-based employee compensation determined under fair value based method for all awards, net of related tax effects (11) (9) (24) (21) ------- ------- ------- ------- Pro forma net income available to common shareholders (2) (3) $ 943 $ 574 $ 1,459 $ 906 ======= ======= ======= ======= BASIC EARNINGS PER SHARE As reported $ 1.26 $ 0.79 $ 1.95 $ 1.29 ======= ======= ======= ======= Pro forma (2)(3) $ 1.25 $ 0.78 $ 1.93 $ 1.27 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE As reported $ 1.25 $ 0.79 $ 1.94 $ 1.29 ======= ======= ======= ======= Pro forma (2)(3) $ 1.24 $ 0.78 $ 1.92 $ 1.27 ======= ======= ======= =======
- ---------- (1) MetLife Capital Trust I ("Trust") was dissolved on February 5, 2003, and $1,006 million aggregate principal amount of 8.00% debentures of the Holding Company (the "MetLife debentures"), the sole assets of the Trust, were distributed to the owners of the Trust's capital securities in exchange for their capital securities. The MetLife debentures were remarketed on behalf of the debenture owners on February 12, 2003 and the interest rate on the MetLife debentures was reset as of February 15, 2003 to 3.911% per annum for a yield to maturity of 2.876%. As a result of the remarketing, the debenture owners received $21 million ($0.03 per diluted common share) in excess of the carrying value of the capital securities. This excess was recorded by the Company as a charge to additional paid-in capital and, for the purpose of calculating earnings per share, is subtracted from net income to arrive at net income available to common shareholders. (2) The pro forma earnings disclosures are not necessarily representative of the effects on net income and earnings per share in future years. (3) Includes the Company's ownership share of stock compensation costs related to the Reinsurance Group of America, Incorporated ("RGA"), incentive stock plan and the stock compensation costs related to the incentive stock plans at SSRM Holdings, Inc. ("State Street Research"), determined in accordance with the fair value method. 29 9. COMPREHENSIVE INCOME (LOSS) The components of comprehensive income (loss) are as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- -------------------- 2004 2003 2004 2003 ------- ------- ------- ------- (DOLLARS IN MILLIONS) Net income $ 947 $ 580 $ 1,470 $ 942 Other comprehensive income (loss): Unrealized gains (losses) on derivative instruments, net of income taxes 81 (71) 85 (69) Unrealized investment gains (losses), net of related offsets, reclassification adjustments and income taxes (1,737) 936 (1,155) 1,234 Cumulative effect of a change in accounting, net of income taxes 90 -- Foreign currency translation adjustments (71) 129 (95) 143 Minimum pension liability adjustment -- -- -- (9) ------- ------- ------- ------- Other comprehensive income (loss): (1,727) 994 (1,075) 1,299 ------- ------- ------- ------- Comprehensive income (loss) $ (780) $ 1,574 $ 395 $ 2,241 ======= ======= ======= =======
30 10. EARNINGS PER SHARE The following table presents the weighted average shares used in calculating basic earnings per share and those used in calculating diluted earnings per share for each income category presented below:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------- ------------- ------------- ------------- 2004 2003 2004 2003 ------------- ------------- ------------- ------------- (DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA) Weighted average common stock outstanding for basic earnings per share 753,331,966 731,242,226 754,915,747 715,866,466 Incremental shares from assumed: Exercise of stock options 3,455,800 14,228 3,284,270 -- Issuance under deferred stock compensation 1,183,084 -- 935,759 -- ------------- ------------- ------------- ------------- Weighted average common stock outstanding for diluted earnings per share 757,970,850 731,256,454 759,135,776 715,866,466 ============= ============= ============= ============= INCOME FROM CONTINUING OPERATIONS $ 852 $ 572 $ 1,510 $ 866 Charge for conversion of company-obligated mandatorily redeemable securities of a subsidiary trust (1) -- -- -- (21) INCOME FROM CONTINUING OPERATIONS AVAILABLE ------------- ------------- ------------- ------------- TO COMMON SHAREHOLDERS $ 852 $ 572 $ 1,510 $ 845 ============= ============= ============= ============= Basic earnings per share $ 1.13 $ 0.78 $ 2.00 $ 1.18 ============= ============= ============= ============= Diluted earnings per share $ 1.12 $ 0.78 $ 1.99 $ 1.18 ============= ============= ============= ============= INCOME FROM DISCONTINUED OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS $ 95 $ 8 $ 118 $ 76 ============= ============= ============= ============= Basic earnings per share $ 0.13 $ 0.01 $ 0.16 $ 0.11 ============= ============= ============= ============= Diluted earnings per share $ 0.13 $ 0.01 $ 0.16 $ 0.11 ============= ============= ============= ============= CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING, NET OF INCOME TAXES $ -- $ -- $ (158) $ -- ============= ============= ============= ============= Basic earnings per share $ -- $ -- $ (0.21) $ -- ============= ============= ============= ============= Diluted earnings per share $ -- $ -- $ (0.21) $ -- ============= ============= ============= ============= NET INCOME $ 947 $ 580 $ 1,470 $ 942 Charge for conversion of company-obligated mandatorily redeemable securities of a subsidiary trust (1) -- -- -- (21) ============= ============= ============= ============= NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 947 $ 580 $ 1,470 $ 921 ============= ============= ============= ============= Basic earnings per share $ 1.26 $ 0.79 $ 1.95 $ 1.29 ============= ============= ============= ============= Diluted earnings per share $ 1.25 $ 0.79 $ 1.94 $ 1.29 ============= ============= ============= =============
- ---------- (1) See Note 8 for a discussion of this charge included in the calculation of net income available to common shareholders. On February 19, 2002, the Holding Company's Board of Directors authorized a $1 billion common stock repurchase program. Under this authorization, the Holding Company may purchase common stock from the MetLife Policyholder Trust, in the open market and in privately negotiated transactions. The Holding Company acquired 7,935,381 shares of common stock for approximately $275 million during the six months ended June 30, 2004. The Holding Company did not acquire any shares of common stock during the six months ended June 30, 2003. The Holding Company issued 805,262 shares of common stock from treasury stock for $25 million during the six months ended June 30, 2004. During the six months ended June 30, 2003, 59,865,424 shares of common stock were issued from treasury stock, 59,771,221 of which were issued in connection with the settlement of common stock purchase contracts 31 for approximately $1,006 million. At June 30, 2004, the Holding Company had approximately $434 million remaining on its existing share repurchase program. 11. BUSINESS SEGMENT INFORMATION The Company provides insurance and financial services to customers in the United States, Canada, Central America, South America, South Africa, and Asia. The Company's business is divided into six segments: Institutional, Individual, Auto & Home, International, Reinsurance and Asset Management. These segments are managed separately because they either provide different products and services, require different strategies or have different technology requirements. 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. Individual offers a wide variety of individual insurance and investment products, including life insurance, annuities and mutual funds. 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 products to both individuals and groups, and auto and homeowners coverage to individuals. Reinsurance provides primarily reinsurance of life and annuity policies in North America and various international markets. Additionally, reinsurance of critical illness policies is provided in select international markets. Asset Management provides a broad variety of asset management products and services to individuals and institutions. 32 Set forth in the tables below is certain financial information with respect to the Company's operating segments for the three months and six months ended June 30, 2004 and 2003. The accounting policies of the segments are the same as those of the Company, except for the method of capital allocation and the accounting for gains (losses) from intercompany sales, which are eliminated in consolidation. 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 evaluates the performance of each operating segment based upon net income excluding certain net investment gains (losses), net of income taxes, and the impact from the cumulative effect of changes in accounting, net of income taxes. Scheduled periodic settlement payments on derivative instruments not qualifying for hedge accounting are included in net investment gains (losses). The Company allocates certain non-recurring items, such as expenses associated with certain legal proceedings, to Corporate & Other.
FOR THE THREE MONTHS ENDED AUTO & ASSET CORPORATE & JUNE 30, 2004 INSTITUTIONAL INDIVIDUAL HOME INTERNATIONAL REINSURANCE MANAGEMENT OTHER TOTAL - --------------------------- ------------- ---------- ------ ------------- ----------- ---------- ----- ----- (DOLLARS IN MILLIONS) Premiums $2,382 $1,007 $ 734 $ 405 $ 807 $ -- $ (4) $5,331 Universal life and investment- type product policy fees 187 455 -- 86 -- -- -- 728 Net investment income 1,121 1,543 44 137 136 18 118 3,117 Other revenues 155 106 6 8 15 73 (7) 356 Net investment gains (losses) 32 35 (5) (3) 31 -- (43) 47 Income (loss) from continuing operations before provision for income taxes 576 341 91 101 46 26 (75) 1,106
FOR THE THREE MONTHS ENDED AUTO & ASSET CORPORATE & JUNE 30, 2003 INSTITUTIONAL INDIVIDUAL HOME INTERNATIONAL REINSURANCE MANAGEMENT OTHER TOTAL - -------------------------- ------------- ---------- ------ ------------- ----------- ---------- ----- ----- (DOLLARS IN MILLIONS) Premiums $ 2,334 $ 1,055 $ 721 $ 390 $ 588 $ -- $ (5) $ 5,083 Universal life and investment- type product policy fees 154 378 -- 71 -- -- -- 603 Net investment income 997 1,532 41 131 121 16 26 2,864 Other revenues 152 109 4 26 12 37 15 355 Net investment gains (losses) 1 (22) (2) (1) 5 -- (23) (42) Income (loss) from continuing operations before provision for income taxes 394 215 51 92 33 9 (10) 784
FOR THE SIX MONTHS ENDED AUTO & ASSET CORPORATE & JUNE 30, 2004 INSTITUTIONAL INDIVIDUAL HOME INTERNATIONAL REINSURANCE MANAGEMENT OTHER TOTAL - ------------------------ ------------- ---------- ------ ------------- ----------- ---------- ----- ----- (DOLLARS IN MILLIONS) Premiums $ 4,807 $ 1,985 $ 1,471 $ 817 $ 1,623 $ -- $ (5) $10,698 Universal life and investment- type product policy fees 358 877 -- 169 -- -- -- 1,404 Net investment income 2,208 3,058 90 260 266 36 174 6,092 Other revenues 319 223 15 12 27 113 -- 709 Net investment gains (losses) 142 12 (5) 23 52 -- (61) 163 Income (loss) from continuing operations before provision for income taxes 1,134 621 149 195 82 35 (149) 2,067
FOR THE SIX MONTHS ENDED AUTO & ASSET CORPORATE & JUNE 30, 2003 INSTITUTIONAL INDIVIDUAL HOME INTERNATIONAL REINSURANCE MANAGEMENT OTHER TOTAL - ------------------------ ------------- ---------- ------ ------------- ----------- ---------- ----- ----- (DOLLARS IN MILLIONS) Premiums $ 4,470 $ 2,096 $ 1,433 $ 785 $ 1,140 $ -- $ (9) $ 9,915 Universal life and investment- type product policy fees 315 738 -- 122 -- -- -- 1,175 Net investment income 1,972 3,087 80 254 231 32 81 5,737 Other revenues 294 195 13 34 24 66 27 653 Net investment gains (losses) (108) (123) (6) (1) 1 8 (65) (294) Income (loss) from continuing operations before provision for income taxes 621 391 74 134 63 19 (109) 1,193
33 The following amounts are reported as discontinued operations in accordance with SFAS 144:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (DOLLARS IN MILLIONS) Net investment income Institutional $ 1 $ 1 $ 3 $ 4 Individual 1 -- 1 3 Corporate & Other 23 11 39 23 ---- ---- ---- ---- Total net investment income $ 25 $ 12 $ 43 $ 30 ==== ==== ==== ==== Net investment gains (losses) Institutional $ -- $ (1) $ 2 $ 40 Individual 2 7 3 47 Corporate & Other 129 (6) 147 3 ---- ---- ---- ---- Total net investment gains (losses) $131 $ -- $152 $ 90 ==== ==== ==== ====
The following table presents assets with respect to the Company's operating segments at:
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ (DOLLARS IN MILLIONS) Assets Institutional $119,565 $113,743 Individual 170,616 165,774 Auto & Home 5,008 4,698 International 9,175 9,935 Reinsurance 13,234 12,833 Asset Management 263 302 Corporate & Other 20,368 19,556 -------- -------- Total $338,229 $326,841 ======== ========
Corporate & Other includes various start-up and run-off entities, as well as the elimination of all intersegment amounts. The elimination of intersegment amounts relates to intersegment loans, which bear interest rates commensurate with related borrowings, as well as intersegment reinsurance transactions. Net investment income and net investment gains (losses) are based upon the actual results of each segment's specifically identifiable asset portfolio adjusted for allocated capital. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company's product pricing. Revenues derived from any customer did not exceed 10% of consolidated revenues. Revenues from U.S. operations were $8,645 million and $8,019 million for the three months ended June 30, 2004 and 2003, respectively, which represented 90% and 90%, respectively, of consolidated revenues. Revenues from U.S. operations were $17,181 million and $15,567 million for the six months ended June 30, 2004 and 2003, respectively, which represented 90% and 91%, respectively, of consolidated revenues. 34 12. DISCONTINUED OPERATIONS The Company actively manages its real estate portfolio with the objective to maximize earnings through selective acquisitions and dispositions. Income related to real estate classified as held-for-sale is presented as discontinued operations. These assets are carried at the lower of cost or market. The following table presents the components of income from discontinued operations:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2004 2003 2004 2003 ----- ----- ----- ----- (DOLLARS IN MILLIONS) Investment income $ 32 $ 32 $ 65 $ 71 Investment expense (7) (20) (22) (41) Net investment gains (losses) 131 -- 152 90 ----- ----- ----- ----- Total revenues 156 12 195 120 Interest expense 11 -- 13 -- Provision for income taxes 50 4 64 44 ----- ----- ----- ----- Income from discontinued operations $ 95 $ 8 $ 118 $ 76 ===== ===== ===== =====
The carrying value of real estate related to discontinued operations was $44 million and $832 million at June 30, 2004 and December 31, 2003, respectively. In February of 2004, MetLife entered into a marketing agreement to sell one of its real estate investments, Sears Tower, and reclassified the property from Real Estate -- Held-for-Investments to Real Estate -- Held-for-Sale. The sale, which occurred in April 2004, resulted in an after-tax gain of $85 million. 35 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For purposes of this discussion, the terms "MetLife" or the "Company" refers to MetLife, Inc., a Delaware corporation (the "Holding Company"), and its subsidiaries, including Metropolitan Life Insurance Company ("Metropolitan Life"). Following this summary is a discussion addressing the consolidated results of operations and financial condition of the Company for the periods indicated. This discussion should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements included elsewhere herein. SUMMARY OF CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the unaudited interim condensed consolidated financial statements. The critical accounting policies, estimates and related judgments underlying the Company's unaudited interim condensed consolidated financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. INVESTMENTS The Company's principal investments are in fixed maturities, mortgage loans and real estate, all of which are exposed to three primary sources of investment risk: credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; (vi) the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than amortized cost; (vii) unfavorable changes in forecasted cash flows on asset-backed securities; and (viii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on: (i) valuation methodologies; (ii) securities the Company deems to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts. In addition, the Company enters into certain structured investment transactions, real estate joint ventures and limited partnerships for which the Company may be deemed to be the primary beneficiary and, therefore, may be required to consolidate such investments. The accounting rules for the determination of the primary beneficiary are complex and require evaluation of the contractual rights and obligations associated with each party involved in the entity, an estimate of the entity's expected losses and expected residual returns and the allocation of such estimates to each party. DERIVATIVES The Company enters into freestanding derivative transactions primarily to manage the risk associated with variability in cash flows or changes in fair values related to the Company's financial assets and liabilities or to changing fair values. The Company also uses derivative instruments to hedge its currency exposure associated with net investments in certain foreign operations. The Company also purchases investment securities, issues certain insurance policies and engages in certain reinsurance contracts that embed derivatives. The associated financial statement risk is the volatility in net income which can result from (i) changes in fair value of derivatives not qualifying as accounting hedges; (ii) ineffectiveness of designated hedges; and (iii) counterparty default. In addition, there is a risk that embedded derivatives requiring bifurcation are not identified and reported at fair value in the unaudited interim condensed consolidated financial statements. Accounting for derivatives is complex, as evidenced by significant authoritative interpretations of the primary accounting standards which continue to evolve, as well as the significant judgments and estimates involved in determining 36 fair value in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances. Such assumptions include estimated volatility and interest rates used in the determination of fair value where quoted market values are not available. The use of different assumptions may have a material effect on the estimated fair value amounts. DEFERRED POLICY ACQUISITION COSTS The Company incurs significant costs in connection with acquiring new and renewal insurance business. These costs, which vary with and are primarily related to the production of that business, are deferred. The recovery of such costs is dependent upon the future profitability of the related business. The amount of future profit is dependent principally on investment returns in excess of the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, expenses to administer the business, creditworthiness of reinsurance counterparties and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns are most likely to impact the rate of amortization of such costs. The aforementioned factors enter into management's estimates of gross margins and profits, which generally are used to amortize such costs. Revisions to estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in the impairment of the asset and a charge to income if estimated future gross margins and profits are less than amounts deferred. In addition, the Company utilizes the reversion to the mean assumption, a standard industry practice, in its determination of the capitalization and amortization of deferred policy acquisition costs ("DAC"), including value of business acquired ("VOBA"). This practice assumes that the expectation for long-term appreciation in equity markets is not changed by minor short-term market fluctuations, but that it does change when large interim deviations have occurred. FUTURE POLICY BENEFITS The Company establishes liabilities for amounts payable under insurance policies, including traditional life insurance, annuities and disability insurance. Generally, amounts are payable over an extended period of time and liabilities are established based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, expenses, persistency, investment returns and inflation. The Company also establishes liabilities for unpaid claims and claims expenses for property and casualty insurance. Liabilities for property and casualty insurance are dependent on estimates of amounts payable for claims reported but not settled and claims incurred but not reported. These estimates are influenced by historical experience and actuarial assumptions with respect to current developments, anticipated trends and risk management strategies. Differences between the actual experience and assumptions used in pricing these policies and in the establishment of liabilities result in variances in profit and could result in losses. REINSURANCE The Company enters into reinsurance transactions as both a provider and a purchaser of reinsurance. Accounting for reinsurance requires extensive use of assumptions and estimates, particularly related to the future performance of the underlying business and the potential impact of counterparty credit risks. The Company periodically reviews actual and anticipated experience compared to the aforementioned assumptions used to establish assets and liabilities relating to ceded and assumed reinsurance and evaluates the financial strength of counterparties to its reinsurance agreements using criteria similar to that evaluated in the security impairment process discussed previously. Additionally, for each of its reinsurance contracts, the Company must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. If the Company determines that a reinsurance contract does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, the Company records the contract using the deposit method of accounting. LITIGATION The Company is a party to a number of legal actions and regulatory investigations. Given the inherent unpredictability of these matters, it is difficult to estimate the impact on the Company's consolidated financial position. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities related to certain lawsuits, including the Company's asbestos-related liability, are especially difficult to estimate due to the limitation of available data and 37 uncertainty regarding numerous variables used to determine amounts recorded. The data and variables that impact the assumption used to estimate the Company's asbestos-related liability include the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. It is possible that an adverse outcome in certain of the Company's litigation and regulatory investigations, including asbestos-related cases, or the use of different assumptions in the determination of amounts recorded could have a material effect upon the Company's consolidated net income or cash flows in particular quarterly or annual periods. EMPLOYEE BENEFIT PLANS The Company sponsors pension and other retirement plans in various forms covering employees who meet specified eligibility requirements. The reported expense and liability associated with these plans requires an extensive use of assumptions which include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company. Management determines these assumptions based upon currently available market and industry data, historical performance of the plan and its assets, and consultation with an independent consulting actuarial firm to aid it in selecting appropriate assumptions and valuing its related liabilities. The expected return on plan assets includes an expectation of long-term market appreciation in equity markets which is not changed by short-term market fluctuations. These assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have a significant effect on the Company's unaudited interim condensed consolidated financial statements and liquidity. RESULTS OF OPERATIONS EXECUTIVE SUMMARY MetLife, Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and institutional customers. The MetLife companies serve individuals in approximately 13 million households in the U.S. and provide benefits to 37 million employees and family members through their plan sponsors. Outside the U.S., the MetLife companies serve approximately 8 million customers through direct insurance operations in Argentina, Brazil, Chile, China, Hong Kong, India, Indonesia, Mexico, South Korea, Taiwan and Uruguay. MetLife is organized into six business segments: Institutional, Individual, Auto & Home, International, Reinsurance and Asset Management. THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 The Company reported $947 million in net income and diluted earnings per share of $1.25 for the three months ended June 30, 2004 compared to $580 million in net income and diluted earnings per share of $0.79 for the three months ended June 30, 2003. Continued top-line revenue growth across all of the Company's business segments, strong investment spreads, favorable claim experience and an improvement in net investment gains (losses) and the impact of certain transactions or events that result in net income not being indicative of future earnings are the leading contributors to the 63% increase in net income in the second quarter of 2004 over the comparable 2003 period. Total premiums and fees increased to $6.1 billion, up 7%, from the second quarter of 2003, which primarily stems from continued sales growth across most of the Company's business segments, as well as the positive impact of the U.S. financial markets on policy fees. Continued improvement in investment spreads is largely due to higher net investment income from corporate joint ventures, bond prepayments fees and commercial mortgage prepayments. In addition an improvement in net investment gains (losses), net of income taxes, of $57 million is primarily attributable to lower credit-related losses and the recognition of equity gains, reflecting the improved market conditions. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 The Company reported $1,470 million in net income and diluted earnings per share of $1.94 for the six months ended June 30, 2004 compared to $942 million in net income and diluted earnings per share of $1.29 for the six months ended June 30, 2003. Continued top-line revenue growth across all of the Company's business segments, strong investment spreads, favorable claim experience and an improvement in net investment gains (losses), and the impact of certain transactions or events that result in net income not being indicative of future earnings are the leading contributors to the 56% increase in net income in the first six months of 2004 over the comparable 2003 period. Total premiums and fees increased to $12.1 billion, up 9%, from the first six months of 2003, which primarily stems from continued sales growth across most of the Company's business segments as well as the positive impact of the U.S. financial markets on policy fees. Continued improvement in investment spreads was primarily attributable to higher net investment income from corporate joint ventures, bond prepayments fees and commercial mortgage prepayments. In addition an 38 improvement in net investment gains (losses), net of income taxes, of $290 million is primarily attributable to lower credit-related losses and the recognition of equity gains, reflecting the improved market conditions. These increases are partially offset by a $158 million cumulative effect of a change in accounting in accordance with Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). INDUSTRY TRENDS The Company's segments continue to be influenced by a variety of industry trends and the Company believes that each of its businesses is well positioned to capitalize on those trends. In general, the Company sees more employers, both large and small, outsourcing their benefits functions. Further, companies are offering broader arrays of voluntary benefits to help retain employees while adding little to their overall benefits costs. These trends will likely continue and in fact expand across companies of all sizes. Employers are also demanding substantial online access for their employees for various self-service functions. This functionality requires substantial information technology investment that smaller companies will find difficult to absorb. This will put pressure on those smaller and mid-size companies to gain scale quickly or exit the business. Additionally, the Company is seeing a trend of employers moving to defined contribution plans over defined benefit plans. In addition, alternative benefit structures, such as simple fixed benefit products, are becoming more popular as the cost of traditional medical indemnity products has continued to increase rapidly. These low cost fixed benefit products can provide effective catastrophic protection for high cost illnesses to supplement the basic health coverage provided by medical indemnity insurance. From a demographics standpoint, the bulk of the U.S. population is moving from an asset accumulation phase to an asset distribution phase. People within ten years of retirement hold significant assets. With continually lengthening lifespans and unstructured asset distribution, the Company believes many of these people may outlive their retirement savings and/or require long-term care. As a result, the Company expects that the demand for retirement payout solutions with guarantees will increase dramatically over the next decade. In each of these demographic scenarios, the quality of the guarantee will be a key driver of growth. The Company believes that these guarantees will be evaluated through balance sheet strength, the claims paying ability and financial strength ratings of the guarantor, as well as the reputation of the Company. The Company believes that in each of these comparisons, it will be at a distinct advantage versus the industry on average. The combination of these trends will continue to favor those with scale, breadth of distribution and product, ability to provide advice and financial strength to support long-term guarantees. 39 DISCUSSION OF RESULTS The following table presents consolidated financial information for the Company for the periods indicated:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 ---------- -------- -------- --------- (DOLLARS IN MILLIONS) REVENUES Premiums $ 5,331 $ 5,083 $ 10,698 $ 9,915 Universal life and investment-type product policy fees 728 603 1,404 1,175 Net investment income 3,117 2,864 6,092 5,737 Other revenues 356 355 709 653 Net investment gains (losses) 47 (42) 163 (294) -------- -------- -------- -------- Total revenues 9,579 8,863 19,066 17,186 -------- -------- -------- -------- EXPENSES Policyholder benefits and claims 5,335 4,970 10,795 9,895 Interest credited to policyholder account balances 751 761 1,494 1,508 Policyholder dividends 471 507 913 1,010 Other expenses 1,916 1,841 3,797 3,580 -------- -------- -------- -------- Total expenses 8,473 8,079 16,999 15,993 -------- -------- -------- -------- Income from continuing operations before provision for income taxes 1,106 784 2,067 1,193 Provision for income taxes 254 212 557 327 -------- -------- -------- -------- Income from continuing operations 852 572 1,510 866 Income from discontinued operations, net of income taxes 95 8 118 76 -------- -------- -------- -------- Income before cumulative effect of a change in accounting 947 580 1,628 942 Cumulative effect of a change in accounting, net of income taxes -- -- (158) -- -------- -------- -------- -------- Net income $ 947 $ 580 $ 1,470 $ 942 ======== ======== ======== ========
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- THE COMPANY Income from continuing operations increased by $280 million, or 49%, to $852 million for the three months ended June 30, 2004 from $572 million in the comparable 2003 period. Income from continuing operations for the three months ended June 30, 2004 and 2003 includes the impact of certain transactions or events that result in net income not being indicative of future earnings, which are described in the applicable segment's results of operations discussions. These items contributed an after-tax benefit of $104 million for the three months ended June 30, 2004 and an after-tax benefit of $95 million in the comparable 2003 period. Excluding the impact of these items, income from continuing operations increased by $271 million for the three months ended June 30, 2004 compared to the prior 2003 period. An improvement in net investment gains (losses), net of income taxes, account for $57 million of this increase. The remainder is primarily attributable to higher net investment income along with favorable results in the Auto & Home, Institutional and Individual segments. The results for these segments were primarily attributable to an improvement in the combined loss ratio; business growth and favorable underwriting results; and wider interest spreads and higher fee income, respectively. Premiums, fees and other revenues increased by $374 million, or 6%, to $6,415 million for the three months ended June 30, 2004 from $6,041 million for the comparable 2003 period. This increase primarily results from the Reinsurance, Institutional and Asset Management segments. The Reinsurance segment represents approximately 59% of the contribution to the Company's period over period increase. This growth is primarily attributable to this segment's coinsurance agreement with Allianz Life Insurance Company of North America ("Allianz Life"). The Institutional segment contributed 22% to the year over year increase. This increase stems primarily from sales growth as well as the acquisitions of new businesses in the group life and the non-medical health and other businesses. Additionally, the Asset Management segment contributed 10% to the overall increase primarily due to higher performance fees, as well as an increase in fees earned on average assets under management. Investment spreads, which generally represent the margin between net investment income and interest credited to policyholder account balances, continued to strengthen during the three months ended June 30, 2004 and were considerably higher, compared to the prior 40 year period. The improvement in the investment spreads is primarily the result of higher net investment income, which stems in part, from corporate joint ventures, bond prepayment fees and commercial mortgage prepayments. Underwriting results in 2004 were largely favorable compared to the second quarter of 2003. The Individual life mortality incurred ratio, which represents actual life claims as a percentage of assumed claims incurred used in the determination of future policy benefits, was favorable at 78.1%, compared with 99.4% in the prior year period. This reflects an overall improvement in mortality, on direct business, in both traditional and variable and universal life products. In addition, the prior year period includes the impact of a single large claim in the variable and universal product line. Group disability's morbidity incurred loss ratio, which represents actual disability claims as a percentage of assumed claims incurred used in the determination of future policy benefits, decreased to 92.7%, from 95.1% in the comparable 2003 period. This improvement is predominately due to lower long-term disability incidence, partially offset by lower net claim closures within the quarter. The group term life mortality incurred ratio, which represents incurred claims as a percentage of premiums earned, increased to 93.3%, from 92.0% in the prior year period, reflecting a modest increase in mortality, however this is still below management's expected range. The Auto & Home combined ratio, which is a measure of both the loss and loss adjustment expense ratio, as well as the other expense ratio, declined to 88.1% excluding catastrophes, from 95.6% in the prior year period. This result is largely due to continued improvement in both auto and homeowner claim frequencies, as well as an increase in average earned premiums. Other expenses increased by $75 million, or 4%, to $1,916 million for the three months ended June 30, 2004 from $1,841 million for the comparable 2003 period. The 2003 quarter includes the impact of $100 million reduction of a previously established liability related to the Company's race-conscious underwriting settlement. In addition, the 2003 period includes a $48 million charge related to certain improperly deferred expenses and a $45 million charge related to a change in reserve methodology in the Company's International segment. The current period quarter reflects a $49 million reduction of a premium tax liability and a reduction of a liability of $22 million of interest associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. These decreases were partially offset by a $50 million contribution to MetLife Foundation. Excluding the impact of these transactions, other expenses increased by $89 million, or 5%, from the comparable 2003 period. The transaction with Allianz Life, mentioned above, is mostly offset by the sale of the Spanish operations. The remaining variance is primarily attributable to an increase in non-deferrable volume related expenses associated with general business growth. Net investment gains (losses) improved by $89 million, or 212%, to $47 million for the three months ended June 30, 2004 from ($42) million for the comparable 2003 period. This improvement is primarily due to lower credit-related losses and the recognition of equity gains, reflecting the improved market conditions. Income tax expense for the three months ended June 30, 2004 was $254 million, or 23% of income from continuing operations before provision for income taxes, compared with $212 million, or 27%, for the comparable 2003 period. The 2004 effective tax rate differs from the corporate tax rate of 35% primarily due to the impact of non-taxable investment income, tax credits for investments in low income housing, decreasing the deferred tax valuation allowance to recognize the effect of foreign net operating loss carryforward in Korea, and the contribution of appreciated stock to the MetLife Foundation. In addition, the 2004 effective tax rate reflects an adjustment for the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. The 2003 effective tax rate differs from the corporate tax rate of 35% primarily due to the impact of non-taxable investment income, tax credits for investments in low income housing, and decreasing the deferred tax valuation allowance to recognize the effect of certain foreign net operating loss carryforwards. Income from discontinued operations, net of income taxes, increased $87 million, or 1,088%, to $95 million for the three months ended June 30, 2004 from $8 million for the comparable 2003 period. The increase is primarily due to the $85 million gain on the sale of Sears Tower in April 2004. The income from discontinued operations is comprised of net investment income and net investment gains related to properties that the Company has classified as available-for-sale. For the three months ended June 30, 2004 and 2003, the Company recognized $131 million and $0 million of net investment gains, respectively, from discontinued operations related to real estate properties sold or held-for-sale. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- THE COMPANY Income from continuing operations increased by $644 million, or 74%, to $1,510 million for the six months ended June 30, 2004 from $866 million in the comparable 2003 period. Income from continuing operations for the six months ended June 30, 2004 and 2003 includes the impact of certain transactions or events that result in net income not being indicative of future earnings, which are described in the applicable segment's results of operations discussions. These items contributed an after-tax benefit of $104 million for the six months ended June 30, 2004 and an after-tax benefit of $95 million in the comparable 2003 period. Excluding the impact of these items, income from continuing operations increased by $635 million for the six months ended June 30, 2004 compared to the 41 prior 2003 period. An improvement in net investment gains (losses), net of income taxes, account for $290 million of this increase. The remainder of the variance is attributable to the Institutional, Individual, and Auto & Home segments and Corporate & Other. This increase was primarily attributable to higher net investment income along with favorable results in the Institutional, Individual and Auto & Home segments. The results for these segments were primarily attributable to business growth and favorable underwriting results, wider interest spreads and higher fee income, and an improvement in the combined loss ratio, respectively. Premiums, fees and other revenues increased by $1,068 million, or 9%, to $12,811 million for the six months ended June 30, 2004 from $11,743 million from the comparable 2003 period. This increase primarily results from the Reinsurance, Institutional, Individual and International segments. The Reinsurance segment represents approximately 46% of the contribution to the Company's period over period increase. This growth is primarily attributable to this segment's coinsurance agreement with Allianz Life. The Institutional segment contributed 38% to the period over period increase. This increase stems primarily from sales growth as well as the acquisitions of new businesses in the group life and the non-medical health and other businesses. In addition, the Individual segment's growth accounted for 5% of the period over period increase. This stems in part from fee income earned on $6.3 billion of annuity deposits in 2004, which increased 14% from the prior year period. In addition, the annuity separate account balance is $33.0 billion at June 30, 2004, up 49% versus the prior year quarter end. Partially offsetting this increase is a decline in traditional life premiums, which is largely attributable to the run off in the Company's closed block of business. The International segment represents 5% of the Company's growth period over period. This increase is primarily due to higher sales in South Korea, Mexico, Chile and Taiwan. Investment spreads, which generally represent the margin between net investment income and interest credited to policyholder account balances, continued to strengthen during the six months ended June 30, 2004 and were considerably higher, compared to the prior year period. The improvement in the investment spreads were primarily the result of higher net investment income, which stems in part, from corporate joint ventures, bond prepayment fees and commercial mortgage prepayments. Underwriting results in 2004 were largely favorable compared to the 2003 period. Group disability's morbidity incurred loss ratio, which represents actual disability claims as a percentage of premiums earned used in the determination of future policy benefits, decreased to 93.0%, from 95.8% in the comparable 2003 period. This improvement is predominately due to lower long-term disability incidence, partially offset by lower net claim closures within the period. The group term life mortality incurred ratio, which represents actual life claims as a percentage of premiums earned used in the determination of future policy benefits, increased to 94.5%, from 92.6% in the prior year period, reflecting a modest increase in mortality; however, this is still below management's expected range. The Individual life mortality incurred ratio, which represents actual life claims as a percentage of assumed claims incurred, was favorable at 81.8%, compared with 93.3% in the prior year period. This reflects an overall improvement in mortality, on direct business, in both traditional and variable and universal life products. In addition, the prior year period includes the impact of a single large claim in the variable and universal product line. The Auto & Home combined ratio, which is a measure of both the loss and loss adjustment expense ratio, as well as the other expense ratio, declined to 92.4% excluding catastrophes, from 98.4% in the prior year period. This result is largely due to continued improvement in both auto and homeowner claim frequencies, as well as an increase in average earned premiums. Other expenses increased by $217 million, or 6%, to $3,797 million for the six months ended June 30, 2004 from $3,580 million for the comparable 2003 period. The 2003 quarter includes the impact of $100 million reduction of a previously established liability related to the Company's race-conscious underwriting settlement. In addition, the 2003 period includes a $48 million charge related to certain improperly deferred expenses and a $45 million charge related to a change in reserve methodology in the Company's International segment. The current period quarter reflects a $49 million reduction of a premium tax liability and a reduction of a liability of $22 million of interest associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. These decreases were partially offset by a $50 million contribution to MetLife Foundation. Excluding the impact of these transactions, other expenses increased by $231 million, or 6%, from the comparable 2003 period. The transaction with Allianz Life mentioned above is mostly offset by the sale of the Spanish operations. The remaining variance is primarily attributable to an increase in non-deferrable volume related expenses associated with general business growth. In addition, other expenses include cost associated with office consolidations and related fixed assets write-offs in the first half of 2004. Net investment gains (losses) improved by $457 million, or 155%, to $163 million for the six months ended June 30, 2004 from ($294) million for the comparable 2003 period. This improvement is primarily due to lower credit-related losses and the recognition of equity gains, reflecting the improved market conditions. Income tax expense for the six months ended June 30, 2004 was $557 million, or 27% of income from continuing operations before provision for income taxes, compared with $327 million, or 27%, for the comparable 2003 period. The 2004 effective tax rate differs from the corporate tax rate of 35% primarily due to the impact of non-taxable investment income, tax credits for investments in low income housing, decreasing the deferred tax valuation allowance to 42 recognize the effect of certain foreign net operating loss carryforward in Korea, and the contribution of appreciated stock to the MetLife Foundation. In addition, the 2004 effective tax rate reflects an adjustment for the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. The 2003 effective tax rate differs from the corporate tax rate of 35% primarily due to the impact of non-taxable investment income, tax credits for investments in low income housing, tax adjustment for a recovery of prior year tax overpayments on tax-exempt bonds, and decreasing the deferred tax valuation allowance to recognize the effect of certain foreign net operating loss carryforwards. Income from discontinued operations, net of income taxes, increased $42 million, or 55%, to $118 million for the six months ended June 30, 2004 from $76 million for the comparable 2003 period. The increase is primarily due to the gain of $85 million on the sale of Sears Tower in April 2004, partially offset by lower recognized net investment gains from real estate properties sold in the six months ended June 30, 2004 as compared to the prior 2003 period. The income from discontinued operations is comprised of net investment income and net investment gains related to properties that the Company has classified as available-for-sale. For the six months ended June 30, 2004 and 2003, the Company recognized $152 million and $90 million of net investment gains, respectively, from discontinued operations related to real estate properties sold or held-for-sale. During the six months ended June 30, 2004, the Company recorded a $158 million charge for a cumulative effect of a change in accounting in accordance with SOP 03-1, which provides guidance on (i) the classification and valuation of long-duration contract liabilities; (ii) the accounting for sales inducements; and (iii) separate account presentation and valuation. INSTITUTIONAL The following table presents consolidated financial information for the Institutional segment for the periods indicated:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 ------ ------ ------ ------ (DOLLARS IN MILLIONS) REVENUES Premiums $ 2,382 $ 2,334 $ 4,807 $ 4,470 Universal life and investment-type product policy fees 187 154 358 315 Net investment income 1,121 997 2,208 1,972 Other revenues 155 152 319 294 Net investment gains (losses) 32 1 142 (108) ------- ------- ------- ------- Total revenues 3,877 3,638 7,834 6,943 ------- ------- ------- ------- EXPENSES Policyholder benefits and claims 2,583 2,506 5,292 4,885 Interest credited to policyholder account balances 240 228 472 452 Policyholder dividends 38 54 45 93 Other expenses 440 456 891 892 ------- ------- ------- ------- Total expenses 3,301 3,244 6,700 6,322 ------- ------- ------- ------- Income from continuing operations before provision for income taxes 576 394 1,134 621 Provision for income taxes 200 140 390 220 ------- ------- ------- ------- Income from continuing operations 376 254 744 401 Income from discontinued operations, net of income taxes 1 -- 3 28 ------- ------- ------- ------- Income before cumulative effect of a change in accounting 377 254 747 429 Cumulative effect of a change in accounting, net of income taxes -- -- (60) -- ------- ------- ------- ------- Net income $ 377 $ 254 $ 687 $ 429 ======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- INSTITUTIONAL The Company's Institutional segment offers a broad range of group insurance and retirement and savings products and services to corporations and other institutions. Group insurance products are offered as either an employer-contributed benefit, or as a voluntary benefit with premiums paid by the employee. Retirement and savings products and services include an array of annuity and investment products, as well as bundled administrative and investment services sold to sponsors of small- and mid-sized 401(k) and other defined contribution plans. 43 Income from continuing operations increased by $122 million, or 48%, to $376 million for the three months ended June 30, 2004 from $254 million for the comparable 2003 period. Favorable interest spreads are estimated to contribute $70 million after-tax compared to the prior year period. In addition, the application of SOP 03-1 in the current period contributed $53 million after-tax to the decrease in policyholder liabilities as a result of the decline in the fair value of the assets associated with these contracts. A reduction in a premium tax liability of $31 million after-tax and an improvement of $20 million after-tax in net investment gains (losses) also contributed to the increase. These increases were partially offset by an estimated $41 million after-tax decrease in earnings, which management attributes to lower underwriting results in several products in the retirement and savings and the non-medical health and other businesses. Total revenues, excluding net investment gains (losses), increased by $208 million, or 6%, to $3,845 million for the three months ended June 30, 2004 from $3,637 million for the comparable 2003 period. This increase is due in part to a $124 million increase in net investment income, which is primarily due to higher income from growth in the asset base, corporate joint ventures and mortgage prepayments, partially offset by lower yields. This increase was a component of the favorable interest spreads discussed above. In addition, growth of $84 million in premiums, fees, and other revenues contributed to the revenue increase. Group life insurance business' premiums, fees and other revenues increased by $102 million, which management primarily attributes to continued strong sales and favorable persistency, as well as the late 2003 acquisition of the John Hancock group life insurance business, which contributed $26 million to the increase. A $105 million increase in premiums, fees and other revenue in the non-medical health and other business is primarily attributable to continued growth in dental of $39 million and disability of $18 million. In addition, long-term care grew $35 million compared to the prior year period, $9 million of which is related to the 2003 acquisition of TIAA/CREF's long-term care business. These increases in premiums, fees and other revenues were partially offset by a decline in the retirement and savings business of $123 million. This decrease is primarily attributable to an unusually high amount of structured settlement deposits in 2003. Premiums, fees and other revenues from retirement and savings products are significantly influenced by large transactions and as a result can fluctuate from period to period. Total expenses increased by $57 million, or 2%, to $3,301 million for the three months ended June 30, 2004 from $3,244 million for the comparable 2003 period. Policyholder related expenses increased $73 million. An increase of $48 million is commensurate with the aforementioned revenue growth. Less favorable mortality and morbidity results in several products in the retirement and savings and non-medical health and other business contributed an estimated $64 million compared to the prior year period. In addition, the acquisition of certain businesses from John Hancock and TIAA/CREF contributed $32 million and $11 million, respectively. These increases are partially offset by the aforementioned $82 million pre-tax decrease in policyholder liabilities resulting from the change in reserve valuation from the application of SOP 03-1. Other operating expenses decreased $16 million, which is primarily due to a reduction of a premium tax liability of $49 million, partially offset by a $33 million increase due primarily to growth in the business. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- INSTITUTIONAL Income from continuing operations increased by $343 million, or 86%, to $744 million for the six months ended June 30, 2004 from $401 million for the comparable 2003 period. Net investment gains increased by $159 million after-tax compared to the prior year period. Favorable interest spreads are estimated to contribute $140 million after-tax compared to the prior year period. In addition, the application of SOP 03-1 in the current period contributed $42 million after-tax to the decrease in policyholder liabilities as a result of the decline in the fair value of the assets associated with these contracts. A reduction in a premium tax liability of $31 million after-tax also contributed to the increase compared to the prior year period. These increases were partially offset by lower underwriting results in the group life insurance and non-medical health and other segments, which management estimates decreased approximately $34 million after-tax compared to the prior year period. Total revenues, excluding net investment gains (losses), increased by $641 million, or 9%, to $7,692 million for the six months ended June 30, 2004 from $7,051 million for the comparable 2003 period. This increase is due in part to a $236 million increase in net investment income, which is primarily due to higher income from growth in the asset base, corporate joint ventures and mortgage prepayments, partially offset by lower yields. This increase was a component of the favorable interest spreads discussed above. In addition, growth of $405 million in premiums, fees and other revenues contributed to the increase. Group life insurance business' premiums, fees and other revenues increased by $234 million, which management primarily attributes to continued strong sales and favorable persistency, as well as the late 2003 acquisition of the John Hancock group life insurance business, which contributed $50 million to the increase. A $191 million increase in premiums, fees and other revenue in the non-medical health and other business is primarily attributable to continued growth in dental of $80 million and disability of $28 million. In addition, long-term care grew $56 million compared to the prior year period, $9 million of which is related to the acquisition of TIAA/CREF's long-term care business. These increases in premiums, fees and other revenues were partially offset by a decline in the retirement and savings business of $20 million. Premiums, fees and other revenues 44 from retirement and savings products are significantly influenced by large transactions and as a result can fluctuate from period to period Total expenses increased by $378 million, or 6%, to $6,700 million for the six months ended June 30, 2004 from $6,322 million for the comparable 2003 period. Policyholder related expenses increased $379 million. An increase of $330 million is commensurate with the aforementioned revenue growth. Less favorable mortality and morbidity results primarily in the group life insurance and non-medical health and other business contributed an estimated $54 million compared to the prior year period. In addition, the acquisition of certain businesses from John Hancock and TIAA/CREF contributed $49 million and $11 million, respectively. These increases are partially offset by the aforementioned $65 million pre-tax reserve valuations resulting from the application of SOP 03-1. Other operating expenses decreased $1 million, primarily due to 2004 including a reduction in a premium tax related liability of $49 million pre-tax. This decrease is offset by growth in operating expenses related to the direct business support expenses primarily related to business growth. INDIVIDUAL The following table presents consolidated financial information for the Individual segment for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- -------------------- 2004 2003 2004 2003 -------- -------- -------- -------- (DOLLARS IN MILLIONS) REVENUES Premiums $ 1,007 $ 1,055 $ 1,985 $ 2,096 Universal life and investment-type product policy fees 455 378 877 738 Net investment income 1,543 1,532 3,058 3,087 Other revenues 106 109 223 195 Net investment gains (losses) 35 (22) 12 (123) ------- ------- ------- ------- Total revenues 3,146 3,052 6,155 5,993 ------- ------- ------- ------- EXPENSES Policyholder benefits and claims 1,261 1,191 2,447 2,415 Interest credited to policyholder account balances 427 452 850 895 Policyholder dividends 413 439 831 879 Other expenses 704 755 1,406 1,413 ------- ------- ------- ------- Total expenses 2,805 2,837 5,534 5,602 ------- ------- ------- ------- Income from continuing operations before provision for income taxes 341 215 621 391 Provision for income taxes 104 76 199 138 ------- ------- ------- ------- Income from continuing operations 237 139 422 253 Income from discontinued operations, net of income taxes 2 5 3 32 ------- ------- ------- ------- Income before cumulative effect of a change in accounting 239 144 425 285 Cumulative effect of a change in accounting, net of income taxes -- -- (70) -- ------- ------- ------- ------- Net income $ 239 $ 144 $ 355 $ 285 ======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- INDIVIDUAL MetLife's Individual segment offers a wide variety of protection and asset accumulation products aimed at serving the financial needs of its customers throughout their entire life cycle. Products offered by Individual include insurance products, such as traditional, universal and variable life insurance and variable and fixed annuities. In addition, Individual sales representatives distribute disability insurance and long-term care insurance products offered through the Institutional segment, investment products, such as mutual funds, and other products offered by the Company's other businesses. Income from continuing operations increased by $98 million, or 71%, to $237 million for the three months ended June 30, 2004 from $139 million for the comparable 2003 period. This increase period over period is largely attributable to increased fee income of $50 million. Higher net investment income of $7 million and lower interest credited of $16 million to policyholder account balances, resulted in higher spreads. In addition, lower operating expenses contributed $33 million to the year over year increase, which is primarily driven by charges recorded in the prior year period and a decline in the policyholder dividend expense of $17 million compared to the prior year period. Partially offsetting the increase to income from continuing operations, were higher policyholder benefits of $45 million which management primarily attributes to an increase in the closed block related policyholder dividend obligation and favorable mortality in the prior year. 45 Total revenues, excluding net investment gains (losses), increased by $37 million, or 1%, to $3,111 million for the three months ended June 30, 2004 from $3,074 million for the comparable 2003 period. Higher fee income of $77 million is largely attributable to a $67 million increase in fees from separate accounts. Management attributes the increase in separate account asset balances to higher sales of variable annuities and overall positive market performance. Net investment income increased $11 million primarily due to higher income from corporate joint ventures, mortgage prepayments and growth in the asset base offset by lower yields. This increase was a component of the favorable interest spreads discussed above. Partially offsetting the increase in revenues are lower premiums associated with the Company's closed block of business of $49 million, which continues to run off at management's expected range of 3% to 6% per year. Total expenses decreased by $32 million, or 1%, to $2,805 million for the three months ended June 30, 2004 from $2,837 million for the comparable 2003 period. The decrease is primarily attributable to a $25 million decline in interest credited to policyholder account balances primarily due to lower crediting rates and a $26 million decline in policyholder dividends, which is largely due to the reductions in the dividend scale in late 2003. In addition, the prior period includes a charge related to certain improperly deferred expenses at New England Financial of $48 million and expenses associated with office consolidations and fixed asset write-offs of $18 million. Partially offsetting the decreases in expenses are higher policyholder benefits of $70 million, which includes a $39 million increase in the closed block related policyholder dividend obligation and an increase of $31 million, which management attributes to better than expected mortality in the prior year period. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- INDIVIDUAL Income from continuing operations increased by $169 million, or 67%, to $422 million for the six months ended June 31, 2004 from $253 million for the comparable 2003 period. This increase period over period is largely attributable to increased fee income of $90 million. Lower interest credited of $29 million to policyholder account balances partially offset by lower net investment income of $19 million resulted in higher spreads. In addition, a decline in the policyholder dividend expense of $31 million and lower operating expenses contributed $5 million to the year over year increase, which is primarily driven by charges recorded in the prior year period. Partially offsetting the increase to income from continuing operations were higher policyholder benefits of $21 million which management attributes primarily to favorable mortality in the prior year. Total revenues, excluding net investment gains (losses), increased by $27 million, or 1%, to $6,143 million for the six months ended June 30, 2004 from $6,116 million for the comparable 2003 period. Higher fee income of $139 million is largely attributable to a $138 million increase in fees earned on separate accounts. Management attributes the increase in separate account asset balances to higher sales of variable annuities and overall positive market performance. Partially offsetting the increase in revenues are lower premiums associated with the Company's closed block of business of $100 million, which continues to run off at the expected range of 3% to 6% per year. In addition, net investment income decreased by $29 million due to lower yields partially offset by growth in the asset base and higher income from corporate joint ventures, and mortgage prepayments. Total expenses decreased by $68 million, or 1%, to $5,534 million for the six months ended June 30, 2004 from $5,602 million for the comparable 2003 period. This decrease is primarily attributed to a $45 million decline in interest credited to policyholder account balances largely due to lower crediting rates and a $48 million decline in policyholder dividends, which is primarily due to the reductions in the dividend scale in late 2003. In addition, the prior period included a charge related to certain improperly deferred expenses at New England Financial of $48 million. Partially offsetting the decrease in expenses is a $40 million increase in the closed block related policyholder dividend obligation. In addition, expenses increased $21 million over the prior year period as a result of an acceleration of DAC amortization associated with an increase in net investment gains (losses). 46 AUTO & HOME The following table presents consolidated financial information for the Auto & Home segment for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2004 2003 2004 2003 ------- ------- ------- ------- (DOLLARS IN MILLIONS) REVENUES Premiums $ 734 $ 721 $ 1,471 $ 1,433 Net investment income 44 41 90 80 Other revenues 6 4 15 13 Net investment gains (losses) (5) (2) (5) (6) ------- ------- ------- ------- Total revenues 779 764 1,571 1,520 ------- ------- ------- ------- EXPENSES Policyholder benefits and claims 495 527 1,031 1,061 Policyholder dividends -- -- -- -- Other expenses 193 186 391 385 ------- ------- ------- ------- Total expenses 688 713 1,422 1,446 ------- ------- ------- ------- Income before provision (benefit) for income taxes 91 51 149 74 Provision (benefit) for income taxes 23 10 35 6 ------- ------- ------- ------- Net income $ 68 $ 41 $ 114 $ 68 ======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- AUTO & HOME Auto & Home, operating through Metropolitan Property and Casualty Insurance Company, and its subsidiaries, offers personal lines property and casualty insurance directly to employees at the workplace, as well as through a variety of retail distribution channels. Auto & Home primarily sells auto insurance and homeowners insurance. Net income increased by $27 million, or 66%, to $68 million for the three months ended June 30, 2004 from $41 million for the comparable 2003 period. This increase is primarily attributable to a $26 million after-tax contribution from a lower combined ratio, which was driven by improved automobile and homeowners claim frequencies and $7 million after-tax from less adverse claim development related to prior years, partially offset by $9 million after-tax from increased catastrophes. Total revenues, excluding net investment gains (losses), increased by $18 million, or 2%, to $784 million for the three months ended June 30, 2004 from $766 million for the comparable 2003 period. This variance is primarily due to a $13 million increase in premiums, which are primarily attributable to an increase in the average earned premium from continued rate increases. In addition, a $3 million increase in net investment income is largely due to growth in the underlying asset base. Total expenses decreased by $25 million, or 4%, to $688 million for the three months ended June 30, 2004 from $713 million for the comparable 2003 period. This decrease is largely the result of a decline in policyholder benefits and claims resulting from improved automobile and homeowners claim frequencies and less adverse claims development related to prior accident years. Together, these items contributed $50 million to the decline in expenses. These decreases are partially offset by increases in catastrophes of $13 million and an increase in other expenses due to higher agent and employee related expenses of $3 million and $4 million, respectively. The combined ratio excluding catastrophes declined to 88.1% for the three months ended June 30, 2004 versus 95.6 % for the comparable 2003 period. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- AUTO & HOME Net income increased by $46 million, or 68%, to $114 million for the six months ended June 30, 2004 from $68 million for the comparable 2003 period. This increase is primarily attributable to less adverse claim development related to prior accident years of $31 million, after-tax. In addition, a $20 million after-tax contribution resulted from a lower combined ratio, which was driven by improved automobile and homeowner claim frequencies, and higher investment income. Total revenues, excluding net investment gains (losses), increased by $50 million, or 3%, to $1,576 million for the six months ended June 30, 2004 from $1,526 million for the comparable 2003 period. This variance is primarily due to a $38 million increase in 47 premiums, which are largely attributable to an increase in the average earned premium from continued rate increases. In addition, a $10 million increase in net investment income is largely due to growth in the underlying asset base. Total expenses decreased by $24 million, or 2%, to $1,422 for the six months ended June 30, 2004 from $1,446 million for the comparable 2003 period. This decrease is the result of an improvement in policyholder benefits and claims due to a $48 million improvement in adverse prior year claim development, as well as an improved combined ratio primarily due to lower non-catastrophe automobile and homeowners claim frequencies of $31 million. This is partially offset by an increase due to growth in the business of $37 million and higher catastrophes of $18 million. The combined ratio excluding catastrophes declined to 92.4% for the six months ended June 30, 2004 from 98.4 % for the comparable 2003 period. INTERNATIONAL The following table presents consolidated financial information for the International segment for the periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------ 2004 2003 2004 2003 ------- ------- ------- -------- (DOLLARS IN MILLIONS) REVENUES Premiums $ 405 $ 390 $ 817 $ 785 Universal life and investment-type product policy fees 86 71 169 122 Net investment income 137 131 260 254 Other revenues 8 26 12 34 Net investment gains (losses) (3) (1) 23 (1) ------- ------- ------- ------- Total revenues 633 617 1,281 1,194 ------- ------- ------- ------- EXPENSES Policyholder benefits and claims 348 286 721 644 Interest credited to policyholder account balances 32 36 69 73 Policyholder dividends 15 8 27 27 Other expenses 137 195 269 316 ------- ------- ------- ------- Total expenses 532 525 1,086 1,060 ------- ------- ------- ------- Income from continuing operations before provision for income taxes 101 92 195 134 Provision for income taxes 31 (6) 59 8 ------- ------- ------- ------- Income from continuing operations 70 98 136 126 Cumulative effect of a change in accounting, net of income taxes -- -- (30) -- ------- ------- ------- ------- Net income $ 70 $ 98 $ 106 $ 126 ======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- INTERNATIONAL International provides life insurance, accident and health insurance, annuities and savings and retirement products to both individuals and groups. The Company focuses on emerging markets in the Latin America and Asia/Pacific regions. Income from continuing operations decreased by $28 million, or 29%, to $70 million for the three months ended June 30, 2004 from $98 million for the comparable 2003 period. The prior year period includes a $62 million after-tax benefit from both the merger of the Mexican operations and a reduction in policyholder liabilities resulting from a change in reserve methodology. Excluding these items, net income increased by $34 million. The most significant component of this increase is attributable to the application of SOP 03-1 in the current period, which resulted in a $32 million after-tax decrease in policyholder liabilities in Mexico as a result of the decline in the fair value of the assets associated with these contracts. In addition, South Korea's results include approximately $8 million of certain tax-related benefits. Total revenues, excluding net investment gains (losses), increased by $18 million, or 3%, to $636 million for the three months ended June 30, 2004 from $618 million for the comparable 2003 period. The sale of the Spanish operation reduced revenues by $52 million over the year ago period. Excluding this event, revenues increased by $70 million, or 12%, of which $9 million, or 13%, was due to foreign currency exchange rates. South Korea's, Mexico's and Chile's revenues increased by $27 million, $16 million and $14 million, respectively, primarily due to growth in the business as well higher net investment income. 48 Total expenses increased by $7 million, or 1%, to $532 million for the three months ended June 30, 2004 from $525 million for the comparable 2003 period. The sale of the Spanish operation reduced expenses by $47 million over the year ago period. Excluding this event, expenses increased by $54 million, or 11%, of which $5 million, or 8%, was due to foreign currency exchange rates. The prior 2003 period includes a $79 million reduction in Mexico's policyholder liabilities resulting from a change in reserve methodology, partially offset by a related increase of $45 million in amortization of value of business acquired. Other than this reduction, Mexico's expenses increased by $10 million in line with the revenue growth outlined above. Chile's expenses also increased by $16 million primarily in line with the revenue growth outlined above. South Korea's expenses increased by $24 million, net of a partial offset of a $6 million reduction to a tax-related liability. The remainder of the increase in total expenses is primarily related to the ongoing investment in International's infrastructure. Partially offsetting these increases is the aforementioned $50 million decrease in policyholder liabilities resulting from the application of SOP 03-1. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- INTERNATIONAL Income from continuing operations increased by $10 million, or 8%, to $136 million for the six months ended June 30, 2004 from $126 million for the comparable 2003 period. The prior year period includes a $62 million after-tax benefit from both the merger of the Mexican operations and a reduction in policyholder liabilities resulting from a change in reserve methodology. Excluding these items, income from continuing operations increased by $72 million. The most significant component of this increase is attributable to the application of SOP 03-1 in the current period, which resulted in a $34 million after-tax decrease in policyholder liabilities in Mexico as a result of the decline in the fair value of the assets associated with these contracts. The increase of $24 million in net investment gains (losses) is primarily due to the gain on the sale of the Spanish operations. In addition, South Korea's results include approximately $8 million of certain tax-related benefits. Total revenues, excluding net investment gains (losses), increased by $63 million, or 5%, to $1,258 million for the six months ended June 30, 2004 from $1,195 million for the comparable 2003 period. The sale of the Spanish operation reduced revenues by $103 million over the year ago period. Excluding this, revenues increased by $166 million, or 15% of which $7 million, or 4%, was due to foreign currency exchange rates. South Korea's, Mexico's, Chile's and Taiwan's revenues increased by $49 million, $47 million, $33 million, and $16 million, respectively, primarily due to planned growth in the business, as well as better investment earnings. Total expenses increased by $26 million, or 2%, to $1,086 million for the six months ended June 30, 2004 from $1,060 million for the comparable 2003 period. The sale of the Spanish operation reduced expenses by $97 million over the year ago period. Excluding this, expenses increased by $123 million, or 13%, of which $9 million, or 7%, was due to foreign currency exchange rates. The prior 2003 period includes a $79 million reduction in Mexico's policyholder liabilities resulting from a change in reserve methodology, partially offset by a related increase of $45 million in amortization of value of business acquired. Other than this reduction, Mexico's expenses increased by $22 million in line with the revenue growth outlined above. Chile and Taiwan's expenses increased by $35 million and $17 million, respectively, primarily in line with the revenue growth outlined above. South Korea's expenses increased by $43 million, net of a partial offset of a $6 million reduction to a tax-related liability. The remainder of the increase in total expenses is primarily related to the ongoing investment in International's infrastructure. Partially offsetting these increases is the aforementioned $53 million decrease in policyholder liabilities resulting from the application of SOP 03-1. 49 REINSURANCE The following table presents consolidated financial information for the Reinsurance segment for the periods indicated:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- ------------------- 2004 2003 2004 2003 ------ ------ ------ ------ (DOLLARS IN MILLIONS) REVENUES Premiums $ 807 $ 588 $1,623 $1,140 Net investment income 136 121 266 231 Other revenues 15 12 27 24 Net investment gains (losses) 31 5 52 1 ------ ------ ------ ------ Total revenues 989 726 1,968 1,396 ------ ------ ------ ------ EXPENSES Policyholder benefits and claims 646 460 1,300 888 Interest credited to policyholder account balances 52 45 103 88 Policyholder dividends 5 6 10 11 Other expenses 240 182 473 346 ------ ------ ------ ------ Total expenses 943 693 1,886 1,333 ------ ------ ------ ------ Income before provision for income taxes 46 33 82 63 Provision for income taxes 16 11 28 21 ------ ------ ------ ------ Income from continuing operations 30 22 54 42 Cumulative effect of a change in accounting, net of income taxes -- -- 3 -- ------ ------ ------ ------ Net income $ 30 $ 22 $ 57 $ 42 ====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- REINSURANCE MetLife's Reinsurance segment is comprised of the life reinsurance business of Reinsurance Group of America, Incorporated ("RGA"), a publicly traded company, and MetLife's ancillary life reinsurance business. RGA has operations in North America and has subsidiary companies, branch offices, or representative offices in Australia, Barbados, Hong Kong, India, Ireland, Japan, Mexico, South Africa, South Korea, Spain, Taiwan and the United Kingdom. Income from continuing operations increased by $8 million, or 36%, to $30 million for the three months ended June 30, 2004 from $22 million for the comparable 2003 period. This increase is primarily attributable to a $17 million after-tax increase in net investment gains, offset in part by a $13 million after-tax increase in other expenses on the related change in deferred acquisition and minority interest costs. Operations from RGA provided an additional $10 million in net income, but are almost entirely offset by an increase in minority interest expense as MetLife's ownership in RGA fell from 59% to 52% in the comparable periods. Operations from MetLife's ancillary life reinsurance business provided an additional $3 million in net income. Total revenues, excluding net investment gains (losses), increased by $237 million, or 33%, to $958 million for the three months ended June 30, 2004 from $721 million for the comparable 2003 period. Approximately $129 million of the increase during the second quarter of 2004 was a result of RGA's coinsurance agreement with Allianz Life under which RGA assumed 100% of Allianz Life's U.S. traditional life reinsurance business. This transaction closed during the fourth quarter of 2003 and was effective retroactive to July 1, 2003. The balance of the increase in total revenues relates to new premiums from facultative and automatic treaties and renewal premiums on existing blocks of business in the U.S. and certain international operations. Premium levels are significantly influenced by large transactions, such as the Allianz Life transaction, and reporting practices of ceding companies and, as a result, can fluctuate from period to period. Total expenses increased by $250 million, or 36%, to $943 million for the three months ended June 30, 2004 from $693 million for the comparable 2003 period. This increase is primarily attributable to an increase of $186 million in policyholder benefits and claims associated with RGA's growth in insurance in force, including the Allianz Life transaction. Additionally, other expenses increased primarily due to higher allowances paid on assumed reinsurance of $27 million associated with RGA's growth in insurance in force and the aforementioned increase in minority interest expense of $22 million. In addition, expenses increased $13 million over the prior year period as a result of an acceleration of DAC amortization associated with an increase in net investment gains (losses). 50 SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - - REINSURANCE Income from continuing operations increased $12 million, or 29%, to $54 million for the six months ended June 30, 2004 from $42 million for the comparable 2003 period. This increase was primarily attributable to a $32 million increase in after-tax net investment gains, offset in part by a $23 million after-tax increase in other expenses on the related change in deferred acquisition and minority interest costs. Additionally, operations from RGA provided an increase of $21 million in net income, but were offset by $18 million after-tax in higher minority interest expense as MetLife's ownership in RGA fell from 59% to 52% in the comparable periods. Operations from MetLife's ancillary life reinsurance business decreased net income by $1 million in the comparable periods. Total revenues, excluding net investment gains (losses), increased by $521 million, or 37%, to $1,916 million for the six months ended June 30, 2004 from $1,395 million for the comparable 2003 period. Approximately $258 million of the increase during the six months ended June 30, 2004 was the result of the coinsurance agreement with Allianz Life. The balance of the increase in total revenues relates to new premiums from facultative and automatic treaties and renewal premiums on existing blocks of business in the U.S. and certain international operations. Premium levels are significantly influenced by large transactions, such as the Allianz Life transaction, and reporting practices of ceding companies and, as a result, can fluctuate from period to period. Total expenses increased by $553 million, or 41%, to $1,886 million for the six months ended June 30, 2004 from $1,333 million for the comparable 2003 period. This increase was primarily attributable to an increase of $412 million in policyholder benefits and claims associated with RGA's growth in insurance in force, including the Allianz Life transaction. Additionally, other expenses increased primarily due to higher allowances paid on assumed reinsurance of $60 million associated with RGA's growth in insurance in force and the aforementioned increase in pre-tax minority interest expense of $46 million. In addition, expenses increased $17 million over the prior year period as a result of an acceleration of DAC amortization associated with an increase in net investment gains (losses). ASSET MANAGEMENT The following table presents consolidated financial information for the Asset Management segment for the periods indicated:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ---------------- ---------------- 2004 2003 2004 2003 ---- ---- ---- ---- (DOLLARS IN MILLIONS) REVENUES Net investment income $ 18 $ 16 $ 36 $ 32 Other revenues 73 37 113 66 Net investment gains (losses) -- -- -- 8 ---- ---- ---- ---- Total revenues 91 53 149 106 ---- ---- ---- ---- OTHER EXPENSES 65 44 114 87 ---- ---- ---- ---- Income before provision for income taxes 26 9 35 19 Provision for income taxes 10 4 14 8 ---- ---- ---- ---- Net income $ 16 $ 5 $ 21 $ 11 ==== ==== ==== ====
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- ASSET MANAGEMENT Asset Management, through SSRM Holdings, Inc. ("State Street Research"), provides a broad variety of asset management products and services to MetLife, third-party institutions and individuals. State Street Research offers investment management services in all major investment disciplines through multiple channels of distribution in both the retail and institutional marketplaces. Net income increased by $11 million, or 220%, to $16 million for the three months ended June 30, 2004 from $5 million for the comparable 2003 period. This increase is primarily due to higher performance fees earned, as well as revenue earned on higher average assets under management. This was partially offset by expense increases resulting from compensation related to the performance fees and higher average assets under management. Total revenues, excluding net investment gains (losses), increased by $38 million, or 72%, to $91 million for the three months ended June 30, 2004 from $53 million for the comparable 2003 period. The increase is primarily the result of $25 million in higher performance fees earned on certain hedge products and real estate investments. Excluding the performance fees, total revenue increased $13 million as a result of higher fees earned on higher average assets under management. Assets under management 51 increased 12% to $51.7 billion as of June 30, 2004, from $46.1 billion as of June 30, 2003, and is primarily attributable to positive net sales and market appreciation from strong equity market performance. Other expenses increased by $21 million, or 48%, to $65 million for the three months ended June 30, 2004 from $44 million for the comparable 2003 period. Compensation and benefits increased $17 million, of which $10 million are commensurate with the revenue earned from the performance fees and the remaining $7 million variance being primarily attributable to higher salaries and compensation-related expenses. Higher average mutual fund assets under management resulted in an increase of approximately $5 million in promoting and servicing expenses. SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- ASSET MANAGEMENT Net income increased $10 million, or 91%, to $21 million for the six months ended June 30, 2004 from $11 million for the comparable 2003 period. This increase is primarily due to higher revenue earned on higher average assets under management, as well as higher performance fees earned in the second quarter of 2004. These increases are partially offset by a regulatory settlement and associated legal costs, in addition to expense increases resulting from higher average assets under management. Total revenues, excluding net investment gains (losses), increased by $51 million, or 52%, to $149 million for the six months ended June 30, 2004 from $98 million for the comparable 2003 period. This increase is primarily the result of $25 million in higher performance fees earned on certain hedge products and real estate investments in the second quarter. Excluding performance fees, total revenues increased $26 million as a result of an increase in fees earned on higher average assets under management. Other expenses increased by $27 million, or 31%, to $114 million for the six months ended June 30, 2004 from $87 million for the comparable 2003 period. The increase is primarily attributable to an increase in compensation related expenses of approximately $17 million of which approximately $10 million related to the performance fees and the remainder of the variance is primarily attributable to a $7 million increase in salaries and compensation-related expenses. Higher average assets under management also contributed to higher promoting and servicing expenses of approximately $8 million. The increase is also attributable to a regulatory settlement and associated legal costs incurred in the first quarter of 2004 of approximately $4 million. 52 CORPORATE & OTHER The following table presents consolidated financial information for Corporate & Other for the periods indicated:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------ ---------------- 2004 2003 2004 2003 ----- ----- ----- ----- (DOLLARS IN MILLIONS) REVENUES Premiums $ (4) $ (5) $ (5) $ (9) Net investment income 118 26 174 81 Other revenues (7) 15 -- 27 Net investment gains (losses) (43) (23) (61) (65) ----- ----- ----- ----- Total revenues 64 13 108 34 ----- ----- ----- ----- EXPENSES Policyholder benefits and claims 2 -- 4 2 Other expenses 137 23 253 141 ----- ----- ----- ----- Total expenses 139 23 257 143 ----- ----- ----- ----- Income (loss) from continuing operations before income tax benefit (75) (10) (149) (109) Income tax benefit (130) (23) (168) (74) ----- ----- ----- ----- Income (loss) from continuing operations 55 13 19 (35) Income from discontinued operations, net of income taxes 92 3 112 16 ----- ----- ----- ----- Income (loss) before cumulative effect of change in accounting 147 16 131 (19) Cumulative effect of a change in accounting, net of income taxes -- -- (1) -- ----- ----- ----- ----- Net income (loss) $ 147 $ 16 $ 130 $ (19) ===== ===== ===== =====
THREE MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 2003 -- CORPORATE & OTHER Corporate & Other contains the excess capital not allocated to the business segments, as well as expenses associated with the resolution of certain legal proceedings, and interest expense related to the majority of the Company's outstanding debt. Income from continuing operations improved by $42 million, or 323%, to $55 million for the three months ended June 30, 2004 from $13 million for the comparable 2003 period. The 2004 period includes a $105 million benefit, net of income tax, associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. Also included in the 2004 period is a $32 million after-tax contribution to the MetLife Foundation. The 2003 period includes a $64 million after-tax benefit from a reduction of a previously established liability related to the Company's race-conscious underwriting settlement. Excluding the impact of these items, income from continuing operations increased by $33 million. The increase in earnings over the prior year period is mainly due to $58 million of higher after-tax investment income, partially offset by $13 million of after-tax net investment gains (losses). Total revenues, excluding net investment gains (losses), increased by $71 million, or 197%, to $107 million for the three months ended June 30, 2004 from $36 million for the comparable 2003 period. This variance is mainly due to $107 million of higher investment income resulting from increases in income from long-term bonds, and real estate and corporate joint ventures. This increase is partially offset by an increase of $15 million in interest paid on allocated capital and a decrease of $15 million in the elimination of underlying affiliated activity. Total expenses increased by $116 million, or 504%, to $139 million for the three months ended June 30, 2004 from $23 million for the comparable 2003 period. The 2004 period includes a $50 million contribution to the MetLife Foundation, partially offset by a reduction of a liability of $22 million of interest associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. The 2003 period includes a $100 million benefit from a reduction of a previously established liability associated with the Company's race-conscious underwriting settlement. This is partially offset by a decrease of $15 million in the elimination of underlying affiliated activity. 53 SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2003 - -- CORPORATE & OTHER Income (loss) from continuing operations improved by $54 million, or 154%, to $19 million for the six months ended June 30, 2004 from ($35) million for the comparable 2003 period. The 2004 period includes a $105 million benefit, net of income tax, associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. Also included in the 2004 period is a $32 million after-tax contribution to the MetLife Foundation. The 2003 period includes a $64 million after-tax benefit from a reduction of a previously established liability related to the Company's race-conscious underwriting settlement. Excluding the impact of these items, income from continuing operations increased by $45 million. The increase in earnings over the prior period is mainly due to $59 million of higher after-tax investment income. Total revenues, excluding net investment gains (losses), increased by $70 million, or 71%, to $169 million for the six months ended June 30, 2004 from $99 million for the comparable 2003 period. This variance is mainly due to $123 million of higher investment income resulting from increases in income from long-term bonds, and real estate and corporate joint ventures. This increase is partially offset by an increase of $30 million in interest paid on allocated capital and a decrease of $22 million in the elimination of underlying affiliated activity. Total expenses increased by $114 million, or 80%, to $257 million for the six months ended June 30, 2004 from $143 million for the comparable 2003 period. The 2004 period includes a $50 million contribution to the MetLife Foundation, partially offset by a reduction of a liability of $22 million of interest associated with the resolution of all issues relating to the Internal Revenue Service's audit of Metropolitan Life's and its subsidiaries' tax returns for the years 1997-1999. The 2003 period includes a $100 million benefit from a reduction of a previously established liability associated with the Company's race-conscious underwriting settlement. This is partially offset by a decrease of $22 million in the elimination of underlying affiliated activity. LIQUIDITY AND CAPITAL RESOURCES THE HOLDING COMPANY CAPITAL Restrictions and Limitations on Bank Holding Companies and Financial Holding Companies -- Capital. MetLife, Inc. and its insured depository institution subsidiary, MetLife Bank, N.A. ("MetLife Bank"), a national bank, are subject to risk-based and leverage capital guidelines issued by the federal banking regulatory agencies for banks and financial holding companies. The federal banking regulatory agencies are required by law to take specific prompt corrective actions with respect to institutions that do not meet minimum capital standards. At June 30, 2004, MetLife, Inc. and MetLife Bank were in compliance with the aforementioned guidelines. LIQUIDITY Liquidity refers to a company's ability to generate adequate amounts of cash to meet its needs. It is managed to preserve stable, reliable and cost-effective sources of cash to meet all current and future financial obligations and is provided by a variety of sources, including a portfolio of liquid assets, a diversified mix of short and long-term funding sources from the wholesale financial markets and the ability to borrow through committed credit facilities. The Holding Company is an active participant in the global financial markets through which it obtains a significant amount of funding. These markets, which serve as cost-effective sources of funds, are critical components of the Holding Company's liquidity management. Decisions to access these markets are based upon relative costs, prospective views of balance sheet growth and a targeted liquidity profile. A disruption in the financial markets could limit the Holding Company's access to liquidity. The Holding Company's ability to maintain regular access to competitively priced wholesale funds is fostered by its current debt ratings from the major credit rating agencies. Management views its capital ratios, credit quality, stable and diverse earnings streams, diversity of liquidity sources and its liquidity monitoring procedures as critical to retaining high credit ratings. Liquidity is monitored through the use of internal liquidity risk metrics, including the composition and level of the liquid asset portfolio, timing differences in short-term cash flow obligations, access to the financial markets for capital and debt transactions and exposure to contingent draws on the Holding Company's liquidity. 54 LIQUIDITY SOURCES Dividends. The primary source of the Holding Company's liquidity is dividends it receives from Metropolitan Life. Under the New York Insurance Law, Metropolitan Life is permitted, without prior insurance regulatory clearance, to pay a cash dividend to the Holding Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its statutory surplus as of the immediately preceding calendar year; and (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains). Metropolitan Life will be permitted to pay a cash dividend to the Holding Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the New York Superintendent of Insurance (the "Superintendent") and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The New York Insurance Department (the "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. Management of the Holding Company cannot provide assurance that Metropolitan Life will have statutory earnings to support payment of dividends to the Holding Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that Metropolitan Life must submit for the Superintendent's consideration. In addition, the Holding Company receives dividends from its other subsidiaries. The Holding Company's other insurance subsidiaries are also subject to similar restrictions on the payment of dividends to their respective parent companies. The dividend limitation is based on statutory financial results. Statutory accounting practices, as prescribed by insurance regulators of various states in which the Company conducts business, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. The significant differences relate to the treatment of DAC, certain deferred income taxes, required investment reserves, reserve calculation assumptions, goodwill and surplus notes. Liquid Assets. An integral part of the Holding Company's liquidity management is the amount of liquid assets that it holds. Liquid assets include cash, cash equivalents, short-term investments and marketable fixed maturity and equity securities. Liquid assets exclude assets relating to securities lending and dollar roll activities. At June 30, 2004 and December 31, 2003, the Holding Company had $1,376 million and $1,320 million in liquid assets, respectively. Global Funding Sources. Liquidity is also provided by a variety of both short and long-term instruments, including repurchase agreements, commercial paper, medium and long-term debt, capital securities and stockholders' equity. The diversification of the Holding Company's funding sources enhances funding flexibility and limits dependence on any one source of funds, and generally lowers the cost of funds. At June 30, 2004, the Holding Company had no short-term debt outstanding as compared to $106 million at December 31, 2003. At June 30, 2004 and December 31, 2003, the Holding Company had $4.5 billion and $4.0 billion in long-term debt outstanding, respectively. As of July 23, 2004, the Holding Company has issued an aggregate principal amount of senior debt of $1.1 billion under the $5.0 billion shelf registration statement filed with the U.S. Securities and Exchange Commission ("SEC") during the first quarter of 2004. The shelf registration will permit the registration and issuance of a wide range of debt and equity securities. Approximately $44 million of registered but unissued securities remaining from the Company's 2001 $4.0 billion shelf registration statement was carried over to this shelf registration. The Holding Company issued and remarketed senior debt in the aggregate principal amount of $3.96 billion under the 2001 $4.0 billion shelf registration statement. Under this shelf registration statement, the Holding Company remarketed $1,006 million aggregate principal amount of debentures previously issued in connection with the issuance of equity security units in February of 2003. 55 The following table summarizes the Holding Company's senior debt issuances:
ISSUE DATE PRINCIPAL INTEREST RATE MATURITY ---------- --------- ------------- -------- (DOLLARS IN MILLIONS) June 2004 (1) $350 5.50% 2014 June 2004 (1) $750 6.38% 2034 November 2003 $500 5.00% 2013 November 2003 $200 5.88% 2033 December 2002 $400 5.38% 2012 December 2002 $600 6.50% 2032 November 2001 $500 5.25% 2006 November 2001 $750 6.13% 2011
- ---------- (1) On July 23, 2004, the Holding Company reopened its June 3, 2004 senior notes offering and increased the principal outstanding on the 5.50% notes due June 2014, from $200 million to $350 million and on the 6.38% notes due June 2034, from $400 million to $750 million. Other sources of the Holding Company's liquidity include programs for short and long-term borrowing, as needed, arranged through Metropolitan Life. Credit Facilities. The Holding Company maintains committed and unsecured credit facilities aggregating $2.5 billion ($1 billion expiring in 2005 and $1.5 billion expiring in 2009) which it shares with Metropolitan Life and MetLife Funding, Inc. ("MetLife Funding"). Drawdowns under these facilities bear interest at varying rates stated in the agreements. These facilities are primarily used for general corporate purposes and as back-up lines of credit for the borrowers' commercial paper programs. At June 30, 2004, neither the Holding Company, Metropolitan Life nor MetLife Funding had drawn against these credit facilities. LIQUIDITY USES The primary uses of liquidity of the Holding Company include cash dividends on common stock, service on debt, capital contributions to subsidiaries, payment of general operating expenses and the repurchase of the Holding Company's common stock. Dividends. On October 21, 2003, the Holding Company's Board of Directors approved an annual dividend for 2003 of $0.23 per share. The dividend was paid on December 15, 2003 to shareholders of record on November 7, 2003. The 2003 dividend represents an increase of $0.02 per share from the 2002 annual dividend of $0.21 per share. Future dividend decisions will be determined by the Holding Company's Board of Directors after taking into consideration factors such as the Holding Company's current earnings, expected medium and long-term earnings, financial condition, regulatory capital position, and applicable governmental regulations and policies. Capital Contributions to Subsidiaries. During the six months ended June 30, 2004 and 2003, the Holding Company contributed an aggregate of $271 million and $42 million to various subsidiaries, respectively. Share Repurchase. On February 19, 2002, the Holding Company's Board of Directors authorized a $1 billion common stock repurchase program. Under this authorization, the Holding Company may purchase its common stock from the MetLife Policyholder Trust, in the open market and in privately negotiated transactions. The following table summarizes the Company's repurchase activity:
SIX MONTHS ENDED JUNE 30, -------------- 2004 2003 ---- ---- (DOLLARS IN MILLIONS) Shares Repurchased 7,935,381 -- Cost $ 275 --
56 At June 30, 2004, the Holding Company had approximately $434 million remaining on its existing share repurchase program. See Part II, Item 2, "Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities." In the fourth quarter of 2003, RGA offered to the public 12,075,000 shares of its common stock at $36.65 per share. MetLife and its affiliates purchased 3,000,000 shares of the common stock offered by RGA. As a result of this offering, MetLife's ownership percentage of outstanding shares of RGA common stock was reduced from approximately 59% at December 31, 2002 to approximately 52% at December 31, 2003. Support Agreements. In 2002, the Holding Company entered into a net worth maintenance agreement with three of its insurance subsidiaries, MetLife Investors Insurance Company, First MetLife Investors Insurance Company and MetLife Investors Insurance Company of California. Under the agreements, the Holding Company agreed, without limitation as to the amount, to cause each of these subsidiaries to have a minimum capital and surplus of $10 million (or, with respect to MetLife Investors Insurance Company of California, $5 million), total adjusted capital at a level not less than 150% of the company action level RBC, as defined by state insurance statutes, and liquidity necessary to enable it to meet its current obligations on a timely basis. At June 30, 2004, the capital and surplus of each of these subsidiaries is in excess of the minimum capital and surplus amounts referenced above, and their total adjusted capital was in excess of the most recent referenced RBC-based amount calculated at December 31, 2003. Based on management's analysis and comparison of its current and future cash inflows from the dividends it receives from subsidiaries, including Metropolitan Life, that are permitted to be paid without prior insurance regulatory approval and its portfolio of liquid assets and other anticipated cash flows, management believes there will be sufficient liquidity to enable the Holding Company to make payments on debt, make cash dividend payments on its common stock, contribute capital to its subsidiaries, pay all operating expenses, and meet its cash needs. THE COMPANY CAPITAL RBC. Section 1322 of the New York Insurance Law requires that New York domestic life insurers report their RBC based on a formula calculated by applying factors to various asset, premium and statutory reserve items; similar rules apply to each of the Company's domestic insurance subsidiaries. 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 Superintendent explicit regulatory authority to require various actions by, or to take various actions against, insurers whose total adjusted capital does not exceed certain RBC levels. At December 31, 2003, Metropolitan Life's and each of the Holding Company's domestic insurance subsidiaries' total adjusted capital was in excess of each of the RBC levels required by each state of domicile. The National Association of Insurance Commissioners ("NAIC") adopted Codification of Statutory Accounting Principles ("Codification"), which is intended to standardize regulatory accounting and reporting to state insurance departments and became effective January 1, 2001. However, statutory accounting principles continue to be established by individual state laws and permitted practices. The Department required adoption of Codification with certain modifications for the preparation of statutory financial statements of insurance companies domiciled in New York effective January 1, 2001. Effective December 31, 2002, the Department adopted a modification to its regulations to be consistent with Codification with respect to the admissibility of deferred income taxes by New York insurers, subject to certain limitations. The adoption of Codification, as modified by the Department, did not adversely affect Metropolitan Life's statutory capital and surplus. Further modifications by state insurance departments may impact the effect of Codification on the statutory capital and surplus of Metropolitan Life and the Holding Company's other insurance subsidiaries. ASSET/LIABILITY MANAGEMENT The Company actively manages its assets using an approach that balances quality, diversification, asset/liability matching, liquidity and investment return. 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 Company establishes target asset portfolios for each major insurance product, which represent the investment strategies used to profitably fund its liabilities within acceptable levels of risk. These strategies include objectives for effective duration, yield curve sensitivity, convexity, liquidity, asset sector concentration and credit quality. 57 The Company's liquidity position (cash and cash equivalents and short-term investments) was $6.5 billion and $5.6 billion at June 30, 2004 and December 31, 2003, respectively. Liquidity needs are determined from a rolling 12-month forecast by portfolio and are monitored daily. Asset mix and maturities are adjusted based on forecast. Cash flow testing and stress testing provide additional perspectives on liquidity. LIQUIDITY The Company believes that it has sufficient liquidity to fund its cash needs under various scenarios that include the potential risk of early contractholder and policyholder withdrawal. The Company includes provisions limiting withdrawal rights on many of its products, including general account institutional pension products (generally group annuities, including guaranteed interest contracts and certain deposit funds liabilities) sold to employee benefit plan sponsors. In the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include cash flow from operations (insurance premiums, annuity considerations and deposit funds), borrowings under committed credit facilities, secured borrowings, the ability to issue commercial paper, long-term debt, capital securities, common equity and, if necessary, the sale of liquid long-term assets. The Company's ability to sell investment assets could be limited by accounting rules including rules relating to the intent and ability to hold impaired securities until the market value of those securities recovers. In extreme circumstances, all general account assets within a statutory legal entity are available to fund any obligation of the general account. LIQUIDITY SOURCES Cash Flow from Operations. The Company's principal cash inflows from its insurance activities come from insurance premiums, annuity considerations and deposit funds. A primary liquidity concern with respect to these cash inflows is the risk of early contractholder and policyholder withdrawal. The Company includes provisions limiting withdrawal rights on many of its products, including general account institutional pension products (generally group annuities, including guaranteed interest contracts and certain deposit fund liabilities) sold to employee benefit plan sponsors. The Company's principal cash inflows from its investment activities come from repayments of principal, proceeds from maturities and sales of invested assets and investment income. The primary liquidity concerns with respect to these cash inflows are the risk of default by debtors and market volatilities. The Company closely monitors and manages these risks through its credit risk management process. Liquid Assets. An integral part of the Company's liquidity management is the amount of liquid assets it holds. Liquid assets include cash, cash equivalents, short-term investments and marketable fixed maturity and equity securities. Liquid assets exclude assets relating to securities lending and dollar roll activities. At June 30, 2004 and December 31, 2003, the Company had $128 billion and $125 billion in liquid assets, respectively. Global Funding Sources. Liquidity is also provided by a variety of both short and long-term instruments, including repurchase agreements, commercial paper, medium and long-term debt, capital securities and stockholders' equity. The diversification of the Company's funding sources enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. At June 30, 2004 and December 31, 2003, the Company had $3.2 billion and $3.6 billion in short-term debt outstanding and $6.2 billion and $5.7 billion in long-term debt outstanding, respectively. On November 1, 2003, the Company redeemed the $300 million of 7.45% Surplus Notes outstanding scheduled to mature on November 1, 2023 at a redemption price of $311 million. MetLife Funding serves as a centralized finance unit for Metropolitan Life. Pursuant to a support agreement, Metropolitan Life has agreed to cause MetLife Funding to have a tangible net worth of at least one dollar. At June 30, 2004 and December 31, 2003, MetLife Funding had a tangible net worth of $10.9 million and $10.8 million, respectively. MetLife Funding raises funds from various funding 58 sources and uses the proceeds to extend loans, through MetLife Credit Corp., a subsidiary of Metropolitan Life, to the Holding Company, Metropolitan Life and other affiliates. MetLife Funding manages its funding sources to enhance the financial flexibility and liquidity of Metropolitan Life and other affiliated companies. At June 30, 2004 and December 31, 2003, MetLife Funding had total outstanding liabilities, including accrued interest payable, of $846 million and $1,042 million, respectively, consisting primarily of commercial paper. Credit Facilities. The Company maintains committed and unsecured credit facilities aggregating $2.7 billion ($1 billion expiring in 2005, $175 million expiring in 2006 and $1.5 billion expiring in 2009). If these facilities were drawn upon, they would bear interest at varying rates in accordance with the respective agreements. The facilities can be used for general corporate purposes and also as back-up lines of credit for the Company's commercial paper programs. At June 30, 2004, the Company had drawn approximately $52 million under the facilities expiring in 2005 at interest rates ranging from 5.32% to 6.18% and approximately $50 million under a facility expiring in 2006 at an interest rate of 1.94%. LIQUIDITY USES Insurance Liabilities. The Company's principal cash outflows primarily relate to the liabilities associated with its various life insurance, property and casualty, annuity and group pension products, operating expenses and income taxes, as well as principal and interest on its outstanding debt obligations. Liabilities arising from its insurance activities primarily relate to benefit payments under the aforementioned products, as well as payments for policy surrenders, withdrawals and loans. Investment and Other. Additional cash outflows include those related to obligations of securities lending and dollar roll activities, investments in real estate, limited partnerships and joint ventures, as well as litigation-related liabilities. The following table summarizes the Company's major contractual obligations as of June 30, 2004:
LESS THAN THREE THREE TO FIVE MORE THAN FIVE CONTRACTUAL OBLIGATIONS TOTAL YEARS YEARS YEARS - ----------------------- ----- --------------- ------------- -------------- (DOLLARS IN MILLIONS) Other long-term liabilities (1) $ 89,798 $ 12,421 $ 6,852 $ 70,525 Long-term debt (2) 6,180 2,126 60 3,994 Partnership investments (3) 1,443 1,443 -- -- Operating leases 1,273 468 252 553 Mortgage commitments 1,580 1,580 -- -- Shares subject to mandatory redemption (2) 350 -- -- 350 Capital leases 70 27 23 20 -------- -------- -------- -------- Total $100,694 $ 18,065 $ 7,187 $ 75,442 ======== ======== ======== ========
- ------------ (1) Other long-term liabilities include various investment-type products with contractually scheduled maturities including guaranteed interest contracts, structured settlements, pension closeouts and certain annuity policies. This line item also includes claim reserves for which the amount of the claim payment is generally known, including life insurance and property and casualty insurance incurred and reported claims. Where the claim payment timing is not known, the Company uses historical experience to estimate the payout pattern. (2) Amounts differ from the balances presented on the consolidated balance sheets. The amounts above do not include related premiums and discounts or capital leases which are presented separately. (3) The Company anticipates that these amounts could be invested in these partnerships any time over the next five years, but are presented in the current period, as the timing of the fulfillment of the obligation cannot be predicted. A significant portion of the Company's insurance liabilities, including most future policy benefits, are excluded from the contractual obligations table because such amounts and/or their timing are inherently subjective. As of June 30, 2004, and relative to its liquidity program, the Company had no material (individually or in the aggregate) purchase obligations or material (individually or in the aggregate) unfunded pension or other postretirement benefit obligations due within one year. On April 11, 2003, an affiliate of the Company elected not to make future payments required by the terms of a non-recourse loan obligation. The book value of this loan was approximately $16 million at June 30, 2004. The Company's exposure under the terms of the applicable loan agreement is limited solely to its investment in certain securities held by an affiliate. 59 Letters of Credit. At June 30, 2004 and December 31, 2003, the Company had outstanding approximately $742 million and $828 million, respectively, in letters of credit from various banks, all of which expire within one year. Since commitments associated with letters of credit and financing arrangements may expire unused, these amounts do not necessarily reflect the actual future cash funding requirements. Support Agreements. In addition to the support agreements described above, Metropolitan Life entered into a net worth maintenance agreement with New England Life Insurance Company ("NELICO") at the time Metropolitan Life merged with New England Mutual Life Insurance Company. Under the agreement, Metropolitan Life agreed, without limitation as to the amount, to cause NELICO to have a minimum capital and surplus of $10 million, total adjusted capital at a level not less than the company action level RBC, as defined by state insurance statutes, and liquidity necessary to enable it to meet its current obligations on a timely basis. At June 30, 2004, the capital and surplus of NELICO was in excess of the minimum capital and surplus amount referenced above, and its total adjusted capital was in excess of the most recent referenced RBC-based amount calculated at December 31, 2003. In connection with the Company's acquisition of GenAmerica Financial Corporation ("GenAmerica"), Metropolitan Life entered into a net worth maintenance agreement with General American Life Insurance Company ("General American"). Under the agreement, Metropolitan Life agreed, without limitation as to amount, to cause General American to have a minimum capital and surplus of $10 million, total adjusted capital at a level not less than 180% of the company action level RBC, as defined by state insurance statutes, and liquidity necessary to enable it to meet its current obligations on a timely basis. The agreement was subsequently amended to provide that, for the five year period from 2003 through 2007, total adjusted capital must be maintained at a level not less than 200% of the company action level RBC, as defined by state insurance statutes. At June 30, 2004, the capital and surplus of General American was in excess of the minimum capital and surplus amount referenced above, and its total adjusted capital was in excess of the most recent referenced RBC-based amount calculated at December 31, 2003. Metropolitan Life has also entered into arrangements for the benefit of some of its other subsidiaries and affiliates to assist such subsidiaries and affiliates in meeting various jurisdictions' regulatory requirements regarding capital and surplus and security deposits. In addition, Metropolitan Life has entered into a support arrangement with respect to a subsidiary under which Metropolitan Life may become responsible, in the event that the subsidiary becomes the subject of insolvency proceedings, for the payment of certain reinsurance recoverables due from the subsidiary to one or more of its cedents in accordance with the terms and conditions of the applicable reinsurance agreements. General American has agreed to guarantee the contractual obligations of its subsidiary, Paragon Life Insurance Company, and certain contractual obligations of its former subsidiaries, MetLife Investors Insurance Company ("MetLife Investors"), First MetLife Investors Insurance Company and MetLife Investors Insurance Company of California. In addition, General American has entered into a contingent reinsurance agreement with MetLife Investors. Under this agreement, in the event that MetLife Investors' statutory capital and surplus is less than $10 million or total adjusted capital falls below 150% of the company action level RBC, as defined by state insurance statutes, General American would assume as assumption reinsurance, subject to regulatory approvals and required consents, all of MetLife Investors' life insurance policies and annuity contract liabilities. At June 30, 2004, the capital and surplus of MetLife Investors was in excess of the minimum capital and surplus amount referenced above, and its total adjusted capital was in excess of the most recent referenced RBC-based amount calculated at December 31, 2003. Management does not anticipate that these arrangements will place any significant demands upon the Company's liquidity resources. Litigation. Various litigation, claims and assessments against the Company 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 make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. 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 except with respect to certain matters. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations, it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. 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 consolidated net income or cash flows in particular quarterly or annual periods. 60 Based on management's analysis of its expected cash inflows from operating activities, the dividends it receives from subsidiaries, including Metropolitan Life, that are permitted to be paid without prior insurance regulatory approval and its portfolio of liquid assets and other anticipated cash flows, management believes there will be sufficient liquidity to enable the Company to make payments on debt, make cash dividend payments on its common stock, pay all operating expenses, and meet its cash needs. The nature of the Company's diverse product portfolio and customer base lessens the likelihood that normal operations will result in any significant strain on liquidity. Consolidated cash flows. Net cash provided by operating activities was $3,380 million and $3,201 million for the six months ended June 30, 2004 and 2003, respectively. The $179 million increase in operating cash flows in 2004 over the comparable 2003 period is primarily attributable to continued growth in the group life, disability and long-term care businesses. The late 2003 acquisition of John Hancock's group life business and the acquisition of TIAA-CREF's long-term care business also contributed to growth in the 2004 period. In addition, increase in MetLife Bank's customer deposits, particularly in personal and business savings accounts, contributed to the increase in operating cash flows. Net cash used in investing activities was $6,304 million and $8,049 million for the six months ended June 30, 2004 and 2003, respectively. The $1,745 million decrease in net cash used in investing activities in 2004 over the comparable 2003 period is primarily due to a decrease in the purchase of fixed maturities, additional proceeds from sales of fixed maturities, and a decrease in cash used for the purpose of short-term investments. In addition, the 2004 period includes proceeds associated with the sale of Sears Tower in April 2004. These items were partially offset by an increase in mortgage loans funded and a reduction of net payables under securities loaned in 2004 over the comparable 2003 period. Net cash provided by financing activities was $3,650 million and $8,239 million for the six months ended June 30, 2004 and 2003, respectively. The $4,589 million decrease in net cash provided by financing activities in 2004 over the comparable 2003 period is primarily attributable to the repayment of short-term debt related to dollar roll activity. In addition, the 2004 period includes the purchase of treasury stock under the authorization of the Company's common stock repurchase program. The 2003 period included cash received from the settlement of common stock purchase contracts. These items were somewhat offset by an increase in long-term debt issued in connection with the Holding Company's shelf registration. EFFECTS OF INFLATION The Company does not believe that inflation has had a material effect on its consolidated results of operations, except insofar as inflation may affect interest rates. APPLICATION OF RECENT ACCOUNTING PRONOUNCEMENTS In March 2004, the Emerging Issues Task Force ("EITF") reached further consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, ("EITF 03-1"). EITF 03-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should be considered other-than-temporary and recognized in income. An EITF 03-1 consensus reached in November 2003 also requires certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The disclosure requirements of EITF 03-1 were effective December 31, 2003. The accounting guidance of EITF 03-1 will be effective in the third quarter of 2004 and is not expected to have a material impact on the Company's unaudited interim condensed consolidated financial statements. In March 2004, the EITF reached consensuses on Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 ("EITF 03-6"). EITF 03-6 provides guidance in determining whether a security should be considered a participating security for purposes of computing earnings per share and how earnings should be allocated to the participating security. EITF 03-6, which was effective for the Company in the second quarter of 2004, did not have an impact on the Company's earnings per share calculations. In March 2004, the EITF reached consensus on Issue No. 03-16, Accounting for Investments in Limited Liability Companies ("EITF 03-16"). EITF 03-16 provides guidance regarding whether a limited liability company should be viewed as similar to a corporation or similar to a partnership for purposes of determining whether a noncontrolling investment should be accounted for using 61 the cost method or the equity method of accounting. EITF 03-16, which will be effective in the third quarter of 2004, is not expected to have a material impact on the Company's unaudited interim condensed consolidated financial statements. Effective January 1, 2004, the Company adopted Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). SOP 03-1 provides guidance on (i) the classification and valuation of long-duration contract liabilities; (ii) the accounting for sales inducements; and (iii) separate account presentation and valuation. At adoption, the Company increased future policyholder benefits for changes in the methodology relating to various guaranteed death and annuitization benefits and for determining reserves for certain universal life insurance contracts by approximately $68 million, which has been reported as a cumulative effect of a change in accounting. This amount is net of corresponding changes in DAC and unearned revenue liability ("offsets") under certain variable annuity and life contracts and income taxes. In June 2004, the Financial Accounting Standards Board ("FASB") released Staff Position paper No. 97-1, Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, Permit or Require Accrual of an Unearned Revenue Liability ("FSP 97-1") which included clarification that unearned revenue liabilities should be considered in determining the necessary insurance benefit liability required under SOP 03-1. FSP 97-1 is effective July 1, 2004. However, additional industry guidance related to SOP 03-1 continues to evolve. Although currently evaluating FSP 97-1 and the possible additional accounting guidance, the Company anticipates a reduction of the initial liability established under SOP 03-1 in subsequent accounting periods. Certain other contracts sold by the Company provide for a return through periodic crediting rates, surrender adjustments or termination adjustments based on the total return of a contractually referenced pool of assets owned by the Company. To the extent that such contracts are not accounted for under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") and not already credited to the contract account balance, under SOP 03-1 the change relating to the fair value of the referenced pool of assets is recorded as a liability through policyholder benefits and claims. Prior to the adoption of SOP 03-1, the Company recorded the change in such liability as other comprehensive income. At adoption, this change decreased net income and increased other comprehensive income by $63 million, net of income taxes, which were recorded as cumulative effects of a change in accounting. Effective with the adoption of SOP 03-1, costs associated with enhanced or bonus crediting rates to contractholders must be deferred and amortized over the life of the related contract using assumptions consistent with the amortization of DAC. Since the Company followed a similar approach prior to adoption of SOP 03-1, the provisions of SOP 03-1 relating to sales inducements had no significant impact on the Company's unaudited interim condensed consolidated financial statements. At adoption, the Company reclassified $155 million of ownership in its own separate accounts from other assets to fixed maturities, equity securities and cash and cash equivalents. This reclassification had no significant impact on net income or other comprehensive income at adoption. In accordance with SOP 03-1's guidance for the reporting of certain separate accounts, at adoption, the Company also reclassified $1.7 billion of separate account assets to general account investments and $1.7 billion of separate account liabilities to future policy benefits and policyholder account balances. This reclassification decreased net income and increased other comprehensive income by $27 million, net of income taxes, which were reported as cumulative effects of a change in accounting. For the three months and six months ended June 30, 2004, the impact of SOP 03-1 increased the Company's net income by $78 million and $64 million, respectively. In December 2003, FASB revised SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits -- an Amendment of FASB Statements No. 87, 88 and 106 ("SFAS 132(r)"). SFAS 132(r) retains most of the disclosure requirements of SFAS 132 and requires additional disclosure about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined postretirement plans. SFAS 132(r) was primarily effective for fiscal years ending after December 15, 2003; however, certain disclosures about foreign plans and estimated future benefit payments are effective for fiscal years ending after June 15, 2004. The Company's adoption of SFAS 132(r) on December 31, 2003 did not have a significant impact on its consolidated financial statements since it only revised disclosure requirements. In May 2004, the FASB issued FASB Staff Position ("FSP") No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("FSP 106-2"), which provides accounting guidance to a sponsor of a postretirement health care plan that provides prescription drug benefits. The Company expects to receive subsidies on prescription drug benefits beginning in 2006 under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 based on the Company's determination that the prescription drug benefits offered under certain postretirement plans are actuarially equivalent to the benefits offered under Medicare Part D. FSP 106-2 is effective for interim periods beginning after June 15, 2004 and provides for either retroactive application to the date of enactment of the legislation or prospective application from the date of adoption of FSP 106-2. The Company is in the process of evaluating the alternatives, however, neither alternative is expected to have a significant impact on the Company's unaudited interim condensed consolidated financial statements. Effective October 1, 2003, the Company adopted Statement 133 Implementation Issue No. B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments ("Issue B36"). Issue B36 concluded that (i) a company's funds withheld payable and/or receivable under certain reinsurance arrangements, and (ii) a debt instrument that incorporates credit risk exposures that are unrelated or only partially related to the creditworthiness of the obligor include an embedded derivative feature that is not clearly and closely related to the host contract. Therefore, the embedded derivative feature is measured at fair value on the balance sheet and changes in fair value are reported in income. As a result of the adoption of Issue B36, the Company recognized net income of $22 million and $13 million, net of amortization of DAC and income taxes, for the three months and six months ended June 30, 2004, respectively. 62 Effective July 1, 2003, the Company adopted SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amended and clarified the accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Except for certain previously issued and effective guidance that was incorporated in SFAS 149, SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Company's adoption of SFAS 149 did not have a significant impact on its unaudited interim condensed consolidated financial statements. During 2003, the Company adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities -- An Interpretation of ARB No. 51 ("FIN 46"), and its December 2003 revision ("FIN 46(r)"). Certain of the Company's asset-backed securitizations, collateralized debt obligations, structured investment transactions, and investments in real estate joint ventures and other limited partnership interests meet the definition of a variable interest entities ("VIEs") and must be consolidated, in accordance with the transition rules and effective dates, because the Company is deemed to be the primary beneficiary. A VIE is defined as (i) any entity in which the equity investments at risk in such entity do not have the characteristics of a controlling financial interest, or (ii) any entity that does not have sufficient equity at risk to finance its activities without additional subordinated support from other parties. Effective February 1, 2003, the Company adopted FIN 46 for VIEs created or acquired on or after February 1, 2003 and, effective December 31, 2003, the Company adopted FIN 46(r) with respect to interests in entities formerly considered special purpose entities ("SPEs"), including interests in asset-backed securities and collateralized debt obligations. The adoption of FIN 46 as of February 1, 2003 did not have a significant impact on the Company's unaudited interim condensed consolidated financial statements. The adoption of the provisions of FIN 46(r) at December 31, 2003 did not require the Company to consolidate any additional VIEs that were not previously consolidated. In accordance with the provisions of FIN 46(r), the Company elected to defer until March 31, 2004 the consolidation of interests in VIEs for non SPEs acquired prior to February 1, 2003 for which it is the primary beneficiary. The transition effect recorded at March 31, 2004 as a result of such consolidations was insignificant. As of June 30, 2004, the Company consolidated assets and liabilities relating to real estate joint ventures of $16 million and $3 million, respectively, and assets and liabilities relating to other limited partnerships of $82 million and $15 million, respectively, for VIEs for which the Company was deemed to be the primary beneficiary. 63 INVESTMENTS The Company had total cash and invested assets at June 30, 2004 and December 31, 2003 of $227.4 billion and $221.8 billion, respectively. In addition, the Company had $79.7 billion and $75.8 billion held in its separate accounts, for which the Company generally does not bear investment risk, as of June 30, 2004 and December 31, 2003, respectively. The following table summarizes the Company's cash and invested assets at:
JUNE 30, 2004 DECEMBER 31, 2003 ------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL ----- ----- ----- ----- (DOLLARS IN MILLIONS) Fixed maturities available-for-sale, at fair value $170,192 74.7% $167,752 75.6% Mortgage loans on real estate 28,118 12.4 26,249 11.8 Real estate and real estate joint ventures held-for-investment 4,110 1.8 3,848 1.8 Real estate held-for-sale 44 0.0 832 0.4 Policy loans 8,766 3.9 8,749 3.9 Equity securities, at fair value and other limited partnership interests 4,549 2.0 4,198 1.9 Cash and cash equivalents 4,459 2.0 3,733 1.7 Short-term investments 2,089 0.9 1,826 0.8 Other invested assets 5,119 2.3 4,645 2.1 -------- ----- -------- ----- Total cash and invested assets $227,446 100.0% $221,832 100.0% ======== ===== ======== =====
INVESTMENT RESULTS Net investment income, including net investment income from discontinued operations and scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended ("SFAS 133"), on general account cash and invested assets totaled $3,165 million and $2,889 million for the three months ended June 30, 2004 and 2003, respectively, and $6,171 million and $5,788 million for the six months ended June 30, 2004 and 2003, respectively. The annualized yields on general account cash and invested assets, including net investment income from discontinued operations and scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS 133, and excluding all net investment gains (losses), were 6.60% and 6.68% for the three months ended June 30, 2004 and 2003, respectively, and 6.52% and 6.79% for the six months ended June 30, 2004 and 2003, respectively. The decline in annualized yields is due primarily to the decline in interest rates during these periods. 64 The following table illustrates the net investment income and annualized yields on average assets for each of the components of the Company's investment portfolio for the three months and six months ended June 30, 2004 and 2003:
AT OR FOR THE THREE MONTHS ENDED JUNE 30, AT OR FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------- --------------------------------------- 2004 2003 2004 2003 ------------------ ----------------- ------------------ ------------------ YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT -------- ------ -------- ------ -------- ------ -------- ------ (DOLLARS IN MILLIONS) FIXED MATURITIES: (2) Investment income 6.64% $ 2,291 6.87% $ 2,073 6.64% $ 4,523 6.91% $ 4,117 Net investment gains (losses) (3) (43) 31 (192) -------- -------- -------- -------- Total $ 2,288 $ 2,030 $ 4,554 $ 3,925 -------- -------- -------- -------- Ending assets $170,192 $158,822 $170,192 $158,822 -------- -------- -------- -------- MORTGAGE LOANS ON REAL ESTATE: (3) Investment income 6.83% $ 468 7.50% $ 472 6.80% $ 917 7.50% $ 942 Net investment gains (losses) -- (8) -- (22) -------- -------- -------- -------- Total $ 468 $ 464 $ 917 $ 920 -------- -------- -------- -------- Ending assets $ 28,118 $ 25,289 $ 28,118 $ 25,289 -------- -------- -------- -------- REAL ESTATE AND REAL ESTATE JOINT VENTURES HELD-FOR-INVESTMENT: (4) Investment income, net of expenses 13.36% $ 148 11.20% $ 125 12.71% $ 287 11.14% $ 252 Net investment gains (losses) 133 (6) 154 86 -------- -------- -------- -------- Total $ 281 $ 119 $ 441 $ 338 -------- -------- -------- -------- Ending assets $ 4,154 $ 4,491 $ 4,154 $ 4,491 -------- -------- -------- -------- POLICY LOANS: Investment income 6.13% $ 134 6.46% $ 139 6.12% $ 268 6.47% $ 278 -------- -------- -------- -------- Ending assets $ 8,766 $ 8,627 $ 8,766 $ 8,627 -------- -------- -------- -------- EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS: Investment income 10.27% $ 100 3.62% $ 32 6.70% $ 129 4.80% $ 86 Net investment gains (losses) 87 1 87 (70) -------- -------- -------- -------- Total $ 187 $ 33 $ 216 $ 16 -------- -------- -------- -------- Ending assets $ 4,549 $ 4,117 $ 4,549 $ 4,117 -------- -------- -------- -------- CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: Investment income 2.37% $ 30 2.23% $ 42 2.45% $ 60 3.40% $ 106 Net investment gains (losses) -- -- -- (4) -------- -------- -------- -------- Total $ 30 $ 42 $ 60 $ 102 -------- -------- -------- -------- Ending assets $ 6,548 $ 8,354 $ 6,548 $ 8,354 -------- -------- -------- -------- OTHER INVESTED ASSETS: (5) Investment income 5.10% $ 55 8.47% $ 69 5.39% $ 112 8.43% $ 132 Net investment gains (losses), (6) (60) 2 8 (22) -------- -------- -------- -------- Total $ (5) $ 71 $ 120 $ 110 -------- -------- -------- -------- Ending assets $ 5,119 $ 4,261 $ 5,119 $ 4,261 -------- -------- -------- -------- TOTAL INVESTMENTS: Investment income before expenses and fees 6.73% $ 3,226 6.82% $ 2,952 6.65% $ 6,296 6.94% $ 5,913 Investment expenses and fees (0.13%) (61) (0.14%) (63) (0.13%) (125) (0.15%) (125) ------ -------- ------ -------- ------ -------- ------ -------- Net investment income 6.60% $ 3,165 6.68% $ 2,889 6.52% $ 6,171 6.79% $ 5,788 Net investment gains (losses) 157 (54) 280 (224) -------- -------- -------- -------- Total $ 3,322 $ 2,835 $ 6,451 $ 5,564 ======== ======== ======== ========
- ------ ---- (1) Yields are based on quarterly average asset carrying values, excluding recognized and unrealized gains (losses), and for yield calculation purposes, average assets exclude collateral associated with the Company's securities lending program. (2) Included in fixed maturities are equity-linked notes of $906 million and $887 million at June 30, 2004 and 2003, respectively, which include an equity-like component as part of the notes' return. Investment income for fixed maturities includes prepayment fees and income from the securities lending program. Fixed maturity investment income has been reduced by rebates paid under the securities lending program. (3) Investment income from mortgage loans on real estate includes prepayment fees. (4) Real estate and real estate joint venture income is shown net of depreciation of $42 million and $43 million for the three months 65 ended June 30, 2004 and 2003, respectively, and $86 million and $88 million for the six months ended June 30, 2004 and 2003, respectively. Real estate and real estate joint venture income includes amounts classified as discontinued operations of $25 million and $12 million for the three months ended June 30, 2004 and 2003, respectively, and $43 million and $30 million for the six months ended June 30, 2004 and 2003, respectively. These amounts are net of depreciation of $1 million and $5 million for the three months ended June 30, 2004 and 2003, respectively, and $3 million and $11 million for the six months ended June 30, 2004 and 2003, respectively. Net investment gains (losses) include $131 million and $0 million of gains classified as discontinued operations for the three months ended June 30, 2004 and 2003, respectively, and $152 million and $90 million of gains classified as discontinued operations for the six months ended June 30, 2004 and 2003, respectively. (5) Investment income from other invested assets includes scheduled periodic settlement payments on derivative instruments that do not qualify for hedge accounting under SFAS 133 of $22 million and $12 million for the three months ended June 30, 2004 and 2003, respectively, and $36 million and $20 million for the six months ended June 30, 2004 and 2003, respectively. These amounts are excluded from net investment gains (losses). (6) Included in net investment gains (losses) for the six months ended June 30, 2004 is a $23 million gain from the sale of a subsidiary. FIXED MATURITIES Fixed maturities consist principally of publicly traded and privately placed debt securities, and represented 74.7% and 75.6% of total cash and invested assets at June 30, 2004 and December 31, 2003, respectively. Based on estimated fair value, public fixed maturities represented $149,949 million, or 88.1% and $147,489 million, or 87.9%, of total fixed maturities at June 30, 2004 and December 31, 2003, respectively. Based on estimated fair value, private fixed maturities represented $20,243 million, or 11.9% and $20,263 million, or 12.1%, of total fixed maturities at June 30, 2004 and December 31, 2003, respectively. In cases where quoted market prices are not available, fair values are estimated using present value or valuation techniques. The fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counter-party. Factors considered in estimating fair value include: coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer and quoted market prices of comparable securities. The Securities Valuation Office of the NAIC evaluates the fixed maturity investments of insurers for regulatory reporting purposes and assigns securities to one of six investment categories called "NAIC designations." The NAIC ratings are similar to the rating agency designations of the Nationally Recognized Statistical Rating Organizations for marketable bonds. NAIC ratings 1 and 2 include bonds generally considered investment grade (rated "Baa3" or higher by Moody's Investors Services ("Moody's"), or rated "BBB-" or higher by Standard & Poor's ("S&P")) by such rating organizations. NAIC ratings 3 through 6 include bonds generally considered below investment grade (rated "Ba1" or lower by Moody's, or rated "BB+" or lower by S&P). 66 The following table presents the Company's total fixed maturities by Nationally Recognized Statistical Rating Organizations designation and the equivalent ratings of the NAIC, as well as the percentage, based on estimated fair value, that each designation is comprised of at:
JUNE 30, 2004 DECEMBER 31, 2003 -------------------------------- ----------------------------------- ESTIMATED ESTIMATED NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF RATING DESIGNATION (1) COST VALUE TOTAL COST VALUE TOTAL ------ --------------- --------- --------- ----- --------- --------- ----- (DOLLARS IN MILLIONS) 1 Aaa/Aa/A $110,622 $113,607 66.8% $106,779 $112,333 67.0% 2 Baa 42,035 43,829 25.8 39,006 42,057 25.0 3 Ba 6,923 7,334 4.3 7,388 8,011 4.8 4 B 3,963 4,086 2.4 3,578 3,814 2.3 5 Caa and lower 562 583 0.3 630 629 0.4 6 In or near default 184 211 0.1 341 371 0.2 -------- -------- ----- -------- -------- ----- Subtotal 164,289 169,650 99.7 157,722 167,215 99.7 Redeemable preferred stock 613 542 0.3 611 537 0.3 -------- -------- ----- -------- -------- ----- Total fixed maturities $164,902 $170,192 100.0% $158,333 $167,752 100.0% ======== ======== ===== ======== ======== =====
- ---------- (1) Amounts presented are based on rating agency designations. Comparisons between NAIC ratings and rating agency designations are published by the NAIC. The rating agency designations are based on availability and the lower of the applicable ratings between Moody's and S&P. The current period ratings are presented so that the consolidated rating is equal to the Moody's or S&P rating, whichever is more conservative. If no rating is available from a rating agency, then the MetLife rating will be used. 67 The fixed maturities portfolio is diversified across a broad range of asset sectors, and the sector mix did not change significantly in the second quarter of 2004. The following tables set forth the amortized cost, gross unrealized gain and loss, and estimated fair value of the Company's fixed maturities by sector, as well as the percentage of the total fixed maturities holdings that each sector represents at:
JUNE 30, 2004 ---------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ------------------ ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL --------- ---- ---- ---------- ----- (DOLLARS IN MILLIONS) U.S. treasuries/agencies $ 15,838 $ 992 $ 166 $ 16,664 9.8% State and political subdivisions 3,592 125 42 3,675 2.2 U.S. corporate securities 58,536 2,683 600 60,619 35.6 Foreign government securities 7,537 585 103 8,019 4.7 Foreign corporate securities 23,349 1,643 260 24,732 14.5 Residential mortgage-backed securities 30,464 524 290 30,698 18.0 Commercial mortgage-backed securities 11,801 361 143 12,019 7.1 Asset-backed securities 12,378 136 70 12,444 7.3 Other fixed income assets 794 38 52 780 0.5 -------- -------- -------- -------- ----- Total bonds 164,289 7,087 1,726 169,650 99.7 Redeemable preferred stocks 613 -- 71 542 0.3 -------- -------- -------- -------- ----- Total fixed maturities $164,902 $ 7,087 $ 1,797 $170,192 100.0% ======== ======== ======== ======== =====
DECEMBER 31, 2003 ---------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ------------------ ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL ---------- ---- ---- ---------- ----- (DOLLARS IN MILLIONS) U.S. treasuries/agencies $ 14,707 $ 1,264 $ 26 $ 15,945 9.5% State and political subdivisions 3,155 209 15 3,349 2.0 U.S. corporate securities 56,757 3,886 252 60,391 36.0 Foreign government securities 7,789 1,003 28 8,764 5.2 Foreign corporate securities 21,727 2,194 79 23,842 14.2 Residential mortgage-backed securities 30,836 720 102 31,454 18.8 Commercial mortgage-backed securities 10,523 530 22 11,031 6.6 Asset-backed securities 11,736 187 60 11,863 7.1 Other fixed income assets 492 167 83 576 0.3 -------- -------- ---- -------- ----- Total bonds 157,722 10,160 667 167,215 99.7 Redeemable preferred stocks 611 2 76 537 0.3 -------- -------- ---- -------- ----- Total fixed maturities $158,333 $ 10,162 $743 $167,752 100.0% ======== ======== ==== ======== =====
Fixed Maturity Impairment. The Company classifies all of its fixed maturities as available-for-sale and marks them to market through other comprehensive income. All securities with gross unrealized losses at the consolidated balance sheet date are subjected to the Company's process for identifying other-than-temporary impairments. The Company writes down to fair value securities that it deems to be other-than-temporarily impaired in the period the securities are deemed to be so impaired. The assessment of whether such impairment has occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors, as described below, about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to, the following: - - length of time and the extent to which the market value has been below amortized cost; - - potential for impairments of securities when the issuer is experiencing significant financial difficulties, including a review of all securities of the issuer, including its known subsidiaries and affiliates, regardless of the form of the Company's ownership; 68 - - potential for impairments in an entire industry sector or sub-sector; - - potential for impairments in certain economically depressed geographic locations; - - potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; - - the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost; - - unfavorable changes in forecasted cash flows on asset-backed securities; and - - other subjective factors, including concentrations and information obtained from regulators and rating agencies. The Company's review of its fixed maturities for impairments includes an analysis of the total gross unrealized losses by three categories of securities: (i) securities where the estimated fair value had declined and remained below amortized cost by less than 20%; (ii) securities where the estimated fair value had declined and remained below amortized cost by 20% or more for less than six months; and (iii) securities where the estimated fair value had declined and remained below amortized cost by 20% or more for six months or greater. While all of these securities are monitored for potential impairment, the Company's experience indicates that the first two categories do not present as great a risk of impairment, and often, fair values recover over time as the factors that caused the declines improve. The Company records writedowns as investment losses and adjusts the cost basis of the fixed maturities accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. Writedowns of fixed maturities were $46 million and $63 million for the three months ended June 30, 2004 and 2003, respectively, and $52 million and $239 million for the six months ended June 30, 2004 and 2003, respectively. The Company's three largest writedowns totaled $32 million and $25 million for the three months ended June 30, 2004 and 2003, respectively, and $32 million and $101 million for the six months ended June 30, 2004 and 2003, respectively. The circumstances that gave rise to these impairments were either financial restructurings or bankruptcy filings. During the three months ended June 30, 2004 and 2003, the Company sold fixed maturities with a fair value of $5,920 million and $3,543 million, respectively, at a loss of $113 million and $55 million, respectively. During the six months ended June 30, 2004 and 2003, the Company sold fixed maturities with a fair value of $8,878 million and $7,752 million, respectively, at a loss of $178 million and $120 million, respectively. The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by:
JUNE 30, 2004 ------------------------ GROSS UNREALIZED % OF LOSSES TOTAL ----------- ----- (DOLLARS IN MILLIONS) Less than 20% $1,735 96.6% 20% or more for less than six months 47 2.6 20% or more for six months or greater 15 0.8 ------ ------ Total $1,797 100.0% ====== ======
The gross unrealized loss related to the Company's fixed maturities at June 30, 2004 was $1,797 million. These fixed maturities mature as follows: 2% due in one year or less; 21% due in greater than one year to five years; 16% due in greater than five years to ten years; and 61% due in greater than ten years (calculated as a percentage of amortized cost). Additionally, such securities are concentrated by sector in U.S. corporates (33%); mortgage-backed (24%); and foreign corporates (14%); and are concentrated by industry in mortgage-backed (24%); utilities (12%); and finance (10%) (calculated as a percentage of gross unrealized loss). Non-investment grade securities represent 4% of the $66,940 million fair value and 8% of the $1,797 million gross unrealized loss. 69 The following table presents the amortized cost, gross unrealized losses and number of securities for fixed maturities where the estimated fair value had declined and remained below amortized cost by less than 20%, or 20% or more for:
JUNE 30, 2004 -------------------------------------------------------------------------- AMORTIZED COST GROSS UNREALIZED LOSSES NUMBER OF SECURITIES -------------------- ----------------------- -------------------- LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE --------- ------ --------- ------ ---------- ------ (DOLLARS IN MILLIONS) Less than six months $62,568 $ 140 $ 1,445 $ 47 4,761 40 Six months or greater but less than nine months 979 31 30 11 102 2 Nine months or greater but less than twelve months 1,883 -- 93 -- 221 1 Twelve months or greater 3,132 4 167 4 511 8 ------- ------- ------- ------- ------- ------- Total $68,562 $ 175 $ 1,735 $ 62 5,595 51 ======= ======= ======= ======= ===== =======
The category of fixed maturity securities where the estimated fair value has declined and remained below amortized cost by less than 20% matures as follows: 2% due in one year or less; 21% due in greater than one year to five years; 16% due in greater than five years to ten years; and 61% due in greater than ten years (calculated as a percentage of amortized cost). Additionally, such securities are concentrated by sector in U.S. corporates (33%); mortgage-backed (25%); and foreign corporates (14%); and are concentrated by industry in mortgage-backed (25%); utilities (12%); and finance (10%) (calculated as a percentage of gross unrealized loss). Non-investment grade securities represent 3% of the $66,827 million fair value and 7% of the $1,735 million gross unrealized loss. The category of fixed maturity securities where the estimated fair value has declined and remained below amortized cost by 20% or more for less than six months matures as follows: 4% due in one year or less; 45% due in greater than five years to ten years; and 51% due in greater than ten years (calculated as a percentage of amortized cost). Additionally, such securities are concentrated by sector in U.S. corporates (40%); foreign corporates (19%); and asset-backed (16%); and are concentrated by industry in asset-backed (16%); services (15%); and finance (10%) (calculated as a percentage of gross unrealized loss). Non-investment grade securities represent 45% of the $93 million fair value and 42% of the $47 million gross unrealized loss. The category of fixed maturity securities where the estimated fair value has declined and remained below amortized cost by 20% or more for six months or greater matures as follows: 86% due in greater than five years to ten years; and 14% due in greater than ten years (calculated as a percentage of amortized cost). Additionally, such securities are concentrated by sector in foreign government (73%); and asset-backed (21%); and are concentrated by industry in government (73%); and finance (5%) (calculated as a percentage of gross unrealized loss). Non-investment grade securities represent 97% of the $20 million fair value and 78% of the $15 million gross unrealized loss. The Company held five fixed maturity securities each with a gross unrealized loss at June 30, 2004 greater than $10 million. One of these securities represents 73% of the gross unrealized loss on fixed maturities where the estimated fair value had declined and remained below amortized cost by 20% or more for six months or greater. 70 Corporate Fixed Maturities. The table below shows the major industry types that comprise the corporate bond holdings at:
JUNE 30, 2004 DECEMBER 31, 2003 ---------------------- -------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Industrial $34,849 40.8% $34,474 40.9% Utility 10,493 12.3 9,955 11.8 Finance 14,665 17.2 14,287 17.0 Yankee/Foreign (1) 24,732 29.0 23,842 28.3 Other 612 0.7 1,675 2.0 ------- ----- ------- ----- Total $85,351 100.0% $84,233 100.0% ======= ===== ======= =====
- ---------- (1) Includes publicly traded, U.S. dollar-denominated debt obligations of foreign obligors, known as Yankee bonds, and other foreign investments. The Company maintains a diversified corporate bond portfolio across industries and issuers. The portfolio does not have exposure to any single issuer in excess of 1% of the total invested assets of the portfolio. At June 30, 2004, the Company's combined holdings in the ten issuers to which it had the greatest exposure totaled $4,663 million, which was less than 3% of the Company's total invested assets at such date. The exposure to the largest single issuer of corporate bonds held at June 30, 2004 was $632 million. The Company has hedged all of its material exposure to foreign currency risk in its invested assets. In the Company's international insurance operations, both its assets and liabilities are generally denominated in local currencies. Structured Securities. The following table shows the types of structured securities the Company held at:
JUNE 30, 2004 DECEMBER 31, 2003 -------------------- -------------------- ESTIMATED % OF ESTIMATED % OF FAIR VALUE TOTAL FAIR VALUE TOTAL ---------- ----- ---------- ----- (DOLLARS IN MILLIONS) Residential mortgage-backed securities: Pass-through securities $14,085 25.5% $15,427 28.4% Collateralized mortgage obligations 16,613 30.1 16,027 29.5 ------- ----- ------- ----- Total residential mortgage-backed securities 30,698 55.6 31,454 57.9 Commercial mortgage-backed securities 12,019 21.8 11,031 20.3 Asset-backed securities 12,444 22.6 11,863 21.8 ------- ----- ------- ----- Total $55,161 100.0% $54,348 100.0% ======= ===== ======= =====
The majority of the residential mortgage-backed securities are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. At June 30, 2004 and December 31, 2003, $29,838 million and $31,210 million, respectively, or 97.2% and 99.2%, respectively, of the residential mortgage-backed securities were rated Aaa/AAA by Moody's or S&P. At June 30, 2004 and December 31, 2003, $8,387 million and $6,992 million, respectively, or 69.8% and 63.4%, respectively, of the commercial mortgage-backed securities were rated Aaa/AAA by Moody's or S&P. Asset-backed securities, which include home equity loans, credit card receivables, collateralized debt obligations and automobile receivables, are purchased both to diversify the overall risks of the Company's fixed maturity assets and to provide income. The Company's asset-backed securities are diversified both by sector and by issuer. Credit card and home equity loan securitizations, each accounting for about 29% and 27% of the total holdings, respectively, constitute the largest exposures in the Company's asset-backed securities portfolio. Asset-backed securities generally have limited sensitivity to changes in interest rates. Approximately $8,195 71 million and $7,528 million, or 65.9% and 63.5%, of total asset-backed securities were rated Aaa/AAA by Moody's or S&P at June 30, 2004 and December 31, 2003, respectively. Structured Investment Transactions. The Company participates in structured investment transactions, primarily asset securitizations and structured notes. These transactions enhance the Company's total return of the investment portfolio principally by generating management fee income on asset securitizations and by providing equity-based returns on debt securities through structured notes and similar instruments. The Company sponsors financial asset securitizations of high yield debt securities, investment grade bonds and structured finance securities and also is the collateral manager and a beneficial interest holder in such transactions. As the collateral manager, the Company earns management fees on the outstanding securitized asset balance, which are recorded in income as earned. When the Company transfers assets to a bankruptcy-remote SPE and surrenders control over the transferred assets, the transaction is accounted for as a sale. Gains or losses on securitizations are determined with reference to the carrying amount of the financial assets transferred, which is allocated to the assets sold and the beneficial interests retained based on relative fair values at the date of transfer. Beneficial interests in securitizations are carried at fair value in fixed maturities. Income on these beneficial interests is recognized using the prospective method in accordance with EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Certain Investments ("EITF 99-20"). The SPEs used to securitize assets are not consolidated by the Company because the Company has determined that it is not the primary beneficiary of these entities based on the framework provided in FIN 46 and the December 2003 revision FIN 46(r). Prior to the adoption of FIN 46(r), such SPEs were not consolidated because they did not meet the criteria for consolidation under previous accounting guidance. The Company purchases or receives beneficial interests in SPEs, which generally acquire financial assets, including corporate equities, debt securities and purchased options. The Company has not guaranteed the performance, liquidity or obligations of the SPEs and the Company's exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company uses the beneficial interests as part of its risk management strategy, including asset-liability management. These SPEs are not consolidated by the Company because the Company has determined that it is not the primary beneficiary of these entities based on the framework provided in FIN 46(r). Prior to the adoption of FIN 46(r), such SPEs were not consolidated because they did not meet the criteria for consolidation under previous accounting guidance. These beneficial interests are generally structured notes, as defined by EITF Issue No. 96-12, Recognition of Interest Income and Balance Sheet Classification of Structured Notes, which are included in fixed maturities, and their income is recognized using the retrospective interest method or the level yield method, as appropriate. Impairments of these beneficial interests are included in net investment gains (losses). MORTGAGE LOANS ON REAL ESTATE The Company's mortgage loans on real estate are collateralized by commercial, agricultural and residential properties. Mortgage loans on real estate comprised 12.4% and 11.8% of the Company's total cash and invested assets at June 30, 2004 and December 31, 2003, respectively. The carrying value of mortgage loans on real estate 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 the Company's mortgage loans on real estate by type at:
JUNE 30, 2004 DECEMBER 31, 2003 --------------------- ----------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) Commercial $22,005 78.3% $20,300 77.3% Agricultural 5,377 19.1 5,327 20.3 Residential 736 2.6 622 2.4 ------- ----- ------- ----- Total $28,118 100.0% $26,249 100.0% ======= ===== ======= =====
72 Commercial Mortgage Loans. The Company diversifies its commercial mortgage loans by both geographic region and property type. The following table presents the distribution across geographic regions and property types for commercial mortgage loans at:
JUNE 30, 2004 DECEMBER 31, 2003 --------------------- -------------------- CARRYING % OF CARRYING % OF VALUE TOTAL VALUE TOTAL -------- ----- -------- ----- (DOLLARS IN MILLIONS) REGION South Atlantic $ 5,247 23.8% $ 4,978 24.5% Pacific 5,327 24.2 5,005 24.7 Middle Atlantic 3,513 16.0 3,455 17.0 East North Central 2,294 10.4 1,821 9.0 New England 1,302 5.9 1,278 6.3 West South Central 1,470 6.7 1,370 6.8 Mountain 785 3.6 740 3.6 West North Central 625 2.8 619 3.0 International 1,064 4.8 836 4.1 East South Central 278 1.3 198 1.0 Other 100 0.5 -- 0.0 ------- ----- ------- ----- Total $22,005 100.0% $20,300 100.0% ======= ===== ======= ===== PROPERTY TYPE Office $10,301 46.8% $ 9,170 45.2% Retail 5,221 23.7 5,006 24.7 Apartments 3,001 13.6 2,832 13.9 Industrial 1,951 8.9 1,911 9.4 Hotel 1,098 5.0 1,032 5.1 Other 433 2.0 349 1.7 ------- ----- ------- ----- Total $22,005 100.0% $20,300 100.0% ======= ===== ======= =====
Restructured, Delinquent or Under Foreclosure and Potentially Delinquent. The Company monitors its mortgage loan investments on an ongoing basis, including reviewing loans that are restructured, delinquent or under foreclosure and potentially delinquent. These loan classifications are consistent with those used in industry practice. The Company defines potentially delinquent loans as loans that, in management's opinion, have a high probability of becoming delinquent. The Company defines delinquent mortgage loans, consistent with industry practice, as loans in which two or more interest or principal payments are past due. The Company defines mortgage loans under foreclosure as loans in which foreclosure proceedings have formally commenced. The Company defines restructured mortgage loans as loans in which the Company, for economic or legal reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Company reviews all mortgage loans on an ongoing basis. These reviews may include an analysis of the property financial statements and rent roll, lease rollover analysis, property inspections, market analysis and tenant creditworthiness. The Company establishes valuation allowances for loans that it deems impaired. The Company's valuation allowance is established both on a loan specific basis for those loans where a property or market specific risk has been identified that could likely result in a future default, as well as for pools of loans with similar high risk characteristics where a property specific or market risk has not been identified. The Company bases 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. The Company records valuation allowances as investment losses. The Company records subsequent adjustments to allowances as investment gains (losses). 73 The following table presents the amortized cost and valuation allowance for commercial mortgage loans distributed by loan classification at:
JUNE 30, 2004 DECEMBER 31, 2003 ------------------------------------------------ ---------------------------------------------- % OF % OF AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST ------- ----- --------- ---- ------- ----- --------- ---- (DOLLARS IN MILLIONS) Performing $22,003 99.4% $ 91 0.4% $20,315 99.5% $ 95 0.5% Restructured 61 0.3 18 29.5% 77 0.4 23 29.9% Delinquent or under foreclosure 13 0.1 3 23.1% -- -- -- --% Potentially delinquent 47 0.2 7 14.9% 30 0.1 4 13.3% ------- ----- ---- ------- ----- ---- Total $22,124 100.0% $119 0.5% $20,422 100.0% $122 0.6% ======= ===== ==== ======= ===== ====
- ---------- (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:
SIX MONTHS ENDED JUNE 30, 2004 --------------------- (DOLLARS IN MILLIONS) Balance, beginning of period $ 122 Additions -- Deductions (3) ----- Balance, end of period $ 119 =====
Agricultural Mortgage Loans. The Company diversifies its agricultural mortgage loans by both geographic region and product type. Approximately 68.4% of the $5,377 million of agricultural mortgage loans outstanding at June 30, 2004 were subject to rate resets prior to maturity. A substantial portion of these loans generally is successfully renegotiated and remain outstanding to maturity. The process and policies for monitoring the agricultural mortgage loans and classifying them by performance status are generally the same as those for the commercial loans. The following table presents the amortized cost and valuation allowances for agricultural mortgage loans distributed by loan classification at:
JUNE 30, 2004 DECEMBER 31, 2003 ----------------------------------------------- ------------------------------------------------ % OF % OF AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED COST (1) TOTAL ALLOWANCE COST COST (1) TOTAL ALLOWANCE COST -------- ----- --------- -------- -------- ----- --------- -------- (DOLLARS IN MILLIONS) Performing $5,199 96.6% $ -- --% $5,162 96.7% $ -- --% Restructured 77 1.4 1 1.3% 111 2.1 1 0.9% Delinquent or under foreclosure 109 2.0 9 8.3% 36 0.7 2 5.6% Potentially delinquent 2 -- -- --% 24 0.5 3 12.5% ------ ----- ---- ------ ----- ---- Total $5,387 100.0% $ 10 0.2% $5,333 100.0% $ 6 0.1% ====== ===== ==== ====== ===== ====
- ---------- (1) Amortized cost is equal to carrying value before valuation allowances. 74 The following table presents the changes in valuation allowances for agricultural mortgage loans for the:
SIX MONTHS ENDED JUNE 30, 2004 --------------------- (DOLLARS IN MILLIONS) Balance, beginning of period $ 6 Additions 4 Deductions - ----- Balance, end of period $ 10 =====
REAL ESTATE AND REAL ESTATE JOINT VENTURES The Company's real estate and real estate joint venture investments consist of commercial properties located primarily throughout the U.S. At June 30, 2004 and December 31, 2003, the carrying value of the Company's real estate, real estate joint ventures and real estate held-for-sale was $4,154 million and $4,680 million, respectively, or 1.8%, and 2.2% of total cash and invested assets, respectively. The carrying value of real estate is stated at depreciated cost net of impairments and valuation allowances. The carrying value of real estate joint ventures is stated at the Company's equity in the real estate joint ventures net of impairments and valuation allowances. The following table presents the carrying value of the Company's real estate, real estate joint ventures, real estate held-for-sale and real estate acquired upon foreclosure at:
JUNE 30, 2004 DECEMBER 31, 2003 --------------------- --------------------- CARRYING CARRYING TYPE VALUE % OF TOTAL VALUE % OF TOTAL -------- ---------- -------- ---------- (DOLLARS IN MILLIONS) Real estate held-for-investment $3,779 91.0 % $3,531 75.4 % Real estate joint ventures held-for-investment 329 7.9 315 6.7 Foreclosed real estate held-for-investment 2 -- 2 0.1 ------ ----- ------ ----- 4,110 98.9 3,848 82.2 ------ ----- ------ ----- Real estate held-for-sale 44 1.1 831 17.8 Foreclosed real estate held-for-sale -- -- 1 -- ------ ----- ------ ----- 44 1.1 832 17.8 ------ ----- ------ ----- Total real estate, real estate joint ventures and real estate held-for-sale $4,154 100.0 % $4,680 100.0 % ====== ===== ====== =====
The Company's carrying value of real estate held-for-sale, including real estate acquired upon foreclosure of commercial and agricultural mortgage loans, in the amounts of $44 million and $832 million at June 30, 2004 and December 31, 2003, respectively, are net of valuation allowances of $0 million and $12 million, respectively. There were no impairments at June 30, 2004 and impairments of $2 million at December 31, 2003. The Company records 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. Certain of the Company's investments in real estate joint ventures meet the definition of a VIE under FIN 46(r). See "-- Variable Interest Entities." EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS The Company's carrying value of equity securities, which primarily consist of investments in common and preferred stocks and mutual fund interests, was $1,744 million and $1,598 million at June 30, 2004 and December 31, 2003, respectively. Equity securities include private equity securities with an estimated fair value of $537 million and $432 million at June 30, 2004 and December 31, 2003, respectively. The carrying value of the other limited partnership interests (which primarily represent ownership interests in pooled investment funds that make private equity investments in companies in the U.S. and overseas) was $2,805 million and $2,600 75 million at June 30, 2004 and December 31, 2003, respectively. The Company classifies its investments in common stocks as available-for-sale and marks them to market, except for non-marketable private equities, which are generally carried at cost. The Company uses the equity method of accounting for investments in limited partnership interests in which it has more than a minor interest, has influence over the partnership's operating and financial policies and does not have a controlling interest. The Company uses the cost method for minor interest investments and when it has virtually no influence over the partnership's operating and financial policies. The Company's investments in equity securities excluding partnerships represented 0.8% and 0.7% of cash and invested assets at June 30, 2004 and December 31, 2003, respectively. Some of the Company's investments in other limited partnership interests meet the definition of a VIE under FIN 46(r). See " -- Variable Interest Entities." The following tables set forth the cost, gross unrealized gain or loss and estimated fair value of the Company's equity securities, as well as the percentage of the total equity securities at:
JUNE 30, 2004 ---------------------------------------------------- GROSS UNREALIZED ---------------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL ------ ------ ------ ---------- ------ (DOLLARS IN MILLIONS) Equity Securities: Common stocks $ 848 $ 315 $ 20 $1,143 65.5 % Nonredeemable preferred stocks 589 21 9 601 34.5 ------ ------ ------ ------ ----- Total equity securities $1,437 $ 336 $ 29 $1,744 100.0 % ====== ====== ====== ====== =====
DECEMBER 31, 2003 ---------------------------------------------------- GROSS UNREALIZED ---------------- ESTIMATED % OF COST GAIN LOSS FAIR VALUE TOTAL ------ ------ ------ ---------- ------ (DOLLARS IN MILLIONS) Equity Securities: Common stocks $ 620 $ 334 $ 2 $ 952 59.6 % Nonredeemable preferred stocks 602 48 4 646 40.4 ------ ------ ------ ------ ----- Total equity securities $1,222 $ 382 $ 6 $1,598 100.0 % ====== ====== ====== ====== =====
Equity Security Impairment. The Company classifies all of its equity securities as available-for-sale and marks them to market through other comprehensive income. All securities with gross unrealized losses at the consolidated balance sheet date are subjected to the Company's process for identifying other-than-temporary impairments. The Company writes down to fair value securities that it deems to be other-than-temporarily impaired in the period the securities are deemed to be so impaired. The assessment of whether such impairment has occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors, as described below, about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to, the following: - length of time and the extent to which the market value has been below cost; - potential for impairments of securities when the issuer is experiencing significant financial difficulties, including a review of all securities of the issuer, including its known subsidiaries and affiliates, regardless of the form of the Company's ownership; - potential for impairments in an entire industry sector or sub-sector; - potential for impairments in certain economically depressed geographic locations; 76 - potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources; - the Company's ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an amount equal to or greater than cost; and - other subjective factors, including concentrations and information obtained from regulators and rating agencies. Equity securities or other limited partnership interests which are deemed to be other-than-temporarily impaired are written down to fair value. The Company records writedowns as investment losses and adjusts the cost basis of the equity securities accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. Writedowns of equity securities and other limited partnership interests were $4 million and $13 million for the three months ended June 30, 2004 and 2003, respectively, and $10 million and $90 million for the six months ended June 30, 2004 and 2003, respectively. During the three months ended June 30, 2004 and 2003, the Company sold equity securities with an estimated fair value of $5 million and $22 million, respectively, at a loss of $3 million and $1 million, respectively. During the six months ended June 30, 2004 and 2003, the Company sold equity securities with an estimated fair value of $88 million and $42 million, at a loss of $14 million and $6 million, respectively. The gross unrealized loss related to the Company's equity securities at June 30, 2004 was $29 million. Such securities are concentrated by security type in mutual funds (39%); and preferred stock (35%) and are concentrated by industry in domestic broad market mutual funds (39%); and financial (29%) (calculated as a percentage of gross unrealized loss). The following table presents the cost, gross unrealized losses and number of securities for equity securities where the estimated fair value had declined and remained below cost by less than 20%, or 20% or more for:
JUNE 30, 2004 ------------------------------------------------------------------------------ COST GROSS UNREALIZED LOSSES NUMBER OF SECURITIES ---------------------- ----------------------- ---------------------- LESS THAN 20% OR LESS THAN 20% OR LESS THAN 20% OR 20% MORE 20% MORE 20% MORE --------- ------ --------- ------ --------- ------- (DOLLARS IN MILLIONS) Less than six months $ 375 $ 40 $ 13 $ 16 1,168 206 Six months or greater but less than nine months 2 -- -- -- 4 2 Nine months or greater but less than twelve months 1 -- -- -- 2 -- Twelve months or greater 2 -- -- -- 4 -- ----- ----- ----- ----- ----- --- Total $ 380 $ 40 $ 13 $ 16 1,178 208 ===== ===== ===== ===== ===== ===
The Company's review of its equity security exposure includes the analysis of total gross unrealized losses by three categories of securities: (i) securities where the estimated fair value had declined and remained below cost by less than 20%; (ii) securities where the estimated fair value had declined and remained below cost by 20% or more for less than six months; and (iii) securities where the estimated fair value had declined and remained below cost by 20% or more for six months or greater. While all of these securities are monitored for potential impairment, the Company's experience indicates that the first two categories do not present as great a risk of impairment, and often, fair values recover over time as the factors that caused the declines improve. The following table presents the total gross unrealized losses for equity securities at June 30, 2004 where the estimated fair value had declined and remained below cost by:
JUNE 30, 2004 ------------------------ GROSS UNREALIZED % OF LOSSES TOTAL ---------- ------------ (DOLLARS IN MILLIONS) Less than 20% $ 13 44.8 % 20% or more for less than six months 16 55.2 20% or more for six months or greater -- -- ----- ------- Total $ 29 100.0 % ===== =======
77 Equity securities where the estimated fair value has declined and remained below cost by less than 20% are concentrated by security type in preferred stock (77%); and mutual funds (12%); and concentrated by industry in financial (67%); and domestic broad market mutual funds (12%) (calculated as a percentage of gross unrealized loss). Equity securities where the estimated fair value has declined and remained below cost by 20% or more for less than six months are concentrated by security type in mutual funds (61%); and common stock (38%) and concentrated by industry in domestic broad market mutual funds (61%) (calculated as a percentage of gross unrealized loss). The significant factors considered at June 30, 2004 in the review of equity securities for other-than-temporary impairment were a result of generally difficult economic and market conditions. The Company did not hold any equity securities with a gross unrealized loss at June 30, 2004 greater than $5 million. OTHER INVESTED ASSETS The Company's other invested assets consist principally of leveraged leases and funds withheld at interest of $4.3 billion and $3.9 billion at June 30, 2004 and December 31, 2003, respectively. The leveraged leases are recorded net of non-recourse debt. The Company participates in lease transactions, which are diversified by industry, asset type and geographic area. The Company regularly reviews residual values and writes down residuals to expected values as needed. Funds withheld represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets supporting the reinsured policies equal to the net statutory reserves are withheld and continue to be legally owned by the ceding company. Other invested assets also include the fair value of embedded derivatives related to funds withheld and modified coinsurance contracts. Interest accrues to these funds withheld at rates defined by the treaty terms and may be contractually specified or directly related to the investment portfolio. The Company's other invested assets represented 2.3% and 2.1% of cash and invested assets at June 30, 2004 and December 31, 2003, respectively. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative instruments to manage risk through one of five principal strategies, the hedging of: (i) liabilities; (ii) invested assets; (iii) portfolios of assets or liabilities; (iv) net investments in certain foreign operations; and (v) firm commitments and forecasted transactions. Additionally, the Company enters into income generation and replication derivative transactions as permitted by its insurance subsidiaries' Derivatives Use Plans approved by the applicable state insurance departments. The Company's derivative hedging strategy employs a variety of instruments, including financial futures, financial forwards, interest rate swaps, caps and floors, credit default and foreign currency swaps and foreign currency forwards and options. The table below provides a summary of the notional amount and fair value of derivative financial instruments held at:
JUNE 30, 2004 DECEMBER 31, 2003 ---------------------------------------- ------------------------------------- CURRENT MARKET CURRENT MARKET OR FAIR VALUE OR FAIR VALUE NOTIONAL ------------------------- NOTIONAL --------------------- AMOUNT ASSETS LIABILITIES AMOUNT ASSETS LIABILITIES -------- ------- ----------- -------- ------- ----------- (DOLLARS IN MILLIONS) Financial futures $ 806 $ 1 $ 9 $ 1,348 $ 8 $ 30 Interest rate swaps 13,235 264 79 9,944 189 36 Floors 325 1 -- 325 5 -- Caps 9,120 26 -- 9,345 29 -- Financial forwards 350 1 1 1,310 2 3 Foreign currency swaps 6,677 27 671 4,710 9 796 Options 3,731 4 -- 6,065 7 -- Foreign currency forwards 848 3 8 695 5 32 Credit default swaps 1,645 10 4 615 2 1 Synthetic GICs 5,459 -- -- 5,177 -- -- Other 150 -- -- -- -- -- ------- ------- ------- ------- ------- ------- Total contractual commitments $42,346 $ 337 $ 772 $39,534 $ 256 $ 898 ======= ======= ======= ======= ======= =======
78 VARIABLE INTEREST ENTITIES The Company has adopted the provisions of FIN 46 and FIN 46(r). See "-- Application of Recent Accounting Pronouncements." The adoption of FIN 46(r) required the Company to consolidate certain VIEs for which it is the primary beneficiary. The following table presents the total assets of and maximum exposure to loss relating to VIEs for which the Company has concluded that (i) it is the primary beneficiary and which are consolidated in the Company's unaudited interim condensed consolidated financial statements at June 30, 2004, and (ii) it holds significant variable interests but it is not the primary beneficiary and which have not been consolidated:
JUNE 30, 2004 ------------------------------------------------------ PRIMARY BENEFICIARY NOT PRIMARY BENEFICIARY ------------------------ ----------------------- MAXIMUM MAXIMUM TOTAL EXPOSURE TO TOTAL EXPOSURE TO ASSETS (1) LOSS (2) ASSETS (1) LOSS (2) ---------- ----------- ---------- ----------- (DOLLARS IN MILLIONS) Asset-backed securitizations and collateralized debt obligations $ -- $ -- $2,355 $ 16 Real estate joint ventures (3) 16 13 75 -- Other limited partnerships (4) 82 84 587 60 ------ ------ ------ ------ Total $ 98 $ 97 $3,017 $ 76 ====== ====== ====== ======
- -------- (1) The assets of the asset-backed securitizations and collateralized debt obligations are reflected at fair value as of June 30, 2004. The assets of the real estate joint ventures and other limited partnerships are reflected at the carrying amounts at which such assets would have been reflected on the Company's balance sheet had the Company consolidated the VIE from the date of its initial investment in the entity. (2) The maximum exposure to loss of the asset-backed securitizations and collateralized debt obligations is equal to the carrying amounts of retained interests. In addition, the Company provides collateral management services for certain of these structures for which it collects a management fee. The maximum exposure to loss relating to real estate joint ventures and other limited partnerships is equal to the carrying amounts plus any unfunded commitments, reduced by amounts guaranteed by other partners. (3) Real estate joint ventures include partnerships and other ventures, which engage in the acquisition, development, management and disposal of real estate investments. (4) Other limited partnerships include partnerships established for the purpose of investing in real estate funds, public and private debt and equity securities, as well as limited partnerships established for the purpose of investing in low-income housing that qualifies for federal tax credits. SECURITIES LENDING The Company participates in a securities lending program whereby blocks of securities, which are 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 $26,842 million and $25,121 million and an estimated fair value of $27,484 million and $26,387 million were on loan under the program at June 30, 2004 and December 31, 2003, respectively. The Company was liable for cash collateral under its control of $28,132 million and $27,083 million at June 30, 2004 and December 31, 2003, respectively. Security collateral on deposit from customers may not be sold or repledged and is not reflected in the consolidated financial statements. SEPARATE ACCOUNTS The Company manages each separate account's assets in accordance with the prescribed investment policy that applies to that specific separate account. The Company establishes separate accounts on a single client and multi-client commingled basis in conformity with insurance laws. Effective with the adoption of SOP 03-1, the Company reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the Company's general account liabilities; (iii) investments are 79 directed by the contractholder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contractholder. The Company reports separate account assets meeting such criteria at their fair value. Investment performance (including investment income, net investment gains (losses) and changes in unrealized gains (losses) and the corresponding amounts credited to contractholders are offset within the same line in the unaudited interim condensed consolidated statements of income. The Company's revenues reflect fees charged to the separate accounts, including mortality charges, risk charges, policy administration fees, investment management fees and surrender charges. Separate accounts not meeting the above criteria are combined on a line-by-line basis with the Company's general account assets, liabilities, revenues and expenses. Effective January 1, 2004, in accordance with the SOP 03-1 separate account reporting criteria, separate account assets with a fair value of $1.7 billion were reclassified to general account investments with a corresponding transfer of separate account liabilities to future policy benefits and policyholder account balances. See "--Application of Recent Accounting Pronouncements." 80 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has material exposure to interest rate, equity market and foreign currency exchange risk. The Company analyzes interest rate risk using various models including multi-scenario cash flow projection models that forecast cash flows of the liabilities and their supporting investments, including derivative instruments. The Company's market risk exposure at June 30, 2004 is relatively unchanged in amount from that reported on December 31, 2003, a description of which may be found in the 2003 Annual Report on Form 10-K. ITEM 4. CONTROLS AND PROCEDURES The Holding Company's management, with the participation of the Holding Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Holding Company's disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in the Holding Company's internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Holding Company's internal control over financial reporting. 81 PART II - OTHER INFORMATION ITEM I. LEGAL PROCEEDINGS The following should be read in conjunction with Note 6 to the unaudited interim condensed consolidated financial statements in Part I of this Report. The Company is a defendant in a large number of litigation matters. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the United States permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants to not specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrate to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Thus, unless stated below, the specific monetary relief sought is not noted. Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be inherently impossible to ascertain with any degree of certainty. Inherent uncertainties can include how fact finders will view individually and in their totality documentary evidence, the credibility and effectiveness of witnesses' testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. In this context, unless stated below, estimates of possible additional losses or ranges of loss for particular matters can not in the ordinary course be made with a reasonable degree of certainty. Liabilities are established when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. SALES PRACTICES CLAIMS As previously disclosed, over the past several years, Metropolitan Life, New England Mutual Life Insurance Company ("New England Mutual") and General American Life Insurance Company ("General American") have faced numerous claims, including class action lawsuits, alleging improper marketing and sales of individual life insurance policies or annuities. These lawsuits are generally referred to as "sales practices claims." Settlements have been reached in the sales practices class actions against Metropolitan Life, New England Mutual and General American. Certain class members have opted out of these class action settlements and have brought or continued non-class action sales practices lawsuits. In addition, other sales practices lawsuits have been brought. As of June 30, 2004, there are approximately 331 sales practices lawsuits pending against Metropolitan Life; approximately 40 sales practices lawsuits pending against New England Mutual, New England Life Insurance Company, and New England Securities Corporation (collectively, "New England"); and approximately 51 sales practices lawsuits pending against General American. The Company believes adequate provision has been made in its unaudited interim condensed consolidated financial statements for all probable and reasonably estimable losses for sales practices claims against Metropolitan Life, New England and General American. ASBESTOS-RELATED CLAIMS As previously reported, Metropolitan Life received approximately 60,300 asbestos-related claims in 2003. During the first six months of 2004 and 2003, Metropolitan Life received approximately 13,560 and 48,000 asbestos-related claims, respectively. Metropolitan Life also has been named as a defendant in a small number of silicosis, welding and mixed dust cases. The cases are pending in Mississippi, Texas, Ohio, Pennsylvania, West Virginia, Louisiana, Kentucky, Georgia, Alabama, Illinois, Colorado, Indiana and Arkansas. The Company intends to defend itself vigorously against these cases. Metropolitan Life continues to study its claims experience, review external literature regarding asbestos claims experience in the United States and consider numerous variables that can affect its asbestos liability exposure, including bankruptcies of other companies involved in asbestos litigation and legislative and judicial developments, to identify trends and to assess their impact on the recorded asbestos liability. 82 The Company believes adequate provision has been made in its unaudited interim condensed consolidated financial statements for all probable and reasonably estimable losses for asbestos-related claims. The ability of Metropolitan Life to estimate its ultimate asbestos exposure is subject to considerable uncertainty due to numerous factors. The availability of data is limited and it is difficult to predict with any certainty numerous variables that can affect liability estimates, including the number of future claims, the cost to resolve claims, the disease mix and severity of disease, the jurisdiction of claims filed, tort reform efforts and the impact of any possible future adverse verdicts and their amounts. The number of asbestos cases that may be brought or the aggregate amount of any liability that Metropolitan Life may ultimately incur is uncertain. Accordingly, it is reasonably possible that the Company's total exposure to asbestos claims may be greater than the liability recorded by the Company in its unaudited interim condensed consolidated financial statements and that future charges to income may be necessary. While the potential future charges could be material in particular quarterly or annual periods in which they are recorded, based on information currently known by management, it does not believe any such charges are likely to have a material adverse effect on the Company's consolidated financial position. DEMUTUALIZATION ACTIONS Several lawsuits were brought in 2000 challenging the fairness of Metropolitan Life's plan of reorganization, as amended (the "plan") and the adequacy and accuracy of Metropolitan Life's disclosure to policyholders regarding the plan. These actions named as defendants some or all of Metropolitan Life, the Holding Company, the individual directors, the New York Superintendent of Insurance (the "Superintendent") and the underwriters for MetLife, Inc.'s initial public offering, Goldman Sachs & Company and Credit Suisse First Boston. Five purported class actions pending in the New York State court in New York County were consolidated within the commercial part of the New York State court. In addition, there remained a separate purported class action in New York State court in New York County. On February 21, 2003, the defendants' motions to dismiss both the consolidated action and separate action were granted; leave to replead as a proceeding under Article 78 of New York's Civil Practice Law and Rules has been granted in the separate action. On April 27, 2004, the appellate court modified the trial court's order by reinstating certain claims against Metropolitan Life, the Holding Company and the individual directors. Three purported class actions were filed in the United States District Court for the Eastern District of New York claiming violation of the Securities Act of 1933 in connection with the plan. The plaintiffs in these actions, which have been consolidated, claim that the Policyholder Information Booklets relating to the plan failed to disclose certain material facts and seek rescission and compensatory damages. Metropolitan Life's motion to dismiss these three cases was denied in 2001. On February 4, 2003, plaintiffs filed a consolidated amended complaint adding a fraud claim under the Securities Exchange Act of 1934. Plaintiffs served a second consolidated amended complaint on April 2, 2004, and continue to assert violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. On June 22, 2004, the court denied the defendants' motion to dismiss the claim of violation of the Securities Exchange Act of 1934. Metropolitan Life, the Holding Company and the individual defendants believe they have meritorious defenses to the plaintiffs' claims and are contesting vigorously all of the plaintiffs' claims in these actions. On April 30, 2004, a lawsuit was filed in New York state court in New York County against the Holding Company and Metropolitan Life on behalf of a proposed class comprised of the settlement class in the Metropolitan Life sales practices class action settlement approved in December 1999 by the United States District Court for the Western District of Pennsylvania. The complaint challenges the treatment of the cost of the sales practices settlement in the demutualization of Metropolitan Life and asserts claims of breach of fiduciary duty, common law fraud, and unjust enrichment. Plaintiffs seek compensatory and punitive damages, as well as attorneys' fees and costs. On May 24, 2004, the Holding Company and Metropolitan Life served a motion to dismiss the complaint. In October 2003, the United States District Court for the Western District of Pennsylvania dismissed plaintiffs' similar complaint alleging that the demutualization breached the terms of the 1999 settlement agreement and unjustly enriched the Holding Company and Metropolitan Life. In January 2004, plaintiffs' appeal of that decision to the United States Court of Appeals for the Third Circuit was dismissed. The Holding Company and Metropolitan Life intend to contest this matter vigorously. RACE-CONSCIOUS UNDERWRITING CLAIMS As previously reported, insurance departments in a number of states initiated inquiries in 2000 about possible race-conscious underwriting of life insurance. These inquiries generally have been directed to all life insurers licensed in their respective states, including Metropolitan Life and certain of its affiliates. The New York Insurance Department concluded its examination of Metropolitan Life concerning possible past race-conscious underwriting practices. Four purported class action lawsuits filed against Metropolitan Life in 2000 and 2001 alleging racial discrimination in the marketing, sale, and administration of life insurance policies were consolidated in the United States District Court for the Southern District of New York. On April 28, 2003, the United States 83 District Court approved a class action settlement of the consolidated actions. Several persons filed notices of appeal from the order approving the settlement, but subsequently the appeals were dismissed. Metropolitan Life also entered into settlement agreements to resolve the regulatory examination. Twenty lawsuits involving approximately 140 plaintiffs were filed in federal and state court in Alabama, Mississippi and Tennessee alleging federal and/or state law claims of racial discrimination in connection with the sale, formation, administration or servicing of life insurance policies. Metropolitan Life resolved the claims of some of these plaintiffs through settlement, and some additional plaintiffs have voluntarily dismissed their claims. Metropolitan Life resolved claims of some additional persons who opted out of the settlement class referenced in the preceding paragraph but who had not filed suit. The actions filed in Alabama and Tennessee have been dismissed; two actions filed in Mississippi remain pending. Metropolitan Life is contesting plaintiffs' claims vigorously. The Company believes that adequate provision has been made to cover the costs associated with the resolution of these matters. OTHER A purported class action in which two policyholders seek to represent a class of owners of participating life insurance policies is pending in state court in New York. Plaintiffs assert that Metropolitan Life breached their policies in the manner in which it allocated investment income across lines of business during a period ending with the 2000 demutualization. In August 2003, an appellate court affirmed the dismissal of fraud claims in this action. Plaintiffs have served their motion to certify a litigation class. MetLife is vigorously defending the case. Regulatory bodies have contacted the Company and have requested information relating to market timing and late trading of mutual funds and variable insurance products and, generally, the marketing of products. The Company believes that many of these inquiries are similar to those made to many financial services companies as part of industry-wide investigations by various regulatory agencies. State Street Research Investment Services, one of the Company's indirect broker/dealer subsidiaries, has entered into a settlement with the NASD resolving all outstanding issues relating to its investigation. The SEC has commenced an investigation with respect to market timing and late trading in a limited number of privately-placed variable insurance contracts that were sold through General American. As previously reported, in May 2004, General American received a so-called "Wells Notice" stating that the SEC staff is considering recommending that the SEC bring a civil action alleging violations of the U.S. securities laws against General American. Under the SEC procedures, General American can avail itself of the opportunity to respond to the SEC staff before it makes a formal recommendation regarding whether any action alleging violations of the U.S. securities laws should be considered. General American has responded to the Wells Notice. The Company is fully cooperating with regard to these information requests and investigations. The Company at the present time is not aware of any systemic problems with respect to such matters that may have a material adverse effect on the Company's consolidated financial position. As previously reported, the Company has received from the Office of the Attorney General of the State of New York a subpoena seeking information regarding certain compensation agreements between insurance brokers and the Company. The Company is fully cooperating with the inquiry. Various litigation, claims and assessments against the Company, in addition to those discussed above and those otherwise provided for in the Company's unaudited interim condensed 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 make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations. SUMMARY 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, except as noted above in connection with specific matters. In some of the matters referred to above, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's consolidated financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. 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 84 certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. 85 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Purchases of common stock made by or on behalf of the Holding Company during the three months ended June 30, 2004 are set forth below: ISSUER PURCHASES OF EQUITY SECURITIES
(D) MAXIMUM NUMBER (OR APPROXIMATE DOLLAR (C) TOTAL NUMBER OF VALUE) OF SHARES THAT (B) AVERAGE PRICE SHARES PURCHASED AS PART MAY YET BE PURCHASED (A) TOTAL NUMBER OF PAID OF PUBLICLY ANNOUNCED UNDER THE PLANS OR SHARES PURCHASED(1) PER SHARE PLANS OR PROGRAMS(2) PROGRAMS PERIOD ------------------- ----------------- ------------------------ --------------------- - ------------------------ April 1 - April 30, 2004 - - - $ 644,406,343 May 1 - May 31, 2004 4,004,000 $ 33.89 4,004,000 $ 508,730,688 June 1 - June 30, 2004 2,081,881 $ 35.94 2,081,881 $ 433,901,324 Total 6,085,881 $ 34.59 6,085,881 $ 433,901,324
(1) During the periods reported above, there were no shares of Common Stock which were repurchased by the Holding Company other than through a publicly announced plan or program. (2) On February 19, 2002, the Holding Company's Board of Directors authorized a $1 billion common stock repurchase program. Under this authorization, the Holding Company may purchase its common stock from the MetLife Policyholder Trust, in the open market and in privately negotiated transactions. 86 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information called for by this Item is incorporated herein by reference to Part II, Item 4. "Submission of Matters to a Vote of Security Holders" in MetLife, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004. 87 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.2 MetLife, Inc. Amended and Restated By-laws (effective July 27, 2004). 10.1 Five-Year Credit Agreement, dated as of April 23, 2004, among MetLife, Inc., Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto. 10.2 364-Day Credit Agreement, dated as of April 23, 2004, among MetLife, Inc., Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K To date, the following current reports were filed on Form 8-K: 1. Form 8-K filed May 14, 2004 (dated May 14, 2004) attaching a press release announcing receipt by MetLife, Inc.'s subsidiary, General American Life Insurance Company, of a "Wells Notice" from the SEC. 2. Form 8-K filed June 3, 2004 (dated June 3, 2004) regarding offering of 5.50% senior notes and 6.375% senior notes and attaching relevant documentation. 3. Form 8-K filed June 14, 2004 (dated June 11, 2004) attaching a press release announcing receipt by MetLife, Inc. of a subpoena from the Office of the Attorney General of the State of New York. 4. Form 8-K filed June 22, 2004 (dated June 22, 2004) attaching a press release announcing certain organizational changes. 5. Form 8-K filed June 29, 2004 (dated June 29, 2004) attaching a press release announcing the resignation of John C. Danforth from the boards of directors of MetLife, Inc. and Metropolitan Life Insurance Company. 6. Form 8-K filed July 23, 2004 (dated July 23, 2004) regarding offering of additional 5.50% senior notes and additional 6.375% senior notes and attaching relevant documentation. 7. Form 8-K filed July 30, 2004 (dated July 29, 2004) regarding the issuance by the Internal Revenue Service of its audit report on Metropolitan Life Insurance Company and its subsidiaries for the years 1997-1999. 88 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. METLIFE, INC. By: /s/ Joseph J. Prochaska, Jr. -------------------------------- Name: Joseph J. Prochaska, Jr. Title: Senior Vice-President, Finance Operations and Chief Accounting Officer (Authorized Signatory and Chief Accounting Officer) Date: August 3, 2004 89 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT NAME ------- ------------ 3.2 MetLife, Inc. Amended and Restated By-laws (effective July 27, 2004). 10.1 Five-Year Credit Agreement, dated as of April 23, 2004, among MetLife, Inc., Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto. 10.2 364-Day Credit Agreement, dated as of April 23, 2004, among MetLife, Inc., Metropolitan Life Insurance Company, MetLife Funding, Inc. and the other parties signatory thereto. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
90 EX-3.2 2 y99162exv3w2.txt AMENDED AND RESTATED BY-LAWS Exhibit 3.2 ================================================================================ METLIFE, INC. AMENDED AND RESTATED BY-LAWS ---------------------------- Effective July 27, 2004 ================================================================================ METLIFE, INC. BY-LAWS TABLE OF CONTENTS
SECTION PAGE - ------- ---- ARTICLE I STOCKHOLDERS 1.01. Annual Meetings.................................................................................1 1.02. Special Meetings................................................................................1 1.03. Notice of Meetings; Waiver......................................................................1 1.04. Quorum and Required Vote........................................................................2 1.05. Voting Rights...................................................................................2 1.06. Voting by Ballot................................................................................2 1.07. Adjournment.....................................................................................2 1.08. Proxies.........................................................................................2 1.09. Presiding Officer and Secretary of the Meeting..................................................3 1.10. Notice of Stockholder Business and Nominations..................................................4 1.11. Inspectors of Elections.........................................................................6 1.12. Opening and Closing of Polls....................................................................7 1.13. Confidential Voting.............................................................................7 1.14. No Stockholder Action by Written Consent........................................................7 ARTICLE II BOARD OF DIRECTORS 2.01. General Powers..................................................................................8 2.02. Number of Directors.............................................................................8 2.03. Classified Board; Election of Directors.........................................................8 2.04. Annual and Regular Meetings.....................................................................8 2.05. Special Meetings; Notice........................................................................9 2.06. Quorum; Voting..................................................................................9 2.07. Adjournment.....................................................................................9 2.08. Action Without a Meeting........................................................................9 2.09. Regulations; Manner of Acting...................................................................9 2.10. Action by Telephonic Communications............................................................10 2.11. Resignations...................................................................................10 2.12. Removal of Directors...........................................................................10 2.13. Vacancies and Newly Created Directorships......................................................10
SECTION PAGE - ------- ---- 2.14. Compensation...................................................................................10 2.15. Reliance on Accounts and Reports, etc..........................................................10 ARTICLE III BOARD COMMITTEES 3.01. How Constituted, Committee Powers..............................................................11 3.02. Quorum and Manner of Acting....................................................................11 3.03. Action by Telephonic Communications............................................................11 3.04. Resignations...................................................................................12 3.05. Removal........................................................................................12 3.06. Vacancies......................................................................................12 ARTICLE IV OFFICERS 4.01. Number.........................................................................................12 4.02. Election.......................................................................................12 4.03. Salaries.......................................................................................12 4.04. Removal and Resignation; Vacancies.............................................................12 4.05. Authority and Duties of Officers...............................................................13 4.06. The Chairman...................................................................................13 4.07. The Chief Executive Officer....................................................................13 4.08. The President..................................................................................13 4.09. Absence or Disability of the Chief Executive Officer...........................................13 4.10. Vice Presidents................................................................................13 4.11. The Secretary..................................................................................14 4.12. The Chief Financial Officer....................................................................14 4.13. The Treasurer..................................................................................14 4.14. The Controller.................................................................................14 4.15. The General Counsel............................................................................14 4.16. Additional Officers............................................................................14 4.17. Security.......................................................................................15
SECTION PAGE - ------- ---- ARTICLE V CAPITAL STOCK 5.01. Certificates of Stock, Uncertificated Shares...................................................15 5.02. Signatures; Facsimile..........................................................................15 5.03. Lost, Stolen or Destroyed Certificates.........................................................15 5.04. Transfer of Stock..............................................................................16 5.05. Record Date....................................................................................16 5.06. Registered Stockholders........................................................................16 5.07. Transfer Agent and Registrar...................................................................17 ARTICLE VI INDEMNIFICATION 6.01. Nature of Indemnity............................................................................17 6.02. Determination that Indemnification is Proper...................................................18 6.03. Advance Payment of Expenses....................................................................18 6.04. Procedure for Indemnification of Directors and Officers........................................18 6.05. Survival; Preservation of Other Rights.........................................................19 6.06. Insurance......................................................................................19 6.07. Severability...................................................................................19 ARTICLE VII OFFICES 7.01. Registered Office..............................................................................20 7.02. Other Offices..................................................................................20 ARTICLE VIII GENERAL PROVISIONS 8.01. Dividends......................................................................................20 8.02. Reserves.......................................................................................20 8.03. Execution of Instruments.......................................................................21 8.04. Corporate Indebtedness.........................................................................21 8.05. Deposits.......................................................................................21 8.06. Checks.........................................................................................21 8.07. Sale, Transfer, etc. of Securities.............................................................21
SECTION PAGE - ------- ---- 8.08. Voting as Stockholder..........................................................................22 8.09. Fiscal Year....................................................................................22 8.10. Seal...........................................................................................22 ARTICLE IX EMERGENCY BOARD OF DIRECTORS 9.01. Emergency Board of Directors...................................................................22 ARTICLE X AMENDMENT OF BY-LAWS 10.01.Amendment.........................................................................................23 ARTICLE XI CONSTRUCTION 11.01.Construction......................................................................................23
METLIFE, INC. AMENDED AND RESTATED BY-LAWS Effective July 27, 2004 ----------------------------- ARTICLE I STOCKHOLDERS Section 1.01. Annual Meetings. The annual meeting of the stockholders of the Corporation for the election of Directors and for the transaction of such other business as properly may come before such meeting shall be held at such place, either within or without the State of Delaware, and at such date and at such time, as may be fixed from time to time by resolution of the Board of Directors and set forth in the notice or waiver of notice of the meeting. Section 1.02. Special Meetings. Special meetings of the stockholders may be called at any time by the Chief Executive Officer (or, in the event of the Chief Executive Officer's absence or disability, by the President or any Director who is also an officer (hereafter, an "Officer Director")). A special meeting shall be called by the Chief Executive Officer (or, in the event of the Chief Executive Officer's absence or disability, by the President or any Officer Director) or by the Secretary pursuant to a resolution approved by a majority of the entire Board of Directors. Such special meetings of the stockholders shall be held at such places, within or without the State of Delaware, as shall be specified in the respective notices or waivers of notice thereof. Any power of the stockholders of the Corporation to call a special meeting is specifically denied. Section 1.03. Notice of Meetings; Waiver. The Secretary or any Assistant Secretary shall cause written notice of the place, date and hour of each meeting of the stockholders and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given personally or by mail, not less than ten nor more than sixty days prior to the meeting, to each stockholder of record entitled to vote at such meeting. If such notice is mailed, it shall be deemed to have been given to a stockholder when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the record of stockholders of the Corporation. Such further notice shall be given as may be required by law. A written waiver of any notice of any annual or special meeting signed by the person entitled thereto, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders needs to be specified in a written waiver of notice. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning 1 of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 1.04. Quorum and Required Vote. Except as otherwise required by law or by the Certificate of Incorporation, the presence in person or by proxy of the holders of record of one-third of the shares entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business at such meeting. Except as otherwise required by law or by the Certificate of Incorporation, these By-Laws or the rules or regulations of any stock exchange applicable to the Corporation, the vote of a majority (or, in the case of the election of Directors, a plurality) of the shares represented in person or by proxy at any meeting at which a quorum is present shall be sufficient for the transaction of any business at such meeting. Section 1.05. Voting Rights. Subject to the rights of the holders of any class or series of Preferred Stock, every holder of record of shares entitled to vote at a meeting of stockholders shall be entitled to one vote for each share outstanding in such stockholder's name on the books of the Corporation at the close of business on the date fixed pursuant to the provisions of Section 5.05 hereof as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting. Section 1.06. Voting by Ballot. No vote of the stockholders need be taken by written ballot unless otherwise required by law. Any vote not required to be taken by ballot may be conducted in any manner approved by the presiding officer at the meeting at which such vote is taken. Section 1.07. Adjournment. If a quorum is not present at any meeting of the stockholders, the presiding officer shall have the power to adjourn any such meeting from time to time until a quorum is present. Notice of any adjourned meeting of the stockholders of the Corporation need not be given if the place, date and hour thereof are announced at the meeting at which the adjournment is taken, provided, however, that if the adjournment is for more than thirty days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 5.05 of these By-Laws, a notice of the adjourned meeting, conforming to the requirements of Section 1.03 hereof, shall be given to each stockholder of record entitled to vote at such meeting. At any adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted on the original date of the meeting. Section 1.08. Proxies. Any stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to vote at any such meeting for such stockholder by proxy. A stockholder may authorize a valid proxy by executing a written instrument signed by such stockholder, or such stockholder's authorized officer, director, employee or agent, or by causing such signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature, or by transmitting or authorizing the transmission of a telegram, cablegram, data and voice telephonic communications, computer network, e-mail or other means of electronic 2 transmission to the person designated as the holder of the proxy, a proxy solicitation firm, a proxy support service organization or a like authorized agent. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where applicable law provides that a proxy shall be irrevocable. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary. Proxies by telegram, cablegram, data and voice telephonic communications, computer network, e-mail or other electronic transmission must either set forth or be submitted with information from which it can be determined that such electronic transmission was authorized by the stockholder. If it is determined that such electronic transmission is valid, the inspectors shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 1.09. Presiding Officer and Secretary of the Meeting. (a) At every meeting of stockholders the presiding officer shall be the Chairman or, in the event of the Chairman's absence or disability, the President, or in the event of the President's absence or disability, any officer designated by the Chief Executive Officer, or in the event of the Chief Executive Officer's absence or the failure of the Chief Executive Officer to designate an officer for such purpose, any officer chosen by resolution of the Board of Directors. The order of business and all other matters of procedure at every meeting of stockholders may be determined by the presiding officer. The Secretary, or in the event of the Secretary's absence or disability, any Assistant Secretary designated by the presiding officer, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as Secretary of the meeting. (b) Conduct of Meetings. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the presiding officer shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer, may include, but are not limited to, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding officer shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement 3 thereof; and (v) limitations on the time allotted to questions or comments by participants. Meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 1.10. Notice of Stockholder Business and Nominations. (a) Annual Meetings of Stockholders. (i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders at an annual meeting of stockholders may be made only (A) by or at the direction of the Board of Directors or the Chief Executive Officer, or (B) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations promulgated thereunder and the notice procedures set forth in clause (ii) of this paragraph and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder, pursuant to clause (B) of paragraph (a)(i) of this Section 1.10, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 120 calendar days prior to the first anniversary of the previous year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting was changed by more than 30 days from the anniversary date of the previous year's annual meeting, notice by the stockholder must be so received not later than 120 calendar days prior to such annual meeting or 10 calendar days following the date on which public announcement of the date of the meeting is first made. In no event shall an adjournment or postponement of an annual meeting (or the public announcement thereof) commence a new time period (or extend any time period) for the giving of stockholders' notice as described below. Such stockholder's notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or reelection as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act, and Rule 14a-11 thereunder, including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and, in the event that such business includes a proposal to amend either the Certificate of Incorporation or the By-Laws of the Corporation, the language of the proposed amendment; (C) any material interest in such business of such stockholder and of any beneficial owner on whose behalf the proposal is made and, in case of nominations, a description of all arrangements or understandings between the stockholder and each nominee and any other persons (naming them) pursuant to which the nominations are to be made by the stockholder; (D) a representation that the stockholder 4 is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by a qualified representative at the meeting to propose such business; (E) if the stockholder intends to solicit proxies in support of such stockholder's proposals, a representation to that effect; and (F) as to the stockholder giving the notice and any beneficial owner on whose behalf the nomination or proposal is made, (1) the name and address of such stockholder, as it appears on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. If such stockholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation. The presiding officer of any annual meeting of stockholders shall refuse to permit any business proposed by a stockholder to be brought before such annual meeting without compliance with the foregoing procedures or if the stockholder solicits proxies in support of such stockholder's proposal without such stockholder having made the representation required by clause (E) above. (b) Special Meetings of Stockholders. (i) Only such business as shall have been brought before the special meeting of the stockholders pursuant to the Corporation's notice of meeting pursuant to Section 1.02 of these By-Laws shall be conducted at such meeting. (ii) In the event that Directors are to be elected at a special meeting of stockholders pursuant to the Corporation's notice of meeting, nominations of persons for election to the Board of Directors may be made at such special meeting of stockholders (1) by or at the direction of the Board of Directors or (2) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this Section 1.10 and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the Board of Directors may be made at such special meeting of stockholders if the stockholder's notice as required by paragraph (a)(ii) of this Section 1.10 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than 150 calendar days prior to such special meeting or 10 calendar days following the date on which public announcement of the date of the special meeting and of the nominees to be elected at such meeting is first made. In no event shall the adjournment or postponement of a special meeting (or the public announcement thereof) commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 1.10 shall be eligible to serve as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.10. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or 5 proposed in accordance with the procedures set forth in this Section 1.10 and, if any proposed nomination or business is not in compliance with this Section 1.10, to declare that such defective proposal or nomination shall be disregarded. (ii) Nothing in this Section 1.10 shall be deemed to affect any rights of the holders of any class or series of preferred stock, if any, to elect Directors if so provided under any applicable preferred stock Certificate of Designation (as defined in the Certificate of Incorporation). Section 1.11. Inspectors of Elections. (a) Prior to any meeting of the stockholders, the Board of Directors shall appoint one or more persons to act as Inspectors of Elections, and may designate one or more alternate inspectors. If no inspector or alternate is able to act, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of an inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. The inspector shall: (i) ascertain the number of shares outstanding and the voting power of each; (ii) determine the shares represented at the meeting and the validity of proxies and ballots; (iii) specify the information relied upon to determine the validity of electronic transmissions in accordance with Section 1.08 hereof; (iv) count all votes and ballots; (v) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; (vi) certify such inspector's determination of the number of shares represented at the meeting, and such inspector's count of all votes and ballots. (b) The inspector may appoint or retain other persons or entities to assist in the performance of the duties of inspector. (c) When determining the shares represented and the validity of proxies and ballots, the inspector shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any proxies provided in accordance with Section 1.08 of these By-Laws, ballots and the regular books and records of the Corporation. The inspector may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers or their nominees or a similar person which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspector 6 considers other reliable information as outlined in this section, the inspector, at the time of certification pursuant to (a)(vi) of this Section 1.11, shall specify the precise information considered, the person or persons from whom such information was obtained, when this information was obtained, the means by which such information was obtained, and the basis for the inspector's belief that such information is accurate and reliable. Section 1.12. Opening and Closing of Polls. The time for the opening and the closing of the polls for the matters to be voted upon at a stockholder meeting shall be announced at the meeting by the presiding officer. The inspector of the election shall be prohibited from accepting any ballots, proxies or votes or any revocations thereof or changes thereto after the closing of the polls, unless the Delaware Court of Chancery upon application by a stockholder shall determine otherwise. Section 1.13. Confidential Voting. (a) Proxies and ballots that identify the votes of specific stockholders shall be kept in confidence by the inspectors of election unless (i) there is an opposing solicitation with respect to the election or removal of Directors, (ii) disclosure is required by applicable law, (iii) a stockholder expressly requests or otherwise authorizes disclosure in relation to such stockholder's vote, or (iv) the Corporation concludes in good faith that a bona fide dispute exists as to the authenticity of one or more proxies, ballots or votes, or as to the accuracy of any tabulation of such proxies, ballots or votes. (b) The inspectors of election and any authorized agents or other persons engaged in the receipt, count and tabulation of proxies and ballots shall be advised of this By-Law and instructed to comply herewith. (c) The inspectors of election shall certify, to the best of their knowledge based on due inquiry, that proxies and ballots have been kept in confidence as required by this Section 1.13. Section 1.14. No Stockholder Action by Written Consent. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is specifically denied. 7 ARTICLE II BOARD OF DIRECTORS Section 2.01. General Powers. Except as may otherwise be provided by law, by the Certificate of Incorporation or by these By-Laws, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation. Section 2.02. Number of Directors. Subject to the rights of the holders of any class or series of preferred stock, if any, the number of Directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the entire Board of Directors, but the Board of Directors shall at no time consist of fewer than three (3) Directors. Section 2.03. Classified Board; Election of Directors. The Directors of the Corporation, subject to the rights of the holders of shares of any class or series of preferred stock, shall be classified with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class ("Class I") whose term expires at the 2000 annual meeting stockholders, another class ("Class II") whose term expires at the 2001 annual meeting of stockholders, and another class ("Class III") whose term expires at the 2002 annual meeting of stockholders, with each class to hold office until its successors are elected and qualified. Except as otherwise provided in Sections 2.12 and 2.13 of these By-Laws, at each annual meeting of stockholders of the Corporation, and subject to the rights of the holders of shares of any class or series of preferred stock, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Section 2.04. Annual and Regular Meetings. The annual meeting of the Board of Directors for the purpose of electing officers and for the transaction of such other business as may come before the meeting shall be held as soon as practicable following adjournment of the annual meeting of the stockholders. Notice of such annual meeting of the Board of Directors need not be given. The Board of Directors from time to time may by resolution provide for the holding of regular meetings and fix the place (which may be within or without the State of Delaware) and the date of such meetings. Notice of regular meetings need not be given; provided, however, that if the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be mailed promptly, or sent by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means, to each Director who shall not have been present at the meeting at which such action was taken, addressed or transmitted to him or her at such Director's usual place of business, or shall be delivered or transmitted to him or her personally. Notice of such action need not be given to any Director who attends the first regular meeting after such action is taken without protesting the lack of notice to him or her, prior to or at the commencement of such meeting, or 8 to any Director who submits a signed waiver of notice, whether before or after such meeting. Section 2.05. Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman or the Chief Executive Officer (or, in the event of the Chief Executive Officer's absence or disability, by the President or any Officer Director) or by the Secretary pursuant to a resolution approved by a majority of the entire Board of Directors, at such place (within or without the State of Delaware), date and hour as may be specified in the respective notices or waivers of notice of such meetings. Special meetings of the Board of Directors may be called on twenty-four (24) hours' notice, if notice is given to each Director personally or by telephone, including a voice messaging system, or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means, or on five (5) days' notice, if notice is mailed to each Director, addressed or transmitted to him or her at such Director's usual place of business or other designated location. Notice of any special meeting need not be given to any Director who attends such meeting without protesting the lack of notice to him or her, prior to or at the commencement of such meeting, or to any Director who submits a signed waiver of notice, whether before or after such meeting, and any business may be transacted thereat. Section 2.06. Quorum; Voting. At all meetings of the Board of Directors, the presence of a majority of the total number of Directors shall constitute a quorum for the transaction of business. Except as otherwise required by law, the vote of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.07. Adjournment. A majority of the Directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time or place. No notice need be given of any adjourned meeting unless the time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.05 of these By-Laws shall be given to each Director. Section 2.08. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 2.09. Regulations; Manner of Acting. To the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws, the Board of Directors may adopt such rules and regulations for the conduct of meetings of the Board of Directors and for the management of the property, affairs and business of the Corporation as the Board of Directors may deem appropriate. The Directors shall act only as a Board and the individual Directors shall have no power as such. 9 Section 2.10 Action by Telephonic Communications. Members of the Board of Directors may participate in any meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in any meeting pursuant to this provision shall constitute presence in person at such meeting. Section 2.11. Resignations. Any Director may resign at any time by delivering a written notice of resignation, signed by such Director, to the Chairman or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 2.12. Removal of Directors. Subject to the rights of the holders of any class or series of preferred stock, if any, to elect additional Directors under specified circumstances, any Director may be removed at any time, but only for cause, upon the affirmative vote of the holders of a majority of the combined voting power of the then outstanding stock of the Corporation entitled to vote generally in the election of Directors. Any vacancy in the Board of Directors caused by any such removal may be filled at such meeting by the stockholders entitled to vote for the election of the Director so removed. A Director filling any such vacancy shall be of the same class as that of the Director whose removal created such vacancy and shall hold office until such Director's successor shall have been elected and qualified or until such Director's earlier death, resignation or removal. If such stockholders do not fill such vacancy at such meeting, such vacancy may be filled in the manner provided in Section 2.13 of these By-Laws. Section 2.13. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of preferred stock, if any, to elect additional Directors under specified circumstances, and except as provided in Section 2.12, if any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of Directors shall be increased pursuant to Section 2.02 hereof, the Directors then in office shall continue to act, and such vacancies and newly created directorships may be filled by a majority of the Directors then in office, although less than a quorum. Any Director filling a vacancy shall be of the same class as that of the Director whose death, resignation, removal or other event caused the vacancy, and any Director filling a newly created directorship shall be of the class specified by the Board of Directors at the time the newly created directorships were created. A Director elected to fill a vacancy or a newly created directorship shall hold office until such Director's successor has been elected and qualified or until such Director's earlier death, resignation or removal. Section 2.14. Compensation. The amount, if any, which each Director shall be entitled to receive as compensation for such Director's services as such shall be fixed from time to time by the Board of Directors. Section 2.15. Reliance on Accounts and Reports, etc. A Director, and any member of any committee designated by the Board of Directors shall, in the performance of such Director's duties, be fully protected in relying in good faith upon the records of 10 the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees designated by the Board of Directors, or by any other person as to the matters the member 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 Corporation. ARTICLE III BOARD COMMITTEES Section 3.01. How Constituted; Committee Powers. The Board of Directors shall designate such Committees as may be required by applicable laws, rules, regulations and stock exchange listing standards, including an Audit Committee, a Compensation Committee and a Governance Committee, which Committees shall be constituted to comply with applicable requirements thereunder, and may designate one or more additional Committees, including an Executive Committee. Each Committee shall consist of one or more of the Directors of the Corporation. Each such Committee, to the extent provided in any resolution or resolutions of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which require it; provided, however, that no such Committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware to be submitted to stockholders for approval or (b) adopting, amending or repealing any By-Law of the Corporation. Each Committee shall keep regular minutes of its meetings. Section 3.02. Quorum and Manner of Acting. Except as may be otherwise provided in any resolution of the Board of Directors, at all meetings of any Committee the presence of members constituting a majority of the total membership of such Committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such Committee. Any action required or permitted to be taken at any meeting of any such Committee may be taken without a meeting, if all members of such Committee shall consent to such action in writing and such writing or writings are filed with the minutes of the proceedings of the Committee. The members of any such Committee shall act only as a Committee, and the individual members of such Committee shall have no power as such. Section 3.03. Action by Telephonic Communications. Members of any Committee designated by the Board of Directors may participate in a meeting of such Committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 11 Section 3.04. Resignations. Any member of any Committee may resign at any time by delivering a written notice of resignation, signed by such member, to the Chairman or the President. Unless otherwise specified therein, such resignation shall take effect upon delivery. Section 3.05. Removal. Any member of any Committee may be removed from the position as a member of such Committee at any time, either for or without cause, by resolution adopted by a majority of the Board of Directors. Section 3.06. Vacancies. If any vacancy shall occur in any Committee, by reason of death, resignation, removal or otherwise, the remaining members shall continue to act, and any such vacancy may be filled by the Board of Directors. ARTICLE IV OFFICERS Section 4.01. Number. The officers of the Corporation shall be elected by the Board of Directors and shall be a Chairman, Chief Executive Officer, President, one or more Vice Presidents, a Chief Financial Officer, a Secretary, a Treasurer, a Controller and a General Counsel. The Board of Directors may appoint such other officers as it may deem appropriate, provided that officers of the rank of Vice-President and below may be appointed by the Compensation Committee. Such other officers shall exercise such powers and perform such duties as may be determined from time to time by the Board of Directors, Chief Executive Officer or President. Any number of offices may be held by the same person. No officer, other than the Chairman, need be a Director of the Corporation. Section 4.02. Election. Unless otherwise determined by the Board of Directors, the officers of the Corporation shall be elected by the Board of Directors at the annual meeting of the Board of Directors, and shall be elected to hold office until the next succeeding annual meeting of the Board of Directors. In the event of the failure to elect officers at such meeting, officers may be elected at any regular or special meeting of the Board of Directors. Officers of the rank of Vice-President and below may be elected by the Compensation Committee. Each officer shall hold office until such officer's successor has been elected and qualified, or until such officer's earlier death, resignation or removal. Section 4.03. Salaries. The salaries of all principal officers (as determined by the Board of Directors) of the Corporation shall be fixed by the Board of Directors. Section 4.04. Removal and Resignation; Vacancies. Any officer may be removed for or without cause at any time by the Board of Directors. Any officer may resign at any time by delivering a written notice of resignation, signed by such officer, to 12 the Board of Directors or the Chief Executive Officer. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled by the Board of Directors. Section 4.05. Authority and Duties of Officers. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event each officer shall exercise such powers and perform such duties as may be required by law. Section 4.06. The Chairman. The Directors shall elect from among the members of the Board of Directors a Chairman of the Board. The Chairman shall have such duties and powers as set forth in these By-Laws or as shall otherwise be conferred upon the Chairman from time to time by the Board of Directors. The Chairman shall preside over all meetings of the Stockholders and the Board of Directors. Section 4.07. The Chief Executive Officer. The Chief Executive Officer shall have general control and supervision of the policies and operations of the Corporation. He or she shall manage and administer the Corporation's business and affairs and shall also perform all duties and exercise all powers usually pertaining to the office of a chief executive officer of a corporation. The Chief Executive Officer shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 4.08. The President. The President, subject to the authority of the Chief Executive Officer (if the President is not the Chief Executive Officer), shall have primary responsibility for, and authority with respect to, the management of the day-to-day business and affairs of the Corporation, to the extent prescribed by the Chief Executive Officer. The President shall perform such other duties and have such other powers as the Board of Directors or (if the President is not the Chief Executive Officer) the Chief Executive Officer may from time to time prescribe. Section 4.09. Absence or Disability of the Chief Executive Officer. In the event of the absence of the Chief Executive Officer or in the event of the Chief Executive Officer's inability to act, the officer, if any, designated by resolution of the Board of Directors (or in the event there is more than one such designated officer, then in the order of designation) shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers and be subject to all the restrictions of the Chief Executive Officer. Section 4.10. Vice Presidents. The Vice Presidents shall have such designations and shall perform such other duties and have such powers as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe. 13 Section 4.11. The Secretary. The Secretary shall keep or cause to be kept a record of all the proceedings of the meetings of the stockholders and of the Board of Directors, and shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law. The Secretary shall be the custodian of the records and of the seal of the Corporation and cause such seal (or a facsimile thereof) to be affixed to instruments when appropriate. The Secretary shall perform, in general, all duties incident to the office of secretary and such other duties as may be specified in these By-Laws or as may be assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer or the President. Section 4.12. The Chief Financial Officer. The Chief Financial Officer shall be the principal financial officer of the Corporation and shall have responsibility for the financial affairs of the Corporation. The Chief Financial Officer shall perform such other duties and exercise such other powers as are normally incident to the office of chief financial officer and as may be prescribed by the Board of Directors, the Chief Executive Officer or the President. Section 4.13. The Treasurer. The Treasurer shall have charge and supervision over and be responsible for the moneys, securities, receipts and disbursements of the Corporation, and shall keep or cause to be kept full and accurate records of all receipts of the Corporation, and shall cause the moneys and other valuable effects of the Corporation to be deposited in the name and to the credit of the Corporation. The Treasurer shall cause the moneys of the Corporation to be disbursed by checks or drafts upon the authorized depositaries of the Corporation and cause to be taken and preserved proper vouchers for all moneys disbursed. The Treasurer shall perform, in general, all duties incident to the office of treasurer and such other duties as may be specified in these By-Laws or as may be assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer. Section 4.14. The Controller. The Controller shall keep or cause to be kept correct records of the business and transactions of the Corporation. The Controller shall perform such other duties and exercise such other powers as are normally incident to the office of controller and as may be prescribed by the Board of Directors, the Chief Executive Officer or the President. Section 4.15. The General Counsel. The General Counsel shall have responsibility for the legal affairs of the Corporation. The General Counsel shall perform such other duties and exercise such other powers as are normally incident to the office of general counsel and as may be prescribed by the Board of Directors, the Chief Executive Officer or the President. Section 4.16. Additional Officers. The Board of Directors from time to time may delegate to any officer the power to appoint subordinate officers and to prescribe their respective rights, terms of office, authorities and duties. Any such officer may remove any such subordinate officer appointed by him or her, for or without cause, 14 but such removal shall be without prejudice to the contractual rights of such subordinate officer or agent, if any, with the Corporation. Section 4.17. Security. The Board of Directors may require any officer, agent or employee of the Corporation to provide security for the faithful performance of such officer's, agent's or employee's duties, in such amount and of such character as may be determined from time to time by the Board of Directors. ARTICLE V CAPITAL STOCK Section 5.01. Certificates of Stock, Uncertificated Shares. The shares of the Corporation may be either represented by certificates or uncertificated shares, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the Corporation shall be uncertificated shares. Any resolution of the Board of Directors providing for uncertificated shares shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such resolution by the Board of Directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of, the Corporation, (i) by the Chief Executive Officer, the President or a Vice President, and (ii) by the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. Such certificate shall be in such form as the Board of Directors may determine, to the extent consistent with applicable law, the Certificate of Incorporation and these By-Laws. Section 5.02. Signatures; Facsimile. All of such signatures on the certificate referred to in Section 5.01 of these By-Laws may be a facsimile, engraved or printed, to the extent permitted by law. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon a certificate representing shares of the Corporation shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon delivery to the Board of Directors of an affidavit of the owner or owners of such certificate, setting 15 forth such allegation. The Board of Directors may require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. Section 5.04. Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law of the State of Delaware. Subject to the provisions of the Certificate of Incorporation and these By-Laws, the Board of Directors may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation. Section 5.05. Record Date. (a) Stockholders Meetings. In order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If no record date is fixed, the record date for determining stockholders for any such purpose shall be the close of business on the day next preceding the day on which notice of the meeting is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) Dividends and Other Distributions. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 5.06. Registered Stockholders. Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to 16 receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interests. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so. Section 5.07. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars. ARTICLE VI INDEMNIFICATION Section 6.01. Nature of Indemnity. The Corporation shall indemnify any 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 (a "Proceeding"), whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve at the request of the Corporation as a director or officer, of another corporation, partnership, joint venture, trust or other entity, or by reason of any action alleged to have been taken or omitted in such capacity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful; except that in the case of an action or suit by or in the name of the Corporation to procure a judgment in its favor (1) such indemnification shall be limited to expenses (including attorneys' fees) actually and reasonably incurred by such person in the defense or settlement of such action or suit, and (2) no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery 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 the Delaware Court of Chancery or such other court shall deem proper. Notwithstanding the foregoing, but subject to Section 6.05 of these By-Laws, the Corporation shall not be obligated to indemnify a director or officer of the Corporation in respect of a Proceeding (or such part thereof) instituted by such director or officer, unless such Proceeding (or such part thereof) has been authorized by the Board of Directors. 17 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 person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 6.02. Determination that Indemnification is Proper. Unless ordered by a court, no indemnification of a present or former director or officer of the Corporation under Section 6.01 hereof (unless ordered by a court) shall be made by the Corporation if a determination is made that indemnification of the present or former director or officer is not proper in the circumstances because he or she has not met the applicable standard of conduct set forth in Section 6.01 hereof. Section 6.03. Advance Payment of Expenses. Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount with interest, as determined by the Corporation, if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article. Such expenses (including attorneys' fees) incurred by former directors and officers may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate. The Board of Directors may authorize the Corporation's counsel to represent such director or officer in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. Section 6.04. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the Corporation under Section 6.01, or advance of costs, charges and expenses to a director or officer under Section 6.04 of these By-Laws, shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article VI is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnity, the Corporation shall be deemed to have approved such request. If the Corporation denies a written request for indemnity or advancement of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article VI shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing such person's right to indemnification or advances, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses under Section 6.03 of these By-Laws where the required undertaking, if any, has been tendered to the Corporation) that the claimant has not met the standard of conduct set forth in Section 6.01 of these By-Laws, but the burden of proving such defense shall be 18 on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 6.01 of these By-Laws, nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel, and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 6.05. Survival; Preservation of Other Rights. The foregoing indemnification and advancement provisions shall be deemed to be a contract between the Corporation and each director or officer who serves in any such capacity at any time while these provisions as well as the relevant provisions of the General Corporation Law of the State of Delaware are in effect and any repeal or modification thereof shall not affect any right or obligation then existing with respect to any state of facts then or previously existing or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such state of facts. Such a "contract right" may not be modified retroactively without the consent of such director or officer. The indemnification and advancement provided by this Article VI shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and, once an event has occurred with respect to which a Director or Officer is or may be entitled to indemnification under this Article, such entitlement shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 6.06. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other entity against any liability asserted against such person and incurred by such person or on such person's behalf in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article VI; provided that such insurance is available on acceptable terms, which determination shall be made by the Chief Executive Officer. Section 6.07. Severability. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director or officer as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the fullest extent permitted by 19 any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law. ARTICLE VII OFFICES Section 7.01. Registered Office. The registered office of the Corporation in the State of Delaware shall be located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. Section 7.02. Other Offices. The Corporation may maintain offices or places of business at such other locations within or without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE VIII GENERAL PROVISIONS Section 8.01. Dividends. Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board of Directors at any regular or special meeting of the Board of Directors and any such dividend may be paid in cash, property or shares of the Corporation's capital stock. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the Director 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 Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid. Section 8.02. Reserves. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may similarly modify or abolish any such reserve. 20 Section 8.03. Execution of Instruments. The Chief Executive Officer, the President, any Vice President, the Secretary, the Chief Financial Officer or the Treasurer may enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. The Board of Directors or the Chief Executive Officer may authorize any other officer or agent to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization may be general or limited to specific contracts or instruments. Section 8.04. Corporate Indebtedness. No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued in its name, unless authorized by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer. Such authorization may be general or confined to specific instances. Loans so authorized may be effected at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board of Directors, the Chief Executive Officer or the Chief Financial Officer shall authorize. When so authorized by the Board of Directors, the Chief Executive Officer or the Chief Financial Officer, any part of or all the properties, including contract rights, assets, business or good will of the Corporation, whether then owned or thereafter acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in trust as security for the payment of such bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation, and of the interest thereon, by instruments executed and delivered in the name of the Corporation. Section 8.05. Deposits. Any funds of the Corporation may be deposited from time to time in such banks, trust companies or other depositaries as may be determined by the Board of Directors, the Chief Executive Officer, the Treasurer or the Chief Financial Officer or by such officers or agents as may be authorized by the Board of Directors or the Chief Executive Officer, the Treasurer or the Chief Financial Officer to make such determination. Section 8.06. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as the Board of Directors or the Chief Executive Officer from time to time may determine. Section 8.07. Sale, Transfer, etc. of Securities. To the extent authorized by the Board of Directors or by the Chief Executive Officer, the President, any Vice President, the Secretary, the Chief Financial Officer or the Treasurer or any other officers designated by the Board of Directors or the Chief Executive Officer may sell, transfer, endorse, and assign any shares of stock, bonds or other securities owned by or held in the name of the Corporation, and may make, execute and deliver in the name of the Corporation, under its corporate seal (if required), any instruments that may be appropriate to effect any such sale, transfer, endorsement or assignment. 21 Section 8.08. Voting as Stockholder. Unless otherwise determined by resolution of the Board of Directors, the Chief Executive Officer, the President or any Vice President shall have full power and authority on behalf of the Corporation to attend any meeting of stockholders of any corporation in which the Corporation may hold stock, and to act, vote (or execute proxies to vote) and exercise in person or by proxy all other rights, powers and privileges incident to the ownership of such stock. Such officers acting on behalf of the Corporation shall have full power and authority to execute any instrument expressing consent to or dissent from any action of any such corporation without a meeting. The Board of Directors may by resolution from time to time confer such power and authority upon any other person or persons. Section 8.09. Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January of each year (except for the Corporation's first fiscal year which shall commence on the date of incorporation) and shall terminate in each case on December 31. Section 8.10. Seal. The seal of the Corporation shall be circular in form and shall contain the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Delaware". The form of such seal shall be subject to alteration by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced, or may be used in any other lawful manner. ARTICLE IX EMERGENCY BOARD OF DIRECTORS Section 9.01. Emergency Board of Directors. Notwithstanding any different provision in the Delaware General Corporation Law, the Certificate of Incorporation of the Corporation or these By-Laws, in the event of any emergency (herein defined as (i) resulting from an attack on the United States or on a locality in which the Corporation conducts business or customarily holds meetings of its Board of Directors, (ii) any nuclear, enemy or terrorist attack, or (iii) the existence of any other catastrophe, disaster or other similar emergency condition), as a result of which emergency a quorum of the Board of Directors cannot readily be convened for action, this By-Law provision shall apply. All the powers and duties vested in the Board of Directors shall vest automatically in an Emergency Board of Directors, which shall consist of all members of the Board of Directors who are readily available and capable of acting. The Emergency Board of Directors shall use all reasonable efforts to promptly provide notice of the change in the status of the Board of Directors to the Securities and Exchange Commission. This Emergency Board shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation. A meeting of the Emergency Board may be called by any Director or any member of the most senior executive management committee of the Corporation (the "Executive Group"). Notice of the time and place of the meeting shall be given by the person calling the meeting to 22 only such of the Directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including by telephone, personal delivery, facsimile or email. Such notice shall be given at such time in advance of the meeting as circumstances permit in the judgment of the person calling the meeting. Two members in attendance shall constitute a quorum at any meeting of the Emergency Board. The Emergency Board shall continue to be vested with the powers and duties of the Board of Directors until such time following the emergency as a quorum of the original members of the Board of Directors prior to such emergency can readily be convened for action. ARTICLE X AMENDMENT OF BY-LAWS Section 10.01. Amendment. These By-Laws may be amended, altered or repealed: (a) by resolution adopted by a majority of the Board of Directors at any special or regular meeting of the Board of Directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting; or (b) at any regular or special meeting of the stockholders upon the affirmative vote of the holders of three-fourths (-3/4) or more of the combined voting power of the outstanding shares of the Corporation entitled to vote generally in the election of Directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting. ARTICLE IXI CONSTRUCTION Section 11.01. Construction. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Certificate of Incorporation of the Corporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling. 23 EX-10.1 3 y99162exv10w1.txt FIVE-YEAR CREDIT AGREEMENT EXHIBIT 10.1 EXECUTION COPY ================================================================================ Published CUSIP Number: 59157FAC7 FIVE-YEAR CREDIT AGREEMENT Dated as of April 23, 2004 among METLIFE, INC. METROPOLITAN LIFE INSURANCE COMPANY METLIFE FUNDING, INC. as Borrowers, BANK OF AMERICA, N.A., as Administrative Agent and L/C Issuer, WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent CITIBANK, N.A. and JPMORGAN CHASE BANK, as Co-Documentation Agents and The Other Lenders Party Hereto BANC OF AMERICA SECURITIES LLC, and WACHOVIA CAPITAL MARKETS, LLC as Joint Lead Arrangers and Book Managers ================================================================================ TABLE OF CONTENTS
Section Page - ------- ----- ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS................................ 1 1.01 Defined Terms....................................................... 1 1.02 Other Interpretive Provisions....................................... 18 1.03 Accounting Terms.................................................... 19 1.04 Rounding............................................................ 19 1.05 References to Agreements and Laws................................... 19 1.06 Times of Day........................................................ 20 1.07 Letter of Credit Amounts............................................ 20 ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS........................... 20 2.01 Committed Loans..................................................... 20 2.02 Borrowings, Conversions and Continuations of Committed Loans........ 20 2.03 Bid Loans........................................................... 22 2.04 Letters of Credit................................................... 24 2.05 Prepayments......................................................... 33 2.06 Termination or Reduction of Commitments............................. 33 2.07 Repayment of Loans.................................................. 34 2.08 Interest............................................................ 34 2.09 Fees................................................................ 35 2.10 Computation of Interest and Fees.................................... 36 2.11 Evidence of Debt.................................................... 36 2.12 Payments Generally.................................................. 37 2.13 Sharing of Payments................................................. 38 ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY.......................... 39 3.01 Taxes............................................................... 39 3.02 Illegality.......................................................... 41 3.03 Inability to Determine Rates........................................ 42 3.04 Increased Cost and Reduced Return; Capital Adequacy................. 42 3.05 Compensation for Losses............................................. 43 3.06 Matters Applicable to all Requests for Compensation................. 43 3.07 Survival............................................................ 44 ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................. 44 4.01 Organization; Powers................................................ 44 4.02 Authorization; Enforceability....................................... 44 4.03 Governmental Approvals; No Conflicts................................ 44 4.04 Financial Condition; No Material Adverse Change..................... 44 4.05 Properties.......................................................... 45 4.06 Litigation and Environmental Matters................................ 45 4.07 Compliance with Laws and Agreements................................. 45 4.08 Investment and Holding Company Status............................... 45 4.09 Taxes............................................................... 46
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Section Page - ------- ----- 4.10 ERISA................................................................. 46 4.11 Disclosure............................................................ 46 4.12 Margin Stock.......................................................... 46 ARTICLE V. CONDITIONS TO CREDIT EXTENSIONS................................... 46 5.01 Closing Date.......................................................... 46 5.02 Each Credit Event..................................................... 47 ARTICLE VI. AFFIRMATIVE COVENANTS............................................. 48 6.01 Financial Statements and Other Information............................ 48 6.02 Notices of Defaults................................................... 49 6.03 Existence; Conduct of Business........................................ 49 6.04 Payment of Obligations................................................ 49 6.05 Maintenance of Properties; Insurance.................................. 49 6.06 Books and Records; Inspection Rights.................................. 50 6.07 Compliance with Laws.................................................. 50 6.08 Use of Proceeds....................................................... 50 6.09 Support Agreement..................................................... 50 ARTICLE VII. NEGATIVE COVENANTS................................................ 50 7.01 Liens................................................................. 50 7.02 Fundamental Changes................................................... 52 7.03 Transactions with Affiliates.......................................... 52 7.04 Adjusted Statutory Surplus............................................ 52 7.05 Consolidated Net Worth................................................ 52 ARTICLE VIII. EVENTS OF DEFAULT................................................. 53 8.01 Events of Default..................................................... 53 8.02 Remedies Upon Event of Default........................................ 54 8.03 Application of Funds.................................................. 55 ARTICLE IX. ADMINISTRATIVE AGENT.............................................. 56 9.01 Appointment and Authorization of Administrative Agent................. 56 9.02 Delegation of Duties.................................................. 56 9.03 Liability of Administrative Agent..................................... 56 9.04 Reliance by Administrative Agent...................................... 57 9.05 Notice of Default..................................................... 57 9.06 Credit Decision; Disclosure of Information by Administrative Agent.... 58 9.07 Indemnification of Administrative Agent............................... 58 9.08 Administrative Agent in its Individual Capacity....................... 59 9.09 Successor Administrative Agent........................................ 59 9.10 Administrative Agent May File Proofs of Claim......................... 60
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Section Page - ------- ----- 9.11 Other Agents; Joint Lead Arrangers and Book Managers.................. 60 ARTICLE X. MISCELLANEOUS..................................................... 61 10.01 Amendments, Etc....................................................... 61 10.02 Notices and Other Communications; Facsimile Copies.................... 62 10.03 No Waiver; Cumulative Remedies........................................ 63 10.04 [Intentionally Omitted]............................................... 63 10.05 Costs, Expenses and Indemnification................................... 63 10.06 Payments Set Aside.................................................... 64 10.07 Successors and Assigns................................................ 64 10.08 Confidentiality....................................................... 68 10.09 Set-off............................................................... 69 10.10 Interest Rate Limitation.............................................. 69 10.11 Counterparts.......................................................... 69 10.12 Integration........................................................... 70 10.13 Survival of Representations and Warranties............................ 70 10.14 Severability.......................................................... 70 10.15 Mitigation of Obligations; Replacement of Lenders..................... 70 10.16 Governing Law......................................................... 71 10.17 Waiver of Right to Trial by Jury...................................... 71 10.18 USA PATRIOT Act Notice................................................ 72
-iii- 1 SCHEDULES 2 1.01 Existing Letters of Credit 3 2.01 Commitments and Pro Rata Shares 4 4.06 Disclosed Matters 5 10.02 Administrative Agent's Office, Certain Addresses for Notices 6 7 EXHIBITS 8 A Form of Committed Loan Notice 9 B-1 Form of Bid Request 10 B-2 Form of Competitive Bid 11 C Form of Note 12 D Form of Assignment and Assumption 13 E Form of Opinion 14 -iv- FIVE-YEAR CREDIT AGREEMENT This FIVE-YEAR CREDIT AGREEMENT ("Agreement") is entered into as of April 23, 2004, among METLIFE, INC. ("MetLife"), METROPOLITAN LIFE INSURANCE COMPANY (the "Company") and METLIFE FUNDING, INC. ("Funding"; together with the Company and MetLife, each a "Borrower" and collectively the "Borrowers"), each lender from time to time party hereto (collectively, the "Lenders" and individually, a "Lender"), WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent and BANK OF AMERICA, N.A., as Administrative Agent and L/C Issuer. The Borrowers have requested that (a) the Lenders provide a revolving credit facility and (b) the L/C Issuer issue (and the Lenders purchase participations in) letters of credit from time to time, and the Lenders and the L/C Issuer are willing to do so on the terms and conditions set forth herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1.01 DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings set forth below: "Absolute Rate" means a fixed rate of interest expressed in multiples of 1/100th of one basis point. "Absolute Rate Loan" means a Bid Loan that bears interest at a rate determined with reference to an Absolute Rate. "Adjusted Statutory Surplus" means, at any time, the sum of (i) surplus (calculated in accordance with the Statutory Statements), plus (ii) asset valuation reserve (calculated in accordance with the Statutory Statements). "Administrative Agent" means Bank of America in its capacity as administrative agent under each of the Loan Documents, or any successor administrative agent. "Administrative Agent's Office" means the Administrative Agent's address as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrowers and the Lenders. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided that, for the purposes of Section 10.07, any special purpose funding vehicle that funds itself principally in the commercial paper market shall not constitute 1 an Affiliate of any Lender. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Agent-Related Persons" means the Administrative Agent, together with its Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, the Arrangers), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Aggregate Commitments" means the Commitments of all of the Lenders. On the date hereof the Aggregate Commitments shall equal $1,500,000,000. "Agreement" means this Five-Year Credit Agreement. "Applicable Insurance Regulatory Authority" means the insurance department or similar insurance regulatory or administrative authority or agency of the jurisdiction in which the Company is domiciled. "Applicable Rate" means, from time to time, the following percentages per annum, based upon the Debt Rating of the applicable Borrower as set forth below:
APPLICABLE RATE EURODOLLAR RATE MARGIN AND PRICING DEBT RATING LETTER OF BASE UTILIZATION LEVEL S&P/MOODY'S FACILITY FEE CREDIT FEE RATE FEE - ------- ----------------- ------------ ------------- ---- ----------- 1 A+/A1 or better 0.080 0.170 0 0.050 2 A/A2 0.090 0.210 0 0.050 3 A-/A3 0.125 0.225 0 0.100 4 BBB+/Baa1 0.150 0.250 0 0.100 5 BBB/Baa2 0.200 0.425 0 0.125 or worse
"Debt Rating" means, as of any date of determination, the rating as determined by either S&P or Moody's (collectively, the "Debt Ratings") of the applicable Borrower's non-credit-enhanced, senior unsecured long-term debt (or in the case of Funding, the non-credit-enhanced, senior unsecured long-term debt of the Company) provided that if a Debt Rating is issued by each of the foregoing rating agencies, then the higher of such Debt Ratings shall apply (with the Debt Rating for Pricing Level 1 being the highest and the Debt Rating for Pricing Level 5 being the lowest), unless there is a split in Debt Ratings of more than one level, in which case the Pricing Level that is one level higher than the Pricing Level of the lower Debt Rating shall apply. 2 The Facility Fee shall be based on the Debt Rating of the lowest rated of the Borrowers by S&P and Moody's. Initially, the Applicable Rate shall be determined based upon Pricing Level 2. Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective, in the case of an upgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change and, in the case of a downgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change. "Applicant" means with respect to a particular letter of credit, the Borrower or other Subsidiary of MetLife, applying for such Letter of Credit pursuant to Section 2.04. "Arrangers" mean Banc of America Securities LLC and Wachovia Capital Markets, LLC, in their capacities as joint lead arrangers and book managers. "Asset Securitization" means a public or private transfer of installment receivables, credit card receivables, lease receivables, mortgage loan receivables, policyholder loan receivables or any other type of secured or unsecured financial assets, which transfer is recorded as a sale according to GAAP as of the date of such transfer. "Assignment and Assumption" means an Assignment and Assumption substantially in the form of Exhibit D. "Attorney Costs" means and includes all fees, expenses and disbursements of any one law firm or other external counsel and, without duplication, in the case of an Event of Default referred to in Section 8.01(h) or 8.01(i), the allocated cost of internal legal services and all expenses and disbursements of internal counsel. "Attributable Indebtedness" means, on any date, in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP. "Audited Financial Statements" means the audited consolidated balance sheet of MetLife and its Subsidiaries for the fiscal year ended December 31, 2003, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year of MetLife and its Subsidiaries, including the notes thereto. "Availability Period" means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02. "Bank of America" means Bank of America, N.A. and its successors. "Bank of America Fee Letter" has the meaning specified in the definition of "Fee Letter." 3 "Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Committed Loan" means a Committed Loan that is a Base Rate Loan. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "Bid Borrowing" means a borrowing consisting of simultaneous Bid Loans of the same Type from each of the Lenders whose offer to make one or more Bid Loans as part of such borrowing has been accepted under the auction bidding procedures described in Section 2.03. "Bid Loan" has the meaning specified in Section 2.03(a). "Bid Loan Lender" means, in respect of any Bid Loan, the Lender making such Bid Loan to the Borrower. "Bid Request" means a written request for one or more Bid Loans substantially in the form of Exhibit B-1. "Borrower" has the meaning specified in the introductory paragraph hereto. "Borrowing" means a Committed Borrowing or a Bid Borrowing, as the context may require. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market. "Cash Collateralize" has the meaning specified in Section 2.04(g). "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of MetLife, or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of MetLife by Persons who were neither (i) nominated by the board of directors of MetLife nor (ii) appointed by directors so nominated. 4 "Closing Date" means the first date all the conditions precedent in Section 5.01 are satisfied or waived in accordance with Section 10.01. "Co-Applicant" means a Borrower acting as an applicant for an Applicant with respect to a particular Letter of Credit. "Code" means the Internal Revenue Code of 1986. "Commitment" means, as to each Lender, its obligation to (a) make Committed Loans to the Borrowers pursuant to Section 2.01 and (b) purchase participations in L/C Obligations, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. "Committed Borrowing" means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Committed Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01. "Committed Loan" has the meaning specified in Section 2.01. "Committed Loan Notice" means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Committed Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A. "Company" has the meaning specified in the introductory paragraph hereto. "Competitive Bid" means a written offer by a Lender to make one or more Bid Loans, substantially in the form of Exhibit B-2, duly completed and signed by a Lender. "Consolidated Net Worth" means the consolidated stockholders' equity, determined in accordance with GAAP, of MetLife and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" has the meaning specified in the definition of "Affiliate." "Credit Extension" means each of the following: (a) a Borrowing and (b) an L/C Credit Extension. 5 "Debt Rating" has the meaning specified in the definition of "Applicable Rate." "Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservation, dissolution, bankruptcy, assignment for the benefit of creditors, moratorium, rehabilitation, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally. "Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would, unless cured or waived, be an Event of Default. "Default Rate" means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum, in all cases to the fullest extent permitted by applicable Laws. "Defaulting Lender" means any Lender that (a) has failed to fund any portion of the Committed Loans or participations in L/C Obligations required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 4.06. "Dollar" and "$" mean lawful money of the United States. "Eligible Assignee" has the meaning specified in Section 10.07(g). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of MetLife or any of its Material Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any 6 contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with MetLife, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived and other than an event which is based on a certain level of unfunded vested benefits, or the requirement to pay variable PBGC premiums, provided that the amount of unfunded vested benefits, when determined on a FAS87 basis, do not exceed $50,000,000); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by MetLife or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by MetLife or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by MetLife or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by MetLife or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from MetLife or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar Base Rate" has the meaning specified in the definition of "Eurodollar Rate." "Eurodollar Bid Margin" means the margin above or below the Eurodollar Base Rate to be added to or subtracted from the Eurodollar Base Rate, which margin shall be expressed in multiples of 1/100th of one basis point. "Eurodollar Margin Bid Loan" means a Bid Loan that bears interest at a rate based upon the Eurodollar Base Rate. "Eurodollar Rate" means for any Interest Period with respect to any Eurodollar Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula: Eurodollar Base Rate Eurodollar Rate = -------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Base Rate" means, for such Interest Period: 7 (a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of interest at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America (or, in the case of a Bid Loan, the applicable Bid Loan Lender) and with a term equivalent to such Interest Period would be offered by Bank of America's (or such Bid Loan Lender's) London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Eurodollar Rate Committed Loan" means a Committed Loan that bears interest at a rate based on the Eurodollar Rate. "Eurodollar Rate Loan" means a Eurodollar Rate Committed Loan or a Eurodollar Margin Bid Loan. "Event of Default" has the meaning specified in Section 8.01. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower hereunder, (a) income, franchise or similar taxes, in each case, imposed on (or measured by) its net income by the United States of America, or by the jurisdiction (or any political subdivision 8 thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or, in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principle of residence, the jurisdiction (or any political subdivision thereof) in which such recipient is so resident, (b) Taxes imposed by reason of any present or former connection between such Person and the jurisdiction (or any political subdivision thereof) imposing such Taxes, other than as a result of the execution and delivery of this Agreement, the making of any Loans hereunder or the performance of any action provided for hereunder, (c) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located and (d) in the case of a Lender (other than an assignee pursuant to a request by the Company under Section 10.15(b)), any withholding tax that (i) is imposed on amounts payable to a Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from such Borrower with respect to such withholding tax pursuant to Section 3.01(a) or (ii) is attributable to such Lender's failure to comply with Section 3.01(e). "Existing Bank of America Credit Agreement" has the meaning specified in the definition of "Existing Credit Agreements." "Existing Credit Agreements" mean (a) that certain Credit Agreement dated as of April 23, 2002 among the Borrowers, Bank of America, as administrative agent, and a syndicate of lenders (the "Existing Bank of America Credit Agreement") and (b) that certain Credit Agreement dated as of April 25, 2003 among the Borrowers, BankOne, NA, as administrative agent, and a syndicate of lenders. "Existing Letters of Credit" means the letters of credit issued under the Existing Bank of America Credit Agreement listed on Schedule 1.01 hereof. "Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as reasonably determined by the Administrative Agent. "Fee Letters" mean (a) the letter agreement, dated April 1, 2004, among the Borrowers, Bank of America and Banc of America Securities LLC (the "Bank of America Fee Letter") and (b) the letter agreement, dated March 29, 2004, among the Borrowers, Wachovia Bank, N.A., and Wachovia Capital Markets, LLC. 9 "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of MetLife. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which any Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FRB" means the Board of Governors of the Federal Reserve System of the United States. "Funding" has the meaning specified in the introductory paragraph hereto. "GAAP" means generally accepted accounting principles in the United States. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Granting Lender" has the meaning specified in Section 10.07(h). "Guarantee" means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. 10 "Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business); (d) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) all Surplus Relief Reinsurance ceded by such Person; (f) capital leases of which such Person is the lessee; and (g) all Guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any capital lease as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. "Indemnified Liabilities" has the meaning specified in Section 10.05. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnitee" has the meaning specified in Section 10.05. "Interest Payment Date" means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date. "Interest Period" means (a) as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or (in the case of any Eurodollar Rate 11 Committed Loan) converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice or Bid Request, as the case may be; and (b) as to each Absolute Rate Loan, a period of not less than 7 days and not more than 360 days as selected by the Borrower in its Bid Request; provided that: (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Maturity Date. "IRS" means the United States Internal Revenue Service. "ISP" means, with respect to any Letter of Credit, the "International Standby Practices 1998" published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance). "Issuer Documents" means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and a Borrower (and, if applicable, any Subsidiary as an Applicant) or in favor of the L/C Issuer and relating to any such Letter of Credit. "Laws" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law. "L/C Advance" means, with respect to each Lender, such Lender's funding of its participation in any L/C Borrowing in accordance with its Pro Rata Share. "L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing. "L/C Credit Extension" means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof. 12 "L/C Issuer" means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder. "L/C Obligations" means, as at any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be "outstanding" in the amount so remaining available to be drawn. "Lender" has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the L/C Issuer. "Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrowers and the Administrative Agent. "Letter of Credit" means any standby letter of credit issued hereunder and shall include the Existing Letters of Credit. "Letter of Credit Application" means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer. "Letter of Credit Expiration Date" means the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day). "Letter of Credit Fee" has the meaning specified in Section 2.04(i). "Letter of Credit Sublimit" means an amount equal to $500,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing). "Loan" means an extension of credit by a Lender to a Borrower under Article II in the form of a Committed Loan, or a Bid Loan. "Loan Documents" means this Agreement, each Note, each Issuer Document, and the Fee Letters. "Loan Parties" means, collectively, the Borrowers. "Margin Stock" means "margin stock" within the meaning of Regulations U and X. 13 "Material Adverse Change" means any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of MetLife and its Subsidiaries taken as a whole, or (b) the validity or enforceability of this Agreement or the rights and remedies of the Administrative Agent and the Lenders hereunder. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Contracts, of MetLife or any of its Material Subsidiaries in an aggregate principal amount exceeding $300,000,000 (or its equivalent in any other currency). For purposes of determining Material Indebtedness, the "principal amount" of the obligations of MetLife or any of its Material Subsidiaries in respect of any Swap Contract at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that MetLife or such Material Subsidiary would be required to pay if such Swap Contract were terminated at such time. "Material Subsidiary" means, at any time, (i) Funding, (ii) the Company and (iii) each Subsidiary of MetLife that as of such time meets the definition of "significant subsidiary" contained as of the date hereof in Regulation S-X of the SEC. "Maturity Date" means April 23, 2009. "MetLife" has the meaning specified in the introductory paragraph hereto. "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NAIC" means the National Association of Insurance Commissioners and any successor thereto. "Note" means a promissory note made by a Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C. "Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. "Other Credit Agreement" means the 364-Day Credit Agreement among the Borrowers, certain lenders, Wachovia Capital Markets, LLC, as syndication agent and Bank of America, N.A., as administrative agent. 14 "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Outstanding Amount" means (i) with respect to Committed Loans and Bid Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Bid Loans, as the case may be, occurring on such date; and (ii) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including such changes as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "Participant" has the meaning specified in Section 10.07(d). "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 6.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 6.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any Borrower; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of 15 ERISA, and in respect of which MetLife or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pro Rata Share" means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Aggregate Commitments at such time; provided that if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable. "Register" has the meaning specified in Section 10.07(c). "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived. "Request for Credit Extension" means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to a Bid Loan, a Bid Request and (c) with respect to an L/C Credit Extension, a Letter of Credit Application. "Required Lenders" means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings (with the aggregate amount of each Lender's risk participation and funded participation in L/C Obligations being deemed "held" by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders. "Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto. "SAP" means the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority or the NAIC. 16 "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Securities Transactions" means (a) securities lending arrangements, and (b) repurchase and reverse repurchase arrangements with respect to securities and financial instruments. "Separate Accounts Assets" means, as at any date, the "Separate Accounts assets" of the Company, determined in accordance with SAP, reported as such in the Statutory Statements of the Company. "SPC" has the meaning specified in Section 10.07(h). "Statutory Statement" means a statement of the condition and affairs of the Company, prepared in accordance with SAP, and filed with the Applicable Insurance Regulatory Authority. "Structured Transaction Liens" means Liens granted by the Company to (A) a 99%-owned Subsidiary (the "Relevant Subsidiary") in connection with a structured private investment transaction entered into in September 1999, as the same may be amended from time to time (the "Structured Transaction") where (i) in connection with such transaction, such Liens are assigned to a special purpose Subsidiary of the Company (the "SPV") in which the Company is the holder of all outstanding obligations (other than ordinary course administrative expenses and common equity interests) and (ii) the assets covered by such Liens consist solely of the rights of the Company against the SPV; and (B) the SPV in connection with the Structured Transaction which are subordinated to, and exercisable only after, the Liens described in the preceding clause (A) and which cover only the assets covered by the Liens described in said clause (A). "Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of any Borrower. "Support Agreement" means the Support Agreement dated as of November 30, 1984 between the Company and Funding, as amended and restated effective as of that date on July 2, 1985. "Surplus Relief Reinsurance" means any transaction in which the Company or any Subsidiary of the Company cedes business under a reinsurance agreement that would be considered a "financing-type" reinsurance agreement as determined by the independent certified public accountants of the Company in accordance with principles published by the Financial Accounting Standards Board or the Second Edition of the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the same may be revised from time to time. "Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, 17 forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, or annexes, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority including penalties, interest and additions to tax. "Total Outstandings" means the aggregate Outstanding Amount of all Loans and all L/C Obligations. "Transactions" means the execution, delivery and performance by the Borrowers of this Agreement, the Borrowings when made, the issuance of Letters of Credit when issued and the use of proceeds thereof. "Type" means (a) with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan, and (b) with respect to a Bid Loan, its character as an Absolute Rate Loan or a Eurodollar Margin Bid Loan. "United States" and "U.S." mean the United States of America. "Unreimbursed Amount" has the meaning specified in Section 2.04(c)(i). "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 1.02 OTHER INTERPRETIVE PROVISIONS. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document: (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) (i) The words "herein," "hereto," "hereof" and "hereunder" and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof. 18 (ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears. (iii) The term "including" is by way of example and not limitation. (iv) The term "documents" includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form. (c) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including;" the words "to" and "until" each mean "to but excluding;" and the word "through" means "to and including." (d) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document. 1.03 ACCOUNTING TERMS. (a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP or SAP, as the case may be, applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements or Statutory Statements, as of and for the year ended December 31, 2003, as applicable, except as otherwise specifically prescribed herein. (b) If at any time any change in GAAP or SAP would affect the computation of any requirement set forth in any Loan Document, and either the Borrowers or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such requirement to preserve the original intent thereof in light of such change in GAAP or SAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such requirement shall continue to be computed in accordance with GAAP or SAP, as applicable, prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such requirement made before and after giving effect to such change in GAAP or SAP. 1.04 ROUNDING. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number). 1.05 REFERENCES TO AGREEMENTS AND LAWS. Unless otherwise expressly provided herein, (a) references to agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan 19 Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law. 1.06 TIMES OF DAY. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable). 1.07 LETTER OF CREDIT AMOUNTS. Unless otherwise specified, all references herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum face amount of such Letter of Credit after giving effect to all increases thereof contemplated by such Letter of Credit or the Issuer Documents related thereto, whether or not such maximum face amount is in effect at such time. ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS 2.01 COMMITTED LOANS. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a "Committed Loan") to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Commitment; provided, however, that after giving effect to any Committed Borrowing, (i) the Total Outstandings shall not exceed the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender's Pro Rata Share of the Outstanding Amount of all L/C Obligations shall not exceed such Lender's Commitment. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, any Borrower or all Borrowers may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein. The obligations of the Borrowers to repay Loans and L/C Obligations shall be several, not joint. 2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF COMMITTED LOANS. (a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Committed Loans shall be made upon a Borrower's irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or of any conversion of Eurodollar Rate Committed Loans to Base Rate Committed Loans, and (ii) on the requested date of any Borrowing of Base Rate Committed Loans. Each telephonic notice by a Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of a Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans shall be in a principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Section 2.04(c), each Borrowing of or conversion to Base Rate Committed Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) which Borrower is borrowing the Committed Borrowing, (ii) whether a 20 Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Committed Loans, (iii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iv) the principal amount of Committed Loans to be borrowed, converted or continued, (v) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (vi) if applicable, the duration of the Interest Period with respect thereto. If a Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if a Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Committed Loans. If a Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Committed Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. (b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the applicable Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. As promptly as practicable, upon satisfaction of the applicable conditions set forth in Section 5.02 (and, if such Borrowing is the initial Credit Extension, Section 5.01), the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the applicable Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the applicable Borrower; provided, however, that if, on the date the Committed Loan Notice with respect to such Borrowing is given by a Borrower, there are L/C Borrowings of such Borrower outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to such Borrower as provided above. (c) Except as otherwise provided herein, a Eurodollar Rate Committed Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Committed Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Committed Loans without the consent of the Required Lenders. (d) The Administrative Agent shall promptly notify the applicable Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Committed Loans upon determination of such interest rate. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrowers and the Lenders of any change in Bank of America's prime rate used in determining the Base Rate promptly following the public announcement of such change. 21 (e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans of the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans. 2.03 BID LOANS. (a) General. Subject to the terms and conditions set forth herein, each Lender agrees that any Borrower or all Borrowers may from time to time request the Lenders to submit offers to make loans (each such loan, a "Bid Loan") to any Borrower or all Borrowers prior to the Maturity Date pursuant to this Section 2.03; provided, however, that after giving effect to any Bid Borrowing, the Total Outstandings shall not exceed the Aggregate Commitments. There shall not be more than ten different Interest Periods in effect with respect to Bid Loans at any time. (b) Requesting Competitive Bids. Any Borrower may request the submission of Competitive Bids by delivering a Bid Request to the Administrative Agent not later than 12:00 noon (i) one Business Day prior to the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, or (ii) four Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans. Each Bid Request shall specify (i) which Borrower is delivering the Bid Request, (ii) the requested date of the Bid Borrowing (which shall be a Business Day), (iii) the aggregate principal amount of Bid Loans requested (which must be $10,000,000 or a whole multiple of $1,000,000 in excess thereof), (iv) the Type of Bid Loans requested, and (v) the duration of the Interest Period with respect thereto, and shall be signed by a Responsible Officer of the applicable Borrower. No Bid Request shall contain a request for (i) more than one Type of Bid Loan or (ii) Bid Loans having more than three different Interest Periods. Unless the Administrative Agent otherwise agrees in its sole and absolute discretion, no Borrower may submit a Bid Request if any Borrower has submitted another Bid Request within the prior five Business Days. (c) Submitting Competitive Bids. (i) The Administrative Agent shall promptly notify each Lender of each Bid Request received by it from any Borrower and the contents of such Bid Request. (ii) Each Lender may (but shall have no obligation to) submit a Competitive Bid containing an offer to make one or more Bid Loans in response to such Bid Request. Such Competitive Bid must be delivered to the Administrative Agent not later than 10:30 a.m. (A) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, and (B) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans; provided, however, that any Competitive Bid submitted by Bank of America in its capacity as a Lender in response to any Bid Request must be submitted to the Administrative Agent not later than 10:15 a.m. on the date on which Competitive Bids are required to be delivered by the other Lenders in response to such Bid Request. Each Competitive Bid shall specify (A) the proposed date of the Bid Borrowing; (B) the principal amount of each Bid Loan for which such Competitive Bid is being made, which principal amount (x) may be equal to, greater than or less than the Commitment of the bidding Lender, (y) must be $5,000,000 or a whole 22 multiple of $1,000,000 in excess thereof, and (z) may not exceed the principal amount of Bid Loans for which Competitive Bids were requested; (C) if the proposed Bid Borrowing is to consist of Absolute Rate Bid Loans, the Absolute Rate offered for each such Bid Loan and the Interest Period applicable thereto; (D) if the proposed Bid Borrowing is to consist of Eurodollar Margin Bid Loans, the Eurodollar Bid Margin with respect to each such Eurodollar Margin Bid Loan and the Interest Period applicable thereto; and (E) the identity of the bidding Lender. (iii) Any Competitive Bid shall be disregarded if it (A) is received after the applicable time specified in clause (ii) above, (B) is not substantially in the form of a Competitive Bid as specified herein, (C) contains qualifying, conditional or similar language, (D) proposes terms other than or in addition to those set forth in the applicable Bid Request, or (E) is otherwise not responsive to such Bid Request. Any Lender may correct a Competitive Bid containing a manifest error by submitting a corrected Competitive Bid (identified as such) not later than the applicable time required for submission of Competitive Bids. Any such submission of a corrected Competitive Bid shall constitute a revocation of the Competitive Bid that contained the manifest error. The Administrative Agent may, but shall not be required to, notify any Lender of any manifest error it detects in such Lender's Competitive Bid. (iv) Subject only to the provisions of Sections 3.02, 3.03 and 5.02 and clause (iii) above, each Competitive Bid shall be irrevocable. (d) Notice to Borrower of Competitive Bids. Not later than 11:00 a.m. (i) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, or (ii) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans, the Administrative Agent shall notify the Borrower of the identity of each Lender that has submitted a Competitive Bid that complies with Section 2.03(c) and of the terms of the offers contained in each such Competitive Bid. (e) Acceptance of Competitive Bids. Not later than 11:30 a.m. (i) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, and (ii) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans, the applicable Borrower shall notify the Administrative Agent of its acceptance or rejection of the offers notified to it pursuant to Section 2.03(d). The applicable Borrower shall be under no obligation to accept any Competitive Bid and may choose to reject all Competitive Bids. In the case of acceptance, such notice shall specify the aggregate principal amount of Competitive Bids for each Interest Period that is accepted. The applicable Borrower may accept any Competitive Bid in whole or in part; provided that: (i) the aggregate principal amount of each Bid Borrowing may not exceed the applicable amount set forth in the related Bid Request; (ii) the principal amount of each Bid Loan must be $5,000,000 or a whole multiple of $1,000,000 in excess thereof; 23 (iii) the acceptance of offers may be made only on the basis of ascending Absolute Rates or Eurodollar Bid Margins within each Interest Period; and (iv) the applicable Borrower may not accept any offer that is described in Section 2.03(c)(iii) or that otherwise fails to comply with the requirements hereof. (f) Procedure for Identical Bids. If two or more Lenders have submitted Competitive Bids at the same Absolute Rate or Eurodollar Bid Margin, as the case may be, for the same Interest Period, and the result of accepting all of such Competitive Bids in whole (together with any other Competitive Bids at lower Absolute Rates or Eurodollar Bid Margins, as the case may be, accepted for such Interest Period in conformity with the requirements of Section 2.03(e)(iii)) would be to cause the aggregate outstanding principal amount of the applicable Bid Borrowing to exceed the amount specified therefor in the related Bid Request, then, unless otherwise agreed by the applicable Borrower, the Administrative Agent and such Lenders, such Competitive Bids shall be accepted as nearly as possible in proportion to the amount offered by each such Lender in respect of such Interest Period, with such accepted amounts being rounded to the nearest whole multiple of $1,000,000. (g) Notice to Lenders of Acceptance or Rejection of Bids. The Administrative Agent shall promptly notify each Lender having submitted a Competitive Bid whether or not its offer has been accepted and, if its offer has been accepted, of the amount of the Bid Loan or Bid Loans to be made by it on the date of the applicable Bid Borrowing. Any Competitive Bid or portion thereof that is not accepted by the applicable Borrower by the applicable time specified in Section 2.03(e) shall be deemed rejected. (h) Notice of Eurodollar Base Rate. If any Bid Borrowing is to consist of Eurodollar Margin Bid Loans, the Administrative Agent shall determine the Eurodollar Base Rate for the relevant Interest Period, and promptly after making such determination, shall notify the applicable Borrower and the Lenders that will be participating in such Bid Borrowing of such Eurodollar Base Rate. (i) Funding of Bid Loans. Each Lender that has received notice pursuant to Section 2.03(g) that all or a portion of its Competitive Bid has been accepted by the applicable Borrower shall make the amount of its Bid Loan(s) available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 12:00 (noon) on the date of the requested Bid Borrowing. Upon satisfaction of the applicable conditions set forth in Section 5.02, the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent. (j) Notice of Range of Bids. After each Competitive Bid auction pursuant to this Section 2.03, the Administrative Agent shall notify each Lender that submitted a Competitive Bid in such auction of the ranges of bids submitted (without the bidder's name) and accepted for each Bid Loan and the aggregate amount of each Bid Borrowing. 2.04 LETTERS OF CREDIT. (a) The Letter of Credit Commitment. 24 (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of any Borrower or its Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of any Borrower or its Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Outstandings shall not exceed the Aggregate Commitments, (y) the aggregate Outstanding Amount of the Committed Loans of any Lender, plus such Lender's Pro Rata Share of the Outstanding Amount of all L/C Obligations shall not exceed such Lender's Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by a Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by such Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers' ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. All Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof. (ii) The L/C Issuer shall not issue any Letter of Credit, if: (A) subject to Section 2.04(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or (B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Lenders have approved such expiry date; (iii) The L/C Issuer shall not be under any obligation to issue any Letter of Credit if: (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or 25 expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it; (B) the issuance of such Letter of Credit would violate any Laws; (C) after the issuance of such Letter of Credit, more than thirty Letters of Credit would be outstanding unless the Borrowers and the Required Lenders otherwise agree; (D) such Letter of Credit is to be denominated in a currency other than Dollars; (E) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder; or (F) a default of any Lender's obligations to fund under Section 2.04(c) exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer's risk with respect to such Lender. (iv) The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof. (v) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit. (b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit. (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of a Borrower, and, if a Subsidiary is an Applicant, such Subsidiary delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the applicable Borrower and, if a Subsidiary is an Applicant, such Subsidiary. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least five Business Days prior to the proposed issuance date or date of amendment (or such shorter time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion), as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) who is the Applicant, and if the Applicant is not a Borrower, who is the Co-Applicant; (B) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (C) the amount thereof; (D) the expiry date thereof; (E) the name and address of the beneficiary thereof; (F) the documents to be presented by such beneficiary in case of any drawing thereunder; (G) the full text of any certificate to be presented by such beneficiary in case 26 of any drawing thereunder; and (H) such other matters as the L/C Issuer may reasonably require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (w) the Letter of Credit to be amended; (x) the proposed date of amendment thereof (which shall be a Business Day); (y) the nature of the proposed amendment; and (z) such other matters as the L/C Issuer may reasonably require. Additionally, the Applicant shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may reasonably require. (ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Applicant and, if applicable, the Co-Applicant and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article V shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer's usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender's Pro Rata Share times the amount of such Letter of Credit. (iii) If an Applicant so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an "Auto-Extension Letter of Credit"); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the "Non-Extension Notice Date") in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Applicant (or, if applicable, the Co-Applicant) shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.04(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice 27 Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or any Loan Party that one or more of the applicable conditions specified in Section 5.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension. (iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the applicable Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment. (c) Drawings and Reimbursements; Funding of Participations. (i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the applicable Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an "Honor Date"), the applicable Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing. If the applicable Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the "Unreimbursed Amount"), and the amount of such Lender's Pro Rata Share thereof. In such event, the applicable Borrower shall be deemed to have requested a Committed Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Aggregate Commitments and the conditions set forth in Section 5.02 (other than the delivery of a Committed Loan Notice). Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.04(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. Each deemed Committed Borrowing made pursuant to this Section 2.04(c)(i) shall be deemed to be a reimbursement of each related drawing under a Letter of Credit. (ii) Each Lender (including the Lender acting as L/C Issuer) shall upon any notice pursuant to Section 2.04(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent's Office in an amount equal to its Pro Rata Share of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.04(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Committed Loan to the applicable Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer. (iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Committed Borrowing of Base Rate Loans because the conditions set forth in Section 5.02 cannot be satisfied or for any other reason, the applicable Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and 28 payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender's payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.04(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.04. (iv) Until each Lender funds its Committed Loan or L/C Advance pursuant to this Section 2.04(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender's Pro Rata Share of such amount shall be solely for the account of the L/C Issuer. (v) Each Lender's obligation to make Committed Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.04(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, any Borrower, any other Applicant or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender's obligation to make Committed Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 5.02 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the applicable Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein. (vi) If any Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the Federal Funds Rate from time to time in effect. A certificate of the L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error. (d) Repayment of Participations. (i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender's L/C Advance in respect of such payment in accordance with Section 2.04(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the applicable Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Pro Rata Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time 29 during which such Lender's L/C Advance was outstanding) in the same funds as those received by the Administrative Agent. (ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.04(c)(i) is required to be returned under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Pro Rata Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. (e) Obligations Absolute. The obligation of the applicable Borrower to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following: (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document; (ii) the existence of any claim, counterclaim, set-off, defense or other right that such Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction; (iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit; (iv) any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or (v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, such Borrower or any Subsidiary. Each Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto requested by the Borrowers that is delivered to it and, in the event of any claim of noncompliance with such Borrower's instructions or other irregularity, such Borrower will notify the L/C Issuer as promptly as practicable. No Letter of Credit will be amended without written approval of the Borrowers and the L/C Issuer. Such Borrower shall be 30 conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid. (f) Role of L/C Issuer. Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuer, any Agent-Related Person nor any of the respective correspondents, participants or assignees of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Letter of Credit Application. Each Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude such Borrower's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuer, any Agent-Related Person, nor any of the respective correspondents, participants or assignees of the L/C Issuer, shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.04(e); provided, however, that anything in such clauses to the contrary notwithstanding, the applicable Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by such Borrower which such Borrower proves were caused primarily by the L/C Issuer's willful misconduct or gross negligence or the L/C Issuer's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. (g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any Letter of Credit for any reason remains outstanding and partially or wholly undrawn, the applicable Borrower shall immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations (in an amount equal to such Outstanding Amount determined as of the date of such L/C Borrowing or the Letter of Credit Expiration Date, as the case may be). Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. For purposes of this Section 2.04, Section 2.06 and Section 8.02(c), "Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C 31 Issuer (which documents are hereby consented to by the Lenders). Derivatives of such term have corresponding meanings. Each Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing delivered by such Borrower as Cash Collateral. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America. (h) Applicability of ISP98. Unless otherwise expressly agreed by the L/C Issuer and the applicable Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), the rules of the ISP shall apply to each. (i) Letter of Credit Fees. Each Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share a Letter of Credit fee (the "Letter of Credit Fee") for each Letter of Credit equal to the Applicable Rate times the daily maximum amount available to be drawn under such Letter of Credit (whether or not such maximum amount is then in effect under such Letter of Credit). Letter of Credit Fees shall be (i) computed on a quarterly basis in arrears and (ii) due and payable on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. If there is any change in the Applicable Rate during any quarter, the daily maximum amount of each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate. (j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. Each Borrower shall pay directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit with respect to which it is the Applicant or the Co-Applicant in the amount specified in the Bank of America Fee Letter, payable on the actual daily maximum amount available to be drawn under such Letter of Credit (whether or not such maximum amount is then in effect under such Letter of Credit). Such fronting fee shall be computed on a quarterly basis in arrears. Such fronting fee shall be due and payable on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. In addition, each Borrower shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. (k) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control. (l) Letters of Credit Issued for Subsidiaries. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower, which is the Co-Applicant with respect to such Letter of Credit, shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. Each Borrower hereby acknowledges that the issuance of Letters of Credit for the 32 account of its Subsidiaries inures to the benefit of such Borrower, and that such Borrower's business derives substantial benefits from the businesses of such Subsidiaries. 2.05 PREPAYMENTS. (a) Any Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Committed Loans and (B) on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate Committed Loans shall be in a principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Committed Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender's Pro Rata Share of such prepayment. If such notice is given by any Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Pro Rata Shares. (b) No Bid Loan may be prepaid without the prior consent of the applicable Bid Loan Lender. (c) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments then in effect, the Borrowers shall immediately prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess; provided, however, that no Borrower shall be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(c) unless after the prepayment in full of the Committed Loans the Total Outstandings exceed the Aggregate Commitments then in effect. (d) Upon the occurrence of a Change in Control, each Borrower agrees that if requested by the Administrative Agent (acting at the request of the Required Lenders) such Borrower will promptly prepay its Loans, together with accrued interest and will promptly Cash Collateralize its L/C Obligations; provided that no prepayment of any Bid Loan shall be made without the prior consent of the Lender thereof. 2.06 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrowers may, upon notice to the Administrative Agent, terminate the Aggregate Commitments and this Agreement, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof, (iii) the Borrowers shall not terminate or reduce the Aggregate Commitments if, after giving effect 33 thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments, and (iv) if, after giving effect to any reduction of the Aggregate Commitments, the Letter of Credit Sublimit exceeds the amount of the Aggregate Commitments, such Sublimit shall be automatically reduced by the amount of such excess. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Pro Rata Share. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. 2.07 REPAYMENT OF LOANS. (a) Each Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of its Committed Loans outstanding on such date. (b) Each Borrower shall repay each of its Bid Loans on the last day of the Interest Period in respect thereof. 2.08 INTEREST. (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Committed Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; (ii) each Base Rate Committed Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate; and (iii) each Bid Loan shall bear interest on the outstanding principal amount thereof for the Interest Period therefor at a rate per annum equal to the Eurodollar Base Rate for such Interest Period plus (or minus) the Eurodollar Bid Margin, or at the Absolute Rate for such Interest Period, as the case may be. (b) (i) If any amount of principal of any Loan is not paid when due without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (ii) If any amount (other than principal of any Loan) payable by any Borrower under any Loan Document is not paid when due (after any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (iii) Upon the request of the Required Lenders, while any Event of Default exists, each Borrower shall pay interest on the principal amount of all its outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. 34 (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand. (c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law. 2.09 FEES. In addition to certain fees described in subsections (i) and (j) of Section 2.04: (a) Facility Fee. The Borrowers, jointly and severally, agree to pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share, a facility fee equal to the Applicable Rate times the actual daily amount of the Aggregate Commitments (or, if the Aggregate Commitments have terminated, on the Outstanding Amount of all Committed Loans and L/C Obligations), regardless of usage. The facility fee shall accrue at all times during the Availability Period (and thereafter so long as any Committed Loans or L/C Obligations remain outstanding), including at any time during which one or more of the conditions in Article V is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date (and, if applicable, thereafter on demand). The facility fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. (b) Utilization Fee. Each Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share, a utilization fee equal to the Applicable Rate times its Total Outstandings on each day that the Total Outstandings plus the "Total Outstandings" as defined in the Other Credit Agreement exceed 50% of the actual daily amount of the Aggregate Commitments plus the "Aggregate Commitments," as defined in the Other Credit Agreement then in effect (or, if terminated, in effect immediately prior to such termination). The utilization fee shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The utilization fee shall be calculated quarterly in arrears and if there is any change in the Applicable Rate during any quarter, the daily amount shall be computed and multiplied by the Applicable Rate for each period during which such Applicable Rate was in effect. The utilization fee shall accrue at all times, including at any time during which one or more of the conditions in Article V is not met. (c) Other Fees. (i) The Borrowers shall pay to the Arrangers and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letters. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever. 35 (ii) Upfront Fees. The Borrowers shall pay to the Administrative Agent for the benefit of the Lenders the upfront fees set forth in the Fee Letters in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever. 2.10 COMPUTATION OF INTEREST AND FEES. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "prime rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day. 2.11 EVIDENCE OF DEBT. (a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to each Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, each Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender's Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto. (b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. 36 2.12 PAYMENTS GENERALLY. (a) All payments to be made by any Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by any Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:30 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender's Lending Office. All payments received by the Administrative Agent after 2:30 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. (b) If any payment to be made by any Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be. (c) Unless any Borrower or any Lender has notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder (or, in the case of a Borrowing of Base Rate Loan, prior to 12:30 p.m. on the date of such Borrowing), that such Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that such Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then: (i) if such Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and (ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to such Borrower to the date such amount is recovered by the Administrative Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Committed Loan or Bid Loan, as the case may be, included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent may make a demand therefor upon such Borrower, and such Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to 37 the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent, any Lender or any Borrower may have against any other Lender as a result of any default by such Lender hereunder. A notice of the Administrative Agent to any Lender or any Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error. (d) If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to any Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article V are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest. (e) The obligations of the Lenders hereunder to make Committed Loans and to fund participations in Letters of Credit are several and not joint. The failure of any Lender to make any Committed Loan or to fund any such participation on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan or purchase its participation. (f) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner. 2.13 SHARING OF PAYMENTS. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Committed Loans made by it, or the participations in L/C Obligations held by it, any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Committed Loans made by them and/or such subparticipations in the participations in L/C Obligations held by them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment in respect of such Committed Loans or such participations, as the case may be, pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. Each Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.09) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower 38 in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased. ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 TAXES. (a) Any and all payments by or on account of any obligation of each Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, each Borrower shall pay any Other Taxes not paid pursuant to Section 3.01(a)(iii) to the relevant Governmental Authority in accordance with applicable law. (c) Each Borrower shall indemnify the Administrative Agent and each Lender within thirty (30) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of such Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest, additions to tax and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided, that such Borrower shall not be obligated to make a payment pursuant to this Section 3.01 in respect of penalties, interest and additions to tax attributable to any Indemnified Taxes or Other Taxes, if (i) such penalties, interest and additions to tax are attributable to the failure of the Administrative Agent or such Lender, as the case may be, to pay amounts paid to the Administrative Agent or such Lender by such Borrower (for Indemnified Taxes or Other Taxes) to the relevant Governmental Authority within thirty (30) days after receipt of such payment from such Borrower or (ii) such penalties, interest and additions to tax are attributable to the gross negligence or willful misconduct of the Administrative Agent or such Lender, as the case may be. Within 180 days after the Administrative Agent or such Lender learns of the imposition of Indemnified Taxes or Other Taxes, such Person shall give notice to the relevant Borrower of the payment by the Administrative Agent or such Lender, as the case may be, of such Indemnified Taxes or Other Taxes, and of the assertion by any Governmental Authority that such Indemnified Taxes or Other Taxes are due and payable, but the failure to give such notice shall 39 not affect such Borrower's obligations hereunder to reimburse the Administrative Agent and such Lender for such Indemnified Taxes or Other Taxes, except that such Borrower shall not be liable for penalties, interest and other liabilities accrued or incurred after such 180 day period until such time as it receives the notice contemplated above, after which time it shall be liable for penalties, interest and other liabilities accrued or incurred prior to or during such 180 day period and accrued or incurred after such receipt. Such Borrower shall not be liable for any penalties, interest and other liabilities with respect to such Indemnified Taxes or Other Taxes to the extent it has reimbursed the amount thereof to the Administrative Agent or such Lender, as the case may be. A certificate as to the amount of such payment or liability delivered to the relevant Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the relevant Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Lender, before it signs and delivers this Agreement if listed on the signature pages hereof, and before it becomes a Lender in the case of each other Foreign Lender, shall provide such Borrower and the Administrative Agent either (i) two accurate, complete and signed copies of either (x) U.S. Internal Revenue Service Form W-8ECI or any successor form, or (y) U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form W-8IMY, or any successor form, in each case, indicating that such Lender is on the date of delivery thereof entitled to receive payments of interest hereunder free from, or subject to a reduced rate of withholding of United States Federal income tax or (ii) in the case of such a Lender that is entitled to claim exemption from withholding of United States Federal income tax under Section 871(h) or Section 881(c) of the Code with respect to payments of "portfolio interest", (x) a certificate to the effect that such Lender is (A) not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) not a "10 percent shareholder" of any Borrower within the meaning of Section 881(c)(3)(B) of the Code and (C) not a controlled foreign corporation related to any Borrower within the meaning of Section 881(c)(3)(C) of the Code and (y) two accurate, complete and signed copies of U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form W-81MY, or any successor Form. To the extent permitted by applicable law, from time to time thereafter, at the request of any Borrower, each Foreign Lender shall deliver renewals or additional copies of such forms (or successor forms) on or before the date that such form expires or becomes obsolete. Upon the written request of a Borrower to the Administrative Agent and any Lender which is not a Foreign Lender, such Lender shall provide such Borrower and the Administrative Agent with two accurate, complete and signed copies of the U.S. Internal Revenue Service Form W-9. (f) The Administrative Agent may, without reduction, withhold any Taxes required to be deducted and withheld from any payment under any of the Loan Documents with respect to which the Borrowers are not required to pay additional amounts under this Section 3.01. (g) If the U.S. Internal Revenue Service or any other Governmental Authority asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for 40 the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this paragraph (g), together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this paragraph (g) shall survive the payment of the Loans and termination of this Agreement. (h) If the Administrative Agent or any Lender determines, in its good faith judgment, that it has actually received or realized any refund of tax or any reduction of its tax liabilities or otherwise recovered any amount in connection with any deduction or withholding or payment of any additional amount by any Borrower pursuant to Section 3.04 or this Section 3.01, such Person shall reimburse such Borrower in an amount equal to the net benefit, after tax, and net of all expenses incurred by such Person in connection with such refund, reduction or recovery; provided, that nothing in this paragraph (h) shall require any Person to make available its tax returns (or any other information relating to its taxes which it deems to be confidential). Each Borrower shall return such amount to the applicable Person in the event that such Person is required to repay such refund of tax or is not entitled to such reduction of, or credit against, its tax liabilities. If the Administrative Agent or any Lender shall become aware that it is entitled to receive a refund or direct credit in respect of Indemnified Taxes or Other Taxes as to which it has been indemnified by any Borrower or with respect to which any Borrower has paid additional amounts, it shall promptly notify such Borrower of the availability of such refund or direct credit and shall, within 30 days after receipt of a request for such by such Borrower (whether as a result of notification that it has made of such to such Borrower or otherwise), make a claim to such Governmental Authority for such refund or direct credit and contest such Indemnified Taxes, Other Taxes or liabilities if (i) such Borrower has agreed in writing to pay all of such Lender's or Administrative Agent's reasonable costs and expenses relating to such claim or contest, (ii) such Lender or the Administrative Agent determines, in its good faith judgment, that it would not be materially disadvantaged or prejudiced as a result of such claim or contest (it being understood that the mere existence of fees, charges, costs or expenses that such Borrower has offered to and agreed to pay on behalf of such Lender or the Administrative Agent shall not be deemed to be materially disadvantageous to such person) and (iii) such Borrower furnishes, upon request of such Lender or the Administrative Agent, an opinion of reputable tax counsel (such opinion and such counsel to be acceptable to such Lender or the Administrative Agent) to the effect that such Indemnified Taxes or Other Taxes were wrongly or illegally imposed. 3.02 ILLEGALITY. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the applicable Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Committed Loans to Eurodollar Rate Committed Loans shall be suspended until such Lender notifies the Administrative Agent and 41 such Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all its Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the applicable Borrower shall also pay accrued interest on the amount so prepaid or converted. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender. 3.03 INABILITY TO DETERMINE RATES. If the Required Lenders determine that for any reason adequate and reasonable means do not exist for determining the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan, or that the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrowers and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, any Borrower may revoke any pending request by it for a Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein. 3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY. (a) If any Lender determines that as a result of the introduction of or any change in or in the interpretation by any Governmental Authority of any Law, or such Lender's compliance with any request, guideline or directive of any Governmental Authority made or issued after the date hereof, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans or (as the case may be) issuing or participating in Letters of Credit, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to which Section 3.01 shall govern), (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which such Lender is organized, in which its principal office is located or has its Lending Office (or in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principal of residence, the jurisdiction (or any political subdivision thereof) in which such Lender is so resident), and (iii) reserve requirements utilized, as to Eurodollar Rate Committed Loans, in the determination of the Eurodollar Rate), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the applicable Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction. 42 (b) If any Lender determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation by any Governmental Authority thereof, or compliance by such Lender (or its Lending Office) with any request, guideline or directive of any Governmental Authority made or issued after the date hereof, has the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender's desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrowers shall jointly and severally pay to such Lender such additional amounts as will compensate such Lender for such reduction. 3.05 COMPENSATION FOR LOSSES. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, each Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) except as a result of circumstances set forth in Section 3.02, any continuation, conversion, payment or prepayment of any Loan to it other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by such Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by such Borrower; or (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by such Borrower pursuant to Section 10.15; including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by any Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Committed Loan made by it at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Committed Loan was in fact so funded. 3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION. (a) A certificate of the Administrative Agent or any Lender claiming compensation under this Article III and setting forth the basis for such claim and a calculation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. (b) Upon any Lender's making a claim for compensation under Section 3.01 or 3.04, the Borrower may replace such Lender in accordance with Section 10.15. 43 3.07 SURVIVAL. All of the Borrowers' obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder. ARTICLE IV. REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants to the Lenders, as to itself and its Subsidiaries, as applicable, that: 4.01 ORGANIZATION; POWERS. MetLife and each of its Material Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 4.02 AUTHORIZATION; ENFORCEABILITY. The Transactions are within each Borrower's corporate powers and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by each Borrower and constitutes a legal, valid and binding obligation of each Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Support Agreement has been duly executed and delivered by and constitutes a legal, valid and binding obligation of the Company and Funding, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 4.03 GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by laws or other organizational documents of any Borrower or any order of any Governmental Authority, and (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Borrower or its assets, or give rise to a right thereunder to require any payment to be made by any Borrower. 4.04 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE. (a) MetLife has heretofore furnished to the Lenders its audited consolidated balance sheet and statements of earnings, equity and cash flows as of and for the fiscal year ended December 31, 2003, reported on by independent public accountants. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of MetLife and its Consolidated Subsidiaries, as of the date thereof and for such fiscal year, in accordance with GAAP. (b) The Company has heretofore furnished to each of the Lenders the annual Statutory Statement of the Company as at and for the year ended December 31, 2003, as filed with the Applicable Insurance Regulatory Authority. Such Statutory Statement presents fairly, 44 in all material respects, the financial position and results of operations of the Company , as of the date thereof and for such year, in accordance with SAP. (c) Since December 31, 2003, there has been no material adverse change in the business, assets, property or condition (financial or otherwise) of MetLife and its Subsidiaries taken as a whole from that set forth in the respective financial statements referred to in Sections 4.04(a) and 4.04(b). 4.05 PROPERTIES. (a) MetLife and each of its Material Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. (b) MetLife and each of its Material Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by MetLife and its Material Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. 4.06 LITIGATION AND ENVIRONMENTAL MATTERS. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Borrower, threatened against or affecting MetLife or any of its Material Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, is reasonably likely, individually or in the aggregate, to result in a Material Adverse Change (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, neither MetLife nor any of its Material Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. 4.07 COMPLIANCE WITH LAWS AND AGREEMENTS. Each of MetLife and its Material Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. No Default has occurred and is continuing. 4.08 INVESTMENT AND HOLDING COMPANY STATUS. Neither MetLife nor any of its Material Subsidiaries (other than Funding) is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, and Funding is an "investment 45 company" as defined in such Act that is exempt from the requirements of such Act. Neither MetLife nor any of its Material Subsidiaries is a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 4.09 TAXES. Each of MetLife and its Subsidiaries has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which MetLife or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Change. 4.10 ERISA. Each Plan and, to the knowledge of MetLife, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Change. 4.11 DISCLOSURE. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrowers to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that with respect to projected financial information, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. 4.12 MARGIN STOCK. No part of the proceeds of any Loan hereunder will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the FRB, including Regulations U and X. Not more than 25% of the value (as determined by any reasonable method) of the assets of any of the Borrowers is represented by Margin Stock. ARTICLE V. CONDITIONS TO CREDIT EXTENSIONS 5.01 CLOSING DATE. The obligations of the Lenders to make Loans and of the L/C Issuer to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.01): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received an opinion, addressed to it and the Lenders and dated the Closing Date, of counsel to the Company, substantially in the form of Exhibit E, and covering such other matters relating to the Borrowers, this Agreement or the 46 Transactions as the Required Lenders shall reasonably request. The Borrowers hereby request such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent, its counsel or any Lender may reasonably request relating to the organization, existence and good standing of each of the Borrowers, the authorization of the Transactions and any other legal matters relating to each of the Borrowers, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. (e) The Existing Credit Agreements shall have been terminated, all Loans thereunder shall have been repaid in full and all Letters of Credit issued under the Existing Bank of America Credit Agreement shall have been cancelled or shall constitute Existing Letters of Credit hereunder. The Administrative Agent shall notify the Borrowers and the Lenders of the Closing Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.01) at or prior to 3:00 p.m., New York City time, on April 23, 2004 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). 5.02 EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing or of the L/C Issuer to make any L/C Credit Extension is subject to the satisfaction of the following conditions: (a) The representations and warranties of each of the Borrowers set forth in this Agreement (other than, after the Closing Date, in Section 4.04(c) and in Section 4.06) shall be true and correct on and as of the date of such Borrowing. (b) At the time of and immediately after giving effect to such Borrowing or L/C Credit Extension, no Default shall have occurred and be continuing. (c) At the time of and immediately after giving effect to such Borrowing or L/C Credit Extension, no default or event or condition which constitutes a default or which upon notice, lapse of time or both would, unless cured or waived, become a default shall have occurred and be continuing under the Support Agreement. (d) The applicable Borrower is authorized to perform its obligations in respect of the proposed Borrowing or L/C Credit Extension. Each Borrowing or L/C Credit Extension shall be deemed to constitute a representation and warranty by each Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section. 47 ARTICLE VI. AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, each Borrower covenants and agrees with the Lenders that: 6.01 FINANCIAL STATEMENTS AND OTHER INFORMATION. MetLife will furnish to the Administrative Agent and each Lender: (a) (i) as soon as available, but not later than 120 days after the end of each fiscal year of MetLife, copies of MetLife's annual report on Form 10-K as filed with the SEC for such fiscal year; and (ii) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of MetLife, copies of MetLife's quarterly report on Form 10-Q as filed with the SEC for such fiscal quarter, in each case certified by an appropriate Financial Officer as being the complete and correct copies of the statements on such forms furnished by MetLife to the SEC; (b) concurrently with any delivery of financial statements under clause (a) above or (except as to clause (ii) of this paragraph (b)) clause (c) or (d) below, a certificate of a Financial Officer of MetLife (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 7.04 and 7.05 and (iii) stating whether any change in GAAP or SAP, as the case may be, or in the application thereof has occurred since the date of the most recently delivered financial statements and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (c) within five days after filing with the Applicable Insurance Regulatory Authority and in any event within 60 days after the end of each year, the annual Statutory Statement of the Company for such year, certified by one of its Financial Officers as presenting fairly in all material respects the financial position of the Company for such year in accordance with SAP; (d) within five days after filing with the Applicable Insurance Regulatory Authority and in any event within 60 days after the end of each of the first three quarterly periods of each year, the quarterly Statutory Statement of the Company for such period, certified by one of its Financial Officers as presenting fairly in all material respects the financial position of the Company for such period in accordance with SAP; (e) within five days after any change in a Debt Rating for a Borrower, notice of such change; and (f) within ten days after knowledge of the occurrence of any ERISA Event, a description of such ERISA Event; and (g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of MetLife or any of its Material 48 Subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Documents required to be delivered pursuant to Section 4.04 or Section 6.01 (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrowers post such documents, or provides a link thereto on the Borrowers' website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrowers' behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrowers shall deliver paper copies of such documents to the Administrative Agent until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) the Borrowers shall notify (which may be by facsimile or electronic mail) the Administrative Agent of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the certificate required by Section 6.01(b) to the Administrative Agent. Except for such certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. 6.02 NOTICES OF DEFAULTS. The Borrowers will furnish to the Administrative Agent and each Lender prompt written notice of the occurrence of any Default. Each such notice shall be accompanied by a statement of a Financial Officer or other executive officer of MetLife setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. 6.03 EXISTENCE; CONDUCT OF BUSINESS. MetLife will, and will cause each of its Material Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation, dissolution or other transaction permitted under Section 7.02. 6.04 PAYMENT OF OBLIGATIONS. MetLife will, and will cause each of its Material Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Change before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) MetLife or such Material Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Change. 6.05 MAINTENANCE OF PROPERTIES; INSURANCE. MetLife will, and will cause each of its Material Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with 49 financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. 6.06 BOOKS AND RECORDS; INSPECTION RIGHTS. MetLife will, and will cause each of its Material Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. MetLife will, and will cause each of its Material Subsidiaries to, permit any representative designated by the Administrative Agent (and, if a Default shall have occurred and be continuing, any representatives designated by any Lender), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. 6.07 COMPLIANCE WITH LAWS. MetLife will, and will cause each of its Material Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. 6.08 USE OF PROCEEDS. The proceeds of the Loans will be used only for general corporate purposes (including the back-up of commercial paper) of MetLife and its Subsidiaries in the ordinary course of business; provided that no part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the FRB, including Regulations U and X; provided further that no part of the proceeds of any Loan will be used, whether directly or indirectly, to acquire the capital stock or business of any other Person without the consent of such Person; and provided further that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any such proceeds. 6.09 SUPPORT AGREEMENT. The Company and Funding will maintain the Support Agreement in full force and effect, and comply with the provisions thereof, and will not modify, supplement or waive any of its provisions without the prior consent of the Administrative Agent (with the approval of the Required Lenders); provided that any modification, supplement or waiver that reduces or impairs the support provided to Funding shall require the approval of all Lenders. ARTICLE VII. NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, each Borrower covenants and agrees with the Lenders that: 7.01 LIENS. None of the Borrowers will create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; 50 (b) any Lien existing on any property or asset prior to the acquisition thereof by such Borrower; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition, (ii) such Lien shall not apply to any other property or assets of such Borrower, and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition; (c) Liens on assets acquired, constructed or improved by such Borrower; provided that (i) such Liens and the Indebtedness secured thereby are incurred prior to or within 360 days after such acquisition or the completion of such construction or improvement, (ii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such assets, and (iii) such Liens shall not apply to any other property or assets of such Borrower; (d) Liens on any property or assets of any Person existing at the time such Person is merged or consolidated with or into such Borrower and not created in contemplation of such event; (e) Liens on any real property securing Indebtedness in respect of which (i) the recourse of the holder of such Indebtedness (whether direct or indirect and whether contingent or otherwise) under the instrument creating the Lien or providing for the Indebtedness secured by the Lien is limited to such real property directly securing such Indebtedness and (ii) such holder may not under the instrument creating the Lien or providing for the Indebtedness secured by the Lien collect by levy of execution or otherwise against assets or property of such Borrower (other than such real property directly securing such Indebtedness) if such Borrower fails to pay such Indebtedness when due and such holder obtains a judgment with respect thereto, except for recourse obligations that are customary in "non-recourse" real estate transactions; (f) Liens arising out of Securities Transactions entered into in the ordinary course of business and on ordinary business terms; (g) Structured Transaction Liens; (h) Liens arising out of Asset Securitizations; (i) Liens on Separate Accounts Assets; (j) Liens arising out of any real estate sale/leaseback transactions; (k) Liens arising in connection with Swap Contracts; (l) Liens on securities owned by such Borrower which are pledged to the Federal Home Loan Bank Board, (the "FHLBB") to secure loans made by the FHLBB to such Borrower in the ordinary course of business and on ordinary business terms; (m) Liens not otherwise permitted by this Section 7.01 arising in the ordinary course of the Borrowers' business that do not secure any Indebtedness; provided that the obligations of the Borrowers secured by such Liens shall not exceed $3,000,000,000 at any one time outstanding; 51 (n) Liens not otherwise permitted by this Section 7.01; provided that the aggregate principal amount of the Indebtedness secured by such Liens shall not exceed $4,000,000,000 at any one time outstanding; and (o) any extension, renewal or replacement of the foregoing; provided that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or assets (other than a substitution of like assets) unless such additional Indebtedness or assets would have been permitted in connection with the original creation, incurrence or assumption of such Lien. 7.02 FUNDAMENTAL CHANGES. (a) No Borrower will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (excluding (i) assets sold or disposed of in the ordinary course of business or (ii) between or among MetLife and its direct and indirect wholly-owned Subsidiaries), or (in the case of MetLife) all or any substantial part of the stock of Funding or the Company (in each case, whether now owned or hereafter acquired), or liquidate or dissolve; provided, however, that all or a substantial part of the stock of Funding may be transferred so long as it remains directly or indirectly held by MetLife; and provided further, that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (A) any Subsidiary of a Borrower may merge into such Borrower in a transaction in which such Borrower is the surviving corporation, (B) Funding may sell, transfer, lease or otherwise dispose of its assets to MetLife or the Company, including via liquidation, so long as MetLife or the Company expressly assumes the obligations of Funding hereunder and under the promissory notes issued hereunder, and (C) a Borrower may merge or consolidate with any other Person if such Borrower is the surviving corporation. (b) MetLife will not, and will not permit any of its Material Subsidiaries to, engage to any material extent in any business other than (i) businesses of the type conducted by MetLife or any of its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto or (ii) businesses financial in nature. 7.03 TRANSACTIONS WITH AFFILIATES. MetLife will not, and will not permit any of its Material Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions (other than service arrangements) with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to MetLife or such Material Subsidiary than could be obtained on an arm's length basis from unrelated third parties, and (b) transactions between or among MetLife and its direct or indirect Subsidiaries. 7.04 ADJUSTED STATUTORY SURPLUS. The Company will not permit its Adjusted Statutory Surplus, calculated as of the last day of each fiscal quarter of the Company, to be less than $7,750,000,000. 7.05 CONSOLIDATED NET WORTH. MetLife will not permit its Consolidated Net Worth, calculated as of the last day of each fiscal quarter, to be less than $15,000,000,000. 52 ARTICLE VIII. EVENTS OF DEFAULT 8.01 EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur: (a) any Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise or shall fail to reimburse any drawing under any Letter of Credit when and as due; (b) any Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five or more Business Days; (c) any representation or warranty made or deemed made by or on behalf of MetLife or any of its Material Subsidiaries in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 6.02, 6.03 (with respect to such Borrower's existence), 6.08 or 6.09 or in Article VII; (e) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the relevant Borrower (which notice will be given at the request of any Lender); (f) MetLife or any of its Material Subsidiaries shall fail to make payments (whether of principal or interest and regardless of amount) on Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in Material Indebtedness becoming due prior to the scheduled maturity of such Material Indebtedness or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of Material Indebtedness or any trustee or agent on its or their behalf to cause Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of MetLife or any of its 53 Material Subsidiaries or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for MetLife or any or its Material Subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) MetLife or any of its Material Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for MetLife or any or its Material Subsidiaries or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) MetLife or any of its Material Subsidiaries shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $300,000,000 (or its equivalent in any other currency) shall be rendered against MetLife, any Material Subsidiary of MetLife or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of MetLife and its Material Subsidiaries in an aggregate amount exceeding $200,000,000 in any year; 8.02 REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, with notice to the Borrowers, take any or all of the following actions: (a) declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; (c) require that each Borrower Cash Collateralize its L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and 54 (d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans to any Borrower and any obligation of the L/C Issuer to make L/C Credit Extensions to the Borrowers shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender. 8.03 APPLICATION OF FUNDS. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations of any Borrower shall be applied by the Administrative Agent in the following order: First, to payment of that portion of such Borrower's Obligations constituting fees, indemnities, expenses and other amounts (including Attorney Costs and amounts payable under Article III) payable to the Administrative Agent in its capacity as such; Second, to payment of that portion of such Borrower's Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Attorney Costs and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them; Third, to payment of that portion of such Borrower's Obligations constituting accrued and unpaid interest on the Loans and L/C Borrowings, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them; Fourth, to payment of that portion of such Borrower's Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of such Borrower's L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to such Borrower or as otherwise required by Law. Subject to Section 2.04(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above. 55 ARTICLE IX. ADMINISTRATIVE AGENT 9.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT. (a) Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or Participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (i) provided to the Administrative Agent in this Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the applications and agreements for letters of credit pertaining to such Letters of Credit as fully as if the term "Administrative Agent" as used in this Article IX and in the definition of "Agent-Related Person" included the L/C Issuer with respect to such acts or omissions, and (ii) as additionally provided herein with respect to the L/C Issuer. 9.02 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to the Lenders for the negligence or misconduct of any agent or attorney-in-fact selected by the Administrative Agent in good faith after due inquiry. 9.03 LIABILITY OF ADMINISTRATIVE AGENT. No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or Participant for any recital, statement, representation or warranty made by any Loan Party or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection 56 with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Loan Party or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or Participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or any Affiliate thereof. 9.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Loan Party), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders (or such greater number of Lenders as may be expressly required hereby in any instance) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 5.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. 9.05 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default." The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default as may be directed by the Required Lenders in accordance with Article VIII; provided, however, that unless and until the Administrative Agent has received any such direction, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Lenders. 57 9.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY ADMINISTRATIVE AGENT. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Loan Party or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties and their respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their respective Affiliates which may come into the possession of any Agent-Related Person. 9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of any Loan Party and without limiting the obligation of any Loan Party to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities incurred by it; provided, however, that (a) no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person's own gross negligence or willful misconduct, provided, however, that no action taken in accordance with the express directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section, and (b) no Lender shall be liable for the payment of any portion of an Indemnified Liability pursuant to this Section unless such Indemnified Liability was incurred by the Administrative Agent in its capacity as such or by another Agent-Related Person acting for the Administrative Agent in such capacity. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrowers. The undertaking in this Section shall survive termination of the Aggregate 58 Commitments, the payment of all other Obligations and the resignation of the Administrative Agent. 9.08 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Loan Parties and their respective Affiliates as though Bank of America were not the Administrative Agent or the L/C Issuer hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding any Loan Party or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent or the L/C Issuer, and the terms "Lender" and "Lenders" include Bank of America in its individual capacity. 9.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders and the Borrowers; provided that any such resignation by Bank of America shall also constitute its resignation as L/C Issuer. If the Administrative Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders, which successor administrative agent shall be consented to by the Borrowers at all times other than during the existence of an Event of Default (which consent of the Borrowers shall not be unreasonably withheld or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Borrowers, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, the Person acting as such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent, L/C Issuer and the respective terms "Administrative Agent," and "L/C Issuer" shall mean such successor administrative agent, and Letter of Credit issuer and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated and the retiring L/C Issuer's rights, powers and duties as such shall be terminated, without any other or further act or deed on the part of such retiring L/C Issuer or any other Lender, other than the obligation of the successor L/C Issuer to issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or to make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article IX and Section 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 59 9.10 ADMINISTRATIVE AGENT 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 any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Borrower) 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 and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.04(i) and (j), 2.09 and 10.05) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.05. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. 9.11 OTHER AGENTS; JOINT LEAD ARRANGERS AND BOOK MANAGERS. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "arranger," shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 60 ARTICLE X. MISCELLANEOUS 10.01 AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrowers, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall: (a) waive any condition set forth in Section 5.01 without the written consent of each Lender; (b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender; (c) postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; (d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of "Default Rate" or to waive any obligation of the Borrower to pay interest or Letter of Credit Fees at the Default Rate; (e) change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender; or (f) change any provision of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Letter of Credit Application relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iii) Section 10.07(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (iv) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the 61 Commitment of such Lender may not be increased or extended without the consent of such Lender. 10.02 NOTICES AND OTHER COMMUNICATIONS; FACSIMILE COPIES. (a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed certified or registered mail, faxed or delivered to the applicable address, facsimile number or (subject to subsection (b) below) electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: (i) if to the Borrowers, the Administrative Agent or the L/C Issuer, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02 or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and (ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrowers, the Administrative Agent and the L/C Issuer. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b). (b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. (c) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by 62 a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature. (d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) reasonably believed by them to be genuine and to have been given by or on behalf of the Borrowers even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrowers shall jointly and severally indemnify each Agent-Related Person and each Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice reasonably believed by them to be genuine and to have been given by or on behalf of the Borrowers. All telephonic notices to and other communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. 10.03 NO WAIVER; CUMULATIVE REMEDIES. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.04 [INTENTIONALLY OMITTED]. 10.05 COSTS, EXPENSES AND INDEMNIFICATION. (a) Each Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Agent-Related Persons, including reasonable Attorney Costs, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) Each Borrower shall indemnify the Administrative Agent and each Lender and the directors, officers, employees, agents, advisors and Affiliates of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the use or proposed use of the proceeds of any Loan or any Letter of Credit, or (ii) any actual or prospective claim, 63 litigation, investigation or proceeding relating thereto, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto (the "Indemnified Liabilities"); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Borrowers fail to pay any amount required to be paid by them to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, in its capacity as such. (d) To the extent permitted by applicable law, the Borrowers shall not assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan, any Letter of Credit or the use of the proceeds thereof. (e) No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement. (f) The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. 10.06 PAYMENTS SET ASIDE. To the extent that any payment by or on behalf of any Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, rehabilitator, conservator, custodian, liquidator, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. 10.07 SUCCESSORS AND ASSIGNS. 64 (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrowers may not assign or otherwise transfer any of their respective rights or obligations hereunder without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section, or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans (including for purposes of this subsection (b), participations in L/C Obligations) at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund (as defined in subsection (g) of this Section) with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrowers otherwise consent (each such consent not to be unreasonably withheld or delayed); (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to rights in respect of Bid Loans; (iii) any assignment of a Commitment must be approved by the Administrative Agent, and the L/C Issuer unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); (iv) the assignment shall contain a representation by the Eligible Assignee to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable Assignment and Assumption constitutes "plan assets" as defined under ERISA and that the rights and interests of the Eligible Assignee in and under the Loan Documents will not be "plan assets" under ERISA; and (v) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500. Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights 65 and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.05 with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, each Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or other substantive change to the Loan Documents is pending, any Lender wishing to consult with other Lenders in connection therewith may request and receive from the Administrative Agent a copy of the Register. (d) Any Lender may at any time, without the consent of, or notice to, any Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or a Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender's participations in L/C Obligations) owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that directly affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.09 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender. (e) A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the 66 participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers' prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 3.01 as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (g) As used herein, the following terms have the following meanings: "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent and the L/C Issuer, and (ii) unless an Event of Default has occurred and is continuing, the Borrowers (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, "Eligible Assignee" shall not include any Borrower or any of the Borrowers' Affiliates or Subsidiaries. "Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. (h) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers (an "SPC") the option to provide all or any part of any Committed Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Committed Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Committed Loan, the Granting Lender shall be obligated to make such Committed Loan pursuant to the terms hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required under Section 2.12(c)(ii). Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrowers under this Agreement (including its obligations under Section 3.04), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment 67 of the Granting Lender to the same extent, and as if, such Committed Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrowers and the Administrative Agent and without paying any processing fee therefor, assign all or any portion of its right to receive payment with respect to any Committed Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Committed Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC. (i) Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Commitment and Loans pursuant to subsection (b) above, Bank of America may, upon 30 days' notice to the Borrowers and the Lenders, resign as L/C Issuer. In the event of any such resignation as L/C Issuer, the Borrowers shall be entitled to appoint from among the Lenders a successor L/C Issuer hereunder; provided, however, that no failure by the Borrowers to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer. If Bank of America resigns as L/C Issuer, it shall retain all the rights and obligations of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Committed Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.04(c)). 10.08 CONFIDENTIALITY. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Borrower and its obligations, (g) with the consent of any Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than any Borrower. In the event that any Lender becomes legally compelled to disclose any confidential Information pursuant to paragraph (c) of this Section 10.08, such Lender shall, to the extent permitted by law, give 68 prompt written notice of that fact to the Borrowers prior to the disclosure so that the Borrowers may seek an appropriate remedy to prevent or limit such disclosure and the Lenders shall cooperate reasonably (at the expense of the Borrowers) with the Borrowers in seeking such remedy. For purposes of this Section, "Information" means all information received from any Borrower or any of its Subsidiaries relating to any Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any Borrower or any Subsidiary, provided that, in the case of information received from any Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 10.09 SET-OFF. In addition to any rights and remedies of the Lenders provided by law, upon the occurrence and during the continuance of any Event of Default, each Lender is authorized at any time and from time to time, without prior notice to the Borrower or any other Loan Party, any such notice being waived by the Borrowers to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of the respective Loan Parties against any and all Obligations owing to such Lender hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or indebtedness. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 10.10 INTEREST RATE LIMITATION. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "Maximum Rate"). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the applicable Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder. 10.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 69 10.12 INTEGRATION. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of supplemental rights or remedies in favor of the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 10.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding. 10.14 SEVERABILITY. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.15 MITIGATION OF OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under Section 3.04, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, then such Lender shall, upon the request of such Borrower, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.04 or 3.01, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) Under any circumstances set forth herein providing that the Borrowers shall have the right to replace a Lender as a party to this Agreement, the Borrowers may, upon notice to such Lender and the Administrative Agent, replace such Lender by causing such Lender to 70 assign its Commitment (with the assignment fee to be paid by the Borrowers in such instance) pursuant to Section 10.07(b) to one or more other Lenders or Eligible Assignees procured by the Borrowers; provided, however, that if the Borrowers elect to exercise such right with respect to any Lender pursuant to Section 3.06(b), it shall be obligated to replace all Lenders that have made similar requests for compensation pursuant to Section 3.01 or 3.04. Upon the making of any such assignment, the Borrowers shall (x) pay in full any amounts payable pursuant to Section 3.05 and (y) provide appropriate assurances and indemnities (which may include letters of credit) to the L/C Issuer as it may reasonably require with respect to any continuing obligation to fund participation interests in any L/C Obligations then outstanding. 10.16 GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE. 10.17 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS 71 SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.18 USA PATRIOT ACT NOTICE. Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. METLIFE, INC. By: /s/ Anthony J. Williamson Name: Anthony J. Williamson Title: Senior Vice President & Treasurer METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Anthony J. Williamson Name: Anthony J. Williamson Title: Senior Vice President & Treasurer METLIFE FUNDING, INC. By: /s/ Anthony J. Williamson Name: Anthony J. Williamson Title: Chairman, President and Chief Executive Officer Five-Year Credit Agreement S-1 BANK OF AMERICA, N.A., individually, as Administrative Agent and as L/C Issuer By: /s/ Leslie Nannen Name: Leslie Nannen Title: Principal Five-Year Credit Agreement S-2 WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent By: /s/ Emily Johnson Name: Emily Johnson Title: Associate Vice President Five-Year Credit Agreement S-3 WACHOVIA BANK, N.A. By: /s/ Kimberly Shaffer Name: Kimberly Shaffer Title: Director Five-Year Credit Agreement S-4 CITICORP USA By: /s/ David A. Dodge Name: David A Dodge Title: Managing Director Five-Year Credit Agreement S-5 JPMORGAN CHASE BANK By: /s/ Heather Lindstrom Name: Heather Lindstrom Title: Vice President Five-Year Credit Agreement S-6 CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch By: /s/ Paul L. Colon Name: Paul L. Colon Title: Director By: /s/ Jennifer A. Pieza Name: Jennifer A. Pieza Title: Associate Five-Year Credit Agreement S-7 DEUTSCHE BANK AG NEW YORK BRANCH By: /s/ John S. McGill Name: John S. McGill Title: Director By: /s/ Charles Kohler Name: Charles Kohler Title: Managing Director Five-Year Credit Agreement S-8 HSBC BANK USA By: /s/ Kenneth J. Johnson Name: Kenneth J. Johnson Title: Senior Vice President Five-Year Credit Agreement S-9 LEHMAN BROTHERS BANK, FSB By: /s/ Gary T. Taylor Name: Gary T. Taylor Title: Vice President Five-Year Credit Agreement S-10 MELLON BANK, N.A. By: /s/ Carrie Burnham Name: Carrie Burnham Title: Assistant Vice President Five-Year Credit Agreement S-11 MERRILL LYNCH BANK USA By: /s/ Louis Alder Name: Louis Alder Title: Director Five-Year Credit Agreement S-12 UBS LOAN FINANCE LLC By: /s/ Wilfred V. Saint Name: Wilfred V. Saint Title: Director, Banking Products Services, US By: /s/ Joselin Fernandes Name: Joselin Fernandes Title: Associate Director, Banking Product Services, US Five-Year Credit Agreement S-13 ABN AMRO BANK N.V. By: /s/ Neil R. Stein Name: Neil R. Stein Title: Group Vice President By: /s/ Michael DeMarco Name: Michael DeMarco Title: Assistant Vice President Five-Year Credit Agreement S-14 BNP PARIBAS By: /s/ Laurent Vanderzyppe Name: Laurent Vanderzyppe Title: Director By: /s/ Marguerite L. Lebon Name: Marguerite L. Lebon Title: Vice President Five-Year Credit Agreement S-15 BANK ONE, NA By: /s/ Gerard P. Fogarty Name: Gerard P. Fogarty Title: Director Five-Year Credit Agreement S-16 BARCLAYS BANK PLC By: /s/ Alison A. McGuigan Name: Alison A. McGuigan Title: Associate Director Five-Year Credit Agreement S-17 THE NORTHERN TRUST COMPANY By: /s/ Eric Dybing Name: Eric Dybing Title: Second Vice President Five-Year Credit Agreement S-18 PNC BANK, N.A. By: /s/ Kirk Seagers Name: Kirk Seagers Title: Vice President Five-Year Credit Agreement S-19 THE ROYAL BANK OF SCOTLAND By: /s/ Evan Tomaskovic Name: Evan Tomaskovic Title: Vice President Five-Year Credit Agreement S-20 STATE STREET BANK AND TRUST COMPANY By: /s/ Edward M. Anderson Name: Edward M. Anderson Title: Vice President Five-Year Credit Agreement S-21 US BANK NATIONAL ASSOCIATION By: /s/ Eric Hartman Name: Eric Hartman Title: Vice President Five-Year Credit Agreement S-22 EX-10.2 4 y99162exv10w2.txt 364-DAY CREDIT AGREEMENT EXHIBIT 10.2 EXECUTION COPY ================================================================================ Published CUSIP Number: 59157FAC7 364-DAY CREDIT AGREEMENT Dated as of April 23, 2004 among METLIFE, INC. METROPOLITAN LIFE INSURANCE COMPANY METLIFE FUNDING, INC. as Borrowers, BANK OF AMERICA, N.A., as Administrative Agent, WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent CITIBANK, N.A. and JPMORGAN CHASE BANK, as Co-Documentation Agents and The Other Lenders Party Hereto BANC OF AMERICA SECURITIES LLC, and WACHOVIA CAPITAL MARKETS, LLC as Joint Lead Arrangers and Book Managers ================================================================================ TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS......................................... 1 1.01 Defined Terms............................................................... 1 1.02 Other Interpretive Provisions............................................... 17 1.03 Accounting Terms............................................................ 17 1.04 Rounding.................................................................... 18 1.05 References to Agreements and Laws........................................... 18 1.06 Times of Day................................................................ 18 ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS.................................... 18 2.01 Committed Loans............................................................. 18 2.02 Borrowings, Conversions and Continuations of Committed Loans................ 19 2.03 Bid Loans................................................................... 20 2.04 Prepayments................................................................. 23 2.05 Termination or Reduction of Commitments..................................... 23 2.06 Repayment of Loans.......................................................... 24 2.07 Interest.................................................................... 24 2.08 Fees........................................................................ 25 2.09 Computation of Interest and Fees............................................ 25 2.10 Evidence of Debt............................................................ 26 2.11 Payments Generally.......................................................... 26 2.12 Sharing of Payments......................................................... 28 ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY................................... 28 3.01 Taxes....................................................................... 28 3.02 Illegality.................................................................. 31 3.03 Inability to Determine Rates................................................ 31 3.04 Increased Cost and Reduced Return; Capital Adequacy......................... 32 3.05 Compensation for Losses..................................................... 32 3.06 Matters Applicable to all Requests for Compensation......................... 33 3.07 Survival.................................................................... 33 ARTICLE IV. REPRESENTATIONS AND WARRANTIES........................................... 33 4.01 Organization; Powers........................................................ 33 4.02 Authorization; Enforceability............................................... 33 4.03 Governmental Approvals; No Conflicts........................................ 34 4.04 Financial Condition; No Material Adverse Change............................. 34 4.05 Properties.................................................................. 34 4.06 Litigation and Environmental Matters........................................ 34 4.07 Compliance with Laws and Agreements......................................... 35 4.08 Investment and Holding Company Status....................................... 35 4.09 Taxes....................................................................... 35 4.10 ERISA....................................................................... 35 4.11 Disclosure.................................................................. 35
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Section Page - ------- ---- 4.12 Margin Stock................................................................ 36 ARTICLE V. CONDITIONS TO CREDIT EXTENSIONS.......................................... 36 5.01 Closing Date................................................................ 36 5.02 Each Credit Event........................................................... 37 ARTICLE VI. AFFIRMATIVE COVENANTS.................................................... 37 6.01 Financial Statements and Other Information.................................. 37 6.02 Notices of Defaults......................................................... 38 6.03 Existence; Conduct of Business.............................................. 39 6.04 Payment of Obligations...................................................... 39 6.05 Maintenance of Properties; Insurance........................................ 39 6.06 Books and Records; Inspection Rights........................................ 39 6.07 Compliance with Laws........................................................ 39 6.08 Use of Proceeds............................................................. 39 6.09 Support Agreement........................................................... 40 ARTICLE VII. NEGATIVE COVENANTS....................................................... 40 7.01 Liens....................................................................... 40 7.02 Fundamental Changes......................................................... 41 7.03 Transactions with Affiliates................................................ 42 7.04 Adjusted Statutory Surplus.................................................. 42 7.05 Consolidated Net Worth...................................................... 42 ARTICLE VIII. EVENTS OF DEFAULT........................................................ 42 8.01 Events of Default........................................................... 42 8.02 Remedies Upon Event of Default.............................................. 44 8.03 Application of Funds........................................................ 44 ARTICLE IX. ADMINISTRATIVE AGENT..................................................... 45 9.01 Appointment and Authorization of Administrative Agent....................... 45 9.02 Delegation of Duties........................................................ 45 9.03 Liability of Administrative Agent........................................... 45 9.04 Reliance by Administrative Agent............................................ 46 9.05 Notice of Default........................................................... 46 9.06 Credit Decision; Disclosure of Information by Administrative Agent.......... 46 9.07 Indemnification of Administrative Agent..................................... 47 9.08 Administrative Agent in its Individual Capacity............................. 47 9.09 Successor Administrative Agent.............................................. 48 9.10 Administrative Agent May File Proofs of Claim............................... 48 9.11 Other Agents; Joint Lead Arrangers and Book Managers........................ 49
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Section Page - ------- ---- ARTICLE X. MISCELLANEOUS............................................................ 49 10.01 Amendments, Etc............................................................. 49 10.02 Notices and Other Communications; Facsimile Copies.......................... 50 10.03 No Waiver; Cumulative Remedies.............................................. 51 10.04 [Intentionally Omitted]..................................................... 52 10.05 Costs, Expenses and Indemnification......................................... 52 10.06 Payments Set Aside.......................................................... 53 10.07 Successors and Assigns...................................................... 53 10.08 Confidentiality............................................................. 56 10.09 Set-off..................................................................... 57 10.10 Interest Rate Limitation.................................................... 57 10.11 Counterparts................................................................ 58 10.12 Integration................................................................. 58 10.13 Survival of Representations and Warranties.................................. 58 10.14 Severability................................................................ 58 10.15 Mitigation of Obligations; Replacement of Lenders........................... 58 10.16 Governing Law............................................................... 59 10.17 Waiver of Right to Trial by Jury............................................ 59 10.18 USA PATRIOT Act Notice...................................................... 60
-iii- 1 SCHEDULES 2 2.01 Commitments and Pro Rata Shares 3 4.06 Disclosed Matters 4 10.02 Administrative Agent's Office, Certain Addresses for Notices 5 EXHIBITS 6 FORM OF 7 8 A Committed Loan Notice 9 B-1 Bid Request 10 B-2 Competitive Bid 11 C Note 12 D Assignment and Assumption 13 E Opinion -iv- 364-DAY CREDIT AGREEMENT This 364-DAY CREDIT AGREEMENT ("Agreement") is entered into as of April 23, 2004, among METLIFE, INC. ("MetLife"), METROPOLITAN LIFE INSURANCE COMPANY (the "Company") and METLIFE FUNDING, INC. ("Funding"; together with the Company and MetLife, each a "Borrower" and collectively the "Borrowers"), each lender from time to time party hereto (collectively, the "Lenders" and individually, a "Lender"), WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent and BANK OF AMERICA, N.A., as Administrative Agent. The Borrowers have requested that the Lenders provide a revolving credit facility and the Lenders are willing to do so on the terms and conditions set forth herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1.01 DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings set forth below: "Absolute Rate" means a fixed rate of interest expressed in multiples of 1/100th of one basis point. "Absolute Rate Loan" means a Bid Loan that bears interest at a rate determined with reference to an Absolute Rate. "Adjusted Statutory Surplus" means, at any time, the sum of (i) surplus (calculated in accordance with the Statutory Statements), plus (ii) asset valuation reserve (calculated in accordance with the Statutory Statements). "Administrative Agent" means Bank of America in its capacity as administrative agent under each of the Loan Documents, or any successor administrative agent. "Administrative Agent's Office" means the Administrative Agent's address as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrowers and the Lenders. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided that, for the purposes of Section 10.07, any special purpose funding vehicle that funds itself principally in the commercial paper market shall not constitute an Affiliate of any Lender. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the 1 ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Agent-Related Persons" means the Administrative Agent, together with its Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, the Arrangers), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Aggregate Commitments" means the Commitments of all of the Lenders. On the date hereof the Aggregate Commitments shall equal $1,000,000,000. "Agreement" means this 364-Day Credit Agreement. "Applicable Insurance Regulatory Authority" means the insurance department or similar insurance regulatory or administrative authority or agency of the jurisdiction in which the Company is domiciled. "Applicable Rate" means, from time to time, the following percentages per annum, based upon the Debt Rating of the applicable Borrower as set forth below:
APPLICABLE RATE DEBT RATING EURODOLLAR UTILIZATION TERM OUT PRICING LEVEL S&P/MOODY'S FACILITY FEE RATE MARGIN BASE RATE FEE PREMIUM - ------------- ----------- ------------ ----------- --------- ----------- ------- 1 A+/A1 or better 0.060 0.190 0 0.050 0.100 2 A/A2 0.070 0.230 0 0.050 0.100 3 A-/A3 0.100 0.250 0 0.100 0.100 4 BBB+/Baa1 0.125 0.275 0 0.100 0.250 BBB/Baa2 5 or worse 0.150 0.375 0 0.125 0.250
"Debt Rating" means, as of any date of determination, the rating as determined by either S&P or Moody's (collectively, the "Debt Ratings") of the applicable Borrower's non-credit-enhanced, senior unsecured long-term debt (or in the case of Funding, the non-credit-enhanced, senior unsecured long-term debt of the Company) provided that if a Debt Rating is issued by each of the foregoing rating agencies, then the higher of such Debt Ratings shall apply (with the Debt Rating for Pricing Level 1 being the highest and the Debt Rating for Pricing Level 5 being the lowest), unless there is a split in Debt Ratings of more than one level, in which case the Pricing Level that is one level higher than the Pricing Level of the lower Debt Rating shall apply. The Facility Fee shall be based on the Debt Rating of the lowest rated of the Borrowers by S&P and Moody's. Initially, the Applicable Rate shall be determined based upon Pricing Level 2. Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective, in the case of an upgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change and, in the case of a downgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change. 2 "Arrangers" mean Banc of America Securities LLC and Wachovia Capital Markets, LLC, in their capacities as joint lead arrangers and book managers. "Asset Securitization" means a public or private transfer of installment receivables, credit card receivables, lease receivables, mortgage loan receivables, policyholder loan receivables or any other type of secured or unsecured financial assets, which transfer is recorded as a sale according to GAAP as of the date of such transfer. "Assignment and Assumption" means an Assignment and Assumption substantially in the form of Exhibit D. "Attorney Costs" means and includes all fees, expenses and disbursements of any one law firm or other external counsel and, without duplication, in the case of an Event of Default referred to in Section 8.01(h) or 8.01(i), the allocated cost of internal legal services and all expenses and disbursements of internal counsel. "Attributable Indebtedness" means, on any date, in respect of any capital lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP. "Audited Financial Statements" means the audited consolidated balance sheet of MetLife and its Subsidiaries for the fiscal year ended December 31, 2003, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year of MetLife and its Subsidiaries, including the notes thereto. "Availability Period" means the period from and including the Closing Date to the earliest of (a) the Termination Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.05, and (c) the date of termination of the commitment of each Lender to make Loans pursuant to Section 8.02. "Bank of America" means Bank of America, N.A. and its successors. "Bank of America Fee Letter" has the meaning specified in the definition of "Fee Letter." "Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." The "prime rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Committed Loan" means a Committed Loan that is a Base Rate Loan. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. 3 "Bid Borrowing" means a borrowing consisting of simultaneous Bid Loans of the same Type from each of the Lenders whose offer to make one or more Bid Loans as part of such borrowing has been accepted under the auction bidding procedures described in Section 2.03. "Bid Loan" has the meaning specified in Section 2.03(a). "Bid Loan Lender" means, in respect of any Bid Loan, the Lender making such Bid Loan to the Borrower. "Bid Request" means a written request for one or more Bid Loans substantially in the form of Exhibit B-1. "Borrower" has the meaning specified in the introductory paragraph hereto. "Borrowing" means a Committed Borrowing or a Bid Borrowing, as the context may require. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent's Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of MetLife, or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of MetLife by Persons who were neither (i) nominated by the board of directors of MetLife nor (ii) appointed by directors so nominated. "Closing Date" means the first date all the conditions precedent in Section 5.01 are satisfied or waived in accordance with Section 10.01. "Code" means the Internal Revenue Code of 1986. "Commitment" means, as to each Lender, its obligation to make Committed Loans to the Borrowers pursuant to Section 2.01, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. "Committed Borrowing" means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Eurodollar Rate Committed Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01. 4 "Committed Loan" has the meaning specified in Section 2.01. "Committed Loan Notice" means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Committed Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A. "Committed Loan Termination Balance" means the aggregate principal amount of Committed Loans outstanding on the Termination Date after giving effect to any Committed Loans made or repaid on such date. "Company" has the meaning specified in the introductory paragraph hereto. "Competitive Bid" means a written offer by a Lender to make one or more Bid Loans, substantially in the form of Exhibit B-2, duly completed and signed by a Lender. "Consolidated Net Worth" means the consolidated stockholders' equity, determined in accordance with GAAP, of MetLife and its Consolidated Subsidiaries. "Consolidated Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" has the meaning specified in the definition of "Affiliate." "Credit Extension" means a Borrowing. "Debt Rating" has the meaning specified in the definition of "Applicable Rate." "Debtor Relief Laws" means the Bankruptcy Code of the United States, and all other liquidation, conservation, dissolution, bankruptcy, assignment for the benefit of creditors, moratorium, rehabilitation, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally. "Default" means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would, unless cured or waived, be an Event of Default. "Default Rate" means an interest rate equal to (a) the Base Rate plus (b) the Applicable Rate, if any, applicable to Base Rate Loans, plus after the Termination Date, the Term Out Premium plus (c) 2% per annum; provided, however, that with respect to a Eurodollar Rate 5 Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum. "Defaulting Lender" means any Lender that (a) has failed to fund any portion of the Committed Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 4.06. "Dollar" and "$" mean lawful money of the United States. "Eligible Assignee" has the meaning specified in Section 10.07(g). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of MetLife or any of its Material Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with MetLife, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived and other than an event which is based on a certain level of unfunded vested benefits, or the requirement to pay variable PBGC premiums, provided that the amount of unfunded vested benefits, when determined on a FAS87 basis, do not exceed $50,000,000); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a 6 waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by MetLife or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by MetLife or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by MetLife or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by MetLife or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from MetLife or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar Base Rate" has the meaning specified in the definition of "Eurodollar Rate." "Eurodollar Bid Margin" means the margin above or below the Eurodollar Base Rate to be added to or subtracted from the Eurodollar Base Rate, which margin shall be expressed in multiples of 1/100th of one basis point. "Eurodollar Margin Bid Loan" means a Bid Loan that bears interest at a rate based upon the Eurodollar Base Rate. "Eurodollar Rate" means for any Interest Period with respect to any Eurodollar Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula: Eurodollar Base Rate Eurodollar Rate = --------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Base Rate" means, for such Interest Period: (a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen (or any successor thereto) that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) if the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall not be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) if the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of 7 interest at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America (or, in the case of a Bid Loan, the applicable Bid Loan Lender) and with a term equivalent to such Interest Period would be offered by Bank of America's (or such Bid Loan Lender's) London Branch to major banks in the London interbank eurodollar market at their request at approximately 4:00 p.m. (London time) two Business Days prior to the first day of such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Eurodollar Rate Committed Loan" means a Committed Loan that bears interest at a rate based on the Eurodollar Rate. "Eurodollar Rate Loan" means a Eurodollar Rate Committed Loan or a Eurodollar Margin Bid Loan. "Event of Default" has the meaning specified in Section 8.01. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower hereunder, (a) income, franchise or similar taxes, in each case, imposed on (or measured by) its net income by the United States of America, or by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or, in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principle of residence, the jurisdiction (or any political subdivision thereof) in which such recipient is so resident, (b) Taxes imposed by reason of any present or former connection between such Person and the jurisdiction (or any political subdivision thereof) imposing such Taxes, other than as a result of the execution and delivery of this Agreement, the making of any Loans hereunder or the performance of any action provided for hereunder, (c) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located and (d) in the case of a Lender (other than an assignee pursuant to a request by the Company under Section 10.15(b)), any withholding tax that (i) is imposed on amounts payable to a Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from such Borrower with respect to such withholding tax pursuant to Section 3.01(a) or (ii) is attributable to such Lender's failure to comply with Section 3.01(e). 8 "Existing Bank of America Credit Agreement" has the meaning specified in the definition of "Existing Credit Agreements." "Existing Credit Agreements" mean (a) that certain Credit Agreement dated as of April 23, 2002 among the Borrowers, Bank of America, as administrative agent, and a syndicate of lenders (the "Existing Bank of America Credit Agreement") and (b) that certain Credit Agreement dated as of April 25, 2003 among the Borrowers, BankOne, NA, as administrative agent, and a syndicate of lenders. "Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as reasonably determined by the Administrative Agent. "Fee Letters" mean (a) the letter agreement, dated April 1, 2004, among the Borrowers, Bank of America and Banc of America Securities LLC (the "Bank of America Fee Letter") and (b) the letter agreement, dated March 29, 2004, among the Borrowers, Wachovia Bank, N.A., and Wachovia Capital Markets, LLC. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of MetLife. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which any Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FRB" means the Board of Governors of the Federal Reserve System of the United States. "Funding" has the meaning specified in the introductory paragraph hereto. "GAAP" means generally accepted accounting principles in the United States. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Granting Lender" has the meaning specified in Section 10.07(h). 9 "Guarantee" means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term "Guarantee" as a verb has a corresponding meaning. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Indebtedness" means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers' acceptances, bank guaranties, surety bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business); (d) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) all Surplus Relief Reinsurance ceded by such Person; (f) capital leases of which such Person is the lessee; and 10 (g) all Guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any capital lease as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date. "Indemnified Liabilities" has the meaning specified in Section 10.05. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnitee" has the meaning specified in Section 10.05. "Interest Payment Date" means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date. "Interest Period" means (a) as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or (in the case of any Eurodollar Rate Committed Loan) converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice or Bid Request, as the case may be; and (b) as to each Absolute Rate Loan, a period of not less than 7 days and not more than 360 days as selected by the Borrower in its Bid Request; provided that: (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Maturity Date. "IRS" means the United States Internal Revenue Service. "Laws" means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, 11 and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law. "Lender" has the meaning specified in the introductory paragraph hereto. "Lending Office" means, as to any Lender, the office or offices of such Lender described as such in such Lender's Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrowers and the Administrative Agent. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing). "Loan" means an extension of credit by a Lender to a Borrower under Article II in the form of a Committed Loan or a Bid Loan. "Loan Documents" means this Agreement, each Note, and the Fee Letters. "Loan Parties" means, collectively, the Borrowers. "Margin Stock" means "margin stock" within the meaning of Regulations U and X. "Material Adverse Change" means any event, development or circumstance that has had or could reasonably be expected to have a material adverse effect on (a) the business, assets, property, condition (financial or otherwise) or prospects of MetLife and its Subsidiaries taken as a whole, or (b) the validity or enforceability of this Agreement or the rights and remedies of the Administrative Agent and the Lenders hereunder. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Contracts, of MetLife or any of its Material Subsidiaries in an aggregate principal amount exceeding $300,000,000 (or its equivalent in any other currency). For purposes of determining Material Indebtedness, the "principal amount" of the obligations of MetLife or any of its Material Subsidiaries in respect of any Swap Contract at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that MetLife or such Material Subsidiary would be required to pay if such Swap Contract were terminated at such time. "Material Subsidiary" means, at any time, (i) Funding, (ii) the Company and (iii) each Subsidiary of MetLife that as of such time meets the definition of "significant subsidiary" contained as of the date hereof in Regulation S-X of the SEC. "Maturity Date" means the Termination Date, subject in the case of Committed Loans to extension pursuant to Section 2.06. "MetLife" has the meaning specified in the introductory paragraph hereto. 12 "Moody's" means Moody's Investors Service, Inc. and any successor thereto. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NAIC" means the National Association of Insurance Commissioners and any successor thereto. "Note" means a promissory note made by a Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C. "Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. "Other Credit Agreement" means the Five-Year Credit Agreement among the Borrowers, certain lenders, Wachovia Capital Markets, LLC, as syndication agent and Bank of America, N.A., as administrative agent. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Outstanding Amount" means with respect to Committed Loans and Bid Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Committed Loans and Bid Loans, as the case may be, occurring on such date. "Participant" has the meaning specified in Section 10.07(d). "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 6.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 6.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; 13 (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any Borrower; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which MetLife or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pro Rata Share" means, with respect to each Lender at any time, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the Aggregate Commitments at such time; provided that if the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02, then the Pro Rata Share of each Lender shall be determined based on the Pro Rata Share of such Lender immediately prior to such termination and after giving effect to any subsequent assignments made pursuant to the terms hereof. The initial Pro Rata Share of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable. "Register" has the meaning specified in Section 10.07(c). "Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived. "Request for Credit Extension" means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice and (b) with respect to a Bid Loan, a Bid Request. "Required Lenders" means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings; provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders. 14 "Responsible Officer" means the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto. "SAP" means the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority or the NAIC. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Securities Transactions" means (a) securities lending arrangements, and (b) repurchase and reverse repurchase arrangements with respect to securities and financial instruments. "Separate Accounts Assets" means, as at any date, the "Separate Accounts assets" of the Company, determined in accordance with SAP, reported as such in the Statutory Statements of the Company. "SPC" has the meaning specified in Section 10.07(h). "Statutory Statement" means a statement of the condition and affairs of the Company, prepared in accordance with SAP, and filed with the Applicable Insurance Regulatory Authority. "Structured Transaction Liens" means Liens granted by the Company to (A) a 99%-owned Subsidiary (the "Relevant Subsidiary") in connection with a structured private investment transaction entered into in September 1999, as the same may be amended from time to time (the "Structured Transaction") where (i) in connection with such transaction, such Liens are assigned to a special purpose Subsidiary of the Company (the "SPV") in which the Company is the holder of all outstanding obligations (other than ordinary course administrative expenses and common equity interests) and (ii) the assets covered by such Liens consist solely of the rights of the Company against the SPV; and (B) the SPV in connection with the Structured Transaction which are subordinated to, and exercisable only after, the Liens described in the preceding clause (A) and which cover only the assets covered by the Liens described in said clause (A). "Subsidiary" of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a "Subsidiary" or to "Subsidiaries" shall refer to a Subsidiary or Subsidiaries of any Borrower. 15 "Support Agreement" means the Support Agreement dated as of November 30, 1984 between the Company and Funding, as amended and restated effective as of that date on July 2, 1985. "Surplus Relief Reinsurance" means any transaction in which the Company or any Subsidiary of the Company cedes business under a reinsurance agreement that would be considered a "financing-type" reinsurance agreement as determined by the independent certified public accountants of the Company in accordance with principles published by the Financial Accounting Standards Board or the Second Edition of the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the same may be revised from time to time. "Swap Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, or annexes, a "Master Agreement"), including any such obligations or liabilities under any Master Agreement. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority including penalties, interest and additions to tax. "Term Out Premium" means the rate so set out in the definition of Applicable Rate. "Termination Date" means April 22, 2005. "Total Outstandings" means the aggregate Outstanding Amount of all Loans. "Transactions" means the execution, delivery and performance by the Borrowers of this Agreement, the Borrowings when made, the use of proceeds thereof. "Type" means (a) with respect to a Committed Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan, and (b) with respect to a Bid Loan, its character as an Absolute Rate Loan or a Eurodollar Margin Bid Loan. "United States" and "U.S." mean the United States of America. 16 "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 1.02 OTHER INTERPRETIVE PROVISIONS. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document: (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) (i) The words "herein," "hereto," "hereof" and "hereunder" and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof. (ii) Article, Section, Exhibit and Schedule references are to the Loan Document in which such reference appears. (iii) The term "including" is by way of example and not limitation. (iv) The term "documents" includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form. (c) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including;" the words "to" and "until" each mean "to but excluding;" and the word "through" means "to and including." (d) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document. 1.03 ACCOUNTING TERMS. (a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP or SAP, as the case may be, applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements or Statutory Statements, as of and for the year ended December 31, 2003, as applicable, except as otherwise specifically prescribed herein. (b) If at any time any change in GAAP or SAP would affect the computation of any requirement set forth in any Loan Document, and either the Borrowers or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such requirement to preserve the original intent thereof in light of such change in GAAP or SAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such requirement shall continue to be computed in accordance with GAAP or SAP, as applicable, prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between 17 calculations of such requirement made before and after giving effect to such change in GAAP or SAP. 1.04 ROUNDING. Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number). 1.05 REFERENCES TO AGREEMENTS AND LAWS. Unless otherwise expressly provided herein, (a) references to agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law. 1.06 TIMES OF DAY. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable). ARTICLE II. THE COMMITMENTS AND CREDIT EXTENSIONS 2.01 COMMITTED LOANS. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a "Committed Loan") to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Commitment; provided, however, that after giving effect to any Committed Borrowing, (i) the Total Outstandings shall not exceed the Aggregate Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of any Lender shall not exceed such Lender's Commitment. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, any Borrower or all Borrowers may borrow under this Section 2.01, prepay under Section 2.04, and reborrow under this Section 2.01. Committed Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein. The obligations of the Borrowers to repay Loans shall be several, not joint. 2.02 BORROWINGS, CONVERSIONS AND CONTINUATIONS OF COMMITTED LOANS. (a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurodollar Rate Committed Loans shall be made upon a Borrower's irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or of any conversion of Eurodollar Rate Committed Loans to Base Rate Committed Loans, and (ii) on the requested date of any Borrowing of Base Rate Committed Loans. Each telephonic notice by a Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a 18 written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of a Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans shall be in a principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Borrowing of or conversion to Base Rate Committed Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) which Borrower is borrowing the Committed Borrowing, (ii) whether a Borrower is requesting a Committed Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Eurodollar Rate Committed Loans, (iii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iv) the principal amount of Committed Loans to be borrowed, converted or continued, (v) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (vi) if applicable, the duration of the Interest Period with respect thereto. If a Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if a Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Committed Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Committed Loans. If a Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Committed Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. (b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the applicable Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Committed Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice. As promptly as practicable, upon satisfaction of the applicable conditions set forth in Section 5.02 (and, if such Borrowing is the initial Credit Extension, Section 5.01), the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the applicable Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the applicable Borrower. (c) Except as otherwise provided herein, a Eurodollar Rate Committed Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Committed Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Committed Loans without the consent of the Required Lenders. (d) The Administrative Agent shall promptly notify the applicable Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Committed Loans upon determination of such interest rate. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrowers and the Lenders 19 of any change in Bank of America's prime rate used in determining the Base Rate promptly following the public announcement of such change. (e) After giving effect to all Committed Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans of the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans. 2.03 BID LOANS. (a) General. Subject to the terms and conditions set forth herein, each Lender agrees that any Borrower or all Borrowers may from time to time request the Lenders to submit offers to make loans (each such loan, a "Bid Loan") to any Borrower or all Borrowers prior to the Termination Date pursuant to this Section 2.03; provided, however, that after giving effect to any Bid Borrowing, the Total Outstandings shall not exceed the Aggregate Commitments. There shall not be more than ten different Interest Periods in effect with respect to Bid Loans at any time. (b) Requesting Competitive Bids. Any Borrower may request the submission of Competitive Bids by delivering a Bid Request to the Administrative Agent not later than 12:00 noon (i) one Business Day prior to the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, or (ii) four Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans. Each Bid Request shall specify (i) which Borrower is delivering the Bid Request, (ii) the requested date of the Bid Borrowing (which shall be a Business Day), (iii) the aggregate principal amount of Bid Loans requested (which must be $10,000,000 or a whole multiple of $1,000,000 in excess thereof), (iv) the Type of Bid Loans requested, and (v) the duration of the Interest Period with respect thereto, and shall be signed by a Responsible Officer of the applicable Borrower. No Bid Request shall contain a request for (i) more than one Type of Bid Loan or (ii) Bid Loans having more than three different Interest Periods. Unless the Administrative Agent otherwise agrees in its sole and absolute discretion, no Borrower may submit a Bid Request if any Borrower has submitted another Bid Request within the prior five Business Days. (c) Submitting Competitive Bids. (i) The Administrative Agent shall promptly notify each Lender of each Bid Request received by it from any Borrower and the contents of such Bid Request. (ii) Each Lender may (but shall have no obligation to) submit a Competitive Bid containing an offer to make one or more Bid Loans in response to such Bid Request. Such Competitive Bid must be delivered to the Administrative Agent not later than 10:30 a.m. (A) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, and (B) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans; provided, however, that any Competitive Bid submitted by Bank of America in its capacity as a Lender in response to any Bid Request must be submitted to the Administrative Agent not later than 10:15 a.m. on the date on which Competitive Bids are required to be delivered by the other Lenders in response to such Bid Request. Each Competitive Bid shall specify (A) the proposed date 20 of the Bid Borrowing; (B) the principal amount of each Bid Loan for which such Competitive Bid is being made, which principal amount (x) may be equal to, greater than or less than the Commitment of the bidding Lender, (y) must be $5,000,000 or a whole multiple of $1,000,000 in excess thereof, and (z) may not exceed the principal amount of Bid Loans for which Competitive Bids were requested; (C) if the proposed Bid Borrowing is to consist of Absolute Rate Bid Loans, the Absolute Rate offered for each such Bid Loan and the Interest Period applicable thereto; (D) if the proposed Bid Borrowing is to consist of Eurodollar Margin Bid Loans, the Eurodollar Bid Margin with respect to each such Eurodollar Margin Bid Loan and the Interest Period applicable thereto; and (E) the identity of the bidding Lender. (iii) Any Competitive Bid shall be disregarded if it (A) is received after the applicable time specified in clause (ii) above, (B) is not substantially in the form of a Competitive Bid as specified herein, (C) contains qualifying, conditional or similar language, (D) proposes terms other than or in addition to those set forth in the applicable Bid Request, or (E) is otherwise not responsive to such Bid Request. Any Lender may correct a Competitive Bid containing a manifest error by submitting a corrected Competitive Bid (identified as such) not later than the applicable time required for submission of Competitive Bids. Any such submission of a corrected Competitive Bid shall constitute a revocation of the Competitive Bid that contained the manifest error. The Administrative Agent may, but shall not be required to, notify any Lender of any manifest error it detects in such Lender's Competitive Bid. (iv) Subject only to the provisions of Sections 3.02, 3.03 and 5.02 and clause (iii) above, each Competitive Bid shall be irrevocable. (d) Notice to Borrower of Competitive Bids. Not later than 11:00 a.m. (i) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, or (ii) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans, the Administrative Agent shall notify the Borrower of the identity of each Lender that has submitted a Competitive Bid that complies with Section 2.03(c) and of the terms of the offers contained in each such Competitive Bid. (e) Acceptance of Competitive Bids. Not later than 11:30 a.m. (i) on the requested date of any Bid Borrowing that is to consist of Absolute Rate Loans, and (ii) three Business Days prior to the requested date of any Bid Borrowing that is to consist of Eurodollar Margin Bid Loans, the applicable Borrower shall notify the Administrative Agent of its acceptance or rejection of the offers notified to it pursuant to Section 2.03(d). The applicable Borrower shall be under no obligation to accept any Competitive Bid and may choose to reject all Competitive Bids. In the case of acceptance, such notice shall specify the aggregate principal amount of Competitive Bids for each Interest Period that is accepted. The applicable Borrower may accept any Competitive Bid in whole or in part; provided that: (i) the aggregate principal amount of each Bid Borrowing may not exceed the applicable amount set forth in the related Bid Request; 21 (ii) the principal amount of each Bid Loan must be $5,000,000 or a whole multiple of $1,000,000 in excess thereof; (iii) the acceptance of offers may be made only on the basis of ascending Absolute Rates or Eurodollar Bid Margins within each Interest Period; and (iv) the applicable Borrower may not accept any offer that is described in Section 2.03(c)(iii) or that otherwise fails to comply with the requirements hereof. (f) Procedure for Identical Bids. If two or more Lenders have submitted Competitive Bids at the same Absolute Rate or Eurodollar Bid Margin, as the case may be, for the same Interest Period, and the result of accepting all of such Competitive Bids in whole (together with any other Competitive Bids at lower Absolute Rates or Eurodollar Bid Margins, as the case may be, accepted for such Interest Period in conformity with the requirements of Section 2.03(e)(iii)) would be to cause the aggregate outstanding principal amount of the applicable Bid Borrowing to exceed the amount specified therefor in the related Bid Request, then, unless otherwise agreed by the applicable Borrower, the Administrative Agent and such Lenders, such Competitive Bids shall be accepted as nearly as possible in proportion to the amount offered by each such Lender in respect of such Interest Period, with such accepted amounts being rounded to the nearest whole multiple of $1,000,000. (g) Notice to Lenders of Acceptance or Rejection of Bids. The Administrative Agent shall promptly notify each Lender having submitted a Competitive Bid whether or not its offer has been accepted and, if its offer has been accepted, of the amount of the Bid Loan or Bid Loans to be made by it on the date of the applicable Bid Borrowing. Any Competitive Bid or portion thereof that is not accepted by the applicable Borrower by the applicable time specified in Section 2.03(e) shall be deemed rejected. (h) Notice of Eurodollar Base Rate. If any Bid Borrowing is to consist of Eurodollar Margin Bid Loans, the Administrative Agent shall determine the Eurodollar Base Rate for the relevant Interest Period, and promptly after making such determination, shall notify the applicable Borrower and the Lenders that will be participating in such Bid Borrowing of such Eurodollar Base Rate. (i) Funding of Bid Loans. Each Lender that has received notice pursuant to Section 2.03(g) that all or a portion of its Competitive Bid has been accepted by the applicable Borrower shall make the amount of its Bid Loan(s) available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 12:00 (noon) on the date of the requested Bid Borrowing. Upon satisfaction of the applicable conditions set forth in Section 5.02, the Administrative Agent shall make all funds so received available to the applicable Borrower in like funds as received by the Administrative Agent. (j) Notice of Range of Bids. After each Competitive Bid auction pursuant to this Section 2.03, the Administrative Agent shall notify each Lender that submitted a Competitive Bid in such auction of the ranges of bids submitted (without the bidder's name) and accepted for each Bid Loan and the aggregate amount of each Bid Borrowing. 2.04 PREPAYMENTS. 22 (a) Any Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurodollar Rate Committed Loans and (B) on the date of prepayment of Base Rate Committed Loans; (ii) any prepayment of Eurodollar Rate Committed Loans shall be in a principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Committed Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender's Pro Rata Share of such prepayment. If such notice is given by any Borrower, such Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Pro Rata Shares. (b) No Bid Loan may be prepaid without the prior consent of the applicable Bid Loan Lender. (c) If for any reason the Total Outstandings at any time exceed the Aggregate Commitments then in effect, the Borrowers shall immediately prepay Loans in an aggregate amount equal to such excess. (d) Upon the occurrence of a Change in Control, each Borrower agrees that if requested by the Administrative Agent (acting at the request of the Required Lenders) such Borrower will promptly prepay its Loans, together with accrued interest; provided that no prepayment of any Bid Loan shall be made without the prior consent of the Lender thereof. 2.05 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrowers may, upon notice to the Administrative Agent, terminate the Aggregate Commitments and this Agreement, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof, and (iii) the Borrowers shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Outstandings would exceed the Aggregate Commitments. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Pro Rata Share. All fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. 23 2.06 REPAYMENT OF LOANS. (a) Each Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of its Committed Loans outstanding on such date. Upon the written request of the Borrowers delivered to the Administrative Agent at least ten (10) Business Days prior to the Termination Date, and so long as no Default has occurred and is continuing on the Termination Date, the Maturity Date for Committed Loans shall be extended to a date one year after the Termination Date and the Committed Loan Termination Balance shall be due on such Maturity Date. (b) Each Borrower shall repay each of its Bid Loans on the last day of the Interest Period in respect thereof. 2.07 INTEREST. (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Committed Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate plus, after the Termination Date, the Term Out Premium; (ii) each Base Rate Committed Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate plus, after the Termination Date, the Term Out Premium; and (iii) each Bid Loan shall bear interest on the outstanding principal amount thereof for the Interest Period therefor at a rate per annum equal to the Eurodollar Base Rate for such Interest Period plus (or minus) the Eurodollar Bid Margin, or at the Absolute Rate for such Interest Period, as the case may be. (b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (ii) If any amount (other than principal of any Loan) payable by any Borrower under any Loan Document is not paid when due (after any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (iii) Upon the request of the Required Lenders, while any Event of Default exists, each Borrower shall pay interest on the principal amount of all its outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. (iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand. (c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest 24 hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law. 2.08 FEES. (a) Facility Fee. The Borrowers, jointly and severally, agree to pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share, a facility fee equal to the Applicable Rate times the actual daily amount of the Aggregate Commitments (or, if the Aggregate Commitments have terminated, on the Outstanding Amount of all Committed Loans), regardless of usage. The facility fee shall accrue at all times during the Availability Period (and thereafter so long as any Committed Loans remain outstanding), including at any time during which one or more of the conditions in Article V is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date (and, if applicable, thereafter on demand). The facility fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. (b) Utilization Fee. Each Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Pro Rata Share, a utilization fee equal to the Applicable Rate times its Total Outstandings on each day that the Total Outstandings plus the "Total Outstandings" as defined in the Other Credit Agreement exceed 50% of the actual daily amount of the Aggregate Commitments plus the "Aggregate Commitments," as defined in the Other Credit Agreement then in effect. For the purpose of determining the utilization fee in this Agreement and the Other Credit Agreement, the Aggregate Commitments hereunder on any day after the Termination Date shall equal the Total Outstandings on such date. The utilization fee shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the Maturity Date. The utilization fee shall be calculated quarterly in arrears and if there is any change in the Applicable Rate during any quarter, the daily amount shall be computed and multiplied by the Applicable Rate for each period during which such Applicable Rate was in effect. The utilization fee shall accrue at all times, including at any time during which one or more of the conditions in Article V is not met. (c) Other Fees. The Borrowers shall pay to the Arrangers and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letters. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever. 2.09 COMPUTATION OF INTEREST AND FEES. All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "prime rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is 25 made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.11(a), bear interest for one day. 2.10 EVIDENCE OF DEBT. The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to each Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, each Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender's Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto. 2.11 PAYMENTS GENERALLY. (a) All payments to be made by any Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by any Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent's Office in Dollars and in immediately available funds not later than 2:30 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender's Lending Office. All payments received by the Administrative Agent after 2:30 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. (b) If any payment to be made by any Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be. (c) Unless any Borrower or any Lender has notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder (or, in the case of a Borrowing of a Base Rate Loan, prior to 12:30 P.M. on the date of such Borrowing), that such Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that such Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then: 26 (i) if such Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and (ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to such Borrower to the date such amount is recovered by the Administrative Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate from time to time in effect. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Committed Loan or Bid Loan, as the case may be, included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent may make a demand therefor upon such Borrower, and such Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent, any Lender or any Borrower may have against any other Lender as a result of any default by such Lender hereunder. A notice of the Administrative Agent to any Lender or any Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error. (d) If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to any Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article V are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest. (e) The obligations of the Lenders hereunder to make Committed Loans are several and not joint. The failure of any Lender to make any Committed Loan on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan. (f) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner. 2.12 SHARING OF PAYMENTS. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Committed Loans made by it, any payment (whether 27 voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Committed Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment in respect of such Committed Loans pro rata with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. Each Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.09) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased. ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 TAXES. (a) Any and all payments by or on account of any obligation of each Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, each Borrower shall pay any Other Taxes not paid pursuant to Section 3.01(a)(iii) to the relevant Governmental Authority in accordance with applicable law. (c) Each Borrower shall indemnify the Administrative Agent and each Lender within thirty (30) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of such Borrower hereunder 28 (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest, additions to tax and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided, that such Borrower shall not be obligated to make a payment pursuant to this Section 3.01 in respect of penalties, interest and additions to tax attributable to any Indemnified Taxes or Other Taxes, if (i) such penalties, interest and additions to tax are attributable to the failure of the Administrative Agent or such Lender, as the case may be, to pay amounts paid to the Administrative Agent or such Lender by such Borrower (for Indemnified Taxes or Other Taxes) to the relevant Governmental Authority within thirty (30) days after receipt of such payment from such Borrower or (ii) such penalties, interest and additions to tax are attributable to the gross negligence or willful misconduct of the Administrative Agent or such Lender, as the case may be. Within 180 days after the Administrative Agent or such Lender learns of the imposition of Indemnified Taxes or Other Taxes, such Person shall give notice to the relevant Borrower of the payment by the Administrative Agent or such Lender, as the case may be, of such Indemnified Taxes or Other Taxes, and of the assertion by any Governmental Authority that such Indemnified Taxes or Other Taxes are due and payable, but the failure to give such notice shall not affect such Borrower's obligations hereunder to reimburse the Administrative Agent and such Lender for such Indemnified Taxes or Other Taxes, except that such Borrower shall not be liable for penalties, interest and other liabilities accrued or incurred after such 180 day period until such time as it receives the notice contemplated above, after which time it shall be liable for penalties, interest and other liabilities accrued or incurred prior to or during such 180 day period and accrued or incurred after such receipt. Such Borrower shall not be liable for any penalties, interest and other liabilities with respect to such Indemnified Taxes or Other Taxes to the extent it has reimbursed the amount thereof to the Administrative Agent or such Lender, as the case may be. A certificate as to the amount of such payment or liability delivered to the relevant Borrower by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the relevant Borrower to a Governmental Authority, such Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Lender, before it signs and delivers this Agreement if listed on the signature pages hereof, and before it becomes a Lender in the case of each other Foreign Lender, shall provide such Borrower and the Administrative Agent either (i) two accurate, complete and signed copies of either (x) U.S. Internal Revenue Service Form W-8ECI or any successor form, or (y) U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form W-8IMY, or any successor form, in each case, indicating that such Lender is on the date of delivery thereof entitled to receive payments of interest hereunder free from, or subject to a reduced rate of withholding of United States Federal income tax or (ii) in the case of such a Lender that is entitled to claim exemption from withholding of United States Federal income tax under Section 871(h) or Section 881(c) of the Code with respect to payments of "portfolio interest", (x) a certificate to the effect that such Lender is (A) not a "bank" within the 29 meaning of Section 881(c)(3)(A) of the Code, (B) not a "10 percent shareholder" of any Borrower within the meaning of Section 881(c)(3)(B) of the Code and (C) not a controlled foreign corporation related to any Borrower within the meaning of Section 881(c)(3)(C) of the Code and (y) two accurate, complete and signed copies of U.S. Internal Revenue Service Form W-8BEN or U.S. Internal Revenue Service Form W-81MY, or any successor Form. To the extent permitted by applicable law, from time to time thereafter, at the request of any Borrower, each Foreign Lender shall deliver renewals or additional copies of such forms (or successor forms) on or before the date that such form expires or becomes obsolete. Upon the written request of a Borrower to the Administrative Agent and any Lender which is not a Foreign Lender, such Lender shall provide such Borrower and the Administrative Agent with two accurate, complete and signed copies of the U.S. Internal Revenue Service Form W-9. (f) The Administrative Agent may, without reduction, withhold any Taxes required to be deducted and withheld from any payment under any of the Loan Documents with respect to which the Borrowers are not required to pay additional amounts under this Section 3.01. (g) If the U.S. Internal Revenue Service or any other Governmental Authority asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or properly completed, because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered its exemption from withholding ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax, withholding therefor, or otherwise, including penalties and interest, and including taxes imposed by any jurisdiction on amounts payable to the Administrative Agent under this paragraph (g), together with all costs and expenses related thereto (including attorneys fees and time charges of attorneys for the Administrative Agent, which attorneys may be employees of the Administrative Agent). The obligations of the Lenders under this paragraph (g) shall survive the payment of the Loans and termination of this Agreement. (h) If the Administrative Agent or any Lender determines, in its good faith judgment, that it has actually received or realized any refund of tax or any reduction of its tax liabilities or otherwise recovered any amount in connection with any deduction or withholding or payment of any additional amount by any Borrower pursuant to Section 3.04 or this Section 3.01, such Person shall reimburse such Borrower in an amount equal to the net benefit, after tax, and net of all expenses incurred by such Person in connection with such refund, reduction or recovery; provided, that nothing in this paragraph (h) shall require any Person to make available its tax returns (or any other information relating to its taxes which it deems to be confidential). Each Borrower shall return such amount to the applicable Person in the event that such Person is required to repay such refund of tax or is not entitled to such reduction of, or credit against, its tax liabilities. If the Administrative Agent or any Lender shall become aware that it is entitled to receive a refund or direct credit in respect of Indemnified Taxes or Other Taxes as to which it has been indemnified by any Borrower or with respect to which any Borrower has paid additional amounts, it shall promptly notify such Borrower of the availability of such refund or direct credit and shall, within 30 days after receipt of a request for such by such Borrower (whether as a result of notification that it has made of such to such Borrower or otherwise), make a claim to such Governmental Authority for such refund or direct credit and contest such Indemnified Taxes, Other Taxes or liabilities if (i) such Borrower has agreed in writing to pay all of such Lender's or 30 Administrative Agent's reasonable costs and expenses relating to such claim or contest, (ii) such Lender or the Administrative Agent determines, in its good faith judgment, that it would not be materially disadvantaged or prejudiced as a result of such claim or contest (it being understood that the mere existence of fees, charges, costs or expenses that such Borrower has offered to and agreed to pay on behalf of such Lender or the Administrative Agent shall not be deemed to be materially disadvantageous to such person) and (iii) such Borrower furnishes, upon request of such Lender or the Administrative Agent, an opinion of reputable tax counsel (such opinion and such counsel to be acceptable to such Lender or the Administrative Agent) to the effect that such Indemnified Taxes or Other Taxes were wrongly or illegally imposed. 3.02 ILLEGALITY. If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the applicable Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Committed Loans to Eurodollar Rate Committed Loans shall be suspended until such Lender notifies the Administrative Agent and such Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all its Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the applicable Borrower shall also pay accrued interest on the amount so prepaid or converted. Each Lender agrees to designate a different Lending Office if such designation will avoid the need for such notice and will not, in the good faith judgment of such Lender, otherwise be materially disadvantageous to such Lender. 3.03 INABILITY TO DETERMINE RATES. If the Required Lenders determine that for any reason adequate and reasonable means do not exist for determining the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan, or that the Eurodollar Base Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Committed Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrowers and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, any Borrower may revoke any pending request by it for a Borrowing of, conversion to or continuation of Eurodollar Rate Committed Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein. 31 3.04 INCREASED COST AND REDUCED RETURN; CAPITAL ADEQUACY. (a) If any Lender determines that as a result of the introduction of or any change in or in the interpretation by any Governmental Authority of any Law, or such Lender's compliance with any request, guideline or directive of any Governmental Authority made or issued after the date hereof, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Loans, or a reduction in the amount received or receivable by such Lender in connection with any of the foregoing (excluding for purposes of this subsection (a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to which Section 3.01 shall govern), (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or any foreign jurisdiction or any political subdivision of either thereof under the Laws of which such Lender is organized, in which its principal office is located or has its Lending Office (or in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principal of residence, the jurisdiction (or any political subdivision thereof) in which such Lender is so resident), and (iii) reserve requirements utilized, as to Eurodollar Rate Committed Loans, in the determination of the Eurodollar Rate), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the applicable Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such increased cost or reduction. (b) If any Lender determines that the introduction of any Law regarding capital adequacy or any change therein or in the interpretation by any Governmental Authority thereof, or compliance by such Lender (or its Lending Office) with any request, guideline or directive of any Governmental Authority made or issued after the date hereof, has the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder (taking into consideration its policies with respect to capital adequacy and such Lender's desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrowers shall jointly and severally pay to such Lender such additional amounts as will compensate such Lender for such reduction. 3.05 COMPENSATION FOR LOSSES. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, each Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) except as a result of circumstances set forth in Section 3.02, any continuation, conversion, payment or prepayment of any Loan to it other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by such Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by such Borrower; or (c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by such Borrower pursuant to Section 10.15; 32 including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by any Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Committed Loan made by it at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Committed Loan was in fact so funded. 3.06 MATTERS APPLICABLE TO ALL REQUESTS FOR COMPENSATION. (a) A certificate of the Administrative Agent or any Lender claiming compensation under this Article III and setting forth the basis for such claim and a calculation of the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. (b) Upon any Lender's making a claim for compensation under Section 3.01 or 3.04, the Borrower may replace such Lender in accordance with Section 10.15. 3.07 SURVIVAL. All of the Borrowers' obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder. ARTICLE IV. REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants to the Lenders, as to itself and its Subsidiaries, as applicable, that: 4.01 ORGANIZATION; POWERS. MetLife and each of its Material Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 4.02 AUTHORIZATION; ENFORCEABILITY. The Transactions are within each Borrower's corporate powers and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by each Borrower and constitutes a legal, valid and binding obligation of each Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Support Agreement has been duly executed and delivered by and constitutes a legal, valid and binding obligation of the Company and Funding, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. 33 4.03 GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by laws or other organizational documents of any Borrower or any order of any Governmental Authority, and (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Borrower or its assets, or give rise to a right thereunder to require any payment to be made by any Borrower. 4.04 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE. (a) MetLife has heretofore furnished to the Lenders its audited consolidated balance sheet and statements of earnings, equity and cash flows as of and for the fiscal year ended December 31, 2003, reported on by independent public accountants. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of MetLife and its Consolidated Subsidiaries, as of the date thereof and for such fiscal year, in accordance with GAAP. (b) The Company has heretofore furnished to each of the Lenders the annual Statutory Statement of the Company as at and for the year ended December 31, 2003, as filed with the Applicable Insurance Regulatory Authority. Such Statutory Statement presents fairly, in all material respects, the financial position and results of operations of the Company , as of the date thereof and for such year, in accordance with SAP. (c) Since December 31, 2003, there has been no material adverse change in the business, assets, property or condition (financial or otherwise) of MetLife and its Subsidiaries taken as a whole from that set forth in the respective financial statements referred to in Sections 4.04(a) and 4.04(b). 4.05 PROPERTIES. (a) MetLife and each of its Material Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for defects in title that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. (b) MetLife and each of its Material Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by MetLife and its Material Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. 4.06 LITIGATION AND ENVIRONMENTAL MATTERS. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Borrower, threatened against or affecting MetLife or any of its Material Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, is 34 reasonably likely, individually or in the aggregate, to result in a Material Adverse Change (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change, neither MetLife nor any of its Material Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. 4.07 COMPLIANCE WITH LAWS AND AGREEMENTS. Each of MetLife and its Material Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. No Default has occurred and is continuing. 4.08 INVESTMENT AND HOLDING COMPANY STATUS. Neither MetLife nor any of its Material Subsidiaries (other than Funding) is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, and Funding is an "investment company" as defined in such Act that is exempt from the requirements of such Act. Neither MetLife nor any of its Material Subsidiaries is a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 4.09 TAXES. Each of MetLife and its Subsidiaries has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which MetLife or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Change. 4.10 ERISA. Each Plan and, to the knowledge of MetLife, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Change. 4.11 DISCLOSURE. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrowers to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that with respect to projected financial information, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. 35 4.12 MARGIN STOCK. No part of the proceeds of any Loan hereunder will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the FRB, including Regulations U and X. Not more than 25% of the value (as determined by any reasonable method) of the assets of any of the Borrowers is represented by Margin Stock. ARTICLE V. CONDITIONS TO CREDIT EXTENSIONS 5.01 CLOSING DATE. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.01): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received an opinion, addressed to it and the Lenders and dated the Closing Date, of counsel to the Company, substantially in the form of Exhibit E, and covering such other matters relating to the Borrowers, this Agreement or the Transactions as the Required Lenders shall reasonably request. The Borrowers hereby request such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent, its counsel or any Lender may reasonably request relating to the organization, existence and good standing of each of the Borrowers, the authorization of the Transactions and any other legal matters relating to each of the Borrowers, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. (e) The Existing Credit Agreements shall have been terminated, all Loans thereunder shall have been repaid in full and all letters of credit issued under the Existing Bank of America Credit Agreement shall have been cancelled or be deemed outstanding under the Other Credit Agreement. The Administrative Agent shall notify the Borrowers and the Lenders of the Closing Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.01) at or prior to 3:00 p.m., New York City time, on April 23, 2004 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). 36 5.02 EACH CREDIT EVENT. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of each of the Borrowers set forth in this Agreement (other than, after the Closing Date, in Section 4.04(c) and in Section 4.06) shall be true and correct on and as of the date of such Borrowing. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. (c) At the time of and immediately after giving effect to such Borrowing, no default or event or condition which constitutes a default or which upon notice, lapse of time or both would, unless cured or waived, become a default shall have occurred and be continuing under the Support Agreement. (d) The applicable Borrower is authorized to perform its obligations in respect of the proposed Borrowing. Each Borrowing shall be deemed to constitute a representation and warranty by each Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section. ARTICLE VI. AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, each Borrower covenants and agrees with the Lenders that: 6.01 FINANCIAL STATEMENTS AND OTHER INFORMATION. MetLife will furnish to the Administrative Agent and each Lender: (a) (i) as soon as available, but not later than 120 days after the end of each fiscal year of MetLife, copies of MetLife's annual report on Form 10-K as filed with the SEC for such fiscal year; and (ii) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of MetLife, copies of MetLife's quarterly report on Form 10-Q as filed with the SEC for such fiscal quarter, in each case certified by an appropriate Financial Officer as being the complete and correct copies of the statements on such forms furnished by MetLife to the SEC; (b) concurrently with any delivery of financial statements under clause (a) above or (except as to clause (ii) of this paragraph (b)) clause (c) or (d) below, a certificate of a Financial Officer of MetLife (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 7.04 and 7.05 and (iii) stating whether any change in GAAP or SAP, as the case may be, or in the application thereof has occurred since the date of the most recently delivered financial statements and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; 37 (c) within five days after filing with the Applicable Insurance Regulatory Authority and in any event within 60 days after the end of each year, the annual Statutory Statement of the Company for such year, certified by one of its Financial Officers as presenting fairly in all material respects the financial position of the Company for such year in accordance with SAP; (d) within five days after filing with the Applicable Insurance Regulatory Authority and in any event within 60 days after the end of each of the first three quarterly periods of each year, the quarterly Statutory Statement of the Company for such period, certified by one of its Financial Officers as presenting fairly in all material respects the financial position of the Company for such period in accordance with SAP; (e) within five days after any change in a Debt Rating for a Borrower, notice of such change; and (f) within ten days after knowledge of the occurrence of any ERISA Event, a description of such ERISA Event; and (g) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of MetLife or any of its Material Subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. Documents required to be delivered pursuant to Section 4.04 or Section 6.01 (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrowers post such documents, or provides a link thereto on the Borrowers' website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrowers' behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) the Borrowers shall deliver paper copies of such documents to the Administrative Agent until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) the Borrowers shall notify (which may be by facsimile or electronic mail) the Administrative Agent of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the certificate required by Section 6.01(b) to the Administrative Agent. Except for such certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. 6.02 NOTICES OF DEFAULTS. The Borrowers will furnish to the Administrative Agent and each Lender prompt written notice of the occurrence of any Default. Each such notice shall be accompanied by a statement of a Financial Officer or other executive officer of MetLife setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. 38 6.03 EXISTENCE; CONDUCT OF BUSINESS. MetLife will, and will cause each of its Material Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation, dissolution or other transaction permitted under Section 7.02. 6.04 PAYMENT OF OBLIGATIONS. MetLife will, and will cause each of its Material Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Change before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) MetLife or such Material Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Change. 6.05 MAINTENANCE OF PROPERTIES; INSURANCE. MetLife will, and will cause each of its Material Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. 6.06 BOOKS AND RECORDS; INSPECTION RIGHTS. MetLife will, and will cause each of its Material Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. MetLife will, and will cause each of its Material Subsidiaries to, permit any representative designated by the Administrative Agent (and, if a Default shall have occurred and be continuing, any representatives designated by any Lender), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. 6.07 COMPLIANCE WITH LAWS. MetLife will, and will cause each of its Material Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change. 6.08 USE OF PROCEEDS. The proceeds of the Loans will be used only for general corporate purposes (including the back-up of commercial paper) of MetLife and its Subsidiaries in the ordinary course of business; provided that no part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the FRB, including Regulations U and X; provided further that no part of the proceeds of any Loan will be used, whether directly or indirectly, to acquire the capital stock or business of any other Person without the consent of such Person; and provided further that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any such proceeds. 39 6.09 SUPPORT AGREEMENT. The Company and Funding will maintain the Support Agreement in full force and effect, and comply with the provisions thereof, and will not modify, supplement or waive any of its provisions without the prior consent of the Administrative Agent (with the approval of the Required Lenders); provided that any modification, supplement or waiver that reduces or impairs the support provided to Funding shall require the approval of all Lenders. ARTICLE VII. NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, each Borrower covenants and agrees with the Lenders that: 7.01 LIENS. None of the Borrowers will create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien existing on any property or asset prior to the acquisition thereof by such Borrower; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition, (ii) such Lien shall not apply to any other property or assets of such Borrower, and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition; (c) Liens on assets acquired, constructed or improved by such Borrower; provided that (i) such Liens and the Indebtedness secured thereby are incurred prior to or within 360 days after such acquisition or the completion of such construction or improvement, (ii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such assets, and (iii) such Liens shall not apply to any other property or assets of such Borrower; (d) Liens on any property or assets of any Person existing at the time such Person is merged or consolidated with or into such Borrower and not created in contemplation of such event; (e) Liens on any real property securing Indebtedness in respect of which (i) the recourse of the holder of such Indebtedness (whether direct or indirect and whether contingent or otherwise) under the instrument creating the Lien or providing for the Indebtedness secured by the Lien is limited to such real property directly securing such Indebtedness and (ii) such holder may not under the instrument creating the Lien or providing for the Indebtedness secured by the Lien collect by levy of execution or otherwise against assets or property of such Borrower (other than such real property directly securing such Indebtedness) if such Borrower fails to pay such Indebtedness when due and such holder obtains a judgment with respect thereto, except for recourse obligations that are customary in "non-recourse" real estate transactions; (f) Liens arising out of Securities Transactions entered into in the ordinary course of business and on ordinary business terms; 40 (g) Structured Transaction Liens; (h) Liens arising out of Asset Securitizations; (i) Liens on Separate Accounts Assets; (j) Liens arising out of any real estate sale/leaseback transactions; (k) Liens arising in connection with Swap Contracts; (l) Liens on securities owned by such Borrower which are pledged to the Federal Home Loan Bank Board, (the "FHLBB") to secure loans made by the FHLBB to such Borrower in the ordinary course of business and on ordinary business terms; (m) Liens not otherwise permitted by this Section 7.01 arising in the ordinary course of the Borrowers' business that do not secure any Indebtedness; provided that the obligations of the Borrowers secured by such Liens shall not exceed $3,000,000,000 at any one time outstanding; (n) Liens not otherwise permitted by this Section 7.01; provided that the aggregate principal amount of the Indebtedness secured by such Liens shall not exceed $4,000,000,000 at any one time outstanding; and (o) any extension, renewal or replacement of the foregoing; provided that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or assets (other than a substitution of like assets) unless such additional Indebtedness or assets would have been permitted in connection with the original creation, incurrence or assumption of such Lien. 7.02 FUNDAMENTAL CHANGES. (a) No Borrower will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (excluding (i) assets sold or disposed of in the ordinary course of business or (ii) between or among MetLife and its direct and indirect wholly-owned Subsidiaries), or (in the case of MetLife) all or any substantial part of the stock of Funding or the Company (in each case, whether now owned or hereafter acquired), or liquidate or dissolve; provided, however, that all or a substantial part of the stock of Funding may be transferred so long as it remains directly or indirectly held by MetLife; and provided further, that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (A) any Subsidiary of a Borrower may merge into such Borrower in a transaction in which such Borrower is the surviving corporation, (B) Funding may sell, transfer, lease or otherwise dispose of its assets to MetLife or the Company, including via liquidation, so long as MetLife or the Company expressly assumes the obligations of Funding hereunder and under the promissory notes issued hereunder, and (C) a Borrower may merge or consolidate with any other Person if such Borrower is the surviving corporation. 41 (b) MetLife will not, and will not permit any of its Material Subsidiaries to, engage to any material extent in any business other than (i) businesses of the type conducted by MetLife or any of its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto or (ii) businesses financial in nature. 7.03 TRANSACTIONS WITH AFFILIATES. MetLife will not, and will not permit any of its Material Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions (other than service arrangements) with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to MetLife or such Material Subsidiary than could be obtained on an arm's length basis from unrelated third parties, and (b) transactions between or among MetLife and its direct or indirect Subsidiaries. 7.04 ADJUSTED STATUTORY SURPLUS. The Company will not permit its Adjusted Statutory Surplus, calculated as of the last day of each fiscal quarter of the Company, to be less than $7,750,000,000. 7.05 CONSOLIDATED NET WORTH. MetLife will not permit its Consolidated Net Worth, calculated as of the last day of each fiscal quarter, to be less than $15,000,000,000. ARTICLE VIII. EVENTS OF DEFAULT 8.01 EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur: (a) any Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) any Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five or more Business Days; (c) any representation or warranty made or deemed made by or on behalf of MetLife or any of its Material Subsidiaries in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 6.02, 6.03 (with respect to such Borrower's existence), 6.08 or 6.09 or in Article VII; (e) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this 42 Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the relevant Borrower (which notice will be given at the request of any Lender); (f) MetLife or any of its Material Subsidiaries shall fail to make payments (whether of principal or interest and regardless of amount) on Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in Material Indebtedness becoming due prior to the scheduled maturity of such Material Indebtedness or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of Material Indebtedness or any trustee or agent on its or their behalf to cause Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of MetLife or any of its Material Subsidiaries or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for MetLife or any or its Material Subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) MetLife or any of its Material Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for MetLife or any or its Material Subsidiaries or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) MetLife or any of its Material Subsidiaries shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $300,000,000 (or its equivalent in any other currency) shall be rendered against MetLife, any Material Subsidiary of MetLife or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; or 43 (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of MetLife and its Material Subsidiaries in an aggregate amount exceeding $200,000,000 in any year; 8.02 REMEDIES UPON EVENT OF DEFAULT. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, with notice to the Borrowers, take any or all of the following actions: (a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments shall be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; and (c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans to any Borrower shall automatically terminate, and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, without further act of the Administrative Agent or any Lender. 8.03 APPLICATION OF FUNDS. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations of any Borrower shall be applied by the Administrative Agent in the following order: First, to payment of that portion of such Borrower's Obligations constituting fees, indemnities, expenses and other amounts (including Attorney Costs and amounts payable under Article III) payable to the Administrative Agent in its capacity as such; Second, to payment of that portion of such Borrower's Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including Attorney Costs and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them; Third, to payment of that portion of such Borrower's Obligations constituting accrued and unpaid interest on the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them; Fourth, to payment of that portion of such Borrower's Obligations constituting unpaid principal of the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and 44 Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to such Borrower or as otherwise required by Law. ARTICLE IX. ADMINISTRATIVE AGENT 9.01 APPOINTMENT AND AUTHORIZATION OF ADMINISTRATIVE AGENT. Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or Participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. 9.02 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel and other consultants or experts concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible to the Lenders for the negligence or misconduct of any agent or attorney-in-fact selected by the Administrative Agent in good faith after due inquiry. 9.03 LIABILITY OF ADMINISTRATIVE AGENT. No Agent-Related Person shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or Participant for any recital, statement, representation or warranty made by any Loan Party or any officer thereof, contained herein or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Loan Party or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or Participant to ascertain or to inquire as to the observance or performance of any of the agreements contained 45 in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or any Affiliate thereof. 9.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to any Loan Party), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under any Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders (or such greater number of Lenders as may be expressly required hereby in any instance) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 5.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto. 9.05 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or a Borrower referring to this Agreement, describing such Default and stating that such notice is a "notice of default." The Administrative Agent will notify the Lenders of its receipt of any such notice. The Administrative Agent shall take such action with respect to such Default as may be directed by the Required Lenders in accordance with Article VIII; provided, however, that unless and until the Administrative Agent has received any such direction, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Lenders. 9.06 CREDIT DECISION; DISCLOSURE OF INFORMATION BY ADMINISTRATIVE AGENT. Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by the Administrative Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of any Loan Party or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any 46 Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties and their respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrowers hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrowers. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their respective Affiliates which may come into the possession of any Agent-Related Person. 9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of any Loan Party and without limiting the obligation of any Loan Party to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities incurred by it; provided, however, that (a) no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person's own gross negligence or willful misconduct, provided, however, that no action taken in accordance with the express directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section, and (b) no Lender shall be liable for the payment of any portion of an Indemnified Liability pursuant to this Section unless such Indemnified Liability was incurred by the Administrative Agent in its capacity as such or by another Agent-Related Person acting for the Administrative Agent in such capacity. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrowers. The undertaking in this Section shall survive termination of the Aggregate Commitments, the payment of all other Obligations and the resignation of the Administrative Agent. 9.08 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, 47 acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with each of the Loan Parties and their respective Affiliates as though Bank of America were not the Administrative Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding any Loan Party or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" include Bank of America in its individual capacity. 9.09 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders and the Borrowers. If the Administrative Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders, which successor administrative agent shall be consented to by the Borrowers at all times other than during the existence of an Event of Default (which consent of the Borrowers shall not be unreasonably withheld or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Borrowers, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, the Person acting as such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent, and the term "Administrative Agent" shall mean such successor administrative agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated without any other or further act or deed on the part of any other Lender. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article IX and Section 10.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 9.10 ADMINISTRATIVE AGENT 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 any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Borrower) 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 and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the 48 Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.08 and 10.05) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.08 and 10.05. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. 9.11 OTHER AGENTS; JOINT LEAD ARRANGERS AND BOOK MANAGERS. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "arranger," shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE X. MISCELLANEOUS 10.01 AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrowers, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall: (a) waive any condition set forth in Section 5.01 without the written consent of each Lender; (b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender; 49 (c) postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; (d) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of "Default Rate" or to waive any obligation of the Borrower to pay interest at the Default Rate; (e) change Section 2.12 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender; or (f) change any provision of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (ii) Section 10.07(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (iii) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender. 10.02 NOTICES AND OTHER COMMUNICATIONS; FACSIMILE COPIES. (a) General. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission). All such written notices shall be mailed certified or registered mail, faxed or delivered to the applicable address, facsimile number or (subject to subsection (b) below) electronic mail address, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: (i) if to the Borrowers or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02 or to such other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties; and (ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire or to such 50 other address, facsimile number, electronic mail address or telephone number as shall be designated by such party in a notice to the Borrowers and the Administrative Agent. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b). (b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. (c) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature. (d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) reasonably believed by them to be genuine and to have been given by or on behalf of the Borrowers even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrowers shall jointly and severally indemnify each Agent-Related Person and each Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice reasonably believed by them to be genuine and to have been given by or on behalf of the Borrowers. All telephonic notices to and other communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. 10.03 NO WAIVER; CUMULATIVE REMEDIES. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, 51 remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.04 [INTENTIONALLY OMITTED]. 10.05 COSTS, EXPENSES AND INDEMNIFICATION. (a) Each Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Agent-Related Persons, including reasonable Attorney Costs, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) Each Borrower shall indemnify the Administrative Agent and each Lender and the directors, officers, employees, agents, advisors and Affiliates of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the use or proposed use of the proceeds of any Loan , or (ii) any actual or prospective claim, litigation, investigation or proceeding relating thereto, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto (the "Indemnified Liabilities"); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Borrowers fail to pay any amount required to be paid by them to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, in its capacity as such. (d) To the extent permitted by applicable law, the Borrowers shall not assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan, or the use of the proceeds thereof. 52 (e) No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement. (f) The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. 10.06 PAYMENTS SET ASIDE. To the extent that any payment by or on behalf of any Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, rehabilitator, conservator, custodian, liquidator, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. 10.07 SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrowers may not assign or otherwise transfer any of their respective rights or obligations hereunder without the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section, or (iv) to an SPC in accordance with the provisions of subsection (h) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund (as defined in subsection (g) of this Section) with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding 53 thereunder) subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrowers otherwise consent (each such consent not to be unreasonably withheld or delayed); (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to rights in respect of Bid Loans; (iii) any assignment of a Commitment must be approved by the Administrative Agent, unless the Person that is the proposed assignee is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee); (iv) the assignment shall contain a representation by the Eligible Assignee to the effect that none of the consideration used to make the purchase of the Commitment and Loans under the applicable Assignment and Assumption constitutes "plan assets" as defined under ERISA and that the rights and interests of the Eligible Assignee in and under the Loan Documents will not be "plan assets" under ERISA; and (v) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500. Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.05 with respect to facts and circumstances occurring prior to the effective date of such assignment). Upon request, each Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agent's Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or other substantive change to the Loan Documents is pending, any Lender wishing to consult with other Lenders in connection therewith may request and receive from the Administrative Agent a copy of the Register. 54 (d) Any Lender may at any time, without the consent of, or notice to, any Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or a Borrower or any of the Borrower's Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that directly affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.09 as though it were a Lender, provided such Participant agrees to be subject to Section 2.12 as though it were a Lender. (e) A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers' prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 3.01 as though it were a Lender. (f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (g) As used herein, the following terms have the following meanings: "Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund; and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, the Borrowers (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, "Eligible Assignee" shall not include any Borrower or any of the Borrowers' Affiliates or Subsidiaries. 55 "Fund" means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. (h) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers (an "SPC") the option to provide all or any part of any Committed Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Committed Loan, and (ii) if an SPC elects not to exercise such option or otherwise fails to make all or any part of such Committed Loan, the Granting Lender shall be obligated to make such Committed Loan pursuant to the terms hereof or, if it fails to do so, to make such payment to the Administrative Agent as is required under Section 2.11(c)(ii). Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrowers under this Agreement (including its obligations under Section 3.04), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the lender of record hereunder. The making of a Committed Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Committed Loan were made by such Granting Lender. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior debt of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding under the laws of the United States or any State thereof. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrowers and the Administrative Agent and without paying any processing fee therefor, assign all or any portion of its right to receive payment with respect to any Committed Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Committed Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC. 10.08 CONFIDENTIALITY. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates' respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent 56 required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Borrower and its obligations, (g) with the consent of any Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than any Borrower. In the event that any Lender becomes legally compelled to disclose any confidential Information pursuant to paragraph (c) of this Section 10.08, such Lender shall, to the extent permitted by law, give prompt written notice of that fact to the Borrowers prior to the disclosure so that the Borrowers may seek an appropriate remedy to prevent or limit such disclosure and the Lenders shall cooperate reasonably (at the expense of the Borrowers) with the Borrowers in seeking such remedy. For purposes of this Section, "Information" means all information received from any Borrower or any of its Subsidiaries relating to any Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any Borrower or any Subsidiary, provided that, in the case of information received from any Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 10.09 SET-OFF. In addition to any rights and remedies of the Lenders provided by law, upon the occurrence and during the continuance of any Event of Default, each Lender is authorized at any time and from time to time, without prior notice to the Borrower or any other Loan Party, any such notice being waived by the Borrowers to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Lender to or for the credit or the account of the respective Loan Parties against any and all Obligations owing to such Lender hereunder or under any other Loan Document, now or hereafter existing, irrespective of whether or not the Administrative Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or denominated in a currency different from that of the applicable deposit or indebtedness. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 10.10 INTEREST RATE LIMITATION. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the "Maximum Rate"). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, 57 if it exceeds such unpaid principal, refunded to the applicable Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder. 10.11 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.12 INTEGRATION. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of supplemental rights or remedies in favor of the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 10.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied. 10.14 SEVERABILITY. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.15 MITIGATION OF OBLIGATIONS; REPLACEMENT OF LENDERS. (a) If any Lender requests compensation under Section 3.04, or if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, then such Lender shall, upon the request of such Borrower, use reasonable efforts to designate a different Lending Office for funding or booking 58 its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.04 or 3.01, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) Under any circumstances set forth herein providing that the Borrowers shall have the right to replace a Lender as a party to this Agreement, the Borrowers may, upon notice to such Lender and the Administrative Agent, replace such Lender by causing such Lender to assign its Commitment (with the assignment fee to be paid by the Borrowers in such instance) pursuant to Section 10.07(b) to one or more other Lenders or Eligible Assignees procured by the Borrowers; provided, however, that if the Borrowers elect to exercise such right with respect to any Lender pursuant to Section 3.06(b), it shall be obligated to replace all Lenders that have made similar requests for compensation pursuant to Section 3.01 or 3.04. Upon the making of any such assignment, the Borrowers shall pay in full any amounts payable pursuant to Section 3.05. 10.16 GOVERNING LAW. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, the LAW OF THE STATE OF NEW YORK applicable to agreements made and to be performed entirely within such State; PROVIDED THAT THE ADMINISTRATIVE Agent AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. EACH BORROWER, THE ADMINISTRATIVE Agent AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE. 10.17 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT 59 OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.18 USA PATRIOT ACT NOTICE. Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of the Borrowers and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Act. 60 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. METLIFE, INC. By: /s/ Anthony J. Williamson ___________________________________________ Name: Anthony J. Williamson _________________________________________ Title: Senior Vice President and Treasurer ________________________________________ METROPOLITAN LIFE INSURANCE COMPANY By: /s/ Anthony J. Williamson ___________________________________________ Name: Anthony J. Williamson _________________________________________ Title: Senior Vice President and Treasurer ________________________________________ METLIFE FUNDING, INC. By: /s/ Anthony J. Williamson ___________________________________________ Name: Anthony J. Williamson _________________________________________ Title: Chairman, President and Chief Executive Officer ________________________________________ 364-Day Credit Agreement S-1 BANK OF AMERICA, N.A., individually, as Administrative Agent By: /s/ LESLIE NANNEN ___________________________________________ Name: Leslie Nannen _________________________________________ Title: Principal ________________________________________ 364-Day Credit Agreement S-2 WACHOVIA CAPITAL MARKETS, LLC, as Syndication Agent By: /s/ Emily Johnson ___________________________________________ Name: Emily Johnson _________________________________________ Title: Assoc/VP ________________________________________ 364-Day Credit Agreement S-3 WACHOVIA BANK, N.A. By:/s/KIMBERLY SHAFFER ___________________________________________ Name:Kimberly Shaffer _________________________________________ Title:Director ________________________________________ 364-Day Credit Agreement S-4 CITICORP USA By: /s/ David A. Dodge ___________________________________________ Name: David A. Dodge ________________________________________ Title: Managing Director ________________________________________ 364-Day Credit Agreement S-5 JPMORGAN CHASE BANK By: /s/ Heather Lindstrom ___________________________________________ Name: Heather Lindstrom _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-6 CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch By: /s/ Paul L. Colon ___________________________________________ Name: Paul L. Colon _________________________________________ Title: Director ________________________________________ By: /s/ Jennifer A. Pieza ___________________________________________ Name: Jennifer A. Pieza _________________________________________ Title: Associate ________________________________________ 364-Day Credit Agreement S-7 DEUTSCHE BANK AG NEW YORK BRANCH By: /s/ John S. McGill ___________________________________________ Name: John S. McGill _________________________________________ Title: Director ________________________________________ By: /s/ Charles Kohler ___________________________________________ Name: Charles Kohler _________________________________________ Title: Managing Director ________________________________________ 364-Day Credit Agreement S-8 HSBC BANK USA By: /s/ Kenneth J. Johnson ___________________________________________ Name: Kenneth J. Johnson _________________________________________ Title: Senior Vice President ________________________________________ 364-Day Credit Agreement S-9 LEHMAN BROTHERS BANK, FSB By: /s/ Gary T. Taylor ___________________________________________ Name: Gary T. Taylor _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-10 MELLON BANK, N.A. By: /s/ Carrie Burnham ___________________________________________ Name: Carrie Burnham _________________________________________ Title: Assistant Vice President ________________________________________ 364-Day Credit Agreement S-11 MERRILL LYNCH BANK USA By: /s/ Louis Alder ___________________________________________ Name: Louis Alder _________________________________________ Title: Director ________________________________________ 364-Day Credit Agreement S-12 UBS LOAN FINANCE LLC By: /s/ Wilfred V. Saint ______________________________ Name: Wilfred V. Saint ______________________________ Title: Director, Banking Products Services, US ______________________________ By: /s/ Joselin Fernandes ______________________________ Name: Joselin Fernandes ______________________________ Title: Associate Director, Banking Product Services, US ______________________________ 364-Day Credit Agreement S-13 ABN AMRO BANK N.V. By: /s/ Neil R. Stein ______________________________ Name: Neil R. Stein ______________________________ Title: Group Vice President ______________________________ By: /s/ Michael DeMarco ______________________________ Name: Michael DeMarco ______________________________ Title: Assistant Vice President ______________________________ 364-Day Credit Agreement S-14 BNP PARIBAS By: /s/LAURENT VANDERZYPPE ___________________________________________ Name: Laurent Vanderzyppe _________________________________________ Title: Director ________________________________________ By: /s/ MARGUERITE L. LEBON ___________________________________________ Name: Marguerite L. Lebon _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-15 BANK ONE, NA By: /s/ Gerard P. Fogarty ___________________________________________ Name: Gerard P. Fogarty _________________________________________ Title: Director ________________________________________ 364-Day Credit Agreement S-16 BARCLAYS BANK PLC By: /s/ Alison A. McGuigan ___________________________________________ Name: Alison A. McGuigan _________________________________________ Title: Associate Director ________________________________________ 364-Day Credit Agreement S-17 THE NORTHERN TRUST COMPANY By: /s/ Eric Dybing ___________________________________________ Name: Eric Dybing _________________________________________ Title: Second Vice President ________________________________________ 364-Day Credit Agreement S-18 PNC BANK, N.A. By: /s/ Paul Devine ___________________________________________ Name: Paul Devine _________________________________________ Title: Vice President & Credit Officer ________________________________________ 364-Day Credit Agreement S-19 THE ROYAL BANK OF SCOTLAND By: /s/ Angela R. Reilly ___________________________________________ Name: Angela R. Reilly _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-20 STATE STREET BANK AND TRUST COMPANY By: /s/ Edward M. Anderson ___________________________________________ Name: Edward M. Anderson _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-21 US BANK NATIONAL ASSOCIATION By: /s/ Eric Hartman ___________________________________________ Name: Eric Hartman _________________________________________ Title: Vice President ________________________________________ 364-Day Credit Agreement S-22 EX-31.1 5 y99162exv31w1.txt CERTIFICATION Exhibit 31.1 CERTIFICATION I, Robert H. Benmosche, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of MetLife, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 3, 2004 /s/ Robert H. Benmosche ------------------------------------------------- Robert H. Benmosche Chairman of the Board and Chief Executive Officer EX-31.2 6 y99162exv31w2.txt CERTIFICATION Exhibit 31.2 CERTIFICATION I, William J. Wheeler, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of MetLife, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 3, 2004 /s/ William J. Wheeler ---------------------------------------------------- William J. Wheeler Executive Vice President and Chief Financial Officer EX-32.1 7 y99162exv32w1.txt CERTIFICATION Exhibit 32.1 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Robert H. Benmosche, the Chief Executive Officer of MetLife, Inc. (the "Company"), certify that (i) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 3, 2004 By: /s/ Robert H. Benmosche ------------------------- Robert H. Benmosche Chairman and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to MetLife, Inc. and will be retained by MetLife, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 8 y99162exv32w2.txt CERTIFICATION Exhibit 32.2 SECTION 906 CERTIFICATION CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, William J. Wheeler, the Chief Financial Officer of MetLife, Inc. (the "Company"), certify that (i) the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 3, 2004 By: /s/ William J. Wheeler ------------------------- William J. Wheeler Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to MetLife, Inc. and will be retained by MetLife, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----