-----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, VsJ/3A7PGVboEUWS0vGhMK8t8QsiS2+FURomJrYviV0Lk2ccW9ymVnt5lvLAaIvK Bzw+/OW5iPAEChM80lerbA== 0000888002-01-500030.txt : 20010814 0000888002-01-500030.hdr.sgml : 20010814 ACCESSION NUMBER: 0000888002-01-500030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AXA FINANCIAL INC CENTRAL INDEX KEY: 0000888002 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 133623351 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11166 FILM NUMBER: 1706802 BUSINESS ADDRESS: STREET 1: 1290 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10104 BUSINESS PHONE: 2125541234 MAIL ADDRESS: STREET 1: 1290 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10104 FORMER COMPANY: FORMER CONFORMED NAME: EQUITABLE COMPANIES INC DATE OF NAME CHANGE: 19950721 10-Q 1 axf10q0601.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2001 Commission File No. 1-11166 - -------------------------------------------------------------------------------- AXA Financial, Inc. ------------------- (Exact name of registrant as specified in its charter) Delaware 13-3623351 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1290 Avenue of the Americas, New York, New York 10104 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 554-1234 ------------------------ None - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year if changed since last report.) 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 --- --- No voting or non-voting common equity of the registrant is held by non-affiliates of the registrant as of August 10, 2001. At August 10, 2001, 436,192,949 shares of the registrant's Common Stock were outstanding. REDUCED DISCLOSURE FORMAT: Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with the Reduced Disclosure Format. Page 1 of 22 AXA FINANCIAL, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 TABLE OF CONTENTS
Page # PART I FINANCIAL INFORMATION Item 1: Unaudited Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000................................................ 3 Consolidated Statements of Earnings for the Three Months and Six Months Ended June 30, 2001 and 2000.......................... 4 Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 2001 and 2000.............................. 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000........................................... 6 Notes to Consolidated Financial Statements......................... 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management Narrative")..................... 16 Item 3: Quantitative and Qualitative Disclosures About Market Risk*........ 19 PART II OTHER INFORMATION Item 1: Legal Proceedings.................................................. 20 Item 6: Exhibits and Reports on Form 8-K................................... 21 SIGNATURES...................................................................... 22 *Omitted pursuant to General Instruction H to Form 10-Q.
2 PART I FINANCIAL INFORMATION Item 1: Unaudited Consolidated Financial Statements. AXA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31, 2001 2000 ----------------- ----------------- (In Millions) ASSETS Investments: Fixed maturities: Available for sale, at estimated fair value............................. $ 22,419.1 $ 20,715.8 Held to maturity, at amortized cost..................................... - 256.7 Mortgage loans on real estate............................................. 4,430.0 4,712.6 Equity real estate........................................................ 1,031.8 1,017.8 Policy loans.............................................................. 4,063.3 4,034.6 Other equity investments.................................................. 806.9 2,430.9 Other invested assets..................................................... 729.6 788.8 ----------------- ----------------- Total investments..................................................... 33,480.7 33,957.2 Cash and cash equivalents................................................... 1,379.7 2,479.5 Cash and securities segregated, at estimated fair value..................... 1,102.1 1,306.3 Broker-dealer related receivables........................................... 1,661.7 1,900.3 Deferred policy acquisition costs........................................... 5,261.8 5,128.8 Intangible assets, net...................................................... 3,975.6 4,066.2 Amounts due from reinsurers................................................. 2,176.2 2,097.9 Loans to affiliates......................................................... - 3,000.0 Other assets................................................................ 3,611.7 3,618.7 Separate Accounts assets.................................................... 49,723.8 51,705.9 ----------------- ----------------- Total Assets................................................................ $ 102,373.3 $ 109,260.8 ================= ================= LIABILITIES Policyholders' account balances............................................. $ 20,395.7 $ 20,445.8 Future policy benefits and other policyholders liabilities.................. 13,442.9 13,432.1 Broker-dealer related payables.............................................. 1,502.6 1,283.0 Customers related payables.................................................. 1,357.8 1,636.9 Short-term and long-term debt............................................... 3,026.6 3,432.3 Federal income taxes payable................................................ 1,037.4 2,421.4 Other liabilities........................................................... 3,273.0 3,513.2 Separate Accounts liabilities............................................... 49,655.5 51,632.1 Minority interest in equity of consolidated subsidiaries.................... 1,265.4 1,275.8 Minority interest subject to redemption rights.............................. 665.8 681.1 ----------------- ----------------- Total liabilities..................................................... 95,622.7 99,753.7 ----------------- ----------------- Commitments and contingencies (Note 10) SHAREHOLDERS' EQUITY Series D convertible preferred stock........................................ 219.6 219.6 Stock employee compensation trust........................................... (219.6) (219.6) Common stock, at par value.................................................. 3.9 4.6 Capital in excess of par value.............................................. 1,017.9 4,753.8 Treasury stock.............................................................. - (629.6) Retained earnings........................................................... 5,649.8 5,380.6 Accumulated other comprehensive income (loss)............................... 79.0 (2.3) ----------------- ----------------- Total shareholders' equity............................................ 6,750.6 9,507.1 ----------------- ----------------- Total Liabilities and Shareholders' Equity.................................. $ 102,373.3 $ 109,260.8 ================= ================= See Notes to Consolidated Financial Statements.
3 AXA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 --------------- ---------------- --------------- --------------- (In Millions) REVENUES Universal life and investment-type product policy fee income.......................... $ 340.4 $ 348.6 $ 686.1 $ 689.0 Premiums............................................. 245.0 288.0 513.7 574.0 Net investment income................................ 590.7 735.4 1,221.5 1,486.4 Investment losses, net............................... (51.2) (57.1) (29.2) (188.0) Commissions, fees and other income................... 817.2 629.7 1,628.3 1,237.3 --------------- ---------------- --------------- --------------- Total revenues................................. 1,942.1 1,944.6 4,020.4 3,798.7 --------------- ---------------- --------------- --------------- BENEFITS AND OTHER DEDUCTIONS Policyholders' benefits.............................. 463.2 517.9 932.3 1,057.2 Interest credited to policyholders' account balances........................................... 249.1 254.1 497.9 519.6 Compensation and benefits............................ 481.6 278.9 811.7 551.2 Commissions.......................................... 117.5 137.0 244.7 277.6 Distribution plan payments........................... 124.1 119.3 248.2 235.8 Amortization of deferred sales commissions........... 57.9 53.2 116.2 103.9 Interest expense..................................... 56.4 43.7 119.3 81.6 Amortization of deferred policy acquisition costs.... 57.5 96.2 152.7 191.8 Capitalization of deferred policy acquisition costs.............................................. (194.1) (194.9) (379.6) (390.5) Rent expense......................................... 45.3 34.8 90.5 66.2 Amortization of intangible assets, net............... 51.4 1.6 102.7 2.9 Other operating costs and expenses................... 244.4 233.8 519.9 440.2 --------------- ---------------- --------------- --------------- Total benefits and other deductions............ 1,754.3 1,575.6 3,456.5 3,137.5 --------------- ---------------- --------------- --------------- Earnings from continuing operations before Federal income taxes and minority interest......... 187.8 369.0 563.9 661.2 Federal income tax expense........................... (39.9) (111.1) (148.5) (194.4) Minority interest in net income of consolidated subsidiaries.......................... (75.8) (65.2) (147.4) (139.4) --------------- ---------------- --------------- --------------- Earnings from continuing operations.................. 72.1 192.7 268.0 327.4 Earnings (loss) from discontinued operations, net of Federal income taxes: Investment Banking and Brokerage segment......... - 99.9 - 268.7 Other............................................ (1.8) (1.5) 8.2 (6.4) Cumulative effect of accounting change, net of Federal income taxes............................... - - (3.5) - --------------- ---------------- --------------- --------------- Net Earnings......................................... $ 70.3 $ 291.1 $ 272.7 $ 589.7 =============== ================ =============== =============== See Notes to Consolidated Financial Statements.
4 AXA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2001 and 2000 (UNAUDITED)
2001 2000 ----------------- ----------------- (In Millions) SHAREHOLDERS' EQUITY Series D convertible preferred stock, beginning of year and end of period... $ 219.6 $ 239.7 ----------------- ----------------- Stock employee compensation trust, beginning of year and end of period...... (219.6) (239.7) ----------------- ----------------- Common stock, at par value, beginning of year............................... 4.6 4.5 Shares cancelled in connection with merger of AXA Merger Corp............... (.5) - Treasury stock retired, at par value........................................ (.2) - ----------------- ----------------- Common stock, at par value, end of period................................... 3.9 4.5 ----------------- ----------------- Capital in excess of par value, beginning of year........................... 4,753.8 3,739.1 Decrease related to the merger of AXA Merger Corp........................... (2,999.5) - Decrease from retirement of treasury stock.................................. (629.4) - Other changes in additional capital in excess of par value.................. (107.0) 23.2 ----------------- ----------------- Capital in excess of par value, end of period............................... 1,017.9 3,762.3 ----------------- ----------------- Treasury stock, beginning of year........................................... (629.6) (490.8) Purchase of shares for treasury............................................. - (57.8) Retirement of treasury stock................................................ 629.6 - ----------------- ----------------- Treasury stock, end of period............................................... - (548.6) ----------------- ----------------- Retained earnings, beginning of year........................................ 5,380.6 3,008.6 Net earnings................................................................ 272.7 589.7 Dividends on common stock................................................... - (21.7) Decrease in retained earnings in connection with merger of AXA Merger Corp.......................................................... (3.5) - ----------------- ----------------- Retained earnings, end of period............................................ 5,649.8 3,576.6 ----------------- ----------------- Accumulated other comprehensive loss, beginning of year..................... (2.3) (422.5) Other comprehensive income (loss)........................................... 81.3 (45.5) ----------------- ----------------- Accumulated other comprehensive income (loss), end of period................ 79.0 (468.0) ----------------- ----------------- Total Shareholders' Equity, End of Period................................... $ 6,750.6 $ 6,326.8 ================= =================
See Notes to Consolidated Financial Statements. 5 AXA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 and 2000 (UNAUDITED)
2001 2000 ----------------- ----------------- (In Millions) Net earnings................................................................ $ 272.7 $ 589.7 Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Interest credited to policyholders' account balances.................... 497.9 519.6 Universal life and investment-type product policy fee income............ (686.1) (689.0) Net change in broker-dealer customer related receivables/payables....... (139.0) 45.7 Investment losses, net.................................................. 29.2 182.5 Change in deferred policy acquisition costs............................. (226.0) (197.6) Change in future policy benefits........................................ (13.9) 57.3 Change in property and equipment........................................ (141.2) (127.4) Change in Federal income tax payable.................................... (1,429.5) (42.1) Decrease in segregated cash and securities, net......................... 204.3 - Other, net.............................................................. 201.8 (231.7) ----------------- ----------------- Net cash (used) provided by operating activities............................ (1,429.8) 107.0 ----------------- ----------------- Cash flows from investing activities: Maturities and repayments................................................. 1,212.3 1,303.3 Sales..................................................................... 4,921.4 2,963.2 Purchases................................................................. (5,111.7) (3,484.9) Decrease (increase) in short-term investments............................. 179.2 (.7) Other, net................................................................ (269.5) (73.2) ----------------- ----------------- Net cash provided by investing activities................................... 931.7 707.7 ----------------- ----------------- Cash flows from financing activities: Policyholders' account balances: Deposits................................................................ 1,479.5 1,327.6 Withdrawals and transfers to Separate Accounts.......................... (1,392.9) (2,314.8) Net (decrease) increase in short-term financings.......................... (406.2) 1,885.6 Purchase of treasury stock................................................ - (57.8) Other, net................................................................ (282.1) (143.8) ----------------- ----------------- Net cash (used) provided by financing activities............................ (601.7) 696.8 ----------------- ----------------- Change in cash and cash equivalents......................................... (1,099.8) 1,511.5 Cash and cash equivalents, beginning of year................................ 2,479.5 863.7 ----------------- ----------------- Cash and Cash Equivalents, End of Period.................................... $ 1,379.7 $ 2,375.2 ================= ================= Supplemental cash flow information Interest Paid............................................................. $ 115.0 $ 91.1 ================= ================= Income Taxes Paid......................................................... $ 1,569.9 $ 248.3 ================= =================
See Notes to Consolidated Financial Statements. 6 AXA FINANCIAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1) BASIS OF PRESENTATION The preparation of the accompanying unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions (including normal, recurring accruals) that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These statements should be read in conjunction with the consolidated financial statements of AXA Financial for the year ended December 31, 2000. The results of operations for the six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. The terms "second quarter 2001" and "second quarter 2000" refer to the three months ended June 30, 2001 and 2000, respectively. The terms "first half of 2001" and "first half of 2000" refer to the six months ended June 30, 2001 and 2000, respectively. AXA, a French holding company for an international group of insurance and related financial services companies, has been the Holding Company's largest shareholder since 1992. In October 2000, the Board of Directors of the Holding Company, acting upon a unanimous recommendation of a special committee of independent directors, approved an agreement with AXA for the acquisition of the approximately 40% of outstanding Holding Company Common Stock it did not already own. Under terms of the agreement, the minority shareholders of the Holding Company received $35.75 in cash and 0.295 of an AXA ADR (before giving effect to AXA's four-for-one stock split and related change in ADRs' parity for each Holding Company share). On January 2, 2001, AXA Merger Corp., a wholly-owned subsidiary of AXA, was merged with and into the Holding Company, resulting in AXA Financial becoming a wholly owned subsidiary of AXA. As a result of AXA Merger Corp's merger into the Holding Company, the obligation to repay the $3.0 billion loan from AXA Merger Corp. to the Holding Company was extinguished resulting in a decrease in consolidated shareholders' equity of $3.0 billion. In conjunction with the minority interest buyout, 53.4 million shares of Common Stock purchased by AXA Merger Corp. were cancelled and 20.7 million treasury shares held by the Holding Company were retired. Certain reclassifications have been made in the amounts presented for prior periods to conform those periods with the current presentation. 2) ACCOUNTING CHANGES On January 1, 2001, AXA Financial adopted SFAS No. 133, as amended, that established new accounting and reporting standards for all derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. Free-standing derivative instruments maintained by AXA Financial at January 1, 2001 include interest rate caps, floors and collars intended to hedge crediting rates on interest-sensitive individual annuities contracts and certain reinsurance contracts. Based upon guidance from the FASB and the Derivatives Implementation Group ("DIG"), the caps, floors and collars could not be designated in a qualifying hedging relationship under SFAS No. 133 and, consequently, require mark-to-market accounting through earnings for changes in their fair values beginning January 1, 2001. In accordance with the transition provisions of SFAS No. 133, AXA Financial recorded a cumulative-effect-type charge to earnings of $3.5 million to recognize the difference between the carrying values and fair values of free standing derivative instruments at January 1, 2001. With respect to adoption of the requirements on embedded derivatives, AXA Financial elected a January 1, 1999 transition date, thereby effectively "grandfathering" existing accounting for derivatives embedded in hybrid instruments acquired, issued, or substantively modified before that date. As a consequence of this election, coupled with recent interpretive guidance from the FASB and the DIG with respect to issues specifically related to insurance contracts and features, adoption of the new requirements for embedded derivatives had no material impact on AXA Financial's results of operation or its financial position. Upon its adoption of SFAS No. 133, AXA Financial reclassified $256.7 million of held-to-maturity securities as available-for-sale. This reclassification resulted in an after-tax cumulative-effect-type adjustment of $8.9 million in other comprehensive income, representing the after-tax unrealized gain on these securities at January 1, 2001. 7 AXA Financial adopted SOP 00-3 prospectively as of January 1, 2001 with no financial impact upon initial implementation. Prior period reclassifications have been made to include Closed Block assets, liabilities, revenues and expenses on a line-by-line basis as required by SOP 00-3. 3) NEW ACCOUNTING PRONOUNCEMENTS In 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 required all business combinations initiated after June 30, 2001 to be accounted for using only the purchase method. Under SFAS No. 142, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to impairment tests. Other intangible assets will continue to be amortized over their useful lives. The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Impairment losses for goodwill and indefinite lived intangible assets that arise due to the initial application of SFAS No. 142 will be reported as resulting from a change in accounting principle. AXA Financial will apply SFAS No. 142's provisions beginning in first quarter 2002. AXA Financial's management has not yet determined the impact of the initial application of SFAS No. 142 on results of operations or capital resources. 4) INVESTMENTS Investment valuation allowances and changes thereto are shown below:
Six Months Ended June 30, ----------------------------------- 2001 2000 --------------- --------------- (In Millions) Balances, beginning of year............................................... $ 126.2 $ 177.9 Additions charged to income............................................... 15.8 36.4 Deductions for writedowns and asset dispositions.......................... (25.7) (76.7) --------------- --------------- Balances, End of Period................................................... $ 116.3 $ 137.6 =============== =============== Balances, end of period: Mortgage loans on real estate........................................... $ 41.1 $ 35.1 Equity real estate...................................................... 75.2 102.5 --------------- --------------- Total..................................................................... $ 116.3 $ 137.6 =============== ===============
For the second quarters and first half of 2001 and of 2000, investment income is shown net of investment expenses of $54.3 million, $57.5 million, $116.5 million and $118.2 million, respectively. As of June 30, 2001 and December 31, 2000, fixed maturities classified as available for sale had amortized costs of $22,152.6 million and $20,667.2 million and fixed maturities in the held to maturity portfolio had estimated fair values of $266.9 million at December 31, 2000. Other equity investments included trading securities having carrying values of $5.7 million and $1,563.3 million and costs of $49.6 million, $1,607.1 million at June 30, 2001 and December 31, 2000, respectively, and other equity securities with carrying values of $45.0 million and $32.7 million and costs of $45.6 million and $36.5 million as of June 30, 2001 and December 31, 2000, respectively. In the second quarters and first half of 2001 and of 2000, respectively, net unrealized and realized holding (losses) gains on trading account equity securities of $(.2) million, $1.4 million, $26.5 million and $4.8 million were included in net investment income in the consolidated statements of earnings. For the first half of 2001 and of 2000, proceeds received on sales of fixed maturities classified as available for sale amounted to $3,276.0 million and $2,730.1 million, respectively. Gross gains of $103.7 million and $56.6 million and gross losses of $56.0 million and $112.6 million were realized on these sales for the first half of 2001 and of 2000, respectively. Unrealized investment gains related to fixed maturities classified as available for sale increased by $216.6 million during the first half of 2001, resulting in a balance of $266.5 million at June 30, 2001. 8 Impaired mortgage loans along with the related provision for losses were as follows:
June 30, December 31, 2001 2000 --------------- ----------------- (In Millions) Impaired mortgage loans with provision for losses....................... $ 80.9 $ 170.9 Impaired mortgage loans without provision for losses.................... 17.7 5.8 --------------- ----------------- Recorded investment in impaired mortgage loans.......................... 98.6 176.7 Provision for losses.................................................... (41.2) (45.7) --------------- ----------------- Net Impaired Mortgage Loans............................................. $ 57.4 $ 131.0 =============== =================
During the first half of 2001 and of 2000, respectively, AXA Financial's average recorded investment in impaired mortgage loans was $137.3 million and $171.5 million. Interest income recognized on these impaired mortgage loans totaled $2.9 million and $7.4 million ($.2 million on a cash basis for 2001) for the first half of 2001 and of 2000, respectively. 5) PURCHASE OF INTERESTS IN SUBSIDIARY During second quarter 2000, the Holding Company purchased 32.6 million newly issued Alliance Units for approximately $1.60 billion, recording goodwill and intangible assets totaling $536.4 million which are being amortized over an estimated overall 20 year life. Alliance used the cash proceeds primarily to fund the cash portion of the consideration of its fourth quarter acquisition of the assets and liabilities of Sanford C. Bernstein Inc. In June 2000, the Holding Company borrowed $1.45 billion from Bank of America N.A. at 7.06% for a 3 month period. These funds were used by the Holding Company to purchase the newly issued Alliance Units mentioned above. In July 2000, the Holding Company issued $480.0 million 7.75% Senior Notes due 2010. These notes pay interest semi-annually. The proceeds were used to partially repay the short-term borrowings. 6) CLOSED BLOCK The excess of Closed Block liabilities over Closed Block assets (adjusted to exclude the impact of related amounts in accumulated other comprehensive income and DAC) represents the expected maximum future post-tax earnings from the Closed Block which would be recognized in income from continuing operations over the period the policies and contracts in the Closed Block remain in force. As of January 1, 2001, AXA Financial has developed an actuarial calculation of the expected timing of the Closed Block earnings. If the actual cumulative earnings from the Closed Block are greater than the expected cumulative earnings, only the expected earnings will be recognized in net income. Actual cumulative earnings in excess of expected cumulative earnings at any point in time are recorded as a policyholder dividend obligation because they will ultimately be paid to Closed Block policyholders as an additional policyholder dividend unless offset by future performance that is less favorable than originally expected. If a policyholder dividend obligation has been previously established and the actual Closed Block earnings in a subsequent period are less than the expected earnings for that period, the policyholder dividend obligation would be reduced (but not below zero). If, over the period the policies and contracts in the Closed Block remain in force, the actual cumulative earnings of the Closed Block are less than the expected cumulative earnings, only actual earnings would be recognized in income from continuing operations. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside the Closed Block. Many expenses related to Closed Block operations, including amortization of DAC, are charged to operations outside of the Closed Block; accordingly, net revenues of the Closed Block do not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside of the Closed Block are, therefore, disproportionate to the business outside of the Closed Block. 9 Summarized financial information for the Closed Block is as follows:
June 30, December 31, 2001 2000 ----------------- ----------------- (In Millions) CLOSED BLOCK LIABILITIES: Future policy benefits and other policyholders' account balances....... $ 8,985.4 $ 9,026.4 Other liabilities...................................................... 65.5 33.8 ----------------- ----------------- Total Closed Block liabilities......................................... 9,050.9 9,060.2 ----------------- ----------------- ASSETS DESIGNATED TO THE CLOSED BLOCK: Available for sale, at fair value (amortized cost of $4,404.6 and $4,373.5)............................................ 4,502.9 4,408.0 Mortgage loans on real estate.......................................... 1,530.6 1,581.8 Policy loans........................................................... 1,538.6 1,557.7 Cash and other invested assets......................................... 253.3 174.7 Other assets........................................................... 212.4 237.1 ----------------- ----------------- Total assets designated to the Closed Block........................... 8,037.8 7,959.3 ----------------- ----------------- Excess of Closed Block liabilities over assets designated to the Closed Block.................................................... 1,013.1 1,100.9 Amounts included in accumulated other comprehensive income: Net unrealized investment gains, net of deferred Federal income tax of $34.4 and $12.2................................... 63.9 22.7 ----------------- ----------------- Maximum Future Earnings To Be Recognized From Closed Block Assets and Liabilities.............................................. $ 1,077.0 $ 1,123.6 ================= =================
Closed Block revenues and expenses were as follows:
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 --------------- ---------------- --------------- --------------- (In Millions) REVENUES: Premiums and other income............... $ 143.6 $ 150.4 $ 291.5 $ 303.4 Investment income (net of investment expenses of $1.8, $3.3, $2.5 and $6.7)............................ 143.0 146.6 290.7 289.6 Investment (losses) gains, net.......... (14.4) 2.0 (12.6) (1.0) --------------- ---------------- --------------- --------------- Total revenues.......................... 272.2 299.0 569.6 592.0 --------------- ---------------- --------------- --------------- BENEFITS AND OTHER DEDUCTIONS: Policyholders' benefits and dividends... 253.3 254.5 486.8 511.8 Other operating costs and expenses...... 5.0 4.3 9.6 9.2 --------------- ---------------- --------------- --------------- Total benefits and other deductions..... 258.3 258.8 496.4 521.0 --------------- ---------------- --------------- --------------- Net revenues before Federal income taxes................................ 13.9 40.2 73.2 71.0 Federal income taxes.................... (5.3) (14.5) (26.6) (25.8) --------------- ---------------- --------------- --------------- Net Revenues............................ $ 8.6 $ 25.7 $ 46.6 $ 45.2 =============== ================ =============== ===============
10 7) OTHER DISCONTINUED OPERATIONS Summarized financial information for Other Discontinued Operations follows:
June 30, December 31, 2001 2000 ----------------- ------------------- (In Millions) BALANCE SHEETS Mortgage loans on real estate.......................................... $ 198.9 $ 330.9 Equity real estate..................................................... 308.2 350.9 Fixed maturities, available for sale, at estimated fair value (amortized cost $406.6 and $321.5).................................. 422.3 336.5 Other equity investments............................................... 29.4 43.1 Other invested assets.................................................. 2.7 1.9 ----------------- ------------------- Total investments................................................. 961.5 1,063.3 Cash and cash equivalents.............................................. 147.5 84.3 Other assets........................................................... 174.6 148.8 ----------------- ------------------- Total Assets........................................................... $ 1,283.6 $ 1,296.4 ================= =================== Policyholders liabilities.............................................. $ 945.4 $ 966.8 Allowance for future losses............................................ 159.7 159.8 Other liabilities...................................................... 178.5 169.8 ----------------- ------------------- Total Liabilities...................................................... $ 1,283.6 $ 1,296.4 ================= ===================
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- --------------- (In Millions) STATEMENTS OF EARNINGS Investment income (net of investment expenses of $6.3, $9.4, $12.5 and $19.8)............................. $ 17.6 $ 23.3 $ 51.8 $ 52.3 Investment gains, net.................... 10.5 4.3 12.0 2.0 Policy fees, premiums and other income.......................... (.1) .2 (.1) .2 --------------- --------------- --------------- --------------- Total revenues........................... 28.0 27.8 63.7 54.5 Benefits and other deductions............ 27.3 27.8 51.8 54.5 Earnings credited to allowance for future losses.......................... .7 - 11.9 - --------------- --------------- --------------- --------------- Pre-tax results from operations.......... - - - - Pre-tax earnings (loss) from releasing (strengthening) the allowance for future losses.......................... (2.7) (2.2) 12.7 (9.8) Federal income tax benefit (expense)..... .9 .7 (4.5) 3.4 --------------- --------------- --------------- --------------- (Loss) Income from Other Discontinued Operations............................ $ (1.8) $ (1.5) $ 8.2 $ (6.4) =============== =============== =============== ===============
AXA Financial's quarterly process for evaluating the allowance for future losses applies the current period's results of Other Discontinued Operations against the allowance, re-estimates future losses, and adjusts the allowance, if appropriate. The evaluations performed in the first half of 2001 and 2000 resulted in management's decision to release the allowance by $12.7 million for the first half of 2001 and strengthen the allowance by $9.8 million for the first half of 2000. This resulted in after-tax income of $8.2 million for the first half of 2001 and after-tax losses of $6.4 million for the first half of 2000. 11 Management believes the allowance for future losses at June 30, 2001 is adequate to provide for all future losses; however, the determination of the allowance involves numerous estimates and subjective judgments regarding the expected performance of Discontinued Operations Investment Assets. There can be no assurance the losses provided for will not differ from the losses ultimately realized. To the extent actual results or future projections of Other Discontinued Operations differ from management's current estimates and assumptions underlying the allowance for future losses, the difference would be reflected in the consolidated statements of earnings in Other Discontinued Operations. In particular, to the extent income, sales proceeds and holding periods for equity real estate differ from management's previous assumptions, periodic adjustments to the loss allowance are likely to result. Investment valuation allowances amounted to $2.4 million and $2.9 million on mortgage loans and $10.8 million and $11.4 million on equity real estate at June 30, 2001 and December 31, 2000, respectively. 8) FEDERAL INCOME TAXES Federal income taxes for interim periods have been computed using an estimated annual effective 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 tax rate. 9) STOCK APPRECIATION RIGHTS Following completion of the merger of AXA Merger Corp. with and into the Holding Company, certain employees exchanged AXA ADR options for tandem Stock Appreciation Rights ("SARs") and at-the-money AXA ADR options of equivalent intrinsic value. The maximum obligation for the SARs is $84.7 million, based upon the underlying price of AXA ADRs at January 2, 2001, the closing date of the aforementioned merger transaction. AXA Financial recorded an increase of $3.5 million for the second quarter of 2001 and a reduction of $39.3 million for the first half of 2001 in the SARs liability, reflecting the variable accounting for the SARs, based on the change in the market value of AXA ADRs for the respective periods ended June 30, 2001. 10) LITIGATION There have been no new material legal proceedings and no material developments in specific litigations previously reported in AXA Financial's Notes to Consolidated Financial Statements for the year ended December 31, 2000, except as described below: Annuity Contract Case In June 2001, the District Court granted defendants' motion to dismiss AXA Client Solutions and the Holding Company from the amended complaint, and dismissed the conversion claims. The District Court denied defendants' motion to dismiss the remaining claims. Equitable Life has answered the amended complaint. Agent Health Benefits Case Plaintiffs filed a second amended complaint which, among other things, alleges that Equitable Life failed to comply with plan amendment procedures and deletes the promissory estoppel claim. Equitable Life answered the complaint in June 2001. Alliance Reorganization Case In April 2001, the court issued a decision granting in part and denying in part defendants' motion to dismiss; the claim alleging that the partnership agreement of Alliance Holding was not validly amended was one of the claims dismissed. Prime Property Fund Case This action was settled in June 2001 and the plaintiff's claims were dismissed with prejudice. 12 Disposal of DLJ In April 2001, oral argument of defendants' motion to dismiss was held in the putative class action lawsuit filed in the United States District Court, Southern District of New York. A putative class action was filed in Delaware Chancery Court on behalf of the holders of CSFBdirect tracking stock. Named defendants include AXA Financial, Credit Suisse First Boston (USA), Inc., the former directors of DLJ and the directors of Credit Suisse First Boston (USA), Inc. The complaint challenges the sale of DLJ common stock as well as the March 2001 offer by Credit Suisse to purchase the publicly owned CSFBdirect tracking stock for $4 per share and asserts claims for breaches of fiduciary duties and breach of contract. Plaintiffs seek injunctive relief, an unspecified amount of compensatory damages, and costs and expenses, including attorneys' fees. This new action, along with the actions previously reported have been consolidated. In May 2001, the Delaware Chancery Court ordered that this new complaint be the operative complaint in the consolidated actions. A memorandum of understanding outlining the terms of a proposed settlement was executed in July 2001. Outcome of Litigation Although the outcome of litigation cannot be predicted with certainty, AXA Financial's management believes that the ultimate resolution of the matters described above should not have a material adverse effect on the consolidated financial position of AXA Financial. AXA Financial's management cannot make an estimate of loss, if any, or predict whether or not such litigations will have a material adverse effect on AXA Financial's consolidated results of operations in any particular period. Alliance Investment Company Act Cases In April 2001, an amended class action complaint was filed in Federal District Court in the Southern District of Illinois against Alliance, Alliance Fund Distributors, Inc. ("AFD"), a wholly owned subsidiary of Alliance, and other defendants alleging violations of the Federal Investment Company Act of 1940, as amended ("ICA"), and breaches of common law fiduciary duty. The allegations in the amended complaint concern six mutual funds with which Alliance has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Health Care Fund, Alliance Growth Fund, Alliance Quasar Fund, Alliance Fund, and Alliance Disciplined Value Fund. The amended complaint alleges principally that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory fees and distribution fees paid to Alliance and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty. Alliance and AFD believe that plaintiffs' allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance and AFD are unable to estimate the impact, if any, that the outcome of this action may have on Alliance's results of operations or financial condition. In June 2001, an amended class action complaint was filed in Federal District Court in the Southern District of Illinois against Alliance, AFD, and numerous other defendants in the mutual fund industry alleging violations of the ICA and breaches of common law fiduciary duty. The allegations in the amended complaint concern three mutual funds with which Alliance has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Growth Fund and Alliance Quasar Fund. The amended complaint alleges principally that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory fees paid to Alliance and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty. Alliance and AFD believe that plaintiffs' allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance and AFD are unable to estimate the impact, if any, that the outcome of this action may have on Alliance's results of operations or financial condition. 13 Other Matters In addition to the matters previously reported and those described above, the Holding Company and its subsidiaries are involved in various legal actions and proceedings in connection with their businesses. Some of the actions and proceedings have been brought on behalf of various alleged classes of claimants and certain of these claimants seek damages of unspecified amounts. While the ultimate outcome of such matters cannot be predicted with certainty, in the opinion of management no such matter is likely to have a material adverse effect on AXA Financial's consolidated financial position or results of operations. However, it should be noted that the frequency of large damage awards, including large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given matter. 11) BUSINESS SEGMENT INFORMATION The following tables reconcile segment revenues and earnings from continuing operations before Federal income taxes to total revenues and earnings as reported on the consolidated statements of earnings and segment assets to total assets on the consolidated balance sheets, respectively.
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- ---------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- ---------------- (In Millions) Segment revenues: Financial Advisory/Insurance............ $ 1,204.0 $ 1,408.5 $ 2,559.4 $ 2,741.7 Investment Management................... 761.3 567.7 1,508.7 1,120.0 Consolidation/elimination............... (23.2) (31.6) (47.7) (63.0) --------------- --------------- --------------- ---------------- Total Revenues.......................... $ 1,942.1 $ 1,944.6 $ 4,020.4 $ 3,798.7 =============== =============== =============== ================ Segment earnings from continuing operations before Federal income taxes and minority interest: Financial Advisory/Insurance............ $ 60.8 $ 228.4 $ 312.0 $ 355.6 Investment Management................... 127.0 140.6 251.9 305.6 --------------- --------------- --------------- ---------------- Total Earnings from Continuing Operations before Federal Income Taxes and Minority Interest.......... $ 187.8 $ 369.0 $ 563.9 $ 661.2 =============== =============== =============== ================
June 30, December 31, 2001 2000 ---------------- ------------------ (In Millions) Assets: Financial Advisory/Insurance............................................ $ 86,152.9 $ 91,685.0 Investment Management................................................... 16,315.2 17,672.3 Consolidation/elimination............................................... (94.8) (96.5) ---------------- ------------------ Total Assets............................................................ $ 102,373.3 $ 109,260.8 ================ ==================
12) RELATED PARTY TRANSACTIONS In March 2001, the Holding Company borrowed $1.10 billion from AXA. This short-term borrowing had an interest rate of LIBOR plus 0.15% per annum. In April 2001, the Holding Company repaid all of the short-term borrowing from AXA. 14 13) COMPREHENSIVE INCOME The components of comprehensive income for second quarters 2001 and 2000 and the first half of 2001 and of 2000 are as follows:
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 --------------- --------------- --------------- --------------- (In Millions) Net earnings............................. $ 70.3 $ 291.1 $ 272.7 $ 589.7 --------------- --------------- --------------- --------------- Change in unrealized (losses) gains, net of reclassification adjustment..... (90.6) (49.9) 81.3 (45.5) --------------- --------------- --------------- --------------- Other comprehensive (loss) income........ (90.6) (49.9) 81.3 (45.5) --------------- --------------- --------------- --------------- Comprehensive (Loss) Income.............. $ (20.3) $ 241.2 $ 354.0 $ 544.2 =============== =============== =============== ===============
15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The management narrative for AXA Financial that follows should be read in conjunction with the Consolidated Financial Statements and the related Notes to Consolidated Financial Statements included elsewhere herein, and with the management narrative found in the Management's Discussion and Analysis ("MD&A") section included in AXA Financial's Annual Report on Form 10-K for the year ended December 31, 2000 ("2000 Form 10-K"). CONSOLIDATED RESULTS OF OPERATIONS Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 Earnings from continuing operations before Federal income taxes and minority interest was $563.9 million for the first six months of 2001, a decrease of $97.3 million from the year earlier period. Net earnings for AXA Financial totaled $272.7 million for the first six months of 2001, down $317.0 million from $589.7 million for the 2000 period. Net earnings for the 2001 period included a $3.5 million cumulative effect adjustment related to the January 1, 2001 adoption of SFAS No. 133 while the 2000 period included net earnings from the discontinued Investment Banking and Brokerage segment of $268.7 million. Revenues. Total revenues increased $221.7 million as higher commissions, fees and other income and lower investment losses in the 2001 period more than offset decreases in net investment income and premiums. Premiums declined $60.3 million principally due to lower individual DI premiums due to the indemnity reinsurance agreement entered into in July 2000. Net investment income decreased $264.9 million primarily attributable to other equity securities and fixed maturity investments in the Financial Advisory/Insurance segment in first half of 2001. The fixed maturity impact was primarily attributable to a declining interest rate environment and a smaller asset balance in the General Account, while the decrease in income from equity securities reflected equity market declines. Investment losses, net totaled $29.2 million in the 2001 period compared to $188.0 million in the first six months of 2000. The investment losses in both periods were primarily related to fixed maturities. The 31.6% growth in commissions, fees and other income was principally due to a $252.8 million increase in investment advisory and service fees and to $135.6 million in institutional research service fees related to Bernstein activities (purchased in fourth quarter 2000), partially offset by $24.0 million lower distribution revenues at Alliance. The increase in investment advisory and service fees was primarily due to higher average assets under management, higher performance fees and transaction charges principally due to the Bernstein acquisition, partially offset by a decline in the retail sector's advisory fees as a result in a shift in assets to lower fee cash management products. The lower distribution revenues at Alliance reflected lower average daily mutual funds outstanding due to market depreciation. Benefits and Other Deductions. Total benefits and other deductions increased $319.0 million primarily due to the inclusion of Bernstein in the first six months of 2001. While interest credited to policyholders' account balances decreased $21.7 million primarily due to lower General Account Investment Asset balances, policyholders' benefits decreased $124.9 million due primarily to the decline in DI benefits that were reinsured in July 2000 and the reserve impact of lower premiums in the first six months of 2001, partially offset by less favorable mortality. The $206.5 million increase in compensation and benefits was primarily due to the Bernstein acquisition and to payments to certain former AXA Financial executive officers under continuity agreements related to AXA's minority interest buyout, partially offset by the $39.3 million credit recognized in the 2001 period resulting from the reduction of the SARs liability. Additional compensation and benefits costs may be incurred as AXA Financial implements various expense reduction initiatives. The $32.9 million reduction of commissions was due to lower sales of insurance and mutual fund products principally in the Financial Advisory/Insurance segment in 2001. Higher distribution plan payments and amortization of deferred sales commissions resulted from Alliance sales of sponsored mutual funds and cash management services' products, including ongoing sales of back-end load mutual funds. The increases in rent expense and in amortization of goodwill and intangibles were primarily attributable to the Bernstein acquisition. 16 Interest expense increased $37.7 million to $119.3 million principally due to additional borrowings at the Holding Company level, including the $476.1 million 7.75% Senior Notes. Other operating costs and expenses grew $79.7 million primarily due to higher general and administrative expenses at Alliance, principally related to the Bernstein acquisition, and in the Financial Advisory/Insurance segment. Premiums and Deposits. Total premiums and deposits for insurance and annuity products for the first six months of 2001 decreased from prior year levels by $809.8 million to $4.70 billion primarily due to lower sales of individual annuities. Management believes the decline in individual annuity sales in the first half of 2001 was primarily due to the weak equity market and comparisons to a strong performance in the first six months of 2000. Surrenders and Withdrawals. When totals for the first six months of 2001 are compared to the comparable 2000 period, surrenders and withdrawals were down, from $2.95 billion to $2.51 billion. The annualized annuities surrender rate declined to 9.1% in the 2001 period from 10.1% in the same period in 2000, while the individual life surrender rates showed a modest improvement to 4.0% from 4.1%. The trends in surrender and withdrawal rates described above continue to fall within the range of expected experience. Assets Under Management. An analysis of assets under management follows: Assets Under Management (In Millions)
June 30, --------------------------------- 2001 2000 --------------- --------------- Third party (1)................................................................... $ 407,120 $ 321,682 Separate Accounts................................................................. 49,724 55,600 General Account and other (1)..................................................... 35,916 37,389 --------------- --------------- Total Assets Under Management..................................................... $ 492,760 $ 414,671 =============== =============== (1) June 30, 2000 amounts have been restated to exclude the $69.00 billion of DLJ related assets.
Third party assets under management at June 30, 2001 increased $85.44 billion primarily as a result of the Bernstein acquisition, which added $85.8 billion at October 2, 2000, and net asset inflows, offset by market depreciation. General Account and other assets under management decreased $1.47 billion as the asset reductions related to the July 2000 DI indemnity reinsurance transaction and writedowns of fixed maturities offset the net proceeds from the sale of DLJ (after taxes and funding used in the AXA minority buyout). The decline in Separate Account assets under management resulted from continued market depreciation which more than offset net new deposits. Alliance assets under management at June 30, 2001 totaled $465.33 billion, as compared to $387.76 billion at June 30, 2000. Non-US clients acounted for 16.0% of the June 30, 2001 LIQUIDITY AND CAPITAL RESOURCES Holding Company. In January 2001, upon the merger of AXA Merger Corp. into the Holding Company, the 53.4 million shares of Holding Company Common Stock held by AXA Merger Corp. were cancelled and 20.7 million shares of treasury stock were retired. In addition, the $3.0 billion loan to AXA Merger by the Holding Company was extinguished. The loan proceeds had been used to fund a portion of the AXA minority interest buyout in December 2000. Also in first quarter 2001, the Holding Company borrowed $1.10 billion from AXA under a renewable financing agreement and used the proceeds to partially fund second quarter 2001 tax payments related to the gain on the sale of DLJ. The borrowings were repaid in April 2001. 17 Equitable Life. During first quarter 2001, Equitable Life sold its remaining holdings of CSG stock received upon the sale of DLJ. In April 2001, Equitable Life paid a $1.50 billion shareholder dividend. In June 2001, Equitable Life renewed its 364-day credit facility, reducing its credit line from $350.0 million to $250.0 million. At June 30, 2001, no amounts were outstanding under Equitable Life's commercial paper program or its revolving credit facility. Alliance. At June 30, 2001, Alliance had $613.4 million of short-term debt outstanding, principally under its commercial paper program. On August 15, 2001, Alliance is expected to issue $400.0 million 5.625% notes due 2006 under its July 11, 2001 shelf registration statement. The net proceeds will be used to reduce short-term debt and for general partnership purposes. FORWARD-LOOKING STATEMENTS AXA Financial's management has made in this report, and from time to time may make in its public filings and press releases as well as in oral presentations and discussions, forward-looking statements concerning AXA Financial's operations, economic performance and financial condition. Forward-looking statements include, among other things, discussions concerning AXA Financial's potential exposure to market risks, as well as statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions, as indicated by words such as "believes," "estimates," "intends," "anticipates," "expects," "projects," "should," "probably," "risk," "target," "goals," "objectives," or similar expressions. AXA Financial claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and assumes no duty to update any forward-looking statement. Forward-looking statements are based on management's expectations and beliefs concerning future developments and their potential effects and are subject to risks and uncertainties. Actual results could differ materially from those anticipated by forward-looking statements due to a number of important factors including those discussed elsewhere in this report and in AXA Financial's other public filings, press releases, oral presentations and discussions. The following discussion highlights some of the more important factors that could cause such differences. Market Risk. AXA Financial's businesses are subject to market risks arising from its insurance asset/liability management, investment management and trading activities. Primary market risk exposures exist in the Financial Advisory/Insurance segment and result from interest rate fluctuations, equity price movements and changes in credit quality. The nature of each of these risks is discussed under the caption "Quantitative and Qualitative Disclosures About Market Risk" and in Note 16 of Notes to Consolidated Financial Statements, both contained in the 2000 Form 10-K. Financial Advisory/Insurance. The Insurance Group's future sales of life insurance and annuity products and financial planning services are dependent on numerous factors including: successful implementation of AXA Financial's strategic initiatives; the intensity of competition from other insurance companies, banks and other financial institutions; conditions in the securities markets; the strength and professionalism of distribution channels; the continued development of additional channels; the financial and claims paying ratings of Equitable Life; its reputation and visibility in the market place; its ability to develop, distribute and administer competitive products and services in a timely, cost-effective manner; and its investment management performance. In addition, the nature and extent of competition and the markets for products sold by the Insurance Group may be materially affected by changes in laws and regulations, including changes relating to savings, retirement funding and taxation. See "Business - Regulation" contained in the 2000 Form 10-K. The profitability of the Insurance Group depends on a number of factors, including levels of gross operating expenses and the amount which can be deferred as DAC, successful implementation of expense-reduction initiatives, secular trends, AXA Financial's mortality, morbidity, persistency and claims experience, and profit margins between investment results from General Account Investment Assets and interest credited on individual insurance and annuity products; and the adequacy of reserves and the extent to which subsequent experience differs from management's estimates and assumptions used in determining those reserves. The performance of General Account Investment Assets depends, among other things, on levels of interest rates and the markets for equity securities and real estate, the need for asset valuation allowances and writedowns, and the performance of equity investments which have created, and in the future may create, significant volatility in investment income. The ability of AXA Financial to continue its accelerated real estate sales program without incurring net losses will depend on real estate markets for the remaining properties held for sale and the negotiation of transactions which confirm management's expectations on property values. 18 Investment Management. Alliance's revenues are largely dependent on the total value and composition of assets under its management and are, therefore, affected by market appreciation and depreciation, additions and withdrawals of assets, purchases and redemptions of mutual funds and shifts of assets between accounts or products with different fee structures. See "Combined Operating Results by Segment - Investment Management" contained in the 2000 Form 10-K. Other Discontinued Operations. The determination of the allowance for future losses for the discontinued Wind-Up Annuities continues to involve numerous estimates and subjective judgments including those regarding expected performance of investment assets, ultimate mortality experience and other factors which affect investment and benefit projections. There can be no assurance the losses provided for will not differ from the losses ultimately realized. To the extent actual results or future projections of Other Discontinued Operations differ from management's current best estimates underlying the allowance, the difference would be reflected as earnings or loss from discontinued operations within the consolidated statements of earnings. In particular, to the extent income, sales proceeds and holding periods for equity real estate differ from management's previous assumptions, periodic adjustments to the allowance are likely to result. Technology and Information Systems. AXA Financial's information systems are central to, among other things, designing and pricing products, marketing and selling products and services, processing policyholder and investor transactions, client recordkeeping, communicating with retail sales associates, employees and clients, and recording information for accounting and management information purposes. Any significant difficulty associated with the operation of such systems, or any material delay or inability to develop needed system capabilities, could have a material adverse effect on AXA Financial's results of operations and, ultimately, its ability to achieve its strategic goals. Legal Environment. A number of lawsuits have been filed against life and health insurers involving insurers' sales practices, alleged agent misconduct, failure to properly supervise agents and other matters. Some of the lawsuits have resulted in the award of substantial judgments against other insurers, including material amounts of punitive damages, or in substantial settlements. In some states, juries have substantial discretion in awarding punitive damages. AXA Financial's insurance subsidiaries, like other life and health insurers, are involved in such litigation. While no such lawsuit has resulted in an award or settlement of any material amount against AXA Financial to date, its results of operations and financial condition could be affected by defense and settlement costs and any unexpected material adverse outcomes in such litigations as well as in other material litigations pending against the Holding Company and its subsidiaries. In addition, examinations by Federal and state regulators could result in adverse publicity, sanctions and fines. For further information, see "Business - Regulation," contained in the 2000 Form 10-K, and "Legal Proceedings," contained in the 2000 Form 10-K and herein. Future Accounting Pronouncements. In the future, new accounting pronouncements may have material effects on AXA Financial's consolidated statements of earnings and shareholders' equity. See Note 2 of Notes to Consolidated Financial Statements contained in the 2000 Form 10-K for pronouncements issued but not effective at December 31, 2000, as well as Notes 2 and 3 of Notes to Consolidated Financial Statements included elsewhere herein. Regulation. The businesses conducted by AXA Financial's subsidiaries are subject to extensive regulation and supervision by state insurance departments and Federal and state agencies regulating, among other things, insurance and annuities, securities transactions, investment companies and investment advisors. Changes in the regulatory environment could have a material impact on operations and results. The activities of the Insurance Group are subject to the supervision of the insurance regulators of each of the 50 states. See "Business - - Regulation" contained in the 2000 Form 10-K. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omitted pursuant to General Instruction H to Form 10-Q. 19 PART II OTHER INFORMATION Item 1. Legal Proceedings. There have been no new material legal proceedings and no material developments in matters which were previously reported in the Registrant's Form 10-K for the year ended December 31, 2000, except as described below: In Franze, in March 2001, the United States Court of Appeals for the Eleventh Circuit granted the petition of Equitable Life and EVLICO for permission to appeal the order denying summary judgment and granting class certification. In May 2001, Equitable Life and EVLICO appealed that order. In Patenaude, in June 2001, defendants' motion for reconsideration was denied. In Wood, in April 2001, EVLICO filed a notice of removal to the United States District Court for the Southern District of California. Plaintiff filed an amended complaint in June 2001 and in August 2001, plaintiff voluntarily dismissed the action without prejudice. In American National Bank, in June 2001, the District Court granted defendants' motion to dismiss AXA Client Solutions and the Holding Company from the amended complaint, and dismissed the conversion claims. The District Court denied defendants' motion to dismiss the remaining claims. Equitable Life has answered the amended complaint. In Duncan, plaintiffs' motions to set aside the orders of dismissal with prejudice and to reinstate their individual claims have been withdrawn. In Fischel, plaintiffs filed a second amended complaint which, among other things, alleges that Equitable Life failed to comply with plan amendment procedures and deletes the promissory estoppel claim. Equitable Life answered the complaint in June 2001. In R.S.M., in April 2001, the court issued a decision granting in part and denying in part defendants' motion to dismiss; the claim alleging that the partnership agreement of Alliance Holding was not validly amended was one of the claims dismissed. BT-I was settled in June 2001 and the plaintiff's claims were dismissed with prejudice. In Siamac Sedighim, in April 2001, oral argument of defendants' motion to dismiss was held. A putative class action entitled David Uhrik v. Credit Suisse First Boston (USA), Inc., et al. was filed in Delaware Chancery Court on behalf of the holders of CSFBdirect tracking stock. Named defendants include AXA Financial, Credit Suisse First Boston (USA), Inc., the former directors of DLJ and the directors of Credit Suisse First Boston (USA), Inc. The complaint challenges the sale of DLJ common stock as well as the March 2001 offer by Credit Suisse to purchase the publicly owned CSFBdirect tracking stock for $4 per share and asserts claims for breaches of fiduciary duties and breach of contract. Plaintiffs seek injunctive relief, an unspecified amount of compensatory damages, and costs and expenses, including attorneys' fees. The Uhrik action, along with the actions captioned Irvin Woods, et al. v. Joe L. Roby, et al.; Thomas Rolle v. Joe L. Roby, et al.; Andrew Loguercio v. Joe L. Roby, et al.; and Robert Holschen v. Joe. L. Roby, et al., are among the actions that have been consolidated under the caption In re CSFB Direct Tracking Stock Shareholders Litigation. In May 2001, the Delaware Chancery Court ordered that the Uhrik complaint be the operative complaint in the consolidated actions. A memorandum of understanding outlining the terms of a proposed settlement was executed in July 2001. Although the outcome of litigation cannot be predicted with certainty, AXA Financial's management believes that the ultimate resolution of the matters described above should not have a material adverse effect on the consolidated financial position of AXA Financial. AXA Financial's management cannot make an estimate of loss, if any, or predict whether or not such litigations will have a material adverse effect on AXA Financial's consolidated results of operations in any particular period. In April 2001, an amended class action complaint entitled Miller, et al. v. Mitchell Hutchins Assets Management, Inc., et al. was filed in Federal District Court in the Southern District of Illinois against Alliance, Alliance Fund Distributors, Inc. ("AFD"), a wholly owned subsidiary of Alliance, and other defendants alleging violations of the Federal Investment Company Act of 1940, as amended ("ICA"), and breaches of common law fiduciary duty. The allegations in 20 the amended complaint concern six mutual funds with which Alliance has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Health Care Fund, Alliance Growth Fund, Alliance Quasar Fund, Alliance Fund, and Alliance Disciplined Value Fund. The amended complaint alleges principally that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory fees and distribution fees paid to Alliance and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty. Alliance and AFD believe that plaintiffs' allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance and AFD are unable to estimate the impact, if any, that the outcome of this action may have on Alliance's results of operations or financial condition. In June 2001, an amended class action complaint entitled Nelson, et al. v. AIM Advisors, Inc., et al. was filed in Federal District Court in the Southern District of Illinois against Alliance, AFD, and numerous other defendants in the mutual fund industry alleging violations of the ICA and breaches of common law fiduciary duty. The allegations in the amended complaint concern three mutual funds with which Alliance has investment advisory agreements, including Alliance Premier Growth Fund, Alliance Growth Fund and Alliance Quasar Fund. The amended complaint alleges principally that (i) certain advisory agreements concerning these funds were negotiated, approved, and executed in violation of the ICA, in particular because certain directors of these funds should be deemed interested under the ICA; (ii) the distribution plans for these funds were negotiated, approved, and executed in violation of the ICA; and (iii) the advisory fees paid to Alliance and AFD, respectively, are excessive and, therefore, constitute a breach of fiduciary duty. Alliance and AFD believe that plaintiffs' allegations are without merit and intend to vigorously defend against these allegations. At the present time, management of Alliance and AFD are unable to estimate the impact, if any, that the outcome of this action may have on Alliance's results of operations or financial condition. In addition to the matters previously reported and those described above, the Holding Company and its subsidiaries are involved in various legal actions and proceedings in connection with their businesses. Some of the actions and proceedings have been brought on behalf of various alleged classes of claimants and certain of these claimants seek damages of unspecified amounts. While the ultimate outcome of such matters cannot be predicted with certainty, in the opinion of management no such matter is likely to have a material adverse effect on AXA Financial's consolidated financial position or results of operations. However, it should be noted that the frequency of large damage awards, including large punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given matter. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.16 Employment Agreement dated May 11, 2001 between the Holding Company, Equitable Life and Christopher M. Condron. (b) Reports on Form 8-K 1. On May 30, 2001, the Holding Company filed a report on Form 8-K relating to certain announced management changes. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, AXA Financial, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 10, 2001 AXA FINANCIAL, INC. By: /S/Stanley B. Tulin -------------------------------------- Name: Stanley B. Tulin Title: Vice Chairman of the Board and Chief Financial Officer Date: August 10, 2001 /S/Alvin H. Fenichel -------------------------------------- Name: Alvin H. Fenichel Title: Senior Vice President and Controller 22 EX-10.16 3 cc.txt Employment Agreement Between Christopher M. Condron and AXA Financial, Inc. and The Equitable Life Assurance Society of the United States This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 11th day of May 2001 (the "Effective Date"), between AXA Financial, Inc. ("AXA Financial") and The Equitable Life Assurance Society of the United States (the "Equitable"), on the one hand (collectively, the "Company"), and Christopher M. Condron, on the other (the "Executive"). WHEREAS, the Executive is to be employed effective May 17, 2001 (the "Employment Date") as President and Chief Executive Officer of AXA Financial, and as Chairman of the Board and Chief Executive Officer of the Equitable; and WHEREAS, the Company considers the services of the Executive to be unique and essential to the success of the Company's business; NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, terms and conditions set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed between the Company and the Executive as follows: 1. Employment. During the Employment Term (as defined below): (a) The Executive agrees to serve as the President and Chief Executive Officer of AXA Financial reporting to the AXA Financial Board of Directors whose Chairman is the Chairman of the Management Board and Chief Executive Officer of the AXA Group. (b) The Executive will also serve as the Chairman of the Board and Chief Executive Officer of the Equitable reporting to the Equitable Board of Directors. (c) The Executive shall also serve as a Director on the Boards of Directors of AXA Financial and the Equitable, a Director of Alliance Capital Management Corporation, and a member of the AXA Group Management Board. 2. Employment Term. The term of the Executive's employment under this Agreement shall commence as of the Employment Date and shall continue until terminated by either party on 30 days' written notice or until the close of the last day of the calendar month in which the Executive attains age 65, whichever comes first (the "Employment Term"). 3. Representation. The Executive hereby represents and warrants that the execution and performance by him of this Agreement does not violate the terms of any existing agreement or understanding to which the Executive is a party. 4. Duties. During the Employment Term, and except for illness or incapacity and reasonable vacation periods consistent with Company policies for other senior officers, the Executive shall devote all of his business time, attention, skill and efforts exclusively to the business and affairs of the Company and its subsidiaries, shall not be engaged in any other business activity, and shall perform and discharge well and faithfully the duties of the offices of the Company held by him, including management of the business affairs of the Company and strategic and managerial oversight of Alliance Capital Management L.P., and such other duties as may be assigned to him from time to time by the AXA Financial and the Equitable Boards of Directors not inconsistent with his positions; provided, however, that nothing in this Agreement shall preclude the Executive from devoting time during reasonable periods required for: (i) serving, in accordance with and after obtaining the approvals required by Company policies and the approval of the Chief Executive Officer of the AXA Group, as a director of any company or organization involving no actual or potential conflict of interest with the Company or any of its affiliates; (ii) delivering lectures and fulfilling speaking engagements; and (iii) engaging in charitable, community and other personal activities in accordance with Company policies; provided, however, that such activities do not materially affect or interfere with the performance of the Executive's duties and obligations to the Company or any of its affiliates. 5. Place of Performance. The principal place of employment of the Executive shall be in New York City, New York, USA, but the Executive understands that his duties under this Agreement will entail significant domestic and international travel. 6. Compensation. The Executive shall be compensated for services rendered during the Employment Term as follows: (a) Base Salary. The Executive shall be compensated at an annual base salary of no less than One Million ($1,000,000) Dollars (the base salary, at the rate in effect from time to time, is hereinafter referred to as the "Base Salary"). The Company's Organization and Compensation Committee (the "O&C Committee") shall no less than annually review and may, if appropriate, in its sole discretion, increase this annual Base Salary during the Employment Term. The first such review shall be in February 2002, and the effective date of any increase shall be consistent with the practice of the Company for other senior officers. (b) Annual Bonus. In addition to the Base Salary provided for in Section 6(a) above, the Company may provide annual bonus awards to the Executive under a short term incentive compensation plan for senior officers (the "Short Term Plan") in accordance with the terms of the Short Term Plan and any performance measures established thereunder. During the Employment Term, the Executive's annual target incentive opportunity shall be as provided under the Short Term Plan but no less than 400 percent of his Base Salary. An annual bonus of Four Million ($4,000,000) Dollars under the Short Term Plan shall be guaranteed for the year 2001 (provided that the Executive remains continuously employed by the Company through February 2002 and further provided that if the Executive commences full time service after June 30, 2001 the $4,000,000 bonus shall be prorated based on a year of 12 months at the rate of $333,333.33 per whole or partial month worked in 2001), but annual bonus awards shall not be guaranteed for any subsequent years. (c) Target Long-Term Incentive. The Executive will participate in the AXA Financial, Inc. 1997 Stock Incentive Plan for Senior Officers or any successor plan (the "Stock Plan"). The annual target present value of grants to the Executive under the Stock Plan will be no less than Eight Million ($8,000,000) Dollars. Except as provided in this Section 6(c), the actual grant of options to purchase AXA Group ADRs or of other stock compensation under the Stock Plan, and the terms of such options or other compensation, will be at the sole discretion of the Stock Option Committee of the AXA Financial Board of Directors or a successor committee (the "Stock Option Committee"), subject to the provisions of the Stock Plan and consistent with the treatment of options granted to other senior officers. The valuation of options granted under the Stock Plan will be based on the Black-Scholes valuation model as applied in the sole discretion of the Stock Option Committee and consistent with the treatment of options granted to other senior officers. A grant of Eight Million ($8,000,000) Dollars in present value on the effective date of the grant will be made to the Executive in February 2002, but annual grants shall not be guaranteed for any subsequent years. 7. Initial Grants. (a) In connection with the commencement of the Executive's employment, the Company will grant, effective on the Employment Date, to the Executive in accordance with the terms of the Stock Plan: (i) Eight Million Seven Hundred Thousand ($8,700,000) Dollars in face value on the effective date of the grant of restricted AXA Group ADRs which shall vest at the rate of one-third per year over three (3) years, with the first one-third to vest on the first anniversary of the Employment Date, (unless the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), or by the Executive for reasons defined in Section 9(d), in which case such vesting shall accelerate to the date of such termination). The number of restricted AXA Group ADRs granted to the Executive pursuant to this Section 7(a)(i) shall be calculated by dividing $8,700,000 by the closing price on the Employment Date for an AXA Group ADR as reported on the composite transaction tape of the New York Stock Exchange (as reported in the Wall Street Journal or, if not reported thereby, any other authoritative source chosen by the Committee) (the "Fair Market Value"). The Executive shall be entitled to receive all dividends and other distributions paid with respect to the restricted AXA Group ADRs granted pursuant to this Section 7(a)(i), provided that if any such dividends or distributions are paid in AXA Group ADRs, such AXA Group ADRs shall be subject to the same forfeiture restrictions and restrictions on transferability as apply to the restricted AXA Group ADRs with respect to which they were paid. (ii) Four Million Six Hundred Thousand ($4,600,000) Dollars in present value on the effective date of the grant of options to purchase AXA Group ADRs which shall vest at the rate of one-third per year over three (3) years, with the first one-third to vest on the first anniversary of the Employment Date, (unless the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), or by the Executive for reasons defined in Section 9(d), in which case such vesting shall accelerate to the date of such termination). The number of options granted pursuant to this Section 7(a)(ii) shall be calculated by dividing (x) $4,600,000 by (y) the product of 42% multiplied by the Fair Market Value on the Employment Date; all such options shall have an exercise price equal to the Fair Market Value on the Employment Date and a term of ten (10) years from the Employment Date; and if, prior to the expiration date of the term of any vested but unexercised options, the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), or by the Executive for reasons defined in Section 9(d), all such vested options (including those whose vesting is accelerated by reason of such termination) may be exercised at any time prior to the earlier of the expiration date of the term of the options or the fifth anniversary of the date of such termination of employment. (iii) Ten Million ($10,000,000) Dollars in present value on the effective date of the grant of options to purchase AXA Group ADRs which shall vest 25% on the third anniversary of the Employment Date, 25% on the fourth anniversary of the Employment Date, and the remaining 50% on the fifth anniversary of the Employment Date (unless the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), or by the Executive for reasons defined in Section 9(d), in which case the number of options whose vesting shall accelerate to the date of such termination shall be determined by (x) multiplying the number of options granted pursuant to this Section 7(a)(iii) by a fraction whose numerator is the number of whole calendar months from the Employment Date to the date of such termination and whose denominator is sixty (60) and (y) subtracting the number of such options that have vested prior to the date of such termination.) The number of options granted pursuant to this Section 7(a)(iii) shall be calculated by dividing (x) $10,000,000 by (y) the product of 42% multiplied by the Fair Market Value on the Employment Date; all such options shall have an exercise price equal to the Fair Market Value on the Employment Date and a term of ten (10) years from the Employment Date; and if, prior to the expiration date of the term of any vested but unexercised options, the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), or by the Executive for reasons defined in Section 9(d), all such vested options (including those whose vesting is accelerated by reason of such termination) may be exercised at any time prior to the earlier of the expiration date of the term of the options or the fifth anniversary of the date of such termination of employment. (b) Promptly after the Employment Date the Company will pay the Executive One Million ($1,000,000) Dollars subject to repayment in full by the Executive if his employment is terminated by the Company for reasons defined in Section 9(a), or by the Executive other than for reasons defined in Section 9(d), prior to the first anniversary of the Employment Date. (c) No later than July 5, 2001 the Company will pay the Executive One Million Four Hundred Thousand ($1,400,000) Dollars for lost values incurred by the Executive in connection with the commencement of his employment with the Company. 8. Employee Benefits. (a) General Provisions. Except as expressly provided in this Agreement, the Executive shall be eligible to participate in all employee benefit, welfare, pension and deferred compensation plans offered by the Company (collectively referred to as the "Benefit Plans") on a basis which is no less favorable to the Executive than that made available to other senior officers of the Company. To the extent permitted by the terms of the existing Benefit Plans or applicable law, any waiting period for the Executive's participation in the Benefit Plans shall be waived. (b) Vacation and Sick Leave. The Executive shall be entitled to vacation and sick leave in accordance with the vacation and sick leave policies adopted by the Company from time to time for senior officers. (c) Business Travel and Expenses. The Executive shall be reimbursed by the Company for reasonable business expenses, as approved by the Company, which are incurred and accounted for in accordance with the Company's normal practices and procedures for reimbursement of expenses. (d) Executive Car and Driver. In order to ensure the accessibility and safety of the Executive during the Employment Term, the Company will provide the Executive with a car and driver for business and personal purposes. (e) Air Travel. The Executive may as he deems appropriate conduct his air travel for business purposes by means of private aircraft and shall be entitled to use at the Company's expense a private aircraft for personal travel up to a limit of 75 hours in each calendar year (prorated by month for periods of less than a calendar year) with such aircraft to be provided by the Company by any commercially reasonable method as long as such methods are available to the Company. (f) Financial counseling. The Executive will be entitled to reimbursement by the Company of fees and disbursements incurred by him for personal financial counseling services provided by a person or company selected by him up to an aggregate annual amount of $20,000. (g) The Company will provide to the Executive the same benefits as the Company provides to other senior officers with respect to: (i) Parking (ii) City and Country Club Memberships (iii) Executive Health Examination (iv) Life insurance under the Executive Survivor Benefits Plan of the Equitable. 9. Termination of Employment. For purposes of determining entitlements pursuant to this Agreement the following definitions shall apply: (a) Termination by the Company for Cause. Termination for cause shall mean termination because of (i) the willful failure by the Executive to perform substantially his duties as an employee of the Company or any of its affiliates after reasonable notice to the Executive of such failure; (ii) the Executive's willful misconduct that is materially injurious to the Company or any of its affiliates; (iii) the Executive's having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony (other than a felony involving "limited vicarious liability" as defined in this Section 9(a)); or (iv) the willful breach by the Executive of any written covenant or agreement with the Company or any of its affiliates not to disclose any information pertaining to the Company or any of its affiliates or not to compete or interfere with the Company or any of its affiliates. For purposes of this Section 9(a), "limited vicarious liability" shall mean any liability which is (i) based on acts of the Company for which the Executive is responsible solely as a result of his office(s) with the Company and (ii) provided that (x) he was not directly involved in such acts and either had no prior knowledge of such intended actions or promptly acted reasonably and in good faith to attempt to prevent the acts causing such liability or (y) he did not have a reasonable basis to believe that a law was being violated by such acts. No act or failure to act will be considered "willful" for purposes of this Section 9(a) unless it is done, or omitted to be done, by the Executive in bad faith and without reasonable belief that this action or omission was in the best interests of the Company. (b) Termination by the Company for Excessive Absenteeism. Termination by the Company for excessive absenteeism shall mean termination because the Executive shall have been absent from his duties with the Company on a full-time basis for one hundred twenty (120) days within any six month period. (c) Death. If the Executive's employment terminates by reason of death, the date of his death shall be the date of termination for purposes of this Agreement. (d) Termination by the Executive for Good Reason. Termination for good reason shall mean: (i) termination of employment by the Executive after having delivered to the Company a notice of termination within thirty (30) days after the occurrence of one or more of the following circumstances, without the Executive's express written consent, which are not remedied by the Company within thirty (30) days of its receipt of the Executive's notice of termination: (A) an assignment to the Executive of any duties materially inconsistent with his position, duties, responsibilities, and status with the Company, or any material limitation of the powers of the Executive not consistent with the powers of the Executive contemplated by Sections 1 and 4 hereof; (B) any removal of the Executive from the positions specified in Section 1 of this Agreement; (C) a diminution of the Executive's titles as specified in Section 1 of this Agreement; (D) the Company's requiring the Executive to be based at any office or location more than 75 miles commuting distance from the location referred to in Section 5 of this Agreement; (E) a reduction in the Executive's Base Salary or annual bonus target incentive opportunity as in effect from time to time; (F) any failure by the Company to comply with any of the provisions of Sections 6 or 7 of this Agreement; or (G) a failure of the Company to secure a written assumption by any successor company as provided for in Section 13(g) hereof; and (ii) termination of employment by the Executive in the event of a "change in control" (as hereinafter defined) of the Company upon 30 days' written notice, with the effective date of such termination to occur during the 30-day period immediately following the first anniversary of the date of such "change in control." For purposes of this Section 9(d)(ii), "change of control" shall mean any of the following events: (A) Any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding for this purpose, (i) AXA (a French corporation (societe anonyme)), any affiliate of AXA, the Company or any subsidiary of the Company, or (ii) any employee benefit plan of AXA, any affiliate of AXA, the Company or any subsidiary of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by AXA, any affiliate of AXA, the Company or any subsidiary of the Company; or (B) AXA and its affiliates cease to control the election of a majority of the Board of Directors of the Company; (C) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, AXA and its affiliates own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries); provided that in no event shall the Executive be entitled to terminate his employment for good reason based on any circumstance relating to a change in the ownership or control of Alliance Capital Management Corporation, Alliance Capital Management L.P., Alliance Capital Management Holding L.P. or any of their subsidiaries, as long as AXA and its affiliates continue to control a majority of the common stock of the general partner of Alliance Capital Management L.P. and the Executive continues to have responsibility for the strategic and managerial oversight of Alliance Capital Management L.P. (e) Age 65 Expiration of Agreement. Age 65 expiration of this Agreement shall mean termination of employment as of the close of the last day of the calendar month in which the Executive attains age 65. 10. Compensation upon Termination. (a) Absence From Work. If the Executive's employment is terminated by the Company for excessive absenteeism as defined in Section 9(b), then the Company shall pay the Executive, as soon as practicable after the date of termination (i) any Base Salary and any reimbursable expenses accrued or owing the Executive hereunder as of the date of termination and (ii) any earned and unpaid bonus relating to service performed by the Executive prior to termination for excessive absenteeism. (b) Termination for Cause or by the Executive other than for Good Reason. If the Executive's employment is terminated by the Company for Cause as defined in Section 9(a) or by the Executive (other than for Good Reason as defined in Section 9(d)), then (i) the Company shall pay the Executive, as soon as practicable after the date of termination, any Base Salary and any reimbursable expenses accrued or owing the Executive hereunder as of the date of termination; (ii) the Executive shall immediately forfeit any unvested stock options and unvested restricted stock shares; and (iii) the Executive shall not be entitled to any other benefits under any Company plan or policy except as required by statute. If the Executive's employment is terminated by the Company for Cause as defined in Section 9(a), all vested options then outstanding shall be immediately forfeited; and if the Executive's employment is terminated by the Executive (other than for Good Reason as defined in Section 9(d)), any vested options then outstanding shall be exercisable at any time prior to the earlier of the expiration of the term of the options or the thirtieth day following the date of the Executive's termination of employment. (c) Severance Benefits. In the event the Executive's employment is terminated by the Company other than for reasons defined in Section 9(a), 9(b), 9(c) or 9(e), or by the Executive for reasons defined in Section 9(d), the Executive shall be entitled to continuation of Base Salary and participation in the Benefit Plans for two years from the date of termination; and the payment of an amount equal to an annual bonus at target for the year in which the termination occurred, prorated to the date of termination, and additional payments equal to two annual bonuses at target for the year in which termination occurred (payable at such times as the Company in the ordinary course would pay annual bonuses for the year in which the termination occurred and for each of the two years succeeding the year in which the termination occurred); provided, however, that (i) in the event the Executive provides services as described in Section 11(a) of this Agreement prior to the end of the second calendar year following the year in which any such termination occurs, the Executive's entitlement to continuation of Base Salary and participation in the Benefit Plans shall cease on the date the provision of such services commences, and the amount of the additional payments to be made to the Executive shall be reduced and shall be determined by (a) multiplying (x) the amount of the additional payments by (y) a fraction whose numerator is the number of days elapsed from the date of the Executive's termination of employment to the date the provision of such services commences and whose denominator is the number of days from the date of the Executive's termination of employment to the end of the second calendar year following the year in which such termination occurs, and (b) then subtracting any amount of such additional payments previously paid to the Executive; (ii) the Executive shall not be entitled to the above severance benefits unless the Executive executes a release substantially in the form of Exhibit A to this Agreement; and (iii) the severance benefits provided for herein shall be in lieu of any other severance benefits under any Company plan or policy. (d) Expiration of Agreement at Age 65. If the Executive's employment is terminated as a result of age 65 expiration of this Agreement as defined in Section 9(e), then the retirement provisions of the Benefit Plans shall be applicable to the Executive. 11. Non-solicitation and Non-competition. (a) During his employment with the Company and for a period of six months from the date of the Executive's termination of employment for any reason, the Executive will not provide services, in any capacity, whether as an employee, consultant, independent contractor, owner, partner, shareholder, director, or otherwise, to any person or entity that provides products or services that compete with any present or planned business of the Company and any of its affiliates, including but not limited to any other life insurance or financial services company, provided that nothing herein shall prevent the Executive from, after the termination of his employment, being a passive owner of not more than 5% of the outstanding stock of any class of securities of a corporation that is publicly traded and that may acquire any corporation or business that competes with the Company or any of its affiliates. (b) For a period of one year following the termination of the Executive's employment for any reason, or, if longer, during the period of his continuation of Base Salary pursuant to Section 10(c) of this Agreement (the "Continuation Period"), the Executive will not directly or indirectly solicit the business of any customer or prospective customer of the Company or any of its affiliates for any purpose other than to obtain, maintain and/or service the customer's business for the Company or any of its affiliates. (c) For a period of one year following the termination of the Executive's employment for any reason, or, if longer, during the Continuation Period, the Executive agrees not to, directly or indirectly, recruit, solicit or hire any employees of the Company or any of its affiliates to work for the Executive or any other person or entity. (d) Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by the Executive relating to the business of the Company or any of its affiliates shall be and remain the property of the Company. Upon the termination of his employment with the Company or upon the request of the Company at any time, the Executive shall promptly deliver to the Company, and shall not without the consent of the Company's Boards of Directors retain copies of, any written materials not previously made available to the public or any records and documents made by the Executive in his possession concerning the business or affairs of the Company or any of its affiliates. (e) Remedies. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 11 may result in material irreparable injury to the Company or its affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 11 or such other relief as may be required to specifically enforce any of the covenants in this Section 11. 12. Confidentiality. During and after the Employment Term, and except as otherwise required by law, the Executive shall not disclose or make accessible to any business, person or entity, or make use of (other than in the course of the business of the Company) any trade secrets, proprietary knowledge or confidential information which the Executive shall have obtained during his employment by the Company and which shall not be generally known to or recognized by the general public. All information regarding or relating to any aspect of the business of the Company or any of its affiliates, including but not limited to that relating to existing or contemplated business plans, activities or procedures, current or prospective clients, current or prospective contracts or other business arrangements, current or prospective products, facilities and methods, manuals, intellectual property, price lists, financial information (including the revenues, costs, or profits associated with any of the products or services of the Company or any of its affiliates), or any other information acquired because of the Executive's employment by the Company, shall be conclusively presumed to be confidential; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive). The Executive's obligations under this Section 12 shall be in addition to any other confidentiality or nondisclosure obligations of the Executive to the Company at law or under any other Company policy or agreements. 13. Other Matters. (a) Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Executive relating to the subject matter hereof and supersedes any prior agreement or understandings and, except to the extent expressly provided herein or as required by law, any provisions of any plan, program, policy or other document of the Company pertaining to the subject matter hereof. (b) Assignment. Except as set forth below, this Agreement and the rights and obligations contained herein shall not be assignable or otherwise transferable by either party to this Agreement without the prior written consent of the other party to this Agreement. Notwithstanding the foregoing, any amounts owing to the Executive upon his death shall inure to the benefit of his heirs, legatees, personal representatives, executor or administrator. (c) Notices. Any and all notices provided for under this Agreement shall be in writing and hand delivered or sent by first class registered or certified mail, postage prepaid, return receipt requested, addressed to the Executive at his residence or to the Company, attention General Counsel, at its usual place of business, and all such notices shall be deemed effective at the time of delivery or at the time delivery is refused by the addressee upon presentation. (d) Amendment/Waiver. No provision of this Agreement may be amended, waived, modified, extended or discharged unless such amendment, waiver, extension or discharge is agreed to in writing signed by both the Company and the Executive. (e) Applicable Law. This Agreement and the rights and obligations of the parties hereunder shall be construed, interpreted, and enforced in accordance with the laws of the State of New York (applicable to contracts to be performed wholly within such State). (f) Severability. The Executive hereby expressly agrees that all of the covenants in this Agreement are reasonable and necessary in order to protect the Company and its business. If any provision or any part of any provision of this Agreement shall be invalid or unenforceable under applicable law, such part shall be ineffective only to the extent of such invalidity or unenforceability and shall not affect in any way the validity or enforceability of the remaining provisions of this Agreement, or the remaining parts of such provision. (g) Successor in Interests. In the event the Company merges or consolidates with or into any other corporation or corporations, or sells or otherwise transfers substantially all of its assets to another corporation, the provisions of this Agreement shall be binding upon and inure to the benefit of the corporation surviving or resulting from the merger or consolidation or to which the assets are sold or transferred and, prior to the consummation of any such event, the Company shall obtain the express written assumption of this Agreement by the other corporation (other than in the case of a merger after which the Company is the surviving entity). All references herein to the Company refer with equal force and effect to any corporate or other successor of the corporation that acquires directly or indirectly by merger, consolidation, purchase or otherwise, all or substantially all of the assets of the Company. 14. Applicable Taxes. There shall be deducted from any compensation payments made under this Agreement any federal, state, and local taxes or other amounts required to be withheld by any entity having jurisdiction over the matter. With respect to the benefits described in Sections 8(d) and (e) of this Agreement, the Company will provide the Executive will full tax gross-up due to any imputed income therefrom, but the Executive shall be personally responsible for payment of taxes on any other imputed income resulting from any other benefits afforded under this Agreement. 15. Supplemental Retirement Benefit. The Company will provide the Executive with a supplemental retirement benefit pursuant to the terms of the letter agreement, dated May 11, 2001, attached hereto as Exhibit B. 16. Indemnification and Insurance. During the Employment Term the Executive will be entitled to the protections afforded by the indemnification provisions of the Company's charter and by-laws and by the directors and officers liability insurance policies purchased form time to time and maintained by the Company to the same extent as other directors and senior officers of the Company. 17.Attorneys' Fees. The Company will pay the reasonable and necessary attorneys' fees and disbursements of Vedder, Price, Kaufman & Kammholz, counsel to the Executive, incurred by the Executive in connection with this Agreement up to an aggregate amount for all such attorneys' fees and disbursements of $100,000. 18. Taxes. In the event that the aggregate of all payments or benefits made or provided to, or that may be made or provided to, the Executive under this Agreement and under all other plans, programs and arrangements of the Company (the "Aggregate Payment") is determined to constitute a "parachute payment," as such term is defined in Section 280G(b)(2) of the Internal Revenue Code, the Company shall pay to the Executive, prior to the time any excise tax imposed by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with respect to such Aggregate Payment, an additional amount which, after the imposition of all income and excise taxes thereon, is equal to the Excise Tax on the Aggregate Payment. The determination of whether the Aggregate Payment constitutes a parachute payment and, if so, the amount to be paid to the Executive and the time of payment pursuant to this Section 18 shall be made by an independent auditor (the "Auditor") jointly selected by the Company and the Executive and paid by the Company. The Auditor shall be a nationally recognized United States public accounting firm which has not, during the two (2) years preceding the date of its selection, acted in any way on behalf of the Company or any affiliate thereof. If the Executive and the Company cannot agree on the firm to serve as the Auditor, then the Executive and the Company shall each select one accounting firm and those two firms shall jointly select the accounting firm to serve as the Auditor. Notwithstanding the foregoing, in the event that the amount of the Executive's Excise Tax liability is subsequently determined to be greater than the Excise Tax liability with respect to which an initial payment to the Executive under this Section 18 has been made, the Company shall pay to the Executive an additional amount with respect to such additional Excise Tax (and any interest and penalties thereon) at the time and in the amount determined by the Auditor so as to make the Executive whole, on an after-tax basis, with respect to such Excise Tax (and any interest and penalties thereon) and such additional amount paid by the Company. In the event the amount of the Executive's Excise Tax liability is subsequently determined to be less than the Excise Tax liability with respect to which any payment to the Executive has been made under this Section 18, the Executive shall, as soon as practical after the determination is made, pay to the Company the amount of the overpayment by the Company, reduced by the amount of any relevant taxes already paid by the Executive and not refundable, all as determined by the Auditor. The Executive and the Company shall cooperate with each other in connection with any proceeding or claim relating to the existence or amount of liability for Excise Tax, and all expenses incurred by the Executive in connection therewith shall be paid by the Company promptly upon notice of demand from the Executive. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its own behalf by its duly authorized officers, and the Executive has executed this Agreement on his own behalf intending to be legally bound, as of the Effective Date. AXA FINANCIAL, INC. By: /s/ Edward D. Miller President and Chief Executive Officer THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ Edward D. Miller Chairman and Chief Executive Officer EXECUTIVE: /s/ Christopher M. Condron _________________________________ Christopher M. Condron EXHIBIT A General Release and Agreement This GENERAL RELEASE AND AGREEMENT (hereinafter "Release") is made and entered into by __________________________. 1. Pursuant to Section 10(c)(ii) of the Employment Agreement (the "Agreement") dated as of May 11, 2001 between me and AXA Financial, Inc. and The Equitable Life Assurance Society of the United States (collectively, the "Company"), on behalf of my heirs, executors, administrators, personal and legal representatives and assigns, I hereby waive, release and discharge the Company, its parent, subsidiaries end affiliates, and its and their current and former officers, directors, agents, employees, successors and assigns (hereinafter "Releasees"), from all claims, actions and causes of action, whether known or unknown, which I have or claim to have against any Releasee from the beginning of the world to the date of this Release (hereinafter "Claims"). 2. This Release covers, but is not limited to, all Claims of discrimination based upon age, race, religion, color, sex, national origin, disability, handicap, veteran status, marital status, sexual orientation or any other protected category arising on or before the date of execution of this Release under any equal employment opportunity law, ordinance, regulation, or order, including, but not limited to, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, Executive Orders 11246 and 11141, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act of 1990, the New York Executive Law, and any other federal, state, or local constitutional or statutory provision, order, or regulation. Claims do not include any rights I may have (a) under the (i) The Equitable Retirement Plan for Employees, Managers and Agents; (ii) The Equitable Excess Retirement Plan; (iii) The Equitable Investment Plan for Employees, Managers and Agents; (iv) The Equitable Deferred Compensation Plan, Plan B; (v) the Variable Deferred Compensation Plan for Executives; (vi) The Equitable Executive Survivor Income Benefit Plan; (vii) The Equitable welfare benefit plans for employees, managers and agents including Equitable's health, life Insurance, health care spending account, dependent care spending account, short-term disability and long-term disability plans; or (viii) the AXA Financial, Inc. 1997 Stock Incentive Plan; or (b) for payment of the severance benefits pursuant to Section 10(c) of the Agreement. 3. This Release also covers all Claims arising in tort or in contract relating to my employment or the termination of my employment with the Company, including but not limited to, those for fraud, libel, slander, promissory or equitable estoppel, misrepresentation, wrongful discharge, contract violation, breach of covenant of good faith and fair dealing, and negligent or intentional infliction of emotional distress arising under the laws of New York or any other state or jurisdiction. I intend that this Release will discharge the Releases to the maximum extent permitted by law. This Release is intended to release all Claims, whether known or unknown, by me from the beginning of the world until the date of this Release. 4. To the maximum extent permitted by law, I agree not to file (i) a lawsuit or to commence an arbitration making any Claims against the Releasees or any Releasee with any federal, state, local or foreign court or self-regulatory authority relating to my employment with the Company or the termination of my employment, or (ii) a charge or a complaint making any Claims against the Releasees or any Releasee with any federal, state or local administrative agency. Unless I am specifically requested to do so by the Company, or compelled by legal process issued by a competent court, agency or arbitration tribunal, I also agree not to participate in any administrative proceeding, litigation or arbitration filed by any current or former employee or agent of the Releasees against the Releasees or any Releasee with any federal, state or local administrative agency or court or a self-regulatory authority relating to their employment or association with the Company or the termination of their employment or association with the Company or to contact any current or former employee(s) or agent(s) of the Company for the purpose of assisting them in any such administrative proceeding, litigation or arbitration against the Releasees or any Releasee. I additionally waive any rights to obtain damages with respect to any administrative proceeding, litigation or arbitration contemplated by this paragraph. 5. I warrant that I have made no assignment, and will make no assignment, of any claim, right of action, or any rights of any kind whatsoever, embodied in any of the Claims covered in this Release, and that no person or entity of any kind has or had any interest in any of the Claims covered in this Release. 6. I agree to cooperate fully with the Releasees or any Releasee, and, if so requested, to assist the Releasees or any Releasee in its defense of any claim, litigation or complaint against them, of which I have knowledge, by any of its current or former agents, employees, managers or clients, or contractors, or any of their employees. 7. I agree to keep the terms of this Release completely confidential, provided that disclosure to my financial advisor, attorney or immediately family, or in response to valid legal process or as otherwise required by law, will not violate this covenant. 8. I agree that if any part of this Release is found to be void or unenforceable by a court or an arbitrator of competent jurisdiction, the remainder of this Release will remain valid and enforceable. 9. This Release will be governed by the laws of the State of New York and will be binding upon me and my heirs, administrators, representatives, executors, successors -2- and assigns and will inure to the benefit of the Releasees and their heirs, administrators, representatives, executors, successors and assigns. 10. I have read this Release and understand that I am relinquishing all Claims, including those for employment discrimination, which I might have against the Releasees. 11. I also release the Company from any Claims for attorney's fees. I acknowledge that I will be responsible for all of my attorney's fees and costs with respect to the subject matter of this Release. Executed at _______________________________________ this __________ day of _________________________, 200_. ______________________________________ - ----------------------- Notary Public -3- EXHIBIT B May 11, 2001 Mr. Christopher M. Condron 15 East 82nd Street New York, New York 10028 RE: SUPPLEMENTAL RETIREMENT BENEFIT Dear Mr. Condron: This letter agreement sets forth the terms of your supplemental retirement benefit with The Equitable Life Assurance Society of the United States ("Equitable"). Unless your employment with Equitable is terminated for Cause as defined in Section 9(a) of the Employment Agreement between you and AXA Financial, Inc. and Equitable dated as of May 11, 2001 (the "Employment Agreement"), in which event no benefits will be payable hereunder, Equitable will provide you with a supplemental retirement benefit that, expressed as a monthly benefit for your life, will equal 2% times the number of whole years of your employment with Equitable or any of its affiliates times your "final average monthly earnings." Your "final average monthly earnings" will mean the average of your highest monthly earnings for 36 consecutive months during your last 60 months of employment with Equitable or an affiliate. If your employment with Equitable ends before you have 36 consecutive months of employment, your "final average monthly earnings" will be based on the average of your monthly earnings over the number of whole and partial months of your employment. Earnings shall consist of your base salary and any annual bonus paid to you pursuant to Section 6(b)of the Employment Agreement. In computing your "final average monthly earnings" any annual bonuses will be averaged over the 12 calendar months in the year for which the respective bonuses were paid. You will be immediately vested in your supplemental retirement benefit which will be paid to you in a lump sum or, if you make an advance election, as a monthly annuity for your life or as a 50% joint and survivor annuity, with your spouse as the survivor. An advance election must be made at least one full calendar year before payments are scheduled to commence. The lump sum payment will be made or, if you elected an annuity, the annuity payments will commence, on the first business day of the month following the earlier of your retirement under The Equitable Retirement Plan for Employees, Managers and Agents ("Retirement Plan") or your separation from service with Equitable and any of its affiliates, provided that if you separate from service before age 62, your retirement benefit will be made or commence on the first business day of the month following your 62nd birthday. The payments under this letter agreement will be offset by any payments you are entitled to under the Retirement Plan and the Equitable Excess Retirement Plan. If you die before your scheduled commencement date and have not elected a joint and survivor annuity, your benefit will be paid in a lump sum to a beneficiary you designate, or your estate, if you have not designated a beneficiary. In calculating (i) the lump sum equivalent of your monthly benefit, (ii) the offset for your other retirement payments, and (iii) the terms of any annuity benefit elected by you, Equitable will rely on the actuarial and other factors used to determine equivalent benefits under the Retirement Plan. The Equitable is the administrator of the supplemental retirement benefit provided under this letter agreement, and it has discretionary authority to construe and interpret this agreement. -2- Any supplemental retirement benefit payable under this letter will be payable solely from Equitable's general assets as payments become due. Equitable's obligation to make any payment under this letter agreement shall be merely that of an unfunded and unsecured promise of the Equitable to pay money in the future. The supplemental retirement benefit provided under this letter agreement is intended to be primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, as that phrase is used under Section 201, 301 and 401 of the Employee Retirement Income Security Act ("ERISA"). Very truly yours, THE EQUIABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ Edward D. Miller ------------------------------ Chairman and Chief Executive Officer Accepted and Agreed to: /s/ Christopher M. Condron - -------------------------- Christopher M. Condron -3- -----END PRIVACY-ENHANCED MESSAGE-----