<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11733
AMERICAN STATES FINANCIAL CORPORATION
INDIANA NO. 35-1976549
State of Incorporation I.R.S. Employer Identification No.
500 NORTH MERIDIAN STREET
INDIANAPOLIS , INDIANA 46204 - 1275 (317) 262-6262
Address of principal executive offices Telephone Number
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 [ ]
Shares of common stock outstanding as of November 8, 1996: 60,050,515
The exhibit index to this report is located on page 23.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December, 31
1996 1995
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale at fair value:
Fixed maturity (amortized cost: 1996 - $3,547,132; 1995 - $3,590,601) $3,688,524 $3,860,883
Equity (cost: 1996 - $351,405; $1995 - $374,232) 411,913 437,685
Mortgage loans 33,524 33,319
Short-term investments 109,752 63,170
Other invested assets 37,397 35,178
---------- ----------
Total investments 4,281,110 4,430,235
Cash 21,047 12,708
Premium receivable 417,566 377,802
Deferred policy acquisition costs 208,754 199,192
Properties to be sold 31,377 41,403
Property and equipment 31,168 29,823
Accrued investment income 57,205 66,173
Federal income taxes 149,004 93,552
Cost in excess of net assets of acquired subsidiaries 98,627 101,190
Ceded reinsurance on claims and claims expense reserves 172,002 136,939
Miscellaneous 56,635 43,073
---------- ----------
Total Assets $5,524,495 $5,532,090
========== ==========
</TABLE>
(continued on next page)
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
September 30, December, 31
1996 1995
------------ ------------
(Dollars in Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Losses, loss adjustment expense and future policy benefits $2,897,081 $2,828,337
Unearned premiums 732,477 718,478
---------- ----------
Total policy liabilities and accruals 3,629,558 3,546,815
Commissions and other expenses 112,301 134,031
Outstanding checks 65,103 67,308
Other liabilities 155,946 115,229
Notes payable 99,462 -
Debt with affiliate 200,000 -
---------- ----------
Total liabilities 4,262,370 3,863,383
Shareholders' equity:
Common stock, no par value: 195,000,000 shares authorized, shares issued
and outstanding: 1996 - 60,050,515; 1995 - 50,000,000 304,792 387,547
Net unrealized gain on securities available-for-sale 129,439 211,767
Retained earnings 827,894 1,069,393
---------- ----------
Total shareholders' equity 1,262,125 1,668,707
---------- ----------
Total liabilities and shareholders' equity $5,524,495 $5,532,090
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- ---------- ----------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C> <C> <C>
Revenue:
Premiums and other revenue $407,067 $446,324 $1,255,544 $1,316,571
Net investment income 67,031 66,460 201,520 200,112
Realized gain on investments 2,531 7,742 31,001 41,213
---------- ---------- ---------- ----------
Total revenue 476,629 520,526 1,488,065 1,557,896
Benefits and expenses:
Benefits and settlement expenses 299,874 308,939 955,779 973,589
Commissions 67,491 74,444 211,873 218,868
Operating and administrative expenses 49,458 52,586 151,682 168,622
Taxes, licenses and fees 8,927 12,165 29,167 34,283
Interest on debt 5,283 - 7,118 -
---------- ---------- ---------- ----------
Total benefits and expenses 431,033 448,134 1,355,619 1,395,362
Income before federal income taxes 45,596 72,392 132,446 162,534
Federal income taxes 5,167 13,521 15,345 21,401
---------- ---------- ---------- ----------
Net income $ 40,429 $ 58,871 $ 117,101 $ 141,133
========== ========== ========== ==========
Net income per share $ .67 $ 1.18 $ 2.14 $ 2.82
========== ========== ========== ==========
Weighted average shares outstanding 60,050,515 50,000,000 54,601,884 50,000,000
========== ========== ========== ==========
Dividends per share of common stock:
Declared $ .21 $ - $ .21 $ -
Paid .21 - .21 -
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Common stock:
Balance at beginning of period $ 387,547 $ 387,547
Issued in stock offering 215,482 -
Issued to employee benefit plans 1,161 -
Assumption and issuance of debt with affiliate (299,398) -
----------- -----------
Balance at end of period 304,792 387,547
Net unrealized gain (loss) on securities available-for-sale:
Balance at beginning of period 211,767 (9,110)
Change during the period (82,328) 190,809
----------- -----------
Balance at end of period 129,439 181,699
Retained earnings:
Balance at beginning of period 1,069,393 1,090,129
Dividend of assets to affiliate (299,866) -
Cash dividends declared (58,734) (138,000)
Net income 117,101 141,133
----------- -----------
Balance at end of period 827,894 1,093,262
----------- -----------
Total shareholders' equity $ 1,262,125 $ 1,662,508
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 117,101 $ 141,133
Adjustments to reconcile net income to cash provided by
operating activities:
Deferred policy acquisition costs (4,385) (7,517)
Premiums and fees in course of collection (39,764) (12,037)
Accrual of discount on investments (13,995) (12,697)
Amortization of premium on investments 3,943 5,345
Accrued investment income 4,537 15,755
Policy liabilities and accruals 56,113 11,426
Federal income taxes (11,120) 10,802
Provisions for depreciation 5,710 7,869
Gain on sale of investments (31,001) (41,213)
Ceded reinsurance on claims and claims expense reserves (35,063) (1,539)
Other (14,140) (9,682)
----------- ----------
Net adjustments (79,165) (33,488)
----------- ----------
Net cash provided by operating activities 37,936 107,645
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale: Purchase of investments (1,020,063) (790,263)
Sales of investments 779,727 746,213
Maturities and redemptions 52,271 55,893
Purchase of mortgage loans and other investments (8,377) (8,278)
Sale or maturity of mortgage loans and other investments 5,930 25,390
Net (increase) decrease in short-term investments (46,582) 19,860
Net purchase of property and equipment 2,970 (3,765)
Other 21,149 3,582
----------- ----------
Net cash provided by (used in) investing activities (212,975) 48,632
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 215,482 -
Universal life investment contract deposits 36,328 35,050
Universal life investment contract withdrawals (9,698) (6,464)
Dividends paid (58,734) (183,000)
----------- ----------
Net cash provided by (used in) financing activities 183,378 (154,414)
----------- ----------
Net increase in cash 8,339 1,863
Cash at beginning of period 12,708 11,134
----------- ----------
Cash at end of period $ 21,047 $ 12,997
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following notes should be read in conjunction with the notes to
consolidated financial statements included in the American States Financial
Corporation prospectus dated May 22, 1996. Unless the context otherwise
indicates; (i) the "Company" refers to American States Financial Corporation and
its wholly-owned, consolidated subsidiaries; (ii) "ASI" refers to American
States Insurance Company, the Company's sole direct wholly-owned subsidiary, and
its consolidated subsidiaries; and (iii) the "Subsidiaries" refer to the direct
and indirect subsidiaries of the Company, which include ASI and its
subsidiaries. Operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the full
year ending December 31, 1996.
1. ORGANIZATION AND BASIS OF PRESENTATION
On February 5, 1996, the Company was incorporated in the State of Indiana
to serve as the holding company for ASI. The formation of the Company was done
in contemplation of an initial public offering. On April 22, 1996, ASI
declared, and on May 15, 1996, it distributed to its parent, Lincoln National
Corporation ("LNC"), a dividend of $300 million, consisting primarily of
tax-exempt securities ("Dividended Assets"). On May 16, 1996, LNC transferred
all of the outstanding shares of ASI to the Company in exchange for 50,000,000
shares of the Company's common stock. Concurrently with the transfer of the ASI
stock, the Company assumed $100 million of LNC debt ("Assumed Debt") and issued
a $200 million note to LNC (the "Term Note").
On May 29, 1996, the Company issued 10,000,000 shares of common stock at
$23 per share to the public (the "Offering"). The net proceeds from the
Offering (after deduction of underwriting discounts and offering expenses) were
$215.5 million. The Company contributed $140.5 million of such net proceeds to
ASI to enable it to invest in taxable securities for its investment portfolio to
partially replace the Dividended Assets. The remainder of the net proceeds were
retained by the Company for general corporate purposes. As a result of the
Offering, LNC's ownership was reduced to approximately 83%.
The 50,000,000 shares held by LNC are "restricted shares" as defined by
Rule 144 of the Securities Act of 1993, as amended (the "Securities Act"). Such
shares may not be resold in the absence of registration under the Securities Act
or exemptions from such registration, including, among others, the exemption
provided by Rule 144 under the Securities Act. As an affiliate of the Company,
LNC is subject to certain volume restrictions on the sale of shares of the
Company's common stock.
The Company's common stock is publicly traded on the New York Stock
Exchange under the symbol "ASX".
The transfer of ASI stock to the Company by LNC in exchange for Company
common stock and the Assumed Debt and Term Note have been accounted for similar
to a pooling of interests in the consolidated financial statements of the
Company, in that the assets, liabilities, shareholders' equity and the results
of operation of the Company and its subsidiaries have been combined at
historical carrying values.
The consolidated financial statements as of and for the three and nine
months ended September 30, 1996 and 1995, are unaudited. In the opinion of
management, these financial statements include all adjustments, consisting only
of normal recurring items, which are necessary to present fairly the Company's
financial position and results of operations on a basis consistent with that of
prior audited consolidated financial statements. The balance sheet at December
31, 1995, has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Significant
intercompany balances and transactions have been eliminated. Certain amounts
from prior periods were reclassified to conform to the 1996 presentation. Net
income and shareholders' equity have not been affected by these
reclassifications.
7
<PAGE> 8
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)
The Company underwrites property and casualty insurance, concentrating on
providing commercial insurance to small to medium-sized businesses and
preferred personal lines coverages to individuals. As a complement to its
property and casualty operations, the Company also markets life insurance. The
Company writes business throughout the United States with the greatest volume
in the Midwest and Pacific Northwest.
2. FEDERAL INCOME TAXES
Through December 31, 1995, a consolidated federal income tax return was
filed by LNC and included the Company. Pursuant to an agreement with LNC, the
Company provided for income taxes on the basis of a separate return
calculation; however, certain deductions, credits, losses, and other items that
may be limited or not allowed on a separate return basis are allowed. The
taxes computed were remitted to or collected from LNC.
Effective January 1, 1996, a new tax sharing agreement was executed which
resulted in the Company providing income taxes on a stand-alone basis. The new
agreement would have had no impact on the provision for federal income taxes
for 1995 had it been implemented January 1, 1995.
The effective tax rate on pre-tax income is lower than the prevailing
corporate federal income tax rate primarily due to tax-exempt interest on
municipal securities.
3. NOTES PAYABLE AND DEBT WITH AFFILIATE
The Assumed Debt is governed by an agreement between the Company and LNC
(the "Assumption Agreement") which provides for the payment by the Company of
the currently outstanding 7 1/8% notes due July 15, 1999, originally issued to
the public by LNC on July 15, 1992. LNC will continue to be the primary
obligor of this public debt; however, pursuant to the Assumption Agreement,
the Company will make a $100 million principal payment on July 15, 1999 to
repay the holders of the public debt. The Assumption Agreement also provides
that interest at 7 1/8% is payable semi-annually by the Company.
The Term Note will pay interest quarterly at a rate of 50 basis points
over the rate on three year Treasury Notes from the Effective Date through and
including November 14, 1997, 50 basis points over the rate on two year Treasury
Notes from November 15, 1997 through and including November 14, 1998 and 50
basis points over the rate on one-year Treasury Bills from November 15, 1998
through the maturity date. The Term Note will be payable in three equal
principal payments due on August 15, 1997, 1998 and 1999. Pursuant to the
provisions on the Term Note, the Company will have the right to prepay the Term
Note at any time. The Term Note also contains covenants that will, among other
things, (i) require the Company to maintain certain levels of adjusted
consolidated net worth (as defined in the Term Note), and (ii) restrict the
ability of the Company to incur indebtedness in excess of 50% of its adjusted
consolidated net worth and to enter into a major corporate transaction unless
the Company is the survivor and would not be in default.
8
<PAGE> 9
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. NOTES PAYABLE AND DEBT WITH AFFILIATE (Continued)
On May 29, 1996, the Company entered into a revolving credit agreement in
which the Company may borrow and repay amounts up to a maximum of $200 million
(the "Line of Credit"). Borrowings using the Line of Credit will bear interest
generally at variable rates tied to LIBOR, an adjusted certificate of deposit
rate or other short-term indices. No debt was outstanding using the Line of
Credit at September 30, 1996.
4. CONTINGENCIES
On February 14, 1996, three of the Company's property and casualty
insurance subsidiaries were among 23 underwriters of real property insurance
named defendants in a case alleging that their underwriting, sales and
marketing practices violated a number of civil rights laws (including, without
limitation, the Fair Housing Act). It was also alleged that the defendants'
actions constituted a civil conspiracy. Brought in the United States District
Court for the Western District of Missouri, the plaintiffs seeks to represent
themselves and a putative class of similarly situated persons in the State of
Missouri. This action seeks injunction relief, unspecified compensatory
damages, punitive damages and attorneys' fees. In response to motions filed by
the defendants, the court dismissed the conspiracy count by Order dated October
2, 1996 but has required that the defendants answer the remaining counts.
Management believes, based upon current information, that the Company's
underwriting, sales and marketing practices have complied in all material
respects with the applicable requirements of both state and federal law. The
Company intends to vigorously defend this action.
On August 29, 1996, the first two actions were brought in Missouri state
courts alleging that underinsured motorist insurance coverage sold in that
state by three of the Company's property and casualty insurance subsidies
constitutes "phantom coverage" when sold at limits equal to the state's
financial responsibility requirements. In both actions, the plaintiffs seek to
represent themselves and a putative class of similarly situated persons in the
state of Missouri. The actions seek both compensatory and punitive damages
based upon a number of legal theories, including, without limitation, breach of
fiduciary duty, negligence, breach of contract, unjust enrichment and
misrepresentation. While it is too early to fully evaluate the plaintiffs'
allegations, the potential defenses available or the size of the putative class
of plaintiffs, management does not believe, based upon current information,
that the allegations have merit and it therefore intends to defend this action
vigorously.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Except for historical information contained herein, the discussion in this
Quarterly Report on Form 10-Q includes certain forward-looking statements based
upon management expectations. Factors which could cause future results to
differ from these expectations include the following: financial markets (e.g.
interest rates and securities markets), state and federal legislative and
regulatory initiatives, acts of God (e.g. hurricanes, earthquakes and storms),
other insurance risks and competition.
RESULTS OF OPERATION
Three Months Ended September 30, 1996 and 1995
The discussion which follows compares the results of the third quarter
ended September 30, 1996 to the third quarter ended September 30, 1995:
CONSOLIDATED
The Company's revenues decreased 8.4% or $43.9 million to $476.6 million
in the third quarter of 1996 from $520.5 million in the third quarter of 1995.
Net premiums earned and other revenue decreased 8.8% or $39.2 million to $407.1
million in the third quarter of 1996 from $446.3 million in the third quarter
of 1995. Net investment income increased 0.9% or $0.5 million to $67.0 million
in the third quarter of 1996 from $66.5 million in the third quarter of 1995.
Realized gains on investments decreased 67.3% or $5.2 million to $2.5 million
in the third quarter of 1996 from $7.7 million in the third quarter of 1995.
Benefits and settlement expenses decreased 2.9% or $9.0 million to $299.9
million in the third quarter of 1996 from $308.9 million in the third quarter
of 1995. Commissions decreased 9.3% or $6.9 million to $67.5 million in the
third quarter of 1996 from $74.4 million in the third quarter of 1995.
Operating and administrative expenses decreased 5.9% or $3.1 million to $49.5
million in the third quarter of 1996 from $52.6 million in the third quarter of
1995. The company incurred interest on debt of $5.3 million in the third
quarter of 1996 from the Assumed Debt and Term Note.
Net income for the third quarter of 1996 was $40.4 million or 67 cents per
share compared to $58.9 million or $1.18 per share for the third quarter of
1995. Excluding realized gain on investments, the Company earned $38.4 million
or 64 cents per share for the third quarter of 1996 compared to $53.5 million
or $1.07 per share for the third quarter of 1995.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
PROPERTY AND CASUALTY
The following table sets forth certain summarized financial data and key
operating ratios for the Company's property and casualty operations for the
quarters ended September 30, 1996 and 1995. All ratios are computed using data
reported in accordance with statutory accounting principles ("SAP").
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Net premiums written $394.1 $430.7
Net premiums earned and other revenue $392.2 $432.4
Losses and loss adjustment expense 287.5 295.5
Other costs and expenses 120.2 133.8
------ ------
Underwriting income (loss) (15.5) 3.1
Net investment income 57.6 58.2
Realized gain on investments 2.5 6.4
Federal income tax expense 4.9 12.0
------ ------
Net income $ 39.7 $ 55.7
====== ======
Loss ratio 61.0% 56.9%
Loss adjustment expense ratio 12.6 11.8
Underwriting expense ratio 30.3 30.6
Policyholder dividend ratio .1 .2
Combined ratio 104.0% 99.6%
</TABLE>
Net Premiums Written
Net premiums written decreased 8.5% or $36.6 million to $394.1 million in
the third quarter of 1996 from $430.7 million in the third quarter of 1995. The
decline in net premiums written is largely attributable to three factors.
First, the Company has experienced a decline in premium volume from
state-mandated workers' compensation pools. Second, return premiums from a
retrospective rated policy written for LNC also has had an adverse premium
impact. Finally, the Company continues its planned reduction of exposure in
California and Florida. For the states of California and Florida, net premiums
written decreased by 27.4% in the third quarter of 1996 compared to the third
quarter of 1995. For all other states, net premiums written decreased by 6.5%
in the third quarter of 1996 compared to the third quarter of 1995.
Net Premiums Earned and Other Revenue
Net premiums earned and other revenue (primarily finance and service fees)
decreased 9.3% or $40.2 million to $392.2 million in the third quarter of 1996
from $432.4 million in the third quarter of 1995.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
Losses and Loss Adjustment Expense ("LAE")
Losses and LAE decreased 2.7% or $8.0 million to $287.5 million in the
third quarter of 1996 from $295.5 million in the third quarter of 1995. The
SAP loss ratio for the third quarter of 1996 was 61.0% compared to 56.9% for
the third quarter of 1995. The 4.1 point increase in the quarter was primarily
due to an increase in natural peril losses and upward pressure on the
underlying loss ratio as a result of unabated price competition in the
industry. Loss comparisons are further complicated by a lower level of
favorable loss reserve development. Favorable loss reserve development in the
third quarter of 1996 was approximately $8 million less, after tax, than the
unusually robust development experienced in the third quarter of 1995.
The SAP LAE ratio was 12.6% and 11.8% for the third quarter of 1996 and
1995, respectively. The increase in the SAP LAE ratio is due to LAE not
declining in step with the decline in net premiums earned.
Other Costs and Expenses
Other costs and expenses decreased 10.2% or $13.7 million to $120.1
million in the third quarter of 1996 from $133.8 million in the third quarter
of 1995. The realignment of field offices and implementation of internal cost
controls, announced in the fourth quarter of 1995, continued to produce 1996
expense savings in line with expectations. In addition, variable underwriting
expenses decreased with the decline in net premiums written. The SAP
underwriting expense ratio decreased by .3 points to 30.3%.
Combined Ratio
The SAP combined ratio, after policyholder dividends, was 104.0% and 99.6%
for the third quarter of 1996 and 1995, respectively. The increase in the SAP
combined ratio is primarily due to (i) an increase in natural peril losses (ii)
upward pressure on the underlying loss ratio as a result of unabated price
competition in the industry and (iii) a lower level of favorable loss reserve
development.
Net Investment Income
Net investment income decreased .9% or $.6 million to $57.6 million in the
third quarter of 1996 from $58.2 million in the third quarter of 1995. This
decrease is due primarily to a decline in total average invested assets caused
by the distribution of the Dividended Assets. The pre-tax yield on invested
assets (excluding realized and unrealized gains) was 6.5% and 6.3% for the
third quarters of 1996 and 1995, respectively.
Federal Income Tax Expense
Federal income tax expense was $4.9 for the third quarter of 1996 compared
to $12.0 million for the third quarter of 1995. The decrease in expense is due
primarily to poorer underwriting results.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
LIFE
The following table sets forth certain summarized financial data for the
Company's life insurance operations for the quarters ended September 30, 1996
and 1995.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Account values - Universal life and Annuities $ 336.3 $ 308.2
Life insurance in-force 15,424.2 15,214.0
Invested assets (at amortized cost) 456.5 435.2
Policy income $ 14.9 $ 13.9
Benefits and expenses 18.0 18.8
Net investment income 8.4 8.3
Realized gain on investments .1 1.4
Federal income tax expense 1.8 1.6
--------- ---------
Net income $ 3.6 $ 3.2
========= =========
</TABLE>
Policy income increased 6.6% or $1.0 million to $14.9 million in the third
quarter of 1996 from $13.9 million in the third quarter of 1995. Account
values at September 30, 1996 increased by 9.1% from September 30, 1995. Net
investment income increased 1.8% in the third quarter of 1996 compared to the
third quarter of 1995. The pre-tax yield on invested assets (excluding realized
and unrealized gains) was 7.4% and 7.7% for the third quarters of 1996 and
1995, respectively. Net income for the third quarter of 1996 was higher than
the third quarter of 1995, a period of heavy mortality experience.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
Nine Months Ended September 30, 1996 and 1995
The discussion which follows compares the results of the nine months ended
September 30, 1996 to the nine months ended September 30, 1995:
CONSOLIDATED
The Company's revenues decreased 4.5% or $69.8 million to $1,488.1 million
in the first nine months of 1996 from $1,557.9 million in the first nine months
of 1995. Net premiums earned and other revenue decreased 4.6% or $61.1 million
to $1,255.5 million in the first nine months of 1996 from $1,316.6 million in
the first nine months of 1995. Net investment income increased .7% or $1.4
million to $201.5 million in the first nine months of 1996 from $200.1 million
in the first nine months of 1995. Realized gains on investments decreased
24.8% or $10.2 million to $31.0 million in the first nine months of 1996 from
$41.2 million in the first nine months of 1995.
Benefits and settlement expenses decreased 1.8% or $17.8 million to $955.8
million in the first nine months of 1996 from $973.6 million in the first nine
months of 1995. Commissions decreased 3.2% or $7.0 million to $211.9 million
in the first nine months of 1996 from $218.9 million in the first nine months
of 1995. Operating and administrative expenses decreased 10.0% or $16.9 million
to $151.7 million in the first nine months of 1996 from $168.6 million in the
first nine months of 1995. The company incurred interest on debt from the
Assumed Debt and Term Note of $7.1 million in the first nine months of 1996.
Net income for the first nine months of 1996 was $117.1 million or $2.14
per share compared to $141.1 million or $2.82 per share for the first nine
months of 1995. Excluding realized gain on investments, the Company earned
$98.2 million or $1.80 per share for the first nine months of 1996 compared to
$114.9 million or $2.30 per share for the first nine months of 1995.
PROPERTY AND CASUALTY
The following table sets forth certain summarized financial data and key
operating ratios for the Company's property and casualty operations for the
nine months ended September 30, 1996 and 1995. All ratios are computed using
data reported in accordance with SAP.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Net premiums written $1,219.0 $1,290.0
Net premiums earned and other revenue $1,211.8 $1,274.2
Losses and loss adjustment expense 918.3 937.0
Other costs and expenses 376.0 405.6
-------- --------
Underwriting loss (82.5) (68.4)
Net investment income 174.9 175.5
Realized gain on investments 30.5 40.0
Federal income tax expense 12.0 16.3
-------- --------
Net income $ 110.9 $ 130.8
======== ========
</TABLE>
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
Loss ratio 64.3% 61.4%
Loss adjustment expense ratio 11.9 12.7
Underwriting expense ratio 30.9 31.2
Policyholder dividend ratio .1 .1
Combined ratio 107.2% 105.4%
Net Premiums Written
Net premiums written decreased 5.5% or $71.0 million to $1,219.0 million
in the first nine months of 1996 from $1,290.0 million in the first nine months
of 1995. The decline in net premiums written is largely attributable to three
factors. First and most pervasive is the intensifying commercial lines
competition with the impact most evident in workers' compensation and larger
accounts. In addition, premium volume from state-mandated workers'
compensation pools continues to decline. Finally, the Company continues its
planned reduction of exposure in California and Florida. For the states of
California and Florida, net premiums written decreased 16.0% in the first nine
months of 1996 compared to the first nine months of 1995. For all other
states, net premiums written decreased 4.3% in the first nine months of 1996
compared to the first nine months of 1995.
Net Premiums Earned and Other Revenue
Net premiums earned and other revenue (primarily finance and service fees)
decreased 4.9% or $62.4 million to $1,211.8 million in the first nine months
of 1996 from $1,274.2 million in the first nine months of 1995.
Losses and Loss Adjustment Expense
Losses and LAE decreased 2.0% or $18.7 million to $918.3 million in the
first nine months of 1996 from $937.0 million in the first nine months of 1995.
The SAP loss ratio for the first nine months of 1996 was 64.3% compared to
61.4% for the first nine months of 1995. The 2.9 point increase was due to an
increase of $30.8 million in natural peril losses resulting from widespread
severe winter storm activity and frequent wind and hail storms across the
Midwest. Natural peril losses were $126.5 million and $95.7 million for the
first nine months of 1996 and 1995, respectively.
The SAP LAE ratio was 11.9% and 12.7% for the first nine months of 1996
and 1995, respectively. The improvement in the LAE ratio in the first nine
months of 1996 compared to the first nine months of 1995 was due to (i) lower
LAE reserve levels in 1996 due to lower related loss reserves (ii) incurred
costs relating to division consolidation and an early retirement plan for
certain levels of management in 1995 and (iii) a reduction in errors and
omission insurance expense in 1996. The decrease in insurance expense in 1996
as compared to 1995 is due to the settlement of a lawsuit in 1995.
Other Costs and Expenses
Other costs and expenses decreased 7.3% or $29.6 million to $376.0 million
in the first nine months of 1996 from $405.6 million in the first nine months
of 1995. The Company has experienced a decrease in commission expense and
premium taxes due to a decline in net written premium. Costs incurred relating
to the division consolidation and early retirement added to expenses in the
first nine months of 1995. In addition, the realignment of field offices and
implementation of internal cost controls, which was announced in late 1995,
produced cost savings in 1996 payments. The SAP underwriting expense ratio
improved only .3 points to 30.9% due to a decline in net written premium.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
Combined Ratio
The SAP combined ratio, after policyholder dividends, was 107.2% and
105.4% for the first nine months of 1996 and 1995, respectively. During the
first nine months of 1996, natural peril losses added 10.5 points to the SAP
loss ratio compared to 7.6 points for the first nine months of 1995.
Net Investment Income
Net investment income decreased $.6 million to $174.9 million in the first
nine months of 1996 from $175.5 million in the first nine months of 1995. The
pre-tax yield on invested assets (excluding realized and unrealized gains) was
6.5% and 6.3% for the first nine months of 1996 and 1995, respectively. The
increase in yield was offset by a decline in total average invested assets
caused by the distribution of Dividended Assets.
Federal Income Tax Expense
Income tax expense was $12.0 million for the first nine months of 1996
compared to $16.3 million for the first nine months of 1995. The decrease in
expense is due primarily to a decline in underwriting results.
LIFE
The following table sets forth certain summarized financial data for the
Company's life insurance operations for the nine months ended September 30,
1996 and 1995.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Account values - Universal life and Annuities $ 336.3 $ 308.2
Life insurance in-force 15,424.2 15,214.0
Invested assets (at amortized cost) 456.5 435.2
Policy income $ 43.7 $ 42.4
Benefits and expenses 53.8 52.8
Net investment income 25.3 24.6
Realized gain on investments .3 1.2
Federal income tax expense 5.4 5.1
--------- ---------
Net income $ 10.1 $ 10.3
========= =========
</TABLE>
Policy income increased 3.3% in the first nine months of 1996 compared to
the first nine months of 1995. Account values at September 30, 1996, increased
by 9.1% from September 30, 1995. Net investment income increased 2.9% in the
first nine months of 1996 compared to the first nine months of 1995. The
overall increase in net investment income reflects the growth in account values
as well as the general growth in invested assets. This increase occurred
despite a drop in yield on average invested assets (excluding realized and
unrealized gains). The pre-tax yield was 7.5% and 7.7% for the first nine
months of 1996 and 1995, respectively. Net income for the first nine months of
1996 was lower compared to the first nine months of 1995 primarily due to
higher mortality.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funds available to the Company and its Subsidiaries
are premiums, investment income and proceeds from the sale or maturity of
invested assets. Such funds are used principally for the payment of claims,
operating expenses, commissions, dividends, debt service and the purchase of
investments. Cash outflows can be variable because of the potential for large
losses either individually or in the aggregate. Accordingly, the Company
maintains investment programs generally intended to provide adequate funds to
pay claims without the forced sale of investments. Finally, as noted below,
the Company has a $200 million Line of Credit, and intends to establish a
Medium Term Note Program, to augment its available liquidity.
Invested Assets
Since a substantial portion of the Company's revenues are generated from
its invested assets, the performance, quality and liquidity of its investment
portfolio materially effects the Company's financial condition and results of
operations. The Company pursues a total return investment strategy which seeks
an attractive level of current income combined with long-term capital
appreciation. The following table details, at carrying value, the distribution
of the Company's investment portfolio at September 30, 1996 (dollars in
millions):
<TABLE>
<S> <C> <C>
Fixed maturity securities:
Tax-exempt municipal $2,034.2 47.5%
US government 205.9 4.8
Mortgage-backed and asset-backed 296.4 6.9
Corporate and other 1,072.4 25.0
Redeemable preferred stock 79.6 1.9
Equities:
Perpetual preferred stock 186.8 4.4
Common stock 225.1 5.2
Mortgage loans 33.5 .8
Short-term investments 109.8 2.6
Other 37.4 .9
-------- -----
Total $4,281.1 100.0%
======== =====
</TABLE>
The total investment portfolio decreased $149.1 million in the first nine
months of 1996. This decrease is the net result of (i) the distribution of
Dividended Assets to LNC, (ii) a decrease in unrealized gains on securities
available-for-sale and (iii) an increase in invested assets from the proceeds
of the Offering.
The Company attempts to minimize the risk of loss due to default by the
borrower by maintaining a quality investment portfolio. As of September 30,
1996, approximately 88% of the Company's bond portfolio is rated "A" or
higher, or was a U.S. government obligation, and only $25.8 million, or .7% of
the carrying value of the bond portfolio, was rated below investment grade (Ba
and below). Ratings are based on the ratings, if any, assigned by Moody's
and/or Standard & Poors. If ratings were split, the rating used is generally
the higher of the two. Approximately $188.4 million of securities are private
placements for which ratings have been assigned by the Company based generally
on equivalent ratings supplied by the National Association of Insurance
Commissioners.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
As of September 30, 1996, 47.5% of the Company's investment portfolio
consisted of tax-exempt municipal securities as compared to 53.6% as of
December 31, 1996. The Company has reduced its position in tax-exempt
municipal securities in order to provide for greater diversification of the
portfolio and to give the Company greater margin relative to the possibility of
being in a federal alternative minimum tax position.
The Company's fixed maturity securities are classified as
available-for-sale and accordingly, are carried at fair value. The difference
between amortized cost and fair value, less deferred income taxes, is reflected
as a component of shareholders' equity.
Cash Provided by Operations
Net cash provided by operating activities was $37.9 million for the first
nine months of 1996 compared to $107.6 million for the first nine months of
1995. The decrease in cash provided by operating activities is primarily due
to a decrease in premiums collected offset in part by a decrease in claims and
operating expenses paid.
Notes Payable and Debt with Affiliate
As disclosed in Note 3 to the Notes to Consolidated Financial Statements,
in the second quarter of 1996 the Company assumed $100 million of Assumed Debt
and issued a $200 million Term Note. The Company is obligated to make minimum
principal repayments totaling $66.7 million in 1997 and 1998, and $166.7
million in 1999. In addition, the Company is obligated to make interest
payments on this debt. Interest is payable on outstanding principle at a rate
of 7 1/8% per annum on the Assumed Debt, and at a variable rate (generally 50
basis points over three, two and one year U.S. Treasury obligations) on the
Term Note. The current rate on the Term Note is approximately 6.7%.
Line of Credit
On May 29, 1996, the Company entered the Line of Credit with third party
financial institutions under which the Company may borrow and repay amounts up
to a maximum of $200 million. Borrowings under the Line of Credit will bear
interest generally at variable rates tied to LIBOR, an adjusted certificate of
deposit rate or other short-term indices. The Company will use borrowings
under the Line of Credit to assist in funding short-term cash management
requirements. No debt was outstanding using this agreement at September 30,
1996.
Medium Term Note Program
For additional liquidity, the Company intends to establish a medium-term
note program (the "MTN Program") within the next year. The MTN Program, if
established, would enable the Company to issue debt from time to time for
general corporate purposes.
Subsidiary Dividend Restrictions
Historically, ASI has paid dividends to LNC, as its parent, based upon its
annual operating results and statutory surplus requirements. After taking into
account the one-time distribution of the Dividended Assets paid by ASI to LNC,
ASI will not be able to pay any additional dividends to the Company for the
twelve month period commencing on May 15, 1996 ("Twelve Month Period") without
notifying the Indiana Commissioner of Insurance and giving the Commissioner 30
days within to object. Regulatory restrictions on the ability of ASI to pay
dividends or make other payments to the Company could affect the Company's
ability to pay dividends and service its debt.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Offering Proceeds
On May 29, 1996, the company issued 10,000,000 shares of common stock to
the public at $23 per share. The net proceeds to the Company, after the
underwriting discount and other issue costs, was $215.5 million. The Company
contributed $140.5 million of the net proceeds to ASI to enable it to invest in
taxable securities for its investment portfolio to replace the Dividended
Assets. The Company retained $75.0 million of the net proceeds from the
Offering for general corporate purposes, including the funding of its regular
cash dividends, debt service obligations and other general corporate
obligations during the Twelve Month Period. Until utilized for such purposes,
the net proceeds from the Offering not contributed to ASI is invested and will
continue to be invested in short-term, interest bearing, investment-grade
securities. Based upon a quarterly dividend of $.21 per share and the terms of
the Assumed Debt, Term Note and Line of Credit, the Company expects that it
will need approximately $50 million to fund regular quarterly cash dividends
and approximately $20 million to fund debt service obligations and other
general corporate obligations during the Twelve Month Period.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the Notes to Consolidated Financial Statements - Contingencies regarding
pending and threatened litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
10.0 (6) Investment Management Agreement, dated October 21, 1996, between
Lincoln Investment Management, Inc. and Insurance Company of
Illinois
10.15 (1) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Insurance Company.
10.15 (2) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Economy Company.
10.15 (3) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Preferred Insurance Company.
10.15 (4) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States Life
Insurance Company.
10.15 (5) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Insurance Company of Texas.
10.15 (6) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and Insurance Company of
Illinois.
10.16 (1) Tax Sharing Agreement, dated August 22, 1996, between the
Registrant and Lincoln National Corporation.
10.16 (2) Tax Sharing Agreement, dated August 22, 1996, between the
Registrant, American States Insurance Company and Lincoln National
Corporation.
10.16 (3) Tax Sharing Agreement, dated August 22, 1996, between American
States Insurance Company, American Economy Insurance Company and
Lincoln National Corporation.
10.16 (4) Tax Sharing Agreement, dated August 22, 1996, between American
States Insurance Company, American States Preferred Insurance
Company and Lincoln National Corporation.
10.16 (5) Tax Sharing Agreement, dated August 22, 1996, between American
States Insurance Company, American States Life Insurance Company
and Lincoln National Corporation.
10.16 (6) Tax Sharing Agreement, dated October 9, 1996, between American
States Insurance Company, Insurance Company of Illinois and Lincoln
National Corporation.
10.16 (7) Tax Sharing Agreement, dated September 23, 1996, between Lincoln
National Corporation and Linsco Reinsurance Company.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
a) Exhibits (Continued)
10.16 (8) Tax Sharing Agreement, dated August 22, 1996, between American
States Insurance Company, City Insurance Agency, Inc. and Lincoln
National Corporation.
10.18 (1) Services Agreement, dated September 26 1996, between the
Registrant and its subsidiaries and affiliates and Lincoln National
Corporation and its subsidiaries and affiliates.
10.18 (2) Services Agreement, dated October 10, 1996, between Insurance
Company of Illinois and Lincoln National Corporation and its
subsidiaries and affiliates.
11.0 Computations of Earnings Per Share
27.0 Financial Data Schedule
b) Reports on Form 8-K.
The Registrant filed a Form 8-K Current Report, dated September 16, 1996,
pertaining to the announced retirement of the Registrant's Chairman and Chief
Executive Officer.
21
<PAGE> 22
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American States Financial Corporation
by: /s/ THOMAS M. OBER
-----------------------------
Thomas M. Ober
Vice President, Secretary and General Counsel
/s/ THOMAS R. KAEHR
------------------------------
Thomas R. Kaehr
Vice President and Chief Accounting Officer
Date: November 13, 1996
22
<PAGE> 23
AMERICAN STATES FINANCIAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended September 30, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - --------- ----------- ------
<S> <C>
10.0 (6) Investment Management Agreement, dated October 21, 1996, between
Lincoln Investment Management, Inc. and Insurance Company of Illinois 25
10.15 (1) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Insurance Company. 40
10.15 (2) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American Economy
Insurance Company. 50
10.15 (3) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Preferred Insurance Company. 60
10.15 (4) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States Life
Insurance Company. 70
10.15 (5) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and American States
Insurance Company of Texas. 80
10.15 (6) ASFC Short-Term Investment Pool Participation Agreement, dated
September 16, 1996, between the Registrant and Insurance Company of
Illinois. 90
10.16 (1) Tax Sharing Agreement, dated August 22, 1996, between the Registrant
and Lincoln National Corporation. 100
10.16 (2) Tax Sharing Agreement, dated August 22, 1996, between the Registrant,
American States Insurance Company and Lincoln National Corporation. 110
10.16 (3) Tax Sharing Agreement, dated August 22, 1996, between American States
Insurance Company, American Economy Insurance Company and Lincoln
National Corporation. 119
10.16 (4) Tax Sharing Agreement, dated August 22, 1996, between American States
Insurance Company, American States Preferred Insurance Company and
Lincoln National Corporation. 128
10.16 (5) Tax Sharing Agreement, dated August 22, 1996, between American States
Insurance Company, American States Life Insurance Company and Lincoln
National Corporation. 137
10.16 (6) Tax Sharing Agreement, dated October 9, 1996, between American States
Insurance Company, Insurance Company of Illinois and Lincoln National
Corporation. 146
</TABLE>
23
<PAGE> 24
AMERICAN STATES FINANCIAL CORPORATION
Exhibit Index for the Report on Form 10-Q (Continued)
<TABLE>
<CAPTION>
<S> <C>
10.16 (7) Tax Sharing Agreement, dated September 23, 1996, between Lincoln
National Corporation and Linsco Reinsurance Company. 155
10.16 (8) Tax Sharing Agreement, dated August 22, 1996, between American States
Insurance Company, City Insurance Agency, Inc. and Lincoln National
Corporation. 164
10.18 (1) Services Agreement, dated October 10, 1996, between the Registrant and
its subsidiaries and affiliates and Lincoln National Corporation and
its subsidiaries and affiliates. 173
10.18 (2) Services Agreement, dated September 26 1996, between Insurance Company
of Illinois and Lincoln National Corporation and its subsidiaries and
affiliates. 183
11.0 Computations of Earnings Per Share 193
27.0 Financial Data Schedule 194
</TABLE>
24
<PAGE> 1
LINCOLN INVESTMENT MANAGEMENT, INC. Exhibit 10.0 (6)
INVESTMENT MANAGEMENT AGREEMENT
Client Name: Insurance Company of Illinois
(the "Account")
Effective Date: November 1, 1996
The undersigned (the "Client") hereby confirms that it has retained
Lincoln Investment Management, Inc., an Illinois corporation ("LIM"), as
investment adviser for the Account, consisting of those assets identified on
Schedule A attached hereto as well as all other assets which become part of the
Account as a result of transactions therein or additions thereto, and further
that it has, if and to the extent provided herein, retained LIM to provide
certain additional services with respect to the Account, and LIM agrees to
serve on the following terms and conditions:
1. Appointment and Acceptance of LIM. LIM is appointed as investment
adviser for the Account and will provide certain administrative services with
respect to the Account, all as set forth in Section 2 hereof. LIM accepts such
appointment pursuant to the terms and conditions set forth in this Agreement.
2. Powers, Rights and Duties of the Manager.
(a) Investment advisory. LIM shall perform its responsibilities
under this Agreement in accordance with the investment objectives and policies
of the Account described in Section 3 hereof. Subject to such investment
objectives and policies, LIM shall have authority in its sole discretion and
without prior consultation with the Client and as attorney-in-fact with full
power and authority on behalf of the Client:
(i) to make all investment decisions for the Account, it being
understood that LIM shall have complete discretion as to the
nature, amount and timing of all transactions to be effected in the
Account;
(ii) to investigate, analyze, negotiate, purchase, enter into,
monitor, manage, and sell or otherwise dispose of investments of
all types referred to on Schedule B hereto and any additional types
of investments as may be authorized in accordance with Section 3
hereof;
(iii) to negotiate, draft, legally document, execute, acknowledge,
deliver, and if applicable, file or record, or cause to be filed or
recorded, in any appropriate public office, all types of contracts,
documents, agreements and certificates relating to investments for
the Account, including, without limitation, brokerage
25
<PAGE> 2
agreements, letters of commitment, guarantees, stock purchase or
subscription agreements, note agreements, participation agreements,
purchase and sale agreements, indemnity agreements, partnership
agreements, limited partnership agreements, joint venture
agreements, option or warrant agreements, swap agreements,
mortgages, correspondent agreements, trust deeds, trusts, financing
statements, assignments, security agreements, pledges,
reorganization agreements, modification agreements, escrow
agreements and instruments of every kind and nature whatsoever, and
to modify, cancel or terminate such contracts, documents,
agreements and certificates;
(iv) after reasonable inquiry or investigation, to make such
representations, warranties, covenants or certifications in the
name of and on behalf of the Client as it believes to be true; to
agree to any terms or conditions to control any investment or
investment transaction; to direct the purchase, sale or exercise of
any options, privileges or rights with respect to any investment;
to initiate, defend or influence the direction of any claim or
litigation arising from or with respect to any investment; to
effect any purchase, sale, exchange, conversion, compromise,
settlement or release with respect to any investment;
(v) to issue directly to brokers, dealers or issuers orders for the
purchase, sale, exchange or other acquisition or disposition of
investments for the Account or any interests therein as it may deem
appropriate;
(vi) to take any action, or render advice respecting the voting of
proxies solicited by or with respect to the issuers of securities
in which assets of the Account may be invested from time to time;
and
(vii) in furtherance of the foregoing, to do anything which LIM
shall deem requisite, appropriate or advisable in connection
therewith.
(b) Additional Services. In connection with the management of the
Account, LIM shall also provide the additional services listed on Schedule C
hereto.
3. Investment Objectives and Policies. The initial investment
objectives and policies of the Account shall be as set forth in Schedule B
hereto. The Client will notify LIM in writing of any modifications therein
from time to time. LIM is not charged with notice of any modifications in the
Client's investment objectives or policies until such modifications are
received in writing by LIM. In addition, if LIM has obligated itself or the
Client to the purchase
26
<PAGE> 3
or sale of an investment for the Client prior to the receipt of notice of such
modification, LIM shall fulfill such purchase or sale obligation on behalf of
the Client.
4. Client's Responsibilities.
Client acknowledges that it (i) is the owner of all of the assets of the
Account; (ii) is responsible to assure that all investments made for the
Account meet the requirements and limitations of any applicable jurisdiction,
contract or instrument; and (iii) is responsible to assure that any limitations
or restrictions arising from applicable law or regulations which in Client's
judgment apply to Client's aggregate holdings of any particular investment or
type of investment are not exceeded.
The Client is required to notify LIM in writing of changes in the
restrictions, limitations or requirements governing the assets of, and
investments for, the Account and to modify the investment objectives and
policies of the Account as set forth in Schedule B hereto. The Client will
notify LIM in writing as to any investments for the Account that do not meet
the requirements or limitations of any applicable jurisdiction, contract or
instrument. LIM shall arrange to dispose of those assets as agreed upon with
the Client, and such dispositions shall be made in the Client's Account and at
the Client's expense and risk.
The Client acknowledges that it shall be solely responsible for (and LIM
shall have no responsibility for): (i) maintenance of proper accounting records
for the Account; or (ii) with the exception of the SVO filings to be made by
LIM pursuant to Schedule C hereto, all filings required to be made respecting
the Account or assets of the Account with federal or state regulatory
authorities (including, without limitation, verifying and ensuring the accuracy
of all data contained within such filings). Without diminishing or modifying
LIM's obligations under Section 10 hereof, the Client acknowledges that it has
responsibility for the valuation of the assets of the Account for purposes of
the Client's own financial and performance reporting, whether required by law
or regulation or otherwise.
5. Documentation to be Furnished by Client. The Client agrees to
furnish LIM with such authorizations and documentation as LIM may from time to
time require to enable it to carry out its obligations under this Agreement,
including powers of attorney. Without limiting the foregoing, the Client will
direct the Custodian (as defined below) to provide LIM with cash information as
it relates to the Account assets.
6. Custodian. The Client shall be responsible for the appointment and
payment of a custodian (the "Custodian"), acceptable to LIM, who will take
custody of the Account assets and be responsible for the collection of
interest, dividends, distributions and other income (whether in cash or
securities) attributable to the assets in the Account. Although LIM may place
orders directly with brokers for execution of transactions authorized by this
Agreement with respect to the Account, all such transactions shall be carried
out through the Custodian. The Client will direct Custodian to accept
settlement instructions issued by LIM for the Account, and LIM shall not be
liable to the Client for (i) any failure of the Custodian to perform its
responsibilities to the Account, including, without limitation, any losses that
arise from the failure of the Custodian to
27
<PAGE> 4
notify LIM of any notices affecting called securities, deadline expirations,
dates and capital reorganization events affecting the securities in the Account
or (ii) any liability or loss with respect to the transmittal or safekeeping of
cash, securities or other assets.
7. Account Modifications. The Client may make additions to the Account
with reasonable advance notice to LIM. The Client may make withdrawals from
the Account subject to industry trade settlement time requirements and any
other market restrictions; provided, however, that LIM may establish additional
restrictions for the withdrawal of certain assets due to the less liquid nature
of such assets.
8. Brokerage.
(a) LIM is hereby authorized on behalf of the Client to place
orders for the Account with brokers and dealers selected exclusively by LIM.
LIM will not be responsible for any act or omission by brokers or dealers
selected by LIM.
(b) In selecting brokers and dealers to execute transactions and in
negotiating commission rates with respect thereto, LIM shall take into account
the financial stability and reputation of brokerage firms and the brokerage and
research services provided by such brokers. The Client may be deemed to be
paying for services (sometimes referred to as "soft dollar" payments) provided
by the broker which are included in the commission rate (as permitted by
Section 28(e) of the Securities Exchange Act of 1934), provided that such
commission rate is reasonable in relation to the value of the brokerage and
research services provided when viewed in terms of either that particular
transaction or LIM's overall responsibilities with respect to the accounts as
to which it exercises investment discretion. The investment advisory fees
described in Section 11 below are based upon the foregoing.
(c) LIM may combine orders for the Account with those on behalf of
other clients. The purchase price paid or the proceeds received in any combined
order will be allocated equitably among those accounts with assets included in
such combined order.
(d) As evidence of LIM's authority to act as investment adviser for
the Account, Client shall, on or before the execution date of this Agreement,
execute a letter in form substantially similar to Exhibit 1 hereto and Client
authorizes LIM to provide copies of such letter to any broker or dealer it may
select pursuant to subparagraph (a) of this Section 8.
9. Account Information. LIM shall deliver or cause to be delivered in
written form at the times set forth in Schedule D the Account information and
reports set forth in Schedule D.
10. Valuation. In determining the value of the Account or any of its
assets, any security listed on one or more national securities exchanges shall
be valued at the last quoted sale price on the valuation date on the principal
exchange or market on which the security is traded. Any other security or asset
shall be valued as determined in good faith by LIM to reflect its fair value.
28
<PAGE> 5
11. Compensation.
(a) The compensation of LIM for its investment advisory services
shall be calculated and paid in accordance with the attached Schedule E on the
basis of asset values determined as provided in this Agreement.
(b) The Client shall pay all expenses related to the Account and
investments of the Account including, without limitation, custodian fees,
brokerage commissions and such other expenses as may be related to the
execution of orders to purchase or sell assets of the Account.
12. Service to Other Clients. It is understood that LIM also provides
investment management services to other clients, and may give advice and take
action with respect to the assets of such clients which may differ from the
advice given, or the timing or nature of action taken, with respect to the
Account. Nothing herein shall restrict LIM, its principals, affiliates or
employees from purchasing or selling any investment for its or their own
accounts. Furthermore, LIM shall have no obligation to purchase or sell for
the Account, or to recommend for purchase or sale for the Account, any
investment which LIM, its principals, affiliates or employees may purchase or
sell for themselves or for any other client.
13. Representations by the Client. The Client represents and warrants
that (i) the retention of LIM pursuant to this Agreement is authorized by any
governing documents relating to Client and the Account; (ii) this Agreement has
been duly authorized by appropriate action and when so executed and delivered
will be binding upon the Client in accordance with its terms; (iii) neither the
execution and delivery of the Agreement by Client nor the performance of its
obligations hereunder conflict with or violate any provision of law, rule or
regulation, or any instrument to which it is a party or to which any of its
property is subject; (iv) the Client has obtained all consents, approvals and
waivers of regulatory authorities which may be required in order for Client to
execute this Agreement and perform its responsibilities hereunder; and (v) the
Client will deliver to LIM such evidence of its authority as LIM may reasonably
require, whether by way of a certified corporate resolution or otherwise.
14. Representations by LIM. LIM represents and warrants that it is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
15. Utilization of Attorneys; Scope of Engagement. Client acknowledges
that from time to time during the term of this Agreement, LIM shall obtain
advice from or otherwise be represented by attorneys, including attorneys who
may be employees of LIM and/or its affiliates ("LIM Counsel"), with respect to
matters arising under or in connection with this Agreement, including, without
limitation, the matters described in Section 2 hereof. Client further
acknowledges and agrees that: (i) LIM Counsel (whether or not they are
employees of LIM and/or its affiliates) shall at all times only represent LIM
and/or its affiliates; (ii) that LIM shall have no obligation to engage
attorneys to represent Client; and (iii) that Client will retain or engage
counsel to represent it as and when it deems such engagement to be appropriate.
Client acknowledges and agrees that it shall not: (i) be owed any professional
duty or obligation by LIM
29
<PAGE> 6
Counsel; (ii) be deemed to receive any advice or other legal representation
from LIM Counsel; or (iii) be entitled to rely upon, or actually rely upon, any
statements of LIM Counsel.
16. Tax Advice; Scope of Engagement. LIM will not render tax advice in
connection with the performance of its services hereunder. Client acknowledges
that (i) it will not rely on LIM for tax advice, and (ii) it will seek tax
advice, as it deems appropriate, from other qualified experts.
17. Liability. Unless otherwise provided by law, the Client agrees that
neither LIM nor any LIM director, officer, employee or LIM Counsel shall be
liable for any loss due to an error in judgment or for any act or omission to
act by LIM, LIM Counsel, or any broker, dealer or Custodian, except for losses
resulting from LIM's or such director's, officer's, employee's or LIM Counsel's
gross negligence or willful misconduct. The Client shall indemnify and hold
harmless LIM, its directors, officers, employees and LIM Counsel against any
loss, expense or claim arising in connection with the Account or this Agreement
from any act other than their gross negligence or willful misconduct, except
where such indemnification is prohibited by law. LIM shall indemnify and hold
harmless the Client against losses resulting from LIM's or its directors',
officers', employees' or LIM Counsel's gross negligence or willful misconduct,
except where such indemnification is prohibited by law.
18. Term. This Agreement shall remain in effect for three years from the
Effective Date (the "Initial Term"). Following the Initial Term, this
Agreement will be automatically renewed for additional one year terms, unless
sooner terminated as herein provided. Notwithstanding the foregoing, this
Agreement is subject to resubmission by the Client to the Illinois Department
of Insurance during the second one-year term following the Initial Term and
during each fifth one-year term thereafter.
19. Dispute Resolution. In the event of a dispute arising out of or
relating to this Agreement, or the breach thereof, the parties shall attempt in
good faith to resolve the dispute in the manner set forth in Schedule F.
Nothing in this Section 19 or in Schedule F shall be construed to
constitute a waiver of any right provided by the Investment Advisers Act of
1940.
20. Termination and Assignment.
(a) This Agreement may be terminated by either party at any time
upon at least sixty (60) but no more than ninety (90) days' prior written
notice to the other party. Upon any termination of the Agreement by either
party, (i) any transaction for the Account initiated prior to the receipt of
written notice of termination shall be consummated, and (ii) LIM shall not
initiate any transactions for the Account subsequent to the receipt of written
notice of termination except at Client's written request.
(b) No assignment (as defined in the Investment Advisers Act of
1940) of this Agreement by LIM shall be effective without the written consent
of the Client.
30
<PAGE> 7
(c) The provisions of Section 17 of this Agreement shall survive
notwithstanding any termination of this Agreement.
21. Notices. Unless otherwise specified herein, all notices, reports or
other communications provided for herein shall be in writing and delivered by
first-class mail, registered or certified mail, overnight courier service or
facsimile to LIM or to the Client at the addresses appearing below. All
facsimiles which are sent must be telephonically confirmed. The effective date
of any such notice shall be the date such notice is received. Each party to
this Agreement may by written notice to the other party designate a different
address.
22. Confidentiality. LIM and the Client acknowledge and agree that all
information furnished by LIM to the Client in connection with the Account under
this Agreement shall be treated as confidential and shall not be disclosed to
third parties without the prior written consent of LIM, except as required by
applicable law or as required to perform this Agreement.
If the Client participates in a transaction and as a result of such
participation LIM receives confidential information about parties related to
the transaction, LIM shall retain such confidential information at its site.
If the Client is required by regulatory authorities or otherwise by law to
provide such confidential information, LIM, at the written direction of the
Client, shall provide the confidential information directly to the requesting
entity on the Client's behalf.
23. Inspection and Audit of Records. Upon reasonable notice by the
Client, LIM shall make its records relating to the Account available for
inspection and audit by the Client or its representatives and by any state
insurance regulators at all reasonable times during normal business hours.
24. Disclosure Statement. The Client acknowledges receipt of Part II of
LIM's Form ADV filed with the Securities and Exchange Commission at least
forty-eight (48) hours prior to entering into this Agreement.
25. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana without regard to the
principles of conflicts of law contained therein.
26. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may be amended only
by written document signed by the parties.
27. Modification in Conformity with Law. If any provision hereof is, or
at any time should become, inconsistent with any present or future law, rule or
regulation of any exchange or any governmental or regulatory body with
jurisdiction, said provision shall be deemed modified
to conform to such law, rule or regulation, but in all other respects this
Agreement shall continue and remain in full force and effect.
31
<PAGE> 8
Insurance Company of Illinois
---------------------------------------------
Client's Name
<TABLE>
<S> <C>
Date:October 15, 1996 By: /s/ Todd R. Stephenson
- - --------------------------------- ------------------------------------
Name: Todd R. Stephenson
Title: Vice President & Treasurer
(317) 262-6656 Mailing Address:
- - ---------------------------------
Telephone No. 500 North Meridian Street
Indianapolis, IN 46204
(317) 262-6616
- - ---------------------------------
Fax No.
36-269033
- - ---------------------------------
Taxpayer I.D. No.
Accepted and Agreed to:
LINCOLN INVESTMENT
MANAGEMENT, INC.
By: /s/ Ann L. Warner Date: October 16, 1996
------------------------------ -----------------------
Name: Ann L. Warner
Title: Senior Vice President
By: /s/ Anne Bookwalter Date: October 21, 1996
------------------------------ -----------------------
Name: Anne Bookwalter
Title: Vice President
200 East Berry Street
Fort Wayne, IN 46802
Attn: Marketing and Client Services
</TABLE>
32
<PAGE> 9
Schedule A
Listing of Client's Assets
To be provided.
33
<PAGE> 10
Schedule B
Investment Objectives and Policies
To be provided.
34
<PAGE> 11
Schedule C
List of Additional Services
Accounting services to include the following:
- Process cash and trade activity within Prism
- Monthly projections of prepayment speeds on MBS/ABS (within
10 days of month end)
- Quarterly GAAP reserve recommendation for permanent declines
in market value on fixed income securities and equity securities
- Complete and file applications for registration of securities
with Securities Valuation Office of the NAIC ("SVO") (as required by
SVO filing deadlines)
- Quarterly Schedule D, Part 3, Part 4 and Part 1B information*
- Monthly Interest Maintenance Reserve (IMR) amortization report*
- Quarterly Asset Valuation Reserve (AVR) report*
- Monthly Schedule Ds, all parts*
* The data contained in these reports is not reviewed by LIM, and the
Client is responsible for the accuracy of the final reports.
35
<PAGE> 12
Schedule D
Account Information
Monthly:
within 10 business days:
asset inventory listing
within 20 business days:
portfolio performance report
Quarterly:
within 25 business days:
management reports
summary of derivatives activity
performance summaries
36
<PAGE> 13
Schedule E
Fees for Investment Advisory Services
Based upon the objectives and policies of the Account as set forth in
Schedule B and the additional services set forth in Schedule C, the annualized
fee shall be thirteen (13) basis points.* Fees are calculated each quarter by
applying the above rate to the aggregate value of assets held in the Account as
of the last business day of each calendar quarter. The value of assets in the
Account is to be determined in accordance with Section 10 of the Agreement.
LIM's minimum total quarterly fee is $12,500. The Client will be charged
additional amounts for the management of its equity securities based upon the
fees charged LIM by the applicable subadvisers.
LIM will bill the Client for its quarterly fee, and such fees will be due
immediately upon receipt of each invoice. Notwithstanding the foregoing, for
any calendar quarter during which this Agreement is not in effect for the full
calendar quarter, the fees for investment advisory services shall be prorated
for the period during which the Agreement is in effect.
For each portfolio created subsequent to the Effective Date, there is a
one time initialization fee of $10,000 per portfolio.
If at any time while this Agreement shall be in effect the Client desires
services or account information from the Manager other than those specifically
delineated in this Agreement and all Schedules hereto, and the Manager agrees
to provide such services or account information, a fee for such services or
account information shall be determined through good faith negotiations. In
addition, LIM reserves the right to increase its fees if the Client modifies
the objectives and policies of the Account as set forth in Schedule B or
requests additional services to be set forth in Schedule C. LIM also reserves
the right to charge the Client such additional amounts as determined from time
to time by LIM if any of the following occur: (i) LIM is required to spend
additional time to process the Client's transactions due to the Client's choice
of Custodian; or (ii) if the Client desires to have on-line access to LIM's
computer systems and executes a separate agreement with LIM relating to such
access. Any increase in fees or additional amounts described in this paragraph
shall be effective upon written notice to the Client by LIM.
- - -------
* After the Initial Term, fees may be amended by LIM upon 90 days' prior
written notice to the Client.
37
<PAGE> 14
Schedule F
Alternative Dispute Resolution
NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy.
Any party may give the other party written notice of any dispute not resolved
in the normal course of business. Within 20 days after delivery of said
notice, executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of the
controversy or claims as provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
MEDIATION. If the dispute has not been resolved by negotiation as
provided herein, the parties shall endeavor to settle the dispute by mediation
under the then current Center for Public Resources ("CPR") Model Procedures for
Mediation of Business Disputes. The neutral third party will be selected from
the CPR Panel of Neutrals. If the parties encounter difficulty in agreeing on
a neutral, they will seek the assistance of CPR in the selection process.
ARBITRATION UNDER THE CPR RULES. Any dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof, which has not
been resolved by Mediation as provided above within 60 days of the initiation
of such procedure (unless the parties mutually agree to extend such timeframe),
shall be finally settled by arbitration conducted expeditiously in accordance
with the Center for Public Resources Rules for Non-Administered Arbitration of
Business Disputes by three independent and impartial arbitrators, of whom each
party shall appoint one, provided, however, that if one party has requested the
other to participate in a non-binding procedure and the other has failed to
participate, the requesting party may initiate arbitration before expiration of
the above period. Any arbitrator not appointed by a party shall be selected
from the CPR Panels of Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any arbitration
damages in excess of compensatory damages.
38
<PAGE> 15
Exhibit 1
ATTACHMENT TO INVESTMENT MANAGEMENT AGREEMENT
Lincoln Investment Management, Inc.
200 E. Berry Street
Fort Wayne, Indiana 46802
Re:
-------------------------------
(Name of Account)
Ladies and Gentlemen:
This letter confirms the appointment of Lincoln Investment Management,
Inc. ("Manager") as investment adviser with authority as attorney-in-fact on
behalf of the Account (a) to purchase any and all securities and other property
and investments for the Account at any time or from time to time; (b) to sell
any and all securities and other property and investments held in the Account
at any time or from time to time; (c) to place orders for the execution of such
transactions with or through such brokers and dealers as the Manager may
select; and (d) to execute any and all documents which may be deemed necessary
or desirable to effectuate such transactions.
It is further understood that the Manager may deliver to any broker or
dealer executing transactions on behalf of the Account a copy of this document
as evidence of the authority of the Manager to act for and on behalf of the
Account. In the event this authority is terminated, any party to whom a copy
of this document has been delivered as evidence of the Manager's authority will
be held harmless from any loss or liability incurred as a result of any action
taken in reliance thereon after such termination but before notice of such
termination has been received by such party.
Very truly yours,
Date:
--------------------------- -------------------------------
(Client)
By:
------------------------------
Its:
------------------------------
39
<PAGE> 1
ASFC SHORT-TERM INVESTMENT POOL EXHIBIT 10.15 (1)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and American States Insurance Company (herein called a "Participant"
and together with others signing similar agreements herein called
"Participants") hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL: INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be
(i) invested by ASFC in short or medium-term investment grade instruments, or
(ii) borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however,
that the aggregate amount of such deposits at any time shall not exceed ten
percent (10%) of the Insurer's assets as reported in its annual statement filed
with state regulators for the prior year-end.
40
<PAGE> 2
Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in
the Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note.
41
<PAGE> 3
A Participant's single promissory note payment obligation together with
Participant's Account payment obligation shall constitute Participant's
aggregate repayment obligation.
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it
will, upon demand from the Participant, cause to be deposited into the Pool
sufficient monies to meet and repay therefrom all such Participant's deposits
in the Pool, together with interest due thereon at the rate determined in
accordance with Section 2.1 hereof. ASFC hereby further covenants and agrees
that its guaranty herein contained shall be deemed to cover, in addition to
Participant's deposited funds and interest, any amount of indebtedness,
damages, losses or liabilities incurred by Participant in any way relating to
or arising out of enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
42
<PAGE> 4
ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard, ASFC
agrees to perform the duties herein expressly required and reasonably implied
of such management. ASFC shall be responsible for the administration of all
matters in respect of monies deposited in, borrowed from, or investments made
in connection with, the Pool. ASFC may contract with one or more other persons
for the performance of functions which ASFC is obligated to perform for the
Pool or the Participants pursuant to this Agreement, provided, however, that no
such contract shall relieve ASFC of the responsibility for the proper
performance of that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may
request regarding any Participants licensed to do business within the
jurisdiction of such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from
the Pool; or
43
<PAGE> 5
(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such default is not cured withing a period of seven (7) days (or
such longer period if it is determined the cure is likely and the defaulting
party is diligently attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment
of the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at
the rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the
part of any holder of any note or any instrument relating to such note or to
this Agreement in exercising any right contained therein shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any instrument
upon any holder thereof shall be exclusive of any right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result in the
termination of the Pool, or the Pool shall be terminated for any other reason,
the Pool funds shall be distributed to Participants in satisfaction of any
deposit obligation under this Agreement including principal and interest.
44
<PAGE> 6
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege. The
rights and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given or made only when given in writing to any other party
hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
45
<PAGE> 7
Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
-------------------------------
Todd R. Stephenson, Treasurer
AMERICAN STATES INSURANCE COMPANY
By: /s/ Thomas M. Ober
---------------------------------
Thomas M. Ober, Secretary
46
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to American
States Insurance Company ("Participant") this Certificate of Participation in
ASFC's Short-Term Investment Pool in consideration of the receipt from
Participant of funds deposited by Participant on the dates and in the amounts
as shown on monthly reports to be provided to Participant, which reports shall
be substantially in the form of Schedule A hereto and shall constitute an
addendum to this Certificate. This Certificate may be surrendered for cash in
redemption, in whole or in part, of the balance shown on the addendum upon
notice given by Participant to ASFC by 9:00 a.m. Eastern Standard Time on the
day of redemption. This Certificate is callable and the deposited funds
evidenced hereby are payable by ASFC upon one day's notice to Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
----------------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
AMERICAN STATES INSURANCE COMPANY
By: /s/ Thomas M. Ober
--------------------------
Thomas M. Ober, Secretary
47
<PAGE> 9
PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as
of September 16, 1996 between the Maker and ASFC and to pay interest on the
unpaid principal amount until maturity at a taxable money market rate of
interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure
of ASFC to receive monies in full payment under this Note upon demand,
whereupon ASFC shall be entitled to exercise any and all rights and remedies
available to it as provided in the Agreement.
AMERICAN STATES INSURANCE COMPANY
By: /s/ Todd R. Stephenson
--------------------------
Todd R. Stephenson, Treasurer
48
<PAGE> 10
SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO AMERICAN STATES INSURANCE COMPANY
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
------- ------ ------- ------- ---- --------
49
<PAGE> 1
ASFC SHORT-TERM INVESTMENT POOL EXHIBIT 10.15 (2)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and American Economy Insurance Company (herein called a "Participant"
and together with others signing similar agreements herein called
"Participants") hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL; INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be
(i) invested by ASFC in short or medium-term investment grade instruments, or
(ii) borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however,
that the aggregate amount of such deposits at any time shall not exceed ten
percent (10%) of the Insurer's assets as reported in its annual statement filed
with state regulators for the prior year-end.
50
<PAGE> 2
Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in
the Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
51
<PAGE> 3
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note. A Participant's single promissory note payment obligation
together with Participant's Account payment obligation shall constitute
Participant's aggregate repayment obligation.
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it
will, upon demand from the Participant, cause to be deposited into the Pool
sufficient monies to meet and repay therefrom all such Participant's deposits
in the Pool, together with interest due thereon at the rate determined in
accordance with Section 2.1 hereof. ASFC hereby further covenants and agrees
that its guaranty herein contained shall be deemed to cover, in addition to
Participant's deposited funds and interest, any amount of indebtedness,
damages, losses or liabilities incurred by Participant in any way relating to
or arising out of enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
52
<PAGE> 4
ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard, ASFC
agrees to perform the duties herein expressly required and reasonably implied
of such management. ASFC shall be responsible for the administration of all
matters in respect of monies deposited in, borrowed from, or investments made
in connection with, the Pool. ASFC may contract with one or more other
persons for the performance of functions which ASFC is obligated to perform for
the Pool or the Participants pursuant to this Agreement, provided, however,
that no such contract shall relieve ASFC of the responsibility for the proper
performance of that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may
request regarding any Participants licensed to do business within the
jurisdiction of such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from
the Pool; or
53
<PAGE> 5
(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such default is not cured withing a period of seven (7) days (or
such longer period if it is determined the cure is likely and the defaulting
party is diligently attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment
of the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at
the rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the
part of any holder of any note or any instrument relating to such note or to
this Agreement in exercising any right contained therein shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any instrument
upon any holder thereof shall be exclusive of any right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute ro otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result in the
termination of the Pool, or the Pool shall be terminated for any other reason,
the Pool funds shall be distributed to Participants in satisfaction of any
deposit obligation under this Agreement including principal and interest.
54
<PAGE> 6
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege. The
rights and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given or made only when given in writing to any other party
hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
55
<PAGE> 7
Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
--------------------------------------
Todd R. Stephenson, Treasurer
AMERICAN ECONOMY INSURANCE COMPANY
By: /s/ Thomas M. Ober
-------------------------------------
Thomas M. Ober, Secretary
56
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to American Economy
Insurance Company ("Participant") this Certificate of Participation in ASFC's
Short-Term Investment Pool in consideration of the receipt from Participant of
funds deposited by Participant on the dates and in the amounts as shown on
monthly reports to be provided to Participant, which reports shall be
substantially in the form of Schedule A hereto and shall constitute an addendum
to this Certificate. This Certificate may be surrendered for cash in
redemption, in whole or in part, of the balance shown on the addendum upon
notice given by Participant to ASFC by 9:00 a.m. Eastern Standard Time on the
day of redemption. This Certificate is callable and the deposited funds
evidenced hereby are payable by ASFC upon one day's notice to Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
-----------------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
AMERICAN ECONOMY INSURANCE COMPANY
By: /s/ Thomas M. Ober
------------------------------------
Thomas M. Ober, Secretary
57
<PAGE> 9
PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as
of September 16, 1996 between the Maker and ASFC and to pay interest on the
unpaid principal amount until maturity at a taxable money market rate of
interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure
of ASFC to receive monies in full payment under this Note upon demand,
whereupon ASFC shall be entitled to exercise any and all rights and remedies
available to it as provided in the Agreement.
AMERICAN ECONOMY INSURANCE COMPANY
By: /s/ Todd R. Stephenson
----------------------------------
Todd R. Stephenson, Treasurer
58
<PAGE> 10
SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO AMERICAN ECONOMY INSURANCE COMPANY
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
- - ------- ------ ------- ------- ---- --------
59
<PAGE> 1
ASFC SHORT-TERM INVESTMENT POOL EXHIBIT 10.15 (3)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and American States Preferred Insurance Company (herein called a
"Participant" and together with others signing similar agreements herein called
"Participants") hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL; INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be
(i) invested by ASFC in short or medium-term investment grade instruments, or
(ii) borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however,
that the aggregate amount of such deposits at any time shall not exceed ten
percent (10%) of the Insurer's assets as reported in its annual statement filed
with state regulators for the prior year-end.
60
<PAGE> 2
Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in
the Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
61
<PAGE> 3
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note. A Participant's single promissory note payment obligation
together with Participant's Account payment obligation shall constitute
Participant's aggregate repayment obligation.
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it
will, upon demand from the Participant, cause to be deposited into the Pool
sufficient monies to meet and repay therefrom all such Participant's deposits
in the Pool, together with interest due thereon at the rate determined in
accordance with Section 2.1 hereof. ASFC hereby further covenants and agrees
that its guaranty herein contained shall be deemed to cover, in addition to
Participant's deposited funds and interest, any amount of indebtedness,
damages, losses or liabilities incurred by Participant in any way relating to
or arising out of enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
62
<PAGE> 4
ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard,
ASFC agrees to perform the duties herein expressly required and reasonably
implied of such management. ASFC shall be responsible for the administration of
all matters in respect of monies deposited in, borrowed from, or investments
made in connection with, the Pool. ASFC may contract with one or more other
persons for the performance of functions which ASFC is obligated to perform for
the Pool or the Participants pursuant to this Agreement, provided, however,
that no such contract shall relieve ASFC of the responsibility for the proper
performance of that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may
request regarding any Participants licensed to do business within the
jurisdiction of such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from
the Pool; or
63
<PAGE> 5
(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such default is not cured withing a period of seven (7) days (or
such longer period if it is determined the cure is likely and the defaulting
party is diligently attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment
of the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at
the rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the
part of any holder of any note or any instrument relating to such note or to
this Agreement in exercising any right contained therein shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any instrument
upon any holder thereof shall be exclusive of any right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute ro otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
64
<PAGE> 6
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result in the
termination of the Pool, or the Pool shall be terminated for any other reason,
the Pool funds shall be distributed to Participants in satisfaction of any
deposit obligation under this Agreement including principal and interest.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege. The
rights and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against
whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given or made only when given in writing to any other party
hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
65
<PAGE> 7
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
----------------------------
Todd R. Stephenson, Treasurer
AMERICAN STATES PREFERRED INSURANCE COMPANY
By: /s/ Thomas M. Ober
-----------------------
Thomas M. Ober, Secretary
66
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to American States
Preferred Insurance Company ("Participant") this Certificate of
Participation in ASFC's Short-Term Investment Pool in consideration of the
receipt from Participant of funds deposited by Participant on the dates and in
the amounts as shown on monthly reports to be provided to Participant, which
reports shall be substantially in the form of Schedule A hereto and shall
constitute an addendum to this Certificate. This Certificate may be
surrendered for cash in redemption, in whole or in part, of the balance shown
on the addendum upon notice given by Participant to ASFC by 9:00 a.m. Eastern
Standard Time on the day of redemption. This Certificate is callable and the
deposited funds evidenced hereby are payable by ASFC upon one day's notice to
Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
-------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
AMERICAN STATES PREFERRED INSURANCE COMPANY
By: /s/ Thomas M. Ober
---------------------
Thomas M. Ober, Secretary
67
<PAGE> 9
PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as
of September 16, 1996 between the Maker and ASFC and to pay interest on the
unpaid principal amount until maturity at a taxable money market rate of
interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure
of ASFC to receive monies in full payment under this Note upon demand,
whereupon ASFC shall be entitled to exercise any and all rights and remedies
available to it as provided in the Agreement.
AMERICAN STATES PREFERRED INSURANCE COMPANY
By: /s/ Todd R. Stephenson
----------------------------
Todd R. Stephenson, Treasurer
68
<PAGE> 10
SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO AMERICAN STATES PREFERRED INSURANCE COMPANY
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
------- ------ ------- ------- ---- --------
69
<PAGE> 1
ASFC SHORT-TERM INVESTMENT POOL EXHIBIT 10.15 (4)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and American States Life Insurance Company (herein called a
"Participant" and together with others signing similar agreements herein called
"Participants") hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL; INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be
(i) invested by ASFC in short or medium-term investment grade instruments, or
(ii) borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however,
that the aggregate amount of such deposits at any time shall not exceed three
percent (3%) of the Insurer's assets as reported in its annual statement filed
with state regulators for the prior year-end.
70
<PAGE> 2
Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in
the Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
71
<PAGE> 3
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note. A Participant's single promissory note payment obligation
together with Participant's Account payment obligation shall constitute
Participant's aggregate repayment obligation.
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it
will, upon demand from the Participant, cause to be deposited into the Pool
sufficient monies to meet and repay therefrom all such Participant's deposits
in the Pool, together with interest due thereon at the rate determined in
accordance with Section 2.1 hereof. ASFC hereby further covenants and agrees
that its guaranty herein contained shall be deemed to cover, in addition to
Participant's deposited funds and interest, any amount of indebtedness,
damages, losses or liabilities incurred by Participant in any way relating to
or arising out of enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
72
<PAGE> 4
ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard, ASFC
agrees to perform the duties herein expressly required and reasonably implied
of such management. ASFC shall be responsible for the administration of all
matters in respect of monies deposited in, borrowed from, or investments made
in connection with, the Pool. ASFC may contract with one or more other persons
for the performance of functions which ASFC is obligated to perform for the
Pool or the Participants pursuant to this Agreement, provided, however, that no
such contract shall relieve ASFC of the responsibility for the proper
performance of that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may
request regarding any Participants licensed to do business within the
jurisdiction of such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from
the Pool; or
73
<PAGE> 5
(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such default is not cured withing a period of seven (7) days (or
such longer period if it is determined the cure is likely and the defaulting
party is diligently attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment
of the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at
the rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the
part of any holder of any note or any instrument relating to such note or to
this Agreement in exercising any right contained therein shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any instrument
upon any holder thereof shall be exclusive of any right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute ro otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result in the
termination of the Pool, or the Pool shall be terminated for any other reason,
the Pool funds shall be distributed to Participants in satisfaction of any
deposit obligation under this Agreement including principal and interest.
74
<PAGE> 6
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege. The
rights and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given or made only when given in writing to any other party
hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
75
<PAGE> 7
Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
---------------------------------
Todd R. Stephenson, Treasurer
AMERICAN STATES LIFE INSURANCE COMPANY
By: /s/ Thomas M. Ober
---------------------------------
Thomas M. Ober, Secretary
76
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to American States Life
Insurance Company ("Participant") this Certificate of Participation in ASFC's
Short-Term Investment Pool in consideration of the receipt from Participant of
funds deposited by Participant on the dates andin the amounts as shown on
monthly reports to be provided to Participant, which reports shall be
substantially in the form of Schedule A hereto and shall constitute an addendum
to this Certificate. This Certificate may be surrendered for cash in
redemption, in whole or in part, of the balance shown on the addendum upon
notice given by Participant to ASFC by 9:00 a.m. Eastern Standard Time on the
day of redemption. This Certificate is callable and the deposited funds
evidenced hereby are payable by ASFC upon one day's notice to Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
---------------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
AMERICAN STATES LIFE INSURANCE COMPANY
By: /s/ Thomas M. Ober
-----------------------------
Thomas M. Ober, Secretary
77
<PAGE> 9
PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as of
September 16, 1996 between the Maker and ASFC and to pay interest on the unpaid
principal amount until maturity at a taxable money market rate of interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure of
ASFC to receive monies in full payment under this Note upon demand, whereupon
ASFC shall be entitled to exercise any and all rights and remedies available to
it as provided in the Agreement.
AMERICAN STATES LIFE INSURANCE COMPANY
By: /s/ Todd R. Stephenson
---------------------------------
Todd R. Stephenson, Treasurer
78
<PAGE> 10
SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO AMERICAN STATES LIFE INSURANCE COMPANY
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
---- ------ ------ ------- ---- --------
79
<PAGE> 1
ASFC SHORT-TERM INVESTMENT POOL Exhibit 10.15 (5)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and American States Insurance Company of Texas (herein called a
"Participant" and together with others signing similar agreements herein called
"Participants") hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL; INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be
(i) invested by ASFC in short or medium-term investment grade instruments, or
(ii) borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however,
that the aggregate amount of such deposits at any time shall not exceed ten
percent (10%) of the Insurer's assets as reported in its annual statement filed
with state regulators for the prior year-end.
80
<PAGE> 2
Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in
the Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note. A Participant's single promissory note payment obligation
together with Participant's Account payment obligation shall constitute
Participant's aggregate repayment obligation.
81
<PAGE> 3
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it
will, upon demand from the Participant, cause to be deposited into the Pool
sufficient monies to meet and repay therefrom all such Participant's deposits
in the Pool, together with interest due thereon at the rate determined in
accordance with Section 2.1 hereof. ASFC hereby further covenants and agrees
that its guaranty herein contained shall be deemed to cover, in addition to
Participant's deposited funds and interest, any amount of indebtedness,
damages, losses or liabilities incurred by Participant in any way relating to
or arising out of enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
82
<PAGE> 4
ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard,
ASFC agrees to perform the duties herein expressly required and reasonably
implied of such management. ASFC shall be responsible for the administration of
all matters in respect of monies deposited in, borrowed from, or investments
made in connection with, the Pool. ASFC may contract with one or more other
persons for the performance of functions which ASFC is obligated to perform for
the Pool or the Participants pursuant to this Agreement, provided, however,
that no such contract shall relieve ASFC of the responsibility for the proper
performance of that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may
request regarding any Participants licensed to do business within the
jurisdiction of such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from
the Pool; or
(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such
83
<PAGE> 5
default is not cured withing a period of seven (7) days (or such longer period
if it is determined the cure is likely and the defaulting party is diligently
attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment
of the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at
the rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the
part of any holder of any note or any instrument relating to such note or to
this Agreement in exercising any right contained therein shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any instrument
upon any holder thereof shall be exclusive of any right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute ro otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result in the
termination of the Pool, or the Pool shall be terminated for any other reason,
the Pool funds shall be distributed to Participants in satisfaction of any
deposit obligation under this Agreement including principal and interest.
84
<PAGE> 6
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude
any further exercise thereof or of any other right, power or privilege. The
rights and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against
whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given or made only when given in writing to any other party
hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
85
<PAGE> 7
Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
-----------------------------
Todd R. Stephenson, Treasurer
AMERICAN STATES INSURANCE COMPANY
OF TEXAS
By: /s/ Thomas M. Ober
-----------------------------
Thomas M. Ober, Secretary
86
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to American States
Insurance Company of Texas ("Participant") this Certificate of Participation in
ASFC's Short-Term Investment Pool in consideration of the receipt from
Participant of funds deposited by Participant on the dates and in the amounts
as shown on monthly reports to be provided to Participant, which reports shall
be substantially in the form of Schedule A hereto and shall constitute an
addendum to this Certificate. This Certificate may be surrendered for cash in
redemption, in whole or in part, of the balance shown on the addendum upon
notice given by Participant to ASFC by 9:00 a.m. Eastern Standard Time on the
day of redemption. This Certificate is callable and the deposited funds
evidenced hereby are payable by ASFC upon one day's notice to Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
----------------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
AMERICAN STATES INSURANCE COMPANY
OF TEXAS
By: /s/ Thomas M. Ober
----------------------------
Thomas M. Ober, Secretary
87
<PAGE> 9
PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as
of September 16, 1996 between the Maker and ASFC and to pay interest on the
unpaid principal amount until maturity at a taxable money market rate of
interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure
of ASFC to receive monies in full payment under this Note upon demand,
whereupon ASFC shall be entitled to exercise any and all rights and remedies
available to it as provided in the Agreement.
AMERICAN STATES INSURANCE COMPANY
OF TEXAS
By: /s/ Todd R. Stephenson
------------------------------
Todd R. Stephenson, Treasurer
88
<PAGE> 10
SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO AMERICAN STATES INSURANCE COMPANY OF TEXAS
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
------- ------ ------- ------- ---- --------
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ASFC SHORT-TERM INVESTMENT POOL EXHIBIT 10.15 (6)
PARTICIPATION AGREEMENT
Dated as of September 16, 1996
American States Financial Corporation, an Indiana corporation (herein called
"ASFC") and Insurance Company of Illinois (herein called a "Participant" and
together with others signing similar agreements herein called "Participants")
hereby agree as follows:
ARTICLE I
DESCRIPTION OF SHORT-TERM INVESTMENT POOL; INVESTMENTS
Section 1.1 Introduction
ASFC has formed a pool of funds ("Pool") into which ASFC and certain of
its affiliates may deposit certain of their excess funds. Such funds may be (i)
invested by ASFC in short or medium-term investment grade instruments, or (ii)
borrowed from the Pool by a Participant.
Section 1.2 Entry into Agreement
Concurrently with the execution of this Agreement, ASFC and Participant
are herewith entering into this Agreement setting forth the rights and
responsibilities of the respective parties.
ARTICLE II
GENERAL LENDING PROVISIONS
Section 2.1 Short-Term Demand Deposits in Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations and covenants set forth herein, Participant may make
short-term demand deposits in the Pool from time to time of certain of its
excess funds at a taxable money market rate of interest; provided, however, that
the aggregate amount of such deposits at any time shall not exceed three percent
(3%) of the Insurer's assets as reported in its annual statement filed with
state regulators for the prior year-end.
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Section 2.2 Certificate of Participation
Contemporaneous with Participant's initial deposit of funds in the pool, ASFC
will execute and upon request deliver to Participant a Certificate of
Participation, substantially in the form of Exhibit A attached hereto,
evidencing Participant's participation in the Pool, which Certificate shall
contain ASFC's guaranty of Participant's deposited funds as to principal and
interest (see Section 5.1).
Section 2.3 Register of Certificates of Participation
ASFC shall cause to be maintained at all times within its Treasury
Management Department at its principal office a current register of all holders
of issued Certificates of Participation.
Section 2.4 Effect of Certificate
Either the execution or the delivery to Participant of any Certificate of
Participation shall be conclusive evidence that such Certificate has been duly
issued and that the Certificate holder is entitled to the benefits of this
Agreement.
ARTICLE III
GENERAL BORROWING PROVISIONS
Section 3.1 Loans from Pool
Subject to the terms and conditions of this Agreement, and relying upon
the representations of Participant set forth herein, ASFC agrees to make
short-term demand loans to one or more Participants from funds available in the
Pool at a taxable money market rate of interest.
Section 3.2 Repayment Obligations
The obligation of any Participants to repay any amounts borrowed from the
Pool shall be evidenced by:
(a) A single promissory note in the form of Exhibit B dated the date of
this Agreement and made payable to ASFC, which note shall be held until paid in
the custody of ASFC's Treasury Management Department.
(b) A loan account for a Participant (a "Participant's Account"), opened
and maintained by ASFC on ASFC's records, showing loans made from the Pool to a
Participant subsequent to the loan evidenced by the aforementioned single
promissory note. A Participant's
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single promissory note payment obligation together with Participant's Account
payment obligation shall constitute Participant's aggregate repayment
obligation.
Section 3.3 Borrowed Funds Callable
Funds borrowed from the Pool shall be callable by ASFC upon demand.
ARTICLE IV
INVESTMENTS
Pool funds may be invested by ASFC in short or long-term instruments as
follows:
(a) Each investment shall be authorized by the Treasurer or an Assistant
Treasurer of ASFC.
(b) Each investment instrument shall be held in a custody account by
Bankers Trust Company, New York, New York, which custody account shall be a
segregated account used solely for the Pool's investment transactions.
ARTICLE V
GUARANTY
Section 5.1 Deposit Guaranty
ASFC hereby covenants, agrees and guarantees so long as any Participants's
funds deposited in the Pool have not been repaid in full when due, that it will,
upon demand from the Participant, cause to be deposited into the Pool sufficient
monies to meet and repay therefrom all such Participant's deposits in the Pool,
together with interest due thereon at the rate determined in accordance with
Section 2.1 hereof. ASFC hereby further covenants and agrees that its guaranty
herein contained shall be deemed to cover, in addition to Participant's
deposited funds and interest, any amount of indebtedness, damages, losses or
liabilities incurred by Participant in any way relating to or arising out of
enforcement of the guaranty created under this Agreement.
Section 5.2 Guaranty Irrevocable
This guaranty is irrevocable, unconditional and absolute, irrespective of
any circumstances which might otherwise constitute a legal or equitable
discharge or defense to, or by ASFC, and the failure of ASFC to observe or
perform any of the provisions or covenants contained in this Agreement or other
instruments relative to this Agreement shall constitute a default under this
guaranty and under this Agreement.
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ARTICLE VI
POWERS AND DUTIES OF POOL MANAGER
Section 6.1 Requisite Acts and Conditions
The Pool shall be managed and administered by ASFC. In that regard, ASFC
agrees to perform the duties herein expressly required and reasonably implied of
such management. ASFC shall be responsible for the administration of all
matters in respect of monies deposited in, borrowed from, or investments made in
connection with, the Pool. ASFC may contract with one or more other persons for
the performance of functions which ASFC is obligated to perform for the Pool or
the Participants pursuant to this Agreement, provided, however, that no such
contract shall relieve ASFC of the responsibility for the proper performance of
that function.
Section 6.2 Illegal Acts
Irrespective of anything contained herein which could be interpreted to
the contrary, no provision of this Agreement or any amendment or supplement
hereto shall be deemed to impose any duty or obligation on ASFC to perform any
act in the exercise of any right, duty or obligation which under present or
future law shall be unlawful, or which shall be beyond the corporate powers,
authorization or qualifications of ASFC.
Section 6.3 Maintenance of Records
ASFC shall maintain records of the date and amount of each deposit in,
each borrowing from, and all investments of, the Pool and each payment and
receipt of principal and interest, all in accordance with generally accepted
accounting principles and practices consistently applied. Copies of all such
records shall be furnished to any Participants upon request and such records
shall be presumed to be correct and true in all respects. ASFC shall also make
available to insurance regulatory officials those records which they may request
regarding any Participants licensed to do business within the jurisdiction of
such official.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES THEREFOR
Section 7.1 Events of Default
An "Event of Default" shall exist in the event any one or more of the
following occurs and is continuing:
(a) if either ASFC or Participant shall default in any payment of
principal or interest on any obligation for funds loaned to or borrowed from the
Pool; or
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(b) if in the performance of any other covenant or condition contained in
this Agreement or any instrument under which an obligation is created a default
occurs and such default is not cured withing a period of seven (7) days (or such
longer period if it is determined the cure is likely and the defaulting party is
diligently attempting to cure).
Section 7.2 Remedies on Default
Upon the occurrence of any Event of Default under Section 7.1, the
aggrieved party may proceed to protect and enforce the rights of such party by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any covenant, term or condition contained herein or
in any instrument relating hereto, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law. If default shall be made in the payment of
the principal or interest on any note and such default remains uncured as
provided for under Section 7.1 (b) of this Agreement, interest shall be owed to
the holder of such note by the defaulting party during the default period at the
rate of ten percent (10%) per annum or, if lower, at the highest rate of
interest permitted by applicable law, and the defaulting party shall pay to the
note holder such further amount as shall be sufficient to cover the cost and
expenses of collection, including, without limitation, reasonable attorneys'
fees, expenses and disbursements. No course of dealing and no delay on the part
of any holder of any note or any instrument relating to such note or to this
Agreement in exercising any right contained therein shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any instrument upon any
holder thereof shall be exclusive of any right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute ro
otherwise.
Section 7.3 Notice of Default
With respect to Events of Default or claimed defaults, the aggrieved party
will give the following notices:
(a) the aggrieved party will furnish to the defaulting or claimed
defaulting party timely written notice specifying the nature of such alleged
default and what actions the aggrieved party has taken or is taking or proposes
to take with respect thereto.
(b) if a party to this Agreement gives any notice or takes any other
actions with respect to a claimed default, such party will forthwith give
written notice thereof to all other Participants, describing the notice or
action and the nature of the claimed default.
ARTICLE VIII
RIGHTS OF PARTICIPANTS IN THE EVENT OF TERMINATION
In the event that an enforcement action against ASFC shall result
in the termination of the Pool, or the Pool shall be terminated for any other
reason, the Pool funds shall be distributed to Participants in satisfaction of
any deposit obligation under this Agreement including principal and interest.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonwaiver
No delay or failure of ASFC or any Participants in exercising any right,
power or privilege hereunder shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any
further exercise thereof or of any other right, power or privilege. The rights
and remedies hereunder are cumulative and not exclusive of any rights or
remedies which any party hereto would otherwise have. Any waiver, permit,
consent or approval of any kind or character on the part of ASFC or Participant
of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
Section 9.2 Amendments
Amendment of this Agreement, or any supplement thereto, and of any of the
rights and obligations of any of the parties hereto, may be made only with the
consent of the party against whom change is sought.
Section 9.3 Notices
All notices, statements, requests and demands given to or made upon any
party hereto in accordance with the provisions of this Agreement shall be deemed
to have been given or made only when given in writing to any other party hereto.
Section 9.4 Subsequent Instruments and Acts
The parties hereto covenant and agree that they will execute any further
instruments and perform any acts that are or may become necessary to effectuate
and carry out the intent of this Agreement.
Section 9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 9.6 Law Governing
This Agreement shall be construed in accordance with and governed by the
laws of the State of Indiana.
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Section 9.7 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
-----------------------------
Todd R. Stephenson, Treasurer
INSURANCE COMPANY OF ILLINOIS
By: /s/ Thomas M. Ober
-----------------------------
Thomas M. Ober, Secretary
96
<PAGE> 8
CERTIFICATE OF PARTICIPATION
IN
AMERICAN STATES FINANCIAL CORPORATION
SHORT-TERM INVESTMENT POOL
Indianapolis, Indiana
Date: September 16, 1996
American States Financial Corporation ("ASFC") issues to Insurance Company of
Illinois ("Participant") this Certificate of Participation in ASFC's
Short-Term Investment Pool in consideration of the receipt from Participant of
funds deposited by Participant on the dates and in the amounts as shown on
monthly reports to be provided to Participant, which reports shall be
substantially in the form of Schedule A hereto and shall constitute an addendum
to this Certificate. This Certificate may be surrendered for cash in
redemption, in whole or in part, of the balance shown on the addendum upon
notice given by Participant to ASFC by 9:00 a.m. Eastern Standard Time on the
day of redemption. This Certificate is callable and the deposited funds
evidenced hereby are payable by ASFC upon one day's notice to Participant.
Deposited funds evidenced by this Certificate are guaranteed as to both
principal and interest by ASFC.
The rate of interest to be paid on loaned funds evidenced by this Certificate
shall be a taxable money market rate.
Upon the occurrence of an Event of Default as defined in the ASFC Short-Term
Investment Pool Participation Agreement ("Agreement"), the aggrieved party
shall be immediately entitled to the remedies as provided in Section 7.2 of the
Agreement.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson
--------------------------
Todd R. Stephenson, Treasurer
Agreed and Accepted:
INSURANCE COMPANY OF ILLINOIS
By: /s/ Thomas M. Ober
----------------------------
Thomas M. Ober, Secretary
97
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PROMISSORY NOTE
Date: September 16, 1996 Indianapolis, Indiana
For value received, the undersigned (the "Maker") promises to pay to the order
of AMERICAN STATES FINANCIAL CORPORATION ("ASFC"), upon demand, the aggregate
unpaid amount of all borrowings made by the Maker pursuant to the ASFC
Short-Term Investment Pool Participation Agreement (the "Agreement") dated as
of September 16, 1996 between the Maker and ASFC and to pay interest on the
unpaid principal amount until maturity at a taxable money market rate of
interest.
ASFC is entitled to all the rights and benefits provided by or referred to in
the Agreement to which ASFC and the Maker are parties and reference is made to
that Agreement for a statement thereof, and the nature and extent of the rights
of Payee in respect thereof.
For purposes of this Note an "Event and Default" shall occur upon the failure
of ASFC to receive monies in full payment under this Note upon demand,
whereupon ASFC shall be entitled to exercise any and all rights and remedies
available to it as provided in the Agreement.
INSURANCE COMPANY OF ILLINOIS
By: /s/ Todd R. Stephenson
---------------------------------
Todd R. Stephenson, Treasurer
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SCHEDULE A
ADDENDUM TO CERTIFICATE OF PARTICIPATION
ISSUED TO INSURANCE COMPANY OF ILLINOIS
ON SEPTEMBER 16, 1996
DEPOSIT / WITHDRAW
TRANS.
DATE TRANS. AMOUNT BALANCE RATE INTEREST
------- ------ ------- ------- ---- --------
99
<PAGE> 1
TAX SHARING AGREEMENT EXHIBIT 10.16 (1)
This tax sharing agreement (the "Agreement") is entered into by Lincoln
National Corporation ("LNC"), a corporation organized under the laws of the
State of Indiana and having its principal office at 200 E. Berry St., Fort
Wayne, Indiana, and American States Financial Corporation ("ASFC"), a
corporation also organized under the laws of the State of Indiana and having
its principal office at 500 N. Meridian St., Indianapolis, Indiana, and is
effective as of January 1, 1996. This Agreement applies to federal, state,
local, and foreign income taxes, including any interest and penalties assessed
for any such taxes, arising for any taxable year ("Tax Year") during which LNC
owns any ASFC stock. This Agreement supersedes all prior tax sharing
agreements between LNC and ASFC or any subsidiaries of LNC and ASFC, except to
the extent otherwise noted. As described more fully below, the rights and
obligations of LNC and ASFC depend upon the amount of ASFC stock owned by LNC,
and on whether LNC and ASFC are members of an affiliated group that files a
consolidated federal income tax return.
SECTION I. ASFC IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASFC is a member of an affiliated group that
files a consolidated return for which LNC is the common parent ("LNC
Consolidated Group"), LNC shall be responsible for managing the filing of tax
returns and for determining the appropriate strategy for handling audits and
disputes with taxing authorities. Additionally, LNC shall be responsible for
the final determination of all computations required under this Agreement.
B. Calculation of ASFC's Tax Liability. For any Tax Year in which ASFC
is a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ASFC and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of the ASFC Group, defined below, on a
hypothetical consolidated basis ("Separate Tax Liability") for each Tax Year, or
for any part of a Tax Year during which ASFC is included in the LNC Consolidated
Group. Computations shall be made at least once per quarter to support the
required payments of quarterly estimated taxes and shall also be made at the
time of the original and extended due dates for the filing of the federal income
tax return for each Tax Year. Such Separate Tax Liability shall be calculated
as follows:
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a. ASFC shall be treated as the common parent of an affiliated
group that files a consolidated federal income tax return including all
subsidiaries of ASFC which are included in the LNC Consolidated Group (the "ASFC
Group"). For purposes of this Agreement, the ASFC Group shall be treated as
having constituted a consolidated group for five years or more.
b. For purposes of this calculation, all members of the ASFC
Group shall be treated as if they had never been included in the LNC
Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of the
ASFC Group described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall
generally be taken into account in the manner specified in that subdivision.
e. To the extent that any corporation in the ASFC Group is
unable to avail itself of special rules applicable only to small corporations,
lower tax rates applicable to part or all of the income of a single corporation,
the exemption provided in Internal Revenue Code section 59A (applicable to the
environmental tax) or any other similar item because it participates in the
filing of the federal income tax return of the LNC Consolidated Group, the ASFC
Group shall not use such benefit in calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of any
member of the ASFC Group shall not be included to the extent attributable to a
period commencing on or after the date that member of the ASFC Group ceases to
be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that the ASFC Group has net
operating losses, net capital losses, tax credits or any other tax benefits that
have not been used to decrease the ASFC Group's Separate Tax Liability in the
current Tax Year ("Excess Tax Items") that can be used as hypothetical carry
back items against prior hypothetical ASFC Group separate return Tax Years
("Carry Back Items"), LNC shall reimburse ASFC for the use of such Carry Back
Items at the rate the ASFC Group would have been entitled to receive had such
Carry Back Items actually been used in an ASFC Group claim for refund.
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h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ASFC Group Tax
Years ("Carry Forward Items"), the ASFC Group shall be entitled to use such
Excess Tax Items to offset future years' income but will be required to
reimburse LNC to the extent that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group, LNC shall reimburse ASFC at an amount equal to the actual
decrease in the tax liability of the LNC Consolidated Group for any Excess Tax
Items used, notwithstanding the fact that the ASFC Group could not use these
Excess Tax Items in calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ASFC shall be entitled to a reimbursement from LNC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that ASFC receives a payment from LNC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, LNC shall
be entitled to reimbursement from ASFC for the full amount of such payments to
the extent that the ASFC Group may use such Excess Tax Items as Carry Forward
Items. To the extent that ASFC or any member of the ASFC Group has been
compensated by LNC under a prior tax sharing agreement for an amount which would
qualify as an Excess Tax Item under this Agreement, LNC shall also be entitled
to reimbursement from ASFC for the full amount of such prior payments to the
extent that the ASFC Group may use such Excess Tax Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle ASFC to more than a single use of any Excess Tax Items, Carry Back
Items, Carry Forward Items, or any other items which reduce the tax liability of
the ASFC Group.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided
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among all of the corporations in the LNC Consolidated Group which would have had
to pay AMT if their tax liability had been calculated on a separate return
basis. For this purpose, the ASFC Group shall be treated as one member of the
LNC Consolidated Group. The allocation of AMT shall be in proportion to the
amount of AMT each corporation would have had to pay on a hypothetical separate
return basis. Any amount of AMT so apportioned to the members of the ASFC Group
shall be available for use as an AMT credit in calculating the ASFC Group's
Separate Tax Liability for future taxable periods in which the AMT credit may
actually be used by the LNC Consolidated Group. This provision also shall apply
to the extent that the LNC Consolidated Group becomes subject to AMT for prior
Tax Years as a result of an IRS audit or other adjustment to the tax liability
payable.
b. If the ASFC Group would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then ASFC shall not be required to
pay the AMT amount to LNC. Instead, ASFC shall pay to LNC an amount equal to
its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of the ASFC Group as compared to the
increase in tax liability of all other members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of the ASFC Group as
compared to the decrease in tax liability of all other members of the LNC
Consolidated Group.
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c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between LNC and ASFC shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, ASFC shall
pay to LNC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that LNC may use an Excess Tax Item to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, it shall reimburse ASFC for the use
of that item within five days following the due date of such quarterly payment.
Likewise, to the extent that ASFC can use an Excess Tax Item for which it has
received payment from LNC pursuant to Section I.B.2., above, as a Carry Forward
Item, ASFC shall reimburse LNC for such amounts as described in Section
I.B.2.c., above, within five days of the quarter in which it may use the Carry
Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between LNC and ASFC which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of the ASFC Group.
c. Within 45 days after the filing of the annual federal income
tax return of the LNC Consolidated Group, adjusting payments shall be made
between LNC and ASFC to the extent of any difference between the payments made
pursuant to paragraph a. or b. above, and the annual Separate Tax Liability of
the ASFC Group. In the event that LNC cannot use an Excess Tax Item to offset
the federal income tax liability of the LNC Consolidated Group for the current
Tax Year, but the ASFC Group can use such an item as a Carry Back Item, then the
reimbursement by LNC to ASFC contemplated in Section I.B.1.g., above, shall also
be made within 45 days after the filing of the annual federal income tax return
of the LNC Consolidated Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between LNC and ASFC as necessary as a result
of such settlement.
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e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any
calculation covered by this Agreement is particularly within the knowledge or
possession of ASFC or any subsidiary of ASFC, ASFC shall promptly provide such
information to LNC and shall also provide any supporting schedules, data or
details which LNC may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ASFC or any of its subsidiaries files on a Combined Return Basis with one or
more other corporations in the LNC Consolidated Group, such state tax liability
for ASFC and its subsidiaries shall be calculated and allocated in a manner
comparable to that provided in Section I. of this Agreement.
SECTION II. ASFC NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which LNC owns any stock of ASFC, but ASFC is not included in the LNC
Consolidated Group, ASFC shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and its subsidiaries and shall
also be responsible for paying any such taxes payable by it or its subsidiaries.
Furthermore, any federal, state, local, or foreign tax liabilities which are not
calculated on a consolidated basis with part or all of the LNC Consolidated
Group shall be the responsibility of the entity incurring such liability even if
the ASFC Group is filing as part of the LNC Consolidated Group for federal
income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which LNC owns sufficient ASFC stock to result in LNC
and ASFC being treated as a consolidated group for financial statement reporting
purposes, LNC shall be consulted prior to determining the strategy for handling
audits and disputes with taxing authorities, including, but not limited to,
whether or not to appeal or litigate one or more issues and any proposed
settlements of issues.
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C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that the ASFC Group
carries forward tax attributes for which ASFC has already received compensation
from LNC pursuant to the terms of Section I. above, ASFC shall reimburse LNC for
the previous payment by LNC to ASFC, at the time of the deconsolidation of LNC
and ASFC. To the extent that ASFC has paid LNC for a Separate Tax Liability for
which it remains liable after leaving the LNC Consolidated Group, LNC shall
reimburse ASFC for the previous payment by ASFC to LNC at the time of the
deconsolidation of LNC and ASFC. Similarly, to the extent that the ultimate
amount of tax paid differs from the amount of tax liability initially calculated
for any given Tax Year in which ASFC was included in the LNC Consolidated Group,
LNC or ASFC, as the case may be, shall be required to pay and entitled to
receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that ASFC or any member of the ASFC
Group leaves the LNC Consolidated Group, the amount of AMT credit which the
departing corporation shall be allowed to carry over without any obligation by
ASFC to reimburse LNC shall not exceed the amount allocated pursuant to Section
I.B.3, above. LNC shall be reimbursed by ASFC to the extent that any AMT credit
actually carried over exceeds the amounts calculated in Section I.B.3., at the
time of the deconsolidation. Also, ASFC shall be reimbursed by LNC to the
extent that it is permitted to carry over less than the amount calculated in
Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to ASFC or any subsidiary
of ASFC should the amount of tax that ASFC or any subsidiary of ASFC pays in any
such later year on a separate return basis or as a member of another
consolidated group be increased as a result of ASFC or any subsidiary of ASFC
having been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
any member of the ASFC Group wishes to make an election for tax purposes which
may adversely affect tax positions taken by the LNC Consolidated Group during
Tax Years when such corporation was a member of the LNC Consolidated Group, such
corporation shall submit to LNC a written request for permission to make such an
election. LNC shall not unreasonably withhold such written permission to make a
tax election which may be beneficial to any member of the ASFC Group after it
leaves the LNC Consolidated Group. The corporation desiring to make such an
election shall, as
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a condition of receiving written permission to make the tax election, reimburse
LNC for any and all additional tax costs incurred by the LNC Consolidated Group
in connection with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods.
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to any corporation in the ASFC Group for a prior
tax period is subsequently redetermined, as a result of filing an amended
return, the outcome of an IRS examination, the retroactive application of a new
tax law or tax regulation, or other similar modifying action or item, ASFC shall
pay LNC for any such increases to the ASFC Group's tax liability and is also
entitled to receive a payment from LNC for any decreases in tax liability
attributable to the ASFC Group.
2. Prior Tax Payments. To the extent that any member of the ASFC
Group paid to LNC an amount for its share of the LNC Consolidated Group's
federal income tax liability or to the extent that it pays an amount pursuant to
paragraph 1. above, the ASFC Group shall be entitled to consider the amount of
such prior payments when determining whether or not Carry Back Items may be used
to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ASFC agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of ASFC Subsidiaries. If ASFC owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement and shall be included in the ASFC Group. ASFC shall treat each
such subsidiary corporation as
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if ASFC has an identical tax sharing Agreement to this Agreement between itself
and the subsidiary corporation, unless ASFC and such subsidiary have entered
into a separate tax sharing Agreement which has been approved in writing by
LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC or ASFC, to the same extent as if the successor had been
an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both LNC and ASFC agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. LNC and ASFC agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and Indiana statutory accounting principles. Furthermore, LNC and
ASFC agree to account for any intercompany transactions entered into by them or
any of their subsidiaries and to make such information available to the other
party for tax purposes both when such transactions are entered into and when
such intercompany transactions become currently taxable.
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G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: August 13, 1996 By /s/ Richard C. Vaughan
------------------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES FINANCIAL CORPORATION
Date: 8-22-96 By /s/ Todd R. Stephenson
-------------------------------------
Todd R. Stephenson
Senior Vice President, Treasurer and
Chief Financial Officer
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TAX SHARING AGREEMENT EXHIBIT 10.16 (2)
This tax sharing agreement (the "Agreement") is entered into by American States
Financial Corporation ("ASFC"), a corporation organized under the laws of the
State of Indiana, and American States Insurance Company ("ASIC"), a corporation
also organized under the laws of the State of Indiana, and is effective as of
January 1, 1996. Lincoln National Corporation ("LNC"), as the ultimate parent
of a group of affiliated corporations filing a consolidated return (the "LNC
Consolidated Group"), is also a party to this Agreement. This Agreement
applies to federal, state, local, and foreign income taxes, including any
interest and penalties assessed for any such taxes, arising for any taxable
year ("Tax Year") during which ASFC owns any ASIC stock. This Agreement
supersedes all prior tax sharing agreements between ASFC and ASIC or any
subsidiaries of ASFC and ASIC, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASFC and ASIC depend
upon the amount of ASIC stock owned by ASFC, and on whether ASFC and ASIC are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. ASIC IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of ASIC's Tax Liability. For any Tax Year in which ASIC
is a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ASIC and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of ASIC, on a hypothetical separate return
basis ("Separate Tax Liability"), for each Tax Year, or for any part of a Tax
Year during which ASIC is included in the LNC Consolidated Group. Computations
shall be made at least once per quarter to support the required payments of
quarterly estimated taxes and shall also be made at the time of the original and
extended due dates for the filing of the federal income tax return for each Tax
Year. Such Separate Tax Liability shall be calculated as follows:
a. ASIC shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, ASIC shall be treated as if it
had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be disregarded
until such time as they are recognized in the consolidated federal income tax
return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of ASIC
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that ASIC is unable to avail itself of special rules
applicable only to small corporations, lower tax rates applicable to part or all
of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, ASIC shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ASIC shall
not be included to the extent attributable to a period commencing on or after
the date that ASIC ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ASIC has net operating losses,
net capital losses, tax credits or any other tax benefits that have not been
used to decrease ASIC's Separate Tax Liability in the current Tax Year ("Excess
Tax Items") that can be used as hypothetical carry back items against prior
hypothetical ASIC separate return Tax Years ("Carry Back Items"), ASFC shall
reimburse ASIC for the use of such Carry Back Items at the rate ASIC would have
been entitled to receive had such Carry Back Items actually been used in an ASIC
claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ASIC Tax Years
("Carry Forward Items"), ASIC shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASFC to the extent
that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an Excess
Tax Item, which has not otherwise been used as a Carry Back Item, to decrease
its federal income tax liability for that quarter after taking into account all
similar items from the other affiliated corporations in the LNC Consolidated
Group, ASFC shall reimburse ASIC at an amount equal to the actual decrease in
the tax
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liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ASIC could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ASIC shall be entitled to a reimbursement from ASFC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that ASIC receives a payment from ASFC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASFC
shall be entitled to reimbursement from ASIC for the full amount of such
payments to the extent that ASIC may use such Excess Tax Items as Carry Forward
Items. To the extent that ASIC has been compensated by ASFC under a prior tax
sharing agreement for an amount which would qualify as an Excess Tax Item under
this Agreement, ASFC shall also be entitled to reimbursement from ASIC for the
full amount of such prior payments to the extent that ASIC may use such Excess
Tax Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to entitle
ASIC to more than a single use of any Excess Tax Items, Carry Back Items, Carry
Forward Items, or any other items which reduce the tax liability of ASIC.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to ASIC shall be available for use as an AMT
credit in calculating ASIC's Separate Tax Liability for future taxable periods
in which the AMT credit may actually be used by the LNC Consolidated Group. This
provision also shall apply to the extent that the LNC Consolidated Group becomes
subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
b. If ASIC would be required to pay AMT based upon the calculation of
its Separate Tax Liability, but the LNC Consolidated Group is not required to
pay AMT for that taxable quarter, then ASIC shall not be required to pay the AMT
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amount to ASFC. Instead, ASIC shall pay to ASFC an amount equal to its
Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated Group
against interest payable by the IRS for a given Tax Year, the LNC Consolidated
Group is required to pay interest to the IRS as a result of any increase in tax
liability for a given Tax Year, such interest shall be divided among all of the
corporations in the LNC Consolidated Group whose tax liability increased from
the initial calculation at the time of the filing of the LNC consolidated tax
return for that Tax Year. This allocation shall be made in proportion to the
increase in tax liability of ASIC as compared to the increase in tax liability
of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated Group
against interest payable by the IRS for a given Tax Year, the LNC Consolidated
Group is entitled to receive interest from the IRS as a result of any decrease
in tax liability for a given Tax Year, such interest shall also be divided among
all of the corporations in the LNC Consolidated Group whose tax liability
decreased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the decrease in tax liability of ASIC as compared to the decrease
in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASFC and ASIC shall be made as follows:
a. Within five days following the due date of the quarterly estimated
federal income tax payment for the LNC Consolidated Group, ASIC shall pay to
ASFC the full amount (if any) of its Separate Tax Liability for that taxable
quarter. Also, to the extent that an Excess Tax Item can be used to reduce the
amount of the estimated federal income tax payment for the LNC Consolidated
Group in a given tax quarter, ASFC shall reimburse ASIC for the use of that item
within five days following the due date of such quarterly payment. Likewise, to
the extent that ASIC can use an Excess Tax Item for which it has received
payment from ASFC pursuant to Section
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I.B.2., above, as a Carry Forward Item, ASIC shall reimburse ASFC for such
amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a request for
an extension to file the annual federal income tax return, an adjusting payment
shall be made between ASFC and ASIC which is equal to the difference between the
quarterly payments made pursuant to paragraph a. above, and the estimated annual
Separate Tax Liability of ASIC.
c. Within 45 days after the filing of the annual federal income tax
return of the LNC Consolidated Group, adjusting payments shall be made between
ASFC and ASIC to the extent of any difference between the payments made pursuant
to paragraph a. or b. above, and the annual Separate Tax Liability of ASIC. In
the event that an Excess Tax Item cannot be used to offset the federal income
tax liability of the LNC Consolidated Group for the current Tax Year, but ASIC
can use such an item as a Carry Back Item, then the reimbursement by ASFC to
ASIC contemplated in Section I.B.1.g., above, shall also be made within 45 days
after the filing of the annual federal income tax return of the LNC Consolidated
Group.
d. Within 45 days of a settlement of any IRS audit dispute, adjusting
payments shall be made between ASFC and ASIC as necessary as a result of such
settlement.
e. LNC shall be responsible for making all required federal income
tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any calculation
covered by this Agreement is particularly within the knowledge or possession of
ASIC or any subsidiary of ASIC, ASIC shall promptly provide such information to
LNC and shall also provide any supporting schedules, data or details which LNC
may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ASIC files on a Combined Return Basis with one or more other corporations
in the LNC Consolidated Group, ASIC's state tax liability shall be calculated
and allocated in a manner comparable to that provided in Section I of this
Agreement.
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SECTION II. ASIC NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period
in which ASFC owns any stock of ASIC, but ASIC is not included in the LNC
Consolidated Group, ASIC shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local, or
foreign tax liabilities which are not calculated on a consolidated basis with
part or all of the LNC Consolidated Group shall be the responsibility of the
entity incurring such liability even if ASIC is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year
or portion of a Tax Year in which ASFC owns sufficient ASIC stock to result in
ASFC and ASIC being treated as a consolidated group for financial statement
reporting purposes, ASFC shall be consulted prior to determining the strategy
for handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that ASIC
carries forward tax attributes for which it has already received compensation
from ASFC pursuant to the terms of Section I. above, ASIC shall reimburse ASFC
for the previous payment by ASFC to ASIC, at the time of the deconsolidation of
ASFC and ASIC. To the extent that ASIC has paid ASFC for a Separate Tax
Liability for which it remains liable after leaving the LNC Consolidated Group,
ASFC shall reimburse ASIC for the previous payment by ASIC to ASFC at the time
of the deconsolidation of ASFC and ASIC. Similarly, to the extent that the
ultimate amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which ASIC was included in the LNC
Consolidated Group, ASFC or ASIC, as the case may be, shall be required to pay
and entitled to receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that ASIC leaves the LNC
Consolidated Group, the amount of AMT credit which it shall be allowed to carry
over without any obligation to reimburse ASFC shall not exceed the amount
allocated pursuant to Section I.B.3, above. ASFC shall be reimbursed by ASIC to
the extent that any AMT
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credit actually carried over exceeds the amounts calculated in Section I.B.3.,
at the time of the deconsolidation. Also, ASIC shall be reimbursed by ASFC to
the extent that it is permitted to carry over less than the amount calculated
in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to ASIC should the amount
of tax that ASIC pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of ASIC having
been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
ASIC wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, ASIC shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to ASIC
after it leaves the LNC Consolidated Group. ASIC shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any and
all additional tax costs incurred by the LNC Consolidated Group in connection
with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to ASIC for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, ASIC shall pay ASFC for any such
increases to ASIC's tax liability and is also entitled to receive a payment from
ASFC for any decreases in tax liability attributable to ASIC.
2. Prior Tax Payments. To the extent that ASIC paid to ASFC an
amount for its share of the LNC Consolidated Group's federal income tax
liability or to the extent that it pays an amount pursuant to paragraph 1.
above, ASIC shall be entitled to consider the amount of such prior payments when
determining whether or not Carry Back Items may be used to offset tax payments
for prior years.
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3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ASIC agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of ASIC Subsidiaries. If ASIC owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. ASIC shall treat each such subsidiary corporation as if ASIC
has an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ASIC and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASFC or ASIC, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASFC and ASIC agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. ASFC and ASIC agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASFC and
ASIC agree to account for any intercompany transactions entered into by them or
any of their subsidiaries and to make such information available to the other
party for tax purposes both when such transactions are entered into and when
such intercompany transactions become currently taxable.
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G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date:August 13, 1996 By Richard C. Vaughan
-----------------------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES FINANCIAL CORPORATION
Date: 8-22-96 By Todd R. Stephenson
-----------------------------------------
Todd R. Stephenson
Senior Vice President, Treasurer and
Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8/22/96 By Thomas R. Kaehr
-----------------------------------------
Thomas R. Kaehr
Vice President
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TAX SHARING AGREEMENT EXHIBIT 10.16 (3)
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and American Economy Insurance Company ("AEIC"), a corporation also
organized under the laws of the State of Indiana, and is effective as of
January 1, 1996. Lincoln National Corporation ("LNC"), as the ultimate parent
of a group of affiliated corporations filing a consolidated return (the "LNC
Consolidated Group"), is also a party to this Agreement. This Agreement
applies to federal, state, local, and foreign income taxes, including any
interest and penalties assessed for any such taxes, arising for any taxable
year ("Tax Year") during which ASIC owns any AEIC stock. This Agreement
supersedes all prior tax sharing agreements between ASIC and AEIC or any
subsidiaries of ASIC and AEIC, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASIC and AEIC depend
upon the amount of AEIC stock owned by ASIC, and on whether ASIC and AEIC are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. AEIC IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which AEIC is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of AEIC's Tax Liability. For any Tax Year in which AEIC
is a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between AEIC and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of AEIC, on a hypothetical separate return
basis ("Separate Tax Liability"), for each Tax Year, or for any part of a Tax
Year during which AEIC is included in the LNC Consolidated Group. Computations
shall be made at least once per quarter to support the required payments of
quarterly estimated taxes and shall also be made at the time of the original and
extended due dates for the filing of the federal income tax return for each Tax
Year. Such Separate Tax Liability shall be calculated as follows:
a. AEIC shall be treated as a corporation which files a
federal income tax return separate from the LNC Consolidated Group, except as
otherwise provided in this Agreement.
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b. For purposes of this calculation, AEIC shall be treated as
if it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of
AEIC described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall
generally be taken into account in the manner specified in that subdivision.
e. To the extent that AEIC is unable to avail itself of
special rules applicable only to small corporations, lower tax rates applicable
to part or all of the income of a single corporation, the exemption provided in
Internal Revenue Code section 59A (applicable to the environmental tax) or any
other similar item because it participates in the filing of the federal income
tax return of the LNC Consolidated Group, AEIC shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of
AEIC shall not be included to the extent attributable to a period commencing on
or after the date that AEIC ceases to be includible in the LNC Consolidated
Group.
g. For each quarter of a Tax Year that AEIC has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease AEIC's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical AEIC separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse AEIC for the use of such Carry Back Items at the rate AEIC
would have been entitled to receive had such Carry Back Items actually been
used in an AEIC claim for refund.
h. To the extent that Excess Tax Items can ultimately be used
as hypothetical carry forward items against future hypothetical AEIC Tax Years
("Carry Forward Items"), AEIC shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the
extent that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group, ASIC shall reimburse AEIC at an amount equal to the actual
decrease in the tax liability
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of the LNC Consolidated Group for any Excess Tax Items used, notwithstanding
the fact that AEIC could not use these Excess Tax Items in calculating its
Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, AEIC shall be entitled to a reimbursement from
ASIC if and when such Excess Tax Items actually reduce the LNC Consolidated
Group's federal income tax payments, or when the LNC Consolidated Group
actually receives a refund of previously paid taxes, to the extent that such
refund payment is directly attributable to such Excess Tax Items.
c. To the extent that AEIC receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from AEIC for the full amount of such
payments to the extent that AEIC may use such Excess Tax Items as Carry Forward
Items. To the extent that AEIC has been compensated by ASIC under a prior tax
sharing agreement for an amount which would qualify as an Excess Tax Item under
this Agreement, ASIC shall also be entitled to reimbursement from AEIC for the
full amount of such prior payments to the extent that AEIC may use such Excess
Tax Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle AEIC to more than a single use of any Excess Tax Items, Carry Back
Items, Carry Forward Items, or any other items which reduce the tax liability
of AEIC.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to AEIC shall be available for use as an AMT
credit in calculating AEIC's Separate Tax Liability for future taxable periods
in which the AMT credit may actually be used by the LNC Consolidated Group.
This provision also shall apply to the extent that the LNC Consolidated Group
becomes subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
b. If AEIC would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is
not required to pay AMT for that taxable quarter, then AEIC shall not be
required to pay the AMT
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amount to ASIC. Instead, AEIC shall pay to ASIC an amount equal to its
Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of AEIC as compared to the increase
in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of AEIC as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and AEIC shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, AEIC shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, ASIC shall reimburse AEIC for the
use of that item within five days following the due date of such quarterly
payment. Likewise, to the extent that AEIC can use an Excess Tax Item for which
it has received payment from ASIC pursuant to Section
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I.B.2., above, as a Carry Forward Item, AEIC shall reimburse ASIC for such
amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a
request for an extension to file the annual federal income tax return, an
adjusting payment shall be made between ASIC and AEIC which is equal to the
difference between the quarterly payments made pursuant to paragraph a. above,
and the estimated annual Separate Tax Liability of AEIC.
c. Within 45 days after the filing of the annual federal
income tax return of the LNC Consolidated Group, adjusting payments shall be
made between ASIC and AEIC to the extent of any difference between the payments
made pursuant to paragraph a. or b. above, and the annual Separate Tax
Liability of AEIC. In the event that an Excess Tax Item cannot be used to
offset the federal income tax liability of the LNC Consolidated Group for the
current Tax Year, but AEIC can use such an item as a Carry Back Item, then the
reimbursement by ASIC to AEIC contemplated in Section I.B.1.g., above, shall
also be made within 45 days after the filing of the annual federal income tax
return of the LNC Consolidated Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and AEIC as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any calculation
covered by this Agreement is particularly within the knowledge or possession of
AEIC or any subsidiary of AEIC, AEIC shall promptly provide such information to
LNC and shall also provide any supporting schedules, data or details which LNC
may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and AEIC files on a Combined Return Basis with one or more other corporations
in the LNC Consolidated Group, AEIC's state tax liability shall be calculated
and allocated in a manner comparable to that provided in Section I of this
Agreement.
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SECTION II. AEIC NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which ASIC owns any stock of AEIC, but AEIC is not included in the LNC
Consolidated Group, AEIC shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local,
or foreign tax liabilities which are not calculated on a consolidated basis
with part or all of the LNC Consolidated Group shall be the responsibility of
the entity incurring such liability even if AEIC is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC owns sufficient AEIC stock to result in
ASIC and AEIC being treated as a consolidated group for financial statement
reporting purposes, ASIC shall be consulted prior to determining the strategy
for handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that AEIC carries
forward tax attributes for which it has already received compensation from ASIC
pursuant to the terms of Section I. above, AEIC shall reimburse ASIC for the
previous payment by ASIC to AEIC, at the time of the deconsolidation of ASIC
and AEIC. To the extent that AEIC has paid ASIC for a Separate Tax Liability
for which it remains liable after leaving the LNC Consolidated Group, ASIC
shall reimburse AEIC for the previous payment by AEIC to ASIC at the time of
the deconsolidation of ASIC and AEIC. Similarly, to the extent that the
ultimate amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which AEIC was included in the LNC
Consolidated Group, ASIC or AEIC, as the case may be, shall be required to pay
and entitled to receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that AEIC leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse ASIC shall not exceed the amount allocated pursuant
to Section I.B.3, above. ASIC shall be reimbursed by AEIC to the extent that
any AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, AEIC shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
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3. Prior Consolidation Impacts. Neither LNC nor any member of the LNC
Consolidated Group shall be liable for any payment to AEIC should the amount of
tax that AEIC pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of AEIC having
been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
AEIC wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, AEIC shall submit to LNC a written
request for permission to make such an election. LNC shall not unreasonably
withhold such written permission to make a tax election which may be beneficial
to AEIC after it leaves the LNC Consolidated Group. AEIC shall, as a condition
of receiving written permission to make the tax election, reimburse LNC for any
and all additional tax costs incurred by the LNC Consolidated Group in
connection with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to AEIC for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, AEIC shall pay ASIC for any such
increases to AEIC's tax liability and is also entitled to receive a payment
from ASIC for any decreases in tax liability attributable to AEIC.
2. Prior Tax Payments. To the extent that AEIC paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or
to the extent that it pays an amount pursuant to paragraph 1. above, AEIC shall
be entitled to consider the amount of such prior payments when determining
whether or not Carry Back Items may be used to offset tax payments for prior
years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
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B. Filing Relevant Items. AEIC agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of AEIC Subsidiaries. If AEIC owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. AEIC shall treat each such subsidiary corporation as if AEIC
has an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless AEIC and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or AEIC, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and AEIC agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. ASIC and AEIC agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
AEIC agree to account for any intercompany transactions entered into by them or
any of their subsidiaries and to make such information available to the other
party for tax purposes both when such transactions are entered into and when
such intercompany transactions become currently taxable.
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G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: August 13, 1996 By /s/ Richard C. Vaughan
-----------------------------------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8-22-96 By /s/ Todd R. Stephenson
-----------------------------------------------------
Todd R. Stephenson
Senior Vice President and Treasurer
AMERICAN ECONOMY INSURANCE COMPANY
Date: 8-22-96 By /s/ Thomas R. Kaehr
-----------------------------------------------------
Thomas R. Kaehr
Vice President
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TAX SHARING AGREEMENT EXHIBIT 10.16 (4)
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and American States Preferred Insurance Company ("ASP"), a
corporation also organized under the laws of the State of Indiana, and is
effective as of January 1, 1996. Lincoln National Corporation ("LNC"), as the
ultimate parent of a group of affiliated corporations filing a consolidated
return (the "LNC Consolidated Group"), is also a party to this Agreement. This
Agreement applies to federal, state, local, and foreign income taxes, including
any interest and penalties assessed for any such taxes, arising for any taxable
year ("Tax Year") during which ASIC owns any ASP stock. This Agreement
supersedes all prior tax sharing agreements between ASIC and ASP or any
subsidiaries of ASIC and ASP, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASIC and ASP depend
upon the amount of ASP stock owned by ASIC, and on whether ASIC and ASP are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. ASP IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASP is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of ASP's Tax Liability. For any Tax Year in which ASP is
a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ASP and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of ASP, on a hypothetical separate return basis
("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year
during which ASP is included in the LNC Consolidated Group. Computations shall
be made at least once per quarter to support the required payments of quarterly
estimated taxes and shall also be made at the time of the original and extended
due dates for the filing of the federal income tax return for each Tax Year.
Such Separate Tax Liability shall be calculated as follows:
a. ASP shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, ASP shall be treated as if
it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of ASP
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that ASP is unable to avail itself of special
rules applicable only to small corporations, lower tax rates applicable to part
or all of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, ASP shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ASP
shall not be included to the extent attributable to a period commencing on or
after the date that ASP ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ASP has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease ASP's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical ASP separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse ASP for the use of such Carry Back Items at the rate ASP would
have been entitled to receive had such Carry Back Items actually been used in an
ASP claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ASP Tax Years
("Carry Forward Items"), ASP shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the extent
that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group,
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ASIC shall reimburse ASP at an amount equal to the actual decrease in the tax
liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ASP could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ASP shall be entitled to a reimbursement from ASIC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that ASP receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from ASP for the full amount of such payments
to the extent that ASP may use such Excess Tax Items as Carry Forward Items. To
the extent that ASP has been compensated by ASIC under a prior tax sharing
agreement for an amount which would qualify as an Excess Tax Item under this
Agreement, ASIC shall also be entitled to reimbursement from ASP for the full
amount of such prior payments to the extent that ASP may use such Excess Tax
Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle ASP to more than a single use of any Excess Tax Items, Carry Back Items,
Carry Forward Items, or any other items which reduce the tax liability of ASP.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to ASP shall be available for use as an AMT
credit in calculating ASP's Separate Tax Liability for future taxable periods in
which the AMT credit may actually be used by the LNC Consolidated Group. This
provision also shall apply to the extent that the LNC Consolidated Group becomes
subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
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b. If ASP would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then ASP shall not be required to
pay the AMT amount to ASIC. Instead, ASP shall pay to ASIC an amount equal to
its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of ASP as compared to the increase
in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of ASP as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and ASP shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, ASP shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, ASIC shall reimburse ASP for the use
of that item within five days following the
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due date of such quarterly payment. Likewise, to the extent that ASP can use
an Excess Tax Item for which it has received payment from ASIC pursuant to
Section I.B.2., above, as a Carry Forward Item, ASP shall reimburse ASIC for
such amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between ASIC and ASP which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of ASP.
c. Within 45 days after the filing of the annual federal income
tax return of the LNC Consolidated Group, adjusting payments shall be made
between ASIC and ASP to the extent of any difference between the payments made
pursuant to paragraph a. or b. above, and the annual Separate Tax Liability of
ASP. In the event that an Excess Tax Item cannot be used to offset the federal
income tax liability of the LNC Consolidated Group for the current Tax Year, but
ASP can use such an item as a Carry Back Item, then the reimbursement by ASIC to
ASP contemplated in Section I.B.1.g., above, shall also be made within 45 days
after the filing of the annual federal income tax return of the LNC Consolidated
Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and ASP as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any
calculation covered by this Agreement is particularly within the knowledge or
possession of ASP or any subsidiary of ASP, ASP shall promptly provide such
information to LNC and shall also provide any supporting schedules, data or
details which LNC may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ASP files on a
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Combined Return Basis with one or more other corporations in the LNC
Consolidated Group, ASP's state tax liability shall be calculated and allocated
in a manner comparable to that provided in Section I of this Agreement.
SECTION II. ASP NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which ASIC owns any stock of ASP, but ASP is not included in the LNC
Consolidated Group, ASP shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local,
or foreign tax liabilities which are not calculated on a consolidated basis
with part or all of the LNC Consolidated Group shall be the responsibility of
the entity incurring such liability even if ASP is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC owns sufficient ASP stock to result in ASIC
and ASP being treated as a consolidated group for financial statement reporting
purposes, ASIC shall be consulted prior to determining the strategy for
handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that ASP carries
forward tax attributes for which it has already received compensation from ASIC
pursuant to the terms of Section I. above, ASP shall reimburse ASIC for the
previous payment by ASIC to ASP, at the time of the deconsolidation of ASIC and
ASP. To the extent that ASP has paid ASIC for a Separate Tax Liability for
which it remains liable after leaving the LNC Consolidated Group, ASIC shall
reimburse ASP for the previous payment by ASP to ASIC at the time of the
deconsolidation of ASIC and ASP. Similarly, to the extent that the ultimate
amount of tax paid differs from the amount of tax liability initially calculated
for any given Tax Year in which ASP was included in the LNC Consolidated Group,
ASIC or ASP, as the case may be, shall be required to pay and entitled to
receive amounts sufficient to compensate for this difference.
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2. AMT Credits. In the event that ASP leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse ASIC shall not exceed the amount allocated pursuant
to Section I.B.3, above. ASIC shall be reimbursed by ASP to the extent that any
AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, ASP shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to ASP should the amount
of tax that ASP pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of ASP having been
a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
ASP wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, ASP shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to ASP
after it leaves the LNC Consolidated Group. ASP shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any and
all additional tax costs incurred by the LNC Consolidated Group in connection
with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to ASP for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, ASP shall pay ASIC for any such
increases to ASP's tax liability and is also entitled to receive a payment from
ASIC for any decreases in tax liability attributable to ASP.
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2. Prior Tax Payments. To the extent that ASP paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or to
the extent that it pays an amount pursuant to paragraph 1. above, ASP shall be
entitled to consider the amount of such prior payments when determining whether
or not Carry Back Items may be used to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ASP agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of ASP Subsidiaries. If ASP owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. ASP shall treat each such subsidiary corporation as if ASP has
an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ASP and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or ASP, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and ASP agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. ASIC and ASP agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
ASP agree to account for any
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intercompany transactions entered into by them or any of their subsidiaries and
to make such information available to the other party for tax purposes both
when such transactions are entered into and when such intercompany transactions
become currently taxable.
G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: August 13, 1996 By /s/ Richard C. Vaughan
------------------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8-22-96 By /s/ Todd R. Stephenson
-------------------------------------
Todd R. Stephenson
Senior Vice President and Treasurer
AMERICAN STATES PREFERRED
INSURANCE COMPANY
Date: 8-22-96 By /s/ Thomas R. Kaehr
--------------------------------------
Thomas R. Kaehr
Vice President
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TAX SHARING AGREEMENT EXHIBIT 10.16 (5)
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and American States Life Insurance Company ("ASL"), a corporation
also organized under the laws of the State of Indiana, and is effective as of
January 1, 1996. Lincoln National Corporation ("LNC"), as the ultimate parent
of a group of affiliated corporations filing a consolidated return (the "LNC
Consolidated Group"), is also a party to this Agreement. This Agreement
applies to federal, state, local, and foreign income taxes, including any
interest and penalties assessed for any such taxes, arising for any taxable
year ("Tax Year") during which ASIC owns any ASL stock. This Agreement
supersedes all prior tax sharing agreements between ASIC and ASL or any
subsidiaries of ASIC and ASL, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASIC and ASL depend
upon the amount of ASL stock owned by ASIC, and on whether ASIC and ASL are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. ASL IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASL is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of ASL's Tax Liability. For any Tax Year in which ASL is
a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ASL and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of ASL, on a hypothetical separate return basis
("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year
during which ASL is included in the LNC Consolidated Group. Computations shall
be made at least once per quarter to support the required payments of quarterly
estimated taxes and shall also be made at the time of the original and extended
due dates for the filing of the federal income tax return for each Tax Year.
Such Separate Tax Liability shall be calculated as follows:
a. ASL shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, ASL shall be treated as if
it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of ASL
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that ASL is unable to avail itself of special
rules applicable only to small corporations, lower tax rates applicable to part
or all of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, ASL shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ASL
shall not be included to the extent attributable to a period commencing on or
after the date that ASL ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ASL has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease ASL's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical ASL separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse ASL for the use of such Carry Back Items at the rate ASL would
have been entitled to receive had such Carry Back Items actually been used in an
ASL claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ASL Tax Years
("Carry Forward Items"), ASL shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the extent
that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group,
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ASIC shall reimburse ASL at an amount equal to the actual decrease in the tax
liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ASL could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ASL shall be entitled to a reimbursement from
ASIC if and when such Excess Tax Items actually reduce the LNC Consolidated
Group's federal income tax payments, or when the LNC Consolidated Group
actually receives a refund of previously paid taxes, to the extent that such
refund payment is directly attributable to such Excess Tax Items.
c. To the extent that ASL receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from ASL for the full amount of such
payments to the extent that ASL may use such Excess Tax Items as Carry Forward
Items. To the extent that ASL has been compensated by ASIC under a prior tax
sharing agreement for an amount which would qualify as an Excess Tax Item under
this Agreement, ASIC shall also be entitled to reimbursement from ASL for the
full amount of such prior payments to the extent that ASL may use such Excess
Tax Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle ASL to more than a single use of any Excess Tax Items, Carry Back
Items, Carry Forward Items, or any other items which reduce the tax liability
of ASL.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to ASL shall be available for use as an AMT
credit in calculating ASL's Separate Tax Liability for future taxable periods in
which the AMT credit may actually be used by the LNC Consolidated Group. This
provision also shall apply to the extent that the LNC Consolidated Group becomes
subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
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b. If ASL would be required to pay AMT based upon the calculation
of its Separate Tax Liability, but the LNC Consolidated Group is not required
to pay AMT for that taxable quarter, then ASL shall not be required to pay the
AMT amount to ASIC. Instead, ASL shall pay to ASIC an amount equal to its
Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated Group
against interest payable by the IRS for a given Tax Year, the LNC Consolidated
Group is required to pay interest to the IRS as a result of any increase in tax
liability for a given Tax Year, such interest shall be divided among all of the
corporations in the LNC Consolidated Group whose tax liability increased from
the initial calculation at the time of the filing of the LNC consolidated tax
return for that Tax Year. This allocation shall be made in proportion to the
increase in tax liability of ASL as compared to the increase in tax liability
of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated Group
against interest payable by the IRS for a given Tax Year, the LNC Consolidated
Group is entitled to receive interest from the IRS as a result of any decrease
in tax liability for a given Tax Year, such interest shall also be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
decreased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the decrease in tax liability of ASL as compared to the decrease
in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and ASL shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, ASL shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax
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quarter, ASIC shall reimburse ASL for the use of that item within five days
following the due date of such quarterly payment. Likewise, to the extent that
ASL can use an Excess Tax Item for which it has received payment from ASIC
pursuant to Section I.B.2., above, as a Carry Forward Item, ASL shall reimburse
ASIC for such amounts as described in Section I.B.2.c., above, within five days
of the quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between ASIC and ASL which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of ASL.
c. Within 45 days after the filing of the annual federal income tax
return of the LNC Consolidated Group, adjusting payments shall be made between
ASIC and ASL to the extent of any difference between the payments made pursuant
to paragraph a. or b. above, and the annual Separate Tax Liability of ASL. In
the event that an Excess Tax Item cannot be used to offset the federal income
tax liability of the LNC Consolidated Group for the current Tax Year, but ASL
can use such an item as a Carry Back Item, then the reimbursement by ASIC to
ASL contemplated in Section I.B.1.g., above, shall also be made within 45 days
after the filing of the annual federal income tax return of the LNC
Consolidated Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and ASL as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal income
tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any calculation
covered by this Agreement is particularly within the knowledge or possession of
ASL or any subsidiary of ASL, ASL shall promptly provide such information to
LNC and shall also provide any supporting schedules, data or details which LNC
may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ASL files on a
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Combined Return Basis with one or more other corporations in the LNC
Consolidated Group, ASL's state tax liability shall be calculated and allocated
in a manner comparable to that provided in Section I of this Agreement.
SECTION II. ASL NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which ASIC owns any stock of ASL, but ASL is not included in the LNC
Consolidated Group, ASL shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local,
or foreign tax liabilities which are not calculated on a consolidated basis
with part or all of the LNC Consolidated Group shall be the responsibility of
the entity incurring such liability even if ASL is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC owns sufficient ASL stock to result in ASIC
and ASL being treated as a consolidated group for financial statement reporting
purposes, ASIC shall be consulted prior to determining the strategy for
handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that ASL carries
forward tax attributes for which it has already received compensation from ASIC
pursuant to the terms of Section I. above, ASL shall reimburse ASIC for the
previous payment by ASIC to ASL, at the time of the deconsolidation of ASIC and
ASL. To the extent that ASL has paid ASIC for a Separate Tax Liability for
which it remains liable after leaving the LNC Consolidated Group, ASIC shall
reimburse ASL for the previous payment by ASL to ASIC at the time of the
deconsolidation of ASIC and ASL. Similarly, to the extent that the ultimate
amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which ASL was included in the LNC
Consolidated Group, ASIC or ASL, as the case may be, shall be required to pay
and entitled to receive amounts sufficient to compensate for this difference.
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2. AMT Credits. In the event that ASL leaves the LNC Consolidated Group,
the amount of AMT credit which it shall be allowed to carry over without any
obligation to reimburse ASIC shall not exceed the amount allocated pursuant to
Section I.B.3, above. ASIC shall be reimbursed by ASL to the extent that any
AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, ASL shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the LNC
Consolidated Group shall be liable for any payment to ASL should the amount of
tax that ASL pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of ASL having
been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that ASL
wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, ASL shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to ASL
after it leaves the LNC Consolidated Group. ASL shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any
and all additional tax costs incurred by the LNC Consolidated Group in
connection with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax liability
initially allocated to ASL for a prior tax period is subsequently redetermined,
as a result of filing an amended return, the outcome of an IRS examination, the
retroactive application of a new tax law or tax regulation, or other similar
modifying action or item, ASL shall pay ASIC for any such increases to ASL's
tax liability and is also entitled to receive a payment from ASIC for any
decreases in tax liability attributable to ASL.
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2. Prior Tax Payments. To the extent that ASL paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or to
the extent that it pays an amount pursuant to paragraph 1. above, ASL shall be
entitled to consider the amount of such prior payments when determining whether
or not Carry Back Items may be used to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ASL agrees to file any elections, consents, and
other documents and take any other actions which may be necessary or appropriate
to carry out the purposes of this Agreement.
C. Inclusion of ASL Subsidiaries. If ASL owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. ASL shall treat each such subsidiary corporation as if ASL has
an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ASL and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or ASL, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and ASL agree to
cooperate in supplying information reasonably requested by the other party in
order to make any computations required under this Agreement and for the purpose
of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. ASIC and ASL agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
ASL agree to account for any
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intercompany transactions entered into by them or any of their subsidiaries and
to make such information available to the other party for tax purposes both
when such transactions are entered into and when such intercompany transactions
become currently taxable.
G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: August 13, 1996 By /s/ Richard C. Vaughan
---------------------------
Richard C. Vaughan
Executive Vice President and
Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8-22-96 By /s/ Todd R. Stephenson
-------------------------------
Todd R. Stephenson
Senior Vice President and Treasurer
AMERICAN STATES LIFE INSURANCE COMPANY
Date: 8-22-96 By /s/ Thomas R. Kaehr
----------------------------
Thomas R. Kaehr
Vice President
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Exhibit 10.16 (6)
TAX SHARING AGREEMENT
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and Insurance Company of Illinois ("ICI"), a corporation organized
under the laws of the State of Illinois, and is effective as of January 1,
1996. Lincoln National Corporation ("LNC"), as the ultimate parent of a group
of affiliated corporations filing a consolidated return (the "LNC Consolidated
Group"), is also a party to this Agreement. This Agreement applies to federal,
state, local, and foreign income taxes, including any interest and penalties
assessed for any such taxes, arising for any taxable year ("Tax Year") during
which ASIC owns any ICI stock. This Agreement supersedes all prior tax sharing
agreements between ASIC and ICI or any subsidiaries of ASIC and ICI, except to
the extent otherwise noted. As described more fully below, the rights and
obligations of ASIC and ICI depend upon the amount of ICI stock owned by ASIC,
and on whether ASIC and ICI are members of an affiliated group that files a
consolidated federal income tax return.
SECTION I. ICI IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ICI is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of ICI's Tax Liability. For any Tax Year in which ICI is
a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between ICI and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of ICI, on a hypothetical separate return basis
("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year
during which ICI is included in the LNC Consolidated Group. Computations shall
be made at least once per quarter to support the required payments of quarterly
estimated taxes and shall also be made at the time of the original and extended
due dates for the filing of the federal income tax return for each Tax Year.
Such Separate Tax Liability shall be calculated as follows:
a. ICI shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, ICI shall be treated as if
it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of ICI
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that ICI is unable to avail itself of special
rules applicable only to small corporations, lower tax rates applicable to part
or all of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, ICI shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of ICI
shall not be included to the extent attributable to a period commencing on or
after the date that ICI ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that ICI has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease ICI's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical ICI separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse ICI for the use of such Carry Back Items at the rate ICI would
have been entitled to receive had such Carry Back Items actually been used in an
ICI claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical ICI Tax Years
("Carry Forward Items"), ICI shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the extent
that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group,
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ASIC shall reimburse ICI at an amount equal to the actual decrease in the tax
liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that ICI could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, ICI shall be entitled to a reimbursement from ASIC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that ICI receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from ICI for the full amount of such payments
to the extent that ICI may use such Excess Tax Items as Carry Forward Items. To
the extent that ICI has been compensated by ASIC under a prior tax sharing
agreement for an amount which would qualify as an Excess Tax Item under this
Agreement, ASIC shall also be entitled to reimbursement from ICI for the full
amount of such prior payments to the extent that ICI may use such Excess Tax
Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle ICI to more than a single use of any Excess Tax Items, Carry Back Items,
Carry Forward Items, or any other items which reduce the tax liability of ICI.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to ICI shall be available for use as an AMT
credit in calculating ICI's Separate Tax Liability for future taxable periods in
which the AMT credit may actually be used by the LNC Consolidated Group. This
provision also shall apply to the extent that the LNC Consolidated Group becomes
subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
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b. If ICI would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then ICI shall not be required to
pay the AMT amount to ASIC. Instead, ICI shall pay to ASIC an amount equal to
its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of ICI as compared to the increase
in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of ICI as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and ICI shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, ICI shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, ASIC shall reimburse ICI for the use
of that item within five days following the
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due date of such quarterly payment. Likewise, to the extent that ICI can use
an Excess Tax Item for which it has received payment from ASIC pursuant to
Section I.B.2., above, as a Carry Forward Item, ICI shall reimburse ASIC for
such amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between ASIC and ICI which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of ICI.
c. Within 30 days after the filing of the annual federal income
tax return of the LNC Consolidated Group, adjusting payments shall be made
between ASIC and ICI to the extent of any difference between the payments made
pursuant to paragraph a. or b. above, and the annual Separate Tax Liability of
ICI. In the event that an Excess Tax Item cannot be used to offset the federal
income tax liability of the LNC Consolidated Group for the current Tax Year, but
ICI can use such an item as a Carry Back Item, then the reimbursement by ASIC to
ICI contemplated in Section I.B.1.g., above, shall also be made within 30 days
after the filing of the annual federal income tax return of the LNC Consolidated
Group.
d. Within 30 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and ICI as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
f. All settlements shall be in cash or securities eligible as
investments pursuant to Section 125.1a through 125.14a of the Illinois Insurance
Code calculated at market value.
6. Information. If any information relevant to making any
calculation covered by this Agreement is particularly within the knowledge or
possession of ICI or any subsidiary of ICI, ICI shall promptly provide such
information to LNC and shall also provide any supporting schedules, data or
details which LNC may reasonably request.
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7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and ICI files on a Combined Return Basis with one or more other corporations in
the LNC Consolidated Group, ICI's state tax liability shall be calculated and
allocated in a manner comparable to that provided in Section I of this
Agreement.
SECTION II. ICI NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period
in which ASIC owns any stock of ICI, but ICI is not included in the LNC
Consolidated Group, ICI shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local, or
foreign tax liabilities which are not calculated on a consolidated basis with
part or all of the LNC Consolidated Group shall be the responsibility of the
entity incurring such liability even if ICI is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year
or portion of a Tax Year in which ASIC owns sufficient ICI stock to result in
ASIC and ICI being treated as a consolidated group for financial statement
reporting purposes, ASIC shall be consulted prior to determining the strategy
for handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that ICI
carries forward tax attributes for which it has already received compensation
from ASIC pursuant to the terms of Section I. above, ICI shall reimburse ASIC
for the previous payment by ASIC to ICI, at the time of the deconsolidation of
ASIC and ICI. To the extent that ICI has paid ASIC for a Separate Tax Liability
for which it remains liable after leaving the LNC Consolidated Group, ASIC shall
reimburse ICI for the previous payment by ICI to ASIC at the time of the
deconsolidation of ASIC and ICI. Similarly, to the extent that the
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ultimate amount of tax paid differs from the amount of tax liability initially
calculated for any given Tax Year in which ICI was included in the LNC
Consolidated Group, ASIC or ICI, as the case may be, shall be required to pay
and entitled to receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that ICI leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse ASIC shall not exceed the amount allocated pursuant
to Section I.B.3, above. ASIC shall be reimbursed by ICI to the extent that any
AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, ICI shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to ICI should the amount
of tax that ICI pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of ICI having been
a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
ICI wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, ICI shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to ICI
after it leaves the LNC Consolidated Group. ICI shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any and
all additional tax costs incurred by the LNC Consolidated Group in connection
with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to ICI for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive
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application of a new tax law or tax regulation, or other similar modifying
action or item, ICI shall pay ASIC for any such increases to ICI's tax
liability and is also entitled to receive a payment from ASIC for any decreases
in tax liability attributable to ICI.
2. Prior Tax Payments. To the extent that ICI paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or to
the extent that it pays an amount pursuant to paragraph 1. above, ICI shall be
entitled to consider the amount of such prior payments when determining whether
or not Carry Back Items may be used to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. ICI agrees to file any elections, consents, and
other documents and take any other actions which may be necessary or appropriate
to carry out the purposes of this Agreement.
C. Inclusion of ICI Subsidiaries. If ICI owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. ICI shall treat each such subsidiary corporation as if ICI has
an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless ICI and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or ICI, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and ICI agree to
cooperate in supplying information reasonably requested by the other party in
order to make any computations required under this Agreement and for the purpose
of defending tax examinations, including appeals and litigation.
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F. Maintenance of Books and Records. ASIC and ICI agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
ICI agree to account for any intercompany transactions entered into by them or
any of their subsidiaries and to make such information available to the other
party for tax purposes both when such transactions are entered into and when
such intercompany transactions become currently taxable.
G. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Indiana and no state
court other than the courts of the State of Indiana shall have jurisdiction over
disputes between the parties concerning the validity, performance,
interpretation or construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date:10-04-96 By /s/ Richard C. Vaughan
----------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date:10-9-96 By /s/ Todd R. Stephenson
-----------------------
Todd R. Stephenson
Senior Vice President and Treasurer
INSURANCE COMPANY OF ILLINOIS
Date:10-9-96 By /s/ James A. Moore
-----------------------
James A. Moore
Assistant Vice President
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TAX SHARING AGREEMENT Exhibit 10.16 (7)
This tax sharing agreement (the "Agreement") is entered into by Lincoln
National Corporation ("LNC"), a corporation organized under the laws of the
State of Indiana, and Linsco Reinsurance Company ("Linsco"), a corporation also
organized under the laws of the State of Indiana, and is effective as of
January 1, 1996. This Agreement applies to federal, state, local, and foreign
income taxes, including any interest and penalties assessed for any such taxes,
arising for any taxable year ("Tax Year") during which LNC owns any Linsco
stock. This Agreement supersedes all prior tax sharing agreements between LNC
and Linsco or any subsidiaries of LNC and Linsco, except to the extent
otherwise noted. As described more fully below, the rights and obligations of
LNC and Linsco depend upon the amount of Linsco stock owned by LNC, and on
whether LNC and Linsco are members of an affiliated group that files a
consolidated federal income tax return.
SECTION I. LINSCO IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which Linsco is a member of an affiliated group that
files a consolidated return for which LNC is the common parent ("LNC
Consolidated Group"), LNC shall be responsible for managing the filing of tax
returns and for determining the appropriate strategy for handling audits and
disputes with taxing authorities. Additionally, LNC shall be responsible for
the final determination of all computations required under this Agreement.
B. Calculation of Linsco's Tax Liability. For any Tax Year in which
Linsco is a member of the LNC Consolidated Group, the LNC Consolidated Group's
federal income tax liability shall be allocated between Linsco and the
remainder of the LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of Linsco, on a hypothetical separate return
basis ("Separate Tax Liability"), for each Tax Year, or for any part of a Tax
Year during which Linsco is included in the LNC Consolidated Group.
Computations shall be made at least once per quarter to support the required
payments of quarterly estimated taxes and shall also be made at the time of the
original and extended due dates for the filing of the federal income tax return
for each Tax Year. Such Separate Tax Liability shall be calculated as follows:
a. Linsco shall be treated as a corporation which files a
federal income tax return separate from the LNC Consolidated Group, except as
otherwise provided in this Agreement.
b. For purposes of this calculation, Linsco shall be treated as
if it had never been included in the LNC Consolidated Group.
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c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of
Linsco described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall
generally be taken into account in the manner specified in that subdivision.
e. To the extent that Linsco is unable to avail itself of
special rules applicable only to small corporations, lower tax rates applicable
to part or all of the income of a single corporation, the exemption provided in
Internal Revenue Code section 59A (applicable to the environmental tax) or any
other similar item because it participates in the filing of the federal income
tax return of the LNC Consolidated Group, Linsco shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of
Linsco shall not be included to the extent attributable to a period commencing
on or after the date that Linsco ceases to be includible in the LNC Consolidated
Group.
g. For each quarter of a Tax Year that Linsco has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease Linsco's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical Linsco separate return Tax Years ("Carry Back Items"), LNC
shall reimburse Linsco for the use of such Carry Back Items at the rate Linsco
would have been entitled to receive had such Carry Back Items actually been used
in a Linsco claim for refund.
h. To the extent that Excess Tax Items can ultimately be used as
hypothetical carry forward items against future hypothetical Linsco Tax Years
("Carry Forward Items"), Linsco shall be entitled to use such Excess Tax Items
to offset future years' income but will be required to reimburse LNC to the
extent that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group, LNC shall reimburse Linsco at an amount equal to the actual
decrease in the tax liability of the LNC Consolidated Group for any Excess Tax
Items used, notwithstanding the fact that Linsco could not use these Excess Tax
Items in calculating its Separate Tax Liability.
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b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, Linsco shall be entitled to a reimbursement from
LNC if and when such Excess Tax Items actually reduce the LNC Consolidated
Group's federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that Linsco receives a payment from LNC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, LNC shall
be entitled to reimbursement from Linsco for the full amount of such payments to
the extent that Linsco may use such Excess Tax Items as Carry Forward Items. To
the extent that Linsco has been compensated by LNC under a prior tax sharing
agreement for an amount which would qualify as an Excess Tax Item under this
Agreement, LNC shall also be entitled to reimbursement from Linsco for the full
amount of such prior payments to the extent that Linsco may use such Excess Tax
Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle Linsco to more than a single use of any Excess Tax Items, Carry Back
Items, Carry Forward Items, or any other items which reduce the tax liability of
Linsco.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay Alternative
Minimum Tax ("AMT") for any taxable quarter, then the AMT amount shall be
divided among all of the corporations in the LNC Consolidated Group which would
have had to pay AMT if their tax liability had been calculated on a separate
return basis. The allocation of AMT shall be in proportion to the amount of AMT
each corporation would have had to pay on a hypothetical separate return basis.
Any amount of AMT so apportioned to Linsco shall be available for use as an AMT
credit in calculating Linsco's Separate Tax Liability for future taxable periods
in which the AMT credit may actually be used by the LNC Consolidated Group.
This provision also shall apply to the extent that the LNC Consolidated Group
becomes subject to AMT for prior Tax Years as a result of an IRS audit or other
adjustment to the tax liability payable.
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b. If Linsco would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then Linsco shall not be required
to pay the AMT amount to LNC. Instead, Linsco shall pay to LNC an amount equal
to its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of Linsco as compared to the
increase in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of Linsco as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between LNC and Linsco shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, Linsco
shall pay to LNC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that LNC may use an Excess Tax Item to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, it shall reimburse Linsco for the use
of that item within five days following the due date of such quarterly payment.
Likewise, to the extent that Linsco can use an Excess Tax Item for
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which it has received payment from LNC pursuant to Section I.B.2., above, as a
Carry Forward Item, Linsco shall reimburse LNC for such amounts as described in
Section I.B.2.c., above, within five days of the quarter in which it may use
the Carry Forward Item.
b. Within five days following the last date for filing a request
for an extension to file the annual federal income tax return, an adjusting
payment shall be made between LNC and Linsco which is equal to the difference
between the quarterly payments made pursuant to paragraph a. above, and the
estimated annual Separate Tax Liability of Linsco.
c. Within 45 days after the filing of the annual federal income
tax return of the LNC Consolidated Group, adjusting payments shall be made
between LNC and Linsco to the extent of any difference between the payments made
pursuant to paragraph a. or b. above, and the annual Separate Tax Liability of
Linsco. In the event that LNC cannot use an Excess Tax Item to offset the
federal income tax liability of the LNC Consolidated Group for the current Tax
Year, but Linsco can use such an item as a Carry Back Item, then the
reimbursement by LNC to Linsco contemplated in Section I.B.1.g., above, shall
also be made within 45 days after the filing of the annual federal income tax
return of the LNC Consolidated Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between LNC and Linsco as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any
calculation covered by this Agreement is particularly within the knowledge or
possession of Linsco or any subsidiary of Linsco, Linsco shall promptly provide
such information to LNC and shall also provide any supporting schedules, data or
details which LNC may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and Linsco files on a Combined Return Basis with one or more other corporations
in the LNC Consolidated Group, Linsco's state tax liability shall be calculated
and allocated in a manner comparable to that provided in Section I. of this
Agreement.
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SECTION II. LINSCO NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which LNC owns any stock of Linsco, but Linsco is not included in the LNC
Consolidated Group, Linsco shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local,
or foreign tax liabilities which are not calculated on a consolidated basis
with part or all of the LNC Consolidated Group shall be the responsibility of
the entity incurring such liability even if Linsco is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which LNC owns sufficient Linsco stock to result in
LNC and Linsco being treated as a consolidated group for financial statement
reporting purposes, LNC shall be consulted prior to determining the strategy
for handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that Linsco carries
forward tax attributes for which it has already received compensation from LNC
pursuant to the terms of Section I. above, Linsco shall reimburse LNC for the
previous payment by LNC to Linsco, at the time of the deconsolidation of LNC and
Linsco. To the extent that Linsco has paid LNC for a Separate Tax Liability for
which it remains liable after leaving the LNC Consolidated Group, LNC shall
reimburse Linsco for the previous payment by Linsco to LNC at the time of the
deconsolidation of LNC and Linsco. Similarly, to the extent that the ultimate
amount of tax paid differs from the amount of tax liability initially calculated
for any given Tax Year in which Linsco was included in the LNC Consolidated
Group, LNC or Linsco, as the case may be, shall be required to pay and entitled
to receive amounts sufficient to compensate for this difference.
2. AMT Credits. In the event that Linsco leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse LNC shall not exceed the amount allocated pursuant
to Section I.B.3, above. LNC shall be reimbursed by Linsco to the extent that
any AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the
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deconsolidation. Also, Linsco shall be reimbursed by LNC to the extent that it
is permitted to carry over less than the amount calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to Linsco should the
amount of tax that Linsco pays in any such later year on a separate return basis
or as a member of another consolidated group be increased as a result of Linsco
having been a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
Linsco wishes to make an election for tax purposes which may adversely affect
tax positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, Linsco shall submit to LNC a written
request for permission to make such an election. LNC shall not unreasonably
withhold such written permission to make a tax election which may be beneficial
to Linsco after it leaves the LNC Consolidated Group. Linsco shall, as a
condition of receiving written permission to make the tax election, reimburse
LNC for any and all additional tax costs incurred by the LNC Consolidated Group
in connection with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods.
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to Linsco for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, Linsco shall pay LNC for any such
increases to Linsco's tax liability and is also entitled to receive a payment
from LNC for any decreases in tax liability attributable to Linsco.
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2. Prior Tax Payments. To the extent that Linsco paid to LNC an
amount for its share of the LNC Consolidated Group's federal income tax
liability or to the extent that it pays an amount pursuant to paragraph 1.
above, Linsco shall be entitled to consider the amount of such prior payments
when determining whether or not Carry Back Items may be used to offset tax
payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. Linsco agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of Linsco Subsidiaries. If Linsco owns, acquires or creates
any subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. In such a case, Linsco shall be treated as the common parent
of an affiliated group that files a consolidated federal income tax return
including all of its subsidiaries which are included in the LNC Consolidated
Group ("Linsco Group"), and all separate tax calculations shall be made for the
entire Linsco Group rather than for each member of the Linsco Group separately.
Linsco shall treat each such subsidiary corporation as if Linsco has an
identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless Linsco and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC or Linsco, to the same extent as if the successor had been
an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both LNC and Linsco agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
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F. Maintenance of Books and Records. LNC and Linsco agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and Indiana statutory accounting principles. Furthermore, LNC and
Linsco agree to account for any intercompany transactions entered into by them
or any of their subsidiaries and to make such information available to the
other party for tax purposes both when such transactions are entered into and
when such intercompany transactions become currently taxable.
G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: 8-29-96 By /s/ Richard C. Vaughan
-------------------------------
Richard C. Vaughan
Executive Vice President and
Chief Financial Officer
LINSCO REINSURANCE COMPANY
Date: 9/23/96 By /s/ Todd R. Stephenson
--------------------------------
Todd R. Stephenson
Vice President and Treasurer
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TAX SHARING AGREEMENT EXHIBIT 10.16 (8)
This tax sharing agreement (the "Agreement") is entered into by American States
Insurance Company ("ASIC"), a corporation organized under the laws of the State
of Indiana, and City Insurance Agency, Inc. ("CIA"), a corporation also
organized under the laws of the State of Indiana, and is effective as of
January 1, 1996. Lincoln National Corporation ("LNC"), as the ultimate parent
of a group of affiliated corporations filing a consolidated return (the "LNC
Consolidated Group"), is also a party to this Agreement. This Agreement
applies to federal, state, local, and foreign income taxes, including any
interest and penalties assessed for any such taxes, arising for any taxable
year ("Tax Year") during which ASIC owns any CIA stock. This Agreement
supersedes all prior tax sharing agreements between ASIC and CIA or any
subsidiaries of ASIC and CIA, except to the extent otherwise noted. As
described more fully below, the rights and obligations of ASIC and CIA depend
upon the amount of CIA stock owned by ASIC, and on whether ASIC and CIA are
members of an affiliated group that files a consolidated federal income tax
return.
SECTION I. CIA IN CONSOLIDATED GROUP
A. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which CIA is a member of the LNC Consolidated Group,
LNC shall be responsible for managing the filing of tax returns and for
determining the appropriate strategy for handling audits and disputes with
taxing authorities. Additionally, LNC shall be responsible for the final
determination of all computations required under this Agreement.
B. Calculation of CIA's Tax Liability. For any Tax Year in which CIA is
a member of the LNC Consolidated Group, the LNC Consolidated Group's federal
income tax liability shall be allocated between CIA and the remainder of the
LNC Consolidated Group as follows:
1. Separate Tax Liability. Periodic computations shall be made of
the federal income tax liability of CIA, on a hypothetical separate return basis
("Separate Tax Liability"), for each Tax Year, or for any part of a Tax Year
during which CIA is included in the LNC Consolidated Group. Computations shall
be made at least once per quarter to support the required payments of quarterly
estimated taxes and shall also be made at the time of the original and extended
due dates for the filing of the federal income tax return for each Tax Year.
Such Separate Tax Liability shall be calculated as follows:
a. CIA shall be treated as a corporation which files a federal
income tax return separate from the LNC Consolidated Group, except as otherwise
provided in this Agreement.
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b. For purposes of this calculation, CIA shall be treated as
if it had never been included in the LNC Consolidated Group.
c. Gains and losses on intercompany transactions shall be
disregarded until such time as they are recognized in the consolidated federal
income tax return of the LNC Consolidated Group.
d. Income, gain, deductions, credits, and similar items of CIA
described in Treasury Regulation section 1.1552-1(a)(2)(ii) shall generally be
taken into account in the manner specified in that subdivision.
e. To the extent that CIA is unable to avail itself of special
rules applicable only to small corporations, lower tax rates applicable to part
or all of the income of a single corporation, the exemption provided in Internal
Revenue Code section 59A (applicable to the environmental tax) or any other
similar item because it participates in the filing of the federal income tax
return of the LNC Consolidated Group, CIA shall not use such benefit in
calculating its Separate Tax Liability.
f. Income, gain, deductions, credits, and similar items of CIA
shall not be included to the extent attributable to a period commencing on or
after the date that CIA ceases to be includible in the LNC Consolidated Group.
g. For each quarter of a Tax Year that CIA has net operating
losses, net capital losses, tax credits or any other tax benefits that have not
been used to decrease CIA's Separate Tax Liability in the current Tax Year
("Excess Tax Items") that can be used as hypothetical carry back items against
prior hypothetical CIA separate return Tax Years ("Carry Back Items"), ASIC
shall reimburse CIA for the use of such Carry Back Items at the rate CIA would
have been entitled to receive had such Carry Back Items actually been used in a
CIA claim for refund.
h. To the extent that Excess Tax Items can ultimately be used
as hypothetical carry forward items against future hypothetical CIA Tax Years
("Carry Forward Items"), CIA shall be entitled to use such Excess Tax Items to
offset future years' income but will be required to reimburse ASIC to the
extent that paragraph 2.c., below, applies.
2. Excess Tax Items, Generally.
a. To the extent that the LNC Consolidated Group can use an
Excess Tax Item, which has not otherwise been used as a Carry Back Item, to
decrease its federal income tax liability for that quarter after taking into
account all similar items from the other affiliated corporations in the LNC
Consolidated Group,
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ASIC shall reimburse CIA at an amount equal to the actual decrease in the tax
liability of the LNC Consolidated Group for any Excess Tax Items used,
notwithstanding the fact that CIA could not use these Excess Tax Items in
calculating its Separate Tax Liability.
b. To the extent that the Excess Tax Items are not used under
paragraphs a. or 1.g. above, CIA shall be entitled to a reimbursement from ASIC
if and when such Excess Tax Items actually reduce the LNC Consolidated Group's
federal income tax payments, or when the LNC Consolidated Group actually
receives a refund of previously paid taxes, to the extent that such refund
payment is directly attributable to such Excess Tax Items.
c. To the extent that CIA receives a payment from ASIC for the
actual use of Excess Tax Items pursuant to paragraphs a. or b., above, ASIC
shall be entitled to reimbursement from CIA for the full amount of such payments
to the extent that CIA may use such Excess Tax Items as Carry Forward Items. To
the extent that CIA has been compensated by ASIC under a prior tax sharing
agreement for an amount which would qualify as an Excess Tax Item under this
Agreement, ASIC shall also be entitled to reimbursement from CIA for the full
amount of such prior payments to the extent that CIA may use such Excess Tax
Items as Carry Forward Items.
d. Nothing in this entire Section I. shall be interpreted to
entitle CIA to more than a single use of any Excess Tax Items, Carry Back Items,
Carry Forward Items, or any other items which reduce the tax liability of CIA.
3. Alternative Minimum Tax Periods.
a. If the LNC Consolidated Group is required to pay
Alternative Minimum Tax ("AMT") for any taxable quarter, then the AMT amount
shall be divided among all of the corporations in the LNC Consolidated Group
which would have had to pay AMT if their tax liability had been calculated on a
separate return basis. The allocation of AMT shall be in proportion to the
amount of AMT each corporation would have had to pay on a hypothetical separate
return basis. Any amount of AMT so apportioned to CIA shall be available for
use as an AMT credit in calculating CIA's Separate Tax Liability for future
taxable periods in which the AMT credit may actually be used by the LNC
Consolidated Group. This provision also shall apply to the extent that the LNC
Consolidated Group becomes subject to AMT for prior Tax Years as a result of an
IRS audit or other adjustment to the tax liability payable.
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b. If CIA would be required to pay AMT based upon the
calculation of its Separate Tax Liability, but the LNC Consolidated Group is not
required to pay AMT for that taxable quarter, then CIA shall not be required to
pay the AMT amount to ASIC. Instead, CIA shall pay to ASIC an amount equal to
its Separate Tax Liability calculated without regard to the AMT provisions.
4. Interest and Penalties.
a. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is required to pay interest to the IRS as a result of any
increase in tax liability for a given Tax Year, such interest shall be divided
among all of the corporations in the LNC Consolidated Group whose tax liability
increased from the initial calculation at the time of the filing of the LNC
consolidated tax return for that Tax Year. This allocation shall be made in
proportion to the increase in tax liability of CIA as compared to the increase
in tax liability of all members of the LNC Consolidated Group.
b. If, after netting interest payable by the LNC Consolidated
Group against interest payable by the IRS for a given Tax Year, the LNC
Consolidated Group is entitled to receive interest from the IRS as a result of
any decrease in tax liability for a given Tax Year, such interest shall also be
divided among all of the corporations in the LNC Consolidated Group whose tax
liability decreased from the initial calculation at the time of the filing of
the LNC consolidated tax return for that Tax Year. This allocation shall be
made in proportion to the decrease in tax liability of CIA as compared to the
decrease in tax liability of all members of the LNC Consolidated Group.
c. Any tax penalties imposed by a taxing authority shall be the
responsibility of the corporation whose tax position or tax item caused the
imposition of such penalties.
5. Payments. Payments between ASIC and CIA shall be made as follows:
a. Within five days following the due date of the quarterly
estimated federal income tax payment for the LNC Consolidated Group, CIA shall
pay to ASIC the full amount (if any) of its Separate Tax Liability for that
taxable quarter. Also, to the extent that an Excess Tax Item can be used to
reduce the amount of the estimated federal income tax payment for the LNC
Consolidated Group in a given tax quarter, ASIC shall reimburse CIA for the use
of that item within five days following the
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due date of such quarterly payment. Likewise, to the extent that CIA can use
an Excess Tax Item for which it has received payment from ASIC pursuant to
Section I.B.2., above, as a Carry Forward Item, CIA shall reimburse ASIC for
such amounts as described in Section I.B.2.c., above, within five days of the
quarter in which it may use the Carry Forward Item.
b. Within five days following the last date for filing a
request for an extension to file the annual federal income tax return, an
adjusting payment shall be made between ASIC and CIA which is equal to the
difference between the quarterly payments made pursuant to paragraph a. above,
and the estimated annual Separate Tax Liability of CIA.
c. Within 45 days after the filing of the annual federal
income tax return of the LNC Consolidated Group, adjusting payments shall be
made between ASIC and CIA to the extent of any difference between the payments
made pursuant to paragraph a. or b. above, and the annual Separate Tax Liability
of CIA. In the event that an Excess Tax Item cannot be used to offset the
federal income tax liability of the LNC Consolidated Group for the current Tax
Year, but CIA can use such an item as a Carry Back Item, then the reimbursement
by ASIC to CIA contemplated in Section I.B.1.g., above, shall also be made
within 45 days after the filing of the annual federal income tax return of the
LNC Consolidated Group.
d. Within 45 days of a settlement of any IRS audit dispute,
adjusting payments shall be made between ASIC and CIA as necessary as a result
of such settlement.
e. LNC shall be responsible for making all required federal
income tax payments for the LNC Consolidated Group.
6. Information. If any information relevant to making any calculation
covered by this Agreement is particularly within the knowledge or possession of
CIA or any subsidiary of CIA, CIA shall promptly provide such information to
LNC and shall also provide any supporting schedules, data or details which LNC
may reasonably request.
7. State Taxes. To the extent that any state tax system permits or
requires that the tax liability of affiliated corporations be computed on a
consolidated, affiliated, unitary or combined basis ("Combined Return Basis")
and CIA files on a
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Combined Return Basis with one or more other corporations in the LNC
Consolidated Group, CIA's state tax liability shall be calculated and allocated
in a manner comparable to that provided in Section I of this Agreement.
SECTION II. CIA NOT CONSOLIDATED
A. Responsibility for Tax Returns and Tax Payments. For any period in
which ASIC owns any stock of CIA, but CIA is not included in the LNC
Consolidated Group, CIA shall be responsible for filing all federal, state,
local, and foreign tax returns relevant to it and shall also be responsible for
paying any such taxes payable by it. Furthermore, any federal, state, local,
or foreign tax liabilities which are not calculated on a consolidated basis
with part or all of the LNC Consolidated Group shall be the responsibility of
the entity incurring such liability even if CIA is filing as part of the LNC
Consolidated Group for federal income tax purposes.
B. Management of Tax Disputes and Tax Computations. For any Tax Year or
portion of a Tax Year in which ASIC owns sufficient CIA stock to result in ASIC
and CIA being treated as a consolidated group for financial statement reporting
purposes, ASIC shall be consulted prior to determining the strategy for
handling audits and disputes with taxing authorities, including, but not
limited to, whether or not to appeal or litigate one or more issues and any
proposed settlements of issues.
C. Carry Over Attributes from Consolidated Periods.
1. General Carry Over Provisions. To the extent that CIA carries
forward tax attributes for which it has already received compensation from ASIC
pursuant to the terms of Section I. above, CIA shall reimburse ASIC for the
previous payment by ASIC to CIA, at the time of the deconsolidation of ASIC and
CIA. To the extent that CIA has paid ASIC for a Separate Tax Liability for
which it remains liable after leaving the LNC Consolidated Group, ASIC shall
reimburse CIA for the previous payment by CIA to ASIC at the time of the
deconsolidation of ASIC and CIA. Similarly, to the extent that the ultimate
amount of tax paid differs from the amount of tax liability initially calculated
for any given Tax Year in which CIA was included in the LNC Consolidated Group,
ASIC or CIA, as the case may be, shall be required to pay and entitled to
receive amounts sufficient to compensate for this difference.
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2. AMT Credits. In the event that CIA leaves the LNC Consolidated
Group, the amount of AMT credit which it shall be allowed to carry over without
any obligation to reimburse ASIC shall not exceed the amount allocated pursuant
to Section I.B.3, above. ASIC shall be reimbursed by CIA to the extent that any
AMT credit actually carried over exceeds the amounts calculated in Section
I.B.3., at the time of the deconsolidation. Also, CIA shall be reimbursed by
ASIC to the extent that it is permitted to carry over less than the amount
calculated in Section I.B.3.
3. Prior Consolidation Impacts. Neither LNC nor any member of the
LNC Consolidated Group shall be liable for any payment to CIA should the amount
of tax that CIA pays in any such later year on a separate return basis or as a
member of another consolidated group be increased as a result of CIA having been
a member of the LNC Consolidated Group.
4. Elections Impacting Prior Consolidated Periods. In the event that
CIA wishes to make an election for tax purposes which may adversely affect tax
positions taken by the LNC Consolidated Group during Tax Years when it was a
member of the LNC Consolidated Group, CIA shall submit to LNC a written request
for permission to make such an election. LNC shall not unreasonably withhold
such written permission to make a tax election which may be beneficial to CIA
after it leaves the LNC Consolidated Group. CIA shall, as a condition of
receiving written permission to make the tax election, reimburse LNC for any and
all additional tax costs incurred by the LNC Consolidated Group in connection
with permitting such an election to be made.
SECTION III. GENERAL ITEMS
A. Interaction with Prior Tax Periods
1. Tax Payments for Prior Periods. To the extent that the tax
liability initially allocated to CIA for a prior tax period is subsequently
redetermined, as a result of filing an amended return, the outcome of an IRS
examination, the retroactive application of a new tax law or tax regulation, or
other similar modifying action or item, CIA shall pay ASIC for any such
increases to CIA's tax liability and is also entitled to receive a payment from
ASIC for any decreases in tax liability attributable to CIA.
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2. Prior Tax Payments. To the extent that CIA paid to ASIC an amount
for its share of the LNC Consolidated Group's federal income tax liability or to
the extent that it pays an amount pursuant to paragraph 1. above, CIA shall be
entitled to consider the amount of such prior payments when determining whether
or not Carry Back Items may be used to offset tax payments for prior years.
3. Interest and Penalties for Prior Periods. Any interest and
penalties payable by any member of the LNC Consolidated Group relating to Tax
Years prior to this Agreement shall be subject to the terms of Section I.B.4 to
the extent that they become payable after the effective date of this Agreement.
B. Filing Relevant Items. CIA agrees to file any elections, consents,
and other documents and take any other actions which may be necessary or
appropriate to carry out the purposes of this Agreement.
C. Inclusion of CIA Subsidiaries. If CIA owns, acquires or creates any
subsidiary corporation which is an includible corporation as that term is
defined in IRC section 1504, such subsidiary corporation shall be subject to
this Agreement. CIA shall treat each such subsidiary corporation as if CIA has
an identical tax sharing Agreement to this Agreement between itself and the
subsidiary corporation, unless CIA and such subsidiary have entered into a
separate tax sharing Agreement which has been approved in writing by LNC.
D. Applicability to Succeeding Entities. This Agreement shall be binding
on any successor of the parties to this Agreement, including but not limited to
any successor of LNC, ASIC or CIA, to the same extent as if the successor had
been an original party to this Agreement.
E. Provision of Items to Defend Tax Positions. Both ASIC and CIA agree
to cooperate in supplying information reasonably requested by the other party
in order to make any computations required under this Agreement and for the
purpose of defending tax examinations, including appeals and litigation.
F. Maintenance of Books and Records. ASIC and CIA agree to maintain
internal accounting books and records for themselves and each of their
subsidiaries in a manner consistent with U.S. generally accepted accounting
principles and relevant statutory accounting principles. Furthermore, ASIC and
CIA agree to account for any
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intercompany transactions entered into by them or any of their subsidiaries and
to make such information available to the other party for tax purposes both
when such transactions are entered into and when such intercompany transactions
become currently taxable.
G. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Indiana and no state court other than
the courts of the State of Indiana shall have jurisdiction over disputes
between the parties concerning the validity, performance, interpretation or
construction of this Agreement.
LINCOLN NATIONAL CORPORATION
Date: August 13, 1996 By /s/ Richard C. Vaughan
-----------------------------------------------------
Richard C. Vaughan
Executive Vice President and Chief Financial Officer
AMERICAN STATES INSURANCE COMPANY
Date: 8-22-96 By /s/ Todd R. Stephenson
-----------------------------------------------------
Todd R. Stephenson
Senior Vice President and Treasurer
CITY INSURANCE AGENCY, INC.
Date: 8-22-96 By /s/ Ronald K. Young
-----------------------------------------------------
Ronald K. Young
President
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SERVICES AGREEMENT EXHIBIT 10.18 (1)
This Services Agreement is between LINCOLN NATIONAL CORPORATION, an Indiana
corporation with its principal place of business in Fort Wayne, Indiana, on
behalf of itself and its subsidiaries and affiliates (hereinafter referred to
collectively as "LNC"), and
American States Financial Corporation, an Indiana corporation with its
principal place of business in Indianapolis, Indiana, on behalf of itself and
its subsidiaries and affiliates (hereinafter referred to collectively as
"ASFC").
WITNESSETH:
WHEREAS, ASFC is planning to sell a portion of its capital stock in an initial
public offering;
WHEREAS, it is the intention of the parties to this agreement to provide an
orderly transition of services currently provided by LNC to ASFC.
NOW THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereby agree as follows:
ARTICLE I
SCOPE OF AGREEMENT
1.01 SCOPE. LNC will continue to provide to ASFC on and after the Closing
Date the specified services, systems and equipment (collectively referred to
herein as "Services") on the terms and conditions outlined in this Agreement.
1.02 CLOSING DATE. The "Closing Date" referenced in this Agreement is the
date ASFC sells capital stock to the public in an initial public offering.
1.03 EFFECTIVE DATE. The effective date of this Agreement is the Closing
Date defined in Section 1.02. Should the Closing Date not occur, this
Agreement shall become null and void and shall have no effect whatsoever on any
previous agreement, express or implied, between LNC and ASFC.
1.04 TERM. The term of this agreement shall be continual until mutually
terminated by both parties hereto in accordance with the terms of this
Agreement.
ARTICLE II
SYSTEMS
2.01 SYSTEMS ACCESS. The systems covered by this Agreement are shown in
Attachment A. The parties agree that the covered systems as set out in
Attachment A are not exhaustive and
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that charges will be made from LNC to ASFC for those systems, if any, accessed
by ASFC and not listed on Attachment A at costs allocable to ASFC's usage
thereof.
2.02 SOFTWARE LICENSES. To the extent it is necessary to secure licenses for
the use of computer software from third party vendors, LNC and ASFC will work
together to secure those licenses from the third party vendor(s). ASFC will
pay the vendor costs associated with securing such licenses allocable to ASFC's
usage of the system associated with the license.
2.03 BACKUP AND DISASTER RECOVERY. For any systems which LNC operates for
ASFC, backup and disaster recovery are the responsibility of LNC. As systems
supporting ASFC are moved from LNC operations or are discontinued from LNC
operations, ASFC will assume responsibility for backup and disaster recovery.
2.04 MUTUAL ACCESS. The parties agree to allow each other terminal access to
the systems (mainframe and other) shown in Attachment A in order to administer
ASFC's business. Access to all other systems will be terminated as of the
Closing Date, except as otherwise agreed to by the parties hereto.
2.05 SYSTEM SECURITY. LNC and ASFC may institute system security protocols at
their discretion to ensure the integrity of their systems and data.
2.06 TECHNICAL SUPPORT. LNC will provide ASFC with technical support for the
systems listed in Attachment A of this Agreement at costs allocable to ASFC's
usage thereof, unless otherwise agreed by the parties hereto.
2.07 DISCONTINUANCE OF SYSTEMS BY ASFC. For each of the systems listed in
Attachment A, ASFC will provide 30 days advance notice to LNC prior to
terminating the use of a particular system.
2.08 DISCONTINUANCE OF SYSTEMS BY LNC. For each of the systems listed in
Attachment A, LNC will provide 30 days advance notice to ASFC prior to
terminating the use of a particular system. However, LNC shall continue to
make the systems available to ASFC at ASFC's request if all costs for such
systems, including overhead, are borne by ASFC.
ARTICLE III
EQUIPMENT, SERVICES AND CORPORATE PLANES
3.01 EQUIPMENT AND SERVICES COVERED. LNC and ASFC agree that certain
equipment and services provided by LNC are to be covered by this Agreement as
shown in Attachment A. The parties further agree that the covered equipment
and services as set out in Attachment A are not exhaustive and that charges
will be made from LNC to ASFC for those non-recurring items, if any, used by
ASFC and not listed on Attachment A at costs allocable to ASFC's usage thereof.
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3.02 CORPORATE PLANES. ASFC will continue to be allowed use of LNC's
corporate planes on and after the Closing Date to the extent such aircraft are
available. The use of the corporate planes will be provided pursuant to the
terms and costs set out on Attachment A.
3.03 DISCONTINUANCE OF EQUIPMENT AND SERVICES. For each of the items listed
in Attachment A, ASFC will provide 30 days advance notice to LNC, and LNC will
provide 30 days advance notice to ASFC, prior to terminating use of a
particular item. Upon the expiration of any such 30 day period, lease payments
relating to future use of that equipment will automatically cease. At that
time, ASFC will either return the equipment to LNC or purchase the equipment
for a price agreed upon by both parties.
ARTICLE IV
RECORD RETENTION AND ACCESS
4.01 RETENTION. The parties will continue to retain records related to
Services provided to ASFC pursuant to this Agreement for a period of seven
years from the effective date of this Agreement.
4.02 ACCESS. Each party will have access to records retained by the other
party which relate to ASFC. The party in possession of the records will
provide access to records requested by the other party within three (3)
business days of receiving said request. Such access will be provided to the
other party at cost.
4.03 DESTRUCTION. Prior to destroying any records related to ASFC, a party
wishing to destroy documents covered by this Agreement will notify the other
party of its intention to do so. The party not possessing the documents shall
have the right to take possession of the documents in lieu of their destruction
and will pay the actual costs associated with taking possession of the
documents.
ARTICLE V
PAYMENT FOR SERVICES
5.01 PAYMENTS. All payments for Services will be made within 30 days of the
date of the invoice, unless otherwise agreed upon by the parties. Invoices for
Services will be generated monthly. The costs for the Services are shown in
Attachment A.
5.02 PAYMENT ADJUSTMENTS. The charges for Services as shown on the
attachments to this Agreement reflect projected expenses and usages of the
Services for the year 1996. The charges will be based on actual usage of the
Services and costs therefor will be as invoiced. For each successive year
through the term of this Agreement, projected expenses and usages of the
Services will be made and charges therefor will be adjusted and invoiced based
on actual usages.
5.03 TERMINATION FOR NONPAYMENT. If either party fails to make payment for
Services as described in this Agreement, the other party shall have the right
to terminate the respective Service on fifteen (15) days notice to the
breaching party.
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5.04 BILLING ERRORS. Any charge for Services which is disputed shall be paid
by the paying party 90% of full cost per the terms of this Agreement until the
dispute shall have been resolved and settled. Either party has the right to
correct any billing errors for a period of up to one year after the date of the
relevant invoice.
5.05 LAWFUL CURRENCY. All payments required under this Agreement shall be in
U.S. currency.
ARTICLE VI
USE OF NAME
6.01 USE OF NAME AND LINCOLN SILHOUETTE LOGO ("LOGO") ON FORM STOCK. ASFC can
continue to use any marketing brochures and forms in stock with the name of
"The Lincoln National Life Insurance Company," "Lincoln National Life",
"Lincoln Life", "Lincoln National Corporation" and "Lincoln National" or any
reference to LNC or its subsidiaries or affiliates, or with the logo, until the
ownership of ASFC by LNC is less than 80%, whereupon, ASFC may continue to use
the names and logo for the lesser of six (6) months or until current stock runs
out. Any use of such names or logo will be deleted from such brochures or
forms as they are reprinted in the ordinary course of business within six
months after the date of such ownership change. ASFC will hold LNC harmless
and defend LNC from any claims or causes of action related to its continued use
of such name or the names of any LNC subsidiaries or affiliates and the logo.
6.02 OTHER AGREEMENTS. This Article VI shall control the use of LNC's name by
ASFC unless otherwise agreed upon in writing by LNC and ASFC.
ARTICLE VII
TERMINATION AND AMENDMENT
7.01 TERMINATION. Neither party shall terminate this Agreement so long as LNC
owns at least 50% of the capital stock of ASFC.
7.02 AMENDMENT. The parties to this Agreement may mutually agree, in writing,
to amend any provision of this Agreement.
ARTCLE VIII
NOTICES
8.01 NOTICES. Any notice required to be given pursuant to the terms of this
Agreement shall be sent by certified mail, return receipt requested, postage
prepaid.
If sent to LNC: Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
ATTN: Barbara S. Kowalczyk, Senior Vice President
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Corporate Planning & Development
With a copy to: Jack D. Hunter, Esquire, General Counsel
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
If sent to ASFC: American States Financial Corporation
500 North Meridian Street
P. O. Box 1636
Indianapolis, IN 46206-1636
ATTN: Thomas M. Ober, Esquire, General Counsel
ARTICLE IX
ALTERNATIVE DISPUTE RESOLUTION
9.01 NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy.
Any party may give the other party written notice of any dispute not resolved
in the normal course of business. Within 20 days after delivery of said
notice, executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of
the controversy or claims as provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
9.02 MEDIATION. If the dispute has not been resolved by negotiation as
provided herein, the parties shall endeavor to settle the dispute by mediation
under the then current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. The neutral third party will be selected from
the CPR Panel of Neutrals. If the parties encounter difficulty in agreeing on
a neutral, they will seek the assistance of CPR in the selection process.
9.03 ARBITRATION UNDER THE CPR RULES. Any dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof, which has
not been resolved by non-binding means as provided in Section 9.02 above within
60 days of the initiation of such procedure (unless the parties mutually agree
to extend such timeframe), shall be finally settled by arbitration conducted
expeditiously in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes by three independent and
impartial arbitrators, of whom each party shall appoint one, provided, however,
that if one party has requested the other to participate in a non-binding
procedure and the other has failed to
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participate, the requesting party may initiate arbitration before expiration of
the above period. Any arbitrator not appointed by a party shall be selected
from the CPR Panels of Neutrals. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. 1-16, and judgment upon the award
rendered by the Arbitrator may be entered by any court having jurisdiction
thereof. The arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrevocably waives any arbitration
damages in excess of compensatory damages.
ARTICLE X
MISCELLANEOUS
10.01 FORCE MAJEURE. Neither LNC nor ASFC shall be liable for damages for
failure to perform due to an act of God, fire, explosion or other casualty,
power failure, strike, electronic data processing equipment failure not due to
negligence of the party involved, or any other occurrence not within the
control of LNC or ASFC. In the event of any such occurrence, LNC and ASFC will
use their best efforts to restore the services provided under this Agreement.
Changes in law or regulation shall not constitute force majeure under this
Agreement.
10.02 MAIL. If for any reason ASFC or LNC incorrectly receives the mail of
the other party, such mail will be promptly forwarded to the other party within
24 hours. If it can be determined that time is of the essence with mail
incorrectly received, the receiving party will notify and then telefax said
mail to the other party.
10.03 HEADINGS. Section headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
10.04 WAIVER OF BREACH. The failure of either party to assert any breach or
to insist upon strict compliance with any provision of this Agreement shall not
operate or be construed as a waiver of such provision or any other provision.
If any party waives or is deemed to have waived a provision in a particular
instance or circumstance, such waiver shall not apply to any other instance or
circumstance.
10.05 SEVERABILITY. If any part, term, or provision of this Agreement shall
be held void, illegal or unenforceable, the validity of the remaining portions
or provisions shall not be affected or impaired thereby.
10.06 CONTROLLING LAW. This Agreement shall be subject to and construed under
the laws of the State of Indiana.
10.07 ASSIGNMENT. Except as otherwise expressly authorized in this Agreement,
neither party shall assign or transfer any rights or duties under this
Agreement without the prior written consent of the other party.
10.08 FIDELITY BONDS. Each party shall maintain adequate fidelity bonding and
errors and omissions coverage of their employees and agents to protect in the
event of a covered loss hereunder.
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10.09 COOPERATION BETWEEN PARTIES. The parties agree that they will provide
such cooperation as may be reasonably requested by the other party and that
they will take such actions and execute and/or deliver such additional
documents as may reasonably be requested by the other party in order to perfect
and complete the transactions described herein.
10.10 NOTICE OF SUIT OR REGULATORY ACTION. The parties will, upon receipt of
any summons and complaint or other notice of suit wherein the other party is
named a party defendant, in any manner, forward any and all such summons and
complaint or other notice of suit to the other party by overnight mail to the
address specified in Article VIII of this Agreement. The parties will, upon
receipt of any regulatory body inquiry with respect to the other party, forward
said inquiry to the other party by overnight mail to the address specified in
Article VIII of this Agreement.
ARTICLE XI
ENTIRE AGREEMENT
11.01 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between LNC and ASFC with respect to the matters referred
herein, and no prior representations, promises, agreements or understanding,
written or oral not herein contained, shall be of any force or effect. No
waiver, modification, addendum or amendment of any covenant, condition or
limitation herein contained shall be valid or binding unless the same is in
writing and duly executed by both parties hereto. No waiver or modification of
any provision of this Agreement shall be valid or shall be offered or received
in evidence in the course of any proceedings between the parties arising out of
or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless the same is in writing and signed by the party against whom
such waiver is sought to be enforced.
Moreover, no valid waiver or any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement.
ARTICLE XII
COUNTERPARTS
12.01 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, and all of which taken
together shall constitute one and the same agreement.
179
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of
the day and year below written:
LINCOLN NATIONAL CORPORATION
By: /s/ Barbara S. Kowalczyk Dated: September 26, 1996
---------------------------- -------------------------
Title: Senior Vice President
----------------------------
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Todd R. Stephenson Dated: September 20, 1996
---------------------------- --------------------------
Title: Senior Vice President
----------------------------
180
<PAGE> 9
ATTACHMENT A
<TABLE>
<CAPTION>
SYSTEM, EQUIPMENT AND
SERVICES PROVIDED BY LNC TO ASFC CHARGE
- - -------------------------------- ------
<S> <C>
Insurance Premiums (1) includes: As allocated based on:
Crime/Employee Fidelity Number of employees
D&O Liability Revenue
Professional Liability Claims, as primary determinant
COBRA Invoiced by insurer
Automobile Number of covered automobiles
Commercial General Liability Size and number of commercial
locations
Excess Umbrella Number of employees
Property Insurable values
Split Dollar Age, salary and number of covered
employees
Restricted Stock Based on fair market value of LNC
stock awarded to ASFC employees
Corporate Plane $1000 per flight hour
'96 Hyperion Maintenance As invoiced by vendor
Industry Exam Dues: includes LOMA, HIAA Based on number of exams/employees
Benefit Plan Services (Buck Consultants) As invoiced by Buck Consultants
Allocated Expenses and Usage Fees See Attachment B for Detail--
Each provider of these
Services develops a
methodology to determine costs
of providing Services, by
methods such as employee or
item count, hourly rates,
proportion of invested equity,
etc. These costs are then
proportionately charged to the
users of the Services.
</TABLE>
(1) Credits may be given upon reconciliation of claims incurred and premiums
paid.
181
<PAGE> 10
ATTACHMENT A (CONTINUED)
<TABLE>
<CAPTION>
SYSTEM, EQUIPMENT AND
SERVICES PROVIDED BY ASFC TO LNC CHARGE
- - -------------------------------- ------
<S> <C>
Insurance coverages, includes: As negotiated by LNC and ASFC
D&O Liability " "
Professional Liability " "
Commercial General Liability " "
Automobile " "
Workers Compensation " "
AM Best Software (property/casualty blanks) As allocated based on number of
companies reporting
</TABLE>
182
<PAGE> 1
SERVICES AGREEMENT EXHIBIT 10.18 (2)
This Services Agreement is between LINCOLN NATIONAL CORPORATION, an Indiana
corporation with its principal place of business in Fort Wayne, Indiana, on
behalf of itself and its subsidiaries and affiliates (hereinafter referred to
collectively as "LNC"), and
Insurance Company of Illinois, an Illinois corporation with its principal place
of business in Indianapolis, Indiana (hereinafter referred to as "ICI").
WITNESSETH:
WHEREAS, ICI receives certain services from LNC through ICI's parent, American
States Insurance Company;
WHEREAS, American States Financial Corporation ("ASFC"), the parent of American
States Insurance Company, sold a portion of its capital stock in an initial
public offering on May 29, 1996;
WHEREAS, it is the intention of the parties to this agreement to provide an
orderly continuation of services being provided by LNC to ICI.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and notwithstanding any other agreement to the contrary, the
parties hereby agree as follows:
ARTICLE I
SCOPE OF AGREEMENT
1.01 SCOPE. LNC will continue to provide to ICI on and after the Closing Date
the specified services, systems and equipment (collectively referred to herein
as "Services") on the terms and conditions outlined in this Agreement.
1.02 CLOSING DATE. The "Closing Date" referenced in this Agreement is the
date ASFC sells capital stock to the public in an initial public offering.
1.03 EFFECTIVE DATE. The effective date of this Agreement is the Closing
Date defined in Section 1.02. Should the Closing Date not occur, this
Agreement shall become null and void and shall have no effect whatsoever on any
previous agreement, express or implied, between LNC and ICI.
1.04 TERM. This Agreement shall remain in effect for three years from the
Effective Date (the "Initial Term"). Following the Initial Term, this
Agreement will be automatically renewed for additional one year terms, unless
sooner terminated as herein provided. Notwithstanding the foregoing, this
Agreement is subject to resubmission by ICI to the Illinois Department of
183
<PAGE> 2
Insurance during the second one-year term following the Initial Term and during
each fifth one-year term thereafter.
ARTICLE II
SYSTEMS
2.01 SYSTEMS ACCESS. The systems covered by this Agreement are shown in
Attachment A. The parties agree that the covered systems as set out in
Attachment A are not exhaustive and that charges will be made from LNC to ICI
for those systems, if any, accessed by ICI and not listed on Attachment A at
costs allocable to ICI's usage thereof.
2.02 SOFTWARE LICENSES. To the extent it is necessary to secure licenses for
the use of computer software from third party vendors, LNC and ICI will work
together to secure those licenses from the third party vendor(s). ICI will pay
the vendor costs associated with securing such licenses allocable to ICI's
usage of the system associated with the license.
2.03 BACKUP AND DISASTER RECOVERY. For any systems which LNC operates for
ICI, backup and disaster recovery are the responsibility of LNC. As systems
supporting ICI are moved from LNC operations or are discontinued from LNC
operations, ICI will assume responsibility for backup and disaster recovery.
2.04 MUTUAL ACCESS. The parties agree to allow each other terminal access to
the systems (mainframe and other) shown in Attachment A in order to administer
ICI's business. Access to all other systems will be terminated as of the
Closing Date, except as otherwise agreed to by the parties hereto.
2.05 SYSTEM SECURITY. LNC and ICI may institute system security protocols at
their discretion to ensure the integrity of their systems and data.
2.06 TECHNICAL SUPPORT. LNC will provide ICI with technical support for the
systems listed in Attachment A of this Agreement at costs allocable to ICI's
usage thereof, unless otherwise agreed by the parties hereto.
2.07 DISCONTINUANCE OF SYSTEMS BY ICI. For each of the systems listed in
Attachment A, ICI will provide 30 days advance notice to LNC prior to
terminating the use of a particular system.
2.08 DISCONTINUANCE OF SYSTEMS BY LNC. For each of the systems listed in
Attachment A, LNC will provide 30 days advance notice to ICI prior to
terminating the use of a particular system. However, LNC shall continue to
make the systems available to ICI at ICI's request if all costs for such
systems, including overhead, are borne by ICI.
184
<PAGE> 3
ARTICLE III
EQUIPMENT, SERVICES AND CORPORATE PLANES
3.01 EQUIPMENT AND SERVICES COVERED. LNC and ICI agree that certain
equipment and services provided by LNC are to be covered by this Agreement as
shown in Attachment A. The parties further agree that the covered equipment
and services as set out in Attachment A are not exhaustive and that charges
will be made from LNC to ICI for those non-recurring items, if any, used by ICI
and not listed on Attachment A at costs allocable to ICI's usage thereof.
3.02 CORPORATE PLANES. ICI will continue to be allowed use of LNC's corporate
planes on and after the Closing Date to the extent such aircraft are available.
The use of the corporate planes will be provided pursuant to the terms and
costs set out on Attachment A.
3.03 DISCONTINUANCE OF EQUIPMENT AND SERVICES. For each of the items listed
in Attachment A, ICI will provide 30 days advance notice to LNC, and LNC will
provide 30 days advance notice to ICI, prior to terminating use of a particular
item. Upon the expiration of any such 30 day period, lease payments relating
to future use of that equipment will automatically cease. At that time, ICI
will either return the equipment to LNC or purchase the equipment for a price
agreed upon by both parties.
ARTICLE IV
RECORD RETENTION AND ACCESS
4.01 RETENTION. The parties will continue to retain records related to
Services provided to ICI pursuant to this Agreement for a period of seven years
from the effective date of this Agreement.
4.02 ACCESS. Each party will have access to records retained by the other
party which relate to ICI. The party in possession of the records will provide
access to records requested by the other party within three (3) business days
of receiving said request. Such access will be provided to the other party at
cost.
4.03 DESTRUCTION. Prior to destroying any records related to ICI, a party
wishing to destroy documents covered by this Agreement will notify the other
party of its intention to do so. The party not possessing the documents shall
have the right to take possession of the documents in lieu of their destruction
and will pay the actual costs associated with taking possession of the
documents.
ARTICLE V
PAYMENT FOR SERVICES
5.01 PAYMENTS. All payments for Services will be made within 30 days of the
date of the invoice, unless otherwise agreed upon by the parties. Invoices for
Services will be generated monthly. The costs for the Services are shown in
Attachment A.
185
<PAGE> 4
5.02 PAYMENT ADJUSTMENTS. The charges for Services as shown on the
attachments to this Agreement reflect projected expenses and usages of the
Services for the year 1996. The charges will be based on actual usage of the
Services and costs therefor will be as invoiced. For each successive year
through the term of this Agreement, projected expenses and usages of the
Services will be made and charges therefor will be adjusted and invoiced based
on actual usages.
5.03 TERMINATION FOR NONPAYMENT. If either party fails to make payment for
Services as described in this Agreement, the other party shall have the right
to terminate the respective Service on fifteen (15) days notice to the
breaching party.
5.04 BILLING ERRORS. Any charge for Services which is disputed shall be paid
by the paying party 90% of full cost per the terms of this Agreement until the
dispute shall have been resolved and settled. Either party has the right to
correct any billing errors for a period of up to one year after the date of the
relevant invoice.
5.05 LAWFUL CURRENCY. All payments required under this Agreement shall be in
U.S. currency.
ARTICLE VI
USE OF NAME
6.01 USE OF NAME AND LINCOLN SILHOUETTE LOGO ("LOGO") ON FORM STOCK. ICI can
continue to use any marketing brochures and forms in stock with the name of
"The Lincoln National Life Insurance Company," "Lincoln National Life",
"Lincoln Life", "Lincoln National Corporation" and "Lincoln National" or any
reference to LNC or its subsidiaries or affiliates, or with the logo, until the
ownership of ASFC by LNC is less than 80%, whereupon, ICI may continue to use
the names and logo for the lesser of six (6) months or until current stock runs
out. Any use of such names or logo will be deleted from such brochures or
forms as they are reprinted in the ordinary course of business within six
months after the date of such ownership change. ICI will hold LNC harmless and
defend LNC from any claims or causes of action related to its continued use of
such name or the names of any LNC subsidiaries or affiliates and the logo.
6.02 OTHER AGREEMENTS. This Article VI shall control the use of LNC's name by
ICI unless otherwise agreed upon in writing by LNC and ICI.
ARTICLE VII
TERMINATION AND AMENDMENT
7.01 TERMINATION. This Agreement may be terminated by either party at any time
upon at least sixty (60) but no more than ninety (90) days' prior written
notice to the other party.
7.02 AMENDMENT. The parties to this Agreement may mutually agree, in writing,
to amend any provision of this Agreement.
186
<PAGE> 5
ARTCLE VIII
NOTICES
8.01 NOTICES. Any notice required to be given pursuant to the terms of this
Agreement shall be sent by certified mail, return receipt requested, postage
prepaid.
If sent to LNC: Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
ATTN: Barbara S. Kowalczyk, Senior Vice President
Corporate Planning & Development
With a copy to: Jack D. Hunter, Esquire, General Counsel
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
If sent to ICI: American States Financial Corporation
500 North Meridian Street
P. O. Box 1636
Indianapolis, IN 46206-1636
ATTN: Thomas M. Ober, Esquire, General Counsel
ARTICLE IX
ALTERNATIVE DISPUTE RESOLUTION
9.01 NEGOTIATION BETWEEN EXECUTIVES. The parties shall attempt in good faith
to resolve any dispute arising out of or relating to this Agreement promptly by
negotiations between executives who have authority to settle the controversy.
Any party may give the other party written notice of any dispute not resolved
in the normal course of business. Within 20 days after delivery of said
notice, executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to exchange
relevant information and to attempt to resolve the dispute. If the matter has
not been resolved within 60 days of the disputing party's notice, or if the
parties fail to meet within 20 days, either party may initiate mediation of
the controversy or claims as provided hereinafter.
If a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of the Federal Rules of Evidence and state
rules of evidence.
9.02 MEDIATION. If the dispute has not been resolved by negotiation as
provided herein, the parties shall endeavor to settle the dispute by mediation
under the then current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. The neutral third
187
<PAGE> 6
party will be selected from the CPR Panel of Neutrals. If the parties
encounter difficulty in agreeing on a neutral, they will seek the assistance of
CPR in the selection process.
9.03 ARBITRATION UNDER THE CPR RULES. Any dispute arising out of or relating
to this Agreement or the breach, termination or validity thereof, which has
not been resolved by non-binding means as provided in Section 9.02 above within
60 days of the initiation of such procedure (unless the parties mutually agree
to extend such timeframe), shall be finally settled by arbitration conducted
expeditiously in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes by three independent and
impartial arbitrators, of whom each party shall appoint one, provided, however,
that if one party has requested the other to participate in a non-binding
procedure and the other has failed to participate, the requesting party may
initiate arbitration before expiration of the above period. Any arbitrator not
appointed by a party shall be selected from the CPR Panels of Neutrals. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
1-16, and judgment upon the award rendered by the Arbitrator may be entered by
any court having jurisdiction thereof. The arbitrators are not empowered to
award damages in excess of compensatory damages and each party hereby
irrevocably waives any arbitration damages in excess of compensatory damages.
ARTICLE X
MISCELLANEOUS
10.01 FORCE MAJEURE. Neither LNC nor ICI shall be liable for damages for
failure to perform due to an act of God, fire, explosion or other casualty,
power failure, strike, electronic data processing equipment failure not due to
negligence of the party involved, or any other occurrence not within the
control of LNC or ICI. In the event of any such occurrence, LNC and ICI will
use their best efforts to restore the services provided under this Agreement.
Changes in law or regulation shall not constitute force majeure under this
Agreement.
10.02 MAIL. If for any reason LNC or ICI incorrectly receives the mail of the
other party, such mail will be promptly forwarded to the other party within 24
hours. If it can be determined that time is of the essence with mail
incorrectly received, the receiving party will notify and then telefax said
mail to the other party.
10.03 HEADINGS. Section headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
10.04 WAIVER OF BREACH. The failure of either party to assert any breach or
to insist upon strict compliance with any provision of this Agreement shall not
operate or be construed as a waiver of such provision or any other provision.
If any party waives or is deemed to have waived a provision in a particular
instance or circumstance, such waiver shall not apply to any other instance or
circumstance.
10.05 SEVERABILITY. If any part, term, or provision of this Agreement shall
be held void, illegal or unenforceable, the validity of the remaining portions
or provisions shall not be affected or impaired thereby.
188
<PAGE> 7
10.06 CONTROLLING LAW. This Agreement shall be subject to and construed under
the laws of the State of Indiana.
10.07 ASSIGNMENT. Except as otherwise expressly authorized in this Agreement,
neither party shall assign or transfer any rights or duties under this
Agreement without the prior written consent of the other party.
10.08 FIDELITY BONDS. Each party shall maintain adequate fidelity bonding and
errors and omissions coverage of their employees and agents to protect in the
event of a covered loss hereunder.
10.09 COOPERATION BETWEEN PARTIES. The parties agree that they will provide
such cooperation as may be reasonably requested by the other party and that
they will take such actions and execute and/or deliver such additional
documents as may reasonably be requested by the other party in order to perfect
and complete the transactions described herein.
10.10 NOTICE OF SUIT OR REGULATORY ACTION. The parties will, upon receipt of
any summons and complaint or other notice of suit wherein the other party is
named a party defendant, in any manner, forward any and all such summons and
complaint or other notice of suit to the other party by overnight mail to the
address specified in Article VIII of this Agreement. The parties will, upon
receipt of any regulatory body inquiry with respect to the other party, forward
said inquiry to the other party by overnight mail to the address specified in
Article VIII of this Agreement.
ARTICLE XI
ENTIRE AGREEMENT
11.01 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between LNC and ICI with respect to the matters referred
to herein, and no prior representations, promises, agreements or understanding,
written or oral not herein contained, shall be of any force or effect. No
waiver, modification, addendum or amendment of any covenant, condition or
limitation herein contained shall be valid or binding unless the same is in
writing and duly executed by both parties hereto. No waiver or modification of
any provision of this Agreement shall be valid or shall be offered or received
in evidence in the course of any proceedings between the parties arising out of
or affecting this Agreement, or the rights or obligations of the parties
hereunder, unless the same is in writing and signed by the party against whom
such waiver is sought to be enforced.
Moreover, no valid waiver or any provision of this Agreement at any time shall
be deemed a waiver of any other provision of this Agreement.
189
<PAGE> 8
ARTICLE XII
COUNTERPARTS
12.01 COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, and all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of
the day and year below written:
LINCOLN NATIONAL CORPORATION
By: /s/ Barbara S. Kowalczyk Dated: October 10, 1996
---------------------------- -------------------
Title: Senior Vice President
---------------------
INSURANCE COMPANY OF ILLINOIS
By: F. Cedric McCurley Dated: October 10, 1996
------------------------- -------------------
Title: Chairman
---------------------
190
<PAGE> 9
ATTACHMENT A
<TABLE>
<CAPTION>
SYSTEM, EQUIPMENT AND
SERVICES PROVIDED BY LNC TO ICI CHARGE
- - ------------------------------- -----------------------
<S> <C>
Insurance Premiums (1) includes: As allocated based on:
Crime/Employee Fidelity Number of employees
D&O Liability Revenue
Professional Liability Claims, as primary determinant
COBRA Invoiced by insurer
Automobile Number of covered automobiles
Commercial General Liability Size and number of commercial
locations
Excess Umbrella Number of employees
Property Insurable values
Split Dollar Age, salary and number of covered
employees
Restricted Stock Based on fair market value of LNC
stock awarded to ICI employees
Corporate Plane $1000 per flight hour
'96 Hyperion Maintenance As invoiced by vendor
Industry Exam Dues: includes LOMA, HIAA Based on number of exams/employees
Benefit Plan Services (Buck Consultants) As invoiced by Buck Consultants
Allocated Expenses and Usage Fees See Attachment B for Detail--
-------------
Each provider of these
Services develops a
methodology to determine costs
of providing Services, by
methods such as employee or
item count, hourly rates,
proportion of invested equity,
etc. These costs are then
proportionately charged to the
users of the Services.
</TABLE>
(1) Credits may be given upon reconciliation of claims incurred and premiums
paid.
191
<PAGE> 10
ATTACHMENT A (CONTINUED)
<TABLE>
SYSTEM, EQUIPMENT AND
SERVICES PROVIDED BY ASFC TO ICI CHARGE
- - -------------------------------- -------
<S> <C>
Insurance coverages, includes: As negotiated by LNC and ICI
D&O Liability " "
Professional Liability " "
Commercial General Liability " "
Automobile " "
Workers Compensation " "
AM Best Software (property/casualty blanks) As allocated based on number of companies reporting
</TABLE>
192
<PAGE> 1
AMERICAN STATES FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.0
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ----------- ---------- ----------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C> <C> <C>
Primary
Shares outstanding, beginning of period 60,050,515 50,000,000 50,000,000 50,000,000
Weighted average shares issued during period:
Stock offering - - 4,578,755 -
Employee benefit plans - - 23,129 -
---------- ---------- ---------- ----------
Weighted average primary shares outstanding 60,050,515 50,000,000 54,601,884 50,000,000
========== ========== ========== ==========
Net income $40,429 $58,871 $117,101 $141,133
========== ========== ========== =========
Net income per primary common share $ .67 $ 1.18 $ 2.14 $ 2.82
========== ========== ========== =========
Fully Diluted
Shares outstanding, beginning of period 60,050,515 50,000,000 50,000,000 50,000,000
Weighted average shares issued during period:
Stock offering - - 4,578,755 -
Employee benefit plans - - 23,129 -
---------- ---------- ---------- ----------
Weighted average fully diluted shares outstanding 60,050,515 50,000,000 54,601,884 50,000,000
========== ========== ========== ==========
Net income $40,429 $58,871 $117,101 $141,133
========== ========== ========== ==========
Net income per fully diluted common share $ .67 $ 1.18 $ 2.14 $ 2.82
========== ========== ========== ==========
</TABLE>
Note: The fully diluted calculation is submitted in accordance with Regulation
S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
193
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of American States Financial Corporation and
Subsidiaries and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<DEBT-HELD-FOR-SALE> 3,688,524 3,688,524
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 411,913 411,913
<MORTGAGE> 33,524 33,524
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 4,281,110 4,281,110
<CASH> 21,047 21,047
<RECOVER-REINSURE> 172,002 172,002
<DEFERRED-ACQUISITION> 208,754 208,754
<TOTAL-ASSETS> 5,524,495 5,524,495
<POLICY-LOSSES> 2,897,081 2,897,081
<UNEARNED-PREMIUMS> 732,477 732,477
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 299,462 299,462
0 0
0 0
<COMMON> 304,792 304,792
<OTHER-SE> 957,333 957,333
<TOTAL-LIABILITY-AND-EQUITY> 5,524,495 5,524,495
407,067 1,255,544
<INVESTMENT-INCOME> 67,031 201,520
<INVESTMENT-GAINS> 2,531 31,001
<OTHER-INCOME> 0 0
<BENEFITS> 299,874 955,779
<UNDERWRITING-AMORTIZATION> 82,368 254,413
<UNDERWRITING-OTHER> 43,507 138,309
<INCOME-PRETAX> 45,596 132,446
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 40,429 117,101
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 40,429 117,101
<EPS-PRIMARY> .67 2.14
<EPS-DILUTED> .67 2.14
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
