<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 JUNE 30, 1997
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 July 1, 1997: 60,050,515
DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's Form
8-K, dated June 6, 1997 are incorporated by reference in Part II of this Form
10-Q.
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>
June 30, December, 31
1997 1996
----------- ------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale at fair value:
Fixed maturity (amortized cost: 1997 - $3,618,363; 1996 - $3,579,807) $ 3,787,582 $ 3,763,880
Equity (cost: 1997 - $362,082; $1996 - $362,720) 460,560 435,137
Mortgage loans 21,871 32,293
Short-term investments 74,194 73,276
Other invested assets 39,450 37,986
----------- ------------
Total investments 4,383,657 4,342,572
Cash 19,338 13,610
Premium receivable 482,774 413,444
Deferred policy acquisition costs 212,250 202,233
Properties to be sold 23,218 30,633
Property and equipment 31,800 31,143
Accrued investment income 64,932 64,602
Current federal income taxes recoverable 4,968 -
Deferred federal income taxes recoverable 121,066 128,742
Cost in excess of net assets of acquired subsidiaries 96,063 97,772
Ceded reinsurance on claims and claims expense reserves 175,149 179,445
Miscellaneous 36,658 36,887
----------- ------------
Total assets $ 5,651,873 $ 5,541,083
=========== ============
</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>
June 30, December, 31
1997 1996
---- ----
(Dollars in Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Losses, loss adjustment expense and future policy benefits $ 2,854,688 $ 2,868,348
Unearned premiums 746,058 711,955
----------- -----------
Total policy liabilities and accruals 3,600,746 3,580,303
Commissions and other expenses 103,702 120,872
Current federal income taxes payable - 5,303
Outstanding checks 64,128 69,901
Short-term debt due LNC 66,667 66,667
Notes payable 99,607 99,511
Debt due LNC 133,333 133,333
Other liabilities 166,731 129,154
----------- -----------
Total liabilities 4,234,914 4,205,044
Shareholders' equity:
Common stock, no par value: 195,000,000 shares authorized, shares
issued and outstanding: 1997 and 1996 - 60,050,515 304,500 304,493
Net unrealized gain on securities available-for-sale 171,494 163,647
Retained earnings 940,965 867,899
----------- -----------
Total shareholders' equity 1,416,959 1,336,039
----------- -----------
Total liabilities and shareholders' equity $ 5,651,873 $ 5,541,083
=========== ===========
</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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
(Dollars in Thousands,
Except Per Share Data)
<S> <C> <C> <C> <C>
Revenue:
Premiums and other revenue $ 429,821 $ 424,483 $ 853,097 $ 848,477
Net investment income 66,525 66,156 133,003 134,489
Realized gain on investments 9,756 7,374 19,443 28,470
Gain on operating properties 4,208 - 6,671 -
---------- ----------- ----------- ----------
Total revenue 510,310 498,013 1,012,214 1,011,436
Benefits and expenses:
Benefits and settlement expenses 323,369 332,342 620,910 655,905
Commissions 71,657 72,510 140,762 144,382
Operating and administrative expenses 46,949 51,051 98,960 102,224
Taxes, licenses and fees 11,120 8,322 21,857 20,240
Interest on debt 5,227 1,835 10,392 1,835
---------- ----------- ----------- ----------
Total benefits and expenses 458,322 466,060 892,881 924,586
Income before federal income taxes 51,988 31,953 119,333 86,850
Federal income taxes (credit):
Current 4,842 (1,530) 17,617 14,401
Deferred 2,907 3,724 3,450 (4,223)
---------- ----------- ----------- ----------
Total federal income taxes 7,749 2,194 21,067 10,178
---------- ----------- ----------- ----------
Net income $44,239 $29,759 $98,266 $76,672
========== =========== =========== ==========
Net income per share $.74 $.55 $1.64 $1.48
========== =========== =========== ==========
Weighted average shares outstanding 60,050,515 53,644,692 60,050,515 51,832,414
========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
Common stock:
Balance at beginning of period $ 304,493 $ 387,547
Public offering of common stock - 215,482
Common stock issued for employee benefit plans 7 1,161
Assumption and issuance of debt in exchange with LNC - (299,398)
----------- -----------
Balance at end of period 304,500 304,792
Net unrealized gain (loss) on securities available-for-sale:
Balance at beginning of period 163,647 211,767
Change during the period 7,847 (97,793)
----------- -----------
Balance at end of period 171,494 113,974
Retained earnings:
Balance at beginning of period 867,899 1,069,393
Dividend of assets to LNC prior to public offering - (299,866)
Dividends declared and paid on Common Stock ($.42 per share) (25,200) (46,134)
Net income 98,266 76,672
----------- -----------
Balance at end of period 940,965 800,065
----------- -----------
Total shareholders' equity $ 1,416,959 $ 1,218,831
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 98,266 $ 76,672
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Deferred policy acquisition costs (9,149) (4,270)
Premiums and fees in course of collection (69,330) (37,052)
Accrual of discount on investments (9,445) (9,617)
Amortization of premium on investments 2,034 2,767
Accrued investment income (331) (1,800)
Policy liabilities and accruals 4,183 76,793
Federal income taxes (6,821) (25,110)
Provisions for depreciation 3,761 3,850
Gain on sale of investments (19,443) (28,470)
Gain on operating properties (6,671) -
Ceded reinsurance on claims and claims expense reserves 4,296 (36,914)
Other (11,359) (21,514)
----------- -----------
Net adjustments (118,275) (81,337)
----------- -----------
Net cash used in operating activities (20,009) (4,665)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchase of investments (335,737) (753,087)
Sales of investments 280,360 583,064
Maturities and redemptions 45,070 38,401
Purchase of mortgage loans and other investments (3,836) (7,011)
Sale or maturity of mortgage loans and other investments 11,684 3,945
Net increase in short-term investments (918) (59,495)
Net sale (purchase) of property and equipment 9,669 (4,472)
Other 28,379 16,518
----------- -----------
Net cash provided by (used in) investing activities 34,671 (182,137)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 7 215,482
Universal life investment contract deposits 25,334 24,837
Universal life investment contract withdrawals (9,075) (6,605)
Dividends paid (25,200) (46,134)
----------- -----------
Net cash provided by (used in) financing activities (8,934) 187,580
Net increase (decrease) in cash 5,728 778
Cash at beginning of period 13,610 12,708
----------- -----------
Cash at end of period $ 19,338 $ 13,486
=========== ===========
</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 Form 10-K dated February 26, 1997. 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 six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1997.
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
$215.2 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 six months ended
June 30, 1997 and 1996, 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,
1996, 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 1997 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. CHANGE IN ACCOUNTING PRINCIPLE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per
Share which the Company will adopt in the fourth quarter of 1997. Earlier
adoption is not permitted. In accordance with FAS 128, the Company will
present "basic" and "diluted" earnings per share on the face of the income
statement regardless of the difference between the two calculations. When
calculating the diluted earnings per share, the treasury stock method will be
applied using the average market price for the period rather than the higher of
the average market price or the ending market price. Using the terms of FAS
128, the basic and diluted earnings per share for the first six months of 1997
would be $1.64. The basic and diluted earnings per share for the first six
months of 1996 would be $1.48.
In June of 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income". Statement 130 is effective for fiscal years beginning after December
15, 1997 and ASFC will adopt it in the first quarter of 1998. Adoption will
have no effect on net income but will require the reporting of "comprehensive
income," which will include net income and certain items currently reported in
stockholders' equity.
The FASB issued Statement 131, "Disclosures about Segments of an
Enterprise and Related Information" in June of 1997. FAS 131 changes the way
companies report information about business segments in annual financial
statements and requires the reporting of selected segment information in their
interim reports. FAS 131 is effective for financial statements for periods
beginning after December 15, 1997 except that providing interim information in
the initial year (1998) may be deferred until 1999. ASFC plans on providing
the required segment information in its 1998 annual report and in its interim
reports beginning in 1999. FAS 131 has no effect on net income.
3. FEDERAL INCOME TAXES
A consolidated federal income tax return is filed by LNC and includes the
Company. Pursuant to an agreement with LNC, the Company provides for income
taxes on the basis of a separate return calculation. The taxes computed are
remitted to or collected from LNC.
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.
8
<PAGE> 9
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. NOTES PAYABLE AND DEBT DUE LNC
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 is obligated to 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 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 current rate on the Term Note is 6.7%. The Term Note is 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.
However, as disclosed in Note 6 to the Notes to Consolidated Financial
Statements, LNC will be paid the outstanding balance and accrued but unpaid
interest thereon of the Assumed Debt and Term Note pursuant to terms of the
pending Agreement and Plan of Merger by and among ASFC, SAFECO Corporation and
ASFC Acquisition Co. if and when the sale is consummated.
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 June 30, 1997.
5. 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 sought to represent
themselves and a putative class of similarly situated persons in the State of
Missouri. This action sought injunctive relief, unspecified compensatory
damages, punitive damages and attorney's fees. In response to motions filed by
the defendants, the court dismissed the conspiracy count by Order dated October
2, 1996 but required that the defendants answer the remaining counts. On June
19, 1997 the court denied class certification and dismissed the case for lack
of standing. On July 17, 1997 the same plaintiffs filed a separate action
against the same three property and casualty subsidiaries of the Company.
9
<PAGE> 10
AMERICAN STATES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. CONTINGENCIES (Continued)
The plaintiffs in this new case have asked that it be certified as a class
action and make substantially the same allegations and seek substantially the
same remedies as were sought in the original case. In addition, the plaintiffs
filed a notice of appeal in the original case on July 18, 1997. 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
defend these actions vigorously.
On August 29, 1996, the first of 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
subsidiaries constitutes "phantom coverage" when sold at limits equal to the
State's financial responsibility requirements. In both actions, the plaintiffs
sought to represent themselves and a putative class of similarly situated
persons in the State of Missouri. Both actions sought 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. A motion to consolidate the two cases has
been entered. Discovery has begun. Management does not believe, based upon
current information, that the allegations have merit and it therefore intends
to defend the consolidated action vigorously.
6. RECENT DEVELOPMENTS
On June 6, 1997, ASFC entered into an Agreement and Plan of Merger dated
as of the same date (the "Merger Agreement"), by and among ASFC, SAFECO
Corporation ("Buyer") and ASFC Acquisition Co., a wholly owned subsidiary of
Buyer ("Buyer Sub"). The Merger Agreement provides for, among other things,
the merger of Buyer Sub with and into ASFC (the "Merger"), with ASFC surviving
the Merger as a wholly owned subsidiary of Buyer. Pursuant to the Merger
Agreement and upon consummation of the Merger each outstanding share of Common
Stock of ASFC ("ASFC Common Stock") will be converted into the right to receive
$47 in cash without interest thereon. Consummation of the Merger is subject to
certain conditions, including, among others, (a) the approval by certain state
insurance regulators of the Merger and (b) compliance with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). Early termination of the HSR Act waiting period was
received on July 15, 1997.
In connection with the Merger Agreement, LNC and Buyer entered into a
Voting, Support and Indemnification Agreement dated June 6, 1997 (the "Voting
Agreement"), certain sections of which were agreed to and acknowledged by ASFC.
Pursuant to the Voting Agreement, LNC agreed, among other things, (a) to vote
all ASFC Common Stock held by it or any of its subsidiaries in favor of the
Merger, the Merger Agreement and the transactions contemplated thereby, (b) to
grant Buyer an irrevocable proxy in all ASFC Common Stock held by it or any of
its subsidiaries for purposes of a vote at a meeting of the holders of ASFC
Common Stock held to consider the Merger and (c) to allocate between LNC and
Buyer certain tax and employee benefits liabilities; and Buyer agreed, among
other things, to pay to LNC (a) $100 million plus an amount equal to the
accrued but unpaid interest on the outstanding 7 1/8% notes due July 15, 1999,
originally issued to the public by LNC on July 15, 1992, in consideration of
the termination of the agreement relating to the Assumed Debt, and (b) the
outstanding principle balance of, plus accrued but unpaid interest on, the Term
Note, in consideration of the surrender of the Term Note by LNC to ASFC for
cancellation.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATION
Three Months Ended June 30, 1997 and 1996
The discussion which follows compares the results of the second quarter
ended June 30, 1997 to the second quarter ended June 30, 1996.
CONSOLIDATED
The Company's revenues increased 2.5% or $12.3 million to $510.3 million
in the second quarter of 1997 from $498.0 million in the second quarter of
1996. Net premiums earned and other revenue increased 1.2% or $5.3 million to
$429.8 million in the second quarter of 1997 from $424.5 million in the second
quarter of 1996. Net investment income increased .5% or $.3 million to $66.5
million in the second quarter of 1997 from $66.2 million in the second quarter
of 1996. Realized gains on investments increased $2.4 million to $9.8 million
in the second quarter of 1997 from $7.4 million in the second quarter of 1996.
Benefits and settlement expenses decreased 2.7% or $8.9 million to $323.4
million in the second quarter of 1997 from $332.3 million in the second quarter
of 1996. Commissions decreased 1.1% or $.8 million to $71.7 million in the
second quarter of 1997 from $72.5 million in the second quarter of 1996.
Operating and administrative expenses decreased 8.2% or $4.2 million to $46.9
million in the second quarter of 1997 from $51.1 million in the second quarter
of 1996. The company incurred interest on debt of $5.2 million in the second
quarter of 1997 from the Assumed Debt and Term Note.
Net income for the second quarter of 1997 was $44.2 million or 74 cents
per share compared to $29.8 million or 55 cents per share for the second
quarter of 1996. Excluding realized gain on investments, the Company earned
$35.2 million or 59 cents per share for the second quarter of 1997 compared to
$26.5 million or 49 cents per share for the second quarter of 1996.
11
<PAGE> 12
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 June 30, 1997 and 1996. All ratios are computed using data
reported in accordance with statutory accounting principles ("SAP").
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Net premiums written $ 431.3 $ 419.2
Net premiums earned and other revenue $ 415.5 $410.1
Losses and loss adjustment expense 310.4 319.9
Other costs and expenses 123.6 126.5
----------- -----------
Underwriting loss (18.5) (36.3)
Net investment income 57.2 57.6
Realized gain on investments 9.3 6.9
Gain on operating properties 4.2 -
Federal income tax expense 7.8 .8
----------- -----------
Net income $ 44.4 $ 27.4
=========== ===========
Loss ratio 64.0% 66.8%
Loss adjustment expense ratio 11.1 11.6
Underwriting expense ratio 29.7 30.6
Policyholder dividend ratio .2 .1
----------- -----------
Combined ratio 105.0% 109.1%
=========== ===========
</TABLE>
Net Premiums Written
Net premiums written increased 2.9% or $12.1 million to $431.3 million in
the second quarter of 1997 from $419.2 million in the second quarter of 1996.
The increase in net premiums written can be attributed to the Company's various
growth initiatives working as anticipated as well as market acceptance of the
Company's realignment initiative. Net premiums written within the Company's
eight core states increased 5.3% or $11.1 million in the second quarter of 1997
compared to the second quarter of 1996. The eight core states include
Illinois, Washington, Indiana, Missouri, Ohio, Michigan, Kansas and Oregon.
Excluding the states of California and Florida, states in which the Company has
planned a reduction in exposure, net premiums written increased 4.1% or $15.4
million in the second quarter of 1997 compared to the second quarter of 1996.
Net premiums written for commercial lines products (excluding reinsurance
in run-off) increased 1.7% or $4.1 million to $249.1 million in the second
quarter of 1997 from $245.0 million in the second quarter of 1996. Increases
in businessowners, commercial multi-peril and commercial automobile lines were
offset in part by decreases in workers' compensation and general liability
lines. Net premiums written for personal lines products increased 4.7% or $8.2
million to $182.2 million in the second quarter of 1997 from $174.0 million in
the second quarter of 1996. Substantially all of the personal lines growth was
in private passenger auto.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
PROPERTY AND CASUALTY
Net Premiums Earned and Other Revenue
Net premiums earned and other revenue (primarily finance and service fees)
increased 1.3% or $5.4 million to $415.5 million in the second quarter of 1997
from $410.1 million in the second quarter of 1996.
Losses and Loss Adjustment Expense ("LAE")
Losses and LAE decreased 3.0% or $9.5 million to $310.4 million in the
second quarter of 1997 from $319.9 million in the second quarter of 1996. The
SAP loss ratio for the second quarter of 1997 was 64.0% compared to 66.8% for
the second quarter of 1996. The 2.8 point decrease in the quarter was
primarily due to a decrease in natural peril losses. The Company incurred
heavy natural peril losses of $56.5 million in the second quarter of 1996
compared to natural peril losses of $34.4 million in the second quarter of
1997. The natural peril losses incurred in the second quarter of 1997 are in
line with historic norms.
The SAP LAE ratio declined to 11.1% in the second quarter of 1997 from
11.6% for the second quarter of 1996. This ratio decrease is due to continued
expense reductions resulting from the realignment initiative, as well as
slightly increased earned premiums.
Other Costs and Expenses
Other costs and expenses decreased 2.3% or $2.9 million to $123.6 million
in the second quarter of 1997 from $126.5 million in the second quarter of
1996. The realignment initiative and implementation of internal cost controls,
announced in the fourth quarter of 1995, continues to produce expense savings
which are in line with expectations. The SAP underwriting expense ratio
decreased by .9 points to 29.7%.
Combined Ratio
The SAP combined ratio, after policyholder dividends, was 105.0% and
109.1% for the second quarter of 1997 and 1996, respectively. The decrease in
the SAP combined ratio is primarily due to a decrease in natural peril losses.
Net Investment Income
Net investment income decreased .7% or $.4 million to $57.2 million in the
second quarter of 1997 from $57.6 million in the second quarter of 1996. This
decrease is due primarily to a decline in total average invested assets. The
pre-tax yield on invested assets (excluding realized and unrealized gains) was
6.4% for the second quarter of 1997 and 1996, respectively.
Federal Income Tax Expense
Federal income tax expense was $7.8 million for the second quarter of 1997
compared to $.8 million for the second quarter of 1996. The increase in
expense is due primarily to improved underwriting results.
13
<PAGE> 14
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 June 30, 1997 and
1996.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Account values - Universal life and Annuities $ 352.7 $ 329.9
Life insurance in-force 15,208.8 15,518.9
Invested assets (at amortized cost) 482.9 454.8
Policy income $ 14.3 $ 14.4
Benefits and expenses 18.4 17.5
Net investment income 8.9 8.2
Realized gain (loss) on investments .4 .3
Federal income tax expense 1.8 2.0
----------- -----------
Net income $ 3.4 $ 3.4
=========== ===========
</TABLE>
Policy income decreased .7% or $.1 million to $14.3 million in the second
quarter of 1997 from $14.4 million in the second quarter of 1996. Account
values at June 30, 1997 increased by 6.9% from June 30, 1996. Net investment
income increased 8.5% in the second quarter of 1997 compared to the second
quarter of 1996. The pre-tax yield on invested assets (excluding realized and
unrealized gains) was 7.5% and 7.3% for the second quarters of 1997 and 1996,
respectively. Net income for the second quarter of 1997 was $3.4 million
compared to $3.4 million for the second quarter of 1996.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
Six Months Ended June 30, 1997 and 1996
The discussion which follows compares the results of the six months ended
June 30, 1997 to the six months ended June 30, 1996.
CONSOLIDATED
The Company's revenues increased .1% or $.8 million to $1,012.2 million in
the first six months of 1997 from $1,011.4 million in the first six months of
1996. Net premiums earned and other revenue decreased .5% or $4.6 million to
$853.1 million in the first six months of 1997 from $848.5 million in the first
six months of 1996. Net investment income decreased 1.1% or $1.5 million to
$133.0 million in the first six months of 1997 from $134.5 million in the first
six months of 1996. Realized gains on investments decreased $9.1 million to
$19.4 million in the first six months of 1997 from $28.5 million in the first
six months of 1996.
Benefits and settlement expenses decreased 5.3% or $35.0 million to $620.9
million in the first six months of 1997 from $655.9 million in the first six
months of 1996. Commissions decreased 2.5% or $3.6 million to $140.8 million in
the first six months of 1997 from $144.4 million in the first six months of
1996. Operating and administrative expenses decreased 3.1% or $3.2 million to
$99.0 million in the first six months of 1997 from $102.2 million in the first
six months of 1996. The company incurred interest on debt of $10.4 million in
the first six months of 1997 from the Assumed Debt and Term Note.
Net income for the first six months of 1997 was $98.3 million or $1.64 per
share compared to $76.7 million or $1.48 per share for the first six months of
1996. Excluding realized gain on investments, the Company earned $81.4 million
or $1.36 per share for the first six months of 1997 compared to $59.8 million
or $1.15 per share for the first six months of 1996.
15
<PAGE> 16
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 six
months ended June 30, 1997 and 1996. All ratios are computed using data
reported in accordance with SAP.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Net premiums written $ 854.2 $ 824.9
Net premiums earned and other revenue $ 824.1 $ 819.6
Losses and loss adjustment expense 595.1 630.9
Other costs and expenses 250.0 255.8
----------- -----------
Underwriting gain (loss) (21.0) (67.1)
Net investment income 114.3 117.3
Realized gain on investments 19.1 28.1
Gain on operating properties 6.7 -
Federal income tax expense 21.0 7.1
----------- -----------
Net income $ 98.1 $ 71.2
=========== ===========
Loss ratio 61.4% 65.9%
Loss adjustment expense ratio 11.1 11.5
Underwriting expense ratio 30.1 31.2
Policyholder dividend ratio .3 .2
----------- -----------
Combined ratio 102.9% 108.8%
=========== ===========
</TABLE>
Net Premiums Written
Net premiums written increased 3.6% or $29.3 million to $854.2 million in
the first six months of 1997 from $824.9 million in the first six months of
1996. The increase in net premiums written can be attributed to the Company's
various growth initiatives as well as market acceptance of the Company's
realignment initiative. Net premiums written within the Company's eight core
states increased 6.4% or $26.0 million in the first six months of 1997 compared
to the first six months of 1996. The eight core states include Illinois,
Washington, Indiana, Missouri, Ohio, Michigan, Kansas and Oregon. Excluding
the states of California and Florida, states in which the Company has planned a
reduction in exposure, net premiums written increased 4.9% or $36.1 million in
the first six months of 1997 compared to the first six months of 1996.
Net premiums written for commercial lines products (excluding reinsurance
in run-off) increased 2.2% or $10.7 million to $496.9 million in the first six
months of 1997 from $486.2 million in the first six months of 1996. Increases
in businessowners, commercial multi-peril and commercial automobile lines were
offset in part by decreases in workers' compensation and general liability
lines. Net premiums written for personal lines products increased 5.6% or
$18.9 million to $357.1 million in the first six months of 1997 from $338.2
million in the first six months of 1996. Substantially all of the personal
lines growth was in private passenger auto.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
RESULTS OF OPERATION (Continued)
PROPERTY AND CASUALTY
Net Premiums Earned and Other Revenue
Net premiums earned and other revenue (primarily finance and service fees)
increased .5% or $4.5 million to $824.1 million in the first six months of
1997 from $819.6 million in the first six months of 1996.
Losses and Loss Adjustment Expense
Loss and LAE decreased 5.7% or $35.8 million to $595.1 million in the
first six months of 1997 from $630.9 million in the first six months of 1996.
The SAP loss ratio for the first six months of 1997 was 61.4% compared to 65.9%
for the first six months of 1996. The 4.5 point decrease was due to an
decrease in natural peril losses. The Company incurred heavy natural peril
losses of $57.2 million in the first six months of 1997 compared to natural
peril losses of $99.3 in the first six months of 1996. The natural peril
losses incurred in the first six months of 1997 are in line with historic
norms.
The SAP LAE ratio declined to 11.1% in the first six months of 1997 from
11.5% for the first six months of 1996. This ratio decrease is due to
continued expense reductions resulting from the realignment initiative, as well
as slightly increased earned premiums.
Other Costs and Expenses
Other costs and expenses decreased 2.3% or $5.8 million to $250.0 million
in the first six months of 1997 from $255.8 million in the first six months of
1996. The realignment initiative and implementation of internal cost controls
announced in the fourth quarter of 1995, continues to produce expense savings
which are in line with expectations. The SAP underwriting expense ratio
decreased 1.1 points to 30.1%.
Combined Ratio
The SAP combined ratio, after policyholder dividends, was 102.9% and
108.8% for the first six months of 1997 and 1996, respectively. The decrease
in SAP combined ratio is primarily due to a decrease in natural peril losses.
Net Investment Income
Net investment income decreased 2.6% or $3.0 million to $114.3 million in
the first six months of 1997 from $117.3 million in the first six months of
1996. This decrease is due primarily to a decline in total average invested
assets. The pre-tax yield on invested assets (excluding realized and
unrealized gains) was 6.4% and 6.6% for the first six months of 1997 and 1996,
respectively.
Federal Income Tax Expense
Income tax expense was $21.0 million for the first six months of 1997
compared to $7.1 million for the first six months of 1996. The increase in
expense is due primarily to improved underwriting results.
17
<PAGE> 18
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 six months ended June 30, 1997 and
1996.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
----------- -----------
(Dollars in Millions)
<S> <C> <C>
Account values - Universal life and Annuities $ 352.7 $ 329.9
Life insurance in-force 15,208.8 15,518.9
Invested assets (at amortized cost) 482.9 454.8
Policy income $ 28.9 $28.9
Benefits and expenses 36.3 35.7
Net investment income 17.7 16.8
Realized gain (loss) on investments .2 .2
Federal income tax expense 3.7 3.7
----------- -----------
Net income $ 6.8 $ 6.5
=========== ===========
</TABLE>
Policy income was $28.9 million in the first six months of 1997 and 1996.
Account values at June 30, 1997, increased by 6.9% from June 30, 1996. Net
investment income increased 5.4% in the first six months of 1997 compared to
the first six months of 1996. The pre-tax yield on invested assets (excluding
realized and unrealized gains) was 7.5% and 7.6% for the first six months of
1997 and 1996, respectively. Net income for the first six months of 1997 was
$6.8 million compared to $6.5 million for the first quarter of 1996.
18
<PAGE> 19
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 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 June 30, 1997 (dollars in millions):
<TABLE>
<CAPTION>
<S> <C> <C>
Fixed maturity securities:
Tax-exempt municipal $2,123.5 48.4%
US government 222.6 5.1
Mortgage-backed and asset-backed 294.5 6.7
Corporate and other 1,079.5 24.6
Redeemable preferred stock 67.4 1.5
Equities:
Perpetual preferred stock 186.9 4.3
Common stock 273.7 6.3
Mortgage loans 21.9 .5
Short-term investments 74.2 1.7
Other 39.5 .9
-------- -----
Total $4,383.7 100.0%
======== =====
</TABLE>
The total investment portfolio increased $41.1 million in the first six
months of 1997. This increase is primarily due to investment of current period
operating earnings, as well as an increase in unrealized gains on securities
available-for-sale.
The Company attempts to minimize the risk of loss due to default by the
borrower by maintaining a quality investment portfolio. As of June 30, 1997,
approximately 89% of the Company's bond portfolio is rated "A" or higher, or
was a U.S. government obligation, and $29.8 million, or .8% 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 $280.4 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.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 Used by Operations
Net cash used by operating activities was $13.3 million for the first six
months of 1997 compared to $4.7 million for the first six months of 1996. The
increase in cash used by operating activities is primarily due to the receipt
of $61.5 million in conjunction with a settlement of policy liabilities assumed
during the first quarter of 1996 and the payment of $10.3 million in debt
service during the first half of 1997, partially offset by a decrease in paid
losses.
Notes Payable and Debt due LNC
As disclosed in Note 4 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%.
However, as disclosed in Note 6 to the Notes to Consolidated Financial
Statements, LNC will be paid the outstanding balance and accrued but unpaid
interest thereon of the Assumed Debt and Term Note pursuant to terms of the
pending Agreement and Plan of Merger by and among ASFC, SAFECO Corporation and
ASFC Acquisition Co., if and when the sale is consummated.
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 June 30, 1997.
20
<PAGE> 21
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.
<TABLE>
<CAPTION>
<S> <C>
2 Agreement and Plan of Merger, dated June 6, 1997, between American
States Financial Corporation, SAFECO Corporation, and ASFC
Acquisition Co.
3.2 (1) Bylaws of American States Financial Corporation, as amended April
10, 1997 to amend Section I of Article I and June 6, 1997 to add
Section 13 of Article I.
10.9 (2) Amendment to Section 4.1 of American States Financial Corporation
Employees' Savings and Profit-Sharing Plan.
10.27 Voting, Support and Indemnification Agreement, dated June 6, 1997,
between Lincoln National Corporation and SAFECO Corporation.
10.28 (1) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and R. A. Anker.
10.28 (2) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and J. R. Coffin.
10.28 (3) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and J. T. Gallogly.
10.28 (4) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and D. N. Hafling.
10.28 (5) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and T. R. Kaehr.
10.28 (6) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and W. J. Lawson.
10.28 (7) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and T. M. Ober.
10.28 (8) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and H. R. Simpson.
10.28 (9) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and T. R. Stephenson.
10.28 (10) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and J. E. Stoddard-Smith.
</TABLE>
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits (Continued)
<TABLE>
<CAPTION>
<S> <C>
10.28 (11) Incentive Letter Agreement, dated April 1, 1997, between American
States Financial Corporation and R. K. Young.
11 Computations of Earnings Per Share.
27 Financial Data Schedule.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
b) Reports on Form 8-K.
The Registrant filed a Form 8K Current Report, dated June 6, 1997, pertaining
to the Registrant entering into an Agreement and Plan of Merger with SAFECO
Corporation.
22
<PAGE> 23
AMERICAN STATES FINANCIAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended June 30, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<S> <C> <C>
2 Agreement and Plan of Merger, dated June 6, 1997,
between American States Financial Corporation, SAFECO
Corporation, and ASFC Acquisition Co. *
3.2 (1) Bylaws of American States Financial Corporation, as
amended April 10, 1997 to amend Section I of Article I
and June 6, 1997 to add Section 13 of Article I. 26
10.9 (2) Amendment to Section 4.1 of American States Financial
Corporation Employees' Savings and Profit-Sharing Plan. 39
10.27 Voting, Support and Indemnification Agreement,
dated June 6, 1997, between Lincoln National Corporation
and SAFECO Corporation. *
10.28 (1) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and R. A. Anker. 40
10.28 (2) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and J. R. Coffin. 47
10.28 (3) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and J. T. Gallogly. 57
10.28 (4) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and D. N. Hafling. 67
10.28 (5) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and T. R. Kaehr. 77
10.28 (6) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and W. J. Lawson. 86
10.28 (7) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and T. M. Ober. 96
10.28 (8) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and H. R. Simpson. 106
10.28 (9) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and T. R. Stephenson. 116
10.28 (10) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and
J. E. Stoddard-Smith. 126
</TABLE>
* Incorporated by Reference to certain portions of the Registrant's Form 8-K,
dated June 6, 1997.
23
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------ ----------- ------
<S> <C> <C>
10.28 (11) Incentive Letter Agreement, dated April 1, 1997, between
American States Financial Corporation and R. K. Young. 136
11 Computations of Earnings Per Share. 146
27 Financial Data Schedule. 147
</TABLE>
24
<PAGE> 25
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: August 13, 1997
----------------
25
<PAGE> 1
BYLAWS Exhibit 3.2 (1)
OF
AMERICAN STATES FINANCIAL CORPORATION
(AS AMENDED APRIL 10, 1997 TO AMEND SECTION I OF ARTICLE I,
AND JUNE 6, 1997 TO ADD SECTION 13 OF ARTICLE I)
ARTICLE I
SHAREHOLDERS
SECTION 1. Annual Meeting. An annual meeting of the shareholders shall
be held at such hour as shall be designated by the board of directors on the
third Thursday of May, or such other date as the board of directors may
select, in each year for the purpose of electing directors for the terms
hereinafter provided and for the transaction of such other business as may
properly come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday in the State of Indiana, such meeting shall be held on
the next succeeding full business day. (As amended April 10, 1997)
SECTION 2. Special Meetings. Special meetings of the shareholders may be
called by the chief executive officer, by the board of directors, or by
shareholders holding not less than 75% of all votes entitled to be cast on any
issue to be considered at the special meeting who sign, date and deliver to the
secretary of the corporation one or more written demands for the meeting
describing the purpose or purposes for which it is to be held. Only business
within the purpose or purposes described in the meeting notice may be conducted
at a special shareholders meeting.
SECTION 3. Place of Meetings. All meetings of shareholders shall be held
at the principal office of the corporation in Indianapolis, Indiana, or at such
other place, either within or without the State of Indiana, as may be
designated by the board of directors.
SECTION 4. Notice of Meetings. A written or printed notice, stating the
place, day and hour of the meeting, and in the case of a special meeting or
when required by law or by the articles of incorporation or these bylaws, the
purpose or purposes for which the meeting is called, shall be delivered or
mailed by or at the direction of the secretary no fewer than ten nor more than
sixty days before the date of the meeting, to each shareholder of record
entitled to vote at such meeting at such address as appears upon the stock
records of the corporation.
SECTION 5. Quorum. Unless otherwise provided by the articles of
incorporation or these bylaws, at any meeting of shareholders, the majority of
the outstanding shares entitled to vote at such meeting, represented in person
or by proxy, shall constitute a quorum. If less than a majority of such shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 6. Adjourned Meetings. At any adjourned meeting at which a
quorum shall be represented, any business may be transacted as might have been
transacted at the meeting as originally notified. If a new record date is or
must be established pursuant to law, notice of the adjourned meeting must be
given to persons who are shareholders as of the new record date.
SECTION 7. Proxies. At all meetings of shareholders, a shareholder may
vote either in person or by proxy executed in writing by the shareholder or a
duly authorized attorney in fact. No proxy shall be valid after eleven months
from the date of its execution, unless otherwise provided in the proxy.
26
<PAGE> 2
SECTION 8. Voting of Shares. Except as otherwise provided by law, by the
articles of incorporation, or by these bylaws, every shareholder shall have the
right at every shareholders' meeting to one vote for each share standing in his
name on the books of the corporation on the date established by the board of
directors as the record date for determination of shareholders entitled to vote
at such meeting.
SECTION 9. Order of Business. The order of business at each
shareholders' meeting shall be established by the person presiding at the
meeting.
SECTION 10. Notice of Shareholder Business. At any meeting of the
shareholders, only such business may be conducted as shall have been properly
brought before the meeting, and as shall have been determined to be lawful and
appropriate for consideration by shareholders at the meeting. To be properly
brought before a meeting, business must be (a) specified in the notice of
meeting given in accordance with Section 4 of this Article I, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors or the chief executive officer, or (c) otherwise properly brought
before the meeting by a shareholder. For business to be properly brought
before a meeting by a shareholder pursuant to clause (c) above, the shareholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal office of the corporation not less than
fifty days nor more than ninety days prior to the meeting; provided, however,
that in the event that less than sixty days' notice of the date of the meeting
is given to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was given. A shareholder's
notice to the secretary shall set forth as to each matter the shareholder
proposes to bring before the meeting (a) a brief description of the business
desired to be brought before the meeting, (b) the name and address, as they
appear on the corporation's stock records, of the shareholder which are
beneficially owned by the shareholder, and (d) any interest of the shareholder
in such business. Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted at a meeting except in accordance with the
procedures set forth in this Section 10. The person presiding at the meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not brought before the meeting in accordance with the bylaws, or that
business was not lawful or appropriate for consideration by shareholders at the
meeting, and if he should so determine, he shall so declare to the meeting and
any such business shall not be transacted.
SECTION 11. Notice of Shareholder Nominees. Nominations of persons for
election to the board of directors of the corporation may be made at any
meeting of shareholders by or at the direction of the board of directors or by
any shareholder of the corporation entitled to vote for the election of
directors at the meeting. Shareholder nominations shall be made pursuant to
timely notice given in writing to the secretary of the corporation in
accordance with Section 10 of this Article I. Such shareholder's notice shall
set forth, in addition to the information required by Section 10, as to each
person whom the shareholder proposes to nominate for election or re-election as
a director, (i) the name, age, business address and residence address of such
person, (ii) the principle occupation or employment of such person, (iii) the
class and number of shares of the corporation which are beneficially owned by
such person, (iv) any other information relating to such person that is
required to be disclosed in solicitation of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected), and (v) the qualifications of the nominee
to serve as a director of the corporation. No shareholder nomination shall be
effective unless made in accordance with the procedures set forth in this
Section 11. The person presiding at the meeting shall, if the facts warrant,
determine and declare to the meeting that a shareholder nomination was not made
in accordance with the bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
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SECTION 12. Control Share Acquisitions. As used in this Section 12, the
terms, "control shares" and "control share acquisition" shall have the same
meanings as set forth in Indiana Code Section 23-1-42-1 et seq. (the "Act").
Control shares of the corporation acquired in a control share acquisition shall
have only such voting rights as are conferred by the Act. Control shares of
the corporation acquired in a control share acquisition with respect to which
the acquiring person has not filed with the corporation the statement required
by the Act may, at any time during the period ending sixty days after the last
acquisition of control shares by the acquiring person, be redeemed by the
corporation at the fair value thereof pursuant to procedures authorized by a
resolution of the board of directors. Such authority may be general or
confined to specific instances.
SECTION 13. Application of Ind. Code Sections 23-1-42-1, et seq.
Notwithstanding any other provision of these Bylaws, the Control Share
Acquisitions Chapter of the Indiana Business Corporation Law, Ind. Code
Sections 23-1-42-1, et seq., does not apply to control share acquisitions of
shares of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers, Number Classes and Tenure. The business of
the corporation shall be managed by a board of directors. The number of
directors which shall constitute the whole board of directors of the
corporation shall be nine. The number of directors may be increased or
decreased from time to time by amendment of these bylaws, but no decrease shall
have the effect of shortening the term of any incumbent director. The
directors shall be divided into three classes, each class to consist, as nearly
as may be, of one-third of the number of directors then constituting the whole
board of directors, with one class to be elected annually by shareholders for a
term of three years, to hold office until their respective successors are
elected and qualified; except that
(1) the terms of office of directors initially elected shall be staggered
so that the term of office of one class shall expire in each year;
(2) the term of office of a director who is elected by either the
directors or shareholders to fill a vacancy in the board of directors
shall expire at the end of the term of office of the succeeded
director's class or at the end of the term of office of such other
class as determined by the board of directors to be necessary or
desirable in order to equalize the number of directors among the
classes;
(3) the board of directors may adopt a policy limiting the time beyond
which certain directors are not to continue to serve, the effect of
which may be to produce classes of unequal size or to cause certain
directors either to be nominated for election for a term of less than
three years or to cease to be a director before expiration of the
term of the director's class.
In case of any increase in the number of directors, the additional
directors shall be distributed among the several classes to make the size of
the classes as equal as possible.
SECTION 2. Regular Meetings. A regular meeting of the board of directors
shall be held with-out other notice than this bylaw immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the time and place, either within or without the
State of Indiana, for the holding of additional regular meetings without other
notice than such resolution.
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SECTION 3. Special Meetings. Special meetings of the board of directors
may be called by the chief executive officer. The secretary shall call special
meetings of the board of directors when requested in writing to do so by a
majority of the members thereof. Special meetings of the board of directors
may be held either within or without the State of Indiana.
SECTION 4. Notice of Meetings. Except as otherwise provided in these
bylaws, notice of any meeting of the board of directors shall be given not less
than two days before the date fixed for such meeting by oral, telegraphic,
telephonic, electronic or written communication stating the time and place
thereof and delivered personally to each member of the board of directors or
telegraphed or mailed to him at his business address as it appears on the
books of the corporation; provided, that in lieu of such notice, a director may
sign a written waiver of notice either before the time of the meeting, at the
time of the meeting or after the time of the meeting.
SECTION 5. Quorum. A majority of the whole board of directors shall be
necessary to constitute a quorum for the transaction of any business except the
filling of vacancies, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 6. Manner of Acting. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by law or by
the articles of incorporation or these bylaws. Unless otherwise provided by
the articles of incorporation, any action required or permitted to be taken at
any meeting of the board of directors may be taken without a meeting, if such
action is evidenced by one or more written consents, describing the action
taken, signed by all members of the board of directors and such written consent
is filed with the minutes of proceedings of the board of directors. Action
taken by means of a written consent is effective when the last member of the
board of directors signs a written consent, unless the written consent
specifies a different prior or subsequent date. Unless otherwise provided by
the article of incorporation, any or all members of the board of directors may
participate in a meeting of the board of directors by means of a conference
telephone or similar communications equipment by which all persons
participating in the meeting can communicate with each other, and participation
in this manner constitutes presence in person at the meeting.
SECTION 7. Vacancies. Except as otherwise provided in the articles of
incorporation, any vacancy occurring in the board of directors may be filled by
a majority vote of the remaining directors, though less than a quorum of the
board of directors, or, at the discretion of the board of directors, any
vacancy may be filled by a vote of the shareholders.
SECTION 8. Notice to Shareholders. Shareholders shall be notified of any
increase in the number of directors and the name, address, principal occupation
and other pertinent information about any director elected by the board of
directors to fill any vacancy. Such notice shall be given in the next mailing
sent to shareholders following any such increase or election, or both, as the
case may be.
ARTICLE III
OFFICERS
SECTION 1. Elected Officers. The elected officers of the corporation
shall be a chief executive officer, president, a secretary, and a treasurer,
and may also include a chairman of the board, one or more vice presidents as
the board of directors may determine, and such other officers as the board of
directors may determine. The chairman of the board shall be chosen from among
the directors. Any two or more offices may be held by the same person.
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SECTION 2. Appointed Officers. The appointed officers of the corporation
shall be one or more second vice presidents, assistant vice presidents,
assistant treasurers, and assistant secretaries.
SECTION 3. Election or Appointment and Term of Office. The elected
officers of the corporation shall be elected annually by the board of directors
at the first meeting of the board of directors held after each annual meeting
of the shareholders. The appointed officers of the corporation shall be
appointed annually by the chief executive officer immediately following the
first meeting of the board of directors held after each annual meeting of the
shareholders. Additional elected officers may be elected at any regular or
special meeting of the board of directors to serve until the regular meeting of
the board held after the next annual meeting of shareholders, and additional
appointed officers may be appointed by the chief executive officer at any time
to serve until the next annual appointment of officers. Each officer shall
hold office until his successor shall have been duly elected or appointed and
shall have been qualified or until his death or until he shall resign or retire
or shall have been removed.
SECTION 4. Removal. Any officer may be removed by the board of directors
and any appointed officer may be removed by the chief executive officer,
whenever in their judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 5. Vacancies. A vacancy in the office of chief executive
officer, president or secretary or treasurer because of death, resignation,
retirement, removal or otherwise, shall be filled by the board of directors,
and a vacancy in any other elected office may be filled by the board of
directors.
SECTION 6. Chief Executive Officer. The chief executive officer of the
corporation shall be, subject to the board of directors, in general charge of
the affairs of the corporation. In the absence of the chairman of the board,
or if such office be vacant, the chief executive officer shall have all the
powers of the chairman of the board and shall perform all his duties.
SECTION 7. Chairman of the Board. The chairman of the board shall
preside at all meetings of the shareholders and of the board of directors at
which he may be present and shall have such other powers and duties as may be
determined by the board of directors.
SECTION 8. President. The president shall have such powers and duties as
may be determined by the board of directors.
SECTION 9. Vice Presidents. A vice president shall perform such duties
as may be assigned by the chief executive officer or the board of directors.
In the absence of the president and in accordance with such order of priority
as may be established by the board of directors, he may perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president.
SECTION 10. Second Vice Presidents and Assistant Vice Presidents. A
second vice president and an assistant vice president shall perform such duties
as may be assigned by the chief executive officer or the board of directors.
SECTION 11. Secretary. The secretary shall (a) keep the minutes of the
shareholders' and board of directors' meetings in one or more books provided
for that purpose, (b) see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law, (c) be custodian of the
corporate records and of the seal, if any, of the corporation, and (d) in
general perform all duties incident to the office of secretary and such other
duties as may be assigned by the chief executive officer or the board of
directors.
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SECTION 12. Assistant Secretaries. In the absence of the secretary, an
assistant secretary shall have the power to perform his duties including the
certification, execution and attestation of corporate records and corporate
instruments. Assistant secretaries shall perform such other duties as may be
assigned to them by the chief executive officer or the board of directors.
SECTION 13. Treasurer. The treasurer shall (a) have charge and custody
of all funds and securities of the corporation, (b) receive and give receipts
for the monies due and payable to the corporation from any source whatsoever,
(c) deposit all such monies in the name of the corporation in such depositories
as are selected by the board of directors, and (d) in general perform all
duties incident to the office of treasurer and such other duties as may be
assigned by the chief executive officer or the board of directors. If required
by the board of directors, the treasurer shall give a bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
board of directors shall determine.
SECTION 14. Assistant Treasurers. In the absence of the treasurer, an
assistant treasurer shall have the power to perform his duties. Assistant
treasurers shall perform such other duties as may be assigned to them by the
chief executive officer or the board of directors.
ARTICLE IV
COMMITTEES
SECTION 1. Board Committees. The board of directors may, by resolution
adopted by a majority of the whole board of directors, from time to time
designate from among its members one or more committees each of which, to the
extent provided in such resolution and except as otherwise provided by law,
shall have and exercise all the authority of the board of directors. Each such
committee shall serve at the pleasure of the board of directors. The
designation of any such committee and the delegation thereto of authority shall
not operate to relieve the board of directors, or any member thereof, or any
responsibility imposed by law. Each such committee shall keep a record of its
proceedings and shall adopt its own rules of procedure. It shall make such
reports to the board of directors of its actions as may be required by the
board.
SECTION 2. Advisory Committees. The board of directors may, by
resolution adopted by a majority of the whole board of directors, from time to
time designate one or more advisory committees, a majority of whose members
shall be directors. An advisory committee shall serve at the pleasure of the
board of directors, keep a record of its proceedings and adopt its own rules of
procedure. It shall make such reports to the board of directors of its actions
as may be required by the board.
SECTION 3. Manner of Acting. Unless otherwise provided by the article of
incorporation, any action required or permitted to be taken at any meeting of a
committee established under this Article IV may be taken without a meeting if
such action is evidenced by one or more written consents, describing the action
taken, signed by all members of the committee and such written consent is filed
with the minutes of proceedings of the committee. Action taken by means of a
written consent is effective when the last member of the committee signs a
written consent, unless the written consent specifies a different prior or
subsequent date. Unless otherwise provided by the articles of incorporation,
any or all members of such committee may participate in a meeting of the
committee by means of a conference telephone or similar communications
equipment by which all persons participating in the meeting can communicate
with each other, and participation in this manner constitutes presence in
person at the meeting.
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ARTICLE V
CORPORATE INSTRUMENTS AND LOANS
SECTION 1. Corporate Instruments. The board of directors may authorize
any officer or officers to execute and deliver any instrument in the name of or
on behalf of the corporation, and such authority may be general or confined to
specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
ARTICLE VI
STOCK CERTIFICATES, TRANSFER OF SHARES, STOCK RECORDS
SECTION 1. Certificates for Shares. Each shareholder shall be entitled a
certificate, signed by the chief executive officer, president or a vice
president and the secretary or any assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. If such
certificate is countersigned by the written signature of a transfer agent other
than the corporation or its employee, the signatures of the officers of the
corporation may be facsimiles. If such certificate is countersigned by the
written signature of a registrar other than the corporation or its employee,
the signatures of the transfer agent and the officers of the corporation may be
facsimiles. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of its issue.
Certificates representing shares of the corporation shall be in such form
consistent with the laws of the State of Indiana as shall be determined by the
board of directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the stock transfer records of the corporation.
SECTION 2. Transfer of Shares. Transfer of shares of the corporation
shall be made on the stock transfer records of the corporation by the holder of
record thereof or by his legal representative who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the corporation, and, except as
otherwise provided in these bylaws, on surrender for cancellation of the
certificates for such shares.
SECTION 3. Lost, Destroyed or Wrongfully Taken Certificates. Any person
claiming a certificate of stock to have been lost, destroyed or wrongfully
taken, and who requests the issuance of a new certificate before the
corporation has notice that the certificate alleged to have been lost,
destroyed or wrongfully taken has been acquired by a bona fide purchaser, shall
make an affidavit of that fact and shall give the corporation and its transfer
agents and registrars a bond of indemnity with unlimited liability, in form and
with one or more corporate sureties satisfactory to the chief executive officer
or treasurer of the corporation (except that the chief executive officer or
treasurer may authorize the acceptance of a bond of different amount, or a bond
with personal surety thereon, or a personal agreement of indemnity), whereupon
in the discretions of the chief executive officer or the treasurer and except
as otherwise provided by law a new certificate may be issued of the same tenor
and for the same number of shares as the one alleged to have been lost,
destroyed or wrongfully taken. In lieu of a separate bond of indemnity in
each case, the chief executive officer of the corporation may accept an
assumption of liability under a blanket bond issued in favor of the
corporation and its transfer agents and registrars by one or more corporate
sureties satisfactory to him.
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SECTION 4. Transfer Agent and Registrars. The board of directors by
resolution may appoint a transfer agent or agents or a registrar or registrars
of transfer, or both. All such appointments shall confer such powers, rights,
duties and obligations consistent with the laws of the State of Indiana as the
board of directors shall determine. The board of directors may appoint the
treasurer of the corporation and one or more assistant treasurers to serve as
transfer agent or agents. Any signature required of a transfer agent or
registrar may be accomplished manually or by facsimile. (As amended March 14,
1996)
SECTION 5. Record Date. For the purposes of determining shareholders
entitled to vote at any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the
board of directors shall fix in advance a date as a record date for any such
determination of shareholders, such date in any case to be not more than
seventy days before the meeting or action requiring a determination of
shareholders.
ARTICLE VII
LIABILITY
No person or his personal representatives shall be liable to the
corporation for any loss or damage suffered by it on account of any action
taken or omitted to be taken by such person in good faith as an officer or
employee of the corporation, or a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, whether for
profit or not, which he serves or served at the request of the corporation, if
such person (a) exercised and used the same degree of care and skill as a
prudent man would have exercised and used under like circumstances, charged
with a like duty, or (b) took or omitted to take such action in reliance upon
advice of counsel for the corporation or such enterprise or upon statements
made or information furnished by persons employed or retained by the
corporation or such enterprise upon which he had reasonable grounds to rely.
The foregoing shall not be exclusive of other rights and defenses to which such
person or his personal representatives may be entitled under law.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. Actions by a Third Party. The corporation shall, to the
fullest extent to which it is empowered to do so by the Indiana Business
Corporation Law, or any other applicable laws, as from time to time in effect,
indemnify any person who is or was a party, or is threatened to be made a
defendant or respondent, to a proceeding, including any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than actions by or in the right of the corporation),
and whether formal or informal, who is or was a director, officer, employee, or
agent of the corporation or who, while a director, officer, employee, or agent
of the corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, whether for profit or not, against:
(a) any reasonable expenses (including attorneys' fees) incurred with
respect to a proceeding, if such person is wholly successful on the
merits or otherwise in the defense of such proceeding, or
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(b) judgments, settlements, penalties, fines (including excise taxes
assessed with respect to employee benefit plans) and reasonable
expenses (including attorneys fees) incurred with respect to a
proceeding where such person is not wholly successful on the merits
or otherwise in the defense of the proceeding if:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's official capacity
as a director, officer, employee or agent of the corporation,
that the individual's conduct was in the corporation's best
interests;
and
(B) in all other cases, that the individual's conduct was at
least not opposed to the corporation's best interests; and
(iii) in the case of any criminal proceeding, the individual either:
(A) had reasonable cause to believe the individual's conduct was
lawful; or
(B) had no reasonable cause to believe the individual's conduct
was unlawful;
except that the foregoing shall not apply to a director or officer of the
corporation with respect to a proceeding that was commenced by such director or
officer prior to a Change in Control (as defined in Section 9 to this Article
VIII).
The termination of a proceeding by a judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent is not, of itself,
determinative that the director, officer, or employee did not meet the standard
of conduct described in this section.
SECTION 2. Actions by or in the Right of the Corporation. The
corporation shall, to the fullest extent to which it is empowered to do so by
the Indiana Business Corporation Law, or any other applicable laws, as from
time to time in effect, indemnify any person who is or was a party or is
threatened to be made a defendant or respondent, to a proceeding, including any
threatened, pending or completed action, suit or proceeding, by or in the right
of the corporation to procure a judgment in its favor, by reason of the fact
that such person is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, whether for profit or not, against any reasonable expenses
(including attorneys' fees):
(a) if such person is wholly successful on the merits or otherwise in the
defense of such proceeding, or
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(b) if not wholly successful:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's official capacity
as a director, officer, or employee of the corporation, that
the individual's conduct was in the corporation's best
interests; and
(B) in all other cases, that the individual's conduct was at least
not opposed to the corporation's best interests;
except that (1) no indemnification shall be made in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application, that despite the
adjudication of inability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court shall deem proper, and (2) the foregoing shall not apply to a
director or officer of the corporation with respect to a proceeding that was
commenced by such director or officer prior to a Change in Control.
SECTION 3. Methods of Determining Whether Standards for Indemnification Have
Been Met. Any indemnification under Sections 1 and 2 of this Article VIII
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standards of conduct set forth in Sections 1 or 2. In the case
of directors of the corporation such determination shall be made by any one of
the following procedures:
(a) by the board of directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under (a), by majority vote of a
committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the
proceeding;
(c) by special legal counsel:
(i) selected by the board of directors or a committee thereof in the
manner proscribed in (a) or (b); or
(ii) if a quorum of the board of directors cannot be obtained under
(a) and a committee cannot be designated under (b), selected by
a majority vote of the full board of directors (in which selection
directors who are parties may participate);
except that if a Change in Control shall have occurred and the director,
officer, employee or agent seeking indemnification (the "Indemnitee") so
requests, such determination shall be made by a special legal counsel (A) who
is selected by such Indemnitee and (B) to whom a majority of the directors not
at the time parties to the proceeding do not object.
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In the case of persons who are not directors of the corporation, such
determination shall be made (a) by the chief executive officer of the
corporation or (b) if the chief executive officer so directs or in his absence,
in the manner such determination would be made if the person were a director of
the corporation.
If a Change in Control shall have occurred, the Indemnitee shall be presumed to
be entitled to indemnification under this Article VIII (with respect to actions
or failures to act occurring prior to such Change in Control), and thereafter
the corporation shall have the burden of proof to over come that presumption
in reaching a contrary determination.
SECTION 4. Good Faith Defined. For purposes of any determination under
Section 1 or 2, a person shall be deemed to have acted in good faith and to
have otherwise met the applicable standard of conduct set forth in such section
if his action is based on information, opinions, reports, or statements,
including financial statements and other financial data, if prepared or
presented by (1) one or more officers or employees of the corporation or
another enterprise whom he reasonably believes to be reliable and competent in
the matters presented; (2) legal counsel, public accountants, appraisers or
other persons as to matters he reasonably believes are within the person's
professional or expert competence; or (3) a committee of the board of directors
of the corporation or another enterprise of which the person is not a member if
he reasonably believes the committee merits confidence. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conducts set forth in Section 1 or 2.
SECTION 5. Advancement of Defense Expenses. The corporation may pay for
or reimburse the reasonable expenses incurred by a director, officer, employee
or agent who is a party to a proceeding described in Section 1 or 2 of this
Article VIII in advance of the final disposition of said proceeding if:
(a) the director, officer, employee or agent furnishes the corporation a
written affirmation of his good faith belief that he has met the
standard of conduct described in Section 1 or 2; and
(b) the director, officer, employee or agent furnishes the corporation a
written undertaking, executed personally or on his behalf, to repay
the advance if it is ultimately determined that the director, officer,
employee or agent did not meet the standard of conduct; and
(c) a determination is made that the facts then known to those making the
determination would not preclude indemnification under Section 1 or 2.
The undertaking required by this Section must be an unlimited general
obligation of the director, officer, employee or agent but need not be secured
and may be accepted by the corporation without reference to the financial
ability of such person to make repayment.
SECTION 6. Non-Exclusiveness of Indemnification. The indemnification and
advancement of expenses provided for or authorized by this Article VIII do not
exclude any other rights to indemnification or advancement of expenses that a
person may have under:
(a) the corporation's articles of incorporation or bylaws;
(b) any resolution of the board of directors or the shareholders of the
corporation;
(c) any other authorization adopted by the shareholders; or
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(d) otherwise as provided by law, both as to such person's actions in his
capacity as a director, officer, employee or agent of the corporation
and as to actions in another capacity while holding such office.
Such indemnification shall continue as to a person who has ceased to be a
director, officer, or employee, and shall inure to the benefit of the heirs and
personal representatives of such person.
SECTION 7. Vested Right to Indemnification. The right of any individual
to indemnification under this Article VIII shall vest at the time of occurrence
or performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 1 or 2 and, once vested, shall
not later be impaired as a result of any amendment, repeal, alteration or other
modification of any or all of these provisions, whether or not any such
amendment, repeal, alteration or other modification occurs after a Change in
Control. Notwithstanding the foregoing, the indemnification afforded under
this Article VIII shall be applicable to all alleged prior acts or omissions
of any individual seeking indemnification hereunder, regardless of the fact
that such alleged acts or omissions may have occurred prior to the adoption of
this Article VIII. To the extent such prior acts or omissions cannot be
deemed to be covered by this Article VIII, the right of any individual to
indemnification shall be governed by the indemnification provisions in effect
at the time of such prior acts of omissions.
SECTION 8. Insurance. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against any liability asserted against or incurred by the
individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
power to indemnify the individual against the same liability under this Article
VIII.
SECTION 9. Additional Definitions. For purposes of this Article VIII,
references to the "corporation" shall include any domestic or foreign
predecessor entity of the corporation in a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article VIII, "Change in Control" shall mean a change
in control of the corporation of a nature that would be required to be reported
in response to Item 6(e) (or any successor provision) of Schedule 14A or
Regulation 14A (or any amendment or successor provision thereto) promulgated
under the Securities Exchange Act of 1934 (the "1934 Act"), whether or not the
corporation is then subject to such reporting requirement; provided that,
without limitation, such a change in control shall be deemed to have occurred
if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the
1934 Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act), directly or indirectly, of securities of the corporation
representing 20% or more of the voting power of all outstanding shares of stock
of the corporation entitled to vote generally in an election of directors
without the prior approval of at least two-thirds of the members of the board
of directors in office immediately prior to such acquisition; (B) the
corporation is a party to any merger or consolidation in which the corporation
is not the continuing or surviving corporation or pursuant to which shares of
the corporation's common stock would be converted into cash, securities or
other property, other than a merger of the corporation in which the holders of
the corporation's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, (C) there is a sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, the assets of the corporation, or liquidation or dissolution
of the corporation; (D) the corporation is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence
of which members of the board of directors in office immediately prior to such
transaction or event constitute less than a majority of the board of directors
thereafter, or (E) during any period of two consecutive years, individuals who
at the beginning of such period constituted the board of directors (including
for this purpose any new director whose election or nomination for election by
the
37
<PAGE> 13
shareholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period) cease
for any reason to constitute at least a majority of the board of directors.
For purposes of this Article VIII, "serving an employee benefit plan at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants or beneficiaries. A person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interest of
the corporation" referred to in this Article VIII.
For purposes of this Article VIII, "official capacity," when used with
respect to a director, shall mean the office of director of the corporation;
and when used with respect to an individual other than a director, shall mean
the office in the corporation held by the officer or the employment or agency
relationship undertaken by the employee or agent on behalf of the corporation.
"Official capacity" does not include service for any other foreign or domestic
corporation or any partnership, joint venture, trust, employee benefit plan,
or other enterprise, whether for profit or not.
SECTION 10. Payments a Business Expense. Any payments made to any
indemnified party under this Article VIII or under any other right to
indemnification shall be deemed to be an ordinary and necessary business
expense of the corporation, and payment thereof shall not subject any person
responsible for the payment, or the board of directors, to any action for
corporate waste or to any similar action.
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed and new bylaws may be
made by a majority of the whole board of directors at any regular or special
meeting of the board of directors.
38
<PAGE> 1
AMENDMENT TO Exhibit 10.9 (2)
SECTION 4.1 OF AMERICAN STATES FINANCIAL
CORPORATION EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
(Adopted April 10, 1997)
4.1 Amount of Employer Contributions. Subject to the terms and conditions
of the Plan, for each Plan Year, each Employer shall contribute an amount on
behalf of each Participant that, when added to the forfeitures and amounts from
a Suspense Account treated as Employer Contributions on that Participant's
behalf for that Plan Year under Subsections 8.4 and 10.1, provides
contributions in accordance with the following schedule:
(a) $0.25 for every $1.00 of that portion of a Participant's Pre-tax
Contribution that does not exceed 6% of the Participant's Compensation
shall be contributed.
(b) If the Combined Ratio of the Company over the Performance Period
ending with the Plan Year for which the Contribution is made is
better than the Average Performance Percentile for the Peer Group for
that Performance Period, an additional amount shall be contributed
as follows:
(i) If the Combined Ratio of the Company for the Performance
Period ending with the Plan Year is equal to or better than the
Superior Performance Percentile for the Peer Group, an additional
$0.75 shall be contributed for every $1.00 of that portion of a
Participant's Pre-tax Contribution that does not exceed 6% of the
Participant's Compensation.
(ii) If the Combined Ratio of the Company for the Performance
Period ending with the Plan Year is between the Average
Performance Percentile and the Superior Performance Percentile for
the Peer Group, the additional contribution shall be between $0.00
and $0.75, as determined by straight-line interpolation, for every
$1.00 of that portion of the Participant's Pre-tax Contribution
that does not exceed 6% of the Participant's compensation.
(c) If the Combined Ratio of the Company over the Performance Period
ending with the Plan Year is 100% or less, then, in addition to any
amounts contributed for a Participant pursuant to Subsections (a) and
(b), another $0.50 shall be contributed for every $1.00 of that portion
of the Participant's Pre-tax Contribution that does not exceed 6% of
the Participant's Compensation.
For purposes of this Section, the Combined Ratio for an applicable Performance
Period is the sum of (1) losses and loss adjustment expenses incurred divided
by earned premiums, plus (2) underwriting expenses and policyholder dividends
divided by premiums written. For any Performance Period, the terms Combined
Ratio, Peer Group, Average Performance Percentile, and the Superior Performance
Percentile shall be determined in accordance with the written guidelines
adopted by the Committee and set forth in an Addendum to the Plan, and that
Addendum, as amended from time to time, shall constitute part of this Plan.
39
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (1)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Robert A. Anker
3603 W. Hamilton Road
Ft. Wayne, IN 46804
Dear Bob:
Thank you for the substantial contributions you have made to the growth
and success of American States Insurance Company ("ASI") and American States
Financial Corporation ("ASFC"). As you know, we are seeking a buyer for ASFC,
and during this transition, your continued service and loyalty are essential to
ASI and ASFC. This letter sets forth our mutual agreement with respect to
compensation and benefits matters that otherwise might be of concern to you
during the transition. Our objectives are not only to reward you for your past
service to ASI, but also to give you an added incentive to remain with ASI and
help us reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating you
for the personal risk that the potential sale of ASFC entails, we seek to
ensure your continuing dedication to your duties and that you will be in a
position to work with and advise other ASI and ASFC officers and the Board
concerning purchase proposals without being influenced by any uncertainties
regarding your own situation.
As described in detail below, two types of benefits will be provided to you
- -- automatic change of control benefits and a retention incentive benefit.
Retention incentive benefits will be payable after a change of control at the
earlier of your completion of a specified period of employment or your
termination of employment on or after the end of the term of your employment
contract. Please note that the term "change of control"has a specific meaning
for purposes of this letter agreement; the meanings of this term and certain
other terms are set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change of
control of ASFC, you will be entitled to the following benefit enhancements:
1. Restricted phantom stock units granted to you under the Lincoln
National Corporation 1986 Stock Option Incentive Plan will become 100%
vested (i.e., nonforfeitable). You will be treated as a retiree under this
Plan for all outstanding Options.
2. All Restricted Stock Awards and Dividend Equivalent Rights granted to
you under the American States Financial Corporation Stock Option Incentive Plan
("ASFC Option Plan") will become 100% vested.
40
<PAGE> 2
Retention Incentive Benefits/1997 Option Replacement. After a change of
control of ASFC, you will be entitled to the following retention incentive
benefit: upon the earlier of 12 months of employment after the change of
control or the termination of your employment on or after the end of the term
of your employment contract, you will receive a cash payment equal to a
percentage of your base salary. The amount of the payment will be based on the
sale price of ASFC common stock; if the price is $34.00 per share or less, the
payment will be 50% of your base salary as of the date of this letter. Each
$1.00 increase in the sale price of ASFC common stock above $34.00 per share
will produce a payment equal to an additional 25% of your base salary as of the
date of this letter, with linear interpolation between $1.00 increments. To
illustrate this formula, if the sale price is $36.00 per share, you will
receive 100% of your base salary; if the sale price is $40.00 per share, you
will receive 200% of your base salary. There is no cap on the maximum benefit
payable.
A retention incentive benefit will ordinarily be paid to you in cash
within 30 days after you become entitled to the payment. Alternatively, you
may elect within 14 days after the date of this letter to defer payment of all
or a portion of the retention incentive benefit under the Lincoln National
Corporation Executive Deferred Compensation Plan for Employees (or the
successor to that plan) ("Deferred Compensation Plan"). To make a deferral
election for the retention incentive benefit, please complete the election form
attached to this letter as Exhibit B, and return the form to Lynda Van Kirk
within 14 days from the date of this letter.
If there is no change of control of ASFC by March 31, 1998, the Retention
Incentive Benefits set out above shall terminate as of such date.
Employment Contract. Except as otherwise specifically provided in this
letter agreement, including Exhibit A, this agreement will not supersede or
alter the terms of your employment contract in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer assume
ASFC's liabilities to pay benefits to you under the Deferred Compensation Plan,
if any. If the buyer is unwilling to accept that liability, we will assure
that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be withheld from
the benefit payments you receive. If you incur any federal excise tax as a
result of the payment of any of the benefits provided under this letter
agreement (although we believe you will not), ASFC will make an additional cash
payment to you to make you whole. That is, ASFC will pay you an amount equal to
any federal excise tax you must pay, plus any income tax and employment taxes
on the payment from ASFC for the excise tax. ASFC will pay the amount to you
within 30 days after you present to the General Counsel of ASI either proof of
payment of the excise tax or an assessment from the Internal Revenue Service
for the tax.
If any amount becomes payable under this letter agreement while you are a
covered employee as defined in section 162(m) of the Internal Revenue Code and
the amount (either alone or in combination with other remuneration) would
exceed the limit under that section, ASFC reserves the right to defer the
payment until you are no longer a covered employee. In this case, the amount
may be unilaterally deferred and credited with interest or other earnings in
accordance with the terms of the Deferred Compensation Plan.
41
<PAGE> 3
Mediation/Arbitration. Generally, ASFC, acting through the Compensation
Committee of its Board or its Chief Executive Officer, will determine whether
you are entitled to benefits under this letter agreement (for example, if you
terminate employment, whether your termination was for good reason) and the
amount of benefits to which you are entitled. If, however, you disagree with
any determination regarding your eligibility for benefits or the amount of
benefits, the dispute will be resolved through mediation. If mediation fails
to resolve the dispute within 60 days after a mediator has been agreed upon (or
any other longer period to which you and ASFC agree), the dispute will be
settled by arbitration. Please refer to Exhibit A for a description of the
arbitration rules that will apply, including the rules for payment of your
expenses by ASFC if you are successful in the arbitration.
Release and Agreement. In consideration for the benefits provided in this
letter agreement, prior to the receipt of these benefits, you must sign a
release in the form acceptable to ASFC waiving all claims or potential claims
against ASI, ASFC, Lincoln National Corporation ("LNC") or any affiliate. In
addition, by accepting this letter agreement, you agree to release and waive
all rights to any Options granted to you under the ASFC Option Plan which have
not vested before the change of control. By accepting this letter agreement,
you also agree to retain in confidence any confidential information regarding
ASI, ASFC, LNC or any affiliate that you became privy to during your
employment, unless you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC has
been evolving very rapidly, and we are eager to provide you with assurance
concerning your own situation, we are providing this letter agreement to you
before obtaining formal approval of the Compensation Committee of the Board and
the Board. Therefore, you should be aware that this agreement is being offered
to you subject to the approval of the Compensation Committee and the Board.
42
<PAGE> 4
We are pleased to provide you with the benefits described in this letter
agreement in recognition of your service and dedication to ASI and ASFC.
Please sign the attached copy of this letter to confirm your acceptance of this
agreement and the benefits provided for you. Kindly return the copy of the
letter with your signature to Lynda Van Kirk by the close of business on April
3, 1997.
Sincerely,
/s/ William J. Lawson
William J. Lawson
President
American States Financial Corporation
In consideration of the foregoing, I, Robert A. Anker, hereby accept the
benefits provided under this letter agreement, and I accept and agree to be
bound by the terms of this letter agreement. Moreover, I release and waive all
my rights to any Options granted to me in 1996 under the ASFC Option Plan that
are unvested on the date of a change of control. I further agree that such
Options shall automatically be canceled and become null and void upon the
occurrence of a change of control.
4/3/97 /s/ Robert A. Anker
- ------ --------------------------
Date Signature of Employee
43
<PAGE> 5
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms have
the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with ASI,
ASFC or LNC. For purposes of this definition, control means the power to
direct or cause the direction of management and policies of a corporation
through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall be
conducted in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a sole arbitrator. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sec. 1-16, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of the arbitration
shall be Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if the
employee provides written notice and presents appropriate vouchers, ASFC will
pay all of the employee's legal expenses, including reasonable attorneys' fees,
court costs and ordinary and necessary out-of-pocket costs of attorneys, billed
to and payable by the employee in connection with the controversy or dispute
(i.e., the bringing, prosecuting, defending, litigating, negotiating, or
settling of it), but only if (and after) the employee is successful on the
merits in the arbitration. Furthermore, if the controversy or dispute is
settled, the settlement agreement will provide for the allocation of such
expenses, fees and costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter agreement,
including this Exhibit to the letter agreement, shall include and apply to any
successor to or assign of ASI or ASFC. Furthermore, the obligations under the
letter agreement shall be binding upon and inure to the benefit of the
employee, his beneficiary or estate, ASI or ASFC and any successor to ASI or
ASFC.
44
<PAGE> 6
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
---------------------------------------------------------
Social Security #
----------------------------------------
DEFERRAL ELECTION
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of that
letter agreement, I make the following elections with respect to deferring
receipt of all or a portion of any 1997 Option Replacement payments to which I
may become entitled, with deferral effective as of the date the amount would
otherwise be payable (complete the applicable item):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my election set forth above cannot be changed and that
the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferral elected.
Any amounts that I have elected to defer above may be subject to FICA (social
security) tax -- in most cases, the hospital insurance portion of that tax --
at the time I would have become entitled to payment absent a deferral election.
I understand that my Employer may reduce the amount of any deferral I have
elected to the extent necessary to pay the employee's share of FICA (and the
income taxes resulting from paying this share from amounts that otherwise would
have been deferred) or any other taxes that my Employer is required to withhold
with respect to the deferred amount.
45
<PAGE> 7
INVESTMENT OPTIONS
I direct my Employer to credit the amount deferred above under the Plan with
the earnings which would otherwise accrue on my account had my account been
invested as directed below (in multiples of 10%). I understand that the amount
of earnings credited will be in accordance with the performance of the LNL
Variable Annuity Account C Multi Funds which I have selected. Notwithstanding
the preceding, I understand that neither my Employer nor Lincoln National
Corporation is under any obligation to effectuate my investment option
selection and that such selection shall be treated merely as an expression of
my investment preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
46
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (2)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
J. Robert Coffin
219 Greyhound Pass
Carmel, IN 46032
Dear Bob:
Thank you for the substantial contributions you have made to the growth
and success of American States Insurance Company ("ASI") and American States
Financial Corporation ("ASFC"). As you know, we are seeking a buyer for ASFC,
and during this transition, your continued service and loyalty are essential to
ASI and ASFC. This letter sets forth our mutual agreement with respect to
compensation and benefits matters that otherwise might be of concern to you
during the transition. Our objectives are not only to reward you for your past
service to ASI, but also to give you an added incentive to remain with ASI and
help us reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating you
for the personal risk that the potential sale of ASFC entails, we seek to
ensure your continuing dedication to your duties and that you will be in a
position to work with and advise other ASI and ASFC officers and the Board
concerning purchase proposals without being influenced by any uncertainties
regarding your own situation.
As described in detail below, two types of benefits will be provided to you
- -- change of control benefits and retention incentive benefits. Upon a change
of control of ASFC, you will automatically be entitled to certain benefit
enhancements. In addition, retention incentive benefits will be payable after
a change of control at the earliest of your completion of a specified period of
employment, your involuntary termination of employment (other than for cause)
or your termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable if,
within 18 months after a change of control of ASFC, you suffer an involuntary
termination of employment (other than for death or disability) or you terminate
employment for good reason. Please note that the terms "change of control,"
"involuntary termination," "good reason," and "cause" all have specific
meanings for purposes of this letter agreement; the meaning of each of these
terms and certain other terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change of
control of ASFC, you will be entitled to the following benefit enhancements:
1. All Options granted to you under the Lincoln National Corporation
1986 Stock Option Incentive Plan will become 100% vested (i.e., nonforfeitable)
and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights granted
to you under the American States Financial Corporation Stock Option Incentive
Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have not
become vested by the date of the change of control will be replaced by
retention incentive benefits, as described below.
47
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC, you
will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after the
change of control or, if earlier, upon the involuntary termination of your
employment or the termination of your employment for good reason, you will
receive a cash payment equal to (a) the number of Options granted to you in
1996 under the ASFC Option Plan that are unvested, multiplied by (b) the
difference between the per share price paid for ASFC common stock in the change
of control and $23.00. The number of Options granted to you in 1996 under the
ASFC Option Plan that are unvested will be determined on the date of change of
control.
2. 1997 Option Replacement. Twelve (12) months of employment after the
change of control or, if earlier, upon the involuntary termination of your
employment or termination of your employment for good reason, you will receive
a cash payment equal to a percentage of your base salary. The amount of the
payment will be based on the sale price of ASFC common stock; if the price is
$34.00 per share or less, the payment will be 50% of your base salary as of the
date of this letter. Each $1.00 increase in the sale price of ASFC common
stock above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear interpolation
between $1.00 increments. To illustrate this formula, if the sale price is
$36.00 per share, you will receive 100% of your base salary; if the sale price
is $40.00 per share, you will receive 200% of your base salary. There is no
cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will ordinarily
be paid to you in cash within 30 days after you become entitled to the payment.
Alternatively, you may elect within 14 days after the date of this letter to
defer payment of all or a portion of any retention incentive benefit under the
Lincoln National Corporation Executive Deferred Compensation Plan for Employees
(or the successor to that plan) ("Deferred Compensation Plan"). To make a
deferral election for either retention incentive benefit, please complete the
election form attached to this letter as Exhibit B, and return the form to
Lynda Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March 31,
1998, the Retention Incentive Benefits set out in paragraphs 1 and 2 above
shall terminate as of such date.
48
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason within
18 months after a change of control of ASFC, you will be entitled to a
severance benefit equal to the greater of the benefit determined under the
ASI severance plan or 100% of your base salary as of the date of this letter.
The severance benefit will be paid to you in cash within 30 days after your
termination of employment, and the benefit under this letter agreement will be
in lieu of any other severance benefits you would otherwise receive from ASI
or ASFC or under the ASI severance plan. If you receive the severance benefit,
you will also be entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit plans: life
insurance, health insurance, dental and vision. The coverage will be on the
same basis as your coverage in effect before termination of employment and will
continue for one year after termination of employment unless you secure a new
job and become entitled to substantially equivalent benefits. Under the split
dollar agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium payments made
by or on behalf of ASI; ASI's policy interest under the split dollar agreement
will be zero.
3. Vesting of benefits, if any, under any plan established by ASI or ASFC
(or in which ASI or ASFC is a participating employer) to restore benefits not
payable under the American States Insurance Company Employees Retirement Plan
as a result of the limitations under sections 401(a)(17) and 415 of the
Internal Revenue Code and payment of benefits in accordance with the terms of
those plans.
4. Retiree health plan coverage commencing at age 55, since as of the
date of change of control you have 25 years of service with ASI, ASFC, Lincoln
National Corporation ("LNC") or any affiliate. The coverage will be available
to you, your spouse and your eligible dependents who are covered under the ASI
health insurance plan as of the date of change of control.
5. Payments under the ASFC Executive Performance Incentive Compensation
Plan determined on the basis of performance through the last day of the
calendar quarter ending on or before the date of your involuntary termination
of employment or termination of employment for good reason, payable in cash or
deferred under the Deferred Compensation Plan.
Salary Continuation Plan. In accordance with the terms of the American
States Executives' Salary Continuation Plan, you become 100% vested in your
benefits under that plan if you terminate employment voluntarily or
involuntarily within two (2) years after a change of control. This letter
agreement does not supersede or alter the terms of the Salary Continuation
Plan in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that liability,
we will assure that those benefits will be paid.
49
<PAGE> 4
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be withheld from
the benefit payments you receive. If you incur any federal excise tax as a
result of the payment of any of the benefits provided under this letter
agreement (although we believe you will not), ASFC will make an additional cash
payment to you to make you whole. That is, ASFC will pay you an amount equal to
any federal excise tax you must pay, plus any income tax and employment taxes
on the payment from ASFC for the excise tax. ASFC will pay the amount to you
within 30 days after you present to the General Counsel of ASI either proof of
payment of the excise tax or an assessment from the Internal Revenue Service
for the tax.
Mediation/Arbitration. Generally, ASFC, acting through the Compensation
Committee of its Board or its Chief Executive Officer, will determine
whether you are entitled to benefits under this letter agreement (for example,
if you terminate employment, whether your termination was for good reason) and
the amount of benefits to which you are entitled. If, however, you disagree
with any determination regarding your eligibility for benefits or the amount of
benefits, the dispute will be resolved through mediation. If mediation fails
to resolve the dispute within 60 days after a mediator has been agreed upon (or
any other longer period to which you and ASFC agree), the dispute will be
settled by arbitration. Please refer to Exhibit A for a description of the
arbitration rules that will apply, including the rules for payment of your
expenses by ASFC if you are successful in the arbitration.
Release and Agreement. In consideration for the benefits provided in this
letter agreement, prior to the receipt of these benefits, you must sign a
release in the form acceptable to ASFC waiving all claims or potential claims
against ASI, ASFC, LNC or any affiliate. In addition, by accepting this letter
agreement, you agree to release and waive all rights to any Options granted to
you under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain in
confidence any confidential information regarding ASI, ASFC, LNC or any
affiliate that you became privy to during your employment, unless you are
required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC has
been evolving very rapidly, and we are eager to provide you with assurance
concerning your own situation, we are providing this letter agreement to you
before obtaining formal approval of the Compensation Committee of the Board and
the Board. Therefore, you should be aware that this agreement is being offered
to you subject to the approval of the Compensation Committee and the Board.
We are pleased to provide you with the benefits described in this letter
agreement in recognition of your service and dedication to ASI and ASFC.
Please sign the attached copy of this letter to confirm your acceptance of
this agreement and the benefits provided for you. Kindly return the copy of
the letter with your signature to Lynda Van Kirk by the close of business on
April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
50
<PAGE> 5
In consideration of the foregoing, I, J. Robert Coffin, hereby accept the
benefits provided under this letter agreement, and I accept and agree to be
bound by the terms of this letter agreement. Moreover, I release and waive all
my rights to any Options granted to me in 1996 under the ASFC Option Plan that
are unvested on the date of a change of control. I further agree that such
Options shall automatically be canceled and become null and void upon the
occurrence of a change of control.
4/2/97 /s/ J. Robert Coffin
- ------ -------------------------
Date Signature of Employee
51
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
52
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
53
<PAGE> 8
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48888/2
54
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
-------------------------------------------------
Social Security #
---------------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
55
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
56
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (3)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Jerome T. Gallogly
7614 Cape Cod Circle
Indianapolis, IN 46250
Dear Jerry:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC officers
and the Board concerning purchase proposals without being influenced by
any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be provided
to you -- change of control benefits and retention incentive benefits.
Upon a change of control of ASFC, you will automatically be entitled to
certain benefit enhancements. In addition, retention incentive benefits
will be payable after a change of control at the earliest of your
completion of a specified period of employment, your involuntary
termination of employment (other than for cause) or your termination of
employment for good reason. Finally, the change of control benefits also
include severance benefits that will be payable if, within 18 months
after a change of control of ASFC, you suffer an involuntary termination
of employment (other than for death or disability) or you terminate
employment for good reason. Please note that the terms "change of
control," "involuntary termination," "good reason," and "cause" all have
specific meanings for purposes of this letter agreement; the meaning of
each of these terms and certain other terms is set forth in Exhibit A to
this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Restricted Stock Awards, Dividend Equivalent Rights and
Options granted to you under the Lincoln National Corporation 1986 Stock
Option Incentive Plan will become 100% vested (i.e., nonforfeitable) and
immediately exercisable.
57
<PAGE> 2
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after the
change of control or, if earlier, upon the involuntary termination of
your employment or the termination of your employment for good reason,
you will receive a cash payment equal to (a) the number of Options
granted to you in 1996 under the ASFC Option Plan that are unvested,
multiplied by (b) the difference between the per share price paid for
ASFC common stock in the change of control and $23.00. The number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment after
the change of control or, if earlier, upon the involuntary termination of
your employment or termination of your employment for good reason, you
will receive a cash payment equal to a percentage of your base salary.
The amount of the payment will be based on the sale price of ASFC common
stock; if the price is $34.00 per share or less, the payment will be 50%
of your base salary as of the date of this letter. Each $1.00 increase
in the sale price of ASFC common stock above $34.00 per share will
produce a payment equal to an additional 25% of your base salary as of
the date of this letter, with linear interpolation between $1.00
increments. To illustrate this formula, if the sale price is $36.00 per
share, you will receive 100% of your base salary; if the sale price is
$40.00 per share, you will receive 200% of your base salary. There is no
cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of any
retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election form
attached to this letter as Exhibit B, and return the form to Lynda Van
Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greatest of the benefit determined
under your employment contract, the benefit determined under the ASFC
severance plan or 100% of your base salary as of the date of this letter.
The severance benefit will be paid to you in cash within 30 days after
your termination of employment, and the benefit under this letter
agreement will be in lieu of any other severance benefits you would
otherwise receive from ASI or ASFC or under the ASI severance plan. If
you receive the severance benefit, you will also be entitled to:
58
<PAGE> 3
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become entitled
to substantially equivalent benefits. Under the split dollar agreement,
if you terminate employment within two years of a change of control, you
will have no obligation to repay cumulative premium payments made by or
on behalf of ASI; ASI's policy interest under the split dollar agreement
will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55, since as of
the date of change of control you have reached age 50. The coverage will
be available to you, your spouse and your eligible dependents who are
covered under the ASI health insurance plan as of the date of change of
control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the last
day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Employment Contract. Except as otherwise specifically provided in
this letter agreement, including Exhibit A, this agreement will not
supersede or alter the terms of your employment contract in any manner.
59
<PAGE> 4
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any federal
excise tax as a result of the payment of any of the benefits provided
under this letter agreement (although we believe you will not), ASFC will
make an additional cash payment to you to make you whole. That is, ASFC
will pay you an amount equal to any federal excise tax you must pay, plus
any income tax and employment taxes on the payment from ASFC for the
excise tax. ASFC will pay the amount to you within 30 days after you
present to the General Counsel of ASI either proof of payment of the
excise tax or an assessment from the Internal Revenue Service for the
tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination regarding
your eligibility for benefits or the amount of benefits, the dispute will
be resolved through mediation. If mediation fails to resolve the dispute
within 60 days after a mediator has been agreed upon (or any other longer
period to which you and ASFC agree), the dispute will be settled by
arbitration. Please refer to Exhibit A for a description of the
arbitration rules that will apply, including the rules for payment of
your expenses by ASFC if you are successful in the arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you under
the ASFC Option Plan which have not vested before the change of control.
By accepting this letter agreement, you also agree to retain in
confidence any confidential information regarding ASI, ASFC, LNC or any
affiliate that you became privy to during your employment, unless you are
required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC has
been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
60
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI and
ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Jerome T. Gallogly, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover, I
release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/3/97 /s/ Jerome T. Gallogly
- ------- -------------------------
Date Signature of Employee
61
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of control:
(a) any acquisition directly from ASFC other than an acquisition by
virtue of the exercise of a conversion privilege, (b) any acquisition by
ASFC, or (c) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by ASFC, or any entity controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done, or
omitted to be done, by the employee in bad faith or without reasonable
belief that the employee's action or omission was in the best interests
of ASI and ASFC. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or a senior officer of ASI or
ASFC or based upon the advice of counsel for ASFC shall be conclusively
presumed to be done, or omitted to be done, by the employee in good faith
and in the best interests of ASI and ASFC. An employee shall not be
deemed to have been terminated for cause unless and until the Chief
Executive Officer has found in good faith that the employee was guilty of
conduct set forth above in (a) or (b) and specified the particulars
thereof in detail in a notice of termination (as defined below).
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<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation opportunity
as in effect on the date of the letter agreement, or as the same may be
increased from time to time during the 18-month period following a change
of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement for
a period of at least 18 months after a change of control, in the same
manner and to the same extent that ASFC would be required to perform them
if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing of
good reason or cause shall not waive any right of the employee or ASFC,
respectively, hereunder, or preclude the employee or ASFC, respectively,
from asserting such fact or circumstance in enforcing the employee's or
ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
63
<PAGE> 8
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which can be expected to last for a continuous period of not less than
six (6) months. The determination of whether the employee is totally and
permanently disabled shall be made by a qualified physician selected by
ASFC or its insurers and acceptable to the employee or the employee's
legal representative.
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a sole arbitrator.
The arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec. 1-16, and judgment upon the award rendered by the arbitrator
may be entered by any court having jurisdiction thereof. The place of
the arbitration shall be Indianapolis, Indiana. In any controversy or
dispute, regardless of whether the employee or ASFC initiates the
controversy or dispute, if the employee provides written notice and
presents appropriate vouchers, ASFC will pay all of the employee's legal
expenses, including reasonable attorneys' fees, court costs and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by
the employee in connection with the controversy or dispute (i.e., the
bringing, prosecuting, defending, litigating, negotiating, or settling of
it), but only if (and after) the employee is successful on the merits in
the arbitration. Furthermore, if the controversy or dispute is settled,
the settlement agreement will provide for the allocation of such
expenses, fees and costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter agreement,
including this Exhibit to the letter agreement, shall include and apply
to any successor to or assign of ASI or ASFC. Furthermore, the
obligations under the letter agreement shall be binding upon and inure to
the benefit of the employee, his beneficiary or estate, ASI or ASFC and
any successor to ASI or ASFC.
PCDocs No. 48932\2
64
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
----------------------------------------------
Social Security #
-------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement payments.
I understand that my elections set forth above cannot be changed and that
the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion of
that tax -- at the time I would have become entitled to payment absent a
deferral election. I understand that my Employer may reduce the amount
of any deferrals I have elected to the extent necessary to pay the
employee's share of FICA (and the income taxes resulting from paying this
share from amounts that otherwise would have been deferred) or any other
taxes that my Employer is required to withhold with respect to the
deferred amounts.
65
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
66
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (4)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
David N. Hafling
8650 Winding Ridge Road
Indianapolis, IN 46217
Dear Dave:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Restricted Stock Awards, Dividend Equivalent Rights and
Options granted to you under the Lincoln National Corporation 1986 Stock
Option Incentive Plan will become 100% vested (i.e., nonforfeitable) and
immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
67
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 100% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
68
<PAGE> 3
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55. The
coverage will be available to you, your spouse and your eligible
dependents who are covered under the ASI health insurance plan as of the
date of change of control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
69
<PAGE> 4
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
70
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, David N. Hafling, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
April 6, 1997 /s/ David N. Hafling
- ------------- ---------------------
Date Signature of Employee
71
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
72
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
73
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48890
74
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
-------------------------------------------
Social Security #
------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
75
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
76
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (5)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Thomas R. Kaehr
2395 Observatory Road
Martinsville, IN 46151
Dear Tom:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
77
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 50% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits.
78
<PAGE> 3
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Payments under the ASFC Officer Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
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<PAGE> 4
Termination. If there is no change of control of ASFC by March 31,
1998, this Agreement shall terminate as of such date.
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Thomas R. Kaehr, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/2/97 /s/ Thomas R. Kaehr
- ------ -------------------------
Date Signature of Employee
80
<PAGE> 5
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
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<PAGE> 6
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
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<PAGE> 7
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PC Docs #48903
83
<PAGE> 8
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
----------------------------------------------
Social Security #
-----------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
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<PAGE> 9
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
85
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (6)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
William J. Lawson
8072 River Bay Drive East
Indianapolis, IN 46240
Dear Bill:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. Restricted phantom stock units granted to you under the Lincoln
National Corporation 1986 Stock Option Incentive Plan will become 100%
vested (i.e., nonforfeitable) and immediately exercisable. You will be
treated as a retiree under this Plan for all outstanding Options.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
86
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or the termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
87
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greatest of the benefit determined
under your employment contract, the benefit determined under the ASFC
severance plan or 100% of your base salary as of the date of this
letter. The severance benefit will be paid to you in cash within 30
days after your termination of employment, and the benefit under this
letter agreement will be in lieu of any other severance benefits you
would otherwise receive from ASI or ASFC or under the ASI severance
plan. If you receive the severance benefit, you will also be entitled
to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, your trust will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement shall be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Employment Contract. Except as otherwise specifically provided in
this letter agreement, including Exhibit A, this agreement will not
supersede or alter the terms of your employment contract in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
88
<PAGE> 4
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
If any amount becomes payable under this letter agreement while you
are a covered employee as defined in section 162(m) of the Internal
Revenue Code and the amount (either alone or in combination with other
remuneration) would exceed the limit under that section, ASFC reserves
the right to defer the payment until you are no longer a covered
employee. In this case, the amount may be unilaterally deferred and
credited with interest or other earnings in accordance with the terms of
the Deferred Compensation Plan.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
89
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, William J. Lawson, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/2/97 /s/ William J. Lawson
- ------ -------------------------
Date Signature of Employee
90
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly
or indirectly controls or is controlled by or is under common control
with ASI, ASFC or LNC. For purposes of this definition, control means
the power to direct or cause the direction of management and policies of
a corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
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<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation opportunity
as in effect on the date of the letter agreement, or as the same may be
increased from time to time during the 18-month period following a
change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
92
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48904\2
93
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
---------------------------------------------
Social Security #
-----------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
94
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
95
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (7)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Thomas M. Ober
5262 N. Central Avenue
Indianapolis, IN 46220
Dear Tom:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
96
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
97
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 100% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55, since as of
the date of change of control you have reached age 50. The coverage
will be available to you, your spouse and your eligible dependents who
are covered under the ASI health insurance plan as of the date of change
of control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
98
<PAGE> 4
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
99
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Thomas M. Ober, hereby accept
the benefits provided under this letter agreement, and I accept and
agree to be bound by the terms of this letter agreement. Moreover, I
release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/2/97 /s/ Thomas M. Ober
- ------ --------------------------
Date Signature of Employee
100
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
101
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
102
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall
include and apply to any successor to or assign of ASI or ASFC.
Furthermore, the obligations under the letter agreement shall be binding
upon and inure to the benefit of the employee, his beneficiary or
estate, ASI or ASFC and any successor to ASI or ASFC.
PCDocs No. 48906
103
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
-------------------------------------------------
Social Security #
---------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
104
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
105
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (8)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Harry R. Simpson
7623 Tarragon Place
Indianapolis, IN 46237
Dear Harry:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
106
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
107
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 100% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55, since as of
the date of change of control you have reached age 50. The coverage
will be available to you, your spouse and your eligible dependents who
are covered under the ASI health insurance plan as of the date of change
of control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
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<PAGE> 4
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
109
<PAGE> 5
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Harry R. Simpson, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/3/97 /s/ Harry R. Simpson
- ------ -------------------------
Date Signature of Employee
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<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
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<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in
an unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price. "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
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<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48899
113
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
-------------------------------------------------
Social Security #
-----------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
114
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
115
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (9)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Todd R. Stephenson
8924 Stormhaven Ct.
Indianapolis, IN 46256
Dear Todd:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
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<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
117
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greatest of the benefit determined
under your employment contract, the benefit determined under the ASFC
severance plan or 100% of your base salary as of the date of this
letter. The severance benefit will be paid to you in cash within 30
days after your termination of employment, and the benefit under this
letter agreement will be in lieu of any other severance benefits you
would otherwise receive from ASI or ASFC or under the ASI severance
plan. If you receive the severance benefit, you will also be entitled
to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Employment Contract. Except as otherwise specifically provided in
this letter agreement, including Exhibit A, this agreement will not
supersede or alter the terms of your employment contract in any manner.
118
<PAGE> 4
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
119
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Todd R. Stephenson, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/3/97 /s/ Todd R. Stephenson
- ------ -------------------------
Date Signature of Employee
120
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
121
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price . "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
122
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48910/2
123
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
----------------------------------------------
Social Security #
------------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
124
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
125
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (10)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Janis E. Stoddard-Smith
5400 S. Greenboro Pike
Knightstown, IN 46148
Dear Jan:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
126
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or the termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
127
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 100% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55. The
coverage will be available to you, your spouse and your eligible
dependents who are covered under the ASI health insurance plan as of the
date of change of control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
128
<PAGE> 4
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
129
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Janis E. Stoddard-Smith,
hereby accept the benefits provided under this letter agreement, and I
accept and agree to be bound by the terms of this letter agreement.
Moreover, I release and waive all my rights to any Options granted to me
in 1996 under the ASFC Option Plan that are unvested on the date of a
change of control. I further agree that such Options shall
automatically be canceled and become null and void upon the occurrence
of a change of control.
April 2, 1997 /s/ Janis E. Stoddard-Smith
- ------------- -----------------------------
Date Signature of Employee
130
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly
or indirectly controls or is controlled by or is under common control
with ASI, ASFC or LNC. For purposes of this definition, control means
the power to direct or cause the direction of management and policies of
a corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
131
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation opportunity
as in effect on the date of the letter agreement, or as the same may be
increased from time to time during the 18-month period following a
change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price . "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
132
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48902
133
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
--------------------------------------------------
Social Security #
---------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
134
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
135
<PAGE> 1
American States Financial Corporation Exhibit 10.28 (11)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Ronald K. Young
11875 Durbin Drive
Carmel, IN 46032
Dear Ron:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
136
<PAGE> 2
Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
137
<PAGE> 3
Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greater of the benefit determined
under the ASI severance plan or 100% of your base salary as of the date
of this letter. The severance benefit will be paid to you in cash
within 30 days after your termination of employment, and the benefit
under this letter agreement will be in lieu of any other severance
benefits you would otherwise receive from ASI or ASFC or under the ASI
severance plan. If you receive the severance benefit, you will also be
entitled to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Retiree health plan coverage commencing at age 55, since as of
the date of change of control you have 25 years of service with ASI,
ASFC, Lincoln National Corporation ("LNC") or any affiliate. The
coverage will be available to you, your spouse and your eligible
dependents who are covered under the ASI health insurance plan as of the
date of change of control.
5. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
138
<PAGE> 4
Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, LNC or any affiliate. In addition,
by accepting this letter agreement, you agree to release and waive all
rights to any Options granted to you under the ASFC Option Plan which
have not vested before the change of control. By accepting this letter
agreement, you also agree to retain in confidence any confidential
information regarding ASI, ASFC, LNC or any affiliate that you became
privy to during your employment, unless you are required by law to
divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
139
<PAGE> 5
We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Ronald K. Young, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/3/97 /s/ Ronald K. Young
- ------ ---------------------
Date Signature of Employee
140
<PAGE> 6
EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
141
<PAGE> 7
4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price . "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
142
<PAGE> 8
II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48913
143
<PAGE> 9
EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
----------------------------------------------
Social Security #
---------------------------------
DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
144
<PAGE> 10
INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
<TABLE>
<CAPTION>
<S> <C>
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
</TABLE>
Signature Date
145
<PAGE> 1
AMERICAN STATES FINANCIAL CORPORATION Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Primary
- -------
Shares outstanding, beginning of period 60,050,515 50,000,000 60,050,515 50,000,000
Weighted average shares issued during period:
Stock offering - 3,626,373 - 1,823,204
Employee benefit plans - 18,319 - 9,210
------------ ------------ ------------ ------------
Weighted average primary shares outstanding 60,050,515 53,644,692 60,050,515 51,832,414
============ ============ ============ ============
Net income $ 44,239 $ 29,759 $ 98,266 $ 76,672
============ ============ ============ ============
Net income per primary common share $ .74 $ .55 $ 1.64 $ 1.48
============ ============ ============ ============
Fully Diluted
- -------------
Shares outstanding, beginning of period 60,050,515 50,000,000 60,050,515 50,000,000
Weighted average shares issued during period:
Stock offering - 3,626,373 - 1,823,204
Employee benefit plans - 18,319 - 9,210
------------ ------------ ------------ ------------
Weighted average fully diluted shares outstanding 60,050,515 53,644,692 60,050,515 51,832,414
============ ============ ============ ============
Net income $ 44,239 $ 29,759 $ 98,266 $ 76,672
============ ============ ============ ============
Net income per fully diluted common share $ .74 $ .55 $ 1.64 $ 1.48
============ ============ ============ ============
</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%.
146
<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 entirely by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<DEBT-HELD-FOR-SALE> 0 0
<DEBT-CARRYING-VALUE> 3,787,582 3,787,582
<DEBT-MARKET-VALUE> 3,787,582 3,787,582
<EQUITIES> 460,560 460,560
<MORTGAGE> 21,871 21,871
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 4,383,657 4,383,657
<CASH> 19,338 19,338
<RECOVER-REINSURE> 175,149 175,149
<DEFERRED-ACQUISITION> 212,250 212,250
<TOTAL-ASSETS> 5,651,873 5,651,873
<POLICY-LOSSES> 2,854,688 2,854,688
<UNEARNED-PREMIUMS> 746,058 746,058
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 299,607 299,607
0 0
0 0
<COMMON> 304,500 304,500
<OTHER-SE> 1,112,459 1,112,459
<TOTAL-LIABILITY-AND-EQUITY> 5,651,873 5,651,873
429,821 853,097
<INVESTMENT-INCOME> 66,525 133,003
<INVESTMENT-GAINS> 9,756 19,443
<OTHER-INCOME> 4,208 6,671
<BENEFITS> 323,369 620,910
<UNDERWRITING-AMORTIZATION> 86,178 168,970
<UNDERWRITING-OTHER> 48,775 103,001
<INCOME-PRETAX> 51,988 119,333
<INCOME-TAX> 7,749 21,067
<INCOME-CONTINUING> 44,239 98,266
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 44,239 98,266
<EPS-PRIMARY> .74 1.64
<EPS-DILUTED> .74 1.64
<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>
