<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 1-7981
AMERICAN GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION)
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<S> <C>
TEXAS 74-0483432
(State of incorporation) (I.R.S. Employer Identification No.)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019-2155
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (713) 522-1111
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------- ------------------------------------
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[ New York Stock Exchange
Common Stock, Par Value $.50 [ Pacific Stock Exchange
Preferred Share Purchase Rights
(one Right attached to [ New York Stock Exchange
each share of Common Stock) [ Pacific Stock Exchange
7% Convertible Preferred Stock,
Par Value $1.50 [ New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value based on published prices as of February 28,
1998 of American General's voting Common Stock held by non-affiliates was
approximately $14.7 billion. As of February 28, 1998, there were 253,609,260
shares of American General's Common Stock and 2,317,701 shares of American
General's 7% Convertible Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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Portions of American General's 1997 Annual Report to
Shareholders Parts I, II, and IV
Portions of American General's definitive Proxy Statement
dated March 17, 1998, for the Annual Meeting of
Shareholders to be held April 30, 1998 Part III
</TABLE>
1997 FORM 10-K 1
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
American General Corporation (American General) is one of the nation's
largest diversified financial services organizations. American General's
operating subsidiaries are leading providers of retirement services, life
insurance, and consumer loans. American General was incorporated as a general
business corporation in Texas in 1980 and is the successor to American General
Insurance Company, an insurance company incorporated in Texas in 1926.
Financial data of American General and its subsidiaries (collectively, the
company) included in this Form 10-K includes the operations of USLIFE
Corporation (USLIFE), acquired on June 17, 1997, in accordance with the pooling
of interests method of accounting. Also included from their respective dates of
acquisition are the operations of Home Beneficial Life Insurance Company,
acquired April 16, 1997; The Independent Life and Accident Insurance Company,
acquired February 29, 1996; and The Franklin Life Insurance Company (Franklin
Life), acquired January 31, 1995.
The company acquired a 40% investment in Western National Corporation
(Western National) in 1994 and increased its ownership to 46% in 1996. These
acquisitions were recorded on an equity basis. On February 25, 1998, the company
acquired the remaining 54% equity interest. Western National's assets,
liabilities, and results of operations will be consolidated in the company's
financial statements effective January 1, 1998. Earnings attributable to
minority interests through February 25, 1998 will be reflected as a charge
against consolidated income.
Much of the information provided in response to this Item 1 is incorporated
herein by reference to selected portions of American General's 1997 Annual
Report to Shareholders (ARS). Appropriate references to such incorporated
information are specified throughout the text of this Item 1. Portions of
American General's 1997 ARS are provided as Exhibit 13 to this Form 10-K.
NEW ACCOUNTING STANDARD. During 1997, American General adopted Statement of
Financial Accounting Standards 128, "Earnings per Share," which changed certain
requirements for computing and disclosing earnings per share, retroactive for
all periods presented. The change did not have a material impact on the
company's reported earnings per share amounts. Information regarding this
accounting standard is incorporated herein by reference to Notes 1.14 and 4.1 of
Notes to Financial Statements in American General's 1997 ARS.
CORPORATE DEVELOPMENT. Since December 1994, American General has completed or
announced six acquisitions with total consideration (excluding assumed debt) of
$5.7 billion, including $3.7 billion in 1997. Information regarding these
transactions is incorporated herein by reference to Note 2 of Notes to Financial
Statements in American General's 1997 ARS.
BUSINESS DIVISIONS. The company reports the results of its operations in
three business divisions: Retirement Services, Life Insurance, and Consumer
Finance. A description of each business division, including principal products,
methods of distribution, and principal markets, is incorporated herein by
reference to Note 20.1 of Notes to Financial Statements in American General's
1997 ARS. Financial information for each business division is incorporated
herein by reference to the sections "Business Divisions," "Capital Resources,"
"Asset/Liability Management," and "Liquidity" of Management's Discussion and
Analysis (MD&A) and Note 20.2 of Notes to Financial Statements in American
General's 1997 ARS, and to Schedule III of Item 14 of this Form 10-K.
EMPLOYEES. As of December 31, 1997, the company employed approximately 16,200
full-time salaried employees.
INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and
premiums and other considerations of American General's insurance and annuity
subsidiaries for the past three years:
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In millions 1997 1996 1995
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<S> <C> <C> <C>
Deposits* $5,046 $4,415 $4,306
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Direct premiums and other
considerations
Individual life premiums $1,530 $1,462 $1,280
Insurance charges 768 698 612
Group and credit health premiums 564 550 556
Group and credit life premiums 279 258 257
Individual health premiums 174 188 160
Other premiums 227 271 242
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Total direct premiums
and other considerations 3,542 3,427 3,107
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Reinsurance premiums assumed 119 125 155
Reinsurance premiums ceded (299) (308) (293)
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Premiums and other
considerations $3,362 $3,244 $2,969
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</TABLE>
* Represents premiums received for interest-sensitive life insurance and annuity
products.
AMERICAN GENERAL CORPORATION
2
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LIFE INSURANCE SALES AND IN FORCE. The following table summarizes the face
amounts of life insurance sales and life insurance in force for American
General's insurance subsidiaries for the past three years:
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In millions 1997 1996 1995
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<S> <C> <C> <C>
Individual life insurance
sales:
Permanent (non-participating)
Interest-sensitive $ 13,293 $ 13,289 $ 14,970
Guaranteed-cost 4,062 3,598 4,531
Term 23,269 22,753 24,979
Permanent (participating) 5,778 5,710 5,114
Group life insurance sales 8,428 6,777 6,548
Credit life insurance sales 9,098 8,266 10,570
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Total 63,928 60,393 66,712
Reinsurance assumed 386 351 2,882
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Total, excluding
reinsurance assumed(a) $ 63,542 $ 60,042 $ 63,830
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Individual life insurance in force
(at December 31):
Permanent (non-participating)
Interest-sensitive $103,069 $ 97,120 $ 90,343
Guaranteed-cost 36,806 38,281 34,293
Term 98,267 96,971 91,771
Permanent (participating) 28,686 25,810 22,047
Group life insurance in force 50,854 45,774 41,860
Credit life insurance in force 13,994 13,068 13,610
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Total(a)(b) $331,676 $317,024 $293,924
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</TABLE>
(a) Before deductions for reinsurance ceded.
(b) Includes reinsurance assumed.
ANNUITY PRODUCTS. The following table summarizes annuity liabilities by
product type for American General's Retirement Services division and Life
Insurance division for the past three years:
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In millions 1997 1996 1995
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<S> <C> <C> <C>
Retirement Services division
Fixed $21,995 $21,068 $20,147
Variable 10,564 7,134 4,541
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Total annuity liabilities $32,559 $28,202 $24,688
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Life Insurance division
Fixed $ 5,263 $ 5,857 $ 6,281
Variable 721 602 518
Payout annuities 1,952 1,600 1,246
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Total annuity liabilities $ 7,936 $ 8,059 $ 8,045
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</TABLE>
The primary products offered by the Retirement Services division are
retirement annuities which qualify for tax deferral under the Internal Revenue
Code. These products are provided to employees of educational, health care,
public sector, and other not-for-profit organizations. Policyholders may select
either fixed or variable account options. Fixed accounts have minimum guaranteed
interest crediting rates ranging from 3.0% to 5.5%. During 1997, actual interest
crediting rates on fixed accounts ranged from 5.8% to 7.5%. These annuities are
generally issued on a group basis, for which there are no scheduled maturities.
The companies in the Life Insurance division offer a variety of annuity
products. Individual fixed annuities comprised approximately 58% of the
division's annuity liabilities at December 31, 1997. These annuities are
primarily used for retirement funding purposes and generally continue for the
life of the policyholder. Minimum guaranteed interest crediting rates on these
annuities range from 2.5% to 5.5%; actual interest crediting rates during 1997
ranged from 2.5% to 7.0%.
Payout annuities, those currently paying out the annuity value, represented
approximately 25% of the Life Insurance division's annuity liabilities at
December 31, 1997. Payout annuities consist primarily of structured settlements
of indemnity claims and pension buyouts used by employer-sponsored pension plans
to fund pension obligations. Interest is credited to these annuities at fixed
rates determined when the contracts are issued, consistent with the related
investment yield at the time. Interest crediting rates ranged from 2.0% to 13.5%
during 1997. These contracts will continue until all obligations are
extinguished.
Both the Retirement Services and Life Insurance divisions offer variable
annuity accounts, in which the investment risk lies solely with the
policyholder. Assets and liabilities related to these accounts are included in
Separate Account assets and liabilities in the company's consolidated balance
sheet.
INVESTMENTS
Information regarding investments is incorporated here-
in by reference to the sections "Investments" and "Asset/ Liability Management"
of MD&A and Notes 1.2, 5, and 17 of Notes to Financial Statements in American
General's 1997 ARS, and to Schedule I of Item 14 of this Form 10-K.
INSURANCE AND ANNUITY RESERVING METHODS
Individual life insurance reserves are based on assumptions similar to those
used to establish premium rates. Further information regarding reserving methods
is incorporated herein by reference to Note 1.8 of Notes to Financial Statements
in American General's 1997 ARS.
REINSURANCE
Information regarding reinsurance is incorporated herein by reference to Note
1.11 of Notes to Financial Statements in American General's 1997 ARS, and to
Schedule IV of Item 14 of this Form 10-K.
1997 FORM 10-K
3
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PART I (Continued)
FACTORS AFFECTING PRICING OF PRODUCTS
INSURANCE AND ANNUITY PRODUCTS. Premium rates are based on assumptions, which
American General's insurance subsidiaries believe to be realistic, as to future
mortality, investment yields, expenses, and lapses. In addition, the pricing is
influenced by competition and the company's objectives for return on capital.
Although a profit margin is included in the price of the products, the actual
profitability of the products can be significantly affected by the variation
between actual and assumed experience.
CONSUMER FINANCE PRODUCTS. Pricing of consumer finance products is influenced
by such factors as cost of borrowed funds, credit risk, competition, the expense
of operations, and the company's objectives for return on capital. In addition,
pricing is affected by state regulation of interest rates based on contractual
terms and loan amounts, charges for individual loans, and insurance premium
rates.
COMPETITION
Competition in life insurance and financial services markets and the recent
trend of consolidations in the industry may affect, among other matters,
corporate development activities, business growth, distribution methods, and the
pricing of products and services.
American General's life insurance and annuity businesses operate in a highly
competitive industry that consists of a large number of insurance companies,
other financial institutions, mutual fund companies, and banks. No single
competitor nor any small group of competitors dominates any of the markets in
which the company operates. Principal competitive factors include price,
financial and claims-paying ability ratings, selection of products, quality of
service, and, with respect to variable insurance and annuity products,
investment management performance.
American General's consumer finance business competes with other consumer
finance companies and other types of financial institutions that offer similar
products and services, including industrial banks, industrial loan companies,
commercial banks, sales finance companies, savings and loan associations, and
credit unions. Competition in the financial services industry is intense due to
the increasing number of companies offering financial products and services, the
sophistication of those products, technological improvements, and more rapid
communication.
REGULATION
INSURANCE. American General's insurance subsidiaries are subject to state
regulation in the jurisdictions in which they do business. Information
concerning regulatory compliance is incorporated herein by reference to the
sections "Capital Resources - Retirement Services and Life Insurance" and
"Regulation and Other - Regulation" of MD&A in American General's 1997 ARS.
Information regarding statutory accounting practices is incorporated herein by
reference to Note 16 of Notes to Financial Statements in American General's 1997
ARS.
Most states also regulate affiliated groups such as American General and its
subsidiaries under insurance holding company laws. Additional information
regarding dividend restrictions is incorporated herein by reference to Note 19.1
of Notes to Financial Statements in American General's 1997 ARS.
All 50 states have laws requiring life insurance companies to pay assessments
to state guaranty associations to protect the interests of policyholders of
insolvent life insurance companies. A portion of these assessments can be
recovered against the payment of future premium taxes; however, changes in state
laws could decrease the amount available for recovery. Further information about
state guaranty assessments is incorporated herein by reference to Note 10 of
Notes to Financial Statements in American General's 1997 ARS.
REGISTERED PRODUCTS. Certain of American General's subsidiaries are subject
to various federal securities laws and regulations related to investment
companies. Separate Accounts, which are maintained to fund variable life and
annuity products, function as investment companies and, therefore, are subject
to such laws and regulations, in particular the Investment Company Act of 1940.
Variable life and annuity products are marketed by licensed insurance agents who
are registered representatives of the company's wholly owned broker-dealer
subsidiaries. These broker-dealers are member firms of the National Association
of Securities Dealers and subject to its rules and regulations.
CONSUMER FINANCE. American General's consumer finance subsidiaries are
subject to various types of federal regulation including the Federal Consumer
Credit Protection Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, certain Federal Trade Commission rules, and state laws that
regulate the consumer loan and retail sales finance businesses. In addition,
American General's
AMERICAN GENERAL CORPORATION
4
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thrift subsidiary, which engages in the consumer finance business and accepts
insured deposits, is subject to regulation by and reporting requirements of the
Federal Deposit Insurance Corporation and is subject to regulatory codes in the
state of Utah.
TAXATION. Tax laws affect not only the way the company is taxed but also the
design of many of its products. Changes in tax laws or regulations could
adversely affect operating results.
ENVIRONMENTAL. The company's principal exposure to environmental regulation
arises from its ownership of investment real estate. Probable costs related to
environmental cleanup are immaterial.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as of March 5, 1998 regarding the 17 executive officers of the
company is as follows:
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Present Principal Position with the Company and
Name and Age Other Material Positions Held during Last Five Years
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ROBERT M. DEVLIN (57) Chairman (since 1997) and Chief Executive Officer (since
1996), Director (since 1993), President (1995-97), and Vice
Chairman (1993-95), American General Corporation; President
and Chief Executive Officer (1986-93), American General Life
Insurance Company, Houston, Texas, a subsidiary of American
General Corporation. Director, Cooper Industries, Inc.
JON P. NEWTON (56) Vice Chairman and Director (since 1995), Vice Chairman and
General Counsel (1995-97), and Senior Vice President and
General Counsel (1993-95), American General Corporation.
Partner (1985-93), Clark, Thomas, Winters & Newton, Austin,
Texas. Director, Newmark Homes Corp.
JAMES S. D'AGOSTINO JR. (51) President (since 1997) and Director (since 1996), American
General Corporation; Chairman (1995-97), Chief Executive
Officer (1993-97), and President (1993-95), American General
Life and Accident Insurance Company, Nashville, Tennessee, a
subsidiary of American General Corporation; Executive Vice
President - Administration (1993), American General
Corporation.
MARK S. BERG (39) Executive Vice President and General Counsel (1998) and
Senior Vice President and General Counsel (1997-98),
American General Corporation. Partner (1991-97), Vinson &
Elkins L.L.P., Houston, Texas.
FREDERICK W. GEISSINGER (52) President and Chief Executive Officer (since 1995), American
General Finance, Inc., Evansville, Indiana, a subsidiary of
American General Corporation; President and Chief Executive
Officer (1994-95), American General Land Development, Inc.,
Houston, Texas, a subsidiary of American General
Corporation. Independent Consultant (1992-94), New York, New
York.
SUSAN A. JACOBS (51) Senior Vice President (since 1998), Deputy General Counsel,
and Corporate Secretary (since 1997), Associate General
Counsel, (1986-97), American General Corporation.
JOE KELLEY (50) President (since 1995) and Chief Executive Officer (since
1997), American General Life and Accident Insurance Company,
Nashville, Tennessee, a subsidiary of American General
Corporation; Senior Vice President and Chief Marketing
Officer (1994-95), American General Life Insurance Company,
Houston, Texas, a subsidiary of American General
Corporation. Senior Vice President (1992-94), Prudential
Preferred Financial Services, Houston, Texas.
RODNEY O. MARTIN JR. (45) President (since 1998), American General Life Insurance
Division; President (since 1997), American General
Independent Producer Division, Houston, Texas, a subsidiary
of American General Corporation; President and Chief
Executive Officer (since 1996), American General Life
Insurance Company, Houston, Texas, a subsidiary of American
General Corporation; President and Chief Executive Officer
(1995-96), American General Life Insurance Company of New
York, Syracuse, New York, a subsidiary of American General
Corporation. President (1993-95), Connecticut Mutual
Insurance Services, Hartford, Connecticut. Senior Vice
President - Corporate Distribution (1992-93), Connecticut
Mutual Life Insurance Company, Hartford, Connecticut.
ELLEN H. MASTERSON (47) Senior Vice President and Chief Financial Officer (since
1997), American General Corporation. Partner (1985-97),
Coopers & Lybrand L.L.P., Dallas, Texas.
ROBERT D. MRLIK (39) Senior Vice President - Corporate Relations (since 1998),
Vice President - Investor Relations (1994-98), and Director,
Investor Relations (1989-94), American General Corporation.
NICHOLAS R. RASMUSSEN (51) Senior Vice President (since 1983) and Senior Vice
President - Corporate Development (since 1993), and Senior
Vice President - Group Executive (1990-93), American General
Corporation.
CARL J. SANTILLO (48) Senior Vice President (since 1996), and Senior Vice
President - Finance (1996-97), American General Corporation.
Senior Vice President - Life & Health Operations (1993-96),
Nationwide Life Insurance Company, Columbus, Ohio. President
(1993-96), Employers Life of Wausau, Wausau, Wisconsin.
Executive Vice President - Operations (1987-93), Wausau
Insurance Companies, Wausau, Wisconsin.
RICHARD W. SCOTT (44) Executive Vice President and Chief Investment Officer (since
1998), American General Corporation. Executive Vice
President, General Counsel, and Chief Investment Officer
(1994-98), Western National Corporation, Houston, Texas.
Partner (1982-93), Vinson & Elkins L.L.P., Houston, Texas.
</TABLE>
1997 FORM 10-K
5
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PART I (Continued)
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<CAPTION>
Present Principal Position with the Company and
Name and Age Other Material Positions Held during Last Five Years
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JULIA S. TUCKER (49) Senior Vice President - Investments (since 1997) and Vice
President - Investments (1984-97), American General
Corporation.
PETER V. TUTERS (45) Senior Vice President - Investments (since 1992) and Chief
Investment Officer (1993-98), American General Corporation.
THOMAS L. WEST JR. (60) Chairman and Chief Executive Officer (since 1998), American
General Retirement Services Division; President (since 1994)
and Chief Executive Officer (since 1997), The Variable
Annuity Life Insurance Company, Houston, Texas, a subsidiary
of American General Corporation. Senior Vice President,
Annuity Operations (1991-94), Aetna Life & Casualty Company,
Hartford, Connecticut.
THOMAS M. ZUREK (49) Senior Vice President and Deputy General Counsel (since
1998), American General Corporation. Partner (1992-98),
Nyemaster, Goode, McLaughlin, Voigts, Hansel & O'Brien, PC,
Des Moines, Iowa.
</TABLE>
ITEM 2. PROPERTIES
The company's corporate headquarters is located in the American General
Center, a complex of office buildings on a 46-acre tract near downtown Houston.
American General and certain subsidiaries either own or lease pursuant to a
sale-leaseback arrangement all of the buildings and underlying land in the
complex. The company occupies approximately 46% of the total office space
available in the American General Center.
American General's subsidiaries also own various other properties, including
properties held for investment, branch office buildings, and the home office
buildings of: (1) American General Finance, Inc. in Evansville, Indiana; (2)
American General Life and Accident Insurance Company in Nashville, Tennessee;
(3) Franklin Life in Springfield, Illinois; and (4) The Old Line Life Insurance
Company of America in Milwaukee, Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
OCHOA. In March 1994, two subsidiaries of American General were named as
defendants in a lawsuit, The People of the State of California (California) v.
Luis Ochoa, Skeeters Automotive, Morris Plan, Creditway of America, Inc. and
American General Finance, filed in the Superior Court of California, County of
San Joaquin, Case No. 271130. California is seeking injunctive relief, a civil
penalty of not less than $5,000 per day or not less than $250,000 for violation
of its Health and Safety Code in connection with the failure to register and
remove underground storage tanks on property acquired through a foreclosure
proceeding by a subsidiary of American General, and a civil penalty of $2,500
for each act of unfair competition prohibited by its Business and Professions
Code, but not less than $250,000, plus costs.
PEBBLE CREEK. Various violations of operating permits held by Pebble Creek
Service Corporation (Pebble Creek), an indirect wholly owned subsidiary of
American General, are being addressed by Pebble Creek with the United States
Environmental Protection Agency (EPA). These violations include inaccurate
reporting of test results by a former plant operator and violations of effluent
parameters in connection with its wastewater treatment plant. In 1994, Pebble
Creek attended a meeting to show cause why the EPA should not initiate
enforcement proceedings against Pebble Creek. To date, Pebble Creek has not been
made aware of the EPA's decision. The company believes that penalties in excess
of $100,000 could be assessed against Pebble Creek.
MARKET CONDUCT. In recent years, various life insurance companies have been
named as defendants in class action lawsuits relating to life insurance pricing
and sales practices, and a number of these lawsuits have resulted in substantial
settlements. Certain of American General's subsidiaries are defendants in such
purported class action lawsuits filed in 1996 and 1997, asserting claims related
to pricing and sales practices. These claims are being defended vigorously by
the subsidiaries. Given the uncertain nature of litigation and the early stages
of this litigation, the outcome of these actions cannot be predicted at this
time. American General nevertheless believes that the ultimate outcome of all
such pending litigation should not have a material adverse effect on American
General's consolidated financial position. It is possible that settlements or
adverse determinations in one or more of these actions or other future
proceedings could have a material adverse effect on American General's
consolidated results of operations for a given period. No provision for any
adverse determinations in this pending litigation has been made in the
consolidated financial statements because the amount of the loss, if any, from
these actions cannot be reasonably estimated at this time.
OTHER. In addition to those lawsuits or proceedings disclosed herein, the
company is a party to various other lawsuits and proceedings arising in the
ordinary course of
AMERICAN GENERAL CORPORATION
6
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business. Many of these lawsuits and proceedings arise in jurisdictions, such as
Alabama, that permit damage awards disproportionate to the actual economic
damages incurred. Based upon information presently available, the company
believes that the total amounts that will ultimately be paid, if any, arising
from these lawsuits and proceedings will not have a material adverse effect on
the company's consolidated results of operations and financial position.
However, it should be noted that the frequency of large damage awards, including
large punitive damage awards, that bear little or no relation to actual economic
damages incurred by plaintiffs in jurisdictions like Alabama continues to
increase and creates the potential for an unpredictable judgment in any given
suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during fourth quarter
1997.
1997 FORM 10-K 7
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The quarterly high and low market prices of American General's common stock
as quoted by the New York Stock Exchange and restrictions on retained earnings
for the payment of dividends are incorporated herein by reference to Notes 21
and 19.1, respectively, of Notes to Financial Statements in American General's
1997 ARS.
Common stock was owned by 31,987 shareholders of record and approximately
76,000 beneficial owners at February 28, 1998. The quarterly cash dividends paid
on common stock are incorporated herein by reference to Note 21 of Notes to
Financial Statements in American General's 1997 ARS.
The common stock of American General is traded in the United States on the
New York Stock Exchange and the Pacific Stock Exchange. The common stock is also
traded on the London Stock Exchange and the Swiss Stock Exchanges of Basel,
Geneva, and Zurich.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
In millions, except per share data 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Revenues $ 8,927 $ 8,714 $ 8,236 $ 6,492 $ 6,430
Income before cumulative effect of accounting changes 542(a) 653(b) 650(c) 609(d) 347(e)
Income per common share before cumulative effect of
accounting changes
Basic 2.21 2.67 2.68 2.47 .70
Diluted 2.19(a) 2.63(b) 2.66(c) 2.46(d) .70(e)
Assets(f) 80,620 74,134 69,083 53,300 51,003
Debt
Corporate 1,916 2,102 2,295 2,381 2,200
Consumer Finance 7,266 7,630 7,470 7,090 5,843
Redeemable equity 1,726 1,227 729 47 -
Shareholders' equity(f) 7,583 6,844 7,109 4,334 6,274
Cash dividends per common share(g) 1.40 1.30 1.24 1.16 1.10
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</TABLE>
(a) Includes $247 million ($.99 per share) aftertax merger-related costs, $73
million ($.29 per share) aftertax loss on sale of non-strategic assets, and
$33 million ($.13 per share) aftertax litigation settlement.
(b) Includes $111 million ($.44 per share) aftertax loss on sale of
non-strategic assets and $32 million ($.13 per share) aftertax write-down of
USLIFE group business.
(c) Includes $140 million ($.57 per share) aftertax adjustment to the allowance
for finance receivable losses.
(d) Includes aftertax net realized investment losses of $115 million ($.47 per
share). Net realized investment gains for 1997, 1996, 1995, and 1993 were
immaterial.
(e) Includes $300 million ($1.18 per share) write-down of goodwill and $30
million ($.12 per share) charge for tax rate related adjustment.
(f) Includes fair value adjustment related to securities. Additional
information is incorporated herein by reference to the section
"Investments - Fair Value of Securities" of MD&A in American General's 1997
ARS.
(g) Excludes dividends paid by USLIFE.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference to "Management's Discussion and
Analysis" on pages 21-31 in American General's 1997 ARS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are incorporated
herein by reference to "Investments," "Capital Resources - Corporate Capital,"
and "Asset/Liability Management" of MD&A in American General's 1997 ARS.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Financial statements and supplementary data are incorporated herein by
reference to pages 32-52 in American General's 1997 ARS.
The ratios of earnings to fixed charges are incorporated herein by reference
to Exhibit 12 of Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
AMERICAN GENERAL CORPORATION
8
<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the section "Election of Directors" in American
General's definitive Proxy Statement dated March 17, 1998 (1998 Proxy Statement)
is incorporated herein by reference. Information regarding the company's 17
executive officers is included in Part I, Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the sections "Governance of the Company" and
"Compensation of Executive Officers" in American General's 1998 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the sections "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in American General's
1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section "Certain Relationships and
Transactions" in American General's 1998 Proxy Statement is incorporated herein
by reference.
1997 FORM 10-K 9
<PAGE> 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
Page Reference
----------------------------------
1997
Form 10-K Annual Report
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Financial Statements
Report of Ernst & Young LLP, Independent Auditors - 53
Consolidated Financial Statements
Statement of Income - 32
Balance Sheet - 33
Statements of Shareholders' Equity and Common Stock
Activity - 34
Statement of Cash Flows - 35
Notes to Financial Statements - 36-52
2. Financial Statement Schedules
Schedule I - Summary of Investments - Other than
Investments in Affiliates 13 -
Schedule II - Condensed Financial Information of
Registrant 14-16 -
Schedule III - Supplementary Insurance Information 17 -
Schedule IV - Reinsurance 18 -
Schedule V - Valuation and Qualifying Accounts 19 -
</TABLE>
All other financial statement schedules have been omitted
because they are inapplicable.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
- ------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation of American General
Corporation (including Statement of Resolution Establishing
Series
of Shares of Series A Junior Participating Preferred Stock)
3.2 Statement of Resolution Establishing Series of Shares of Series A
Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares of 7%
Convertible Preferred Stock
3.4 Resolutions Establishing American General's 6% Series A
Convertible Junior Subordinated Debentures
3.5 Amended and Restated Bylaws of American General Corporation
4.1 There have not been filed as exhibits to this Form 10-K certain
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. The company hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
4.2 Rights Agreement, dated as of July 27, 1989, between American
General and Texas Commerce Bank, as Rights Agent (Rights
Agreement)
4.3 First Amendment to Rights Agreement, dated as of October 26,
1992, between American General and First Chicago Trust Company of
New York, as Rights Agent
4.4 Junior Subordinated Indenture, dated as of May 15, 1995, between
American General and The Chase Manhattan Bank (formerly Chemical
Bank), as Trustee, relating to American General's 6% Series A
Convertible Junior Subordinated Debentures
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
-----------------------------------------------------------------------
Exhibit American General
Number Exhibit Registration No. or Report
- ------------------------ -----------------------------------------------------------------------
<S> <C> <C>
3.1 4.1 33-33115
3.2 4(o) 33-58317
3.3 4(d) 333-00513
3.4 4(k) 333-00513
3.5 3 Form 10-Q for Third Quarter 1997
4.1 NA NA
4.2 4 Form 10-Q for Second Quarter 1989
4.3 19 Form 10-Q for Third Quarter 1992
4.4 4(g) 333-00513
</TABLE>
(continued on next page)
10 AMERICAN GENERAL CORPORATION
<PAGE> 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exhibit
Number
- ------------------------------------------------------------------------------------------
<C> <S>
4.5 Terms of the 6% Convertible Monthly Income Preferred Securities,
Series A, of American General Delaware, L.L.C.
4.6 Guarantee of American General with respect to the 6% Convertible
Monthly Income Preferred Securities, Series A, of American
General Delaware, L.L.C.
10.1 1984 Stock and Incentive Plan
10.2 1984 Stock and Incentive Plan (Amended and Restated Effective as
of February 8, 1994)
10.3 American General Corporation 1997 Stock and Incentive Plan
10.4 Restoration of Retirement Income Plan for Certain Employees
Participating in the Restated American General Retirement Plan
(Restoration of Retirement Income Plan)
10.5 First Amendment to Restoration of Retirement Income Plan
10.6 Second Amendment to Restoration of Retirement Income Plan
10.7 Third Amendment to Restoration of Retirement Income Plan
10.8 American General Supplemental Thrift Plan
10.9 First Amendment to American General Supplemental Thrift Plan
10.10 Second Amendment to American General Supplemental Thrift Plan
10.11 Third Amendment to American General Supplemental Thrift Plan
10.12 Employment Agreement, dated as of February 1, 1998, between
American General and Robert M. Devlin
10.13 Employment Agreement, dated as of February 1, 1998, between
American General and Jon P. Newton
10.14 Employment Agreement, dated as of February 1, 1998, between
American General and James S. D'Agostino Jr.
10.15 Supplemental Executive Retirement Agreement, dated as of February
1, 1998, between American General and Robert M. Devlin
10.16 Supplemental Executive Retirement Agreement, dated as of February
1, 1998, between American General and Jon P. Newton
10.17 Supplemental Executive Retirement Agreement, dated as of February
1, 1998, between American General and James S. D'Agostino Jr.
10.18 American General Corporation Retirement Plan for Directors (as
amended and restated)
10.19 American General Corporation Performance-Based Plan for Executive
Officers, Amended and Restated Effective January 1, 1995
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------ ----------------------------------------
<C> <C> <C>
4.5 4(i) 333-00513
4.6 4(j) 333-00513
10.1 10.5 Form 10-K
for 1984
10.2 10.2 Form 10-K
for 1993
10.3 10.3 Form 10-K for 1996
10.4 10.3 Form 10-K
for 1993
10.5 10.4 Form 10-K
for 1993
10.6 10.5 Form 10-K
for 1993
10.7 10.7 Form 10-K for 1996
10.8 10.6 Form 10-K
for 1993
10.9 10.7 Form 10-K
for 1993
10.10 10.8 Form 10-K
for 1993
10.11 10.9 Form 10-K
for 1993
10.12 10.12* NA
10.13 10.13* NA
10.14 10.14* NA
10.15 10.15* NA
10.16 10.16* NA
10.17 10.17* NA
10.18 10.18* NA
10.19 10.19 Form 10-K
for 1994
</TABLE>
(continued on next page)
1997 FORM 10-K
11
<PAGE> 12
PART IV (Continued)
<TABLE>
<CAPTION>
Exhibit
Number
- ------------------------------------------------------------------------------------------
<C> <S>
10.20 Letter Agreement dated September 11, 1997 between American
General and Michael J. Poulos
10.21 Supplemental Retirement Agreement between American General and
Michael J. Poulos
10.22 Western National Corporation (WNC) Supplemental Plan
10.23 Western National Corporation Supplemental Plan Trust Agreement
10.24 Western National Corporation 1993 Stock and Incentive Plan, as
amended
11 Computation of Earnings per Share (included in Note 4 of Notes to
Financial Statements in American General's 1997 ARS)
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1997 Annual Report to Shareholders
that are expressly incorporated herein by reference in this Form
10-K. Other sections of the Annual Report furnished for the
information of the Commission are not deemed "filed" as part of
this Form 10-K.
21 Subsidiaries of American General
23 Consent of Ernst & Young LLP, Independent Auditors
24 Powers of attorney for the directors signing this Form 10-K
27 Financial Data Schedule
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------ ----------------------------------------
<C> <C> <C>
10.20 10.20* NA
10.21 10.13 Form 10-Q for Third
Quarter 1990
10.22 10.37 to WNC NA
annual report on
Form 10-K for
1994
10.23 10.17 to WNC NA
annual report on
Form 10-K for
1995
10.24 10.18 to WNC NA
annual report on
Form 10-K for
1995
11 NA NA
12 12* NA
13 13* NA
21 21* NA
23 23* NA
24 24* NA
27 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed after September 30, 1997:
(1) Current Report on Form 8-K dated October 10, 1997, with respect to the
filing of American General's consolidated balance sheets as of December
31, 1996 and 1995, and the related consolidated statements of income,
shareholders' equity, common stock activity, and cash flows, and
Management's Discussion and Analysis, for the three years ended
December 31, 1996, restated to include the acquisition of USLIFE
under the pooling of interests method of accounting.
(2) Current Report on Form 8-K dated January 26, 1998, with respect to
certain executive compensation information for the year ended December
31, 1997.
(3) Current Report on Form 8-K dated January 27, 1998, with respect to
issuance of an earnings release announcing certain unaudited financial
results for the year ended December 31, 1997.
(4) Current Report on Form 8-K dated February 19, 1998, with respect to
issuance of a press release announcing the closing date and exchange
ratio in connection with the acquisition of WNC.
(5) Current Report on Form 8-K dated February 25, 1998, with respect to
adoption of SFAS 128, "Earnings per Share," effective December 31,
1997.
AMERICAN GENERAL CORPORATION
12
<PAGE> 13
AMERICAN GENERAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
In millions
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------------------
Amount
Cost Shown in
or Consolidated
Amortized Fair Balance
Type of Investment Cost Value Sheet
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities
Bonds and notes
U.S. government obligations $ 740 $ 831 $ 831
States and political subdivisions 546 579 579
Foreign governments 834 920 920
Mortgage-backed securities 8,919 9,428 9,428
Public utilities 4,366 4,678 4,678
All other corporate 29,452 31,204 31,204
Redeemable preferred stocks 104 107 107
- ------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities 44,961 47,747 47,747
- ------------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks 20 29 29
Perpetual preferred stocks 73 87 87
- ------------------------------------------------------------------------------------------------------------------
Total equity securities 93 116 116
- ------------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate* 3,272 3,272
Investment real estate*
Investment properties 156 156
Acquired in satisfaction of debt 77 77
Policy loans 2,156 2,156
Other long-term investments 176 176
Short-term investments 306 306
- ------------------------------------------------------------------------------------------------------------------
Total investments $ 51,197 $ 54,006
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of applicable allowance for losses. See Schedule V of this Form 10-K.
1997 FORM 10-K 13
<PAGE> 14
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Dividends - affiliated $ 827 $ 464 $ 445
Interest income - affiliated 138 120 130
Net realized investment gains (losses) 16 21 (1)
Other income
Affiliated 57 39 36
Other 1 2 6
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 1,039 646 616
- ----------------------------------------------------------------------------------------------------------------------
Expenses
Operating costs and expenses
Affiliated 20 10 7
Other 118 69 77
Interest expense
Affiliated* 165 84 46
Other 140 123 156
Other charges
Merger-related costs 102 - -
Loss on sale of non-strategic assets 13 20 -
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 558 306 286
- ----------------------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity in undistributed
net income of subsidiaries 481 340 330
Income tax benefit 107 34 35
Equity in undistributed net income of subsidiaries (net of
dividends paid to parent) (46) 279 285
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 542 $ 653 $ 650
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes $141 million in 1997, $74 million in 1996, and $36 million in 1995
related to subordinated debentures issued in conjunction with the issuances of
preferred securities of subsidiaries. Additional information is incorporated
herein by reference to Note 12 of Notes to Financial Statements in American
General's 1997 ARS.
14 AMERICAN GENERAL CORPORATION
<PAGE> 15
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
BALANCE SHEET OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
At December 31,
In millions 1997 1996 1995
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Assets
Investments
Subsidiaries, at equity $ 10,251 $ 8,181 $ 8,018
Other 9 8 35
Indebtedness from subsidiaries 1,585 1,555 1,473
Cash - - 1
Other 228 90 115
- ----------------------------------------------------------------------------------------------------
Total assets $ 12,073 $ 9,834 $ 9,642
- ----------------------------------------------------------------------------------------------------
Liabilities
Short-term debt $ 575 $ 153 $ 240
Long-term debt(a)
Senior(b) 1,351 1,182 1,180
Subordinated, held by subsidiaries(c) 2,021 1,505 993
Indebtedness to subsidiaries 360 21 23
Federal income taxes (10) 39 28
Other 193 90 69
- ----------------------------------------------------------------------------------------------------
Total liabilities 4,490 2,990 2,533
- ----------------------------------------------------------------------------------------------------
Shareholders' equity
Convertible preferred stock 85 85 -
Common stock 326 572 532
Net unrealized gains on securities(d) 1,169 627 1,296
Retained earnings 6,624 6,420 6,071
Cost of treasury stock(e) (621) (860) (790)
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 7,583 6,844 7,109
- ----------------------------------------------------------------------------------------------------
Total liabilities and equity $ 12,073 $ 9,834 $ 9,642
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) The five-year schedule of maturities of debt is as follows: 1998, $357
million; 1999, $103 million; 2000, $353 million; 2001, $3 million; and 2002,
$35 million.
(b) The principal amount of American General senior notes held by subsidiaries
was $10 million at December 31, 1997, 1996, and 1995.
(c) Includes $1,974 million in 1997, $1,458 million in 1996, and $943 million in
1995 of subordinated debentures issued in conjunction with the issuances of
preferred securities of subsidiaries. Additional information is incorporated
herein by reference to Note 12 of Notes to Financial Statements in American
General's 1997 ARS.
(d) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" of MD&A in American General's 1997 ARS.
(e) Includes 699,614 shares at a cost of $8 million in 1997, 1996, and 1995
which are held by a subsidiary. The 1996 and 1995 amounts include 25,536,200
shares at a cost of $346 million and 25,456,146 shares at a cost of $339
million, respectively, which were held by a subsidiary and retired in 1997.
1997 FORM 10-K
15
<PAGE> 16
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 542 $ 653 $ 650
Reconciling adjustments
Equity in undistributed net income of subsidiaries (net
of dividends paid to parent) 46 (279) (285)
Other, net (64) 54 4
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 524 428 369
- --------------------------------------------------------------------------------------------------------------
Investing activities
Net increase in indebtedness from subsidiaries (30) (82) (694)
Capital contributions to subsidiaries (667) (311) (368)
Return of capital from subsidiaries 10 53 113
Acquisitions (283) (106) -
Net decrease in other investments 16 48 31
Net increase (decrease) in indebtedness to subsidiaries 339 (2) (12)
Other, net 46 (11) (4)
- --------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (569) (411) (934)
- --------------------------------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in short-term debt 421 (90) (405)
Long-term debt issuances 515 516 1,376
Long-term debt redemptions (133) - (100)
Common stock repurchases (467) (191) (40)
Dividends on common and preferred stock (335) (304) (285)
Other, net 44 51 20
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 45 (18) 566
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash - (1) 1
Cash at beginning of year - 1 -
- --------------------------------------------------------------------------------------------------------------
Cash at end of year $ - $ - $ 1
- --------------------------------------------------------------------------------------------------------------
</TABLE>
16 AMERICAN GENERAL CORPORATION
<PAGE> 17
AMERICAN GENERAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
In millions
<TABLE>
<CAPTION>
At December 31, For the Years Ended December 31,
----------------------- ----------------------------------------------------------------
Amorti-
zation
Premiums of
Deferred Insurance and Insurance Deferred
Policy and Other Net and Policy Other
Acquisition Annuity Consider- Investment Annuity Acquisition Operating
Division Costs(a)(b) Liabilities(c) ations Income(d) Benefits Costs(b)(e) Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
1997
Retirement Services $ 392 $ 21,995 $ 113 $ 1,706 $ 1,286 $ 42 $ 133
Life Insurance 2,995 25,283 3,065 2,099 2,949 494 978
Consumer Finance 10 443 184 69 93 9 10
Other(f) 1 (62) - 146 4 1 801
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $ 3,398 $ 47,659 $ 3,362 $ 4,020 $ 4,332 $ 546 $1,922
- -------------------------------------------------------------------------------------------------------------------------
1996
Retirement Services $ 558 $ 21,067 $ 78 $ 1,652 $ 1,244 $ 31 $ 126
Life Insurance 3,140 24,550 2,964 2,016 2,880(g) 490(g) 940
Consumer Finance 11 463 202 66 103 9 11
Other(f) - (58) - 39 4 1 975
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $ 3,709 $ 46,022 $ 3,244 $ 3,773 $ 4,231 $ 531 $2,052
- -------------------------------------------------------------------------------------------------------------------------
1995
Retirement Services $ 183 $ 20,147 $ 50 $ 1,597 $ 1,204 $ 17 $ 129
Life Insurance 2,652 23,139 2,701 1,872 2,761 386 783
Consumer Finance 12 494 217 63 116 9 12
Other(f) - (62) 1 52 4 - 1,090
- -------------------------------------------------------------------------------------------------------------------------
Consolidated $ 2,847 $ 43,718 $ 2,969 $ 3,584 $ 4,085 $ 412 $2,014
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" of MD&A in American General's 1997 ARS.
(b) Includes cost of insurance purchased.
(c) Includes unearned premiums, other policy claims and benefits payable, and
other policyholder funds, which are not significant relative to insurance
and annuity liabilities.
(d) Represents earnings and related expenses on those investments considered
necessary to support each division's business operations.
(e) Net of accretion of interest.
(f) Represents Consumer Finance non-insurance operations, Corporate operations,
and interdivision eliminations.
(g) Insurance and annuity benefits and amortization of deferred policy
acquisition costs include $13 million and $37 million, respectively, for
write-down of USLIFE group business.
1997 FORM 10-K 17
<PAGE> 18
- --------------------------------------------------------------------------------
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE IV - REINSURANCE
In millions
<TABLE>
<CAPTION>
Percentage
of
Ceded to Assumed Amount
Gross Other from Other Net Assumed
Description Amount Companies Companies Amount to Net
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Life insurance in force at year
end $ 310,162 $ 45,124 $ 21,514 $ 286,552 7.5%
Premiums and other
considerations for the year
Life insurance and
annuities $ 2,640 $ 178 $ 67 $ 2,529 2.7%
Accident and health
insurance 782 113 11 680 1.7
Property-liability
insurance 120 8 41 153 26.7
- -------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 3,542 $ 299 $ 119 $ 3,362 3.5%
- -------------------------------------------------------------------------------------------------------------
1996
Life insurance in force at year
end $ 297,219 $ 42,155 $ 19,805 $ 274,869 7.2%
Premiums and other
considerations for the year
Life insurance and
annuities $ 2,535 $ 144 $ 67 $ 2,458 2.7%
Accident and health
insurance 786 146 18 658 2.7
Property-liability
insurance 106 18 40 128 31.0
- -------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 3,427 $ 308 $ 125 $ 3,244 3.9%
- -------------------------------------------------------------------------------------------------------------
1995
Life insurance in force at year
end $ 274,958 $ 30,760 $ 18,966 $ 263,164 7.2%
Premiums and other
considerations for the year
Life insurance and
annuities $ 2,288 $ 123 $ 74 $ 2,239 3.3%
Accident and health
insurance 770 169 44 645 6.8
Property-liability
insurance 49 1 37 85 43.6
- -------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 3,107 $ 293 $ 155 $ 2,969 5.2%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN GENERAL CORPORATION
18
<PAGE> 19
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
In millions
<TABLE>
<CAPTION>
Additions
------------------------------------------------
Charged to Charged to
Balance at Provision for Realized Charged to Balance at
Beginning Finance Receivable Investment Other Deduc- End of
Description of Year Losses (Gains)/Losses Accounts tions(a) Year
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1997
Allowance for losses on:
Finance receivables $ 395 $ 248 $ - $ - $ 270 $ 373
Mortgage loans on real
estate 84 - (20) - 10 54
Investment real estate 34 - 8 - 24 18
Other long-term investments 1 - - - 1 -
Valuation allowance on
deferred
tax asset 46 - - 22(b) - 68
- -----------------------------------------------------------------------------------------------------------------------
Total $ 560 $ 248 $ (12) $ 22 $ 305 $ 513
- -----------------------------------------------------------------------------------------------------------------------
1996
Allowance for losses on:
Finance receivables $ 492 $ 417 $ - $ - $ 514(c) $ 395
Mortgage loans on real
estate 96 - 2 - 14 84
Investment real estate 55 - 3 - 24 34
Other long-term investments 48 - - 1 48 1
Valuation allowance on
deferred tax asset 42 - - 4(b) - 46
- -----------------------------------------------------------------------------------------------------------------------
Total $ 733 $ 417 $ 5 $ 5 $ 600 $ 560
- -----------------------------------------------------------------------------------------------------------------------
1995
Allowance for losses on:
Finance receivables $ 226 $ 574 $ - $ - $ 308 $ 492
Mortgage loans on real
estate 101 - 28 - 33 96
Investment real estate 349 - 21 - 315(d) 55
Other long-term investments 65 - 1 - 18 48
Valuation allowance on
deferred
tax asset 331 - - 26(b) 315 42
- -----------------------------------------------------------------------------------------------------------------------
Total $1,072 $ 574 $ 50 $ 26 $ 989 $ 733
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Resulting from write-offs of uncollectible receivables, mortgage loan
payoffs, sales of real estate, and foreclosures of real estate.
(b) Relates to operating loss carryovers not expected to be utilized, charged to
deferred tax expense.
(c) Includes $70 million reclassified to assets held for sale.
(d) Includes $243 million reclassified to reduce cost basis.
1997 FORM 10-K
19
<PAGE> 20
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 27, 1998.
AMERICAN GENERAL CORPORATION
By: /s/ Pamela J. Penny
----------------------------------------
Pamela J. Penny
(Vice President and Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1998.
Robert M. Devlin*
- -----------------------------------------------------------------
Robert M. Devlin
(Chairman, Chief Executive Officer, and Director -
Principal Executive Officer)
/s/ Ellen H. Masterson
- -----------------------------------------------------------------
Ellen H. Masterson
(Senior Vice President and Chief Financial Officer -
Principal Financial Officer)
/s/ Pamela J. Penny
- -----------------------------------------------------------------
Pamela J. Penny
(Vice President and Controller -
Principal Accounting Officer)
J. Evans Attwell*
- -----------------------------------------------------------------
J. Evans Attwell
(Director)
Brady F. Carruth*
- -----------------------------------------------------------------
Brady F. Carruth
(Director)
James S. D'Agostino Jr.*
- -----------------------------------------------------------------
James S. D'Agostino Jr.
(Director)
W. Lipscomb Davis Jr.*
- -----------------------------------------------------------------
W. Lipscomb Davis Jr.
(Director)
Larry D. Horner*
- -----------------------------------------------------------------
Larry D. Horner
(Director)
Richard J.V. Johnson*
- -----------------------------------------------------------------
Richard J.V. Johnson
(Director)
Michael E. Murphy*
- -----------------------------------------------------------------
Michael E. Murphy
(Director)
Jon P. Newton*
- -----------------------------------------------------------------
Jon P. Newton
(Director)
Michael J. Poulos*
- -----------------------------------------------------------------
Michael J. Poulos
(Director)
Robert E. Smittcamp*
- -----------------------------------------------------------------
Robert E. Smittcamp
(Director)
Anne M. Tatlock*
- -----------------------------------------------------------------
Anne M. Tatlock
(Director)
*By: /s/ Mark S. Berg
- -----------------------------------------------------------------
Mark S. Berg
(Attorney-in-fact)
AMERICAN GENERAL CORPORATION
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
---------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation (including Statement of Resolution Establishing Series
of Shares of Series A Junior Participating Preferred Stock)
3.2 Statement of Resolution Establishing Series of Shares of Series A 4(o) 33-58317
Cumulative Convertible Preferred Stock
3.3 Statement of Resolution Establishing Series of Shares of 7% 4(d) 333-00513
Convertible Preferred Stock
3.4 Resolutions Establishing American General's 6% Series A 4(k) 333-00513
Convertible Junior Subordinated Debentures
3.5 Amended and Restated Bylaws of American General Corporation 3 Form 10-Q
for Third Quarter
1997
4.1 There have not been filed as exhibits to this Form 10-K certain NA NA
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. The company hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
4.2 Rights Agreement, dated as of July 27, 1989, between American 4 Form 10-Q
General and Texas Commerce Bank, as Rights Agent (Rights for Second
Agreement) Quarter 1989
4.3 First Amendment to Rights Agreement, dated as of October 26, 19 Form 10-Q
1992, between American General and First Chicago Trust Company of for Third
New York, as Rights Agent Quarter 1992
4.4 Junior Subordinated Indenture, dated as of May 15, 1995, between 4(g) 333-00513
American General and The Chase Manhattan Bank (formerly Chemical
Bank), as Trustee, relating to American General's 6% Series A
Convertible Junior Subordinated Debentures
4.5 Terms of the 6% Convertible Monthly Income Preferred Securities, 4(i) 333-00513
Series A, of American General Delaware, L.L.C.
4.6 Guarantee of American General with respect to the 6% Convertible 4(j) 333-00513
Monthly Income Preferred Securities, Series A, of American
General Delaware, L.L.C.
10.1 1984 Stock and Incentive Plan 10.5 Form 10-K
for 1984
10.2 1984 Stock and Incentive Plan (Amended and Restated Effective as 10.2 Form 10-K
of February 8, 1994) for 1993
10.3 American General Corporation 1997 Stock and Incentive Plan 10.3 Form 10-K
for 1996
10.4 Restoration of Retirement Income Plan for Certain Employees 10.3 Form 10-K
Participating in the Restated American General Retirement Plan for 1993
(Restoration of Retirement Income Plan)
10.5 First Amendment to Restoration of Retirement Income Plan 10.4 Form 10-K
for 1993
10.6 Second Amendment to Restoration of Retirement Income Plan 10.5 Form 10-K
for 1993
10.7 Third Amendment to Restoration of Retirement Income Plan 10.7 Form 10-K
for 1996
10.8 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.9 First Amendment to American General Supplemental Thrift Plan 10.7 Form 10-K
for 1993
10.10 Second Amendment to American General Supplemental Thrift Plan 10.8 Form 10-K
for 1993
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
---------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
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<C> <S> <C> <C>
10.11 Third Amendment to American General Supplemental Thrift Plan 10.9 Form 10-K
for 1993
10.12 Employment Agreement, dated as of February 1, 1998, between 10.12* NA
American General and Robert M. Devlin
10.13 Employment Agreement, dated as of February 1, 1998, between 10.13* NA
American General and Jon P. Newton
10.14 Employment Agreement, dated as of February 1, 1998, between 10.14* NA
American General and James S. D'Agostino Jr.
10.15 Supplemental Executive Retirement Agreement, dated as of February 10.15* NA
1, 1998, between American General and Robert M. Devlin
10.16 Supplemental Executive Retirement Agreement, dated as of February 10.16* NA
1, 1998, between American General and Jon P. Newton
10.17 Supplemental Executive Retirement Agreement, dated as of February 10.17* NA
1, 1998, between American General and James S. D'Agostino Jr.
10.18 American General Corporation Retirement Plan for Directors (as 10.18* NA
amended and restated)
10.19 American General Corporation Performance-Based Plan for Executive 10.19 Form 10-K
Officers, Amended and Restated Effective January 1, 1995 for 1994
10.20 Letter Agreement dated September 11, 1997 between American 10.20* NA
General and Michael J. Poulos
10.21 Supplemental Retirement Agreement between American General and 10.13 Form 10-Q for Third
Michael J. Poulos Quarter 1990
10.22 Western National Corporation (WNC) Supplemental Plan 10.37 to WNC NA
annual report
on Form 10-K
for 1994
10.23 Western National Corporation Supplemental Plan Trust Agreement 10.17 to WNC NA
annual report
on Form 10-K
for 1995
10.24 Western National Corporation 1993 Stock and Incentive Plan, as 10.18 to WNC NA
amended annual report
on Form 10-K
for 1995
11 Computation of Earnings per Share (included in Note 4 of Notes to NA NA
Financial Statements in American General's 1997 ARS)
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of 12* NA
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1997 Annual Report to Shareholders 13* NA
that are expressly incorporated herein by reference in this Form
10-K. Other sections of the Annual Report furnished for the
information of the Commission are not deemed "filed" as part of
this Form 10-K.
21 Subsidiaries of American General 21* NA
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
---------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
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<C> <S> <C> <C>
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 10-K 24* NA
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of February
1, 1998 (the "Effective Date"), by and between Robert M. Devlin (the
"Executive") and American General Corporation, a Texas corporation (the
"Company").
WHEREAS, during the course of Executive's employment with the Company,
the Executive has performed outstanding services for the Company; and
WHEREAS, it is deemed by the Company to be in the best interests of
the Company to assure continuation of Executive's employment; and
WHEREAS, the Company and the Executive have determined to enter into
this Agreement pursuant to which the Company will continue to employ the
Executive on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement (if not provided where a capitalized term initially appears)
are provided in the last Section hereof.
2. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, on the terms and
conditions hereinafter set forth.
3. Term.
(a) Duration of Term. Unless earlier terminated as
provided in Section 3(b) hereof, the Executive's employment with the Company
under this Agreement shall commence at the Effective Date and shall end on the
final day of the Term. For purposes of this Agreement, the "Term" shall mean
the full three-year term of the Agreement from the Effective Date until the day
before the third anniversary thereof, plus any extensions made as provided in
this Section 3. On the first day of each month occurring after the Effective
Date, the Term shall automatically be extended for an additional month unless,
prior to any such first day of a month, the Company or
<PAGE> 2
the Executive shall have given notice not to extend the Term. Nothing in this
Section shall limit the right of the Company or the Executive to terminate the
Executive's employment hereunder on the terms and conditions set forth in
Section 7 hereof. The Company and the Executive agree that any such notice by
the Company shall not constitute Good Reason for the Executive to terminate his
employment.
(b) Termination of Employment during the Term.
Nothing in this Section 3 shall limit the right of the Company or the Executive
to terminate the Executive's employment under this Agreement during the Term
hereof on the terms and conditions set forth in Section 7 hereof. Further,
notwithstanding any other provision of this Agreement, the Company shall have
the right to terminate the Executive's employment under this Agreement at any
time prior to the expiration of the Term for any other reason whatsoever,
including termination without Cause, in the sole discretion of the Company's
Board of Directors (the "Board"); provided, however, that, any termination of
the employment relationship by the Company prior to the expiration of the Term
other than a termination by the Company on the terms and conditions set forth
in Section 7 hereof shall be deemed to be a termination without Cause within
the meanings of Sections 8(c) and 8(e) hereof.
(c) After the Term: "At-Will" Relationship and
Termination of Employment. If the Executive remains employed by the Company
beyond the expiration of the Term, such employment shall automatically convert
to an "at-will" relationship (upon the expiration of the Term hereof)
terminable at any time by either the Company or the Executive for any reason
whatsoever, with or without Cause. Upon a termination of employment after the
Term hereof, the Company shall pay the Executive's full salary to the Executive
through the date of such termination at the rate in effect immediately prior to
such termination, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during the Executive's employment by the
Company. In addition to any payments or benefits due hereunder upon such a
termination, the Executive shall receive such post-termination compensation and
benefits as shall be determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or benefit plans,
programs and
2
<PAGE> 3
arrangements as in effect immediately prior to such termination.
4. Position and Duties. On and after the Effective Date, the
Executive shall serve as Chairman and Chief Executive Officer of the Company
and shall have such additional duties and responsibilities as may be assigned
to the Executive by the Board. The Executive shall report to the Board. The
Executive agrees to devote substantially all the Executive's full working time,
attention and energies during normal business hours to the performance of the
Executive's duties for the Company, provided that the Executive may serve as a
director on the boards of such companies and organizations as he may reasonably
determine to be appropriate.
5. Place of Performance. The principal place of employment
and office of the Executive shall be in Houston, Texas, or such other location
as may be agreed to in writing by the Executive.
6. Compensation and Related Matters.
(a) Base Salary. As compensation for the
performance by the Executive of the Executive's duties hereunder, during the
Employment Period the Company shall pay the Executive an annual base salary no
less than the greater of the annual base salary in effect on the Effective Date
or the annual base salary in effect on May 1, 1998 (such greater amount, as it
may be increased from time to time, is hereinafter referred to as "Base
Salary"). Base Salary shall be payable in accordance with the Company's normal
payroll practices, shall be reviewed at least annually by the Personnel
Committee and may be increased (but not decreased) upon review.
(b) Annual Bonus.
(i) The Executive shall be provided an
opportunity for an annual bonus with respect to each fiscal year which ends
within the Employment Period (the "Annual Bonus"), including, without
limitation, the year which includes the Effective Date. Except with respect to
any fiscal year during which the Executive participates in a Formula Annual
Bonus Plan (as described in Section 6(b)(ii) hereof), the amount of an Annual
Bonus with respect to any fiscal year shall be determined in the sole
discretion of the Personnel Committee; provided, however, that, except with
respect to any fiscal year
3
<PAGE> 4
during which the Executive participates in a Formula Annual Bonus Plan, the
amount of any such Annual Bonus shall not be less than seventy-five percent
(75%) of the Base Salary in effect on the last day of the fiscal year with
respect to which such Annual Bonus is awarded.
(ii) Notwithstanding the second sentence of
Section 6(b)(i) hereof, if the Executive participates in an Annual Bonus Plan
under which performance objectives, Annual Bonus opportunities (or target
bonuses) and levels of payment based on levels of achievement of the
performance objectives are established for the Executive and other participants
(a "Formula Annual Bonus Plan"), the Executive shall have an Annual Bonus
opportunity (expressed as a percentage of then-current Base Salary) for the
initial fiscal year during the Term covered by a Formula Annual Bonus Plan
which is no less than (and which may be more than) the "Average Bonus
Percentage". The "Average Bonus Percentage" (for purposes of this Section)
shall be calculated by (i) dividing the actual bonus paid to the Executive with
respect to each of the applicable "Three Years" by the Base Salary in effect on
the last day of the respective year, and converting the result to a percentage,
and (ii) adding the three percentages together and dividing by three. The
"Three Years", for purposes of this Section, shall be the three fiscal years
immediately preceding such initial fiscal year, or, if more favorable to the
Executive, the three fiscal years immediately preceding the Effective Date
hereof. The percentage of Base Salary which determines the Executive's Annual
Bonus opportunity shall be reviewed by the Board annually and may be increased
(but not decreased) upon review by the Board. Any Annual Bonus payable with
respect to a fiscal year (whether or not pursuant to a Formula Annual Bonus
Plan) shall be paid as soon as practicable after the end of such year.
(c) Other Compensation and Benefit Plans and
Arrangements; Fringe Benefits. During the Employment Period, the Executive
shall be entitled to participate, at a level appropriate to the Executive's
position with the Company, in such other employee benefit and compensation
plans and arrangements and fringe benefits as are generally available to senior
officers of the Company from time to time, and any successors thereto.
4
<PAGE> 5
(d) Expenses. The Company shall reimburse the
Executive for all reasonable business expenses incurred during the Employment
Period, subject to the applicable and reasonable policies and procedures of the
Company in force from time to time.
(e) Office Facilities and Services Furnished.
During the Employment Period, the Company shall furnish the Executive with
appropriate office space and such other facilities and services as shall be
suitable to the Executive's position and adequate for the performance of the
Executive's duties as set forth in Section 4 hereof (including, without
limitation, secretarial services and furniture, telephone, telefax and work
station equipment), such office space and other facilities and services to be
furnished at the location set forth in Section 5 hereof.
(f) Automobile Allowance. At all times during the
Employment Period, the Company will provide the Executive with an automobile
(and pay related expenses) pursuant to the Company's policy as in effect on the
Effective Date, as such policy may be amended from time to time (the
"Automobile Policy"), provided, however, that in no event shall the automobile
provided to the Executive pursuant to this Section 6(f) be of lesser quality
than that available to the Executive pursuant to the Automobile Policy on the
Effective Date.
(g) Nonstatutory Options. Any nonstatutory options
granted to the Executive during the Employment Period after the Effective Date
hereof will, when (and to the extent that) they become exercisable, remain
exercisable for their full term.
7. Termination. The Executive's employment hereunder may be
terminated, and the Employment Period hereunder shall be ended, as follows:
(a) Death. The Executive's employment shall
terminate upon the Executive's death. Upon such a termination, the Executive's
estate, designated beneficiary or surviving spouse, as the case may be, shall
become entitled to the payments provided in Sections 8(b) and 8(e) hereof.
(b) Disability. The Company may terminate the
Executive's employment hereunder for Disability. During the Disability Period
(as defined in Section 8(a) hereof) and upon such a termination, the Executive
shall be entitled to the payments and benefits provided in
5
<PAGE> 6
Sections 8(a) and 8(e) hereof in accordance with the terms of such Sections,
provided, however, that during the thirty-six (36) month period immediately
following the Date of Termination for Disability, the Company shall pay monthly
to the Executive (in accordance with the Company's usual payroll practices) any
additional amount necessary (the "Disability Supplement") so that the gross
amount of (i) the Disability Supplement and (ii) the payments provided to the
Executive following a termination of his employment for Disability pursuant to
Sections 8(a) and 8(e) hereof is equal to (A) three times the Base Salary and
the Average Annual Bonus, (B) divided by thirty-six (36).
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause. Upon such a termination, the
Executive shall become entitled to the payments provided in Section 8(b)
hereof.
(d) Termination by the Executive.
(i) The Executive may terminate the Executive's
employment hereunder for Good Reason. The Executive may also terminate the
Executive's employment hereunder without Good Reason by giving a Notice of
Termination during the year immediately following a Change in Control (a
"Special Termination"). Upon a Good Reason termination or a Special
Termination, the Executive shall become entitled to the payments and benefits
provided in Sections 8(c) and 8(e) hereof in accordance with the terms of such
Sections.
(ii) The Executive may terminate the
Executive's employment hereunder without Good Reason and outside of the
one-year period immediately following a Change in Control, upon giving notice
of one month to the Company. In the event of such a termination, the Executive
shall comply with any reasonable request of the Company to assist in providing
for an orderly transition of authority, but such assistance shall not delay the
Executive's termination of employment longer than six months beyond the giving
of the Executive's Notice of Termination. Upon such a termination, the
Executive shall become entitled to the payments and benefits provided in
Sections 8(b) and 8(e)(iii) hereof in accordance with the terms of such
Sections.
6
<PAGE> 7
(e) Notice of Termination. Any purported
termination of the Executive's employment (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 17 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause based on
clause (ii) or (iii) of the definition of Cause herein is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (ii) or (iii) of the definition of Cause herein,
and specifying the particulars thereof in detail.
(f) Date of Termination. For purposes of this
Agreement, "Date of Termination" shall mean the following: (i) if the
Executive's employment is terminated by the Executive's death, the date of the
Executive's death; (ii) if the Executive's employment is terminated for
Disability pursuant to Section 7(b) hereof, thirty (30) days after the Notice
of Termination is given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during such thirty-(30)-day
period); (iii) if the Executive's employment is terminated for Cause pursuant
to Section 7(c) hereof, the date specified in the Notice of Termination; (iv)
if the Executive's employment is terminated pursuant to Section 7(d)(ii)
hereof, the date determined in accordance with said Section, and (v) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
7
<PAGE> 8
(g) Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this Section 7(g)),
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be
extended until the earlier to occur of (i) the date on which the Term ends or
(ii) the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by the final judgment, order or decree of
an arbitrator or a court of competent jurisdiction (which is not appealable or
with respect to which the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
(h) Compensation During Dispute. If the Date of
Termination is extended in accordance with Section 7(g) hereof with respect to
a Notice of Termination given after a Change in Control or within the six-month
period immediately preceding a Change in Control, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given until the Date of Termination, as determined in
accordance with Section 7(g) hereof. Amounts paid under this Section 7(h) are
in addition to all other amounts due under this Agreement other than those due
under Section 8(b)(i) or 8(c)(i) hereof) and shall not be offset against or
reduce any other amounts due under this Agreement.
8. Compensation During Disability or Upon Termination.
(a) Disability Period and Termination for
Disability. During any period during the Employment Period that the Executive
fails to perform the Executive's full-time duties hereunder as a result of
incapacity due to physical or mental illness ("Disability Period"), the Company
shall pay the Executive's full salary to the Executive at the rate in effect at
the
8
<PAGE> 9
commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period, until the
Executive's employment is terminated by the Company for Disability; provided,
however, that such salary payments shall be reduced by the sum of the amounts,
if any, payable to the Executive at or prior to the time of any such salary
payment under disability benefit plans of the Company or under the Social
Security disability insurance program, which amounts were not previously
applied to reduce any such salary payment. Upon termination of the Executive's
employment for Disability, the Company shall have no additional obligations to
the Executive under this Agreement except to the extent provided in Sections
6(c), 6(d), 7(b), 8(e) and 15 hereof (and, to the extent applicable, Sections
9, 10 and 11 hereof) and to pay to the Executive the Executive's normal
post-termination compensation and benefits as such payments become due. Such
post-termination compensation and benefits shall be determined under, and paid
in accordance with, the Company's retirement, insurance and other compensation
or benefit plans, programs and arrangements as in effect immediately prior to
the Date of Termination or, if more favorable to the Executive, as in effect
immediately prior to the occurrence of the first event or circumstance
constituting Good Reason.
(b) Termination (x) by the Company with Cause, (y)
by the Executive without Good Reason in a Termination which is not a Special
Termination, or (z) by Reason of Death. If the Executive's employment
hereunder is terminated (x) by the Company with Cause, (y) by the Executive
without Good Reason in a termination which is not a Special Termination, or (z)
by reason of death, then:
(i) as soon as practicable, the Company
shall pay the Executive's Base Salary to the Executive through the
Date of Termination at the rate in effect immediately prior to the
Date of Termination or, if higher, the rate in effect immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, together with all compensation and benefits payable to
the Executive through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements as
in effect immediately prior to the Date of Termination or, if
9
<PAGE> 10
more favorable to the Executive, as in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason;
and
(ii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d) and 15 hereof (and, to the extent
applicable, Sections 8(e), 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason.
(c) Termination (x) by Company without Cause, (y) by
the Executive with Good Reason, or (z) by the Executive in a Special
Termination. For purposes of this Agreement, termination of the Executive's
employment "by the Company without Cause" shall not include termination by the
Company for Disability or termination by reason of the Executive's death. If
the Executive's employment hereunder is terminated (x) by the Company without
Cause, (y) by the Executive with Good Reason, or (z) by the Executive in a
Special Termination, then:
(i) the Company shall pay the Executive's
Base Salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if
higher, the rate in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, together with
all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and
benefit plans, programs or arrangements as in effect immediately prior
to the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason;
10
<PAGE> 11
(ii) notwithstanding any provision of any
Annual Bonus plan to the contrary, the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (A) any
Annual Bonus which has been allocated or awarded (but not yet paid) to
the Executive for a completed fiscal year preceding the Date of
Termination under any Annual Bonus plan, and (B) a pro rata portion to
the Date of Termination of the Annual Bonus for the year in which the
Date of Termination occurs, calculated by using a fraction (the
numerator of which shall be the number of days of employment in such
year up to and including the Date of Termination and the denominator
of which shall be three-hundred-sixty-five (365)) to multiply (i) the
award that the Executive would have earned for the entire year,
assuming the achievement, at the target level, of any performance
objectives established with respect to such award, or, (ii) if no such
target level and performance objectives have been established, the
Average Annual Bonus; provided, however, that any amount otherwise
payable pursuant to this clause (B) of this Section 8(c)(ii) shall be
reduced by any payment already received by the Executive pursuant to
the applicable Annual Bonus plan with respect to the year in which the
Date of Termination occurs;
(iii) in lieu of any further salary or bonus
payments as severance to the Executive for periods subsequent to the
Date of Termination and in lieu of any severance benefit otherwise
payable to the Executive, the Company shall pay to the Executive a
lump sum severance payment, in cash, equal to three times the sum of
(x) the Executive's Base Salary as in effect immediately prior to the
Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason,
and (y) the Average Annual Bonus, as follows:
(A) if the Date of Termination shall
occur on or after a Change in Control (or be deemed to occur
after a Change in Control pursuant to Section 8(d) hereof),
the Company shall pay such amount in a lump sum severance
payment, in cash; or
(B) if the Date of Termination shall
not occur on or after a Change in Control (and not be deemed
to occur after a Change in
11
<PAGE> 12
Control pursuant to Section 8(d) hereof), the Company shall
pay such amount, in substantially equal monthly or more
frequent installments over the three-year period immediately
following the Date of Termination;
(iv) The Company shall (i) either prepay all
remaining premiums, or establish an irrevocable grantor trust holding
an amount of assets sufficient to pay all such remaining premiums
(which trust shall be required to pay such premiums), under any
insurance policy insuring the life of the Executive under any
"split-dollar" insurance arrangement in effect between the Executive
and the Company, and (ii) shall transfer to the Executive any and all
rights and incidents of ownership in such arrangements at no cost to
the Executive. For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall also arrange to
provide the Executive with life and accident insurance benefits
substantially similar to those provided to the Executive (other than
the "split-dollar" life insurance) immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such
date or occurrence. Benefits otherwise receivable by the Executive
pursuant to the immediately preceding sentence shall be reduced to the
extent benefits of the same type are received by or made available to
the Executive by a successor employer during the thirty-six (36) month
period following the Executive's termination of employment (and any
such benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the
cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(v) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of nine months or,
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if earlier, until the first acceptance by the Executive of an offer of
employment.
(vi) The Company shall provide the Executive
with the office facilities and services and the automobile allowance
described in Section 6(e) and (f) hereof for the thirty-six (36) month
period immediately following the Date of Termination.
(vii) Notwithstanding anything which is more
restrictive in any applicable plan or grant or award agreement or in
any other provision of this Agreement, the Executive shall become
fully vested in all outstanding stock options, restricted stock and
other similar equity-based awards which are granted to him by the
Company (whether before or after the Effective Date); in the case of
performance awards, it shall be assumed that the applicable
performance goals were attained at target levels and the Committee
shall also have the discretion to increase the amount so payable by
assuming attainment of the applicable performance goals at up to
maximum level.
(viii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d), 8(e) and 15 hereof (and, to the
extent applicable, Sections 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason. If such
insurance, other compensation and benefit plans, programs and
arrangements provide for different levels of benefits and coverage,
post-termination benefits and coverage shall be the most comprehensive
benefits and coverage available.
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(d) Termination Deemed to be after Change in
Control. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated after a Change in Control by the Company without
Cause or after a Change in Control by the Executive with Good Reason, if (i)
the Executive's employment is terminated by the Company without Cause prior to
a Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates the Executive's employment for Good
Reason prior to a Change in Control (whether or not a Change in Control ever
occurs) and the circumstance or event which constitutes Good Reason occurs at
the request or direction of such Person, or (iii) the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason and
such termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence made after
the occurrence of a Change in Control or within the six-month period
immediately preceding a Change in Control, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to the Committee
by clear and convincing evidence that such position is not correct.
(e) Other Benefits upon Certain Terminations.
(i) Upon any termination of the Executive's
employment with the Company (whether or not occurring during the Term hereof),
other than a termination during the Term by the Company with Cause or a
termination during the Term by the Executive without Good Reason which is not a
Special Termination, and continuing until the earlier of (i) the later of the
death of the Executive or the death of the "Executive's Spouse", or (ii) the
date substantially equivalent coverage and benefits are provided to the
Executive (if then living) and the Executive's Spouse (if then living) by a
subsequent employer (whether or not such coverage and benefits will be
continued by the subsequent employer after any termination of the Executive's
employment by the subsequent employer), the Company (at the Company's
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sole expense) shall provide the Executive, the Executive's Spouse and the
Executive's dependents with medical and dental insurance benefits substantially
similar to those benefits "provided" to them immediately prior to the Date of
Termination or, if more favorable to the Executive, those "provided" to them on
the Effective Date hereof. In determining which benefits were "provided" at
the applicable date, the Executive shall be deemed to have elected the most
comprehensive benefits and coverage available to the Executive at that date
(whether or not actually elected); further, such benefits shall include,
without limitation, an unrestricted right for the Executive, the Executive's
Spouse and the Executive's dependents to select their own care providers. The
Company shall provide such post-termination benefits under its medical and
dental plans, to the extent that the Executive's continued participation is
possible under the general terms and provisions of such plans. To the extent
that such participation is not possible, the Company shall arrange to otherwise
provide the Executive with such post-termination benefits. If the Executive
obtains other employment (and the Executive shall be under no obligation to do
so), insurance obtained as a result of such other employment shall be the first
line of insurance and insurance provided under this Section 8(e) shall only be
supplementary or secondary. Also, to the extent that the Executive is, at any
time, entitled to insurance under the Medicare program or its equivalent, the
insurance under this Section 8(e) shall be only supplementary or secondary to
the extent allowed by law. For purposes of this Section 8(e), "Executive's
Spouse" shall refer to the Executive's spouse immediately prior to the
termination of the Executive's employment with the Company.
(ii) Subject to Section 8(c)(vii) hereof,
but notwithstanding any more restrictive provision in the terms of the relevant
document evidencing an equity-based award or the terms of the plan under which
the equity-based award was granted, upon any termination described in the last
sentence of this Section 8(e)(ii), (i) the Executive shall become fully vested
in (and any restrictions shall lapse upon) all outstanding time-vesting stock
options, restricted stock and other similar equity-based awards granted to
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him by the Company (whether before or after the Effective Date), and (ii) the
Executive shall become vested in a pro-rata portion of all equity-based
performance awards granted to him by the Company (whether before or after the
Effective Date), which pro-rata portion shall be based on the attainment of the
performance goals relevant to such awards on the date of termination of the
Executive's employment with the Company (and not based on the portion of the
applicable performance period during which the Executive was employed by the
Company), as determined by the Committee in its good faith discretion. The
Committee shall also have the discretion to increase the amount, if any,
payable pursuant to clause (ii) of the preceding sentence, up to the full
amount of such award, assuming attainment of the applicable performance goals
at target level. The terminations upon which the vesting described in this
Section 8(e)(ii) shall occur are the following: any termination of the
Executive's employment with the Company (whether or not occurring during the
Term hereof) which occurs on or after the date on which the Executive attains
age 60, other than a termination during the Term by the Company with Cause.
(iii) Upon any termination of the
Executive's employment with the Company (whether or not occurring during the
Term hereof), other than a termination during the Term by the Company with
Cause or a termination by reason of the Executive's death, the Company shall,
until the earlier of the Executive's death or his becoming incapacitated,
provide the Executive a private office at a mutually-agreed location, which is
suitable for a former Chief Executive Officer and Chairman of the Board of the
Company (including furniture, telephone, telefax and work station equipment)
either within the Company campus or in comparable facilities outside the
Company campus that are acceptable to both parties and shall also provide the
Executive with the full and exclusive services of a secretary suitable for a
former Chief Executive Officer and Chairman of the Board of the Company, which
secretary shall be a Company employee with all of the benefits enjoyed by other
Company secretarial employees.
9. Excise Tax Gross-Up Payment.
(a) Whether or not the Executive becomes entitled
to any payment pursuant to Section 8(c)(iii)(A) hereof, if any of the payments
or benefits received or to be received by the Executive in connection with any
Change in Control which occurs during the Term hereof or any termination of the
Executive's employment which occurs during the Term hereof (whether pursuant to
the
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terms of this Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) (such payments or benefits
(excluding the payment or payments to be made pursuant to this Section 9) being
hereinafter referred to as the "Total Payments") will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the payment or payments provided by
this Section 9, shall be equal to the Total Payments.
(b) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by the accounting firm which was, immediately prior to the Change
in Control, the Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute payments, including
by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be treated
as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered (within the meaning of section 280G(b)(4)(B) of the
Code) in excess of the Base Amount allocable to such reasonable compensation,
or are otherwise not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income tax at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination (or if there is no Date of Termination, then the date on
which the Gross-Up Payment is calculated for purposes of this Section 9), net
of the maximum reduction in federal
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income taxes which could be obtained from deduction of such state and local
taxes.
(c) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within the five (5) business days immediately following the date that the
amount of such reduction in the Excise Tax is finally determined, the portion
of the Gross-Up Payment attributable to the amount of such reduction (including
the Excise Tax component and the federal, state and local income and employment
tax components of the Gross-Up Payment) to the extent that such repayment
results in a reduction in the Excise Tax and a dollar-for-dollar reduction in
the Executive's taxable income and wages for purposes of federal, state and
local income and employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.
In the event that the Excise Tax is determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment (including by reason of
any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment
in respect of such excess (plus any interest, penalties or additions payable by
the Executive with respect to such excess) within the five (5) business days
immediately following the date that the amount of such excess is finally
determined. The Executive and the Company shall each reasonably cooperate with
the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect
to the Total Payments.
10. Time of Certain Payments. The payments provided to the
Executive or for the Executive's benefit in Sections 9 and 8(c) (other than
8(c)(iii)(B), 8(c)(v), 8(c)(vi), and 8(c)(viii)) hereof shall be made not later
than the fifth (5th) business day following the Date of Termination (or, if
earlier, in the case of payments provided in Section 9 hereof, not later than
the fifth (5th) business day following the Executive's receipt of an excess
parachute payment, within the meaning of section 4999 of the Code); provided,
however, that if the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to the Executive on such day an
estimate of the payments under
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Section 8(c), as determined in good faith by the Executive, and an estimate of
the payments under Section 9 hereof, as determined in accordance with Section 9
hereof, the estimate in each case to be of the minimum amount of such payments
to which the Executive is clearly entitled, and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at
120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the
amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination (or, if earlier, the thirtieth (30th)
day after the date of the Executive's receipt of an excess parachute payment).
In the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Company to the Executive, payable on the fifth (5th) business day after
demand by the Company (together with interest at 120% of the rate provided in
section 1274(b)(2)(B) of the Code). At the time that payments are made under
this Agreement, the Company shall provide the Executive with a written
statement setting forth the manner in which such payments were calculated and
the basis for such calculations including, without limitation, any opinions or
other advice the Company has received from Tax Counsel, the Auditor or other
advisors or consultants (and any such opinions or advice which are in writing
shall be attached to the statement).
11. Legal and Arbitration Fees and Expenses. The Company
also shall pay to the Executive all reasonable legal fees, arbitration fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require. Notwithstanding the foregoing provisions of this
Section 11, no such fees and expenses shall be paid unless the Executive
prevails on at least one of the issues he raises.
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12. No Mitigation; Limited Offset. The Company agrees that,
if the Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section
7(h) or 8 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 8(e) or the second sentence of Section
8(c)(iv) hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company (unless such amount is evidenced by a promissory note signed by the
Executive), or otherwise.
13. Protection of Ideas, Noncompetition and Nonsolicitation.
(a) Protection of Ideas. Both during the period of
the Executive's employment by the Company and thereafter, Executive shall
assist the Company or its nominees, at any time, in the protection of the
Company's worldwide right, title, and interest in and to information, ideas,
concepts, improvements, discoveries, and inventions, and its copyrighted works,
including without limitation, the execution of all formal assignment documents
requested by Company or its nominees and the execution of all lawful oaths and
applications for applications for patents and registration of copyright in the
United States and foreign countries.
(b) Noncompetition. The Company shall disclose
to the Executive, or place the Executive in a position to have access to or to
develop, trade secrets or confidential information of the Company or its
affiliates; and/or shall entrust the Executive with business opportunities of
the Company or its affiliates; and/or shall place the Executive in a position
to develop business good will on behalf of the Company or its affiliates. As
part of the consideration for the compensation and benefits to be paid to the
Executive hereunder, to protect the trade secrets and confidential information
of the Company or its subsidiaries or affiliates or their customers or clients
that have been and will in the future be disclosed or entrusted to the
Executive, the business good will of the Company or its subsidiaries or
affiliates that has been and will in the
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future be developed in the Executive, or the business opportunities that have
been and will in the future be disclosed or entrusted to the Executive by the
Company or its subsidiaries or affiliates; and as an additional incentive for
the Company to enter into this Agreement, the Executive agrees to the
non-competition obligations hereunder. While the Executive continues to be an
employee of the Company and, unless the Executive's termination of employment
is by the Company without Cause or by the Executive with Good Reason or in a
Special Termination, for the three-year period immediately following the
Executive's Date of Termination, the Executive shall not, within any geographic
region of the United States of America in which the Company then conducts
business or in which the Company plans to conduct business pursuant to a
business strategy adopted by the Board before the Executive's termination of
employment, except as permitted by the Company upon its prior written consent,
(i) enter, directly or indirectly, into the employ of, or render or engage in,
directly or indirectly, any services to any person, firm or corporation which
directly competes with the Company with respect to any business then conducted
by the Company or any business which the Company plans to enter pursuant to a
business strategy adopted by the Board before the Executive's termination of
employment (a "Competitor"), or (ii) become interested, directly or indirectly,
in any such Competitor as an individual, partner, shareholder, creditor,
director, officer, principal, agent, employee, trustee, consultant, advisor or
in any other relationship or capacity. The ownership of up to one percent (1%)
of any class of the outstanding securities of any publicly traded corporation,
even though such corporation may be a Competitor, shall not be deemed as
constituting an interest in such Competitor which violates clause (ii) of the
immediately preceding sentence.
(c) While the Executive continues to be an employee
of the Company and, unless the Executive's termination of employment is by the
Company without Cause or by the Executive with Good Reason or in a Special
Termination, for the three-year period immediately following the Executive's
Date of Termination, the Executive shall not, except as permitted by the
Company upon its prior written consent, (i) attempt, directly or indirectly, to
induce any employee employed by or performing services for the Company (or its
affiliates) to be employed or perform services elsewhere,
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or (ii) solicit, directly or indirectly, the customers of the Company (or its
affiliates), the suppliers of the Company (or its affiliates) or entities or
individuals having other business relationships with the Company (or its
affiliates) for the purpose of encouraging them to terminate (or reduce or
detrimentally alter) their respective relationships with the Company (or its
affiliates).
(d) The Company shall have the right and remedy to
have the provisions of this Section 13 specifically enforced, including by
temporary and/or permanent injunction, it being acknowledged and agreed that
any such violation may cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
14. Independence and Severability of Section 13 Provisions.
Each of the rights and remedies enumerated in Section 13 hereof shall be
independent of the others and shall be severally enforceable and all of such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity. If any of
the covenants contained in Section 13 hereof or if any of the rights or
remedies enumerated in Section 13 hereof, or any part of any of them, is
hereafter construed to be invalid or unenforceable, the same shall not affect
the remainder of the covenant or covenants or rights or remedies which shall be
given full effect without regard to the invalid portions. If any of the
covenants contained in Section 13 is held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties agree that
the court making such determination shall have the authority to reduce the
duration and/or area of such provision, and in its reduced form said provision
shall then be enforceable.
15. Indemnification. The Company shall indemnify the
Executive to the full extent authorized by law and the Charter and By-Laws of
the Company, as applicable, for all expenses, costs, liabilities and legal fees
which the Executive may incur in the discharge of the Executive's duties
hereunder. The Executive shall be insured under the Company's directors' and
officers' liability insurance policy as in effect from time to time. Any
termination of the Executive's employment or of this Agreement shall have no
effect on the continuing operation of this Section 15.
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16. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason on or after a Change in Control, except that, for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, each such amount,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
17. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the
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other in writing in accordance herewith, except that notice of change of
address shall be effective only upon actual receipt:
To the Company:
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
18. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
supersedes any other agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof which have been made by
either party, including, without limitation, any employment memorandum,
memorandum of understanding, or severance agreement. Captions and Section
headings in this Agreement are provided merely for convenience and shall not
affect the interpretation of any of the provisions herein. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Texas. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 8
and 9 hereof) shall survive such expiration.
19. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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20. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
21. Settlement of Disputes; Arbitration.
(a) All claims by the Executive for benefits under
this Agreement shall be directed to and determined by the Committee and shall
be in writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set forth
the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Committee a decision of the Committee
within sixty (60) days after notification by the Committee that the Executive's
claim has been denied.
(b) Except for equitable relief as specified in
Section 21(f) hereof and except for the Executive's claim under any Company
benefit or compensation plans, programs, arrangements or awards (whether
heretofore or hereafter established) which have a claim or dispute resolution
procedure specifically applicable thereto, any dispute or controversy which is
not resolved by agreement pursuant to Section 21(a) hereof, including all
claims, demands, causes of action, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision hereof,
the alleged breach thereof, or in any way relating to the subject matter of
this Agreement involving the Executive, the Company, and/or their respective
representatives, even though some or all of such claims allegedly are
extra-contractual in nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
by binding arbitration pursuant to the Federal Arbitration Act in accordance
with the Employment Dispute Resolution Rules then in effect with the American
Arbitration Association. The arbitration proceeding shall be conducted in
Houston, Texas. This agreement to arbitrate
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shall be enforceable in either federal or state court.
(c) The enforcement of this agreement to arbitrate
and all procedural aspects of this agreement to arbitrate, including but not
limited to, the construction and interpretation of this agreement to arbitrate,
the issues subject to arbitration (i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver, delay or defenses to arbitrability,
and the rules governing the conduct of the arbitration, shall be governed by
and construed pursuant to the Federal Arbitration Act and shall be decided by
the arbitrators; provided, however, that the evidentiary standards set forth in
this Agreement with respect to certain determinations made by the Board or the
Committee shall apply to those determinations when made (or reviewed) by the
arbitrators. In deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the application of some other
state's law); provided, however, it is expressly agreed that the arbitrators
shall have no authority to award treble, exemplary, or punitive damages under
any circumstances regardless of whether such damages may be available under
Texas law, the parties hereby waiving their right, if any, to recover treble,
exemplary, or punitive damages in connection with any such claims.
(d) The arbitration may be initiated by any party by
providing to the other parties a written notice of arbitration specifying the
claims. Within thirty (30) days of the notice of initiation of the arbitration
procedure, (1) the Executive shall denominate one arbitrator and (2) the
Company shall denominate one arbitrator. The two arbitrators shall select a
third arbitrator failing agreement on which within sixty (60) days of the
original notice, either the Executive or the Company shall apply to the Senior
Active United States District Judge for the Southern District of Texas, who
shall appoint a third arbitrator. While the third arbitrator shall be neutral,
the two party-appointed arbitrators are not required to be neutral and it shall
not be grounds for removal of either of the two party-appointed arbitrators or
for vacating the arbitrators' award that either of such arbitrators has past or
present minimal relationships with the party that appointed such arbitrator.
Evident partiality on the part of an arbitrator exists only
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where the circumstances are such that a reasonable person would have to
conclude there in fact existed actual bias and a mere appearance or impression
of bias will not constitute evident partiality or otherwise disqualify an
arbitrator.
(e) The three arbitrators shall by majority vote
resolve all disputes between the parties. There shall be no transcript of the
hearing before the arbitrators. The arbitrators' decision shall be in writing,
but shall be as brief as possible. The arbitrators shall not assign the
reasons for their decision. The arbitrators shall certify in their award that
they have faithfully applied the terms and conditions of this Agreement and
that no part of their award includes any amount for exemplary or punitive
damages. All proceedings conducted hereunder and the decision of the
arbitrators shall be kept confidential by the parties, e.g., the arbitrators'
award shall not be released to the press or published in any of the various
arbitration reporters. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction.
(f) Notwithstanding any provision of this Agreement
to the contrary, (i) in the event of a breach or threatened breach by the
Executive of any of the covenants set forth in Section 13 hereof, the Company
shall be entitled to seek equitable relief, including an injunction, in any
court of proper jurisdiction to maintain the status quo pending the resolution
of the dispute by binding arbitration as provided above, and (ii) the Executive
shall be entitled to seek specific performance of the Executive's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. With respect
to any such action, the Executive and the Company hereby irrevocably submit to
the non-exclusive jurisdiction of any Federal or State court sitting in the
City of Houston, Texas, and agree that process in any such action shall be
valid and effective for all purposes if served upon the respective party in
accordance with the notice provisions of Section 17 hereof.
22. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
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(a) "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(b) "Auditor" shall have the meaning set forth in
Section 9(b) hereof.
(c) "Average Annual Bonus" shall mean the average
annual bonus earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in which the Executive participated in respect
of any of the three calendar years ending immediately prior to the calendar
year in which occurs the Date of Termination or, if higher, immediately prior
to the calendar year in which occurs the first event or circumstance
constituting Good Reason; provided, however, that if there are fewer than three
bonuses earned by the Executive in the applicable three- year period, the
average annual bonus will be calculated by dividing the total amount of the
bonuses paid by the number of bonuses paid.
(d) "Base Amount" shall have the meaning set forth
in section 280G(b)(3) of the Code.
(e) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(f) "Board" shall mean the Board of Directors of the
Company.
(g) "Cause" for termination by the Company of the
Executive's employment shall mean (i) conviction of the Executive for the
commission of a felony, (ii) the willful gross neglect by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Executive pursuant to Section
7(e) hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (iii) the engaging by the Executive in willful gross
misconduct resulting in demonstrable and material economic harm to the Company
or its subsidiaries. For purposes of clauses (ii) and
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(iii) of this definition, (x) no act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
act, or failure to act, was in the best interest of the Company and (y) in the
event of a dispute concerning the application of this provision after the
occurrence of a Change in Control or within the six-month period immediately
preceding a Change in Control, no claim by the Company that Cause exists shall
be given effect unless the Company establishes to the Board by clear and
convincing evidence that Cause exists.
(h) A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its Affiliates) representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial
Owner in connection with a transaction described in clause (i)
of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
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(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the
Company, at least fifty-one percent (51%) of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least fifty-one percent (51%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale.
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Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
(i) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(j) "Committee" shall mean the Personnel Committee
of the Board until six months prior to the occurrence of a Change in Control
and thereafter shall mean (i) the individuals (not fewer than three in number)
who, on the date six months before a Change in Control, constitute the
Personnel Committee of the Board, plus (ii) in the event that fewer than three
individuals are available from the group specified in clause (i) above for any
reason, such individuals as may be appointed by the individual or individuals
so available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)); provided, however, that the
maximum number of individuals constituting the Committee shall not exceed five.
(k) "Company" shall mean American General
Corporation, a Texas corporation and, except in determining under Section 22(h)
hereof whether or not any Change in Control of the Company has occurred, shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(l) "Date of Termination" shall have the meaning set
forth in Section 7(f) hereof.
(m) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, (i) as a result
of the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the
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full-time performance of the Executive's duties with the Company for a period
of six (6) consecutive months, (ii) a physician agreed upon by the Executive
(or the Executive's legal representative) and the Company (or, if the parties
hereto are unable to agree upon a single physician, a third physician agreed
upon by two physicians, each of whom has been selected by either the Executive
(or the Executive's legal representative) or the Company) shall have determined
that the Executive will be incapable, due to physical or mental illness, of
substantially performing the Executive's duties and responsibilities under this
Agreement for the remainder of the Term, (iii) the Company shall have given the
Executive a Notice of Termination for Disability, and (iv) within thirty (30)
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(n) "Employment Period" shall mean the period (which
in no event shall extend beyond the expiration of the Term and may end earlier
pursuant to Section 3(b) hereof) during which Executive has an obligation to
render services hereunder, as described in Section 4 hereof.
(o) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(p) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(q) "Executive" shall mean the individual named in
the first paragraph of this Agreement.
(r) "Good Reason" for termination by the Executive
of the Executive's employment shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described in paragraph (I), (V), (VI), (VII) or (VIII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
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(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as an
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
date hereof;
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(III) the relocation of the Executive's
principal place of employment to a location more than fifty
(50) miles from the Executive's principal place of employment
immediately prior to the date hereof or the Company's
requiring the Executive to be based anywhere other than such
principal place of employment (or permitted relocation
thereof) except for required travel on the Company's business
to an extent substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of
the date such compensation is due;
(V) except for any changes required by
applicable law, the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the date hereof which is
material to the Executive's total compensation, including but
not limited to the Company's Performance-Based Plan for
Executive Officers, Supplemental Thrift Plan, Restoration of
Retirement Income Plan, 1984 Stock and Incentive Plan, "1994
Stock and Incentive Plan", and 1997 Stock and Incentive Plan,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has
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<PAGE> 34
been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or
in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants, as
existed immediately prior to the date hereof;
(VI) except for any changes required by
applicable law, the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the date hereof, the taking
of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the
Executive as of the date hereof, or the failure by the Company
to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of
service with the Company in accordance with the Company's
normal vacation policy in effect on the date hereof; prior to
a Change in Control, notwithstanding the foregoing provisions
of this Section 22(r)(VI), it shall not constitute Good Reason
that the Executive's benefits under the Company's general
medical, health and accident plans are no longer substantially
similar to the benefits enjoyed by the Executive immediately
prior to the date hereof, unless the changes in such benefits
constitute a material adverse alteration thereof;
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7(e) hereof; for purposes of this Agreement, no such purported
termination shall be effective, except as provided in Section
3(b) hereof; or
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(VIII) the Company's breach of a material
term or condition of the Agreement.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of
Good Reason which is made after the occurrence of a Change in Control or
during the six-month period immediately preceding the occurrence of a Change in
Control, any claim by the Executive that Good Reason exists shall be presumed
to be correct unless the Company establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(s) "Gross-Up Payment" shall have the meaning set
forth in Section 9 hereof.
(t) "Normal Retirement Age" shall mean age 62.
(u) "Notice of Termination" shall have the meaning
set forth in Section 7(e) hereof.
(v) "Pension Plans" shall mean all tax-qualified and
non-qualified supplemental or excess benefit pension plans maintained by the
Company and any other plan or agreement entered into between the Executive and
the Company which is designed to provide the Executive with supplemental
retirement benefits.
(w) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
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(x) "Tax Counsel" shall have the meaning set forth
in Section 9 hereof.
(y) "Term" shall mean the period of time described
in Section 3 hereof (including any extension,
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continuation or termination described therein).
(z) "Total Payments" shall mean those payments so
described in Section 9 hereof.
American General Corporation
By: /s/ LARRY D. HORNER
-----------------------------
Name: Larry D. Horner
Title: Chairman of the
Personnel Committee
/s/ ROBERT M. DEVLIN
--------------------------------
Robert M. Devlin
Address:
---------------------------
---------------------------
---------------------------
(Please print carefully)
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EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of February
1, 1998 (the "Effective Date"), by and between Jon P. Newton (the "Executive")
and American General Corporation, a Texas corporation (the "Company").
WHEREAS, during the course of Executive's employment with the Company,
the Executive has performed outstanding services for the Company; and
WHEREAS, it is deemed by the Company to be in the best interests of
the Company to assure continuation of Executive's employment; and
WHEREAS, the Company and the Executive have determined to enter into
this Agreement pursuant to which the Company will continue to employ the
Executive on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement (if not provided where a capitalized term initially appears)
are provided in the last Section hereof.
2. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, on the terms and
conditions hereinafter set forth.
3. Term.
(a) Duration of Term. Unless earlier terminated as
provided in Section 3(b) hereof, the Executive's employment with the Company
under this Agreement shall commence at the Effective Date and shall end on the
final day of the Term. For purposes of this Agreement, the "Term" shall mean
the full three-year term of the Agreement from the Effective Date until the day
before the third anniversary thereof, plus any extensions made as provided in
this Section 3. On the first day of each month occurring after the Effective
Date, the Term shall automatically be extended for an additional month unless,
prior to any such first day of a month, the Company or
<PAGE> 2
the Executive shall have given notice not to extend the Term. Nothing in this
Section shall limit the right of the Company or the Executive to terminate the
Executive's employment hereunder on the terms and conditions set forth in
Section 7 hereof. The Company and the Executive agree that any such notice by
the Company shall not constitute Good Reason for the Executive to terminate his
employment.
(b) Termination of Employment during the Term.
Nothing in this Section 3 shall limit the right of the Company or the Executive
to terminate the Executive's employment under this Agreement during the Term
hereof on the terms and conditions set forth in Section 7 hereof. Further,
notwithstanding any other provision of this Agreement, the Company shall have
the right to terminate the Executive's employment under this Agreement at any
time prior to the expiration of the Term for any other reason whatsoever,
including termination without Cause, in the sole discretion of the Company's
Board of Directors (the "Board"); provided, however, that, any termination of
the employment relationship by the Company prior to the expiration of the Term
other than a termination by the Company on the terms and conditions set forth
in Section 7 hereof shall be deemed to be a termination without Cause within
the meanings of Sections 8(c) and 8(e) hereof.
(c) After the Term: "At-Will" Relationship and
Termination of Employment. If the Executive remains employed by the Company
beyond the expiration of the Term, such employment shall automatically convert
to an "at-will" relationship (upon the expiration of the Term hereof)
terminable at any time by either the Company or the Executive for any reason
whatsoever, with or without Cause. Upon a termination of employment after the
Term hereof, the Company shall pay the Executive's full salary to the Executive
through the date of such termination at the rate in effect immediately prior to
such termination, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during the Executive's employment by the
Company. In addition to any payments or benefits due hereunder upon such a
termination, the Executive shall receive such post-termination compensation and
benefits as shall be determined under, and paid in accordance with, the
Company's retirement, insurance and other compensation or benefit plans,
programs and
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arrangements as in effect immediately prior to such termination.
4. Position and Duties. On and after the Effective Date, the
Executive shall serve as Vice Chairman of the Company and shall have such
additional or different titles, positions, duties and responsibilities as may
be assigned to the Executive by the Chief Executive Officer of the Company.
The Executive shall report to the Chief Executive Officer of the Company. The
Executive agrees to devote substantially all the Executive's full working time,
attention and energies during normal business hours to the performance of the
Executive's duties for the Company, provided that the Executive may serve as a
director on the boards of such companies and organizations as may be agreed
upon in writing by the Chief Executive Officer and the Executive.
5. Place of Performance. The principal place of employment
and office of the Executive shall be in Houston, Texas, or such other location
as may be determined by the Chief Executive Officer serving as of the Effective
Date.
6. Compensation and Related Matters.
(a) Base Salary. As compensation for the
performance by the Executive of the Executive's duties hereunder, during the
Employment Period the Company shall pay the Executive an annual base salary no
less than the greater of the annual base salary in effect on the Effective Date
or the annual base salary in effect on May 1, 1998 (such greater amount, as it
may be increased from time to time, is hereinafter referred to as "Base
Salary"). Base Salary shall be payable in accordance with the Company's normal
payroll practices, shall be reviewed at least annually by the Personnel
Committee and may be increased (but not decreased) upon review.
(b) Annual Bonus.
(i) The Executive shall be provided an
opportunity for an annual bonus with respect to each fiscal year which ends
within the Employment Period (the "Annual Bonus"), including, without
limitation, the year which includes the Effective Date. Except with respect to
any fiscal year during which the Executive participates in a Formula Annual
Bonus Plan (as described in Section 6(b)(ii) hereof), the amount of an Annual
Bonus
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with respect to any fiscal year shall be determined in the sole discretion of
the Personnel Committee; provided, however, that, except with respect to any
fiscal year during which the Executive participates in a Formula Annual Bonus
Plan, the amount of any such Annual Bonus shall not be less than seventy-five
percent (75%) of the Base Salary in effect on the last day of the fiscal year
with respect to which such Annual Bonus is awarded.
(ii) Notwithstanding the second sentence of
Section 6(b)(i) hereof, if the Executive participates in an Annual Bonus Plan
under which performance objectives, Annual Bonus opportunities (or target
bonuses) and levels of payment based on levels of achievement of the
performance objectives are established for the Executive and other participants
(a "Formula Annual Bonus Plan"), the Executive shall have an Annual Bonus
opportunity (expressed as a percentage of then-current Base Salary) for the
initial fiscal year during the Term covered by a Formula Annual Bonus Plan
which is no less than (and which may be more than) the "Average Bonus
Percentage". The "Average Bonus Percentage" (for purposes of this Section)
shall be calculated by (i) dividing the actual bonus paid to the Executive with
respect to each of the applicable "Three Years" by the Base Salary in effect on
the last day of the respective year, and converting the result to a percentage,
and (ii) adding the three percentages together and dividing by three. The
"Three Years", for purposes of this Section, shall be the three fiscal years
immediately preceding such initial fiscal year, or, if more favorable to the
Executive, the three fiscal years immediately preceding the Effective Date
hereof. The percentage of Base Salary which determines the Executive's Annual
Bonus opportunity shall be reviewed by the Board annually and may be increased
(but not decreased) upon review by the Board. Any Annual Bonus payable with
respect to a fiscal year (whether or not pursuant to a Formula Annual Bonus
Plan) shall be paid as soon as practicable after the end of such year.
(c) Other Compensation and Benefit Plans and
Arrangements; Fringe Benefits. During the Employment Period, the Executive
shall be entitled to participate, at a level appropriate to the Executive's
position with the Company, in such other employee benefit and compensation
plans and arrangements and fringe benefits as are generally available to senior
officers of the Company from time to time, and any successors thereto.
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(d) Expenses. The Company shall reimburse the
Executive for all reasonable business expenses incurred during the Employment
Period, subject to the applicable and reasonable policies and procedures of the
Company in force from time to time.
(e) Office Facilities and Services Furnished.
During the Employment Period, the Company shall furnish the Executive with
appropriate office space and such other facilities and services as shall be
suitable to the Executive's position and adequate for the performance of the
Executive's duties as set forth in Section 4 hereof (including, without
limitation, secretarial services and furniture, telephone, telefax and work
station equipment), such office space and other facilities and services to be
furnished at the location set forth in Section 5 hereof.
(f) Automobile Allowance. At all times during the
Employment Period, the Company will provide the Executive with an automobile
(and pay related expenses) pursuant to the Company's policy as in effect on the
Effective Date, as such policy may be amended from time to time (the
"Automobile Policy"), provided, however, that in no event shall the automobile
provided to the Executive pursuant to this Section 6(f) be of lesser quality
than that available to the Executive pursuant to the Automobile Policy on the
Effective Date.
(g) Nonstatutory Options. Any nonstatutory options
granted to the Executive during the Employment Period after the Effective Date
hereof will, when (and to the extent that) they become exercisable, remain
exercisable for their full term.
7. Termination. The Executive's employment hereunder may be
terminated, and the Employment Period hereunder shall be ended, as follows:
(a) Death. The Executive's employment shall
terminate upon the Executive's death. Upon such a termination, the Executive's
estate, designated beneficiary or surviving spouse, as the case may be, shall
become entitled to the payments provided in Sections 8(b) and 8(e) hereof.
(b) Disability. The Company may terminate the
Executive's employment hereunder for Disability. During the Disability Period
(as defined in Section 8(a)
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hereof) and upon such a termination, the Executive shall be entitled to the
payments and benefits provided in Sections 8(a) and 8(e) hereof in accordance
with the terms of such Sections, provided, however, that during the thirty-six
(36) month period immediately following the Date of Termination for Disability,
the Company shall pay monthly to the Executive (in accordance with the
Company's usual payroll practices) any additional amount necessary (the
"Disability Supplement") so that the gross amount of (i) the Disability
Supplement and (ii) the payments provided to the Executive following a
termination of his employment for Disability pursuant to Sections 8(a) and 8(e)
hereof is equal to (A) three times the Base Salary and the Average Annual
Bonus, (B) divided by thirty-six (36).
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause. Upon such a termination, the
Executive shall become entitled to the payments provided in Section 8(b)
hereof.
(d) Termination by the Executive.
(i) The Executive may terminate the Executive's
employment hereunder for Good Reason. The Executive may also terminate the
Executive's employment hereunder without Good Reason by giving a Notice of
Termination during the year immediately following a Change in Control (a
"Special Termination"). Upon a Good Reason termination or a Special
Termination, the Executive shall become entitled to the payments and benefits
provided in Sections 8(c) and 8(e) hereof in accordance with the terms of such
Sections.
(ii) The Executive may terminate the
Executive's employment hereunder without Good Reason and outside of the
one-year period immediately following a Change in Control, upon giving notice
of one month to the Company. In the event of such a termination, the Executive
shall comply with any reasonable request of the Company to assist in providing
for an orderly transition of authority, but such assistance shall not delay the
Executive's termination of employment longer than six months beyond the giving
of the Executive's Notice of Termination. Upon such a termination, the
Executive shall become entitled to the payments and benefits provided in
Section 8(b) hereof in accordance with the terms of such Section.
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(e) Notice of Termination. Any purported
termination of the Executive's employment (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 17 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause based on
clause (ii) or (iii) of the definition of Cause herein is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (ii) or (iii) of the definition of Cause herein,
and specifying the particulars thereof in detail.
(f) Date of Termination. For purposes of this
Agreement, "Date of Termination" shall mean the following: (i) if the
Executive's employment is terminated by the Executive's death, the date of the
Executive's death; (ii) if the Executive's employment is terminated for
Disability pursuant to Section 7(b) hereof, thirty (30) days after the Notice
of Termination is given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during such thirty-(30)-day
period); (iii) if the Executive's employment is terminated for Cause pursuant
to Section 7(c) hereof, the date specified in the Notice of Termination; (iv)
if the Executive's employment is terminated pursuant to Section 7(d)(ii)
hereof, the date determined in accordance with said Section, and (v) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
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(g) Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this Section 7(g)),
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be
extended until the earlier to occur of (i) the date on which the Term ends or
(ii) the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by the final judgment, order or decree of
an arbitrator or a court of competent jurisdiction (which is not appealable or
with respect to which the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
(h) Compensation During Dispute. If the Date of
Termination is extended in accordance with Section 7(g) hereof with respect to
a Notice of Termination given after a Change in Control or within the six-month
period immediately preceding a Change in Control, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given until the Date of Termination, as determined in
accordance with Section 7(g) hereof. Amounts paid under this Section 7(h) are
in addition to all other amounts due under this Agreement other than those due
under Section 8(b)(i) or 8(c)(i) hereof) and shall not be offset against or
reduce any other amounts due under this Agreement.
8. Compensation During Disability or Upon Termination.
(a) Disability Period and Termination for
Disability. During any period during the Employment Period that the Executive
fails to perform the Executive's full-time duties hereunder as a result of
incapacity due to physical or mental illness ("Disability Period"), the Company
shall pay the Executive's full salary to the Executive at the rate in effect at
the
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commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period, until the
Executive's employment is terminated by the Company for Disability; provided,
however, that such salary payments shall be reduced by the sum of the amounts,
if any, payable to the Executive at or prior to the time of any such salary
payment under disability benefit plans of the Company or under the Social
Security disability insurance program, which amounts were not previously
applied to reduce any such salary payment. Upon termination of the Executive's
employment for Disability, the Company shall have no additional obligations to
the Executive under this Agreement except to the extent provided in Sections
6(c), 6(d), 7(b), 8(e) and 15 hereof (and, to the extent applicable, Sections
9, 10 and 11 hereof) and to pay to the Executive the Executive's normal
post-termination compensation and benefits as such payments become due. Such
post-termination compensation and benefits shall be determined under, and paid
in accordance with, the Company's retirement, insurance and other compensation
or benefit plans, programs and arrangements as in effect immediately prior to
the Date of Termination or, if more favorable to the Executive, as in effect
immediately prior to the occurrence of the first event or circumstance
constituting Good Reason.
(b) Termination (x) by the Company with Cause, (y)
by the Executive without Good Reason in a Termination which is not a Special
Termination, or (z) by Reason of Death. If the Executive's employment
hereunder is terminated (x) by the Company with Cause, (y) by the Executive
without Good Reason in a termination which is not a Special Termination, or (z)
by reason of death, then:
(i) as soon as practicable, the Company
shall pay the Executive's Base Salary to the Executive through the
Date of Termination at the rate in effect immediately prior to the
Date of Termination or, if higher, the rate in effect immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, together with all compensation and benefits payable to
the Executive through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements as
in effect immediately prior to the Date of Termination or, if
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more favorable to the Executive, as in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason;
and
(ii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d) and 15 hereof (and, to the extent
applicable, Sections 8(e), 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason.
(c) Termination (x) by Company without Cause, (y) by
the Executive with Good Reason, or (z) by the Executive in a Special
Termination. For purposes of this Agreement, termination of the Executive's
employment "by the Company without Cause" shall not include termination by the
Company for Disability or termination by reason of the Executive's death. If
the Executive's employment hereunder is terminated (x) by the Company without
Cause, (y) by the Executive with Good Reason, or (z) by the Executive in a
Special Termination, then:
(i) the Company shall pay the Executive's
Base Salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if
higher, the rate in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, together with
all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and
benefit plans, programs or arrangements as in effect immediately prior
to the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason;
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(ii) notwithstanding any provision of any
Annual Bonus plan to the contrary, the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (A) any
Annual Bonus which has been allocated or awarded (but not yet paid) to
the Executive for a completed fiscal year preceding the Date of
Termination under any Annual Bonus plan, and (B) a pro rata portion to
the Date of Termination of the Annual Bonus for the year in which the
Date of Termination occurs, calculated by using a fraction (the
numerator of which shall be the number of days of employment in such
year up to and including the Date of Termination and the denominator
of which shall be three-hundred-sixty-five (365)) to multiply (i) the
award that the Executive would have earned for the entire year,
assuming the achievement, at the target level, of any performance
objectives established with respect to such award, or, (ii) if no such
target level and performance objectives have been established, the
Average Annual Bonus; provided, however, that any amount otherwise
payable pursuant to this clause (B) of this Section 8(c)(ii) shall be
reduced by any payment already received by the Executive pursuant to
the applicable Annual Bonus plan with respect to the year in which the
Date of Termination occurs;
(iii) in lieu of any further salary or bonus
payments as severance to the Executive for periods subsequent to the
Date of Termination and in lieu of any severance benefit otherwise
payable to the Executive, the Company shall pay to the Executive a
lump sum severance payment, in cash, equal to three times the sum of
(x) the Executive's Base Salary as in effect immediately prior to the
Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason,
and (y) the Average Annual Bonus, as follows:
(A) if the Date of Termination shall
occur on or after a Change in Control (or be deemed to occur
after a Change in Control pursuant to Section 8(d) hereof),
the Company shall pay such amount in a lump sum severance
payment, in cash; or
(B) if the Date of Termination shall
not occur on or after a Change in Control (and not be deemed
to occur after a Change in
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Control pursuant to Section 8(d) hereof), the Company shall
pay such amount, in substantially equal monthly or more
frequent installments over the three-year period immediately
following the Date of Termination;
(iv) The Company shall (i) either prepay all
remaining premiums, or establish an irrevocable grantor trust holding
an amount of assets sufficient to pay all such remaining premiums
(which trust shall be required to pay such premiums), under any
insurance policy insuring the life of the Executive under any
"split-dollar" insurance arrangement in effect between the Executive
and the Company, and (ii) shall transfer to the Executive any and all
rights and incidents of ownership in such arrangements at no cost to
the Executive. For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall also arrange to
provide the Executive with life and accident insurance benefits
substantially similar to those provided to the Executive (other than
the "split-dollar" life insurance) immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such
date or occurrence. Benefits otherwise receivable by the Executive
pursuant to the immediately preceding sentence shall be reduced to the
extent benefits of the same type are received by or made available to
the Executive by a successor employer during the thirty-six (36) month
period following the Executive's termination of employment (and any
such benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the
cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(v) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of nine months or,
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if earlier, until the first acceptance by the Executive of an offer of
employment.
(vi) The Company shall provide the Executive
with the office facilities and services and the automobile allowance
described in Section 6(e) and (f) hereof for the thirty-six (36) month
period immediately following the Date of Termination.
(vii) Notwithstanding anything which is more
restrictive in any applicable plan or grant or award agreement or in
any other provision of this Agreement, the Executive shall become
fully vested in all outstanding stock options, restricted stock and
other similar equity-based awards which are granted to him by the
Company (whether before or after the Effective Date); in the case of
performance awards, it shall be assumed that the applicable
performance goals were attained at target levels and the Committee
shall also have the discretion to increase the amount so payable by
assuming attainment of the applicable performance goals at up to
maximum level.
(viii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d), 8(e) and 15 hereof (and, to the
extent applicable, Sections 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason. If such
insurance, other compensation and benefit plans, programs and
arrangements provide for different levels of benefits and coverage,
post-termination benefits and coverage shall be the most comprehensive
benefits and coverage available.
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(d) Termination Deemed to be after Change in
Control. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated after a Change in Control by the Company without
Cause or after a Change in Control by the Executive with Good Reason, if (i)
the Executive's employment is terminated by the Company without Cause prior to
a Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates the Executive's employment for Good
Reason prior to a Change in Control (whether or not a Change in Control ever
occurs) and the circumstance or event which constitutes Good Reason occurs at
the request or direction of such Person, or (iii) the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason and
such termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence made after
the occurrence of a Change in Control or within the six-month period
immediately preceding a Change in Control, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to the Committee
by clear and convincing evidence that such position is not correct.
(e) Other Benefits upon Certain Terminations.
(i) Upon any termination of the Executive's
employment with the Company (whether or not occurring during the Term hereof),
other than a termination during the Term by the Company with Cause or a
termination during the Term by the Executive without Good Reason which is not a
Special Termination, and continuing until the earlier of (i) the later of the
death of the Executive or the death of the "Executive's Spouse", or (ii) the
date substantially equivalent coverage and benefits are provided to the
Executive (if then living) and the Executive's Spouse (if then living) by a
subsequent employer (whether or not such coverage and benefits will be
continued by the subsequent employer after any termination of the Executive's
employment by the subsequent employer), the Company (at the Company's sole
expense) shall provide the Executive, the Executive's Spouse and the
Executive's dependents with
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medical and dental insurance benefits substantially similar to those benefits
"provided" to them immediately prior to the Date of Termination or, if more
favorable to the Executive, those "provided" to them on the Effective Date
hereof. In determining which benefits were "provided" at the applicable date,
the Executive shall be deemed to have elected the most comprehensive benefits
and coverage available to the Executive at that date (whether or not actually
elected); further, such benefits shall include, without limitation, an
unrestricted right for the Executive, the Executive's Spouse and the
Executive's dependents to select their own care providers. The Company shall
provide such post-termination benefits under its medical and dental plans, to
the extent that the Executive's continued participation is possible under the
general terms and provisions of such plans. To the extent that such
participation is not possible, the Company shall arrange to otherwise provide
the Executive with such post-termination benefits. If the Executive obtains
other employment (and the Executive shall be under no obligation to do so),
insurance obtained as a result of such other employment shall be the first line
of insurance and insurance provided under this Section 8(e) shall only be
supplementary or secondary. Also, to the extent that the Executive is, at any
time, entitled to insurance under the Medicare program or its equivalent, the
insurance under this Section 8(e) shall be only supplementary or secondary to
the extent allowed by law. For purposes of this Section 8(e), "Executive's
Spouse" shall refer to the Executive's spouse immediately prior to the
termination of the Executive's employment with the Company.
(ii) Subject to Section 8(c)(vii) hereof,
but notwithstanding any more restrictive provision in the terms of the relevant
document evidencing an equity-based award or the terms of the plan under which
the equity-based award was granted, upon any termination described in the last
sentence of this Section 8(e)(ii), (i) the Executive shall become fully vested
in (and any restrictions shall lapse upon) all outstanding time-vesting stock
options, restricted stock and other similar equity-based awards granted to him
by the Company (whether before or after the Effective Date), and (ii) the
Executive shall become vested in a pro-rata portion of all equity-based
performance awards granted to him by the Company (whether before or after the
Effective Date), which pro-rata portion shall be based on the
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<PAGE> 16
attainment of the performance goals relevant to such awards on the date of
termination of the Executive's employment with the Company (and not based on
the portion of the applicable performance period during which the Executive was
employed by the Company), as determined by the Committee in its good faith
discretion. The Committee shall also have the discretion to increase the
amount, if any, payable pursuant to clause (ii) of the preceding sentence, up
to the full amount of such award, assuming attainment of the applicable
performance goals at target level. The terminations upon which the vesting
described in this Section 8(e)(ii) shall occur are the following: any
termination of the Executive's employment with the Company (whether or not
occurring during the Term hereof) which occurs on or after the date on which
the Executive attains Normal Retirement Age, other than a termination during
the Term by the Company with Cause.
9. Excise Tax Gross-Up Payment.
(a) Whether or not the Executive becomes entitled
to any payment pursuant to Section 8(c)(iii)(A) hereof, if any of the payments
or benefits received or to be received by the Executive in connection with any
Change in Control which occurs during the Term hereof or any termination of the
Executive's employment which occurs during the Term hereof (whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
the Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (such payments or benefits
(excluding the payment or payments to be made pursuant to this Section 9) being
hereinafter referred to as the "Total Payments") will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the payment or payments provided by
this Section 9, shall be equal to the Total Payments.
(b) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the
opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive
and selected by
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the accounting firm which was, immediately prior to the Change in Control, the
Company's independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of
section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within
the meaning of section 280G(b)(l) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in
excess of the Base Amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is
to be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 9), net of the
maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(c) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within the five (5) business days immediately following the date that the
amount of such reduction in the Excise Tax is finally determined, the portion
of the Gross-Up Payment attributable to the amount of such reduction (including
the Excise Tax component and the federal, state and local income and employment
tax components of the Gross-Up Payment) to the extent that such repayment
results in a reduction in the Excise Tax and a dollar-for-dollar reduction in
the Executive's taxable income and wages for purposes of federal, state and
local income and employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.
In the event that the Excise Tax is determined to exceed the amount taken into
account hereunder in calculating the Gross-Up Payment (including
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by reason of any payment the existence or amount of which cannot be determined
at the time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) within the five
(5) business days immediately following the date that the amount of such excess
is finally determined. The Executive and the Company shall each reasonably
cooperate with the other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability for Excise Tax with
respect to the Total Payments.
10. Time of Certain Payments. The payments provided to the
Executive or for the Executive's benefit in Sections 9 and 8(c) (other than
8(c)(iii)(B), 8(c)(v), 8(c)(vi), and 8(c)(viii)) hereof shall be made not later
than the fifth (5th) business day following the Date of Termination (or, if
earlier, in the case of payments provided in Section 9 hereof, not later than
the fifth (5th) business day following the Executive's receipt of an excess
parachute payment, within the meaning of section 4999 of the Code); provided,
however, that if the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to the Executive on such day an
estimate of the payments under Section 8(c), as determined in good faith by
the Executive, and an estimate of the payments under Section 9 hereof, as
determined in accordance with Section 9 hereof, the estimate in each case to be
of the minimum amount of such payments to which the Executive is clearly
entitled, and shall pay the remainder of such payments (together with interest
on the unpaid remainder (or on all such payments to the extent the Company
fails to make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination
(or, if earlier, the thirtieth (30th) day after the date of the Executive's
receipt of an excess parachute payment). In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code).
At the time that payments are made under this Agreement, the Company shall
provide the Executive with a
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written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Company has received from Tax Counsel, the
Auditor or other advisors or consultants (and any such opinions or advice which
are in writing shall be attached to the statement).
11. Legal and Arbitration Fees and Expenses. The Company
also shall pay to the Executive all reasonable legal fees, arbitration fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require. Notwithstanding the foregoing provisions of this
Section 11, no such fees and expenses shall be paid unless the Executive
prevails on at least one of the issues he raises.
12. No Mitigation; Limited Offset. The Company agrees that,
if the Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section
7(h) or 8 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 8(e) or the second sentence of Section
8(c)(iv) hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company (unless such amount is evidenced by a promissory note signed by the
Executive), or otherwise.
13. Protection of Ideas, Noncompetition and Nonsolicitation.
(a) Protection of Ideas. Both during the period of
the Executive's employment by the Company and thereafter, Executive shall
assist the Company or
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its nominees, at any time, in the protection of the Company's worldwide right,
title, and interest in and to information, ideas, concepts, improvements,
discoveries, and inventions, and its copyrighted works, including without
limitation, the execution of all formal assignment documents requested by
Company or its nominees and the execution of all lawful oaths and applications
for applications for patents and registration of copyright in the United States
and foreign countries.
(b) Noncompetition. The Company shall disclose
to the Executive, or place the Executive in a position to have access to or to
develop, trade secrets or confidential information of the Company or its
affiliates; and/or shall entrust the Executive with business opportunities of
the Company or its affiliates; and/or shall place the Executive in a position
to develop business good will on behalf of the Company or its affiliates. As
part of the consideration for the compensation and benefits to be paid to the
Executive hereunder, to protect the trade secrets and confidential information
of the Company or its subsidiaries or affiliates or their customers or clients
that have been and will in the future be disclosed or entrusted to the
Executive, the business good will of the Company or its subsidiaries or
affiliates that has been and will in the future be developed in the Executive,
or the business opportunities that have been and will in the future be
disclosed or entrusted to the Executive by the Company or its subsidiaries or
affiliates; and as an additional incentive for the Company to enter into this
Agreement, the Executive agrees to the non-competition obligations hereunder.
While the Executive continues to be an employee of the Company and, unless the
Executive's termination of employment is by the Company without Cause or by the
Executive with Good Reason or in a Special Termination, for the three-year
period immediately following the Executive's Date of Termination, the Executive
shall not, within any geographic region of the United States of America in
which the Company then conducts business or in which the Company plans to
conduct business pursuant to a business strategy adopted by the Board before
the Executive's termination of employment, except as permitted by the Company
upon its prior written consent, (i) enter, directly or indirectly, into the
employ of, or render or engage in, directly or indirectly, any services to any
person, firm or corporation which directly competes with
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the Company with respect to any business then conducted by the Company or any
business which the Company plans to enter pursuant to a business strategy
adopted by the Board before the Executive's termination of employment (a
"Competitor"), or (ii) become interested, directly or indirectly, in any such
Competitor as an individual, partner, shareholder, creditor, director, officer,
principal, agent, employee, trustee, consultant, advisor or in any other
relationship or capacity. The ownership of up to one percent (1%) of any class
of the outstanding securities of any publicly traded corporation, even though
such corporation may be a Competitor, shall not be deemed as constituting an
interest in such Competitor which violates clause (ii) of the immediately
preceding sentence.
(c) While the Executive continues to be an employee
of the Company and, unless the Executive's termination of employment is by the
Company without Cause or by the Executive with Good Reason or in a Special
Termination, for the three-year period immediately following the Executive's
Date of Termination, the Executive shall not, except as permitted by the
Company upon its prior written consent, (i) attempt, directly or indirectly, to
induce any employee employed by or performing services for the Company (or its
affiliates) to be employed or perform services elsewhere, or (ii) solicit,
directly or indirectly, the customers of the Company (or its affiliates), the
suppliers of the Company (or its affiliates) or entities or individuals having
other business relationships with the Company (or its affiliates) for the
purpose of encouraging them to terminate (or reduce or detrimentally alter)
their respective relationships with the Company (or its affiliates).
(d) The Company shall have the right and remedy to
have the provisions of this Section 13 specifically enforced, including by
temporary and/or permanent injunction, it being acknowledged and agreed that
any such violation may cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
14. Independence and Severability of Section 13 Provisions.
Each of the rights and remedies enumerated in Section 13 hereof shall be
independent of the others and shall be severally enforceable and all of such
rights and remedies shall be in addition to, and
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not in lieu of, any other rights and remedies available to the Company under
law or in equity. If any of the covenants contained in Section 13 hereof or if
any of the rights or remedies enumerated in Section 13 hereof, or any part of
any of them, is hereafter construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants or rights or
remedies which shall be given full effect without regard to the invalid
portions. If any of the covenants contained in Section 13 is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the authority to reduce the duration and/or area of such provision, and in its
reduced form said provision shall then be enforceable.
15. Indemnification. The Company shall indemnify the
Executive to the full extent authorized by law and the Charter and By-Laws of
the Company, as applicable, for all expenses, costs, liabilities and legal fees
which the Executive may incur in the discharge of the Executive's duties
hereunder. The Executive shall be insured under the Company's directors' and
officers' liability insurance policy as in effect from time to time. Any
termination of the Executive's employment or of this Agreement shall have no
effect on the continuing operation of this Section 15.
16. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason on or after a Change in Control, except that, for
purposes of implementing the foregoing, the
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date on which any such succession becomes effective shall be deemed the Date of
Termination.
(b) This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, each such amount,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
17. Notices. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
18. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. This Agreement
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supersedes any other agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof which have been made by
either party, including, without limitation, any employment memorandum,
memorandum of understanding, or severance agreement. Captions and Section
headings in this Agreement are provided merely for convenience and shall not
affect the interpretation of any of the provisions herein. The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of Texas. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law
and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by
their nature may require either partial or total performance after the
expiration of the Term (including, without limitation, those under Sections 8
and 9 hereof) shall survive such expiration.
19. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
20. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
21. Settlement of Disputes; Arbitration.
(a) All claims by the Executive for benefits under
this Agreement shall be directed to and determined by the Committee and shall
be in writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set forth
the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Committee a decision of the Committee
within sixty (60) days after notification by the Committee that the Executive's
claim has been denied.
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(b) Except for equitable relief as specified in
Section 21(f) hereof and except for the Executive's claim under any Company
benefit or compensation plans, programs, arrangements or awards (whether
heretofore or hereafter established) which have a claim or dispute resolution
procedure specifically applicable thereto, any dispute or controversy which is
not resolved by agreement pursuant to Section 21(a) hereof, including all
claims, demands, causes of action, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision hereof,
the alleged breach thereof, or in any way relating to the subject matter of
this Agreement involving the Executive, the Company, and/or their respective
representatives, even though some or all of such claims allegedly are
extra-contractual in nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
by binding arbitration pursuant to the Federal Arbitration Act in accordance
with the Employment Dispute Resolution Rules then in effect with the American
Arbitration Association. The arbitration proceeding shall be conducted in
Houston, Texas. This agreement to arbitrate shall be enforceable in either
federal or state court.
(c) The enforcement of this agreement to arbitrate
and all procedural aspects of this agreement to arbitrate, including but not
limited to, the construction and interpretation of this agreement to arbitrate,
the issues subject to arbitration (i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver, delay or defenses to arbitrability,
and the rules governing the conduct of the arbitration, shall be governed by
and construed pursuant to the Federal Arbitration Act and shall be decided by
the arbitrators; provided, however, that the evidentiary standards set forth in
this Agreement with respect to certain determinations made by the Board or the
Committee shall apply to those determinations when made (or reviewed) by the
arbitrators. In deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the application of some other
state's law); provided, however, it is expressly agreed that the
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arbitrators shall have no authority to award treble, exemplary, or punitive
damages under any circumstances regardless of whether such damages may be
available under Texas law, the parties hereby waiving their right, if any, to
recover treble, exemplary, or punitive damages in connection with any such
claims.
(d) The arbitration may be initiated by any party by
providing to the other parties a written notice of arbitration specifying the
claims. Within thirty (30) days of the notice of initiation of the arbitration
procedure, (1) the Executive shall denominate one arbitrator and (2) the
Company shall denominate one arbitrator. The two arbitrators shall select a
third arbitrator failing agreement on which within sixty (60) days of the
original notice, either the Executive or the Company shall apply to the Senior
Active United States District Judge for the Southern District of Texas, who
shall appoint a third arbitrator. While the third arbitrator shall be neutral,
the two party-appointed arbitrators are not required to be neutral and it shall
not be grounds for removal of either of the two party-appointed arbitrators or
for vacating the arbitrators' award that either of such arbitrators has past or
present minimal relationships with the party that appointed such arbitrator.
Evident partiality on the part of an arbitrator exists only where the
circumstances are such that a reasonable person would have to conclude there in
fact existed actual bias and a mere appearance or impression of bias will not
constitute evident partiality or otherwise disqualify an arbitrator.
(e) The three arbitrators shall by majority vote
resolve all disputes between the parties. There shall be no transcript of the
hearing before the arbitrators. The arbitrators' decision shall be in writing,
but shall be as brief as possible. The arbitrators shall not assign the
reasons for their decision. The arbitrators shall certify in their award that
they have faithfully applied the terms and conditions of this Agreement and
that no part of their award includes any amount for exemplary or punitive
damages. All proceedings conducted hereunder and the decision of the
arbitrators shall be kept confidential by the parties, e.g., the arbitrators'
award shall not be released to the press or published in any of the various
arbitration reporters. Judgment upon any award
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rendered in any such arbitration proceeding may be entered by any federal or
state court having jurisdiction.
(f) Notwithstanding any provision of this Agreement
to the contrary, (i) in the event of a breach or threatened breach by the
Executive of any of the covenants set forth in Section 13 hereof, the Company
shall be entitled to seek equitable relief, including an injunction, in any
court of proper jurisdiction to maintain the status quo pending the resolution
of the dispute by binding arbitration as provided above, and (ii) the Executive
shall be entitled to seek specific performance of the Executive's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. With respect
to any such action, the Executive and the Company hereby irrevocably submit to
the non-exclusive jurisdiction of any Federal or State court sitting in the
City of Houston, Texas, and agree that process in any such action shall be
valid and effective for all purposes if served upon the respective party in
accordance with the notice provisions of Section 17 hereof.
22. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(a) "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(b) "Auditor" shall have the meaning set forth in
Section 9(b) hereof.
(c) "Average Annual Bonus" shall mean the average
annual bonus earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in which the Executive participated in respect
of any of the three calendar years ending immediately prior to the calendar
year in which occurs the Date of Termination or, if higher, immediately prior
to the calendar year in which occurs the first event or circumstance
constituting Good Reason; provided, however, that if there are fewer than three
bonuses earned by the Executive in the applicable three year period, the
average annual bonus will be calculated by dividing the total amount of the
bonuses
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paid by the number of bonuses paid.
(d) "Base Amount" shall have the meaning set forth
in section 280G(b)(3) of the Code.
(e) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(f) "Board" shall mean the Board of Directors of the
Company.
(g) "Cause" for termination by the Company of the
Executive's employment shall mean (i) conviction of the Executive for the
commission of a felony, (ii) the willful gross neglect by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Executive pursuant to Section
7(e) hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (iii) the engaging by the Executive in willful gross
misconduct resulting in demonstrable and material economic harm to the Company
or its subsidiaries. For purposes of clauses (ii) and (iii) of this
definition, (x) no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure
to act, was in the best interest of the Company and (y) in the event of a
dispute concerning the application of this provision after the occurrence of a
Change in Control or within the six-month period immediately preceding a Change
in Control, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(h) A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
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(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its Affiliates) representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial
Owner in connection with a transaction described in clause (i)
of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee
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or other fiduciary holding securities under an employee
benefit plan of the Company or any subsidiary of the Company,
at least fifty-one percent (51%) of the combined voting power
of the securities of the Company or such surviving entity or
any parent thereof outstanding immediately after such merger
or consolidation, or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least fifty-one percent (51%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
(i) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
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(j) "Committee" shall mean the Personnel Committee
of the Board until six months prior to the occurrence of a Change in Control
and thereafter shall mean (i) the individuals (not fewer than three in number)
who, on the date six months before a Change in Control, constitute the
Personnel Committee of the Board, plus (ii) in the event that fewer than three
individuals are available from the group specified in clause (i) above for any
reason, such individuals as may be appointed by the individual or individuals
so available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)); provided, however, that the
maximum number of individuals constituting the Committee shall not exceed five.
(k) "Company" shall mean American General
Corporation, a Texas corporation and, except in determining under Section 22(h)
hereof whether or not any Change in Control of the Company has occurred, shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(l) "Date of Termination" shall have the meaning set
forth in Section 7(f) hereof.
(m) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, (i) as a result
of the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, (ii) a physician
agreed upon by the Executive (or the Executive's legal representative) and the
Company (or, if the parties hereto are unable to agree upon a single physician,
a third physician agreed upon by two physicians, each of whom has been selected
by either the Executive (or the Executive's legal representative) or the
Company) shall have determined that the Executive will be incapable, due to
physical or mental illness, of substantially performing the Executive's duties
and responsibilities under this Agreement for the remainder of the Term, (iii)
the Company shall have given the Executive a Notice of Termination for
Disability, and (iv) within thirty (30) days after such Notice of Termination
is given, the Executive shall not have returned to the full-time performance of
the Executive's duties.
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(n) "Employment Period" shall mean the period (which
in no event shall extend beyond the expiration of the Term and may end earlier
pursuant to Section 3(b) hereof) during which Executive has an obligation to
render services hereunder, as described in Section 4 hereof.
(o) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(p) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(q) "Executive" shall mean the individual named in
the first paragraph of this Agreement.
(r) "Good Reason" for termination by the Executive
of the Executive's employment shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described in paragraph (I), (V), (VI), (VII) or (VIII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive on or
after any Change in Control (or prior to a Change in Control
under the circumstances described in clause (ii) or (iii) of
the first sentence of Section 8(d) hereof) of any duties
inconsistent with the Executive's status as an executive
officer of the Company or a substantial adverse alteration in
the nature or status of the Executive's responsibilities
during such period from those in effect immediately prior to
the Change in Control (or, where applicable, immediately prior
to the occurrence of an event or circumstance constituting
Good Reason pursuant to clauses (ii) and (iii) of the first
sentence of Section 8(d) hereof);
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(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(III) the relocation of the Executive's
principal place of employment after a Change in Control (or
prior to a Change in Control under the circumstances described
in clause (ii) or (iii) of the first sentence of Section 8(d)
hereof) to a location more than fifty (50) miles from the
Executive's principal place of employment immediately prior to
the Change in Control (or, where applicable, immediately prior
to the occurrence of an event or circumstance constituting
Good Reason pursuant to clauses (ii) and (iii) of the first
sentence of Section 8(d) hereof) or the Company's requiring
the Executive to be based anywhere other than such principal
place of employment (or permitted relocation thereof) during
such period except for required travel on the Company's
business to an extent substantially consistent with the
Executive's present business travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of
the date such compensation is due;
(V) except for any changes required by
applicable law, the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the date hereof which is
material to the Executive's total compensation, including but
not limited to the Company's Performance-Based Plan for
Executive Officers, Supplemental Thrift Plan, Restoration of
Retirement Income Plan, 1984 Stock and Incentive Plan, "1994
Stock and Incentive Plan", and 1997 Stock and Incentive Plan,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the
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failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms
of the amount or timing of payment of benefits provided and
the level of the Executive's participation relative to other
participants, as existed immediately prior to the date
hereof;
(VI) except for any changes required by
applicable law, the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the date hereof, the taking
of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the
Executive as of the date hereof, or the failure by the Company
to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of
service with the Company in accordance with the Company's
normal vacation policy in effect on the date hereof; prior to
a Change in Control, notwithstanding the foregoing provisions
of this Section 22(r)(VI), it shall not constitute Good Reason
that the Executive's benefits under the Company's general
medical, health and accident plans are no longer substantially
similar to the benefits enjoyed by the Executive immediately
prior to the date hereof, unless the changes in such benefits
constitute a material adverse alteration thereof;
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7(e) hereof; for purposes of this Agreement, no such purported
termination shall be effective, except as provided in Section
3(b) hereof; or
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(VIII) the Company's breach of a material
term or condition of the Agreement.
It shall also constitute Good Reason for termination by the
Executive of the Executive's employment if:
(X) if, at any time during the Term hereof (whether or not a Change in
Control shall have occurred), Robert M. Devlin is not serving as
Chief Executive Officer of the Company (or, if a merger, consolidation
or share exchange by the Company (or a Company subsidiary) with
another corporation shall have occurred, as Chief Executive Officer or
second-in-command of the Company), and
(Y) (i) there is a material diminution in the duties,
responsibilities or title of the Executive,
(ii) a substantial adverse alteration is made in the nature or
status of the Executive's responsibilities from those in
effect immediately prior to Robert M. Devlin's ceasing to so
serve,
(iii) the Company relocates the Executive's principal place of
employment to a location more than fifty (50) miles from the
Executive's principal place of employment immediately prior to
Robert M. Devlin's ceasing to so serve, or
(iv) the Company requires the Executive to be based anywhere
other than such principal place of employment (or permitted
relocation thereof) except for required travel on the
Company's business to an extent substantially consistent with
the Executive's present business travel obligations.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
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For purposes of any determination regarding the existence of
Good Reason which is made after the occurrence of a Change in Control or
during the six-month period immediately preceding the occurrence of a Change in
Control, any claim by the Executive that Good Reason exists shall be presumed
to be correct unless the Company establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(s) "Gross-Up Payment" shall have the meaning set
forth in Section 9 hereof.
(t) "Normal Retirement Age" shall mean age 62.
(u) "Notice of Termination" shall have the meaning
set forth in Section 7(e) hereof.
(v) "Pension Plans" shall mean all tax-qualified and
non-qualified supplemental or excess benefit pension plans maintained by the
Company and any other plan or agreement entered into between the Executive and
the Company which is designed to provide the Executive with supplemental
retirement benefits.
(w) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(x) "Tax Counsel" shall have the meaning set forth
in Section 9 hereof.
(y) "Term" shall mean the period of time described
in Section 3 hereof (including any extension,
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continuation or termination described therein).
(z) "Total Payments" shall mean those payments so
described in Section 9 hereof.
American General Corporation
By: /s/ LARRY D. HORNER
-----------------------------
Name: Larry D. Horner
Title: Chairman of the
Personnel Committee
/s/ JON P. NEWTON
--------------------------------
Jon P. Newton
Address:
---------------------------
---------------------------
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(Please print carefully)
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of February
1, 1998 (the "Effective Date"), by and between James S. D'Agostino (the
"Executive") and American General Corporation, a Texas corporation (the
"Company").
WHEREAS, during the course of Executive's employment with the Company,
the Executive has performed outstanding services for the Company; and
WHEREAS, it is deemed by the Company to be in the best interests of
the Company to assure continuation of Executive's employment; and
WHEREAS, the Company and the Executive have determined to enter into
this Agreement pursuant to which the Company will continue to employ the
Executive on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Defined Terms. The definitions of capitalized terms used
in this Agreement (if not provided where a capitalized term initially appears)
are provided in the last Section hereof.
2. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby accepts such employment, on the terms and
conditions hereinafter set forth.
3. Term.
(a) Duration of Term. Unless earlier terminated as
provided in Section 3(b) hereof, the Executive's employment with the Company
under this Agreement shall commence at the Effective Date and shall end on the
final day of the Term. For purposes of this Agreement, the "Term" shall mean
the full three-year term of the Agreement from the Effective Date until the day
before the third anniversary thereof, plus any extensions made as provided in
this Section 3. On the first day of each month occurring after the Effective
Date, the Term shall automatically be extended for an additional month unless,
<PAGE> 2
prior to any such first day of a month, the Company or the Executive shall have
given notice not to extend the Term. Nothing in this Section shall limit the
right of the Company or the Executive to terminate the Executive's employment
hereunder on the terms and conditions set forth in Section 7 hereof. The
Company and the Executive agree that any such notice by the Company shall not
constitute Good Reason for the Executive to terminate his employment.
(b) Termination of Employment during the Term.
Nothing in this Section 3 shall limit the right of the Company or the Executive
to terminate the Executive's employment under this Agreement during the Term
hereof on the terms and conditions set forth in Section 7 hereof. Further,
notwithstanding any other provision of this Agreement, the Company shall have
the right to terminate the Executive's employment under this Agreement at any
time prior to the expiration of the Term for any other reason whatsoever,
including termination without Cause, in the sole discretion of the Company's
Board of Directors (the "Board"); provided, however, that, any termination of
the employment relationship by the Company prior to the expiration of the Term
other than a termination by the Company on the terms and conditions set forth
in Section 7 hereof shall be deemed to be a termination without Cause within
the meanings of Sections 8(c) and 8(e) hereof.
(c) After the Term: "At-Will" Relationship and
Termination of Employment. If the Executive remains employed by the Company
beyond the expiration of the Term, such employment shall automatically convert
to an "at-will" relationship (upon the expiration of the Term hereof)
terminable at any time by either the Company or the Executive for any reason
whatsoever, with or without Cause. Upon a termination of employment after the
Term hereof, the Company shall pay the Executive's full salary to the Executive
through the date of such termination at the rate in effect immediately prior to
such termination, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan, program or
arrangement maintained by the Company during the Executive's employment by the
Company. In addition to any payments or benefits due hereunder upon such a
termination, the Executive shall receive such post-termination compensation and
benefits as shall be determined under, and paid in accordance with, the
Company's retirement, insurance
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and other compensation or benefit plans, programs and arrangements as in effect
immediately prior to such termination.
4. Position and Duties. On and after the Effective Date, the
Executive shall serve as President of the Company and shall have such
additional or different titles, positions, duties and responsibilities as may
be assigned to the Executive by the Chief Executive Officer of the Company.
The Executive shall report to the Chief Executive Officer of the Company. The
Executive agrees to devote substantially all the Executive's full working time,
attention and energies during normal business hours to the performance of the
Executive's duties for the Company, provided that the Executive may serve as a
director on the boards of such companies and organizations as may be agreed
upon in writing by the Chief Executive Officer and the Executive.
5. Place of Performance. The principal place of employment
and office of the Executive shall be in Houston, Texas, or such other location
as may be determined by the Chief Executive Officer serving as of the Effective
Date.
6. Compensation and Related Matters.
(a) Base Salary. As compensation for the
performance by the Executive of the Executive's duties hereunder, during the
Employment Period the Company shall pay the Executive an annual base salary no
less than the greater of the annual base salary in effect on the Effective Date
or the annual base salary in effect on May 1, 1998 (such greater amount, as it
may be increased from time to time, is hereinafter referred to as "Base
Salary"). Base Salary shall be payable in accordance with the Company's normal
payroll practices, shall be reviewed at least annually by the Personnel
Committee and may be increased (but not decreased) upon review.
(b) Annual Bonus.
(i) The Executive shall be provided an
opportunity for an annual bonus with respect to each fiscal year which ends
within the Employment Period (the "Annual Bonus"), including, without
limitation, the year which includes the Effective Date. Except with respect to
any fiscal year during which the Executive participates in a Formula Annual
Bonus Plan (as described in
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Section 6(b)(ii) hereof), the amount of an Annual Bonus with respect to any
fiscal year shall be determined in the sole discretion of the Personnel
Committee; provided, however, that, except with respect to any fiscal year
during which the Executive participates in a Formula Annual Bonus Plan, the
amount of any such Annual Bonus shall not be less than seventy-five percent
(75%) of the Base Salary in effect on the last day of the fiscal year with
respect to which such Annual Bonus is awarded.
(ii) Notwithstanding the second sentence of
Section 6(b)(i) hereof, if the Executive participates in an Annual Bonus Plan
under which performance objectives, Annual Bonus opportunities (or target
bonuses) and levels of payment based on levels of achievement of the
performance objectives are established for the Executive and other participants
(a "Formula Annual Bonus Plan"), the Executive shall have an Annual Bonus
opportunity (expressed as a percentage of then-current Base Salary) for the
initial fiscal year during the Term covered by a Formula Annual Bonus Plan
which is no less than (and which may be more than) the "Average Bonus
Percentage". The "Average Bonus Percentage" (for purposes of this Section)
shall be calculated by (i) dividing the actual bonus paid to the Executive with
respect to each of the applicable "Three Years" by the Base Salary in effect on
the last day of the respective year, and converting the result to a percentage,
and (ii) adding the three percentages together and dividing by three. The
"Three Years", for purposes of this Section, shall be the three fiscal years
immediately preceding such initial fiscal year, or, if more favorable to the
Executive, the three fiscal years immediately preceding the Effective Date
hereof. The percentage of Base Salary which determines the Executive's Annual
Bonus opportunity shall be reviewed by the Board annually and may be increased
(but not decreased) upon review by the Board. Any Annual Bonus payable with
respect to a fiscal year (whether or not pursuant to a Formula Annual Bonus
Plan) shall be paid as soon as practicable after the end of such year.
(c) Other Compensation and Benefit Plans and
Arrangements; Fringe Benefits. During the Employment Period, the Executive
shall be entitled to participate, at a level appropriate to the Executive's
position with the Company, in such other employee benefit and compensation
plans and arrangements and fringe benefits as are generally available to senior
officers of the Company
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from time to time, and any successors thereto.
(d) Expenses. The Company shall reimburse the
Executive for all reasonable business expenses incurred during the Employment
Period, subject to the applicable and reasonable policies and procedures of the
Company in force from time to time.
(e) Office Facilities and Services Furnished.
During the Employment Period, the Company shall furnish the Executive with
appropriate office space and such other facilities and services as shall be
suitable to the Executive's position and adequate for the performance of the
Executive's duties as set forth in Section 4 hereof (including, without
limitation, secretarial services and furniture, telephone, telefax and work
station equipment), such office space and other facilities and services to be
furnished at the location set forth in Section 5 hereof.
(f) Automobile Allowance. At all times during the
Employment Period, the Company will provide the Executive with an automobile
(and pay related expenses) pursuant to the Company's policy as in effect on the
Effective Date, as such policy may be amended from time to time (the
"Automobile Policy"), provided, however, that in no event shall the automobile
provided to the Executive pursuant to this Section 6(f) be of lesser quality
than that available to the Executive pursuant to the Automobile Policy on the
Effective Date.
(g) Nonstatutory Options. Any nonstatutory options
granted to the Executive during the Employment Period after the Effective Date
hereof will, when (and to the extent that) they become exercisable, remain
exercisable for their full term.
7. Termination. The Executive's employment hereunder may be
terminated, and the Employment Period hereunder shall be ended, as follows:
(a) Death. The Executive's employment shall
terminate upon the Executive's death. Upon such a termination, the Executive's
estate, designated beneficiary or surviving spouse, as the case may be, shall
become entitled to the payments provided in Sections 8(b) and 8(e) hereof.
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(b) Disability. The Company may terminate the
Executive's employment hereunder for Disability. During the Disability Period
(as defined in Section 8(a) hereof) and upon such a termination, the Executive
shall be entitled to the payments and benefits provided in Sections 8(a) and
8(e) hereof in accordance with the terms of such Sections, provided, however,
that during the thirty-six (36) month period immediately following the Date of
Termination for Disability, the Company shall pay monthly to the Executive (in
accordance with the Company's usual payroll practices) any additional amount
necessary (the "Disability Supplement") so that the gross amount of (i) the
Disability Supplement and (ii) the payments provided to the Executive following
a termination of his employment for Disability pursuant to Sections 8(a) and
8(e) hereof is equal to (A) three times the Base Salary and the Average Annual
Bonus, (B) divided by thirty-six (36).
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause. Upon such a termination, the
Executive shall become entitled to the payments provided in Section 8(b)
hereof.
(d) Termination by the Executive.
(i) The Executive may terminate the Executive's
employment hereunder for Good Reason. The Executive may also terminate the
Executive's employment hereunder without Good Reason by giving a Notice of
Termination during the year immediately following a Change in Control (a
"Special Termination"). Upon a Good Reason termination or a Special
Termination, the Executive shall become entitled to the payments and benefits
provided in Sections 8(c) and 8(e) hereof in accordance with the terms of such
Sections.
(ii) The Executive may terminate the
Executive's employment hereunder without Good Reason and outside of the
one-year period immediately following a Change in Control, upon giving notice
of one month to the Company. In the event of such a termination, the Executive
shall comply with any reasonable request of the Company to assist in providing
for an orderly transition of authority, but such assistance shall not delay the
Executive's termination of employment longer than six months beyond the giving
of the Executive's Notice of Termination. Upon such a termination, the
Executive shall become entitled to the payments and benefits provided in
Section 8(b) hereof in accordance with the terms of such Section.
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(e) Notice of Termination. Any purported
termination of the Executive's employment (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 17 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause based on
clause (ii) or (iii) of the definition of Cause herein is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (ii) or (iii) of the definition of Cause herein,
and specifying the particulars thereof in detail.
(f) Date of Termination. For purposes of this
Agreement, "Date of Termination" shall mean the following: (i) if the
Executive's employment is terminated by the Executive's death, the date of the
Executive's death; (ii) if the Executive's employment is terminated for
Disability pursuant to Section 7(b) hereof, thirty (30) days after the Notice
of Termination is given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during such thirty-(30)-day
period); (iii) if the Executive's employment is terminated for Cause pursuant
to Section 7(c) hereof, the date specified in the Notice of Termination; (iv)
if the Executive's employment is terminated pursuant to Section 7(d)(ii)
hereof, the date determined in accordance with said Section, and (v) if the
Executive's employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination by the
Company, shall not be less than thirty (30) days and, in the case of a
termination by the Executive, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
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(g) Dispute Concerning Termination. If within
fifteen (15) days after any Notice of Termination is given, or, if later, prior
to the Date of Termination (as determined without regard to this Section 7(g)),
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be
extended until the earlier to occur of (i) the date on which the Term ends or
(ii) the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by the final judgment, order or decree of
an arbitrator or a court of competent jurisdiction (which is not appealable or
with respect to which the time for appeal therefrom has expired and no appeal
has been perfected); provided, however, that the Date of Termination shall be
extended by a notice of dispute given by the Executive only if such notice is
given in good faith and the Executive pursues the resolution of such dispute
with reasonable diligence.
(h) Compensation During Dispute. If the Date of
Termination is extended in accordance with Section 7(g) hereof with respect to
a Notice of Termination given after a Change in Control or within the six-month
period immediately preceding a Change in Control, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, Base Salary) and
continue the Executive as a participant in all compensation, benefit and
insurance plans in which the Executive was participating when the notice giving
rise to the dispute was given until the Date of Termination, as determined in
accordance with Section 7(g) hereof. Amounts paid under this Section 7(h) are
in addition to all other amounts due under this Agreement other than those due
under Section 8(b)(i) or 8(c)(i) hereof) and shall not be offset against or
reduce any other amounts due under this Agreement.
8. Compensation During Disability or Upon Termination.
(a) Disability Period and Termination for
Disability. During any period during the Employment Period that the Executive
fails to perform the Executive's full-time duties hereunder as a result of
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incapacity due to physical or mental illness ("Disability Period"), the Company
shall pay the Executive's full salary to the Executive at the rate in effect at
the commencement of any such period, together with all compensation and
benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability; provided, however, that such salary payments shall be reduced by
the sum of the amounts, if any, payable to the Executive at or prior to the
time of any such salary payment under disability benefit plans of the Company
or under the Social Security disability insurance program, which amounts were
not previously applied to reduce any such salary payment. Upon termination of
the Executive's employment for Disability, the Company shall have no additional
obligations to the Executive under this Agreement except to the extent provided
in Sections 6(c), 6(d), 7(b), 8(e) and 15 hereof (and, to the extent
applicable, Sections 9, 10 and 11 hereof) and to pay to the Executive the
Executive's normal post-termination compensation and benefits as such payments
become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
(b) Termination (x) by the Company with Cause, (y)
by the Executive without Good Reason in a Termination which is not a Special
Termination, or (z) by Reason of Death. If the Executive's employment
hereunder is terminated (x) by the Company with Cause, (y) by the Executive
without Good Reason in a termination which is not a Special Termination, or (z)
by reason of death, then:
(i) as soon as practicable, the Company
shall pay the Executive's Base Salary to the Executive through the
Date of Termination at the rate in effect immediately prior to the
Date of Termination or, if higher, the rate in effect immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, together with all compensation and benefits payable to
the Executive through the Date of Termination
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under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason; and
(ii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d) and 15 hereof (and, to the extent
applicable, Sections 8(e), 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason.
(c) Termination (x) by Company without Cause, (y) by
the Executive with Good Reason, or (z) by the Executive in a Special
Termination. For purposes of this Agreement, termination of the Executive's
employment "by the Company without Cause" shall not include termination by the
Company for Disability or termination by reason of the Executive's death. If
the Executive's employment hereunder is terminated (x) by the Company without
Cause, (y) by the Executive with Good Reason, or (z) by the Executive in a
Special Termination, then:
(i) the Company shall pay the Executive's
Base Salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if
higher, the rate in effect immediately prior to the first occurrence
of an event or circumstance constituting Good Reason, together with
all compensation and benefits payable to the Executive through the
Date of Termination under the terms of the Company's compensation and
benefit plans, programs or arrangements as in effect immediately prior
to the Date of Termination or, if more favorable to the Executive, as
in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason;
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(ii) notwithstanding any provision of any
Annual Bonus plan to the contrary, the Company shall pay to the
Executive a lump sum amount, in cash, equal to the sum of (A) any
Annual Bonus which has been allocated or awarded (but not yet paid) to
the Executive for a completed fiscal year preceding the Date of
Termination under any Annual Bonus plan, and (B) a pro rata portion to
the Date of Termination of the Annual Bonus for the year in which the
Date of Termination occurs, calculated by using a fraction (the
numerator of which shall be the number of days of employment in such
year up to and including the Date of Termination and the denominator
of which shall be three-hundred-sixty-five (365)) to multiply (i) the
award that the Executive would have earned for the entire year,
assuming the achievement, at the target level, of any performance
objectives established with respect to such award, or, (ii) if no such
target level and performance objectives have been established, the
Average Annual Bonus; provided, however, that any amount otherwise
payable pursuant to this clause (B) of this Section 8(c)(ii) shall be
reduced by any payment already received by the Executive pursuant to
the applicable Annual Bonus plan with respect to the year in which the
Date of Termination occurs;
(iii) in lieu of any further salary or bonus
payments as severance to the Executive for periods subsequent to the
Date of Termination and in lieu of any severance benefit otherwise
payable to the Executive, the Company shall pay to the Executive a
lump sum severance payment, in cash, equal to three times the sum of
(x) the Executive's Base Salary as in effect immediately prior to the
Date of Termination or, if higher, in effect immediately prior to the
first occurrence of an event or circumstance constituting Good Reason,
and (y) the Average Annual Bonus, as follows:
(A) if the Date of Termination shall
occur on or after a Change in Control (or be deemed to occur
after a Change in Control pursuant to Section 8(d) hereof),
the Company shall pay such amount in a lump sum severance
payment, in cash; or
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(B) if the Date of Termination shall
not occur on or after a Change in Control (and not be deemed
to occur after a Change in Control pursuant to Section 8(d)
hereof), the Company shall pay such amount, in substantially
equal monthly or more frequent installments over the
three-year period immediately following the Date of
Termination;
(iv) The Company shall (i) either prepay all
remaining premiums, or establish an irrevocable grantor trust holding
an amount of assets sufficient to pay all such remaining premiums
(which trust shall be required to pay such premiums), under any
insurance policy insuring the life of the Executive under any
"split-dollar" insurance arrangement in effect between the Executive
and the Company, and (ii) shall transfer to the Executive any and all
rights and incidents of ownership in such arrangements at no cost to
the Executive. For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall also arrange to
provide the Executive with life and accident insurance benefits
substantially similar to those provided to the Executive (other than
the "split-dollar" life insurance) immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater cost to the
Executive than the cost to the Executive immediately prior to such
date or occurrence. Benefits otherwise receivable by the Executive
pursuant to the immediately preceding sentence shall be reduced to the
extent benefits of the same type are received by or made available to
the Executive by a successor employer during the thirty-six (36) month
period following the Executive's termination of employment (and any
such benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided, however, that the
Company shall reimburse the Executive for the excess, if any, of the
cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason.
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(v) The Company shall provide the Executive
with outplacement services suitable to the Executive's position for a
period of nine months or, if earlier, until the first acceptance by
the Executive of an offer of employment.
(vi) The Company shall provide the Executive
with the office facilities and services and the automobile allowance
described in Section 6(e) and (f) hereof for the thirty-six (36) month
period immediately following the Date of Termination.
(vii) Notwithstanding anything which is more
restrictive in any applicable plan or grant or award agreement or in
any other provision of this Agreement, the Executive shall become
fully vested in all outstanding stock options, restricted stock and
other similar equity-based awards which are granted to him by the
Company (whether before or after the Effective Date); in the case of
performance awards, it shall be assumed that the applicable
performance goals were attained at target levels and the Committee
shall also have the discretion to increase the amount so payable by
assuming attainment of the applicable performance goals at up to
maximum level.
(viii) the Company shall have no additional
obligations to the Executive under this Agreement except to the extent
provided in Sections 6(c), 6(d), 8(e) and 15 hereof (and, to the
extent applicable, Sections 9, 10 and 11 hereof) and to pay to the
Executive the Executive's normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company's retirement, insurance and other
compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the
first event or circumstance constituting Good Reason. If such
insurance, other compensation and benefit plans, programs and
arrangements provide for different levels of benefits and coverage,
post-termination benefits and coverage shall be the most comprehensive
benefits and coverage available.
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(d) Termination Deemed to be after Change in
Control. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated after a Change in Control by the Company without
Cause or after a Change in Control by the Executive with Good Reason, if (i)
the Executive's employment is terminated by the Company without Cause prior to
a Change in Control (whether or not a Change in Control ever occurs) and such
termination was at the request or direction of a Person who has entered into an
agreement with the Company the consummation of which would constitute a Change
in Control, (ii) the Executive terminates the Executive's employment for Good
Reason prior to a Change in Control (whether or not a Change in Control ever
occurs) and the circumstance or event which constitutes Good Reason occurs at
the request or direction of such Person, or (iii) the Executive's employment is
terminated by the Company without Cause or by the Executive for Good Reason and
such termination or the circumstance or event which constitutes Good Reason is
otherwise in connection with or in anticipation of a Change in Control (whether
or not a Change in Control ever occurs). For purposes of any determination
regarding the applicability of the immediately preceding sentence made after
the occurrence of a Change in Control or within the six-month period
immediately preceding a Change in Control, any position taken by the Executive
shall be presumed to be correct unless the Company establishes to the Committee
by clear and convincing evidence that such position is not correct.
(e) Other Benefits upon Certain Terminations.
(i) Upon any termination of the Executive's
employment with the Company (whether or not occurring during the Term hereof),
other than a termination during the Term by the Company with Cause or a
termination during the Term by the Executive without Good Reason which is not a
Special Termination, and continuing until the earlier of (i) the later of the
death of the Executive or the death of the "Executive's Spouse", or (ii) the
date substantially equivalent coverage and benefits are provided to the
Executive (if then living) and the Executive's Spouse (if then living) by a
subsequent employer (whether or not such coverage and benefits will be
continued by the subsequent employer after any termination of the Executive's
employment by the subsequent employer), the Company (at the Company's
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sole expense) shall provide the Executive, the Executive's Spouse and the
Executive's dependents with medical and dental insurance benefits substantially
similar to those benefits "provided" to them immediately prior to the Date of
Termination or, if more favorable to the Executive, those "provided" to them on
the Effective Date hereof. In determining which benefits were "provided" at
the applicable date, the Executive shall be deemed to have elected the most
comprehensive benefits and coverage available to the Executive at that date
(whether or not actually elected); further, such benefits shall include,
without limitation, an unrestricted right for the Executive, the Executive's
Spouse and the Executive's dependents to select their own care providers. The
Company shall provide such post-termination benefits under its medical and
dental plans, to the extent that the Executive's continued participation is
possible under the general terms and provisions of such plans. To the extent
that such participation is not possible, the Company shall arrange to otherwise
provide the Executive with such post-termination benefits. If the Executive
obtains other employment (and the Executive shall be under no obligation to do
so), insurance obtained as a result of such other employment shall be the first
line of insurance and insurance provided under this Section 8(e) shall only be
supplementary or secondary. Also, to the extent that the Executive is, at any
time, entitled to insurance under the Medicare program or its equivalent, the
insurance under this Section 8(e) shall be only supplementary or secondary to
the extent allowed by law. For purposes of this Section 8(e), "Executive's
Spouse" shall refer to the Executive's spouse immediately prior to the
termination of the Executive's employment with the Company.
(ii) Subject to Section 8(c)(vii) hereof,
but notwithstanding any more restrictive provision in the terms of the relevant
document evidencing an equity-based award or the terms of the plan under which
the equity-based award was granted, upon any termination described in the last
sentence of this Section 8(e)(ii), (i) the Executive shall become fully vested
in (and any restrictions shall lapse upon) all outstanding time-vesting stock
options, restricted stock and other similar equity-based awards granted to
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him by the Company (whether before or after the Effective Date), and (ii) the
Executive shall become vested in a pro-rata portion of all equity-based
performance awards granted to him by the Company (whether before or after the
Effective Date), which pro-rata portion shall be based on the attainment of the
performance goals relevant to such awards on the date of termination of the
Executive's employment with the Company (and not based on the portion of the
applicable performance period during which the Executive was employed by the
Company), as determined by the Committee in its good faith discretion. The
Committee shall also have the discretion to increase the amount, if any,
payable pursuant to clause (ii) of the preceding sentence, up to the full
amount of such award, assuming attainment of the applicable performance goals
at target level. The terminations upon which the vesting described in this
Section 8(e)(ii) shall occur are the following: any termination of the
Executive's employment with the Company (whether or not occurring during the
Term hereof) which occurs on or after the date on which the Executive attains
Normal Retirement Age, other than a termination during the Term by the Company
with Cause.
9. Excise Tax Gross-Up Payment.
(a) Whether or not the Executive becomes entitled
to any payment pursuant to Section 8(c)(iii)(A) hereof, if any of the payments
or benefits received or to be received by the Executive in connection with any
Change in Control which occurs during the Term hereof or any termination of the
Executive's employment which occurs during the Term hereof (whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
the Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) (such payments or benefits
(excluding the payment or payments to be made pursuant to this Section 9) being
hereinafter referred to as the "Total Payments") will be subject to the Excise
Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after deduction
of any Excise Tax on the Total Payments and any federal, state and local income
and employment taxes and Excise Tax upon the payment or payments provided by
this Section 9, shall be equal to the Total Payments.
(b) For purposes of determining whether any of
the Total Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as "parachute
payments" (within the meaning of section 280G(b)(2) of the Code)
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unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to
the Executive and selected by the accounting firm which was, immediately prior
to the Change in Control, the Company's independent auditor (the "Auditor"),
such payments or benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all
"excess parachute payments" within the meaning of section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax unless, in the opinion of
Tax Counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the meaning of
section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to
such reasonable compensation, or are otherwise not subject to the Excise Tax,
and (iii) the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and locality
of the Executive's residence on the Date of Termination (or if there is no Date
of Termination, then the date on which the Gross-Up Payment is calculated for
purposes of this Section 9), net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.
(c) In the event that the Excise Tax is finally
determined to be less than the amount taken into account hereunder in
calculating the Gross-Up Payment, the Executive shall repay to the Company,
within the five (5) business days immediately following the date that the
amount of such reduction in the Excise Tax is finally determined, the portion
of the Gross-Up Payment attributable to the amount of such reduction (including
the Excise Tax component and the federal, state and local income and employment
tax components of the Gross-Up Payment) to the extent that such repayment
results in a reduction in the Excise Tax and a dollar-for-dollar reduction in
the Executive's taxable income and wages for purposes of federal, state and
local income and employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code.
In the event that the Excise
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Tax is determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Executive
with respect to such excess) within the five (5) business days immediately
following the date that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Total
Payments.
10. Time of Certain Payments. The payments provided to the
Executive or for the Executive's benefit in Sections 9 and 8(c) (other than
8(c)(iii)(B), 8(c)(v), 8(c)(vi), and 8(c)(viii)) hereof shall be made not later
than the fifth (5th) business day following the Date of Termination (or, if
earlier, in the case of payments provided in Section 9 hereof, not later than
the fifth (5th) business day following the Executive's receipt of an excess
parachute payment, within the meaning of section 4999 of the Code); provided,
however, that if the amounts of such payments cannot be finally determined on
or before such day, the Company shall pay to the Executive on such day an
estimate of the payments under Section 8(c), as determined in good faith by
the Executive, and an estimate of the payments under Section 9 hereof, as
determined in accordance with Section 9 hereof, the estimate in each case to be
of the minimum amount of such payments to which the Executive is clearly
entitled, and shall pay the remainder of such payments (together with interest
on the unpaid remainder (or on all such payments to the extent the Company
fails to make such payments when due) at 120% of the rate provided in section
1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but
in no event later than the thirtieth (30th) day after the Date of Termination
(or, if earlier, the thirtieth (30th) day after the date of the Executive's
receipt of an excess parachute payment). In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with
interest at 120% of the rate provided in section 1274(b)(2)(B) of the
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Code). At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner
in which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and
any such opinions or advice which are in writing shall be attached to the
statement).
11. Legal and Arbitration Fees and Expenses. The Company
also shall pay to the Executive all reasonable legal fees, arbitration fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require. Notwithstanding the foregoing provisions of this
Section 11, no such fees and expenses shall be paid unless the Executive
prevails on at least one of the issues he raises.
12. No Mitigation; Limited Offset. The Company agrees that,
if the Executive's employment with the Company terminates during the Term, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to Section
7(h) or 8 hereof. Further, the amount of any payment or benefit provided for
in this Agreement (other than Section 8(e) or the second sentence of Section
8(c)(iv) hereof) shall not be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company (unless such amount is evidenced by a promissory note signed by the
Executive), or otherwise.
13. Protection of Ideas, Noncompetition and Nonsolicitation.
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(a) Protection of Ideas. Both during the period of
the Executive's employment by the Company and thereafter, Executive shall
assist the Company or its nominees, at any time, in the protection of the
Company's worldwide right, title, and interest in and to information, ideas,
concepts, improvements, discoveries, and inventions, and its copyrighted works,
including without limitation, the execution of all formal assignment documents
requested by Company or its nominees and the execution of all lawful oaths and
applications for applications for patents and registration of copyright in the
United States and foreign countries.
(b) Noncompetition. The Company shall disclose
to the Executive, or place the Executive in a position to have access to or to
develop, trade secrets or confidential information of the Company or its
affiliates; and/or shall entrust the Executive with business opportunities of
the Company or its affiliates; and/or shall place the Executive in a position
to develop business good will on behalf of the Company or its affiliates. As
part of the consideration for the compensation and benefits to be paid to the
Executive hereunder, to protect the trade secrets and confidential information
of the Company or its subsidiaries or affiliates or their customers or clients
that have been and will in the future be disclosed or entrusted to the
Executive, the business good will of the Company or its subsidiaries or
affiliates that has been and will in the future be developed in the Executive,
or the business opportunities that have been and will in the future be
disclosed or entrusted to the Executive by the Company or its subsidiaries or
affiliates; and as an additional incentive for the Company to enter into this
Agreement, the Executive agrees to the non-competition obligations hereunder.
While the Executive continues to be an employee of the Company and, unless the
Executive's termination of employment is by the Company without Cause or by the
Executive with Good Reason or in a Special Termination, for the three-year
period immediately following the Executive's Date of Termination, the Executive
shall not, within any geographic region of the United States of America in
which the Company then conducts business or in which the Company plans to
conduct business pursuant to a business strategy adopted by the Board before
the Executive's termination of employment, except as permitted by the Company
upon its prior written consent, (i) enter, directly or indirectly, into the
employ of, or render or
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engage in, directly or indirectly, any services to any person, firm or
corporation which directly competes with the Company with respect to any
business then conducted by the Company or any business which the Company plans
to enter pursuant to a business strategy adopted by the Board before the
Executive's termination of employment (a "Competitor"), or (ii) become
interested, directly or indirectly, in any such Competitor as an individual,
partner, shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant, advisor or in any other relationship or capacity. The
ownership of up to one percent (1%) of any class of the outstanding securities
of any publicly traded corporation, even though such corporation may be a
Competitor, shall not be deemed as constituting an interest in such Competitor
which violates clause (ii) of the immediately preceding sentence.
(c) While the Executive continues to be an employee
of the Company and, unless the Executive's termination of employment is by the
Company without Cause or by the Executive with Good Reason or in a Special
Termination, for the three-year period immediately following the Executive's
Date of Termination, the Executive shall not, except as permitted by the
Company upon its prior written consent, (i) attempt, directly or indirectly, to
induce any employee employed by or performing services for the Company (or its
affiliates) to be employed or perform services elsewhere, or (ii) solicit,
directly or indirectly, the customers of the Company (or its affiliates), the
suppliers of the Company (or its affiliates) or entities or individuals having
other business relationships with the Company (or its affiliates) for the
purpose of encouraging them to terminate (or reduce or detrimentally alter)
their respective relationships with the Company (or its affiliates).
(d) The Company shall have the right and remedy to
have the provisions of this Section 13 specifically enforced, including by
temporary and/or permanent injunction, it being acknowledged and agreed that
any such violation may cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
14. Independence and Severability of Section 13 Provisions.
Each of the rights and remedies enumerated in Section 13 hereof shall be
independent of the
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others and shall be severally enforceable and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity. If any of the covenants
contained in Section 13 hereof or if any of the rights or remedies enumerated
in Section 13 hereof, or any part of any of them, is hereafter construed to be
invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants or rights or remedies which shall be given full effect
without regard to the invalid portions. If any of the covenants contained in
Section 13 is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the authority to reduce the duration and/or area
of such provision, and in its reduced form said provision shall then be
enforceable.
15. Indemnification. The Company shall indemnify the
Executive to the full extent authorized by law and the Charter and By-Laws of
the Company, as applicable, for all expenses, costs, liabilities and legal fees
which the Executive may incur in the discharge of the Executive's duties
hereunder. The Executive shall be insured under the Company's directors' and
officers' liability insurance policy as in effect from time to time. Any
termination of the Executive's employment or of this Agreement shall have no
effect on the continuing operation of this Section 15.
16. Successors; Binding Agreement.
(a) In addition to any obligations imposed by law
upon any successor to the Company, the Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
the Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment
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for Good Reason on or after a Change in Control, except that, for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death
of the Executive) if the Executive had continued to live, each such amount,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the executors, personal representatives or administrators of
the Executive's estate.
17. Notices. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed,
if to the Executive, to the address inserted below the Executive's signature on
the final page hereof and, if to the Company, to the address set forth below,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon actual receipt:
To the Company:
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
18. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver
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of similar or dissimilar provisions or conditions at the same or at any prior
or subsequent time. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party, including, without
limitation, any employment memorandum, memorandum of understanding, or
severance agreement. Captions and Section headings in this Agreement are
provided merely for convenience and shall not affect the interpretation of any
of the provisions herein. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law and any additional withholding to
which the Executive has agreed. The obligations of the Company and the
Executive under this Agreement which by their nature may require either partial
or total performance after the expiration of the Term (including, without
limitation, those under Sections 8 and 9 hereof) shall survive such expiration.
19. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
20. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
21. Settlement of Disputes; Arbitration.
(a) All claims by the Executive for benefits under
this Agreement shall be directed to and determined by the Committee and shall
be in writing. Any denial by the Committee of a claim for benefits under this
Agreement shall be delivered to the Executive in writing and shall set forth
the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Committee shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Committee a decision of the
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Committee within sixty (60) days after notification by the Committee that the
Executive's claim has been denied.
(b) Except for equitable relief as specified in
Section 21(f) hereof and except for the Executive's claim under any Company
benefit or compensation plans, programs, arrangements or awards (whether
heretofore or hereafter established) which have a claim or dispute resolution
procedure specifically applicable thereto, any dispute or controversy which is
not resolved by agreement pursuant to Section 21(a) hereof, including all
claims, demands, causes of action, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision hereof,
the alleged breach thereof, or in any way relating to the subject matter of
this Agreement involving the Executive, the Company, and/or their respective
representatives, even though some or all of such claims allegedly are
extra-contractual in nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
by binding arbitration pursuant to the Federal Arbitration Act in accordance
with the Employment Dispute Resolution Rules then in effect with the American
Arbitration Association. The arbitration proceeding shall be conducted in
Houston, Texas. This agreement to arbitrate shall be enforceable in either
federal or state court.
(c) The enforcement of this agreement to arbitrate
and all procedural aspects of this agreement to arbitrate, including but not
limited to, the construction and interpretation of this agreement to arbitrate,
the issues subject to arbitration (i.e., arbitrability), the scope of the
arbitrable issues, allegations of waiver, delay or defenses to arbitrability,
and the rules governing the conduct of the arbitration, shall be governed by
and construed pursuant to the Federal Arbitration Act and shall be decided by
the arbitrators; provided, however, that the evidentiary standards set forth in
this Agreement with respect to certain determinations made by the Board or the
Committee shall apply to those determinations when made (or reviewed) by the
arbitrators. In deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might
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call for the application of some other state's law); provided, however, it is
expressly agreed that the arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances regardless of whether
such damages may be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages in connection
with any such claims.
(d) The arbitration may be initiated by any party by
providing to the other parties a written notice of arbitration specifying the
claims. Within thirty (30) days of the notice of initiation of the arbitration
procedure, (1) the Executive shall denominate one arbitrator and (2) the
Company shall denominate one arbitrator. The two arbitrators shall select a
third arbitrator failing agreement on which within sixty (60) days of the
original notice, either the Executive or the Company shall apply to the Senior
Active United States District Judge for the Southern District of Texas, who
shall appoint a third arbitrator. While the third arbitrator shall be neutral,
the two party-appointed arbitrators are not required to be neutral and it shall
not be grounds for removal of either of the two party-appointed arbitrators or
for vacating the arbitrators' award that either of such arbitrators has past or
present minimal relationships with the party that appointed such arbitrator.
Evident partiality on the part of an arbitrator exists only where the
circumstances are such that a reasonable person would have to conclude there in
fact existed actual bias and a mere appearance or impression of bias will not
constitute evident partiality or otherwise disqualify an arbitrator.
(e) The three arbitrators shall by majority vote
resolve all disputes between the parties. There shall be no transcript of the
hearing before the arbitrators. The arbitrators' decision shall be in writing,
but shall be as brief as possible. The arbitrators shall not assign the
reasons for their decision. The arbitrators shall certify in their award that
they have faithfully applied the terms and conditions of this Agreement and
that no part of their award includes any amount for exemplary or punitive
damages. All proceedings conducted hereunder and the decision of the
arbitrators shall be kept confidential by the parties, e.g., the arbitrators'
award shall not
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be released to the press or published in any of the various arbitration
reporters. Judgment upon any award rendered in any such arbitration proceeding
may be entered by any federal or state court having jurisdiction.
(f) Notwithstanding any provision of this Agreement
to the contrary, (i) in the event of a breach or threatened breach by the
Executive of any of the covenants set forth in Section 13 hereof, the Company
shall be entitled to seek equitable relief, including an injunction, in any
court of proper jurisdiction to maintain the status quo pending the resolution
of the dispute by binding arbitration as provided above, and (ii) the Executive
shall be entitled to seek specific performance of the Executive's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. With respect
to any such action, the Executive and the Company hereby irrevocably submit to
the non-exclusive jurisdiction of any Federal or State court sitting in the
City of Houston, Texas, and agree that process in any such action shall be
valid and effective for all purposes if served upon the respective party in
accordance with the notice provisions of Section 17 hereof.
22. Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated below:
(a) "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(b) "Auditor" shall have the meaning set forth in
Section 9(b) hereof.
(c) "Average Annual Bonus" shall mean the average
annual bonus earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in which the Executive participated in respect
of any of the three calendar years ending immediately prior to the calendar
year in which occurs the Date of Termination or, if higher, immediately prior
to the calendar year in which occurs the first event or circumstance
constituting Good Reason; provided, however, that if there are fewer than three
bonuses earned by the Executive in the applicable
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three-year period, the average annual bonus will be calculated by dividing the
total amount of the bonuses paid by the number of bonuses paid.
(d) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of
the Code.
(e) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(f) "Board" shall mean the Board of Directors of the
Company.
(g) "Cause" for termination by the Company of the
Executive's employment shall mean (i) conviction of the Executive for the
commission of a felony, (ii) the willful gross neglect by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or
mental illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Executive pursuant to Section
7(e) hereof) after a written demand for substantial performance is delivered to
the Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially performed the
Executive's duties, or (iii) the engaging by the Executive in willful gross
misconduct resulting in demonstrable and material economic harm to the Company
or its subsidiaries. For purposes of clauses (ii) and (iii) of this
definition, (x) no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure
to act, was in the best interest of the Company and (y) in the event of a
dispute concerning the application of this provision after the occurrence of a
Change in Control or within the six-month period immediately preceding a Change
in Control, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(h) A "Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
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(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its Affiliates) representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial
Owner in connection with a transaction described in clause (i)
of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the
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surviving entity or any parent thereof), in combination with
the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least fifty-one percent
(51%) of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
thirty percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(IV) the shareholders of the Company approve
a plan of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity, at least fifty-one percent (51%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same
proportions as their ownership of the Company immediately
prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
(i) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
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(j) "Committee" shall mean the Personnel Committee
of the Board until six months prior to the occurrence of a Change in Control
and thereafter shall mean (i) the individuals (not fewer than three in number)
who, on the date six months before a Change in Control, constitute the
Personnel Committee of the Board, plus (ii) in the event that fewer than three
individuals are available from the group specified in clause (i) above for any
reason, such individuals as may be appointed by the individual or individuals
so available (including for this purpose any individual or individuals
previously so appointed under this clause (ii)); provided, however, that the
maximum number of individuals constituting the Committee shall not exceed five.
(k) "Company" shall mean American General
Corporation, a Texas corporation and, except in determining under Section 22(h)
hereof whether or not any Change in Control of the Company has occurred, shall
include any successor to its business and/or assets which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(l) "Date of Termination" shall have the meaning set
forth in Section 7(f) hereof.
(m) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, (i) as a result
of the Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the Executive's duties
with the Company for a period of six (6) consecutive months, (ii) a physician
agreed upon by the Executive (or the Executive's legal representative) and the
Company (or, if the parties hereto are unable to agree upon a single physician,
a third physician agreed upon by two physicians, each of whom has been selected
by either the Executive (or the Executive's legal representative) or the
Company) shall have determined that the Executive will be incapable, due to
physical or mental illness, of substantially performing the Executive's duties
and responsibilities under this Agreement for the remainder of the Term, (iii)
the Company shall have given the Executive a Notice of Termination for
Disability, and (iv) within thirty (30) days after such Notice of Termination
is given, the Executive shall not have
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returned to the full-time performance of the Executive's duties.
(n) "Employment Period" shall mean the period (which
in no event shall extend beyond the expiration of the Term and may end earlier
pursuant to Section 3(b) hereof) during which Executive has an obligation to
render services hereunder, as described in Section 4 hereof.
(o) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended from time to time.
(p) "Excise Tax" shall mean any excise tax imposed
under section 4999 of the Code.
(q) "Executive" shall mean the individual named in
the first paragraph of this Agreement.
(r) "Good Reason" for termination by the Executive
of the Executive's employment shall mean the occurrence (without the
Executive's express written consent) of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described in paragraph (I), (V), (VI), (VII) or (VIII) below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive on or
after any Change in Control (or prior to a Change in Control
under the circumstances described in clause (ii) or (iii) of
the first sentence of Section 8(d) hereof) of any duties
inconsistent with the Executive's status as an executive
officer of the Company or a substantial adverse alteration in
the nature or status of the Executive's responsibilities
during such period from those in effect immediately prior to
the Change in Control (or, where applicable, immediately prior
to the occurrence of an event or circumstance constituting
Good Reason pursuant to clauses (ii) and (iii) of the first
sentence of Section 8(d) hereof);
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(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time;
(III) the relocation of the Executive's
principal place of employment after a Change in Control (or
prior to a Change in Control under the circumstances described
in clause (ii) or (iii) of the first sentence of Section 8(d)
hereof) to a location more than fifty (50) miles from the
Executive's principal place of employment immediately prior to
the Change in Control (or, where applicable, immediately prior
to the occurrence of an event or circumstance constituting
Good Reason pursuant to clauses (ii) and (iii) of the first
sentence of Section 8(d) hereof) or the Company's requiring
the Executive to be based anywhere other than such principal
place of employment (or permitted relocation thereof) during
such period except for required travel on the Company's
business to an extent substantially consistent with the
Executive's present business travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of
the date such compensation is due;
(V) except for any changes required by
applicable law, the failure by the Company to continue in
effect any compensation plan in which the Executive
participates immediately prior to the date hereof which is
material to the Executive's total compensation, including but
not limited to the Company's Performance-Based Plan for
Executive Officers, Supplemental Thrift Plan, Restoration of
Retirement Income Plan, 1984 Stock and Incentive Plan, "1994
Stock and Incentive Plan", and 1997 Stock and Incentive Plan,
unless an equitable arrangement (embodied in
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an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's
participation relative to other participants, as existed
immediately prior to the date hereof;
(VI) except for any changes required by
applicable law, the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the date hereof, the taking
of any other action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the
Executive as of the date hereof, or the failure by the Company
to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of
service with the Company in accordance with the Company's
normal vacation policy in effect on the date hereof; prior to
a Change in Control, notwithstanding the foregoing provisions
of this Section 22(r)(VI), it shall not constitute Good Reason
that the Executive's benefits under the Company's general
medical, health and accident plans are no longer substantially
similar to the benefits enjoyed by the Executive immediately
prior to the date hereof, unless the changes in such benefits
constitute a material adverse alteration thereof;
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7(e) hereof; for purposes of this Agreement, no
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such purported termination shall be effective, except as
provided in Section 3(b) hereof; or
(VIII) the Company's breach of a material
term or condition of the Agreement.
It shall also constitute Good Reason for termination by the
Executive of the Executive's employment if:
(X) if, at any time during the Term hereof (whether or not a Change in
Control shall have occurred), Robert M. Devlin is not serving as
Chief Executive Officer of the Company (or, if a merger, consolidation
or share exchange by the Company (or a Company subsidiary) with
another corporation shall have occurred, as Chief Executive Officer or
second-in-command of the Company), and
(Y) (i) there is a material diminution in the duties,
responsibilities or title of the Executive,
(ii) a substantial adverse alteration is made in the nature or
status of the Executive's responsibilities from those in
effect immediately prior to Robert M. Devlin's ceasing to so
serve,
(iii) the Company relocates the Executive's principal place of
employment to a location more than fifty (50) miles from the
Executive's principal place of employment immediately prior to
Robert M. Devlin's ceasing to so serve, or
(iv) the Company requires the Executive to be based anywhere
other than such principal place of employment (or permitted
relocation thereof) except for required travel on the
Company's business to an extent substantially consistent with
the Executive's present business travel obligations.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights
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with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of
Good Reason which is made after the occurrence of a Change in Control or
during the six-month period immediately preceding the occurrence of a Change in
Control, any claim by the Executive that Good Reason exists shall be presumed
to be correct unless the Company establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(s) "Gross-Up Payment" shall have the meaning set
forth in Section 9 hereof.
(t) "Normal Retirement Age" shall mean age 62.
(u) "Notice of Termination" shall have the meaning
set forth in Section 7(e) hereof.
(v) "Pension Plans" shall mean all tax-qualified and
non-qualified supplemental or excess benefit pension plans maintained by the
Company and any other plan or agreement entered into between the Executive and
the Company which is designed to provide the Executive with supplemental
retirement benefits.
(w) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(x) "Tax Counsel" shall have the meaning set forth
in Section 9 hereof.
(y) "Term" shall mean the period of time described
in Section 3 hereof (including any extension,
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continuation or termination described therein).
(z) "Total Payments" shall mean those payments so
described in Section 9 hereof.
American General Corporation
By: /s/ ROBERT M. DEVLIN
---------------------------------
Name: Robert M. Devlin
Title: Chief Executive Officer
/s/ JAMES S. D'AGOSTINO
------------------------------------
James S. D'Agostino
Address:
---------------------------
---------------------------
---------------------------
(Please print carefully)
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EXHIBIT 10.15
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of February, 1998, by and
between AMERICAN GENERAL CORPORATION, a Texas corporation (the "Company"), and
Robert M. Delvin (the "Executive").
WHEREAS, the Executive has been employed by the Company in valuable
executive service to the Company; and
WHEREAS, the Company desires to reward such past service and to
encourage and reward the continued employment of Executive with the Company
until his retirement and to promote his devotion to his duties on behalf of the
Company without uncertainty or concern as to his retirement income security or
that of his spouse;
NOW, THEREFORE, the Company and the Executive hereby enter into this
Supplemental Executive Retirement Agreement as hereinafter provided:
ARTICLE I.
GENERAL
Effective Date. This Agreement shall be effective as of February 1,
1998 (the "Effective Date").
Defined Terms. The definitions of capitalized terms used in this
Agreement (if not provided where a capitalized term initially appears) are
provided in the last Article hereof.
ARTICLE II.
RETIREMENT BENEFITS
Normal Retirement Benefit. If the Executive retires on or after his
Normal Retirement Date, the Retirement Benefit shall be an annual retirement
benefit payable to the Executive for his lifetime, with a ten-year term certain
(the "Normal Retirement Benefit"), in an annual amount equal to (X) minus (Y),
calculated as follows:
(A) The amount of (X) equals (a) multiplied by (b):
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(a) sixty-seven-and-2/10ths percent (67.2%)
of such Executive's Final Average Compensation;
(b) the fraction equal to his Years of Service (not in
excess of twenty-eight (28) years) divided by
twenty-eight (28); and
(B) The amount of (Y) equals (e) plus (f) plus (g):
(e) the Social Security Benefit;
(f) the Qualified Plan Benefit; and
(g) the Restoration Plan Benefit.
Early Retirement Benefit. If the Executive retires on or after his
Early Retirement Date (but before his Normal Retirement Date), the Retirement
Benefit shall be the annual Retirement Benefit computed under Section 2.1,
reduced as follows:
(A) If payment of the Retirement Benefit commences
after the Executive has attained age sixty
(60), the Retirement Benefit shall be reduced
by two-and-one-half percent (2.5%) per year for
each complete year between such commencement
and the Executive's Normal Retirement Date; the
reduction per year shall be pro-rated for in
complete years;
(B) If payment of the Retirement Benefit commences
before the Executive attains age sixty (60),
the Retirement Benefit shall be further reduced
(beyond the reduction imposed by Section 2.2(A)
hereof) by five percent (5%) per year for each
complete year between such commencement and the
Executive's attaining age sixty (60); the reduction
per year shall be pro-rated for incomplete years.
Termination of Employment Prior to Early Retirement Date and Normal
Retirement Date. If the Executive incurs a termination of employment with the
Company after satisfying the vesting requirement under Section 2.7, but before
attaining either an Early Retirement Date or a Normal Retirement Date, he shall
receive a Retirement Benefit determined under Section 2.1, but, unless such
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termination is described in Section 2.6 hereof, such benefit shall be calculated
by using his actual Years of Service (including all periods credited as Years of
Service pursuant to this Agreement) and actual compensation at the time of his
termination and the actual Social Security Benefit that he is entitled to
receive at his Normal Retirement Date. Unless such termination is described in
Section 2.6 hereof, payment of such benefit shall commence after, but not more
than sixty (60) days after, his Normal Retirement Date.
Disability. If the Executive is receiving either short-term or
long-term disability benefits under any Company plan, then, during the period
of payment of such disability benefits, the Executive shall be treated as
employed for all purposes of the Agreement, including, without limitation,
attainment of the age, service and vesting requirements under the Agreement. The
parties hereto agree that such disability benefits will cease and the Executive
will no longer be considered employed by the Company on the date on which the
Executive attains his Normal Retirement Age. Payment of the Executive's
Retirement Benefit shall commence after, but not more than sixty (60) days
after, his Normal Retirement Date.
Termination by Reason of Death. If the Executive dies (i) while in the
employment of the Company, (ii) after the attainment of age fifty-five (55),
(iii) having been credited with ten (10) Years of Service, and (iv) prior to
the commencement of the payment of the Retirement Benefit hereunder, the
Executive's surviving spouse, if any, shall receive for her lifetime an annual
benefit equal to the two-thirds (2/3) survivor annuity she would have received
had the Executive retired on the day before his death, deeming the Executive,
for purposes of this Section 2.5 only, to have elected a joint and survivor
annuity payable immediately at a reduced amount with a two-thirds (2/3) survivor
annuity. The payment of spouse's benefit shall commence not later than sixty
(60) days after the Executive's death.
Termination on or after Change in Control; Certain Other Terminations.
Notwithstanding any other provision of this Agreement, upon any termination of
the Executive's employment, whether or not a Change in Control (as defined in
the Executive's employment agreement with the Company dated as of February 1,
1998,
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as it may be amended from time to time (the "Employment Agreement")) has
occurred, which termination is (i) by the Company without Cause, (ii) by the
Executive with Good Reason, or (iii) by the Executive in a Special Termination
(as such terms are defined in the Employment Agreement), the Company shall pay
the Executive within the five (5) business days immediately following such
termination a lump sum amount, in cash, equal to the actuarial equivalent of the
Normal Retirement Benefit which the Executive would have accrued, if the
Executive had accumulated (after his termination of employment) thirty-six (36)
additional months of service and age credit (but in no event shall the Executive
be deemed to have accumulated additional service and age credit after the
Executive's sixty-fifth birthday). For purposes of this Section 2.6, an
"actuarial equivalent" shall be determined using the same assumptions utilized
under the American General Retirement Plan (or any successor plan thereto)
immediately prior to the Executive's termination of employment, or, if more
favorable to the Executive, immediately prior to the Change in Control. The
Retirement Benefit so calculated shall be based on a projected Social Security
Benefit that is determined under the provisions of the Social Security Act as in
effect on the date of such Change in Control, using the estimated "primary
insurance amount" the Executive would be entitled to under such Act at his
Normal Retirement Date, assuming (i) the amount of income he is receiving on the
date such Change in Control becomes effective which would be treated as wages
for purposes of such Act would remain constant through his Normal Retirement
Date, and (ii) an annual cost-of-living adjustment equal to four percent (4%).
Vesting of Retirement Benefit. The Executive shall have a vested right
to his Retirement Benefit upon the occurrence of any of the following while the
Executive is employed by the Company:
(i) his completion of ten (10) Years
of Service;
(ii) the attainment of his Normal
Retirement Age;
(iii) the termination of the Executive's
employment pursuant to Section 8(c)
of the Employment Agreement; or
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(iv) the occurrence of a Change in Control
at any time.
Time and Form of Payment.
(A) Time of Payment. Except where specifically otherwise
provided herein, the payment of any Retirement Benefit to which the Executive
has become entitled shall commence after, but no more than sixty (60) days
after, the Executive's date of retirement. The Executive shall give the Company
reasonable advance notice in writing of his intention to retire (which shall be
given at least one month before his intended retirement date).
(B) Normal Form of Payment. A life annuity with a ten-year
term certain is the normal form of payment of the Retirement Benefit for the
Executive and any actuarial equivalents to be calculated pursuant to this
Agreement will be based on the normal form of payment. If the Executive dies
after payment of the Retirement Benefit in the normal form has commenced,
payments shall continue for the remainder of the ten-year term certain to the
beneficiary or beneficiaries designated by the Executive by written instruction
delivered to the Administrator during the Executive's lifetime. The Executive
may designate one or more primary and contingent beneficiaries to receive the
remaining payments of the Retirement Benefit, and may designate the proportions
in which such beneficiaries are to receive such payments. The Executive may
change such designations from time to time, and the last written designation
filed with the Administrator prior to the Executive's death shall control. If
the Executive fails to specifically designate a beneficiary, or if no
designated beneficiary survives the Executive, payment shall be made by the
Administrator in the following order of priority:
(i) to the Executive's surviving spouse,
or, if none,
(ii) to the Executive's children, or, if
none,
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(iii) to the Executive's estate.
(C) Election of Alternative Forms of Payment. Subject to
Section 2.6 hereof, the Executive can elect that his Retirement Benefit be paid
in any of the following forms by an irrevocable election in writing which is
delivered to the Company within sixty (60) days after the Effective Date, or,
with the permission of the Committee, by an irrevocable election in writing
which is delivered to the Company at any time before his retirement becomes
effective:
(i) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be one
hundred percent (100%) of the annuity
payable during the joint lives
of the Executive and the surviving
spouse;
(ii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
seventy-five percent (75%) of the
annuity payable during the joint
lives of the Executive and the
surviving spouse;
(iii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
fifty percent (50%) of the annuity
payable during the joint lives of
the Executive and the surviving
spouse; or
(iv) a lump-sum payment of the actuarial present
value of the normal form of payment of the
Retirement Benefit.
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In calculating an alternative form of payment for the Retirement Benefit, the
Administrator shall use the same assumptions utilized under the American General
Retirement Plan (or any successor plan thereto) immediately prior to the
Executive's termination of employment, or, if a Change in Control shall have
occurred prior to the Executive's termination of employment, the assumptions so
utilized immediately prior to the Change in Control, if more favorable to the
Executive.
ARTICLE III.
ADMINISTRATION
General. Except as otherwise specifically provided in the Agreement,
the Administrator shall be responsible for administration of the Agreement.
Administrative Rules. The Administrator may adopt such rules of
procedure as it deems desirable for the conduct of its affairs, except to the
extent that such rules conflict with the provisions of the Agreement.
Duties. The Administrator shall have the following rights, powers and
duties:
(A) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the
Company and upon any person affected by such decision, subject
to the claims procedure hereinafter set forth.
(B) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Agreement, to
determine eligibility for a Retirement Benefit and the
appropriate amount of any Retirement Benefit, to decide any
question which may arise regarding the rights of the Executive
hereunder and to exercise such powers as the Administrator
may deem necessary for the administration of the Agreement.
(C) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Executive and his rights and duties under
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the Agreement. The Administrator shall maintain a bookkeeping
account with respect to payment of any Retirement Benefit.
(D) Notwithstanding any other provision of this
Agreement, upon and after the occurrence of a
Change in Control and within the six-month
period immediately preceding a Change in Control,
the Administrator's authority and powers
shall not be used to interpret or construe the
provisions hereof in any way (or to take any
other action) which would adversely affect any
right given the Executive by this Agreement.
Fees. No fee or compensation shall be paid to any person for services
as the Administrator.
ARTICLE IV.
CLAIMS PROCEDURE
General. Any claim for a Retirement Benefit under the Agreement shall
be filed by the Executive or beneficiary (either of which is referred to in
this Article as the "claimant") in the manner prescribed by the Administrator.
Denials. If a claim for a Retirement Benefit under the Agreement is
wholly or partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within a reasonable period of time after receipt
of the claim by the Administrator.
Notice. Any claimant who is denied a claim for Retirement Benefits
shall be furnished written notice setting forth:
(i) the specific reason or reasons for the
denial;
(ii) specific reference to the pertinent provision
of the Agreement upon which the denial is based;
(iii) a description of any additional material or
information necessary of the claimant to perfect the
claim; and
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(iv) an explanation of the claims review procedure
under the Agreement.
Appeals Procedure. In order that a claimant may appeal a denial of a
claim, the claimant or the claimant's duly authorized representative may:
(i) request a review by written application to the
Committee, no later than sixty (60) days after receipt
by the claimant of written notification of denial of a
claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Review. A decision on review of a denied claim shall be made by the
Committee not later than sixty (60) days after receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered within a reasonable period of time, but
not later than one-hundred-and-twenty (120) days after receipt of a request for
a review. The decision on review shall be in writing and shall include the
specific reason(s) for the decision and the specific reference(s) to the
pertinent provisions of the Agreement on which the decision is based.
Section 4.6 Arbitration. Any further dispute or controversy arising
under or in connection with this Agreement which is not resolved by agreement
pursuant to Sections 4.1 through 4.5 hereof shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in accordance with the
Employment Dispute Resolution Rules then in effect with the American Arbitration
Association. The arbitration proceeding shall be conducted in Houston, Texas.
This agreement to arbitrate shall be enforceable in either federal or state
court.
The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or
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defenses to arbitrability, and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the Federal
Arbitration Act and shall be decided by the arbitrators. In deciding the
substance of any such claims, the arbitrators shall apply the substantive laws
of the State of Texas (excluding Texas choice-of-law principles that might call
for the application of some other state's law); provided, however, it is
expressly agreed that the arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances regardless of whether
such damages may be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages in connection
with any such claims.
The arbitration may be initiated by any party by providing to the other
parties a written notice of arbitration specifying the claims. Within thirty
(30) days of the notice of initiation of the arbitration procedure, (1) the
Executive shall denominate one arbitrator and (2) the Company shall denominate
one arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within sixty (60) days of the original notice, either the
Executive or the Company shall apply to the Senior Active United States District
Judge for the Southern District of Texas, who shall appoint a third arbitrator.
While the third arbitrator shall be neutral, the two party-appointed arbitrators
are not required to be neutral and it shall not be grounds for removal of either
of the two party-appointed arbitrators or for vacating the arbitrators' award
that either of such arbitrators has past or present minimal relationships with
the party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable person
would have to conclude there in fact existed actual bias and a mere appearance
or impression of bias will not constitute evident partiality or otherwise
disqualify an arbitrator.
The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall
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certify in their award that they have faithfully applied the terms and
conditions of this Agreement and that no part of their award includes any amount
for exemplary or punitive damages. All proceedings conducted hereunder and the
decision of the arbitrators shall be kept confidential by the parties, e.g.,
the arbitrators' award shall not be released to the press or published in any of
the various arbitration reporters. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Amendment and Termination. This Agreement may be amended or modified
only with the written consent of the parties hereto.
No Assignment. The Executive shall not have the power to pledge,
transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in
advance any interest in amounts payable hereunder of any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments, alimony
or separate maintenance, or be reached or transferred by operation of law in the
event of bankruptcy, insolvency or otherwise.
Successors and Assigns. The provisions of the Agreement are binding
upon and inure to the benefit of each Company, its successors and assigns, and
the Executive, his beneficiaries, heirs and legal representatives.
Governing Law. The Agreement shall be subject to and construed in
accordance with the laws of the State of Texas to the extent not preempted by
the provisions of ERISA.
No Guarantee of Employment. Nothing contained in the Agreement shall be
construed as a contract of employment or deemed to give the Executive the right
to be retained in the employ of an Company or any equity or other interest in
the assets, business or affairs of an Company.
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Severability. If any provision of the Agreement shall be held illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Agreement, but the Agreement shall be construed and
enforced as if such illegal or invalid provision had never been included herein.
Notification of Addresses. The Executive and each beneficiary shall
file with the Administrator, from time to time, in writing, the post office
address of the Executive, the post office address of each beneficiary, and each
change of post office address. Any communication, statement or notice addressed
to the last post office address filed with the Administrator (or if no such
address was filed with the Administrator, then to the last post office address
of the Executive or beneficiary as shown on the Company's records) shall be
binding on the Executive and each beneficiary for all purposes of the Agreement
and neither the Administrator nor the Company shall be obliged to search for or
ascertain the whereabouts of the Executive or beneficiary.
Bonding. The Administrator and all agents and advisors employed by it
shall not be required to be bonded, except as may otherwise be required by
ERISA.
Taxes. The Company shall have the right to withhold from any cash or
other amounts due or to become due from the Company to a Executive (including by
reducing the amount of any Retirement Benefit payable in the future) the amount
of any federal, state and local taxes required to be withheld or otherwise
deducted and paid by the Company with respect to the vesting or payment of any
Retirement Benefit hereunder.
Section 5.10 No Funding. There shall be no funding of the benefit
amounts to be paid pursuant to this Agreement. The Agreement shall not confer
upon the Executive (or beneficiary or any other person) any security interest
or any other right, title or interest of any kind in or to any property of the
Company. The Agreement shall constitute merely the unsecured promise of the
Company to make the benefit payments provided for herein. Notwithstanding the
foregoing provisions of this Section 5.10, the Company, in its discretion, may
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establish a trust to pay the benefit amounts hereunder, which trust shall be
subject to the claims of the Company's general creditors in the event of the
Company's bankruptcy or insolvency. If such a trust is established, the Company
shall remain responsible for the payment of any benefit amounts provided
hereunder which are not paid in accordance with the provisions hereof by such
trust.
ARTICLE VI.
DEFINITIONS AND USAGE
Definitions. Wherever used in the Agreement, the following words and
phrases shall have the meaning set forth below, unless the context plainly
requires a different meaning:
"Administrator" means the Company, acting through the Personnel
Committee of the Board, or other person or persons designated by the Personnel
Committee.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
"Agreement" means this Supplemental Executive Retirement Agreement, as
set forth herein and as amended from time to time.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control" means a change in the control of the Company, which
shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its
Affiliates) representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding
securities, excluding any Person who becomes
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such a Beneficial Owner in connection with a transaction
described in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the
Company, at least fifty-one percent (51%) of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after
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such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition
by the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of
all or substantially all of the Company's assets to an entity,
at least fifty-one percent (51%) of the combined voting power
of the voting securities of which are owned by shareholders of
the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference to a particular Code section shall include any provision
which modifies, replaces or supersedes it.
"Committee" shall mean the Personnel Committee of the Board until six
months prior to the occurrence of a Change in Control and thereafter shall mean
(i) the individuals (not fewer than three in number) who, on the date six months
before a Change in Control, constitute the Personnel Committee of the Board,
plus (ii) in the
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event that fewer than three individuals are available from the group specified
in clause (i) above for any reason, such individuals as may be appointed by the
individual or individuals so available (including for this purpose any
individual or individuals previously so appointed under this clause (ii));
provided, however, that the maximum number of individuals constituting the
Committee shall not exceed five.
"Company" means American General Corporation, a Texas corporation, and,
except in determining under the definition of Change in Control herein whether
or not any Change in Control of the Company has occurred, shall include any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
"Early Retirement Date" means the first date on which the Executive (i)
has completed ten (10) Years of Service and (ii) has attained the age of
fifty-five (55).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Any reference to a particular ERISA section shall
include any provision which modifies, replaces, or supersedes it.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Executive" means Robert M. Devlin
"Final Average Compensation" means the following sum divided by three
(3): the sum of the base salary received by the Executive during, and the
incentive payments received by the Executive pursuant to any annual bonus,
incentive compensation or similar plan maintained by the Company with respect
to, the three (3) calendar years (whether or not consecutive) ending within the
last sixty (60) months of the Executive's employment with the Company which
produce the highest total of such base salary and incentive payments (for
purposes of this sentence, any amount of such base salary or incentive payment
which is deferred by the Executive shall be included in the calculation of
amounts received). Notwithstanding the immediately preceding sentence, if the
Executive's termination of employment is described in Section 2.6 hereof and the
Executive receives
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(pursuant to Section 8(c)(iii) of his Employment Agreement, or any successor
provision thereto, and in lieu of any further salary or bonus payments) a lump
sum amount (the "Severance Amount"), Final Average Compensation shall mean the
Severance Amount divided by three (3).
"Normal Retirement Age" means age sixty-two (62).
"Normal Retirement Date" means the date on which the Executive attains
his Normal Retirement Age.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.
"Qualified Plan" means the American General Retirement Plan, together
with any other defined benefit retirement plan intended to be qualified under
Section 401(a) of the Code which is adopted and maintained by the Company and
under which the Executive is entitled to a retirement benefit at the date of his
retirement or other termination of employment.
"Qualified Plan Benefit" means the aggregate annual retirement benefit
to which the Executive (at the date of his retirement or other termination of
employment) is entitled under the plan or plans which comprise the Qualified
Plan (expressed in the form of a single life annuity with a ten-year term
certain commencing payment on the date payment of the Retirement Benefit
hereunder commences).
"Restoration Plan Benefit" means the annual retirement benefit to
which the Executive (at the date of his retirement or other termination of
employment) is entitled under the American General Corporation Restoration of
Retirement Income Plan (expressed in the
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form of a single life annuity with a ten-year term certain commencing payment
on the date payment of the Retirement Benefit hereunder commences).
"Retirement Benefit" means the benefit payable under this Agreement, as
determined under Article II.
"Social Security Benefit" means one-half of the annual benefit payable
under the Social Security Act, relating to Old-Age and Disability benefits, as
of the Executive's Normal Retirement Date, or upon actual retirement, if later.
"Years of Service" means the total number of years (measured in full
and partial years, in increments of one-twelfth years) of active employment with
the Company during which substantial services were rendered as an employee,
commencing on the date the Executive was first employed by the Company and
ending on the date he ceases to perform services for the Company (including
employment before the Effective Date), but in no event shall more than
twenty-eight (28) years be credited to the Executive regardless of his
actual period of service with the Company. Notwithstanding the foregoing, if
the Executive
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retires on or after the attainment of age 60, he shall be credited with no
fewer than twenty-five (25) Years of Service.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
AMERICAN GENERAL CORPORATION
By /s/ LARRY D. HORNER
------------------------------------
Chairman of the Personnel
Committee
/s/ ROBERT M. DEVLIN
--------------------------------------
Robert M. Devlin
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EXHIBIT 10.16
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of February, 1998, by and
between AMERICAN GENERAL CORPORATION, a Texas corporation (the "Company"), and
Jon P. Newton (the "Executive").
WHEREAS, the Executive has been employed by the Company in valuable
executive service to the Company; and
WHEREAS, the Company desires to reward such past service and to
encourage and reward the continued employment of Executive with the Company
until his retirement and to promote his devotion to his duties on behalf of the
Company without uncertainty or concern as to his retirement income security or
that of his spouse;
NOW, THEREFORE, the Company and the Executive hereby enter into this
Supplemental Executive Retirement Agreement as hereinafter provided:
ARTICLE I.
GENERAL
Effective Date. This Agreement shall be effective as of February 1,
1998 (the "Effective Date").
Defined Terms. The definitions of capitalized terms used in this
Agreement (if not provided where a capitalized term initially appears) are
provided in the last Article hereof.
ARTICLE II.
RETIREMENT BENEFITS
Normal Retirement Benefit. If the Executive retires on or after his
Normal Retirement Date, the Retirement Benefit shall be an annual retirement
benefit payable to the Executive for his lifetime, with a ten-year term certain
(the "Normal Retirement Benefit"), in an annual amount equal to (X) minus (Y),
calculated as follows:
(A) The amount of (X) equals (a) multiplied by (b):
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(a) sixty-seven-and-2/10ths percent (67.2%)
of such Executive's Final Average Compensation;
(b) the fraction equal to his Years of Service (not in
excess of twenty-eight (28) years) divided by
twenty-eight (28); and
(B) The amount of (Y) equals (e) plus (f) plus (g):
(e) the Social Security Benefit;
(f) the Qualified Plan Benefit; and
(g) the Restoration Plan Benefit.
Early Retirement Benefit. If the Executive retires on or after his
Early Retirement Date (but before his Normal Retirement Date), the Retirement
Benefit shall be the annual Retirement Benefit computed under Section 2.1,
reduced as follows:
(A) If payment of the Retirement Benefit commences after the
Executive has attained age sixty (60), the Retirement Benefit
shall be reduced by two-and-one-half percent (2.5%) per year
for each complete year between such commencement and the
Executive's Normal Retirement Date; the reduction per year
shall be pro-rated for incomplete years;
(B) If payment of the Retirement Benefit commences
before the Executive attains age sixty (60),
the Retirement Benefit shall be further reduced
(beyond the reduction imposed by Section 2.2(A)
hereof) by five percent (5%) per year for each
complete year between such commencement and the
Executive's attaining age sixty (60); the reduction
per year shall be pro-rated for incomplete years.
Termination of Employment Prior to Early Retirement Date and Normal
Retirement Date. If the Executive incurs a termination of employment with the
Company after satisfying the vesting requirement under Section 2.7, but before
attaining either an Early Retirement Date or a Normal Retirement Date, he shall
receive a Retirement Benefit determined under Section 2.1, but, unless such
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termination is described in Section 2.6 hereof, such benefit shall be calculated
by using his actual Years of Service (including all periods credited as Years of
Service pursuant to this Agreement) and actual compensation at the time of his
termination and the actual Social Security Benefit that he is entitled to
receive at his Normal Retirement Date. Unless such termination is described in
Section 2.6 hereof, payment of such benefit shall commence after, but not more
than sixty (60) days after, his Normal Retirement Date.
Disability. If the Executive is receiving either short-term or
long-term disability benefits under any Company plan, then, during the period
of payment of such disability benefits, the Executive shall be treated as
employed for all purposes of the Agreement, including, without limitation,
attainment of the age, service and vesting requirements under the Agreement. The
parties hereto agree that such disability benefits will cease and the Executive
will no longer be considered employed by the Company on the date on which the
Executive attains his Normal Retirement Age. Payment of the Executive's
Retirement Benefit shall commence after, but not more than sixty (60) days
after, his Normal Retirement Date.
Termination by Reason of Death. If the Executive dies (i) while in the
employment of the Company, (ii) after the attainment of age fifty-five (55),
(iii) having been credited with ten (10) Years of Service, and (iv) prior to
the commencement of the payment of the Retirement Benefit hereunder, the
Executive's surviving spouse, if any, shall receive for her lifetime an annual
benefit equal to the two-thirds (2/3) survivor annuity she would have received
had the Executive retired on the day before his death, deeming the Executive,
for purposes of this Section 2.5 only, to have elected a joint and survivor
annuity payable immediately at a reduced amount with a two-thirds (2/3) survivor
annuity. The payment of spouse's benefit shall commence not later than sixty
(60) days after the Executive's death.
Termination on or after Change in Control; Certain Other Terminations.
Notwithstanding any other provision of this Agreement, upon any termination of
the Executive's employment, whether or not a Change in Control (as defined in
the Executive's employment agreement with the Company dated as of February 1,
1998,
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as it may be amended from time to time (the "Employment Agreement")) has
occurred, which termination is (i) by the Company without Cause, (ii) by the
Executive with Good Reason, or (iii) by the Executive in a Special Termination
(as such terms are defined in the Employment Agreement), the Company shall pay
the Executive within the five (5) business days immediately following such
termination a lump sum amount, in cash, equal to the actuarial equivalent of the
Normal Retirement Benefit which the Executive would have accrued, if the
Executive had accumulated (after his termination of employment) thirty-six (36)
additional months of service and age credit (but in no event shall the Executive
be deemed to have accumulated additional service and age credit after the
Executive's sixty-fifth birthday). For purposes of this Section 2.6, an
"actuarial equivalent" shall be determined using the same assumptions utilized
under the American General Retirement Plan (or any successor plan thereto)
immediately prior to the Executive's termination of employment, or, if more
favorable to the Executive, immediately prior to the Change in Control. The
Retirement Benefit so calculated shall be based on a projected Social Security
Benefit that is determined under the provisions of the Social Security Act as in
effect on the date of such Change in Control, using the estimated "primary
insurance amount" the Executive would be entitled to under such Act at his
Normal Retirement Date, assuming (i) the amount of income he is receiving on the
date such Change in Control becomes effective which would be treated as wages
for purposes of such Act would remain constant through his Normal Retirement
Date, and (ii) an annual cost-of-living adjustment equal to four percent (4%).
Vesting of Retirement Benefit. The Executive shall have a vested right
to his Retirement Benefit upon the occurrence of any of the following while the
Executive is employed by the Company:
(i) his completion of ten (10) Years
of Service;
(ii) the attainment of his Normal
Retirement Age;
(iii) the termination of the Executive's
employment pursuant to Section 8(c)
of the Employment Agreement; or
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(iv) the occurrence of a Change in Control
at any time.
Time and Form of Payment.
(A) Time of Payment. Except where specifically otherwise
provided herein, the payment of any Retirement Benefit to which the Executive
has become entitled shall commence after, but no more than sixty (60) days
after, the Executive's date of retirement. The Executive shall give the Company
reasonable advance notice in writing of his intention to retire (which shall be
given at least one month before his intended retirement date).
(B) Normal Form of Payment. A life annuity with a ten-year
term certain is the normal form of payment of the Retirement Benefit for the
Executive and any actuarial equivalents to be calculated pursuant to this
Agreement will be based on the normal form of payment. If the Executive dies
after payment of the Retirement Benefit in the normal form has commenced,
payments shall continue for the remainder of the ten-year term certain to the
beneficiary or beneficiaries designated by the Executive by written instruction
delivered to the Administrator during the Executive's lifetime. The Executive
may designate one or more primary and contingent beneficiaries to receive the
remaining payments of the Retirement Benefit, and may designate the proportions
in which such beneficiaries are to receive such payments. The Executive may
change such designations from time to time, and the last written designation
filed with the Administrator prior to the Executive's death shall control. If
the Executive fails to specifically designate a beneficiary, or if no
designated beneficiary survives the Executive, payment shall be made by the
Administrator in the following order of priority:
(i) to the Executive's surviving spouse,
or, if none,
(ii) to the Executive's children, or, if
none,
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(iii) to the Executive's estate.
(C) Election of Alternative Forms of Payment. Subject to
Section 2.6 hereof, the Executive can elect that his Retirement Benefit be paid
in any of the following forms by an irrevocable election in writing which is
delivered to the Company within sixty (60) days after the Effective Date, or,
with the permission of the Committee, by an irrevocable election in writing
which is delivered to the Company at any time before his retirement becomes
effective:
(i) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be one
hundred percent (100%) of the annuity
payable during the joint lives
of the Executive and the surviving
spouse;
(ii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
seventy-five percent (75%) of the
annuity payable during the joint
lives of the Executive and the
surviving spouse;
(iii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
fifty percent (50%) of the annuity
payable during the joint lives of
the Executive and the surviving
spouse; or
(iv) a lump-sum payment of the actuarial present
value of the normal form of payment of the
Retirement Benefit.
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In calculating an alternative form of payment for the Retirement Benefit, the
Administrator shall use the same assumptions utilized under the American General
Retirement Plan (or any successor plan thereto) immediately prior to the
Executive's termination of employment, or, if a Change in Control shall have
occurred prior to the Executive's termination of employment, the assumptions so
utilized immediately prior to the Change in Control, if more favorable to the
Executive.
ARTICLE III.
ADMINISTRATION
General. Except as otherwise specifically provided in the Agreement,
the Administrator shall be responsible for administration of the Agreement.
Administrative Rules. The Administrator may adopt such rules of
procedure as it deems desirable for the conduct of its affairs, except to the
extent that such rules conflict with the provisions of the Agreement.
Duties. The Administrator shall have the following rights, powers and
duties:
(A) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the
Company and upon any person affected by such decision, subject
to the claims procedure hereinafter set forth.
(B) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Agreement, to
determine eligibility for a Retirement Benefit and the
appropriate amount of any Retirement Benefit, to decide any
question which may arise regarding the rights of the Executive
hereunder and to exercise such powers as the Administrator
may deem necessary for the administration of the Agreement.
(C) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Executive and his rights and duties under
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the Agreement. The Administrator shall maintain a bookkeeping
account with respect to payment of any Retirement Benefit.
(D) Notwithstanding any other provision of this
Agreement, upon and after the occurrence of a
Change in Control and within the six-month
period immediately preceding a Change in Control,
the Administrator's authority and powers
shall not be used to interpret or construe the
provisions hereof in any way (or to take any
other action) which would adversely affect any
right given the Executive by this Agreement.
Fees. No fee or compensation shall be paid to any person for services
as the Administrator.
ARTICLE IV.
CLAIMS PROCEDURE
General. Any claim for a Retirement Benefit under the Agreement shall
be filed by the Executive or beneficiary (either of which is referred to in
this Article as the "claimant") in the manner prescribed by the Administrator.
Denials. If a claim for a Retirement Benefit under the Agreement is
wholly or partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within a reasonable period of time after receipt
of the claim by the Administrator.
Notice. Any claimant who is denied a claim for Retirement Benefits
shall be furnished written notice setting forth:
(i) the specific reason or reasons for the
denial;
(ii) specific reference to the pertinent provision
of the Agreement upon which the denial is based;
(iii) a description of any additional material or
information necessary of the claimant to perfect the
claim; and
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(iv) an explanation of the claims review procedure
under the Agreement.
Appeals Procedure. In order that a claimant may appeal a denial of a
claim, the claimant or the claimant's duly authorized representative may:
(i) request a review by written application to the
Committee, no later than sixty (60) days after receipt
by the claimant of written notification of denial of a
claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Review. A decision on review of a denied claim shall be made by the
Committee not later than sixty (60) days after receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered within a reasonable period of time, but
not later than one-hundred-and-twenty (120) days after receipt of a request for
a review. The decision on review shall be in writing and shall include the
specific reason(s) for the decision and the specific reference(s) to the
pertinent provisions of the Agreement on which the decision is based.
Section 4.6 Arbitration. Any further dispute or controversy arising
under or in connection with this Agreement which is not resolved by agreement
pursuant to Sections 4.1 through 4.5 hereof shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in accordance with the
Employment Dispute Resolution Rules then in effect with the American Arbitration
Association. The arbitration proceeding shall be conducted in Houston, Texas.
This agreement to arbitrate shall be enforceable in either federal or state
court.
The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or
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defenses to arbitrability, and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the Federal
Arbitration Act and shall be decided by the arbitrators. In deciding the
substance of any such claims, the arbitrators shall apply the substantive laws
of the State of Texas (excluding Texas choice-of-law principles that might call
for the application of some other state's law); provided, however, it is
expressly agreed that the arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances regardless of whether
such damages may be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages in connection
with any such claims.
The arbitration may be initiated by any party by providing to the other
parties a written notice of arbitration specifying the claims. Within thirty
(30) days of the notice of initiation of the arbitration procedure, (1) the
Executive shall denominate one arbitrator and (2) the Company shall denominate
one arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within sixty (60) days of the original notice, either the
Executive or the Company shall apply to the Senior Active United States District
Judge for the Southern District of Texas, who shall appoint a third arbitrator.
While the third arbitrator shall be neutral, the two party-appointed arbitrators
are not required to be neutral and it shall not be grounds for removal of either
of the two party-appointed arbitrators or for vacating the arbitrators' award
that either of such arbitrators has past or present minimal relationships with
the party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable person
would have to conclude there in fact existed actual bias and a mere appearance
or impression of bias will not constitute evident partiality or otherwise
disqualify an arbitrator.
The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall
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certify in their award that they have faithfully applied the terms and
conditions of this Agreement and that no part of their award includes any amount
for exemplary or punitive damages. All proceedings conducted hereunder and the
decision of the arbitrators shall be kept confidential by the parties, e.g.,
the arbitrators' award shall not be released to the press or published in any of
the various arbitration reporters. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Amendment and Termination. This Agreement may be amended or modified
only with the written consent of the parties hereto. This Agreement supersedes
the supplemental retirement benefit provision in the Company's Memorandum of
Understanding addressed to the Executive and dated February 10, 1993, as
amended February 16, 1993.
No Assignment. The Executive shall not have the power to pledge,
transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in
advance any interest in amounts payable hereunder of any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments, alimony
or separate maintenance, or be reached or transferred by operation of law in the
event of bankruptcy, insolvency or otherwise.
Successors and Assigns. The provisions of the Agreement are binding
upon and inure to the benefit of each Company, its successors and assigns, and
the Executive, his beneficiaries, heirs and legal representatives.
Governing Law. The Agreement shall be subject to and construed in
accordance with the laws of the State of Texas to the extent not preempted by
the provisions of ERISA.
No Guarantee of Employment. Nothing contained in the Agreement shall be
construed as a contract of employment
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or deemed to give the Executive the right to be retained in the employ of an
Company or any equity or other interest in the assets, business or affairs of an
Company.
Severability. If any provision of the Agreement shall be held illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Agreement, but the Agreement shall be construed and
enforced as if such illegal or invalid provision had never been included herein.
Notification of Addresses. The Executive and each beneficiary shall
file with the Administrator, from time to time, in writing, the post office
address of the Executive, the post office address of each beneficiary, and each
change of post office address. Any communication, statement or notice addressed
to the last post office address filed with the Administrator (or if no such
address was filed with the Administrator, then to the last post office address
of the Executive or beneficiary as shown on the Company's records) shall be
binding on the Executive and each beneficiary for all purposes of the Agreement
and neither the Administrator nor the Company shall be obliged to search for or
ascertain the whereabouts of the Executive or beneficiary.
Bonding. The Administrator and all agents and advisors employed by it
shall not be required to be bonded, except as may otherwise be required by
ERISA.
Taxes. The Company shall have the right to withhold from any cash or
other amounts due or to become due from the Company to a Executive (including by
reducing the amount of any Retirement Benefit payable in the future) the amount
of any federal, state and local taxes required to be withheld or otherwise
deducted and paid by the Company with respect to the vesting or payment of any
Retirement Benefit hereunder.
Section 5.10 No Funding. There shall be no funding of the benefit
amounts to be paid pursuant to this Agreement. The Agreement shall not confer
upon the Executive (or beneficiary or any other person) any security interest
or any other right, title or interest of any kind in or to any property of the
Company. The
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Agreement shall constitute merely the unsecured promise of the Company to make
the benefit payments provided for herein. Notwithstanding the foregoing
provisions of this Section 5.10, the Company, in its discretion, may establish a
trust to pay the benefit amounts hereunder, which trust shall be subject to the
claims of the Company's general creditors in the event of the Company's
bankruptcy or insolvency. If such a trust is established, the Company shall
remain responsible for the payment of any benefit amounts provided hereunder
which are not paid in accordance with the provisions hereof by such trust.
ARTICLE VI.
DEFINITIONS AND USAGE
Definitions. Wherever used in the Agreement, the following words and
phrases shall have the meaning set forth below, unless the context plainly
requires a different meaning:
"Administrator" means the Company, acting through the Personnel
Committee of the Board, or other person or persons designated by the Personnel
Committee.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
"Agreement" means this Supplemental Executive Retirement Agreement, as
set forth herein and as amended from time to time.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control" means a change in the control of the Company, which
shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person
any securities acquired directly from the
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Company or its Affiliates) representing thirty percent (30%)
or more of the combined voting power of the Company's then
outstanding securities, excluding any Person who becomes such
a Beneficial Owner in connection with a transaction described
in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the
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Company, at least fifty-one percent (51%) of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition
by the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of
all or substantially all of the Company's assets to an entity,
at least fifty-one percent (51%) of the combined voting power
of the voting securities of which are owned by shareholders of
the Company in substantially the same proportions as their
owner ship of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference to a particular Code section shall include any provision
which modifies, replaces or supersedes it.
"Committee" shall mean the Personnel Committee of the Board until six
months prior to the occurrence of a
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Change in Control and thereafter shall mean (i) the individuals (not fewer than
three in number) who, on the date six months before a Change in Control,
constitute the Personnel Committee of the Board, plus (ii) in the event that
fewer than three individuals are available from the group specified in clause
(i) above for any reason, such individuals as may be appointed by the individual
or individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii)); provided, however,
that the maximum number of individuals constituting the Committee shall not
exceed five.
"Company" means American General Corporation, a Texas corporation, and,
except in determining under the definition of Change in Control herein whether
or not any Change in Control of the Company has occurred, shall include any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
"Early Retirement Date" means the first date on which the Executive (i)
has completed ten (10) Years of Service and (ii) has attained the age of
fifty-five (55).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Any reference to a particular ERISA section shall
include any provision which modifies, replaces, or supersedes it.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Executive" means Jon P. Newton
"Final Average Compensation" means the following sum divided by three
(3): the sum of the base salary received by the Executive during, and the
incentive payments received by the Executive pursuant to any annual bonus,
incentive compensation or similar plan maintained by the Company with respect
to, the three (3) calendar years (whether or not consecutive) ending within the
last sixty (60) months of the Executive's employment with the Company which
produce the highest total of such base salary and incentive payments (for
purposes of this sentence, any amount of such base salary or incentive payment
which is deferred by the Executive shall be
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included in the calculation of amounts received). Notwithstanding the
immediately preceding sentence, if the Executive's termination of employment is
described in Section 2.6 hereof and the Executive receives (pursuant to Section
8(c)(iii) of his Employment Agreement, or any successor provision thereto, and
in lieu of any further salary or bonus payments) a lump sum amount (the
"Severance Amount"), Final Average Compensation shall mean the Severance Amount
divided by three (3).
"Normal Retirement Age" means age sixty-two (62).
"Normal Retirement Date" means the date on which the Executive attains
his Normal Retirement Age.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.
"Qualified Plan" means the American General Retirement Plan, together
with any other defined benefit retirement plan intended to be qualified under
Section 401(a) of the Code which is adopted and maintained by the Company and
under which the Executive is entitled to a retirement benefit at the date of his
retirement or other termination of employment.
"Qualified Plan Benefit" means the aggregate annual retirement benefit
to which the Executive (at the date of his retirement or other termination of
employment) is entitled under the plan or plans which comprise the Qualified
Plan (expressed in the form of a single life annuity with a ten-year term
certain commencing payment on the date payment of the Retirement Benefit
hereunder commences).
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"Restoration Plan Benefit" means the annual retirement benefit to
which the Executive (at the date of his retirement or other termination of
employment) is entitled under the American General Corporation Restoration of
Retirement Income Plan (expressed in the form of a single life annuity with a
ten-year term certain commencing payment on the date payment of the Retirement
Benefit hereunder commences).
"Retirement Benefit" means the benefit payable under this Agreement, as
determined under Article II.
"Social Security Benefit" means one-half of the annual benefit payable
under the Social Security Act, relating to Old-Age and Disability benefits, as
of the Executive's Normal Retirement Date, or upon actual retirement, if later.
"Years of Service" means the total number of years (measured in full
and partial years, in increments of one-twelfth years) of active employment with
the Company during which substantial services were rendered as an employee,
commencing on the date the Executive was first employed by the Company and
ending on the date he ceases to perform services for the Company (including
employment before the Effective Date), but in no event shall more than
twenty-eight (28) years be credited to the Executive regardless of his actual
period of service with the Company. Subject to such twenty-eight (28) year
maximum, the Executive shall also be credit with 2.0834 Years of Service for
each Year of Service (measured in full and partial years, in increments of
one-twelfth years) rendered by the Executive between March 1, 1993, and his
attaining age sixty-two (62); thus if the Executive
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continues to be employed by the Company until February 28, 1998, he will, upon
date, have a vested right to his Retirement Benefit under Section 2.7(i) hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
AMERICAN GENERAL CORPORATION
By /s/ LARRY D. HORNER
------------------------------------
Chairman of the Personnel
Committee
/s/ JON P. NEWTON
--------------------------------------
Jon P. Newton
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EXHIBIT 10.17
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT is made as of the 1st day of February, 1998, by and
between AMERICAN GENERAL CORPORATION, a Texas corporation (the "Company"), and
James S. D'Agostino Jr. (the "Executive").
WHEREAS, the Executive has been employed by the Company in valuable
executive service to the Company; and
WHEREAS, the Company desires to reward such past service and to
encourage and reward the continued employment of Executive with the Company
until his retirement and to promote his devotion to his duties on behalf of the
Company without uncertainty or concern as to his retirement income security or
that of his spouse;
NOW, THEREFORE, the Company and the Executive hereby enter into this
Supplemental Executive Retirement Agreement as hereinafter provided:
ARTICLE I.
GENERAL
Effective Date. This Agreement shall be effective as of February 1,
1998 (the "Effective Date").
Defined Terms. The definitions of capitalized terms used in this
Agreement (if not provided where a capitalized term initially appears) are
provided in the last Article hereof.
ARTICLE II.
RETIREMENT BENEFITS
Normal Retirement Benefit. If the Executive retires on or after his
Normal Retirement Date, the Retirement Benefit shall be an annual retirement
benefit payable to the Executive for his lifetime, with a ten-year term certain
(the "Normal Retirement Benefit"), in an annual amount equal to (X) minus (Y),
calculated as follows:
(A) The amount of (X) equals (a) multiplied by (b):
<PAGE> 2
(a) sixty-seven-and-2/10ths percent (67.2%)
of such Executive's Final Average Compensation;
(b) the fraction equal to his Years of Service (not in
excess of twenty-eight (28) years) divided by
twenty-eight (28); and
(B) The amount of (Y) equals (e) plus (f) plus (g):
(e) the Social Security Benefit;
(f) the Qualified Plan Benefit; and
(g) the Restoration Plan Benefit.
Early Retirement Benefit. If the Executive retires on or after his
Early Retirement Date (but before his Normal Retirement Date), the Retirement
Benefit shall be the annual Retirement Benefit computed under Section 2.1,
reduced as follows:
(A) If payment of the Retirement Benefit commences
after the Executive has attained age sixty
(60), the Retirement Benefit shall be reduced
by two-and-one-half percent (2.5%) per year for
each complete year between such commencement
and the Executive's Normal Retirement Date; the
reduction per year shall be pro-rated for incomplete
years;
(B) If payment of the Retirement Benefit commences
before the Executive attains age sixty (60),
the Retirement Benefit shall be further reduced
(beyond the reduction imposed by Section 2.2(A)
hereof) by five percent (5%) per year for each
complete year between such commencement and the
Executive's attaining age sixty (60); the reduction
per year shall be pro-rated for incomplete years.
Termination of Employment Prior to Early Retirement Date and Normal
Retirement Date. If the Executive incurs a termination of employment with the
Company after satisfying the vesting requirement under Section 2.7, but before
attaining either an Early Retirement Date or a Normal Retirement Date, he shall
receive a Retirement Benefit determined under Section 2.1, but, unless such
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termination is described in Section 2.6 hereof, such benefit shall be calculated
by using his actual Years of Service (including all periods credited as Years of
Service pursuant to this Agreement) and actual compensation at the time of his
termination and the actual Social Security Benefit that he is entitled to
receive at his Normal Retirement Date. Unless such termination is described in
Section 2.6 hereof, payment of such benefit shall commence after, but not more
than sixty (60) days after, his Normal Retirement Date.
Disability. If the Executive is receiving either short-term or
long-term disability benefits under any Company plan, then, during the period
of payment of such disability benefits, the Executive shall be treated as
employed for all purposes of the Agreement, including, without limitation,
attainment of the age, service and vesting requirements under the Agreement. The
parties hereto agree that such disability benefits will cease and the Executive
will no longer be considered employed by the Company on the date on which the
Executive attains his Normal Retirement Age. Payment of the Executive's
Retirement Benefit shall commence after, but not more than sixty (60) days
after, his Normal Retirement Date.
Termination by Reason of Death. If the Executive dies (i) while in the
employment of the Company, (ii) after the attainment of age fifty-five (55),
(iii) having been credited with ten (10) Years of Service, and (iv) prior to
the commencement of the payment of the Retirement Benefit hereunder, the
Executive's surviving spouse, if any, shall receive for her lifetime an annual
benefit equal to the two-thirds (2/3) survivor annuity she would have received
had the Executive retired on the day before his death, deeming the Executive,
for purposes of this Section 2.5 only, to have elected a joint and survivor
annuity payable immediately at a reduced amount with a two-thirds (2/3) survivor
annuity. The payment of spouse's benefit shall commence not later than sixty
(60) days after the Executive's death.
Termination on or after Change in Control; Certain Other Terminations.
Notwithstanding any other provision of this Agreement, upon any termination of
the Executive's employment, whether or not a Change in Control (as defined in
the Executive's employment agreement with the Company dated as of February 1,
1998,
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as it may be amended from time to time (the "Employment Agreement")) has
occurred, which termination is (i) by the Company without Cause, (ii) by the
Executive with Good Reason, or (iii) by the Executive in a Special Termination
(as such terms are defined in the Employment Agreement), the Company shall pay
the Executive within the five (5) business days immediately following such
termination a lump sum amount, in cash, equal to the actuarial equivalent of the
Normal Retirement Benefit which the Executive would have accrued, if the
Executive had accumulated (after his termination of employment) thirty-six (36)
additional months of service and age credit (but in no event shall the Executive
be deemed to have accumulated additional service and age credit after the
Executive's sixty-fifth birthday). For purposes of this Section 2.6, an
"actuarial equivalent" shall be deter mined using the same assumptions utilized
under the American General Retirement Plan (or any successor plan thereto)
immediately prior to the Executive's termination of employment, or, if earlier
and more favorable to the Executive, immediately prior to the Change in Control.
The Retirement Benefit so calculated shall be based on a projected Social
Security Benefit that is determined under the provisions of the Social Security
Act as in effect on the date of such termination, using the estimated "primary
insurance amount" the Executive would be entitled to under such Act at his
Normal Retirement Date, assuming (i) the amount of income he is receiving on the
date such termination becomes effective which would be treated as wages for
purposes of such Act would remain constant through his Normal Retirement Date,
and (ii) an annual cost-of-living adjustment equal to four percent (4%).
Vesting of Retirement Benefit. The Executive shall have a vested right
to his Retirement Benefit upon the occurrence of any of the following while the
Executive is employed by the Company:
(i) his completion of ten (10) Years
of Service;
(ii) the attainment of his Normal
Retirement Age;
(iii) the termination of the Executive's
employment pursuant to Section 8(c)
of the Employment Agreement; or
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(iv) the occurrence of a Change in Control
at any time.
Time and Form of Payment.
(A) Time of Payment. Except where specifically otherwise
provided herein, the payment of any Retirement Benefit to which the Executive
has become entitled shall commence after, but no more than sixty (60) days
after, the Executive's date of retirement. The Executive shall give the Company
reasonable advance notice in writing of his intention to retire (which shall be
given at least one month before his intended retirement date).
(B) Normal Form of Payment. A life annuity with a ten-year
term certain is the normal form of payment of the Retirement Benefit for the
Executive and any actuarial equivalents to be calculated pursuant to this
Agreement will be based on the normal form of payment. If the Executive dies
after payment of the Retirement Benefit in the normal form has commenced,
payments shall continue for the remainder of the ten-year term certain to the
beneficiary or beneficiaries designated by the Executive by written instruction
delivered to the Administrator during the Executive's lifetime. The Executive
may designate one or more primary and contingent beneficiaries to receive the
remaining payments of the Retirement Benefit, and may designate the proportions
in which such beneficiaries are to receive such payments. The Executive may
change such designations from time to time, and the last written designation
filed with the Administrator prior to the Executive's death shall control. If
the Executive fails to specifically designate a beneficiary, or if no
designated beneficiary survives the Executive, payment shall be made by the
Administrator in the following order of priority:
(i) to the Executive's surviving spouse,
or, if none,
(ii) to the Executive's children, or, if
none,
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(iii) to the Executive's estate.
(C) Election of Alternative Forms of Payment. Subject to
Section 2.6 hereof, the Executive can elect that his Retirement Benefit be paid
in any of the following forms by an irrevocable election in writing which is
delivered to the Company within sixty (60) days after the Effective Date, or,
with the permission of the Committee, by an irrevocable election in writing
which is delivered to the Company at any time before his retirement becomes
effective:
(i) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be one
hundred percent (100%) of the annuity
payable during the joint lives
of the Executive and the surviving
spouse;
(ii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
seventy-five percent (75%) of the
annuity payable during the joint
lives of the Executive and the
surviving spouse;
(iii) a joint and survivor annuity payable
at a reduced amount for the life of
the Executive with a survivor annuity
for the life of the Executive's
surviving spouse which shall be
fifty percent (50%) of the annuity
payable during the joint lives of
the Executive and the surviving
spouse; or
(iv) a lump-sum payment of the actuarial present
value of the normal form of payment of the
Retirement Benefit.
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<PAGE> 7
In calculating an alternative form of payment for the Retirement Benefit, the
Administrator shall use the same assumptions utilized under the American General
Retirement Plan (or any successor plan thereto) immediately prior to the
Executive's termination of employment, or, if a Change in Control shall have
occurred prior to the Executive's termination of employment, the assumptions so
utilized immediately prior to the Change in Control, if more favorable to the
Executive.
ARTICLE III.
ADMINISTRATION
General. Except as otherwise specifically provided in the Agreement,
the Administrator shall be responsible for administration of the Agreement.
Administrative Rules. The Administrator may adopt such rules of
procedure as it deems desirable for the conduct of its affairs, except to the
extent that such rules conflict with the provisions of the Agreement.
Duties. The Administrator shall have the following rights, powers and
duties:
(A) The decision of the Administrator in matters within its
jurisdiction shall be final, binding and conclusive upon the
Company and upon any person affected by such decision, subject
to the claims procedure hereinafter set forth.
(B) The Administrator shall have the duty and authority to
interpret and construe the provisions of the Agreement, to
determine eligibility for a Retirement Benefit and the
appropriate amount of any Retirement Benefit, to decide any
question which may arise regarding the rights of the Executive
hereunder and to exercise such powers as the Administrator
may deem necessary for the administration of the Agreement.
(C) The Administrator shall maintain full and complete records of
its decisions. Its records shall contain all relevant data
pertaining to the Executive and his rights and duties under
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the Agreement. The Administrator shall maintain a bookkeeping
account with respect to payment of any Retirement Benefit.
(D) Notwithstanding any other provision of this
Agreement, upon and after the occurrence of a
Change in Control and within the six-month
period immediately preceding a Change in Control,
the Administrator's authority and powers
shall not be used to interpret or construe the
provisions hereof in any way (or to take any
other action) which would adversely affect any
right given the Executive by this Agreement.
Fees. No fee or compensation shall be paid to any person for services
as the Administrator.
ARTICLE IV.
CLAIMS PROCEDURE
General. Any claim for a Retirement Benefit under the Agreement shall
be filed by the Executive or beneficiary (either of which is referred to in
this Article as the "claimant") in the manner prescribed by the Administrator.
Denials. If a claim for a Retirement Benefit under the Agreement is
wholly or partially denied, notice of the decision shall be furnished to the
claimant by the Administrator within a reasonable period of time after receipt
of the claim by the Administrator.
Notice. Any claimant who is denied a claim for Retirement Benefits
shall be furnished written notice setting forth:
(i) the specific reason or reasons for the
denial;
(ii) specific reference to the pertinent provision
of the Agreement upon which the denial is based;
(iii) a description of any additional material or
information necessary of the claimant to perfect the
claim; and
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(iv) an explanation of the claims review procedure
under the Agreement.
Appeals Procedure. In order that a claimant may appeal a denial of a
claim, the claimant or the claimant's duly authorized representative may:
(i) request a review by written application to the
Committee, no later than sixty (60) days after receipt
by the claimant of written notification of denial of a
claim;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
Review. A decision on review of a denied claim shall be made by the
Committee not later than sixty (60) days after receipt of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered within a reasonable period of time, but
not later than one-hundred-and-twenty (120) days after receipt of a request for
a review. The decision on review shall be in writing and shall include the
specific reason(s) for the decision and the specific references(s) to the
pertinent provisions of the Agreement on which the decision is based.
Section 4.6 Arbitration. Any further dispute or controversy arising
under or in connection with this Agreement which is not resolved by agreement
pursuant to Sections 4.1 through 4.5 hereof shall be resolved by binding
arbitration pursuant to the Federal Arbitration Act in accordance with the
Employment Dispute Resolution Rules then in effect with the American Arbitration
Association. The arbitration proceeding shall be conducted in Houston, Texas.
This agreement to arbitrate shall be enforceable in either federal or state
court.
The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or
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defenses to arbitrability, and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the Federal
Arbitration Act and shall be decided by the arbitrators. In deciding the
substance of any such claims, the arbitrators shall apply the substantive laws
of the State of Texas (excluding Texas choice-of-law principles that might call
for the application of some other state's law); provided, however, it is
expressly agreed that the arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances regardless of whether
such damages may be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages in connection
with any such claims.
The arbitration may be initiated by any party by providing to the other
parties a written notice of arbitration specifying the claims. Within thirty
(30) days of the notice of initiation of the arbitration procedure, (1) the
Executive shall denominate one arbitrator and (2) the Company shall denominate
one arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within sixty (60) days of the original notice, either the
Executive or the Company shall apply to the Senior Active United States District
Judge for the Southern District of Texas, who shall appoint a third arbitrator.
While the third arbitrator shall be neutral, the two party-appointed arbitrators
are not required to be neutral and it shall not be grounds for removal of either
of the two party-appointed arbitrators or for vacating the arbitrators' award
that either of such arbitrators has past or present minimal relationships with
the party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable person
would have to conclude there in fact existed actual bias and a mere appearance
or impression of bias will not constitute evident partiality or otherwise
disqualify an arbitrator.
The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall
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certify in their award that they have faithfully applied the terms and
conditions of this Agreement and that no part of their award includes any amount
for exemplary or punitive damages. All proceedings conducted hereunder and the
decision of the arbitrators shall be kept confidential by the parties, e.g.,
the arbitrators' award shall not be released to the press or published in any of
the various arbitration reporters. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction.
ARTICLE V.
MISCELLANEOUS PROVISIONS
Amendment and Termination. This Agreement may be amended or modified
only with the written consent of the parties hereto.
No Assignment. The Executive shall not have the power to pledge,
transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in
advance any interest in amounts payable hereunder of any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments, alimony
or separate maintenance, or be reached or transferred by operation of law in the
event of bankruptcy, insolvency or otherwise.
Successors and Assigns. The provisions of the Agreement are binding
upon and inure to the benefit of each Company, its successors and assigns, and
the Executive, his beneficiaries, heirs and legal representatives.
Governing Law. The Agreement shall be subject to and construed in
accordance with the laws of the State of Texas to the extent not preempted by
the provisions of ERISA.
No Guarantee of Employment. Nothing contained in the Agreement shall be
construed as a contract of employment or deemed to give the Executive the right
to be retained in the employ of an Company or any equity or other interest in
the assets, business or affairs of an Company.
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Severability. If any provision of the Agreement shall be held illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Agreement, but the Agreement shall be construed and
enforced as if such illegal or invalid provision had never been included herein.
Notification of Addresses. The Executive and each beneficiary shall
file with the Administrator, from time to time, in writing, the post office
address of the Executive, the post office address of each beneficiary, and each
change of post office address. Any communication, statement or notice addressed
to the last post office address filed with the Administrator (or if no such
address was filed with the Administrator, then to the last post office address
of the Executive or beneficiary as shown on the Company's records) shall be
binding on the Executive and each beneficiary for all purposes of the Agreement
and neither the Administrator nor the Company shall be obliged to search for or
ascertain the whereabouts of the Executive or beneficiary.
Bonding. The Administrator and all agents and advisors employed by it
shall not be required to be bonded, except as may otherwise be required by
ERISA.
Taxes. The Company shall have the right to withhold from any cash or
other amounts due or to become due from the Company to a Executive (including by
reducing the amount of any Retirement Benefit payable in the future) the amount
of any federal, state and local taxes required to be withheld or otherwise
deducted and paid by the Company with respect to the vesting or payment of any
Retirement Benefit hereunder.
Section 5.10 No Funding. There shall be no funding of the benefit
amounts to be paid pursuant to this Agreement. The Agreement shall not confer
upon the Executive (or beneficiary or any other person) any security interest
or any other right, title or interest of any kind in or to any property of the
Company. The Agreement shall constitute merely the unsecured promise of the
Company to make the benefit payments provided for herein. Notwithstanding the
foregoing provisions of this Section 5.10, the Company, in its discretion, may
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establish a trust to pay the benefit amounts hereunder, which trust shall be
subject to the claims of the Company's general creditors in the event of the
Company's bankruptcy or insolvency. If such a trust is established, the Company
shall remain responsible for the payment of any benefit amounts provided
hereunder which are not paid in accordance with the provisions hereof by such
trust.
ARTICLE VI.
DEFINITIONS AND USAGE
Definitions. Wherever used in the Agreement, the following words and
phrases shall have the meaning set forth below, unless the context plainly
requires a different meaning:
"Administrator" means the Company, acting through the Personnel
Committee of the Board, or other person or persons designated by the Personnel
Committee.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
"Agreement" means this Supplemental Executive Retirement Agreement, as
set forth herein and as amended from time to time.
"Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"Board" means the Board of Directors of the Company.
"Change in Control" means a change in the control of the Company, which
shall be deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its
Affiliates) representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding
securities, excluding any Person who becomes
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such a Beneficial Owner in connection with a transaction
described in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation (or a
share exchange between shareholders of the Company or any
direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 (or any
successor provision thereto) of the Texas Business Corporation
Act), other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or
any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the
Company, at least fifty-one percent (51%) of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately
after
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such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty percent (30%) or
more of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or disposition
by the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of
all or substantially all of the Company's assets to an entity,
at least fifty-one percent (51%) of the combined voting power
of the voting securities of which are owned by shareholders of
the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. Any reference to a particular Code section shall include any provision
which modifies, replaces or supersedes it.
"Committee" shall mean the Personnel Committee of the Board until six
months prior to the occurrence of a Change in Control and thereafter shall mean
(i) the individuals (not fewer than three in number) who, on the date six months
before a Change in Control, constitute the Personnel Committee of the Board,
plus (ii) in the
15
<PAGE> 16
event that fewer than three individuals are available from the group specified
in clause (i) above for any reason, such individuals as may be appointed by the
individual or individuals so available (including for this purpose any
individual or individuals previously so appointed under this clause (ii));
provided, however, that the maximum number of individuals constituting the
Committee shall not exceed five.
"Company" means American General Corporation, a Texas corporation, and,
except in determining under the definition of Change in Control herein whether
or not any Change in Control of the Company has occurred, shall include any
successor to its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
"Early Retirement Date" means the first date on which the Executive (i)
has completed ten (10) Years of Service and (ii) has attained the age of
fifty-five (55).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Any reference to a particular ERISA section shall
include any provision which modifies, replaces, or supersedes it.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Executive" means James S. D'Agostino Jr.
"Final Average Compensation" means the following sum divided by three
(3): the sum of the base salary received by the Executive during, and the
incentive payments received by the Executive pursuant to any annual bonus,
incentive compensation or similar plan maintained by the Company with respect
to, the three (3) calendar years (whether or not consecutive) ending within the
last sixty (60) months of the Executive's employment with the Company which
produce the highest total of such base salary and incentive payments (for
purposes of this sentence, any amount of such base salary or incentive payment
which is deferred by the Executive shall be included in the calculation of
amounts received). Notwithstanding the immediately preceding sentence, if the
Executive's termination of employment is described in Section 2.6 hereof and the
Executive receives
16
<PAGE> 17
(pursuant to Section 8(c)(iii) of his Employment Agreement, or any successor
provision thereto, and in lieu of any further salary or bonus payments) a lump
sum amount (the "Severance Amount"), Final Average Compensation shall mean the
Severance Amount divided by three (3).
"Normal Retirement Age" means age sixty-two (62).
"Normal Retirement Date" means the date on which the Executive attains
his Normal Retirement Age.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.
"Qualified Plan" means the American General Retirement Plan, together
with any other defined benefit retirement plan intended to be qualified under
Section 401(a) of the Code which is adopted and maintained by the Company and
under which the Executive is entitled to a retirement benefit at the date of his
retirement or other termination of employment.
"Qualified Plan Benefit" means the aggregate annual retirement benefit
to which the Executive (at the date of his retirement or other termination of
employment) is entitled under the plan or plans which comprise the Qualified
Plan (expressed in the form of a single life annuity with a ten-year term
certain commencing payment on the date payment of the Retirement Benefit
hereunder commences).
"Restoration Plan Benefit" means the annual retirement benefit to
which the Executive (at the date of his retirement or other termination of
employment) is entitled under the American General Corporation Restoration of
Retirement Income Plan (expressed in the
17
<PAGE> 18
form of a single life annuity with a ten-year term certain commencing payment
on the date payment of the Retirement Benefit hereunder commences).
"Retirement Benefit" means the benefit payable under this Agreement, as
determined under Article II.
"Social Security Benefit" means one-half of the annual benefit payable
under the Social Security Act, relating to Old-Age and Disability benefits, as
of the Executive's Normal Retirement Date, or upon actual retirement, if later.
"Years of Service" means the total number of years (measured in full
and partial years, in increments of one-twelfth years) of active employment with
the Company during which substantial services were rendered as an employee,
commencing on the date the Executive was first employed by the Company and
ending on the date he ceases to perform services for the Company (including
employment before the Effective Date), but in no event shall more
18
<PAGE> 19
than twenty-eight (28) years be credited to the Executive regardless of his
actual period of service with the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
AMERICAN GENERAL CORPORATION
By /s/ ROBERT M. DEVLIN
------------------------------------
Chief Executive Officer
/s/ JAMES S. D'AGOSTINO JR.
--------------------------------------
James S. D'Agostino Jr.
19
<PAGE> 1
EXHIBIT 10.18
AMERICAN GENERAL CORPORATION RETIREMENT PLAN FOR DIRECTORS
(AS AMENDED AND RESTATED EFFECTIVE AS OF MARCH 1, 1997)
1. PURPOSE. This plan shall be known as the American General Corporation
Retirement Plan for Directors (the "Plan"). The Plan shall be maintained by
American General Corporation, a Texas corporation (the "Company") solely for
the purpose of providing retirement benefits to persons who have served as
directors of the Company and who, since July 1, 1965, have not been officers or
employees of the Company or of any subsidiary of which the Company owns
directly or indirectly more than 50% of the outstanding capital stock
("Directors").
2. PAYMENT OF BENEFITS. The benefits payable under the Plan will be paid
from the Company's general revenues as payments become due under the Plan, will
not be funded in advance through an arrangement constituting a qualified trust
under the Internal Revenue Code or through insurance annuity contracts, and
will not be subject to the jurisdiction of nor be guaranteed by the Pension
Benefit Guaranty Corporation. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of benefits under the Plan.
3. YEARS OF SERVICE. For all purposes of the Plan, a Director's Years of
Service shall be equal to the number of Years of Service credited under the
terms of the Plan as in effect on February 28, 1997. From and after March 1,
1997, no further Years of Service shall be credited to Directors for purposes
of benefits under the Plan.
4. RETIREMENT BENEFITS. (a) A Director who retired or otherwise terminated
service as a Director prior to March 1, 1997 shall be entitled to benefits and
payments under the Plan based upon the terms and provisions of the Plan as in
effect on the date such Director retired or terminated service as a Director
and none of the provisions of this March 1, 1997 restatement of the Plan shall
be applicable to such Director.
(b) A Director who retires or otherwise terminates service as a Director on or
after March 1, 1997 shall receive a deferred account benefit determined
pursuant to Section 5 and Appendix A.
5. DEFERRED ACCOUNT. The March 1, 1997 accrued benefit under the Plan of
each Director who is serving as a Director on March 1, 1997 shall be converted
to a present dollar amount, based upon actuarial assumptions satisfactory to
the Administrator (hereinafter defined), and such dollar amount shall be
converted into a number of full and fractional "Units" equal in the aggregate
to the value of such present value dollar amount. For purposes of this Section
5, a Director's March 1, 1997 Plan accrued benefit shall be equal to annual
payments payable commencing as of the date such Director attains the age of 70
for a period of years equal to the Years of Service completed by the Director
as of February 28, 1997 but ending upon the Director's death if occurring prior
to the expiration of such period of years, with each such annual payment being
equal to the dollar amount of the annual retainer in effect for Directors on
February 28, 1997. For all purposes of the Plan, a Unit shall be equal to the
mean between the high and low selling prices of the date as of which such value
is being determined of a share of Common Stock of the Company; provided,
however, that for purposes of effecting the conversion into Units of
Directors' March 1, 1997 Plan accrued benefits as described under this Section
5, the value of a Unit shall be equal to the average of the means between the
high and low selling prices during the period commencing April 28, 1997 and
ending May 2, 1997, inclusive, of a share of Common Stock of the Company.
6. BENEFIT NOT ASSIGNABLE. A Director's rights under the Plan shall not be
subject to assignment encumbrance, garnishment, attachment, or charge, whether
voluntary or involuntary.
Page 1 of 3
<PAGE> 2
7. AMENDMENT, AND TERMINATION OF PLAN. The Company reserves the right to
amend or terminate the Plan at any time by action of its Board of Directors,
provided that any such action shall not, without a Director's consent,
adversely affect any Director's right to a benefit which accrued pursuant to
the provisions of the Plan prior to such action.
9. ADMINISTRATION OF PLAN. The Plan shall be administered by an
Administrator who shall be a person or committee appointed by the Chairman of
the Board. All decisions that are made by the Administrator with respect to
interpretation of the terms of the Plan, with respect to the amount of benefits
payable under the Plan, and with respect to any questions or disputes arising
under the Plan shall be final and binding on the Company and the directors and
their heirs or beneficiaries.
10. WITHHOLDING. The Company shall have the right to deduct from any and
all amounts paid to any Director under this Plan any taxes required by law to
be withheld therefrom.
11. CONSTRUCTION. The Plan shall be governed by, and interpreted and
enforced in accordance with, the laws of the State of Texas and of the United
States of America.
IN WITNESS WHEREOF, the Company has adopted this amended and restated
Plan as evidenced by the signatures affixed hereto of its duly authorized
officers, as of the 1st day of March, 1997.
AMERICAN GENERAL CORPORATION
ATTEST:
By: /S/ JON P. NEWTON
----------------------------------
Jon P. Newton
/S/ SUSAN A. JACOBS Vice Chairman and General Counsel
- -------------------------
Susan A. Jacobs
Associate General Counsel
Page 2 of 3
<PAGE> 3
Appendix A
SECTION A1. DIRECTORS' ACCOUNT BALANCES. The Company shall maintain an
individual book account under the Plan for each Director having a deferred
account. Each Director shall initially have credited to his or her account the
number of Units calculated in respect of such Director pursuant to Section 5
hereof. Any dividends paid on Common Stock shall be credited to a Director's
account in respect of each Unit and deemed to be reinvested in additional
Units. In addition, the number of Units allocated to a Director's account shall
be adjusted to reflect stock dividends, splits and reclassifications, and
similar transactions affecting the value of Common Stock. At the time that the
Director's services as a Director cease, subject to Section 5 hereof, the
account balance will, until such time as it is paid to the Director in cash in
accordance with the Director's payment elections, be allocated among the
hypothetical investments permitted under A2(b)(ii) below, as may be elected by
the Director.
SECTION A2. PAYMENT ELECTIONS. (a) General Provisions. In connection with the
commencement of participation in this Plan, each Director shall make an
election (the "Payment Election") concerning the timing and form of
distribution of the amounts credited to his or her Plan account. Any payment
from the Plan shall commence following termination of the Director's services
to the Company as a Director, but in no event prior to one year after receipt
by the Company of the Director's initial Payment Election. The forms of
benefit available under the Plan shall be a lump sum payment or quarterly,
semi-annual or annual installments over a period not to exceed 15 years from
the earliest date the director may commence receiving payments hereunder.
(b) Special Rule. (i) Subsequent Payment Elections may be made by
a Director, which shall supersede the initial Payment Election, but any such
subsequent Payment Election shall not be valid unless it is made prior to May
of the calendar year preceding the calendar year in which payments to the
Director hereunder are otherwise due to commence.
(ii) If a Director has elected to receive installment payments of the
amount in his or her account, the Director may, at the Director's option,
elect to allocate the account, on or after the date on which he or she ceases
to perform services as a Director, among hypothetical investments in the AGC
Stock Fund, International Fund, Small-Cap Fund, Mid-Cap Fund, Equity Index
Fund, Bond Fund or Cash Fund under the American General Employees' Thrift and
Incentive Plan and shall be credited with a rate of return which said account
would have earned had it been invested in the fund elected. The Director may
allocate and reallocate his or her account among the funds in accordance with
rules established by the Administrator.
SECTION A3. PAYMENTS TO A DECEASED DIRECTOR'S ESTATE. (a) In the event of a
Director's death before the balance of his or her account is fully paid,
payment of the balance of the Director's account shall then be made to his or
her estate in accordance with the manner selected by the Director prior to
death, which manner shall provide that (i) payment shall be made to the
Director's estate in the same manner as provided with respect to the payments
to the Director or (ii) the balance of the Director's account shall be
determined as soon as practicable following his or her death and this amount
shall be paid in a single payment to the Director's estate as soon as
reasonably practicable thereafter. In the event no election has been made,
payment shall be made in accordance with clause (ii) of the preceding sentence.
(b) In the event of a Director's death before the balance of his or
her account is fully paid to the estate in installments, the Administrator may,
upon consideration of the application of the duly appointed administrator or
executor of the Director's estate, direct that the balance of the Director's
account be paid to the estate in a single payment. The payment shall be made
at the time specified by the Administrator.
Page 3 of 3
<PAGE> 1
EXHIBIT 10.20
September 11, 1997
Mr. Michael J. Poulos
2121 Kirby, #73
Houston, Texas 77019
Dear Mr. Poulos:
As you know, American General Corporation ("AGC"), Western National
Corporation ("Western"), and a subsidiary of AGC have, as of the date hereof,
entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which AGC will indirectly acquire all or substantially all of the stock of
Western through a merger (the "Merger"). AGC understands that you intend to
resign as Chairman of the Board, President and Chief Executive Officer of
Western upon the consummation of the Merger. It is an important element of
AGC's decision to acquire Western through such Merger that an understanding and
agreement exist with respect to the benefits that you will receive upon such
resignation pursuant to (a) the Employment Agreement dated September 9, 1993,
between you and Conseco, Inc. and assumed by Western, as the same has been
amended from time to time (the "Employment Agreement") and (b) any and all
agreements between you and Western evidencing awards you have received from
time to time under Western's 1993 Stock and Incentive Plan (collectively, the
"Award Agreements").
Upon the consummation of the Merger, it is our understanding that you
will resign as Chairman of the Board, President and Chief Executive Officer of
Western, effective as of the Effective Time (as such term is defined in the
Merger Agreement). AGC agrees that it will cause Western to treat such
resignation as a "Control Termination" for purposes of the Employment Agreement
and the Award Agreements in exchange for your consent and agreement to the
following modifications and amendments to the Employment Agreement and the
Award Agreements:
o No severance payments or other compensation or benefits will be
provided to you pursuant to Sections 10, 11, 12, and 13 of the
Employment Agreement following your resignation, and, in lieu thereof,
within 10 days following your resignation, you will receive a lump sum
cash payment in an amount equal to the sum of the amounts determined
in accordance with the following clauses (a) and (b):
(a) an amount equivalent to salary payments for
36 calendar months at the rate of Base Salary (as such term is
defined in the Employment Agreement) in effect immediately
prior to your resignation; and
(b) an amount equivalent to 36 calendar months of
bonus at the greater of (1) the monthly rate of the bonus
payment for the bonus period that ended immediately prior to
your resignation date or (2) the monthly rate of the estimated
amount of the bonus you would have received for the bonus
period which includes your resignation date.
<PAGE> 2
Mr. Michael J. Poulos
Page 2
September 11, 1997
The amount of such lump sum payment will be adjusted as provided in
the following paragraph.
o Although you will continue to be entitled to receive the parachute
payment protections and benefits set forth in that certain Amendment
to Employment Agreement dated May 14, 1997, between you and Western,
you agree that the lump sum payment described in the preceding
paragraph will be reduced by approximately $150,000 so that none of
the payments and benefits provided to you in connection with the
Merger will be nondeductible or subject you to an excise tax pursuant
to the golden parachute payment provisions of Section 280G or Section
4999 of the Internal Revenue Code of 1986, as amended, (the "Parachute
Sanctions"). The $150,000 figure set forth in the preceding sentence
is an initial estimate of the amount of the reduction necessary to
prevent the application of the Parachute Sanctions. However, it is
our understanding that the lump sum payment described in the preceding
paragraph may be reduced by a greater amount if both you and AGC agree
that a greater reduction is necessary to prevent the application of
the Parachute Sanctions. The amount of any such greater reduction in
your lump sum payment will be agreed to by you and AGC prior to the
Merger. After the Merger, neither Western nor AGC will have the right
to (a) reduce your lump sum payment by any amount in excess of the
reduction amount agreed to prior to the Merger or (b) receive a refund
or reimbursement of any portion of your lump sum payment based upon a
claim that such refund or reimbursement is necessary to prevent the
application of the Parachute Sanctions.
o Your options to purchase shares of Western common stock under
Western's 1993 Stock and Incentive Plan will be converted into options
to purchase shares of AGC common stock pursuant to Section 6.10(a) of
the Merger Agreement. Upon your resignation from Western as of the
Effective Time, such stock options will continue to be exercisable for
the remainder of their original 10-year term.
o You will not be permitted to surrender to Western pursuant to the
provisions of Section 14 of the Employment Agreement (or any similar
provision in an Award Agreement) any of your options to acquire
Western common stock or shares of Western common stock that you own.
However, in lieu of such right, you may elect, within 60 days after
your resignation date, to receive a lump sum cash payment in return
for your surrender of (a) all or any portion of the AGC stock options
then outstanding and received by you in accordance with the terms of
the Merger Agreement in exchange for your Western stock options (the
"Unexercised Exchange Options") and (b) all or any portion of the AGC
common stock then owned by you and received in accordance with the
terms of the Merger Agreement in exchange for your shares of Western
common stock (the "Owned Exchange Stock"). For each Unexercised
Exchange Option to purchase one share of AGC common stock that you
elect to surrender as provided above, you will receive an amount equal
to the difference, if any, between (1) the New York Stock Exchange
closing sales price of one share of AGC common stock on the date of
your election (or on the next preceding trading day if your election
is made on a non-trading day) and (2) the exercise price for such
share of AGC common stock pursuant to the terms of the
<PAGE> 3
Mr. Michael J. Poulos
Page 3
September 11, 1997
Unexercised Exchange Option. For each share of Owned Exchange Stock
that you elect to surrender as provided above, you will receive an
amount equal to the New York Stock Exchange closing sales price of one
share of AGC common stock on the date of your election (or on the next
preceding trading day if your election is made on a non-trading day).
Any payment required pursuant to this paragraph will be paid within 10
days after the date of your election hereunder, against execution and
delivery by you to AGC of an appropriate agreement confirming your
surrender of the Unexercised Exchange Options and the certificates
duly endorsed by you for the Owned Exchange Stock.
Notwithstanding any provision in this letter agreement to the
contrary, if the Merger Agreement is terminated without consummation of the
Merger, then this letter agreement will be of no further force and effect and
will be void ab initio. Western shall be a third party beneficiary of our
understandings and agreements set forth in this letter agreement, and will join
in the execution of this letter agreement to evidence its agreement to be bound
by such understandings and agreements.
If this letter agreement accurately sets forth our understandings and
agreements with respect to the subject matter hereof, please execute this
letter agreement in the space provided below.
Very truly yours,
AMERICAN GENERAL CORPORATION
By: /s/ JON P. NEWTON
------------------------------------
Name: Jon P. Newton
-------------------------------
Title: Vice Chairman
------------------------------
AGREED AND ACCEPTED
this 23rd day of September, 1997
/s/ MICHAEL J. POULOS
- ------------------------------
Michael J. Poulos
Western National Corporation joins in the execution of this letter
agreement to evidence its agreement to be bound by the understandings and
agreements set forth herein.
WESTERN NATIONAL CORPORATION
By: /s/ RICHARD W. SCOTT
------------------------------------
Name: Richard W. Scott
-------------------------------
Title: Vice Chairman & Chief
Investment Officer
------------------------------
Date: September 23 , 1997
----
<PAGE> 1
AMERICAN GENERAL CORPORATION
EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
For the Years Ended December 31,
In millions, except ratios 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consolidated operations:
Income before income tax expense and net dividends on
preferred
securities of subsidiaries $ 1,073 $ 1,080 $ 1,010
Undistributed income of equity investee (49) (35) (39)
Fixed charges deducted from income
Interest expense 643 661 711
Implicit interest in rents 20 21 21
- --------------------------------------------------------------------------------------------
Total fixed charges deducted from income 663 682 732
- --------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 1,687 $ 1,727 $ 1,703
- --------------------------------------------------------------------------------------------
Fixed charges per above $ 663 $ 682 $ 732
Capitalized interest 5 12 17
- --------------------------------------------------------------------------------------------
Total fixed charges 668 694 749
Dividends on preferred stock and securities 138 68 30
- --------------------------------------------------------------------------------------------
Combined fixed charges and preferred stock
dividends $ 806 $ 762 $ 779
- --------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.52 2.49 2.27
- --------------------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges and
preferred
stock dividends 2.09 2.26 2.19
- --------------------------------------------------------------------------------------------
Consolidated operations, corporate fixed charges and
preferred stock dividends only:
Income before income tax expense and net dividends on
preferred securities of subsidiaries $ 1,073 $ 1,080 $ 1,010
Undistributed income of equity investee (49) (35) (39)
Corporate fixed charges deducted from
income - corporate
interest expense 183 179 205
- --------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 1,207 $ 1,224 $ 1,176
- --------------------------------------------------------------------------------------------
Total corporate fixed charges per above $ 183 $ 179 $ 205
Capitalized interest related to real estate operations 5 11 16
- --------------------------------------------------------------------------------------------
Total corporate fixed charges 188 190 221
Dividends on preferred stock and securities 138 68 30
- --------------------------------------------------------------------------------------------
Combined corporate fixed charges and preferred
stock dividends $ 326 $ 258 $ 251
- --------------------------------------------------------------------------------------------
Ratio of earnings to corporate fixed charges 6.41 6.45 5.32
- --------------------------------------------------------------------------------------------
Ratio of earnings to combined corporate fixed
charges and preferred stock dividends 3.70 4.74 4.69
- --------------------------------------------------------------------------------------------
American General Finance, Inc.:
Income before income tax expense $ 204 $ 54 $ 116
Fixed charges deducted from income
Interest expense 484 493 518
Implicit interest in rents 11 12 13
- --------------------------------------------------------------------------------------------
Total fixed charges deducted from income 495 505 531
- --------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 699 $ 559 $ 647
- --------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.41 1.11 1.22
- --------------------------------------------------------------------------------------------
</TABLE>
1997 FORM 10-K 21
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
AMERICAN GENERAL CORPORATION
For the three years ended December 31, 1997
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements and related Notes beginning on page 32.
OVERVIEW
American General Corporation (American General), a diversified financial
services organization with market capitalization of $13.5 billion and over 12
million customers, is a market leader in retirement services, life insurance,
and consumer finance. American General has pursued an aggressive strategy of
growth through acquisitions. Since December 1994, American General has completed
or announced six acquisitions with total consideration (excluding assumed debt)
of $5.7 billion, including $3.7 billion in 1997.
American General and its subsidiaries (collectively, the company) reported
financial highlights for the three years ended December 31, 1997 as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Net income $ 542 $ 653 $ 650
Net income per share (diluted) 2.19 2.63 2.66
Revenues and deposits 13,973 13,129 12,542
Assets 80,620 74,134 69,083
Shareholders' equity 7,583 6,844 7,109
- --------------------------------------------------------------------------------
</TABLE>
The following significant items affected the company's financial results:
o On June 17, 1997, American General completed the merger of USLIFE
Corporation (USLIFE) in an all-stock transaction valued at $1.8 billion. The
merger was accounted for using the pooling of interests method and, therefore,
all periods include the results of USLIFE's operations.
o Results include the operations of other acquired companies beginning on
the respective acquisition dates. American General acquired Home Beneficial
Corporation (Home Beneficial Life) on April 16, 1997, The Independent Life and
Accident Insurance Company (Independent Life) on February 29, 1996, and The
Franklin Life Insurance Company (Franklin Life) on January 31, 1995.
o Net income for 1997 includes aftertax charges of $353 million, which are
discussed in Note 3 to the consolidated financial statements. These charges
consist of merger-related costs ($247 million or $.99 per share), loss on sale
of non-strategic assets ($73 million or $.29 per share), and a litigation
settlement ($33 million or $.13 per share).
o Net income for 1996 includes aftertax charges of $143 million, consisting
of loss on sale of non-strategic assets ($111 million or $.44 per share) and a
write-down of USLIFE group business ($32 million or $.13 per share).
o Net income for 1995 includes a fourth quarter aftertax charge for an
increase in the allowance for finance receivable losses ($140 million or $.57
per share).
BUSINESS DIVISIONS
To facilitate meaningful period-to-period comparisons, earnings of each
business division include earnings from its business operations and earnings on
that amount of equity considered necessary to support its business, and exclude
non-recurring items and net realized investment gains. Division earnings were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Retirement Services $ 246 $ 225 $ 204
Life Insurance 576 536 476
Consumer Finance 156 128 85
- --------------------------------------------------------------------------------
Division earnings $ 978 $ 889 $ 765
- --------------------------------------------------------------------------------
</TABLE>
Division earnings, presented above on an aftertax basis, differ from those
disclosed in Note 20.2 to the consolidated financial statements by the amount of
non-recurring items and income tax expense for each division.
RETIREMENT SERVICES
The Retirement Services division offers tax-deferred retirement annuities
and employer-sponsored retirement programs for employees of educational, health
care, public sector, and other not-for-profit organizations. Asset growth
through sales and deposits, management of the investment spread, separate
account fees, and operating expenses contribute to the division's profitability.
Division results were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Retirement Services earnings $ 246 $ 225 $ 204
Assets
Investments 23,545 22,146 21,933
Separate Accounts 10,564 7,134 4,541
Sales 1,645 1,324 1,112
Deposits
Fixed 1,592 1,587 1,720
Variable 1,795 1,310 835
Operating expenses 160 145 149
- --------------------------------------------------------------------------------
</TABLE>
21 1997 ANNUAL REPORT
<PAGE> 2
EARNINGS. Division earnings increased 9% in 1997 and 10% in 1996,
reflecting continued growth in assets and management of fixed investment
spread, partially offset by the effect of customers' growing preference for
variable accounts. Asset growth, excluding the fair value adjustment on
securities, was 15% in 1997 and 13% in 1996 as a result of strong sales and
deposits in each of the division's primary markets, as well as stock market
appreciation.
SALES AND DEPOSITS. In recent years the company introduced new variable
investment products, which provide numerous investment options, in response to
customers' preference for equity-based investments. As a result, sales increased
24% in 1997 and 19% in 1996. Total deposits increased 17% in 1997 and 13% in
1996, while variable account deposits increased 37% and 57%, respectively. The
division's Separate Account assets, which relate to variable account options,
increased $3.4 billion in 1997 and $2.6 billion in 1996, reflecting the strong
sales and stock market appreciation.
FIXED INVESTMENT SPREAD. Fixed investment spread represents the difference
between the yield on invested assets and the average interest rate the company
credits to policyholders' fixed accounts. Investment results and crediting rates
on fixed accounts were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Net investment income $1,706 $1,652 $1,597
Investment yield 7.91% 8.03% 8.24%
Average crediting rate 6.16 6.23 6.41
Fixed investment spread 1.75 1.80 1.83
- --------------------------------------------------------------------------------
</TABLE>
Net investment income increased in 1997 and 1996 as a result of growth in
invested assets. Investment yields declined 12 basis points in 1997 and 21 basis
points in 1996 due to lower market rates on new investments. In response to
these declining yields, the company adjusted the rates credited to
policyholders. As a result, the investment spread on fixed accounts declined
only 5 basis points in 1997 and 3 basis points in 1996.
SEPARATE ACCOUNT FEES. Separate Account fees, which represent the
fastest-growing component of division revenues, include mortality and surrender
fees and investment advisory fees. These fees increased $40 million, or 53%, in
1997 and $29 million, or 67%, in 1996, due to strong sales and deposit growth
and market appreciation in Separate Account assets.
SURRENDERS. Policyholder surrenders are influenced by both competition and
market interest rates. The company's rate of policyholder surrenders was 4.7% of
average reserves in 1997, compared to 4.4% in 1996 and 3.7% in 1995. These rates
were among the lowest in the industry.
OPERATING EXPENSES. Operating expenses increased in 1997 due to the growth
in sales and deposits. As a result of the management of operating expenses
relative to the growth rate for assets, the ratio of operating expenses to
average assets improved to .49% in 1997, compared to .52% in 1996 and .61% in
1995. Operating expenses for 1995 included $19 million (.08% of average assets)
for state guaranty fund assessments resulting from past industry insolvencies.
OUTLOOK. In 1998, the division will introduce a new product line that will
offer additional investment options for tax-qualified annuities. With the
acquisition of Western National Corporation (Western National) in February 1998,
the division will also offer non-qualified annuities sold through financial
institutions. Management believes these actions position the division for
continued growth.
LIFE INSURANCE
The Life Insurance division provides traditional and interest-sensitive
life insurance and annuities to a broad spectrum of customers through
independent and career agents. Recent acquisitions have expanded distribution
systems and product portfolios. In 1997, the company realigned the division to
strengthen its distribution systems, achieve operating efficiencies, improve
product development, and enhance customer service.
Division profitability is a function of premiums, investment spread,
mortality, persistency, and operating expenses. Division results, reflecting the
pooling of USLIFE insurance operations, were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Life Insurance earnings $ 576 $ 536 $ 476
Assets 34,802 32,738 31,317
Insurance and annuity
liabilities 25,283 24,550 23,139
Premiums and other
considerations 3,066 2,964 2,701
Net investment income 2,099 2,016 1,872
Insurance and annuity
benefits 2,949 2,867 2,761
Operating expenses 730 688 592
- --------------------------------------------------------------------------------
</TABLE>
EARNINGS. Division earnings increased in 1997 and 1996 primarily due to the
acquisitions of Home Beneficial Life in April 1997 and Independent Life in
February 1996. Home Beneficial Life's operations increased division earnings by
$24 million in 1997, and Independent Life's operations increased division
earnings by $30 million in 1996. These companies are currently being
consolidated into the division's Nashville-based operations.
AMERICAN GENERAL CORPORATION 22
<PAGE> 3
PREMIUMS AND DEPOSITS. The division's primary focus is the sale of life and
annuity products to individuals. Sales and deposits of individual life insurance
and annuities were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Individual life insurance
Sales $ 521 $ 473 $ 530
Deposits 1,154 1,057 1,004
Annuities
Sales 429 388 686
Deposits 505 461 746
- --------------------------------------------------------------------------------
</TABLE>
Premiums and other considerations increased 3% in 1997 and 10% in 1996.
These increases were primarily due to new sales and the acquisitions of Home
Beneficial Life and Independent Life. Individual life insurance sales increased
in 1997 due to the introduction of new products, expansion of producer
relationships, and the addition of Home Beneficial Life. These increases were
partially offset by lower sales in some companies as product portfolios were
updated and the division realignment was implemented. The decline in 1996 sales
reflected disruptions due to the implementation of new field administration
systems and the rationalization of relationships with certain producer groups.
These decreases were partially offset by the acquisition of Independent Life.
Deposits for interest-sensitive life insurance increased due to new sales and
persistency of the business in force.
Annuity sales and deposits increased in 1997 due to higher structured
settlement and variable annuity sales, partially offset by the continued
decrease in fixed annuity sales resulting from the shift in consumers'
preference to equity-based products. Annuity sales and deposits declined in 1996
due to less favorable market conditions.
INVESTMENT SPREAD. Investment results and interest crediting rates were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
================================================================================
<S> <C> <C> <C>
Investment yield 8.14% 8.16% 8.33%
Average crediting rate 5.99 6.07 6.22
Investment spread 2.15 2.09 2.11
- --------------------------------------------------------------------------------
</TABLE>
Net investment income increased in 1997 and 1996 as a result of growth in
invested assets. Investment yields decreased due to lower interest rates on new
investment purchases. The spread between investment yield and the average rate
credited to policyholders has remained steady and is within product pricing
assumptions. At December 31, 1997, one-half of the division's insurance and
annuity liabilities were subject to interest crediting rate adjustments.
MORTALITY AND PERSISTENCY. Death claims and premium termination rates were
as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Death claims $ 912 $ 849 $ 774
Death claims per $1,000
in force 3.36 3.23 3.19
Premium termination rate 13.55% 14.05% 12.34%
- --------------------------------------------------------------------------------
</TABLE>
Death claims, included in insurance and annuity benefits, increased 7% in
1997 and 10% in 1996 due to the acquisitions of Home Beneficial Life and
Independent Life. The 1997 and 1996 premium termination rates also reflect
higher terminations, which were in line with management's expectations,
following these acquisitions. Overall, mortality and persistency experience was
within pricing assumptions.
OPERATING EXPENSES. The ratio of operating expenses to direct premiums and
deposits was 17.0%, 16.8%, and 14.5% in 1997, 1996, and 1995, respectively. The
higher ratios in 1997 and 1996 reflected lower annuity deposits and Home
Beneficial Life's and Independent Life's higher overall expense ratios, which
did not completely reflect anticipated savings from consolidation of operations.
Total cost savings related to the Independent Life, Home Beneficial Life, and
USLIFE acquisitions are exceeding management's original expectations.
OUTLOOK. Management expects that the realignment within the division,
improvements in product portfolios and producer relationships, and completion of
the consolidations will strengthen sales and lower the expense ratio.
CONSUMER FINANCE
The Consumer Finance division provides consumer and home equity loans and
credit-related insurance products. Division results are influenced by the amount
and mix of finance receivables, credit quality, borrowing cost, and operating
expenses. Division results were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Consumer Finance earnings $ 156 $ 128 $ 85
Average finance receivables 7,523 8,124 8,283
Yield on finance receivables 16.81% 17.85% 18.02%
Borrowing cost 6.80 6.88 7.01
Interest spread 10.01 10.97 11.01
Operating expenses $ 466 $ 504 $ 458
- --------------------------------------------------------------------------------
</TABLE>
EARNINGS. Division earnings increased 21% in 1997 primarily due to improved
credit quality, which more than offset the effect of a decrease in average
finance receivables. Earnings for 1996 and 1995 were adversely affected by
credit quality deterioration.
23 1997 ANNUAL REPORT
<PAGE> 4
FINANCE RECEIVABLES. Average finance receivables decreased $601 million
during 1997, primarily due to the reclassification of non-strategic assets to
assets held for sale at December 31, 1996. These receivables were subsequently
sold in 1997. Finance receivables at December 31, 1997 were $387 million higher
than at December 31, 1996, primarily due to growth of real estate secured loans.
The division increased the proportion of real estate secured receivables to 52%
at December 31, 1997 from 49% in 1996 and 35% in 1995.
CREDIT QUALITY. The division experienced a significant decline in credit
quality in fourth quarter 1995 and recorded a pretax adjustment of $216 million
($140 million aftertax) to increase the allowance for losses on finance
receivables. Since 1995, the division has focused on an action plan to improve
credit quality. The components of this action plan included selling
under-performing receivable portfolios, raising underwriting standards, and
rebalancing the portfolio to increase the proportion of real estate secured
receivables.
The allowance for finance receivable losses, delinquencies, and charge offs
were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Allowance for finance
receivable losses $ 373 $ 395 $ 492
% of finance receivables 4.65% 5.18% 5.85%
Delinquencies $ 310 $ 317 $ 386
% of finance receivables 3.60% 3.83% 4.13%
Charge offs $ 270 $ 444 $ 308
% of average finance
receivables 3.60% 5.47% 3.77%
- --------------------------------------------------------------------------------
</TABLE>
The 1997 decreases in the allowance, delinquencies, and charge offs
reflected the positive impact of the credit quality improvement program. The
1996 decreases in the allowance and the delinquency ratios were primarily due to
the reclassification of certain receivables to assets held for sale at December
31, 1996. The 1996 charge offs included activity related to the reclassified
portfolios. Excluding these portfolios, the 1996 charge-off ratio was 4.70%.
INTEREST SPREAD. The interest spread between yield and borrowing cost
decreased 96 basis points during 1997 due to declining yields, partially offset
by lower borrowing cost. Yield on finance receivables declined 104 basis points
in 1997, compared to a decrease of 17 basis points during 1996. The 1997 decline
reflected the increased proportion of real estate secured loans, which generally
have a higher level of credit quality and lower yields.
OPERATING EXPENSES. Operating expenses decreased 8% in 1997, compared to a
10% increase in 1996. The 1997 decrease was primarily due to exclusion of the
operating expenses associated with servicing the portfolios held for sale and
decreased collection expenses. The increase in 1996 operating expenses reflected
lower deferred loan origination costs, increased costs related to collection
efforts, and branch office growth that occurred in 1994 and 1995. As a
percentage of average finance receivables, operating expenses were 6.1%, 6.1%,
and 5.4% in 1997, 1996, and 1995, respectively. Operating expenses as a
percentage of average finance receivables for 1997 remained level due to the
lower average receivables.
OUTLOOK. Management anticipates that increases in receivables due to
improvements in loan production and portfolio acquisitions, combined with
continuing improvements in credit quality and the expense ratio, will favorably
impact earnings growth in 1998.
INVESTMENTS
At year-end 1997, the company's $81 billion of assets included $54 billion
of investments, principally supporting insurance and annuity liabilities. Fixed
maturity securities and mortgage loans accounted for 94% of total investments.
FAIR VALUE OF SECURITIES
A decrease in interest rates and resulting increases in bond values in 1997
caused a $1.3 billion increase in the fair value adjustment to fixed maturity
securities and a related $544 million positive adjustment to shareholders'
equity. The components of the adjustment to report fixed maturity and equity
securities at fair value at December 31, and the 1997 change, were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 Change
================================================================================
<S> <C> <C> <C>
Fair value adjustment to fixed
maturity securities $2,844 $1,547 $1,297
Decrease in deferred policy
acquisition costs and cost of
insurance purchased (1,062) (598) (464)
Increase in deferred income
taxes (628) (339) (289)
- --------------------------------------------------------------------------------
Net unrealized gains
Fixed maturity securities 1,154 610 544
Equity securities 15 17 (2)
- --------------------------------------------------------------------------------
Net unrealized gains
on securities $1,169 $ 627 $ 542
- --------------------------------------------------------------------------------
</TABLE>
In contrast, increases in interest rates in 1996 resulted in a $1.6 billion
decrease in the fair value
AMERICAN GENERAL CORPORATION 24
<PAGE> 5
adjustment to fixed maturity securities and a $655 million negative adjustment
to shareholders' equity from year-end 1995.
Accounting rules do not permit adjustment to fair value of the insurance
liabilities supported by these securities, thereby creating volatility in
shareholders' equity as interest rates change. Care should be exercised in
drawing conclusions based on balance sheets that are only partially adjusted to
fair value.
FIXED MATURITY SECURITIES
At year-end 1997, fixed maturity securities included $35.9 billion of
corporate bonds, $9.4 billion of mortgage-backed securities (MBSs), and $2.3
billion of bonds issued by governmental agencies. The average credit rating of
the fixed maturity securities was A+ at year-end 1997, 1996, and 1995. Average
ratings by category at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Average
In millions 1997 Rating
================================================================================
<S> <C> <C> <C>
Investment grade $ 36,328 76% A
Mortgage-backed 9,428 20 AAA
Below investment grade 1,991 4 BB-
- --------------------------------------------------------------------------------
Total fixed maturity
securities $ 47,747 100% A+
- --------------------------------------------------------------------------------
</TABLE>
MORTGAGE-BACKED SECURITIES. MBSs at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
CMOs $ 8,354 $ 9,330 $ 10,466
Pass-through securities 673 1,053 1,061
Commercial MBSs 401 259 136
- --------------------------------------------------------------------------------
Total MBSs $ 9,428 $10,642 $ 11,663
- --------------------------------------------------------------------------------
</TABLE>
Collateralized mortgage obligations (CMOs) are purchased to diversify the
portfolio risk characteristics from primarily corporate credit risk to a mix of
credit and cash flow risk. The majority of the CMOs in the company's investment
portfolio have relatively low cash flow variability. In addition, virtually all
CMOs in the portfolio have minimal credit risk because the underlying collateral
is guaranteed by Federal agencies. These CMOs are highly liquid and offer higher
yields than corporate debt securities of similar credit quality and expected
average lives.
The principal risks inherent in holding MBSs are prepayment and extension
risks arising from changes in market interest rates. In declining interest rate
environments, the mortgages underlying CMOs are prepaid more rapidly than
anticipated, causing early repayment of CMOs. In rising interest rate
environments, underlying mortgages are prepaid at a slower rate than
anticipated, causing CMO principal payments to be extended. Although early CMO
repayments may result in acceleration of income from recognition of any
unamortized discount, the proceeds typically are reinvested at lower current
yields, resulting in a net reduction of future investment income. Proceeds from
repayments of the company's MBSs decreased to $496 million in 1997 from $885
million in 1996 and $686 million in 1995. At current interest rate levels,
repayments are expected to increase slightly in 1998.
The company manages this prepayment and extension risk by investing in CMO
tranches that provide for greater stability of cash flows. The mix of CMO
tranches at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Planned Amortization Class $ 4,520 $ 5,172 $ 5,579
Sequential 2,685 2,967 3,268
Other 1,149 1,191 1,619
- --------------------------------------------------------------------------------
Total CMOs $ 8,354 $ 9,330 $ 10,466
- --------------------------------------------------------------------------------
</TABLE>
The Planned Amortization Class (PAC) tranche is structured to provide more
certain cash flows to the investor and therefore is subject to less prepayment
and extension risk than other CMO tranches. PACs derive their stability from two
factors: (1) early repayments are applied first to other tranches to preserve
the PACs' originally scheduled cash flows as much as possible, and (2) cash
flows applicable to other tranches are applied first to the PACs if the PACs'
actual cash flows are received later than originally anticipated. PACs accounted
for approximately 48% of total MBSs at year-end 1997, 1996, and 1995.
Sequentials allocate all principal payments to tranches based on maturity,
retiring the shortest maturity tranches first. The prepayment and extension risk
associated with a Sequential tranche can vary as interest rates fluctuate, since
Sequentials are not supported by other tranches. Sequentials include PACs that
effectively function as Sequentials due to excessive early repayment of the
underlying mortgages.
The majority of the company's CMO portfolio trades in the open market. As
such, the company obtains market prices from outside vendors. Any security price
not received from a vendor is obtained from the originating broker or, in rare
circumstances, is internally calculated.
BELOW INVESTMENT GRADE. Below investment grade securities have credit
ratings below BBB-. Below investment grade securities were 4% of invested assets
at year-end 1997 and 3% for 1996 and 1995. The company invests in below
investment grade securities to
25 1997 ANNUAL REPORT
<PAGE> 6
enhance the overall yield of the portfolio. Investment income from below
investment grade securities was $178 million (9.6% yield) in 1997, $161 million
(9.5% yield) in 1996, and $163 million (9.7% yield) in 1995. Realized investment
gains (losses) were immaterial.
NON-PERFORMING. Bonds are deemed to be non-performing when the payment of
interest is sufficiently uncertain as to preclude the accrual of interest.
Non-performing bonds were less than 0.1% of total fixed maturity securities at
year-end 1997, 1996, and 1995.
PROJECTED CASH FLOWS. Projected principal cash flows and average interest
rates by expected maturity date for fixed maturity securities at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Fixed Rate Variable Rate
------------------------ ---------------------
Cash Average Cash Average
In millions Flows(a) Rate Flows Rate(b)
================================================================================
<S> <C> <C> <C> <C>
1998 $ 933 7.33% $ -- -- %
1999 1,762 7.73 -- --
2000 2,168 7.59 -- --
2001 2,940 7.67 10 6.81
2002 4,140 7.62 40 7.96
Thereafter 33,996 7.28 534 6.12
- --------------------------------------------------------------------------------
Total $ 45,939 7.37% $ 584 6.26%
- --------------------------------------------------------------------------------
Fair value $ 47,153 $ 589
- --------------------------------------------------------------------------------
</TABLE>
(a) MBS prepayment assumptions are based on rates in effect at December 31,
1997.
(b) Based on rates in effect at December 31, 1997.
The company uses interest rate swap agreements to convert specific
investment securities from a floating to a fixed-rate basis, or vice versa.
Notional amounts of interest rate swap agreements, under which the company
receives fixed rates and pays variable rates, and the related average rates by
contractual maturity date at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Average Average
Notional Receive Pay
In millions Amount Rate Rate*
================================================================================
<S> <C> <C> <C>
1999 $ 9 6.92% 8.86%
2002 15 7.10 5.98
Thereafter 145 6.94 6.28
- --------------------------------------------------------------------------------
Total $ 169 6.95% 6.39%
- --------------------------------------------------------------------------------
</TABLE>
*Based on rates in effect at December 31, 1997.
The fair value of these agreements was $5 million at December 31, 1997.
MORTGAGE LOANS
Mortgage loans on real estate, consisting primarily of loans on office and
retail properties, represented 6% of invested assets at year-end 1997. Mortgage
loan statistics at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Mortgage loans $3,326 $ 3,312 $ 3,433
Allowance for losses (54) (84) (96)
- --------------------------------------------------------------------------------
Mortgage loans, net $3,272 $ 3,228 $ 3,337
- --------------------------------------------------------------------------------
Non-performing
Delinquent (60+ days) .6% .7% 2.6%
Restructured 3.5 4.4 2.9
- --------------------------------------------------------------------------------
Total non-performing 4.1% 5.1% 5.5%
- --------------------------------------------------------------------------------
Allowance for losses 1.6% 2.5% 2.8%
Yield on restructured loans 8.6 8.3 8.3
Foreclosures during the year $ 12 $ 36 $ 78
- --------------------------------------------------------------------------------
</TABLE>
NON-PERFORMING. Non-performing mortgage loans include loans delinquent 60
days or more and loans that have been restructured and are currently performing
under the modified terms. Non-performing mortgage loans totaled $135 million at
year-end 1997, compared to $169 million and $189 million at year-end 1996 and
1995, respectively. The company's portfolio continues to outperform the life
insurance industry averages for non-performing mortgage loans. The industry
average was 6.9% at September 30, 1997, the latest date for which information is
available.
WATCH LIST. Mortgage loans are placed on the company's watch list if (1)
the loan is delinquent 30-59 days, (2) the borrower is in bankruptcy, or (3)
the loan is potentially undercollateralized. At year-end 1997, $128 million of
mortgage loans were on the company's watch list, compared to $286 million at
year-end 1996 and $274 million at year-end 1995. The 1997 decrease was due to
loans that were no longer undercollateralized or were reinstated, refinanced,
or repaid. While the watch list loans may be predictive of higher
non-performing loans in the future, the company does not anticipate a
significant effect on operations, liquidity, or capital from these loans.
PROJECTED CASH FLOWS. Projected principal cash flows and average interest
rates by contractual maturity date for mortgage loans on real estate at December
31, 1997 were as follows:
<TABLE>
<CAPTION>
Average
In millions Cash Flows Fixed Rate
================================================================================
<S> <C> <C>
1998 $ 200 9.47%
1999 155 9.58
2000 272 9.58
2001 208 9.43
2002 173 9.11
Thereafter 2,338 8.55
- --------------------------------------------------------------------------------
Total $3,346 8.82%
- --------------------------------------------------------------------------------
Fair value $3,399
- --------------------------------------------------------------------------------
</TABLE>
AMERICAN GENERAL CORPORATION 26
<PAGE> 7
CAPITAL RESOURCES
The company's overall financial strength is based on total equity of $9.3
billion and is confirmed by strong ratings for both debt-paying and
claims-paying ability. To facilitate analysis of capital resources, corporate
capital and capital of the business divisions are discussed separately below.
CORPORATE CAPITAL
Total capital of the parent company is referred to as "corporate capital."
Since American General is a holding company, the level of corporate capital is
determined primarily by the required equity of its business divisions, while the
mix of corporate capital between debt and equity is influenced by overall
corporate strategy and structure.
American General's target capital structure consists of 25% corporate debt,
15% redeemable equity, and 60% shareholders' equity. At year-end 1997, corporate
capital totaling $10.0 billion, excluding the fair value adjustment on
securities, consisted of $1.9 billion corporate debt (19%), $1.7 billion
redeemable equity (17%), and $6.4 billion shareholders' equity (64%).
On February 25, 1998, American General issued 10.2 million shares of common
stock and paid $580 million cash to complete the $1.2 billion acquisition of
Western National. The cash portion of the purchase price was financed through
short-term borrowings. Following the acquisition, the company's pro forma
capital structure was 25% corporate debt, 15% redeemable equity, and 60%
shareholders' equity.
DEBT. American General's corporate debt ratings at December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Standard Duff &
& Poor's Phelps Moody's
================================================================================
<S> <C> <C> <C>
Commercial paper A-1+ D-1+ P-1
(Highest) (Highest) (Highest)
Long-term debt AA- AA- A2
(Strong) (Strong) (Strong)
- --------------------------------------------------------------------------------
</TABLE>
Projected principal cash flows and average interest rates by contractual
maturity date for corporate long-term debt at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Average
In millions Cash Flows Fixed Rate
================================================================================
<S> <C> <C>
1998 $ 355 8.37%
1999 100 7.70
2000 350 8.23
Thereafter 550 7.16
- --------------------------------------------------------------------------------
Total $1,355 7.79%
- --------------------------------------------------------------------------------
Fair value $1,407
- --------------------------------------------------------------------------------
</TABLE>
The weighted-average interest rate on the $575 million of corporate
short-term debt at December 31, 1997 was 6.12%. The company limits its exposure
to market interest rate increases through the issuance of fixed-rate debt and,
to a lesser extent, the use of derivative financial instruments to synthetically
create fixed-rate debt by altering the nature of short-term debt. At December
31, 1997, the company had interest rate swap agreements with a total notional
amount of $400 million under which it receives variable rates averaging 5.72%
(based on rates in effect at December 31, 1997) and pays fixed rates averaging
6.15%. These agreements, which expire after 2002, had an immaterial fair value
at December 31, 1997.
REDEEMABLE EQUITY. During the last three years, the company issued
redeemable equity totaling $1.7 billion through two wholly owned subsidiaries
and two subsidiary trusts. These securities are recorded on the consolidated
balance sheet as preferred securities within redeemable equity. Proceeds from
these issuances were used primarily to reduce short-term debt issued in
connection with corporate development activities.
RETIREMENT SERVICES AND LIFE INSURANCE
RISK-BASED CAPITAL. The amount of statutory equity required to support the
business of American General's retirement services and life insurance companies
is principally a function of four factors: (1) the quality of the assets
invested to support insurance and annuity reserves, (2) the mortality and other
insurance-related risks, (3) the interest-rate risk resulting from potential
mismatching of asset and liability durations, and (4) general business risks.
Each of these items is a key factor in the National Association of Insurance
Commissioners' (NAIC) risk-based capital (RBC) formula, used to evaluate the
adequacy of a life insurance company's statutory equity.
The RBC formula specifies weighting factors that are applied to financial
balances or levels of activity of each company, based on the perceived degree of
risk, to calculate RBC. The RBC ratio is determined by dividing a life insurance
company's total adjusted capital by its Authorized Control Level RBC.
The RBC requirements provide for four different levels of regulatory
attention depending on an insurance company's RBC ratio, the least severe of
which is the Company Action Level. At the Company Action Level, the company must
submit a comprehensive financial plan to the state insurance commissioner that
discusses proposed corrective actions to improve its capital position.
27 1997 ANNUAL REPORT
<PAGE> 8
American General's target statutory equity for each of its retirement
services and life insurance companies is 2.5 times the Company Action Level RBC
(or 5.0 times the Authorized Control Level RBC). At December 31, 1997, all of
American General's principal retirement services and life insurance companies
had statutory equity in excess of the target.
RATINGS. Rating agencies use the NAIC approach as a factor in assigning an
insurance company its claims-paying ability rating. This rating serves as an
indicator of the insurance company's financial strength and ability to meet its
future obligations to policyholders. The claims-paying ability ratings of the
company's principal retirement services and life insurance companies at December
31, 1997 were as follows:
<TABLE>
<CAPTION>
A.M. Standard Duff &
Best & Poor's Phelps Moody's
======================================================================================================
<S> <C> <C> <C> <C>
Retirement Services
VALIC A++ AA+ AAA Aa2
(Highest) (Excellent) (Highest) (Excellent)
Life Insurance
All American Life A+ AA+ Aa3
(Superior) (Excellent) (Excellent)
American General A++ AA+ AAA Aa3
Life (Highest) (Excellent) (Highest) (Excellent)
American General A++ AA+ AAA
Life and Accident (Highest) (Excellent) (Highest)
Franklin Life A++ AA+ AAA Aa3
(Highest) (Excellent) (Highest) (Excellent)
Old Line Life A+ AA+ Aa3
(Superior) (Excellent) (Excellent)
United States Life A+ AA+ Aa3
(Superior) (Excellent) (Excellent)
- ------------------------------------------------------------------------------------------------------
</TABLE>
CONSUMER FINANCE
The Consumer Finance division's capital varies directly with the amount of
total finance receivables. The capital mix of consumer finance debt and equity
is based primarily upon maintaining leverage at a level that supports
cost-effective funding.
Consumer finance capital of $8.5 billion at year-end 1997 included $7.3
billion of consumer finance debt, which was not guaranteed by the parent
company, and $1.2 billion of equity. The Consumer Finance division's target
ratio of debt to tangible net worth, a standard measure of financial risk in the
consumer finance industry, is 7.5 to 1. The ratio equaled the target at year-end
1997 and 1995, and was 8.4 to 1 at year-end 1996. The 1996 ratio exceeded the
target of 7.5 to 1 due to the $93 million aftertax loss associated with assets
held for sale as of December 31, 1996.
RATINGS. Consumer finance debt ratings at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Standard Duff &
& Poor's Phelps Moody's
================================================================================
<S> <C> <C> <C>
Commercial paper A-1 D-1+ P-1
(Strong) (Highest) (Highest)
Long-term debt A+ A+ A2
(Strong) (Strong) (Strong)
- --------------------------------------------------------------------------------
</TABLE>
ASSET/LIABILITY MANAGEMENT
The company's asset/liability management program is designed to maintain a
reasonable balance in the duration of assets and liabilities, while achieving
liquidity and profitability objectives by minimizing the company's exposure to
fluctuations in interest rates. Asset/liability management is performed on an
ongoing basis for each operating company as well as on an aggregate basis.
RETIREMENT SERVICES AND LIFE INSURANCE
STRATEGY. The company responds to fluctuations in interest rates through
periodic repricing of new products and adjustment of interest crediting rates on
existing products where possible. As a result, the company has maintained
overall margins on interest-sensitive products, despite declining market
interest rates.
The company's ability to manage interest crediting rates and durations is
largely due to the nature of its insurance and annuity products. At December 31,
1997, the company had the ability, subject to certain minimum rate guarantees,
to adjust interest crediting rates on approximately 72% of its insurance and
annuity liabilities. Insurance and annuity liabilities at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Retirement annuities $ 21,995 $ 21,067 $ 20,147
Traditional life 6,655 6,339 5,563
Interest-sensitive life 6,250 5,646 5,096
Participating life 3,541 3,485 3,396
Other annuities 7,061 7,391 7,550
Other 2,157 2,094 1,966
- --------------------------------------------------------------------------------
Total insurance and
annuity liabilities $ 47,659 $ 46,022 $ 43,718
- --------------------------------------------------------------------------------
</TABLE>
PROJECTED CASH FLOWS. Insurance investment contracts, included within
insurance and annuity liabilities, do not subject the company to significant
risks arising from policyholder mortality or morbidity. The majority of the
company's annuity contracts are considered to be insurance investment contracts.
Projected cash flows and average crediting rates by anticipated payment date
related to the company's
AMERICAN GENERAL CORPORATION 28
<PAGE> 9
insurance investment contracts at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Adjustable Non-Adjustable
Crediting Rate Crediting Rate
---------------------- --------------------
Cash Average Cash Average
In millions Flows(a) Rate(b) Flows(a) Rate
================================================================================
<S> <C> <C> <C> <C>
1998 $ 1,975 5.74% $125 5.53%
1999 1,752 5.78 41 6.43
2000 1,563 5.78 33 6.55
2001 1,431 5.80 30 6.55
2002 1,307 5.82 26 6.54
Thereafter 19,413 5.95 443 6.54
- --------------------------------------------------------------------------------
Total $27,441 5.90% $698 6.35%
- --------------------------------------------------------------------------------
Fair value $26,883 $740
- --------------------------------------------------------------------------------
</TABLE>
(a) Surrender assumptions are based on rates in effect at December 31, 1997.
(b) Based on rates in effect at December 31, 1997.
The company uses options to enter into interest rate swap agreements to
limit its exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. These agreements, with a notional amount of $3.0 billion and an
immaterial fair value at December 31, 1997, expire in 1998.
Projected cash flows of interest rate sensitive investments are detailed in
the "Investments" section beginning on page 24.
Cash flow testing of assets and liabilities is performed at least annually
under multiple interest rate scenarios to evaluate the appropriateness of the
company's investment portfolios relative to its insurance reserves. Cash flow
testing performed as of December 31, 1997 indicated that the company's insurance
subsidiaries would have sufficient cash flows to meet their insurance
obligations.
DURATION. The company manages the duration of its investment portfolio by
aligning characteristics of investment purchases with specific duration
objectives and, to a lesser extent, through portfolio restructuring actions. The
most recent estimated duration of the company's insurance and annuity
liabilities was in the range of 4.8 to 5.8 years, while the estimated duration
of the assets supporting these liabilities was 5.7 years.
CONSUMER FINANCE
STRATEGY. The company funds its finance receivables with equity and a
combination of fixed-rate debt, principally long-term, and floating-rate or
short-term debt, principally commercial paper. The company's mix of fixed-rate
and floating-rate debt is a management decision based in part on the nature of
the receivables being supported. The company limits its exposure to market
interest rate increases by fixing interest rates it pays for term periods.
PROJECTED CASH FLOWS. Projected principal cash flows and average interest
rates by contractual maturity date for finance receivables at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
Fixed Rate Variable Rate
--------------------- ------------------
Cash Average Cash Average
In millions Flows Rate Flows Rate*
================================================================================
<S> <C> <C> <C> <C>
1998 $2,137 21.40% $ 44 12.46%
1999 1,370 20.95 35 12.51
2000 855 18.55 28 12.48
2001 468 15.55 23 12.45
2002 288 13.05 19 12.41
Thereafter 2,013 13.05 250 12.09
- --------------------------------------------------------------------------------
Total $7,131 17.89% $ 399 12.23%
- --------------------------------------------------------------------------------
Fair value $7,234 $ 405
- --------------------------------------------------------------------------------
</TABLE>
*Based on rates in effect at December 31, 1997.
Projected principal cash flows and average interest rates by expected
maturity date for consumer finance long-term debt at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Fixed Rate Variable Rate
------------------- -----------------
Cash Average Cash Average
In millions Flows Rate Flows Rate*
================================================================================
<S> <C> <C> <C> <C>
1998 $ 825 7.54% $ -- -- %
1999 570 7.33 40 6.10
2000 1,279 6.79 -- --
2001 42 6.24 -- --
2002 550 6.77 -- --
Thereafter 713 7.48 -- --
- --------------------------------------------------------------------------------
Total $3,979 7.14% $ 40 6.10%
- --------------------------------------------------------------------------------
Fair value $4,077 $ 40
- --------------------------------------------------------------------------------
</TABLE>
*Based on rates in effect at December 31, 1997.
The weighted-average interest rate on the $3.3 billion of consumer finance
short-term debt at December 31, 1997 was 5.9%. The company uses derivative
financial instruments to synthetically create fixed-rate debt by altering the
nature of floating-rate or short-term debt. Notional amounts of interest rate
swap agreements, under which the company receives variable rates and pays fixed
rates, and related average rates by contractual maturity dates at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Average Average
Notional Receive Pay
In millions Amount Rate* Rate
================================================================================
<S> <C> <C> <C>
1998 $ 265 5.62% 7.08%
1999 50 5.72 9.39
2000 225 5.70 8.80
2002 200 5.72 6.93
Thereafter 200 5.72 6.16
- --------------------------------------------------------------------------------
Total $ 940 5.69% 7.39%
- --------------------------------------------------------------------------------
</TABLE>
*Based on rates in effect at December 31, 1997.
Had the company terminated these agreements at December 31, 1997, it would
have paid $30 million.
29 1997 ANNUAL REPORT
<PAGE> 10
LIQUIDITY
The company's overall liquidity is based on cash flows from the business
divisions and its ability to borrow in both the long-term and short-term markets
at competitive rates. At December 31, 1997, the company had committed and unused
credit facilities of $4.0 billion. The company believes that its overall sources
of liquidity will continue to be sufficient to satisfy its foreseeable financial
obligations.
PARENT COMPANY
The primary sources of cash for the parent company include net dividends
from subsidiaries and the proceeds from issuance of debt and redeemable equity.
During 1997, the parent company received $666 million of net dividends from
subsidiaries. While the subsidiaries are restricted in the amount of dividends
they may pay to the parent company, these restrictions are not expected to
affect American General's ability to meet its cash obligations in 1998.
The parent primarily uses cash for acquisitions, to pay dividends to
shareholders, to pay interest on corporate debt, and to repurchase common stock.
American General repurchased 9.9 million shares of its common stock at a cost of
$466 million during 1997, 5.3 million shares at a cost of $187 million during
1996, and 1.4 million shares at a cost of $45 million in 1995. Most of the 1997
repurchase activity was undertaken to acquire an amount of shares essentially
equivalent to the amount issued in the acquisition of Home Beneficial Life.
Since 1987, American General has repurchased 113.7 million common shares
for an aggregate cost of $2.6 billion. To meet pooling of interests accounting
requirements in connection with the USLIFE merger, American General rescinded
its share buyback program prior to consummating the merger. Future repurchase
activity will be based on the company's corporate development activities,
capital management strategy, and fluctuations in its common stock price.
RETIREMENT SERVICES AND LIFE INSURANCE
Principal sources of cash for the Retirement Services and Life Insurance
divisions were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Operating activities $1,890 $1,984 $1,984
Fixed policyholder account
deposits, net of withdrawals 95 120 1,231
Variable account deposits, net
of withdrawals 2,094 1,767 1,194
- --------------------------------------------------------------------------------
</TABLE>
Operating cash flows for the Retirement Services and Life Insurance
divisions remained stable over the last three years. In both 1997 and 1996, the
decrease in net fixed policyholder account deposits and the increase in net
variable account deposits were the result of policyholders seeking higher
returns in equity-based investments, including the company's Separate Accounts.
Because the investment risk on variable accounts lies solely with the
policyholder, deposits and withdrawals related to Separate Accounts are not
included in the company's consolidated statement of cash flows.
The major uses of cash were the net purchase of investments necessary to
support increases in insurance and annuity liabilities, and net dividends paid
to the parent. The subsidiaries in these divisions paid net dividends of $586
million in 1997, compared to $315 million in 1996 and $359 million in 1995.
CONSUMER FINANCE
Principal sources of cash for the Consumer Finance division were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Operating activities $ 516 $ 590 $ 658
Increase (decrease) in borrowings (366) 155 376
Disposition of non-strategic assets 733 -- --
- --------------------------------------------------------------------------------
</TABLE>
Cash provided by operating activities decreased in 1997 and 1996 primarily
as a result of lower finance charge revenues attributable to lower average
finance receivables and yields. Cash provided by the sale of non-strategic
assets resulted in a decrease in borrowings in 1997. Cash provided by borrowings
decreased in 1996 due to lower growth in receivables.
The major uses of cash were to fund finance receivables and net dividends
paid to the parent company. Net cash used to fund finance receivables was $793
million in 1997, up from $453 million in 1996 and down from $759 million in
1995. Net dividends paid to the parent company totaled $80 million in 1997,
compared to $139 million in 1996 and $33 million in 1995.
REGULATION AND OTHER
REGULATION
Insurance regulators monitor market conduct, such as sales and advertising
practices, agent licensing and compensation, policyholder service, complaint
handling, underwriting, and claims practices. The company is not aware of any
existing or pending regulatory actions concerning market conduct that would
materially affect its operations. However, as a result of increased regulatory
scrutiny, market conduct compliance costs will increase for American General's
insurance subsidiaries. See Note 19.2 to the consolidated financial statements
for discussion of purported class action lawsuits related to market conduct.
AMERICAN GENERAL CORPORATION 30
<PAGE> 11
TAXATION
Tax laws affect not only the way the company is taxed but also the design
of many of its products. Changes in tax laws or regulations could adversely
affect operating results.
YEAR 2000
The company is in the process of modifying its computer systems to be Year
2000 compliant. During 1997, the company incurred and expensed $15 million
(pretax) related to this project. The company estimates that it will incur
future costs in excess of $45 million (pretax) for additional internal staff,
third-party vendors, and other expenses to render its systems Year 2000
compliant.
The company expects to substantially complete this project during 1998.
However, risks and uncertainties exist in most significant systems development
projects. If conversion of the company's systems is not completed on a timely
basis, due to non-performance by third-party vendors or other unforeseen
circumstances, the Year 2000 issue could have a material adverse impact on the
operations of the company.
LITIGATION
See Note 19.2 to the consolidated financial statements for specific legal
proceedings involving the company.
FORWARD-LOOKING STATEMENTS
The statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements are made based upon
management's current expectations and beliefs concerning future developments and
their potential effects upon the company. There can be no assurance that future
developments affecting the company will be those anticipated by management.
Actual results may differ materially from those included in the forward-looking
statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic conditions,
including the performance of financial markets and interest rates; (2) customer
responsiveness to both new products and distribution channels; (3) competitive,
regulatory, or tax changes that affect the cost of or demand for the company's
products; (4) adverse litigation results; (5) resolution of market conduct
issues; (6) the company's ability to render its computer systems Year 2000
compliant; and (7) the company's failure to achieve anticipated levels of
earnings or operational efficiencies related to recently acquired companies, as
well as other cost-saving initiatives. Investors are also directed to other
risks and uncertainties discussed in documents filed by the company with the
Securities and Exchange Commission.
31 1997 ANNUAL REPORT
<PAGE> 12
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
For the years ended December 31
In millions, except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES Premiums and other considerations $ 3,362 $ 3,244 $ 2,969
Net investment income 4,020 3,773 3,584
Finance charges 1,265 1,450 1,492
Realized investment gains 40 62 18
Equity in earnings of Western National Corporation 54 40 43
Other 186 145 130
-----------------------------------------------------------------------------------------------------
Total revenues 8,927 8,714 8,236
- ---------------------------------------------------------------------------------------------------------------------------
BENEFITS AND Insurance and annuity benefits 4,332 4,218 4,085
EXPENSES Operating costs and expenses 1,447 1,405 1,275
Commissions 873 848 812
Change in deferred policy acquisition costs and
cost of insurance purchased (100) (124) (235)
Provision for finance receivable losses 248 417 574
Interest expense
Corporate 158 162 197
Consumer Finance 461 493 518
Other charges
Merger-related costs 272 - -
Loss on sale of non-strategic assets 113 165 -
Litigation settlement 50 - -
Write-down of group business - 50 -
-----------------------------------------------------------------------------------------------------
Total benefits and expenses 7,854 7,634 7,226
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS Income before income tax expense 1,073 1,080 1,010
Income tax expense 447 387 341
-----------------------------------------------------------------------------------------------------
Income before net dividends on preferred
securities of subsidiaries 626 693 669
Net dividends on preferred securities of subsidiaries 84 40 19
-----------------------------------------------------------------------------------------------------
Net income $ 542 $ 653 $ 650
- ---------------------------------------------------------------------------------------------------------------------------
SHARE DATA Net income per share
Basic $ 2.21 $ 2.67 $ 2.68
Diluted 2.19 2.63 2.66
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AMERICAN GENERAL CORPORATION 32
<PAGE> 13
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
At December 31
In millions, except share data 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS Investments
Fixed maturity securities (amortized cost:
$44,961; $42,867; $40,149) $ 47,747 $ 44,355 $ 43,220
Mortgage loans on real estate 3,272 3,228 3,337
Equity securities (cost: $93; $111; $144) 116 137 191
Policy loans 2,156 2,011 1,887
Investment real estate 233 626 607
Other long-term investments 176 210 183
Short-term investments 306 265 173
-----------------------------------------------------------------------------------------------------
Total investments 54,006 50,832 49,598
-----------------------------------------------------------------------------------------------------
Cash 263 176 227
Finance receivables, net 7,639 7,230 7,918
Investment in Western National Corporation 583 535 407
Deferred policy acquisition costs 2,718 2,954 2,343
Cost of insurance purchased 680 755 504
Acquisition-related goodwill 677 605 627
Assets held for sale - 667 -
Other assets 2,572 2,517 2,289
Assets held in Separate Accounts 11,482 7,863 5,170
-----------------------------------------------------------------------------------------------------
Total assets $ 80,620 $ 74,134 $ 69,083
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES Insurance and annuity liabilities $ 47,659 $ 46,022 $ 43,718
Debt (short-term)
Corporate ($575; $631; $776) 1,916 2,102 2,295
Consumer Finance ($3,255; $3,131; $2,490) 7,266 7,630 7,470
Income tax liabilities 1,380 1,078 1,387
Other liabilities 1,608 1,368 1,205
Liabilities related to Separate Accounts 11,482 7,863 5,170
-----------------------------------------------------------------------------------------------------
Total liabilities 71,311 66,063 61,245
- ---------------------------------------------------------------------------------------------------------------------------
REDEEMABLE Company-obligated mandatorily redeemable
EQUITY preferred securities of subsidiaries holding
solely company subordinated notes
Non-convertible 1,479 982 485
Convertible 247 245 244
-----------------------------------------------------------------------------------------------------
Total redeemable equity 1,726 1,227 729
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Convertible preferred stock (shares issued and
EQUITY outstanding: 2,317,701; 2,323,722) 85 85 -
Common stock (shares issued: 259,135,053;
283,738,546; 283,734,425; outstanding:
243,206,215; 241,170,903; 242,104,405) 326 572 532
Net unrealized gains on securities 1,169 627 1,296
Retained earnings 6,624 6,420 6,071
Cost of treasury stock (621) (860) (790)
-----------------------------------------------------------------------------------------------------
Total shareholders' equity 7,583 6,844 7,109
-----------------------------------------------------------------------------------------------------
Total liabilities and equity $ 80,620 $ 74,134 $ 69,083
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
33 1997 ANNUAL REPORT
<PAGE> 14
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
<TABLE>
<CAPTION>
For the years ended December 31
In millions, except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONVERTIBLE Balance at beginning of year $ 85 $ -- $ --
PREFERRED Issuance for acquisition -- 85 --
STOCK -----------------------------------------------------------------------------------------------------
Balance at end of year 85 85 --
- ---------------------------------------------------------------------------------------------------------------------------
COMMON Balance at beginning of year 572 532 528
STOCK Retirement of USLIFE treasury shares (346) -- --
Treasury shares issued for acquisitions and other 100 40 4
-----------------------------------------------------------------------------------------------------
Balance at end of year 326 572 532
- ---------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED Balance at beginning of year 627 1,296 (1,092)
GAINS ON Change during year 542 (669) 2,388
-----------------------------------------------------------------------------------------------------
Securities Balance at end of year 1,169 627 1,296
- ---------------------------------------------------------------------------------------------------------------------------
RETAINED Balance at beginning of year 6,420 6,071 5,705
EARNINGS Net income 542 653 650
Cash dividends (per share)
Preferred ($2.57; $1.94) (6) (5) --
Common ($1.40; $1.30; $1.24) (329) (299) (285)
Other (3) -- 1
-----------------------------------------------------------------------------------------------------
Balance at end of year 6,624 6,420 6,071
- ---------------------------------------------------------------------------------------------------------------------------
COST OF Balance at beginning of year (860) (790) (807)
TREASURY Retirement of USLIFE treasury shares 346 -- --
STOCK Share repurchases (466) (187) (45)
Issuance for acquisitions 304 104 --
Issuance under employee benefit plans and other 55 13 62
-----------------------------------------------------------------------------------------------------
Balance at end of year (621) (860) (790)
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS'
EQUITY Balance at end of year $ 7,583 $ 6,844 $ 7,109
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENT OF COMMON STOCK ACTIVITY
<TABLE>
<CAPTION>
In thousands of shares 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES ISSUED Balance at beginning of year 283,739 283,734 283,731
Retirement of USLIFE treasury shares (24,650) -- --
Conversion of convertible preferred stock 46 5 3
-----------------------------------------------------------------------------------------------------
Balance at end of year 259,135 283,739 283,734
- ---------------------------------------------------------------------------------------------------------------------------
TREASURY Balance at beginning of year (42,568) (41,630) (42,795)
SHARES Retirement of USLIFE treasury shares 24,650 -- --
Share repurchases (9,946) (5,273) (1,417)
Issuance for acquisitions 9,462 3,740 --
Issuance under employee benefit plans and other 2,473 595 2,582
-----------------------------------------------------------------------------------------------------
Balance at end of year (15,929) (42,568) (41,630)
- ---------------------------------------------------------------------------------------------------------------------------
OUTSTANDING
SHARES Balance at end of year 243,206 241,171 242,104
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AMERICAN GENERAL CORPORATION 34
<PAGE> 15
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
American General Corporation
<TABLE>
<CAPTION>
For the years ended December 31
In millions 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING Net income $ 542 $ 653 $ 650
ACTIVITIES Reconciling adjustments
Insurance and annuity liabilities 1,082 1,351 1,535
Deferred policy acquisition costs and
cost of insurance purchased (100) (124) (235)
Provision for finance receivable losses 248 417 574
Loss on sale of non-strategic assets 113 165 --
Realized investment gains (40) (62) (18)
Other, net (200) (121) (116)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,645 2,279 2,390
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING Investment purchases (11,010) (10,678) (8,558)
ACTIVITIES Investment dispositions and repayments 10,290 9,280 6,102
Finance receivable originations and purchases (5,136) (5,339) (5,686)
Finance receivable principal payments received 4,343 4,886 4,927
Disposition of non-strategic assets 1,047 -- --
Acquisitions (283) (106) (920)
Investment in Western National Corporation -- (126) --
Other, net (92) (295) (25)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (841) (2,378) (4,160)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING Retirement Services and Life Insurance
ACTIVITIES Policyholder account deposits 3,068 2,996 3,365
Policyholder account withdrawals (2,973) (2,876) (2,134)
- ---------------------------------------------------------------------------------------------------------------------------
Total Retirement Services and Life Insurance 95 120 1,231
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Finance
Net increase (decrease) in short-term debt 124 641 (287)
Long-term debt issuances 731 124 1,577
Long-term debt redemptions (1,221) (610) (914)
- ---------------------------------------------------------------------------------------------------------------------------
Total Consumer Finance (366) 155 376
- ---------------------------------------------------------------------------------------------------------------------------
Corporate
Net decrease in short-term debt (56) (145) (421)
Long-term debt issuances -- -- 433
Long-term debt redemptions (133) (50) (100)
Issuances of preferred securities of subsidiaries 498 495 729
Common stock repurchases (467) (191) (40)
Dividends on common and preferred stock (335) (304) (285)
Other, net 47 (32) (24)
- ---------------------------------------------------------------------------------------------------------------------------
Total Corporate (446) (227) 292
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities (717) 48 1,899
- ---------------------------------------------------------------------------------------------------------------------------
NET CHANGE Net increase (decrease) in cash 87 (51) 129
IN CASH Cash at beginning of year 176 227 98
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 263 $ 176 $ 227
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
35 1997 ANNUAL REPORT
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Significant Accounting Policies
1.1 Preparation of Financial Statements
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) and include the accounts
of American General Corporation (American General) and its subsidiaries
(collectively, the company). All material intercompany transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements include the results of
operations, financial position, and cash flows of USLIFE Corporation (USLIFE)
under the pooling of interests method of accounting in conjunction with the
acquisition of USLIFE (see Note 2.2).
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities. Ultimate
results could differ from these estimates.
1.2 Investments
FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity
securities are classified as available-for-sale and recorded at fair value.
After adjusting related balance sheet accounts as if unrealized gains (losses)
had been realized, the net adjustment is recorded in net unrealized gains on
securities within shareholders' equity. If the fair value of a security
classified as available-for-sale declines below its cost and this decline is
considered to be other than temporary, the security is reduced to its fair
value, and the reduction is recorded as a realized loss.
MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance for losses covers all non-performing loans
and loans for which management has a concern based on its assessment of risk
factors, such as potential non-payment or non-monetary default. The allowance
is based on a loan-specific review and a formula that reflects past results and
current trends.
Loans for which the company determines that collection of all amounts due
under the contractual terms is not probable are considered to be impaired. The
company generally looks to the underlying collateral for repayment of impaired
loans. Therefore, impaired loans are considered to be collateral dependent and
are reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
POLICY LOANS. Policy loans are reported at unpaid principal balance.
INVESTMENT REAL ESTATE. Investment real estate is classified as held for
investment or available for sale, based on management's intent. Real estate
held for investment is carried at cost, less accumulated depreciation and
impairment write-downs. Real estate available for sale is carried at the lower
of cost (less accumulated depreciation, if applicable) or fair value less cost
to sell.
INVESTMENT INCOME. Interest on fixed maturity securities and performing and
restructured mortgage loans is recorded as income when earned and is adjusted
for any amortization of premium or discount. Interest on delinquent mortgage
loans is recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
REALIZED INVESTMENT GAINS. Realized investment gains (losses) are
recognized using the specific identification method.
1.3 Finance Receivables
FINANCE CHARGES. Finance charges on discounted receivables and interest on
interest-bearing receivables are recognized as revenue using the interest
method. The accrual of revenue is suspended when contractual payments are not
received for four consecutive months for loans and retail sales contracts, and
for six months for private label receivables. Extension fees and late charges
are recognized as revenue when received.
Direct costs incurred to originate loans, net of non-refundable points and
fees, are deferred and included in the carrying amount of the related loans.
The amount deferred is recognized as an adjustment to finance charge revenues,
using the interest method over the lesser of the contractual term or the
expected life based on prepayment experience. If loans are prepaid, any
remaining deferral is expensed.
LOSSES ON FINANCE RECEIVABLES. The company's policy is to charge off
finance receivables, except those secured by real estate, for which minimal or
no collections have been made for six months. For loans secured by real estate,
foreclosure proceedings are initiated when four monthly installments are past
due. At foreclosure, the carrying amount of a loan in excess of the fair value
of the underlying real estate is charged off.
The allowance for finance receivable losses is maintained at a level that
is considered adequate to absorb anticipated losses in the existing portfolio.
Management considers numerous factors including economic conditions,
portfolio composition, and loss and delinquency experience in its periodic
evaluations of the portfolio.
AMERICAN GENERAL CORPORATION 36
<PAGE> 17
1.4 Deferred Policy Acquisition Costs (DPAC)
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. DPAC
associated with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
DPAC is adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in net unrealized gains
on securities within shareholders' equity.
The company reviews the carrying amount of DPAC on at least an annual
basis. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
1.5 Cost of Insurance Purchased (CIP)
The cost assigned to certain acquired subsidiaries' insurance contracts in
force at the acquisition date is reported as CIP. Interest is accreted on the
unamortized balance of CIP at rates of 6.0% to 8.2%. CIP is charged to expense
and adjusted for the impact of net unrealized gains (losses) on securities in
the same manner as DPAC. The company reviews the carrying amount of CIP on at
least an annual basis using the same methods used to evaluate DPAC.
1.6 Acquisition-Related Goodwill
Acquisition-related goodwill is charged to expense in equal amounts,
generally over 20 to 40 years. The carrying amount of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary, including unexpected or adverse changes in the
following: (1) the economic or competitive environments in which the company
operates, (2) profitability analyses, (3) cash flow analyses, and (4) the fair
value of the relevant subsidiary. The company determines the subsidiary's fair
value based on an independent appraisal. If facts and circumstances suggest
that a subsidiary's goodwill is impaired, the company assesses the fair value
of the underlying business and reduces goodwill to an amount that results in
the book value of the subsidiary approximating fair value.
1.7 Separate Accounts
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities, for which the investment risk lies solely
with the contract holder. Therefore, the company's liability for these accounts
equals the value of the account assets. Investment income, realized investment
gains (losses), and policyholder account deposits and withdrawals related to
Separate Accounts are excluded from the consolidated statements of income and
cash flows. Assets held in Separate Accounts are primarily shares in mutual
funds, which are carried at fair value, based on the quoted net asset value per
share.
1.8 Insurance and Annuity Liabilities
Substantially all of the company's insurance and annuity liabilities
relate to long-duration contracts. The contracts normally cannot be changed or
canceled by the company during the contract period.
For interest-sensitive life and insurance investment contracts, reserves
equal the sum of the policy account balance and deferred revenue charges.
Reserves for other contracts are based on estimates of the cost of future
policy benefits. Reserves are determined using the net level premium method.
Interest assumptions used to compute reserves ranged from 2.0% to 13.5% at
December 31, 1997.
1.9 Premium Recognition
Most receipts for annuities and interest-sensitive life insurance policies
are classified as deposits instead of revenues. Revenues for these contracts
consist of mortality, expense, and surrender charges. Policy charges that
compensate the company for future services are deferred and recognized over the
period earned, using the same assumptions used to amortize DPAC.
For limited-payment contracts, net premiums are recorded as revenue, and
the difference between the gross premium received and the net premium is
deferred and recognized in a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due.
1.10 Participating Life Insurance
Participating life insurance accounted for approximately 10% of life
insurance in force and 11% of premiums and other considerations in 1997, 1996,
and 1995.
The portion of earnings allocated to participating policyholders that
cannot be expected to inure to shareholders is excluded from net income and
shareholders' equity. Dividends to be paid on participating life insurance
contracts are determined annually based on estimates of the contracts'
earnings. Policyholder dividends were $95 million, $94 million, and $92 million
in 1997, 1996, and 1995, respectively.
1.11 Reinsurance
The company limits its exposure to loss on any single insured to $1.5
million by ceding additional risks
37 1997 ANNUAL REPORT
<PAGE> 18
through reinsurance contracts with other insurers. The company diversifies its
risk of reinsurance loss by using a number of reinsurers that have strong
claims-paying ability ratings. If the reinsurer could not meet its obligations,
the company would reassume the liability. The likelihood of a material
reinsurance liability being reassumed by the company is considered to be
remote.
A receivable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $131 million, $166 million, and $176 million during
1997, 1996, and 1995, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
Reinsurance premiums included in premiums and other considerations were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
===========================================================
<S> <C> <C> <C>
Direct premiums and other
considerations $3,542 $ 3,427 $ 3,107
Reinsurance assumed 119 125 155
Reinsurance ceded (299) (308) (293)
- -----------------------------------------------------------
Premiums and other
considerations $3,362 $ 3,244 $ 2,969
- -----------------------------------------------------------
</TABLE>
1.12 Stock-Based Compensation
The company's stock and incentive plans provide for the award of stock
options, restricted stock awards, performance awards, and incentive awards to
key employees and directors. Stock options constitute the majority of such
awards. Expense related to stock options is measured as the excess of the
market price of the stock at the measurement date over the exercise price. The
measurement date is the first date on which both the number of shares that the
employee is entitled to receive and the exercise price are known. Generally, no
expense is recognized since the market price equals the exercise price at the
measurement date.
1.13 Income Taxes
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income
tax expense.
A valuation allowance for deferred tax assets is provided if it is more
likely than not that some portion of the deferred tax asset will not be
realized. An increase or decrease in a valuation allowance that results from a
change in circumstances that causes a change in judgment about the
realizability of the related deferred tax asset is included in income. A change
related to fluctuations in fair value of available-for-sale securities is
included in net unrealized gains on securities in shareholders' equity.
1.14 Earnings Per Share
During 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) 128, "Earnings per Share," which changed certain requirements
for computing and disclosing earnings per share, retroactive for all periods
presented. Diluted earnings per share computed under the new standard is the
same as fully diluted earnings per share computed under the previous rules for
1997 and 1996, and $.01 higher for 1995.
Basic earnings per share is computed by dividing earnings available to
common shareholders by average common shares outstanding. Diluted earnings per
share is computed assuming the conversion or exercise of dilutive convertible
preferred securities and stock options outstanding during the period.
1.15 New Accounting Standards Not Yet Adopted
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
130, "Reporting Comprehensive Income," which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. Beginning first quarter 1998, the company must adopt this
statement for all periods presented. Application of this statement will not
change recognition or measurement of net income and, therefore, will not impact
the company's consolidated results of operations or financial position.
In June 1997, the FASB also issued SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information," which changes the way companies
report segment information. This statement is effective for 1998, but
application to interim periods is not required until 1999. Restatement of
comparative information for all periods presented is required upon adoption.
Application of this statement will result in more detailed segment disclosures
but will not have an impact on the company's consolidated results of operations
or financial position.
2 Acquisitions
2.1 Accounting for Acquisitions
With the exception of USLIFE, the company's acquisitions have been
accounted for using the purchase method. Under this method, the results of
operations for each acquisition are included in the company's consolidated
statement of income from the date of acquisition. The purchase price of each
acquisition is allocated to specific assets and liabilities based on
management's best estimate of their fair values at the date
AMERICAN GENERAL CORPORATION 38
<PAGE> 19
of acquisition. The difference between the aggregate purchase price and the net
assets acquired is attributed to goodwill. The merger of USLIFE was accounted
for using the pooling of interests method. Accordingly, the company's
consolidated financial statements include the results of operations, financial
position, and cash flows of USLIFE for all periods presented.
2.2 USLIFE
On June 17, 1997, the company completed the merger of USLIFE in an
all-stock transaction. American General issued 39.0 million shares of common
stock (with a market value of approximately $1.8 billion) in exchange for all
USLIFE common shares.
Assets, net unrealized gains on securities, and share- holders' equity for
the separate companies were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
In millions 1997* 1996 1995
==============================================================
Assets
<S> <C> <C> <C>
American General $69,707 $66,254 $ 61,152
USLIFE 7,680 7,880 7,931
- --------------------------------------------------------------
Total $77,387 $74,134 $ 69,083
- ---------------------------------------------------------------
Net unrealized gains
on securities
American General $ 489 $ 559 $ 1,100
USLIFE 44 68 196
- --------------------------------------------------------------
Total $ 533 $ 627 $ 1,296
- ---------------------------------------------------------------
Shareholders' equity
American General $ 5,041 $ 5,621 $ 5,801
USLIFE 1,705 1,223 1,308
- --------------------------------------------------------------
Total $ 6,746 $ 6,844 $ 7,109
- --------------------------------------------------------------
</TABLE>
*Unaudited.
Revenues and net income for the separate companies were as follows:
<TABLE>
<CAPTION>
Six Months Twelve Months
Ended Ended
June 30, December 31,
In millions 1997(a) 1996 1995
===============================================================
Revenues
<S> <C> <C> <C>
American General $ 3,471 $ 6,908 $ 6,496
USLIFE 897 1,806 1,740
- ---------------------------------------------------------------
Total $ 4,368 $ 8,714 $ 8,236
- ---------------------------------------------------------------
Net income(b)
American General $ 286 $ 577 $ 545
USLIFE 47 76 105
Merger-related costs (247) -- --
- ---------------------------------------------------------------
Total $ 86 $ 653 $ 650
- ---------------------------------------------------------------
</TABLE>
(a) Unaudited.
(b) Includes charges discussed in Note 3.
2.3 Home Beneficial Life
On April 16, 1997, the company acquired Home Beneficial Corporation, the
holding company of Home Beneficial Life Insurance Company (Home Beneficial
Life), for $665 million. The purchase price consisted of $283 million cash and
9.5 million shares of American General common stock. During the period between
the announcement of the agreement to acquire Home Beneficial Life and the date
of acquisition, American General repurchased an amount of shares essentially
equivalent to the amount issued in the acquisition.
Non-cash activities related to the acquisition that are not reflected in
the consolidated statement of cash flows for the year ended December 31, 1997
were as follows:
<TABLE>
In millions
- --------------------------------------------------------------
<S> <C>
Fair value of assets acquired $ 1,446
Liabilities assumed (781)
Issuance of treasury shares (382)
- --------------------------------------------------------------
Net cash paid $ 283
- --------------------------------------------------------------
</TABLE>
2.4 Independent Life
On February 29, 1996, the company acquired Independent Insurance Group,
Inc., the holding company of The Independent Life and Accident Insurance
Company, for $362 million. The purchase price consisted of $139 million cash,
3.7 million shares of American General common stock, and 2.3 million shares of
American General 7% Convertible Preferred Stock.
Non-cash activities related to the acquisition that are not reflected in
the consolidated statement of cash flows for the year ended December 31, 1996
were as follows:
<TABLE>
In millions
- --------------------------------------------------------------
Fair value of assets acquired, excluding
<S> <C>
$33 million cash $ 1,358
Liabilities assumed (1,029)
Issuance of treasury shares (138)
Issuance of preferred stock (85)
- --------------------------------------------------------------
Net cash paid $ 106
- --------------------------------------------------------------
</TABLE>
2.5 Franklin Life
On January 31, 1995, the company acquired The Franklin Life Insurance
Company (Franklin Life) for $1.17 billion. The purchase price consisted of $920
million cash and a $250 million cash dividend paid by Franklin Life to its
former parent prior to closing.
2.6 Western National
On December 23, 1994, the company acquired a 40% investment in Western
National Corporation (Western National), the holding company of Western
National Life Insurance Company, through the acquisition of 24.9 million shares
of common stock for $274 million cash. On September 17, 1996, the company
increased its equity ownership to 46% through the purchase of 7.3 million
shares of participating convertible preferred stock for $126 million cash.
These acquisitions were recorded on an equity basis.
39 1997 ANNUAL REPORT
<PAGE> 20
On February 25, 1998, the company acquired the remaining 54% equity
interest of Western National for $1.2 billion. The purchase price consisted of
$580 million cash and 10.2 million shares of American General common stock.
Western National's assets, liabilities, and results of operations will be
consolidated in the company's financial statements effective January 1, 1998.
Earnings attributable to minority interests through February 25, 1998 will be
reflected as a charge against consolidated income. Western National will be
reported as part of the Retirement Services division.
3 Other Charges
3.1 Merger-Related Costs
The company recorded the following costs in second quarter 1997 related to
the merger with USLIFE:
<TABLE>
In millions Pretax Aftertax
- ------------------------------------------------------------
<S> <C> <C>
Change in control costs $ 179 $ 155
Transaction costs 22 22
Restructuring costs 71 46
Deferred tax asset
valuation allowance -- 24
- ------------------------------------------------------------
Total $ 272 $ 247
- ------------------------------------------------------------
</TABLE>
Change in control costs consist primarily of severance and supplemental
retirement plan payments to USLIFE executives, payable under various USLIFE
plans in effect prior to the merger. A substantial portion of these payments
are considered excess parachute payments for tax purposes and are not tax
deductible by the company.
Transaction costs include expenses for investment bankers, attorneys,
accountants, and proxy printing costs.
Restructuring costs consist primarily of severance and the elimination of
redundant facilities in connection with the merger and the concurrent
realignment of the Life Insurance division. The new structure will include
centralized support units focused on product development, insurance
administration, and customer service. Severance and related costs of $34
million relate to the elimination of approximately 1,200 positions, which began
in third quarter 1997. The positions being eliminated relate to USLIFE's
corporate operations and to administrative service functions that are being
centralized. Costs of $37 million to eliminate redundant facilities relate to
contractual payments under lease obligations for facilities to be vacated, and
the write-off of computer equipment and related software at various locations
that will be centralized. The integration of USLIFE is proceeding as planned.
As of December 31, 1997, $7 million of severance had been paid to 229
terminated employees and $2 million had been incurred to eliminate redundant
facilities.
A valuation allowance for the deferred tax asset related to a portion of
USLIFE's net operating loss carryforward was provided at the acquisition date
since, as a result of the acquisition, it is more likely than not that some
portion of the deferred tax asset will not be realized.
3.2 Sale of Non-strategic Assets
Losses related to the sale of non-strategic assets were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
In millions Pretax Aftertax Pretax Aftertax
==============================================================
<S> <C> <C> <C> <C>
Finance receivables $ 42 $ 27 $ 145 $ 93
Other non-strategic
assets 71 46 20 18
- --------------------------------------------------------------
Total $ 113 $ 73 $ 165 $ 111
- --------------------------------------------------------------
</TABLE>
In fourth quarter 1996, the company reached a decision to offer for sale
$875 million of non-strategic finance receivable portfolios, consisting of $520
million of bank credit card receivables and $355 million of private label
loans. Accordingly, these receivables and an associated allowance for losses
were reclassified to assets held for sale at December 31, 1996, and a loss was
recognized to reduce the carrying amount of the portfolios to net realizable
value. The portfolios were sold in 1997, and the company recorded an additional
loss to establish a liability for estimated future payments to the purchaser
under a five-year loss sharing agreement.
Other non-strategic assets consist of the company's land development
operations and a Canadian life insurance subsidiary. During 1997, the company
completed the sale of these assets.
3.3 Litigation Settlement
Two real estate subsidiaries of American General were defendants in a
lawsuit that alleged damages based on lost profits and related claims arising
from certain loans and joint venture contracts. Pursuant to court-ordered
mediation, the parties agreed to a settlement of $50 million as a final
resolution of this lawsuit. As a result, the company recorded an aftertax
charge of $33 million in second quarter 1997.
3.4 Write-Down of Group Business
In first quarter 1996, USLIFE discontinued new sales of its traditional
indemnity group major medical products. In subsequent months, the company
experienced an unexpected deterioration in persistency on this business, with
lapse rates approaching 60%. This experience resulted in a reevaluation of the
related DPAC and insurance liabilities. Based on this reevaluation, the company
recorded a $50 million ($32 million aftertax) charge in second quarter 1996.
AMERICAN GENERAL CORPORATION 40
<PAGE> 21
4 Earnings Per Share
4.1 Calculation
The calculation of basic and diluted earnings per share follows:
<TABLE>
<CAPTION>
In millions, except share data 1997 1996 1995
===========================================================================================================================
<S> <C> <C> <C>
Net income $542 $653 $650
Net dividends on convertible preferred stock (6) (5) --
- ---------------------------------------------------------------------------------------------------------------------------
Earnings available to common shareholders(a) 536 648 650
Net dividends on dilutive securities
Convertible preferred securities of subsidiary 11 11 6
Convertible preferred stock -- 5 --
- ---------------------------------------------------------------------------------------------------------------------------
Earnings available to common shareholders assuming dilution(b) $547 $664 $656
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding(a) 242,068,777 242,853,420 242,797,805
Dilutive securities
Convertible preferred securities of subsidiary 6,144,016 6,144,016 3,602,245
Convertible preferred stock(c) -- 2,019,766 84,858
Stock options 1,018,318 912,275 733,093
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding assuming dilution(b) 249,231,111 251,929,477 247,218,001
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $ 2.21 $ 2.67 $ 2.68
Diluted 2.19 2.63 2.66
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Used to compute basic earnings per share.
(b) Used to compute diluted earnings per share.
(c) Excludes 2,344,320 shares in 1997 due to antidilution.
4.2 Subsequent Issuance of Shares
On February 25, 1998, the company issued 10.2 million shares of common
stock as part of the acquisition of Western National. Additionally, the company
issued options to acquire 1.4 million shares of American General common stock
with an average exercise price of $24.75. These options replaced outstanding
options to acquire Western National common stock.
5 Investments
5.1 Fixed Maturity and Equity Securities
VALUATION. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
---------------------- -------------------- ----------------- ------------------------
In millions 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities
Corporate bonds
Investment grade $31,926 $28,770 $25,574 $2,021 $1,209 $2,177 $(23)$(153) $(40) $33,924 $29,826 $27,711
Below investment grade 1,892 1,655 1,584 73 56 76 (7) (15) (10) 1,958 1,696 1,650
Mortgage-backed 8,919 10,401 11,019 514 315 650 (5) (74) (6) 9,428 10,642 11,663
Foreign governments 834 863 854 90 80 104 (4) (1) (1) 920 942 957
U.S. government 740 737 657 91 57 93 - (3) - 831 791 750
States/political subdivisions 546 336 307 33 15 21 - (1) - 579 350 328
Redeemable preferred stocks 104 105 154 3 4 8 - (1) (1) 107 108 161
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed maturity
securities $44,961 $42,867 $40,149 $2,825 $1,736 $3,129 $(39)$(248) $(58) $47,747 $44,355 $43,220
- ---------------------------------------------------------------------------------------------------------------------------
Equity securities $ 93 $ 111 $ 144 $ 24 $ 27 $ 50 $ (1)$ (1) $ (3) $ 116 $ 137 $ 191
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
41 1997 ANNUAL REPORT
<PAGE> 22
NET UNREALIZED GAINS. Net unrealized gains (losses) on fixed maturity and
equity securities included in shareholders' equity at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Gross unrealized gains $2,849 $1,763 $ 3,179
Gross unrealized losses (40) (249) (61)
DPAC and CIP fair value
adjustments (1,062) (598) (1,208)
Deferred income taxes (636) (348) (707)
Equity in Western National's
net unrealized gains 58 59 93
- ------------------------------------------------------------
Net unrealized gains
on securities $1,169 $ 627 $ 1,296
- ------------------------------------------------------------
</TABLE>
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
In millions Cost Value
- ------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities, due
In one year or less $ 465 $ 468
In years two through five 7,747 8,091
In years six through ten 14,295 15,051
After ten years 13,535 14,709
Mortgage-backed securities 8,919 9,428
- ------------------------------------------------------------
Total fixed maturity securities $ 44,961 $ 47,747
- ------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. Corporate requirements and
investment strategies may result in the sale of investments before maturity.
5.2 Mortgage Loans on Real Estate
DIVERSIFICATION. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, the company generally requires loan-to-value ratios of 75%
or less, based on management's credit assessment of the borrower. At December
31, the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Geographic distribution
Atlantic $1,586 $1,393 $ 1,372
Central 896 952 1,091
Pacific and Mountain 844 967 970
Allowance for losses (54) (84) (96)
- ------------------------------------------------------------
Total mortgage loans $3,272 $3,228 $ 3,337
- ------------------------------------------------------------
Property type
Office $1,128 $1,082 $ 1,117
Retail 1,099 1,132 1,146
Industrial 594 539 552
Apartments 363 352 380
Other 142 207 238
Allowance for losses (54) (84) (96)
- ------------------------------------------------------------
Total mortgage loans $3,272 $3,228 $ 3,337
- ------------------------------------------------------------
</TABLE>
ALLOWANCE. Activity in the allowance for mortgage loan losses was as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Balance at January 1 $ 84 $ 96 $ 101
Provision for mortgage
loan losses (20) 2 28
Deductions (10) (14) (33)
- ------------------------------------------------------------
Balance at December 31 $ 54 $ 84 $ 96
- ------------------------------------------------------------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related
interest income were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Impaired loans
With allowance* $ 55 $ 100 $ 104
Without allowance 10 6 22
- ------------------------------------------------------------
Total impaired loans $ 65 $ 106 $ 126
- ------------------------------------------------------------
Average investment $ 86 $ 116 $ 141
- ------------------------------------------------------------
Interest income
Accrual basis loans $ 4 $ 9 $ 3
Cash basis loans -- -- 7
- ------------------------------------------------------------
Total interest income $ 4 $ 9 $ 10
- ------------------------------------------------------------
</TABLE>
*Represents gross amounts before allowance for losses of
$15 million, $16 million, and $29 million, respectively.
5.3 Realized Investment Gains
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 57 $ 107 $ 87
Gross losses (70) (107) (65)
- ------------------------------------------------------------
Total fixed maturity securities (13) -- 22
- ------------------------------------------------------------
Equity securities
Gross gains 5 53 21
Gross losses (1) (2) (1)
- ------------------------------------------------------------
Total equity securities 4 51 20
- ------------------------------------------------------------
Mortgage loans on real estate 26 5 (34)
Investment real estate 14 2 (11)
Other 9 4 21
- ------------------------------------------------------------
Realized investment gains $ 40 $ 62 $ 18
- ------------------------------------------------------------
</TABLE>
5.4 Investment Income
Investment income was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Fixed maturity securities $3,523 $3,274 $ 3,093
Mortgage loans on real estate 319 339 346
Other 265 260 225
- ------------------------------------------------------------
Gross investment income 4,107 3,873 3,664
- ------------------------------------------------------------
Investment expense
Real estate 58 69 51
Other 29 31 29
- ------------------------------------------------------------
Total investment expense 87 100 80
- ------------------------------------------------------------
Net investment income $4,020 $3,773 $ 3,584
- ------------------------------------------------------------
</TABLE>
AMERICAN GENERAL CORPORATION 42
<PAGE> 23
The carrying amount of investments that produced no investment income
during 1997 was less than 1% of total invested assets. The ultimate disposition
of these investments is not expected to have a material effect on the company's
consolidated results of operations and financial position.
Derivative financial instruments related to investment securities did not
have a material effect on net investment income in any of the three years ended
December 31, 1997.
5.5 Cash Flows from Investing Activities
Uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Fixed maturity securities $10,489 $10,118 $ 7,954
Other 521 560 604
- ------------------------------------------------------------
Total $11,010 $10,678 $ 8,558
- ------------------------------------------------------------
</TABLE>
Sources of cash from investment dispositions and repayments were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Fixed maturity securities
Sales $ 6,846 $ 6,164 $ 2,779
Maturities 1,038 621 491
Calls 768 677 1,095
Repayments of mortgage-
backed securities 496 885 686
Mortgage loans 795 593 402
Equity securities 87 167 177
Other 260 173 472
- ------------------------------------------------------------
Total $10,290 $ 9,280 $ 6,102
- ------------------------------------------------------------
</TABLE>
6 Finance Receivables
6.1 Detail of Finance Receivables
Finance receivables, which are reported net of unearned finance charges,
at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
============================================================
<S> <C> <C> <C>
Consumer loans
Real estate $ 4,155 $ 3,734 $ 2,904
Other 2,556 2,516 2,765
- ------------------------------------------------------------
Total consumer loans 6,711 6,250 5,669
- ------------------------------------------------------------
Retail sales finance
Retail sales contracts 1,050 998 1,240
Private label 251 377 943
- ------------------------------------------------------------
Total retail sales finance 1,301 1,375 2,183
- ------------------------------------------------------------
Credit cards -- -- 558
- ------------------------------------------------------------
Total finance receivables 8,012 7,625 8,410
Allowance for losses (373) (395) (492)
- ------------------------------------------------------------
Finance receivables, net $ 7,639 $ 7,230 $ 7,918
- ------------------------------------------------------------
</TABLE>
At December 31, 1997, 52% of finance receivables were secured by real
estate.
6.2 Contractual Maturities and Collections
Contractual maturities of finance receivables at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
After
In millions 1998 1999 2000 2001 2002 2002
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturities $2,386 $1,475 $ 927 $ 516 $ 322 $ 2,386
- -------------------------------------------------------------
</TABLE>
Contractual maturities are not a forecast of future cash collections. A
substantial portion of finance receivables may be renewed, converted, or repaid
prior to maturity.
6.3 Cash Collections
Cash collections of principal and collections as a percentage of average
finance receivable balances were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C>
Consumer loans
Cash collections $2,859 $ 2,653 $ 2,588
% of average balances 46% 47% 46%
Retail sales finance
Cash collections $1,484 $ 1,777 $ 1,885
% of average balances 117% 93% 86%
- -------------------------------------------------------------
</TABLE>
6.4 Geographic Concentration
The geographic concentration of finance receivables at December 31 was as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C>
California $ 843 $ 698 $ 887
North Carolina 696 672 738
Florida 519 535 627
Ohio 465 454 440
Indiana 438 398 455
Illinois 434 453 490
Virginia 357 350 392
Georgia 310 312 373
Other 3,950 3,753 4,008
- -------------------------------------------------------------
Total finance receivables $ 8,012 $ 7,625 $ 8,410
- -------------------------------------------------------------
</TABLE>
6.5 Allowance for Finance Receivable Losses
Activity in the allowance for finance receivable losses was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C> <C>
Balance at January 1 $ 395 $ 492 $ 226
Provision for finance
receivable losses 248 417 574
Charge offs, net of recoveries (270) (444) (308)
Reclassified to assets held
for sale -- (70) --
- -------------------------------------------------------------
Balance at December 31 $ 373 $ 395 $ 492
- -------------------------------------------------------------
</TABLE>
43 1997 ANNUAL REPORT
<PAGE> 24
7 Debt
7.1 Short-Term Debt
Short-term debt consists primarily of commercial paper. The
weighted-average interest rates on short-term borrowings at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
=============================================================
<S> <C> <C> <C>
Corporate 6.1% 5.9% 6.0%
Consumer Finance 5.9 5.6 5.8
- -------------------------------------------------------------
</TABLE>
7.2 Long-Term Debt
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C>
Corporate
6.3% - 9.7%, through 2025 $ 1,341 $ 1,471 $ 1,519
- -------------------------------------------------------------
Consumer Finance
5.1% - 10%, through 2009 $ 4,011 $ 4,499 $ 4,980
- -------------------------------------------------------------
</TABLE>
Derivative financial instruments related to debt securities did not have a
material effect on the weighted-average borrowing rate or reported interest
expense in any of the three years ended December 31, 1997.
7.3 Long-Term Debt Maturities
Scheduled maturities of long-term debt for each of the next five years at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
In millions 1998 1999 2000 2001 2002
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate $ 354 $100 $ 350 $ -- $ --
Consumer Finance 825 610 1,277 42 548
- --------------------------------------------------------------
</TABLE>
One $150 million debt issue of the Consumer Finance division that is
scheduled to mature after 2002 is redeemable in 1999 at par, at the option of
the holders.
7.4 Interest Paid
Interest paid was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C>
Corporate $ 150 $ 162 $ 186
Consumer Finance 485 497 502
- -------------------------------------------------------------
</TABLE>
7.5 Credit Facilities
American General and certain subsidiaries use commercial paper to meet
short-term funding requirements. Unsecured bank credit facilities are used to
support commercial paper borrowings.
At December 31, 1997, American General and certain of its subsidiaries
maintained unsecured committed credit facilities of $4.0 billion with a total
of 48 domestic and foreign banks. Interest rates are based on a money market
index, and annual commitment fees range from five to seven basis points. There
were no borrowings under these facilities at December 31, 1997.
8 Deferred Policy Acquisition Costs (DPAC)
Activity in DPAC was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C> <C>
Balance at January 1 $ 2,954 $ 2,343 $ 3,356
Deferrals 631 604 646
Accretion of interest 215 197 193
Amortization (659) (626)* (559)
Effect of net unrealized gains
(losses) on securities (406) 460 (1,302)
Other (17) (24) 9
- -------------------------------------------------------------
Balance at December 31 $ 2,718 $ 2,954 $ 2,343
- -------------------------------------------------------------
</TABLE>
*Includes $37 million reported in write-down of USLIFE group
business.
9 Cost of Insurance Purchased (CIP)
Activity in CIP was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C> <C>
Balance at January 1 $ 755 $ 504 $ 168
Additions from acquisitions 66 233 658
Accretion of interest 74 76 65
Amortization (176) (178) (110)
Effect of net unrealized gains
(losses) on securities (55) 109 (270)
Other 16 11 (7)
- -------------------------------------------------------------
Balance at December 31 $ 680 $ 755 $ 504
- -------------------------------------------------------------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $82 million, $75 million, $68 million, $62 million, and $57
million.
10 Guaranty Fund Assessments
Information about state guaranty fund assessments was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=============================================================
<S> <C> <C> <C>
Expense, included in operating
costs and expenses $ 9 $ 14 $ 34
Liability for anticipated
assessments 39 54 58
Receivable for expected
recoveries against future
premium taxes 47 56 57
- -------------------------------------------------------------
</TABLE>
Changes in state laws could decrease the amount recoverable against future
premium taxes.
AMERICAN GENERAL CORPORATION 44
<PAGE> 25
11 INCOME TAXES
11.1 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
====================================================
<S> <C> <C> <C>
Current
Federal $ 393 $ 403 $ 353
State 16 8 6
- ----------------------------------------------------
Total current 409 411 359
Deferred 38 (24) (18)
- ----------------------------------------------------
Income tax expense* $ 447 $ 387 $ 341
- ----------------------------------------------------
</TABLE>
*Excludes tax benefit of $45 million in 1997, $21 million in 1996, and $11
million in 1995 related to preferred securities of subsidiaries.
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
=====================================================================
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Merger-related costs 7 -- --
Tax-exempt investment income (2) (2) (2)
State taxes, net 1 1 --
Acquisition-related goodwill 1 1 1
Other, net -- 1 --
- ---------------------------------------------------------------------
Effective tax rate 42% 36% 34%
- ---------------------------------------------------------------------
</TABLE>
11.2 DEFERRED TAX LIABILITIES
Components of deferred tax liabilities and assets, included in income tax
liabilities on the consolidated balance sheet, at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Deferred tax liabilities,
applicable to
Basis differential of
investments $ 987 $ 514 $ 1,026
DPAC and CIP 795 984 815
Prepaid pension expense 87 81 73
Other 543 530 517
- --------------------------------------------------------------------------------
Total deferred tax liabilities 2,412 2,109 2,431
- --------------------------------------------------------------------------------
Deferred tax assets,
applicable to
Policy reserves (541) (542) (544)
Finance receivables (93) (183) (138)
Other (498) (338) (347)
- --------------------------------------------------------------------------------
Gross deferred tax assets (1,132) (1,063) (1,029)
Valuation allowance 68 46 42
- --------------------------------------------------------------------------------
Total deferred tax assets, net (1,064) (1,017) (987)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ 1,348 $ 1,092 $ 1,444
- --------------------------------------------------------------------------------
</TABLE>
The deferred tax asset valuation allowances at December 31, 1997, 1996, and
1995 were related to operating loss carryovers not expected to be utilized.
At December 31, 1997, the company had operating loss carryovers for federal
income tax purposes of approximately $195 million, which are available to offset
future taxable income through 2012. The operating loss carryovers are
predominantly associated with recent acquisitions and, therefore, their use is
subject to separate return year limitations.
A portion of life insurance income earned prior to 1984 is not taxable
unless it exceeds certain statutory limitations or is distributed as dividends.
Such income, accumulated in policyholders' surplus accounts, totaled $907
million at December 31, 1997. At current corporate income tax rates, the maximum
amount of tax on such income is approximately $317 million. Deferred income
taxes on these accumulations are not required because no distributions are
expected.
11.3 TAXES PAID
Income taxes paid were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
==========================================================
<S> <C> <C> <C>
Federal $ 419 $364 $ 325
State 9 10 13
- ----------------------------------------------------------
</TABLE>
11.4 TAX RETURN EXAMINATIONS
American General and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service (IRS) has completed
examinations of the company's returns through 1988 and has raised certain issues
related to 1987 and 1988, which the company is currently contesting. The IRS is
currently examining the company's tax returns for 1989 through 1996. Although
the final outcome of any issues raised in examination is uncertain, the company
believes that the ultimate liability, including interest, will not materially
exceed amounts recorded in the consolidated financial statements.
12 REDEEMABLE EQUITY
Two wholly owned subsidiaries and two subsidiary trusts of American General
(collectively, subsidiaries) have issued preferred securities. The sole assets
of these subsidiaries are Junior Subordinated Debentures (Subordinated
Debentures) issued by American General and U.S. Treasury bonds. These
subsidiaries have no independent operations. The Subordinated Debentures are
eliminated in the consolidated financial statements.
The interest terms and payment dates of the company's Subordinated
Debentures held by the subsidiaries correspond to those of the subsidiaries'
preferred securities. American General's obligations
45 1997 ANNUAL REPORT
<PAGE> 26
under the Subordinated Debentures and related agreements, when taken together,
constitute a full and unconditional guarantee of payments due on the preferred
securities. The Subordinated Debentures are redeemable at the option of the
company. Upon such event, the preferred securities are redeemable on a
proportionate basis.
Information about the preferred securities and the assets held by the
issuing subsidiaries at December 31, 1997 was as follows:
<TABLE>
<CAPTION>
American American American American American
General General General General General
Institutional Institutional Capital, Capital, Delaware,
In millions, except share data Capital B Capital A L.L.C. L.L.C. L.L.C.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Preferred securities
Securities issued and outstanding 500,000 500,000 8,600,000 11,500,000 5,000,000
Par value $ 500 $ 500 $ 215 $ 287 $ 250
Dividends paid $ 20 $ 38 $ 17 $ 24 $ 15
Date issued 3/14/97 12/4/96 8/29/95 6/5/95 6/1/95
Earliest/mandatory redemption dates 2046/2046 2045/2045 2000/2025(a) 2000/2025(a) 2003(b)/2025
- ---------------------------------------------------------------------------------------------------------------------------
Assets of issuing subsidiary
Subordinated Debentures
Principal $ 516 $ 516 $ 269 $ 360 $ 313
Interest rate 8.125% 7.57% 8.125% 8.45% 6%
Mandatory redemption date 2046 2045 2025(a) 2025(a) 2025
U.S. Treasury bonds -- -- $ 3 $ 4 $ 4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Subject to possible extension to 2044.
(b) Under certain circumstances, may be redeemed in 2000.
The preferred securities issued by American General Delaware, L.L.C. are
each convertible into 1.2288 shares of American General common stock at any time
at the option of the holders. This conversion ratio is equivalent to a
conversion price of $40.69 per share of common stock. Beginning in 2000, the
company has the option to cause the conversion rights to expire, provided that
American General's common stock is trading above $49 per share and certain other
conditions are met.
13 CAPITAL STOCK
13.1 CLASSES OF CAPITAL STOCK
American General has two classes of capital stock: preferred stock ($1.50
par value, 60 million shares authorized) that may be issued in series with
rights to be determined by the board of directors, and common stock ($.50 par
value, 300 million shares authorized). The only series of preferred stock
outstanding is the 7% Convertible Preferred Stock. At December 31, 1997,
approximately 12.2 million shares of common stock were reserved for issuance,
related to the conversion of convertible preferred securities and preferred
stock and the exercise of stock options.
13.2 CONVERTIBLE PREFERRED STOCK
American General issued 2.3 million shares of 7% Convertible Preferred
Stock in connection with the acquisition of Independent Life. Holders of the
preferred stock are entitled to receive annual cumulative dividends of 7% and
have the right to vote, together with holders of American General common stock,
on the basis of four-fifths of one vote for each share of preferred stock.
The stated liquidation preference is $36.7625 per share. Each preferred
share is convertible into .8264 share of American General common stock at any
time at the option of the holder. Beginning in 2000, the company may, at its
option, convert the preferred stock into a minimum of .8264 share of common
stock. Each preferred share is mandatorily convertible into one share of common
stock in 2001.
13.3 PREFERRED SHARE PURCHASE RIGHTS
One preferred share purchase right is attached to each share of common
stock. These rights will become exercisable only upon the occurrence of certain
events related to a change in control of American General. Each right will
entitle the holder to purchase 1/100 of a share of American General's Series A
Junior Participating Preferred Stock. All rights expire in 1999 unless extended
or redeemed.
AMERICAN GENERAL CORPORATION 46
<PAGE> 27
14 STOCK AND INCENTIVE PLANS
14.1 STOCK OPTIONS
Stock option activity was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- ------
Average Average
Exercise Exercise
Shares in thousands Shares Price Shares Price Shares
=============================================================================================
<S> <C> <C> <C> <C> <C>
Balance at January 1 4,498 $ 26.14 4,093 $ 24.11 3,957
Granted 1,496 43.68 1,115 33.85 811
Exercised* (2,170) 23.13 (503) 24.12 (596)
Forfeited (187) 39.05 (206) 32.67 (75)
Expired -- -- (1) 32.00 (4)
- ---------------------------------------------------------------------------------------------
Balance at
December 31 3,637 $ 34.48 4,498 $ 26.14 4,093
- ---------------------------------------------------------------------------------------------
Exercisable at
December 31 2,028 $ 29.13 3,116 $ 23.98 2,804
- ---------------------------------------------------------------------------------------------
</TABLE>
*Average exercise price of options exercised in 1995 was $19.89.
Options may not be exercised within at least six months of, nor after 10
years from, the date of grant. Information about options outstanding at December
31, 1997 was as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------- -----------------
Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
- -----------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$14.51-$19.99 262 1 $16.27 262 $ 16.27
20.00- 29.99 776 6 25.29 763 25.21
30.00- 39.99 1,251 7 33.86 792 33.28
40.00- 50.19 1,348 9 43.86 211 43.60
- -----------------------------------------------------------------
Total 3,637 7 $34.48 2,028 $ 29.13
- -----------------------------------------------------------------
</TABLE>
14.2 PRO FORMA DISCLOSURES
Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the date of grant. Had compensation expense been determined using this method,
net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
In millions, except per share data 1997 1996 1995
=======================================================================
<S> <C> <C> <C>
Net income
As reported $ 542 $ 653 $ 650
Pro forma 536 650 649
- -----------------------------------------------------------------------
Net income per share
Basic
As reported $ 2.21 $ 2.67 $ 2.68
Pro forma 2.19 2.66 2.67
Diluted
As reported 2.19 2.63 2.66
Pro forma 2.17 2.62 2.65
- -----------------------------------------------------------------------
</TABLE>
The average fair values of the options granted during 1997, 1996, and 1995
were $10.41, $6.79, and $6.69, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
assumptions used to estimate the fair value of the stock options were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
=======================================================================
<S> <C> <C> <C>
Dividend yield 3.0% 4.0% 4.0%
Expected volatility 22.0% 22.3% 23.0%
Risk-free interest rate 6.4% 6.2% 6.9%
Expected life 6 years 6 years 6 years
- -----------------------------------------------------------------------
</TABLE>
14.3 SHARES AVAILABLE
Shares available for issuance under American General's stock and incentive
plans at December 31, 1997, 1996, and 1995 totaled 8.8 million, 5.7 million, and
6.7 million, respectively.
15 BENEFIT PLANS
15.1 PENSION PLANS
The company has non-contributory defined benefit pension plans covering
most employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 63% and 28%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 5% of
plan assets were invested in general investment accounts of the company's
subsidiaries through deposit administration insurance contracts.
The pension plans have purchased annuity contracts from American General
subsidiaries to provide benefits for certain retirees. During 1997, 1996, and
1995, benefits paid to retirees under these contracts were $53 million, $54
million, and $46 million, respectively.
The components of pension expense and underlying assumptions were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
================================================================================
<S> <C> <C> <C>
Service cost (benefits earned) $ 18 $ 22 $ 16
Interest cost 46 46 37
Actual return on plan assets (209) (128) (134)
Net amortization and deferrals 126 56 63
- --------------------------------------------------------------------------------
Pension income $ (19) $ (4) $ (18)
- --------------------------------------------------------------------------------
Discount rate on benefit
obligation 7.25% 7.5% 7.25%
Rate of increase in
compensation levels 4% 4% 4%
Expected long-term rate
of return on plan assets 10% 10% 10%
- --------------------------------------------------------------------------------
</TABLE>
47 1997 ANNUAL REPORT
<PAGE> 28
The company's funding policy is to contribute annually no more than the
maximum deductible for federal income tax purposes. The funded status of the
plans and the prepaid pension expense included in other assets at December 31
were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
==============================================================================
<S> <C> <C> <C>
Accumulated benefit obligation* $ 629 $ 591 $ 492
Effect of increase in
compensation levels 38 71 69
- ------------------------------------------------------------------------------
Projected benefit obligation 667 662 561
Plan assets at fair value 1,175 976 796
- ------------------------------------------------------------------------------
Plan assets at fair value in
excess of projected benefit
obligation 508 314 235
Other unrecognized items, net (274) (139) (63)
- ------------------------------------------------------------------------------
Prepaid pension expense $ 234 $ 175 $ 172
- ------------------------------------------------------------------------------
*Over 92% vested.
</TABLE>
15.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company has life, medical, supplemental major medical, and dental plans
for certain retired employees and agents. Most plans are contributory, with
retiree contributions adjusted annually to limit employer contributions to
predetermined amounts. The company has reserved the right to change or eliminate
these benefits at any time.
The life plans are insured for a two-year period.
A portion of the retiree medical and dental plans is funded through a voluntary
employees' beneficiary association (VEBA); the remainder is unfunded and
self-insured. All of the retiree medical and dental plans' assets held in the
VEBA were invested in readily marketable securities at its most recent balance
sheet date.
Postretirement benefit expense in 1997, 1996, and 1995 was $8 million, $8
million, and $7 million, respectively.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
==================================================================
<S> <C> <C> <C>
Actuarial present value of
benefit obligation
Retirees $ 76 $ 71 $ 56
Active plan participants 62 43 40
- ------------------------------------------------------------------
Accumulated postretirement
benefit obligation (APBO) 138 114 96
Plan assets at fair value 3 3 2
- ------------------------------------------------------------------
APBO in excess of plan
assets at fair value 135 111 94
Other unrecognized items, net 34 38 28
- ------------------------------------------------------------------
Accrued benefit expense $169 $149 $122
- ------------------------------------------------------------------
Discount rate on benefit
obligation 7.25% 7.5% 7.25%
- ------------------------------------------------------------------
</TABLE>
16 STATUTORY ACCOUNTING
State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity of insurance companies. In addition,
state regulators may permit statutory accounting practices that differ from
prescribed practices. The use of such permitted practices by American General's
insurance subsidiaries did not have a material effect on their statutory equity
at December 31, 1997.
Statutory accounting practices differ from GAAP. Significant differences
for American General's insurance subsidiaries were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
========================================================================
<S> <C> <C> <C>
Statutory net income $ 791 $ 688 $ 452
Change in DPAC and CIP 112 110 234
Investment valuation
differences 23 62 60
Policy reserve adjustments (21) (42) (95)
Other, net 8 (37) 69
- ------------------------------------------------------------------------
GAAP net income $ 913 $ 781 $ 720
- ------------------------------------------------------------------------
Statutory equity $ 3,240 $ 2,927 $ 2,540
Asset valuation reserve 452 562 517
Investment valuation
differences* 2,640 1,258 2,787
DPAC and CIP 3,388 3,698 2,834
Deferred income taxes (1,372) (1,133) (1,464)
Policy reserve adjustments 574 409 344
Acquisition-related goodwill 376 292 303
Other, net 114 231 270
- ------------------------------------------------------------------------
GAAP equity $ 9,412 $ 8,244 $ 8,131
- ------------------------------------------------------------------------
</TABLE>
*Primarily GAAP unrealized gains on securities.
17 DERIVATIVE FINANCIAL INSTRUMENTS
17.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The company's use of derivative financial instruments is generally limited
to interest rate and currency swap agreements, treasury rate lock agreements,
and options to enter into interest rate swap agreements (call swaptions). The
company accounts for its derivative financial instruments as hedges. Hedge
accounting requires a high correlation between changes in fair values or cash
flows of the derivative financial instrument and the specific item being hedged,
both at inception and throughout the life of the hedge.
17.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements convert specific investment securities from a
floating to a fixed-rate basis, or vice versa. Currency swap agreements are used
to convert cash flows from specific investment
AMERICAN GENERAL CORPORATION 48
<PAGE> 29
securities denominated in foreign currencies into U.S. dollars at specified
exchange rates, and to hedge against currency rate fluctuations on anticipated
security purchases.
Interest rate swap agreements are also used to convert a portion of
floating-rate borrowings to a fixed rate and to hedge against the risk of rising
interest rates on anticipated debt issuances.
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to net investment income or
interest expense, as appropriate, over the periods covered by the agreements.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated
balance sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in shareholders' equity, consistent with the treatment of the related
investment security. The fair values of swap agreements hedging debt are not
recognized in the consolidated balance sheet.
For swap agreements hedging anticipated investment purchases or debt
issuances, the net swap settlement amount or unrealized gain or loss is deferred
and included in the measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into income
over the remaining term of the related investment or debt. If the underlying
investment or debt is extinguished or sold, any related gain or loss on swap
agreements is recognized in income.
Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
===========================================================================
<S> <C> <C> <C>
Interest rate swap agreements
to receive fixed rate
Notional amount $ 169 $ 54 $ 24
Average receive rate 6.95% 7.00% 7.03%
Average pay rate 6.39 5.91 6.82
Interest rate swap agreements
to pay fixed rate
Notional amount $ 15 $ 60 $ 45
Average receive rate 6.74% 6.19% 5.82%
Average pay rate 6.48 6.42 6.41
- ----------------------------------------------------------------------------
Currency swap agreements
(receive U.S. $/pay Canadian $)
Notional amount (in U.S. $) $ 139 $ 99 $ 72
Average exchange rate 1.50 1.57 1.62
- ----------------------------------------------------------------------------
</TABLE>
Interest rate swap agreements related to debt at December 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
=====================================================================
<S> <C> <C> <C>
Swap agreements to pay
fixed rate
Corporate
Notional amount $ 400 -- --
Average receive rate 5.72% -- --
Average pay rate 6.15 -- --
Consumer Finance
Notional amount $ 940 $ 540 $ 590
Average receive rate 5.69% 5.92% 5.90%
Average pay rate 7.39 8.05 8.08
- ---------------------------------------------------------------------
</TABLE>
During 1995, swap agreements hedging anticipated debt issuances were
terminated, and related settlement costs were deferred and are being recognized
as an increase to interest expense over the terms of the related debt. At
December 31, 1997, the remaining deferred costs were $10 million.
17.3 TREASURY RATE LOCK AGREEMENTS
Treasury rate lock agreements are used to hedge against the risk of rising
interest rates on anticipated debt issuances. These agreements provide for
future cash settlements that are a function of specified U.S. Treasury rates.
Treasury rate lock agreements are accounted for in the same manner as interest
rate swap agreements that hedge anticipated debt issuances.
During 1997, the company's consumer finance subsidiary entered into
treasury rate lock agreements with settlement dates in 1998. At December 31,
1997, the notional amount of these agreements was $390 million and the company's
related exposure to market risk was immaterial.
17.4 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and interest
crediting rates may be reduced as a result of certain limitations on the
company's ability to manage interest crediting rates. Call swaptions allow the
company to enter into interest rate swap agreements to receive fixed rates and
pay lower floating rates, effectively increasing the spread between investment
yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and
are amortized to net investment income over the exercise period of the
swaptions. If a call swaption is terminated, any gain is deferred and amortized
to insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to
49 1997 ANNUAL REPORT
<PAGE> 30
income. If a call swaption ceases to be an effective hedge, any related gain or
loss is recognized in income.
During 1997, the company purchased call swaptions that expire in 1998.
These call swaptions had a notional amount of $3.0 billion and strike rates
ranging from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain
below market rates, the call swaptions will expire and the company's exposure
would be limited to the premiums paid.
17.5 CREDIT AND MARKET RISK
Derivative financial instruments expose the company to credit risk in the
event of non-performance by counterparties. The company limits this exposure by
entering into agreements with counterparties having high credit ratings and by
regularly monitoring the ratings. The company does not expect any counterparty
to fail to meet its obligation; however, non-performance would not have a
material impact on the company's consolidated results of operations and
financial position.
The company's exposure to market risk is mitigated by the offsetting
effects of changes in the value of the agreements and the related items being
hedged.
18 FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all of the company's assets and
liabilities, and (2) the reporting of investments at fair value without a
corresponding revaluation of related policyholder liabilities can be
misinterpreted.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
Fair Carrying Fair Carrying Fair Carrying
In millions Value Amount Value Amount Value Amount
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $47,863 $ 47,863 $ 44,492 $44,492 $ 43,411 $ 43,411
Mortgage loans on real estate 3,399 3,272 3,290 3,228 3,456 3,337
Policy loans 2,196 2,156 1,986 2,011 1,892 1,887
Finance receivables, net 7,639 7,639 7,230 7,230 7,918 7,918
Assets held for sale -- -- 667 667 -- --
Liabilities
Insurance investment contracts 27,623 28,139 26,876 28,331 27,129 27,508
Short-term debt 3,830 3,830 3,762 3,762 3,266 3,266
Long-term debt
Corporate 1,407 1,341 1,538 1,471 1,648 1,519
Consumer Finance 4,117 4,011 4,608 4,499 5,225 4,980
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value
of financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was estimated
primarily using discounted cash flows, based on contractual maturities and
risk-adjusted discount rates.
POLICY LOANS. Fair value of policy loans was estimated using discounted
cash flows and actuarially determined assumptions, incorporating market rates.
FINANCE RECEIVABLES, NET. Fair value of finance receivables, which
approximated carrying amount, was estimated using projected cash flows,
discounted at the weighted-average rates currently being offered for similar
finance receivables.
ASSETS HELD FOR SALE. Fair value of assets held for sale approximated the
carrying amount.
INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment
contracts was estimated using cash flows discounted at market interest rates.
DEBT. Fair value of short-term debt approximated the carrying amount. Fair
value of long-term debt was estimated using cash flows discounted at current
borrowing rates.
AMERICAN GENERAL CORPORATION 50
<PAGE> 31
OFF-BALANCE-SHEET DERIVATIVE FINANCIAL INSTRUMENTS. Had the company elected
to terminate its interest rate swap and treasury rate lock agreements related to
debt at December 31, 1997, 1996, and 1995, it would have paid $30 million, $30
million, and $50 million, respectively. These fair values were estimated using
cash flows discounted at current market rates.
19 RESTRICTIONS AND CONTINGENCIES
19.1 SUBSIDIARY DIVIDEND RESTRICTIONS
American General's insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. Certain non-insurance subsidiaries
are similarly restricted in the payment of dividends by long-term debt
agreements. At December 31, 1997, the amount of dividends available to American
General from subsidiaries during 1998 not limited by such restrictions is
approximately $900 million.
19.2 LEGAL PROCEEDINGS
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating to life insurance pricing and sales
practices, and a number of these lawsuits have resulted in substantial
settlements. Certain of American General's subsidiaries are defendants in such
purported class action lawsuits filed in 1996 and 1997, asserting claims related
to pricing and sales practices. These claims are being defended vigorously by
the subsidiaries. Given the uncertain nature of litigation and the early stages
of this litigation, the outcome of these actions cannot be predicted at this
time. American General nevertheless believes that the ultimate outcome of all
such pending litigation should not have a material adverse effect on American
General's consolidated financial position. It is possible that settlements or
adverse determinations in one or more of these actions or other future
proceedings could have a material adverse effect on American General's
consolidated results of operations for a given period. No provision for any
adverse determinations in this pending litigation has been made in the
consolidated financial statements because the amount of the loss, if any, from
these actions cannot be reasonably estimated at this time.
The company is party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama, that permit damage awards disproportionate to
the actual economic damages incurred. Based upon information presently
available, the company believes that the total amounts that will ultimately be
paid, if any, arising from these lawsuits and proceedings will not have a
material adverse effect on the company's consolidated results of operations and
financial position. However, it should be noted that the frequency of large
damage awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions like
Alabama continues to increase and creates the potential for an unpredictable
judgment in any given suit.
20 DIVISION OPERATIONS
20.1 NATURE OF OPERATIONS
The company reports the results of its business operations in three
divisions.
RETIREMENT SERVICES. The Variable Annuity Life Insurance Company (VALIC)
provides tax-deferred retirement annuities and employer-sponsored retirement
plans to employees of educational, health care, public sector, and other
not-for-profit organizations. VALIC markets products nationwide through
exclusive sales representatives. VALIC holds claims-paying ability ratings that
are among the strongest in the life insurance industry.
LIFE INSURANCE. American General's life insurance companies provide life
insurance and annuity products throughout the United States. A broad range of
products are offered through independent and career agents by All American Life,
American General Life, American General Life and Accident, Franklin Life, Old
Line Life, United States Life, and USLIFE Credit Life. These companies hold
claims-paying ability ratings that are among the strongest in the life insurance
industry.
CONSUMER FINANCE. American General Finance (AGF) provides consumer and home
equity loans and other credit-related products through branch offices in 41
states, Puerto Rico, and the U.S. Virgin Islands. AGF also operates financing
programs through retail merchants. AGF holds debt ratings that are among the
strongest in the consumer finance industry.
51 1997 ANNUAL REPORT
<PAGE> 32
20.2 DIVISION RESULTS
Results of each division include earnings from its business operations and
earnings on that amount of equity considered necessary to support its business.
Division information was as follows:
<TABLE>
<CAPTION>
Revenues Income before Taxes Assets
--------------------------- --------------------------- --------------------------------
In millions 1997 1996 1995 1997 1996 1995 1997 1996 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $1,836 $1,742 $1,655 $ 375 $ 341 $ 305 $34,981 $30,257 $27,084
Life Insurance 5,314 5,088 4,665 822(a) 778(b) 735 34,802 32,738 31,317
Consumer Finance 1,523 1,726 1,790 204(c) 55(c) 115 9,239 9,440 9,466
- ---------------------------------------------------------------------------------------------------------------------------
Total divisions 8,673 8,556 8,110 1,401 1,174 1,155 79,022 72,435 67,867
- ---------------------------------------------------------------------------------------------------------------------------
Corporate 346 225 217 (368)(d) (156)(e) (163) 1,924 2,012 1,532
Realized investment gains 40 62 18 40 62 18 -- -- --
Interdivision eliminations (132) (129) (109) -- -- -- (326) (313) (316)
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated $8,927 $8,714 $8,236 $1,073(f) $1,080(f) $1,010(f) $80,620 $74,134 $69,083
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)Includes $71 million of restructuring costs.
(b)Includes $50 million write-down of USLIFE group business.
(c)Includes loss on sale of non-strategic assets of $42 million in 1997 and $145
million in 1996.
(d)Includes $201 million merger-related costs, $71 million loss on sale of
non-strategic assets, and $50 million litigation settlement.
(e)Includes $20 million loss on sale of non-strategic assets.
(f)Before dividends on preferred securities of subsidiaries.
21 QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
In millions, --------------------------------------------------- ------------------------
except per share data 4th 3rd 2nd 1st 4th 3rd
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums and other
considerations $ 890 $ 839 $ 832 $ 801 $ 820 $ 820
Net investment income 1,037 1,010 1,002 971 961 943
Total revenues 2,324 2,235 2,226 2,142 2,190 2,197
Insurance and annuity
benefits 1,135 1,074 1,083 1,040 1,057 1,052
Operating costs and
expenses 389 360 349 349 364 349
Provision for finance
receivable losses 61 56 63 68 116 90
Total benefits and
expenses 1,940 1,851 2,272(a) 1,791 2,028(b) 1,863(c)
Net realized investment
gains (losses) 11 6 14 (4) 3 17
Net income (loss) 230 226 (124)(a) 210 95(b) 199(c)
- --------------------------------------------------------------------------------------------------------------
Per common share
Net income
Basic $ .94 $ .92 $ (.52) $ .87 $ .39 $ .81
Diluted .92 .91 (.52)(a) .85 .39(b) .80(c)
Dividends paid .35 .35 .35 .35 .32 .33
Market price
High 56 1/4 54 3/4 49 5/8 44 5/8 41 3/4 38 3/4
Low 46 9/16 46 13/16 36 1/2 39 3/8 35 3/4 34
Close 54 1/16 51 7/8 47 3/4 40 3/4 40 7/8 37 3/4
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995
In millions, ----------------------- -------------------------------------------------
except per share data 2nd 1st 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums and other
considerations $ 824 $ 780 $ 768 $ 756 $ 752 $ 693
Net investment income 945 924 928 920 894 842
Total revenues 2,180 2,147 2,123 2,106 2,070 1,937
Insurance and annuity
benefits 1,057 1,052 1,073 1,038 1,032 942
Operating costs and
expenses 360 332 348 318 310 299
Provision for finance
receivable losses 102 109 313(e) 114 75 72
Total benefits and
expenses 1,911(d) 1,832 2,053 1,799 1,746 1,628
Net realized investment
gains (losses) 2 18 4 5 1 2
Net income (loss) 163(d) 196 37(e) 207 206 200
- ------------------------------------------------------------------------------------------------------------
Per common share
Net income
Basic $ .66 $ .80 $ .15 $ .85 $ .85 $ .82
Diluted .65(d) .79 .15(e) .84 .84 .82
Dividends paid .32 .33 .31 .31 .31 .31
Market price
High 37 5/8 37 7/8 39 1/8 38 7/8 35 1/2 33 1/4
Low 32 7/8 33 1/4 31 33 5/8 31 1/8 27 1/2
Close 36 3/8 34 1/2 34 7/8 37 3/8 33 3/4 32 1/4
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a)Includes $272 million pretax ($247 million aftertax or $1.02 per share)
merger-related costs, $113 million pretax ($73 million aftertax or $.30 per
share) loss on sale of non-strategic assets, and $50 million pretax ($33
million aftertax or $.14 per share) litigation settlement.
(b)Includes $145 million pretax ($93 million aftertax or $.39 per share) loss on
sale of non-strategic assets.
(c)Includes $20 million pretax ($18 million aftertax or $.07 per share) loss on
sale of non-strategic assets.
(d)Includes $50 million pretax ($32 million aftertax or $.13 per share)
write-down of USLIFE group business.
(e)Includes $216 million pretax ($140 million aftertax or $.58 per share)
adjustment to the allowance for finance receivable losses.
AMERICAN GENERAL CORPORATION 52
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders
American General Corporation
We have audited the accompanying consolidated balance sheets of American
General Corporation and subsidiaries as of December 31, 1997, 1996, and 1995,
and the related consolidated statements of income, shareholders' equity, common
stock activity, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
General Corporation and subsidiaries as of December 31, 1997, 1996, and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 26, 1998
<PAGE> 1
- --------------------------------------------------------------------------------
AMERICAN GENERAL CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF AMERICAN GENERAL CORPORATION
The following list includes certain, but not all, of American General
Corporation's subsidiaries at February 28, 1998. Subsidiaries of subsidiaries
are indicated by indentations.
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
- -----------------------------------------------------------------------------------------
<S> <C>
AGC Life Insurance Company.................................. Missouri
American General Life and Accident Insurance Company...... Tennessee
Independent Fire Insurance Company..................... Florida
American General Property Insurance Company of
Florida............................................. Florida
American General Life Insurance Company................... Texas
American General Annuity Service Corporation........... Texas
American General Life Insurance Company of New York.... New York
American General Securities Incorporated............... Texas
The Variable Annuity Life Insurance Company............ Texas
VALIC Investment Services Company.................... Texas
VALIC Retirement Services Company.................... Texas
The Variable Annuity Marketing Company............... Texas
The Franklin Life Insurance Company....................... Illinois
The American Franklin Life Insurance Company........... Illinois
Franklin Financial Services Corporation................ Delaware
Western National Corporation.............................. Delaware
American General Annuity Insurance Company (formerly
Western National Life Insurance Company).............. Texas
American General Capital, L.L.C. ........................... Delaware
American General Capital Services, Inc. .................... Delaware
American General Delaware, L.L.C. .......................... Delaware
American General Delaware Management Corporation............ Delaware
American General Finance, Inc. ............................. Indiana
AGF Investment Corp. ..................................... Indiana
American General Auto Finance, Inc. ...................... Delaware
American General Finance Corporation...................... Indiana
American General Finance Group, Inc. .................. Delaware
American General Financial Services, Inc............. Delaware
The National Life and Accident Insurance
Company............................................ Texas
CommoLoCo, Inc. ................................ Puerto Rico
Merit Life Insurance Co. .............................. Indiana
Yosemite Insurance Company............................. California
American General Finance, Inc. ........................... Alabama
American General Financial Center......................... Utah
American General Independent Producer Division.............. Delaware
American General Investment Holding Corporation............. Delaware
American General Investment Management Corporation.......... Delaware
American General Property Insurance Company................. Tennessee
American General Realty Advisors, Inc. ..................... Delaware
American General Realty Investment Corporation ............. Texas
Knickerbocker Corporation................................... Texas
USLIFE Corporation.......................................... New York
All American Life Insurance Company....................... Illinois
American General Life Insurance Company of Pennsylvania... Pennsylvania
The Old Line Life Insurance Company of America............ Wisconsin
The United States Life Insurance Company in the City of
New York............................................... New York
USLIFE Credit Life Insurance Company...................... Illinois
</TABLE>
AMERICAN GENERAL CORPORATION
22
<PAGE> 1
EXHIBIT 23 -- CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American General Corporation of our report dated February 26, 1998,
included in the 1997 Annual Report to Shareholders of American General
Corporation.
Our audits also included the financial statement schedules of American
General Corporation listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth herein.
We also consent to the incorporation by reference in
<TABLE>
<CAPTION>
REGISTRATION
STATEMENT
NUMBER ON FORM
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
333-13407................................................... S-8
33-39200.................................................... S-8
333-13401................................................... S-8
33-39201.................................................... S-8
333-13395................................................... S-8
33-51973.................................................... S-8
2-98021..................................................... S-8
333-23275................................................... S-8
333-29383................................................... S-8
333-29393................................................... S-8
333-46895................................................... S-8
333-37851................................................... S-3
333-37877................................................... S-3
33-58317.................................................... S-3
33-58317-01................................................. S-3
33-58317-02................................................. S-3
33-51045.................................................... S-3
333-40583................................................... S-3
333-40583-01................................................ S-3
333-40583-02................................................ S-3
333-40583-03................................................ S-3
333-40583-04................................................ S-3
- -----------------------------------------------------------------------------------
</TABLE>
of our report dated February 26, 1998, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of American General Corporation.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 26, 1998
<PAGE> 1
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ ROBERT M. DEVLIN
-----------------------------
<PAGE> 2
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ J. EVANS ATTWELL
-----------------------------
<PAGE> 3
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ BRADY F. CARRUTH
-----------------------------
<PAGE> 4
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ JAMES S. D'AGOSTINO JR.
-----------------------------
<PAGE> 5
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ W. LIPSCOMB DAVIS JR.
-----------------------------
<PAGE> 6
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ LARRY D. HORNER
-----------------------------
<PAGE> 7
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ RICHARD J.V. JOHNSON
-----------------------------
<PAGE> 8
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ MICHAEL E. MURPHY
-----------------------------
<PAGE> 9
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ JON P. NEWTON
-----------------------------
<PAGE> 10
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ MICHAEL J. POULOS
-----------------------------
<PAGE> 11
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ ROBERT E. SMITTCAMP
-----------------------------
<PAGE> 12
American General Corporation: Board of Directors
Date: January 29, 1998
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize
certain officers of the company to execute, on behalf of the
undersigned person, the company's 1997 annual report on Form
10-K, with such amendments thereto as may be necessary or
appropriate, together with any and all exhibits and other
related documents, and to file the Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation
(company), will file with the Securities and Exchange Commission (Commission)
under Section 13 of the Securities Exchange Act of 1934, as amended (Act), its
annual report on Form 10-K for the fiscal year ended December 31, 1997 (Form
10-K), with such amendments thereto as may be necessary or appropriate,
together with any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a
director or officer or both, as the case may be, of the company does hereby
appoint JON P. NEWTON, MARK S. BERG, and ELLEN H. MASTERSON, and each of them,
severally, his/her true and lawful attorney or attorneys-in-fact with or
without the others and with full power of substitution and resubstitution, to
execute in his/her name, place, and stead, in his/her capacity as a director or
officer or both, as the case may be, of the company, the Form 10-K and any and
all amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this
instrument this 29th day of January, 1998.
/s/ ANNE M. TATLOCK
-----------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 47,747<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 116
<MORTGAGE> 3,272
<REAL-ESTATE> 233
<TOTAL-INVEST> 54,006
<CASH> 263
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,398<F2>
<TOTAL-ASSETS> 80,620
<POLICY-LOSSES> 45,095<F3>
<UNEARNED-PREMIUMS> 192<F3>
<POLICY-OTHER> 385<F3>
<POLICY-HOLDER-FUNDS> 1,987<F3>
<NOTES-PAYABLE> 9,182
1,726<F4>
85<F5>
<COMMON> 326
<OTHER-SE> 7,172<F6>
<TOTAL-LIABILITY-AND-EQUITY> 80,620
3,362<F7>
<INVESTMENT-INCOME> 4,020
<INVESTMENT-GAINS> 40
<OTHER-INCOME> 1,505<F8>
<BENEFITS> 4,332
<UNDERWRITING-AMORTIZATION> 546<F9>
<UNDERWRITING-OTHER> (646)<F10>
<INCOME-PRETAX> 1,073<F11>
<INCOME-TAX> 447<F12>
<INCOME-CONTINUING> 542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.19
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $129 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $45 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 44,355<F1> 43,220<F1>
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 137 191
<MORTGAGE> 3,228 3,337
<REAL-ESTATE> 626 607
<TOTAL-INVEST> 50,832 49,598
<CASH> 176 227
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 3,709<F2> 2,847<F2>
<TOTAL-ASSETS> 74,134 69,083
<POLICY-LOSSES> 43,538<F3> 41,224<F3>
<UNEARNED-PREMIUMS> 217<F3> 236<F3>
<POLICY-OTHER> 373<F3> 337<F3>
<POLICY-HOLDER-FUNDS> 1,894<F3> 1,921<F3>
<NOTES-PAYABLE> 9,732 9,765
1,227<F4> 729<F4>
85<F5> 0
<COMMON> 572 532
<OTHER-SE> 6,187<F6> 6,577<F6>
<TOTAL-LIABILITY-AND-EQUITY> 74,134 69,083
3,244<F7> 2,969<F7>
<INVESTMENT-INCOME> 3,773 3,584
<INVESTMENT-GAINS> 62 18
<OTHER-INCOME> 1,635<F8> 1,665<F8>
<BENEFITS> 4,218 4,085
<UNDERWRITING-AMORTIZATION> 494<F9> 412<F9>
<UNDERWRITING-OTHER> (618)<F10> (647)<F10>
<INCOME-PRETAX> 1,080<F11> 1,010<F13>
<INCOME-TAX> 387<F12> 341<F14>
<INCOME-CONTINUING> 653 650
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 653 650
<EPS-PRIMARY> 2.67 2.68
<EPS-DILUTED> 2.63 2.66
<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
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF
ACCRETION OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $61 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $21 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
<F13>EXCLUDES $30 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F14>EXCLUDES $11 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 47,557<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 110
<MORTGAGE> 3,258
<REAL-ESTATE> 245
<TOTAL-INVEST> 53,589
<CASH> 218
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,612<F2>
<TOTAL-ASSETS> 79,416
<POLICY-LOSSES> 45,078<F3>
<UNEARNED-PREMIUMS> 189<F3>
<POLICY-OTHER> 380<F3>
<POLICY-HOLDER-FUNDS> 1,945<F3>
<NOTES-PAYABLE> 8,881
1,726<F4>
85<F5>
<COMMON> 318
<OTHER-SE> 6,916<F6>
<TOTAL-LIABILITY-AND-EQUITY> 79,416
2,472<F7>
<INVESTMENT-INCOME> 2,983
<INVESTMENT-GAINS> 25
<OTHER-INCOME> 1,123<F8>
<BENEFITS> 3,197
<UNDERWRITING-AMORTIZATION> 405<F9>
<UNDERWRITING-OTHER> (476)<F10>
<INCOME-PRETAX> 689<F11>
<INCOME-TAX> 315<F12>
<INCOME-CONTINUING> 312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $95 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $33 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 45,985<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 110
<MORTGAGE> 3,389
<REAL-ESTATE> 587
<TOTAL-INVEST> 52,707
<CASH> 289
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,927<F2>
<TOTAL-ASSETS> 77,387
<POLICY-LOSSES> 44,898<F3>
<UNEARNED-PREMIUMS> 229<F3>
<POLICY-OTHER> 370<F3>
<POLICY-HOLDER-FUNDS> 1,896<F3>
<NOTES-PAYABLE> 8,972
1,725<F4>
85<F5>
<COMMON> 321
<OTHER-SE> 6,340<F6>
<TOTAL-LIABILITY-AND-EQUITY> 77,387
1,633<F7>
<INVESTMENT-INCOME> 1,973
<INVESTMENT-GAINS> 14
<OTHER-INCOME> 748<F8>
<BENEFITS> 2,123
<UNDERWRITING-AMORTIZATION> 260<F9>
<UNDERWRITING-OTHER> (311)<F10>
<INCOME-PRETAX> 305<F11>
<INCOME-TAX> 180<F12>
<INCOME-CONTINUING> 86
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $60 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $21 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 43,876<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 120
<MORTGAGE> 3,202
<REAL-ESTATE> 617
<TOTAL-INVEST> 50,581
<CASH> 207
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,166<F2>
<TOTAL-ASSETS> 74,443
<POLICY-LOSSES> 43,875<F3>
<UNEARNED-PREMIUMS> 197<F3>
<POLICY-OTHER> 374<F3>
<POLICY-HOLDER-FUNDS> 1,897<F3>
<NOTES-PAYABLE> 9,489
1,725<F4>
85<F5>
<COMMON> 574
<OTHER-SE> 5,700<F6>
<TOTAL-LIABILITY-AND-EQUITY> 74,443
801<F7>
<INVESTMENT-INCOME> 971
<INVESTMENT-GAINS> (6)
<OTHER-INCOME> 376<F8>
<BENEFITS> 1,040
<UNDERWRITING-AMORTIZATION> 125<F9>
<UNDERWRITING-OTHER> (150)<F10>
<INCOME-PRETAX> 351<F11>
<INCOME-TAX> 124<F12>
<INCOME-CONTINUING> 210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $26 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $9 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 42,912<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 137
<MORTGAGE> 3,415
<REAL-ESTATE> 638
<TOTAL-INVEST> 49,600
<CASH> 227
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,934<F2>
<TOTAL-ASSETS> 72,178
<POLICY-LOSSES> 43,128<F3>
<UNEARNED-PREMIUMS> 222<F3>
<POLICY-OTHER> 362<F3>
<POLICY-HOLDER-FUNDS> 1,949<F3>
<NOTES-PAYABLE> 9,888
731<F4>
85<F5>
<COMMON> 570
<OTHER-SE> 5,872<F6>
<TOTAL-LIABILITY-AND-EQUITY> 72,178
2,424<F7>
<INVESTMENT-INCOME> 2,812
<INVESTMENT-GAINS> 57
<OTHER-INCOME> 1,231<F8>
<BENEFITS> 3,161
<UNDERWRITING-AMORTIZATION> 381<F9>
<UNDERWRITING-OTHER> (473)<F10>
<INCOME-PRETAX> 918<F11>
<INCOME-TAX> 331<F12>
<INCOME-CONTINUING> 558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.24
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $44 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $15 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 42,514<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 148
<MORTGAGE> 3,460
<REAL-ESTATE> 637
<TOTAL-INVEST> 49,154
<CASH> 246
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,867<F2>
<TOTAL-ASSETS> 70,794
<POLICY-LOSSES> 42,729<F3>
<UNEARNED-PREMIUMS> 225<F3>
<POLICY-OTHER> 370<F3>
<POLICY-HOLDER-FUNDS> 1,938<F3>
<NOTES-PAYABLE> 9,555
731<F4>
85<F5>
<COMMON> 569
<OTHER-SE> 5,791<F6>
<TOTAL-LIABILITY-AND-EQUITY> 70,794
1,604<F7>
<INVESTMENT-INCOME> 1,869
<INVESTMENT-GAINS> 31
<OTHER-INCOME> 823<F8>
<BENEFITS> 2,109
<UNDERWRITING-AMORTIZATION> 251<F9>
<UNDERWRITING-OTHER> (318)<F10>
<INCOME-PRETAX> 584<F11>
<INCOME-TAX> 206<F12>
<INCOME-CONTINUING> 359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.44
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICY
HOLDER FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $29 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $10 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 43,020<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 178
<MORTGAGE> 3,399
<REAL-ESTATE> 648
<TOTAL-INVEST> 49,588
<CASH> 238
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,660<F2>
<TOTAL-ASSETS> 70,114
<POLICY-LOSSES> 42,432<F3>
<UNEARNED-PREMIUMS> 230<F3>
<POLICY-OTHER> 364<F3>
<POLICY-HOLDER-FUNDS> 1,924<F3>
<NOTES-PAYABLE> 9,501
730<F4>
85<F5>
<COMMON> 567
<OTHER-SE> 6,064<F6>
<TOTAL-LIABILITY-AND-EQUITY> 70,114
780<F7>
<INVESTMENT-INCOME> 924
<INVESTMENT-GAINS> 28
<OTHER-INCOME> 415<F8>
<BENEFITS> 1,052
<UNDERWRITING-AMORTIZATION> 127<F9>
<UNDERWRITING-OTHER> (156)<F10>
<INCOME-PRETAX> 315<F11>
<INCOME-TAX> 109<F12>
<INCOME-CONTINUING> 196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.79
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED
AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES;
RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY TRANSLATION
GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION
OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $15 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $5 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
