AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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)
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)
(713) 522-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
As of April 30, 1998, there were 253,680,098 shares (excluding shares held in
treasury and by a subsidiary) of American General's Common Stock and 2,317,701
shares of American General's 7% Convertible Preferred Stock outstanding.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the three
months ended March 31, 1998 and 1997 ............. 2
Consolidated Balance Sheet at March 31, 1998 and
December 31, 1997 ................................ 3
Consolidated Statement of Shareholders' Equity for
the three months ended March 31, 1998 and 1997 ... 4
Consolidated Condensed Statement of Cash Flows for
the three months ended March 31, 1998 and 1997 ... 5
Notes to Consolidated Financial Statements ......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 10
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 22
Item 6. Exhibits and Reports on Form 8-K ................... 22
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except per share data)
Three Months Ended
March 31,
1998 1997
Revenues
Premiums and other considerations ................ $ 878 $ 801
Net investment income ............................ 1,226 971
Finance charges .................................. 327 320
Realized investment gains (losses) ............... 1 (6)
Equity in earnings of Western National
Corporation ..................................... - 13
Other ............................................ 47 43
Total revenues ............................... 2,479 2,142
Benefits and expenses
Insurance and annuity benefits ................... 1,224 1,040
Operating costs and expenses ..................... 382 347
Commissions ...................................... 249 210
Change in deferred policy acquisition costs and
cost of insurance purchased ..................... (34) (25)
Provision for finance receivable losses .......... 49 68
Interest expense
Corporate ....................................... 50 36
Consumer Finance ................................ 122 113
Other charges - Year 2000 costs .................. 9 2
Total benefits and expenses .................. 2,051 1,791
Earnings
Income before income tax expense, minority
interest, and dividends on preferred securities . 428 351
Income tax expense ............................... 151 124
Income before minority interest and dividends on
preferred securities ............................ 277 227
Minority interest in net income of Western
National Corporation ............................ 11 -
Net dividends on preferred securities of
subsidiaries .................................... 22 17
Net income ................................... $ 244 $ 210
Net income per share
Basic ........................................... $ .98 $ .87
Diluted ......................................... $ .96 $ .85
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share data)
March 31, December 31,
1998 1997
Assets
Investments
Fixed maturity securities (amortized cost:
$55,704; $44,961) ........................... $58,690 $47,747
Mortgage loans on real estate ................. 3,504 3,272
Equity securities (cost: $100; $93) ........... 124 116
Policy loans .................................. 2,228 2,156
Investment real estate ........................ 232 233
Other long-term investments ................... 221 176
Short-term investments ........................ 904 306
Total investments ......................... 65,903 54,006
Assets held in Separate Accounts ............... 13,510 11,482
Finance receivables, net ....................... 7,695 7,639
Deferred policy acquisition costs .............. 3,135 2,718
Cost of insurance purchased .................... 913 680
Goodwill ....................................... 1,514 677
Other assets ................................... 3,381 2,835
Investment in Western National Corporation ..... - 583
Total assets .............................. $96,051 $80,620
Liabilities
Insurance and annuity liabilities .............. $58,208 $47,659
Liabilities related to Separate Accounts ....... 13,510 11,482
Debt (short-term)
Corporate ($1,291; $575) ...................... 2,427 1,916
Consumer Finance ($3,296; $3,255) ............. 7,365 7,266
Income tax liabilities ......................... 1,623 1,380
Other liabilities .............................. 2,717 1,608
Total liabilities ......................... 85,850 71,311
Redeemable equity
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely company subordinated notes
Non-convertible ............................. 1,480 1,479
Convertible ................................. 247 247
Total redeemable equity ................... 1,727 1,726
Shareholders' equity
Convertible preferred stock (shares issued
and outstanding: 2,317,701) ................... 85 85
Common stock (shares issued: 269,298,493;
259,135,053; outstanding: 253,621,032;
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
243,206,215) .................................. 928 326
Cost of treasury stock ......................... (622) (621)
Retained earnings .............................. 6,776 6,624
Accumulated other comprehensive income ......... 1,307 1,169
Total shareholders' equity ................ 8,474 7,583
Total liabilities and equity .............. $96,051 $80,620
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Statement of Shareholders' Equity
(Unaudited)
(In millions, except per share data)
Three Months Ended
March 31,
1998 1997
Compre- Compre-
hensive hensive
Total Income Total Income
Convertible preferred stock
Balance at beginning and end of
period ........................... $ 85 $ 85
Common stock
Balance at beginning of period .... 326 572
Issuance of shares for Western
National Corporation acquisition.. 580 -
Valuation of stock options issued
for acquisition .................. 37 -
Issuance of treasury shares ....... (15) 2
Balance at end of period .......... 928 574
Cost of treasury stock
Balance at beginning of period .... (621) (860)
Share repurchases ................. (31) (127)
Issuance under employee benefit
plans and other .................. 30 12
Balance at end of period .......... (622) (975)
Retained earnings
Balance at beginning of period .... 6,624 6,420
Net income ........................ 244 $ 244 210 $ 210
Cash dividends (per share)
Preferred stock ($.64; $.64) ..... (1) (1)
Common stock ($.38; $.35) ........ (91) (79)
Other ............................. - 1
Balance at end of period .......... 6,776 6,551
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Accumulated other comprehensive
income
Balance at beginning of period.... 1,169 627
Change in net unrealized gains
(losses) on securities, net of
reclassification adjustment ..... 137 137 (503) (503)
Other ............................ 1 1 - -
Balance at end of period ......... 1,307 138 124 (503)
Comprehensive income (loss) ..... $ 382 $ (293)
Total shareholders' equity ...... $8,474 $6,359
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Three Months Ended
March 31,
1998 1997
Operating activities
Net cash provided by operating activities ... $ 637 $ 749
Investing activities
Investment purchases .............................. (2,342) (3,887)
Investment dispositions and repayments ............ 1,748 3,289
Finance receivable originations and purchases ..... (1,274) (1,017)
Finance receivable principal payments received .... 1,147 1,082
Net (increase) decrease in short-term investments . 35 (248)
Acquisition of Western National Corporation ....... (590) -
Other, net ........................................ (30) 5
Net cash used for investing activities ...... (1,306) (776)
Financing activities
Retirement Services and Life Insurance
Policyholder account deposits ................... 931 814
Policyholder account withdrawals ................ (920) (781)
Net policyholder account deposits ............ 11 33
Short-term collateralized financings ............ 315 -
Total Retirement Services and Life Insurance. 326 33
Consumer Finance
Net increase (decrease) in short-term debt ...... 41 (94)
Long-term debt issuances ........................ 536 2
Long-term debt redemptions ...................... (479) (208)
Total Consumer Finance ..................... 98 (300)
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Corporate
Net increase in short-term debt ................. 620 56
Long-term debt redemptions ...................... (354) -
Dividends on common and preferred stock ......... (92) (80)
Common stock repurchases ........................ (31) (128)
Issuance of preferred securities of subsidiaries. - 498
Other, net ...................................... 68 (21)
Total Corporate ............................ 211 325
Net cash provided by
financing activities ..................... 635 58
Net increase (decrease) in cash .................... (34) 31
Cash at beginning of period ........................ 263 176
Cash at end of period .............................. $ 229 $ 207
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for
Income taxes .................................... $ (98) $ (13)
Interest
Corporate ...................................... 59 23
Consumer Finance ............................... 139 130
Dividends on preferred securities of
subsidiaries ................................... 14 14
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
March 31, 1998
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation and its subsidiaries (American
General or the company) have been prepared in accordance with generally
accepted accounting principles for interim periods. In the opinion of
management, these statements include all adjustments that are necessary
for a fair presentation of the company's consolidated financial position
at March 31, 1998, and the consolidated results of operations,
shareholders' equity, and cash flows for the three months ended March 31,
1998 and 1997.
2. New Accounting Standard. During first quarter 1998, the company adopted
Statement of Financial Accounting Standards 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements.
American General elected to report comprehensive income and its
components in the consolidated statement of shareholders' equity, which
is included herein. Application of this statement did not change
recognition or measurement of net income and, therefore, did not impact
the company's consolidated results of operations or financial position.
3. Acquisition of Western National. On February 25, 1998, the company
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
acquired the remaining 54% equity interest of Western National
Corporation (Western National) for $1.2 billion. The purchase price
consisted of $580 million cash and 10.2 million shares of American
General common stock. In addition, the company issued options to acquire
1.4 million shares of American General common stock to replace
outstanding options to acquire Western National common stock. The fair
value of these options, excluding options surrendered for $10 million
cash pursuant to a pre-existing employment agreement, was $37 million.
Western National's results of operations and cash flows have been
consolidated in the company's financial statements effective January 1,
1998. Earnings attributable to minority interests through February 25,
1998 have been reflected as a charge against consolidated income.
The acquisition was accounted for using the purchase method, and the
purchase price has been allocated to Western National's specific assets
and liabilities based on management's best estimate of their fair values
at the date of acquisition. Evaluation of fair values assigned to
Western National's assets and liabilities (primarily related to insurance
and annuity liabilities) is continuing, and allocation of the purchase
price may be adjusted when additional information is available. The
difference between the aggregate purchase price and the net assets
acquired is attributed to goodwill that will be amortized on a straight-
line basis over 40 years.
Item 1. Financial Statements (continued).
Non-cash activities related to the acquisition that are not reflected in
the consolidated condensed statement of cash flows for the three months
ended March 31, 1998 were as follows:
(In millions)
Fair value of assets acquired $ 7,224
Liabilities assumed (6,017)
Issuance of common stock (580)
Fair value of stock options issued (37)
Net cash paid $ 590
Western National is the parent of Western National Life Insurance
Company, which changed its name to American General Annuity Insurance
Company (American General Annuity) effective May 1, 1998.
4. Calculation of Earnings Per Share. The calculation of basic and diluted
earnings per share follows:
Three Months Ended
March 31,
(In millions, except share data) 1998 1997
Net income $244 $210
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Net dividends on convertible
preferred stock (1) (1)
Earnings available to common
shareholders (a) 243 209
Net dividends on dilutive securities
Convertible preferred securities
of subsidiary 3 3
Convertible preferred stock 1 1
Earnings available to common
shareholders assuming dilution (b) $247 $213
Average shares outstanding (a) 247,263,168 239,627,435
Dilutive securities
Convertible preferred securities
of subsidiary 6,144,016 6,144,016
Convertible preferred stock 2,317,701 2,396,023
Stock options 1,558,167 1,277,704
Average shares outstanding
assuming dilution (b) 257,283,052 249,445,178
Net income per share
Basic $.98 $.87
Diluted .96 .85
(a) Used to compute basic earnings per share.
(b) Used to compute diluted earnings per share.
Item 1. Financial Statements (continued).
5. Investing Activities. Cash flows related to investing activities were as
follows:
Dispositions and
Purchases Repayments
Three Months Ended Three Months Ended
(In millions) March 31, March 31,
1998 1997 1998 1997
Fixed maturity securities $2,279 $3,738 $1,584 $3,096
Mortgage loans 38 103 131 133
Equity securities 1 - 6 19
Other 24 46 27 41
Total $2,342 $3,887 $1,748 $3,289
6. Derivative Financial Instruments. In March 1998, the company purchased
options to enter into interest rate swap agreements (swaptions) to limit
its exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over
prolonged periods. These swaptions, with a total notional amount of $725
million and strike rates ranging from 4.00% to 5.00%, expire during 1998
and 1999.
American General Annuity had interest rate swap agreements with a total
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
notional amount of $120 million outstanding at the acquisition date.
These interest rate swap agreements, which require the receipt of fixed
rates and the payment of floating rates, were entered into by American
General Annuity to convert specific investment securities from a floating
rate to a fixed rate basis.
Derivative financial instruments did not have a material effect on net
investment income, interest expense, or net income during the three
months ended March 31, 1998 or 1997.
7. Dollar Rolls. American General has entered into dollar roll agreements
as part of its strategy to increase investment yields. Dollar rolls are
agreements to sell mortgage-backed securities (MBSs) and repurchase
substantially the same securities at a specified price and date in the
future. The dollar rolls are accounted for as short-term collateralized
financings and are included in other liabilities. American General
Annuity had outstanding dollar rolls of $520 million at the acquisition
date. At March 31, 1998, the company had outstanding dollar roll
agreements of $845 million, which were collateralized by MBSs with
approximately the equivalent fair value. The average amount outstanding
and the weighted average interest rate on dollar rolls for the three
months ended March 31, 1998 were $657 million and 5.02%, respectively.
Item 1. Financial Statements (continued).
8. Legal Contingencies.
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
since 1996, 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.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
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 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 create the potential for an unpredictable judgment in any
given suit.
9. 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 issue 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This item presents specific comments on material changes to the company's
consolidated results of operations, capital resources, and liquidity for the
periods reflected in the interim financial statements filed with this report.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 9 of this Quarterly Report on
Form 10-Q.
OVERVIEW
American General reported financial highlights as follows:
Three Months Ended
(In millions, March 31,
except share data) 1998 1997
Net income $ 244 $ 210
Net income per share (diluted) .96 .85
Revenues and deposits 4,409 3,403
Assets 96,051 74,443
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Shareholders' equity 8,474 6,359
As discussed below, the acquisitions of Home Beneficial Life on April 16, 1997
and American General Annuity on February 25, 1998 affected the comparability
of the company's quarter-to-quarter financial results.
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:
Three Months Ended
March 31,
(In millions) 1998 1997
Retirement Services $ 112 $ 63
Life Insurance 158 138
Consumer Finance 45 39
Division earnings $ 315 $ 240
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Retirement Services
Retirement Services division results were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Earnings $ 112 $ 63
Assets
Investments 35,343 21,956
Separate Accounts 12,466 7,435
Sales
Tax-qualified 391 421
Non-qualified 579 27
Deposits
Fixed
Tax-qualified 372 425
Non-qualified 549 -
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Variable (mainly tax-qualified) 551 421
Operating expenses 57 36
Earnings. Division earnings increased 77% for the three months ended March
31, 1998 compared to the same period in 1997. American General Annuity's
operations, which were included in the division's results effective January 1,
1998, increased division earnings by $28 million. Earnings attributable to
minority interests through February 25, 1998 are reported in corporate
operations. Asset growth, higher investment income from prepayment of
investments, and management of fixed investment spread also contributed to the
division's profitability. Asset growth, excluding American General Annuity's
$13.2 billion of assets at the acquisition date and the fair value adjustment
related to the division's securities, was 20% from March 31, 1997 to March 31,
1998, and 7% from December 31, 1997. This growth was attributable to an
increase in variable deposits in each of the division's primary markets, as
well as stock market appreciation on assets held in Separate Accounts.
Sales and Deposits. American General Annuity, which primarily markets non-
qualified fixed annuities through financial institutions, contributed $557
million to sales and total deposits in the first three months of 1998.
Excluding American General Annuity, sales in first quarter 1998 were 8% lower
than in the same period in 1997, because 1997 had record high levels of
capital transfers. Excluding American General Annuity, total deposits
increased 8% and variable account deposits increased 29% for the three months
ended March 31, 1998 compared to the same period in 1997 as a result of
customers' preference for equity-based instruments. The division's Separate
Account assets, which relate to variable account options, increased $5.0
billion from March 31, 1997 to March 31, 1998 and $1.9 billion from December
31, 1997, reflecting deposit growth and stock market appreciation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fixed Investment Spread. Investment results and crediting rates on fixed
accounts were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Net investment income $ 646 $ 420
Investment yield 7.98% 7.93%
Average crediting rate 5.94 6.18
Fixed investment spread 2.04 1.75
Net investment income increased 54% in 1998 as a result of the acquisition of
American General Annuity, growth in invested assets, and an increase in
investment yield. Investment yield for the three months ended March 31, 1998
increased 5 basis points compared to the same period in 1997 due to changes in
investment strategy and higher premium income on investments called or
tendered before their maturity dates. This increase was partially offset by
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
lower market rates on new investment purchases. In response to the effect of
declining market rates on investment yield, the company adjusted the rates
credited to policyholders. As a result, the investment spread on fixed
accounts increased 29 basis points in first quarter 1998 compared to the same
period in 1997.
Separate Account Fees. Separate Account fees include mortality,
administrative, and investment advisory fees. These fees increased $13
million, or 55%, for the first three months of 1998 compared to the same
period in 1997, due to growth in Separate Account assets.
Surrenders. Policyholder surrenders are influenced by both competition and
market performance. The division's rate of policyholder surrenders for tax-
qualified accounts was 5.45% of average reserves for the first three months of
1998 compared to 5.28% for the same period in 1997. The division's rate of
policyholder surrenders for non-qualified accounts, which relate primarily to
American General Annuity's block of business, was 10.10% of average reserves
for the first three months of 1998.
Operating Expenses. Operating expenses increased $21 million for the three
months ended March 31, 1998 compared to the same period of 1997 due to the
addition of American General Annuity's operating expenses and variable
expenses to support the division's growth in deposits. The ratio of operating
expenses to average assets improved to .43% for the first three months of 1998
from .48% for the same period of 1997, reflecting growth in assets in excess
of growth in operating expenses and American General Annuity's lower overall
expense ratio.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Life Insurance
Life Insurance division results were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Earnings $ 158 $ 138
Assets 35,212 32,454
Insurance and annuity liabilities 25,328 24,625
Premiums and other considerations 776 730
Net investment income 548 510
Insurance and annuity benefits 731 704
Operating expenses 187 178
Earnings. Division earnings for the three months ended March 31, 1998
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
increased 14% compared to the same period in 1997. This increase was due to:
1) the acquisition of Home Beneficial Life in April 1997, 2) higher investment
income from prepayment of investments, and 3) cost savings from the
consolidation of operations in connection with recent acquisitions and the
realignment of the division, partially offset by startup costs for new product
development and new systems designed to support the division's growth and
efficiency objectives.
Premiums and Deposits. Sales and deposits of individual life insurance and
annuities were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Individual life insurance
Sales $ 177 $ 116
Deposits 340 281
Annuities
Sales 109 96
Deposits 135 134
Premiums and other considerations increased 6% for the first three months of
1998 compared to the same period of 1997 primarily due to new sales and the
acquisition of Home Beneficial Life. Individual life insurance sales and
deposits for first quarter 1998 exceeded comparable 1997 amounts by 53% and
21%, respectively, primarily due to the division's recent entry into the
corporate executive benefits market and the addition of Home Beneficial Life.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Annuity sales increased 13% in 1998 due to recently introduced variable
annuity products, partially offset by lower structured settlement sales due to
an unfavorable interest-rate environment. Other fixed annuity sales also
declined due to customers' preference for equity-based products. Annuity
deposits remained essentially flat as a result of the decline in the fixed
annuity business, which offset the growth in variable annuities.
Investment Spread. Investment results and interest crediting rates were as
follows:
Three Months Ended
March 31,
1998 1997
Investment yield 8.34% 8.10%
Average crediting rate 6.08 6.11
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Investment spread 2.26 1.99
Net investment income increased 8% for the first three months of 1998 compared
to the same period of 1997 due to the Home Beneficial Life acquisition, growth
in invested assets, and an increase in premiums on investments called or
tendered before their maturity dates. Although market rates were lower on new
investment purchases, investment yield and spread increased due to the higher
premiums on calls and tenders and lower investment expenses. The spread
between investment yield and the average rate credited to policyholders is
within product pricing assumptions.
Mortality and Persistency. Death claims and premium termination rates were as
follows:
Three Months Ended
March 31,
1998 1997
Death claims (in millions) $ 251 $ 231
Death claims per $1,000
in force $ 3.64 $ 3.47
Premium termination rate 12.68% 13.12%
Death claims, included in insurance and annuity benefits, increased 9% in
first quarter 1998 compared to the same period of 1997 due to the inclusion of
Home Beneficial and less favorable mortality experience in 1998. The lower
premium termination rate for the three months ended March 31, 1998 compared to
the same period in 1997 reflected lower terminations in the health and fire
lines of business. Overall, mortality and persistency experience was within
pricing assumptions.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Operating Expenses. Operating expenses increased $9 million for the first
three months of 1998 compared to the same period in 1997. During first
quarter 1998, the division achieved cost savings from the ongoing
consolidation and integration of acquired companies which were reinvested in
the development of new variable life and annuity products and the systems to
support those products. In addition, first quarter 1998 included Home
Beneficial's operating expenses which were not included in first quarter 1997.
The ratio of operating expenses to direct premiums and deposits was 16.60% for
the first three months of 1998 compared to 17.19% in the same period of 1997.
The lower ratio reflected the higher life insurance deposits in first quarter
1998.
Consumer Finance
Consumer Finance division results were as follows:
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Three Months Ended
March 31,
(In millions) 1998 1997
Earnings $ 45 $ 39
Average finance receivables 8,002 7,550
Yield on finance receivables 16.48% 17.09%
Borrowing cost 6.71 6.71
Interest spread 9.77 10.38
Operating expenses $ 119 $ 112
Earnings. Division earnings for the three months ended March 31, 1998
increased 15% compared to the same period of 1997, primarily due to improved
credit quality and an increase in average finance receivables.
Finance Receivables. Average finance receivables in the first quarter of 1998
increased $452 million compared to first quarter 1997. Finance receivables at
March 31, 1998 increased $609 million from March 31, 1997 and $51 million from
December 31, 1997. These increases were primarily due to the growth of real
estate secured loans, which reflect the company's program to improve credit
quality by increasing the proportion of real estate secured loans. The
increase from March 31, 1997 was also attributable to growth in retail sales
contracts resulting from the introduction of new marketing programs, partially
offset by the sale of certain under-performing private label receivables in
second quarter 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Credit Quality.
The allowance for finance receivable losses and delinquencies at March 31,
1998, December 31, 1997, and March 31, 1997, and charge offs for the three
months then ended, were as follows:
March 31, December 31, March 31,
($ in millions) 1998 1997 1997
Allowance for finance
receivable losses $ 368 $ 373 $ 390
% of finance receivables 4.56% 4.65% 5.23%
Delinquencies $ 303 $ 310 $ 304
% of finance receivables 3.49% 3.60% 3.76%
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Charge offs $ 54 $ 68 $ 73
% of average finance
receivables 2.70% 3.64% 3.83%
The decreases in the allowance, delinquency, and charge off ratios reflected
the positive impact of the company's credit quality improvement program,
including the increased proportion of real estate secured loans and higher
underwriting standards. The decreases in the allowance and delinquency ratios
from March 31, 1997 were also due to the sale of certain private label
receivables in second quarter 1997.
Interest Spread. The interest spread between yield and borrowing cost
decreased 61 basis points for the three months ended March 31, 1998 compared
to the same period in 1997 due to declining yields. The 1998 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 as a percentage of average finance
receivables decreased to 5.87% for the first three months of 1998 from 5.96%
for the same period of 1997 due to the increase in average finance
receivables, which more than offset the increase in operating expenses.
INVESTMENTS
Invested assets consist primarily of fixed maturity securities, mortgage loans
on real estate, and policy loans.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fair Value of Securities. A decrease in interest rates and resulting
increases in bond values in first quarter 1998 caused a $142 million increase
in the fair value adjustment to fixed maturity securities and a related $136
million positive adjustment to shareholders' equity from December 31, 1997.
The components of the adjustment to report fixed maturity and equity
securities at fair value at March 31, 1998 and December 31, 1997, and the 1998
change, were as follows:
March 31, December 31,
(In millions) 1998 1997 Change
Fair value adjustment to fixed
maturity securities $2,986 $ 2,844 $ 142
Decrease in deferred policy
acquisition costs and cost of
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
insurance purchased (990) (1,062) 72
Increase in deferred income taxes (706) (628) (78)
Net unrealized gains
Fixed maturity securities 1,290 1,154 136
Equity securities 16 15 1
Net unrealized gains on
securities $1,306 $ 1,169 $ 137
Fixed Maturity Securities. At March 31, 1998, fixed maturity securities
included $43.7 billion of corporate bonds, $12.7 billion of mortgage-backed
securities, and $2.1 billion of bonds issued by governmental agencies. The
average credit rating of the fixed maturity securities was A+ at March 31,
1998 and December 31, 1997. Average credit ratings by category at March 31,
1998 were as follows:
March 31, Average Credit
(In millions) 1998 % Rating
Investment grade $43,122 73% A
Mortgage-backed 12,725 22 AAA
Below investment grade 2,843 5 BB-
Total fixed maturity
securities $58,690 100% A+
Below Investment Grade. Below investment grade securities have credit ratings
below BBB-. Below investment grade securities were 4% of invested assets at
March 31, 1998 and December 31, 1997. The company invests in below investment
grade securities to enhance the overall yield of the portfolio. Investment
income from below investment grade securities was $58 million for the three
months ended March 31, 1998 and $35 million for the same period in 1997.
Realized investment gains (losses) were immaterial.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Non-Performing. Bonds are deemed to be non-performing when the payment of
interest is sufficiently uncertain as to preclude accrual of interest. Non-
performing bonds were less than 0.1% of total fixed maturity securities at
March 31, 1998 and December 31, 1997.
Mortgage Loans. Mortgage loans on real estate, consisting primarily of loans
on office and retail properties, represented 5% of invested assets at March
31, 1998 and 6% at December 31, 1997. Mortgage loan statistics at March 31,
1998 and December 31, 1997 were as follows:
March 31, December 31,
(In millions) 1998 1997
Mortgage loans $ 3,553 $ 3,326
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Allowance for losses (49) (54)
Mortgage loans, net $ 3,504 $ 3,272
Allowance for losses 1.4% 1.6%
Delinquent loans (60+ days) $ 33 $ 20
% of mortgage loans .9% .6%
Restructured loans $ 99 $ 115
% of mortgage loans 2.8% 3.5%
Yield on restructured loans 7.8% 8.6%
Watch List. At March 31, 1998, $89 million of mortgage loans were on the
company's watch list, compared to $128 million at December 31, 1997. The
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.
CAPITAL RESOURCES
Corporate Capital. American General's target capital structure consists of
25% corporate debt, 15% redeemable equity, and 60% shareholders' equity. At
March 31, 1998, corporate capital totaling $11.3 billion, excluding the fair
value adjustment on securities, consisted of $2.4 billion corporate debt
(21%), $1.7 billion redeemable equity (16%), and $7.2 billion shareholders'
equity (63%).
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. Additionally, the company issued options to acquire
1.4 million shares of American General common stock with an average exercise
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
price of $24.75 to replace outstanding options to acquire Western National
common stock. The fair value of these options, excluding options surrendered
for $10 million cash pursuant to a pre-existing employment agreement, was $37
million. In connection with the acquisition, the company assumed Western
National's long-term debt of $148 million.
Subsequent to the acquisition date, several of American General Annuity's
ratings were raised. American General Annuity's claims-paying ability ratings
at April 30, 1998 were as follows:
Standard Duff & A.M.
& Poor's Phelps Moody's Best
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
AA- AAA Aa3 A+
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 $8.6 billion at March 31, 1998 included $7.4
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
March 31, 1998 and December 31, 1997.
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 March 31, 1998, the company had committed
and unused credit facilities of $4.8 billion. The company believes that its
overall sources of liquidity will continue to be sufficient to satisfy its
foreseeable financial obligations.
Parent Company. The parent company received $451 million of net dividends
from subsidiaries during the three months ended March 31, 1998. No dividends
were paid to the parent company in first quarter 1997 because the company was
re-evaluating the capital requirements for its business segments. 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. American General repurchased
.5 million shares of its common stock at a cost of $31 million during first
quarter 1998.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued).
Retirement Services and Life Insurance. Principal sources of cash for the
Retirement Services and Life Insurance divisions were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Operating activities $561 $645
Fixed policyholder account deposits,
net of withdrawals 11 33
Variable account deposits, net of
withdrawals 593 469
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Short-term collateralized financings 315 -
Operating cash flows for the Retirement Services and Life Insurance divisions
decreased $84 million in the first three months of 1998 compared to the same
period of 1997, primarily due to tax recoveries received in 1997. The decrease
in net fixed policyholder account deposits and increase in net variable
account deposits in the first quarter of 1998 was a result of policyholders
seeking higher returns in equity-based investments, including the company's
Separate Accounts. The decrease in net fixed policyholder account deposits
was partially offset by the acquisition of American General Annuity, which
primarily markets fixed annuities. 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 condensed
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 $412
million in the first three months of 1998.
Consumer Finance. Principal sources of cash for the Consumer Finance division
were as follows:
Three Months Ended
March 31,
(In millions) 1998 1997
Operating activities $ 140 $ 169
Increase (decrease) in borrowings 98 (300)
Cash provided by operating activities decreased in the first three months of
1998 since first quarter 1997 included operations related to the non-strategic
assets sold in second quarter 1997. Cash provided by borrowings increased in
the three months ended March 31, 1998 compared to the same period in 1997 due
to growth in receivables.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
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 $127
million for the three months ended March 31, 1998, up from $65 million for the
same period in 1997. Net dividends paid to the parent company totaled $32
million in the first three months of 1998.
YEAR 2000
The company is in the process of modifying its computer systems to be Year
2000 compliant. During the first three months of 1998, the company incurred
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
and expensed $9 million (pretax) related to this project. Through March 31,
1998, the company has incurred and expensed $24 million (pretax) related to
Year 2000 compliance.
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.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Note 8 to the Registrant's Unaudited Consolidated
Financial Statements in Part I of this Form 10-Q for the quarter ended
March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 4 Articles of Amendment to the Restated Articles of
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Incorporation of American General (incorporated by
reference to Exhibit 4.2 to Registration Statement
No. 333-52103 filed by American General)
Exhibit 10.1 Form of Change in Control Severance Agreement
Exhibit 10.2 American General Corporation Deferred Compensation
Plan (incorporated by reference to Exhibit 4.4 to
Registration Statement No. 333-52103 filed by
American General)
Exhibit 10.3 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and Robert M. Devlin
Exhibit 10.4 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and Jon P. Newton
Exhibit 10.5 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and James S. D'Agostino Jr.
Exhibit 10.6 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and Robert M. Devlin
Exhibit 10.7 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and Jon P. Newton
Exhibit 10.8 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and James S. D'Agostino Jr.
Exhibit 10.9 Forms of Split-Dollar Agreement and Assignment of
Life Insurance Policy as Collateral Agreement
Item 6. Exhibits and Reports on Form 8-K (continued).
Exhibit 11 Computation of Earnings per Share (included
in Note 4 of Notes to Financial Statements)
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K.
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
The following reports on Form 8-K were filed after December 31, 1997:
(1) Current Report on Form 8-K dated January 26, 1998, with respect to
certain executive compensation information for the year ended
December 31, 1997.
(2) 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.
(3) 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 Western National.
(4) Current Report on Form 8-K dated February 25, 1998, with respect to
adoption of Statement of Financial Accounting Standards 128,
"Earnings per Share," effective December 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 15, 1998.
AMERICAN GENERAL CORPORATION
(Registrant)
By: PAMELA J. PENNY
Pamela J. Penny
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
EXHIBIT INDEX
Exhibit
4 Articles of Amendment to the Restated Articles of
Incorporation of American General (incorporated by
reference to Exhibit 4.2 to Registration Statement
No. 333-52103 filed by American General)
10.1 Form of Change in Control Severance Agreement
10.2 American General Corporation Deferred Compensation
Plan (incorporated by reference to Exhibit 4.4 to
Registration Statement No. 333-52103 filed by
American General)
10.3 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and Robert M. Devlin
10.4 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and Jon P. Newton
10.5 First Amendment to Employment Agreement, dated
as of February 1, 1998, between American General
and James S. D'Agostino Jr.
10.6 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and Robert M. Devlin
10.7 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and Jon P. Newton
10.8 First Amendment to Supplemental Executive Retire-
ment Agreement, dated as of February 1, 1998,
between American General and James S. D'Agostino Jr.
10.9 Forms of Split-Dollar Agreement and Assignment of
Life Insurance Policy as Collateral Agreement
11 Computation of Earnings per Share (included in
Note 4 of Notes to Financial Statements)
12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
27 Financial Data Schedule
-25-
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS Change in Control Severance Agreement ("Agreement") is made
effective as of the 1st day of April, 1998 (the "Effective Date"), between
American General Corporation, a Texas corporation having its principal place
of business in Houston, Texas (the "Company" as hereinafter defined) and
FullName~ ("the Executive").
WHEREAS, the Company considers it essential to the best interests of its
shareholders to foster the continued employment of key management personnel
that are employed by the Company and/or its Affiliates; and
WHEREAS, the Company's Board of Directors recognize that, as is the case
of many publicly held corporations, the possibility of a change in control
exists and that such possibility, and the uncertainty that it may engender
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its Affiliates and the Company's
shareholders; and
WHEREAS, the Company's Board of Directors has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's and its Affiliates'
management, including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from
the possibility of a change in control.
NOW, THEREFORE, for and in consideration of the premises and the
respective covenants and obligations specified herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:
1. Defined terms:
1.1. "Additional Payment" shall have the meaning set forth in Section
4.7.
1.2. "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Securities Exchange Act of 1934, as
amended from time to time.
1.3. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Securities Exchange Act of 1934, as amended from time to time.
1.4. "Board" means the Company's Board of Directors.
1.5. "Cause" for purposes of this Agreement means only the following
actions or inactions: [i] a willful material misrepresentation by the
Executive pertaining to the business or property of the Company or its
Affiliates, [ii] misappropriation by the Executive of a material aspect of the
business or property of the Company or its Affiliates, [iii] the Executive
willfully causes material damage to the property or business of the Company or
its Affiliates, [iv] willful gross neglect by the Executive to substantially
perform the Executive's duties with the Company or its Affiliates (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
<PAGE>
a Notice of Termination for Good Reason by the Executive pursuant to Section
5.1), [v] the engaging by the Executive in willful gross misconduct resulting
in demonstrable and material economic harm to the Company or its Affiliates,
or [vi] the Executive's conviction of a felony that either involves moral
turpitude or involves some aspect of the business or property of the Company
or its Affiliates.
1.6. "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
A. 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 C below; or
B. The following individuals cease for any reason to constitute a
majority of the number of directors then serving on the Board:
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
C. 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
-- Page 2 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
(30%) or more of the combined voting power of the Company's then
outstanding securities; or
D. 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 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 transaction.
1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
1.8. "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.
1.9. "Company" means American General Corporation, a Texas corporation,
and, except in determining under Section 1.6 hereof whether any Change in
Control has occurred, shall include any successor to American General
Corporation's business and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise.
1.10. "Date of Termination" shall have the meaning specified in Section
5.1.
1.11. "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 the two physicians, each of whom
-- Page 3 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
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 to the Company or its Affiliates,
(iii) the Company shall have given the Executive a Notice of Termination based
on 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.
1.12. "Good Reason" for termination of the Executive's employment by the
Executive means the occurrence of any one or more of the following, without
the Executive's express written consent, on or after any Change in Control, or
during an applicable Period of Anticipated Change in Control, but, in either
case, only as specified below in Section 4.4:
1.12.1. A material reduction in the nature or scope of the
Executive's authorities or duties from the Executive's authorities and
duties either [i] immediately prior to the date on which a Change in
Control occurs or [ii] immediately prior to a Period of Anticipated
Change in Control during which a material reduction in the nature or
scope of the Executive's authorities or duties occurs at the request of
the Person causing the Company to be in such Period of Anticipated
Change in Control, as the case may be.
1.12.2. A reduction in the Executive's annual base salary as in
effect either [i] immediately prior to the date on which a Change in
Control occurs or [ii] immediately prior to a Period of Anticipated
Change in Control during which the Executive's annual base salary is
reduced at the request of the Person causing the Company to be in such
Period of Anticipated Change in Control, as the case may be.
1.12.3. A diminution in the Executive's eligibility to
participate or level of participation in bonus, stock option, incentive
award and other compensation plans which provide opportunities to
receive compensation, from the greater of: (a) the opportunities
provided by the Company (including its Affiliates) for other executives
with the Company (including its Affiliates) with comparable duties or
(b) the opportunities under any such plans under which the Executive was
participating either [i] immediately prior to the date on which a Change
in Control occurs or [ii] immediately prior to a Period of Anticipated
Change in Control during which the Executive's eligibility or level of
participation is diminished at the request of the Person causing the
Company to be in such Period of Anticipated Change in Control, as the
case may be.
-- Page 4 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
1.12.4. A diminution in the Executive's benefits (including but
not limited to pension, thrift, medical, dental, life insurance, long-
term disability plans) and perquisites applicable to Executive, from the
greater of: (a) the employee benefits and prerequisites provided by the
Company (including its Affiliates) to other executives with comparable
duties with the Company (including its Affiliates) or (b) the employee
benefits and perquisites to which the Executive was entitled either [i]
immediately prior to the date on which a Change in Control occurs or
[ii] immediately prior to a Period of Anticipated Change in Control
during which the Executive's benefits are reduced at the request of the
Person causing the Company to be in such Period of Anticipated Change in
Control, as the case may be.
1.12.5. A change in the location of the Executive's principal
place of employment by the Company (or its Affiliates) by more than
fifty (50) miles from the location where the Executive was principally
employed either [i] immediately prior to the date on which a Change in
Control occurs or [ii] immediately prior to a Period of Anticipated
Change in Control during which there occurs the Executive's change of
location at the request of the Person causing the Company to be in such
Period of Anticipated Change in Control, as the case may be.
1.12.6. A determination by the Board that as a result of a Change
in Control or the occurrence of an event that commences a Period of
Anticipated Change in Control and a change in circumstances thereafter
significantly affecting the Executive's position, the Executive is or
shall be unable to exercise the authorities or duties attached to the
Executive's position as in effect immediately prior to the date on which
the Change in Control occurs or will occur.
1.13. "Notice of Termination" has the meaning specified in Section 5.1.
1.14. "Period of Anticipated Change in Control" shall have the following
meaning for the purposes of this Agreement: the Company shall be deemed to be
in a Period of Anticipated Change in Control during the time which commences
when either [a] a Person has submitted a written offer to the Company which,
if accepted by the Company, would result in an agreement the consummation of
which would constitute a Change in Control and/or [b] the Company has entered
into a written signed agreement with a Person the consummation of which would
constitute a Change in Control. The Period of Anticipated Change in Control
ends when the Company either rejects such written offer or terminates, cancels
or consummates such agreement. There may be more than one period of time in
which the Company is in a Period of Anticipated Change in Control.
1.15. "Person" has the meaning specified in Section 3(a)(9) of the
Securities Exchange Act of 1934 (as amended from time to time) 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
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indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
2. This Agreement is not a contract of employment and does not modify
the at-will nature of the Executive's employment relationship:
2.1. This Agreement is not an employment agreement. This Agreement
shall not be construed as creating an express or implied contract of
employment and does not modify the nature of the Executive's employment
relationship with the Company or its Affiliates, as the case may be. Except
as otherwise agreed in writing between the Executive and the Company or an
Affiliate, the employment relationship between the Executive and the Company
or its Affiliates is at-will, i.e., the employment relationship may be
terminated at any time at the will of either the Company or the Executive for
any reason or no reason at all.
2.2. Notwithstanding any provision herein to the contrary, except as
provided in Section 4.7, no payments shall be due or payable pursuant to this
Agreement unless [i] the Executive has remained in the employ of the Company
or one of its Affiliates until there occurs, during the Term of this
Agreement, a Change in Control, or there occurs an event that commences a
Period of Anticipated Change in Control, and then [ii] the Executive's
employment by the Company or one of its Affiliates is terminated during the
Term of this Agreement either by the Company or the Executive as specified in
Section 4.4.
2.3. If the Executive is employed not by the Company itself but by one
of the Company's Affiliates, then if, during the Term of this Agreement but
prior to a Change in Control and prior to a Period of Anticipated Change in
Control during which the Person seeking to acquire the Company requests that
such Affiliate be sold or disposed of, the Company sells or otherwise disposes
of such Affiliate whereby the Company no longer owns or controls, directly or
indirectly, at least a majority of the stock having the right to vote for
directors or of the equity interest of such Affiliate, this Agreement shall
automatically terminate thirty days thereafter if the Executive does not
within such thirty day period of time following the sale or other disposition
become an employee of the Company or one of its remaining majority-owned
Affiliates.
3. Term and termination of this Agreement:
3.1. The Term of this Agreement shall commence on the Effective Date
and end on March 31, 2000. However, if a Change in Control shall have
occurred prior to March 31, 2000, the Term of this Agreement shall be
automatically extended for a period of thirty-six (36) complete calendar
months commencing with the month immediately following the month in which the
Change in Control occurs. Moreover, if March 31, 2000 falls within a Period
of Anticipated Change in Control, the Term of this Agreement shall be
automatically extended until either [i] the Period of Anticipated Change in
Control ceases without resulting in a Change in Control or [ii] if such Period
of Anticipated Change in Control results in a Change in Control, for thirty-
six (36) complete calendar months commencing with the month immediately
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following the month in which such Change in Control occurs. Upon expiration
of the Term of this Agreement, this Agreement shall automatically terminate.
The termination of this Agreement under this Section 3.1 shall not under any
circumstances constitute an event which obligates the Company to make payments
or to extend benefits to the Executive pursuant to this Agreement.
3.2. This Agreement can not be terminated by the Company prior to the
expiration of its Term except upon either [a] the death of the Executive or
[b] the Company terminating the Executive's employment based on Disability in
accordance with Section 1.11. Upon either event, this Agreement shall
automatically terminate. The termination of this Agreement because of the
death or Disability of the Executive shall not under any circumstances
constitute an event which obligates the Company to make payments or to extend
benefits to the Executive pursuant to this Agreement. However, in the event
that the Executive dies or incurs a Disability after the Company has become
obligated to make payments or extend benefits to the Executive under Section
4.4 hereof, the death or Disability of the Executive shall not affect the
Executive's right, or the rights of the Executive's heirs, legatees, executors
or administrators, to receive such payments or benefits (if such benefits are
applicable after death or Disability).
4. Company's obligations to Executive upon Change in Control or
during a Period of Anticipated Change in Control:
4.1. After a Change in Control or during a Period of Anticipated Change
in Control, which, in either case, occurs during the Term of this Agreement,
if there occurs any period during which the Executive fails to perform the
Executive's full-time duties with the Company or its Affiliates, as the case
may be, as a result of incapacity due to physical or mental illness, the
Company shall pay, or if the Executive is employed by an Affiliate, cause the
Affiliate to pay, the Executive's full base 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 or its Affiliate for Disability or death; 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 its Affiliates or under the Social
Security disability insurance program, which amounts were not previously
applied to reduce any such salary payment.
4.2. During the Term of this Agreement, if the Executive's employment
shall be terminated for any reason other than Disability or death following a
Change in Control, or if the Executive's employment shall be terminated during
a Period of Anticipated Change in Control at the request of the Person seeking
to acquire the Company, the Company shall pay, or if the Executive is employed
by an Affiliate, cause the Affiliate to pay, the Executive's full 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
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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.
4.3. In addition, but not in duplication of the benefits provided in
Sections 4.5 and 4.6, the Company shall pay, or cause to be paid, to the
Executive the Executive's 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 compensation and
benefit plans as in effect immediately prior to the Date of Termination or, in
the case of a termination of the Executive's employment by the Executive for
Good Reason and if more favorable to the Executive, as in effect immediately
prior to the occurrence of the first event or circumstance constituting Good
Reason that is specified in the Executive's Notice of Termination; provided,
however, that the Company shall have the right at any time, even after a
Change in Control, to effect amendments, changes, or modifications to any and
all compensation and benefit plans, programs or arrangements that are not
substantial and material.
4.4. [A] If, during the Term of this Agreement, the Executive's
employment is terminated on or after a Change in Control other than: (a) by
the Company or an Affiliate for Cause, (b) by reason of the Executive's
Disability or death, or (c) by the Executive without Good Reason; then, in
addition to the Company's obligations specified above in Sections 4.1 through
4.3, the Company shall pay, or if the Executive is employed by an Affiliate,
cause the Affiliate to pay, the Executive the amounts and provide the
Executive the benefits described in Sections 4.5 through 4.11.
[B] During the Term of this Agreement and notwithstanding any
provisions of Subsection [A] above to the contrary, the Executive's employment
shall be considered to have been terminated under Subparagraph [A] under
circumstances that obligate the Company to pay the Executive the amounts and
provide the Executive the benefits described in Sections 4.5 through 4.11 if
the Executive's employment is terminated by the Company or its Affiliate
during a Period of Anticipated Change in Control (whether or not a Change in
Control ever occurs) and such termination was at the request of a Person who
either [i] had entered into the written signed agreement with the Company the
consummation of which would constitute a Change in Control or [ii] had
submitted a written offer to the Company which, if accepted by the Company,
would result in an agreement the consummation of which would constitute a
Change in Control.
[C] During the Term of this Agreement and notwithstanding any
provisions of Subsection [A] above to the contrary, the Executive's employment
shall be considered to have been terminated under Subparagraph [A] under
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circumstances that obligate the Company to pay the Executive the amounts and
provide the Executive the benefits described in Sections 4.5 through 4.11, if:
(i) an event that constitutes Good Reason occurs during a Period of
Anticipated Change in Control; (ii) such event occurs at the request of a
Person who either [a] had entered into the written signed agreement with the
Company the consummation of which would constitute a Change in Control or [b]
had submitted a written offer to the Company which, if accepted by the
Company, would result in an agreement the consummation of which would
constitute a Change in Control; (iii) the Executive notifies the Company in
writing as promptly as possible, and no later than three (3) months after the
first event which constitutes Good Reason, of the Executive's position that a
event which constitutes Good Reason occurred at the request of such Person;
(iv) the Period of Anticipated Change in Control in fact culminates in a
Change in Control; and (v) the Executive refrains from providing a Notice of
Termination and continues to perform the Executive's duties and
responsibilities until at least sixty (60) days after a Change in Control
occurs as a result of the Person having entered into the written signed
agreement with the Company or having submitted the written offer to the
Company.
[D] The right of the Executive to terminate employment for Good Reason
under Section [C] hereof is based solely on an event or events constituting
Good Reason that occur during a Period of Anticipated Change in Control. The
right of the Executive to terminate employment for Good Reason under Section
[A] hereof is in addition to the Executive's right to terminate employment for
Good Reason under Section [C] but is based solely on an event or events
constituting Good Reason that occur on or after a Change in Control. The
Executive may give a Notice of Termination under Section [A] immediately the
occurrence of the event or events constituting Good Reason [i.e., there is no
requirement under Section [A] that the Executive refrain from providing a
Notice of Termination and continue to perform the Executive's duties and
responsibilities until at least sixty (60) days after the Change in Control
occurs].
4.5. If a termination of the Executive's employment described in
Section 4.4 hereof shall have occurred, in lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination and in lieu
of any severance benefits otherwise payable to the Executive, the Company
shall pay, or if the Executive is employed by an Affiliate, cause the
Affiliate to pay, to the Executive a lump sum severance payment, in cash,
equal to three (3) times the sum of [i] the Executive's annual base salary as
in effect immediately prior to the Date of Termination or, in the case of a
termination of the Executive's employment by the Executive for Good Reason and
if more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason that is
specified in the Executive's Notice of Termination, and [ii] the average
annual bonus earned by the Executive pursuant to any annual bonus or annual
incentive plan maintained by the Company or an Affiliate in which the
Executive participated in respect of the three fiscal years ending immediately
prior to the fiscal year in which occurs the Date of Termination or, in the
case of a termination of the Executive's employment by the Executive for Good
Reason and if more favorable to the Executive, the three fiscal years ending
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immediately prior to the fiscal year in which occurs the first event or
circumstance constituting Good Reason that is specified in the Executive's
Notice of Termination; provided, however, that if there are fewer than three
such bonuses earned by the Executive in the applicable three-year period, the
average annual bonus shall be calculated by dividing the total amount of the
annual bonuses paid by the number of annual bonuses paid; and provided further
that if the Executive has been so recently hired by the Company or an
Affiliate that he has not earned any annual bonus which can be used to
calculate an average bonus pursuant to this provision, he shall be deemed to
have earned an average annual bonus determined by multiplying his applicable
base salary by a fraction, the numerator of which is the total of the average
annual bonuses of all employees of the Company and its Affiliates who have
change in control severance agreements with the Company immediately prior to
the Executive's Date of Termination and the denominator of which is the total
of the applicable base salaries of such employees (as such terms are defined
in their respective change in control severance agreements and determined as
if such employees had been terminated without Cause as of the Executive's Date
of Termination).
4.6. If a termination of the Executive's employment described in
Section 4.4 hereof shall have occurred, for the thirty-six (36) month period
immediately following the Date of Termination, the Company shall arrange to
provide the Executive and the Executive's dependents with life, accident,
medical, and dental insurance benefits substantially similar to those provided
to the Executive and to the Executive's dependents immediately prior to the
Date of Termination or, in the case of a termination of the Executive's
employment by the Executive for Good Reason and if more favorable to the
Executive, as in effect immediately prior to the occurrence of the first 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
that is specified in the Executive's Notice of Termination; provided, however,
that the Company shall have the right to effect amendments, changes, or
modifications to any and all benefit plans, programs or arrangements that are
not substantial and material and such amendments, changes or modifications
shall apply to the Executive's benefits. Benefits otherwise receivable by the
Executive pursuant to this Section 4.6 may 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 reasonable and necessary cost of such benefits
to the Executive over such cost immediately prior to the Date of Termination
or, in the case of a termination of the Executive's employment by the
Executive for Good Reason and if more favorable to the Executive, as in effect
immediately prior to the occurrence of the first event or circumstance
constituting Good Reason that is specified in the Executive's Notice of
Termination. As provided in Section 6.2, the Company may withhold from any
payments made or benefits provided pursuant to this Agreement all federal,
State, city, or other taxes as may be required pursuant to any law or
governmental regulation or ruling.
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4.7. [A] Regardless whether or not a termination of the Executive's
employment described in Section 4.4 shall have occurred, to the extent that
any of the payments or benefits (excluding payments to be made pursuant to
this Section 4.7) received or to be received by the Executive (the "Total
Payments") in connection with a Change in Control or the Executive's
termination of employment (whether or not such payments or benefits are
provided pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, with any Persons whose actions
result in a Change in Control, or with any Person affiliated with the Company
or such Person) will be subject to the excise tax imposed by Section 4999 of
the Code, or any successor provision of the Code (any such excise tax is
referred to in this Section as the "Excise Tax"), then the benefit or payment
shall be increased by an amount (referred to in this Section as the
"Additional Payment") such that the net amount received by the Executive,
after paying any applicable Excise Tax and any federal, State or local income
or FICA taxes on such Additional Payment, shall be equal to the amount that
the Executive would have received if such Excise Tax were not applicable 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)(1) 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 [as the term "base amount" is defined in Section
280G(b)(3) of the Code] 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 Additional 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 Additional
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 on the date
on which the Additional Payment is calculated for purposes of this Section
4.7), net of the maximum reduction in federal income taxes which could be
obtained from deduction of such State and local taxes.
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[C] In the event that the Excise Tax is finally determined to be less
than the amount taken into account hereunder in calculating the Additional
Payment, the Executive shall repay to the Company, within ten business days
immediately following the date that the amount of such reduction in the Excise
Tax is finally determined, the portion of the Additional 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
Additional 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 Additional Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Additional Payment), the Company shall make another Additional Payment in
respect of such excess (plus any interest, penalties or additions payable by
the Executive with respect to such excess) within the ten (10) 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.
4.8. If a termination of the Executive's employment described in
Section 4.4 hereof shall have occurred, the Company shall promptly reimburse
to the Executive all reasonable attorneys fees and expenses necessarily
incurred by the Executive in disputing in good faith any issue with the
Company or its Affiliates pursuant to this Agreement or lodging in good faith
any claim, demand or cause of action against the Company or its Affiliates
pursuant to this Agreement; provided, however, that the Company shall have no
obligation to reimburse the Executive for such attorneys fees and expenses
unless the Executive is the prevailing party as to such dispute, claim, demand
or cause of action.
4.9. If a termination of the Executive's employment described in
Section 4.4 hereof shall have occurred, the Company shall provide the
Executive with outplacement services suitable to the Executive's position for
a period of nine months after the Date of Termination or, if earlier, until
the first acceptance by the Executive of an offer of employment.
4.10. If (i) the Executive is or has been granted stock options,
restricted stock, or other similar equity-based awards, whether before or
after the Effective Date, pursuant to plans, programs or arrangements which
provide that the Executive shall become fully vested upon a Change in Control
and (ii) the definition of change in control in such plans, programs or
arrangements does not provide for vesting upon the occurrence of an event
creating a Period of Anticipated Change in Control, then the following shall
apply: The requisite change in control for purposes of vesting under such
plans, programs or arrangements shall be deemed to have occurred immediately
prior to a termination described in subparagraphs (1) or (2) of this Section
4.10 if either --
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(1) The Executive's employment is terminated by the Company or an
Affiliate without Cause (and not for Disability or death) during a
Period of Anticipated Change in Control (whether or not a Change in
Control ever occurs) and such termination was at the request of a Person
who either [i] had entered into the written signed agreement with the
Company the consummation of which would constitute a Change in Control
or [ii] had submitted a written offer to the Company which, if accepted
by the Company, would result in an agreement the consummation of which
would constitute a Change in Control; or
(2) During the Term of this Agreement, the Executive's employment is
terminated as follows: (i) an event that constitutes Good Reason occurs
during a Period of Anticipated Change in Control; (ii) such event occurs
at the request of a Person who either [a] had entered into the written
signed agreement with the Company the consummation of which would
constitute a Change in Control or [b] had submitted a written offer to
the Company which, if accepted by the Company, would result in an
agreement the consummation of which would constitute a Change in
Control; (iii) the Executive notifies the Company in writing as promptly
as possible, and no later than three (3) months after the first event
which constitutes Good Reason, of the Executive's position that an event
which constitutes Good Reason occurred at the request of such Person;
(iv) the Period of Anticipated Change in Control in fact culminates in a
Change in Control; and (v) the Executive shall refrain from providing a
Notice of Termination and shall continue to perform the Executive's
duties and responsibilities until at least sixty (60) days after a
Change in Control occurs as a result of the Person having entered into
the written signed agreement with the Company or having submitted the
written offer to the Company.
4.11. The payments provided to the Executive or for the Executive's
benefit in Sections 4.5 and 4.7[A] shall be made not later than the tenth (10)
business day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such date,
the Company shall pay to the Executive on such day an estimate of the payments
under Section 4.5, as determined in good faith by the Executive and the
Company, and an estimate of the payments under Section 4.7[A], as determined
in accordance with Section 4.7[A] 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 sixty (60) days after the Date of Termination. In the
event that the amount of the estimated payment exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the
Company to the Executive, payable on the tenth (10) business day after demand
by the Company. At the time the 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
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consultants and any such opinions or advice which are in writing shall be
attached to the statement.
5. Termination procedures; resolution of disputes; arbitration; and
no duty to mitigate:
5.1. After a Change in Control or during a Period of Anticipated Change
in Control, and in either case, during the Term of this Agreement, any
purported termination of the Executive's employment (other than the death of
the Executive) shall be communicated by a written notice of termination from
one party to the other in accordance with Section 6.6 (the "Notice of
Termination"). The Notice of Termination shall specify the 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 pursuant to this Agreement. The date of
termination ("Date of Termination") of the Executive's employment pursuant to
this Agreement shall be [i] if the Executive's employment is terminated for
Disability, thirty (30) days after the Notice of Termination is given, and
[ii] if the Executive's employment is terminated pursuant to this Agreement
for any other reason, the date specified in the Notice of Termination [which,
in the case of termination by the Company or an Affiliate shall not be less
than thirty (30) days, except in the case of termination for Cause, which may
be immediate, and, in the case of a termination by the Executive, shall not be
less than fifteen (15) days nor more than sixty (60) days, from the date such
Notice of Termination is given].
5.2. All claims by the Executive for payments or benefits under this
Agreement shall be in writing, shall set forth the specific reasons for the
basis of the Executive's claim and the specific provisions of this Agreement
relied upon, shall be submitted to the Committee, and shall be decided by the
Committee. Any denial by the Committee of a claim for payments or 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 file with the Committee, within sixty
(60) days after notification by the Committee that the Executive's claim has
been denied, a request that the Committee re-consider its decision. Upon
receipt of such a request, the Committee shall reconsider its decision and
notify the Executive of the Committee's decision on reconsideration.
5.3. [A] Any further dispute or controversy arising under or in
connection with this Agreement and 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, its Affiliates, 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
-- Page 14 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
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.
[B] 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. 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
arbitrators are authorized to award attorneys and fees and expenses as
authorized in this Agreement.
[C] The arbitration may be initiated by any party by providing to the
other party a written notice of arbitration specifying the claims. Within 30
days of the notice of initiation of the arbitration procedure, the Executive
shall denominate one arbitrator and the Company shall denominate one
arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within 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.
[D] 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
-- Page 15 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
reporters. Judgment upon any award rendered in any such arbitration
proceeding may be entered by any federal or state court having jurisdiction.
5.4. If during the Term of this Agreement the Executive's employment
terminates under conditions that require the Company to make payments or
extend benefits pursuant to Section 4.4, the Executive is not required to seek
other employment or to attempt in any way to reduce the amounts payable to the
Executive under Section 4.4 (other than an obligation to incur no more than
reasonable and necessary attorneys fees). Further, the amount of any payment
or benefit required pursuant to this Agreement (other than pursuant to Section
4.6) shall not be reduced or offset by any compensation or benefit that may be
earned by the Executive as a result of employment by another employer after
termination of the Executive's employment hereunder by the Company or its
Affiliates, by retirement benefits, or against any amount claimed to be owed
by the Executive to the Company unless such amount is evidenced by a
promissory note or contract signed by the Executive.
6. Miscellaneous:
6.1. The applicable law and the forum for resolution of any disputes
arising out of this Agreement are specified in the agreement to arbitrate
contained in Section 5.3.
6.2. The Company may withhold from any payments made or benefits
provided pursuant to this Agreement all federal, State, city, or other taxes
as may be required pursuant to any law or governmental regulation or ruling.
6.3. Except as provided in Sections 4.4[C] and 4.10(2) no failure by
either party hereto at any time to give notice of any breach by the other
party of, or to require compliance with, any condition or provision of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
6.4. This Agreement shall be binding upon and inure to the benefit of
the Company and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
the Company by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. In addition to the obligations imposed by law
upon any successor to the Company, the Company shall 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 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.
-- Page 16 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
6.5. The Executive's rights and obligations pursuant to this Agreement
are personal to the Executive and such rights, benefits, and obligations of
the Executive shall not be voluntarily or involuntarily assigned, alienated,
or transferred, whether by operation of law or otherwise, without the prior
written consent of the Company, except through a transfer by testament or by
the laws of descent or distribution upon the death of the Executive. In the
event of any attempted assignment or transfer contrary to this Section 6.5,
the Company shall have no liability to pay any amount so attempted to be
assigned or transferred. This Agreement shall be enforceable against the
Executive and the Executive's personal and legal representatives, heirs,
legatees, executors and administrators.
6.6. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company: American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
If to the Executive, to the Executive's last known address on the
records of the Company.
Either the Company or the Executive may furnish a change of address to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
6.7. It is a desire and intent of the parties that the terms,
provisions, covenants and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term,
provision, covenant, or remedy of this Agreement or the application thereof to
any person, association, or entity or circumstances shall, to any extent, be
construed to be invalid or unenforceable in whole or in part, then such term,
provision, covenant, or remedy shall be construed in a manner so as to permit
its enforceability under the applicable law to the fullest extent permitted by
law. In any case, the remaining provisions of this Agreement or the
application thereof to any person, association, or entity or circumstances
other than those to which they have been held invalid or unenforceable, shall
remain in full force and effect.
6.8. Each of the Company and the Executive acknowledges that no
representation, inducement, promise, or agreement, oral or written, express or
implied, has been made by the other with respect to the subject matters of
this Agreement which are not expressed in this Agreement. Except for benefit
and compensation plans and grant documents thereunder that contain express
change in control provisions, this Agreement constitutes the entire agreement
of the parties with regard to the Company's Change in Control obligations to
the Executive; terminates any prior severance agreements, including the
existing Severance Agreement between the Company and the Executive; and
-- Page 17 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
replaces and merges previous agreements and discussions pertaining to the
Company's Change in Control obligations to Executive. No modification or
amendment of this Agreement will be effective unless such modification or
amendment is in writing and signed by the party whose rights are affected
thereby.
-- Page 18 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement to
be effective as of the Effective Date stated above.
AMERICAN GENERAL CORPORATION
By: ____________________________
Jon P. Newton
Vice Chairman of the Board
EXECUTIVE
By: ____________________________
FullName~
-- Page 19 of 19 --
CHANGE IN CONTROL SEVERANCE AGREEMENT
<PAGE>
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement made as of February 1,
1998 (the "Agreement") between American General Corporation, a Texas corpora-
tion (the "Company") and Robert M. Devlin (the "Executive") is made on April
30, 1998.
1. Section 8(e)(ii) of the Agreement is hereby amended by the addition
of the following new paragraph at the end thereof:
"If the Executive is projected to attain age 60 while he is em-
ployed by the Company and while he holds shares of the Company's common
stock which were granted to him by the Company and which remain subject
to forfeiture restrictions ("Restricted Shares"), then, on the December
31st immediately preceding the calendar year in which age 60 is project-
ed to be attained, the Executive's Restricted Shares shall automatically
convert into an equal number of Restricted Share Units, as to which
payment will be postponed until the date of the Executive's actual
termination of employment. While the Restricted Share Units are
outstanding, the Executive will be credited with dividend equivalents on
the Restricted Share Units, which dividend equivalents will be converted
into additional Restricted Share Units. During any period in which the
Executive has Restricted Share Units pursuant to this paragraph, for
purposes of each provision of each document evidencing the grant of the
original Restricted Shares and any plan under which they were granted
and for purposes of the first paragraph of this Section 8(e)(ii), the
Restricted Share Units shall be treated in a manner substantially
equivalent to the treatment of Restricted Shares set forth in each such
provision (except that there shall be no voting rights with respect to
Restricted Share Units). When payment of any Restricted Share Units is
made, it will be made in unrestricted shares of the common stock of the
Company, except that any fractional share may be paid in cash."
2. Section 22(c) of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 22(c), if the
annual bonus earned by the Executive in respect of the calendar year
ending immediately prior to the calendar year in which occurs the Date
of Termination (the Executive's "Last Annual Bonus") shall be higher
than the average annual bonus calculated in accordance with such
foregoing provisions, then, for all purposes of this Agreement, the
"Average Annual Bonus" shall be deemed to be equal in amount to the
Executive's Last Annual Bonus.
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
AMERICAN GENERAL CORPORATION
<PAGE>
By /S/ LARRY D. HORNER
Name: Larry D. Horner
Title: Chairman of the
Personnel Committee
/S/ ROBERT M. DEVLIN
Robert M. Devlin
2
<PAGE>
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement made as of February 1,
1998 (the "Agreement") between American General Corporation, a Texas corpora-
tion (the "Company") and Jon P. Newton (the "Executive") is made on April 30,
1998.
1. Section 8(e)(ii) of the Agreement is hereby amended by the addition
of the following new paragraph at the end thereof:
"If the Executive is projected to attain Normal Retirement Age
while he is employed by the Company and while he holds shares of the
Company's common stock which were granted to him by the Company and
which remain subject to forfeiture restrictions ("Restricted Shares"),
then, on the December 31st immediately preceding the calendar year in
which Normal Retirement Age is projected to be attained, the Executive's
Restricted Shares shall automatically convert into an equal number of
Restricted Share Units, as to which payment will be postponed until the
date of the Executive's actual termination of employment. While the
Restricted Share Units are outstanding, the Executive will be credited
with dividend equivalents on the Restricted Share Units, which dividend
equivalents will be converted into additional Restricted Share Units.
During any period in which the Executive has Restricted Share Units
pursuant to this paragraph, for purposes of each provision of each
document evidencing the grant of the original Restricted Shares and any
plan under which they were granted and for purposes of the first
paragraph of this Section 8(e)(ii), the Restricted Share Units shall be
treated in a manner substantially equivalent to the treatment of
Restricted Shares set forth in each such provision (except that there
shall be no voting rights with respect to Restricted Share Units). When
payment of any Restricted Share Units is made, it will be made in
unrestricted shares of the common stock of the Company, except that any
fractional share may be paid in cash."
2. Section 22(c) of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 22(c), if the
annual bonus earned by the Executive in respect of the calendar year
ending immediately prior to the calendar year in which occurs the Date
of Termination (the Executive's "Last Annual Bonus") shall be higher
than the average annual bonus calculated in accordance with such
foregoing provisions, then, for all purposes of this Agreement, the
"Average Annual Bonus" shall be deemed to be equal in amount to the
Executive's Last Annual Bonus.
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
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
2
<PAGE>
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement made as of February 1,
1998 (the "Agreement") between American General Corporation, a Texas corpora-
tion (the "Company") and James S. D'Agostino, Jr. (the "Executive") is made on
April 30, 1998.
1. Section 8(e)(ii) of the Agreement is hereby amended by the addition
of the following new paragraph at the end thereof:
"If the Executive is projected to attain Normal Retirement Age
while he is employed by the Company and while he holds shares of the
Company's common stock which were granted to him by the Company and
which remain subject to forfeiture restrictions ("Restricted Shares"),
then, on the December 31st immediately preceding the calendar year in
which Normal Retirement Age is projected to be attained, the Executive's
Restricted Shares shall automatically convert into an equal number of
Restricted Share Units, as to which payment will be postponed until the
date of the Executive's actual termination of employment. While the
Restricted Share Units are outstanding, the Executive will be credited
with dividend equivalents on the Restricted Share Units, which dividend
equivalents will be converted into additional Restricted Share Units.
During any period in which the Executive has Restricted Share Units
pursuant to this paragraph, for purposes of each provision of each
document evidencing the grant of the original Restricted Shares and any
plan under which they were granted and for purposes of the first
paragraph of this Section 8(e)(ii), the Restricted Share Units shall be
treated in a manner substantially equivalent to the treatment of
Restricted Shares set forth in each such provision (except that there
shall be no voting rights with respect to Restricted Share Units). When
payment of any Restricted Share Units is made, it will be made in
unrestricted shares of the common stock of the Company, except that any
fractional share may be paid in cash."
2. Section 22(c) of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 22(c), if the
annual bonus earned by the Executive in respect of the calendar year
ending immediately prior to the calendar year in which occurs the Date
of Termination (the Executive's "Last Annual Bonus") shall be higher
than the average annual bonus calculated in accordance with such
foregoing provisions, then, for all purposes of this Agreement, the
"Average Annual Bonus" shall be deemed to be equal in amount to the
Executive's Last Annual Bonus.
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
AMERICAN GENERAL CORPORATION
By /S/ ROBERT M. DEVLIN
Name: Robert M. Devlin
Title: Chief Executive Officer
/S/ JAMES S. D'AGOSTINO,JR.
James S. D'Agostino, Jr.
2
<PAGE>
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This First Amendment to the Supplemental Executive Retirement Agreement
made as of February 1, 1998 (the "Agreement") between American General
Corporation, a Texas corporation (the "Company") and Robert M. Devlin (the
"Executive") is made on April 30, 1998.
1. Section 2.1 of the Agreement is hereby amended by the addition of
the following new paragraph at the end thereof:
"Unless the Executive shall have notified the Company in writing
no later than July 1, 1998 (and prior to any termination of his employ-
ment) of his election that this paragraph shall be null and void and of
no effect, then, notwithstanding the foregoing provisions of this
Section 2.1, if payment of a lump sum amount equal to the actuarial
equivalent of a Normal Retirement Benefit is to be made pursuant to
Section 2.6 hereof, the annual amount of the Normal Retirement Benefit
shall equal (X) minus (Y), where (X) is calculated as set forth above,
but the amount of (Y) equals only the Social Security Benefit plus the
Qualified Plan Benefit (and not the Restoration Plan Benefit). The
resulting increase in such lump sum amount shall be paid in lieu of any
Restoration Plan Benefit under the circumstances described in Section
2.6 hereof and the Executive hereby waives his right to any Restoration
Plan Benefit under (and only under) such circumstances."
2. Section 2.6 of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 2.6, if termi-
nation of the Executive's employment occurs after a Change in Control
(or is deemed to have occurred after a Change in Control pursuant to the
Executive's Employment Agreement) and if payment of a lump sum amount
equal to the actuarial equivalent of a Normal Retirement Benefit is to
be made pursuant to this Section 2.6 after the Executive shall have
attained age 57, the Normal Retirement Benefit calculated pursuant to
this Section 2.6 shall not be less than the Normal Retirement Benefit
which the Executive would have accrued if the Executive had continued to
be employed by the Company until his Normal Retirement Date."
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
<PAGE>
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
2
<PAGE>
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This First Amendment to the Supplemental Executive Retirement Agreement
made as of February 1, 1998 (the "Agreement") between American General
Corporation, a Texas corporation (the "Company") and Jon P. Newton (the
"Executive") is made on April 30, 1998.
1. Section 2.1 of the Agreement is hereby amended by the addition of
the following new paragraph at the end thereof:
"Unless the Executive shall have notified the Company in writing
no later than July 1, 1998 (and prior to any termination of his employ-
ment) of his election that this paragraph shall be null and void and of
no effect, then, notwithstanding the foregoing provisions of this
Section 2.1, if payment of a lump sum amount equal to the actuarial
equivalent of a Normal Retirement Benefit is to be made pursuant to
Section 2.6 hereof, the annual amount of the Normal Retirement Benefit
shall equal (X) minus (Y), where (X) is calculated as set forth above,
but the amount of (Y) equals only the Social Security Benefit plus the
Qualified Plan Benefit (and not the Restoration Plan Benefit). The
resulting increase in such lump sum amount shall be paid in lieu of any
Restoration Plan Benefit under the circumstances described in Section
2.6 hereof and the Executive hereby waives his right to any Restoration
Plan Benefit under (and only under) such circumstances."
2. Section 2.6 of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 2.6, if termi-
nation of the Executive's employment occurs after a Change in Control
(or is deemed to have occurred after a Change in Control pursuant to the
Executive's Employment Agreement) and if payment of a lump sum amount
equal to the actuarial equivalent of a Normal Retirement Benefit is to
be made pursuant to this Section 2.6 after the Executive shall have
attained age 57, the Normal Retirement Benefit calculated pursuant to
this Section 2.6 shall not be less than the Normal Retirement Benefit
which the Executive would have accrued if the Executive had continued to
be employed by the Company until his Normal Retirement Date."
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
<PAGE>
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
2
<PAGE>
FIRST AMENDMENT TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This First Amendment to the Supplemental Executive Retirement Agreement
made as of February 1, 1998 (the "Agreement") between American General
Corporation, a Texas corporation (the "Company") and James S. D'Agostino, Jr.
(the "Executive") is made on April 30, 1998.
1. Section 2.1 of the Agreement is hereby amended by the addition of
the following new paragraph at the end thereof:
"Unless the Executive shall have notified the Company in writing
no later than July 1, 1998 (and prior to any termination of his employ-
ment) of his election that this paragraph shall be null and void and of
no effect, then, notwithstanding the foregoing provisions of this
Section 2.1, if payment of a lump sum amount equal to the actuarial
equivalent of a Normal Retirement Benefit is to be made pursuant to
Section 2.6 hereof, the annual amount of the Normal Retirement Benefit
shall equal (X) minus (Y), where (X) is calculated as set forth above,
but the amount of (Y) equals only the Social Security Benefit plus the
Qualified Plan Benefit (and not the Restoration Plan Benefit). The
resulting increase in such lump sum amount shall be paid in lieu of any
Restoration Plan Benefit under the circumstances described in Section
2.6 hereof and the Executive hereby waives his right to any Restoration
Plan Benefit under (and only under) such circumstances."
2. Section 2.6 of the Agreement is hereby amended by the addition of
the following sentence at the end thereof:
"Notwithstanding the foregoing provisions of this Section 2.6, if termi-
nation of the Executive's employment occurs after a Change in Control
(or is deemed to have occurred after a Change in Control pursuant to the
Executive's Employment Agreement) and if payment of a lump sum amount
equal to the actuarial equivalent of a Normal Retirement Benefit is to
be made pursuant to this Section 2.6 after the Executive shall have
attained age 57, the Normal Retirement Benefit calculated pursuant to
this Section 2.6 shall not be less than the Normal Retirement Benefit
which the Executive would have accrued if the Executive had continued to
be employed by the Company until his Normal Retirement Date."
3. As amended by this First Amendment, the Agreement is hereby specifi-
cally ratified and reaffirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amend-
ment on April 30, 1998.
<PAGE>
AMERICAN GENERAL CORPORATION
By /S/ ROBERT M. DEVLIN
Name: Robert M. Devlin
Title: Chief Executive Officer
/S/ JAMES S. D'AGOSTINO, JR.
James S. D'Agostino, Jr.
2
<PAGE>
Office of the Chairman
Second-to-Die Policy
SPLIT-DOLLAR AGREEMENT
THIS SPLIT-DOLLAR AGREEMENT (this "Agreement") is made and entered into
effective as of May ___, 1998 (the "Effective Date"), by and among AMERICAN
GENERAL CORPORATION, a Texas corporation, with principal offices and place
of business in Houston, Texas (hereinafter referred to as the "Company"),
__________________________________________________________________________
_________________________ (herein-after referred to as the "Executive"),
and ______________________________________________________________________
_____________________________________________________ (hereinafter
referred to as the "Owner"),1/
WITNESSETH THAT:
WHEREAS, the Executive is currently employed by the Company or an
affiliate of the Company; and
WHEREAS, the Personnel Committee of the Board of Directors of the
Company has heretofore authorized the Company to establish and pay premiums
under a split-dollar life insurance arrangement relating to a life insur-
ance policy insuring the life of the Executive and providing the Executive-
's family with a death benefit equal to 200% of the sum of the Executive's
base salary and average annual incentive bonus; and
WHEREAS, a greater percentage of the sum of the Executive's base salary
and average annual incentive bonus can be provided to the Executive's
family as a death benefit if the premiums the Company would have paid
toward a life insurance policy insuring only the life of the Executive were
used to pay premiums with respect to a life insurance policy insuring the
life of the Executive and his spouse as of the Effective Date (the
"Spouse"); and
WHEREAS, in order to provide his family with greater death benefits, the
Executive has requested the Company to use [all][some] of the premiums the
Company would have paid toward such individual life insurance policy to
make premium payments under a split-dollar arrangement relating to a life
insurance policy insuring the life of the Executive and the Spouse; and
WHEREAS, in order to retain the benefits of the services of the
Executive for the Company and its affiliates, the Company desires to assist
the Executive in providing life insurance protection for the Executive's
family under a policy of life insurance (hereinafter referred to as the
"Policy") insuring the life of the Executive and the Spouse, which Policy
is described in Exhibit A attached hereto and by this reference made a part
1/ If the Executive will be the owner of the policy (as opposed to an
insurance trust or other entity), then the Executive's name should be
inserted in each of the blank spaces provided for the name of the Owner.
If the space provided for the name of the Owner is not completed, then
the Executive shall be deemed to be the Owner.
<PAGE>
hereof, and which is being issued by American General Life Insurance
Company (hereinafter referred to as the "Insurer"); and
WHEREAS, the Company is willing to pay all of the premiums due on the
Policy as an additional employment benefit for the Executive, on the terms
and conditions hereinafter set forth; and
WHEREAS, the Owner will be the owner of the Policy and, as such, will
possess all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to have the Policy collaterally assigned to
it by the Owner in order to secure the repayment of the amounts which it
will pay toward the premiums on the Policy;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Defined Terms. The terms "Agreement," "Company," "Effective
Date," "Executive," "Insurer," "Owner," "Policy," and "Spouse" shall have
the meanings assigned to such terms in the preceding provisions of this
Agreement. Where the following words and terms are used in this Agreement,
they shall have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) Affiliate: The term "Affiliate" shall have the meaning set
forth in Rule 12b-2 promulgated under Section 12 of the Securities
Exchange Act of 1934, as amended from time to time.
(b) Anniversary Date: Each annual anniversary of the Effective
Date; provided, however, that for purposes of Paragraph 1(d) below, the
Effective Date shall also be considered an Anniversary Date.
(c) Average Annual Bonus: As of any date for which the Benefit
Amount must be determined pursuant to the terms of this Agreement that
occurs (1) during the period beginning on the Effective Date and ending
on the first Anniversary Date, an amount equal to the most recent annual
incentive bonus paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the Effective Date, (2) during
the period beginning on the day immediately following the first Anniver-
sary Date and ending on the second Anniversary Date, an amount equal to
the average of the two most recent annual incentive bonuses paid in cash
by the Company (or an Affiliate of the Company) to the Executive on or
before the first Anniversary Date, and (3) after the second Anniversary
Date, an amount equal to the average of the three most recent annual
incentive bonuses paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the Anniversary Date next
preceding such date for which the Benefit Amount is determined.
(d) Base Salary: As of any date for which the Benefit Amount
must be determined pursuant to the terms of this Agreement, the Executi-
ve's annual base salary from the Company or an Affiliate of the Company
at the rate in effect on the Anniversary Date next preceding such date.
-2-
<PAGE>
(e) Benefit Amount: As of any given date, an amount equal to
_____% of the sum of the Executive's Base Salary and Average Annual
Bonus as of such date. Notwithstanding the foregoing or any provision
in this Agreement to the contrary, the Benefit Amount shall not be
increased at any time after the Effective Date to the extent such
increase is subject to the medical underwriting requirements of the
Insurer and the Insurer refuses to increase the face amount of the
Policy based upon the health or medical condition of the Executive or
the Spouse.
(f) Change in Control: The term "Change in Control" shall have
the meaning assigned to such term in the Employment Agreement between
the Company and the Executive that is in effect on the Effective Date
(or any successor agreement thereto).
(g) Claimant: The term "Claimant" shall have the meaning
assigned to such term in Paragraph 10 hereof.
(h) Measurement Date: The earlier of (1) the date upon which
the Executive's employment with the Company terminates for any reason
whatsoever (including, without limitation, termination of employment by
reason of the death or retirement of the Executive), (2) the date of the
death of the Spouse, (3) the date upon which the Executive becomes
entitled to receive long-term disability benefits under a long-term
disability plan maintained by the Company or an Affiliate of the
Company, or (4) the effective date of the termination of this Agreement
pursuant to Paragraph 8 hereof.
(i) Normal Retirement Date: The term "Normal Retirement Date"
shall have the meaning assigned to such term in the Supplemental
Executive Retirement Agreement between the Company and the Executive
that is in effect on the Effective Date.
(j) Premium Payment Period: A period of 10 years commencing on
the Effective Date.
(k) Relevant Assumptions: As of any given date, (1) the
Company's assumption as of such date with respect to the rate of in-
crease, if any, in the Benefit Amount from such date to the Executive's
Normal Retirement Date (or, if the Executive continues his employment
with the Company beyond the Executive's Normal Retirement Date, to the
Executive's projected date of retirement from the Company) and (2)
current mortality rates and charges, crediting rates, expenses, and
other relevant matters applicable to the Policy as of such date.
Notwithstanding the foregoing, the assumed rate of increase in the
Benefit Amount shall be 0% from and after the Measurement Date.
2. Acquisition and Ownership of Policy; Limitations on Owner's
Rights in Policy.
(a) The Owner shall contemporaneously purchase the Policy from
the Insurer in the initial total face amount specified in Exhibit A
attached hereto. The parties hereto agree that they shall take all
reasonable action necessary to cause the Insurer to issue the Policy, and
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<PAGE>
shall take any further reasonable action which may be necessary to cause
the Policy to conform to the provisions of this Agreement. The parties
hereto agree that the Policy shall be subject to the terms and conditions
of this Agreement and of the collateral assignment filed with the Insurer
relating to the Policy.
(b) The Policy names the Owner, and the Owner shall be, the sole
and absolute owner of the Policy. The Owner shall not exercise any of the
ownership rights granted to the owner of the Policy by the terms thereof
except with the express written consent of the Company. Without limiting
the scope of the foregoing, the Owner shall not sell, assign, transfer,
borrow against or withdraw from the cash surrender value of the Policy,
change the beneficiary designation provision of the Policy, change the
elected death benefit option provisions of the Policy, decrease or increase
the face amount of insurance, surrender or cancel the Policy, or take any
other action with respect to the Policy without, in any such case, the
express written consent of the Company.
(c) Notwithstanding the provisions of Paragraph 2(b) above, the
Owner shall have the right to take any of the following actions without the
express written consent of the Company, provided that the Owner provides
the Company with 15 days prior written notice of any such action: (1)
designate the beneficiary or beneficiaries to receive the portion of the
proceeds payable under the Policy specified in Paragraph 7(b) hereof; (2)
elect the settlement option with respect to such proceeds from among the
settlement options available under the Policy; and (3) change such benefi-
ciary designation and settlement option from time to time.
3. Collateral Assignment; Limitation on Company's Rights in Policy.
(a) To secure the repayment to the Company of the amount of the
premiums on the Policy paid by the Company hereunder, the Owner has,
contemporaneously herewith, assigned the Policy to the Company as collater-
al under a separate assignment instrument. The collateral assignment of
the Policy to the Company shall not be terminated, altered or amended by
the Owner, without the express written consent of the Company. The parties
hereto agree to take all action necessary to cause such collateral assign-
ment to conform to the provisions of this Agreement and to be accepted by
the Insurer. Without limiting the scope of the preceding provisions of
this Paragraph 3, the parties hereto agree that the Company shall have an
interest in the cash surrender value and the death benefits under the
Policy to secure the amounts due to the Company hereunder, which interest
shall in no event be less than the aggregate premium payments made with
respect to the Policy by the Company pursuant to Paragraph 5 below.
(b) The Company shall not at any time prior to the termination
of this Agreement (1) take any action that would cause the death benefits
under the Policy that would be available for distribution to the beneficia-
ry or beneficiaries designated by the Owner as provided herein to be less
than the Benefit Amount (determined as of the earlier of the Measurement
Date or the date such action was taken by the Company) and (2) from and
after the date upon which a Change in Control occurs, borrow against the
Policy, pledge the Policy as collateral for a loan, withdraw any amount
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<PAGE>
from the Policy or otherwise access any funds held under the Policy until
such time as the beneficiary or beneficiaries designated by the Owner have
received all of the Policy death benefits to which they are entitled
pursuant to the provisions of this Agreement.
4. Adjustments to Policy Face Amount. On each Anniversary Date that
occurs prior to the Measurement Date, the parties hereto shall cause the
total face amount of the Policy to be adjusted to the extent necessary, if
any, so that such face amount is equal to the Benefit Amount (which Benefit
Amount shall be determined as of the day immediately following such
Anniversary Date); provided, however, that if any such adjustment would
require a reduction in the face amount of the Policy, then the Company may,
in its sole discretion, determine that no such adjustment to the face
amount of the Policy shall be made for such Anniversary Date. The parties
hereto agree that they shall take all reasonable action necessary to cause
the Insurer to adjust the face amount of the Policy as provided in the
preceding sentence. Without limiting the scope of the foregoing, (a) the
Executive, the Spouse and the Owner shall furnish any and all information
requested by the Company or the Insurer to facilitate an adjustment to the
face amount of the Policy and (b) the Executive and the Spouse shall take
such physical examinations as the Insurer may deem necessary.
5. Payment of Premiums.
(a) On the Effective Date and on or before each Anniversary
Date, the Company shall pay to the Insurer, as premium payments with
respect to the Policy, the amount, if any, determined by the Company in its
sole discretion; provided, however, that:
(1) on the Effective Date and on each Anniversary Date
that occurs during the Premium Payment Period and prior to the termina-
tion of this Agreement, the Company shall make substantially level
premium payments with respect to the Policy based upon a premium payment
policy established by the Company that is designed to (i) maintain the
Policy in a manner sufficient to provide the level of death benefits to
the Owner s beneficiary or beneficiaries pursuant to Paragraph 7(b)
hereof in the event of the death of both the Executive and the Spouse
prior to the end of the Premium Payment Period and (ii) accumulate
sufficient funds under the Policy (based upon the assumption that the
Executive will retire as of the Executive's Normal Retirement Date) so
that as of the end of the Premium Payment Period the Policy is projected
to have sufficient funds to (A) at all times thereafter provide a
minimum death benefit in an amount equal to the Benefit Amount without
any further premium payments and (B) permit the Owner to terminate this
Agreement as of the fifteenth Anniversary Date and use accumulations
under the Policy to obtain the release of the collateral assignment of
the Policy to the Company; and
(2) on each Anniversary Date that occurs after the end of
the Premium Payment Period and prior to the termination of this Agree-
ment, the Company shall make a premium payment with respect to the
Policy in at least the amount required so that as of such Anniversary
Date the Policy is projected to have sufficient funds to (i) at all
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<PAGE>
times thereafter provide a minimum death benefit in an amount equal to
the Benefit Amount without any further premium payments and (ii) permit
the Owner to terminate this Agreement as of the fifteenth Anniversary
Date and use accumulations under the Policy to obtain the release of the
collateral assignment of the Policy to the Company.
The amount of each premium payment required pursuant to clauses (1) and (2)
of the preceding sentence shall be determined based upon (i) the Relevant
Assumptions in effect as of the date such premium payment is required to be
paid by the Company pursuant to this Paragraph 5(a) and (ii) if the
Measurement Date has not occurred as of such premium payment date, the
Company's estimate of the date upon which the Measurement Date will occur
(which date shall be estimated to be no earlier than the Executive's Normal
Retirement Date). The Owner and the Executive acknowledge and agree that
(A) the Company is agreeing to make premium payments with respect to the
Policy as described above based upon the Relevant Assumptions and for the
period of time set forth in this Agreement, (B) the actual crediting rates
under the Policy and the charges and expenses incurred with respect to the
Policy may deviate from the rates, charges and expenses utilized from time
to time under the Relevant Assumptions, and (C) accordingly, the Company
makes no guarantee that the Policy will, in fact, have sufficient funds to
provide a minimum death benefit in an amount equal to the Benefit Amount at
all times after the termination of this Agreement without any further
premium payments. The Company shall promptly notify the Owner of the date
and the amount of each premium payment made by the Company with respect to
the Policy and, promptly upon receipt, the Owner shall furnish the Company
with a copy of the annual report for the Policy received by the Owner from
the Insurer.
(b) Upon the occurrence of a Change in Control, the Company
shall promptly pay into a rabbi trust a single lump sum cash payment in an
amount equal to the projected amount of premium payments that the Company
would be required to make with respect to the Policy pursuant to Paragraph
5(a) hereof during the longer of (1) the remaining portion of the Premium
Payment Period and (2) the 36 month period beginning on the date of such
Change in Control. For purposes of this Paragraph 5(b), the longer of the
periods referred to in clauses (1) and (2) of the preceding sentence shall
be referred to as the "Rabbi Trust Period." Pursuant to the terms of the
rabbi trust, on each Anniversary Date that occurs during the Rabbi Trust
Period, the trustee of the rabbi trust shall pay to the Insurer as a
premium with respect to the Policy an amount equal to (i) the amount
initially deposited in the rabbi trust by the Company divided by (ii) the
number of Anniversary Dates that will occur during the Rabbi Trust Period.
After the trustee has made such a premium payment on each Anniversary Date
that occurs during the Rabbi Trust Period, the rabbi trust shall terminate
and any remaining funds held by the trustee shall be returned to the
Company. Notwithstanding the foregoing, the Company shall remain obligated
to make all premium payments required pursuant to Paragraph 5(a) hereof;
provided, however, that the Company shall be relieved of such obligation to
the extent of the amount of each premium payment made by the trustee of the
rabbi trust with respect to the Policy. All costs and expenses associated
with the establishment and maintenance of the rabbi trust shall be paid by
the Company.
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<PAGE>
(c) Neither the Executive, the Spouse nor the Owner shall have
any obligation to pay any premiums with respect to the Policy prior to the
termination of this Agreement. The Company shall have no obligation to pay
any premiums with respect to the Policy from and after the termination of
this Agreement pursuant to Paragraph 8 below.
6. Provision of Information. On or before January 31 of each
calendar year, the Company shall furnish to the Executive a statement of
the amount of income, if any, reportable by the Executive for federal and
state income tax purposes for the preceding calendar year as a result of
the existence and maintenance of the Policy. The Owner and the Executive
shall promptly furnish the Company with (a) copies of any information or
notices provided by the Insurer from time to time with respect to the
Policy and (b) any other material or information relating to the Policy and
reasonably requested by the Company from time to time. Upon request, the
Company shall promptly furnish to the Owner evidence of timely payment of
any amount required to be paid by the Company pursuant to Paragraph 5
hereof.
7. Collection and Distribution of Death Proceeds.
(a) Upon the death of the second to die of the Executive and the
Spouse prior to the termination of this Agreement during the lifetime of
the Executive or the Spouse, the Company and the Owner shall cooperate with
the beneficiary or beneficiaries designated by the Owner to take whatever
action is necessary to collect the death benefit provided under the Policy.
When such benefit has been collected and paid as provided herein, this
Agreement shall thereupon terminate.
(b) Upon the death of the second to die of the Executive and the
Spouse prior to the termination of this Agreement during the lifetime of
the Executive or the Spouse, the beneficiary or beneficiaries designated by
the Owner pursuant to Paragraph 2(c) hereof shall be entitled to receive a
portion of the death benefits provided under the Policy in an amount equal
to the Benefit Amount determined as of the Measurement Date. This amount
shall be paid under the settlement option elected by the Owner.
(c) Upon the death of the second to die of the Executive and the
Spouse prior to the termination of this Agreement during the lifetime of
the Executive or the Spouse, the Company shall have the unqualified right
to receive any and all of the death benefits provided under the Policy in
excess of the amount payable pursuant to Paragraph 7(b) above to the
beneficiary or beneficiaries designated by the Owner. This amount shall be
paid to the Company in a single lump sum cash payment.
(d) The parties hereto agree that, upon the request of the
Company, the beneficiary designation provision of the Policy shall conform
to the provisions hereof.
8. Termination of Agreement.
(a) This Agreement may be terminated by the Owner at any time
during the lifetime of the Executive or the Spouse and after the fifteenth
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<PAGE>
Anniversary Date upon written notice to the Company and payment to the
Company by the Owner at the time of such notice of a single lump sum cash
payment in an amount equal to the aggregate premium payments made by the
Company pursuant to Paragraph 5 hereof on or before the date of such
termination, less any withdrawals from the Policy by the Company prior to
the date of such termination and any indebtedness secured by the Policy
which was incurred by the Company and remains outstanding as of the date of
such termination, including any unpaid accrued interest on such indebted-
ness. Upon receipt of such amount, the Company shall release the collater-
al assignment of the Policy by the execution and delivery of an appropriate
instrument of release.
(b) This Agreement may be terminated by the Company at any time
during the lifetime of the Executive or the Spouse and after the later of
(i) the date upon which the Executive's employment with the Company termi-
nates, (ii) the Executive's Normal Retirement Date and (iii) the fifteenth
Anniversary Date. The Company shall provide the Owner and, if then living,
the Executive with 30 days' prior written notice of any such termination of
this Agreement by the Company. If this Agreement is terminated by the
Company as provided in the preceding provisions of this Paragraph 8(b),
then for 60 days after the effective date of the termination of this
Agreement, the Owner shall have the option of obtaining the release of the
collateral assignment of the Policy to the Company. To obtain such
release, the Owner shall repay to the Company the total amount of the
premium payments made by the Company hereunder, less any withdrawals from
the Policy by the Company prior to the date of such termination and any
indebtedness secured by the Policy which was incurred by the Company and
remains outstanding as of the date of such termination, including any
unpaid accrued interest on such indebtedness. Upon receipt of such amount,
the Company shall release the collateral assignment of the Policy by the
execution and delivery of an appropriate instrument of release. If the
Owner fails to exercise such option within such 60 day period, then the
interest of the Owner in the Policy shall automatically be transferred to
the Company and the Owner shall execute any document or documents requested
by the Company or the Insurer to effect such transfer. Alternatively, the
Company may enforce its right to be repaid the amount due it hereunder from
the cash surrender value of the Policy under the collateral assignment of
the Policy; provided that in the event the cash surrender value of the
Policy exceeds the amount due the Company, such excess shall be paid to the
Owner. Thereafter, neither the Owner nor any person claiming under the
Owner shall have any further interest in and to the Policy, either under
the terms thereof or under this Agreement.
9. Insurer Not a Party. Subject to the terms and conditions of the
Policy, the Insurer shall be fully discharged from its obligations under
the Policy by payment of the Policy death benefit to the beneficiary or
beneficiaries named in the Policy and upon the performance of its other
obligations in accordance with the terms of the Policy. In no event shall
the Insurer be considered a party to this Agreement, or any modification or
amendment hereof. No provision of this Agreement, nor of any modification
or amendment hereof, shall in any way be construed as enlarging, changing,
varying, or in any other way affecting the obligations of the Insurer as
expressly provided in the Policy.
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<PAGE>
10. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
(a) Named Fiduciary. The Company is hereby designated as the
named fiduciary under this Agreement. The named fiduciary shall have
authority to control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and carrying out a
premium payment policy and method consistent with the objectives of this
Agreement.
(b) (1) Claim. A person who believes that he or she is being
denied a benefit to which he or she is entitled under this Agreement
(hereinafter referred to as a "Claimant") may file a written request for
such benefit with the Company, setting forth his or her claim. The
request must be addressed to the Company at its then principal place of
business.
(2) Claim Decision. Upon receipt of a claim, the Company
shall advise the Claimant that a reply will be forthcoming within 90
days and shall, in fact, deliver such reply within such period. The
Company may, however, extend the reply period for an additional 90 days
for reasonable cause.
If the claim is denied in whole or in part, the
Company shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth: (i) the specific reason or
reasons for such denial; (ii) the specific reference to pertinent
provisions of this Agreement on which such denial is based; (iii) a
description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such
material or such information is necessary; (iv) appropriate information
as to the steps to be taken if the Claimant wishes to submit the claim
for review; and (v) the time limits for requesting a review under
subsection (3) and for review under subsection (4) hereof.
(3) Request for Review. Within 60 days after the receipt
by the Claimant of the written opinion described above, the Claimant may
request in writing that the Company review its determination. Such
request must be addressed to the Company, at its then principal place of
business. The Claimant or his or her duly authorized representative
may, but need not, review the pertinent documents and submit issues and
comments in writing for consideration by the Company. If the Claimant
does not request a review of the Company's determination within such 60
day period, he or she shall be barred and estopped from challenging the
Company's determination.
(4) Review of Decision. Within 60 days after the Company-
's receipt of a request for review, it will review the determination.
After considering all materials presented by the Claimant, the Company
will render a written opinion, written in a manner calculated to be
understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions
of this Agreement on which the decision is based. If special circum-
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<PAGE>
stances require that the 60 day time period be extended, the Company
will so notify the Claimant and will render the decision as soon as
possible, but no later than 120 days after receipt of the request for
review.
11. Arbitration.
(a) Upon completion of the claims procedure described in
Paragraph 10(b) hereof (if applicable), all claims, demands, causes of
action, disputes, controversies, and other matters in questions 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 parties hereto 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 enforce-
able in either federal or state court.
(b) 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. 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 Company shall bear all of
its costs and expenses incurred in connection with the arbitration proceed-
ing. If arbitration is instituted to enforce the terms of this Agreement
and the Owner or the Executive, as applicable, prevails on at least one of
the issues involved in such arbitration, whether as plaintiff or defendant,
then, in addition to the remedy or relief obtained in such arbitration
proceeding by the Owner or the Executive, such party shall be entitled to
recover its or his expenses incurred in connection with such arbitration
proceeding, including, without limitation, arbitrators and attorneys fees,
and the arbitrators are authorized to so award such costs and fees.
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<PAGE>
(c) The arbitration may be initiated by any party by providing
to the other parties a written notice of arbitration specifying the claims.
Within 30 days of the notice of initiation of the arbitration procedure,
(1) the Owner and the Executive, acting together, 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 60 days of the original notice, either the Owner, 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. A mere appearance or impression of bias
will not constitute evident partiality or otherwise disqualify an arbitra-
tor.
(d) 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 Agree-
ment 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.
12. Amendment. This Agreement may not be amended, altered, or
modified, except by a written instrument signed by the parties hereto, or
their respective successors or assigns. Notwithstanding the foregoing or
any other provision herein to the contrary, the Premium Payment Period, the
face amount of the Policy, the amount of premiums to be paid by the
Company, and/or the references in this Agreement to the fifteenth Anniver-
sary Date may be changed by the Company without the consent of the Owner or
the Executive to the extent necessary to (a) maintain the Policy as a "life
insurance contract" (within the meaning of Section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the interpretative
authority promulgated thereunder) and (b) prevent the Policy from consti-
tuting a "modified endowment contract" (within the meaning of Section 7702A
of the Code and the interpretative authority promulgated thereunder). The
Company shall provide the Owner and the Executive with prompt written
notice of any such change.
13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns, and the Owner,
the Executive and their respective successors, assigns, heirs, executors,
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<PAGE>
administrators, and beneficiaries; provided, however, that the rights and
obligations of the Owner and the Executive hereunder are personal and
neither this Agreement, nor any right, benefit, or obligation of the Owner
or the Executive hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or other-
wise, without the prior written consent of the Company.
14. Notice. Any notice, consent or demand required or permitted to
be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice,
consent or demand is mailed to a party hereto, it shall be sent by United
States registered or certified mail, postage prepaid, addressed to such
party's last known address as shown on the records of the Company. The
date of such mailing shall be deemed the date of notice, consent or demand.
15. Employment Relationship. For all purposes of this Agreement, the
Executive shall be considered to be in the employment of the Company as
long as the Executive remains an employee of the Company or any Affiliate
of the Company. However, this Agreement is not an employment agreement.
This Agreement shall not be construed as creating an express or implied
contract of employment and does not modify the nature of the Executive's
employment relationship with the Company or its Affiliates, as the case may
be. Except as otherwise agreed in writing between the Executive and the
Company or an Affiliate of the Company, the employment relationship between
the Executive and the Company or its Affiliates is at-will, i.e., the
employment relationship may be terminated at any time at the will of either
the Company or the Executive for any reason or no reason at all.
16. Taxes and Policy Illustrations. The Company makes no guarantees
and assumes no obligations or responsibilities with respect to the Owner's,
the Executive's or the Spouse's federal, state, or local income, estate,
inheritance, and gift tax obligations, if any, under this Agreement, the
Policy or the collateral assignment of the Policy to the Company. The
Executive and the Owner agree and acknowledge that the Policy illustrations
provided prior to the Effective Date and any Policy illustrations that may
be provided from time to time thereafter by the Company, the Insurer or
their respective agents and representatives are not guaranteed and are not
a part of the Policy or this Agreement. Such Policy illustrations shall
not create any additional obligations or responsibilities to the Executive
or the Owner by the Company, the Insurer, or their respective agents and
representatives.
17. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws
of the State of Texas.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this the _____ day of ____________, 1998, effective as of the Effective
Date.
AMERICAN GENERAL CORPORATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
"COMPANY"
__________________________________________
____________________
"EXECUTIVE"
__________________________________________
_______________________________________
"OWNER"
The Spouse joins in the execution of this Agreement for the sole purpose
of evidencing her agreement to the provisions set forth in Paragraphs 2(a)
and 4 of this Agreement.
__________________________________________
______________________
"SPOUSE"
EXHIBIT A
The following life insurance policy is subject to the attached Split-
Dollar Agreement:
Insurer: American General Life Insurance Company
Insureds: __________________________
Policy Number: __________________________
Face Amount on the
Effective Date: $_________________________
Effective Date of Policy: May____, 1998
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<PAGE>
Office of the Chairman
Second-to-Die Policy
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. FOR VALUE RECEIVED, the undersigned (hereinafter the "Owner")
hereby assigns, transfers and sets over to American General Corporation,
with principal offices and place of business in Houston, Texas, its
successors and assigns (hereinafter the "Assignee"), Policy No. __________-
_______ issued by American General Life Insurance Company (hereinafter the
"Insurer"), and any supplementary contracts issued in connection therewith
(said policy and contracts hereinafter the "Policy"), insuring the lives of
________________ ___________ (the "Executive") and his spouse as of the
date hereof, and all claims, options, privileges, rights, title and
interest therein and thereunder (except as otherwise provided herein),
subject to all the terms and conditions of the Policy and to all superior
liens, if any, which the Insurer may have against the Policy. The Owner, by
this Assignment, and the Assignee, by acceptance of the assignment of the
Policy to it hereunder, agree to the terms and conditions contained herein.
B. This Assignment is made and the Policy is to be held as collateral
security for any and all liabilities and obligations of the Owner to the
Assignee, either now existing or that may hereafter arise, under and
pursuant to that certain Split-Dollar Agreement by and among the Owner, the
Assignee, and the Executive, dated effective as of May ____, 1998 (herein-
after the "Split-Dollar Agreement"). The liabilities and obligations
described in the preceding sentence are hereinafter referred to as the
"Liabilities."
C. It is expressly agreed that, without detracting from the generali-
ty of the foregoing, the following specific rights are included in this
Assignment and pass to the Assignee by virtue hereof:
1. The sole right to collect from the Insurer the net proceeds
of the Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of the Policy
and at such other times as the Insurer may allow; and
3. The sole right to obtain one or more withdrawals, loans or
advances on the Policy, either from the Insurer or, at any time, from
other persons, and to pledge or assign the Policy as security for such
loans or advances.
D. It is expressly agreed that the following specific rights, so long
as the Policy has not been surrendered and to the extent permitted under
the Split-Dollar Agreement, are reserved by the Owner and excluded from
this Assignment and do not pass by virtue hereof:
1. The right to designate and change the beneficiary to receive
the portion of the proceeds under the Policy specified in Paragraph 7(b)
of the Split-Dollar Agreement; and
<PAGE>
2. The right to elect any optional mode of settlement permitted
by the Policy or allowed by the Insurer with respect to such proceeds.
However, the reservation of these rights by the Owner shall in no way
impair the right of the Assignee to surrender the Policy nor impair any
other right of the Assignee hereunder. Further, any exercise of these
rights shall be made subject to this Assignment and to the rights of the
Assignee hereunder.
E. Notwithstanding the foregoing, the Assignee covenants and agrees
with the Owner as follows:
1. Any balance of sums received hereunder from the Insurer
remaining after payment of the then existing Liabilities shall be paid
by the Assignee to the persons entitled thereto under the terms of the
Policy, had this Assignment not been executed;
2. The Assignee will not exercise the right to surrender the
Policy, nor the right to make withdrawals from the Policy or obtain
policy loans from the Insurer, unless and until there has been default
in any of the Liabilities or the Split-Dollar Agreement has been
terminated, pursuant to its terms; in any event, the Assignee will not
exercise any such right until 15 days after the Assignee shall have
mailed notice of intention to exercise such right, by first class mail,
to the Owner at the address last supplied in writing to the Assignee
specifically referring to this Assignment; and
3. The Assignee will, upon request, forward the Policy to the
Insurer without unreasonable delay, for endorsement of any designation
or change of beneficiary or any election of an optional mode of settle-
ment that has been elected by the Owner.
F. The Insurer is hereby authorized to recognize the Assignee's
claims to rights hereunder without investigating the reason for any action
taken by the Assignee, the validity or the amount of the Liabilities, the
existence of any default therein, termination of the Split-Dollar Agree-
ment, the giving of any notice hereunder, or the application to be made by
the Assignee of any amounts to be paid to the Assignee. The sole signature
of the Assignee shall be sufficient for the exercise of any rights under
the Policy assigned hereby and the sole receipt of the Assignee for any
sums received shall be a full discharge and release therefor to the
Insurer. Payment for all or any part of the sums due under the Policy and
assigned herein shall be drawn to the exclusive order of or as directed by
the Assignee if, when, and in such amounts as may be requested by the
Assignee.
G. The Assignee shall be under no obligation to pay any premium on
the Policy nor the principal of or interest on any loans or advances on the
Policy, whether or not obtained by the Assignee, or any other charges on
the Policy.
H. The exercise of any right, option, privilege or power given herein
to the Assignee shall be at the option of the Assignee, and (except as
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<PAGE>
provided herein) the Assignee may exercise any such right, option, privi-
lege or power without notice to, or assent by, or affecting the liability
of, or releasing any interest hereby assigned by the Owner.
I. If applicable, the Assignee may take or release other security,
may release any party primarily or secondarily liable for any of the
Liabilities, may grant extensions, renewals or indulgences with respect to
the Liabilities, or may apply the proceeds of the Policy hereby assigned or
any amount received on account of the Policy by the exercise of any right
permitted under this Assignment to the Liabilities in such order as the
Assignee shall determine, without resorting to or regard to other security.
J. As applied to the duties and responsibilities of the Insurer, in
the event of any conflict between the provisions of this Assignment and the
provisions of the Split-Dollar Agreement with respect to the Policy or the
Assignee's rights of collateral security therein, the provisions of this
Assignment shall prevail. As applied between the Owner and the Assignee,
in the event of any such conflict, the provisions of the Split-Dollar
Agreement shall prevail.
K. The Owner declares that no proceedings in bankruptcy are pending
against the Owner and that the Owner's property is not subject to any
assignment for the benefit of creditors of the Owner.
SIGNED this ___ day of ______________, 1998, effective as of May _____,
1998.
___________________________________
___________________________________
___________________________________
"OWNER"
This Assignment is hereby accepted and agreed to by the Assignee.
AMERICAN GENERAL CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
"ASSIGNEE"
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<PAGE>
STATE OF _______________ Section
Section
_______________ COUNTY Section
On the _____ day of ___________________________, 1998, before me
personally came ______________________, __________________________________-
__________________, to me known to be the individual who executed the
Assignment on the preceding pages hereof and acknowledged to me that he or
she executed the same.
_____________________________________
Notary Public in and for
THE STATE OF_________________________
My Commission Expires:
____________________________
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<PAGE>
Other Executives
SPLIT-DOLLAR AGREEMENT
THIS SPLIT-DOLLAR AGREEMENT (this "Agreement") is made and entered into
effective as of May ___, 1998 (the "Effective Date"), by and among AMERICAN
GENERAL CORPORATION, a Texas corporation, with principal offices and place
of business in Houston, Texas (hereinafter referred to as the "Company"),
____________________________________________ (hereinafter referred to as
the "Executive"), and ____________________________________________________-
______
__________________ _________________________________ (hereinafter referred
to as the "Owner"),2/
WITNESSETH THAT:
WHEREAS, the Executive is currently employed by the Company or an
affiliate of the Company; and
WHEREAS, in order to retain the benefits of the services of the Execu-
tive for the Company and its affiliates, the Company desires to assist the
Executive in providing life insurance protection for the Executive's family
under a policy of life insurance (hereinafter referred to as the "Policy")
insuring the life of the Executive, which Policy is described in Exhibit A
attached hereto and by this reference made a part hereof, and which is
being issued by American General Life Insurance Company (hereinafter
referred to as the "Insurer"); and
WHEREAS, the Company is willing to pay all of the premiums due on the
Policy as an additional employment benefit for the Executive, on the terms
and conditions hereinafter set forth; and
WHEREAS, the Owner will be the owner of the Policy and, as such, will
possess all incidents of ownership in and to the Policy; and
WHEREAS, the Company wishes to have the Policy collaterally assigned to
it by the Owner in order to secure the repayment of the amounts which it
will pay toward the premiums on the Policy;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Defined Terms. The terms "Agreement," "Company," "Effective
Date," "Executive," "Insurer," "Owner," and "Policy" shall have the
meanings assigned to such terms in the preceding provisions of this
Agreement. Where the following words and terms are used in this Agreement,
2/ If the Executive will be the owner of the policy (as opposed
to an insurance trust or other entity), then the Executive's name should
be inserted in each of the blank spaces provided for the name of the
Executive and the name of the Owner. If the space provided for the
name of the Owner is not completed, then the Executive shall be deemed
to be the Owner.
<PAGE>
they shall have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) Affiliate: The term "Affiliate" shall have the meaning set
forth in Rule 12b-2 promulgated under Section 12 of the Securities
Exchange Act of 1934, as amended from time to time.
(b) Anniversary Date: Each annual anniversary of the Effective
Date; provided, however, that for purposes of Paragraph 1(d) below, the
Effective Date shall also be considered an Anniversary Date.
(c) Average Annual Bonus: [FOR EXECUTIVES OTHER THAN MESSRS.
GRAF AND SCOTT: As of any date for which the Benefit Amount must be
determined pursuant to the terms of this Agreement that occurs (1)
during the period beginning on the Effective Date and ending on the
first Anniversary Date, an amount equal to the most recent annual
incentive bonus paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the Effective Date, (2) during
the period beginning on the day immediately following the first Anniver-
sary Date and ending on the second Anniversary Date, an amount equal to
the average of the two most recent annual incentive bonuses paid in cash
by the Company (or an Affiliate of the Company) to the Executive on or
before the first Anniversary Date, and (3) after the second Anniversary
Date, an amount equal to the average of the three most recent annual
incentive bonuses paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the Anniversary Date next
preceding such date for which the Benefit Amount is determined.][FOR
MESSRS. GRAF AND SCOTT: As of any date for which the Benefit Amount
must be determined pursuant to the terms of this Agreement that occurs
(1) during the period beginning on the Effective Date and ending on the
first Anniversary Date, an amount equal to ____ % of the Executive s
annual base salary from the Company or an Affiliate of the Company at
the rate in effect on the Effective Date (the "Deemed Bonus"), (2)
during the period beginning on the day immediately following the first
Anniversary Date and ending on the second Anniversary Date, an amount
equal to the average of the Deemed Bonus and the most recent annual
incentive bonus paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the first Anniversary Date, (3)
during the period beginning on the day immediately following the second
Anniversary Date and ending on the third Anniversary Date, an amount
equal to the average of the Deemed Bonus and the two most recent annual
incentive bonuses paid in cash by the Company (or an Affiliate of the
Company) to the Executive on or before the second Anniversary Date, and
(4) after the third Anniversary Date, an amount equal to the average of
the three most recent annual incentive bonuses paid in cash by the
Company (or an Affiliate of the Company) to the Executive on or before
the Anniversary Date next preceding such date for which the Benefit
Amount is determined.]
(d) Base Salary: As of any date for which the Benefit Amount
must be determined pursuant to the terms of this Agreement, the Executi-
ve's annual base salary from the Company or an Affiliate of the Company
at the rate in effect on the Anniversary Date next preceding such date.
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<PAGE>
(e) Benefit Amount: As of any given date, an amount equal to
200% of the sum of the Executive's Base Salary and Average Annual Bonus
as of such date; provided, however, that on the Executive's Normal
Retirement Date, the Benefit Amount shall be reduced to 100% of the sum
of the Executive's Base Salary and Average Annual Bonus as of the
Measurement Date (except that if the Executive continues his or her
employment beyond the Executive's Normal Retirement Date, then such
reduction shall occur on the date of the Executive's termination of
employment with the Company for a reason other than death). Notwith-
standing the foregoing or any provision in this Agreement to the
contrary, the Benefit Amount shall not be increased at any time after
the Effective Date to the extent such increase is subject to the medical
underwriting requirements of the Insurer and the Insurer refuses to
increase the face amount of the Policy based upon the health or medical
condition of the Executive.
(f) Cause: The term "Cause" shall have the meaning assigned to
such term in the Change in Control Severance Agreement.
(g) Change in Control: The term "Change in Control" shall have
the meaning assigned to such term in the Change in Control Severance
Agreement.
(h) Change in Control Severance Agreement: The Change in
Control Severance Agreement between the Company and the Executive that
is in effect on the Effective Date (or any successor agreement thereto).
(i) Claimant: The term "Claimant" shall have the meaning
assigned to such term in Paragraph 10 hereof.
(j) Disabled: The Executive shall be considered "Disabled" for
purposes of this Agreement at such time as the Executive becomes
entitled to receive long-term disability benefits under a long-term
disability plan maintained by the Company or an Affiliate of the
Company.
(k) Measurement Date: The earlier of (1) the date upon which
the Executive's employment with the Company terminates for any reason
whatsoever (including, without limitation, termination of employment by
reason of the death or retirement of the Executive), (2) the date upon
which the Executive becomes Disabled, or (3) the effective date of the
termination of this Agreement pursuant to Paragraph 8 hereof.
(l) Normal Retirement Date: The term "Normal Retirement Date"
shall have the meaning assigned to such term in the Company's Supplemen-
tal Executive Retirement Plan that is in effect on the Effective Date.
(m) Premium Payment Period: A period of 10 years commencing on
the Effective Date; provided, however, that upon written notice to the
Owner and the Executive prior to the occurrence of a Change in Control,
the Company may from time to time extend the Premium Payment Period for
any period determined by the Company that ends on or before the later of
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<PAGE>
(1) the Executive's Normal Retirement Date or (2) the fifteenth Anniver-
sary Date.
(n) Relevant Assumptions: As of any given date, (1) the
Company's assumption as of such date with respect to the rate of
increase, if any, in the Benefit Amount from such date to the Executive-
's Normal Retirement Date (or, if the Executive continues his or her
employment with the Company beyond the Executive's Normal Retirement
Date, to the Executive's projected date of retirement from the Company)
and (2) current mortality rates and charges, crediting rates, expenses,
and other relevant matters applicable to the Policy as of such date.
Notwithstanding the foregoing, the assumed rate of increase in the
Benefit Amount shall be 0% from and after the Measurement Date.
2. Acquisition and Ownership of Policy; Limitations on Owner's
Rights in Policy.
(a) The Owner shall contemporaneously purchase the Policy from
the Insurer in the initial total face amount specified in Exhibit A
attached hereto. The parties hereto agree that they shall take all
reasonable action necessary to cause the Insurer to issue the Policy, and
shall take any further reasonable action which may be necessary to cause
the Policy to conform to the provisions of this Agreement. The parties
hereto agree that the Policy shall be subject to the terms and conditions
of this Agreement and of the collateral assignment filed with the Insurer
relating to the Policy.
(b) The Policy names the Owner, and the Owner shall be, the sole
and absolute owner of the Policy. The Owner shall not exercise any of the
ownership rights granted to the owner of the Policy by the terms thereof
except with the express written consent of the Company. Without limiting
the scope of the foregoing, the Owner shall not sell, assign, transfer,
borrow against or withdraw from the cash surrender value of the Policy,
change the beneficiary designation provision of the Policy, change the
elected death benefit option provisions of the Policy, decrease or increase
the face amount of insurance, surrender or cancel the Policy, or take any
other action with respect to the Policy without, in any such case, the
express written consent of the Company.
(c) Notwithstanding the provisions of Paragraph 2(b) above, the
Owner shall have the right to take any of the following actions without the
express written consent of the Company, provided that the Owner provides
the Company with 15 days prior written notice of any such action: (1)
designate the beneficiary or beneficiaries to receive the portion of the
proceeds payable under the Policy specified in Paragraph 7(b) hereof; (2)
elect the settlement option with respect to such proceeds from among the
settlement options available under the Policy; and (3) change such benefi-
ciary designation and settlement option from time to time.
3. Collateral Assignment; Limitation on Company's Rights in Policy.
(a) To secure the repayment to the Company of the amount of the
premiums on the Policy paid by the Company hereunder, the Owner has,
contemporaneously herewith, assigned the Policy to the Company as collater-
-21-
<PAGE>
al under a separate assignment instrument. The collateral assignment of
the Policy to the Company shall not be terminated, altered or amended by
the Owner, without the express written consent of the Company. The parties
hereto agree to take all action necessary to cause such collateral assign-
ment to conform to the provisions of this Agreement and to be accepted by
the Insurer. Without limiting the scope of the preceding provisions of
this Paragraph 3, the parties hereto agree that the Company shall have an
interest in the cash surrender value and the death benefits under the
Policy to secure the amounts due to the Company hereunder, which interest
shall in no event be less than the aggregate premium payments made with
respect to the Policy by the Company pursuant to Paragraph 5 below.
(b) The Company shall not at any time prior to the termination
of this Agreement (1) take any action that would cause the death benefits
under the Policy that would be available for distribution to the beneficia-
ry or beneficiaries designated by the Owner as provided herein to be less
than the Benefit Amount (determined as of the earlier of the Measurement
Date or the date such action was taken by the Company) and (2) from and
after the date upon which a Change in Control occurs, borrow against the
Policy, pledge the Policy as collateral for a loan, withdraw any amount
from the Policy or otherwise access any funds held under the Policy until
such time as the beneficiary or beneficiaries designated by the Owner have
received all of the Policy death benefits to which they are entitled
pursuant to the provisions of this Agreement.
4. Adjustments to Policy Face Amount. On each Anniversary Date that
occurs prior to the Measurement Date, the parties hereto shall cause the
total face amount of the Policy to be adjusted to the extent necessary, if
any, so that such face amount is equal to the Benefit Amount (which Benefit
Amount shall be determined as of the day immediately following such
Anniversary Date); provided, however, that if any such adjustment would
require a reduction in the face amount of the Policy, then the Company may,
in its sole discretion, determine that no such adjustment to the face
amount of the Policy shall be made for such Anniversary Date. Further, on,
or as soon as administratively practicable after, the Executive's Normal
Retirement Date (or, if later, the date of the termination of the Executiv-
e's employment with the Company for a reason other than death), the parties
hereto shall cause the total face amount of the Policy to be reduced to the
extent necessary, if any, so that such face amount is equal to the Benefit
Amount in effect at such time. The parties hereto agree that they shall
take all reasonable action necessary to cause the Insurer to adjust the
face amount of the Policy as provided in the preceding provisions of this
Paragraph 4. Without limiting the scope of the foregoing, (a) the Execu-
tive and the Owner shall furnish any and all information requested by the
Company or the Insurer to facilitate an adjustment to the face amount of
the Policy and (b) the Executive shall take such physical examinations as
the Insurer may deem necessary.
5. Payment of Premiums.
(a) On the Effective Date and on or before each Anniversary
Date, the Company shall pay to the Insurer, as premium payments with
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<PAGE>
respect to the Policy, the amount, if any, determined by the Company in its
sole discretion; provided, however, that:
(1) on the Effective Date and on each Anniversary Date
that occurs during the Premium Payment Period and prior to the termina-
tion of this Agreement, the Company shall make substantially level
premium payments with respect to the Policy based upon a premium payment
policy established by the Company that is designed to (i) maintain the
Policy in a manner sufficient to provide the level of death benefits to
the Owner's beneficiary or beneficiaries pursuant to Paragraph 7(b)
hereof in the event of the Executive's death prior to the end of the
Premium Payment Period and (ii) accumulate sufficient funds under the
Policy (based upon the assumption that the Executive will retire as of
the Executive's Normal Retirement Date) so that as of the end of the
Premium Payment Period the Policy is projected to have sufficient funds
to (A) at all times thereafter provide a minimum death benefit in an
amount equal to the Benefit Amount without any further premium payments
and (B) permit the Owner to terminate this Agreement as of the later of
the Executive s Normal Retirement Date or the fifteenth Anniversary Date
and use accumulations under the Policy to obtain the release of the
collateral assignment of the Policy to the Company; and
(2) on each Anniversary Date that occurs after the end of
the Premium Payment Period and prior to the termination of this Agree-
ment, the Company shall make a premium payment with respect to the
Policy in at least the amount required so that as of such Anniversary
Date the Policy is projected to have sufficient funds to (i) at all
times thereafter provide a minimum death benefit in an amount equal to
the Benefit Amount without any further premium payments and (ii) permit
the Owner to terminate this Agreement as of the later of the Executive s
Normal Retirement Date or the fifteenth Anniversary Date and use
accumulations under the Policy to obtain the release of the collateral
assignment of the Policy to the Company.
The amount of each premium payment required pursuant to clauses (1) and (2)
of the preceding sentence shall be determined based upon (i) the Relevant
Assumptions in effect as of the date such premium payment is required to be
paid by the Company pursuant to this Paragraph 5(a) and (ii) if the
Measurement Date has not occurred as of such premium payment date, the
Company's estimate of the date upon which the Measurement Date will occur
(which date shall be estimated to be no earlier than the Executive's Normal
Retirement Date). The Owner and the Executive acknowledge and agree that
(A) the Company is agreeing to make premium payments with respect to the
Policy as described above based upon the Relevant Assumptions and for the
period of time set forth in this Agreement, (B) the actual crediting rates
under the Policy and the charges and expenses incurred with respect to the
Policy may deviate from the rates, charges and expenses utilized from time
to time under the Relevant Assumptions, and (C) accordingly, the Company
makes no guarantee that the Policy will, in fact, have sufficient funds to
provide a minimum death benefit in an amount equal to the Benefit Amount at
all times after the termination of this Agreement without any further
premium payments. The Company shall promptly notify the Owner of the date
and the amount of each premium payment made by the Company with respect to
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<PAGE>
the Policy and, promptly upon receipt, the Owner shall furnish the Company
with a copy of the annual report for the Policy received by the Owner from
the Insurer.
(b) If the Executive's employment with the Company is terminated
under circumstances pursuant to which the Executive is entitled to a
severance benefit under the Change in Control Severance Agreement, then the
Company shall promptly pay into a rabbi trust a single lump sum cash
payment in an amount equal to the projected amount of premium payments that
the Company would be required to make with respect to the Policy pursuant
to Paragraph 5(a) hereof during the 36 month period immediately following
such termination of employment. Pursuant to the terms of the rabbi trust,
on each of the first three Anniversary Dates that occur after the termina-
tion of the Executive's employment with the Company, the trustee of the
rabbi trust shall pay to the Insurer as a premium with respect to the
Policy one-third of the amount initially deposited in the rabbi trust by
the Company. After the trustee has made three such premium payments, the
rabbi trust shall terminate and any remaining funds held by the trustee
shall be returned to the Company. Notwithstanding the foregoing, the
Company shall remain obligated to make all premium payments required
pursuant to Paragraph 5(a) hereof; provided, however, that the Company
shall be relieved of such obligation to the extent of the amount of each
premium payment made by the trustee of the rabbi trust with respect to the
Policy. All costs and expenses associated with the establishment and
maintenance of the rabbi trust shall be paid by the Company.
(c) Neither the Executive nor the Owner shall have any obliga-
tion to pay any premiums with respect to the Policy prior to the termina-
tion of this Agreement. The Company shall have no obligation to pay any
premiums with respect to the Policy from and after the termination of this
Agreement pursuant to Paragraph 8 below.
6. Provision of Information. On or before January 31 of each
calendar year, the Company shall furnish to the Executive a statement of
the amount of income, if any, reportable by the Executive for federal and
state income tax purposes for the preceding calendar year as a result of
the existence and maintenance of the Policy. The Owner and the Executive
shall promptly furnish the Company with (a) copies of any information or
notices provided by the Insurer from time to time with respect to the
Policy and (b) any other material or information relating to the Policy and
reasonably requested by the Company from time to time. Upon request, the
Company shall promptly furnish to the Owner evidence of timely payment of
any amount required to be paid by the Company pursuant to Paragraph 5
hereof.
7. Collection and Distribution of Death Proceeds.
(a) Upon the death of the Executive prior to the termination of
this Agreement during the Executive's lifetime, the Company and the Owner
shall cooperate with the beneficiary or beneficiaries designated by the
Owner to take whatever action is necessary to collect the death benefit
provided under the Policy. When such benefit has been collected and paid
as provided herein, this Agreement shall thereupon terminate.
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<PAGE>
(b) Upon the death of the Executive prior to the termination of
this Agreement during the Executive's lifetime, the beneficiary or benefi-
ciaries designated by the Owner pursuant to Paragraph 2(c) hereof shall be
entitled to receive a portion of the death benefits provided under the
Policy in an amount equal to the Benefit Amount determined as of the
Measurement Date (which amount shall be reduced as provided in Paragraph
1(e) hereof upon the later of the Executive's Normal Retirement Date or the
date of the termination of the Executive's employment with the Company for
a reason other than death). This amount shall be paid under the settlement
option elected by the Owner.
(c) Upon the death of the Executive prior to the termination of
this Agreement during the Executive's lifetime, the Company shall have the
unqualified right to receive any and all of the death benefits provided
under the Policy in excess of the amount payable pursuant to Paragraph 7(b)
above to the beneficiary or beneficiaries designated by the Owner. This
amount shall be paid to the Company in a single lump sum cash payment.
(d) The parties hereto agree that, upon the request of the
Company, the beneficiary designation provision of the Policy shall conform
to the provisions hereof.
8. Termination of Agreement.
(a) This Agreement may be terminated by the Owner at any time
during the Executive's lifetime and after the fifteenth Anniversary Date
upon written notice to the Company and payment to the Company by the Owner
at the time of such notice of a single lump sum cash payment in an amount
equal to the aggregate premium payments made by the Company pursuant to
Paragraph 5 hereof on or before the date of such termination, less any
withdrawals from the Policy by the Company prior to the date of such
termination and any indebtedness secured by the Policy which was incurred
by the Company and remains outstanding as of the date of such termination,
including any unpaid accrued interest on such indebtedness. Upon receipt
of such amount, the Company shall release the collateral assignment of the
Policy by the execution and delivery of an appropriate instrument of
release.
(b) This Agreement may be terminated by the Company at any time
during the Executive's lifetime (including, without limitation, upon the
Executive's termination of employment with the Company or at any time
before or after such termination); provided, however, that (i) from and
after the Executive s Normal Retirement Date, this Agreement may not be
terminated by the Company until the later of such Normal Retirement Date,
the date upon which the Executive's employment with the Company terminates,
the expiration of the Premium Payment Period or the fifteenth Anniversary
Date, (ii) from and after the date upon which the Executive becomes
Disabled, this Agreement may not be terminated by the Company until the
earlier of the Executive's Normal Retirement Date, the expiration of the
Premium Payment Period, the fifteenth Anniversary Date or the third
anniversary of the date upon which the Executive becomes Disabled, and
(iii) from and after the date upon which a Change in Control occurs, this
Agreement may be terminated by the Company only on or after the date upon
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<PAGE>
which the Executive's employment with the Company terminates (except that,
if the Executive's employment with the Company terminates under circum-
stances pursuant to which the Executive is entitled to a severance benefit
under the Change in Control Severance Agreement, then this Agreement may
not be terminated by the Company until the third anniversary of the date of
such termination of employment). The Company shall provide the Owner and
the Executive with 30 days prior written notice of any such termination of
this Agreement by the Company. If this Agreement is terminated by the
Company as provided in the preceding provisions of this Paragraph 8(b),
then for 60 days after the effective date of the termination of this
Agreement, the Owner shall have the option of obtaining the release of the
collateral assignment of the Policy to the Company. To obtain such
release, the Owner shall repay to the Company the total amount of the
premium payments made by the Company hereunder, less any withdrawals from
the Policy by the Company prior to the date of such termination and any
indebtedness secured by the Policy which was incurred by the Company and
remains outstanding as of the date of such termination, including any
unpaid accrued interest on such indebtedness. Upon receipt of such amount,
the Company shall release the collateral assignment of the Policy by the
execution and delivery of an appropriate instrument of release. If the
Owner fails to exercise such option within such 60 day period, then the
interest of the Owner in the Policy shall automatically be transferred to
the Company and the Owner shall execute any document or documents requested
by the Company or the Insurer to effect such transfer. Alternatively, the
Company may enforce its right to be repaid the amount due it hereunder from
the cash surrender value of the Policy under the collateral assignment of
the Policy; provided that in the event the cash surrender value of the
Policy exceeds the amount due the Company, such excess shall be paid to the
Owner. Thereafter, neither the Owner nor any person claiming under the
Owner shall have any further interest in and to the Policy, either under
the terms thereof or under this Agreement.
(c) Notwithstanding any provision in this Agreement to the
contrary, if the Executive's employment with the Company is terminated for
Cause at any time (whether before or after the Executive attains his or her
Normal Retirement Date), then (i) this Agreement shall automatically
terminate upon such termination of employment, (ii) the interest of the
Owner in the Policy shall automatically be transferred to the Company and
the Owner shall execute any document or documents requested by the Company
or the Insurer to effect such transfer, (iii) the Company may exercise all
rights of ownership of the Policy, take all proceeds of the Policy, take
proceeds designated for the beneficiary or beneficiaries designated by the
Owner, assign its ownership interest in the Policy to any other party or
take any other action the Company determines in its sole discretion, and
(iv) neither the Owner, the Executive nor their respective heirs, assigns,
personal representatives, or beneficiaries shall have any further rights,
claims, or interests of any nature whatsoever in the Policy or in this
Agreement.
(d) It is a condition precedent to the execution of this
Agreement that the Owner and the Executive acknowledge and agree that the
Company has the right, subject to certain limitations set forth in Para-
graph 8(b) hereof, to terminate this Agreement at any time for any reason
-26-
<PAGE>
whatsoever or for no reason at all. Without limiting the scope of the
foregoing, the Owner and the Executive specifically acknowledge and agree
that the Company shall have the right to terminate this Agreement prior to
the occurrence of a Change in Control in the event that the premiums
required to be paid under the Policy are increased due to a deterioration
in the health or medical condition of the Executive after the Effective
Date. In such event, the Owner and the Executive hereby waive, and agree
that they shall not assert, any claim or cause of action, in contract, tort
or otherwise, against the Company, any Affiliate of the Company or any
employee, director, officer or agent of the Company or any such Affiliate
with respect to the termination of this Agreement, including, without
limitation, any claim or cause of action based on any alleged discriminato-
ry practice. By entering into this Agreement, the parties hereto agree
that the conditions and provisions set forth in this Paragraph 8(d) are an
essential component of this Agreement, and it is their intent that such
conditions and provisions not be severed from the other terms and provi-
sions of this Agreement.
9. Insurer Not a Party. Subject to the terms and conditions of the
Policy, the Insurer shall be fully discharged from its obligations under
the Policy by payment of the Policy death benefit to the beneficiary or
beneficiaries named in the Policy and upon the performance of its other
obligations in accordance with the terms of the Policy. In no event shall
the Insurer be considered a party to this Agreement, or any modification or
amendment hereof. No provision of this Agreement, nor of any modification
or amendment hereof, shall in any way be construed as enlarging, changing,
varying, or in any other way affecting the obligations of the Insurer as
expressly provided in the Policy.
10. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
(a) Named Fiduciary. The Company is hereby designated as the
named fiduciary under this Agreement. The named fiduciary shall have
authority to control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and carrying out a
premium payment policy and method consistent with the objectives of this
Agreement.
(b) (1) Claim. A person who believes that he or she is being
denied a benefit to which he or she is entitled under this Agreement
(hereinafter referred to as a "Claimant") may file a written request for
such benefit with the Company, setting forth his or her claim. The
request must be addressed to the Company at its then principal place of
business.
(2) Claim Decision. Upon receipt of a claim, the Company
shall advise the Claimant that a reply will be forthcoming within 90
days and shall, in fact, deliver such reply within such period. The
Company may, however, extend the reply period for an additional 90 days
for reasonable cause.
-27-
<PAGE>
If the claim is denied in whole or in part, the
Company shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth: (i) the specific reason or
reasons for such denial; (ii) the specific reference to pertinent
provisions of this Agreement on which such denial is based; (iii) a
description of any additional material or information necessary for the
Claimant to perfect his or her claim and an explanation why such
material or such information is necessary; (iv) appropriate information
as to the steps to be taken if the Claimant wishes to submit the claim
for review; and (v) the time limits for requesting a review under
subsection (3) and for review under subsection (4) hereof.
(3) Request for Review. Within 60 days after the receipt
by the Claimant of the written opinion described above, the Claimant may
request in writing that the Company review its determination. Such
request must be addressed to the Company, at its then principal place of
business. The Claimant or his or her duly authorized representative
may, but need not, review the pertinent documents and submit issues and
comments in writing for consideration by the Company. If the Claimant
does not request a review of the Company's determination within such 60
day period, he or she shall be barred and estopped from challenging the
Company's determination.
(4) Review of Decision. Within 60 days after the
Company's receipt of a request for review, it will review the determina-
tion. After considering all materials presented by the Claimant, the
Company will render a written opinion, written in a manner calculated to
be understood by the Claimant, setting forth the specific reasons for
the decision and containing specific references to the pertinent
provisions of this Agreement on which the decision is based. If special
circumstances require that the 60 day time period be extended, the
Company will so notify the Claimant and will render the decision as soon
as possible, but no later than 120 days after receipt of the request for
review.
11. Arbitration.
(a) Upon completion of the claims procedure described in
Paragraph 10(b) hereof (if applicable), all claims, demands, causes of
action, disputes, controversies, and other matters in questions 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 parties hereto 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 enforce-
able in either federal or state court.
-28-
<PAGE>
(b) 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. 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. If any party to this Agreement
institutes arbitration to enforce the terms of this Agreement, the party
who prevails in such arbitration, whether plaintiff or defendant, in
addition to the remedy or relief obtained in such arbitration proceeding
shall be entitled to recover its or his expenses incurred in connection
with such arbitration proceeding, including, without limitation, arbitra-
tors and attorneys fees, and the arbitrators are authorized to so award
such costs and fees.
(c) The arbitration may be initiated by any party by providing
to the other parties a written notice of arbitration specifying the claims.
Within 30 days of the notice of initiation of the arbitration procedure,
(1) the Owner and the Executive, acting together, 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 60 days of the original notice, either the Owner, 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. A mere appearance or impression of bias
will not constitute evident partiality or otherwise disqualify an arbitra-
tor.
(d) 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 Agree-
ment 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
-29-
<PAGE>
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.
12. Amendment. This Agreement may not be amended, altered, or
modified, except by a written instrument signed by the parties hereto, or
their respective successors or assigns. Notwithstanding the foregoing or
any other provision herein to the contrary, the Premium Payment Period, the
face amount of the Policy, the amount of premiums to be paid by the
Company, and/or the references in this Agreement to the fifteenth Anniver-
sary Date may be changed by the Company without the consent of the Owner or
the Executive to the extent necessary to (a) maintain the Policy as a "life
insurance contract" (within the meaning of Section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the interpretative
authority promulgated thereunder) and (b) prevent the Policy from consti-
tuting a modified endowment contract (within the meaning of Section 7702A
of the Code and the interpretative authority promulgated thereunder). The
Company shall provide the Owner and the Executive with prompt written
notice of any such change.
13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns, and the Owner,
the Executive and their respective successors, assigns, heirs, executors,
administrators, and beneficiaries; provided, however, that the rights and
obligations of the Owner and the Executive hereunder are personal and
neither this Agreement, nor any right, benefit, or obligation of the Owner
or the Executive hereto, shall be subject to voluntary or involuntary
assignment, alienation or transfer, whether by operation of law or other-
wise, without the prior written consent of the Company.
14. Notice. Any notice, consent or demand required or permitted to
be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice,
consent or demand is mailed to a party hereto, it shall be sent by United
States registered or certified mail, postage prepaid, addressed to such
party s last known address as shown on the records of the Company. The
date of such mailing shall be deemed the date of notice, consent or demand.
15. Employment Relationship. For all purposes of this Agreement, the
Executive shall be considered to be in the employment of the Company as
long as the Executive remains an employee of the Company or any Affiliate
of the Company. However, this Agreement is not an employment agreement.
This Agreement shall not be construed as creating an express or implied
contract of employment and does not modify the nature of the Executive's
employment relationship with the Company or its Affiliates, as the case may
be. Except as otherwise agreed in writing between the Executive and the
Company or an Affiliate of the Company, the employment relationship between
the Executive and the Company or its Affiliates is at-will, i.e., the
employment relationship may be terminated at any time at the will of either
the Company or the Executive for any reason or no reason at all.
-30-
<PAGE>
16. Taxes and Policy Illustrations. The Company makes no guarantees
and assumes no obligations or responsibilities with respect to the Owner's
or the Executive's federal, state, or local income, estate, inheritance,
and gift tax obligations, if any, under this Agreement, the Policy or the
collateral assignment of the Policy to the Company. The Executive and the
Owner agree and acknowledge that the Policy illustrations provided prior to
the Effective Date and any Policy illustrations that may be provided from
time to time thereafter by the Company, the Insurer or their respective
agents and representatives are not guaranteed and are not a part of the
Policy or this Agreement. Such Policy illustrations shall not create any
additional obligations or responsibilities to the Executive or the Owner
by the Company, the Insurer, or their respective agents and representa-
tives.
17. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws
of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this the _____ day of ____________, 1998, effective as of the Effective
Date.
AMERICAN GENERAL CORPORATION
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
"COMPANY"
_________________________________________
____________________
"EXECUTIVE"
_________________________________________
_______________________________________
"OWNER"
-31-
<PAGE>
EXHIBIT A
The following life insurance policy is subject to the attached Split-
Dollar Agreement:
Insurer: American General Life Insurance Company
Insured: __________________________
Policy Number: __________________________
Face Amount on the
Effective Date: $_________________________
Effective Date of Policy: May____, 1998
-32-
<PAGE>
ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL
A. FOR VALUE RECEIVED, the undersigned (hereinafter the "Owner")
hereby assigns, transfers and sets over to American General Corporation,
with principal offices and place of business in Houston, Texas, its
successors and assigns (hereinafter the "Assignee"), Policy No. __________-
_______ issued by American General Life Insurance Company (hereinafter the
"Insurer"), and any supplementary contracts issued in connection therewith
(said policy and contracts hereinafter the "Policy"), insuring the life of
__________________ __________ (the "Executive"), and all claims, options,
privileges, rights, title and interest therein and thereunder (except as
otherwise provided herein), subject to all the terms and conditions of the
Policy and to all superior liens, if any, which the Insurer may have
against the Policy. The Owner, by this Assignment, and the Assignee, by
acceptance of the assignment of the Policy to it hereunder, agree to the
terms and conditions contained herein.
B. This Assignment is made and the Policy is to be held as collateral
security for any and all liabilities and obligations of the Owner to the
Assignee, either now existing or that may hereafter arise, under and
pursuant to that certain Split-Dollar Agreement by and among the Owner, the
Assignee, and the Executive, dated effective as of May ____, 1998 (herein-
after the "Split-Dollar Agreement"). The liabilities and obligations
described in the preceding sentence are hereinafter referred to as the
"Liabilities."
C. It is expressly agreed that, without detracting from the generali-
ty of the foregoing, the following specific rights are included in this
Assignment and pass to the Assignee by virtue hereof:
1. The sole right to collect from the Insurer the net proceeds
of the Policy when it becomes a claim by death or maturity;
2. The sole right to surrender the Policy and receive the
surrender value thereof at any time provided by the terms of the Policy
and at such other times as the Insurer may allow; and
3. The sole right to obtain one or more withdrawals, loans or
advances on the Policy, either from the Insurer or, at any time, from
other persons, and to pledge or assign the Policy as security for such
loans or advances.
D. It is expressly agreed that the following specific rights, so long
as the Policy has not been surrendered and to the extent permitted under
the Split-Dollar Agreement, are reserved by the Owner and excluded from
this Assignment and do not pass by virtue hereof:
1. The right to designate and change the beneficiary to receive
the portion of the proceeds under the Policy specified in Paragraph 7(b)
of the Split-Dollar Agreement; and
2. The right to elect any optional mode of settlement permitted
by the Policy or allowed by the Insurer with respect to such proceeds.
<PAGE>
However, the reservation of these rights by the Owner shall in no way
impair the right of the Assignee to surrender the Policy nor impair any
other right of the Assignee hereunder. Further, any exercise of these
rights shall be made subject to this Assignment and to the rights of the
Assignee hereunder.
E. Notwithstanding the foregoing, the Assignee covenants and agrees
with the Owner as follows:
1. Any balance of sums received hereunder from the Insurer
remaining after payment of the then existing Liabilities shall be paid
by the Assignee to the persons entitled thereto under the terms of the
Policy, had this Assignment not been executed;
2. The Assignee will not exercise the right to surrender the
Policy, nor the right to make withdrawals from the Policy or obtain
policy loans from the Insurer, unless and until there has been default
in any of the Liabilities or the Split-Dollar Agreement has been
terminated, pursuant to its terms; in any event, the Assignee will not
exercise any such right until 15 days after the Assignee shall have
mailed notice of intention to exercise such right, by first class mail,
to the Owner at the address last supplied in writing to the Assignee
specifically referring to this Assignment; and
3. The Assignee will, upon request, forward the Policy to the
Insurer without unreasonable delay, for endorsement of any designation
or change of beneficiary or any election of an optional mode of settle-
ment that has been elected by the Owner.
F. The Insurer is hereby authorized to recognize the Assignee's
claims to rights hereunder without investigating the reason for any action
taken by the Assignee, the validity or the amount of the Liabilities, the
existence of any default therein, termination of the Split-Dollar Agree-
ment, the giving of any notice hereunder, or the application to be made by
the Assignee of any amounts to be paid to the Assignee. The sole signature
of the Assignee shall be sufficient for the exercise of any rights under
the Policy assigned hereby and the sole receipt of the Assignee for any
sums received shall be a full discharge and release therefor to the
Insurer. Payment for all or any part of the sums due under the Policy and
assigned herein shall be drawn to the exclusive order of or as directed by
the Assignee if, when, and in such amounts as may be requested by the
Assignee.
G. The Assignee shall be under no obligation to pay any premium on
the Policy nor the principal of or interest on any loans or advances on the
Policy, whether or not obtained by the Assignee, or any other charges on
the Policy.
H. The exercise of any right, option, privilege or power given herein
to the Assignee shall be at the option of the Assignee, and (except as
provided herein) the Assignee may exercise any such right, option, privi-
lege or power without notice to, or assent by, or affecting the liability
of, or releasing any interest hereby assigned by the Owner.
-34-
<PAGE>
I. If applicable, the Assignee may take or release other security,
may release any party primarily or secondarily liable for any of the
Liabilities, may grant extensions, renewals or indulgences with respect to
the Liabilities, or may apply the proceeds of the Policy hereby assigned or
any amount received on account of the Policy by the exercise of any right
permitted under this Assignment to the Liabilities in such order as the
Assignee shall determine, without resorting to or regard to other security.
J. As applied to the duties and responsibilities of the Insurer, in
the event of any conflict between the provisions of this Assignment and the
provisions of the Split-Dollar Agreement with respect to the Policy or the
Assignee s rights of collateral security therein, the provisions of this
Assignment shall prevail. As applied between the Owner and the Assignee,
in the event of any such conflict, the provisions of the Split-Dollar
Agreement shall prevail.
K. The Owner declares that no proceedings in bankruptcy are pending
against the Owner and that the Owner s property is not subject to any
assignment for the benefit of creditors of the Owner.
SIGNED this ___ day of ______________, 1998, effective as of May _____,
1998.
__________________________________
__________________________________
__________________________________
"OWNER"
This Assignment is hereby accepted and agreed to by the Assignee.
AMERICAN GENERAL CORPORATION
By:_____________________________________
Name: _________________________________
Title: _________________________________
"ASSIGNEE"
-35-
<PAGE>
STATE OF _______________ Section
Section
_______________ COUNTY Section
On the _____ day of ___________________________, 1998, before me
personally came ______________________, __________________________________-
__________________, to me known to be the individual who executed the
Assignment on the preceding pages hereof and acknowledged to me that he or
she executed the same.
___________________________________
Notary Public in and for
THE STATE OF_______________________
My Commission Expires:
____________________________
-36-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Three Months Ended
March 31,
1998 1997
Consolidated operations:
Income before income tax expense, minority interest,
and dividends on preferred securities ............ $ 428 $ 351
Undistributed income of Western National ........... - (12)
Fixed charges deducted from income
Interest expense ................................. 172 162
Implicit interest in rents ....................... 5 5
Total fixed charges deducted from income ....... 177 167
Earnings available for fixed charges.......... $ 605 $ 506
Fixed charges per above ............................ $ 177 $ 167
Capitalized interest ............................... - 3
Total fixed charges ............................ 177 170
Dividends on preferred stock and securities .... 37 28
Combined fixed charges and preferred
stock dividends ............................ $ 214 $ 198
Ratio of earnings to fixed charges ......... 3.41 2.97
Ratio of earnings to combined fixed charges
and preferred stock dividends ............ 2.83 2.55
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense, minority
interest, and dividends on preferred securities . $ 428 $ 351
Undistributed income of Western National ......... - (12)
Corporate fixed charges deducted from income -
corporate interest expense ..................... 54 40
Earnings available for fixed charges ........... $ 482 $ 379
Total corporate fixed charges per above .......... $ 54 $ 40
Capitalized interest related to real estate
operations ..................................... - 3
Total corporate fixed charges .................. 54 43
Dividends on preferred stock and securities .... 37 28
Combined corporate fixed charges and
preferred stock dividends .................. $ 91 $ 71
Ratio of earnings to corporate fixed charges 8.85 8.92
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................ 5.29 5.36
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended March 31, 1998
Exhibit 12
(continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Three Months Ended
March 31,
1998 1997
American General Finance, Inc.:
Income before income tax expense ................... $ 71 $ 62
Fixed charges deducted from income
Interest expense ................................. 122 125
Implicit interest in rents ....................... 3 3
Total fixed charges deducted from income ....... 125 128
Earnings available for fixed charges ......... $ 196 $ 190
Ratio of earnings to fixed charges ......... 1.57 1.48
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 58,690<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 124
<MORTGAGE> 3,504
<REAL-ESTATE> 232
<TOTAL-INVEST> 65,903
<CASH> 229
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,048<F2>
<TOTAL-ASSETS> 96,051
<POLICY-LOSSES> 55,349<F3>
<UNEARNED-PREMIUMS> 186<F3>
<POLICY-OTHER> 416<F3>
<POLICY-HOLDER-FUNDS> 2,257<F3>
<NOTES-PAYABLE> 9,792
1,727<F4>
85<F5>
<COMMON> 928
<OTHER-SE> 7,461<F6>
<TOTAL-LIABILITY-AND-EQUITY> 96,051
878<F7>
<INVESTMENT-INCOME> 1,226
<INVESTMENT-GAINS> 1
<OTHER-INCOME> 374<F8>
<BENEFITS> 1,224
<UNDERWRITING-AMORTIZATION> 156<F9>
<UNDERWRITING-OTHER> (190)<F10>
<INCOME-PRETAX> 428<F11>
<INCOME-TAX> 151<F12>
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.96
<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 $17 MILLION OF MINORITY INTEREST AND $34 MILLION OF DIVIDENDS
ON PREFERRED SECURITIES OF SUBSIDIARIES, SHOWN SEPARATELY, NET OF TAX, IN
THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $6 MILLION TAX BENEFIT FOR MINORITY INTEREST AND $12 MILLION
TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO PREFERRED SECURITIES
OF SUBSIDIARIES.
</FN>
</TABLE>
