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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
__________
ALLIED Group, Inc.
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(Name of Subject Company)
ALLIED Group, Inc.
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(Name of Person(s) Filing Statement)
Common Stock, No Par Value
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(Title of Class of Securities)
019220102
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(CUSIP Number of Class of Securities)
__________
GEORGE OLESON, ESQ.
Vice President and Corporate Counsel
ALLIED Group, Inc.
710 Fifth Avenue
Des Moines, Iowa 50391-2000
(515) 280-4211
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(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing)
With a copy to:
STEVEN OSTNER, ESQ.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
(212) 909-6000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is ALLIED Group, Inc., an Iowa
corporation (the "Company"). The address of the principal executive offices of
the Company is 701 Fifth Avenue, Des Moines, Iowa 50391-2000. The title of the
class of equity securities to which this Statement relates is the common stock,
no par value (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by Nationwide Mutual
Insurance Company, an Ohio corporation ("Nationwide"), and Nationwide Group
Acquisition Corporation, an Ohio corporation and a wholly-owned subsidiary of
Nationwide ("Nationwide Sub" and, collectively with Nationwide, the "Bidder"),
disclosed in a Tender Offer Statement on Schedule 14D-1, filed with the
Securities and Exchange Commission (the "Commission") on May 19, 1998 (as the
same may be amended from time to time, the "Schedule 14D-1"), to purchase up to
30,634,052 Shares, at a price of $47 per Share, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated May 19, 1998 (the "Offer to Purchase"), and the related
Letter of Transmittal (which collectively constitute the "Offer").
According to the Schedule 14D-1, the address of the principal
executive offices of each of Nationwide and Nationwide Sub is One Nationwide
Plaza, Columbus, Ohio, 43215.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Nationwide, in addition to commencing the Offer has also proposed
to the Board of Directors of ALLIED Mutual a merger of ALLIED Mutual into
Nationwide, and has indicated its willingness to acquire all of the outstanding
shares of common stock held by the public shareholders of ALLIED Life for $30 a
share. Nationwide has also offered to distribute $110 million of cash to ALLIED
Mutual's policyholders in connection with the merger. Certain of the directors
and officers of the Company are also directors and/or officers of ALLIED Mutual
and/or of ALLIED Life. A majority of the Company's directors Messrs, Carpenter,
Colby, Jacobson, Taylor, Timmons and Willis (the "Unaffiliated Directors"), are
not officers or directors of, or otherwise affiliated with, either ALLIED Mutual
or ALLIED Life. Except as described herein or in Annex A hereto, which is
incorporated herein by reference, there are no material contracts, agreements,
arrangements or understandings or any actual or potential conflicts of interest
between the Company or its affiliates and (i) any of the Company's executive
officers, directors or affiliates or (ii) Bidder and its executive officers,
directors or affiliates. Reference is made to the information contained under
the captions "Compensation of the Members of the Board of Directors and the
Outside Director Stock Purchase Plan," "Security Ownership of Directors and
Executive Officers," "Board Compensation Committee Report on Executive
Compensation" and "Compensation of Executive Officers" in the Company's proxy
statement dated March 27, 1998 relating to the Company's 1998 Annual Meeting
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of Stockholders (the "1998 Proxy Statement"), the relevant portions of which are
filed as Exhibit 1 hereto and are incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a)-(b) The Board of Directors of the Company acting on the unanimous
recommendation of a committee (the "Committee") consisting of all of the
Unaffiliated Directors has unanimously determined to recommend that shareholders
do not tender their shares in response to the Offer at this time. The reasons
for this determination are as follows:
(i) Representatives of the Company have met with representatives of
Nationwide during the last several days to determine the terms, if any, on
which a negotiated transaction would be available. On June 1, Nationwide
stated it was prepared to increase the per Share price of its Offer to $48.25
as part of a negotiated merger agreement, and also to reduce the amount of
the termination fee that would be payable by the Company under certain
circumstances pursuant to Nationwide's merger agreement. On June 1, as
directed by the Board of Directors on the recommendation of the Committee,
Morgan Stanley informed Nationwide that the Board was prepared in principle
to recommend a transaction at that price and with the revised termination fee
provision, subject to negotiation of an acceptable transaction agreement.
(ii) Because negotiations with Nationwide concerning the proposed
transaction agreement are ongoing, the Board of Directors, acting on the
recommendation of the Committee, believes that it would be premature for
shareholders to tender their Shares in response to the Offer at this time
and recommends that Shareholders defer making a decision whether to tender
while the Board and its advisors continue discussions with Nationwide and
its advisors.
A copy of a press release communicating the Board's position is filed
as 3 hereto and is incorporated herein by reference.
June 1, 1998
Background. On January 26, 1998, John E. Evans, Chairman of the
Company, received a telephone call from Dimon R. McFerson, Chairman and Chief
Executive Officer of Nationwide Insurance Enterprise. In the call, Mr. McFerson
expressed Nationwide's interest in a possible transaction with the Company,
ALLIED Mutual Insurance Company ("ALLIED Mutual") and ALLIED Life Financial
Corporation ("ALLIED Life"; collectively with the Company and ALLIED Mutual,
"ALLIED").
On January 28, 1998, at the request of Mr. McFerson, Mr. Evans,
Douglas L. Andersen, President and Chief Executive Officer of the Company, and
other
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representatives of the Company met with representatives of Nationwide to
discuss Nationwide's interest in acquiring each of the Company, ALLIED Mutual
and ALLIED Life. After the January 28, 1998 meeting, Nationwide provided a
draft confidentiality agreement to Mr. Andersen which did not include customary
standstill provisions.
On February 6, 1998, Mr. McFerson and Mr. Andersen engaged in further
discussions by telephone regarding Nationwide's interest in acquiring the
Company, ALLIED Mutual and ALLIED Life. Mr. McFerson requested that the
Company, ALLIED Mutual and ALLIED Life agree to deal exclusively with
Nationwide. Mr. Andersen informed Mr. McFerson that the ALLIED companies would
not agree to deal exclusively with Nationwide, expressed concerns about the
absence of an acceptable confidentiality agreement and other elements of
Nationwide's proposal and stated that Nationwide's proposal could not be
considered formally until it was received in writing by the Company, ALLIED
Mutual and ALLIED Life. On February 10, 1998, the Company provided to
Nationwide its own form of confidentiality agreement, executed by the Company,
which included a customary standstill provision.
Also, on February 10, 1998, Nationwide sent draft merger agreements to
the Company, which provided for a transaction whereby Nationwide's wholly-owned
subsidiaries would acquire the Company and ALLIED Life and Nationwide would
merge with ALLIED Mutual. The draft merger agreements provided for the purchase
of the Shares for $47 per Share and the purchase of all outstanding shares of
ALLIED Life for $30 per share, subject to various conditions, including that the
acquisition of all three ALLIED companies close simultaneously. The draft
merger agreement with ALLIED Mutual provided for no distribution to ALLIED
Mutual's policyholders. Each of the merger agreements included provisions
requiring payment to Nationwide of termination fees, totaling $75 million in the
aggregate, plus expenses of Nationwide in the event of the termination of the
merger agreement under certain circumstances.
On February 17, 1998, at a joint meeting of the Boards of Directors of
the Company, ALLIED Mutual and ALLIED Life, Nationwide's proposal and proposed
merger agreements were discussed. Following the joint Board meeting, a special
meeting of the Board of Directors of the Company was convened. At that meeting
it was noted that Nationwide's proposal was contingent on the consummation of
transactions with all three ALLIED companies. The Board discussed the potential
difficulty in obtaining approval from ALLIED Mutual policyholders and ALLIED
Life shareholders, that the Company's employees and independent agents could
perceive the proposal and change in control unfavorably and that the Company
could suffer loss of business and disruption of its employee force. The Board
noted that Nationwide's proposal included an exclusivity provision which
restricted the Company from soliciting proposals from third parties and which
limited the Board's ability to accept a superior offer from a third party for a
period of 180 days. The Board also noted that Nationwide had refused to sign a
confidentiality agreement with a standstill provision that would prevent it from
making a hostile bid for a specified period of time after it had reviewed
confidential documents of the Company. The Board discussed the
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various regulatory approvals required before the acquisition could be approved
and the uncertainty of obtaining those approvals. Finally, the Board noted that
the substantial termination fees proposed by Nationwide presented additional
risk to the Company. The Board determined that the proposal was not in the best
interests of the Company and its shareholders and unanimously (with one member
absent) determined that the proposal should be rejected.
On February 19, 1998, at a special joint meeting of the Executive
Committees of the Company, ALLIED Mutual and ALLIED Life, Mr. Andersen was
authorized to advise Mr. McFerson that Nationwide's proposal had been rejected.
On February 19, 1998, Nationwide sent to the Company a form of
confidentiality agreement, signed on behalf of Nationwide and Nationwide Sub,
which again did not contain the standstill provision and certain other items
that the Company had proposed.
On February 20, 1998, Mr. Andersen informed Mr. McFerson via telephone
that the respective Boards of ALLIED had rejected Nationwide's proposal as
presented.
Later on February 20, 1998, Nationwide sent to the Company a letter
indicating that Nationwide was withdrawing the executed confidentiality
agreement that it had sent to the Company on February 19, 1998.
On May 1, 1998, Mr. McFerson telephoned Mr. Evans to express that
Nationwide wished to re-initiate contact with ALLIED. Mr. Evans indicated that
Nationwide should speak with Mr. Andersen, but requested that Nationwide delay
contacting Mr. Andersen for 30 days.
On May 18, 1998, Mr. McFerson made an unannounced visit to the
Company's Des Moines, Iowa offices and asked to see Mr. Andersen. However, Mr.
Andersen and other executive officers of the Company were out of the country.
Members of the Company's legal department met with Mr. McFerson, who stated that
the purpose of his visit was to announce a tender offer for all the Shares.
Mr. McFerson delivered three letters, addressed to each of the ALLIED companies,
which letters were also publicly released by Nationwide, communicating the
substance of the Offer.
Also, on May 18, 1998, Nationwide and Nationwide Sub filed a complaint
against the Company and its directors in the United States District Court for
the Southern District of Iowa seeking, among other things, an order compelling
the Company Board to approve the Offer and the Proposed Merger for purposes of
Section 490.1110 (the "Business Combination Statute," which is further discussed
under Item 8 below) of the Iowa Business Corporation Act (the "Iowa Corporation
Act"). A copy of this complaint is filed as Exhibit 4 hereto and is
incorporated by reference herein.
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Later on May 18, 1998, the Company issued a press release stating that
the Board would review the Offer and requesting shareholders not to tender their
Shares until they have been advised of the Board's position with respect to the
Offer. A copy of the press release is filed as Exhibit 5 hereto and is
incorporated by reference herein.
On May 19, 1998, the Directors of the Company convened by conference
call to discuss the Offer. At the recommendation of the Unaffiliated Directors,
the Directors authorized the retention of Morgan Stanley as the Company's
financial advisor concerning the Offer or any other acquisition transaction.
Also on May 19, Nationwide delivered two letters to the Company
requesting that the Company provide Nationwide with a list of the Company's
shareholders. The Company delivered letters to Nationwide, dated May 21, 1998
and May 22, 1998, advising Nationwide that, as permitted by law, the Company was
electing to deliver the Bidder's tender offer materials to the Company's
shareholders rather than provide Nationwide with a shareholder list.
On May 22, 1998, the Company's Board received a letter from Nationwide
stating that Nationwide intended to file a proxy statement that proposes to call
a special meeting of shareholders of the Company for the purpose of removing the
members of the Board and electing new directors who support the Offer.
On May 27, 1998, the Board of the Company met with management and the
Company's financial and legal advisors. The Board authorized the Committee to
conduct or supervise negotiations, if any, with Nationwide or with any other
party, on behalf of the Company; to make recommendations to the Board as to any
proposed transaction; to consult with ALLIED Mutual and ALLIED Life and their
financial advisors; and to give instructions to Morgan Stanley. Following the
meeting of the Board, the Committee met with the Company's financial and legal
advisors to discuss the Offer and the Company's response. The Committee
authorized Morgan Stanley to contact Nationwide's financial advisor, who had
expressed an interest in meeting, to discuss the possibility of a mutually
acceptable negotiated transaction.
On May 28, 1998, the Company, Nationwide and Nationwide Sub entered
into an agreement as to the confidentiality of settlement discussions on or
before June 2, 1998 regarding the litigation filed by Nationwide. A copy of the
confidentiality agreement is filed as Exhibit 6 hereto and is incorporated by
reference herein. Beginning on May 28, 1998, representatives of Morgan Stanley
(consulting with and under the supervision of the Committee) and representatives
of Nationwide's financial advisor met on several occasions to discuss the terms
of the Offer and whether a negotiated transaction could be achieved.
On June 1, Nationwide stated that it was prepared to increase the per
Share price of its Offer to $48.25 as part of a negotiated merger agreement, and
also to reduce the amount of the termination fee that would be payable under
certain circumstances pursuant
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to Nationwide's proposed merger agreement. On June 1, as directed by the Board
of Directors on the unanimous recommendation of the Committee, Morgan Stanley
informed Nationwide that the Board determined that it was prepared in principle
to recommend a transaction at that price and with the revised termination fee
provisions, subject to negotiation of an acceptable transaction agreement.
Discussions between representatives of the Company and representatives
of Nationwide are ongoing at this time regarding the terms of a mutually
acceptable transaction agreement.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter, dated May 22, 1998, the Company has
retained Morgan Stanley to render financial advisory services to the Company in
connection with Nationwide's proposal and such other matters as may be agreed
upon by the Company and Morgan Stanley. The Company has agreed to pay Morgan
Stanley: (i) an initial advisory fee of $250,000, payable immediately, and an
additional advisory fee of $75,000 per month for any month after an initial two-
month advisory period (collectively, the "Advisory Fees"); (ii) a fee of
$1,000,000 (the "Opinion Fee"), which becomes payable upon delivery by Morgan
Stanley of an opinion (whether oral or written, as requested by the Company) to
the Board of Directors of the Company or its shareholders in connection with the
Offer or any alternate transaction; and (iii) a final fee (the "Conclusion Fee")
of $6,000,000 (less the Advisory Fees and Opinion Fee) upon the first occurrence
of any of the following events: (a) Nationwide withdraws its Offer, (b) twelve
months from the date of the engagement letter, if no change of control (as
defined in the engagement letter) of the Company has occurred, or (c) the
Company is involved in an acquisition transaction or otherwise experiences a
change of control prior to that time.
The Company has also agreed to reimburse Morgan Stanley for its
reasonable out-of-pocket expenses, including reasonable fees and expenses of
counsel, and to indemnify Morgan Stanley and certain related persons against
certain liabilities in connection with their engagement including liabilities
under the federal securities laws.
The Company has retained Abernathy MacGregor Frank ("Abernathy") as
public relations adviser and Innisfree M&A Incorporated ("Innisfree") to assist
the Company with its communications to stockholders with respect to, and to
provide other services to the Company in connection with, the Offer. The
Company will pay Abernathy and Innisfree reasonable and customary compensation
for their respective services, and will reimburse Abernathy and Innisfree for
their reasonable out-of-pocket expenses incurred in connection therewith.
Except as described above, neither the Company nor any person acting
on its behalf has employed, retained or compensated any other person to make
solicitations or recommendations to security holders on its behalf with respect
to the Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except as described in Annex B hereto, which is incorporated by
reference herein, there have been no transactions in the Shares during the past
60 days by the Company or, to the best knowledge of the Company, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best knowledge of the Company, no executive officer,
director, affiliate or subsidiary of the Company has any present intention to
tender any Shares pursuant to the Offer. The foregoing statement does not
include any Shares over which, or with respect to which, any such executive
officer, director or affiliate acts in a fiduciary or representative capacity or
is subject to the instructions of a third party with respect to such decision to
tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) - (b) See the response to Item 4, concerning discussions between
the Company and Nationwide to discuss the possibility of a mutually acceptable
negotiated transaction involving the acquisition by Nationwide of the Company.
As of the date hereof, there have been contacts with third parties as to their
possible interest in acquiring or merging with the Company, but negotiations
regarding potential transactions with third parties have not yet commenced.
Except as stated in the preceding two sentences, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in: (i) an extraordinary transaction such as a merger or
reorganization, involving the Company or any subsidiary of the Company; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
The Board has determined, by resolution adopted at the Board meeting
on June 1, 1998, that disclosure of the substance of negotiations concerning, or
the possible terms of, or potential parties to, any such transactions or
proposals prior to an agreement in principle with respect thereto would
jeopardize continuation of such negotiations and has directed that no such
disclosure be made unless and until such agreement in principle or a definitive
agreement has been reached.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Insurance Law Matters.
The Company, which is incorporated in Iowa, directly or through its
subsidiaries, owns three property-casualty insurance companies domiciled in Iowa
and one excess and surplus lines insurance company domiciled in Arizona.
Accordingly, the acquisition of Shares pursuant to the Offer may require filings
with, and approvals of, state insurance regulatory authorities (the "Insurance
Commissions" or "Insurance Commissioners") under the respective insurance codes
(the "Insurance Codes") of Iowa and Arizona as well as Ohio, the domiciliary
state of Nationwide.
The Insurance Codes of Iowa and Arizona and the rules that have been
promulgated thereunder each contain provisions applicable to the acquisition of
"control" of a domestic insurer, including a presumption of control that arises
from the ownership of ten percent (10%) or more of the voting securities of a
domestic insurer or of a person that controls a domestic insurer. Generally,
any person seeking to acquire voting securities, such as the Shares, in an
amount that would result in such person controlling, directly or indirectly, a
domestic insurer must, together with any person ultimately controlling such
person, file with the relevant Insurance Commissioner certain information
concerning the acquisition of control (generally known as a "Form A") and send a
copy of each Form A to the domestic insurer. On the date of the Offer,
Nationwide and Nationwide Sub made Form A filings with the Insurance Commissions
of Arizona and Iowa and sent copies thereof to the relevant domestic insurer.
In both Iowa and Arizona, the Form A filings trigger public hearing
requirements and commence statutory periods within which decisions must be
rendered approving or disapproving the acquisition of control of the Company by
Nationwide and Nationwide Sub The periods within which hearings must be
commenced or decisions rendered generally do not begin until the relevant
Insurance Commissioner has deemed the Form A filing complete. The Insurance
Commissioner has discretion to request that additional information be furnished
before it deems the Form A filing complete. The Insurance Codes provide certain
statutory standards for the approval or the disapproval of the acquisition of
control of the Company. However, the Insurance Codes also permit the Insurance
Commissioners discretion in determining whether such standards have been met.
The Insurance Commissioner has discretion to request that Nationwide
and Nationwide Sub furnish additional information before such Insurance
Commissioner deems the Form A filing complete. The Iowa and Arizona Insurance
Codes both provide that a public hearing must be commenced within thirty (30)
days after the Form A is filed and that the relevant Insurance Commissioner must
make the determination within thirty (30) days after the conclusion of such
hearing.
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The Iowa and Arizona Insurance Codes both generally require the
relevant Insurance Commissioner to approve the application for the acquisition
of control unless the Insurance Commissioner determines, after a public hearing,
that such application should be disapproved on one or more prescribed regulatory
grounds. The Iowa and Arizona Insurance Codes also contain provisions providing
generally for judicial review of an Insurance Commissioner's order.
On May 21, 1998, the Iowa Department of Insurance provided to the
Company notice of a hearing to be held on June 9, 1998 with respect to the Form
A approval. No notice of a hearing has been provided by the Arizona Department
of Insurance.
The Company is reviewing the Form A's filed by Nationwide in both Iowa
and Arizona and, depending on the outcome of ongoing discussions with
Nationwide, may seek to reschedule the hearing scheduled for June 9, 1998 and
may seek discovery in connection with the Form A's in both Arizona and Iowa.
State Corporation Law Requirements
In the Offer to Purchase, Nationwide has stated its intention, as soon
as practicable following consummation of the Offer, to seek to have the Company
consummate a merger with Nationwide Sub with the Company continuing as the
surviving corporation (the "Proposed Merger"), pursuant to which each then
remaining Share outstanding (other than Shares owned by Nationwide or any of its
wholly owned subsidiaries, Shares held in the treasury of the Company, and
Shares held by shareholders who perfect any appraisal rights under the Iowa
Corporation Act) would be converted into the right to receive $47.00 net per
Share in cash. The Proposed Merger, including its timing and details, is subject
to, among other things, the provisions of the Iowa Corporation Act, including
the Business Combination Statute. In general, under the Iowa Corporation Act and
the Company Articles (as defined below), the approval of the Company's Board and
the affirmative vote of the holders of a majority of the outstanding Shares and
the shares of 6 3/4% Series Preferred Stock of the Company (including any shares
owned by Nationwide or Nationwide Sub), voting together as a single class, would
be required to approve the Proposed Merger.
The Business Combination Statute generally provides that an Iowa
corporation may not engage in a "Business Combination," defined to encompass a
variety of transactions including mergers, with an "Interested Shareholder,"
defined generally as a person that is the owner of ten percent (10%) or more of
the outstanding voting stock of the corporation, for three years after the
shareholder became an Interested Shareholder, unless (a) the Business
Combination is approved by the corporation's board before the shareholder
becomes an Interested Shareholder, (b) the Interested Shareholder, upon
consummation of the transaction which resulted in the shareholder becoming an
Interested Shareholder, owned at least eighty-five percent (85%) of the voting
shares of the corporation, excluding those shares owned by officers and
directors, or (c) after the shareholder becomes an Interested Shareholder, the
Business Combination is approved
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by the corporation's board and authorized by the affirmative vote of at least
two-thirds of the voting stock, excluding that of the Interested Shareholder.
Pending Litigation
In addition to the litigation filed by Nationwide and described in the
response to Item 4, the following litigation is pending that relates to the
Offer or that is otherwise significant.
On May 21, 1998, a class action on behalf of all shareholders of the
Company was filed in Iowa District Court in and for Polk County, Iowa.
Plaintiffs seek to compel the Company to consider the Offer or, in the
alternative, to recover damages caused by an alleged breach of the fiduciary
duty owed by the Board of Directors to its shareholders. A copy of this
complaint is filed as Exhibit 7 hereto and is incorporated by reference herein.
On December 31, 1997, a complaint was filed by Mary M. Rieff, a
policyholder of ALLIED Mutual, in the Iowa District Court in and for Polk County
Iowa, against the Company and certain other individuals who are or were officers
and/or directors of ALLIED Mutual and the Company. The complaint, an alleged
policyholder derivative action brought on behalf of ALLIED Mutual, asserts,
among other things, (a) that the defendants were responsible for the
-
inappropriate transfer of ALLIED Mutual's corporate assets, the seizure of
certain corporate opportunities, and the implementation of an improper de facto
demutualization without informing or compensating policyholders or receiving the
appropriate approval from regulatory authorities; (b) that this allegedly
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wrongful demutualization began on or about January 1, 1985 and was accomplished
through transfers of ALLIED Mutual's assets to the Company and to the individual
defendants for inadequate consideration; (c) that the individual defendants
-
breached fiduciary duties owed to ALLIED Mutual, wasted its corporate assets,
and intentionally interfered with its contracts, prospective business advantage,
and business relationships; and (d) that the defendants improperly transferred
-
substantial ownership of and control over the Company and ALLIED Mutual's
insurance business. The complaint further asserts that as a result of the
foregoing, ALLIED Mutual and its policyholders have suffered damages in excess
of
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$500 million. The complaint requests an accounting of the assets allegedly
wrongfully transferred to the Company and compensation to ALLIED Mutual for the
value of such assets, for the seizure of corporate opportunities, and for the de
factor demutualization of ALLIED Mutual. The complaint also asks for certain
other relief, including attorneys' fees and costs, equitable relief and
interest, and restitution for any assets wrongfully transferred or conveyed. A
copy of this complaint is filed as Exhibit 8 hereto and is incorporated by
reference herein. On June 1, 1998, the plaintiff filed a motion seeking to
enjoin the defendant directors of ALLIED Mutual from considering, negotiating or
approving any transaction on behalf of ALLIED Mutual with Nationwide or any
third party because of alleged conflicts of interest of the members of the Board
of Directors of ALLIED Mutual. A copy of the motion is filed as Exhibit 2 hereto
and incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Pages 7-8, 10-12 and 14-16 of the Company's Proxy
Statement, dated March 27, 1998, in connection with
the May 5, 1998 Annual Meeting of Stockholders.
Exhibit 2 Motion filed in Rieff v. ALLIED Group in the
Iowa District Court in and for Polk County on June 1,
1998./*/
Exhibit 3 Text of Press Release issued by the Company on June
2, 1998./*/
Exhibit 4 Complaint filed by Nationwide and Nationwide Sub in
the United States District Court for the Southern
District of Iowa on May 18, 1998.
Exhibit 5 Text of Press Release issued by the Company on May
18, 1998.
Exhibit 6 Confidentiality Agreement, dated May 28, 1998,
among the Company, Nationwide and Nationwide Sub
Exhibit 7 Complaint filed in Brickell v. Andersen in the Iowa
District Court in and for Polk County on May 21,
1998.
Exhibit 8 Complaint filed in Rieff v. Allied Group in the
Iowa
District Court in and for Polk County on December
31, 1997.
Exhibit 9 Amended and Restated ALLIED Group Intercompany
Operating Agreement, dated August 25, 1993, by and
among ALLIED Mutual Insurance Company, ALLIED
Group, Inc., ALLIED Life Financial Corporation and
certain of their subsidiaries.
- ------------------
* to be filed by amendment.
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Exhibit 10 First Amendment, dated November 1, 1993, to
Amended and Restated ALLIED Group Intercompany
Operating Agreement by and among ALLIED Mutual
Insurance Company, ALLIED Group, Inc., ALLIED
Life Financial Corporation and certain of their
subsidiaries.
Exhibit 11 Second Amendment, dated May 16, 1994, to
Amended and Restated ALLIED Group Intercompany
Operating Agreement by and among ALLIED Mutual
Insurance Company, ALLIED Group, Inc., ALLIED
Life Financial Corporation and certain of their
subsidiaries.
Exhibit 12 Third Amendment, dated December 15, 1994, to
Amended and Restated ALLIED Group Intercompany
Operating Agreement by and among ALLIED Mutual
Insurance Company, ALLIED Group, Inc., ALLIED
Life Financial Corporation and certain of their
subsidiaries.
Exhibit 13 Second Amended and Restated Reinsurance Pooling
Agreement, dated December 14, 1992, by and
between ALLIED Mutual Insurance Company, AMCO
Insurance Company, ALLIED Property and Casualty
Insurance Company and Depositors Insurance
Company.
Exhibit 14 First Amendment to Second Amended and Restated
Reinsurance Pooling Agreement, dated February 18,
1993, by and between ALLIED Mutual Insurance
Company, AMCO Insurance Company, ALLIED
Property and Casualty Insurance Company and
Depositors Insurance Company.
Exhibit 15 Second Amendment to Second Amended and Restated
Reinsurance Pooling Agreement, dated December 13,
1994, by and between ALLIED Mutual Insurance
Company, AMCO Insurance Company, ALLIED
Property and Casualty Insurance Company and
Depositors Insurance Company.
Exhibit 16 Third Amendment to Second Amended and Restated
Reinsurance Pooling Agreement, dated May 5, 1998,
by and between ALLIED Mutual Insurance Company,
AMCO Insurance Company, ALLIED Property and
Casualty Insurance Company and Depositors Insurance
Company.
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Exhibit 17 Amended and Restated Management Information
Services Agreement, dated January 24, 1997 (to be
effective March 1, 1996), by and among AMCO
Insurance Company, ALLIED Group Information
Systems, Inc., ALLIED Mutual Insurance Company,
ALLIED Group, Inc., ALLIED General Agency
Company, ALLIED Group Mortgage Company,
ALLIED Group Leasing Corporation, ALLIED Life
Financial Corporation, ALLIED Life Insurance
Company, ALLIED Life Brokerage Agency, ALLIED
Group Merchant Banking Corporation, ALLIED
Group Insurance Marketing Company, The Freedom
Group, Inc., and Midwest Printing Services, Ltd.
Exhibit 18 First Amendment, dated February 24, 1997, to
Amended and Restated Management Information
Services Agreement.
Exhibit 19 The ALLIED Group Joint Marketing Agreement,
dated August 30, 1993, by and between ALLIED Life
Insurance Company, ALLIED Mutual Insurance
Company, AMCO Insurance Company, ALLIED
Property and Casualty Insurance Company, and
Depositors Insurance Company.
Exhibit 20 First Amendment to the ALLIED Group Joint
Marketing Agreement, dated November 1, 1993, by
and between ALLIED Life Insurance Company,
ALLIED Mutual Insurance Company, AMCO
Insurance Company, ALLIED Property and Casualty
Insurance Company, and Depositors Insurance
Company.
Exhibit 21 Stock Rights Agreement, dated July 5, 1990, by and
between ALLIED Mutual Insurance Company and
ALLIED Group, Inc.
Exhibit 22 First Amendment, dated November 11, 1992, to the
Stock Rights Agreement by and between ALLIED
Mutual Insurance Company and ALLIED Group, Inc.
Exhibit 23 Agency Agreement, dated September 1, 1991, by and
between Allied Group Insurance Marketing Company,
Depositors Insurance Company, and AMCO Insurance
Company.
14
<PAGE>
Exhibit 24 Amendment, dated February 1, 1992, to the Agency
Agreement relating to the addition of ALLIED
Property and Casualty Insurance Company as a party
thereto.
Exhibit 25 Addendum A to the Agency Agreement, attached to
the Agency Agreement effective January 1, 1994.
Exhibit 26 Intercompany Cash Concentration Fund Agreement,
effective as of April 24, 1995, by and among AID
Finance Services, Inc. ALLIED Mutual Insurance
Company, ALLIED Group, Inc., AMCO Insurance
Company, ALLIED Property and Casualty Insurance
Company, Depositors Insurance Company Western
Heritage Insurance Company, ALLIED Group Leasing
Corporation, ALLIED Group Information Systems,
Inc., Midwest Printing Services, Ltd., The Freedom
Group, Inc., ALLIED General Agency Company,
ALLIED Life Financial Corporation, ALLIED Life
Insurance Company, ALLIED Group Merchant
Banking Corporation, ALLIED Life Brokerage
Agency, Inc., ALLIED Group Insurance Marketing
Company and ALLIED Group Medical Plan Trust.
Exhibit 27 Aggregate Catastrophe Excess of Loss Reinsurance
Agreement, dated May 15, 1997, by and among
AMCO Insurance Company, ALLIED Property and
Casualty Insurance Company, Depositors Insurance
Company, Motor Club of Iowa Insurance Company,
and General Reinsurance Corporation and ALLIED
Mutual Insurance Company (the Subscribing
Reinsurers).
Exhibit 28 Severance Pay Plan, dated May 30, 1998 of the
Company.
Exhibit 29 Form of Severance Agreement.
Exhibit 30 Amendment, dated June 1, 1998 to the Company's
Employee Stock Ownership Plan.
Exhibit 31 Consulting Agreement, dated December 14, 1994 by and between
John E. Evans and ALLIED Group, Inc., ALLIED Mutual Insurance
Company, and ALLIED Life Financial Corporation.
Exhibit 32 First Amendment to Consulting Agreement, dated December 18, 1996
by and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual
Insurance Company, and ALLIED Life Financial Corporation.
Exhibit 33 Second Amendment to Consulting Agreement, dated May 13, 1997, by
and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual
Insurance Company, and ALLIED Life Financial Corporation.
Exhibit 34 Third Amendment to Consulting Agreement, date March 24, 1998, by
and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual
Insurance Company, and ALLIED Life Financial Corporation.
15
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
Dated: June 2, 1998
ALLIED GROUP, INC.
By: /s/ Sally J. Malloy
---------------------------
Name: Sally J. Malloy
Title: Corporate Secretary
16
<PAGE>
ANNEX A
Certain Transactions and Relationships
Intercompany Operating Agreement
The Company and its subsidiaries are parties to an Intercompany Operating
Agreement ("IOA") with ALLIED Life, ALLIED Mutual, and each of their respective
subsidiaries. The following summary of the IOA is qualified in its entirety by
reference to the full text of the IOA and the amendments thereto, copies of
which are filed as Exhibits 9 through 12 hereto and are incorporated herein by
reference. The IOA provides for the sharing of employees, office space, agency
forces, data processing, and other services and facilities. The IOA extends
through December 31, 2004 and continues thereafter subject to any party
providing two years notice that such party intends to cease participation.
The Company leases to ALLIED Mutual and its subsidiaries (except for ALLIED
Life) the employees utilized in their operations for a fee and reimbursement of
personnel costs based on certain allocation methods. The Company is obligated
to provide the entire requirements for employees to ALLIED Mutual and its
subsidiaries (other than ALLIED Life), but ALLIED Mutual reserves the right to
hire employees independently rather than leasing them from the Company. The
Company has the right to determine the compensation and benefits of all leased
employees. However, if the Company wishes to adopt or amend any employee
benefit plan or program and pass on the increased costs thereof with respect to
employees leased by ALLIED Mutual, it must obtain the approval of ALLIED Mutual
(or a joint Compensation Committee consisting of directors of the Company and
ALLIED Mutual). The IOA contains a covenant not to compete that binds each of
the Company, ALLIED Life, and ALLIED Mutual not to engage in a business that
competes with the products or markets of any
<PAGE>
other party or such party's subsidiaries for the term of the IOA and five years
thereafter.
Any disputes regarding the use of occupancy of facilities or the terms on
which property is leased or used are to be referred to the Coordinating
Committee, consisting of two directors of each of the Company, ALLIED Mutual and
ALLIED Life, for resolution. Decisions of the Coordinating Committee must be
unanimous and are binding on the parties. If an issue is not resolved by the
Coordinating Committee, it will be submitted to arbitration. In such
arbitration, each party to the dispute selects one arbitrator, and if such
dispute involves only two parties, such arbitrators select third arbitrator.
During 1997, the Company received revenues of $2.6 million for employees
leased to ALLIED Mutual and certain of ALLIED Mutual's subsidiaries,
substantially all of which represented cost reimbursement. The IOA also
provides for the leasing by ALLIED Mutual to the Company of substantially all of
the office space utilized by the Company and the provision of data processing
services by the Company to ALLIED Mutual and its subsidiaries. The Company paid
to ALLIED Mutual rent expense for office space of $3.6 million for the year
ended December 31, 1997. ALLIED Mutual, the Company, and ALLIED Life share
agency forces as well as other services and facilities.
Pooling Agreement
ALLIED Mutual and the Company's three property-casualty subsidiaries, AMCO
Insurance Company ("AMCO"), ALLIED Property and Casualty Insurance Company
("ALLIED Property and Casualty") and Depositors Insurance Company
("Depositors"), are parties to a reinsurance pooling agreement in which the
Company's subsidiaries in the aggregate were 64% participants in 1997. The
following summary of the Pooling Agreement is qualified in its entirety by
reference to the full text of the Pooling Agreement and the amendments thereto,
copies of which are filed as Exhibits 13 through 16 hereto and are incorporated
herein by reference. The Pooling Agreement provides that ALLIED Mutual, ALLIED
Property and Casualty, and Depositors cede to AMCO (the pool administrator)
premiums, losses, allocated loss settlement expenses, commissions, premium
taxes, service charge income, and dividends to policyholders and assume from
AMCO an amount of the pooled property-casualty business equal to their
participation in the pooling agreement. The agreement provides that AMCO will
pay certain underwriting expenses, unallocated loss settlement expenses, and
premium collection expenses for all of the pool participants and receive a fee
equal to a specified percentage of premiums. AMCO currently charges each of the
other pool participants 12.85% of written premiums for underwriting services,
7.25% of earned premiums for unallocated loss settlement expenses, and 0.75% of
earned premiums for premium collection services. During 1997, ALLIED Mutual
paid AMCO $71 million in fees under the pooling agreement.
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In the event of a change of control of the Company, ALLIED Mutual may, in
its sole discretion at any time after such change of control, (i) terminate the
Pooling Agreement as well as the MIS Agreement and IOA upon six months' notice
to the Company, AMCO, APC and Depositors, (ii) extend the term of all three
agreements for up to 10 additional years beyond December 31, 2004 upon six
months' notice to the Company, AMCO, APC and Depositors, or (iii) allow the
agreements to continue in effect. A change of control is any event whereby a
person, group or entity unaffiliated with the Company or ALLIED Mutual acquires
the ownership of 50% or more of the voting stock of the Company. The Pooling
Agreement is not assignable.
In the event of a change of control (whenever ownership of 50% or more of
the voting stock of ALLIED Life is acquired by a nonaffiliated party) of ALLIED
Life, either the Company or ALLIED Mutual may (i) terminate the IOA and the MIS
Agreement (as defined below) on 6 months notice to ALLIED Life, (ii) extend the
term of both agreements for up to 10 years beyond December 31, 2004 upon six
months' notice, or (iii) allow the agreements to remain in effect without
change.
In the event of a change of control (whenever ownership of 50% or more of
the voting stock of the Company is acquired by a nonaffiliated party) of the
Company, ALLIED Mutual may (i) terminate all three of the IOA, the Pooling
Agreement (as defined below), and the MIS Agreement on six months' notice to the
party with respect to which a change of control takes place, (ii) extend the
term of all three agreements for up to 10 years beyond December 31, 2004 upon
six months' notice, or (iii) allow the agreements to remain in effect without
change. ALLIED Life enjoys the same rights of termination on a change of
control of the Company with respect to the IOA and the MIS Agreement.
Management Information Services Agreement
The Company, ALLIED Mutual, ALLIED Life, and other affiliated companies are
parties to a Management Information Services Agreement ("MIS Agreement") with
AMCO, whereby AMCO provides certain computer services, printing, equipment
leasing, and mail and communication services to affiliates on a fee basis. The
following summary of the MIS Agreement is qualified in its entirety by reference
to the full text of the MIS Agreement and the amendments thereto, copies of
which are filed as Exhibits 17 and 18 hereto and are incorporated herein by
reference. The agreement terminates on December 31, 2004 and has an extension
provision similar to that in the IOA described above. Any disputes under this
agreement are to be referred to the Coordinating Committee for resolution.
Decisions of the Coordinating Committee must be unanimous and are binding on the
parties. If an issue is not resolved by the Coordinating Committee, it will be
submitted to arbitrators for resolution. For the year 1997, amounts paid to
AMCO and certain subsidiaries of the Company by ALLIED Mutual, ALLIED Life and
their subsidiaries under the MIS Agreement were $2.5 million.
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<PAGE>
In the event of a change of control of ALLIED Life, either the Company or
Mutual may, in its sole discretion at any time after such change of control,
(i) terminate the MIS Agreement and IOA upon six months' notice to ALLIED Life,
(ii) extend the term of the MIS Agreement and IOA for up to 10 additional years
beyond December 31, 2004 upon six months' notice to ALLIED Life, or (iii) allow
the agreements to continue in effect. A change of control is any event whereby
a person, group or entity unaffiliated with ALLIED Life or ALLIED Mutual
acquires the ownership of 50% or more of the voting stock of ALLIED Life. In
the event of a change of control of the Company, ALLIED Mutual may, in its sole
discretion at any time after such change of control, (i) terminate the Pooling
Agreement, the MIS Agreement and IOA upon six months' notice, (ii) extend the
term of all three agreements for up to 10 additional years beyond December 31,
2004 upon six months' notice to the Company, AMCO, ALLIED Property and Casualty
and Depositors, or (iii) allow the agreements to continue in effect. ALLIED
Life enjoys the same rights with respect to the MIS Agreement and the IOA in the
event of a change of control of the Company. A change of control is any event
whereby a person, group or entity unaffiliated with the Company or ALLIED Mutual
acquires the ownership of 50% or more of the voting stock of the Company.
Joint Marketing Agreement
AMCO, ALLIED Property and Casualty, and Depositors are parties to the
ALLIED Group Joint Marketing Agreement ("JMA") with ALLIED Mutual and ALLIED
Life Insurance Company ("ALIC"). The following summary of the JMA is qualified
in its entirety by reference to the full text of the JMA and the amendments
thereto, copies of which are filed as Exhibits 19 and 20 hereto and are
incorporated herein by reference. The JMA requires ALLIED Mutual and the
Company's property-casualty subsidiaries to promote to their customers and
agents the sale of the products of ALIC. The JMA provides for payment by ALIC
to AMCO (as pool administrator for the property-casualty companies) of an annual
access fee of $100,000 plus an annual new production incentive fee ("NPIF"),
calculated based on the percentage increase from the preceding year's production
credit premiums for ALIC produced by the independent property-casualty agencies
representing ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors
("ALLIED agencies"). The annual NPIF is not payable unless production credit
premiums increase by at least 10% over the prior year and is capped at an
increase of 25% over the prior year. For the year ended December 31, 1997, the
fee incurred by ALIC under the JMA totaled $100,000. The JMA also provides for
joint systems development, including joint data bases of customers and agents,
multiple account billing systems, marketing plans and promotions, and other
systems to be developed. Development costs are to be allocated on a mutually
agreeable basis reflecting projected and actual utilization of the systems.
The JMA continues to the year 2008 and continues thereafter subject to
termination on two years notice given by any party. The JMA contains a non-
compete provision structured along product lines which are applicable during the
term of the JMA and for a period of ten years thereafter. The non-compete
provision prevents
A-4
<PAGE>
ALLIED Mutual and the property-casualty subsidiaries of the Company, directly or
indirectly through any subsidiary, affiliate, joint venture or partnership from
selling life insurance or annuities in the states where ALIC now sells these
life products (or on termination of the JMA, any states where the life insurance
and annuity products are sold by ALIC). ALLIED Mutual and the property-casualty
subsidiaries, which are not licensed to sell life insurance or annuity products,
do not operate in all the states in which ALIC operates. The JMA non-compete
provision also prevents ALIC from offering property-casualty products in states
in which ALLIED Mutual and the property-casualty subsidiaries of the Company now
operate. In the event of a change of control of ALIC or ALLIED Life (whenever
ownership of 50% or more of the voting stock is acquired by a nonaffiliated
party), the Company, ALLIED Mutual, or any of the Company's property-casualty
subsidiaries may (i) terminate it upon six months' notice; (ii) extend the term
for up to ten additional years beyond 2008; or (iii) allow the JMA to continue
in effect without change. Those three rights are also given to ALIC in the event
of a change of control of the Company, any of its property-casualty subsidiaries
or ALLIED Mutual. Disputes are to be resolved by the Coordinating Committee.
Decisions of the Coordinating Committee must be unanimous and are binding on the
parties. If the Coordinating Committee fails to resolve an issue, it would be
submitted to arbitration. In such arbitration, one arbitrator will be appointed
jointly by ALLIED Mutual and the Company's property-casualty subsidiaries and a
second arbitrator will be appointed by ALLIED Life. Both arbitrators so selected
will jointly select a third arbitrator.
Other Arrangements and Transactions
The Company and ALLIED Mutual are parties to a Stock Rights Agreement which
expires in 2005. Under the Stock Rights Agreement, ALLIED Mutual is entitled to
nominate and the Company is required to use its best efforts to cause the
election or retention of a number of members of the Company's Board of Directors
in proportion to ALLIED Mutual's percentage ownership of the total number of
shares of the Company's voting stock outstanding at the time of nomination. In
addition, the Company is required to elect to its Executive Committee at least
one Company director who has been nominated by ALLIED Mutual but who is not an
officer or employee of ALLIED Mutual, and the Company must limit the number of
directors serving on the Executive Committee to five at any time. The Stock
Rights Agreement restricts the ability of ALLIED Mutual to grant proxies to
other than affiliated individuals and to solicit other stockholders of the
Company. ALLIED Mutual has incidental registration rights and three demand
registration rights with respect to the 6-3/4% Preferred. The preceding summary
of the Stock Rights Agreement is qualified in its entirety by reference to the
full text of the Stock Rights Agreement and the amendment thereto, copies of
which are filed as Exhibits 21 and 22 hereto and are incorporated herein by
reference.
A-5
<PAGE>
The Company and its affiliates pool their excess cash into a short-term
investment fund pursuant to the Intercompany Cash Concentration Fund Agreement.
The fund, administered by AID Finance Services, Inc. (an affiliate of the
Company), also issues short-term loans (30 days or less) to affiliated companies
in accordance with the current intercompany borrowing policy. At December 31,
1997, the Company had several unsecured notes payable totalling $5.9 million,
bearing interest rate at 8.8%. The Company and its affiliates pay to AID Finance
Services, Inc. a management fee (5 basis points of invested assets) which is
offset against investment income. At December 31, 1997, $8.3 million was
invested in the fund by the Company and its subsidiaries, which is carried as a
short-term investment. Interest earned by the Company and its subsidiaries from
the fund during 1997 was $477,000. Interest expense paid to AID Finance
Services, Inc. during 1997 amounted to $424,000. The preceding summary of the
Intercompany Cash Concentration Fund Agreement is qualified in its entirety by
reference to the full text of the Intercompany Cash Concentration Fund
Agreement, a copy of which is filed as Exhibit 26 hereto and is incorporated
herein by reference.
ALLIED Group Insurance Marketing Company ("AGIMC"), a wholly-owned
subsidiary of AID Finance Services, Inc., markets insurance products for the
Company's property-casualty subsidiaries on a commission basis pursuant to an
Agency Agreement. The Company's share of commissions paid to AGIMC was $3.7
million for the year ending December 31, 1997. The Agency Agreement and
amendments thereto are filed as Exhibits 23 through 25 hereto and are
incorporated herein by reference.
The Company paid premiums to ALLIED Life for term life insurance on the
Company's employee group in the amount of $468,000 in 1997.
The property-casualty subsidiaries of the Company paid premiums to ALLIED
Mutual in the amount of $2.9 million in 1997 for ALLIED Mutual's participation
in a reinsurance agreement with General Re-Insurance Company. There were
recoveries from ALLIED Mutual in the amount of $2 million. The reinsurance
agreement for 1997 is filed as Exhibit 27 hereto and is incorporated by
reference herein.
On December 31, 1997, State Street Bank and Trust Company, as the ESOP
Trustee, purchased for the ESOP Trust 18,865 shares of Common Stock from the
Company for $540,000.
AMCO administers many of the bank accounts for the affiliated ALLIED
companies. During the fiscal year 1997, AMCO issued checks in payment of
certain transactions between affiliated ALLIED companies and the companies of
certain directors of the Company. During 1997, ALLIED Mutual, as owner of the
ALLIED office buildings, paid $214,000 for construction services to Taylor Ball,
of which John P. Taylor, a director of the Company, is CEO and Chairman. It is
anticipated that in 1998 ALLIED Mutual will continue to use the construction
services of Taylor Ball and
A-6
<PAGE>
that AMCO will issue the checks on behalf of ALLIED Mutual in payment for the
construction services.
During the year ended December 31, 1997, ALLIED Mutual, the Company, and
its subsidiaries paid $1 million in fees and media costs to J.D. Evans &
Associates, of which Julie Evans (daughter of John E. Evans) is a stockholder.
Donald S. Willis, a Director of the Company, is a majority stockholder of
Willis and Moore, Inc., a general insurance agency. During 1997, ALLIED Mutual,
AMCO, ALLIED Property and Casualty, and Depositors paid $233,000 in property-
casualty commissions and profit share to Willis and Moore, Inc. These
commissions and profit share were paid on the same basis and terms as those paid
to unrelated agencies.
During 1997, directors and executive officers of the Company purchased
insurance or obtained residential mortgages from the Company or its subsidiaries
on terms comparable to those offered in the normal course of business to
nonaffiliated customers. In addition, corporations of which Company directors
are executive officers purchased insurance from the Company's subsidiaries and
ALLIED Mutual in the ordinary course of business during 1997.
Amendment to Employee Stock Ownership Plan
On June 1, 1998, the Board of Directors of the Company, acting upon the
recommendation of the Compensation Committee of the Board, amended the ALLIED
Group Employee Stock Ownership Plan ("ESOP") to provide that participants in the
ESOP (including executive officers) will be fully vested in their accounts upon
the occurrence of a "Change in Control" (as defined below) and to clarify that
surplus assets following such a Change in Control will generally be allocated
based on the same formula applicable to employer contributions. The amendment
to the ESOP is filed as Exhibit 30 hereto and is incorporated by reference
herein.
For purposes of the foregoing, a "Change in Control" shall be deemed to
have occurred upon the first to occur of the following:
(i) Any person other than (a) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (b) a
corporation owned directly or indirectly by the shareholders of the
Company in substantially the same proportions as their ownership of
stock of the Company, or (c) ALLIED Mutual, is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the total voting power
represented by the Company's then outstanding voting securities; or
A-7
<PAGE>
(ii) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the Board plus any new Director
(a) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds
(2/3) of the Directors at the beginning of the period or whose
election or nomination for election was previously so approved or (b)
whose nomination for election by the Company's shareholders was made
pursuant to the Stock Rights Agreement between the Company and ALLIED
Mutual, cease for any reason to constitute a majority thereof; or
(iii) The shareholders of the Company approve a merger or consolidation of the
Company with any other corporation (and such merger or consolidation is
in fact consummated), other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) at
least eighty percent (80%) of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all the Company's assets , provided that such merger,
consolidation, liquidation, sale or disposition, as the case may be, is
actually consummated.
Amendment to John Evans Consulting Agreement
The consulting agreement between the Company, ALLIED Mutual, ALLIED Life
and John Evans, which is described in the 1998 Proxy Statement, was amended on
March 24,1998 to provide for a decrease in the annual compensation payable to
Mr. Evans from $180,000 to $120,000. Such annual compensation is consideration
for consulting services rendered by Mr. Evans and is prorated among the Company,
ALLIED Mutual and ALLIED Life. The consulting agreement and the amendments
thereto are filed as Exhibits 31 to 34 hereto and are incorporated herein by
reference.
Change of Control Provisions in Long-Term Management Incentive Plan
As discussed in the 1998 Proxy Statement, the Company maintains a Long-Term
Management Incentive Plan (the "Long-Term Plan") which provides for the award of
stock options, stock appreciation rights ("SAR's") and shares of restricted
stock. On March 10, 1998, the following option grants were made to executive
officers of the Company: Douglas L. Andersen - 25,000 options, W. Kim Austen -
7,500 options, Steven A. Biggi - 15,000 options, Marla J. Franklin - 8,000
options, James J. Hachenbucher - 10,000 options, Michael D. Holmes - 15,000
options, Steven P. Larsen - 15,000 options, Charles H. McDonald - 5,000 options,
Michael L. Pollard - 12,000 options, Stephen S. Rasmussen - 18,000 options,
Scott E. Reddig - 10,000 options,
A-8
<PAGE>
Jamie H. Shaffer - 15,000 options, Edward E. Sullivan - 10,000 options and Kirt
A. Walker - 7,500 options. Additionally, on May 30, 1998, Paul J. Curran was
granted 5,000 shares of restricted stock pursuant to the Long-Term Plan. The
Long-Term Plan provides that upon a change of control (as defined in the Long-
Term Plan), all options and SAR's shall become immediately exercisable, and any
restriction periods and restrictions imposed on restricted stock will lapse.
Amendment to Stock Option Plans
On May 30, 1998, the Compensation Committee of the Company's Board of
Directors, seeking to provide parallel treatment of employee stock options upon
a change in control, determined that it would interpret the Company's Restated
and Amended Stock Option Plan and Nonqualified Stock Option Plan (together, the
"Option Plans") in the same manner as the Long Term Plan with respect to a
change in control. On June 1, 1998, the Board of Directors approved and
ratified the action of the Compensation Committee.
Severance Plan and other Agreements
On May 30, 1998, the Compensation Committee of the Company's Board of
Directors, following publication of the Offer and after consideration of the
potentially destabilizing effects of the pendency of such proposal on the morale
and retention of Company employees, approved the adoption by the Company of a
severance policy applicable to the Company's salaried and hourly employees and
approved the entry by the Company into separate severance agreements (the
"Severance Agreements") with executives and certain other employees of the
Company. On June 1, 1998, the Board of Directors approved and ratified these
actions of the Compensation Committee. The following is a summary of the ALLIED
Group, Inc. Severance Pay Plan (the "Severance Pay Plan"). This summary is
qualified in its entirety by reference to the full text of the Severance Plan, a
copy of which is filed as Exhibit 28 hereto and is incorporated herein by
reference.
The Severance Plan provides for certain benefits to eligible employees
following an involuntary termination of employment or Company-approved
resignation. The benefits consist of a lump sum payment equal to one week's
base salary for each full calendar year of employment and continuation of health
benefits for approximately the same period as is used to calculate the lump sum
payment. Benefit continuation terminates when the employee becomes eligible to
receive benefits from another employer. An employee is not eligible to receive
severance benefits if his termination of employment is due to death, transfer of
employment to an affiliate or successor of the Company or for "Cause."
"Cause" is generally defined as with respect to the termination of an
eligible employee's employment with the Company, termination (or deemed
termination) because the employee has consistently failed to function as
required by Company
A-9
<PAGE>
standards. In the event an employee's employment terminates for any reason and
the plan administrator subsequently determines that Cause for termination
existed at the time the employee's employment terminated, such employee shall be
deemed to have been terminated for Cause.
Enhanced benefits are provided to employees who are terminated, whose
employment has been adversely affected, or who resign with the Company's
approval following a change in control (as defined above). The enhanced
benefits consist of an additional lump sum payment equal to employee's base
salary for a period equal to the greater of three months or from the date of
termination of employment through the first anniversary of the change in
control, benefit continuation for the additional period, and outplacement
services to be provided at the expense of the Company.
The Severance Agreement, the form of which is filed as Exhibit 29 hereto
and is incorporated herein by reference, generally provides that in the event of
any involuntary termination or constructive termination of employment (including
a material reduction in responsibilities, a reduction in base pay or incentive
compensation opportunities or a involuntary relocation) within the two year
period following a change in control an employee who is a party to such an
agreement would receive, in lieu of any other severance, a lump sum payment
equal to one year's base pay plus the employee's highest bonus over the
preceding two years and benefit continuation for eighteen months following the
termination of employment (or until the employee becomes eligible for benefits
under new employer). For a small number of employees, the benefit would be a
lump sum severance payment equal to two times annual base salary plus the
employee's highest bonus over preceding two years and benefit continuation for
eighteen months following the termination of employment (or until the employee
becomes eligible for benefits under new employer). In the event that such
severance payments would subject the employee to an excise tax imposed under
section 4999 of the Internal Revenue Code of 1986, as amended, the amount of the
severance otherwise payable will generally be reduced to avoid the imposition of
such excise tax.
The Company has offered Severance Agreements that provide for a severance
equal to two times the employee's base salary and higher bonus over the
preceding two years to the following executive officers of the Company: Douglas
L. Andersen, Michael D. Holmes, and Stephen S. Rasmussen. The Company has also
offered such agreements to six other employees, who are not executive officers.
The Company has offered Severance Agreements that provide for a severance
equal to the employee's base salary and higher bonus over the preceding two
years to the following officers and other senior executives of the Company:
Cheryl M. Critelli, Paul J. Curran, Marla J. Franklin, Sally Malloy, Charles H.
McDonald, George T. Oleson, and Jamie H. Shaffer. The Company has also offered
such agreements to 34 other employees, who are not executive officers.
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<PAGE>
The Company has calculated that the maximum aggregate lump sum that could
be payable pursuant to all of the Severance Agreements described above
(including non-executive officers), assuming termination of each of these
individuals, is approximately $9.2 million.
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<PAGE>
ANNEX B
ITEM 6(a)
(i) The Company. In response to a sharp decline in the market price of the
Company's Shares following the announcement on May 5, 1998 of changes to its
Pooling Agreement, the Company announced an increase in its previously
authorized stock repurchase program. Between May 7, 1998 and May 14, 1998, the
Company repurchased in the open market an aggregate of 557,600 Shares pursuant
to its previously announced stock repurchase program on the date, in the amounts
and at the prices listed below:
Date of Purchase Number of Shares Price per Share Total
May 7, 1998 125,000 $26.0000 $3,256,250.00
May 8, 1998 25,000 $26.1875 $ 655,937.50
May 8, 1998 100,000 $26.0000 $2,605,000.00
May 11, 1998 25,000 $27.0000 $ 676,250.00
May 11, 1998 51,000 $27.0000 $1,379,550.00
May 12, 1998 164,100 $27.1250 $4,459,417.50
May 13, 1998 29,000 $27.6250 $ 802,575.00
May 13, 1998 16,600 $27.6634 $ 460,042.44
May 14, 1998 21,900 $27.4977 $ 603,294.63
The Company has not purchased any Shares since May 14, 1998.
(ii) ALLIED Group, Inc.'s Executive Officers and Directors.
On April 23, 1998, Charles H. McDonald, Vice President of the Company, sold
9,000 Shares at a price of $31.6806 per Share.
On April 24, 1998, Mr. McDonald sold 2,000 Shares at a price of $31.5625
per Share.
On April 27, 1998, Mr. McDonald sold 1,000 Shares at a price of $31.5000
per Share.
<PAGE>
On April 28, 1998, Steve A. Biggi, Regional Vice President of certain
subsidiaries, exercised outstanding stock options to acquire 3,936 Shares at a
price per Share that ranged between $10.778 and $17.889 and sold 1,968 Shares
the same day at a price per Share of $31.4375. He exercised 843 cash-only SARs
with exercise prices of from $10.778 to $17.889 and a fair market value of
$31.563.
On April 29, 1998, W. Kim Austen, Regional Vice President of certain
subsidiaries, exercised outstanding stock options to acquire 15,184 Shares at a
price per Share that ranged between $10.7778 and $17.8889 and sold 12,684 Shares
the same day at a price per Share of $30.7147. He exercised 844 cash-only SARs
at exercise prices of from $10.778 to $17.8889 and a fair market value of
$30.7813.
On May 7, 1998, Douglas L. Andersen, Chief Executive Officer and President
of the Company acquired 474 Shares at a price of $26.6875 per Share.
On May 11, 1998, Jamie H. Shaffer, Senior Vice President and Chief
Financial Officer of the Company, acquired 500 Shares at a price of $27.00 per
Share.
On May 12, 1998, Harold S. Carpenter, a Director of the Company, acquired
10,000 Shares at a price of $27.1875 per Share.
On May 13, 1998, Michael D. Holmes, Vice President of the Company,
exercised outstanding stock options to acquire 5,625 Shares at a price per Share
of $17.1667.
On May 14, 1998, Harold S. Carpenter, a Director of the Company, acquired
5,000 Shares at a price of $27.5000 per Share.
(iii) Employee Stock Purchase Plan
Other transactions include regular on-going acquisitions through the
Company's Employees Stock Purchase Plan.
B-2
<PAGE>
Exhibit 1
Charles I. Colby, age 70, has been a Director of the Company since 1993.
Mr. Colby had been a Director of ALLIED Mutual from 1971 to 1991. Since 1984,
Mr. Colby has been Chairman of the Board of Colby Properties, which is in the
business of real estate development. Mr. Colby is a member of the Board of
Directors of West Des Moines State Bank.
Harold S. Evans, age 69, has been a Director of the Company since 1974 and
of ALLIED Mutual since 1965. Mr. Evans also serves on the Board of Directors of
AMCO, ALLIED Property and Casualty, Depositors, and ALLIED Life Financial
Corporation. He was employed by Aluminum Company of America beginning in 1955,
serving as Group Vice President-International until his retirement in 1989. Mr.
Evans is a brother of John E. Evans, Chairman of the Board and a Director of the
Company.
Meetings and Committees of the Board of Directors
During 1997, there were five meetings of the Board of Directors. All
directors attended more than seventy-five percent of the aggregate committee and
Board meetings during 1997.
The Board has established Executive, Audit, Investment, Compensation, and
Coordinating Committees. The Company does not have a standing nominating
committee, and the functions that are normally performed by such a committee are
carried out by the Executive Committee. The Executive Committee will consider
nominees recommended by stockholders. Such recommendations for nominees for
election of the 1999 Annual Meeting should be submitted in writing to the
Executive Committee in care of the Secretary of the Company, 701 Fifth Avenue,
Des Moines, Iowa 50391-2000, no later than February 4, 1999.
The Executive Committee members are John E. Evans, James W. Callison,
Harold S. Evans, and Douglas L. Andersen. The Executive Committee has the
authority, with certain exceptions, to exercise the powers of the full Board of
Directors. The Board of Directors reviews and approves the minutes of all
meetings of the Executive Committee. The Executive Committee met five times in
1997.
The Audit Committee members consist of outside directors John P. Taylor and
Donald S. Willis. The Committee selects and retains the Company's independent
certified public accountants and approves the staffing and budgets of the
Company's internal audit department. Both the internal auditors and the
independent certified public accountants periodically meet with the Audit
Committee and have access to the members of the Committee. The Audit Committee
met two times in 1997. C. Fred Morgan, a member of the ALLIED Mutual Board of
Directors, sits as a nonvoting representative of ALLIED Mutual on the Audit
Committee.
The Investment Committee is a committee authorized to direct and approve
investment activities of the Company. The members of the Investment Committee
are John E. Evans, Harold S. Evans, James W. Callison, Charles I. Colby, and
Douglas L. Andersen. The Investment Committee met eight times in 1997.
The Compensation Committee of the Board has the authority to establish all
compensation and benefits for all of the executive officers and employees of the
Company and its subsidiaries. The members of the Compensation Committee,
Harold S. Evans, James W. Callison, and Charles I. Colby, met five times in
1997.
The Coordinating Committee is a committee responsible for matters involving
actual or potential conflicts of interest, if and when they arise, between the
Company, ALLIED Mutual, and ALLIED Life Financial Corporation. The Company's
members of the committee, Donald S. Willis and Harold S. Carpenter, are outside
directors of the Company who are not members of the Board of Directors of ALLIED
Mutual or ALLIED Life Financial Corporation. The Coordinating Committee met one
time in 1997.
Compensation of the Members of the Board of Directors and the Outside
Director Stock Purchase Plan
Directors who are not officers or employees of the Company received an
annual retainer in 1997 of $20,000 plus expenses incurred in attending Board
meetings. Directors were also paid $1,000 per Board meeting and $750 per
committee meeting. Directors who are executive officers of the Company do not
receive any fees in addition to their remuneration as officers. The annual
retainer is split among the Company, ALLIED Mutual, and ALLIED Life Financial
Corporation for James W. Callison, Harold S. Evans, and John E. Evans (each of
whom are also directors of ALLIED Mutual and ALLIED Life Financial Corporation),
and many of the meeting fees are also split for these three individuals in the
<PAGE>
8
event the companies have meetings on the same day. In addition, Donald S.
Willis receives from the Company $750 per committee meeting for sitting as a
Company representative and nonvoting member of the ALLIED Mutual Contributions
Committee.
The Company's directors who are not employees or officers of the Company
may elect to receive all or a portion of their director fees in the form of
Common Stock obtained under the ALLIED Group, Inc. Outside Director Stock
Purchase Plan ("Director Purchase Plan"). Under the Director Purchase Plan, a
participant may purchase Common Stock with a fair market value of no more than
$25,000 per calendar year. The price per share paid to the Company is 100% of
the fair market value of shares of Common Stock. The director fees that are
withheld are applied to 85% of the price per share, with the remainder being
paid proportionally by the Company and/or other ALLIED companies to whom the
participant's director fees are allocated. A participant may not dispose of the
Common Stock purchased under the Director Purchase Plan for a period of one year
from the purchase date. An Administrative Committee composed of employee
directors of the Company administers the Director Purchase Plan. During 1997,
the following directors participated in the Director Purchase Plan purchasing
the number of shares and receiving the dollar value of discount for all shares
purchased as indicated: Harold S. Carpenter, 924 shares, $3,746; John E. Evans,
952 shares, $3,750; Richard O. Jacobson, 920 shares, $3,747; John P. Taylor, 924
shares, $3,746; William E. Timmons, 333 shares, $1,368; and Donald S. Willis,
156 shares, $640.
John E. Evans has a Consulting Agreement with the Company, ALLIED Mutual,
and ALLIED Life Financial Corporation pursuant to which he performs certain
consulting services for the companies until such agreement is terminated by Mr.
Evans or the companies. Mr. Evans is to be paid an annual fee which is to be
prorated among the Company, ALLIED Mutual, and ALLIED Life Financial
Corporation. The annual fee was $250,000 for the first six months or 1997 and
$180,000 for the latter six months. The Company's portion of the fee for 1997
was $172,365. ALLIED Mutual agreed to nominate Mr. Evans for re-election to the
Board of Directors of the Company in accordance with ALLIED Mutual's nomination
rights under this Stock Rights Agreement between ALLIED Mutual and the Company.
Executive Officers
In addition to Douglas L. Andersen, the following are the executive
officers of the Company and its subsidiaries.
Stephen S. Rasmussen, age 45, has been Executive Vice President since March
3, 1998 and had been Senior Vice President of the Company since 1995. He serves
in a similar capacity in each of ALLIED Mutual, AMCO, ALLIED Property and
Casualty, and Depositors. Mr. Rasmussen had previously been Vice President of
underwriting of ALLIED Mutual, AMCO, ALLIED Property and Casualty, and
Depositors since 1986. He has been employed by ALLIED Mutual since 1974 holding
a variety of underwriting and managerial positions.
Jamie H. Shaffer, age 54, has been Senior Vice President and Chief
Financial Officer of the Company, ALLIED Mutual, AMCO, ALLIED Property and
Casualty, and Depositors since 1997. He has been President (Financial) of the
Company since 1994. Since 1978, Mr. Shaffer has served as Treasurer of the
Company, ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors. Mr.
Shaffer joined ALLIED Mutual in 1971.
Marla J. Franklin, age 51, has been Vice President of the Company and Vice
President of Human Resources of ALLIED Mutual, AMCO, ALLIED Property and
Casualty, and Depositors since 1994. Previously, Mr. Franklin was Assistant Vice
President of Human Resources having been with ALLIED since 1973.
Michael D. Holmes, age 40, has been Vice President of Information Systems
for ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since
1996. Mr. Holmes served as Vice President of Emerging Technologies for AmerUs
Mutual Life Insurance Company from 1995 until 1996. Previously, Mr. Holmes
served in various management positions in the information systems area with
ALLIED since 1983.
Steven P. Larsen, age 41, has been Vice President of Claims of ALLIED
Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1993. Mr.
Larsen joined ALLIED in 1991 as Assistant Vice President-Claims Legal.
Previously, he was employed by United Services Automobile Association as Claims
Counsel since 1985.
Charles H. McDonald, age 59, has been Vice President of the Company since
1990 and was named Vice President of Communications in 1994 for ALLIED Mutual,
AMCO, ALLIED Property and Casualty, and Depositors. He had been Vice President
of Human Resources from 1979 to 1994. His employment in personnel and employee
relations commenced with ALLIED Mutual in 1973.
<PAGE>
10
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
As of February 28, 1998, the directors, the executive officers named in the
Summary Compensation Table, and the directors and executive officers as a group
beneficially owned shares of Common Stock as set forth below. The issued and
outstanding Common Stock and 6-3/4% Preferred as of February 28, 1998 were
30,549,314 shares and 1,827,222 shares, respectively.
<TABLE>
<CAPTION>
Amount and Nature of Percent Voting
Name of Beneficial Owner Beneficial Ownership (1) of Class (1) Percentage
------------------------ ------------------------ ------------ ----------
<S> <C> <C> <C>
John E. Evans 866,219 1.2% 1.0%
James W. Callison 26,542 - -
Harold S. Carpenter 67,795 (4) - -
Charles I. Colby 23,349 (5) - -
Harold S. Evans 47,994 (6) - -
Richard O. Jacobson 9,974 - -
John P. Taylor 22,202 - -
William E. Timmons 13,898 - -
Donald S. Willis 30,952 - -
Douglas L. Andersen 224,430 (2) (3) - -
Stephen E. Rasmussen 103,069 (2) (3) - -
Jamie H. Shaffer 196,083 (2) (3) - -
Steve A. Biggi 67,643 (2) (3) - -
Scott E. Reddig 1,811 - -
All directors and
executive officers
as a group (24 persons) 1,664,270 (2) (3) (4) (5) (6) 5.4% 4.6%
</TABLE>
- ---------
(1) Except as noted, all persons have sole voting and investment power with
respect to the shares reported; asterisks indicate ownership of less than
1%.
(2) Includes the following number of shares that are also reported as
beneficially owned by the ESOP Trustee: Mr. Andersen, 56,301 shares; Mr.
Rasmussen, 29,961 shares; Mr. Shaffer, 58,161 shares; Mr. Biggi, 14,086
shares; Mr. Reddig, 1,244 shares; and all executives as a group 345,588
shares. Allocated shares are voted by the ESOP Trustee in accordance with
the direction of the ESOP participant. Generally, unallocated shares and
allocated shares as to which no direction is made by the participant are
voted by the ESOP Trustee in the same percentage as the allocated shares as
to which directions are received by the ESOP Trustee.
(3) Includes the following number of shares which the following persons have
the right to acquire within 60 days of February 28, 1998 pursuant to stock
options granted under the ALLIED Group, Inc. Restated and Amended Stock
Option Plan. ALLIED Group, Inc. Nonqualified Stock Option Plan, and ALLIED
Group, Inc. Long-Term Management Incentive Plan: Mr. Andersen, 47,623
shares; Mr. Rasmussen, 13,688 shares; Mr. Shaffer, 23,436 shares; Mr.
Biggi, 7,308 shares; and all executive officers as a group, 244,363 shares.
(4) Includes 57,375 shares of Common Stock owned by Superior Gas and Chemical,
Inc.
(5) Includes 15,750 shares of Common Stock owned by Charles I. Colby & Ruth
Colby Trust #1, Ruth Colby Trust A, and Charles I. Colby and Ruth Colby
Family Trust, each of which Charles I. Colby is Trustee and Beneficiary.
(6) Includes 34,266 shares of Common Stock owned by the Bethany Foundation, a
nonprofit corporation, of which Harold S. Evans is President.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is responsible for establishing and administering the compensation
policies which govern annual compensation, stock ownership programs, and
employee benefit programs for the executive officers as well as other employees
of the Company and its subsidiaries.
<PAGE>
11
Compensation Criteria
In making compensation determinations, the Committee considers and
endeavors to obtain the following goals:
1) attract and obtain highly qualified and motivated executive
officers and employees,
2) encourage and reward achievement of annual and long-term
financial goals and operating plans of the Company, and
3) encourage executive officers and employees to become stockholders
with interests aligned with those of other stockholders.
The Committee's policy with regard to the compensation of executive
officers is to meet the foregoing goals through a combination of base salary,
annual bonus, stock ownership, and other benefits with a particular focus on
encouraging executive officers to attain individual performance goals that are
designed to favorably impact overall Company performance.
Compensation Components
The basic components of Compensation for executive officers, including
those individuals listed in the Summary Compensation Table, are in four areas:
Base Salary: The Committee sets salary ranges annually which are intended
to reflect the median level of base pay for comparable positions at companies of
similar size and complexity. The Committee reviews salary survey data provided
by independent survey consultants and information provided by the Standard and
Poor's property-casualty insurance segment. Based on the scope and
responsibility of the position in the survey compared to the scope and
responsibility of the position at the Company, the Committee determines whether
the officer's salary range should be set at, above, or below the median level of
the industry. To determine the level of a specific salary within its range, the
Committee considers management input regarding the officer's length of service
in the position, experience, and management skills in handling short and long
range issues. In addition, the Committee reviews the officer's performance
during the prior year measured against predetermined corporate and individual
plans and objectives approved by the Board.
Annual Bonus: The Committee believes that a significant portion of annual
cash compensation for the executive officers should be variable ("at risk") and
tied to the Company's financial results. The Short Term Management Incentive
Compensation Plan (the "Short Term Plan") is administered by the Committee which
annually establishes goals for profit and growth. Depending upon attainment of
Short Term Plan goals, executive officers may receive a bonus amount equal to
12-19% of base salary if the minimum profit goal is attained, and up to 48-75%
of base salary if both profit and growth goals are maximized. Profit is based on
consolidated net income or profit center net income as appropriate for measuring
the participant's overall contribution to the Company's success. Growth is
measured in direct written premiums for the property-casualty companies
(excluding Western Heritage and crop-hail business).
The profit and growth goals are established annually by the Committee.
Goals are set to exceed expected profit and growth performance of the industry.
The potential total award is weighted toward profit: 75% of the award may come
from profit goal attainment and 25% from growth attainment. No incentive for
growth is given if the minimum profit target is not met. The Committee may use
its discretion to modify a portion of a participant's award, either upward or
downward, based on management's recommendation of the participant's contribution
to the achievement of goals.
Stock Ownership: The Committee believes that a fundamental goal of
executive compensation is to encourage and create opportunities for long-term
executive stock ownership. Stock ownership guidelines for officers were
established by the Committee in 1994. Over a period of ten years, the following
ownership levels of Company Common Stock should be attained:
President 150,000 - 200,000 shares
Senior Vice Presidents 100,000 - 150,000 shares
Key Vice Presidents 75,000 - 100,000 shares
Other Executive Officers 30,000 - 50,000 shares
The Long-Term Management Incentive Plan (the "Long-Term Plan") provides for
the award of stock options (nonqualified and incentive stock options), stock
appreciation rights ("SARs"), and shares of restricted stock. The Committee
<PAGE>
12
encourages ownership of Company stock through the grant of options to
participants in the Long-Term Plan. In determining who will participate and the
amount of awards, the Committee selects key management employees, and based on
their position, salary, performance, and previous grants, the Committee
determines the amount of awards to be given to each participant. Generally, the
amount increases with the level of position. The Committee intends to make
grants on an annual basis and establish a vesting schedule at each grant date.
The 1997 option grants vest in 33-1/3% increments on the third, fourth, and
fifth anniversary of the grant date. In 1997, 240,000 options were awarded to 33
participants, and 555,969 shares remain available for award.
Employee Benefits: The Company offers benefit plans such as vacation,
medical, life and disability insurance to executive officers on the same basis
as offered to all employees. In keeping with the Company's commitment to align
employee interests with those of stockholders, employees may acquire shares of
stock through the Employee Stock Purchase Plan ("ESPP"), and all eligible
employees are allocated shares through the Employee Stock Ownership Plan
("ESOP"). The ESPP allows employees to purchase stock at 85% of its fair market
value, and the ESOP is discussed in note 5 to the Summary Compensation Table in
this Proxy Statement. Executive officers are eligible for these programs on the
same basis as other employees.
CEO's Compensation
Mr. Andersen participates in the compensation program described above and
has a significant portion of his total compensation at-risk. In March, 1997 Mr.
Andersen was elected Chief Executive Officer of the Company and received a 16%
increase in base salary. In 1997, he received 15,000 shares subject to option,
which adjusted for the stock split in November 1997, amounts to 22,500 shares
subject to option. Mr. Andersen led the Company toward excellent financial
results in 1997 and received a bonus award of $166,036 for that performance.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code (the "Code") generally limits
to $1 million per individual per year the federal income tax deduction for
compensation paid by a publicly-held company to the company's chief executive
officer and its other four highest paid executive officers. Compensation that
qualifies as performance-based compensation for purposes of Section 162(m) is
not subject to the $1 million deduction limitation. Options and stock
appreciation rights granted under the Long-Term Plan satisfy the requirements
for performance-based compensation. The Committee presently does not intend to
seek to qualify other components of the Company's incentive compensation for
executive officers as performance-based compensation under Section 162(m) of the
Code, such as the Short Term Plan. However, the Committee currently does not
anticipate that any executive officer will be paid compensation from the Company
in excess of $1 million in any year (including amounts that do not qualify as
performance-based compensation under the Code), and accordingly, the Committee
anticipates that all amounts paid as executive compensation will be deductible
by the Company for federal income tax purposes.
COMPENSATION COMMITTEE
James W. Callison
Charles I. Colby
Harold S. Evans
<PAGE>
14
COMPENSATION OF EXECUTIVE OFFICERS
All employees are directly employed by the Company. The Company leases
employees to all of its subsidiaries and to ALLIED Mutual and certain of its
subsidiaries. The following table shows the compensation earned by the CEO and
the four most highly compensated officers of the Company for services rendered
in all capacities to the Company, its subsidiaries, and to ALLIED Mutual and its
subsidiaries.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
---------------------------------
Annual Compensation Awards
------------------------ ---------------------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Year Salary (1) Bonus (2) Awards (3) Options/SARs (4) Compensation (5)
- --------------------------- ---- --------- --------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas L. Andorsen 1997 $318,930 $166,036 -0- 22,500 $61,200
President, CEO, and Director 1996 279,594 -0- $11,900 15,750 27,000
of Company, AMCO, ALLIED 1995 260,000 108,754 22,200 38,250 21,000
Property and Casualty,
Depositors, and ALLIED Mutual
Stephen S. Rasmussen 1997 $180,847 $ 70,000 -0- 15,000 $67,600
Executive Vice President of 1996 169,825 -0- $10,750 11,250 30,375
Company, AMCO, ALLIED 1995 158,000 50,026 19,700 33,001 23,625
Property and Casualty,
Depositors, and ALLIED Mutual
Jamie H. Shaffer 1997 $229,362 $117,602 -0- 18,000 $57,600
Senior Vice President, 1996 219,132 -0- $13,000 15,750 30,375
Treasurer, and CFO of 1995 200,000 83,662 24,900 60,750 23,625
Company, AMCO, ALLIED
Property and Casualty,
Depositors, and ALLIED Mutual
Steve A. Biggi 1997 $157,750 $ 89,040 -0- 15,000 $57,600
Regional Vice President 1996 148,260 84,643 $ 9,000 7,875 30,375
of AMCO, ALLIED Property 1995 145,385 -0- 16,500 5,625 23,625
and Casualty, Depositors
and ALLIED Mutual
Scott E. Reddig 1997 $145,038 $ 53,400 -0- 6,000 $35,605
Vice President of AMCO, 1996 19,953(6) -0- -0- 22,500 -0-
ALLIED Property and Casualty, 1995 -0- -0- -0- -0- -0-
Depositors, and ALLIED Mutual
</TABLE>
- ---------
(1) Includes amounts deferred at the election of the officer pursuant to the
Company's Savings and Investment Plan (401(k)).
(2) Amounts were earned in the year indicated but paid in the following year
under the ALLIED Group Short Term Management Incentive Compensation Plan.
(3) Awards of restricted stock were made to satisfy obligations under the Long-
term Management Incentive Compensation Plan (also known as the Performance
Unit Plan) which was discontinued in 1994. For the three-year performance
period ending in 1995 and 1996, shares of
<PAGE>
15
restricted stock were awarded to satisfy prorated cash awards to which the
participants were entitled. The restricted stock vests 25% per year
beginning the second year after the award. Dividends are paid on the
restricted stock awarded to participants. The number and value of the
aggregate restricted stock holdings at the end of 1997 are as follows
(using a market value of $29.72 per share): Mr. Andersen, 1,989 shares
valued at $57,124; Mr. Rasmussen, 1,777 shares valued at $51,035; Mr.
Shaffer, 2,215 shares valued at $63,615; and Mr. Biggi, 1,488 shares valued
at $42,735.
(4) The number of reported options and SARs reflect the 3-for-2 stock split in
November 1997. See "Option/SAR Grants in Last Fiscal Year" for a
description of the terms and conditions of the option grants.
(5) Amounts are deferred compensation and reflect contributions made by the
Company under The ALLIED Group Employee Stock Ownership Plan ("ESOP") which
is a defined contribution retirement plan covering all eligible Company
employees. The amount of employer contribution is based on a percentage of
annual pay (capped at $160,000) and calculated as follows: less than 6
years of service, 6% of pay; 6 years but less than 11 years; 7% of pay; 11
years but less than 21 years, 8% of pay; and for 21 years or more, 9% of
pay. In 1995, 1996, and 1997, employees participating in the ESOP received
an additional 75%, 125%, and 300%, respectively, increased stock allocation
to their accounts. In 1997, Mr. Rasmussen received cash dividends on the
ESOP shares purchased with funds transferred from the terminated retirement
plan in the amount of $6,624.
(6) Mr. Reddig began employment with the Company on November 11, 1996. In 1996,
he received $21,600 in perquisites, the majority of which were for moving
expenses.
Option/SAR Grants in Last Fiscal Year
The following table summarizes certain information regarding options
granted during 1997 to the named executive officers and reflects the November
1997 3-for-2 stock split.
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value at
------------------------------- Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options/SARs Appreciation
Underlying Granted to Exercise or for Option Term (2)
Options/SARs Employees in Base Expiration ---------------------
Name Granted (1) Fiscal Year Price (5/ ) Date 5% 10%
- -------------------- -------------- ------------ ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas L. Andersen 22,600 options 9.4% $22.9167 3/21/2007 $324.274 $821,775
Stephen S. Rasmussen 15,000 options 6.3% $22.9167 3/21/2007 $216,183 $547,650
Jamie W. Shaffer 18,000 options 7.5% $22.9167 3/21/2007 $250,419 $657,420
Steve A. Biggi 15,000 options 6.3% $22.9167 3/21/2007 $216,183 $547,850
Scott E. Reddig 6,000 options 2.5% $22.9167 3/21/2007 $ 86,479 $219,140
</TABLE>
- ----------------
(1) These options will vest and become exercisable as follows: 33-1/3% as of
3/21/2000; 66-2/3% as of 3/21/2001; and 100% as of 3/21/2002.
(2) These amounts represent assumed rates of stock price appreciation of 5% and
10% which are specified in applicable federal securities regulations. The
actual value, if any, an executive officer may realize depends on the
market value of the Common Stock at a future date. There is no assurance
that the value realized by an executive officer will be at or near the
values set forth in the table.
<PAGE>
16
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option Values
The following table summarizes certain information regarding options
exercised during 1997 and presents the value of unexercised options and SARs
held at December 31, 1997. The SARs entitle the participant to receive payment
from the Company solely in cash.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at TY-End at FY-End (1)
Shares Acquired Exercisable (E)/ Exercisable (E)/
Name on Exercise Value Realized (1) Unexercisable (U) Unexercisable (U)
- -------------------- --------------- -------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas L. Andersen 6,149 $138,891 options/$73,148 SARS 30,001 (E)/ 75,440 (U) $473,245 (E)/5 1,144,141 (U)
Stephen S. Rasmussen 3,949 $ 71,685 options/$11,983 SARS -0- (E)/ 60,564 (U) $ -0- (E)/5 780,104 (U)
Jamie H. Shaffer 4,149 $154,651 options/$35,170 SARS -0- (E)/ 94,505 (U) $ -0- (E)/5 780,104 (U)
Steve A. Biggi -0- $ -0- options/$ -0- SARS 3,435 (E)/ 29,910 (U) $ 67,279 (E)/5 292,202 (U)
Scott E. Reddig -0- $ -0- options/$ -0- SARS -0- (E)/ 20,500 (U) $ -0- (E)/5 244,735 (U)
- -----------
</TABLE>
(1) Values are calculated by determining the difference between the fair market
value of the Common Stock and the exercise price of the options and SARs on
the exercise date or at fiscal year end, as appropriate. The fair market
value (average of the high and low as reported on The New York Stock
Exchange) as of December 31, 1997 was $29.72 per share.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than 10% of
a registered class of the Company's equity securities file reports of ownership
and changes in ownership with the SEC. Officers, directors, and greater than
10% shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based on a review of the reports,
during the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors, and greater than 10%
beneficial owners were complied with.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Intercompany Operating Agreement
The Company and its subsidiaries are parties to an Intercompany Operating
Agreement ("IOA") with ALLIED Life Financial Corporation ("ALFC"), ALLIED
Mutual, and each of their respective subsidiaries. The IOA provides for the
sharing of employees, office space, agency forces, data processing, and other
services and facilities. The IOA extends through December 31, 2004 and continues
thereafter subject to any party providing two years notice that such party
intends to cease participation. In the event of a change of control (whenever
ownership of 50% or more of the voting stock of the Company or ALFC is acquired
by a nonaffiliated party) of the Company or ALFC, the other party or ALLIED
Mutual may (i) terminate it upon six months notice; (ii) extend the term for up
to ten additional years beyond 2004; or (iii) allow the IOA to continue in
effect without change. The Company leases to ALLIED Mutual and its subsidiaries
(except for ALFC) the employees utilized in their operations for a fee and
reimbursement of personnel costs based on certain allocation methods. The
Company is obligated to provide the entire requirements for employees to ALLIED
Mutual and its subsidiaries (other than ALFC), but ALLIED Mutual reserves the
right to hire employees independently rather than leasing them from the Company.
The Company has the right to determine the compensation and benefits of all
leased employees. However, if the Company wishes to adopt or amend any employee
benefit plan or program and pass on the increased costs thereof with respect to
employees leased by ALLIED Mutual, it must obtain the approval of
<PAGE>
Exhibit 4
================================================================================
UNITED STATES DISTRICT COURT
SOUTHERN IOWA
DISTRICT OF
- --------------------------------------------------------------------------------
NATIONWIDE MUTUAL INSURANCE COMPANY and
NATIONWIDE ACQUISITION CORP., SUMMONS IN A CIVIL ACTION
(Plaintiffs),
CASE NUMBER:
V.
ALLIED GROUP, INC., and ALLIED MUTUAL INSURANCE,
DOUGLAS L. ANDERSEN, JOHN E. EVANS, HAROLD S. EVANS,
JAMES W. CALLISON, HAROLD S. CARPENTER,
CHARLES I. COLBY, RICHARD O. JACOBSON, JOHN P. TAYLOR,
WILLIAM E. TIMMONS, DONALD S. WILLIS, C. FRED MORGAN,
and JAMES D. KIRKPATRICK,
(Defendants).
TO: (Name and Address of Defendants)
ALLIED GROUP, INC.
Jamie H. Schaffer, Registered Agent
701 5th Avenue
Des Moines, IA 50309
YOU ARE HEREBY SUMMONED and required to file with the Clerk of this Court
and serve upon
PLAINTIFF'S ATTORNEY (name and address) Harold N. Schneebeck, Esq.
BROWN, WINICK, GRAVES, GROSS,
BAKERVILLE & SCHOENEAU, P.L.C.
Two Ruan Center
Suite #1100
601 Locust Street
Des Moines, Iowa 50309
an answer to the complaint which is herewith served upon you, within twenty (20)
days after service of this summons upon you, exclusive of the day of service. If
you fail to do so, judgment by default will be taken against you for the relief
demanded in the complaint.
[STAMP APPEARS HERE]
___________________________________ ______________________________
CLERK DATE
___________________________________
BY DEPUTY CLERK
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF IOWA
CENTRAL DIVISION
Nationwide Mutual Insurance )
Company and Nationwide Group )
Acquisition Corporation, )
)
Plaintiffs, )
)
V. ) Case Number ____________
)
Allied Group, Inc., Allied Mutual )
Insurance Company, Douglas L. )
Andersen, John E. Evans, )
Harold S. Evans, James W. )
Callison, Harold S. Carpenter, )
Charles I. Colby, Richard O. )
Jacobson, John P. Taylor, )
William E. Timmons, Donald S. )
Willis, C. Fred Morgan, )
and James D. Kirkpatrick, )
)
Defendants. )
COMPLAINT
---------
Plaintiffs, Nationwide Mutual Insurance Company ("Nationwide") and
Nationwide Group Acquisition Corporation ("Nationwide Acquisition"), by their
undersigned attorneys, allege upon knowledge with respect to themselves and
their own acts, and upon information and belief as to other matters, as follows:
NATURE OF THE ACTION
--------------------
1. Plaintiffs seek an injunction, inter alia, prohibiting those
----- ----
individual defendants who are members of the board of directors of defendant
Allied Group, Inc. ("Allied Group"), from breaching their fiduciary duties and
violating the securities laws of the state of Iowa by entrenching themselves and
their management and denying the shareholders of Allied Group their right to
decide
<PAGE>
for themselves upon the future of the company they own. In particular, Allied
Group's board has caused Allied Group to rebuff Nationwide's offer to purchase
the common shares and the preferred stock of Allied Group at a substantial
premium. Allied Group's board has done so in derogation of its duty to place the
interests of the shareholders above those of the board members. In addition,
plaintiffs seek an injunction that would prohibit those individual defendants
who are members of the Board of Directors of defendant Allied Mutual Insurance
Company ("Allied Mutual"), an affiliate of Allied Group, from engaging in
certain acts in assistance of the Allied Group board's wrongful actions.
PARTIES
-------
2. Plaintiff Nationwide is an Ohio mutual insurance company with its
principal place of business in Columbus, Ohio. Nationwide owns 4.9% of the stock
of defendant Allied Group. Formed in 1925, Nationwide and its affiliated
entities are engaged in selling a variety of insurance products, including
personal auto and homeowners policies. Nationwide sells these products primarily
through an exclusive career agency force, mainly in the eastern and central
states. In 1997, Nationwide wrote approximately $5 billion of insurance premiums
and had a net income in excess of $1.6 billion. Since 1982, one of Nationwide's
affiliate companies has been Farmland Mutual Insurance Company, located in Des
Moines, Iowa.
3. Plaintiff Nationwide Acquisition is an Ohio corporation with its
principal place of business in Columbus, Ohio. Nationwide
2
<PAGE>
TO COME
3
<PAGE>
9. Defendant James W. Callison is a director of both Allied Group and
Allied Mutual, and is not a citizen of the state of Ohio.
10. Defendant Harold S. Carpenter is a director of Allied Group, and is
not a citizen of the state of Ohio.
11. Defendant Charles I. Colby is a director of Allied Group, and is not a
citizen of the state of Ohio.
12. Defendant Richard O. Jacobson is a director of Allied Group, and is
not a citizen of the state of Ohio.
13. Defendant John P. Taylor is a director of Allied Group, and is not a
citizen of the state of Ohio.
14. Defendant William B. Timmons is a director of Allied Group, and is not
a citizen of the state of Ohio.
15. Defendant Donald S. Willis is a director of Allied Group, and is not a
citizen of the state of Ohio.
16. Defendant C. Fred Morgan is a director of Allied Mutual, and is not a
citizen of the state of Ohio.
17. Defendant James D. Kirkpatrick is a director of Allied Mutual, and is
not a citizen of the state of Ohio.
JURISDICTION AND VENUE
----------------------
18. This court has jurisdiction pursuant to 28 U.S.C. (S)(S) 1332(a) and
2201. The amount in controversy exceeds $75,000, exclusive of interest and
costs.
19. Venue is proper in this district pursuant to 28 U.S.C. (S) 1391(a) and
(c).
4
<PAGE>
SCHEME OF ALLIED GROUP'S BOARD TO ENTRENCH ITSELF
-------------------------------------------------
20. The individual defendant directors of Allied Group have participated
in a long-standing scheme to entrench themselves at the expense of Allied
Group's shareholders.
21. As part of this scheme, Allied Group and Allied Mutual have certain
interlocking executive officers. Also, at all times relevant, three directors of
Allied Group have been directors of Allied Mutual. Additionally, Douglas L.
Andersen, president of Allied Group, is a director of Allied Mutual. Thus, four
of the six members of Allied Mutual's board are also officers or directors of
Allied Group. Evans has dominated and controlled the actions of the boards of
directors of both Allied Group and Allied Mutual.
22. For the sole purpose of entrenching Allied Group's board, Allied Group
and Allied Mutual entered into a written Stock Rights Agreement dated July 5,
1990 (the "Stock Rights Agreement" or "Agreement"). Pursuant to Article I of
this Agreement, Allied Group agreed to use its best efforts to cause the
election and retention of a number of Allied Mutual nominees as members of
Allied Group's board. Under the Stock Rights Agreement, Allied Mutual may
nominate a number of directors in proportion to that percentage of voting
securities held by Allied Mutual. Allied Mutual is the only shareholder of
Allied Group that receives this special treatment. Absent this Agreement, Allied
Mutual would be in the position of every other shareholder, i.e., without Allied
- -
Group board's guaranteed support for its nominees.
5
<PAGE>
23. As a result of this arrangement and the interlocking boards, the board
of Allied Group has perpetuated itself while diluting the voting rights of the
shareholders of Allied Group.
24. Allied Group and Allied Mutual have acted pursuant to the Stock Rights
Agreement and have accordingly placed three of Allied Mutual's candidates on the
board of Allied Group.
ALLIED'S USE OF THE PREFERRED STOCK AS AN ENTRENCHMENT DEVICE
-------------------------------------------------------------
25. As noted above (paragraph 5), Allied Mutual owns all of the Preferred
Stock of Allied Group. The Certificate of Designations -- 6 3/4% of Series
Preferred Stock of Allied Group provides in paragraph 3(c) and 3(d) as follows:
(c) In the event the Company shall, at any time, declare or pay any
dividend on its common stock or on its voting Preferred Stock of
any series (herein referred to as "voting stock"), payable in
shares of its voting stock, or effect a subdivision or
combination of the outstanding shares of its voting stock (by
reclassification or otherwise than by payment of a dividend in
shares of voting stock) either (i) the Company shall take all
comparable action necessary to preserve the relative voting
power of the holders of the 6 3/4% Preferred Stock outstanding
by subdividing or combining the outstanding shares of 6 3/4%
Preferred Stock, or otherwise; or (ii) each outstanding share
of 6 3/4% Preferred Stock outstanding shall thereafter have
that number of votes which is equal to the number of votes
which the holder of an outstanding share of voting stock on
which such dividend was paid or which was so subdivided or
combined held immediately after the payment of such dividend
or the subdivision or combination of such share.
6
<PAGE>
(d) In the event of any assignment, transfer, or other
disposition of shares of 6 1/4% Preferred Stock to
any person other than [Allied] Mutual Insurance Company
("[Allied] Mutual") or an affiliate or successor
corporation to [Allied] Mutual, the shares of 6 1/4%
Preferred Stock so disposed, upon such disposition and
without any further action by the Company or the holder
thereof, shall become non-voting, and no such person or
entity receiving the disposed of shares shall have any
of the voting powers ascribed to shares of 6 1/4%
Preferred Stock hereunder except as may be required by
law. Whenever the 6 1/4% Preferred Stock is non-voting,
pursuant to the preceding sentence, in the event that
Dividends shall remain unpaid for more than six
quarterly periods, the holder shall thereafter,
commencing with the Company, be entitled to elect one
director to the board of directors of the Company, upon
notice to the Company sufficient to permit its
compliance with all regulatory requirements.
Certificates representing shares of 6 1/4% Preferred
Stock shall be legended to reflect the provisions of
this Section 3(d).
26. Through Allied Mutual's control of the Preferred Stock and the
interlocking boards of directors of Allied Group and Allied Mutual, the board of
Allied Group wields a virtually unassailable power to control nearly twenty
percent of the voting shares of Allied Group. This power has been granted with
the intention of protecting the interests of the Allied Group board. The
enhanced voting power of the Preferred Stock vanishes upon transfer, at which
time the Preferred Stock becomes non-voting altogether. In effect the Allied
Group board controls a large block of its own voting stock. There is no
legitimate business purpose to the aforesaid voting arrangement, and it serves
only further to entrench the Allied Group board.
7
<PAGE>
ALLIED GROUP'S AMENDMENT TO ITS BY-LAWS
TO LIMIT SHAREHOLDER RIGHTS TO CALL A SPECIAL MEETING
-----------------------------------------------------
27. In furtherance of the scheme to entrench the Allied Group board, on
December 18, 1997, the board amended the Allied Group by-laws to provide that
special meetings of the stockholders may be called only by the holders of at
least fifty percent of all of the votes entitled to be cast on any issue
proposed to be considered at the meeting. Prior to this amendment, a special
meeting of shareholders could be called by the holders of ten percent of such
votes. The amendment prevents minority shareholders from challenging the already
entrenched position of Allied Group's board. There is no legitimate business
purpose to this change in Allied Group's by-laws. It serves only to entrench
Allied Group's board to the detriment of its shareholders, including Nationwide.
NATIONWIDE'S OFFER TO ALLIED GROUP
----------------------------------
28. In the last half of 1997, Nationwide engaged in an analysis of Allied
Group based upon then available public information. Nationwide concluded that
Allied Group provided a unique opportunity for expanding Nationwide's property
and casualty business both geographically and by use of Allied Group's
distribution system. Consequently, Nationwide concluded that it should initiate
discussions with Allied Group about the possibility of a friendly merger.
29. On or about January 26, 1998 Dimon R. McFerson ("McFerson"), Chairman
of Nationwide, contacted Evans to discuss Nationwide's interest in acquiring all
of the outstanding voting
8
<PAGE>
securities of Allied Group. A meeting between McFerson and Evans and certain
members of Allied Group's management was scheduled for later that week.
30. On or about January 28, 1998, McFerson and other members of
Nationwide's management met with Evans and certain members of senior management
of Allied Group in Des Monies, Iowa. At that meeting, Nationwide made an all
cash offer to purchase the common stock of Allied Group for $47 per share,
subject to Nationwide receiving all necessary regulatory approvals and
performing due diligence.
31. Nationwide's offer was non-coercive, fair to Allied Group's
shareholders and represented a substantial premium over the market price for
Allied Group's shares at the time it was made. Evans stated at the January 29
meeting that he thought the price offered was generous; however, he expressed
two concerns. First, he wanted assurance that Nationwide would indemnify the
members of the boards of Allied Group and Allied Mutual for all claims that
could be asserted against them for matters that arose prior to the closing of
the sale. This request would provide no benefit to Allied Group's shareholders,
but was of substantial benefit to the individual Allied board defendants, who
were concerned about pending or potential shareholder and policyholder claims.
Before leaving that meeting, McFerson responded by agreeing, on behalf of
Nationwide, to the indemnification requested by Evans. Evans' second concern was
that the Iowa Division of Insurance in the Department of Commerce might not
approve the transaction.
9
<PAGE>
Consequently, he wanted some assurance that regulatory approval would be
forthcoming from that agency.
32. In early February 1998, representatives of Nationwide met with
representatives of the Iowa Division of Insurance in the Department of
Commerce. Based upon this meeting, Nationwide satisfied itself that there were
no regulatory obstacles that would prevent the transaction from succeeding.
Nationwide conveyed this information to Allied group's executives in February
1998. Nationwide would not have devoted any more effort to the acquisition if it
had believed that it would be unable to obtain all necessary regulatory
approvals.
33. Based upon the discussions between the representatives of Nationwide
and Allied Group, on February 10, 1998, Nationwide sent Andersen, Allied
Group's president, a draft merger agreement and other documents pertaining to
the proposed acquisition.
34. On or about February 18, 1998, McFerson spoke with Andersen to discuss
the proposed acquisition. Andersen rejected Nationwide's offer and told McFerson
that although the price offered was reasonable, the Allied Group board did not
authorize any further negotiations.
35. Nationwide, at all times, has planned to operate Allied Group as an
ongoing entity headquartered in Des Moines. Nationwide plans to continue the
business of Allied Group intact. Nationwide plans not only to maintain Allied
Group's independent agency distribution network, but also to expand it for use
in Nationwide's
10
<PAGE>
business. Nationwide does not intend to strip Allied Group of its assets or to
liquidate it.
36. Nationwide's acquisition of Allied Group on the terms offered would
render a substantial benefit to all of Allied Group's constituencies, as well as
to Allied Mutual's policyholders. It does not pose any threat to the corporate
policy and effectiveness of Allied Group or to the policy or effectiveness of
Allied Mutual.
37. All reasons proffered by the defendants for failure to accept
Nationwide's offer were pretextual. In addition to the substantial premium of
the $47 per share price offered by Nationwide for the Allied Group stock,
payment was to be in cash, not securities. There was no question about
Nationwide's financial ability to make three payment. Given Nationwide's
financial strength and more than 50 years of experience in the insurance
industry, there was no serious reason to believe that Nationwide could not
secure all of the necessary regulatory approvals. The true reason for the
rejection of the offer was the desire of the board of directors of Allied Group
to maintain control and further entrench themselves to the detriment of Allied
Group's shareholders.
38. On or about May 4, 1998, McFerson telephoned Evans and advised him
that Nationwide was still interested in acquiring Allied Group. Evans told
McFerson that the time was not right for such an acquisition, that McFerson
should not contact Evans again, but that McFerson should contact Anderson in 30
days.
11
<PAGE>
ALLIED GROUP'S FALSE PRESS RELEASES
-----------------------------------
39. On May 5, 1998, Allied Group issued a press release announcing that
its board had approved a stock repurchase program to acquire up to 250,000
shares of Allied Group's shares of common stock over the next twelve months. The
press release stated that "the program is not a request or an offer for or in
response to a tender offer or any other offer for Company shares." This
statement was material, false, and was known to be false at least by Evans and
Allied Group at the time it was made. Allied Group's repurchase program was a
defensive response to Nationwide's offer.
40. On or about May 7, 1998, Allied Group issued a press release
announcing that its board had increased its stock repurchase program to buy back
up to 2 million of Allied Group's shares. In that press release Allied Group
again stated: "The program is not a request or an offer for or in response to a
tender offer or any other offer for company shares." This statement again was
material, false, and was known to be false at least by Evans and Allied Group at
the time it was made. Like the earlier statement, it constituted a breach of the
fiduciary duty of honesty and candor. The decision of Allied Group's board to
increase eight-fold the number of shares in its repurchase program was made in
response to Nationwide's continuing attempts to purchase the outstanding shares
of Allied Group.
41. The initial repurchase program for 250,000 shares represented less
than 1% of Allied Group's then outstanding 30-plus million shares of common
stock. The revised 2 million share
12
<PAGE>
repurchase program represented approximately 6.5% of Allied Group's outstanding
common stock. The purpose and effect of Allied Group's stock repurchase program
are to make it more difficult for plaintiffs, or others, to acquire control of
Allied Group or to call a special meeting of Allied Group's shareholders.
42. Since announcing its stock repurchase program, Allied Group has
repurchased substantial blocks of its shares at market prices, and it intends to
continue to do so.
43. Thus, not only has Allied Group and/or its board disseminated false
and misleading information about its stock repurchase program, but it has also
recently repurchased substantial numbers of shares of its own stock at prices
well below the $47 price that Nationwide offered.
NATIONWIDE'S TENDER OFFER
-------------------------
44. On May 18, 1998, Nationwide publicly announced its intention to
commence a tender offer for all of the outstanding shares of common stock of
Allied Group at $47 per share, net to the seller in cash, subject to certain
conditions and regulatory approvals (the "Tender Offer"). The Tender Offer is
not conditioned upon financing. The price offered represents a 69.36% premium
over the market price of the Allied Group shares which closed at 27% on May 15,
1998. The terms of the Tender Offer are more fully set forth in a Schedule 14D-1
filed with the Securities and Exchange Commission. The contents of Schedule
14D-1 are incorporated herein by reference, and a copy will be provided to
13
<PAGE>
the court after it is filed with the Securities and Exchange Commission.
45. Nationwide's Tender Offer is not 'front-end loaded' or otherwise
coercive in nature. It provides all of Allied Group's shareholders with the
opportunity to realize a substantial premium over the market price of their
stock prior to announcement of the Tender Offer.
46. The Tender Offer does not pose any threat to Allied Group's corporate
policy and effectiveness, to the interests of Allied Group's shareholders, or
to the interests of Allied Mutual or its policyholders.
47. The actions of defendants specified in paragraphs 20 through 43, Allied
Group's repurchase program set forth in paragraphs 39 and 40, and the false
or misleading statements contained in Allied Group's press releases set out
in paragraphs 39 and 40, constitute breaches of fiduciary duties by the
individual defendants who have thereby entrenched themselves at the cost of
the Allied Group shareholders and to the detriment of plaintiffs.
48. As a consequence of this improper entrenchment, Nationwide's first
two offers to purchase the stock of Allied Group at a substantial premium were
rejected to the detriment of plaintiffs and the shareholders of Allied Group.
These offers were rejected without reasonable investigation.
14
<PAGE>
COUNT I
-------
(BREACH OF FIDUCIARY DUTY
UNDER THE IOWA BUSINESS COMBINATIONS STATUTE)
49. Plaintiffs repeat and reallege paragraphs 1 through 48 as if they were
set forth in full.
50. Defendant Allied Group has all of the benefits provided by the
anti-takeover protections of Section 490.1110 of the Iowa Code (the "Business
Combinations Statute"). Under that statute, a third-party, such as Nationwide,
that acquires ten percent or more of the outstanding voting stock of an Iowa
corporation, such as Allied Group, cannot merge with Allied Group until three
years following the acquisition of the ten percent of Allied Group's stock,
absent circumstances not present in this case. Three of the exceptions of this
three-year restriction are: (a) pre-approval by the board of the Iowa
corporation of the third party's acquisition of 10% or more of the Iowa
Corporation's stock; (b) the third party owning at least 85% of the voting stock
of the Iowa corporation, "excluding, for purposes of determining the number of
shares outstanding, those shares owned by persons who are directors and
officers" of the Iowa corporation; or (c) the board of the Iowa corporation
adopting a by-law amendment by September 1997 electing not to be governed by the
statute (opting out).
51. The defendants' wrongful conduct, as set forth above, together with
the restriction in the Business Combinations Statute, frustrates and impedes the
ability of Allied Group's shareholders to decide for themselves whether they
wish to receive the benefits of Nationwide's Tender Offer. These devices
unreasonably and
15
<PAGE>
inequitably hamper plaintiffs' ability to consummate the Tender Offer. Given
the history of this matter, the Allied Group board defendants cannot be
expected, absent an order from this court, to approve the combination with
plaintiffs. The failure of Allied Group and its board to adopt a by-law
amendment opting out of the Business Combinations Statute and its anticipated
failure to approve the Tender Offer for purposes of the Business Combinations
Statute, constitute a breach of fiduciary duties by the Allied Group board.
52. The 18.2% voting rights in Allied Group controlled by its affiliate
Allied Mutual constitute a block that prevents plaintiffs from obtaining 85% of
the voting stock of Allied Group, which would enable plaintiffs to avoid the
restriction of the Business Combinations Statute. As alleged above (paragraph
26), the 18.2% voting rights in the Preferred Stock is actually controlled by
the board of Allied Group. Under corporation law, including Iowa corporate law,
a corporation and its subsidiaries cannot vote the corporation's own stock.
Under this policy, the Preferred Stock should be treated the same as "shares
owned by persons who are directors and officers" and the 18.2% should not be
counted for purposes of determining whether plaintiffs obtain 85% of Allied
Group stock in the Tender Offer.
53. Defendants' actions are causing plaintiffs irreparable harm, and
plaintiffs' remedies at law are inadequate.
WHEREFORE, plaintiffs request that the court enter an order:
A. Granting plaintiffs judgment on Count I of the Complaint;
16
<PAGE>
B. Declaring that the failure of Allied Group's board to "elect [_] not to
be governed" by the Business Combinations Statute (i.e., not opting out)
constitutes a breach of fiduciary duty because it stifles any attempted tender
offer for Allied Group's stock;
C. Declaring that the failure of Allied Group's board to approve
Nationwide Acquisition's purchase of at least ten percent of the Allied Group
common stock would constitute a breach of fiduciary duty;
D. Preliminarily and permanently enjoining those defendants who are
members of the Allied Group board from failing to approve, pursuant to Section
490.1110 (a) (a) of the Iowa Code, Nationwide Acquisition's purchase of at least
ten percent of the outstanding common stock of Allied Group;
E. Declaring that the use of the Preferred Stock by defendants is in
violation of Iowa law and is part of a scheme to entrench the board of Allied
Group in breach of its fiduciary duties;
F. Preliminarily and permanently enjoining those defendants who are
members of the board of Allied Mutual from voting the Preferred Stock of Allied
Group;
G. Granting costs to plaintiffs; and
H. Granting plaintiffs such further relief as the court deems just.
17
<PAGE>
Count II
--------
(Breach of Fiduciary Duties by the Individual Defendants)
54. Plaintiffs repeat and reallege paragraphs 1 through 48 as if they were
set forth in full.
55. The conduct of the defendants as set forth in paragraphs 20 through 43
above indicate that, without an injunction from this court, defendants will
manipulate or otherwise subvert the process of corporate democracy by amending
the by-laws of Allied Group or taking other actions to frustrate efforts of
plaintiffs to facilitate the Tender Offer.
56. Plaintiffs' remedies at law are inadequate.
WHEREFORE, plaintiffs request that the Court enter an order:
A. Granting plaintiffs judgment on Count II of the Complaint;
B. Declaring that the conduct of the individual defendant members of the
Allied Group board, as set forth in paragraphs 20 through 43, constitutes a
breach of their fiduciary duties;
C. Preliminarily and permanently enjoining Allied Group and its directors
from effectuating its stock repurchase program;
D. Requiring defendants to negotiate with plaintiffs in good faith;
E. Prohibiting the defendants from taking any action in any way to impair
the Tender Offer or to deny Allied Group's shareholders the opportunity to avail
themselves of the right to tender their shares pursuant to the Tender Offer,
including but not limited to, amending the by-laws or articles of incorporation
of
18
<PAGE>
Allied Group or Allied Mutual, instituting shareholders' rights plans or other
devices commonly known as "poison pills," adopting blank check preferred share
plans, or issuing dual classes of stock;
F. Granting plaintiffs their costs of this action; and
G. Granting plaintiffs such further relief as the court deems just.
Count III
---------
(Violations of the Iowa Securities Laws)
57. Plaintiffs repeat and reallege paragraphs 1 through 33 of the
Complaint herein as if they were set forth in full.
58. The false and misleading statements of material fact described in
paragraphs 39 and 40 above, made in connection with Allied Group's May 5 and May
7 press releases, related to Allied Group as a target company as defined in Iowa
Code Section 502.407. Iowa Code Ann. (S) 502.407 (West 1991 & Supp. 1998).
59. It was reasonably foreseeable that these statements would induce other
persons to sell securities of Allied Group. Allied Group violated Section
502.407 by issuing the May 5 and May 7 press releases.
60. Pursuant to Section 502.502 of the Iowa Code, Nationwide is a party
aggrieved by Allied Group's violation of Section 502.407, because those
violations improperly obstructed Nationwide's legitimate efforts to acquire
Allied Group.
WHEREFORE, plaintiffs request that the court enter an order:
A. Granting plantiffs judgment on Count III;
19
<PAGE>
B. Declaring that the false and misleading statements of material fact
described in paragraphs 39 and 40 above constitute violations of Iowa Code
Section 502.407. Iowa Code Ann. (S) 502.407 (West 1991 & Supp. 1998);
C. Preliminary and permanently enjoining defendants from issuing false or
misleading statements regarding or relating to the Tender Offer;
D. Requiring Allied Group to disseminate an appropriate correction of its
false and misleading statements;
E. Granting plaintiffs their costs of this action and reasonable
attorneys' fees; and
F. Granting plaintiffs such further relief as the court deems just.
COUNT IV
--------
(BREACH OF FIDUCIARY DUTIES IN CONNECTION WITH THE PREFERRED STOCK)
61. Plaintiffs repeat and reallege paragraphs 1 through 48 of the
Complaint herein as if they were set forth in full.
62. The provisions of the Certificate of Designations set forth in
paragraph 25 endow the Preferred Stock held by Allied Mutual with enhanced
voting power, but only so long as that stock is held by Allied Mutual. The
existence of this class of stock violates Section 490.601 of the Iowa Code,
which specifies the characteristics that a corporation's classes of stock may
possess. This section does not allow for a class of stock that possesses certain
voting powers in the hands of one person but altogether eliminates voting powers
in the hands of others.
20
<PAGE>
63. The existence of this Preferred Stock, as currently held by Allied
Mutual, serves no legitimate business purpose. Rather, it functions only to
entrench the board of Allied Group. Specifically, this entrenchment results from
the fact that the Allied Group board controls the Allied Mutual board and thus
controls the voting of Allied Mutual Preferred Stock.
64. The preferential voting rights of the Preferred Stock, coupled with
the loss of those rights upon transfer, places a significant impediment in the
way of plaintiffs or any third party who might attempt to gain control of Allied
Group. By thus exploiting the improper characteristics of the Preferred Stock,
the Allied Group board has breached its fiduciary duties to the shareholders of
Allied Group.
WHEREFORE, plaintiffs request that the Court enter an order:
A. Granting plaintiffs' judgment on Count IV of the Complaint;
B. Declaring that Allied Mutual's possession and voting of the Preferred
Stock while under the control of the Allied Group board constitutes a breach of
the fiduciary duties of the individual defendants as well as a violation of
Section 490.601 of the Iowa Code;
C. Preliminarily and permanently enjoining Allied Mutual from voting its
Preferred Stock;
D. Preventing Allied Group from counting Allied Mutual's Preferred Stock
as a part of Allied Group's outstanding shares on any vote taken by the Allied
Group shareholders;
21
<PAGE>
E. Granting plaintiffs their costs of this action; and
F. Granting plaintiffs such further relief as the court deems just.
NATIONWIDE MUTUAL INSURANCE COMPANY
NATIONWIDE GROUP ACQUISITION
CORPORATION
By: [SIGNATURE ILLEGIBLE]
--------------------------------
One of their attorneys
Harold N. Schneebeck
Brown, Winick, Graves, Gross,
Bakerville,
and Schoenbau, P.L.C.
Two Ruan Center, Suite 1100
601 Locust Street
Des Moines, Iowa 50309
(515) 242-2400
OF COUNSEL:
----------
Michael A. Reiter
Richard S. Rhodes
Holleb & Coff
55 East Monroe Street, Suite 4000
Chicago, Illinois 60603
(312) 807-4600
22
<PAGE>
Exhibit 5
[NEWS RELEASE LETTERHEAD OF ALLIED GROUP INC. APPEARS HERE]
To All Holders of Common Stock of ALLIED Group, Inc.
Dear Shareholder:
Today Nationwide Mutual Insurance Company has advised Allied Group, Inc.
that it intends to make a cash tender offer for all of the outstanding shares of
Common Stock of ALLIED Group, Inc. Such offer will be considered by the
Company. On or before June 1, 1998, ALLIED Group, Inc. will advise its
shareholders as to whether ALLIED Group, Inc. recommends acceptance or rejection
of such tender offer.
In the meantime, I urge ALLIED Stockholders to defer making a
determination whether to accept or reject such tender offer until you have been
advised of ALLIED Group's position with respect to such tender offer.
Sincerely,
John E. Evans
Chairman of the Board
ALLIED Group, Inc.
<PAGE>
Exhibit 6
CONFIDENTIALITY AGREEMENT
-------------------------
This Agreement is entered by and among Allied Group, Inc. (Allied Group"),
Nationwide Mutual Insurance Company and Nationwide Group Acquisition Corporation
(collectively, "Nationwide"), as of May 28, 1998.
RECITALS
--------
WHEREAS, on May 19, 1998, Nationwide made a tender offer for all of the
Common Stock of Allied Group at $47 per share;
WHEREAS, on May 18, 1998, Nationwide filed a lawsuit against Allied Group,
Allied Mutual Insurance Company ("Allied Mutual") and their directors, in the
United States District Court for the Southern District of Iowa, under Case No.
4-98-CV-10280 (the "Litigation");
WHEREAS, the parties to this Agreement, their agents and representatives
plan to meet on one or more occasions on or before June 2, 1998, (the "Meeting")
to discuss resolving the Litigation and the terms upon which a possible
transaction between the parties can take place on a consensual basis and in
order to do so they have entered into this Agreement to facilitate those
discussions;
WITNESSETH
----------
NOW, THEREFORE, it is hereby agreed as follows:
1. Subject to the parties' rights to enforce this Agreement, nothing said
or written by anyone at the meeting shall be discoverable or admissible in the
Litigation or in any court, administrative or arbitration proceeding to which
the parties hereto are parties.
2. Subject to any legal obligations they may have, including those under
federal and state securities laws, the parties hereto
<PAGE>
will forever keep confidential and not disclose to any third party the existence
of the Meeting (unless and until the existence of the Meeting has previously
been disclosed pursuant to applicable legal requirements), any offer, terms of
any offer, rejections of any offer, or discussions regarding the economics or
the structure of any proposed transaction discussed at the Meeting, except that
the parties hereto may disclose such information to their directors, officers,
employees, agents, representatives, attorneys, accountants,and financial
advisors who need to know such information for the purpose of evaluating a
transaction between Nationwide and Allied Group, so long as each recipient of
this information, (a) is informed by the party disclosing it of the confidential
nature of such information and (b) expressly agrees to treat such information
confidentially in accordance with this Agreement.
3. If any of the parties hereto becomes (or it is reasonably likely that
any of the parties hereto shall become) legally compelled to disclose any
information that is required to be kept confidential under this Agreement,
prompt notice of such fact shall be given to the other parties, so that any
appropriate legal action may be taken to protect the confidentiality of such
information.
4. Without prejudice to any other rights or remedies that any party
hereto may have under this Agreement, each party acknowledges and agrees that
damages would not be an adequate remedy for any breach of this Agreement and any
party hereto shall be entitled to the remedies of injunction, specific
performance and other equitable relief for any threatened or actual breach of
this Agreement.
2
<PAGE>
5. If any provision of this Agreement shall be held to be unenforceable,
it shall not affect the enforceability of the remainder of this Agreement.
6. This Agreement constitutes the entire agreement between the parties
hereto regarding the subject matter hereof. This Agreement may changed only by a
written agreement signed by the parties hereto.
7. This Agreement shall be governed and construed in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
thereof.
ALLIED GROUP, INC.
Date: 5-28-98 By: [SIGNATURE APPEARS HERE]
---------------- ---------------------------------------------
Its: President
--------------------------------------------
NATIONWIDE MUTUAL INSURANCE COMPANY
Date: 5-28-98 By: [SIGNATURE APPEARS HERE]
---------------- ---------------------------------------------
Its: Vice President - Associate General Counsel
--------------------------------------------
NATIONWIDE GROUP ACQUISITION
CORPORATION
Date: 5-28-98 By: [SIGNATURE APPEARS HERE]
---------------- ---------------------------------------------
Its: Vice President - Associate General Counsel
--------------------------------------------
3
<PAGE>
Exhibit 7
IN THE IOWA DISTRICT COURT IN AND FOR POLK COUNTY
- --------------------------------------------------------------------------------
BRICKELL PARTNERS, . Case No. CL 76440
Individually And On Behalf of . --------
All Others Similarly Situated,
.
Plaintiff. .
-against- .
.
DOUGLAS L. ANDERSEN, JOHN E. CLASS ACTION PETITION
EVANS, WILLIAM E. TIMMONS, .
DONALD S. WILLIS, HAROLD S. .
CARPENTER, CHARLES I. COLBE,
HAROLD S. EVANS, JAMES W. .
CALLISON, RICHARD O. JACOBSON, .
JOHN P. TAYLOR, and ALLIED
GROUP, INC., .
.
Defendants.
- --------------------------------------------------------------------------------
Plaintiff, by its attorneys, allege upon personal knowledge as to their own
acts and upon information and belief as to all other matters, as follows:
1. Plaintiff brings this action individually and as a class action on
behalf of all persons, other than defendants, who own the securities of Allied
Group, Inc. ("Allied" or the "Company") and who are similarly situated (the
"Class"), for injunctive and other relief. Plaintiff seeks to compel Allied,
inter alia, to consider the bona fide offer of Nationwide Mutual Insurance
Company ("Nationwide") to acquire all of the outstanding stock of Allied for $47
per share. Alternatively, plaintiff seeks to recover damages caused by the
breach of fiduciary duties owned by the defendants.
<PAGE>
PARTIES
-------
2. Plaintiff is and, at all relevant times, has been the owner of shares
of Allied common stock.
3. Allied is a corporation duly organized and existing under the laws of
the State of Iowa. The Company through subsidiaries operates a regional
property-casualty insurance business specializing in personal lines and small
commercial lines of insurance. Allied maintains its principal executive offices
at 701 Fifth Avenue, Des Moines. As of March 27, 1998, Allied had approximately
30,546,746 shares of common stock outstanding and hundreds of stockholders of
record. Allied stock trades on the New York Stock Exchange.
4. Defendant John E. Evans is the Chairman of the Allied Board of
Directors. Evans also served as the Company's President from 1974 through 1994.
5. Defendant Douglas L. Andersen is the President, Chief Executive
Officer and a Director of Allied.
6. Defendant Donald S. Willis is a Director of Allied. Willis also serves
as a Director for AMCO, Allied Property and Casualty, and Depositors Insurance
Company - subsidiaries of Allied.
7. Defendant Harold S. Carpenter is a Director of Allied. Carpenter also
serves as a Director of AMCO, Allied Property and Casualty, and Depositors
Insurance Company - subsidiaries of Allied.
8. Defendant Charles I. Colby is a Director of Allied. Colby also serves
as a Director for AMCO - a subsidiary of Allied.
2
<PAGE>
9. Defendant Harold S. Evans is a Director of Allied. Evans also serves
as a Director for AMCO, Allied Property and Casualty, Depositors Insurance
Company, and Allied Life Financial Corporation - subsidiaries of Allied.
10. Defendant James W. Callison is a Director of Allied. Callison also
serves as a Director for AMCO, Allied Property and Casualty, Depositors
Insurance Company, and Allied Life Financial Corporation - subsidiaries of
Allied.
11. Defendant William E. Timmons is a Director of Allied.
12. Defendant Richard O. Jacobson is a Director of Allied.
13. Defendant John P. Taylor is a Director of Allied.
14. The defendants named in paragraphs 4 through 13 are hereinafter
referred to as the "Individual Defendants."
15. Because of their positions as officers or directors, the Individual
Defendants owe fiduciary duties of loyalty and due care to the plaintiff and the
other members of the Class.
16. Each defendant herein is sued individually as a conspirator, as well
as in his/her/its capacity as an officer or director of the Company, and the
liability of each arises from the fact that each defendant has engaged in all
or part of the unlawful acts, plans, schemes, or transactions complained of
herein.
3
<PAGE>
CLASS ACTION ALLEGATIONS
------------------------
17. Plaintiff brings this case in its own behalf and as a class action,
pursuant to Rule 42 of the Iowa Rules of Civil Procedure, on behalf of all
stockholders of the Company, except defendants herein and any person, firm,
trust, corporation, or other entity related to or affiliated with any of the
defendants, who will be threatened with injury arising from defendants' actions
as is described more fully below.
18. This action is properly maintainable as a class action.
19. The Class is so numerous that joinder of all members is impracticable.
The Company has approximately 30,546,746 shares of common stock. There are
hundreds of record and beneficial stockholders.
20. There are questions of law and fact common to the Class including,
inter alia, whether:
a. defendants have breached and will continue to breach the fiduciary
and other common law duties owed by them to plaintiff and the members of the
Class; and
b. plaintiff and the other members of the Class would be irreparably
damaged by the wrongs complained of herein.
21. Plaintiff is committed to prosecuting this action and have retained
competent counsel experienced in litigation of this nature. Plaintiff's claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Plaintiff is an adequate
representative of the Class.
4
<PAGE>
22. The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications or substantially impair or
impede their ability to protect their interests.
23. The defendants have acted, or refused to act, on grounds generally
applicable to, and causing injury to, the Class and, therefore, preliminary and
final injunctive relief on behalf of the Class as a whole is appropriate.
SUBSTANTIVE ALLEGATIONS
-----------------------
24. In January 1998, representatives of Nationwide initiated discussions
with Allied concerning a possible business combination of the two companies.
Despite specific offers made by Nationwide, defendants rebuffed all such offers
and refused to even inform themselves or negotiate with the representatives of
Nationwide.
25. On May 19, 1998, after months of attempting to negotiate with the
defendants, Nationwide publicly disclosed that it had offered to acquire all of
the outstanding stock of Allied for $47 per share in a transaction valued at
more than $1.59 billion. Nationwide further stated that it had no intention of
firing Allied workers or closing Allied offices.
26. Nationwide Chairman Dimon McFerson made Nationwide's offer public after
becoming "consistently frustrated" with Allied's "stalling tactics." As reported
by Reuters
5
<PAGE>
News Service on May 18, 1998, McFerson stated, "We felt it was important that
[Allied's] stakeholders should all have a chance to vote on this thing for
themselves and not accept the vote of their board of directors so we decided to
take the unsolicited offer to the marketplace."
27. Nationwide's $47 offer constitutes a remarkable 69% premium over the
unaffected trading price of Allied's stock prior to the public announcement.
28. Despite the unusually high premium offered, Allied's only public
response to the formalized offer was a terse statement that it would evaluate
the offer in due course.
29. Financial analysts following Allied favored the transaction proposed
by Nationwide. For example, Stephen Musser, an analyst at A. G. Edwards & Sons
Inc. stated that the proposed transaction "will help [Allied] to compete with
the State Farms and the Allstates of the world."
30. Defendants have breached their fiduciary obligations to Allied's
shareholders to maximize shareholder value by entrenching themselves in refusing
to consider the Nationwide offer, thereby assuring their positions and benefits
as directors of Allied. Defendants have further breached their fiduciary
obligations in failing to fully and properly inform themselves about
Nationwide's bona fide offer or negotiate with Nationwide to maximize the price
paid to the Company's shareholders.
31. Defendants have violated fiduciary and other common law duties owed to
the plaintiff and the other members of the Class in that they have not and are
not exercising independent business judgment, and have acted and are acting to
the detriment of the Class.
32. As a result of defendants' actions, plaintiff and the Class have been
and will be
6
<PAGE>
damaged by the breaches of fiduciary duty and, therefore, plaintiff and the
Class will not receive the fair value of Allied's assets and businesses.
33. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the Class, and will succeed in
their plan to exclude plaintiff and the Class from their fair proportionate
share of Allied's valuable assets and businesses, all to the irreparable harm of
the Class.
34. Plaintiff and the Class have no adequate remedy of law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
a. declaring that this lawsuit is properly maintainable as a class
action and certifying plaintiff as a representative of the Class;
b. declaring that the defendants and each of them have committed a
gross abuse of trust and have breached their fiduciary duties to plaintiff and
the other members of the Class;
c. preliminarily and permanently enjoining defendants and their
counsel, agents, employees, and all persons acting under, in concert with, or
for them, from proceeding with or implementing the sale of Allied to Select at
the current bid price;
d. in the event this sale is consummated, rescinding it and setting
it aside;
e. awarding compensatory damages against defendants, jointly and
severally, in an amount to be determined at trial, together with prejudgment
interest at the maximum rate allowable by law;
f. awarding plaintiff and the Class their costs and disbursements and
7
<PAGE>
reasonable allowances for plaintiff's counsel and experts' fees and expenses;
and
g. granting such other and further relief as may be just and proper.
Dated: May 21, 1998
LAMARCA & LANDRY, P.C.
By: /s/ George A. LaMarca
-------------------------------------
George A. LaMarca PK 0003017
Alexander R. Rhoads PK 2015123
Walnut Grove Center
1300 50th Street - Suite 104
West Des Moines, Iowa 50266
Telephone: (515) 225-2600
Telefax: (515) 225-5851
CO-COUNSEL FOR PLAINTIFF
Of Counsel:
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
Matthew M. Houston
488 Madison Avenue
New York, New York 10022
(212) 935-7400
8
<PAGE>
EXHIBIT 8
IN THE IOWA DISTRICT COURT
IN AND FOR POLK COUNTY, IOWA
MARY M. RIEFF,
SSN: ###-##-####
PLAINTIFF,
v. Civil Action No.
JOHN E. EVANS, DOUGLAS L. PETITION IN EQUITY
ANDERSEN, HAROLD S. EVANS,
JAMIE H. SHAFFER, JAMES W.
CALLISON, JAMES M. HOAR, JR.,
MARK W. PUTNEY, WILLIAM J.
HANCOCK, JAMES D. KIRKPATRICK,
CHARLES T. COLBY, GEORGE E. MOORE,
HERSCHEL G. LANGDON, CHARLES F.
MORGAN, HARDY G. KUYKENDALL,
WALTER J. FAYLE, AND
ALLIED GROUP, INC.,
Defendants,
and
ALLIED MUTUAL INSURANCE COMPANY,
Nominal Defendant
Plaintiff, a policyholder of Allied Mutual Insurance Company, by her
undersigned attorneys, for this Verified Derivative Petition, alleges upon
personal knowledge as to herself and her own acts, and upon information and
belief as to all other matters, based upon, among other things, a review of
public documents, published reports and news articles, as follows:
<PAGE>
NATURE OF ACTION
----------------
1. This is a policyholder's derivative action brought on behalf of
nominal defendant Allied Mutual Insurance Company ("Allied Mutual" or the
"Company") against defendants who were responsible for the stripping and
inappropriate transfer of Allied Mutual's corporate assets, the seizure of its
corporate opportunities, and the implementation of an improper de facto
demutualization (i.e. the conversion of the Company from mutual policyholder
ownership to corporate stock ownership form) without either informing or
compensating policyholders or receiving the appropriate approval from regulatory
authorities. The decimation of Allied Mutual began on or about January 1, 1985,
and was accomplished through more than a dozen piecemeal, yet systematic,
transfers of Allied Mutual's policyholder-owned premiums, assets, employees, and
business opportunities to defendant Allied Group, Inc. ("Allied Group"), a stock
company, and to the individual defendants, for no consideration or grossly
inadequate consideration. Each and every major transaction between Allied Mutual
and Allied Group since 1985 benefited the latter company at the expense of the
former, and benefited Allied Mutual's directors and officers, who gained
significant ownership in Allied Group. Although Allied Mutual created and once
owned 100% of Allied Group, Allied Mutual has
- 2 -
<PAGE>
been stripped of its ownership of Allied Group so that its sole remaining
interest is effectively that of a subordinated creditor. In addition, all of
Allied Mutual's employees have now been transferred to Allied Group, turning
Allied Mutual into little more than a corporate shell that is wholly dependent
upon Allied Group. The individuals named as defendants in this action wrongfully
appropriated over $500 million from Allied Mutual through this transfer of the
Company's assets and business to Allied Group. These defendants personally
benefited through a series of self-dealing transactions that resulted in their
ownership of Allied Group stock, options, grants, an ESOP, and convertible
preferred shares which they improperly seized through their "control" of Allied
Mutual's board. The defendants further benefited and continue to benefit from
their control of Allied Mutual's approximately $400 million in assets, which
inter alia, are used to benefit Allied Group through fees and underwriting
- ----------
capacity. The stock, options, grants and other forms of equity obtained by the
defendants and other directors, officers, and employees of Allied Mutual and
Allied Group, are worth at least $250 million. The value was siphoned from
Allied Mutual by the defendants' actions. Allied Group has a current stock
market value approximately $900 million. If Allied Mutual were to be valued at
the same multiple of earnings used to value
- 3 -
<PAGE>
Allied Group, it would be worth a mere $125 million.
2. The individuals named as defendants in this action, either directly
or indirectly, participated in the course of conduct leading to the decimation
of Allied Mutual, or failed to prevent it when they were in a position to do so.
The individuals named as defendants were all officers and/or directors of Allied
Mutual and Allied Group during all or a portion of the relevant time period.
These defendants were responsible for decisions affecting both Allied Mutual and
Allied Group, for the overwhelming benefit of Allied Group, in total disregard
of the interests of Allied Mutual, and in complete derogation of defendants'
duties to the Company's policyholders. Defendants breached their fiduciary
duties of care and loyalty to Allied Mutual and its policyholders, wasted Allied
Mutual's assets, and committed acts of gross mismanagement and self-dealing to
enrich their own financial positions to the detriment of the Company and its
policyholders, while retaining control of Allied Mutual's assets and lucrative
insurance business and improperly transferring them to Allied Group through the
transactions detailed herein.
3. As a direct result of the individual defendants' breach of fiduciary
obligations to Allied Mutual and its policyholders, Allied Mutual and its
policyholders have suffered
- 4 -
<PAGE>
damages in excess of $500 million and continue to suffer injuries as described
below.
JURISDICTION AND VENUE
----------------------
4. This derivative action is brought pursuant to I.C.A. $490,740. Allied
Mutual is a mutual insurance company duly organized under the laws of the state
of Iowa, with its principal place of business in Des Moines, Iowa.
5. The plaintiff policyholder, Mary M. Rieff, is a resident and citizen
of the city of Des Moines, County of Polk, State of Iowa. Plaintiff purchased a
homeowner's insurance policy from Allied Mutual in or about 1950, and purchased
an auto insurance policy from Allied Mutual in or about 1960. Plaintiff is
currently a policyholder of Allied Mutual, and was a policyholder at all times
relevant to this complaint.
THE PARTIES
-----------
6. The plaintiff is, and was at the time of the commission of the
wrongful acts complained of herein, a policyholder of Allied Mutual, holding all
rights and privileges of ownership under the laws of the State of Iowa,
including the right to vote and the right to receive dividends as and when
declared. Plaintiff brings this action derivatively on behalf of, and for the
benefit of, Allied Mutual, nominal defendant herein.
- 5 -
<PAGE>
7. Nominal defendant Allied Mutual, an Iowa mutual insurance company,
was incorporated in 1929 by the grandfather of defendant John E. Evans. Allied
Mutual has engaged, at all times relevant hereto, in the property-casualty
insurance business. Before the transactions complained of herein, Allied Mutual
and its subsidiaries underwrote personal and commercial property-casualty
insurance. Allied Mutual also underwrote life insurance through Allied Life
Insurance Company, then a subsidiary of its wholly owned subsidiary, Allied
Group. At the time of the initial public offering of Allied Group's stock (the
"IFO") in 1985, the officers of both corporations were identical and two-thirds
of Allied Group's directors were Allied Mutual directors.
8. Defendant Allied Group was incorporated in 1974 by Allied Mutual as a
wholly owned subsidiary. At the time of the IPO of Allied Group's stock in 1985,
Allied Group was a regional insurance holding company engaged in the
property-casualty and life insurance business, operating through four
subsidiaries. Its operating subsidiaries were AMCO Insurance Company ("AMCO"),
Allied property & casualty Insurance Company ("AFC"), Depositors Insurance
Company ("Depositors") and Allied Life. At the time of the IPO, Allied Group had
no employees and effectuated its entire business using Allied Mutual's
employees.
- 6 -
<PAGE>
9. Defendant John E. Evans ("J. Evans") has been Chairman of the Board and
a director of Allied Mutual at all times relevant hereto. He has also been
Chairman of the Board and a director of Allied Group at all relevant times. J.
Evans has controlled Allied Mutual since at least 1961. He was the President and
Chief Executive Officer of both companies until he retired in 1994. He has also
been Chairman of the Board and a director and President of Allied Life at all
relevant times. His cumulative compensation for the period 1992 to 1995 was $8.9
million.
10. Defendant Douglas Andersen has been Vice President for Marketing of
Allied Mutual and Allied Group's AMCO, APC and Depositors subsidiaries at all
times relevant hereto. Since 1993, Andersen has been President of Allied
Mutual, AMCO, APC and Depositors. In 1993, Andersen was elected a director of
Allied Mutual and was elected to the Allied Group's Board and named its Chief
Executive Officer in March 1997.
11. Defendant Harold Evans - ("H. Evans"), J. Evans' brother, has been a
director of both Allied Mutual, Allied Group, Allied Life and other Allied Group
companies, at all times relevant hereto.
12. Defendant Jamie Shaffer has been Treasurer and the senior financial
executive of Allied Mutual, Allied Group and
-7-
<PAGE>
other Allied Group companies at all times relevant hereto.
13. Defendant James W. Callison has been a director of both Allied Mutual
and Allied Group at all times relevant hereto. He is also a director of other
related Allied Group companies.
14. Defendant James M. Hoak, Jr. was a director of Allied Mutual from 1983
until approximately 1989 and of Allied Group from 1984 until approximately 1990.
15. Defendant Mark W. Putney was a director of Allied Mutual from 1983
until approximately 1989 and of Allied Group from 1984 until 1993.
16. Defendant William J. Hancock was an employee of Allied Mutual from 1941
to 1978 and a director of Allied Mutual until at least December 1990 (but not as
of December 31, 1994). Hancock was an Allied Group director from 1974 until at
least 1990.
17. Defendant James D. Kirkpatrick was a director of Allied Mutual from as
early as 1990 until at least December 31, 1996. Kirkpatrick had been employed by
Allied Mutual and its related companies, including Allied Group since 1949,
until he retired from his positions as President of Allied Mutual, Allied Group,
AMCO, APC and Depositors at the end of 1993. He is the second largest employee
shareholder of Allied Group after J.
-8-
<PAGE>
Evans.
18. Defendant Charles I. Colby was a director of Allied Mutual from 1971
until 1993. In 1993, he joined the Board of Allied Group.
19. Defendant George E. Moore was a director of Allied Mutual until at
least 1991 and was a Vice President of Allied Mutual before his retirement in or
before 1987.
20. Defendant Herschel G. Langdon was a director of Allied Mutual until
approximately 1993.
21. Defendant Charles F. Morgan has been a director of Allied Mutual since
approximately 1994 and has been a Vice President of Allied Mutual and an
employee of Allied Group since at least 1994.
22. Defendant Hardy G. Kuykendall was a director and a Vice President of
Allied Mutual until approximately 1988.
23. Defendant Walter J. Fayle was a director of Allied Mutual until
approximately 1989. Fayle retired as a Vice President of Allied Mutual in or
before 1987.
24. Each of the individual defendants who was an officer and/or director
of Allied Mutual at the time of any or all of the actions complained of herein
is liable as a direct participant in, and/or an aider and abettor of, the
wrongful actions that are the subject of this action.
-9-
<PAGE>
DEMAND AND THE NEED FOR DERIVATIVE ACTION
-----------------------------------------
25. Plaintiff has not made a demand on the current Board of Directors of
Allied Mutual because such a demand would be futile. The current Board of
Allied Mutual consists of defendants J. Evans, H. Evans, Callison, Kirkpatrick,
Andersen and Charles Morgan, all of whom are directors and/or current or former
executive management employees of Allied Group, who cannot be expected to sue
themselves for the wrongful conduct and breaches of loyalty alleged herein.
26. Allied Mutual's Board of directors is dominated and controlled by J.
Evans, who has run the company since 1961 and upon whom each of the remaining
board members relies for continuation of his lucrative position with Allied
Mutual and/or Allied Group.
27. Each of these individuals has received substantial grants of stock
and/or stock options as a result of the transactions complained of herein, to
his significant personal financial benefit. None of these individuals would be
willing to pursue actions to reverse any or all of the transactions that
decimated Allied Mutual as described below, because to so would cause his
substantial assets wrongfully accumulated as a result of the conduct alleged
herein, to be returned to Allied Mutual. The relief requested in this action to
restore to
-10-
<PAGE>
Allied Mutual the assets and business that the defendants wrongfully transferred
to Allied Group would significantly reduce the value of the Allied Mutual
director's holdings of Allied Group stock and expose defendants to claims by
Allied Group stock and expose defendants to claims by Allied Group's
shareholders. Thus, demand on the Allied Mutual board would be futile.
28. Attached to this petition, and incorporated by this reference, is an
affidavit of the Plaintiff pursuant to Iowa Rule of Civil Procedure 44.
DUTIES OF ALLIED MUTUAL DIRECTORS
---------------------------------
29. Each of the individual defendants who was a director of Allied Mutual,
by reason of his corporate position and his ability to control the Company's
business and corporate affairs, owed the Company and its policyholder-owners
fiduciary obligations of candor, fidelity and trust and the duty to exercise a
high degree of care and diligence in the management and administration of the
Company's affairs, as well as in the use and preservation of its property and
assets. The individual defendants are and were required to use their utmost
ability to manage and oversee the Company in a fair, just and equitable manner,
as well as to act in furtherance of Allied Mutual's and its policyholders' best
interests. To discharge this duty, each of these defendants had a duty to
exercise reasonable and
-11-
<PAGE>
prudent supervision over the management, policies, practices and controls over
the affairs of Allied Mutual. In fulfillment of these duties, the defendants
were required, among other things, to manage, conduct, supervise and direct the
business affairs of Allied Mutual for the continued benefit of its
policyholder-owners and to avoid self-dealing and personal enrichment to
themselves.
30. At all time mentioned herein, each of the defendants has been engaged
in a common course of conduct, acting in concert with the other defendants. Each
of the defendants was the agent of each of the remaining defendants and was at
all times mentioned herein acting within the course and scope of that agency.
SUBSTANTIVE ALLEGATIONS
-----------------------
31. Allied Mutual was incorporated in 1929 as Allied Mutual Automobile
Association. It has operated as a mutual insurance company owned by its
policyholders throughout the century under a variety of names. It adopted its
current name in 1986. Allied Mutual formed Allied Group as a wholly owned
subsidiary in 1974.
32. As described below, through a series of transactions beginning in 1985
and continuing through 1993 and to the present, J. Evans and the other
individual defendants
-12-
<PAGE>
manipulated the boards and wrongfully utilized the corporate assets of both
companies through the gradual transfer of the business and assets of Allied
Mutual to Allied Group for no or grossly inadequate consideration, and to secure
lucrative financial positions for themselves that by right belonged to Allied
Mutual.
33. Before October 30, 1985, Allied Mutual owned 100% of Allied Group. On
October 30, 1985, Allied Group, at the direction of Allied Mutual, consummated
an initial public offering of 21% of Allied Group stock outstanding with net
proceeds of $16.4 million. The stock was sold at a price approximating book
value, which was below its intrinsic value. Allied Mutual contributed the
proceeds of the offering to the capital and surplus of its subsidiaries, AMCO,
AFC and Depositors. At the time of the IPO, all of Allied Group's officers were
officers of Allied Mutual and officers and/or directors of its subsidiaries.
Two-thirds of Allied Group's directors were Allied Mutual directors and
controlled Allied Mutual's board. On January 1, 1985, in anticipation of the
proceeds Allied Group's percentage participation in the underwriting pool
described below from 15% to 38%.
34. At or around the time of the IPO, J. Evans and other
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Allied Mutual employees received large grants of Allied Group stock options. J.
Evans received options for 351,915 shares (as adjusted for subsequent stock
splits) of Allied Group's stock, approximately 1.6% of the stock of Allied
Group. Eleven other employees received options on 713,915 shares (adjusted) of
Allied Group stock.
35. At the time of the public offering of Allied Group stock, Allied Group
was completely dependent upon Allied Mutual, since Allied Group had no employees
and utilized the services and facilities of Allied Mutual to conduct its
business. Pursuant to an agreement in place at the time of the IPO (the
"pooling agreement"), Allied Group's subsidiaries (excluding Allied Life)
participated in an underwriting pool with Allied Mutual. Allied Mutual held the
critical position of the pool administrator at that time. Allied Mutual and the
Allied Group subsidiaries contributed all of their business to the pool and in
return assumed a set percentage of all the business in the pool. Premiums,
--------------
losses, loss settlement expenses, underwriting and other costs and expenses were
prorated among the parties on the basis of their set percentage participation in
the pool. Allied Mutual provided data processing, professional claims,
financial, investment, actuarial, auditing, risk management, risk improvement,
marketing and underwriting services to the
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pool participants, the costs of which were shared by the pool members. The
operation of the pooling agreement was described as follows in the offering
documents:
[Allied Group] cedes to [Allied] Mutual all
of its insurance business and assumes 38% of
all business in the pool. All premiums,
losses, loss settlement expenses and
underwriting expenses are prorated among the
parties on the basis of participation in the
pool, which includes all of [Allied]. Mutual's
property-casualty business. [Allied] Mutual
provides data processing, professional claims,
financial, investment, actuarial, auditing,
risk management, risk improvement, marketing
and underwriting services, the costs of which
are shared by the pool members. The pooling
agreement may be amended or terminated at the
end of any calendar year by agreement of the
parties, subject to the review and approval of
the coordinating committee.
At no time was Allied Mutual obligated to amend the pooling agreement or to
increase Allied Group's percentage participation in the pool.
36. In 1985 the Boards of Directors of Allied Mutual and Allied Group
established a Coordinating Committee consisting of two representatives of Allied
Mutual and two representatives of Allied Group. The Coordinating Committee's
primary purpose was and is supposed to be to review all transactions between the
companies to determine if any conflicts of interest might arise. In this
context, the Coordinating Committee also was and is
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<PAGE>
responsible for approving changes in the pooling agreement. The decisions of the
Coordinating Committee are binding on both companies. At all times relevant
hereto, the Committee consisted of two outside directors from both Allied Mutual
and Allied Group who, although they did not hold seats on both boards, were
hand picked by J. Evans and were beholden to him for their positions.
37. The members of the Coordinating Committee on behalf of Allied Mutual as
of December 31, 1990 were Charles Colby, and Allied Mutual director from 1971
until 1993, when he left Allied Mutual's Board to join Allied Group's board, and
Herschel Langdon, a Des Moines attorney and member of Allied Mutual's Board. In
1987, a plan was implemented permitting outside directors of Allied Mutual to
receive stock options in Allied Group. As of December 31, 1994, Allied Mutual's
representatives on the Coordinating Committee were James D. Kirkpatrick and
Charles F. Morgan. Kirkpatrick, while he represented Allied Mutual on the
Coordinating Committee, had significant holdings of Allied Group stock. Morgan
is in fact an employee of Allied group since Allied Mutual has not had
employees of its own since the beginning of 1990. As such, Allied Mutual was
not independently represented because both of Allied Mutual's "representatives"
had significant conflicts of interest arising
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from their personal relationships with Allied Group.
38. In 1986, Allied Group formed Western Heritage Insurance Company, a
surplus-lines insurer, as a subsidiary. Allied Mutual's agency force marketed
Western Heritage's insurance products for which services Allied Mutual received
no compensation from Allied Group or Western Heritage. Nor did Western Heritage
participate in the pooling agreement. Thus, all of Western Heritage's premiums
incured to the benefit of Allied Group, even though Allied Mutual gave Western
Heritage free use of its valuable distribution system for its marketing efforts.
Allied Mutual was deprived of ownership of Western Heritage, an asset with a
current approximate value of $80 million.
39. On January 1, 1985. Allied Group's pool participation increased from 15%
to 38%. On January 1, 1987, the pooling agreement was amended to increase Allied
Group's percentage participation in the pool to 41%, while decreasing Allied
Mutual's percentage participation from 62% to 59%. Allied Mutual transferred
$5.3 million to Allied Group as part of its increased pool participation. Allied
Mutual had no pressing need to reduce its participation (it maintained excellent
premium-to-surplus and gross leverage ratios) other than to benefit Allied Group
and its stockholders at the expense of
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Allied Mutual and its policyholders.
40. Also on January 1, 1987, Allied Group formed another subsidiary,
Allied Group Information Systems ("AGIS"), to provide data processing services
to all Allied companies. Since Allied Group had no employees of its own until
1990, it used Allied Mutual employees to operate AGIS. AGIS than sold the
services of these employees back to Allied Mutual at a profit. In 1987 alone,
Allied Mutual paid $4.7 million to AGIS for data processing services performed
by Allied Mutual's own employees. In 1988, Allied Mutual paid AGIS $5.4 million
for such services.
41. In 1988, Allied Group approved an Executive Equity Incentive Plan
through which defendant J. Evans and other Allied Group executives, including
defendants Shaffer, Andersen, and Kirkpatrick, received large grants of stock
options at a nominal exercise price. All of these Allied Group executives were
Allied Mutual directors who now had even greater personal financial incentives
to advance the fortunes of Allied Group to the detriment of Allied Mutual. This
option plan easily received approval from Allied Group's shareholders because
Allied Mutual, which still owned 77% of Allied Group's common stock, voted for
the plan. J. Evans, the major beneficiary of the plan, controlled Allied
Mutual.
42. Stock options were also offered to Allied Group's non-
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employee directors, two-thirds of whom were also Allied Mutual directors at the
time.
43. In early 1989, a corporate opportunity of Allied Mutual was given to
Allied Group which acquired 100% of the investment banking firm of Dougherty
Dawkins, Inc. for $10.8 million, 74% of which was financed by a loan from Allied
Mutual.
44. In October 1989, the interlocking boards of Allied Mutual and Allied
Group, rife with admitted "inherent conflicts of interest," approved an
unprecedented restructuring plan that stripped Allied Mutual of its assets and
employees and provided a boon to Allied Group's stockholders, including many of
the Allied Mutual/Allied Group board members. The plan was not submitted to
policyholders or state regulators for approval. The restructuring consisted of
the following transactions:
a. Allied Group sold its Allied Life Insurance Company subsidiary to
Allied Mutual in exchange for approximately half of Allied Mutual's interest in
Allied Group. In the exchange, Allied Life was valued in the exchange at $36.5
million, a $5.4 million (or 17%) premium over its book value. By comparison,
the Allied Group stock relinquished by Allied Mutual was valued for the
transaction at an $8 million (or 18%) discount to book value. The current value
of the 9,112,500 Allied Group shares that Allied Mutual gave up in the
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transaction is approximately $260 million, while the current value of Allied
Life is approximately $30 million -- a differential of $210 million. Allied
Group's proxy statement in November 1989, which was disseminated to its
stockholders (but not to Allied Mutual's policyholders) stated that Allied
Group's management (consisting of many of Allied Mutual's officers and
directors) "believe(d) that the future long-term profitability of property-
casualty operations will be greater than the profitability of life
operations...." Despite that, Allied Life was valued at 13.4 times earnings, and
Allied Group - a far stronger and better positioned company - was valued at 9.2
times earnings. Thus, Allied Group, the public company in which all of the
individual defendants herein had a substantial financial stake through their
stock and option holdings, admittedly took control of the portion of Allied
Mutual's insurance business with the brighter future and left Allied Mutual and
its policyholders with the less valuable subsidiary.
b. All of Allied Mutual's employees became Allied Group employees,
leaving the Company wholly dependent upon Allied Group in the future. The
allocation of personnel costs continued (for a time) in accordance with the
pooling agreement.
c. Allied Group established a leveraged employee stock ownership plan
("ESOP"), of which J. Evans, Andersen,
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Kirkpatrick, Shaffer among others, were beneficiaries. The ESOP bought
8.1 million shares (or 378) of Allied Group in the form of Allied Group 8%
Convertible Preferred stock (each share convertible to 1 share of common stock)
for %36 million, approximately half its fair value. Allied Group guaranteed $35
million to finance the $36 million acquisition price for the ESOP (and
contributed the remaining $1 million of the acquisition of price to the ESOP0).
The ostensible purpose of this Transaction was for Allied Mutual to save
%5million (present value) in employee benefits over 15 years. Today, the 8.1
million shares the ESOP bought at a bargain price are worth $231 million, a
difference of $226 million.
d. On January 1, 1990, Allied Group increased its share of the pool
from 418 to 530, with the related decreases in Allied Mutual's participation
from 590 to 478. In conjunction with the pooling change, Allied Group assumed
$47.5 million of Allied Mutual's reserves and received $47 million in assets on
which it would earn investment income until the reserves were paid out. In its
1990 Annual Report (disseminated to Allied Group stockholder, buy not to Allied
Mutual policyholders), Allied Group boasted that the restructuring "gave [Allied
Group] all the advantages of an acquisition without any of the drawbacks."
Thus profitable premiums were shifted out of Allied
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Mutual and into Allied Group. With the restructuring alone, the defendants
gave the vast bulk of Allied Mutual's growth potential to Allied Group, in
exchange for Allied Life, an admittedly less desirable company.
45. In February 1992, Allied Group completed a public offering of new
shares, the proceeds of which were contributed to Allied Group's insurance
companies. The contribution allowed Allied Group to increase its participation
in the pool from 53% to 60%. As a result of the pooling change, Allied Mutual's
premiums shrunk 10% in 1992 to $191 million, 9% higher than its 1987 premiums.
By contrast, Allied Group's premiums had nearly doubled during the same time
period, increasing from $121 million in 1987 to $230 million in 1992.
46. In November 1992, Allied Group issued to Allied Mutual 1,827,222 share
of perpetual nonconvertible 6 3/4% preferred stock, valued at $52 million, in
exchange for 6,166,875 shares (adjusted) of Allied Group stock. The 6,166,875
shares represented 23.9% of Allied Group's $37 million of 1993 earnings or
approximately $8.8 million. Thus, Allied Mutual gave up $8.8 million of current
earnings in a growing enterprise in exchange for preferred stock that would
never pay more than $3.5 million in annual dividends in perpetuity. This
perpetual preferred stock was inherently incompatible with Allied Mutual's short
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<PAGE>
duration liabilities in the form of reserves. (Allied Group, in contrast, owns
no preferred stock in its investment portfolio.) The 23.9% stake in Allied
Group that Allied Mutual gave up in exchange for the preferred stock is
currently worth approximately $175 million. The preferred stock is worth
approximately $52 million. The preferred stock allows Allied Mutual to
currently nominate two of Allied Group's ten directors. Defendant J. Evans, the
Chairman of Allied Group's board, a director of Allied Group since the
mid-1970s, and an officer and director of many of Allied Group's affiliates, and
defendant H. Evans, an Allied Group board member since 1974, have served as
Allied Mutual's representatives on Allied Group's board since Allied Mutual
received the preferred stock.
47. On January 1, 1993, Allied Group's participation in the pool increased
from 60% to 64%, and Allied Mutual's share decreased to 36%. Thus, between
January 1, 1995 and late February 1993, Allied Mutual's interest in the Allied
pool premiums were reduced from 100% to 36% without Allied Mutual receiving
financial consideration. Allied Mutual thus was stripped on the lifeblood of
any insurance company - its premiums and assets - from which all profits,
investment income, and enterprise value are derived. In Allied Group's 1993
annual report, defendant Shaffer told shareholders that Allied Group's
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"intent was to increase [its] participation in (the) pooling agreement with
Allied Mutual" because Allied Group's "profit potential [had been] limited by
the level of our pooling participation." Shaffer admitted that Allied Group
could (and did) make more money by shifting premiums from Allied Mutual into
Allied Group's insurance subsidiaries.
48. On January 1, 1993, Allied Mutual was replaced as the pool
administrator by AMCO, wholly owned Allied Group subsidiary. In approving such a
change, Allied Mutual's directors gave up an asset worth substantially more than
$200 million for no material financial consideration. Under the amended pool
administration agreement, the pool's expenses were no longer allocated in the
customary manner, which is based upon each company's percentage of the pool.
Instead, the agreement was structured so that Allied Mutual would pay a fixed
cost for services from AMCO -- approximately 20.85% of premiums -- which was far
in excess of the actual costs that it would have paid had the pool expenses
continued to be allocated in the way that they had been for almost 20 years. The
effect of this pooling administration change was to shift profits to Allied
Group (through AMCO) by overcharging Allied Mutual for services. Allied Group
did not inform the Iowa Department of Insurance or Allied Mutual policyholders
of this, nor did it tell them that
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Allied Group would generate significantly higher profits that would exactly
equal the increased losses that Allied Mutual would suffer. Defendant J. Evans
and the other individual defendants knew that this change would benefit Allied
Group at Allied Mutual's expense. In Allied Group's 1992 Annual Report to
Shareholders (disseminated in 1993), J. Evans wrote that "having (AMCO) named
administrator of the Allied pool is an opportunity to flow every dollar of
savings straight to [Allied Group's] bottom line." As this statement reveals,
the purpose of the change in the pool administrator was to benefit Allied
Groups's bottom line (and, Consequently, Allied Group's shareholders, including
the directors and officers of Allied Group, and the directors of Allied Mutual
who owned stock in Allied Group) at the expense of Allied Mutual.
49. The impact the pooling administration change has had on Allied Mutual
has been substantial. Before the change, Allied Mutual and AMCO experienced
similar loss ratios and expense ratios. (The "loss ratio" is the percentage of
claims and claims-adjustment costs paid out of a dollar's worth of premiums. The
"expense ratio" is the percentage of underwriting, marketing, administrative and
other costs paid out of a dollar's worth of premiums. The sum of the loss ratio
and
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the expense ratio is known as the "combined ratio".) As a result of the amended
pool administration agreement, AMCO's conbined ratio improved substantially
relative to Allied Mutual's, at Allied Mutual's expense. By 1996, although both
companies still experienced similar loss ratios (62.9% for Allied Mutual and
62.6% for AMCO), their expense ratios were grossly different. Allied Mutual's
expense ratio had remained relatively stable at 44.1%, whereas AMCO's expense
ratio had decreased substantially (approximately twenty-five percent) to 31.5%.
As a result, Allied Mutual's combined ratio was 107% -- grossly disproportionate
to AMCO's combined ratio of only 94.1%. This unjustifiable difference in
profitability was the result of the shift of expenses from AMCO to Allied
Mutual. Indeed, the shifting of expenses has continued. In the first six
months of 1997, AMCO's combined ratio was 90.2% while Allied Mutual's was
103.9%. According to A.M. Best, the leading insurance industry rating agency,
AMCO earned a 13% return on premiums in that period versus the 2% return
experienced by Allied Mutual.
50. In 1992, Allied Mutual's operating earnings were $15.1 million
compared to $8.6 million for AMCO. As a result of the pooling administration
change, Allied Mutual's results have soured. Allied Mutual's earnings declined
to $6.87 million in 1996, approximately the same amount the company earned 20
years
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earlier. AMCO's operating earnings, however, have multiplied more than
fivefold, to $46.3 million. In 1996, for example, Allied Mutual, with a 36%
share of the pool, would have had a $6.4 million underwriting loss had the pool
expenses been allocated based upon each pool participants share of the pool.
Allied Mutual's actual underwriting loss was $23 million, due to expenses
charged on a fixed basis by AMCO, the pool administrator. The $16.6 million
difference went directly to Allied Group as profit. As a result of the amended
pooling administration agreement, and the other transactions engineered by
defendant J. Evans and the other defendants, from 1993 through 1996, Allied
Group earned $21.4 million from underwriting while Allied Mutual lost $63
million.
51. Defendant Kirkpatrick also knew that Allied Group would profit at
Allied Mutual's expense. In Allied Group's 1992 Annual Report, he wrote,
"instead of projecting numbers for the close of 1993, let's talk about the
strategies that will automatically create the numbers... The amended pooling
agreement will put an emphasis on cost-savings. As we begin to market our menu
of services to other property-casualty companies, efficiencies will have an even
greater impact on [Allied Group's] bottom line." (Emphasis added.)
Kirkpatrick's admission is even more stunning because of his position at the
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time as Allied Mutual's president.
---------------
52. In Allied Group's 1993 Annual Report, defendant Shaffer told Allied
Group shareholders that due to the amended pool administration agreement, "AMCO
has new opportunities to profit from increased efficiencies." Thus, Shaffer
baldly admitted that Allied Group (through AMCO) had seized a valuable Allied
Mutual corporate opportunity to profit from those increased efficiencies, now
inuring to the benefit of AMCO and Allied Group.
53. On February 10, 1993, to complete the process of the de facto
demutualization of Allied Mutual, its directors sold its remaining Allied Group
common stock as part of a public offering for which it received approximately
$24 million. These shares are now worth approximately $62 million.
54. After this public offering, Allied Mutual's only ownership interest in
Allied Group was the nonconvertible perpetual preferred stock it had received in
1992. Allied Mutual no longer had any employees and was committed to paying
fixed fees to Allied Group well in excess of the value of the services it
received. As a result of the defendants' corporate mismanagement, waste of
assets and extraordinary course of self-dealing described above, Allied Mutual
has received $24 million in cash, $52 million of preferred stock and Allied
Life, valued
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at approximately $50 million, in exchange for substantial ownership of and total
control over its former wholly owned subsidiary, Allied Group, now worth
approximately $900 million.
FRAUDULENT CONCEALMENT
----------------------
55. The effect of the transactions enumerated above was newer fully
disclosed to the policyholder-owners of Allied Mutual. No mention of the effect
of those transactions was ever made in any Proxy Statement or other document
disseminated to Allied Mutual's policyholder-owners.
56. The effect of the transactions was not even apparent to the
representatives of the Commissioners of Iowa and other states in which Allied
Mutual has done business. Examination Reports submitted to the State
Commissioners of Insurance, describing the audits of Allied Mutual performed by
the state examiners and dated as of December 31, 1990, and as of December 31,
1994, made no mention of any problems with the transactions enumerated above
because when viewed on a piecemeal basis no harm to Allied Mutual as a result of
any of the individual and seemingly separate transactions is readily apparent.
In fact, the Iowa Insurance Department's 1994 Examination Report of Allied
Mutual incorrectly describes the pool expense allocation as still being
prorated. It is the customary practice of the insurance department, prior to
signing off on the Examination
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Report, to send a copy to the insurance company for approval. Upon information
and belief. Allied Mutual received a draft of the examination report and did
not call the incorrect pool description to the Department's attention.
57. It was not until a September 1997, insurance industry newsletter,
Schiff's Insurance Observer, published an analysis of the de facto
- ---------------------------
demutalization of Allied Mutual by Allied Group and the systematic appropriation
of Allied Mutual's corporate opportunities by Allied Group through the actions
of the defendants herein (and for their own personal gain) that the true nature
of the transactions became apparent.
COUNT I-^^^^^ OF FIDUCIARY DUTIES
---------------------------------
58. Plaintiff incorporates herein by reference the allegations contained in
paragraphs 1 through 57 of this Petition.
59. The individual defendants owed Allied Mutual fiduciary duties by
reason of their positions as directors of Allied Mutual. These duties include
the duties of care, fidelity, loyalty and diligence in the management and
administration of the Company's affairs, and in the use and preservation of its
property, assets, and corporate opportunities.
60. The individual defendants breached their duties to Allied Mutual by
failing to protect and maintain the business
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and assets of Allied Mutual and not allow its business and assets to be co-opted
by Allied Group for the benefit of the officers and directors of Allied Group,
including the individual defendants herein, through the gradual transfer of the
business and assets of Allied Mutual for no or grossly inadequate consideration
while at the same time granting themselves generous stock options and lavish
compensation packages, and other privileges.
61. The individual defendants breached their fiduciary duties by wasting
corporate assets and engaging in flagrant self-dealing to the detriment of
Allied Mutual.
62. Allied Mutual has been damaged by the actions of the defendants.
COUNT TWO - WASTE OF CORPORATE ASSETS
-------------------------------------
63. Plaintiff incorporates herein by reference paragraphs 1 through 62 of
this Petition.
64. At all times the individual defendants had a duty to Allied Mutual and
to its policyholders-owners to preserve the Company's assets, including the
opportunity for future growth, and not dispose of them at less than favorable
terms to the Company.
65. The de facto demutualization of Allied Mutual and the wrongful
transfer of its assets to Allied Group constituted a
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waste of Allied Mutual's corporate assets.
66. As a direct and proximate result of defendants' waste of corporate
assets, Allied Mutual has suffered damages as set forth herein. Plaintiff, on
behalf of Allied Mutual, seeks damages and other relief as set forth below.
COUNT THREE - IMPROPER TRANSFER OF CONTROL
------------------------------------------
67. Plaintiff incorporates herein by reference paragraphs 1 through 66 of
this Petition.
68. Through the course of conduct described above, defendants have
improperly transferred from Allied Mutual substantial ownership of and total
control over Allied Group and Allied Mutual's lucrative insurance business.
69. Each and every defendant benefited from the improper transfer to the
detriment of Allied Mutual.
70. As a direct result of the improper transfer of control and ownership
of Allied Group, Allied Mutual has suffered damages as set forth herein.
Plaintiff, on behalf of Allied Mutual, seeks damages and other relief as set
forth below.
71. Each and every defendant conspired to effectuate the improper transfer
of control and ownership of Allied Group from Allied Mutual to its detriment.
72. Each and every defendant benefited from the improper transfer to the
detriment of Allied Mutual.
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<PAGE>
73. As direct result of the civil conspiracy to effectuate the improper
transfer of control and ownership of Allied Group, Allied Mutual has suffered
damages as set forth herein. Plaintiff, on behalf of Allied Mutual, seeks
damages and other relief as set forth below.
COUNT FOUR - INTENTIONAL INTERFERENCE WITH
----------------------------------------
BUSINESS ADVANTAGES AND CONTRACTS
---------------------------------
74. Plaintiff incorporates herein by reference paragraphs 1 through 73 of
this Petition.
75. The individual defendants, by engaging in the above-described conduct,
intentionally interfered with the contracts, prospective business advantage and
business relationships of Allied Mutual.
76. The above-described interference proximately caused damages to Allied
Mutual.
WHEREFORE: plaintiff demands judgment derivatively for Allied Mutual as
follows:
A. Requiring an accounting of the actual value of the assets wrongfully
transferred to Allied Group as part of the de facto demutualization of Allied
Mutual described herein;
B. Requiring Allied Group to fairly compensate Allied Mutual for the value
of the assets wrongfully transferred to
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Allied Group for the seizure of corporate opportunities and for the de facto
demutualization of Allied Mutual described herein:
C. Requiring the individual defendants to return to Allied Mutual all
salaries and the value of other remunerations of whatever kind paid to them by
Allied Mutual and Allied Group during the time they were in breach of the
fiduciary duties they owed to Allied Mutual, and otherwise ordering restitution
as appropriate;
D. Ordering any and all appropriate equitable and/or injunctive relief
against the defendants to the extent an adequate remedy at law does not exist;
E. Awarding plaintiff reasonable attorney's fees, expert fees, and other
reasonable costs and expenses and prejudgment and post-judgment interest;
F. Ordering restitution for any assets wrongfully transferred or conveyed,
and for corporate opportunities and profits lost as a result; and
G. Granting such other and further relief as this Court may deem just and
proper.
DATED: December 31, 1997
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/s/ Brad J. Brady
-------------------------
Brad J. Brady LI000045^
/s/ Robert J. O'Shea
-------------------------
Robert J. O'Shea LI0014884
BRADY & O'SHEA, P.C.
2735 1st Avenue SE
Cedar Rapids, IA 52402
Tel. No. 319/866-9277
Fax No. 319/866-9280
BARRACK, ^^ & BACINE
Leonard Barrack PA ID #03459
Daniel E. Bacine PA ID #16742
Leslie Bornstein Molder
PA ID #39746
3300 Two Commerce Square
2001 Market Street
Philadelphia, PA 19103
Tel. No. 215/963-0600
- and -
KELSTON & ASSOCIATES
David Kelston MA ID #267310
90 Canal Street
Boston, MA 02114
Tel. No. 617/367-1040
- and -
CENTER FOR INSURANCE RESEARCH
Jason Adkins MA ID #558560
1130 Massachusetts Avenue
Cambridge, MA 02130
Tel. No. 617/441-2900
Attorneys for Plaintiff
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STATE OF IOWA )
) ss:
COUNTY OF POLK )
I, Mary M. Rieff, being first duly sworn upon my oath, depose and state
that I am the Plaintiff in the above cause, that the Petition was prepared at my
request, that I have read the same and know the contents thereof, and the
statements made therein are true and correct as I verily believe.
/s/ Mary M. Rieff
----------------------
Mary M. Rieff, Plaintiff
Subscribed and sworn to before me by Mary M. Rieff on this 31st day of
December 1997.
/s/ Robert J. O'Shea
------------------------
Notary Public in and for the
State of Iowa
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EXHIBIT 9
AMENDED AND RESTATED ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
I. TRANSFER OF EMPLOYEE GROUP.......................................... 2
Section 1.1 Mutual Employees...................................... 2
Section 1.2 Western Heritage Employees............................ 2
Section 1.3 Employment Agreements................................. 3
Section 1.4 Option Agreements..................................... 4
II. LEASE OF EMPLOYEES.................................................. 4
Section 2.1 Lease of Employees.................................... 4
Section 2.2 Allocation of Personnel Cost.......................... 6
Section 2.3 Employment Relationships.............................. 6
Section 2.4 Officers.............................................. 7
Section 2.5 Joint Compensation Committee Membership............... 7
Section 2.6 Joint Compensation Committee Authority................ 7
Section 2.7 Notification of Plan Charges.......................... 8
III. OFFICE FACILITIES................................................... 8
Section 3.1 Currently Occupied Office Facilities.................. 8
Section 3.2 New Office Space...................................... 9
Section 3.3 Disputes.............................................. 9
IV. COMPUTER EQUIPMENT AND SERVICES..................................... 9
Section 4.1 Management Information Services Agreement............. 9
V. AIRCRAFT AND FLIGHT SERVICES........................................ 9
Section 5.1 Availability.......................................... 9
Section 5.2 Cost and Allocations.................................. 10
VI. EQUIPMENT, VEHICLES, AND OTHER PROPERTY............................. 10
Section 6.1 ALLIED Leasing Property............................... 10
Section 6.2 Cost Allocation....................................... 10
VII. AGENCY FORCE........................................................ 10
Section 7.1 Independent Agents.................................... 10
Section 7.2 Exclusive Agency Listings............................. 11
VIII. POOLING AGREEMENT................................................... 11
Section 8.1 Pooled Elements....................................... 11
IX. REPRESENTATIONS AND WARRANTIES...................................... 11
Section 9.1 General............................................... 11
Section 9.2 Representations and Warranties by AGI and AGI
Subsidiaries......................................... 11
Section 9.3 Representations and Warranties by Mutual and the Mutual
Subsidiaries......................................... 13
Section 9.4 Representations and Warranties by ALFC and the ALFC
Subsidiaries......................................... 15
X. TERMINATION, AMENDMENT, AND CHANGE OF CONTROL....................... 16
Section 10.1 Term and Termination.................................. 16
Section 10.2 Amendment............................................. 17
Section 10.3 Charge of Control of ALFC............................. 17
Section 10.4 Charge of Control of AGI.............................. 18
XI. ARBITRATION......................................................... 18
Section 11.1 Consent to Arbitration................................ 18
Section 11.2 Authority of Arbitrators.............................. 19
Section 11.3 Expenses; Location.................................... 19
Section 11.4 Restriction........................................... 19
XII. INDEMNIFICATION..................................................... 20
Section 12.1 Indemnification by Mutual............................. 20
Section 12.2 Indemnification by AGI................................ 20
Section 12.3 Indemnification by ALFC............................... 20
Section 12.4 Limitations........................................... 20
Section 12.5 Participation in Defense.............................. 20
XIII. AFFIRMATIVE COVENANTS............................................... 21
Section 13.1 Cooperation........................................... 21
Section 13.2 Marketing............................................. 21
Section 13.3 Life Insurance Products............................... 21
Section 13.4 Agency................................................ 22
Section 13.5 Current Information................................... 22
Section 13.6 Confidences and Trade Secrets......................... 22
Section 13.7 Covenant Not To Compete............................... 23
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XIV. REGULATORY AND OTHER APPROVALS...................................... 23
Section 14.1 Regulatory Filings.................................... 23
Section 14.2 Other Approvals....................................... 23
XV. ALFC, ALLIED LIFE, AND ALBA EMPLOYEES............................... 24
Section 15.1 ALFC, ALLIED Life, and ALBA Employees................. 24
XVI. MISCELLANEOUS....................................................... 24
Section 16.1 Assignment............................................ 24
Section 16.2 Waiver; Remedies...................................... 25
Section 16.3 Permissive Release of Confidential Information........ 25
Section 16.4 Notices............................................... 25
Section 16.5 Governing Law......................................... 25
Section 16.6 Enforceability........................................ 26
Section 16.7 Survival of Representations and Warranties............ 26
Section 16.8 Counterparts.......................................... 26
Section 16.9 Headings.............................................. 26
Section 16.10 Entire Agreement...................................... 26
XVII. DEFINITIONS......................................................... 26
Section 17.1 ACA................................................... 26
Section 17.2 AGA................................................... 26
Section 17.3 AGI................................................... 27
Section 17.4 AGI Subsidiaries...................................... 27
Section 17.5 ALBA.................................................. 27
Section 17.6 ALFC.................................................. 27
Section 17.7 ALFC Subsidiaries..................................... 27
Section 17.8 ALLIED Group.......................................... 27
Section 17.9 ALLIED Leasing........................................ 27
Section 17.10 ALLIED Life........................................... 27
Section 17.11 AMCO.................................................. 27
Section 17.12 AMCO Subsidiaries..................................... 27
Section 17.13 Annual Rental Cost.................................... 27
Section 17.14 APC................................................... 27
Section 17.15 Coordinating Committee................................ 27
Section 17.16 Current Restructuring................................. 28
Section 17.17 Depositors............................................ 28
Section 17.18 Direct Employee Allocation............................ 28
Section 17.19 Direct Employees...................................... 28
Section 17.20 Dougherty Daukins, Inc................................ 28
Section 17.21 Dougherty Daukins Subsidiaries........................ 28
Section 17.22 Employee Group........................................ 28
Section 17.23 Employee Utilization Percentage....................... 28
Section 17.24 ESOP.................................................. 28
Section 17.25 Human Resources Department............................ 28
Section 17.26 Insurance Approvals................................... 28
Section 17.27 Joint Compensation Committee.......................... 29
Section 17.28 Joint Marketing Agreement............................. 29
Section 17.29 MIS Agreement......................................... 29
Section 17.30 Mutual................................................ 29
Section 17.31 Mutual Subsidiaries................................... 29
Section 17.32 Pool.................................................. 29
Section 17.33 Pooling Agreement..................................... 29
Section 17.34 Restructuring Plan.................................... 29
Section 17.35 Staff Employees....................................... 29
Section 17.36 Surplus Office Space.................................. 29
Section 17.37 Total Personnel Costs................................. 30
XVIII.RESTATEMENT OF ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT........ 30
Section 18.1 Restatement........................................... 30
SIGNATURES.............................................................. 30-31
SUBSIDIARY SIGNATURE ADDENDA............................................ 32-37
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AMENDED AND RESTATED ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
This Amended and Restated ALLIED Group Intercompany Operating Agreement
("Agreement"), made effective as of January 1, 1990, is amended and restated on
August 25, 1993, by and among ALLIED Mutual Insurance Company, an Iowa mutual
insurance corporation, ("Mutual") including the Mutual Subsidiaries listed in
Section 17.31 of this Agreement which are or will become parties by executing
an addendum to this Agreement, ALLIED Group, Inc., an Iowa corporation, ("AGI")
including the AGI Subsidiaries listed in Section 17.4 of this Agreement which
are or will become parties by executing an addendum to this Agreement, and
ALLIED Life Financial Corporation, and Iowa corporation ("ALFC") including the
ALFC subsidiaries listed in Section 17.7 of this Agreement which are or will
become parties by executing an addendum to this Agreement. Mutual, the Mutual
Subsidiaries, AGI, the AGI Subsidiaries, ALFC, and the ALFC Subsidiaries
together constitute the "ALLIED Group." All other capitalized terms used in
this Agreement and not otherwise defined shall have the meanings set forth below
under Article XVII.
RECITALS
WHEREAS, the companies in the ALLIED Group are engaged in various
businesses including property-casualty insurance, life insurance, data
processing, and various financial services using common employees, office
facilities, agency contacts, aircraft, vehicles, and equipment; and
WHEREAS, prior to the original adoption of this Agreement on January 1,
1990, Mutual owned a majority voting interest in all companies in the ALLIED
Group, either directly or indirectly, and allocation of employees and other
business resources had been accomplished without, for the most part, formal
written agreements, and that Mutual had employed persons, owned or leased office
facilities, together with AMCO had maintained agency relationships, together
with ALLIED Leasing had owned or leased property, equipment, or vehicles that
have been required to conduct the business of the ALLIED Group, and had made
such resources available to the companies in the ALLIED Group; and
WHEREAS, as of January 1, 1990, responsibility for the employment of
persons for the ALLIED Group, except persons employed by ALLIED Life, Dougherty
Dawkins, Inc., and the Dougherty Dawkins Subsidiaries, was transferred to AGI
from Mutual to implement a portion of a Restructuring Plan for the ALLIED Group;
and
WHEREAS, ALFC was formed July 20, 1993 and is entering into this Agreement
as part of the Current Restructuring of the ALLIED Group; and
WHEREAS, unless otherwise indicated, capitalized terms shall have such
meaning as set forth in Article XVII of this Agreement;
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NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
I. TRANSFER OF EMPLOYEE GROUP
Section 1.1 Mutual Employees.
(a) Under the Restructuring Plan, Mutual terminated its employment of
all persons shown on the ALLIED Mutual Insurance Company Payroll Register (the
"Mutual Payroll Register") as of the close of business on December 31, 1989.
The Mutual Payroll Register was a true, correct, and complete listing of all
persons employed by Mutual as of that date, and contained true and correct
information as to the positions, years of service, and salaries of all such
employees.
(b) Under the Restructuring Plan, AGI hired all persons who were listed
or properly should have been listed on the Mutual Payroll Register at the same
salaries and benefits, on the same terms and conditions, and subject to the same
defenses, rights, and obligations to which Mutual may be subject, or to which
Mutual may be entitled, commencing as of the start of business January 1, 1990.
AGI shall not be deemed to have employed any persons whose employment by Mutual
would otherwise terminate as of or prior to such date but for this Agreement.
Except as may be set forth in Section 1.3, nothing in this Agreement shall
obligate AGI to continue to retain or employ any employee hired by AGI pursuant
to this Agreement for any particular period of time or at any particular rate of
compensation after January 1, 1990.
(c) Mutual transferred to AGI all assets relating to the employee group
hired by AGI pursuant to this Agreement.
(d) AGI assumed and paid all liabilities including but not limited to
compensation, fringe benefits, taxes, withholdings, and reimbursements relating
to obligations of Mutual relating to employees hired by AGI pursuant to this
Agreement from and after January 1, 1990. AGI assumed all liabilities of Mutual
relating to employees hired by AGI which were unknown or contingent as of
January 1, 1990; provided, however, that any losses, expenses, or payments made
on any such unknown or contingent liabilities shall be allocated pursuant to
Section 2.2 below according to pooling percentages or time and cost study
percentages in effect on the date of payment.
Section 1.2. Western Heritage Employees.
(a) Under the Restructuring Plan, Western Heritage Insurance Company
("Western Heritage") terminated its employment of all
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persons listed on the Western Heritage Insurance Company Payroll Register (the
"Western Heritaqe Payroll Register") as of the close of business on December 31,
1989. The Western Heritage Payroll Register was a true, correct, and complete
list of all persons employed by Western Heritage and contained true, correct
information as to the positions, years of service, and salaries of all such
employees.
(b) Under the Restructurinq Plan, AGI hired all persons who were listed or
properly should be listed on the Western Heritage Payroll Register, at the same
salaries and benefits, on the same terms and conditions, and subject to the same
defenses, rights, and obligations to which Western Heritage may be subject, or
to which Western Heritage may be entitled, commencing as of the start of
business January 1, 1990. AGI shall not be deemed to have employed any persons
whose employment by Western Heritage would otherwise terminate as of or prior to
such date but for this Agreement. Except as may be set forth in Section 1.3,
nothing in this Agreement shall obligate AGI to continue to retain or employ any
employee hired by AGI pursuant to this Agreement for any particular period of
time or at any particular rate of compensation after January 1, 1990.
(c) Western Heritage transferred to AGI all assets relating to the employee
group hired by AGI pursuant to this Agreement.
(d) AGI assumed and paid all liabilities including but not limited to those
that may have arisen, or were accrued but unpaid as of January 1, 1990,
including but not limited to compensation, fringe benefits, taxes, withholdings,
and reimbursements relating to obligations of Western Heritage to employees
hired by AGI pursuant to this Agreement from and after January 1, 1990. AGI
assumed all liabilities of Western Heritage relating to employees hired by AGI
pursuant to this Agreement that were unknown or contingent as of January 1,
1990; provided, however, that any losses, expenses, or payments made on any such
unknown or contingent liabilities shall be allocated pursuant to Section 2.2
below according to pooling percentages or time and cost study percentages in
effect on the date of payment.
Section 1.3. Employment Agreements. Mutual delivered to AGI, and AGI
acknowledged receipt of, true, correct, and complete copies of each written
agreement, policy, plan, or obligation providing the sick leave, salaries,
wages, vacations, holidays, pensions, retirement benefits, profit sharing,
insurance, incentive, bonus, or other compensation for employees, whether or not
legally binding. AGI agreed to enter into written employment agreements with
such officers of Mutual, AGI, or Western Heritage who were parties to written
employment agreements with such companies as of January 1, 1990, upon the same
terms and conditions of employment as were set forth in the employment
agreements. AGI shall indemnify and hold harmless Mutual from liability for
employee claims arising under such agreement arising after January
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1, 1990; provided, however, that nothing herein shall prvent AGI from including
the cost of such indemnity in the calculation of the personnel costs allocated
to the parties pursuant to this Agreement.
Section 1.4 Option Agreements.
(a) Substitution of AGI. AGI has entered into new stock option agreements
or caused the amendment of existing option agreements with employees of AGI,
which substitute AGI in the position of Mutual as of January 1, 1990. Neither
amendment of the stock option agreements or plans, nor any terms of this
Agreement or the Restructurinq Plan shall change the terms on which any stock
options shall be measured, qranted, or exercised.
(b) AGI Tax Benefit Allocation. AGI is the issuer of all common stock to be
issued pursuant to the stock option agreements referred to in paragraph (a) of
this Section 1.4. The price which AGI will receive when the option is exercised
is equal to the fair market value of the stock on the date of grant of the
option. If there is a difference between the fair market value of the stock on
the date of grant and the price to be paid by the optionee, such difference will
be paid to AGI when the options are exercised by the company to which the
optionee's salary has been allocated. Any tax benefit associated with the
difference between the fair market value of the stock at the date of grant of
the option and the fair market value of the stock at the date of exercise shall
be an allocable cost to be included in the Total Personnel Costs assessed by AGI
to the companies in the ALLIED Group for which AGI provides employees and option
benefits.
(c) ALFC Tax Benefit Allocation. If in the future ALFC is tbe issuer of
ALFC common stock pursuant to stock option agreements, the price which ALFC will
receive when the option is exercised is equal to the fair market value of the
stock on the date of grant of the option. If there is a difference between the
fair market value of the stock on the date of grant and the price to be paid by
the optionee, such difference will be paid to ALFC when the options are
exercised by the company to which the optionee's salary has been allocated. Any
tax benefit associated with the difference between the fair market value of the
stock at the date of grant of the option and the fair market value of the stock
at the date of exercise shall be an allocable cost to be assessed by ALFC to the
companies in the ALLIED Group to which the optionee's salary has been allocated.
II. LEASE OF EMPLOYEES
Section 2.1. Lease of Employees.
(a) Obligation to Provide Employees. AGI shall provide the entire
requirement of employees of each other company in the ALLIED
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Group, except for ALFC, ALFC Subsidiaries, and Dougherty Dawkins, Inc. and its
subsidiaries, for use in the company's business according to such job
descriptions, qualifications, experience, education, or skills as may be
specified by the company to AGI from time to time. Such specifications shall be
retained in the files of the Human Resources Department. Each company may notify
the Human Resources Department at any time of its intention to change such
specifications, and the Human Resources Department shall make the requested
changes to the specifications promptly upon the receipt thereof. AMCO will lease
employees from AGI for the operation of the Pool under the Pooling Agreement and
will determine the specifications of the leased employees.
(b) Provider. Except for ALFC, the ALFC Subsidiaries, and Dougherty
Dawkins, Inc. and its subsidiaries, each company in the ALLIED Group shall lease
from AGI employee services required for the operation of their respective
businesses and shall, in partial consideration for such leased employees, pay
its proportionate share of AGI's Total Personnel Costs as provided in Section
2.2.
(c) Independent Hiring. Notwithstanding paragraph (b) above and Mutual's
present intent to continue leasing employees from AGI, Mutual and the Mutual
Subsidiaries shall have the unrestricted right to directly obtain and hire any
or all employees from any other sources and on any terms to perform such duties
as Mutual and the Mutual Subsidiaries may determine from time to time, rather
than leasing such employees from AGI. Should Mutual or the Mutual Subsidiaries
choose to exercise their right to hire employees from other sources, it will not
hire any individual who was an AGI employee leased to Mutual or the Mutual
Subsidiaries within three (3) months preceding such hiring, without the written
consent of AGI.
(d) Human Resources Department. The Human Resources Department shall be
responsible for the implementation, management, and operation of AGI's employee
leasing obligations under this Agreement. The AGI employees operating the Human
Resources Department shall not be leased to any other company, and the personnel
costs and related expenses of such employees shall be borne solely by AGI. The
Human Resources Department shall pay to Mutual an allocated Annual Rent Cost in
accordance with Section 3.1 and shall also be subject to Sections 3.2. and 3.3.
(e) Fees for Leasing and Other Services. Each company in the ALLIED Group
which leases employees from AGI shall pay a fee to AGI for such services, and
each company in the ALLIED Group which utilizes services from the Human
Resources Department but does not lease employees from AGI shall pay to AGI a
reasonable negotiated fee therefor. Such fees shall be set as follows: (i) Each
company in the ALLIED Group, except for the APC, Depositors, ALFC, ALFC
Subsidiaries, Dougherty Dawkins, Inc. and its subsidiaries, and Western
Heritage, shall pay to AGI a fee equal to 5.07% of the gross payroll of those
employees leased to such company, such fee
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to be calculated and paid every two (2) weeks; (ii) Since Western Heritage is
leasing employees from AGI but is not receiving compensation or payroll
processing services from AGI, Western Heritage shall pay a fee to AGI as set by
the Executive Committee of the AGI Board of Directors; (iii) Dougherty Dawkins,
Inc. and its subsidiaries are receiving certain services from the Human
Resources Department and shall thus pay a fee to AGI as set by the Executive
Committee of the AGI Board of Directors; and (iv) ALFC and the ALFC Subsidiaries
are receiving certain services from the Human Resources Department, which
include but are not limited to maintaining employment documents, salary
administration, employee benefit administration, payroll administration, related
recordkeeping functions, employee placement, termination counseling and
processing, and payroll data processing, and for such services ALFC and the ALFC
Subsidiaries shall pay to AGI a fee equal to 4.62% of each company's gross
payroll, such fee to be calculated and paid every two (2) weeks to AGI.
Section 2.2. Allocation of Personnel Costs. The Employee Group is generally
divided into two types of employees, "Direct Employees" and "Staff Employees".
"Direct Employees" constitute the majority of the members of the Employee Group
and each employee of this type is assigned to perform substantially all of such
employee's services for a particular company in the ALLIED Group or for the
Pool. "Staff Employees" are employees who are assigned to perform services for
more than one of the companies in the ALLIED Group. The Total Personnel Costs,
as defined in Section 17.37, associated with a Direct Employee shall be
allocated to the company in the ALLIED Group for which such employee performs
services (the "Direct Employee Allocation"). The utilization of Staff Employees
by each company in the ALLIED Group shall be determined annually for the next
succeeding fiscal year on the basis of time and cost studies performed by AGI
management. Such utilization shall be reduced to an allocation amount for each
company in the ALLIED Group (the "Employee Utilization Percentage"). Each
company in the ALLIED Group shall pay to AGI an amount on each pay day equal to
its most recent Employee Utilization Percentage multiplied by AGI's Total
Personnel Costs applicable to Staff Employees for such pay period resulting in
each company's allocable share of the Total Personnel Costs for Staff Employees,
plus its Direct Employee Allocation for such pay period.
Section 2.3. Employment Relationships. AGI shall establish performance
criteria or standards, which reflect specifications supplied by each company in
the ALLIED Group to AGI, for leased Direct Employees assigned to the company and
for leased Staff Employees while performing services for the company. Each such
company shall have the right to advise AGI on the performance of employees
performing service for the company, and to request investigation, disciplinary
action, reassignment, and removal of such employees. AGI shall have the
exclusive right, however, to direct all AGI employees as to the manner in which
services are to be rendered and performance goals are to be achieved. AGI shall
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be, and shall have all the privileges, rights, and responsibilities of, common
law employer of all AGI employees, including but not limited to, establishing
work and disciplinary rules, setting compensation levels, and directing each AGI
employee as to the manner in which daily duties are completed, whether or not
the employee actually performs services for AGI or another company in the ALLIED
Group.
Section 2.4. Officers. Employment, termination, and terms of employment, of
all officers shall be reserved to the full Board of Directors of AGI, provided,
however, that while any such individual is leased to Mutual to perform services
as an officer (or provides the same or similar function as an officer), Mutual
will be consulted prior to all determinations regarding the employment, or terms
thereof, of such individuals; provided, however, that Mutual's input shall be of
an advisory nature and will not be binding on AGI which is the common law
employer of all such individuals.
Section 2.5. Joint Compensation Committee Membership. AGI and Mutual shall
have a Joint Compensation Committee of the Boards of Directors of AGI and
Mutual. The Joint Compensation Committee shall not have fewer than three
members, and Mutual shall have the right to appoint not less than one-half of
all members of the Joint Compensation Committee. Subject to the foregoing right
of Mutual to appoint at least one-half of the members of the Joint Compensation
Committee, the ratio of Mutual directors to AGI directors on the Joint
Compensation Committee may be adjusted no more often than once each year for the
next succeeding fiscal year as may be agreed by both AGI and Mutual. A quorum
for action at any meeting of the Joint Compensation Committee shall be a
majority but not less than three members. In general, actions of the Joint
Compensation Committee shall be by majority vote of its members, provided a
quorum is present.
Section 2.6. Joint Compensation Committee Authority. The role of the Joint
Compensation Committee shall be advisory only in all respects. The Joint
Compensation Committee shall be authorized to:
(a) Propose assignment and grant of stock options under all stock option
plans;
(b) Propose development, modification, or termination of benefit plans,
employee stock ownership plans, stock option plans, supplemental compensation
programs, or other incentive plans and propose such plans to the respective
Boards of Directors of AGI and Mutual for approval;
(c) Propose amendments or modifications of the ESOP, changes of the ESOP
Trustee, direction or modification in the voting of allocated and unallocated
shares, or increases or decreases in the amount of assets held or debt incurred
by the ESOP.
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Section 2.7. Notification of Plan Changes. With respect to Section 2.6, if
AGI adopts or implements any employee benefit plan or program, or any amendment
to any employment benefit plan or program, different from (i) those in existence
as of the date of this Agreement and (ii) those hereafter recommended in writing
by the Joint Compensation Committee, which new plan, program, or amendment would
cause the Total Personnel Costs to be higher than it would be without such plan,
program, or amendment, AGI shall provide Mutual with written notice of at least
three (3) months (unless such changes are required by law in which case Mutual
will be notified as soon as possible) before such plan, program, or amendment is
to be effective, describing such new benefit and the projected increase in the
Total Personnel Costs and in the payments from Mutual to AGI for leased
employees pursuant to Section 2.1(b) as a result of such plan, program, or
amendment. Mutual shall have the right to elect not to pay its share of the
increased (or total, as the case may be) cost of such plan, program or
amendment. In the event Mutual elects not to pay its share of such costs, AGI
shall provide all such increased benefits to all AGI employees who qualify for
such plans, programs, or amendments, including those employees leased to Mutual
and any Mutual Subsidiary, at AGI's cost and shall not charge such amounts
directly or indirectly to Mutual. Mutual shall give AGI notice if it elects not
to share in the cost of any such plan, program, or amendment within forty-five
(45) days after written notice from AGI of AGI's intent to adopt or implement
such plan, program, or amendment.
III. OFFICE FACILITIES
Section 3.1. Currently Occupied Office Facilities. Mutual currently is the
owner or lessee of certain office facilities now provided to the ALLIED Group. A
list of such office facilities shall be available upon request to Mutual. All
office facilities currently provided by Mutual are fully furnished. Other
property owned or leased by companies in the ALLIED Group for their specific use
shall be listed by such companies and provided upon request. Mutual, or the
other owners or lessees, shall continue to own or lease, in accordance with the
terms of the leases now in effect, the office facilities listed therein from and
after the date of this Agreement and shall continue to provide appropriate
office space to each company in the ALLIED Group, to the extent such facilities
are available except as may be mutually agreed upon by AGI and Mutual or ALFC
and Mutual. The utilization of office facilities by each company in the ALLIED
Group shall be determined annually on the basis of cost and time studies
performed by Mutual. An Annual Rental Cost per location occupied by a company
shall be developed by Mutual. Each company in the ALLIED Group shall pay to
Mutual (or at the request of Mutual, pay to such other owner or lessee, if
applicable) an amount equal to its allocated Annual Rental Cost per location on
a monthly basis. The percentage contribution of each of the parties to the
Pooling Agreement to Mutual for the Pool's
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Annual Rental Cost shall be determined in accordance with the terms of the
Pooling Agreement. With respect to Surplus Office Space, the Annual Rental Cost
of such space shall be allocated to each party in the same ratio as the party's
percentage allocation of the total Annual Rental Cost per location of the entire
ALLIED Group.
Section 3.2 New Office Space. Mutual shall have a right of first refusal to
provide appropriate additional office space needed by any company in the ALLIED
Group from and after the date of this Agreement, if Mutual at that time
possesses appropriate Surplus Office Space. Prior to any company in the ALLIED
Group obtaining office space or any other interests in real estate (for its own
use and not for investment), such company shall present its requirements to
Mutual who shall within 60 days provide the necessary facilities, indicate the
manner in which such facilities will be provided, or decline in writing to
provide such facilities, in which case the company shall be entitled to seek to
obtain appropriate facilities to satisfy such requirements from whatever source
available. Disputes over whether any office space is appropriate shall be
resolved by the Coordinating Committee.
Section 3.3. Disputes. Any conflicts or disputes regarding use or occupancy
of facilities for the conduct of business of the companies in the ALLIED Group,
or the terms upon which property is leased to the companies in the ALLIED Group
or upon which property is obtained, developed, or utilized, whether separately
or in combination with other companies in the ALLIED Group, shall be resolved by
the Coordinating Committee, provided such matter materially affects AGI, the AGI
Subsidiaries, ALFC, or the ALFC Subsidiaries.
IV. COMPUTER EQUIPMENT SERVICES
Section 4.1. Management Information Services Agreement. Mutual, AGI, ALFC,
and certain of their subsidiaries are parties to an Amended and Restated
Management Information Services Agreement with ALLIED Group Information Systems,
Inc. ("AGIS"), a subsidiary of AGI. Such agreement sets forth certain terms
relating to the use and provision of computers and data processing services to
the companies in the ALLIED Group, and shall govern the utilization and expense
of those services.
V. AIRCRAFT AND FLIGHT SERVICES
Section 5.1. Availability. Mutual or a Mutual Subsidiary from time to time
owns or leases private aircraft, hangar facilities, and other equipment,
property, or rights necessary to operate such private aircraft and to have
flight services available to itself and the other companies in the ALLIED Group.
Such
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services shall be made available to companies in the ALLIED Group on a
by-appointment basis, subject to availability. There can be no assurance that
(a) Mutual will continue to make flight services available, (b) such flight
services will be available when requested by any company in the ALLIED Group, or
(c) costs allocated to users will be less than the expenses associated with
commercial flight services. No company in the ALLIED Group shall be obligated to
use any flight services made available by Mutual.
Section 5.2. Cost and Allocations. Companies which elect to utilize such
flight services shall pay Mutual for such services on the basis of the cost per
hour established by Mutual. All participants in the Pool shall pay their
respective allocable share of the remaining costs of making flight services
available according to the percentages set forth in the Pooling Agreement on an
annual basis. Any dispute regarding availability, determination, or allocation
of costs, or other matters regarding flight services shall be resolved by the
Coordinating Committee.
VI. EQUIPMENT, VEHICLES AND OTHER PROPERTY
Section 6.1. ALLIED Leasing Property. ALLIED Leasing presently owns certain
motor vehicles and other items of personal property and equipment listed in the
ALLIED Group Leasing Corporation Asset Inventory and Lessee List (the "ALLIED
Leasing Inventory") which are utilized by persons who serve the Pool or one or
more of the companies in the ALLIED Group.
Section 6.2. Cost Allocations. The cost of those vehicles and items of
personal property leased by ALLIED Leasing shall be allocated to the members in
the ALLIED Group based on actual usage, at rates that are set forth in the
leases in effect as of the date of this Agreement. Lease rates and terms for
property leased by ALLIED Leasing to companies in the ALLIED Group shall be as
negotiated and mutually agreed by the parties, or as determined by the
Coordinating Committee from time to time in the event of a dispute as to such
rates or terms. Nothing herein shall require ALLIED Leasing to lease property to
companies in the ALLIED Group or to require companies in the ALLIED Group to
lease any property from ALLIED Leasing except as they may mutually agree.
VII. AGENCY FORCE
Section 7.1. Independent Agents. Parties hereto acknowledge that the
independent agency listings utilized by the ALLIED Group are the joint property
of Mutual and AMCO. The current agency listings amount to more than 1,900
agencies that are under contract with Mutual and AMCO as set forth in the agents
master file. The parties to this Agreement shall use their best efforts to
maintain
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working relationships with the independent agencies for their proper business
purposes in substantially the same manner as prior to the effective date of this
Agreement. Mutual, ALLIED Life, AMCO, APC, and Depositors are all parties to the
Joint Marketing Agreement to memorialize their relationship in connection with
the agency force.
Section 7.2 Exclusive Agency Listings. Depositors and APC maintain
exclusive agency listings. Depositors and APC shall maintain their individual
property rights to each of the exclusive agency listings and in any developments
or additions to such listings that may be made in the future. Any future
companies or future business of existing companies that may take the form of
exclusive agency listings shall, prior to becoming the exclusive property right
of any particular company within the ALLIED Group, be approved by the
Coordinating Committee.
VIII. POOLING AGREEMENT
Section 8.1 Pooled Elements. Mutual, AMCO, APC, and Depositors ("Pool
Participants") are all parties to a Second Amended and Restated Reinsurance
Pooling Agreement, as amended (the "Pooling Agreement"). The Pooling Agreement
sets forth the rights, duties and obligations of the Pool Participants among
themselves regarding their respective businesses. As to matters set forth herein
regarding the Pool or the Pool Participants, the Pooling Agreement shall control
the manner in which the Pool Participants perform the obligations of the Pool
with respect to this Agreement.
IX. REPRESENTATIONS AND WARRANTIES
Section 9.1. General. Each of AGI, Mutual, and ALFC have had knowledge of
all aspects of the financial condition, property, business, employees, agents,
material contracts, licenses, and qualifications of the other and its
subsidiaries. Therefore, Mutual, AGI, and ALFC each represent and warrant to the
other that it has no knowledge or information that any of the representations or
warranties of the other in this Agreement are untrue or incorrect in any
material respect.
Section 9.2. Representations and Warranties by AGI and AGI Subsidiaries.
AGI and the AGI Subsidiaries hereby represent and warrant to Mutual and ALFC as
follows:
(a) AGI and each AGI Subsidiary are duly organized, validly existing
insurance or business corporations, as the case may be, in good standing under
the laws of the State of Iowa, except for Western Heritage, which is an Arizona
insurance company, and Dougherty Dawkins, Inc. and the Dougherty Dawkins
Subsidiaries,
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which are Minnesota corporations, and each has all requisite corporate power and
authority to conduct its business, to own its properties, and to execute,
deliver, and perform all of its obligations under this Agreement.
(b) The execution, delivery, and performance of this Agreement has been or
will be duly authorized by all requisite action, corporate or otherwise, by AGI
and each AGI Subsidiary. This Agreement constitutes the legal, valid, and
binding obligation of AGI and each AGI Subsidiary, enforceable against them in
accordance with its terms. Subject to the receipt of the Insurance Approvals and
any other approvals required pursuant to Article XIV hereof, compliance by AGI
and each AGI Subsidiary with the provisions of this Agreement will not violate
the provisions of any law, regulation, or order applicable to it, will not
conflict with, or result in the breach or default by it of any of the terms,
conditions, or provisions of its articles of incorporation or bylaws or any
material contract or agreement to which it is a party or by which it or its
property is bound. Neither AGI nor any of the AGI Subsidiaries is a party to,
subject to or bound by or a beneficiary of any material agreement or judgment,
order, writ, injunction, or decree of any court, governmental body, or
arbitrator which would be contravened or breached by, or under which any payment
or other obligation could be accelerated as a result of, the execution,
delivery, or performance by AGI or the AGI Subsidiaries of this Agreement, or
which could prevent the consummation of this Agreement and the transactions
contemplated hereby, or which, by operation of law, or pursuant to its terms,
would terminate upon consummation of this Agreement. To the best knowledge of
AGI and each AGI Subsidiary, other than the receipt of the Insurance Approvals
and any other approvals required pursuant to Article XIV hereof, no permit,
consent, approval, or authorization of, or declaration to or filing or
registration with any governmental or regulatory authority is or will be
required in connection with the valid execution, delivery, or performance by AGI
or the AGI Subsidiaries of this Agreement.
(c) To the best knowledge and belief of AGI and each AGI Subsidiary, it is
duly qualified, licensed, or registered to do business as a foreign insurer or
foreign corporation, as the case may be, and is in good standing in each
jurisdiction which requires such licensing, qualification, or registration
wherein any of them conduct any business or lease any property and wherein the
failure to so qualify or register would have a material adverse effect on the
business, condition, or properties of AGI and the AGI Subsidiaries, taken as a
whole; and AGI and each AGI Subsidiary has all requisite power and authority,
corporate or otherwise, to own its respective properties and to conduct its
respective business in the manner in which it is presently conducted.
(d) Mutual and ALFC have heretofore been provided an opportunity to review
complete copies of the most recent financial statements of AGI and the AGI
Subsidiaries (the "Financial
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Statements"). To the best knowledge and belief of AGI and the AGI Subsidiaries,
the Financial Statements are true, complete, and correct in all material
respects. The Financial Statements present fairly the consolidated financial
condition and results of operations of AGI and the AGI Subsidiaries as of the
dates and for the periods indicated therein and have been prepared in accordance
with generally accepted accounting principles or statutory accounting
principles, as the case may be, applied on a consistent basis throughout the
periods indicated.
(e) No representation or warranty made by AGI or an AGI Subsidiary in this
Agreement or in any schedule, or other instrument furnished or to be furnished
to Mutual, ALFC, or their representatives pursuant hereto, or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein not misleading. To
the best knowledge of each of AGI and the AGI Subsidiaries, there is no
information of a confidential nature concerning its assets, operations,
customers, or employees which has not heretofore been disclosed to Mutual in
writing which information could have a material adverse effect on its operations
after consummation of the transactions contemplated herein.
Section 9.3. Representation and Warranties by Mutual and the Mutual
Subsidiaries. Mutual and the Mutual subsidiaries hereby represent and warrant to
AGI and ALFC as follows:
(a) Mutual and each Mutual Subsidiary are duly organized, validly existing
insurance or business corporations, as the case may be, in good standing under
the laws of the State of Iowa, and each has all requisite corporate power and
authority to conduct its business, to own its properties, and to execute,
deliver, and perform all of its obligations under this Agreement.
(b) The execution, delivery, and performance of this Agreement has been or
will be duly authorized by all requisite action, corporate or otherwise, by
Mutual and each of the Mutual Subsidiaries. This Agreement constitutes the
legal, valid and binding obligation of Mutual and each Mutual Subsidiary,
enforceable against it in accordance with its terms. Subject to the receipt of
the Insurance Approvals and any other approvals required pursuant to Article XIV
hereof, compliance by Mutual and each Mutual Subsidiary with the provisions of
this Agreement will not violate the provisions of any law, regulation, or order
applicable to it, will not conflict with, or result in the breach or default by
it of any of the terms, conditions, or provisions of its articles of
incorporation or bylaws or any material contract or agreement to which it is a
party or by which it or its property is bound. Neither Mutual nor any of the
Mutual Subsidiaries is a party to, subject to or bound by or a beneficiary of
any material agreement or judgment, order, writ, injunction, or decree of any
court, governmental body, or arbitrator which would be contravened
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or breached by, or under which any payment or other obligation could be
accelerated as a result of, the execution, delivery, or performance by Mutual or
the Mutual Subsidiaries of this Agreement, or which could prevent the
consummation of this Agreement and the transactions contemplated hereby, or
which, by operation of law, or pursuant to its terms, would terminate upon
consummation of this Agreement. To the best knowledge and belief of Mutual and
each Mutual subsidiary, other than the receipt of the Insurance Approvals and
any other approvals required pursuant to Article XIV hereof, no permit, consent,
approval, or authorization of, or declaration to or filing or registration with
any governmental or regulatory authority is or will be required in connection
with the valid execution, delivery, or performance by Mutual or the Mutual
Subsidiaries of this Agreement.
(c) To the best knowledge and belief of Mutual and each Mutual Subsidiary
it is duly qualified, licensed, or registered to do business as a foreign
insurer or foreign corporation, as the case may be, and is in good standing in
each jurisdiction which requires such licensing, qualification, or registration
wherein any of them conduct any business or lease any property and wherein the
failure to so qualify or register would have a material adverse effect on the
business, condition, or properties of Mutual and the Mutual Subsidiaries, taken
as a whole; and Mutual and each Mutual Subsidiary has all requisite power and
authority, corporate or otherwise, to own its respective properties and to
conduct its respective business in the manner in which it is presently
conducted.
(d) AGI and ALFC have heretofore been provided opportunity to review
complete copies or the most recent financial statements of Mutual and the Mutual
Subsidiaries (the "Financial Statements"). To the best knowledge and belief of
Mutual and the Mutual Subsidiaries, the Financial Statements are true, complete,
and correct in all material respects. The Financial Statements present fairly
the consolidated financial condition and results of operations of Mutual and the
Mutual Subsidiaries as of the dates and for the periods indicated therein and
have been prepared in accordance with generally accepted accounting principles
or statutory accounting principles, as the case may be, applied on a consistent
basis throughout the period indicated.
(e) No representation or warranty made by Mutual or a Mutual Subsidiary in
this Agreement or in any schedule, or other instrument furnished or to be
furnished to AGI, ALFC, or their representatives pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading. To the best knowledge of each of Mutual and the Mutual Subsidiaries
there is no information of a confidential nature concerning its assets,
operations, customers, or employees which has not heretofore been disclosed to
AGI and
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ALFC in writing which information could have a material adverse effect on its
operations after consummation of the transactions contemplated herein.
Section 9.4. Representations and Warranties by ALFC and ALFC Subsidiaries.
ALFC and the ALFC Subsidiaries hereby represent and warrant to Mutual and AGI as
follows:
(a) ALFC and each AFLC Subsidiary are duly organized, validly existing
insurance or business corporations, as the case may be, in good standing under
the laws of the State of Iowa, and each has all requisite corporate power and
authority to conduct its business, to own its properties, and to execute,
deliver, and perform all of its obligations under this Agreement.
(b) The execution, delivery, and performance of this Agreement has been or
will be duly authorized by all requisite action, corporate or otherwise, by ALFC
and each ALFC Subsidiary. This Agreement constitutes the legal, valid, and
binding obligation of ALFC and each ALFC Subsidiary, enforceable against them in
accordance with its terms. Subject to the receipt of the Insurance Approvals and
any other approvals required pursuant to Article XIV hereof, compliance by ALFC
and each ALFC Subsidiary with the provisions of this Agreement will not violate
the provisions or any law, regulation, or order applicable to it, will not
conflict with, or result in the breach or default by it of any of the terms,
conditions, provisions of its articles of incorporation or bylaws, or any
material contract or agreement to which it is a party or by which it or its
property is bound. Neither ALFC nor any of the ALFC Subsidiaries is a party to,
subject to or bound by or a beneficiary of any material agreement or judgment,
order, writ, injunction, or decree of any court, governmental body, or
arbitrator which would be contravened or breached by, or under which any payment
or other obligation could be accelerated as a result of, the execution,
delivery, or performance by ALFC or the ALFC Subsidiaries of this Agreement, or
which could prevent the consummation of this Agreement and the transactions
contemplated hereby, or which, by operation of law, or pursuant to its terms,
would terminate upon consummation of this Agreement. To the best knowledge of
ALFC and each ALFC Subsidiary, other than the receipt of the Insurance Approvals
and any other approvals required pursuant to Article XIV hereof, no permit,
consent, approval, or authorization of, or declaration to or filing or
registration with any governmental or regulatory authority is or will be
required in connection with the valid execution, delivery, or performance by
ALFC or the ALFC Subsidiaries of this Agreement.
(c) To the best knowledge and belief of ALFC and each ALFC Subsidiary, it
is duly qualified, licensed, or registered to do business as a foreign insurer
or foreign corporation, as the case may be, and is in good standing in each
jurisdiction which requires such licensing, qualification, or registration
wherein any of them conduct any business or lease any property and wherein the
failure
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to so qualify or register would have a material adverse effect on the business,
condition, or properties of ALFC and the ALFC Subsidiaries, taken as a whole;
and ALFC and each ALFC subsidiary has all requisite power and authority,
corporate or otherwise, to own its respective properties and to conduct is
respective business in the manner in which it is presently conducted.
(d) Mutual and AGI have heretofore been provided the opportunity to review
complete copies of the most recent financial statements of ALFC and the ALFC
Subsidiaries (the "Financial Statements"). To the best knowledge and belief of
ALFC and the ALFC Subsidiaries, the Financial Statements are true, complete, and
correct in all material respects. The Financial Statements present fairly the
consolidated financial condition and results of operations of ALFC and the ALFC
Subsidiaries as of the dates and for the periods indicated therein and have been
prepared in accordance with generally accepted accounting principles or
statutory accounting principles, as the case may be, applied on a consistent
basis throughout the periods indicated.
(e) No representation or warranty made by ALFC or an ALFC Subsidiary in
this Agreement or in any schedule, or other instrument furnished or to be
furnished to Mutual, AGI, or their representatives pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained therein not
misleading. To the best knowledge of each ALFC and the ALFC subsidiaries there
is no information of a confidential nature concerning its assets, operations,
customers, or employees which has not heretofore been disclosed to Mutual and
AGI in writing which information could have a material adverse effect on its
operations after consummation of the transactions contemplated herein.
X. TERMINATION, AMENDMENT, AND CHANGE OF CONTROL
Section 10.1. Term and Termination.
(a) Term. This Agreement shall continue from January 1, 1990 to December
31, 2004, and shall continue thereafter unless prior to December 31, 2002, a
party to this Agreement delivers to the other parties a written notice that such
party intends to cease participation and terminate the Agreement as to it on
December 31, 2004 or as of a specified date thereafter. This Agreement may be
terminated by any party effective after December 31, 2004 provided that such
party has given written notice of termination to the others at least two (2)
years prior to the proposed termination date. Termination of any party's
participation in this Agreement prior to December 31, 2004 shall require
Coordinating Committee approval.
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(b) Allocation in the Event of Termination. At the time any notice of
termination is given under this Agreement, AGI and Mutual promptly, and no later
than 60 days thereafter, shall identify all key employees, whether Direct or
Staff, who have been providing services to AGI or any of the AGI Subsidiaries
and to Mutual or any of the Mutual Subsidiaries. AGI and Mutual shall cooperate
diligently and in good faith to allocate those employees to AGI and the AGI
Subsidiaries and to Mutual and the Mutual Subsidiaries with a view toward
insuring, to the greatest extent possible, the viability and continued
operations of all companies with those employees. It is the intent of this
provision that AGI and Mutual shall together allocate such employees in a way
which is equitable and fair to both companies and their subsidiaries. The
Coordinating Committee shall resolve any disputes arising under this paragraph.
AGI and Mutual shall use their best efforts in attempting to effect the
allocation of those employees by obtaining those employees' agreements to become
employed by the respective companies as allocated pursuant to this paragraph.
Anything in this Agreement to the contrary notwithstanding, if any disputes
under this paragraph must be resolved by arbitration, no termination of this
Agreement which otherwise would occur shall occur until after final resolution
by the arbitrator.
(c) Post-termination Relationship. The Coordinating Committee will address
the post-termination access to services provided to the terminating party or
parties. Any post-termination disputes concerning the termination of the
Agreement, including interpretation of the covenant not to compete in Section
13.7, will be addressed to the Coordinating Committee for resolution.
Section 10.2. Amendment. This Agreement may be amended, modified, or
altered only by a writing signed by Mutual, AGI, and ALFC and approved by the
Coordinating Committee. As a condition to participation in this Agreement, each
AGI subsidiary, Mutual Subsidiary, and ALFC Subsidiary hereby agrees to be bound
by any such amendment, modification, or alteration that is approved by AGI,
Mutual, ALFC, and the Coordinating Committee as if they had each individually
approved the amendment. Notwithstanding the foregoing, Mutual, AGI, and ALFC may
amend the Agreement without the approval of the Coordinating Committee in order
(1) that AGI Subsidiaries, Mutual Subsidiaries, or ALFC Subsidiaries may be
added or deleted as parties hereto or (2) to record any change in a name
thereof; provided, that such addition, deletion, or name change shall not have a
material effect upon the operation of the Agreement.
Section 10.3. Change of Control of ALFC. In the event of a Change of
Control (as hereinafter defined in this section) of ALFC, either Mutual or AGI
may, in its sole discretion, at any time after such Change of Control: (i)
terminate the MIS Agreement and this Agreement upon six (6) months notice to
ALFC; (ii) extend the term of the MIS Agreement and this Agreement for up to ten
(10) additional years beyond December 31, 2004 upon six (6) months
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notice to ALFC; or (iii) allow such agreements to continue in effect. "Change of
Control" for purposes of this section shall mean an event whereby a person,
group, or entity that is not affiliated with ALFC or Mutual acquires the
ownership of 50% or more of the voting stock of ALFC. A person, group, or entity
"affiliated" with ALFC or Mutual shall mean a person, group, or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with ALFC or Mutual.
Section 10.4. Change of Control of AGI.
(a) In the event of a Change of Control (as hereinafter defined in this
section) of AGI, Mutual may, in its sole discretion, at any time after such
Change of Control: (i) terminate all three of the Pooling Agreement, MIS
Agreement, and this Agreement upon six (6) months notice to AGI; (ii) extend the
term of the Pooling Agreement, MIS Agreement, and this Agreement for up to ten
(10) additional years beyond December 31, 2004 upon six (6) months notice to
AGI; or (iii) allow such agreements to continue in effect. "Change of Control"
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with AGI or Mutual acquires the ownership of 50%
or more of the voting stock of AGI. A person, group, or entity "affiliated" with
AGI or Mutual shall mean a person, group, or entity that directly or indirectly
through one or more intermediaries controls, is controlled by, or is under
common control with AGI or Mutual.
(b) In the event of a Change of Control (as hereinafter defined in this
section) of AGI, ALFC may, in its sole discretion, at any time after such Change
of Control: (i) terminate both the MIS Agreement and this Agreement upon six (6)
months notice to AGI; (ii) extend the term of the MIS Agreement and this
Agreement for up to ten (10) additional years beyond December 31, 2004 upon six
(6) months notice to AGI; or (iii) allow such agreements to continue in effect.
"Change of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with AGI or Mutual acquires the
ownership of 50% or more of the voting stock of AGI. A person, group, or entity
"affiliated" with AGI or Mutual shall mean a person, group, or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with AGI or Mutual.
XI. ARBITRATION
Section 11.1. Consent to Arbitration. Each party to this Agreement hereby
consents and agrees that any dispute between the parties hereto with respect to
the interpretation, performance, or breach of any of the terms of this Agreement
or the transactions
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contemplated by this Agreement which cannot be resolved by the Coordinating
Committee shall be referred to arbitration conducted in accordance with the
rules and procedures of the American Arbitration Association ("AAA"), upon
written request of AGI, Mutual, and/or ALFC given to the others. Within thirty
(30) days of the giving of such written notice, each party involved shall
nominate an AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty
(30) days of their nomination, if there are two Party Arbitrators, the Party
Arbitrators shall select a third AAA-licensed arbitrator (the "Third
Arbitrator") and shall give the parties involved notice of such choice. If each
party selects a Party Arbitrator, the three Party Arbitrators selected shall
constitute the Arbitrators without further selection.
Section 11.2. Authority of Arbitrators. The arbitrators shall be empowered
to decide all issues submitted to arbitration using principles of law and equity
and, if required, by application of any customary practices in the insurance and
reinsurance industries. The arbitrators shall be relieved of all judicial
formalities and shall not be required to follow any rules of evidence except as
such rules may be imposed on arbitration proceedings conducted in accordance
with the laws of the State of Iowa, but the arbitrators shall attempt to enforce
the intents and purposes of this Agreement to the extent practicable and in
accordance with Iowa law. The decision of a majority of the arbitrators shall be
final and binding on AGI, Mutual, ALFC, and their subsidiaries.
Section 11.3. Expenses; Location. Each of AGI, Mutual, and ALFC shall bear
the expenses of its respective Party Arbitrator. If only two parties are
involved in the arbitration, the involved parties shall jointly share all other
expenses of the arbitration proceeding and the expenses of the Third Arbitrator.
The arbitration proceeding shall take place at Des Moines, Iowa unless another
location is mutually agreed upon by the parties. The arbitration proceeding
shall be governed by the laws of the State of Iowa. The parties hereto hereby
agree that any information respecting any matters submitted to arbitration in
accordance with the foregoing or any aspect of the arbitration proceeding itself
shall be treated as confidential and will not be disclosed to anyone not
employed or acting on behalf of AGI, Mutual, or ALFC in connection with such
arbitration or used at any time in any manner that is adverse to the interests
of any party hereto but, in any such case, such information may be disclosed if
such disclosure is made in connection with either party's prosecution or defense
of any legal proceedings or if such disclosure is required pursuant to a
subpoena or other legal order issued by any judicial or regulatory body or is
otherwise required by law.
Section 11.4. Restriction. Anything set forth herein to the contrary
notwithstanding, with respect to any issue to be determined by arbitration, AGI,
Mutual, and/or ALFC shall each submit in writing to the arbitrators their
proposed resolution of
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such issue. The arbitrators shall be constrained in their decision relating to
such issue to select only between the proposed resolutions, and the arbitrators
shall have no discretion to fashion any compromise or other resolution of the
issue submitted for arbitration.
XII. INDEMNIFICATION
Section 12.1. Indemnification by Mutual. Mutual shall defend, indemnify,
and hold harmless AGI, ALFC, and their successors and assigns against and in
respect of any and all damages, claims, losses, liabilities, and expenses
(including, without limitation, legal and other expenses) which may arise out of
or be in respect of any breach or misrepresentation by Mutual or the Mutual
Subsidiaries under this Agreement.
Section 12.2. Indemnification by AGI. AGI shall defend, indemnify, and
hold harmless Mutual, ALFC, and their successors and assigns against and in
respect of any and all damages, claims, losses, liabilities, and expenses
(including, without limitation, legal and other expenses) which may arise out of
or be in respect of any breach or misrepresentation by AGI or the AGI
Subsidiaries under this Agreement.
Section 12.3. Indemnification by ALFC. ALFC shall defend, indemnify, and
hold harmless AGI, Mutual, and their successors and assigns against and in
respect of any and all damages, claims, losses, liabilities, and expenses
(including, without limitation, legal and other expenses) which may arise out of
or be in respect of any breach or misrepresentation by ALFC or the ALFC
Subsidiaries under this Agreement.
Section 12.4. Limitations. Notwithstanding the foregoing, no
indemnification shall be available hereunder unless (i) notice of any claim for
indemnification is given to the indemnifying party within one year of the date
on which the loss under Section 12.1, Section 12.2, or Section 12.3 above occurs
or becomes known to the party to be indemnified and (ii) the party seeking
indemnification has previously paid or incurred damages, claims, losses,
liabilities, or expenses otherwise subject to indemnification hereunder in
excess of $75,000 in the aggregate.
Section 12.5 Participation in Defense. Promptly after receipt of notice of
any claim or the commencement of any action in respect to which indemnity may be
sought on account of the indemnity agreements contained in this Section, the
indemnified party will notify the indemnifying party in writing thereof. In case
any claim shall be asserted against an indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, to assume
the defense, conduct, or
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settlement thereof, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to so assume the defense, conduct, or settlement thereof, the
indemnifying party will not be liable to the indemnified party under this
Section for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense, conduct, or settlement thereof.
Notwithstanding an election by the indemnifying party to assume the defense,
conduct, or settlement of any claim subject to indemnification hereunder, if the
indemnified party reasonably determines that its interests may be adverse to, or
in conflict with, those of the indemnifying party, it may elect, at its own
expense, to retain or continue to retain its own counsel to participate in the
defense, conduct, or settlement of such claim. The indemnified party will
cooperate with the indemnifying party without charge in connection with any such
claim, make personnel books and records relevant to the claim available to the
indemnifying party, and grant such authorizations or powers of attorney to the
agents, representatives, and counsel of the indemnifying party as such
indemnifying party may reasonably consider desirable in connection with the
defense of any such claim.
XIII. AFFIRMATIVE COVENANTS
Section 13.1 Cooperation. Mutual, AGI, ALFC, and their subsidiaries will
fully cooperate with each other and their respective counsel, if any, and
accountants in connection with any action to be taken in the performance of
their obligations under this Agreement. They shall use their best efforts to
take or cause to be taken any and all actions necessary or required to obtain
each of the regulatory consents or approvals described herein and any
third-party consents described in Article XIV of this Agreement, unless the
receipt thereof has been waived in writing by the parties to this Agreement. In
the conduct of their affairs and the performance of this Agreement the parties
hereto shall, unless otherwise agreed by the Coordinating Committee, maintain
the working relationships of the parties on substantially the same terms as
before the effectiveness of this Agreement.
Section 13.2. Marketing. Parties hereto shall attempt to position
themselves in their respective target markets, whether separate or overlapping,
in all ways so as to preserve and strengthen their individual identities and
businesses, while making the best use of their association as described in this
Agreement and in the related agreements and relationships described in this
Agreement.
Section 13.3. Life Insurance Products. AGI has transferred ownership of
all of the issued and outstanding capital stock of ALLIED Life to Mutual
pursuant to a certain Stock Purchase
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Agreement dated October 24, 1989. Upon the closing thereof, AGI shall not engage
in the business of providing life insurance, annuities, or related products
directly or indirectly, nor shall AGI acquire, directly or indirectly, any life
insurance company or an interest in any life insurance company during the term
of this Agreement and for a period of five years thereafter, except with or
through ALFC or the ALFC Subsidiaries. Except as may be required by the Joint
Marketing Agreement, nothing herein shall require AGI or the AGI Subsidiaries to
sell, offer, or provide any life insurance products. The terms and conditions,
if any, upon which AGI, the AGI Subsidiaries, ALFC, or the ALFC Subsidiaries may
jointly offer life insurance products or services shall be as determined from
time to time by the parties. Any dispute relating to the offering of life
insurance products hereunder shall be resolved by the Coordinating Committee.
Notwithstanding any other provision of this Agreement, this paragraph survives
early termination of the Agreement.
Section 13.4. Agency. No party to this Agreement shall be deemed to be a
partner of, or agent for, any other party, except and only to the extent
necessary to effect any transactions which the parties may in their discretion
determine to be advantageous to enter into jointly, for example, joint purchases
of property or joint obligations to third parties, and then only as may be set
forth in a writing evidencing the scope of the parties' involvement in such
transactions which writing shall be subject to the approval of the Coordinating
Committee.
Section 13.5. Current Information. Each party to this Agreement shall,
upon request, annually certify to the others that the representations and
warranties made in this Agreement by such party are true and correct as of the
anniversary date of this Agreement, or such certification shall indicate in what
manner or to what extent such representations and warranties are incorrect. Upon
request, each party to this Agreement shall provide all other parties with
financial statements and shall annually certify to the others that the
representations and warranties in Section 9.2(d), Section 9.3(d), or Section
9.4(d) of this Agreement apply to such financial statements.
Section 13.6. Confidences and Trade Secrets.
(a) Each party to this Agreement shall keep confidential, except as the
other party or parties may otherwise consent in writing, and, except for the
other parties' benefit, not disclose or make any use of at any time and for any
purpose whatsoever, any trade secrets, confidential information, knowledge,
data, trademarks or trade names, or other information of any of the companies in
the ALLIED Group relating to their products, know-how, designs, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the ALLIED Group or any of its
clients, customers, consultants, licensees, or affiliates, which it has
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obtained or may obtain, or otherwise acquire during the course of contacts,
discussions, negotiation, or agreement with any of the Companies in the ALLIED
Group, except as herein provided (hereafter, collectively, "Confidential
Information"). No party shall deliver, reproduce or in any way allow any
Confidential Information of the other parties or any documentation relating
thereto, to be delivered to or used by any third parties without specific
written direction or consent of a duly authorized officer of AGI, Mutual, or
ALFC as the case may be.
(b) Upon termination of this Agreement for any reason whatsoever, each
party shall promptly surrender and deliver to each other party all records,
materials, equipment, drawings, documents, data, and all Confidential
Information of the other parties and shall not retain any description containing
or pertaining to any Confidential Information of the other parties, unless
otherwise consented to in writing by a duly authorized officer of AGI, Mutual,
or ALFC as the case may be.
13.7 Covenant Not To Compete. AGI, Mutual, and ALFC agree not to engage in
a business, enterprise, or market that directly competes with the products or
markets of one another or the AGI Subsidiaries, Mutual Subsidiaries, or ALFC
subsidiaries for the term of the Agreement and five (5) years following the
termination of the Agreement for any reason.
XIV. REGULATORY AND OTHER APPROVALS
Section 14.1. Regulatory Filings. AGI, Mutual, and ALFC shall promptly
undertake such actions as may be necessary to file, amend, or apply for any
documents, certificates, or reports now filed or to be filed with any federal or
state authorities having jurisdiction over the subject matter of this Agreement
or the parties to this Agreement.
Section 14.2. Other Approvals. On or before the date of this Agreement,
any and all regulatory consents or approvals required to effect the transactions
contemplated herein shall have been obtained (or the receipt shall have been
waived by both of the parties hereto) without the imposition of a material cost,
liability, or restriction upon any of the parties hereto which is not consented
to by the affected party, which regulatory consents or approvals shall include
but shall not be limited to, the following:
(a) The Commissioner of the Insurance Division of the Department of
Commerce of the State of Iowa (the "Commissioner") shall have issued one or more
orders or consents (the "Insurance Approvals") to approve the terms of this
Agreement to the extent that the Commissioner shall have the regulatory
authority to disapprove the terms of this Agreement.
23
<PAGE>
(b) On or before the effective date of this Agreement, all material
consents or approvals by any third party which were required to be obtained by
Mutual, AGI, or ALFC in connection with the execution, delivery, or performance
of this Agreement or the consummation of any transactions contemplated herein
shall have been obtained, or the receipts thereof shall have been waived by AGI,
Mutual, and ALFC.
XV. ALFC, ALLIED LIFE, AND ALBA EMPLOYEES
Section 15.1. ALFC, ALLIED Life, and ALBA Employees.
(a) ALFC, ALLIED Life, and ALBA shall be listed together on an ALLIED Life
and ALBA Payroll Register (the "Life Payroll Register"). AGI shall have no
control, discretion, or authority over such employees. The Life Payroll Register
shall be a true, correct, and complete listing of all persons employed by ALFC,
ALLIED Life, and ALBA, and shall contain true and correct information as to the
positions, years of service, and salaries of all such employees.
(b) ALLIED Life and ALBA, respectively, hired all persons who were listed
on the Life Payroll Register and subject to the same defenses, rights, and
obligations to which AGI may be subject, or to which AGI may be entitled,
commencing as of the start of business July 1, 1990. ALLIED Life and ALBA shall
not be deemed to have employed any persons whose employment by AGI would
otherwise terminate as of or prior to January 1, 1990 but for this Agreement.
Nothing in this Agreement shall obligate ALLIED Life or ALBA to continue to
retain or employ any employee hired by ALLIED Life or ALBA pursuant to this
Agreement for any particular period of time or at any particular rate of
compensation after the effective date of this Agreement.
(c) ALLIED Life and ALBA assumed and paid all liabilities for the employee
group as of June 30, 1990 including but not limited to compensation, fringe
benefits, taxes, withholdings, and reimbursements relating to obligations of AGI
relating to employees hired by AGI pursuant to this Agreement from and after
July 1, 1990.
XVI. MISCELLANEOUS
Section 16.1. Assignment. Neither this Agreement nor any rights hereunder
may be assigned by any of the parties hereto.
Section 16.2. Waiver; Remedies. No delay or omission of any party to this
Agreement to exercise any right or power hereunder shall impair such right or
power or be a waiver of any default or an acquiescence therein; and any single
or partial exercise of any
24
<PAGE>
such right or power shall not preclude other or further exercise thereof or the
exercise of any other right. In addition to any rights granted herein, the
parties hereto shall have and may exercise any and all rights and remedies now
or hereafter provided by law except as may be limited by Article XI of this
Agreement.
Section 16.3. Permissive Release of Confidential Information.
Notwithstanding the provisions of Section 13.6 of this Agreement, any
Confidential Information may be used in connection with any arbitration relating
to the transactions contemplated by this Agreement and such information may be
disclosed if such disclosure is made in connection with the parties' prosecution
or defense of any legal proceedings or if such disclosure is required pursuant
to a subpoena or other legal order issued by any judicial or regulatory body or
is otherwise required by law.
Section 16.4. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or if mailed by certified or registered mail
(return receipt requested):
(a) If to Mutual:
ALLIED Mutual Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50391-2000
Attention: President
(b) If to AGI:
ALLIED Group, Inc.
701 Fifth Avenue
Des Moines, Iowa 50391-2000
Attention: President
(c) If to ALFC:
ALLIED Life Financial Corporation
701 Fifth Avenue
Des Moines, Iowa 50391-2000
Attention: President
Any notice given as provided in this section 16.4, if given personally, shall be
effective upon delivery and if given by certified or registered mail shall be
effective three days after deposit in the mail. Any party hereto may change the
address at which it is to be given notice by giving notice to the other party as
provided in this section 16.4.
Section 16.5. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of Iowa and shall be construed and
interpreted under the laws of such state
25
<PAGE>
applicable to contracts made and to be performed entirely within such state.
Section 16.6. Enforceability. If any one or more of the covenants,
agreements, provisions, or other terms of this Agreement shall be for any reason
whatsoever determined to be invalid, then such terms shall be deemed severable
from the remaining terms of this Agreement and shall in no way affect the
validity or enforceability of the other terms of this Agreement and such invalid
terms shall be replaced by valid terms bearing the closest possible similarity
in substance so that the intentions and purposes being the basis of this
Agreement could be enforced to the greatest extent permitted by law.
Section 16.7. Survival of Representations and Warranties. All covenants,
agreements, representations, and warranties made in this Agreement by any of the
parties hereto, including but not limited to, the indemnification provisions set
forth herein shall be effective on the effective date hereof and thereafter.
Section 16.8. Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
Section 16.9. Headings. The headings in the sections and subsections of
this Agreement are inserted for convenience only and shall not constitute a part
hereof.
Section 16.10. Entire Agreement. This Agreement, including the schedules
and exhibits referred to herein and any documents executed by the parties
simultaneously herewith constitute the entire understanding and agreement of the
parties hereto and supersede all other prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement.
XVII. DEFINITIONS
Section 17.1. ACA. The term "ACA" shall mean ALLIED Crop Agency, Inc., an
Iowa corporation.
Section 17.2. AGA. The term "AGA" shall mean ALLIED General Agency
Company, an Iowa corporation.
Section 17.3. AGI. The term "AGI" shall mean ALLIED Group, Inc., an Iowa
corporation.
26
<PAGE>
Section 17.4. AGI Subsidiaries. The term "AGI Subsidiaries" shall mean
AMCO, APC, Depositors, ALLIED Group Mortgage Corporation, ALLIED Leasing,
Dougherty Dawkins, Inc., the Dougherty Dawkins Subsidiaries, the AMCO
Subsidiaries, and any subsidiary added as a party hereto pursuant to the
procedure set forth in Section 10.2; provided, that any subsidiary deleted as a
party pursuant to said procedure shall no longer be included in the definition
of such term.
Section 17.5. ALBA. The term "ALBA" shall mean ALLIED Life Brokerage
Agency, Inc., an Iowa corporation, and the wholly-owned subsidiary of ALFC.
Section 17.6. ALFC. The term "ALFC" shall mean ALLIED Life Financial
Corporation, an Iowa corporation.
Section 17.7 ALFC Subsidiaries. The term "ALFC Subsidiaries" shall mean
ALLIED Life and ALBA and any subsidiary added as a party hereto pursuant to the
procedure set forth in Section 10.2; provided, however, that any subsidiary
deleted as a party pursuant to said procedure shall no longer be included in the
definition of such term.
Section 17.8. ALLIED Group. The term "ALLIED Group" shall mean Mutual, the
Mutual Subsidiaries, AGI, the AGI Subsidiaries, ALFC, and the ALFC Subsidiaries.
Section 17.9. ALLIED Leasing. The term "ALLIED Leasing" shall mean the AGI
subsidiary, ALLIED Group Leasing Corporation, an Iowa corporation.
Section 17.10. ALLIED Life. The term "ALLIED Life" shall mean ALLIED Life
Insurance Company, an Iowa life insurance corporation and the wholly-owned
subsidiary of ALFC.
Section 17.11 AMCO. The term "AMCO" shall mean AMCO Insurance Company, an
Iowa stock insurance corporation.
Section 17.12. AMCO Subsidiaries. The term "AMCO Subsidiaries" shall mean
AGA, AGIS, The Freedom Group, Inc., Western Heritage Insurance Company, Midwest
Printing Services, Ltd. and Freedom Insurance Services, Inc.
Section 17.13 Annual Rental Cost. The term "Annual Rental Cost" shall mean
the annual total costs and expenses of providing furnished office space,
including depreciation and interest.
Section 17.14. APC. The term "APC" shall mean ALLIED Property and Casualty
Insurance Company, an Iowa stock insurance company.
Section 17.15. Coordinating Committee. The term "Coordinating Committee"
shall mean the joint meeting of the committees
27
<PAGE>
established by the Bylaws of Mutual, AGI, and ALFC for the purpose, among
others, of resolving issues under this Agreement.
Section 17.16. Current Restructuring. The term "Current Restructuring"
shall refer to the incorporation of ALFC and its capitalization by Mutual
transferring the stock of ALLIED Life and ALBA in exchange for ALFC common and
preferred stock.
Section 17.17. Depositors. The term "Depositors" shall mean the AGI
subsidiary, Depositors Insurance Company, an Iowa stock insurance corporation.
Section 17.18. Direct Employee Allocation. The term "Direct Employee
Allocation" shall have the meaning set forth in Section 2.2 of this Agreement.
Section 17.19. Direct Employees. The term "Direct Employees" shall have
the meaning set forth in Section 2.2 of this Agreement.
Section 17.20. Dougherty Dawkins, Inc. The term "Dougherty Dawkins, Inc."
shall mean Dougherty Dawkins, Inc., a Minnesota corporation.
Section 17.21. Dougherty Dawkins Subsidiaries. The term "Dougherty
Dawkins Subsidiaries" shall mean Voyageur Fund Distributors, Inc., Voyageur
Asset Management Group, Inc., Dougherty, Dawkins, Strand & Bigelow Incorporated,
and Dougherty Dawkins Portfolio Advisory Services, all of which are Minnesota
corporations.
Section 17.22. Employee Group. The term "Employee Group" shall mean those
persons listed on or who properly should be listed on the AGI Payroll Register.
Section 17.23. Employee Utilization Percentage. The term "Employee
Utilization Percentage" shall have the meaning set forth in Section 2.2 of this
Agreement.
Section 17.24. ESOP. The term "ESOP" shall mean that certain leveraged
employee stock ownership plan adopted by the Board of Directors of AGI on
December 8, 1989, including any amendments thereto.
Section 17.25. Human Resources Department. The term "Human Resources
Department" shall mean the personnel and payroll departments of AGI, exclusive
of training, personnel development, switchboard and receptionist functions, and
communications media. The Human Resources Department is an AGI department and is
staffed with AGI employees.
Section 17.26. Insurance Approvals. The term "Insurance Approvals" shall
have the meaning set forth in Section 14.2(a) of this Agreement.
28
<PAGE>
Section 17.27. Joint Compensation Committee. The term "Joint Compensation
Committee" shall mean the committee formed in accordance with Article II of this
Agreement.
Section 17.28. Joint Marketing Agreement. The term "Joint Marketing
Agreement" shall mean the ALLIED Group Joint Marketing Agreement and any
amendments thereto.
Section 17.29. MIS Agreement. The term "MIS Agreement" shall mean that
certain Amended and Restated Management Information Services Agreement and any
amendments thereto or successor agreements.
Section 17.30. Mutual. The term "Mutual" shall mean ALLIED Mutual
Insurance Company, an Iowa mutual insurance corporation.
Section 17.31. Mutual Subsidiaries. The term "Mutual Subsidiaries" shall
mean AID Finance Services, Inc., ACA, ALLIED Jet Center, Inc., ALLIED Group
Merchant Banking Corporation, ARE, Inc., ALLIED Group Insurance Marketing
Company, and any subsidiary added as a party hereto pursuant to the procedure
set forth in Section 10.2; provided, that any subsidiary deleted as a party
pursuant to said procedure shall no longer be included in the definition of such
term.
Section 17.32. Pool. The term "Pool" shall mean the arrangement for
sharing insurance business revenues and expenses created by the Pooling
Agreement.
Section 17.33. Pooling Agreement. The term "Pooling Agreement" shall mean
that certain Second Amended and Restated Reinsurance Pooling Agreement, and any
amendments thereto or successor agreements.
Section 17.34. Restructuring Plan. The term "Restructuring Plan" shall
mean 1) the sale of 100% of the issued and outstanding capital stock of ALLIED
Life from AGI to Mutual in exchange for 2,700,000 shares of AGI common stock; 2)
the transfer of the Employee Group from Mutual to AGI; 3) the formation by AGI
of an employee stock ownership plan; 4) the termination of the ALLIED Mutual
Defined Benefit Plan; 5) the amendment of the Pooling Agreement; and 6) the
entering into of such other agreements as may be necessary to document such
transactions and to retain for the companies in the ALLIED Group the continued
benefits of their close business relationships, all as provided in the minutes
of the meetings of the Boards of Directors of AGI and Mutual held on October 23,
1989.
Section 17.35. Staff Employees. The term "Staff Employees" shall have the
meaning set forth in Section 2.2 of this Agreement.
Section 17.36. Surplus Office Space. The term "Surplus Office Space" shall
mean any vacant or unoccupied office space that is
29
<PAGE>
owned or leased by Mutual or any of the Mutual Subsidiaries with the exception
of the Eden Prairie, Minnesota property.
Section 17.37. Total Personnel Costs. The term "Total Personnel Costs"
shall include all costs or expenses of whatever nature and from whatever origin
arising out of or related to the maintenance of an employee group. Such term
shall include but shall not be limited to the following costs, expenses, and
obligations:
(a) salaries, wages, reimbursements;
(b) benefit plans, including the ESOP;
(c) payroll taxes;
(d) employee insurance;
(e) litigation with employees;
(f) termination benefits;
(g) retiree medical benefits.
XVIII. RESTATEMENT OF ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
Section 18.1. Restatement. The ALLIED Group Intercompany Operating
Agreement originally became effective January 1, 1990 and all previous
amendments and agreements are hereby superseded and replaced by this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the date and year above first written.
ALLIED MUTUAL INSURANCE COMPANY
By /s/ James D. Kirkpatrick
---------------------------------------
James D. Kirkpatrick, President
By /s/ George T. Oleson
---------------------------------------
George T. Oleson, Secretary
30
<PAGE>
ALLIED GROUP, INC.
By /s/ John E. Evans
---------------------------------------
John E. Evans, Chairman of the
Board and President
By /s/ George T. Oleson
---------------------------------------
George T. Oleson, Secretary
ALLIED Life Financial Corporation
By /s/ Samuel J. Wells
---------------------------------------
Samuel J. Wells, President
By /s/ George T. Oleson
---------------------------------------
George T. Oleson, Secretary
31
<PAGE>
SUBSIDIARY SIGNATURE ADDENDUM
As of August 25, 1993, the undersigned companies hereby agree to become a
party and be subject to the Amended and Restated ALLIED Group Intercompany
Operating Agreement that became effective January 1, 1990 and is amended and
restated as of the date of this Addendum, and the undersigned companies consent
to ALLIED Group, Inc. as its agent with respect to those matters as specified in
the Amended and Restated ALLIED Group Intercompany Operating Agreement.
Dougherty Dawkins, Inc.
By: /s/
--------------------------------------
Title: President
Dougherty, Dawkins, Strand & Bigelow
Incorporated
By: /s/
--------------------------------------
Title: Chairman
Dougherty Dawkins Portfolio Advisory
Services
By: /s/
--------------------------------------
Title: Chairman
Voyager Asset Management Group, Inc.
By: /s/
--------------------------------------
Title: Chairman
Voyageur Fund Distributors, Inc.
By: /s/
--------------------------------------
Title: Chairman
32
<PAGE>
ALLIED Group Mortgage Company
By: /s/
--------------------------------------
Title: President
AMCO Insurance Company
By: /s/
--------------------------------------
Title: Pres.
ALLIED General Agency Company
By: /s/
--------------------------------------
Title: Pres.
ALLIED Group Information Systems, Inc.
By: /s/ Bob O. Myers
--------------------------------------
Title: President
The Freedom Group, Inc.
By: /s/
--------------------------------------
Title: Secretary
Freedom Insurance Services, Inc.
By: /s/
--------------------------------------
Title: Asst. Secretary
33
<PAGE>
Midwest Printing Services, Ltd.
By: /s/ Leslie D. Peltz
--------------------------------------
Title: Vice President & Treasurer
ALLIED Group Leasing Corporation
By: /s/
--------------------------------------
Title: President
ALLIED Property and Casualty Insurance
Company
By: /s/
--------------------------------------
Title: Pres.
Depositors Insurance Company
By: /s/
--------------------------------------
Title: Pres.
34
<PAGE>
Western Heritage Insurance Company
By: /s/ Joseph T. Olson
--------------------------------------
Title: President
35
<PAGE>
SUBSIDIARY SIGNATURE ADDENDUM
As of August 25, 1993, the undersigned companies hereby agree to become a
party and be subject to the Amended and Restated ALLIED Group Intercompany
Operating Agreement that became effective January 1, 1990 and is amended and
restated as of the date of this Addendum, and the undersigned companies consent
to ALLIED Mutual Insurance Company as its agent with respect to those matters as
specified in the Amended and Restated ALLIED Group Intercompany Operating
Agreement.
AID Finance Services, Inc.
By: /s/
--------------------------------------
Title: President
ALLIED Crop Agency, Inc.
By: /s/ Stephen S. Rasmussen
--------------------------------------
Title: President
ALLIED Jet Center, Inc.
By: /s/
--------------------------------------
Title: President
ALLIED Group Merchant Banking Corporation
By: /s/
--------------------------------------
Title: President
ARE, Inc.
By: /s/
--------------------------------------
Title: President
ALLIED Group Insurance Marketing Company
By: /s/
--------------------------------------
Title: President
36
<PAGE>
SUBSIDIARY SIGNATURE ADDENDUM
As of August 25, 1993, the undersigned companies hereby agree to become a
party and be subject to the Amended and Restated ALLIED Group Intercompany
Operating Agreement that became effective January 1, 1990 and is amended and
restated as of the date of this Addendum, and the undersigned companies consent
to ALLIED Life Financial Corporation as its agent with respect to those matters
as specified in the Amended and Restated ALLIED Group Intercompany Operating
Agreement.
ALLIED Life Insurance Company
By: /s/
--------------------------------------
Title: President
ALLIED Life Brokerage Agency, Inc.
By: /s/
--------------------------------------
Title: President
37
<PAGE>
Exhibit 10
FIRST AMENDMENT TO
AMENDED AND RESTATED ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
THIS AMENDMENT is made this 1st day of November, 1993, by and between
ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and
ALLIED Life Financial Corporation ("ALFC").
WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered
into the Amended and Restated ALLIED Group Intercompany Operating Agreement on
August 25, 1993 (the "Agreement"); and
WHEREAS, on October 14, 1993, the Executive Committee of the Board of
Directors for each of Mutual, AGI, and ALFC approved certain amendments to the
Agreement regarding the Coordinating Committee:
NOW, THEREFORE, in consideration of the foregoing, and or the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. The Agreement is hereby amended by changing the heading for Article XI
from "Arbitration" to "Coordinating Committee; Arbitration".
2. Sections 11.1, 11.2, 11.3, and 11.4 are renumbered as Sections 11.2,
11.3, 11.4, and 11.5.
3. New Section 11.1 is added as follows:
Section 11.1. Coordinating Committee. All disputes under this
Agreement shall be referred for resolution to the Coordinating
Committee. Each of the coordinating committees of Mutual, AGI, and ALFC
(a) has the right to participate in each and every Coordinating
Committee deliberation unless it elects to abstain therefrom and (b)
has one vote which shall be cast for or against any such decision
unless it elects to abstain. Each such coordinating committee shall be
comprised of two persons, one of whom shall constitute a quorum for the
transaction of any business. All decisions of the Coordinating
Committee must be unanimous, except for abstentions. All decisions of
the Coordinating Committee are binding on the parties hereto.
4. Section 17.15 of the Agreement is amended as follows:
Section 17.15. Coordinating Committee. The term "Coordinating
Committee" shall mean the joint meeting of the coordinating committees
established by Mutual, AGI,
1
<PAGE>
and ALFC in accordance with their respective bylaws or pursuant to
resolution for the purpose, among others, of resolving issues under
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year above first written.
ALLIED Mutual Insurance Company
By: /s/ Douglas L. Andersen
--------------------------------
Douglas L. Andersen, President
By: /s/ George T. Oleson
--------------------------------
George T. Oleson, Secretary
ALLIED Group, Inc.
By: /s/ John E. Evans
--------------------------------
John E. Evans, Chairman of the
Board and President
By: /s/ George T. Oleson
--------------------------------
George T. Oleson, Secretary
ALLIED Life Financial Corporation
By: /s/ Samuel J. Wells
--------------------------------
Samuel J. Wells, President
By: /s/ George T. Oleson
--------------------------------
George T. Oleson, Secretary
2
<PAGE>
Exhibit 11
SECOND AMENDMENT TO
AMENDED AND RESTATED ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
THIS AMENDMENT is made this 16th day of May, 1994, by and between ALLIED
Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and ALLIED Life
Financial Corporation ("ALFC").
WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered
into the Amended and Restated ALLIED Group Intercompany Operating Agreement on
August 25, 1993, as amended as of November 1, 1993 (the "Agreement"); and
WHEREAS, on May 16, 1994, the Executive Committee of the Board of Directors
for each of Mutual, AGI, and ALFC approved the amendment to the Agreement
regarding the fees for employee leasing and other services;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Section 2.1 (e), second sentence, subsection (i) is hereby amended by
replacing "5.07%" with "3.5%".
2. Section 2.1(e), second sentence, subsection (iv) is hereby amended by
replacing "4.62%" with "3.5%".
3. All other terms and conditions remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year above first written.
ALLIED Mutual Insurance Company
By: /s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen, President
By: /s/ George T. Oleson
---------------------------------
George T. Oleson, Secretary
ALLIED Group, Inc.
By: /s/ John E. Evans
---------------------------------
John E. Evans, Chairman of the
Board and President
By: /s/ George T. Oleson
---------------------------------
George T. Oleson, Secretary
ALLIED Life Financial Corporation
By: /s/ Samuel J. Wells
---------------------------------
Samuel J. Wells, President
By: /s/ George T. Oleson
---------------------------------
George T. Oleson, Secretary
<PAGE>
Exhibit 12
THIRD AMENDMENT TO
AMENDED AND RESTATED ALLIED GROUP
INTERCOMPANY OPERATING AGREEMENT
THIS AMENDMENT is made this 15th day of December, 1994, by and between
ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and
ALLIED Life Financial Corporation ("ALFC").
WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered
into the Amended and Restated ALLIED Group Intercompany Operating Agreement on
August 25, 1993, as amended as of November 1, 1993 and May 16, 1994 (the
"Agreement"); and
WHEREAS, on December 12, 1994, the Executive and Coordinating Committees
of the Board of Directors for each of Mutual, AGI, and ALFC approved the
amendment to the Agreement regarding the fees for employee leasing and other
services;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Section 2.1(e), second sentence, subsection (i) is hereby amended by
replacing "3.5%" with "4.0%".
2. Section 2.1(e), second sentence, subsection (iv) is hereby amended by
replacing "3.5%" with "4.0%".
3. This Amendment shall be effective January 1, 1995. All other terms and
conditions remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year above first written.
ALLIED Mutual Insurance Company
By: /s/ Douglas L. Andersen
-------------------------------
Douglas L. Andersen, President
By: /s/ George T. Oleson
-------------------------------
George T. Oleson, Secretary
ALLIED Group, Inc.
By: /s/ Jamie H. Shaffer
-------------------------------
Jamie H. Shaffer, Office of the
President
By: /s/ George T. Oleson
-------------------------------
George T. Oleson, Secretary
ALLIED Life Financial Corporation
By: /s/ Samuel J. Wells
-------------------------------
Samuel J. Wells, President
By: /s/ George T. Oleson
-------------------------------
George T. Oleson, Secretary
<PAGE>
Exhibit 13
SECOND AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
THIS AGREEMENT made this 14th day of December, 1992, by and between ALLIED
Mutual Insurance Company (hereinafter referred to as "Mutual"), AMCO Insurance
Company (hereinafter referred to as "AMCO" or the "Pool Administrator"), ALLIED
Property and Casualty Insurance Company (hereinafter referred to as "APC"), and
Depositors Insurance Company (hereinafter referred to as "Depositors"), for and
in consideration of their mutual promises and agreements herein and for their
mutual benefit. Mutual, APC, and Depositors are hereinafter collectively
referred to as "Affiliated Companies". Mutual, AMCO, APC, and Depositors are
hereinafter collectively referred to as "Participants".
WITNESSETH:
WHEREAS, each Participant is an Iowa corporation with its principal place
of business located in Des Moines, Polk County, Iowa; and
WHEREAS, each Participant is engaged in the property-casualty insurance
business, and the Participants maintain a close business relationship; and
WHEREAS, the Participants are parties to an Amended and Restated
Reinsurance Pooling Agreement, dated December 29, 1989,
-1-
<PAGE>
which was subsequently amended March 28, 1990; May 31, 1991; August 14, 1991;
and February 25, 1992; and
WHEREAS, the Participants again desire to amend and restate the terms of
such Reinsurance Pooling Agreement; and
WHEREAS, on January 1, 1993, this Second Amended and Restated Reinsurance
Pooling Agreement ("Agreement") shall supersede and replace the aforementioned
document and the amendments thereto; and
WHEREAS, the purpose of this Agreement is to pool or share the risk of loss,
allocated loss adjustment expenses, commissions, and certain taxes
proportionately among the Participants in order to reduce reinsurance costs; to
limit certain of the Affiliated Companies' administrative expenses to a
specified percentage of premiums; and to bring about for each Participant the
potential for added economies of operation, more uniform underwriting results,
diversification as to the classes of insurance business written, and
maximization of capacity; and
WHEREAS, to accomplish such purpose, (1) the Affiliated Companies will cede
to AMCO their Pooled Insurance Business and assume from AMCO an amount equal to
their Applicable Participation Percentage, each as herein defined; (2) all
Pooled Items, as defined herein, will be prorated among the Participants on the
basis of such Applicable Participation Percentages, upon the terms and
conditions set forth herein; and (3) the Pool Administrator will pay, in
exchange for the payment of a fee, the Affiliated Companies' Administrative
Expenses, as herein defined;
-2-
<PAGE>
NOW THEREFORE, in consideration of the foregoing premises and for the
mutual covenants contained herein and other good and valuable consideration, the
Participants agree as follows:
I. DEFINITIONS
Section 1.1. The term "Applicable Participation Percentage(s)" shall mean
those percentages as set forth in Exhibit A attached hereto and incorporated
herein as they may be amended from time to time as provided herein.
Section 1.2. The term "Annual Statement" shall mean the statutory form
----------------
annual statement, fire and casualty companies-association edition. The
references to the Annual Statement contained hereinafter are to the following
----------------
Exhibits set forth therein:
1. Page 4, Underwriting and Investment Exhibit, Statement of Income
(Column 1, only): "Income Statement."
2. Page 7, Underwriting and Investment Exhibit, Part 2 - Premiums
Earned: "Earned Premiums Exhibit."
3. Page 11, Underwriting and Investment Exhibit,
Part 4 - Expenses: "Expense Exhibit."
Section 1.3. The term "Pooled Insurance Business" shall mean all insurance
business conducted by the Participants exclusive of any such business or line of
business which is set forth in Exhibit B, "Non-Pooled Business," attached
hereto and incorporated herein, as it may be amended from time to time as
provided herein.
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<PAGE>
Section 1.4. The term "Insurance Policies" shall mean the Participants'
insurance, surety, and other underwriting obligations on Pooled Insurance
Business.
Section 1.5. The term "Pooled Items" shall mean those items of income or
expense which are reported in each Participant's Annual Statement for each year,
----------------
as applicable during the term hereof on the Income Statement, Lines 1, 2, 10,
11, 12, and 14A and on the Expense Exhibit, Columns 1-3, Lines 1, 2, and 18,
excluding therefrom however any entry or portion thereof which relates to any
business or line of business set forth in Exhibit B, "Non-Pooled Business."
Such exclusions shall be referred to hereinafter as "Non-Pooled Items."
Section 1.6. The term "Administrative Expenses" shall mean those "Loss
Adjustment," "Other Underwriting," "Investment," and "Miscellaneous" expenses of
each Participant which are reported in its Annual Statement for each year, as
----------------
applicable, during the term hereof on the Expense Exhibit, Lines 3-17 and Line
21 (Column 2, only).
Section 1.7. The term "Company Specific Items" shall mean those items of
income or expense which are reported in each Participant's Annual Statement for
----------------
each year, as applicable, during the term hereof on the Income Statement, Lines
8, 9, and 15 and the Expense Exhibit, Columns 1-3, Lines 19 and 20. In
addition, Company Specific Items shall mean (1) all Non-Pooled Items and (2)
investment portfolio management fees, interest expense, and security transaction
fees which are included in the entries to Line 21, Column 3, on the Expense
Exhibit.
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Section 1.8. The term "Loss" or "Losses" shall mean those loss payments and
allocated loss adjustment expenses incurred by a Participant on Insurance
Policies as reported in its Annual Statement on Income Statement Line 2 and
------ ---------
Expense Exhibit Line 1 (Column 1, only).
Section 1.9. The term "Statutory Reserves" shall mean those reserves
required by statute on Insurance Policies.
Section 1.10. The term "Statement Reserves" shall mean actual loss and
allocated loss adjustment expense reserves on Insurance Policies.
Section 1.11. The term "Underwriting Expenses(s)" shall mean the sum of
those expenses which are reported on Lines 2 and 18 of the Expense Exhibit in
each participant's Annual Statement with respect to Pooled Insurance Business.
------ ---------
Section 1.12. The term "Net Statutory Underwriting Liabilities" shall mean
the difference between those underwriting assets and underwriting liabilities
which relate to Pooled Insurance Business. Underwriting assets as used in
defining "Net Statutory Underwriting Liabilities" include insurance agents'
balances or uncollected premiums, prepaid reinsurance premiums, reinsurance
recoverable on loss payments, equities and deposits in pools and associations,
and all other statutory underwriting assets. Underwriting liabilities include
reserves for Losses, reserves for unearned premiums, and all other underwriting
liabilities as evidenced by the books and records of the Participants but shall
not include liabilities which relate to either Administrative Expenses or
Company Specific Expenses.
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Section 1.13. The term "Net Underwriting Liabilities" shall mean Net
Statutory Underwriting Liabilities less deferred policy acquisition costs
(computed under generally accepted accounting principles) less nonadmitted
accounts receivable (computed under statutory accounting principles) plus
allowances for bad debts (computed under generally accepted accounting
principles).
Section 1.14. The term "Net Underwriting Cash Flow" shall mean net
premiums written (net of reinsurance) by the Participants on Insurance Policies
reduced by net Losses (net of reinsurance and salvage and subrogation) and
Underwriting Expenses paid.
Section 1.15. The term "Net Insurance Policy Liability" shall mean each
Participant's respective rights and obligations under the Insurance Policies,
less all reinsurance recoveries (other than those made pursuant to this
Agreement) and salvage and subrogations recoveries relating to the Insurance
Policies. Net Insurance Policy Liability shall include Net Statutory
Underwriting Liabilities and Net Underwriting Cash Flow.
Section 1.16. The term "Coordinating Committee" shall mean the committee
established by Mutual and ALLIED Group, Inc. ("AGI") which consists of two
members of the AGI Board of Directors who do not serve on the Mutual Board of
Directors and two members of the Mutual Board of Directors who do not serve on
the AGI Board of Directors.
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II. TERM
Section 2.1. This Agreement shall be effective at 12:01 A.M., January 1,
1993 and shall continue in effect until 11:59 P.M., December 31, 2004, and shall
continue thereafter unless prior to December 31, 2002, a party to this Agreement
delivers to the other parties a written notice that such party intends to cease
participation and terminate the Agreement as to it on December 31, 2004 or as of
a specified date thereafter. This Agreement may be terminated by any party
effective after December 31, 2004, provided that such party has given written
notice of termination to the others at least two years prior to the proposed
termination date. Termination of any party's participation in this Agreement
prior to December 31, 2004 shall require Coordinating Committee approval,
provided, however, that the terms and conditions of this Agreement other than
the Administration Fee (See: Section 3.7) shall be subject to renegotiation by
the parties at the written request of any Affiliated Company to the Pool
Administrator at least six months prior to every thirty months during its term
(i.e., July 1, 1995; January 1, 1998; etc.) and, provided further, that the
Administration Fee shall be subject to renegotiation by the parties at the
written request of any party to the others at least six months prior to every
fifth year during its term (i.e., January 1, 1998, 2003, etc.).
Section 2.2. In the event of a Change of Control (as hereinafter defined
in this section) of AGI, Mutual may, in its sole discretion, at any time after
such Change of Control: (i)
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terminate all three of the Intercompany Operating Agreement ("IOA"), Management
Information Services Agreement ("MIS"), and this Agreement upon six (6) months
notice to AGI, AMCO, APC, and Depositors; (ii) extend the term of all three of
the IOA, MIS, and this Agreement for up to ten (10) additional years beyond
December 31, 2004 upon six (6) months notice to AGI, AMCO, APC, and Depositors;
or (iii) allow such agreements to continue in effect. "Change of Control" for
purposes of this section shall mean an event whereby a person, group, or entity
that is not affiliated with AGI or Mutual acquires the ownership of 50% or more
of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or
Mutual shall mean a person, group, or entity that directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with AGI or Mutual.
III. AGREEMENT TO ADMINISTER INSURANCE BUSINESS
Section 3.1. Throughout the term of this Agreement, the Affiliated
Companies shall delegate to, and the Pool Administrator shall assume,
responsibility for the administration of the insurance business of the
Affiliated Companies as hereinafter set forth.
Section 3.2. The Pool Administrator shall undertake and perform the
obligations assumed hereunder in the behalf of the Affiliated Companies in good
faith and in a timely, diligent fashion in keeping with reasonable, accepted
business practices in the property-casualty insurance industry. Such business
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practices shall comport with and be substantially equivalent to those utilized
by the Pool Administrator in the operation of its own insurance business.
Section 3.3. Upon entering this agreement for the administration of
insurance business, the parties acknowledge their existing business affiliation
and/or common ownership, the term of this Agreement, and the IOA to which each
is a party. The parties hereby agree that any dispute concerning the Pool
Administrator's or any Affiliated Company's rights or obligations hereunder
shall be resolved pursuant to Art. IX, Dispute Resolution, hereof.
Section 3.4. Upon the effective date hereof and thereafter throughout the
term of this Agreement, the Pool Administrator shall be responsible for and
shall administer all operations relating to the Pooled Insurance Business and
Non-Pooled Insurance Business of each Affiliated Company that are not reserved
for the direct control of said company's board of directors, any duly authorized
committee thereof, or its officers. Such operations shall include but are not
limited to the following and such other functions as are typically and
necessarily performed by property-casualty insurers.
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<PAGE>
. Underwriting
- Policy Design
- Rate Making
- Reinsurance
. Claims
- Reserving
- Investigations and adjustment
. Marketing
- Advertising
- Agency relations
. Policyholder Services
- Policy issuance and endorsement
- Cancellation, renewal, nonrenewal
- Collections
. Administrative Services
- Accounting
- Legal
- Data Processing
- Investment
The Pool Administrator shall either conduct such operations directly or
shall arrange for and administer the performance thereof by duly-qualified third
parties.
Section 3.5. Section 3.4 notwithstanding, each Affiliated Company, through
its board of directors, any duly-authorized committee thereof, or its officers,
shall have ultimate control over and responsibility for its operations as
conducted by the Pool Administrator. Each Affiliated Company shall own and have
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access without restriction to all records and accounts of its insurance business
which are created or maintained by the Pool Administrator. Officers of each
Affiliated Company will duly execute and review the performance of all
contracts to which such company is or becomes a party during the term of the
Agreement which are administered by the Pool Administrator and will be directly
responsible for all matters of applicable insurance or other regulatory
oversight. All premiums and other monies which are collected by the Pool
Administrator on behalf of the Affiliated Companies during the term hereof will
be held thereby in a fiduciary capacity until paid over to the company entitled
thereto pursuant to the terms of the reinsurance pooling arrangement set forth
herein.
Section 3.6. In discharging its obligations hereunder, the Pool
Administrator is hereby authorized to incur and pay necessary and reasonable
business expenses on behalf of each Affiliated Company. All such expenses shall
fall into the categories of Company Specific Expenses or Pooled Items. Each
Affiliated Company shall be responsible for and pay its own Company Specific
Expenses, whether or not incurred by or at the direction of the
Pool Administrator; its proportionate share of the expense component of Pooled
Items; and all such expenses which are Non-Pooled Items. The Pool
Administrator shall be responsible for and pay in a timely fashion all
Administrative Expenses. The board of directors of each Affiliated Company or
any duly-authorized committee or officer thereof at any time during the term
hereof or within twelve months thereafter may
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demand of and shall receive from the Pool Administrator upon reasonable written
notice thereto an accounting for and explanation of the business reason for any
Company Specific Expense or expenses related to Pooled Items incurred by the
Pool Administrator in its behalf or for any pricing, reserving, or other policy
or decision which affects its insurance business.
Section 3.7. As consideration for the obligations undertaken by the Pool
Administrator pursuant hereto, each Affiliated Company shall pay to the Pool
Administrator certain fees as set forth in Exhibit C, Administration Fee,
attached hereto and incorporated herein. Such fees shall be calculated and paid
to the Pool Administrator each month along with any amounts necessary to
reimburse the Pool Administrator for Company Specific Expenses and Non-Pooled
Items paid on behalf of the Affiliated Company.
Section 3.8. In addition to that compensation described in Section 3.7
hereof, the Pool Administrator may earn an annual Performance Fee, as
hereinafter defined, the payment of which by each Affiliated Company shall be
contingent upon such Company's Combined Operating Ratio (as defined below and
adjusted pursuant to generally-accepted accounting principles) pursuant to the
following formulae:
Benchmark Ratio = 104.0
---------------
Performance Ratio = Benchmark Ratio less the Combined Operating Ratio
----------------- multiplied by .5
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Combined Operating Ratio = Income Statement Line 6*
------------------------ -----------------------
Income Statement Line 1
*excluding Performance Fees
Performance Fee = Performance Ratio multiplied
--------------- by net earned premiums.
The maximum Performance Fee which may be earned by the Pool Administrator
and which shall be paid by any Affiliated Company for any calendar year shall
equal 2.5% of such Company's net earned premiums. In the event that any
Affiliated Company's Performance Ratio is equal to or less than zero for any
such year, no Performance Fee shall be paid. Such negative differences shall not
be cumulative for the purpose of the ensuing year's calculation.
IV. REINSURANCE OF INSURANCE IN FORCE
AND THEREAFTER WRITTEN
Section 4.1. Each Affiliated Company shall and does hereby cede to AMCO
100% of its respective Net Insurance Policy Liability on all applicable classes
of insurance business in force during the term of this Agreement and shall and
does hereby cede to AMCO 100% of all Net Insurance Policy Liability incurred or
for which the Affiliated Company may become obligated. AMCO agrees to and does
hereby accept such Net Insurance Policy Liability during the term of this
Agreement.
Section 4.2 AMCO shall and does hereby cede to each Affiliated Company,
based upon its Applicable Participation Percentage, a portion of the total Net
Insurance Policy Liability
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of all Participants (including that of AMCO and that assumed under Section 4.1),
on all classes of insurance business in force during the term of this
Agreement, and AMCO shall and does hereby cede to each Affiliated Company the
same percentage of the total Net Insurance Policy Liability incurred or for
which the Participants shall become obligated during the term of this Agreement.
Each Affiliated Company agrees to and does hereby accept such Net Insurance
Policy Liability during the term of this Agreement.
Section 4.3. Adjustments to the Applicable Participation Percentages may be
made from time to time as agreed upon by the Coordinating Committee and the
Board of Directors of each Participant. Whenever an adjustment to the Applicable
Participation Percentages is made among the Participants, Net Underwriting
Liabilities will be transferred from AMCO to Affiliated Companies as AMCO's
Applicable Participation Percentage is lowered or from Affiliated Companies to
AMCO as AMCO's Applicable Participation Percentage is increased. If the
adjustment to the Applicable Participation Percentages is made only among the
Affiliated Companies, then a transfer of Net Underwriting Liabilities among the
Affiliated Companies in the same manner shall be required. A Participant which
receives additional Net Underwriting Liabilities as a result of such an
adjustment in Applicable Participation Percentages shall receive pro rata from
the other Participants which have had their respective Applicable Participation
Percentage adjusted either cash, securities, other property, or a combination
thereof (at
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fair market value as of the date of transfer) in an amount equal to the
additional Net Underwriting Liabilities. The Participant making the transfer
determines whether cash, securities, other property, or a combination thereof is
transferred. A Participant which transfers Net Underwriting Liabilities as a
result of such an adjustment in Applicable Participation Percentages shall
transfer pro rata to the other Participants which have had their respective
Applicable Participation Percentage adjusted either cash, securities, other
property, or a combination thereof (at fair market value as of the date of
transfer) in an amount equal to the reduced Net Underwriting Liabilities. If the
cash, securities, other property, or a combination thereof, are not transferred
by a Participant on the effective date of a change in the Applicable
Participation Percentages, such Participant shall pay interest (at commercially
reasonable rates) on an amount equal to the amount of the Net Underwriting
Liabilities which were to be transferred from the effective date of the change
in the Applicable Participation Percentages to the effective date of the actual
transfer of cash, securities, other property, or a combination thereof. In no
event will the number of days between the effective date of the change in the
Applicable Participation Percentages and the actual date of transfer of cash,
securities or property exceed ninety (90) days.
Section 4.4. During the term of this Agreement, monthly cash settlements
and accounting adjustments shall be made by AMCO as is necessary to maintain the
proportionate distribution of the Net Statutory Underwriting Liabilities and the
Net Underwriting
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Cash Flows among the Participants in accordance with the Applicable
Participation Percentages as established from time to time. To the extent cash
distributions among the Participants are required, such amounts will be paid
within thirty (30) days after the end of the month for which such a payment is
necessary. In addition, each Affiliated Company agrees to advance to AMCO at any
time during any month, immediately upon AMCO's request, any funds the payment of
which is required by this Agreement. Such advances are to be applied to each
Participant's obligations hereunder.
Section 4.5. The Participants expressly agree that all losses which result
from bad debts relating to Pooled Items, including reinsurance recoverables,
shall be shared proportionately in accordance with their Applicable
Participation Percentages.
V. RECIPROCAL ASSIGNMENTS
Section 5.1. In conformity with this Agreement, each Affiliated Company
hereby sells, assigns, and delivers to AMCO all right, title, and interest in
its Net Underwriting Liabilities as of the effective date of this Agreement, and
AMCO hereby accepts and assumes the same. As of the same date, AMCO hereby
sells, assigns, and delivers to each of the Affiliated Companies, based upon
their respective Applicable Participation Percentages, their proportionate share
of the total Net Underwriting Liabilities of all of the Participants, and
Affiliated Companies accept and assume the same. Notwithstanding
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anything to the contrary herein contained, each Participant agrees to assume,
for statutory annual statement and other financial statement purposes, its
respective proportionate share (based upon the Applicable Participation
Percentages) of amounts disallowed for unauthorized reinsurance effected by any
Participant with non-admitted companies (not authorized to do insurance business
within a state) and any amount disallowed for overdue premium balances or other
non-admitted assets included within the scope of this Agreement. Each
individual Participant will establish its own liability for the excess of
Statutory Reserves over Statement Reserves, irrespective of the Applicable
Participation Percentages.
VI. SET OFF
Section 6.1. The obligations of each Participant under this Agreement to
transfer monies or other assets to any other Participant may be offset by the
reciprocal obligations of the other Participant such that only a net amount need
be transferred. Transactions under this Agreement may be cleared through an
account of AMCO or through a joint account carried for the benefit of all
Participants in accordance with this Agreement.
VII. ADMINISTRATION
Section 7.1. It is the intent of the Participants that administration of
the Agreement shall be accomplished by persons who are employees of AGI and that
such officers and employees
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shall be subject to the direction and control of its board of directors and
committees thereof as may be provided in the IOA to which each Participant is a
party.
VIII. MODIFICATIONS AND AMENDMENTS
Section 8.1. With the approval of the Coordinating Committee and the Board
of Directors of each Participant, this Agreement may be modified at any time to
accomplish any of the following ends: (1) to permit any Participant to conform
to applicable law, (2) to change the Applicable Participation Percentages to
recognize changes in the financial condition or direct business production of
the Participants, or (3) to make any reasonable and equitable amendments where
such amendments are deemed necessary or helpful in the conduct of the business
of the Participants.
IX. DISPUTE RESOLUTION
Section 9.1. Any dispute arising out of the operation of this Agreement to
which Mutual is an interested party shall be resolved by the Coordinating
Committee. Any dispute in which Mutual has no interest shall be resolved by the
Executive Committee of the Board of Directors of AGI.
Section 9.2. Each Participant hereby consents and agrees that any dispute
between the parties hereto with respect to the interpretation, performance, or
breach of any of the terms of this Agreement or the transactions contemplated
hereby which cannot be resolved as hereinbefore provided shall be referred to
arbitration conducted in accordance with the rules and procedures
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of the American Arbitration Association ("AAA"), upon written request of any
disputing Participant, such request to be delivered to the other Participants.
Within thirty (30) days of the delivery of such written notice, the disputing
Participants shall each nominate an AAA-licensed arbitrator (the "Party
Arbitrators"). Within thirty (30) days of their nomination, the two Party
Arbitrators shall select a third AAA-licensed arbitrator (the "Third
Arbitrator") and shall give the disputing Participants written notice of such
choice.
Section 9.3. The arbitrators shall be empowered to decide all issues
submitted to arbitration using principles of law and equity and, if required, by
application of any customary practices in the insurance and reinsurance
industries. The arbitrators shall be relieved of all judicial formalities and
shall not be required to follow any rules of evidence except as such rules may
be imposed on arbitration proceedings conducted in accordance with the laws of
the State of Iowa, but the arbitrators shall attempt to enforce the intents and
purposes of this Agreement to the extent practicable and in accordance with Iowa
law. The decision of a majority of the arbitrators shall be final and binding.
Section 9.4. The disputing Participants shall each bear the expenses of its
Party Arbitrator. The disputing Participants shall jointly share all other
expenses of the arbitration proceeding and the expenses of the Third Arbitrator.
The arbitration proceeding shall take place at Des Moines, Iowa unless another
location is mutually agreed upon by the disputing
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Participants. The arbitration proceeding shall be governed by the laws of the
State of Iowa. The Participants hereby agree that any information respecting any
matters submitted to arbitration in accordance with the foregoing or any aspect
of the arbitration proceeding itself shall be treated as confidential and will
not be disclosed to anyone not employed or acting on behalf of a party hereto in
connection with such arbitration or used at any time in any manner that is
adverse to the interests of the parties hereto but, in any such case, such
information may be disclosed if such disclosure is made in connection with
party's prosecution or defense of any legal proceedings or if such disclosure is
required pursuant to a subpoena or other legal order issued by any judicial or
regulatory body or is otherwise required by law.
Section 9.5. Anything set forth herein to the contrary notwithstanding,
with respect to any issue to be determined by arbitration, the disputing
Participants shall each submit in writing to the arbitrators their proposed
resolution of such issue. The arbitrators shall be constrained in their decision
relating to such issue to select only between the proposed resolutions of the
disputing Participants, and the arbitrators shall have no discretion to fashion
any compromise or other resolution of the issue submitted for arbitration.
X. AUTONOMY OF PARTICIPANTS AND COOPERATION
Section 10.1. The Participants shall attempt to position themselves in
their respective target markets, whether separate
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or overlapping, so as to preserve and strengthen their individual identities
while making the best use of their association as described herein. The
underwriting policies and programs of each Participant and the declaration of
dividends to its shareholders or policyholders shall be subject to the control
and be the responsibility of its board of directors.
Section 10.2. Notwithstanding the foregoing, Participants will fully
cooperate with each other and their respective counsel, if any, and accountants
in connection with any steps to be taken as part of their obligations under this
Agreement. They shall use their best efforts to take or cause to be taken any
and all actions necessary or required to obtain all of the regulatory consents
or approvals and any third party consents described herein, unless the receipt
thereof has been waived in writing by the Participants.
XI. INSOLVENCY
Section 11.1. Each Participant accepts as well as cedes its Pooled Items.
The reinsurance provided hereunder shall be payable by the accepting Participant
on the basis of the liability of the ceding Participant under the policy or
contract reinsured without diminution because of the insolvency of the ceding
Participant; provided, that such reinsurance shall be payable directly to the
ceding Participant or to its liquidator, receiver or other statutory successor,
except: (i) where this Agreement specifically provides another payee of such
reinsurance in the event of the insolvency of the ceding Participant, or (ii)
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where the accepting Participant, with the consent of the direct insured or
insureds, has assumed such policy obligations of the ceding Participant as
direct obligations of the accepting Participant to the payees under such
policies and in substitution for the obligations of the ceding Participant to
such payee.
XII. ALLOCATION OF REFUNDS
Section 12.1. Although Losses and costs are based on the Applicable
Participation Percentages in effect on the date of payment, any refund of net
earned premiums (net premiums written adjusted for the change in the net
unearned premium reserve for all Participants) required by any insurance
regulatory authorities will be allocated to the various Participants based upon
the Applicable Participation Percentages in effect in the month such premiums
were earned. The same allocation method will be used for related commission
refunds from agents, interest due to policyholders, end any other related items.
XIII. ASSIGNMENTS
Section 13.1. Neither this Agreement nor any rights hereunder may be
assigned by any of the Participants.
XIV. WAIVER, MODIFICATIONS, REMEDIES
Section 14.1. No delay or omission of any Participant to exercise any
right or power hereunder shall impair such right or power or be a waiver of any
default or an acquiescence therein. Any single or partial exercise of any such
right or power shall
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not preclude other or further exercise thereof or the exercise of any other
right. No waiver or modification hereto shall be valid unless in writing signed
by the Participants and then only to the extent as specifically set forth in
such writing. In addition to any rights granted herein, the Participants shall
have and may exercise any and all rights and remedies now or hereafter provided
by law.
XV. CONFIDENTIAL INFORMATION
Section 15.1. The Participants agree that any confidential information
provided to any of them or their representatives in connection with this
Agreement will be used solely for the purpose of the transactions contemplated
by this Agreement, will not be disclosed to anyone not employed or acting on
behalf of the Participants, and will not be used at any time in any manner that
is adverse to the interest of the Participants. The aforesaid notwithstanding,
information may be used in connection with any arbitration relating to the
transactions contemplated by this Agreement, and such information may be
disclosed if such disclosure is made in connection with the Participants'
prosecution or defense of any legal proceeding or if such disclosure is required
pursuant to a legal order issued by any judicial or regulatory body or is
otherwise required by law.
XVI. NOTICES
Section 16.1. All notices, demands or requests given pursuant to or
required by this Agreement shall be in writing and
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shall be deemed to be received when personally delivered or, if mailed, when
sent by registered or certified mail, to any Participant at its address below
set forth or such other address as it may from time to time designated in
writing and shall be deemed given on the date given or mailed.
XVII. GOVERNING LAW
Section 17.1. The provisions of this Agreement shall be governed and
interpreted in accordance with the laws of the State of Iowa.
XVIII. SEVERABILITY
Section 18.1. If any of the provisions of this Agreement shall be held by
a court of competent jurisdiction to be invalid, it is agreed that such
invalidity or illegality should not invalidate the whole Agreement, but as to
such jurisdiction this Agreement shall be construed as if it did not contain the
provision or provisions held to be invalid or illegal in that particular
jurisdiction, but only insofar as such construction does not affect the
substance of this Agreement, and the rights and obligations of the parties
hereto shall be construed and enforced accordingly in that jurisdiction.
XIX. ENTIRE AGREEMENT
Section 19.1. This Agreement constitutes the entire understanding and
agreement of the Participants with respect to the subject matter hereof and
supersedes all other prior
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agreements and understandings, written or oral, among the Participants with
respect to such subject matter.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
701 Fifth Avenue
Des Moines, IA 50309
By: /s/
-------------------------------
President
AMCO Insurance Company
701 Fifth Avenue
Des Moines, IA 50309
By: /s/
-------------------------------
Chairman
ALLIED Property and Casualty
Insurance Company
701 Fifth Avenue
Des Moines, IA 50309
By: /s/
-------------------------------
President
Depositors Insurance Company
701 Fifth Avenue
Des Moines, IA 50309
By: /s/
-------------------------------
President
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EXHIBIT A - APPLICABLE PARTICIPATION PERCENTAGES
The Applicable Participation Percentages as of 12:01 a.m. January 1, 1993
are:
Mutual 40%
AMCO 43%
APC 11%
Depositors 6%
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EXHIBIT B - NON-POOLED INSURANCE BUSINESS
The Non-Pooled Insurance Business as of 12:01 a.m., January 1, 1993 shall
be:
1. All premiums written by the Square Deal Division of Mutual.
2. Any premiums ceded or assumed pursuant to the Property Special
Catastrophe Excess Contract, dated 01-01-93.
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EXHIBIT C - ADMINISTRATION FEE
The Administration Fee to be paid to the Pool Administrator by each
Affiliated Company pursuant to Section 3.6 of the Agreement as of 12:01 a.m.,
January 1, 1993 shall be the total of the following:
1. 12.85% of Adjusted Written Premiums* multiplied by its Applicable
Participation Percentage (underwriting expense).
2. 8.0% of Adjusted Earned Premiums+, multiplied by its Applicable
Participation Percentage (7.25% for unallocated LAE and 0.75% for
investment expense).
3. 25.89% of crop-hail direct written premiums (underwriting expense).
4. 11.95% of crop-hail direct earned premiums (11.2% for unallocated
LAE and 0.75% for investment expense.)
* Adjusted Written Premiums are the Participants' total direct written
premiums on Pooled Insurance Business plus those written premiums
assumed by AMCO from Motor Club of Iowa Insurance Company.
+ Adjusted Earned Premiums are the Participants' total direct earned
premiums on Pooled Insurance Business plus those earned premiums
assumed by AMCO from Motor Club of Iowa Insurance Company.
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Exhibit 14
FIRST AMENDMENT TO SECOND
AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
THIS AMENDMENT made this 18th day of February, 1993, by and between ALLIED
Mutual Insurance Company (hereinafter referred to as "Mutual"), AMCO Insurance
Company (hereinafer referred to as "AMCO"),ALLIED Property and Casualty
Insurance Company (hereinafter referred to as "APC"), and Depositors Insurance
Company (hereinafter referred to as "Depositors"), for and in consideration of
their mutual promises and agreements herein and for their mutual benefit.
Mutual, APC, and Depositors are hereinafter collectively referred to as
"Affiliated Companies". Mutual, AMCO, APC, and Depositors are hereinafter
collectively referred to as "Participants".
WITNESSETH:
WHEREAS, the Participants entered into a Second Amended and Restated
Reinsurance Pooling Agreement on December 14, 1992 (the "Agreement"); and
WHEREAS, the Participants desire to amend Exhibit A - Applicable
Participation Percentages to increase the pool participation of AMCO and APC and
to decrease the pool participation of Mutual effective January 1, 1993;
NOW THEREFORE, in consideration of the foregoing premises and for the
mutual covenants contained herein and other good and valuable consideration, the
Participants agree as follows:
1. The Agreement is amended by the deletion of Exhibit A and in
replacement thereof the addition of the attached Exhibit A,
incorporated by reference herein. Attached Exhibit A provides that
the Applicable Participation Percentages are Mutual 36%, AMCO 46%,
APC 12%, and Depositors 6%.
2. This Amendment shall be effective as of 12:01 a.m. January 1, 1993.
All other terms and conditions remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company AMCO Insurance Company
701 Fifth Avenue 701 Fifth Avenue
Des Moines, IA 50391-2000 Des Moines, IA, 50391-2013
By: /s/ James D. Kirkpatrick By: /s/ James D. Kirkpatrick
------------------------------- -------------------------------
James D. Kirkpatrick, President James D. Kirkpatrick, President
ALLIED Property and Casualty Depositors Insurance Company
Insurance Company 701 Fifth Avenue
701 Fifth Avenue Des Moines, IA, 50391-2014
Des Moines, IA 50391-2011
By: /s/ James D. Kirkpatrick By: /s/ James D. Kirkpatrick
------------------------------- -------------------------------
James D. Kirkpatrick, President James D. Kirkpatrick, President
1
<PAGE>
EXHIBIT A - APPLICABLE Participation Percentages
The Applicable Participation Percentages as of 12:01 a.m. January 1, 1993
shall be:
Mutual 36%
AMCO 46%
APC 12%
Depositors 6%
2
<PAGE>
Exhibit 15
SECOND AMENDMENT
TO SECOND AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
WHEREAS, the undersigned parties (Participants) entered into the
above-captioned agreement (Agreement) on December 14, 1992 and executed an
amendment thereto on February 18, 1993;
WHEREAS, pursuant to Section 8.1 of the Agreement, the Participants desire
to enter into a second amendment thereto; and
WHEREAS, on December 13, 1994, the terms of the amendment set out
hereinbelow were approved by the board of directors of each Participant and by
the Coordinating Committee;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the Participants hereby agree that, effective
January 1, 1995, Section 2.1 of the Agreement shall be deleted in its entirety
and replaced with the following:
Section 2.1. This Agreement shall be effective at 12:01 a.m., January 1,
1993, and shall continue in force as to each party hereto until terminated
as provided herein. Termination of any party's participation in the
Agreement prior to December 31, 2004 shall require Coordinating Committee
(as defined in Section 1.16) approval. Termination of any party's
participation in the Agreement effective on or at any time after December
31, 2004 may be effected by delivery of notice, pursuant to Article XVI
hereof, to each of the other parties setting forth the date upon which such
party intends to terminate its participation. Any such notice of intent to
terminate on or at anytime after December 31, 2004 must be given at least
sixty months prior to the date of termination set forth therein.
The parties further agree than, effective January 1, 1995, the following
sentence shall be added to the end of Section 3.7 of the Agreement:
The Administration Fee shall be subject to renegotiation by the parties at
any time during the term of the Agreement upon at lease sixty months
notice, pursuant to Article XVI hereof, by any party to the others.
IN WITNESS HEREOF, the undersigned parties hereto have executed this
amendment on the 10th day of February, 1995.
ALLIED Mutual Insurance Company AMCO Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
--------------------------- ---------------------------
Douglas L. Andersen Douglas L. Andersen
President President
ALLIED Property & Casualty Depositors Insurance Company
Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
--------------------------- ---------------------------
Douglas L. Andersen Douglas L. Andersen
President President
<PAGE>
3
EXHIBIT 16
THIRD AMENDMENT
TO THE SECOND AMENDED AND RESTATED
REINSURANCE POOLING AGREEMENT
WHEREAS, the undersigned parties (Participants) entered into the above-
captioned agreement (Agreement) on December 14, 1992 and executed amendments
thereto on February 18, 1993 and February 10, 1995;
WHEREAS, the Participants desire to enter into a third amendment to the
Agreement pursuant to Section 8.1 thereof; and
WHEREAS, the amendments set out hereinbelow were approved by the
Coordinating Committee and the board of directors of ALLIED Mutual Insurance
Company on May 4, 1998 and by the boards of directors of AMCO Insurance Company,
ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company
on May 5, 1998;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the Participants hereby agree as
follows;
1. Effective January 1, 1998, Section 3.8 of the Agreement is deleted
therefrom in its entirety;
2. Effective on the date of this amendment, Section 3.7 of the Agreement
is hereby amended by deleting therefrom in its entirety the final sentence
thereof, as added by the Second Amendment thereto;
3. Effective July 1, 1998, Exhibit C to the Agreement, which is
captioned "Administrative Fee" and which is incorporated by reference into
Section 3.7 thereof, is amended as follows:
A. Subsection 2 of Exhibit C is deleted in its entirety and
replaced with the following;
"7.5% of Adjusted Earned Premiums+ multiplied by its Applicable
Participation Percentage (6.75% for unallocated LAE and 0.75%
for investment expense)"
B. The following is added to the definitions of Adjusted Written
Premiums and Adjusted Earned Premiums by insertion at the end
thereof:
"and those premiums written by the Square Deal Division of
Mutual"
<PAGE>
C. Subsections 3 and 4 of Exhibit C are deleted therefrom in their
entirety.
4. Effective January 1, 1999, Exhibit C to the Agreement is amended as
follows:
A. Subsection 1 is deleted in its entirety and replaced with the
following:
"Commencing on January 1, 1999, its Applicable Participation
Percentage multiplied by that percentage of Adjusted Written
Premiums* which is the product of Adjusted Written Premiums*
and a percentage equaling the average underwriting expense
(excluding commissions and premiums taxes) incurred by the
Participants and the Square Deal Division of Mutual during the
Annual Statement years 1994 through 1998."
B. Subsection 2 is deleted in its entirety and replaced with the
following:
"Commencing on January 1, 1999, its Applicable Participation
Percentage multiplied by the total of (i) total unallocated
loss adjustment expense incurred by the Participants and the
Square Deal Division of Mutual for that Annual Statement year
and (ii) 0.50% of Adjusted Earned Premiums+."
C. The following is added to the Exhibit as Subsection 3:
"The foregoing notwithstanding, for Annual Statement years 1998
through 2000, no Affiliated Company shall be required to pay
the Pool Administrator in any year an Administration Fee
calculated pursuant hereto which is greater than that it would
have paid if the Administrative Fee had been calculated
pursuant to the terms of the Agreement as they existed prior to
execution of this Third Amendment."
5 Effective January 1, 2000, Exhibit C to the Agreement is amended by
(i) striking the phrase "1994 through 1998" from the last line of
Subsection 1 and by replacing it with "1995 through 1999" and (ii) striking
the phrase "0.50% of Adjusted Earned Premiums+" from the last line of
Subsection 2 and by replacing it with "0.25% of Adjusted Earned Premiums+."
6. Effective January 1, 2001, the Agreement shall be amended by deleting
Section 3.7 and Exhibit C therefrom in their entirety and by replacing
Section 3.7 with the following:
"For each Annual Statement year commencing on or after January
1, 2001, the Pool Administrator shall be reimbursed by each
Affiliated Company for those Company Specific Expenses and Non-
Pooled Items paid by the Pool Administrator on its behalf. In
addition thereto, each Affiliated Company shall pay to the Pool
Administrator an amount equaling its Applicable Participation
Percentage of the Participants', including Square Deal Division
of Mutual, total Administrative Expenses."
IN WITNESS HEREOF, the undersigned parties hereto have executed this
amendment on the 5th day of May, 1998.
<PAGE>
ALLIED Mutual Insurance Company AMCO Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
-------------------------------- --------------------------------
Its: President and Chief Executive Its: President and Chief Executive
------------------------------ ------------------------------
Officer Officer
------- -------
ALLIED Property and Casualty Depositors Insurance Company
Insurance Company
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
-------------------------------- --------------------------------
Its: President and Chief Executive Its: President and Chief Executive
------------------------------ ------------------------------
Officer Officer
------- -------
<PAGE>
Exhibit 17
AMENDED AND RESTATED
MANAGEMENT INFORMATION SERVICES AGREEMENT
Effective March 1, 1996
<PAGE>
AMENDED AND RESTATED
MANAGEMENT INFORMATION SERVICES AGREEMENT
This Agreement ("Agreement") is made as of this 24th day of January,
1997, to be effective March 1, 1996, (unless a different effective date is
indicated) by and among AMCO Insurance Company ("AMCO"), ALLIED Group
Information Systems, Inc. ("AGIS"), ALLIED Mutual Insurance Company ("Mutual"),
ALLIED Group, Inc. ("AGI"), ALLIED General Agency Company ("AGA"), ALLIED Group
Mortgage Company ("AGMC"), ALLIED Group Leasing Corporation ("AGLC"), ALLIED
Life Financial Corporation ("ALFC"), ALLIED Life Insurance Company ("ALLIED
Life"), ALLIED Life Brokerage Agency ("ALBA"), ALLIED Group Merchant Banking
Corporation ("AGMBC"), ALLIED Group Insurance Marketing Company ("AGIMC"), The
Freedom Group, Inc. ("TFG"), and Midwest Printing Services, Ltd. ("Midwest
Printing"). AGIS, AGI, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, AGIMC,
TFG, and Midwest Printing shall be hereinafter referred to collectively as the
"Companies".
WITNESSETH:
WHEREAS, AGIS and Mutual, AGI, AMCO, AGA, AGMC, AGLC, ALFC, ALLIED Life,
ALBA, AGMBC, and AGIMC entered into an Amended and Restated Management
Information Services Agreement effective January 1, 1995 (the "January 1995
Agreement") on December 14, 1995; and
WHEREAS, effective March 1, 1996, AGIS was restructured, with AGIS
declaring and paying a dividend to AMCO consisting of all assets and related
liabilities of TFG-ALLIED Operations; and
WHEREAS, effective March 1, 1996, AMCO began providing the services
previously provided by AGIS under the January 1995 Agreement;
WHEREAS, effective May 13, 1996, the AMCO programmers working on ALIC
data were transferred to ALIC as employees;
NOW, THEREFORE, in consideration of the foregoing premises, and for and
in consideration of the mutual covenants and agreements contained herein, the
parties agree as follows:
I. DEFINITIONS
1.1 "AGI and Its Subsidiaries" shall mean the following companies which
are parties to this Agreement: AGI, AMCO, AGA, AGMC, AGLC, TFG, AGIS, and
Midwest Printing.
1.2 "ALFC and Its Subsidiaries" shall mean the following companies
which are parties to this Agreement: ALFC, ALLIED Life, ALBA, and AGMBC.
<PAGE>
1.3 "Coordinating Committee" shall mean the joint meeting of the
coordinating committees established by Mutual, AGI, and ALFC in accordance with
their respective bylaws or pursuant to resolution for the purpose, among others,
of resolving issues under this Agreement.
1.4 "Management Information Services" or "MIS" shall mean the
Methods/Procedures, the processing, and support of information and data
functions. MIS does not include: (a) third-party data processing services
provided to any of the Companies by contract; (b) processing flexible premium
payment plans; or (c) printing services, unless otherwise provided herein.
1.5 "Methods/Procedures" shall mean studies or work flow analysis,
training on software systems, and other computer support.
1.6 "Mutual and Its Subsidiaries" shall mean the following companies
which are parties to this Agreement: Mutual and AGIMC.
1.7 "PC" shall mean personal computer.
1.8 "PC Support" shall mean PC installation, training, and assistance,
but shall not include PC maintenance.
1.9 "Programming/Development" shall mean the analysis, design,
programming, and development of PC and mainframe Software and shall include
mainframe Software consulting and maintenance services. The maintenance services
shall include, but not be limited to, error corrections, enhancements, and
updates. Unless specifically provided for herein, Programming/Development shall
not include those programming functions performed by any of the Companies on
personal computers.
1.10 "Software" shall mean any and all computer programs, models, plans,
outlines, packages, or systems thereof and related documentation or manuals as
developed, or which may be developed in the future by AMCO and used by the
Companies for MIS, but does not include those computer programs which are used
by any of the Companies pursuant to license agreements with third parties.
II. POOLING AGREEMENT
2.1 AMCO, Mutual, ALLIED Property and Casualty Insurance Company, and
Depositors Insurance Company are parties to the Second Amended and Restated
Reinsurance Pooling Agreement dated December 14, 1992, as amended February 18,
1993 and February 10, 1995 ("Pooling Agreement"), pursuant to which AMCO, as the
pool administrator, conducts insurance operations and provides certain
administrative services to the other parties. Included in these administrative
services are the provision of data processing services for the jointly conducted
insurance operations. The Pooling Agreement shall control as to matters
<PAGE>
regarding data processing services provided by AMCO to Mutual, ALLIED Property
and Casualty Insurance Company, and Depositors Insurance Company and the payment
for any services provided thereto.
III. SERVICES
3.1 GENERAL MIS. AMCO shall provide all MIS required by ALLIED Life,
AGI's human resources department, and AGIMC. The MIS to be provided during the
term of this Agreement shall be substantially the same as those services
presently provided to or utilized by ALLIED Life, AGI's human resources
department, and AGIMC as of the effective date of this Agreement. In addition,
AMCO shall provide MIS to any of the Companies if requested. The scope and
extent of MIS provided under this Agreement may be amended or modified from time
to time by written agreement between AMCO and the party receiving the MIS.
3.2 PC SUPPORT. AMCO shall provide PC Support to ALLIED Life, ALBA, AGI's
human resources department, AGA, AGMC, AGLC, AGMBC, AGIMC, and AGIS. AMCO shall
also provide AGIMC with PC Support for its phone system.
3.3 PC MAINTENANCE. AMCO will assist in coordinating with each of the
Companies for third-party vendor maintenance on the personal computers, and each
of the Companies shall be responsible for payment to such third-party vendors.
3.4 AGMC SCANLINE PROCESSING. AMCO shall use its scanline equipment to
process AGMC payment forms on a daily basis, Monday through Friday, during the
term of this Agreement. AMCO shall provide its own personnel, program disk, and
tapes to process such forms.
3.5 FLEXIBLE PREMIUM PAYMENT PLANS. AMCO shall perform the processing,
billing, scanline, and remittance services with regard to the flexible premium
payment plan offered by ALLIED Life to its insureds on ALLIED Life policies. All
service charges and reinstatement fees assessed to insureds pursuant to the
flexible premium payment plan shall be retained by ALLIED Life.
3.6 AGIS CUSTOMERS. AGIS sells to its insurance customers data processing
services which are presently provided using AMCO's mainframe and other
equipment. AMCO agrees to continue to provide insurance processing services
subject to AGIS obtaining AMCO's written consent prior to entering into future
data processing agreements and limiting annual growth so it does not exceed 10%.
3.7 PRINTING.
(a) FORMS AND REPORTS. AMCO shall generate the following data and
record output for ALLIED Life and AGIS customers: (i) policy forms, (ii) claim
<PAGE>
forms, (iii) billing forms, and (iv) internal reports not generated by personal
computers. AMCO shall generate internal reports for AGI's human resources
department which cannot be generated by personal computers.
(b) TYPESETTING AND OTHER PRINTING. AMCO shall provide typesetting
services to Companies requesting typesetting services. Any other printing
services including, but not limited to, specialty printing or brochures, shall
be provided by AMCO to the Companies, or any of them, if requested.
3.8 POLICY ASSEMBLY. AMCO shall provide policy assembly for AGIS
customers. The policy assembly shall include the preparing, handling, and
mailing of insurance policies.
3.9 POSTAGE AND MAIL PROCESSING. AMCO shall provide mail processing for
the Companies which are located in Polk County, Iowa. This mail processing shall
include internal and external distribution of mail among such Companies, to and
from the proper post office facilities and may include inserting and sorting
mail services.
3.10 SUPPLY SERVICES. For those Companies which desire to use the supply
service, AMCO shall administer and manage the storage, warehousing, and
distribution of the inventory of office supplies owned by such Companies. The
supply service provided by AMCO shall include, but not be limited to, the
ordering of paper used in processing forms for ALLIED Life and AGIS customers.
3.11 TELEPHONE AND COMMUNICATIONS. AMCO shall provide telephone
equipment, long-distance communication services, or both, for such Companies
requesting equipment and/or service upon mutually agreeable terms and
conditions. AMCO shall also provide computer and telephone port access to those
Companies which office at 701 Fifth Avenue, Des Moines, Iowa.
3.12 OTHER SERVICES. Any other services provided by AMCO to the
Companies, or any of them, shall be negotiated between AMCO and such company on
such terms and conditions as are mutually agreeable.
IV. WARRANTIES
4.1 LICENSE OF SOFTWARE. AMCO shall own or license any Software
necessary to provide the services described in this Agreement. AMCO shall be
responsible for resolving any licensing conflicts that may result from its use
of such Software.
4.2 NO WARRANTIES. AMCO makes no warranties, express or implied as to
performance of the machines, equipment, or Software provided under the terms of
this Agreement. AMCO will not be liable for any damages, of any kind, as a
result of the unavailability or malfunction of the machines, equipment or
Software.
<PAGE>
V. PAYMENT FOR SERVICES
5.1 GENERAL. The fees described in this Article III may be renegotiated
in the future at the agreement of the affected parties. The amount of the
renegotiated fee to be paid by any of the Companies shall be renegotiated on an
arm's length basis.
5.2 FEES. The Companies shall pay the fees set forth in Addendum A to
this Agreement.
VI. TERM, TERMINATION, AND CHANGE OF CONTROL
6.1 TERM AND TERMINATION. This Agreement shall be effective on March 1,
1996 and shall continue in effect until December 31, 2004, and shall continue
thereafter unless prior to December 31, 2002, a party to this Agreement delivers
to the other parties a written notice that such party intends to cease
participation and terminate the Agreement as to it on December 31, 2004 or as of
a specified date thereafter. This Agreement may be terminated by a party to this
Agreement, as to such party's participation in the Agreement, effective after
December 31, 2004, provided that such party has given written notice of
termination to the others at least two (2) years prior to the proposed
termination date.
6.2 CHANGE OF CONTROL OF ALFC. In the event of a Change of Control (as
hereinafter defined in this section) of ALFC, either Mutual or AGI may, in its
sole discretion, at any time after such Change of Control: (i) terminate the
Intercompany Operating Agreement ("IOA Agreement") and this Agreement upon six
(6) months notice to ALFC; (ii) extend the term of the IOA Agreement and this
Agreement for up to ten (10) additional years beyond December 31, 2004 upon six
(6) months notice to ALFC; or (iii) allow such agreements to continue in effect.
"Change of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with ALFC or Mutual acquires the
ownership of 50% or more of the voting stock of ALFC. A person, group, or
entity "affiliated" with ALFC or Mutual shall mean a person, group, or entity
that directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with ALFC or Mutual.
6.3 CHANGE OF CONTROL OF AGI.
(a) In the event of a Change of Control (as hereinafter defined in
this section) of AGI, Mutual may, in its sole discretion, at any time after such
Change of Control: (i) terminate all three of the Pooling Agreement, IOA
Agreement, and this Agreement upon six (6) months notice to AGI; (ii) extend the
term of the Pooling Agreement, IOA Agreement, and this Agreement for up to ten
(10) additional years beyond December 31, 2004 upon six (6) months notice to
AGI; or (iii) allow such agreements to continue in effect. "Change of Control"
<PAGE>
for purposes of this section shall mean an event whereby a person, group, or
entity that is not affiliated with AGI or Mutual acquires the ownership of 50%
or more of the voting stock of AGI. A person, group, or entity "affiliated" with
AGI or Mutual shall mean a person, group, or entity that directly or indirectly
through one or more intermediaries controls, is controlled by, or is under
common control with AGI or Mutual.
(b) In the event of a Change of Control (as hereinafter defined in
this section) of AGI, ALFC may, in its sole discretion, at any time after such
Change of Control: (i) terminate both the IOA Agreement and this Agreement upon
six (6) months notice to AGI; (ii) extend the term of the IOA Agreement and this
Agreement for up to ten (10) additional years beyond December 31, 2004 upon six
(6) months notice to AGI; or (iii) allow such agreements to continue in effect.
"Change of Control" for purposes of this section shall mean an event whereby a
person, group, or entity that is not affiliated with AGI or Mutual acquires the
ownership of 50% or more of the voting stock of AGI. A person, group, or entity
"affiliated" with AGI or Mutual shall mean a person, group, or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with AGI or Mutual.
VII. DISPUTE RESOLUTION
7.1 AGI AND ITS SUBSIDIARIES. Any controversy, claim, or dispute arising
out of or relating to this Agreement, or breach thereof, among or between AGI
and Its Subsidiaries shall be resolved by AGI's Board of Directors, the decision
of which shall be binding.
7.2 MUTUAL AND ITS SUBSIDIARIES. Any controversy, claim, or dispute
arising out of or relating to this Agreement, or breach thereof, among or
between Mutual and Its Subsidiaries shall be resolved by Mutual's Board of
Directors, the decision of which shall be binding.
7.3 ALFC AND ITS SUBSIDIARIES. Any controversy, claim, or dispute arising
out of or relating to this Agreement, or breach thereof, among or between ALFC
and Its Subsidiaries shall be resolved by ALFC's Board of Directors, the
decision of which shall be binding.
7.4 ALL OTHER DISPUTES. All other disputes under this Agreement shall be
referred for resolution to the Coordinating Committee. Each of the coordinating
committees of Mutual, AGI, and ALFC (a) has the right to participate in each
and every Coordinating Committee deliberation unless it elects to abstain
therefrom and (b) has one vote which shall be cast for or against any such
decision unless it elects to abstain. Each such coordinating committee shall be
comprised of two persons, one of whom shall constitute a
<PAGE>
quorum for the transaction of any business. All decisions of the Coordinating
Committee must be unanimous, except for abstentions. All decisions of the
Coordinating Committee are binding on the parties hereto.
7.5 ARBITRATION. If a controversy, claim, or dispute cannot be resolved
by the Coordinating Committee pursuant to Section 7.4, then it will be submitted
to arbitration as set forth hereafter.
(a) Consent to Arbitration. Each party to this Agreement hereby
consents and agrees that any dispute between the parties hereto with respect to
the interpretation, performance, or breach of any of the terms of this Agreement
or the transactions contemplated hereby which cannot be resolved by the
Coordinating Committee shall be referred to arbitration conducted in accordance
with the rules and procedures of the American Arbitration Association ("AAA"),
upon written request of the disputing party hereto delivered to the party with
which it has a dispute. Within thirty (30) days of the delivery of such written
notice, each party involved shall nominate an AAA-licensed arbitrator (the
"Party Arbitrators"). Within thirty (30) days of their nomination, if there are
two Party Arbitrators, the Party Arbitrators shall select a third AAA-licensed
arbitrator (the "Third-Arbitrator") and shall give the parties hereto written
notice of such choice. If there are three parties to the dispute and each party
selects a Party Arbitrator, the three Party Arbitrators selected shall
constitute the Arbitrators without further selection. If there are more than
three parties to the dispute, the parties to this Agreement agree that Mutual
shall represent Mutual and Its Subsidiaries, ALFC shall represent ALFC and Its
subsidiaries, and AGI shall represent AGI and Its Subsidiaries.
(b) Authority of Arbitrators. The arbitrators shall be empowered to
decide all issues submitted to arbitration using principles of law and equity
and, if required, by application of any customary practices in the insurance and
reinsurance industries. The arbitrators shall be relieved of all judicial
formalities and shall not be required to follow any rules of evidence except as
such rules may be imposed on arbitration proceedings conducted in accordance
with the laws of the State of Iowa, but the arbitrators shall attempt to enforce
the intents and purposes of this Agreement to the extent practicable and in
accordance with Iowa law. The decision of a majority of the arbitrators shall be
final and binding on each of the parties to the arbitration proceeding.
(c) Expenses; Location. Each party to the dispute shall bear the
expenses of its respective Party Arbitrator. If only two parties are involved in
the arbitration, the involved parties shall jointly share all other expenses of
the arbitration proceeding and the expenses of the Third Arbitrator. The
arbitration proceeding shall take place at Des Moines, Iowa unless another
location is mutually agreed upon by the parties. The arbitration proceeding
<PAGE>
shall be governed by the laws of the State of Iowa. The parties hereto hereby
agree that any information respecting any matters submitted to arbitration in
accordance with the foregoing or any aspect of the arbitration proceeding itself
shall be treated as confidential and will not be disclosed to anyone not
employed or acting on behalf of a party hereto in connection with such
arbitration or used at any time in any manner that is adverse to the interests
of either party hereto but, in any such case, such information may be disclosed
if such disclosure is made in connection with either party's prosecution or
defense of any legal proceedings or if such disclosure is required pursuant to a
subpoena or other legal order issued by any judicial or regulatory body or is
otherwise required by law.
(d) Restriction. Anything set forth herein to the contrary
notwithstanding, with respect to any issue to be determined by arbitration, each
of the parties to the arbitration proceeding shall submit in writing to the
arbitrators the party's proposed resolution of such issue. The arbitrators shall
be constrained in their decision relating to such issue to select only between
the proposed resolutions of the parties, and the arbitrators shall have no
discretion to fashion any compromise or other resolution of the issue submitted
for arbitration.
VIII. CONFIDENTIAL INFORMATION AND TRADE SECRETS
8.1 OBLIGATION TO KEEP CONFIDENTIAL.
(a) Each party to this Agreement shall keep confidential, except as
the other party or parties may otherwise consent in writing, and, except for the
other parties' benefit, not disclose or make any use of at any time and for any
purpose whatsoever, any trade secrets, confidential information, knowledge,
data, trademarks or trade names, or other information of any of the Companies to
their products, know-how, designs, customer lists, business plans, marketing
plans and strategies, pricing strategies, or other subject matter pertaining to
any business of the Companies or any of their clients, customers, consultants,
licensees, or affiliates, which the party has obtained or may obtain, or
otherwise acquire during the course of contacts, discussions, negotiation, or
agreement with any of the other parties, except as herein provided (hereafter,
collectively, "Confidential Information"). No party shall deliver, reproduce, or
in any way allow any Confidential Information of the other parties or any
documentation relating thereto, to be delivered to or used by any third parties
without specific written direction or consent of a duly authorized officer of
the other party.
(b) Upon termination of this Agreement for any reason whatsoever
each party shall promptly surrender and deliver to each other party all records,
materials, equipment, drawings, documents, data, and all Confidential
<PAGE>
Information of the other parties and shall not retain any description containing
or pertaining to any Confidential Information of the other parties, unless
otherwise consented to in writing by a duly authorized officer of the other
party.
8.2 PERMISSIVE RELEASE OF CONFIDENTIAL INFORMATION. Notwithstanding the
provisions of this section, any Confidential Information may be used in
connection with any arbitration relating to the transactions contemplated by
this Agreement and such information may be disclosed if such disclosure is made
in connection with the parties' prosecution or defense of any legal proceedings
or if such disclosure is required pursuant to a subpoena or other legal order
issued by any judicial or regulatory body or is otherwise required by law.
IX. MISCELLANEOUS
9.1 ASSIGNMENT. This Agreement, including any or all rights and
obligations hereunder, shall not be assigned by any of the parties to any third
party without the prior written consent of all of the other parties. Except as
otherwise provided in this Agreement, the obligations and rights of the parties
shall be binding upon and inure to the benefit of any assignee, transferee,
successor, or receiver of each of the parties.
9.2 WAIVER; REMEDIES. No delay or omission of any party to this Agreement
to exercise any right or power hereunder shall impair such right or power or be
a waiver of any default or an acquiescence therein; and any single or partial
exercise of any such right or power shall not preclude other or further exercise
thereof or the exercise of any other right. In addition to any rights granted
herein, the parties hereto shall have and may exercise any and all rights and
remedies now or hereafter provided by law except as may be limited by Section 7
of this Agreement.
9.3 NOTICES. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or if mailed by certified or registered mail (return
receipt requested) to the party at its address as set forth on the signature
page of this Agreement. Any notice given as provided in this section, if given
personally, shall be effective upon delivery, or if given by certified or
registered mail, shall be effective three days after deposit in the mail. Any
party hereto may change the address at which it is to be given notice by giving
notice to the other party as provided in this section.
9.4 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under the laws of the State of Iowa and shall be construed and interpreted under
the laws of such state applicable to contracts made and to be performed entirely
within such state.
<PAGE>
9.5 ENFORCEABILITY. If any one or more of the covenants, agreements,
provisions, or other terms of this Agreement shall be for any reason whatsoever
determined to be invalid, then such terms shall be deemed severable from the
remaining terms of this Agreement and shall in no way affect the validity or
enforceability of the other terms of this Agreement and such invalid terms shall
be replaced by valid terms bearing the closest possible similarity in substance
so that the intentions and purposes being the basis of this Agreement could be
enforced to the greatest extent permitted by law.
9.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
covenants, agreements, representations, and warranties made in this Agreement by
any of the parties hereto, including but not limited to, the indemnification
provisions set forth herein, shall be effective on the effective date hereof and
thereafter.
9.7 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.8 HEADINGS. The headings in the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
9.9 ENTIRE AGREEMENT. This Agreement, including the schedules and
addenda referred to herein and any documents executed by the parties
simultaneously herewith constitute the entire understanding and agreement of the
parties hereto and supersede all other prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein. Provided, however, the foregoing shall not operate or be
construed to prohibit proof of prior understandings and agreements between or
among the parties to the extent necessary to properly construe or interpret this
Agreement.
9.10 AMENDMENTS. Any changes to this Agreement and any further
obligations of the parties to each other must be in writing and executed by
their respective duly authorized officers.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Management Information Services Agreement to be signed by their duly-
authorized officers all as of the date and year first written above.
ALLIED Mutual Insurance Company ALLIED Group, Inc.
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2000 Des Moines, IA 50391-2000
By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer
----------------------------- -----------------------------
Title: President Title: President (Financial)
-------------------------- --------------------------
<PAGE>
AMCO Insurance Company ALLIED General Agency Company
701 5th Avenue 701 5th Ave.
Des Moines, IA 50391-2013 Des Moines, IA 50391-2002
By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen
----------------------------- -----------------------------
Title: President Title: President
-------------------------- --------------------------
ALLIED Life Financial ALLIED Group Leasing
Corporation Corporation
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2003 Des Moines, IA 50391-2015
By: /s/ Samuel J. Wells By: /s/ Jamie H. Shaffer
----------------------------- -----------------------------
Title: President Title: President
-------------------------- --------------------------
ALLIED Group Mortgage Company ALLIED Life Insurance Company
1701 48th St. 701 5th Ave.
West Des Moines, IA 50391-2009 Des Moines, IA 50391-2003
By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells
----------------------------- -----------------------------
Title: Secretary Title: President
-------------------------- --------------------------
ALLIED Group Merchant Banking ALLIED Group Insurance
Corporation Marketing Company
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2003 Des Moines, IA 50391-2010
By: /s/ Paul McGillivray By: /s/ Jamie H. Shaffer
----------------------------- -----------------------------
Title: President Title: Treasurer
-------------------------- --------------------------
ALLIED Group Information ALLIED Life Brokerage Agency
Systems, Inc. 701 5th Ave.
701 5th Ave. Des Moines, IA 50391-2003
Des Moines, IA 50391-1002
By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells
----------------------------- -----------------------------
Title: Secretary Treasurer Title: President
-------------------------- --------------------------
The Freedom Group, Inc. Midwest Printing Services, Ltd.
701 5th Ave. 3820 109th St.
Des Moines, IA 50391-1002 Des Moines, IA 50391-1003
By: /s/ Jamie H. Shaffer By: /s/ Leslie D. Peltz
----------------------------- -----------------------------
Title: Secretary Treasurer Title: Treasurer
-------------------------- ---------------------------
<PAGE>
ADDENDUM A
I. ALLIED LIFE. ALLIED Life shall pay AMCO on a monthly basis fees for
services under this Agreement in accordance with the following:
(a) $37.50 per hour for Programming/Development time and
Methods/Procedures time.
(c) ALLIED Life shall also pay fees in accordance with Sections VII
through XI of this Addendum.
(d) ALLIED Life shall reimburse AMCO for the actual costs AMCO incurs on
a monthly basis for providing ALLIED Life the services provided
under Sections 3.1 ("General MIS"), 3.2 ("PC Support"), 3.7 (a)
("Printing--Forms and Reports"), and 3.8 ("Policy Assembly"). In
order to reimburse AMCO for the cost of these services, ALLIED Life
will forward $56,250 at the end of each month as an estimation of
the costs of providing the services for that month.
(e) At the end of the calendar year, AMCO will calculate its actual cost
of providing these services and compare it to the monthly payments
forwarded to AMCO for the services by ALLIED Life. If the total
actual costs exceed the total monthly payments made, ALLIED Life
will promptly pay the difference to AMCO. If the total actual costs
are less than the total monthly payments made, AMCO will promptly
refund the difference to ALLIED Life.
The aforementioned fees shall be renegotiated by ALLIED Life and AMCO
each calendar year. If ALLIED Life and AMCO are unable to agree on an
annual fee for the next calendar year by December 15th of each year, the
calculation of a reasonable annual fee for the next calendar year shall
be submitted to the Coordinating Committee for resolution.
II. AGI HUMAN RESOURCES. For the services provided by AMCO to AGI's human
resources department under Sections 3.1 ("General MIS"), 3.2 ("PC
Support"), and 3.7(a) ("Printing--Forms and Reports"), AGI shall pay to
AMCO $42.00 per hour for Programming/Development time and $40.00 per
hour for Methods/Procedures time. Each year, beginning January 1, 1997,
this hourly rate shall be recalculated based upon estimated costs for
the year in question. Such fees shall be billed and paid monthly. If
applicable, AGI shall also pay fees in accordance with Sections VI
through X of this Addendum.
III. AGIMC. AGIMC shall pay AMCO for services under this Agreement in
accordance with the following:
(a) For the services provided under Sections 3.1 ("General MIS") and 3.2
("PC Support"), AGIMC shall pay to AMCO $42.00 per hour for
Programming/Development time and $40.00 per hour for
Methods/Procedures. Such fees shall be billed and paid monthly.
<PAGE>
Each year, beginning January 1, 1996, this hourly rate shall be
recalculated based upon estimated costs for the year in question.
(b) If applicable, AGIMC shall also pay fees in accordance with Sections
VII through XI of this Addendum.
IV. AGMC. AGMC shall pay to AMCO for services under this Agreement in
accordance with the following:
(a) For the services provided under Section 3.4 ("AGMC Scanline
Processing") the fee of .089 dollars ($.089) for each payment form
processed daily. In the event of any dispute as to the amount due
under the per item charge, AMCO's records shall control. AMCO will
bill AGMC monthly for the per item processing charges. Such amount
shall be immediately due and payable upon receipt by AGMC.
(b) If applicable, AGMC shall also pay fees in accordance with Sections
VI through X of this Addendum.
V. PROGRAMMING. Each of the Companies (except as may be provided elsewhere
for ALLIED Life, AGI, and AGIMC) which request that AMCO provide
Programming/Development services shall pay a rate of $42.00 per hour.
Each of the Companies (except for ALLIED Life, AGI, and AGIMC) which
request that AMCO provide Methods/Procedures services shall pay $40.00
per hour. Such fees shall be billed and paid monthly. Each year,
beginning January 1, 1997, this hourly rate shall be recalculated based
upon estimated costs for the year in question.
Vi. TYPESETTING/OTHER PRINTING. The Companies which request that AMCO
provide typesetting services in accordance with Section 3.7(b)
("Printing--Typesetting/Other Printing") shall pay a rate of $22.00 per
hour. Such fees shall be billed and paid monthly. Any other printing
services shall be provided by AMCO to any of the Companies for a fee to
be negotiated between AMCO and such company in addition to the fees
specified in this Addendum A.
VII. PC MAINTENANCE. If AMCO assists in coordinating third-party vendor
maintenance for the personal computers of any of the Companies, such
Companies agree to pay upon receipt of an invoice from AMCO the
third-party vendor's actual charges as billed to AMCO.
VIII. POSTAGE/MAIL PROCESSING. For the services provided under Section 3.9, the
Companies which have offices located in Polk County, State of Iowa, shall
pay AMCO for mail processing as follows:
(a) the Companies shall reimburse AMCO for the actual cost of postage
utilized,
<PAGE>
(b) if AMCO performs any mail inserting services for any of the
Companies, such Companies shall pay AMCO $0.032 per item,
(c) if AMCO performs any proof of mail services for any of the Companies,
such Companies shall pay AMCO $0.057 per item,
(d) if AMCO performs any outgoing mail sorting services for any of the
Companies, such Companies shall pay AMCO $0.0225 per item,
(e) if AMCO performs incoming mail sorting services for any of the
Companies, such Companies shall pay AMCO $0.0225 per item,
(f) if AMCO performs special handling services in mail processing, it
will be billed at $0.051 per item,
(g) if AMCO performs remittance processing, it will be billed at $0.089
per item, and,
(h) if AMCO performs a manual look up requested by one of the Companies
the fee is $0.54 per item.
The number of items and the fees shall be billed to each of the Companies
utilizing the services and paid by each of them monthly.
IX. TELEPHONE/COMMUNICATIONS. The Companies which request that AMCO provide
telephone/communications equipment under Section 3.11 ("Telephone and
Communications") shall pay to AMCO a mutually agreed upon monthly fee
for the equipment. Each of the Companies requesting long-distance
communication services (the "Long-Distance Companies") will pay a
monthly charge based upon the proportion of their actual long distance
minutes to the total actual long distance minutes used by the
Long-Distance Companies overall.
X. TAXES. AMCO shall pay any sales, use, and personal property taxes which
may be due and owing with respect to the services provided under this
Agreement. AMCO shall receive reimbursement from the appropriate
Companies for any sales or use tax paid.
<PAGE>
Exhibit 18
FIRST AMENDMENT TO
AMENDED AND RESTATED
MANAGEMENT INFORMATION SERVICES AGREEMENT
Effective March 1, 1996
This First Amendment ("amendment") to the Amended and Restated Management
Information Services Agreement ("Agreement") is made as of this 24th day of
February, 1997, to be effective March 1, 1996, (unless a different effective
date is indicated) by and among AMCO Insurance Company ("AMCO"), ALLIED Group
Information Systems, Inc. ("AGIS"), ALLIED Mutual Insurance Company ("Mutual"),
ALLIED Group, Inc. ("AGI"), ALLIED General Agency Company ("AGA"), ALLIED Group
Mortgage Company ("AGMBC"), ALLIED Group Leasing Corporation ("AGLC"), ALLIED
Life Financial Corporation ("ALFC"), ALLIED Life Insurance Company ("ALLIED
Life"), ALLIED Life Brokerage Agency ("ALBA"), ALLIED Group Merchant Banking
Corporation ("AGMBC"), ALLIED Group Insurance Marketing Company ("AGIMC"), The
Freedom Group, Inc. ("TFG"), and Midwest Printing Services, Ltd. ("Midwest
Printing"). AGIS, AGI, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, AGIMC,
TFG, and Midwest Printing shall be hereinafter referred to collectively as the
"Companies".
WITNESSETH:
WHEREAS, AGIS, Mutual, AGI, AMCO, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA,
AGMBC, TFG, Midwest Printing, and AGIMC entered into an Amended and Restated
Management Information Services Agreement effective March 1, 1996 on January 24,
1997; and
WHEREAS, Section I of Addendum A to the Agreement was not accurate in stating
certain fees for ALLIED Life;
WHEREAS, Section IX of the Agreement allows amendment of the Agreement in
writing and executed by the parties;
NOW, THEREFORE, in consideration of the foregoing premises, and for and in
consideration of the mutual covenants and agreements contained herein, the
parties agree as follows:
1. The Agreement is hereby amended by deleting Section I(a) of the Addendum and
inserting in place thereof the following:
(a) $37.50 per hour for Programming/Development time and Methods/Procedures
time from March 1, 1996 through May 13, 1996 when the programmers became
ALLIED Life employees and no charge thereafter.
<PAGE>
2. The Agreement is hereby amended by deleting Section I(d) of the Addendum and
inserting in place thereof the following:
(d) ALLIED Life shall reimburse AMCO for the actual costs AMCO incurs on a
monthly basis for providing ALLIED Life the services provided under
Sections 3.1 ("General MIS"), 3.2 ("PC Support"), 3.7 (a) ("Printing--
Forms and Reports"), and 3.8 ("Policy Assembly"). In order to reimburse
AMCO for the cost of these services, ALLIED Life will forward $50,000.00
at the end of each month as an estimation of the costs of providing the
services for that month.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to the Amended and Restated Management Information Services Agreement to be
signed by their duly-authorized officers all as of the date and year first
written above.
ALLIED Mutual Insurance Company ALLIED Group, Inc.
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2000 Des Moines, IA 50391-2000
By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer
----------------------------- ---------------------------------
Title: President Title: President (Financial)
-------------------------- ------------------------------
AMCO Insurance Company ALLIED General Agency Company
701 5th Avenue 701 5th Ave.
Des Moines, IA 50391-2013 Des Moines, IA 50391-2002
By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer
----------------------------- ---------------------------------
Title: President Title: Treasurer
-------------------------- ------------------------------
ALLIED Life Financial ALLIED Group Leasing
Corporation Corporation
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2003 Des Moines IA 50391-2015
By: /s/ Samuel J. Wells By: /s/ Jamie H. Shaffer
----------------------------- ---------------------------------
Title: President Title: President
-------------------------- ------------------------------
<PAGE>
ALLIED Group Mortgage Company ALLIED Life Insurance Company
1701 48th St. 701 5th Ave.
West Des Moines, IA 50391-2009 Des Moines, IA 50391-2003
By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells
----------------------------- ---------------------------------
Title: Secretary Title: President
-------------------------- ------------------------------
ALLIED Group Merchant Banking ALLIED Group Insurance
Corporation Marketing Company
701 5th Ave. 701 5th Ave.
Des Moines, IA 50391-2003 Des Moines, IA 50391-2010
By: /s/ Paul McGillivray By: /s/ Jamie H. Shaffer
----------------------------- ---------------------------------
Title: President Title: Treasurer
-------------------------- ------------------------------
ALLIED Group Information ALLIED Life Brokerage Agency
Systems, Inc. 701 5th Ave.
701 5th Ave. Des Moines, IA 50391-2003
Des Moines, IA 50391-1002
By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells
----------------------------- ---------------------------------
Title: Secretary Treasurer Title: President
-------------------------- ------------------------------
The Freedom Group, Inc. Midwest Printing Services, Ltd.
701 5th Ave. 3820 109th St.
Des Moines, IA 50391-1002 Des Moines, IA 50391-1003
By: /s/ Jamie H. Shaffer By: /s/ Leslie D. Peltz
----------------------------- ---------------------------------
Title: Secretary Treasurer Title: Treasurer
-------------------------- ------------------------------
<PAGE>
EXHIBIT 19
THE ALLIED GROUP
JOINT MARKETING AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
----
1. Segment Differentiation.................................................. 1
1.1 Promotion of Products............................................... 1
1.2 Existing Agency Relationship........................................ 1
1.3 Types of Agencies................................................... 1
1.4 No Limitation on Agency Appointments................................ 2
2. Joint Agency Promotion Responsibilities.................................. 2
2.1 Promotion of Joint Agencies......................................... 2
2.2 Promotion of Life Products.......................................... 2
2.3 Development of Marketing Materials.................................. 2
3. Promotion Fee............................................................ 2
3.1 ALIC Fees to AMCO................................................... 2
3.2 Calculation of Growth Rate and NPIF................................. 3
4. Systems Development...................................................... 3
4.1 Development of Joint Date Base...................................... 3
4.2 Joint Billing Arrangement........................................... 3
4.3 Other Systems....................................................... 3
4.4 Allocation of Costs of Promotion
Activities........................................................ 4
5. Non-Compete.............................................................. 4
5.1 Agreement Not To Compete............................................ 4
5.2 Protected Product List.............................................. 4
5.3 Amendment of Products Lists......................................... 4
6. Term/Termination/Dispute Resolution...................................... 4
6.1 Term and Termination................................................ 4
6.2 Resolution of Disputes.............................................. 5
6.3 Resolution of Post Termination Disputes............................. 5
7. Arbitration.............................................................. 5
7.1 Selection of Arbitrators............................................ 5
7.2 Authority of Arbitrators............................................ 5
7.3 Allocation of Expense of Arbitration................................ 6
7.4 Limitation on Authority of Arbitrators.............................. 6
8. Change of Control........................................................ 6
8.1 Change of Control in the Life Segment or ALFC....................... 6
8.2 Change of Control in the P/C Segment or AGI......................... 7
i
<PAGE>
Page
----
9. Confidential Information and Trade Secrets............................. 7
9.1 Confidential Information.......................................... 7
9.2 Confidentiality of Joint Data Base................................ 7
9.3 Return of Confidential Information................................ 7
9.4 Injunctive Relief................................................. 8
9.5 Survival of this Section.......................................... 8
10. Indemnification........................................................ 8
10.1 Indemnification by ALIC........................................... 8
10.2 Indemnification by the P/C Segment................................ 8
10.3 Limitations on Indemnification.................................... 8
10.4 Participation in Defense.......................................... 8
11. Affirmative Covenants.................................................. 9
11.1 Cooperation....................................................... 9
11.2 Current Information............................................... 9
12. Approvals.............................................................. 9
13. Amendment.............................................................. 9
14. Miscellaneous.......................................................... 10
14.1 Assignment....................................................... 10
14.2 Waiver; Remedies................................................. 10
14.3 Permissive Release of Confidential Information................... 10
14.4 Notices.......................................................... 10
14.5 Governing Law.................................................... 11
14.6 Enforceability................................................... 11
14.7 Survival of Representations and Warranties....................... 11
14.8 Counterparts..................................................... 11
14.9 Headings......................................................... 11
14.10 Entire Agreement................................................. 11
14.11 Execution of Agreement Authorized................................ 12
Signature Page.............................................................. 12
Schedule 3.2
New Production Incentive Fee........................................... 13
Schedule 5.2(a)
Life Segment Products.................................................. 14
Schedule 5.2(b)
P/C Segment Products List.............................................. 15
ii
<PAGE>
THE ALLIED GROUP
JOINT MARKETING AGREEMENT
This Joint Marketing Agreement ("Agreement") by and between ALLIED
Life Insurance Company ("ALIC"), ALLIED Mutual Insurance Company ("AMIC"), AMCO
Insurance Company ("AMCO"), ALLIED Property and Casualty Insurance Company
("APC"), and Depositors Insurance Company ("DIC") shall be effective on the 30th
day of August, 1993.
WHEREAS, the parties hereto are affiliated pursuant to their common
ownership and existing business relationships which include, without limitation,
various distribution systems, marketing strategies, and contracts relating to
their ongoing operations;
WHEREAS, ALIC is in the business of underwriting and marketing life
insurance and annuities (referred to herein as the "Life Segment");
WHEREAS, AMIC, AMCO, APC, and DIC are in the business of underwriting
and marketing property-casualty insurance (referred to herein collectively as
the "P/C Segment");
WHEREAS, the Life Segment and the P/C Segment each desire to expand
their markets and to increase their penetration of the other's customer base
through cross selling and increasing the number of joint life/P/C agencies; and
WHEREAS, the P/C Segment's existing marketing organization is in a
position which enables it to immediately begin to promote the Life Segment to
its/their insurance agents;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements set forth herein, the undersigned parties hereto hereby agree
as follows as of the date first set forth above:
1.0 Segment Differentiation.
1.1 Promotion of Products. The Life Segment and the P/C Segment
each agree to promote the products of the other to their respective customers
and agents according to the terms and conditions of this Agreement.
1.2 Existing Agency Relationships. The parties acknowledge the
existing working and contractual relationships that each has with its respective
insurance agents/agencies and agree that they will cooperate to foster and
promote those relationships.
1.3 Types of Agencies. The parties acknowledge that their
agents/agencies are appointed (1) both by the Life Segment and by one or more of
the companies of the P/C Segment ("Joint Agencies") or (2) only by one Segment
("Life-only Agencies" or
1
<PAGE>
"P/C-on1y Agencies"), and they agree that, when requested, each segment will
promote the other to those Life-only or P/C-only Agencies, as the case may be.
1.4 No Limitation on Agency Appointments. Nothing in this
Agreement constrains any party from exercising any right to appoint any
agent/agency, terminate any existing agency contract, or exercise any agency
contract right.
2.0 Joint Agency Promotion Responsibilities
2.1 Promotion of Joint Agencies. In consideration of payment of
the Promotion Fee defined in Section 3 hereof, the P/C Segment hereby agrees to
promote the sale of Life Segment Products, as defined in Section 5.2, within
Joint Agencies and to facilitate the establishment of such Joint Agencies
pursuant to the procedure set forth in Section 1.2.
2.2 Promotion of Life Products. The parties agree to begin work
immediately to establish and maintain specific guidelines, strategies, and
requirements for the promotion of Life Segment Products by the P/C Segment
marketing representatives to Joint Agencies. Such promotion will begin on or
before January 1, 1994.
2.3 Development of Marketing Materials. Promotion efforts will
include joint promotions and marketing strategies and the development of
marketing materials which shall include but not be limited to advertising, oral
presentations, illustrations, recruiting materials, and such other
communications as are necessary to promote the sale of the Life Segment Products
by Joint Agencies. The Life Segment retains the right to review and approve all
such materials prior to presentation to Joint Agencies. The P/C Segment will use
its best efforts to conform all advertising materials and any forms to
applicable laws and regulations.
3.0 Promotion Fee
3.1 ALIC Fees to AMCO. In compensation for the promotion
activities described in this Agreement, ALIC agrees to pay to AMCO, in its
capacity as Pool Administrator under the Second Amended and Restated Reinsurance
Pooling Agreement dated December 14, 1992, the following amounts;
(a) an annual access fee of $100,000.00 ("Access Fee") will be
paid in four (4) equal quarterly installments with the first payment
due within 30 days of January 1, 1994, and within the first month of
each quarter thereafter during the term hereof; and
(b) an annual new production incentive fee ("NPIF"), as
calculated in Section 3.2(f) to be paid within thirty (30) days of
the end or each calendar year based on production for that year.
2
<PAGE>
3.2 Calculation of Growth Rate and NPIF.
(a) NPIF is based on the growth rate in production credit premiums
("PCPs") for Joint Agencies.
(b) PCPs are the numerical method utilized by ALIC to measure
production of agencies. PCPs are calculated as a percentage of premiums,
and the applicable percentage may be different for each product.
(c) The year of calculation ("YOC") shall be the calendar year just
ended, and the PCPs for that year shall be the "YOC PCPs."
(d) The PCPs as of the end of the calendar year prior to the YOC shall
be referred to as the prior year PCPs or "PY PCPs".
(e) The growth rate ("Growth Rate") equals YOC PCPs minus PY PCPs
divided by PY PCPs. If the Growth Rate calculated herein is less than 10%,
the fee percentage (the "Fee Percentage") equals zero. If the Growth Rate
calculated herein exceeds 25%, the Fee Percentage equals 20%. If the Growth
Rate is between 10% and 25%, then the Fee Percentage is calculated as
follows:
(i) Fee Percentage = [({ Growth Rate - 10%} / 15%) x 10%] + 10%
(ii) For a graph calculating NPIF and an example of the
calculation above, see Schedule 3.2.
(f) If the Growth Rate is 25% or less, NPIF equals the Fee Percentage,
as calculated above, multiplied by the difference between YOC PCPs and PY
PCPs. If the Growth Rate exceeds 25%, NPIF equals Fee Percentage multiplied
by 25% of PY PCPs.
4.0 Systems Development
4.1 Development of Joint Data Base. The Life Segment and the P/C Segment
agree to work together to develop and coordinate joint data bases of customers
and agents for purposes of the promotion activities under this Agreement. Each
segment agrees to provide the other with a listing of its insureds and agents
and other relevant marketing or statistical information as may be reasonably
requested by the parties.
4.2 Joint Billing Arrangement. The parties agree to jointly develop and
use a mutually agreeable multiple account billing system which will allow the
billing of life and property-casualty products on one statement.
4.3 Other Systems. The parties agree to work together and develop any
other systems which may be identified as mutually advantageous to the parties to
this Agreement.
3
<PAGE>
4.4 Allocation of Costs of Promotion Activities. The Life Segment and P/C
Segment agree to work together to develop a mutually agreeable basis for the
sharing of system development and operation costs for systems developed under
Section 4.0. The parties further agree that the method of allocation will
reflect the projected and actual utilization of these systems.
5.0 Non-Compete.
5.1 Agreement Not To Compete. Each party to this Agreement hereby
covenants and agrees that it will not compete directly, or indirectly through
any subsidiary, affiliate, partnership, joint venture, or third party, with any
party in the other segment for the duration of this Agreement and for a period
of ten (10) years thereafter. This agreement not to compete shall extend to and
include any Life Segment Products or P/C Segment Products, as defined in Section
5.2, and any market in which the segment seeking protection pursuant hereto is
then active; provided that protection afforded hereby after any termination of
this Agreement shall extend only to markets in which the Life Segment Products
and P/C Segment Products were sold at the date of termination. "Market" for
purposes of this section shall be the individual states in which Life Segment
Products or P/C Segment Products are sold. The parties, in the event of a breach
or anticipated breach of this Agreement, agree money damages will not be a
sufficient remedy to the injured party or parties and agree to the imposition of
injunctive relief to enforce this Section in addition to other available
remedies.
5.2 Protected Product List. The product list of the respective segments is
set forth as follows:
(a) The Life Segment products list ("Life Segment Products") is
attached hereto and incorporated herein as Schedule 5.2(a).
(b) The P/C Segment products list ("P/C Segment Products") is attached
hereto and incorporated herein as Schedule 5.2(b).
5.3 Amendment of Products Lists. The products lists referred to in Section
5.2 may be amended from time to time to add or delete products through written
notification to the other parties to the Agreement. Upon notice of an addition
to the products list, the parties shall have ten (10) days in which to object to
the proposed addition. If there is disagreement in revising the products list,
the Coordinating Committee as defined in Section 6.2 shall resolve the dispute.
6.0 Term/Termination/Dispute Resolutions
6.1 Term and Termination. This Agreement shall continue from August 30,
1993 to August 30, 2008, and shall continue thereafter unless prior to August
30, 2006, a party to this Agreement delivers to each of the other parties a
written notice
4
<PAGE>
that such party intends to cease participation and terminate the Agreement as to
it on August 30, 2008 or as of a specified date thereafter. This Agreement may
be terminated by any party effective after August 30, 2008 provided that such
party has given written notice at least two (2) years prior to the proposed
termination date.
6.2 Resolution of Disputes. The members of the coordinating
committees of the Boards of Directors of ALLIED Mutual Insurance Company, ALLIED
Group, Inc., and ALLIED Life Financial Corporation ("Coordinating Committee")
shall be asked to resolve any disputes arising under this Agreement.
Notwithstanding anything in this Agreement to the contrary, if any disputes
under this Agreement must be resolved by arbitration pursuant to Section 7.0,
termination of this Agreement which otherwise would occur shall not occur until
after final resolution by the arbitrator.
6.3 Resolution of Post Termination Disputes. In the event there are
any post termination disputes in connection with this Agreement, such disputes
shall be submitted to the Coordinating Committee for resolution.
7.0 Arbitration.
7.1. Selection of Arbitrators. Each party to this Agreement hereby
consents and agrees that any dispute between the parties hereto with respect to
the interpretation, performance, or breach of any of the terms of this Agreement
or the transactions contemplated by this Agreement which cannot be resolved by
the Coordinating Committee shall be referred to arbitration conducted in
accordance with the rules and procedures of the American Arbitration Association
("AAA"), upon written request of any party given to the others. Within thirty
(30) days of the giving of such written notice, the Life Segment and the P/C
Segment shall each nominate an AAA-licensed arbitrator (the "Party
Arbitrators"). Within thirty (30) days of their nomination, the two Party
Arbitrators shall select a third AAA-licensed arbitrator (the "Third
Arbitrator") and shall give the Life Segment and the P/C Segment written notice
or such choice.
7.2 Authority of Arbitrators. The arbitrators shall be empowered to
decide all issues submitted to arbitration using principles of law and equity
and, if required, by application of any customary practices in the insurance and
reinsurance industries. The arbitrators shall be relieved of all judicial
formalities and shall not be required to follow any rules of evidence except as
such rules may be imposed on arbitration proceedings conducted in accordance
with the laws of the State of Iowa, but the arbitrators shall attempt to enforce
the intents and purposes of this Agreement to the extent practicable and in
accordance with Iowa law. The decision of a majority of the arbitrators shall be
final and binding on the Life Segment, the P/C Segment, and their subsidiaries.
5
<PAGE>
7.3 Allocation of Expense of Arbitration. Each party shall bear
the expenses of its Party Arbitrator. The parties shall jointly share all other
expenses of the arbitration proceeding and the expenses of the Third Arbitrator.
The arbitration proceeding shall take place at Des Moines, Iowa, unless
another location is mutually agreed upon by the Life Segment and the P/C Segment
and shall be governed by the laws of the State of Iowa. The parties hereto
hereby agree that any information respecting any matters submitted to
arbitration in accordance with the foregoing or any aspect of the arbitration
proceeding itself shall be treated as confidential and will not be disclosed to
any person or entity not employed or acting on behalf of the Life Segment or the
P/C Segment in connection with such arbitration or used at any time in any
manner that is adverse to the interests of any party hereto but, in any such
case, such information may be disclosed if such disclosure is made in connection
with either party's prosecution or defense of any legal proceedings or if such
disclosure is required pursuant to a subpoena or other legal order issued by any
judicial or regulatory body or is otherwise required by law.
7.4 Limitation on Authority of Arbitrators. Notwithstanding
anything set forth herein to the contrary, with respect to any issue to be
determined by arbitration, the Life Segment and the P/C Segment shall each
submit in writing to the arbitrators their proposed resolution of such issue.
The arbitrators shall be constrained in their decision relating to such issue to
select only between the proposed resolutions, and the arbitrators shall have no
discretion to fashion any compromise or other resolution of the issue submitted
for arbitration.
8.0 Change of Control.
8.1 Change of Control in the Life Segment or ALLIED Life Financial
Corporation. In the event of a Change of Control (as hereinafter defined in this
section) of ALIC or ALLIED Life Financial Corporation, the P/C Segment may, in
its sole discretion, at any time after such Change of Control; (i) terminate
this Agreement upon six (6) months notice to the Life Segment; (ii) extend the
term of this Agreement for up to ten (10) additional years beyond August 30,
2008 upon notice to the Life Segment; or (iii) allow this Agreement to continue
in effect. "Change of Control" for purposes of this section shall mean an event
whereby a person, group, or entity that is not affiliated with ALLIED Group,
Inc., ALLIED Life Financial Corporation, or AMIC acquires the ownership of 50%
or more of the voting stock of ALIC or ALLIED Life Financial Corporation. A
person, group, or entity "affiliated" with ALLIED Group, Inc., ALLIED Life
Financial Corporation, or AMIC shall mean a person, group, or entity that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with ALLIED Group, Inc., ALLIED Life
Financial Corporation, or AMIC.
6
<PAGE>
8.2 Change of control in the P/C Segment or ALLIED Group, Inc. In
the event of a Change of Control (as hereinafter defined in this section) of any
of the companies comprising the P/C Segment or ALLIED Group, Inc., ALIC may, in
its sole discretion, any time after such Change of Control: (i) terminate this
Agreement upon six (6) months notice to the P/C Segment; (ii) extend the term of
this Agreement for up to ten (10) additional years beyond August 30, 2008 upon
six (6) months notice to the P/C Segment; or (iii) allow this Agreement to
continue in effect. "Change of Control" for purposes of this section shall mean
an event whereby a person, group, or entity that is not affiliated with ALLIED
Group, Inc., ALLIED Life Financial Corporation, or AMIC acquires the ownership
of 50% or more of the voting stock of any company in the P/C Segment or of
ALLIED Group, Inc. A person, group, or entity "affiliated" with ALLIED Group,
Inc., ALLIED Life Financial Corporation, or AMIC shall mean a person, group, or
entity that directly or indirectly through one or more intermediaries controls,
is controlled by, or is under common control with ALLIED Group, Inc., ALLIED
Life Financial Corporation, or AMIC.
9.0 Confidential Information and Trade Secrets
9.1 Confidential Information. Each party to this Agreement shall
keep confidential, except as the other party or parties may otherwise consent in
writing, not disclose or make any use of at any time and for any purpose
whatsoever, any trade secrets, confidential information, knowledge, data,
trademarks or trade names, or other information of any of the companies who are
parties to this Agreement relating to their products, know-how, designs,
customer lists, business plans, marketing plans and strategies, pricing
strategies, or other subject matter pertaining to any business of the parties to
this Agreement or any of their clients, customers, consultants, licensees, or
affiliates, which it has obtained or may obtain or otherwise acquire during the
course of contacts, discussions, negotiations, or agreements with any of the
parties to this Agreement, except as herein provided (hereafter, collectively,
"Confidential Information"). No party shall deliver, reproduce, or in any way
allow any Confidential Information of the other parties or any documentation
relating thereto to be delivered to or used by any third parties without
specific written direction or consent of a duly authorized officer of the other
party, as the case may be.
9.2 Confidentiality of Joint Data Base. The parties agree to
treat the joint data bases developed under Section 4.1 as proprietary and
confidential information and prohibit the release of all or any portion thereof
to any third party including subsidiaries and affiliates of the parties without
the consent of the other parties to this Agreement.
9.3 Return of Confidential Information. Upon termination of this
Agreement for any reason whatsoever, each party shall promptly surrender and
deliver to each other party all records, materials, equipment, drawings,
documents, data, and all Confidential Information of the other parties and shall
not
7
<PAGE>
retain any description containing or pertaining to any Confidential Information
of the other parties, unless otherwise consented to in writing by a duly
authorized officer of the other party, as the case may be.
9.4 Injunctive Relief. The parties agree that money damages would
not be a sufficient remedy for a breach or anticipated breach of this Section
9.0, and they therefore agree that any party which is or may be damaged thereby
shall be entitled to injunctive relief in addition to any available remedies.
9.5 Survival of this Section. The agreements in this Section 9.0
shall survive termination of the Agreement and continue in full force and effect
thereafter.
10.0 Indemnification.
10.1 Indemnification by ALIC. ALIC shall defend, indemnify, and
hold harmless the companies in the P/C Segment, their successors and assigns
against and in respect of any and all damages, claims, losses, liabilities, and
expenses (including, without limitation, legal and other expenses) which may
arise out of or be in respect of any breach or misrepresentation by the
companies of the Life Segment under this Agreement.
10.2 Indemnification by the P/C Segment. The companies in the P/C
Segment shall defend, indemnify, and hold harmless the companies in the Life
Segment, their successors and assigns against and in respect of any and all
damages, claims, losses, liabilities, and expenses (including, without
limitation, legal and other expenses) which may arise out of or be in respect
of any breach or misrepresentation by the companies of the P/C Segment under
this Agreement.
10.3 Limitations on Indemnification. Notwithstanding the foregoing,
no indemnification shall be available hereunder unless notice of any claim for
indemnification is given to the indemnifying party within one year of the date
on which the loss under Section 10.1 or Section 10.2 above occurs or becomes
known to the party to be indemnified.
10.4 Participation in defense. Promptly after receipt of notice of
any claim or the commencement of any action in respect to which indemnity may be
sought on account of the indemnity agreements contained in this Section 10.0,
the indemnified party will notify the indemnifying party in writing thereof. In
case any claim shall be asserted against an indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense, conduct, or settlement thereof, with counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to so assume the defense,
conduct, or settlement thereof, the indemnifying party
8
<PAGE>
will not be liable to the indemnified party under this Section 10.0 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense, conduct, or settlement thereof. Notwithstanding an
election by the indemnifying party to assume the defense, conduct, or settlement
of any claim subject to indemnification hereunder, if the indemnified party
reasonably determines that its interests may be adverse to, or in conflict with,
those of the indemnifying party, it may elect, at its own expense, to retain or
continue to retain its own counsel to participate in the defense, conduct, or
settlement of such claim. The indemnified party will cooperate with the
indemnifying party without charge in connection with any such claim, make
personnel books and records relevant to the claim available to the indemnifying
party, and grant such authorizations or powers of attorney to the agents,
representatives, and counsel of the indemnifying party as such indemnifying
party may reasonably consider desirable in connection with the defense of any
such claim.
11.0 Affirmative Covenants.
11.1 Cooperation. The companies in the Life Segment and P/C Segment
as well as their subsidiaries will fully cooperate with each other and their
respective counsel, if any, and accountants in connection with any action to be
taken in the performance of their obligations under this Agreement. They shall
use their best efforts to take or cause to be taken any and all actions
necessary or required to be taken under this Agreement. In the conduct of their
affairs and the performance of this Agreement the parties hereto shall maintain
the working relationships of the parties on substantially the same terms as
before the effectiveness of this Agreement.
11.2 Current Information. Each party to this Agreement shall, upon
request, annually certify to the others that the representations and warranties
made in this Agreement by such party are true and correct as of the anniversary
date of this Agreement, or such certification shall indicate in what manner or
to what extent such representations and warranties are incorrect. Upon request,
each party to this Agreement shall provide all other parties with its financial
statements.
12.0 Approvals. On or before the date of this Agreement, any and all
regulatory consents or approvals required to effect the transactions
contemplated herein shall have been obtained (or the receipt shall have been
waived by the parties hereto) without the imposition of a material cost,
liability, or restriction upon any of the parties hereto.
13.0 Amendment. This Agreement may be amended, modified, or altered only
by a writing signed by the parties hereto and approved by the Coordinating
Committee.
9
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14.0 Miscellaneous
14.1 Assignment. Neither this Agreement nor any rights hereunder
may be assigned by any of the parties hereto without the consent of all the
parties.
14.2 Waiver; Remedies. No delay or omission of any party to this
Agreement to exercise any right or power hereunder shall impair such right or
power or be a waiver of any default or an acquiescence therein; and any single
or partial exercise of any such right or power shall not preclude other or
further exercise thereof or the exercise of any other right. In addition to any
rights granted herein, the parties hereto shall have and may exercise any and
all rights and remedies now or hereafter provided by law except as may be
limited by Section 11.0 of this Agreement.
14.3 Permissive Release of Confidential Information.
Notwithstanding the provisions of Section 9.0 of this Agreement, any
Confidential Information may be used in connection with any arbitration relating
to the transactions contemplated by this Agreement and such information may be
disclosed if such disclosure is made in connection with the parties' prosecution
or defense of any legal proceedings or if such disclosure is required pursuant
to a subpoena or other legal order issued by any judicial or regulatory body or
is otherwise required by law.
14.4 Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally, mailed by certified or registered mail
(return receipt requested):
(a) If to AMIC:
ALLIED Mutual Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50391-2000
Attention: President
(b) If to AMCO:
AMCO Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50391-2013
Attention: President
(c) If to APC:
ALLIED Property and Casualty Company
701 Fifth Avenue
Des Moines, Iowa 50391-2011
Attention: President
10
<PAGE>
(d) If to DIC:
Depositors Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50391-2014
Attention: President
(e) If to ALIC:
ALLIED Life Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50391-2003
Attention: President
Any notice given as provided in this Section, if given
personally, shall be effective upon delivery, if given by certified or
registered mail, shall be effective three (3) days after deposit in the mail,
and if given by telex or telecopier, shall be effective upon transmission. Any
party hereto may change the address at which it is to be given notice by giving
notice to the other party as provided in this Section.
14.5 Governing Law. This Agreement shall be deemed to be a contract
made under the laws of the State of Iowa and shall be construed and interpreted
under the laws of such state applicable to contracts made and to be performed
entirely within such state.
14.6 Enforceability. If any one or more of the covenants,
agreements, provisions, or other terms of this Agreement shall be for any reason
whatsoever determined to be invalid, then such terms shall be deemed severable
from the remaining terms of this Agreement and shall in no way affect the
validity or enforceability of the other terms of this Agreement and such invalid
terms shall be replaced by valid terms bearing the closest possible similarity
in substance so that the intentions and purposes being the basis of this
Agreement could be enforced to the greatest extent permitted by law.
14.7 Survival of Representations and Warranties. All covenants,
agreements, representations, and warranties made in this Agreement by any of the
parties hereto, including but not limited to, the indemnification provisions set
forth herein shall be effective on the effective date hereof and thereafter.
14.8 Counterparts. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14.9 Headings. The headings in the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
14.10 Entire Agreement. This Agreement, including the schedules and
exhibits referred to herein and any documents
11
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executed by the parties simultaneously herewith constitute the entire
understanding and agreement of the parties hereto and supersede all other prior
agreements and understandings, written or oral, between the parties with respect
to the transactions contemplated herein; provided, however, the foregoing shall
not operate or be construed to prohibit proof of prior understandings and
agreements between or among the parties to the extent necessary to properly
construe or interpret this Agreement.
14.11 Execution of Agreement Authorized. The persons signing this
Agreement on behalf of the parties hereto, warrant, covenant, and represent that
they are duly authorized to execute this document on behalf of such parties.
ALLIED Mutual Insurance Company ALLIED property and, Casualty Company
By [SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE]
----------------------------- -------------------------------
Its President Its President
--------------------------- -----------------------------
ALLIED Life Insurance Company AMCO Insurance Company
By [SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE]
----------------------------- -------------------------------
Its President Its President
--------------------------- -----------------------------
Depositors Insurance Company
By [SIGNATURE APPEARS HERE]
-----------------------------
Its President
---------------------------
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<PAGE>
SCHEDULE 3.2
NEW PRODUCTION INCENTIVE FEE ("NPIF")
[GRAPH APPEARS HERE]
EXAMPLE FOR 1993
a. Assume PCPs of 5,184,000 in 1992
b. Assume PCPs of 6,221,000 in 1993 for a growth rate of 20%
c. Growth Rate = YOC PCPs / PY PCPS + PY PCPs
Growth Rate = 6,221,000 - 5,184,000 / 5,184,000
Growth Rate = .20003 or 20%
d. Fee Percentage = [((Growth Rate - 10%) / 15%) x 10%] + 10%
Fee Percentage = [((20% - 10%) / 15%) X 10%] + 10%
Fee Percentage = .1666667
e. NPIF = Fee Percentage X (YOC PCPs - PY PCPs)
NPIF = .1666667 X (6,221,000 - 5,184,000)
NPIF = $172,833.33
13
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SCHEDULE 5.2(a)
LIFE SEGMENT PRODUCTS
ALIC will reserve to itself the opportunity to develop, administer, and
market in its own name the following products including, but not limited to;
1. Individual and group life insurance
2. Individual and group annuities
3. Individual and group health insurance
4. Individual and group accident insurance
5. Individual and group long-term care insurance
6. Individual and group disability insurance
7. Individual and group variable life insurance
8. Individual and group variable annuities
9. Registered investment products (e.g. mutual funds, UITs)
14
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SCHEDULE 5.2 (b)
P/C SEGMENT PRODUCTS LIST
The following is a list of products reserved to be marketed by the property
casualty companies.
1. Personal lines property-casualty products including but not limited
to the following:
Private Passenger Automobile
Homeowners
Dwelling Fire
Recreational Vehicles
2. Commercial lines property-casualty products including but not limited
to the following:
Fire
Inland Marine
Workers compensation
Liability
Automobile
Commercial Packages
Farm
Fidelity and Surety
Crop Hail
15
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Exhibit 20
FIRST AMENDMENT TO
THE ALLIED GROUP
JOINT MARKETING AGREEMENT
THIS AMENDMENT is made this 1st day of November, 1993, by and between
ALLIED Life Insurance Company ("ALIC"), ALLIED Mutual Insurance Company
("AMIC"), AMCO Insurance Company ("AMCO"), ALLIED Property and Casualty
Insurance Company ("APC"), and Depositors Insurance Company ("DIC").
WHEREAS, on August 30, 1993, ALIC, AMIC, AMCO, APC, and DIC entered into
the ALLIED Group Joint Marketing Agreement (the "Agreement"); and
WHEREAS, on October 14, 1993, the Executive Committee of the Board of
Directors for each of ALIC, AMIC, AMCO, APC, and DIC approved certain amendments
to the Agreement regarding the Coordinating Committee;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. The Agreement is hereby amended by deleting Section 6.2 and inserting
in place thereof the following:
Section 6.2 Resolution of Disputes. All disputes under this
Agreement shall be referred for resolution to the Coordinating
Committee. "Coordinating Committee" shall mean the joint meeting of the
coordinating committees established by AMIC, ALLIED Group, Inc., and
ALLIED Life Financial Corporation in accordance with their respective
bylaws or pursuant to resolution for the purpose, among others, of
resolving issues under this Agreement. Each of the coordinating
committees of AMIC, ALLIED Group, Inc., and ALLIED Life Financial
Corporation (a) has the right to participate in each and every
Coordinating Committee deliberation unless it elects to abstain
therefrom and (b) has one vote which shall be cast for or against any
such decision unless it elects to abstain. Each such coordinating
committee shall be comprised of two persons, one of whom shall
constitute a quorum for the transaction of any business. All decisions
of the Coordinating Committee must be unanimous, except for
abstentions. All decisions of the Coordinating Committee are binding on
the parties hereto.
2. The Agreement is hereby amended by the addition of the following
sentence to the end of Section 6.1:
Notwithstanding anything in this Agreement to the contrary, if any
disputes under this Agreement must be
1
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resolved by arbitration pursuant to Section 7.0, termination of this
Agreement which otherwise would occur shall not occur until after
final resolution by the arbitrators.
3. The Agreement is hereby amended by deleting Section 6.3 and inserting
in place thereof the following:
6.3 Resolution of Post-Termination Disputes. Section 6.2 and
Article 7.0 shall survive the termination of this Agreement with
regard to disputes in connection with this Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year above first written.
ALLIED Mutual Insurance Company
By: /s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen, President
ALLIED Life Insurance Company
By: /s/ Samuel J. Wells
---------------------------------
Samuel J. Wells, President
Depositors Insurance Company
By: /s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen, President
ALLIED Property and Casualty
Insurance Company
By: /s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen, President
AMCO Insurance Company
By: /s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen, President
2
<PAGE>
with this Section 1.01. Mutual and AGI hereby agree that it is in the best
interests of both parties to have the total number of persons nominated by
Mutual in accordance with the provisions of this Article I divided as equally as
is practicable among the three classes of directors serving on the AGI Board
from time to time.
SECTION 1.02. Mutual's Nominees for AGI Board.
-------------------------------
(a) By February 1 in any calendar year, if in connection with any annual
meeting of the stockholders of AGI at which directors will be elected, or at
least forty-five (45) days prior to any special meeting of the stockholders of
AGI at which directors will be elected (or, with respect to special
stockholders' meetings, such shorter period of time as is permitted under the
bylaws of AGI), Mutual shall give the Chairman of the Board of AGI written
notice identifying the person or persons nominated by Mutual to stand for
election as members of the AGI Board at such stockholder's meeting, with the
number of persons to be nominated by Mutual to be determined pursuant to Section
1.02(b) below.
(b) After giving effect to those directors, if any, previously nominated
by Mutual and continuing in office as members of any class of the AGI Board not
standing for election at any stockholders' meeting at which directors will be
elected, Mutual shall be entitled to nominate that number of persons to stand
for election as directors as is necessary (when combined with any such
Mutual-nominated directors continuing in office) to provide Mutual approximate
proportionate representation on the AGI Board in accordance with the provisions
of Section 1.01 above. Any notice of nomination submitted by Mutual shall
comply with the provisions of the bylaws of AGI respecting the information to be
contained therein.
SECTION 1.03. Newly-Created Directorships; Vacancies.
--------------------------------------
(a) In the event the AGI Board or the stockholders of AGI at any time
approves any increase in the number of members of the AGI Board and at such
time, Mutual would, if the provisions of Section 1.01 above were applied, be
otherwise entitled to nominate one or more additional persons to serve on the
AGI Board, as increased, AGI agrees to allow such additional person or persons
as are nominated by Mutual, by written notice delivered to the Chairman of the
Board of AGI within thirty (30) days of the date on which Mutual is notified of
any increase in the number of members of the AGI Board, to fill one or more of
the newly-created directorships to provide Mutual approximate proportionate
representation on the AGI Board in accordance with the provisions of Section
1.01 above.
-3-
<PAGE>
Exhibit 21
STOCK RIGHTS AGREEMENT
----------------------
This is a Stock Rights Agreement (the "Agreement") made as of July 5, 1990
by and between ALLIED Mutual Insurance Company, an Iowa mutual insurance
company ("Mutual"), and ALLIED Group, Inc., an Iowa corporation ("AGI").
WHEREAS, AGI is a publicly-traded diversified non-operating holding company
with subsidiaries in property-casualty insurance, life insurance, data
processing and investment services; and
WHEREAS, as of September 30, 1989, Mutual owned 5,295,083 shares of AGI's
no par value common stock, such shares constituting approximately 78% of the
outstanding common stock of AGI as of such date; and
WHEREAS, Mutual and AGI have entered into a Stock Purchase Agreement dated
as of October 24, 1989, as amended under date of November 20, 1989 (as amended,
the "Stock Purchase Agreement") wherein, subject to the satisfaction of the
terms and conditions set forth in the Stock Purchase Agreement, Mutual has
agreed to purchase from AGI, and AGI has agreed to sell to Mutual, 80,000 shares
of the $10 par value common stock and 30,000 shares of the $100 par value
preferred stock of ALLIED Life Insurance Company, an Iowa stock life insurance
corporation ("Life"), such common and preferred shares constituting 100% of the
outstanding capital stock of Life (collectively the "Life Shares"); and
WHEREAS, the Stock Purchase Agreement provides that the consideration to be
paid by Mutual for the Life Shares shall be 2,700,000 shares of the no par value
common stock of AGI owned by Mutual (the "AGI Shares"); and
WHEREAS, subject to the satisfaction of the terms and conditions set forth
in the Stock Purchase Agreement, Mutual shall be required to deliver the AGI
Shares to AGI in exchange for the Life Shares; and
WHEREAS, in connection with the Stock Purchase Agreement, AGI has
established an employee stock ownership plan for the benefit of AGI employees
(the "AGI ESOP"); and
WHEREAS, AGI intends to fund the AGI ESOP through the issuance of 2,400,000
shares of the no par value convertible preferred stock of AGI (the "ESOP
Shares"), which issuance shall occur within thirty days subsequent to the
closing of the transactions contemplated by the Stock Purchase Agreement; and
WHEREAS, the ESOP Shares entitle the holder thereof to vote on all matters
submitted to the holders of the AGI common stock, with the holder of the ESOP
Shares and the holders of the AGI common stock voting together as one class; and
<PAGE>
WHEREAS, upon Mutual's delivery to AGI of the AGI Shares in exchange for
the Life Shares and AGI's issuance of the ESOP Shares to the AGI ESOP,
Mutual's substantial stock interest in AGI shall be significantly reduced to the
extent that Mutual shall own only approximately 40% of the outstanding voting
securities of AGI based on the total of the number of shares of the no par value
common stock of AGI (the "AGI Common Stock") and the number of the ESOP Shares
outstanding as of the time immediately following the closing of the Stock
Purchase Agreement; and
WHEREAS, notwithstanding Mutual's delivery to AGI of the AGI Shares in
exchange for the Life Shares and AGI's issuance of the ESOP Shares to the AGI
ESOP, Mutual will remain the single largest stockholder of AGI; and
WHEREAS, Mutual and AGI mutually desire to have Mutual proportionately
represented on the Board of Directors of AGI during the term of this Agreement;
and
WHEREAS, Mutual and AGI believe that it is necessary, advisable and the
best interests of both organizations and their respective policyholders and
stockholders that they enter into an agreement settling forth the relative
rights, duties and obligations of each with respect to Mutual's ongoing stock
interest in AGI and to provide one or more mechanisms, to the extent required,
to enable Mutual to effect orderly distributions of shares of the AGI Common
Stock in the future.
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
MUTUAL REPRESENTATION ON AGI BOARD
SECTION 1.01. Mutual's Proportionate Representation.
-------------------------------------
Mutual and AGI hereby acknowledge and agree that each party shall use their
best efforts to cause, to the extent practicable, the election or retention as
members of the Board of Directors of AGI (the "AGI Board") of that number of
nominees proposed by and representing Mutual which most closely approximates the
same percentage of the total number of members of the AGI Board as is equal to
Mutual's percentage ownership of the total number of shares of AGI Common Stock
and AGI preferred stock outstanding at the time Mutual is required to submit any
nomination in accordance with the provisions of Section 1.02 below.
Notwithstanding the foregoing, AGI may at any time agree to nominate a number of
nominees proposed by and representing Mutual for election to the AGI Board in
excess of the minimum number required in accordance
-2-
<PAGE>
with this Section 1.01. Mutual and AGI hereby agree that it is in the best
interests of both parties to have the total number of persons nominated by
Mutual in accordance with the provisions of this Article I divided as equally as
is practicable among the three classes of directors serving on the AGI Board
from time to time.
SECTION 1.02. Mutual's Nominees For AGI Board.
-------------------------------
(a) By February 1 in any calendar year, if in connection with any annual
meeting of the stockholders of AGI at which directors will be elected, or at
least forty-five (45) days prior to any special meeting of the stockholders of
AGI at which directors will be elected (or, with respect to special
stockholders' meetings, such shorter period of time as is permitted under the
bylaws of AGI), Mutual shall give the Chairman of the Board of AGI written
notice identifying the person or persons nominated by Mutual to stand for
election as members of the AGI Board at such stockholders' meeting, with the
number of persons to be nominated by Mutual to be determined pursuant to Section
1.02(b) below.
(b) After giving effect to those directors, if any, previously nominated by
Mutual and continuing in office as members of any class of the AGI Board not
standing for election at any stockholders' meeting at which directors will be
elected, Mutual shall be entitled to nominate that number of persons to stand
for election as directors as is necessary (when combined with any such
Mutual-nominated directors continuing in office) to provide Mutual approximate
proportionate representation on the AGI Board in accordance with the provisions
of Section 1.01 above. Any notice of nomination submitted by Mutual shall comply
with the provisions of the bylaws of AGI respecting the information to be
contained therein.
SECTION 1.03. Newly-Created Directorships; Vacancies.
--------------------------------------
(a) In the event the AGI Board or the stockholders of AGI at any time
approves any increase in the number of members of the AGI Board and at such
time, Mutual would, if the provisions of Section 1.01 above were applied, be
otherwise entitled to nominate one or more additional persons to serve on the
AGI Board, as increased, AGI agrees to allow such additional person or persons
as are nominated by Mutual, by written notice delivered to the Chairman of the
Board of AGI within thirty (30) days of the date on which Mutual is notified of
any increase in the number of members of the AGI Board, to fill one or more of
the newly-created directorships to provide Mutual approximate proportionate
representation on the AGI Board in accordance with the provisions of Section
1.01 above.
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(b) In the event of any vacancy on the AGI Board in any directorship
previously filled by a nominee of Mutual, whether such vacancy results from
death, resignation, disqualification, removal or other cause, AGI agrees to
allow a person nominated by Mutual, by written notice delivered to the Chairman
of the Board of AGI within thirty (30) days of the date on which Mutual is
notified of such vacancy, to fill the vacant directorship.
SECTION 1.04. Election of Mutual's Nominee to Executive Committee. AGI
---------------------------------------------------
hereby agrees to elect as a member of the Executive Committee of the AGI Board
(the "Executive Committee") at least one member of the AGI Board who has been
nominated by Mutual but who is not an officer or employee of Mutual. AGI hereby
agrees that the total number of members serving on the Executive Committee shall
not be greater than five. In the event of any vacancy on the Executive Committee
in any position previously filled by a nominee of Mutual in accordance with this
section, whether such vacancy results from death, resignation, disqualification,
removal or other cause, another member of the AGI Board who is nominated by
Mutual in accordance with this section by written notice delivered to the
Chairman of the Executive Committee within thirty (30) days of the date on which
Mutual is notified of such vacancy, shall be elected to fill the vacant position
on the Executive Committee.
SECTION 1.05. Recommendation of Mutual's Nominees: No Preventive Action.
---------------------------------------------------------
AGI hereby agrees:
(a) that it will recommend the election of any person or persons nominated
by Mutual in accordance with any of the foregoing provisions in any and all
proxy statements or other soliciting materials provided to stockholders of AGI
in connection with any stockholders' meeting at which directors will be elected;
and
(b) that it will not take, or cause to be taken, any action, whether direct
or indirect, which would be reasonably likely to prevent, discourage or
otherwise interfere with the election to the AGI Board of any persons nominated
by Mutual in accordance with any of the foregoing provisions.
ARTICLE II
STOCKHOLDER ACTIVITIES
SECTION 2.01. Stockholder Activities. Mutual agrees:
---------------------
(a) that it will not give a proxy with respect to its shares of AGI Common
Stock to any person other than (i) an officer or director of Mutual, (ii) a
majority-controlled affiliate of Mutual, or (iii) the management of AGI;
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(b) that its shares of AGI Common Stock will be represented, in person or
by proxy, at all meetings of the stockholders of AGI, provided that nothing
herein shall prevent Mutual from abstaining from a vote on any matter presented
at any stockholders' meeting; and
(c) that, except with regard to the election of directors, it will not,
directly or indirectly, solicit any AGI stockholders (except a
majority-controlled affiliate of Mutual) to vote on any particular matter.
SECTION 2.02. Tender Offers.
-------------
(a) Except as provided in Section 2.02(b) below, Mutual shall not, directly
or indirectly, make, instigate or assist in the making of a tender offer for any
shares of AGI Common Stock or other acquisition of any shares of AGI Common
Stock which has the purpose or effect of constituting an acquisition of control.
Notwithstanding the foregoing, Mutual may tender any of the AGI Common Stock
owned by it in response to any tender offer by a third party in the following
circumstances:
(i) Mutual may tender its shares of AGI Common Stock in response to a
tender offer that the AGI Board has recommended to the stockholders of AGI;
and
(ii) Mutual may tender its shares of AGI Common Stock in response to an
unsolicited third-party tender offer in the event AGI has not exercised its
right of first refusal with respect to such shares in accordance with
Article III hereof and has not tendered or caused to be tendered payment
for the shares of AGI Common Stock owned by Mutual prior to the business
day next preceding the date on which such tender offer will expire.
(b) Mutual may make a tender offer at a price higher than the price at
which a bona fide tender offer for AGI Common Stock has been made by a third
party; provided, however, that Mutual may not make a tender offer to purchase a
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greater number of shares of AGI Common Stock than are proposed to be purchased
pursuant to such third-party tender offer.
SECTION 2.03. Public Disclosure of Mutual's Disagreement. AGI hereby agrees
------------------------------------------
that if Mutual submits a letter to the Chairman of the Board of AGI wherein (a)
Mutual expresses its disagreement with AGI on any matter relating to AGI's
operations, policies or practices and (b) Mutual requests that the matter be
disclosed, AGI will make a public disclosure, within thirty (30) days of the
date on which it receives Mutual's letter, accurately summarizing Mutual's
description of such disagreement. Such public disclosure shall include, but not
be limited to, disclosure in any proxy statement AGI proposes to distribute to
its stockholders if
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the area of disagreement has not been resolved, to Mutual's reasonable
satisfaction, on or before any date on which proxy materials are being
disseminated to the stockholders of AGI. If AGI believes that Mutual's
description of the disagreement is incorrect or incomplete, AGI may include in
any such public disclosure a brief statement presenting AGI's views of such
disagreement.
SECTION 2.04. Other Rights. Except as otherwise provided in this Article
------------
II, Mutual shall be untitled to exercise any and all rights with respect to any
shares of AGI Common Stock owned by it.
ARTICLE III
AGI RIGHT OF FIRST REFUSAL
SECTION 3.01. Right of First Refusal.
----------------------
(a) Subject to the provisions of Section 4.02 hereof, Mutual hereby
agrees that if it desires or proposes to sell any or all of its shares of AGI
Common Stock pursuant to a bona fide offer to purchase such shares (the "Mutual
Shares"), Mutual shall give prompt written notice to AGI (the "Seller's Notice")
identifying the number of Shares, the intended method of sale, the name, address
and principal business activity of the party who has made such bona fide offer
for such shares (the "Offeror"), the price or other form of consideration
payable therefor, the proposed sale date and all other material terms and
conditions pertaining to such proposed sale (including written evidence
therefor). Mutual agrees that it will offer to sell the Mutual Shares to AGI or
its designee at the same price and upon the same terms and conditions as are set
forth in the Seller's Notice, except that if the price specified in the Seller's
Notice is payable in property (which term shall include the securities of any
other issuer), the price shall be the fair market value of such property on the
date AGI receives the Seller's Notice, as agreed upon by Mutual and AGI within
fifteen (15) business days after AGI's receipt of the Seller's Notice or, if the
parties are unable to agree, as determined by an independent investment banking
firm designated by Mutual.
(b) AGI shall have the sole right to purchase, or to designate one or
more financially responsible persons to purchase all (and not less than all) of
the Mutual Shares as to which the Seller's Notice relates and shall have thirty
(30) days after it receives the Seller's Notice within which to decide to
purchase such shares or make such designation. If AGI so elects to purchase, or
to designate one or more financially responsible persons to purchase, all of the
Mutual Shares, it shall notify
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Mutual in writing (the "Purchaser's Notice") within such thirty-day period and
the consummation of any sale to AGI shall occur within one hundred and eighty
(180) days of the date of the Purchaser's Notice at the price and upon the same
terms and conditions as those set forth in the Seller's Notice, except in the
case of a purchase pursuant to Section 2.02(a)(ii) hereof, which shall be
consummated prior to the business day next preceding the date on which the
third-party tender offer will expire, if earlier.
(c) In the event the purchase is to be made by one or more financially
responsible persons designated by AGI, a binding agreement of each of such
persons shall be furnished to Mutual at the time AGI delivers the Purchaser's
Notice to Mutual. At the time such notice is transmitted, there shall be deemed
to be a binding agreement between AGI and Mutual on the price and the terms
determined as provided above, notwithstanding the designation of any alternate
purchasers by AGI. Any purchase by any financially responsible person designated
by AGI shall be consummated as provided in Section 3.01(b) above.
(d) If AGI elects not to purchase and not to designate one or more
financially responsible persons to purchase all of the Mutual Shares, Mutual may
sell any or all of the Mutual Shares as to which the Seller's Notice relates to
the Offeror at not less than the price and on the same terms and conditions as
disclosed in the Seller's Notice. If the sale as described in the Seller's
Notice shall for any reason not occur, then the provisions of this Section 3.01
shall again apply and no subsequent sale of the Mutual Shares shall be made
unless in accordance herewith.
SECTION 3.02. Sales Subject to Right of First Refusal. For purposes of
---------------------------------------
Section 3.01 above, the term "sale" or "sell" shall be deemed to include any
sale to or voluntary exchange with any other person of any shares of AGI Common
Stock beneficially owned by Mutual but shall not be deemed to include:
(a) a sale pursuant to any default or security provisions in any loan or
security agreement under which Mutual Shares are bona fide pledged or otherwise
---- ----
serve as collateral;
(b) a sale or exchange with an affiliate or majority-owned subsidiary of
Mutual, provided that any such affiliate or subsidiary to whom such a
disposition is made shall agree, in a writing to be furnished to AGI as a
precondition of such disposition, to be bound by the provisions of this
Agreement;
(c) a sale pursuant to a distribution to the public in a firm underwriting
of an offering registered under the Securities Act of 1933, as amended (the
"Securities Act");
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(d) any sale or sales by Mutual pursuant to Rule 144 promulgated under
the General Rules and Regulations under the Securities Act (or any substantially
similar successor rule or provision), as now in effect or hereafter amended;
(e) the sale of not more than 2% of the then outstanding shares of AGI
Common Stock in any six consecutive calendar months, which amount shall be
non-cumulative so that the sale of less than 2% of the then outstanding shares
of AGI Common Stock by Mutual in any six-month period shall not entitle Mutual
to sell more than 2% of the shares outstanding in any succeeding six-month
period;
(f) a disposition of all AGI Common Stock held by an affiliate or
majority-owned subsidiary of Mutual to another corporation pursuant to a
consolidation or merger of such affiliate or subsidiary with and into such other
corporation (in a transaction in which such affiliate or subsidiary is not the
surviving corporation) or a sale of all or substantially all of such affiliate's
or subsidiary's assets to such other corporation, provided that, prior to the
consummation of such consolidation, merger or sale, such other corporation (the
"Successor") delivers a written agreement to AGI, satisfactory in form and
substance to AGI and its counsel, wherein the Successor agrees to be bound by
the provisions of this Agreement to the same extent as if the Successor were
Mutual, Mutual's affiliate or the majority-owned subsidiary of Mutual
hereunder; or
(g) a sale in response to a third-party tender offer to the extent
permitted by Section 2.02(a)(ii) hereof.
SECTION 3.03. No Right of First Refusal if Unlawful.
-------------------------------------
Notwithstanding the provisions of Section 3.01 hereof, if, at the time of any
required notice of proposed sale by Mutual, AGI shall not be permitted by
applicable law either to acquire the shares to be sold or to designate one or
more purchasers pursuant to Section 3.01 hereof, AGI shall have no rights
hereunder with respect to such shares for so long as AGI or its designees are
not permitted to acquire such shares, provided Mutual has given at least ten
(10) business days' prior written notice to AGI of the basis on which Mutual has
concluded that AGI may not acquire such shares or designate any such purchaser
and AGI agrees with Mutual's conclusion, which agreement shall not unreasonably
be withheld.
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ARTICLE IV
MUTUAL'S REGISTRATION RIGHTS
SECTION 4.01. Incidental Registration.
-----------------------
(a) If AGI shall determine to register any shares of AGI Common Stock
either for its own account or for the account of any other holder of shares of
AGI Common Stock, other than a registration filed solely to (i) register shares
of AGI Common Stock issuable pursuant to employee benefit plans; (ii) register
shares of AGI Common Stock issuable pursuant to any dividend reinvestment plan
or any similar plan involving rights to purchase shares of AGI Common Stock
which is made generally available to stockholders of AGI and in which Mutual can
elect to participate by virtue of its position as an AGI stockholders; or (iii)
comply with Rule 145 (or any substantially similar successor rule or provision)
promulgated under the General Rules and Regulations under the Securities Act, as
now in effect or hereafter amended AGI will:
(i) promptly give Mutual written notice thereof (which shall
include a list of the jurisdictions in which AGI intends to attempt to
qualify such securities under the applicable blue sky or other securities
laws); and
(ii) use its best efforts to include, upon the same terms (including
the method of distribution), in such registration (and any related
qualification under state blue sky laws and other compliance filings, and
in an underwriting involved therein), all the shares of AGI Common Stock
specified by Mutual in a written request delivered by Mutual of AGI
within fifteen (15) business days after the written notice from AGI
described in clause (i) above is delivered to Mutual; provided, however,
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that, notwithstanding the foregoing, Mutual's right to have shares of AGI
Common Stock owned by Mutual included in such registration shall be
limited to that number of shares of AGI Common Stock as represents that
percentage of the total number of shares of AGI Common Stock proposed to
be registered by AGI which equals the percentage of the outstanding AGI
Common Stock then held by Mutual, unless AGI consents in writing to the
inclusion of a greater number of shares of AGI Common Stock owned by
Mutual.
(b) Notwithstanding the foregoing, AGI shall not be required to include
all or any portion of the AGI Common Stock owned by Mutual in any such
registration if it is advised by its investment banking firm that the inclusion
thereof may, in the reasonable opinion of such investment banking firm,
interfere with the orderly sale and distribution of the AGI Common Stock
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being offered by AGI. If any reduction is required, Mutual shall have the
right and option to elect to withdraw from the registration.
(c) AGI may, at its sole discretion and without the consent of Mutual,
withdraw any such registration statement and abandon the proposed offering in
which Mutual had requested to participate.
(d) In connection with any registration pursuant to this Section 4.01, AGI
and Mutual will pay, in the same proportions as the number of shares of AGI
Common Stock being sold by each bears to the total number of shares of AGI
Common Stock being sold, all Securities and Exchange Commission and state blue
sky registration and filing fees, underwriting discounts, commissions and
expenses, printing expenses, fees and disbursements of legal counsel and blue
sky expenses, transfer agents' and registrars' fees, and fees and disbursements
of experts used by AGI in connection with such registration, expenses of any
special audits of AGI incidental to or required by such registration, expenses
incidental to any post-effective amendment to any such registration statement,
and any expenses associated with AGI's obligations under Section 4.03(b) hereof
("Registration Expenses"); provided, however, that Mutual shall not be required
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to bear any portion of the compensation expenses of regular employees of AGI,
which shall be paid in any event by AGI.
SECTION 4.02. Demand Registration.
-------------------
(a) If AGI shall receive a written request from Mutual (complying with the
provisions of Section 3.02(a)(ii) below) that AGI effect a registration with
respect to all or any part of the AGI COmmon Stock then held by Mutual, AGI
will:
(i) use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualifications under the applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as has been so requested and as would permit or
facilitate the sale and distribution of all or such portion of such AGI Common
Stock as is specified in the request of Mutual; provided, however, that AGI
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shall not be obligated to effect any such registration pursuant to this Section
4.02:
(A) in any particular jurisdiction in which AGI would be
required to execute a general consent (as opposed to a specific consent relating
solely to the registration) to service or process in effecting any such
registration, qualification or compliance, unless AGI is already subject to
service in such jurisdiction
<PAGE>
and except as may otherwise be required by the Securities Act or
applicable rules or regulations thereunder; or
(B) more than three times at the request of Mutual during the
term of this Agreement; or
(C) covering AGI Common Stock representing less than 5% of
shares of AGI Common Stock then held by Mutual unless the shares of
AGI Common Stock subject to such request for registration represent
the entire holdings of Mutual, if less; or
(D) if Section 4.02(b) below applies, more than once within
any 12-month period.
(ii) Any request by Mutual for registration delivered to AGI in
accordance with this Section 4.02 shall specify the number of shares of AGI
Common Stock intended to be offered and sold, shall express Mutual's
present intent to offer such shares for distribution to the public, shall
describe the nature of the proposed offer and sale thereof and shall
contain an undertaking of Mutual to provide all such information and
materials and take all such action as may be required in order to permit
AGI to comply with any and all applicable requirements under the Securities
Act and to obtain acceleration of the effective date of the registration
statement.
(b) AGI Right to Postpone Registration. Notwithstanding the foregoing,
----------------------------------
AGI shall be entitled to postpone for a reasonable period of time the filing of
any registration statement otherwise required to be prepared and filed by it
pursuant to this Section 4.02, if at the time it receives a request for
registration from Mutual pursuant to this Section 4.02, it determines, in its
reasonable judgment, that such registration and offering would materially
interfere with any financing, acquisition, corporate reorganization or other
material transaction in which it is involved and AGI promptly gives Mutual
written notice of such determination. If AGI shall so postpone the filing of a
registration statement, Mutual shall have the right and option to elect to
withdraw the request for registration by giving written notice to AGI within
thirty (30) days after receipt of the notice of postponement (and, in the event
of any such withdrawal, such request shall not be counted for purposes of
determining the number of registrations to which Mutual is entitled pursuant to
this Section 4.02).
(c) Underwriting. Any registration effected at the request of Mutual in
------------
accordance with this Section 4.02 may, at Mutual's option, be effected pursuant
to a firm commitment underwriting and the managing underwriter shall be a firm
selected by Mutual
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and approved by AGI (which approval will not be unreasonably withheld). AGI will
enter into an underwriting agreement containing representations, warranties and
agreements not substantially different from those customarily included by an
issuer in underwriting agreements with respect to secondary distributions.
Subject to the provisions of Section 4.02(d) below, if the underwriters have not
limited the number of shares of AGI Common Stock to be underwritten, AGI may
elect to include shares of AGI Common Stock for its own account in such
registration provided that the number of shares of AGI Common Stock proposed to
be distributed by Mutual and that would otherwise have been included in such
registration and underwriting will not thereby be limited.
(d) Additional Securities. Any registration statement filed pursuant to the
---------------------
request of Mutual may, subject to the provisions of Section 4.02(c) above,
include other securities of AGI that are held by officers or directors of AGI,
or are held by persons who, by virtue of any agreements with AGI, are entitled
to include their AGI Common Stock in any such registration; provided that the
holders of such shares are granted no more favorable terms by AGI, with respect
to such registration, than have been granted by AGI herein to Mutual.
Notwithstanding the foregoing, if the managing underwriter determines that the
inclusion of shares of AGI Common Stock held by AGI for its own account, by
officers or directors of AGI or by other persons with registration rights
pursuant to any agreements with AGI which are proposed to be distributed in such
underwriting would, in the reasonable judgment of such underwriter, have a
material adverse effect on the offering, the underwriter may limit the number of
shares of AGI Common Stock to be included in the registration and underwriting.
In such event, shares of AGI Common Stock proposed to be offered by AGI for its
own account shall first be excluded from the registration, and, if a limitation
on the number of shares to be included is still required, shares of AGI Common
Stock held by officers or directors of AGI or by other persons with registration
rights pursuant to any agreements with AGI shall then be excluded from the
registration.
(e) Expenses. All Registration Expenses incurred as a result of any
--------
registration effected in accordance with this Section 4.02 shall be borne by
Mutual unless, in accordance with the provisions of Section 4.02(c) or Section
4.02(d) hereof, such registration includes shares of AGI Common Stock (i)
distributed by AGI for its own account, (ii) distributed by officers or
directors of AGI, or (iii) distributed by persons with registration rights
pursuant to any agreements with AGI, in which case (A) Mutual will pay that
portion of the Registration Expenses as is equal to the same proportion the
number of shares of AGI Common Stock being sold; and (B) AGI will pay that
portion of the Registration Expenses as is equal to the same proportion the
number of shares of AGI Common Stock being sold by AGI, its
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officers or directors or persons with registration rights pursuant to any
agreements with AGI bears to the total number of shares of AGI Common Stock
being sold.
SECTION 4.03. Registration Procedures. In connection with the filing of any
-----------------------
registration statement pursuant to Section 4.01 or Section 4.02 hereof covering
shares of AGI Common Stock owned and to be distributed by Mutual:
(a) Mutual shall furnish to AGI such information regarding Mutual and the
distribution proposed by Mutual as AGI may reasonably request and as shall be
required in connection with any registration, qualification or compliance
referred to in this Article IV; and
(b) In the case of each registration effected by AGI pursuant to this
Article IV, AGI will advise Mutual in writing as to the initiation of such
registration and as to the completion thereof. AGI will:
(i) keep such registration effective for a period of 90 days or until
Mutual has completed the distribution described in the registration
statement relating thereto, whichever first occurs;
(ii) furnish such number of prospectuses and other documents incident
thereto as Mutual, or the underwriters, from time to time may reasonably
request in order to effect the offering and sale of any AGI Common Stock
being offered and sold by Mutual; and
(iii) furnish Mutual with certificates representing ownership of the
AGI Common Stock being sold in such numbers and denominations as Mutual, or
the underwriters, shall reasonably request, and meeting the requirements of
the exchange through which such shares are traded or the NASDAQ, as the
case may be.
SECTION 4.04. Indemnification. Whenever, pursuant to Section 4.01 or 4.02
---------------
hereof, a registration statement relating to the AGI Common Stock is filed under
the Securities Act, AGI will indemnify and hold harmless Mutual if Mutual is
selling AGI Common Stock covered thereby, its officers and directors, each
person, if any, who controls Mutual, any underwriter, and each person, if any,
who controls any underwriter managing or participating in the registered
offering, against any losses, claims, damages or liabilities, joint or several,
to which Mutual, its officers or directors, any such underwriter or any such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement, or alleged untrue
statement, of
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any material fact contained in such registration statement, or preliminary
prospectus or final or summary prospectus that may be a part thereof, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse Mutual, its officers and directors, each such underwriter and each
such controlling person for all legal or other expenses reasonably incurred by
it in connection with investigating or defending against such loss, claim,
damage, liability or action; provided, however, that AGI shall not be liable in
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any such case to the person and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, said preliminary, final or summary
prospectus, or said amendment or supplement, in reliance upon and in conformity
with information furnished to AGI by the person otherwise entitled to indemnity
hereunder, specifically for use in preparation thereof.
(b) Whenever, pursuant to Section 4.01 or 4.02 hereof, a registration
statement relating to AGI Common Stock is filed under the Securities Act,
Mutual, if selling shares of AGI Common Stock covered thereby, will indemnify
and hold harmless AGI, each of the directors of AGI, each of AGI's officers who
have signed such registration statement and each other person, if any, who
controls AGI, against all losses, claims, damages or liabilities, joint or
several, to which AGI, or any such director, officer or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement, or alleged untrue statement, or any
material fact contained in such registration statement, or preliminary
prospectus or final or summary prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only if, and to the
extent that, such statement or omission was in reliance upon and in conformity
with information furnished to AGI by mutual specifically for use in the
preparation thereof, and will reimburse AGI and such directors, officers or
controlling persons for all legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt of notice of any claim or the commencement of
any action in respect to which indemnity may be sought on account of the
indemnity agreements contained in this Section, the indemnified party will
notify the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
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wish, to assume the defense, conduct or settlement thereof, with counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to the indemnified party of its election to so assume the defense, conduct
or settlement thereof, the indemnifying party will not be liable to the
indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense,
conduct or settlement thereof. Notwithstanding an election by the indemnifying
party to assume the defense, conduct or settlement thereof. Notwithstanding an
election by the indemnifying party to assume the defense, conduct or settlement
of any claim subject to indemnification hereunder, if the indemnified party
reasonably determines that its interests may be adverse to, or conflict with,
those of the indemnifying party, it may elect, at its own expense, to retain or
continue to retain its own counsel to participate in the defense, conduct or
settlement of such claim. The indemnified party will cooperate with the
indemnifying party without charge in connection with any such claim, make
personnel, books and records relevant to the claim available to the indemnifying
party and grant such authorizations or powers of attorney to the agents,
representatives and counsel of the indemnifying party as such indemnifying party
may reasonably consider desirable in connection with the defense of any such
claim. For purposes of this Section 4.04, the terms "control," "controlling
person" and "underwriter" have the respective meanings that they have in and
under the Securities Act.
SECTION 4.05. Transfer of Registration Rights. Mutual's rights to require
-------------------------------
AGI to register Mutual's shares of AGI Common Stock in accordance with the
provisions of Section 4.01 or 4.02 hereof may be assigned by Mutual to a valid
transferee of the AGI Common Stock then held by Mutual, provided that AGI is
given written notice by Mutual prior to said transfer, stating the name and
address of said transferee and identifying the number of shares of AGI Common
Stock being transferred, and provided further that the registration rights
granted in Section 4.02 in all events shall be held by only one holder of the
AGI Common Stock held by Mutual on the date hereof irrespective of the number of
shares so held.
ARTICLE V
ADDITIONAL COVENANTS OF THE PARTIES
SECTION 5.01. Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations under the securities laws to permit
Mutual to sell shares of AGI Common Stock without registration from time to
time, AGI hereby agrees to:
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(a) make and keep public information available at all times, as those
terms are understood and defined in Rule 144 promulgated under the Securities
Act (or any substantially similar successor rule or provision), as now or
hereafter in effect;
(b) use its best efforts to file in a timely manner all reports and other
documents required of AGI under the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act");
(c) so long as Mutual owns any AGI Common Stock, furnish to Mutual upon
request a written statement by AGI as to its compliance with the reporting
requirements of Rule 144 (or any substantially similar successor rule or
provision) and with the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly reports of AGI, and such other reports and documents
filed by AGI as Mutual may reasonably need in order to avail itself of any rule
or regulation (or any substantially similar successor rule or provision),
allowing Mutual to sell shares of AGI Common Stock from time to time without
registration.
5.02. "Market Stand-Off". Unless participating in a registration pursuant
----------------
to Section 4.01 or Section 4.02 hereof, Mutual hereby agrees that if requested
by an underwriter of AGI Common Stock, without the prior written consent of the
underwriter, it will not sell or otherwise transfer or dispose of, directly or
indirectly, any shares of AGI Common Stock held by it during the ninety (90) day
period following the effective date of any registration statement filed by AGI
under the Securities Act to register any shares of AGI Common Stock for public
sale or distribution; provided, however, that AGI and all persons entitled to
registration rights with respect to shares of AGI Common Stock who are not
parties to this Agreement, all other persons selling shares of AGI Common Stock
in such offering and all officers and directors of AGI shall also have agreed
not to sell publicly their shares of AGI Common Stock under these same terms and
conditions.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties by Mutual. Mutual hereby
----------------------------------------
represents and warrants to AGI as follows:
(a) Mutual is a duly organized, validly existing mutual insurance company
in good standing under the laws of the State of Iowa and has all requisite
corporate power and authority to conduct its business, to own its properties and
to execute, deliver and perform all of its obligations under this Agreement.
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(b) The execution, delivery and performance of this Agreement has been
duly authorized by all requisite action, corporate or otherwise, by Mutual.
This Agreement constitutes the legal, valid and binding obligation of Mutual
enforceable against Mutual in accordance with its terms. Compliance by Mutual
with the provisions of this Agreement will not violate the provisions of any
law, regulation or order applicable to it, will not conflict with, or result in
the breach or default by it of any of the terms, conditions or provisions of its
corporate charter or bylaws or any contract or agreement to which it is a party
or by which it or its property is bound. Mutual is not a party to, subject to or
bound by or a beneficiary of any agreement or judgment, order, writ, injunction
or decree of any court, governmental body or arbitrator which would be
contravened or breached by, or under which any payment or other obligation could
be accelerated as a result of, the execution, delivery or performance by Mutual
of this Agreement, or which could prevent the consummation of this Agreement and
the transactions contemplated hereby, or which, by operation of law, or pursuant
to its terms, would terminate upon consummation of this Agreement. Subject to
filing with the Securities and Exchange Commission from time to time of any
registration statement effected in accordance with Section 4.01 or Section 4.02
hereof (and, if necessary, the consent of the Commissioner of the Division of
Insurance of the Department of Commerce of the State of Iowa to Mutual's
execution of this Agreement), no permit, consent, approval or authorization of,
or declaration to or filing or registration with any governmental or regulatory
authority is or will be required in connection with the valid execution,
delivery or performance by Mutual of this Agreement.
SECTION 6.02. Representations and Warranties by AGI. AGI hereby represents
-------------------------------------
and warrants to Mutual as follows:
(a) AGI is a duly organized, validly existing corporation in good
standing under the laws of the State of Iowa all requisite corporate power and
authority to conduct its business, to own its properties and to execute, deliver
and perform all of its obligations under this Agreement.
(b) The execution, delivery and performance of this Agreement has been
duly authorized by all requisite action, corporate or otherwise, by AGI. This
Agreement constitutes the legal, valid and binding obligation of AGI enforceable
against AGI in accordance with its terms. Compliance by AGI with the provisions
of this Agreement will not violate the provisions of any law, regulation or
order applicable to it, will not conflict with, or result in the breach or
default by it of any of the terms, conditions or provisions of its corporate
charter or bylaws or any contract or agreement to which it is a party or by
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which it or its property is bound. AGI is into a party to, subject to or bound
by or a beneficiary of any agreement or judgment, order, writ, injunction or
decree or any court, governmental body or arbitrator which would be contravened
or breached by, or under which any payment or other obligation could be
accelerated as a result of, the execution, delivery or performance by AGI of
this Agreement, or which could prevent the consummation of this Agreement and
the transactions contemplated hereby, or which, by operation of law, or pursuant
to its terms, would terminate upon consummation of this Agreement. Subject to
filing with the Securities and Exchange Commission from time to time of any
registration statement effected in accordance with Section 4.01 or Section 4.02
hereof, not permit, consent, approval or authorization of, or declaration to or
filing or registration with any governmental or regulatory authority is or will
be required in connection with the valid execution, delivery or performance by
AGI of this Agreement.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01. Conditions Precedent to the Obligations of the Parties.
------------------------------------------------------
The obligations of either Mutual or AGI to comply with the terms of this
Agreement are subject in their entirety to:
(a) the consummation of the sale of the Life Shares by AGI to Mutual in
accordance with the terms and conditions of the Stock Purchase Agreement; and
(b) the consent, if necessary, of the Commissioner of the Division of
Insurance of the Department of Commerce of the State of Iowa to Mutual's
execution of this Agreement.
SECTION 7.02. Term of Agreement. Subject to the satisfaction of the
-----------------
conditions precedent hereto set forth in Section 7.01 above and to the
suspension of each party's obligations hereunder in accordance with Section 7.03
below, this Agreement shall become effective as of the date above first written
and shall terminate on, and be of no further force and effect after, the
fifteenth (15th) anniversary of the date hereof, unless earlier terminated as
provided in Section 7.07 below. Notwithstanding the foregoing, the restrictions
on Mutual set forth in Article II hereof shall terminate upon the first to occur
of any of the following events:
(a) AGI is consolidated or merged with another corporation (other than
with a wholly-owned subsidiary or by way of reincorporation) in a transaction in
which AGI is not the surviving corporation, or AGI sells all or substantially
all of its assets
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to another corporation (other than to a wholly-owned subsidiary unless such sale
is merely a step in the acquisition of AGI by another corporation); or
(b) at any time, any corporation, entity or person (other than Mutual)
holds 50% or more of the voting securities of AGI then outstanding.
SECTION 7.03. Suspension of Agreement. The obligations of either party
-----------------------
hereto pursuant to this Agreement shall be suspended if and for so long as
Mutual's aggregate holdings of AGI Common Stock are less than 10% of the then
outstanding AGI Common Stock.
SECTION 7.04. Assignment. Except as otherwise provided in Section 4.05
----------
hereof, neither this Agreement nor any rights hereunder may be assigned by
either of the parties hereto.
SECTION 7.05. Waiver, Modifications, Remedies. No delay or omission of any
-------------------------------
party to this Agreement to exercise any right or power hereunder shall impair
such right or power or be a waiver of any default or an acquiescence therein;
and any single or partial exercise of any such right or power shall not preclude
other or further exercise thereof or the exercise of any other right; and no
waiver or modification hereto shall be valid unless in writing signed by the
parties hereto, and then only to the extent in such writing specifically set
forth. In addition to any rights granted herein, the parties hereto shall have
and may exercise any and all rights and remedies now or hereafter provided by
law.
SECTION 7.06. Notices. Except as otherwise provided in Article I or
-------
Article II hereof, all notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, by certified or registered mail (return receipt requested) or
when sent by telex or telecopier (with receipt confirmed):
(a) If to Mutual:
ALLIED Mutual Insurance Company
701 Fifth Avenue
Des Moines, Iowa 50309
Attention: John E. Evans
Telecopy: (515) 288-4778
with a copy to:
Jay Eaton
Nyemaster, Goode, McLaughlin, Voigts, West,
Hansell & O'Brien, P.C.
1900 Hub Tower
Des Moines, Iowa 50309
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<PAGE>
(b) If to AGI:
ALLIED Group, Inc.
701 Fifth Avenue
Des Moines, Iowa 50309
Attention: John E. Evans
Telecopy: (515) 280-4778
with a copy to:
Donald J. Brown
Davis, Hockenberg, Wine, Brown, Koehn & Shors
2300 Financial Center
Des Moines, Iowa 50309
Any notice given as provided in this Section 7.06, if given personally, shall be
effective upon delivery, if given by certified or registered mail, shall be
effective three (3) days after deposit in the mail, and if given by telex or
telecopier, shall be effective upon transmission. Any party hereto may change
the address at which it is to be given notice by giving notice to the other
party as provided in this Section 7.06.
SECTION 7.07. Termination and Abandonment. Notwithstanding the provisions
---------------------------
of Section 7.02 hereof, this Agreement may be terminated and abandoned by the
parties hereto, without liability or restriction on the future activities of
either party hereto, by mutual consent of the Boards of Directors of Mutual and
AGI.
SECTION 7.08. Governing Law. This Agreement shall be deemed to be contract
-------------
made under the laws of the State of Iowa and shall be construed and interpreted
under the laws of such state applicable to contracts made and to be performed
entirely within such state.
SECTION 7.09. Consent to Arbitration.
----------------------
(a) Each party hereto hereby consents and agrees that any dispute between
the parties hereto with respect to the interpretation, performance or breach of
any of the terms of this Agreements which cannot be resolved amicably shall be
referred to arbitration conducted in accordance with the rules and procedures of
the American Arbitration Association ("AAA") upon written request of either
party hereto delivered to the other party. Within thirty (30) days of the
delivery of such written notice, each party hereto shall nominate an
AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty (30) days of
their nomination, the Party Arbitrators shall select a third AAA-licensed
arbitrator (the "Third Arbitrator") and shall give the parties hereto written
notice of such choice.
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<PAGE>
(b) The arbitrators shall be empowered to decide all issues submitted to
arbitration using principles of law and equity and, if required, by application
of any customary practices in the insurance and reinsurance industries. The
arbitrators shall be relieved of all judicial formalities and shall not be
required to follow any rules of evidence except as such rules may be imposed on
arbitration proceedings conducted in accordance with the laws of the State of
Iowa, but the arbitrators shall attempt to enforce the intents and purposes of
this Agreement to the extent practicable (in accordance with the provisions of
Section 7.10 hereof) and in accordance with Iowa law (as required by Section
7.08 hereof). The decision of a majority of the arbitrators shall be final and
binding on each of the parties hereto.
(c) Each party hereto shall bear the expenses of its Party Arbitrator. The
parties hereto shall jointly share all other expenses of the arbitration
proceeding and the expenses of the Third Arbitrator. The arbitration proceeding
shall take place at Des Moines, Iowa, unless another location is mutually agreed
upon by the parties hereto. The arbitration proceeding shall be governed by the
laws of the State of Iowa. The parties hereto hereby agree that any information
respecting any matter submitted to arbitration in accordance with the foregoing
and any aspect of the arbitration proceeding itself shall be treated as
confidential and will not be disclosed to anyone not employed or acting on
behalf of a party hereto in connection with such arbitration or used at any time
in any manner that is adverse to the interests or either party hereto but, in
any such case, such information may be disclosed if such disclosure is made in
connection with either party's prosecution or defense of any legal proceedings
or if such disclosure is required pursuant to a subpoena or other legal order
issued by any judicial or regulatory body or is otherwise required by law.
(d) Anything set forth herein to the contrary notwithstanding, with
respect to any issue to be determined by arbitration the parties shall each
submit in writing to the arbitrators their proposed resolution of such issue.
The arbitrators shall be constrained in their decision relating to such issue to
select only between the proposed resolutions, and the arbitrators shall have no
discretion to fashion any compromise or other resolution of the issue submitted
for arbitration.
SECTION 7.10. Enforceability. If any one or more of the covenants,
--------------
agreements, provisions or other terms of this Agreement shall be for any reason
whatsoever determined to be invalid, then such terms shall be deemed severable
from the remaining terms of this Agreement and shall in no way affect the
validity or enforceability of the other terms of this Agreement and such invalid
terms shall be replaced by valid terms bearing the
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closest possible similarity in substance so that the intentions and purposes
being the basis of this Agreement could be enforced to the greatest extent
permitted by law.
SECTION 7.11. Counterparts. This Agreement may be executed simultaneously
------------
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 7.12. Headings. The headings in the sections and subsections of
--------
this Agreement are inserted for convenience only and shall not constitute a part
hereof.
SECTION 7.13. Entire Agreement. This Agreement, including the schedules
----------------
and exhibits referred to herein and any documents executed by the parties
simultaneously herewith constitute the entire understanding and agreement of the
parties hereto and supersede all other prior agreements and understandings,
written or oral, between the parties with respect to the transactions
contemplated herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED MUTUAL INSURANCE COMPANY ALLIED GROUP, INC.
By: /s/ John E. Evans By: /s/ John E. Evans
-------------------------------- --------------------------------
John E. Evans, President John E. Evans, President
and Chairman of the Board and Chairman of the Board
By: /s/ B. Rees Jones By: /s/ B. Rees Jones
-------------------------------- --------------------------------
B. Rees Jones, Secretary B. Rees Jones, Secretary
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EXHIBIT 22
FIRST AMENDMENT TO
STOCK RIGHTS AGREEMENT
THIS AMENDMENT is made this 11th day of November, 1992, by and between
ALLIED Mutual Insurance Company, ("Mutual") and ALLIED Group, Inc. ("AGI").
WHEREAS, Mutual and AGI entered into a Stock Rights Agreement on July 5,
1990 (the "Agreement"); and
WHEREAS, pursuant to a Plan of Stock Exchange whereby Mutual has exchanged
1,827,222 shares of AGI's common stock for 1,827,222 shares of AGI's 6 3/4%
Series Preferred Stock, AGI and Mutual agreed to amend this Agreement; and
WHEREAS, the parties desire that certain terms of the Agreement apply to
the 6 3/4% Series Preferred Stock; and
WHEREAS, the Coordinating Committee on October 30, 1992 and the Board of
Directors of Mutual and AGI on November 2, 1992 approved and authorized the
following amendments to the Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for and in
consideration of the mutual covenants contained herein, the parties agree as
follows:
1. Each reference to "AGI Common Stock" in Sections 2.01 and 7.03 is
hereby amended to read "AGI Common Stock and 6 3/4% Series Preferred Stock".
2. Each reference to "AGI Common Stock" in Section 4.01, 4.02, 4.03,
4.04, 5.01 and 5.02 is hereby amended to read "AGI Common Stock and/or 6 3/4%
Series Preferred Stock".
3. Amend Section 4.01 to add the following subsection:
(e) Notwithstanding the foregoing, Mutual shall only be entitled to
incidental registration rights for its AGI Common Stock if AGI is
registering AGI Common Stock and incidental registration rights for its 6
3/4% Series Preferred Stock if AGI is registering AGI preferred stock.
4. This amendment to the Agreement shall be effective as of November 2,
1992.
5. All other terms and conditions remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the day and year first above written.
ALLIED MUTUAL INSURANCE COMPANY ALLIED GROUP, INC.
By: /s/ James D. Kirkpatrick By: /s/ John E. Evans
------------------------------- ---------------------------------
James D. Kirkpatrick John E. Evans
President President
By: /s/ B. Rees Jones By: /s/ B. Rees Jones
------------------------------- ---------------------------------
B. Rees Jones, Secretary B. Rees Jones, Secretary
<PAGE>
EXHIBIT 23
Agency Agreement Allied
Group
Insurance
This Agreement entered this 1st day of September 1991, by and between the
undersigned insurance company or companies (hereinafter collectively called "the
Company") and ALLIED Group Insurance Marketing Company of ________________ in
the County of Polk and State if Iowa (hereinafter called "Agent").
WITNESSETH:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the parties hereto agree as follows:
I. Appointment and Authority. That, upon the terms and conditions herein set
forth, Company hereby appoints Agent its agent for the purpose of and with
authority to solicit applications for insurance and bonds, deliver and
countersign policies and endorsements thereon, deliver bonds, collect
premiums for transmission of applications for insurance and endorsements to
Company for approval and processing or disapproval, such authority to bind
Company being subject to such restrictions as may be outlined in Company
manual or otherwise imposed by Company from time to time.
Nothing contained herein shall be construed to create the relation of
employer and employee between Company and Agent. Agent shall be free to
exercise his own judgement as to persons from whom he will solicit
insurance or bonds and the time and place of solicitation, but Company may
from time to time prescribe underwriting rules and regulations respecting
the conduct of the business covered hereby (not interfering with such
freedom of action of Agent), which underwriting rules and regulations shall
be observed by Agent.
II. Commissions. Company agrees to pay Agent commissions on all premiums
remitted upon business solicited by him at the percentages determined in
accordance with the commission schedule of Company in effect at the
beginning of the policy period or term as stated in the original policy or
in any extension or renewal thereof, or inception date of a Surety Bond, or
effective date of annual or three-year premium period of a Fidelity Bond.
Provided, further, that in the event that Company is ordered (either
administratively or judicially), by any entity having appropriate
jurisdiction, to refund any premium collected hereunder, the Agent's
commission(s) must be adjusted to reflect such refund. That is, Agent's
commission(s) will be reduced to reflect the fact that Company has refunded
premium to an insured (or former insured) and, therefore, Agent's
commission(s) must be adjusted accordingly. "Once this amount of
overpayment, if any, is determined; Company will, on a case-by-case basis
negotiate a repayment plan with Agent."
III. Supplies. Supplies furnished by Company to Agent for Agent's use in the
conduct of his business shall be property of Company and shall at all times
be subject to the inspection and control of Company. Company shall not
otherwise be liable for any of Agent's expenses other than those which it
may expressly agree to assume as a result of negotiations between the
parties.
IV. Remittance of Premiums. Premiums shall be considered due from Agent on the
first day of the month following the month in which the policy or bond,
additional premium, or excess audit has been charged to Agent's statement.
If Agent has not remitted all such monies to Company within forty-five days
from the end of the month in which the business is charged, all unremitted
items in the statement shall become delinquent. Any credit given by Agent
to an insured shall be at Agent's own risk, and any of the provisions
herein contained shall not be construed as an authorization for the
extension of credit by Agent to an insured on behalf of Company. Company
may, at its option, take over for collection any and all delinquent items
in Agent's statement not collected or remitted for by Agent and in such
event, Agent agrees to waive commission thereon.
Company shall make the necessary audits on policies and bonds written by
Agent requiring such audits for the computation of premium. In the event an
additional premium is produced by any audit, such additional premium shall
be charged to Agent's account, and Agent agrees to collect the additional
premium from the Insured and
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remit same to company less his commission within forty-five days from the
end of the month in which such additional premium is charged to Agent's
account. In the event Agent is unable to collect such additional premium
within the forty-five day period, and within ten days after the expiration
of said forty-five day period notifies Company in writing to this effect
and requests Company to take over for direct collection such additional
premium. Company agrees to assume responsibility for the collection of such
additional premium less commission, and Agent agrees to waive all claims
for commission credits thereon, if Agent fails to notify Company of his
inability to collect additional premiums as herein provided, Agent agrees
that he will pay such additional premiums to Company in accordance with the
provisions of this Agreement. In the event any audit produces a return
premium due the Insured, Agent agrees to pay said return premium less his
commission, as provided in this Agreement. In the case of bonds which
cannot be terminated by written notice to the obligee, Agent may, by like
notice, relieve himself of the responsibility to collect and remit renewal
premiums.
V. Monies Due Agent. Company agrees to pay all monies due by it to Agent as
shown by any monthly statement within forty-five days from the end of the
month for which such statement is rendered: provided, however, that Company
may accumulate monthly amounts payable is less that ten dollars until they
equal or exceed such amount before making payment hereunder.
VI. Premiums Constitute Trust Fund. It is specifically understood and agreed
upon that all premiums collected by Agent are at all timed the property of
Company as hereinbefore stated and shall not be used for any other purpose
whatsoever except that permission is granted (until revoked) for Agent to
use such portion of trusteed premiums as may be necessary to pay return
premiums. The keeping of an account with Agent on Company's books as
creditor and debtor account is declared a record memorandum of business
transacted, and neither such keeping of account, nor alteration in
compensation rate, nor failure to enforce prompt remittance or compromise
or settlement or declaration of balance of account, shall be held to waive
assertion of trust relation as to premiums collected by Agent. It is
further understood and agreed that the commission which Company agrees to
pay Agent a lien or claim on said premiums, and in case Company allows
Agent, for the purpose of facilitating the handling of its business, to
deduct the commission from premiums collected, it shall in no sense be
construed as a waiver of its business, to deduct the commission from
premiums collected, it shall in no sense be construed as a waiver of the
rights of Company to its ownership of the premiums or in any manner affect
the trust character of said premiums.
VII. Cancellation of Policies. Company shall have at all times the right to
reject applications, alter, suspend or cancel any policy or bond (if bond
form contains cancellation provision) and direct the return of the unearned
premium thereon. Agent agrees to pay such unearned return premium in full
to the Insured, and Company will credit Agent's account with the amount of
said return premium, less return commission at the percent of commission in
effect at the beginning of the policy period or term as stated in the
original policy or any extension or renewal thereof, or inception date of a
Surety Bond or effective date of an annual or three-year premium period of
a Fidelity Bond.
Flat cancellation will not be allowed to Agent on six months or three
months auto plan policies, Commercial ALLIED Excess Liability Policies, or
filed truck policies unless the policies are returned for calcellation
prior to the effective date.
Flat cancellation will be allowed on all other policies or bonds not
accepted, delivered or paid for provided such policies or bonds are
returned for cancellation within thirty days of the beginning of the policy
period or term. However, if Agent permits such policies or bonds to remain
outstanding beyond thirty days, he shall be charged with and agrees to pay
the pro rata earned premium commencing at the beginning of the policy
period or term as stated in the original policy or any extension or renewal
thereof, or inception date of a Surety Bond or effective date of an annual
or three-year premium period of a Fidelity Bond.
VIII.Subagents. Agent may appoint subagents, subject to approval of Company, and
such subagents shall for the purpose of this Agreement be deemed employees
of Agent. Agent shall be responsible for the premiums, commissions, charges
or expenses of subagents or other persons from whom he may procure
business.
X. Ownership of Expirations. Upon termination of this Agreement by either
party hereto, if Agent's account is not then delinquent and if Agent shall
thereafter remit to Company within forty-five days from the end of the
month in which business is charged to Agent, all monies due to Company, the
records, use and control of expirations shall be deemed the property of
Agent; otherwise the records, use and control of expirations shall be
vested in Company.
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<PAGE>
XI. Termination. Either Company or Agent may terminate this Agreement at any
time by notice in writing to the other effective immediately; provided,
however, that if Agent's account with Company is not delinquent or Agent
has not otherwise violated the terms of this Agreement and Agent has not
requested termination, Company shall give Agent not less than ninety days
written notice of any such termination. Upon termination, Agent shall
immediately surrender and return to Company his license (subject to
applicable Insurance Department requirements) and all policies, supplies or
other property of the Company in his possession if requested to do so by
Company. Upon termination of the Agreement by either party hereto, all
monies and premiums which have been collected by Agent that are delinquent
shall become due and payable to Company upon the effective date of the
termination of the Agreement. In the event this Agreement is terminated by
Company for violation of its terms by Agent, Agent relinquishes all right
or claim to commission on subsequent, excess or additional premiums
developed, and Company shall have the right to collect all outstanding
premiums if it so elects, and Agent agrees to waive or relinquish his right
or claim for commission on same. In the event it becomes necessary for
Company to institute legal proceedings for the recovery of any monies due
Company from Agent, Agent agrees to pay all reasonable attorney fees, legal
costs of such proceedings, and interest at the legal rate upon such monies
from the date upon which they become due and payable to Company.
Effective immediately upon such termination, except as otherwise provided
hereinafter, the agency relationship existing between Company and Agent by
virtue of this Agreement shall cease, and all previous contracts,
agreements, understanding or arrangements of every kind, whether oral or
written, creating or providing for such agency for Company or authorizing
Agent to write or issue policies of insurance or bonds for Company or to
solicit or take applications therefor, shall terminate. Agent agrees to pay
all sums due from Agent to Company on business written prior to such
termination date and all other monies due upon receipt of any monthly
statement thereafter. Agent agrees to report to Company all policies or
bonds issued or bound by Agent prior thereto. Agent's liability to account
to Company for premiums collected and to pay over to it any monies due
hereunder shall survive any termination of this Agreement.
XII. Limited Agency Following Termination. If Agent's account with Company is
not delinquent on the effective date of termination of the Agreement and
Agent is not otherwise in default under any terms of such Agreement,
Company agrees that following any such termination existing business
written by Agent will be allowed to run until expiration and Agent shall
have limited authority with respect thereto as follows:
1. Agent may elect to continue outstanding policies and bonds previously
written through Agent in force until expiration, subject to
cancellation privileges by Company of the policyholder prior to
expiration, and in such event Agent agrees to service such policies
and bonds, collect premiums due thereon, if any, on the due date
thereof and remit the collections promptly to Company. Any unearned
commission on return premiums will be charged to Agent's account and
Agent agrees to repay the same to Company forthwith on receipt of
billing thereof. In case an audit of outstanding policies or bonds
requires an additional premium to be assessed against the policyholder
or obligor, Agent agrees to collect the same on the due date and make
prompt remittance thereof to Company. In the event Agent is not able
to collect such premiums within forty-five days from the end of the
month in which such premium is charged to his account, Agent may
relieve himself of the responsibility to collect and remit such
premium by notice to Company within the time and in the manner
provided in such cases under "Remittance of Premiums" in the
Agreement, and thereupon Company agrees to assume collection thereof,
as therein provided.
2. Company agrees to pay Agent commissions on policies or bonds in force
until expiration or cancellation at the same rates as it then pays
commissions on like business to existing Agents in Agent's state.
3. Agent shall have the right to request appropriate endorsements on
policies or bonds in force, provided that no such endorsements shall
increase or extend Company's liability or extend the term of any
policy or bond unless prior approval of Company shall have been
obtained.
4. Unless sooner cancelled, these limited agency provisions shall
continue all policies and bonds written by Agent for Company shall
have expired.
5. The provisions of the Agreement entitled "Premiums Constitute Trust
Fund" shall apply to premiums collected by Agent during the period of
limited agency hereunder. If Agent has not remitted all monies due to
Company within forth-five days from the end of the month in which
business is charged. Agent agrees that the records, use and control of
the expirations shall be vested in Company; otherwise, the records,
use and control of the expirations shall be deemed the property of
Agent.
XIII. Indemnification Agreement. The Company agrees to defend and indemnify
Agent against liability, including the cost of defense and settlements,
imposed on him by law (including the Fair Credit Reporting Act -- Public
Law 91-508) for damages caused by acts or omissions of the Company,
provided Agent has not caused or contributed to such liability by his own
acts or omissions. Agent agrees, as a condition to such indemnification,
to notify the Company promptly of any such against him and to allow the
Company to make such investigation, settlement, or defense thereof as the
Company deems prudent.
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XIII. Former Contracts Abrogated. It is mutually agreed that the execution of
this Agreement by the parties hereto abrogates, terminates and voids all
previous Agency Contracts or Agreements made between the parties hereto,
except as to commissions on business written under a previous Contract or
Agreement provided for in such Contract or Agreement, provided, however,
that nothing herein shall be construed to affect or waive any claim of any
kind, whether for money or otherwise, of Company against Agent under any
previous Agency Contract or Agreement.
XIV. Notices. Notices under this Agreement may be given by delivering or
mailing a copy to the party entitled to notice. Notice by mail shall be
deemed sufficiently given when mailed by ordinary United States Mail,
postage prepaid, addressed to Company at 701 Fifth Avenue, Des Moines,
Iowa, or to Agent at the last known address of his agency according to
Company records.
XV. Agreement Subject to Applicable Laws and Regulations. The terms of this
Agreement shall be subject to all applicable laws and regulations and in
the event of conflict between the terms of this Agreement and any such
laws or regulations, the latter shall govern.
It is expressly understood and agreed there are no promises, agreements, or
understanding other than those contained in this written Agreement, and that no
agent or other representative of Company has any authority to obligate Company
by any terms, stipulations or conditions not herein expressed unless the same be
in writing and attached to and made a part of the Agreement.
For Agent For Company
Depositors Insurance Company
ALLIED Group Insurance Marketing By
- ---------------------------------------- --------------------------
Agency Company Officer of Company
AMCO INSURANCE COMPANY
By: /s/ General Manager
------------------------------------------
(Name) (Title)
By /s/
- --------------------------------------------- --------------------------
Officer of Company
CORPORATE In consideration of Company appointing __________________________
AGENCY
SUPPLEMENT ________________________________________________ as Agent, and as
inducement for Company to do so, the undersigned hereby jointly
and severally and for our heirs, executors, administrators,
successors and assignees guarantee and bind ourselves to the
faithful performance of all obligations by Agent under this
Agreement to pay any sum which Agent may become liable to pay
Company by virtue of Agency created under the foregoing Agreement
and which Agent shall fail or refuse to pay when due.
- ------------------------------------ ------------------------------------
Witness Individually
- ------------------------------------ ------------------------------------
Witness Individually
- ------------------------------------ ------------------------------------
Witness Individually
NOTE - In case the agency is a partnership, this Agreement must be signed by all
partners. If a corporation or a concern doing business under a name indicating
incorporation, this Agreement must be signed above in the name of the
corporation or concern by proper officers, and in addition the "Corporate Agency
Supplement" completed where it is required.
4
<PAGE>
EXHIBIT 24
AMENDMENT TO AGENCY AGREEMENT
THIS AGREEMENT is made this 1st day of February 1992, by and between ALLIED
--- -------------
Group Insurance Marketing Company ("Agent"), Depositors Insurance Company
("DIC"), AMCO Insurance Company ("AMCO"), and ALLIED Property and Casualty
Insurance Company ("APC").
WITNESSETH:
WHEREAS, Agency, DIC, and AMCO entered an Agency Agreement dated September
1, 1991 (the "Agreement"); and
WHEREAS, the parties hereto desire to have APC become a party to the
Agreement in the same capacity a DIC and AMCO presently are.
NOW, THEREFORE, for the mutual promises exchanged and other good an
valuable consideration, the parties hereto agree as follows:
1. The definition of "Company" as used in the Agreement and all Addendums
thereto shall hereby by expanded to include APC along with DIC and AMCO.
Agreed to and effective as of the date set forth above.
AGENT COMPANY
ALLIED Group Insurance Depositors Insurance Company
Marketing Company AMCO Insurance Company
ALLIED Property and Casualty
Insurance Company
By: /s/ By: /s/
-------------------------- -------------------------
Its: General Manager Its: Vice President
------------------------- ------------------------
<PAGE>
Exhibit 25
[LOGO OF ALLIED
GROUP INSURANCE
APPEARS HERE]
ADDENDUM A
"Personal Lines Profit Sharing Agreement"
This Addendum A is hereby entered into by and between ALLIED Property and
Casualty Insurance Company, ALLIED Mutual Insurance Company, AMCO Insurance
Company, and Depositors Insurance Company (hereinafter called "Company") and
ALLIED Group Insurance Marketing Company (hereinafter called "Agent").
Effective January 1, 1994, this Addendum A is attached to the existing Agency
Agreement and Amendments thereto, and the Parties hereby agree as follows:
I. Profit Sharing. In addition to the commissions to be paid to
--------------
Agent under the terms of said Agency Agreement and to compensate
Agent for exercising skill, caution, and diligence in the selection
of risks insured by the Company, the Company will pay to Agent a
"Profit Share" (as hereinafter defined and calculated) based on
"Gross Profit" (as hereinafter defined) realized by the Company on
business written by Agent under said Agency Agreement. The Profit
Share shall be calculated using the following formula for each
"Profit Sharing Year" (as hereinafter defined).
A. Method and formula. A "Profit Sharing Year" (PSY) shall be defined as
the accounting period extending from January 1 through December 31 of
each calendar year during which this Agreement is in effect. With the
exception of the first and second Profit Sharing Years, the
calculation of any Profit Share earned by Agent pursuant to this
Agreement for any PSY shall be made according to the following Profit
Share Formula. The Formula is designed to reflect the profitability
of the business written by Agent for Company pursuant to their Agency
Agreement on a three year average which shall include the current PSY
----- ---- -------
(the PSY for which the calculation of profit sharing is being made)
and the two PSY's immediately preceding it. For the first PSY, the
calculation of Profit Share shall be made according to the same
Formula, but Items 1 (Earned Premiums) and 2 (Incurred Losses)
thereof shall reflect only the figures for that PSY, and similarly,
the calculation for the second PSY shall be made using the total of
-----
the figures for Earned Premiums and Incurred Losses for the first and
second PSY. Thus, for the second PSY only, the calculation shall
constitute a two year average.
1
<PAGE>
Profit Share Formula
1. Earned Premiums Total (for current and two immediately preceding
PSY's).........................................................$____________
2. Incurred Losses Total (for current and two immediately preceding
PSY's).........................................................$____________
3. Incurred Losses Percentage (#2/#1 x 100)....................... ___________%
4. Gross Profit Percentage (60.0% - #3)........................... ___________%
5. Gross Profit (Sec:I.B.5., current PSY only)....................$____________
6. Agent's Profit Share (50.0% x #5)..............................$____________
(See Formula Definitions, clause I.B.6 for Agent's Profit Share percentages
for the initial two PSY's)
B. Formula definitions (numbers refer to numbered items listed under Section
I.A).
1. Earned Premiums are defined as the Written Premiums on business produced
during the Profit Sharing Year minus the Unearned Premiums as of the end of
the same year plus the Unearned Premiums as of the end of the prior year.
2. Incurred Losses are defined as the net losses paid during the Profit Sharing
Year plus reserves for unpaid losses as of the end of the same year and
minus reserves for unpaid losses as of the end of the prior year. If a
-- -
negative total results, a zero total will be used. Incurred Losses paid or
-------- ----- ------- - ---- ----- ---- -- ----
reserved during a Profit Sharing Year shall not, for the purpose of this
--- --- ------- -- ----
Profit Sharing Agreement only, include more than the stop loss limitation in
------ ------- --------- ----
effect for that Profit Sharing Year as a result of a single event or any one
occurrence. With respect to any loss which exceeds such stop loss limitation
and which has not been paid or closed at the end of the current PSY, if any
adjustment of reserve or other credit shall reduce the loss to an amount
below said stop loss limitation in the PSY, Agent's Incurred Losses shall be
reduced only by a sum equal to the difference between said stop loss
limitation and the amount of the loss at the end of the current PSY. No
reduction in Incurred Losses shall be allowed in the amount of that portion
of any reserve adjustment or other credit by which any loss exceeds said
stop loss limitation. In addition, when Incurred Losses are calculated for
any PSY in which a loss is paid or closed, such Incurred Losses shall be
increased by that portion of any reduction in reserve or other credit which
exceeds the stop loss limitation and for which Agent received credit in any
prior PSY. In each year, the stop loss limitation shall increase or decrease
by a percentage equal to the percentage increase or decrease in the direct
written premiums of the property and casualty industry in the United States.
The percentage increase or decrease in the amount of the stop loss
limitation shall be cumulative. The source of the industry figures shall be
the A.M. Best Company's Executive Data Service, Property and Casualty
Insurance Custom Summary B1. The stop loss
2
<PAGE>
limitation amount for any Profit Sharing Year will be based on figures
available from the B1 Summary published for the calendar year two years
prior to such Profit Sharing Year. For example, for any Profit Sharing
Year, the stop loss limitation amount shall be increased or decreased by a
percentage equal to the percentage increase or decrease in industry direct
written premiums as compiled in the B1 Summary for the calendar years two
and three years preceding. Each year the Company shall notify the Agent of
the percentage increase or decrease as soon as practicable after the
Company receives the summary from the A.M. Best Company. However, the
amount of the stop loss limitation shall never be less than that which is
in effect for the first PSY hereunder. Company shall, at its discretion,
establish the dollar amount of the stop loss limitation as is provided for
hereunder. Company will advise Agent on an annual basis of such amount. In
addition, the foregoing notwithstanding, in the case of any loss or losses
which are incurred during any PSY as a result of any single "catastrophe",
as defined by Company, the stop loss limitation to be applied shall equal
the greater of twenty-five percent (25%) of Earned Premiums for such PSY or
------- --
the amount of the single occurrence stop loss limitation as it shall be
calculated for such PSY according to the terms of this paragraph.
3. Incurred Losses Percentage is calculated by dividing the Incurred Losses by
the Earned Premiums and multiplying by 100. If such Percentage is greater
-- ---- ---------- -- -------
than 60.0%, no further calculation will be made.
---- ----- -- ------- ----------- ---- -- ----
4. Gross Profit Percentage is calculated by subtracting the Incurred Losses
Percentage from 60.0%.
5. Gross Profit is calculated by multiplying earned premiums, for the current
--- --- -------
PSY only, by the Gross Profit Percentage.
--- ----
6. Agent's Profit Share shall be calculated by multiplying the Gross Profit by
35.5% for 1994 PSY, by 43.0% for 1995 PSY and by 50.0% for 1996 PSY and
subsequent PSY's.
II. Other Provisions.
----- ----------
A. The foregoing calculations shall be made annually by Company for the
current Profit Sharing Year as soon after December 31 thereof as is
reasonably practicable.
B. Company records shall be considered binding and conclusive as to all
information pertaining to this Agreement.
C. The Profit Share, if any, is not payable unless the Agent has complied with
all the terms of this Agreement and the Agency Agreement. Agent shall
neither deduct from its
3
<PAGE>
account(s) nor in any other manner anticipated Profit Share.
D. This Agreement shall continue in force until terminated (1) by either
Party upon written notice to the other, (2) by agreement of the other
Parties, or (3) by termination of their Agency Agreement. In the
event of termination of this Agreement, a final profit Share
calculation shall be made and a final Profit Share shall be paid (if
applicable) but not prior to the time such final Profit Share would
have otherwise been calculated or paid had this Agreement not
terminated.
E. This Agreement or rights hereunder shall not be assignable without
Company's express permission.
F. This Agreement may be altered or amended by Company, unilaterally and
at any time, by mailing written notice thereof to the Agent stating
when thereafter such alteration of amendment shall be effective. Any
such notice must be mailed at least 90 days prior to the beginning of
the PSY during which the alteration or amendment is to be effective.
G. The calculation of Agent's Profit Share hereunder shall include all
premiums, losses, and loss reserves chargeable to Agent by Company
except those applicable to substandard auto business and umbrella
policies.
For Agent For Company
ALLIED Group Insurance Marketing
Company
ALLIED Property and Casualty
Insurance Company
ALLIED Mutual Insurance Company
AMCO Insurance Company
Depositors Insurance Company
By By
-------------------------------- ---------------------------------
Title President AGIMC Title Vice President
----------------------------- ------------------------------
Date 9-22-94 Date 9-12-94
------------------------------ -------------------------------
4
<PAGE>
Exhibit 26
INTERCOMPANY CASH CONCENTRATION FUND AGREEMENT
THIS AGREEMENT is made effective as of the 24th day of April, 1995 by and
among AID Finance Services, Inc. ("AID"), ALLIED Mutual Insurance Company
("Mutual"), ALLIED Group, Inc. ("AGI"), AMCO Insurance Company ("AMCO"), ALLIED
Property and Casualty Insurance Company ("APC"), Depositors Insurance Company
("Depositors"), Western Heritage Insurance Company ("WHIC"), ALLIED Group
Leasing Corporation ("AGLC"), ALLIED Group Information Systems, Inc. ("AGIS"),
Midwest Printing Services, Ltd. ("MWP"), The Freedom Group, Inc. ("TFG"), ALLIED
General Agency Company ("AGA"), ALLIED Life Financial Corporation ("ALFC"),
ALLIED Life Insurance Company ("Life"), ALLIED Group Merchant Banking
Corporation ("AGMBC"), ALLIED Life Brokerage Agency, Inc. ("ALBA"), ALLIED Group
Insurance Marketing Company ("AGIMC") and ALLIED Group Medical Plan Trust
("Trust") for and in consideration of their mutual promises and agreements. AID,
Mutual, AGI, AMCO, APC, Depositors, WHIC, AGLC, AGIS, MWP, TFG, AGA, ALFC, Life,
AGMBC, ALBA, AGIMC, and Trust shall be referred to collectively as the
"Companies". AMCO, APC, Depositors, WHIC, AGLC, AGIS, MWP, TFG and AGA, are
referred to collectively as the "AGI Subsidiaries." Life, AGMBC and ALBA are
referred to collectively as the "ALFC Subsidiaries." AID and AGIMC are referred
to collectively as the "Mutual Subsidiaries."
WITNESSETH:
WHEREAS, the Companies form part of the ALLIED Group of companies and while
retaining separate corporate identities wish to maximize their short term
investment power through the terms of this Agreement;
WHEREAS, the Companies have established a cash concentration fund (the "CCF
Fund") so that the Companies which have excess cash can deposit into the CCF
Fund and Companies that need cash can borrow from the CCF Fund; and
WHEREAS, Companies recognize that by pooling their cash into the CCF Fund,
cash can be invested for greater efficiency by reducing the number of
transactions and the costs related to each transaction; and
WHEREAS, the establishment of the CCF Fund was originally approved by the
Companies then in existence and the Investment Committees of the Boards of
Directors of AGI and Mutual on April 27, 1987; and
WHEREAS, the CCF Fund has operated for the benefit of the Companies since its
establishment in 1987; and
WHEREAS, this Agreement is intended to provide the terms of operation of the
CCF Fund; and
WHEREAS, the Companies acknowledge that this Agreement is to their mutual
benefit and agree to be bound by the terms herein.
<PAGE>
21
NOW, THEREFORE, for the mutual covenants contained herein and other good
and valuable consideration, the Companies agree as follows:
I. FUND INVESTMENTS
1.1. Management and investment. AID shall be the entity which manages the
CCF Fund, and AID shall have discretion as to how to invest deposits of the
Companies except as limited hereinafter.
1.2. Limitation on Investment. The CCF Funds may be invested by AID in
overnight money market accounts, commercial checking accounts, intercompany
borrowings and any other short term investment grade vehicles approved by the
Investment Committees of the Board of Directors of AGI, Mutual and ALFC.
1.3. Liquidity. AID shall maintain sufficient liquidity in the CCF Fund to
allow for withdrawals.
1.4. Recordkeeping. AID will maintain investment and other appropriate
records as are necessary to fulfill the terms of this Agreement.
II. MANAGEMENT FEE
2.1. Daily Management Fee. AID shall be paid a daily management fee for
managing the CCF Fund.
2.2. Calculation of Management Fee. Said management fee shall be earned at
the rate of five (5) basis points of amount of invested assets in the CCF Fund
at the end of each day and shall be paid on the last day of each month.
III. EARNINGS/LOSS ALLOCATIONS
3.1. Earnings Calculation. Each of the Companies share of the earnings of
CCF Fund investments shall be determined daily at the close of each day after
deduction for the management fee to AID. Said share of CCF Fund earnings shall
be based on the ratio of the amount of cash the individual Company has in the
CCF Fund to the total amount invested in the CCF Fund multiplied by the daily
earnings of the CCF Fund.
3.2. Payment of Earnings. Payments to each of the Companies for their
proportionate share of CCF Fund earnings shall be made on the last day of each
month and shall be the sum of all of the individual Companies daily earnings
allocations computed for said month.
3.3. Loss Allocation. If any of the CCF Fund investments shall become
worthless or be sold at a loss, the loss of principal shall be borne by AID who
shall make the other Companies whole for principal contributed.
<PAGE>
22
IV. DEPOSIT/WITHDRAWAL PROCEDURE
4.1. Deposit Procedures. All deposits to the CCF Fund made by any of the
Companies shall be made to the Accounting Department and posted to the balance
account of the depositing Companies be made to be made to
(a) Cash Deposits Prior to 3 p.m. (CST). As long as a cash deposit is
made by 3 p.m. (CST) it will be reflected on the Company's balance and earn
income from the day of the deposit until withdrawal.
(b) Cash Deposits Received at or After 3 p.m. (CST). Any deposit being
made at or later than 3 p.m. (CST) shall not be reflected in the depositing
Companies balance until the following day and, therefore, shall not earn income
until reflected in the account balance.
(c) Wire Transfer Deposits Prior to 10 a.m. (CST). To assure receiving
credit for a deposit on the day of a wire transfer notification must be received
by AID, through the Accounting Department, by 10 a.m. (CST) on that day.
(d) Wire Transfer Deposits Received at or After 10 a.m. (CST). In the
event any wire transfer deposit is received at or later than 10 a.m. (CST) on
any day, AID will attempt to transact the deposit that same day but is not
required to do so until the following day.
4.2. Withdrawal Procedures. Withdrawal of any or all monies invested in the
CCF Fund can be done on a daily basis by contacting AID through the Accounting
Department.
(a) Wire Transfer Withdrawals Prior to 10 a.m. (CST). To assure
receiving a withdrawal on the day requested, said withdrawal communication must
be received by AID through the Accounting Department by 10 a.m. (CST) of the day
the withdrawal is requested.
(b) Wire Transfer Withdrawals Received at or After 10 a.m. (CST). If
any request for withdrawal is received at or later than 10 a.m. (CST) on any
day, AID will attempt to transact the withdrawal the same day it is requested
but is not required to do so until the following day.
4.3. All Participation is Discretionary. All participation in the CCF Fund
pursuant to this Agreement is at the discretion of the individual Companies.
V. LOAN PROCEDURES
5.1 Loan from CCF Fund. Companies wishing to borrow money from the CCF Fund
for short term loans (30 days or less) should deliver a loan request to AID,
through the Accounting Department. AID will have sole and absolute discretion as
to whether the loan is approved based on the then current intercompany borrowing
policy.
<PAGE>
23
5.2 Loan Documentation. The Companies agree to complete loan document
similar to those attached hereto as Exhibit A. The terms of the loan shall be as
specified in the loan document.
VI. TERM, TERMINATION, AND CHANGE OF CONTROL
6.1. Term and Termination. This Agreement shall be effective on April 24,
1995 and shall continue in effect until AID delivers to the other Companies a
written notice that the Agreement is terminated. If one or more of the Companies
other than AID intends to cease participation in the Agreement as to it as of a
specified date thereafter such Company is required to give written notice to AID
prior to the specified date of termination.
6.2. Change of Control. A change of control in any of the Companies which
results in a majority interest held by a person or entity other than one of the
Companies shall automatically terminate this Agreement as to that company and
all funds invested in the CCF Fund will be immediately returned to any company
terminated by this paragraph.
VII. DISPUTE RESOLUTION
7.1. AGI and AGI Subsidiaries. Any controversy, claim, or dispute arising
out of or relating to this Agreement, or breach thereof, among or between AGI
and the AGI Subsidiaries shall be resolved by AGI's Board of Directors, the
decision of which shall be binding.
7.2. Mutual and Mutual Subsidiaries. Any controversy, claim, or dispute
arising out of or relating to this Agreement, or breach thereof, among or
between Mutual and the Mutual Subsidiaries shall be resolved by Mutual's Board
of Directors, the decision of which shall be binding.
7.3. ALFC and ALFC Subsidiaries. Any controversy, claim, or dispute arising
out of or relating to this Agreement, or breach thereof, among or between ALFC
and the ALFC Subsidiaries shall be resolved by ALFC's Board of Directors, the
decision of which shall be binding.
7.4. Between AGI and/or AGI Subsidiaries and Mutual and/or Mutual
Subsidiaries. Any controversy, claim or dispute arising out of or relating to
this Agreement, or breach thereof, among or between AGI and/or AGI Subsidiaries
and Mutual and/or the Mutual Subsidiaries shall be resolved by the Coordinating
Committee members of the Boards of Directors of AGI and Mutual, the decision of
which shall be final.
7.5. Between Mutual and/or Mutual subsidiaries and ALFC and ALFC
Subsidiaries. Any controversy, claim or dispute arising out of or relating to
this Agreement, or breach thereof, among or between Mutual and/or Mutual
Subsidiaries and ALFC and/or the ALFC Subsidiaries shall be resolved by the
Coordinating Committee members of the Boards of Directors of Mutual and ALFC,
the decision of which shall be final.
<PAGE>
24
7.6. Between ALFC and/or ALFC Subsidiaries and AGI and AGI Subsidiaries. Any
controversy, claim or dispute arising out of or relating to this Agreement, or
breach thereof, among or between ALFC and/or ALFC Subsidiaries and AGI and/or
the AGI Subsidiaries shall be resolved by the Coordinating Committee members of
the Boards of Directors of ALFC and AGI, the decision of which shall be final.
7.7. All Other Disputes. Any controversy, claim, or dispute arising out of
or relating to this Agreement, or breach thereof, between any of (i) AGI and/or
the AGI Subsidiaries, (ii) Mutual and/or the Mutual Subsidiaries, and (iii) ALFC
and/or the ALFC Subsidiaries shall be resolved by the Coordinating Committee
members of the Boards of Directors of AGI, Mutual and ALFC, the decision of
which shall be binding.
7.8. Arbitration. If a controversy, claim, or dispute cannot be resolved
pursuant to Sections 7.1 through 7.7, then it will be submitted to binding
arbitration as set forth hereafter.
(a) Consent to Arbitration. Each party to this Agreement hereby consents
and agrees that any dispute between the parties hereto with respect to the
interpretation, performance, or breach of any of the terms of this Agreement or
the transactions contemplated hereby which cannot be resolved by the
Coordinating Committee shall be referred to arbitration conducted in accordance
with the rules and procedures of the American Arbitration Association ("AAA"),
upon written request of the disputing party hereto delivered to the party with
which it has a dispute. Within thirty (30) days of the delivery of such written
notice, each party involved shall nominate an AAA-licensed arbitrator (the
"Party Arbitrators"). Within thirty (30) days of their nomination, if there are
two Party Arbitrators, the Party Arbitrators shall select a third AAA-licensed
arbitrator (the "Third-Arbitrator") and shall give the parties hereto written
notice of such choice. If there are three parties to the dispute and each party
selects a Party Arbitrator, the three Party Arbitrators selected shall
constitute the Arbitrators without further selection. If there are more than
three parties to the dispute, the parties to this Agreement agree that Mutual
shall represent Mutual and Its Subsidiaries, ALFC shall represent ALFC and Its
Subsidiaries, and AGI shall represent AGI and Its Subsidiaries.
(b) Authority of Arbitrators. The arbitrators shall be empowered to
decide all issues submitted to arbitration using principles of law and equity
and, if required, by application of any customary practices in the insurance and
reinsurance industries. The arbitrators shall be relieved of all judicial
formalities and shall not be required to follow any rules of evidence except as
such rules may be imposed on arbitration proceedings conducted in accordance
with the laws of the State of Iowa, but the arbitrators shall attempt to enforce
the intents and purposes of this Agreement to the extent practicable and in
accordance with Iowa law. The decision of a majority of the arbitrators shall be
final and binding on each of the parties to the arbitration proceeding.
<PAGE>
25
(c) Expenses; Location. Each party to the dispute shall bear the expenses
of its respective Party Arbitrator. If only two parties are involved in the
arbitration, the involved parties shall jointly share all other expenses of the
arbitration proceeding and the expenses of the Third Arbitrator. The arbitration
proceeding shall take place at Des Moines, Iowa unless another location is
mutually agreed upon by the parties. The arbitration proceeding shall be
governed by the laws of the State of Iowa. The parties hereto hereby agree that
any information respecting any matters submitted to arbitration in accordance
with the foregoing or any aspect of the arbitration proceeding itself shall be
treated as confidential and will not be disclosed to anyone not employed or
acting on behalf of a party hereto in connection with such arbitration or used
at any time in any manner that is adverse to the interests of either party
hereto but, in any such case, such information may be disclosed if such
disclosure is made in connection with either party's prosecution or defense of
any legal proceedings or if such disclosure is required pursuant to a subpoena
or other legal order issued by any judicial or regulatory body or is otherwise
required by law.
(d) Restriction. Anything set forth herein to the contrary
notwithstanding, with respect to any issue to be determined by arbitration, each
of the parties to the arbitration proceeding shall submit in writing to the
arbitrators the party's proposed resolution of such issue. The arbitrators shall
be constrained in their decision relating to such issue to select only between
the proposed resolutions of the parties, and the arbitrators shall have no
discretion to fashion any compromise or other resolution of the issue submitted
for arbitration.
VIII. CONFIDENTIAL INFORMATION AND TRADE SECRETS
8.1. Confidentiality. Each party to this Agreement shall keep confidential,
except as the other party or parties may otherwise consent in writing, and,
except for the other parties' benefit, not disclose or make any use of at any
time and for any purpose whatsoever, any trade secrets, confidential
information, knowledge, data, trademarks or trade names, or other information of
any of the Companies to their products, know-how, designs, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Companies or any of their
clients, customers, consultants, licensees, or affiliates, which the party has
obtained or may obtain, or otherwise acquire during the course of contacts,
discussions, negotiation, or agreement with any of the other parties, except as
herein provided (hereafter, collectively, "Confidential Information"). No party
shall deliver, reproduce or in any way allow any Confidential Information of the
other parties or any documentation relating thereto, to be delivered to or used
by any third parties without specific written direction or consent of a duly
authorized officer of the other party.
<PAGE>
26
8.2. Permissive Release of Confidential Information. Notwithstanding the
provisions of Section VIII of this Agreement, any Confidential Information may
be used in connection with any arbitration relating to the transactions
contemplated by this Agreement and such information may be disclosed if such
disclosure is made in connection with the parties' prosecution or defense of any
legal proceedings or if such disclosure is required pursuant to a subpoena or
other legal order issued by any judicial or regulatory body or is otherwise
required by law.
IX. MISCELLANEOUS
9.1. Assignment. This Agreement, including any or all rights and obligations
hereunder, shall not be assigned by any of the parties to any third party
without the prior written consent of all of the other parties. Except as
otherwise provided in this Agreement, the obligations and rights of the parties
shall be binding upon and inure to the benefit of any assignee, transferee,
successor, or receiver of each of the parties.
9.2. Waiver; Remedies. No delay or omission of any party to this Agreement
to exercise any right or power hereunder shall impair such right or power or be
a waiver of any default or an acquiescence therein; and any single or partial
exercise of any such right or power shall not preclude other or further exercise
thereof or the exercise of any other right. In addition to any rights granted
herein, the parties hereto shall have and may exercise any and all rights and
remedies now or hereafter provided by law except as may be limited by Section V
of this Agreement.
9.3. Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or if mailed by certified or registered mail (return
receipt requested) to the party at its address as set forth on the signature
page of this Agreement. Any notice given as provided in this Section 9.3, if
given personally, shall be effective upon delivery, or if given by certified or
registered mail, shall be effective three days after deposit in the mail. Any
party hereto may change the address at which it is to be given notice by giving
notice to the other party as provided in this Section 9.3.
9.4. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of Iowa and shall be construed and interpreted under
the laws of such state applicable to contracts made and to be performed entirely
within such state.
9.5. Enforceability. If any one or more of the covenants, agreements,
provisions, or other terms of this Agreement shall be for any reason whatsoever
determined to be invalid, then such terms shall be deemed severable from the
remaining terms of this Agreement and shall in no way affect the validity or
enforceability of the other terms of this Agreement and such invalid terms shall
<PAGE>
27
be replaced by valid terms bearing the closest possible similarity in substance
so that the intentions and purposes being the basis of this Agreement could be
enforced to the greatest extent permitted by law.
9.6. Survival of Representations, Warranties, and Covenants. All covenants,
agreements, representations, and warranties made in this Agreement by any of the
parties hereto, including but not limited to, the indemnification provisions set
forth herein, shall be effective on the effective date hereof and thereafter.
9.7. Counterparts. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.8. Headings. The headings in the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
9.9. Entire Agreement. This Agreement, including the schedules and addenda
referred to herein and any documents executed by the parties simultaneously
herewith constitute the entire understanding and agreement of the parties hereto
and supersede all other prior agreements and understandings, written or oral,
between the parties with respect to the transactions contemplated herein.
Provided, however, the foregoing shall not operate or be construed to prohibit
proof of prior understandings and agreements between or among the parties to the
extent necessary to properly construe or interpret this Agreement.
9.10. Amendments. Any changes to this Agreement and any further obligations
of the parties to each other must be in writing and executed by their respective
duly authorized officers.
The remainder of this page is intentionally left blank.
<PAGE>
28
AID Finance Services, Inc. ALLIED Mutual Insurance
Company
By: By:
------------------------------- ----------------------------------
Jamie H. Shaffer Douglas L. Andersen
Title: President (Financial) Title: President (Property-Casualty)
Date: Date:
----------------------------- --------------------------------
ALLIED Group, Inc. AMCO Insurance Company
By: By:
------------------------------- ----------------------------------
Jamie H. Shaffer Douglas L. Andersen
Title: President (Financial) Title: President (Property-Casualty)
Date: Date:
----------------------------- --------------------------------
ALLIED Property and Casualty Depositors Insurance Company
Insurance Company
By: By:
------------------------------- ----------------------------------
Douglas L. Andersen Douglas L. Andersen
Title: President (Property- Title: President (Property-Casualty)
Casualty)
Date: Date:
----------------------------- --------------------------------
Western Heritage Insurance ALLIED Group Leasing
Company Corporation
By: By:
------------------------------- ----------------------------------
Joe Olson Jamie H. Shaffer
Title: President Title: President (Financial)
Date: Date:
----------------------------- --------------------------------
ALLIED Group Information Midwest Printing Services,
System , Inc. Ltd.
By: By:
------------------------------- ----------------------------------
Bob O. Myers C. Mel Roe
Title: President Title: President
Date: Date:
----------------------------- --------------------------------
The Freedom Group, Inc. ALLIED General Agency Company
By: By:
------------------------------- ----------------------------------
Larry J. Kane Douglas L. Andersen
Title: President Title: President (Property-Casualty)
Date: Date:
----------------------------- --------------------------------
<PAGE>
29
ALLIED Life Financial ALLIED Life Insurance Company
Corporation
By: By:
------------------------------- ----------------------------------
Samuel J. Wells Samuel J. Wells
Title: President Title: President
Date: Date:
----------------------------- --------------------------------
ALLIED Group Merchant Banking ALLIED Life Brokerage Agency,
Corporation Inc.
By: By:
------------------------------- ----------------------------------
Paul G. McGillivray Samuel J. Wells
Title: President Title: President
Date: Date:
----------------------------- --------------------------------
ALLIED Group Insurance ALLIED Group Medical Plan
Marketing Company Trust
By: By:
------------------------------- ----------------------------------
William G. Stevenson George T. Oleson, Trustee
Title: President
Date:
Date: ---------------------------------
-----------------------------
By:
-----------------------------------
Jamie H. Shaffer, Trustee
Date:
---------------------------------
By:
-----------------------------------
Charles H. McDonald, Trustee
Date:
---------------------------------
<PAGE>
EXHIBIT 27
Agreement No. 8375
INTERESTS AND LIABILITIES AGREEMENT
NO. 8375
to
AGGREGATE CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT
between
AMCO INSURANCE COMPANY
ALLIED PROPERTY AND CASUALTY INSURANCE COMPANY
DEPOSITORS INSURANCE COMPANY
MOTOR CLUB OF IOWA INSURANCE COMPANY
701 Fifth Avenue
Des Moines, Iowa 50391-2000
(herein collectively referred to as the "Company")
and
GENERAL REINSURANCE CORPORATION
a Delaware corporation having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Subscribing Reinsurer")
The Subscribing Reinsurer agrees to assume 10% of the liability under the
Aggregate Catastrophe Excess of Loss Reinsurance Agreement effective January 1,
1997, attached hereto.
As consideration the Subscribing Reinsurer shall receive identical
shares of the premiums named therein.
The share of the Subscribing Reinsurer shall be separate and apart from
the shares of the other Reinsurers, and the Subscribing Reinsurer shall in no
event participate in the Interests and Liabilities of the other Reinsurers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
<PAGE>
executed in duplicate,
this 15th day of May, 1997
AMCO INSURANCE COMPANY
ALLIED PROPERTY AND CASUALTY
INSURANCE COMPANY
DEPOSITORS INSURANCE COMPANY
MOTOR CLUB OF IOWA INSURANCE
COMPANY
/s/ Douglas L. Andersen
---------------------------------
Douglas L. Andersen
President
Attest: /s/ Stephen Rasmussen
---------------------------
Stephen Rasmussen
Sr. Vice President
and this 13th day of May, 1997
GENERAL REINSURANCE CORPORATION
/s/ Jim Conroy
---------------------------------
Jim Conroy
Vice President
Attest: /s/ Thomas M. Reindall
----------------------------
Thomas M. Reindall
<PAGE>
INTERESTS AND LIABILITIES AGREEMENT
to
AGGREGATE CATASTROPHE EXCESS OF LOSS REINSURANCE AGREEMENT
between
AMCO INSURANCE COMPANY
ALLIED PROPERTY AND CASUALTY INSURANCE COMPANY
DEPOSITORS INSURANCE COMPANY
MOTOR CLUB OF IOWA INSURANCE COMPANY
701 Fifth Avenue
Des Moines, Iowa 50391-2000
(herein collectively referred to as the "Company")
and
ALLIED MUTUAL INSURANCE COMPANY
701 Fifth Avenue
Des Moines, Iowa 50391-2000
(herein referred to as the "Subscribing Reinsurer")
The Subscribing Reinsurer agrees to assume 90% of the liability under the
Aggregate Catastrophe Excess of Loss Reinsurance Agreement effective January 1,
1997, attached hereto.
As consideration the Subscribing Reinsurer shall receive identical
shares of the premiums named therein.
The share of the Subscribing Reinsurer shall be separate and apart from
the shares of the other Reinsurers, and the Subscribing Reinsurer shall in no
event participate in the Interests and Liabilities of the other Reinsurers.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
<PAGE>
22
executed in duplicate,
this 15th day of May, 1997
AMCO INSURANCE COMPANY
ALLIED PROPERTY AND CASUALTY
INSURANCE COMPANY
DEPOSITORS INSURANCE COMPANY
MOTOR CLUB OF IOWA INSURANCE
COMPANY
Attest: /s/ Stephen S. Rasmussen /s/ Douglas L. Andersen
-------------------------- ---------------------------
Stephen S. Rasmussen Douglas L. Andersen
Sr. Vice President President
and this 15th day of May, 1997
ALLIED MUTUAL INSURANCE COMPANY
/s/ Jamie H. Shaffer
----------------------------------
Jamie H. Shaffer
Treasurer
Attest: /s/ G. T. Oleson
---------------------------
G. T. Oleson
Secretary
<PAGE>
23
AGGREGATE CATASTROPHE
EXCESS OF LOSS REINSURANCE AGREEMENT
between
AMCO INSURANCE COMPANY
ALLIED PROPERTY AND CASUALTY INSURANCE COMPANY
DEPOSITORS INSURANCE COMPANY
MOTOR CLUB OF IOWA INSURANCE COMPANY
701 Fifth Avenue
Des Moines, Iowa 50391-2000
(herein collectively referred to as the "Company")
and
The Subscribing Reinsurers executing
the Interests and Liabilities Agreements attached to this Agreement
(herein collectively referred to as the "Reinsurers")
---------------------------------------------------------------------------
PREAMBLE
In consideration of the mutual covenants herein contained and upon the
terms and conditions herein set forth, the Reinsurers shall indemnify the
Company as herein provided and specified.
Article I - BUSINESS REINSURED
The Reinsurers hereby agree to reinsure, subject to the terms and
conditions contained herein, the net excess liability of the Company resulting
from loss occurrences commencing during the term of this Agreement under
policies, contracts or binders of insurance or reinsurance, whether oral or
written, (hereinafter called "Policies") heretofore issued or which hereafter
may be issued or renewed by the Company and classified by the Company as
Property including Inland Marine, Earthquake and Automobile Physical Damage, but
only as respects the perils of windstorm, hail, tornado, hurricane, cyclone,
including ensuing collapse and water damage, and earthquake.
<PAGE>
24
Article II - TERM
The term of this Agreement shall be from 12:01 a.m., Central Standard
Time, January 1, 1997 to 12:01 a.m., Central Standard Time, January 1, 1998 and
shall apply to all loss occurrences commencing during the term of this
Agreement.
If this Agreement shall terminate while a loss occurrence covered hereby
is in progress, it is agreed that, subject to the other conditions of this
Agreement, the Reinsurers shall be liable for their proportion of the entire
loss or damage.
Article III - TERRITORY
This Agreement shall apply to losses occurring within the territorial
limits of the Company's original policies.
Article IV - EXCLUSIONS
This Agreement shall not apply to:
(a) Pro rata and excess of loss reinsurance assumed, except reinsurance
assumed between member companies of the ALLIED Group, agency
reinsurance and business reinsured 100% by the Company.
(b) All Casualty business except mandatory coverages under the Property
portion of package policies.
(c) Ocean Marine.
(d) Fidelity and Surety.
(e) Financial Guarantee and Insolvency.
(f) Boiler and Machinery.
(g) Hail on growing and standing crops.
(h) Mortgage impairment insurance and similar kinds of insurance
however styled.
(i) Difference in Conditions insurance when written as such.
<PAGE>
(j) Any peril not specifically included in the article entitled
BUSINESS REINSURED. Fire following directly occasioned by the
earthquake is excluded.
(k) Loss or liability in respect of overhead transmission and
distribution lines and their supporting structures other than those
on or within 1000 feet of the insured premises. It is understood
and agreed that public utilities extension and/or suppliers
extension and/or contingent business interruption coverages are not
subject to this exclusion, provided that these are not part of a
transmitters' or distributors' policy.
(l) Loss or Damage or Costs or Expenses arising from Seepage and/or
Pollution and/or Contamination, other than contamination from smoke
damage. Nevertheless, this exclusion does not preclude any payment
of the cost of the removal of debris of property damaged by a loss
otherwise covered hereunder, but subject always to a limit of not
more than 25% of the Company's property loss under the original
policy.
(m) Loss or liability as excluded by the attached Insolvency Funds
Exclusion Clause.
(n) Loss or liability as excluded by the attached Pools and
Associations Exclusion Clause.
(o) Loss or liability as excluded by the attached North American War
Exclusion Clause (Reinsurance).
(p) Loss or liability as excluded by the attached Nuclear Incident
Exclusion Clauses - Physical Damage Reinsurance.
Article V - LIMIT AND RETENTION
No claim shall be made upon the Reinsurers hereunder unless and until the
Company shall have first sustained:
(a) With respect to aggregate excess losses resulting from loss
occurrences commencing during any calendar quarter during the term
of this Agreement an ultimate net loss in excess of the Company's
percentage share of the Reinsurance Pool multiplied by $20,000,000;
or
(b) With respect to aggregate excess losses resulting from loss
occurrences commencing during the entire term of this Agreement an
ultimate net loss in excess of the Company's percentage share of
the Reinsurance Pool multiplied by $50,000,000,
<PAGE>
26
and then the Reinsurers shall be liable for the amount of the ultimate net loss
sustained by the Company in excess thereof but the sum recoverable with respect
to aggregate excess losses resulting from loss occurrences commencing during the
entire term of this Agreement shall not exceed the Company's percentage share of
the Reinsurance Pool multiplied by $30,000,000.
For purposes of this Article, the term "excess loss" shall mean ultimate
net loss sustained by the Company in each loss occurrence for which the ultimate
net loss sustained by the Company exceeds a franchise deductible of the
Company's percentage share of the Reinsurance Pool multiplied by $250,000.
Article VI - NET RETAINED LIABILITY
This Agreement applies only to that portion of any insurance or
reinsurance covered by this Agreement which the Company retains net for its own
account, and in calculating the amount of any loss hereunder and also in
computing the amount in excess of which this Agreement attaches, only loss or
losses in respect of that portion of any insurances or reinsurances which the
Company retains net for its own account shall be included.
It is understood and agreed that the amount of the Reinsurers' liability
hereunder in respect of any loss or losses shall not be increased by reason of
the inability of the Company to collect from any other reinsurer, whether
specific or general, any amount which may have become due from them, whether
such inability arises from the insolvency of such other reinsurer or otherwise.
Article VII - ULTIMATE NET LOSS
The term "ultimate net loss" shall mean such amounts that the Company is
liable to pay in the settlement of claims or satisfaction of judgments,
including court costs, interest on Judgments, and allocated investigation,
adjustment, and legal expenses of the Company. It is understood that allocated
expenses applicable to salaried adjusters of the Company shall be an amount
<PAGE>
27
equal to 10% of the amount paid by the Company in settlement of claims or
satisfaction of Judgments. Nothing in this clause, however, shall be construed
to mean that losses under this Agreement are not recoverable until the Company's
ultimate net loss has been ascertained.
All salvages, recoveries or payments and reversals or reductions of
verdicts or judgments recovered or received subsequent to a loss settlement
under this Agreement, including amounts recoverable under inuring reinsurance
whether collected or not, shall be applied as if recovered or received prior to
loss settlement, and shall be deducted from the actual loss sustained to arrive
at the amount of ultimate net loss hereunder.
Article VIII - DEFINITION OF LOSS OCCURRENCE
The term "loss occurrence" shall mean the sum of all individual losses
directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event which occurs within the
area of one state of the United States or province of Canada and states or
provinces contiguous thereto and to one another. However, the duration and
extent of any one "loss occurrence" shall be limited to all individual losses
sustained by the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event except that the term
"loss occurrence" shall be further defined as follows:
(a) As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, the event need not be limited to
one state or province or states or provinces contiguous thereto.
(c) As regards earthquake, the epicentre of which need not necessarily
to be within the territorial confines referred to in the opening
paragraph of this Article.
For all "loss occurrences", the Company may choose the date and time
when any such period of consecutive hours commences, provided that it is not
earlier than the date and time of the occurrence of the first recorded
individual loss sustained by the Company arising out of that disaster, accident
<PAGE>
28
or loss and provided that only one such period of 72 consecutive hours shall
apply with respect to one event.
Article IX - DEFINITION OF REINSURANCE POOL
The term "Reinsurance Pool" shall mean the pooling arrangement among the
companies listed in this Agreement as the reinsured Company and Allied Mutual
Insurance Company.
Article X - PREMIUM AND REPORTS
For the term of this Agreement, January 1, 1997 to January 1, 1998, the
Company shall pay to the Reinsurers an annual premium equal to the Company's
percentage share of the Reinsurance Pool multiplied by $5,000,000 payable in
quarterly installments on January 1, April 1, July 1 and October 1, 1997.
The Company shall also provide the Reinsurers as soon as possible after
December 31 any reports which may be necessary for annual statement purposes.
Article XI - NOTICE OF LOSS AND LOSS SETTLEMENT
As soon as practicable after the close of each calendar quarter, the
Company will advise the Reinsurers of all loss occurrences which commenced
during the quarter which in the opinion of the Company may involve the
Reinsurers under this Agreement and of all subsequent developments pertaining
thereto which in the opinion of the Company may materially affect the position
of the Reinsurers.
All loss settlements made by the Company provided same are within the
terms of this Agreement, shall be unconditionally binding upon the Reinsurers.
The Reinsurers agree to pay all amounts for which they may be liable immediately
upon receiving reasonable evidence from the Company of the amount due, or to be
due.
<PAGE>
29
Article XII - CURRENCY
All payments made under this Agreement shall be made in United States
currency.
Article XIII - ACCESS TO RECORDS
The Reinsurers or their duly accredited representative shall have free
access to the books and records of the Company at all reasonable times for the
purpose of obtaining information concerning this Agreement or the subject matter
thereof.
Article XIV - ERRORS AND OMISSIONS
Any delays, omissions or errors inadvertently made in conjunction with
this Agreement shall not be held to relieve either party hereto from any
liability which would attach to it hereunder if such delay, omission, or error
had not been made, provided such error or omission is rectified as soon as
possible after discovery.
Article XV - INSOLVENCY
In the event of the insolvency of the Company, the reinsurance proceeds
will be paid to the Company or the liquidator on the basis of the amount of the
claim allowed in the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurers shall be given written notice of the pendency of each
claim against the Company on the policy(ies) reinsured hereunder within a
reasonable time after such claim is filed in the insolvency proceedings. The
Reinsurers shall have the right to investigate each such claim and to interpose,
at their own expense, in the proceeding where such claim is to be adjudicated,
any defenses which they may deem available to the Company or its liquidator. The
expense thus incurred by the Reinsurers shall be chargeable, subject to court
approval, against the insolvent Company as part of the expense of liquidation to
<PAGE>
30
the extent of a proportionate share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurers.
Article XVI - ARBITRATION
Any unresolved difference of opinion between the Reinsurers and the
Company shall be submitted to arbitration by three arbitrators. If more than one
Reinsurer is involved in the same dispute, all such Reinsurers shall constitute
and act as one party for purposes of this Article and communications shall be
made by the Company to each of the Reinsurers constituting the one party;
provided, however, that nothing herein shall impair the rights of such
Reinsurers to assert several, rather than joint, defenses of claims, nor be
construed as changing the liability of the Reinsurers under the terms of this
Agreement from several to joint.
One arbitrator shall be chosen by the Reinsurer(s), and one shall be
chosen by the Company. The third arbitrator shall be chosen by the other two
arbitrators within ten (10) days after they have been appointed. If the two
arbitrators cannot agree upon a third arbitrator, each arbitrator shall nominate
three persons of whom the other shall reject two. The third arbitrator shall
then be chosen by drawing lots. If either party fails to choose an arbitrator
within thirty (30) days after receiving the written request of the other party
to do so, the latter shall choose both arbitrators, who shall choose the third
arbitrator. The arbitrators shall be impartial and shall be active or retired
persons whose principal occupation is or was as an officer of property and
casualty insurance or reinsurance companies.
The party requesting arbitration (the "Petitioner") shall submit its
brief to the arbitrators within thirty (30) days after notice of the selection
of the third arbitrator. Upon receipt of the Petitioner's brief, the other party
(the "Respondent") shall have thirty (30) days to file a reply brief. On receipt
of the Respondent's brief, the Petitioner shall have twenty (20) days to file a
rebuttal brief. Respondent shall have twenty (20) days from the receipt of
Petitioner's rebuttal brief to file its rebuttal brief. The arbitrators may
extend the time for filing of briefs at the request of either party.
<PAGE>
31
The arbitrators are relieved from judicial formalities and, in addition
to considering the rules of law and the customs and practices of the insurance
and reinsurance business, shall make their award with a view to effecting the
intent of this Agreement. The decision of the majority shall be final and
binding upon the parties. The costs of arbitration, including the fees of the
arbitrators, shall be shared equally unless the arbitrators decide otherwise.
The arbitration shall be held at the times and places agreed upon by the
arbitrators.
Article XVII - TAX CLAUSE
In consideration of the terms under which this Agreement is issued, the
Company undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns other than Income or Profits Tax
returns, to any State or Territory of the United States of America or to the
District of Columbia.
Article XIII - OFFSET
The Company or the Reinsurers may offset any balance, whether on
account of premium, commission, claims or losses, adjustment expense, salvage,
or otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurers.
<PAGE>
32
INSOLVENCY FUNDS EXCLUSION CLAUSE
It is agreed that this Agreement excludes all liability of the Company
arising, by contract, operation of law, or otherwise, from its participation or
membership, whether voluntary or involuntary, in any insolvency fund.
"Insolvency fund" includes any guaranty fund, insolvency fund, plan, pool,
association, fund, or other arrangement, howsoever denominated, established, or
governed, which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other obligation of
an insurer, or its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise deemed unable to meet
any claim, debt, charge, fee, or other obligation in whole or in part.
<PAGE>
33
POOLS AND ASSOCIATIONS EXCLUSION CLAUSE
SECTION A
Excluding:
(a) All business derived directly or indirectly from any Pool, Association, or
Syndicate which maintains its own reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory) formed after March 1,
1968, for the purpose of insuring property whether on a country-wide basis
or in respect of designated areas. This exclusion shall not apply to so-
called Automobile Insurance Plans or other pools formed to provide coverage
for Automobile Physical damage.
SECTION B
It is agreed that business written by the Company for the same perils, which is
known at the time to be insured by, or in excess of underlying amounts placed in
the following Pools, Associations, or Syndicates, whether by way of insurance or
reinsurance, is excluded hereunder:
Industrial Risk Insurers (formerly Factory Insurance Association and Oil
Insurance Association), including Underwriters Grain Division.
Associated Factory Mutuals.
Improved Risk Mutuals.
Any Pool, Association, or Syndicate formed for the purpose of writing Oil,
Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.
Nuclear Energy Property Insurance Association.
Nuclear Energy Liability Insurance Association.
Mutual Atomic Energy Reinsurance Pool.
Mutual Atomic Energy Liability Underwriters.
United States Aircraft Insurance Group.
Canadian Aircraft Insurance Group.
Associated Aviation Underwriters.
American Aviation Underwriters.
Section B does not apply:
(a) Where the Total Insured value over all interests of the risk in question is
less than $250,000,000.
(b) To interests traditionally underwritten as Inland Marine or Stock and/or
Contents written on a Blanket basis.
(c) To Contingent Business Interruption, except when the Company is aware that
the key location is known at the time to be insured in any Pool,
Association, or Syndicate named above, other than as provided for under
Section B (a).
(d) To risks as follows: Offices, Hotels, Apartments, Hospitals, Educational
Establishments, Public Utilities (other than Railroad Schedules) and
Builders Risks on the classes of risks specified in this subsection (d)
only.
<PAGE>
34
Where the Clause attaches to Catastrophe Excesses, the following SECTION C is
added:
SECTION C
NEVERTHELESS the Reinsurers specifically agree that liability accruing to the
Company from its participation in residual market mechanisms including but not
limited to:
(1) The following so-called "Coastal Pools":
ALABAMA INSURANCE UNDERWRITING ASSOCIATION
FLORIDA WINDSTORM UNDERWRITING ASSOCIATION
LOUISIANA INSURANCE UNDERWRITING ASSOCIATION
MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION
NORTH CAROLINA INSURANCE UNDERWRITING ASSOCIATION
SOUTH CAROLINA WINDSTORM AND HAIL UNDERWRITING ASSOCIATION
TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION
and
(2) All "Fair Plan" and "Rural Risk Plan" Business,
for all perils otherwise protected hereunder shall not be excluded, except that
this reinsurance does not include any increase in such liability resulting from:
(i) The inability of any other participant in such Residual Market Mechanisms
including but not limited to "Coastal Pool" and/or "Fair Plan" and/or
"Rural Risk Plan" to meet its liability.
(ii) Any claim against such "Coastal Pool" and/or "Fair Plan" and/or "Rural Risk
Plan" and/or Residual Market Mechanisms, or any participant therein,
including the Company, whether by way of subrogation or otherwise, brought
by or on behalf of any insolvency fund (as defined in the Insolvency Funds
Exclusion Clause incorporated in this Agreement).
<PAGE>
35
NORTH AMERICAN WAR EXCLUSION CLAUSE (REINSURANCE)
As regards interest which at time of loss or damage are on shore, no liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion, hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.
This War Exclusion Clause shall not, however, apply to interests which at time
of loss or damage are within the territorial limits of the United States of
America (comprising the fifty States of the Union and the District of Columbia
and including Bridges between the U.S.A. and Mexico provided they are under
United States ownership), Canada, St. Pierre and Miquelon, provided such
interests are insured under policies endorsements or binders containing a
standard war or hostilities or warlike operations exclusion clause.
<PAGE>
36
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - USA
(1) This Agreement does not cover any loss or liability accruing to the
Company directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, this Agreement does not cover any loss or liability accruing to the
Company, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
(i) Nuclear reactor power plants including all auxiliary property on
the site, or
(ii) Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
(iii) Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material", and
for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
(iv) Installations other than those listed in paragraph (2) (iii) above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operations of paragraphs, (1) and
(2) hereof, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Company, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate:
(a) where the Company does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operations of paragraphs (1),(2) and
(3) hereof, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Company, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
(5) It is understood and agreed that this Clause shall not extend to risks
using radioactive Isotopes in any form where the nuclear exposure is not
considered by the Company to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
(7) The Company to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note: Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that:
(a) all policies issued by the Company on or before 31st December 1957
shall be free from the application of the other provisions of this
Clause until expiry date or 31st December 1960 whichever first occurs
whereupon all the provisions of this Clause shall apply.
(b) with respect to any risk located in Canada policies issued by the
Company on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry date
or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
<PAGE>
Exhibit 28
ALLIED GROUP, INC. SEVERANCE PAY PLAN
ARTICLE I
PURPOSE OF THE PLAN
The ALLIED Group, Inc. Severance Pay Plan (the "Plan") has been
established by ALLIED Group, Inc. (the "Company"), effective as of May 30, 1998,
to provide for the payment of severance pay and/or pay in lieu of notice under
certain circumstances. This Plan supersedes any and all previous severance
practices and policies of the Company and its subsidiaries and affiliates with
respect to which the Plan is extended.
ARTICLE II
DEFINITIONS
"Administrator" means the Vice President, Human Resources, of the
Company.
"Award" has the meaning specified in Article VI.
"Base Salary" means the Employee's base rate of pay in effect on the
date the Employee's employment terminates.
"Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended from time to time, or any successor act thereto.
"Board" means the Board of Directors of the Company.
"Cause" means, with respect to the termination of an Eligible Employee's
employment with an Employer, termination (or deemed termination) because the
Eligible Employee has consistently failed to function as required by Employer
standards. In the event an Eligible Employee's employment terminates for any
reason and the Administrator subsequently determines that Cause for termination
existed at the time the Employee's employment terminated, such Eligible Employee
shall be deemed to have been terminated for Cause.
<PAGE>
"Change in Control" shall be deemed to have occurred upon the first to
occur of the following:
(i) Any person other than (a) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (b) a
corporation owned directly or indirectly by the shareholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (c) ALLIED Mutual
Insurance Company, is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing twenty
percent (20%) or more of the total voting power represented by
the Company's then outstanding voting securities; or
(ii) During any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the Board plus any
new Director (a) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the Directors at the beginning
of the period or whose election or nomination for election was
previously so approved or (b) whose nomination for election by
the Company's shareholders was made pursuant to the Stock
Rights Agreement between the Company and ALLIED Mutual, cease
for any reason to constitute a majority thereof; or
(iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least eighty percent (80%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the shareowners of the Company approve a plan
of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
the Company's assets; provided that such merger, consolidation
liquidation, sale or disposition is actually consummated.
2
<PAGE>
However, in no event shall a Change in Control be deemed to have
occurred, with respect to an Eligible Employee, if the Eligible Employee is part
of a purchasing group which consummates the Change-in-Control transaction. The
Eligible Employee shall be deemed "part of a purchasing group" for purposes of
the preceding sentence if the Eligible Employee is an equity participant in the
purchasing company or group (except for (i) passive ownership of less than three
percent (3%) of the stock of the purchasing company or group which is otherwise
not significant, as determined prior to the Change in Control by a majority of
the nonemployee continuing Directors).
"Director" means a member of the Board.
"Effective Date" means May 30, 1999.
"Eligible Employee" means an Employee who has been employed by an
Employer for at least six months and designated as eligible for benefits
hereunder by the Administrator. Part-time employees generally will not receive
benefits under the Plan.
"Eligible Termination of Employment" means the involuntary termination
or resignation with the approval of an Employer of an Eligible Employee's
employment. Notwithstanding the foregoing, an Eligible Employee shall not be
deemed to have incurred an Eligible Termination of Employment if the Eligible
Employee's termination results from his (a) death, (b) termination for Cause, or
(c) transfer of employment to an affiliate or successor of an Employer.
"Employee" means any individual who is regularly employed by an
Employer, but not including a consultant, an independent contractor or any
member of the Board of Directors of an Employer who is not otherwise an Employee
of an Employer.
"Employer" means the Company and each Company subsidiary or affiliate as
to which the Board or the Administrator has extended the Plan.
"Plan" means this ALLIED Group, Inc. Severance Pay Plan.
"Plan Year" means for the first plan year, May 30, 1998 to December 31,
1998, and the calendar year for each year thereafter.
"Year of Service" means each year or portion thereof during which an
Eligible Employee worked for one or more Employers.
3
<PAGE>
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator, who shall have full
authority, consistent with the Plan, to administer the Plan, including authority
to interpret, construe and apply any provisions of the Plan. The Administrator
shall have the further authority to extend the coverage of the Plan to Company
subsidiaries and other affiliates. The decisions of the Administrator shall be
final and binding on all parties.
The Administrator shall be the Plan Administrator for purposes of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Administrator shall be the named fiduciary of the Plan for purposes of ERISA.
The Administrator may delegate to any person, committee or entity any of
his or her respective duties hereunder and the decisions of any such person with
respect to such delegated matters shall be final and binding in accordance with
the first paragraph of this section. This section shall constitute the Plan's
procedures for the allocation of responsibilities for the operation and
administration of the Plan (within the meaning of Section 405(c) of ERISA).
ARTICLE IV
SEVERANCE BENEFIT CONDITIONS
An Eligible Employee's receipt of Severance Benefits pursuant to Article
V shall be subject to the following conditions precedent:
1. Such Eligible Employee must have experienced an Eligible Termination
of Employment; and
2. Such additional conditions as the Administrator shall impose on the
payment of benefits including, but not limited to, the execution of a
release, an agreement not to use or disclose confidential information of an
Employer, repayment of any debts or obligations owed to the Company and/or
the offset of any benefits payable under another plan or program of an
Employer.
If additional conditions are imposed pursuant to paragraph 2, they shall
be set forth in a writing, signed by the Administrator or his or her delegate,
and delivered to the Employee.
4
<PAGE>
ARTICLE V
SEVERANCE BENEFITS
Each Eligible Employee who satisfies the benefit conditions described in
Article IV shall receive a lump sum payment in an amount equal to one week's
Base Salary for each Year of Service or such greater or lesser amount as
determined by the Administrator in his or her sole discretion (the "Severance
Benefits"). In determining the amount of any Plan benefit, the Administrator
can take into account any factors he or she deems relevant including, but not
limited to, the conditions imposed pursuant to Article IV on the receipt of such
benefit, the Employee's performance and/or the circumstances of the Employee's
termination. The amount of the benefit payment, and any additional conditions
thereto, shall be determined by the Administrator and shall be specified in a
writing signed by the Administrator or the Administrator's delegate (an
"Award"). An Employee shall not have the right to any benefits except as
specified in an Award. If an Employee is not designated in such an Award, he or
she shall not be an Eligible Employee.
Each Eligible Employee who receives an Award for Severance Benefits
described in this Article V shall also be entitled to Employer-provided
continuation of health benefits to the extent that the Eligible Employee
received such benefits while employed ("Benefit Continuation"). The Eligible
Employee shall be entitled to such Benefit Continuation for a number of months
equal to such Eligible Employee's Years of Service divided by four, rounded to
the next highest whole number; for example, an Eligible Employee with less than
four Years of Service would receive one month of Benefit Continuation and an
Eligible Employee with between four and eight Years of Service would receive two
months of Benefit Continuation. Any Benefit Continuation provided hereunder
would be treated as fulfilling the Employer's COBRA requirements and in no case
would Benefit Continuation exceed the maximum time period under COBRA.
Notwithstanding the foregoing, the Eligible Employee shall not be entitled to
any Benefit Continuation as of the date comparable health benefits are made
available to such Eligible Employee by a new employer or other person or entity
that has retained such Eligible Employee to provide services.
ARTICLE VI
ENHANCED BENEFITS CONDITIONS
An Eligible Employee's receipt of Enhanced Benefits pursuant to Article
VII shall be subject to the following conditions precedent:
5
<PAGE>
1. During the period commencing on a Change in Control and ending on
the first anniversary of such Change in Control, such Eligible Employee:
(i) is terminated by his or her Employer without Cause;
(ii) terminates employment following a material diminution in
responsibilities;
(iii) terminates employment following a reduction in base pay or
bonus or other incentive compensation opportunity;
(iv) terminates employment following a relocation without his or
her consent to an office more than 25 miles from his or her
current location; or
(v) voluntarily terminates employment with the consent of the
Company, and
2. The execution of a general release in a form reasonably acceptable
to his or her Employer and the Company.
Such Enhanced Benefits shall be in addition to, rather than in lieu of,
any benefits to which the Eligible Employee may become entitled pursuant to any
other provisions of this Plan.
ARTICLE VII
ENHANCED BENEFITS
Enhanced Benefits shall consist of (a) an additional lump sum equal to
the Eligible Employee's Base Salary for a period commencing on the effective
date of his or her termination and ending on the later of the three month
anniversary of such termination or the first anniversary of the Change in
Control (such period, the "Enhanced Benefit Period"), (b) Benefit Continuation
for the Enhanced Benefit Period, provided that such Benefit Continuation shall
cease on the date comparable health benefits are made available to such Eligible
Employee by a new employer or other person or entity that has retained such
Eligible Employee to provide services and (c) outplacement services appropriate
to the Eligible Employee's length of service and position (as determined by the
Plan Administrator in his or her own discretion).
6
<PAGE>
ARTICLE VII
AMENDMENT AND TERMINATION
The Plan may be modified or amended from time to time in any manner by
action of the Board. The Plan may be discontinued on any date by the Board.
Notwithstanding the foregoing, the Plan may not be modified, amended or
terminated for one year following a Change in Control.
7
<PAGE>
ARTICLE IX
CLAIMS PROCEDURE
An Employee whose employment with an Employer is involuntarily
terminated or who resigns with the approval of an Employer and who does not
receive an Award can make a written claim. If an Employee who makes such a
claim is denied benefits for any reason, the Employee will be notified in
writing within 90 days after the claim is submitted or will receive a written
notice within that period of time stating an additional 90 days is needed to
rule upon the claim. In that case, the Employee will receive a written notice
within 180 days. The notification will:
1. Indicate the reasons for the denial and cite the specific plan
provisions upon which the denial is based; and
2. Describe any additional information that may be needed for approval
of the Employee's application and explain the review procedure.
An Employee can request a review of the denial within 90 days after the
time he or she receives the denial notice. The written request should be sent
to:
The Compensation Committee of the Board of Directors
ALLIED Group, Inc.
701 5th Ave.
Des Moines, IA 50391-2000
Within 60 days after receiving the written appeal, the claims committee
will notify the Employee in writing of its final decision, unless the claims
committee notifies the claimant in writing that special circumstances require an
extension (for no more than a single additional 60-day period), in which case
the claims committee will render its written decision within 120 days after
receiving the written appeal. This decision must contain specific reasons and
references to the plan provisions on which the denial is based.
ARTICLE X
GENERAL PROVISIONS
A. No Assignment by Participants. Each Eligible Employee's rights
hereunder are personal, and no Eligible Employee may assign or transfer any part
of his
8
<PAGE>
or her rights or duties hereunder, or any benefits due to him or her hereunder,
to any other person.
B. Governing Law. The Plan shall, in all respects, be governed by, and
construed and enforced in accordance with, the laws of the State of Iowa without
reference to the principles of conflicts of law, except to the extent preempted
by ERISA.
C. Payroll and Withholding Taxes. An Employer may withhold from any
amounts payable to an Eligible Employee hereunder, or from any other amounts
payable to any Eligible Employee, all federal, state, city or other taxes that
an Employer may reasonably determine are required to be withheld in connection
with the benefits provided hereunder pursuant to any applicable law or
regulation.
D. Funding. The Plan shall be unfunded. Benefits under the Plan shall
be paid from the general assets of the Employer from which the Employee
terminates employment.
E. Construction of the Plan. The titles to Articles and Sections are
for general information only and the Plan is not to be construed by reference
thereto. The masculine pronoun includes the feminine and the singular form
includes the plural wherever such usage would apply.
IN WITNESS WHEREOF, the Company has caused this plan document to be
executed by its duly authorized officer, as of the __th day of May, 1998.
ALLIED GROUP, INC.
By:
------------------------------------------
Title:
9
<PAGE>
Exhibit 29
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT between ALLIED Group, Inc., an Iowa corporation (the
"Company"), and _____________________ (the "Employee"), dated as of this ____
day of May, 1998.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employee holds a position of significant importance with the
Company;
WHEREAS, the Company believes that, in the event it is confronted with a
situation that could result in a change in ownership or control of the Company,
continuity of management will be essential to its ability to evaluate and
respond to such situation in the best interests of shareholders;
WHEREAS, the Company understands that any such situation will present
significant concerns for the Employee with respect to his financial and job
security;
WHEREAS, the Company desires to assure itself of the Employee's services
during the period in which it is confronting such a situation, and to provide
the Employee certain financial assurances to enable the Employee to perform the
responsibilities of his position without undue distraction and to exercise his
judgment without bias due to his personal circumstances;
WHEREAS, to achieve these objectives, the Company and the Employee desire
to enter into an agreement providing the Company and the Employee with certain
rights and obligations upon the occurrence of a Change of Control (as defined in
Section 2);
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company and the
Employee as follows:
1. Operation of Agreement. (a) Effective Date. The effective date
---------------------- --------------
of this Agreement shall be the date on which a Change of Control occurs (the
"Change of
<PAGE>
Control Date"), provided that, except as provided in Section 1(b), if the
-------------
Employee is not employed by the Company on the Change of Control Date, this
Agreement shall be void and without effect.
(b) Termination of Employment Following a Potential Change of Control.
-----------------------------------------------------------------
Notwithstanding Section 1(a), if (i) the Employee's employment is terminated by
-
the Company without Cause (as defined in Section 2) after the occurrence of a
Potential Change of Control and prior to the occurrence of a Change of Control
and (ii) a Change of Control occurs within one year of such termination, the
--
Employee shall be deemed, solely for purposes of determining his rights under
this Agreement, to have remained employed until the date such Change of Control
occurs and to have been terminated by the Company without Cause immediately
after this Agreement becomes effective.
(c) Termination of Employment Following Death or Disability. This
-------------------------------------------------------
Agreement shall terminate automatically upon the Employee's death or termination
due to Disability (as defined in Section 2).
2. Definitions. (a) Change of Control. For the purposes of this
----------- -----------------
Agreement, a "Change of Control" shall mean the happening of any of the
following:
(i) Any person or entity, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Act"),
other than the Company, a subsidiary of the Company, or any employee benefit
plan of the Company or its subsidiaries, becomes the beneficial owner of the
Company's securities having 20 percent or more of the combined voting power
of the then outstanding securities of the Company (other than as a result of
an issuance of securities initiated by the Company in the ordinary course of
business); or
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions, less
than 80% of the combined voting power of the then outstanding securities of
the Company or any successor corporation or entity entitled to vote generally
in the election of directors of the Company or such other corporation or
entity after such transaction, are held in the aggregate by holders of the
Company's securities entitled to vote generally in the election of directors
of the Company immediately prior to such transactions; or
(iii) During any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board of Directors cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for
2
<PAGE>
election by the Company's stockholders, of each director of the Company first
elected during such period was (a) approved by a vote of at least two-thirds
of the directors of the Company then still in office who were directors of
the Company at the beginning of any such period or was made pursuant to the
Stock Rights Agreement between the Company and ALLIED Mutual.
(b) Potential Change of Control. For the purposes of this Agreement, a
---------------------------
"Potential Change of Control" shall mean the happening of any of the following:
(i) any person commences a tender offer, which if consummated would
result in such person being the beneficial owner of at least 20% of the
Company's voting securities;
(ii) proxies for the election of directors of the Company are solicited
by anyone other than the Company; or
(iii) the execution by the Company of an agreement, the consummation of
which would result in a Change of Control of the Company; or
(iv) the acquisition of beneficial ownership, directly or indirectly, by
any entity, person or group (other than the Company, a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or its
subsidiaries (including any trustee of such plan acting as such trustee)) of
securities of the Company representing 10 percent or more of the combined
voting power of the Company's outstanding securities and the adoption by the
Board of Directors of a resolution to the effect that a Potential Change of
Control of the Company has occurred for purposes of this Agreement.
(c) Cause. For the purposes of this Agreement, "Cause" means (i) the
----- -
Employee's conviction or plea of nolo contendere to a felony; (ii) an act or
--------------- --
acts of dishonesty or gross misconduct on the Employee's part which result or
are intended to result in material damage to the Company's business or
reputation; or (iii) repeated material violations by the Employee of his
---
position, authority, duties, obligations or responsibilities as in effect at
the Change of Control Date, which violations are demonstrably willful and
deliberate on the Employee's part and which result in material damage to the
Company's business or reputation.
(d) Good Reason. "Good Reason" means the occurrence of any of the
-----------
following, without the express written consent of the Employee, after the
occurrence of a Potential Change of Control or a Change of Control:
3
<PAGE>
(i) (A)the assignment to the Employee of any duties inconsistent in any
-
material adverse respect with the Employee's position, authority or
responsibilities as in effect at the Change of Control Date, or (B) any other
-
material adverse change in Employee's authority or responsibilities;
(ii) any failure by the Company, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of notice
thereof given by the Employee, to provide the Employee with (A) an annual
-
base salary, as it may be increased from time to time (the "Base Salary"),
which is at least equal to the Base Salary paid to the Employee immediately
prior to the Change of Control Date, or (B) incentive compensation
-
opportunities at a level which is at least equal to the level of incentive
compensation opportunities made available to the Employee immediately prior
to the Change of Control Date;
(iii) the failure by the Company to permit the Employee (and, to the
extent applicable, his dependents) to participate in or be covered under all
pension, retirement, deferred compensation, savings, medical, dental, health,
disability, group life, accidental death and travel accident insurance plans
and programs of the Company and its affiliated companies at a level that is
commensurate with the Employee's participation in such plans immediately
prior to the Change of Control Date (or, if more favorable to the Employee,
at the level made available to the Employee or other similarly situated
officers at any time thereafter);
(iv) the Company's requiring the Employee to be based at any office or
location more than 25 miles from that location at which he performed his
services for the Company immediately prior to the Change of Control, except
for travel reasonably required in the performance of the Employee's
responsibilities; or
(v) any failure by the Company to obtain the assumption and agreement
to perform this Agreement by a successor as contemplated by Section 5.
In no event shall the mere occurrence of a Change of Control, absent any further
impact on the Employee, be deemed to constitute Good Reason.
(e) Disability. For purposes of this Agreement, "Disability" shall
----------
mean the Employee's inability to perform the duties of his position, as
determined in accordance with the policies and procedures applicable with
respect to the Company's long-term disability plan, as in effect immediately
prior to the Change of Control Date.
4
<PAGE>
(f) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Employee for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 6(d). For
purposes of this Agreement, a "Notice of Termination" means a written notice
given, in the case of a termination for Cause, within 10 business days of the
Company's having actual knowledge of the events giving rise to such termination,
and in the case of a termination for Good Reason, within 90 days of the later to
occur of (x) the Change of Control Date or (y) the Employee's having actual
- -
knowledge of the events giving rise to such termination, and which (i) indicates
-
the specific termination provision in this Agreement relied upon, (ii) sets
--
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated, and (iii) if the termination date is other than the date of receipt
---
of such notice, specifies the termination date of this Agreement (which date
shall be not more than 30 days after the giving of such notice). The failure by
the Employee to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his rights hereunder.
(g) Date of Termination. For the purpose of this Agreement, the term
-------------------
"Date of Termination" means (i) in the case of a termination for which a Notice
-
of Termination is required, the date of receipt of such Notice of Termination
or, if later, the date specified therein, as the case may be, and (ii) in all
--
other cases, the actual date on which the Employee's employment terminates.
3. Employment Protection Benefits. (a) Basic Benefits. If on or
------------------------------ --------------
before the second anniversary of the Change of Control Date (x) the Company
-
terminates the Employee's employment for any reason other than for Cause or
Disability or (y) the Employee voluntarily terminates his employment for Good
-
Reason, then the Company shall pay the Employee the following amounts:
(i) the Employee's Base Salary earned through the Date of Termination
(the "Earned Salary");
(ii) a cash amount (the "Severance Amount") equal to [the product of
two] and the sum of
(A) the Employee's annual Base Salary; and
5
<PAGE>
(B) the higher of the annual bonuses payable to the Employee in
respect of either of the two fiscal years ended immediately
preceding the fiscal year in which the Change of Control
occurs; and
(iii) any vested amounts or benefits owing to the Employee under the
Company's otherwise applicable employee benefit plans and programs, including
any compensation previously deferred by the Employee (together with any
accrued earnings thereon) and not yet paid by the Company and any accrued
vacation pay not yet paid by the Company (the "Accrued Obligations").
The Earned Salary and Severance Amount shall be paid in a single lump sum as
soon as practicable, but in no event more than ten business days (or at such
earlier date required by law) following the Employee's Date of Termination.
Accrued Obligations shall be paid in accordance with the terms of the applicable
plan, program or arrangement.
(b) Continuation of Benefits. If the Employee receives the Severance
------------------------
Amount described in this Section 3, the Employee (and, to the extent applicable,
his dependents) shall be entitled, after the Date of Termination until the
earlier of (x) the eighteen month anniversary of his Date of Termination (the
-
"End Date") or (y) the date the Employee becomes eligible for comparable
-
benefits under a similar plan, policy or program of a subsequent employer, to
continue participation in all of the Company's employee and Employee welfare and
fringe benefit plans (the "Benefit Plans") as were generally provided to the
Employee in accordance with the Company's policies and practices immediately
prior to the Change of Control Date. To the extent any such benefits cannot be
provided under the terms of the applicable plan, policy or program, the Company
shall provide a comparable benefit under another plan or from the Company's
general assets. The Employee's participation in the Benefit Plans will be on the
same terms and conditions that would have applied had the Employee continued to
be employed by the Company through the End Date. Notwithstanding the foregoing,
any continuation of health benefits provided hereunder would be treated as
fulfilling the Company's COBRA requirements and in no case would such
continuation exceed the maximum time period under COBRA.
(c) Indemnification. The Company shall indemnify the Employee and hold
---------------
the Employee harmless from and against any claim, loss or cause of action
arising from or out of the Employee's performance as an officer, director or
employee of the Company or any of its subsidiaries or in any other capacity,
including any fiduciary capacity, in which the Employee serves at the request of
the Company to the maximum extent permitted by applicable law and the Company's
Certificate of Incorporation and By-Laws (the "Governing Documents"), provided
--------
that in no event shall the protection afforded to the
- ----
6
<PAGE>
Employee hereunder be less than that afforded under the Governing Documents as
in effect immediately prior to the Change of Control Date.
(d) Discharge of the Company's Obligations. Except as expressly
--------------------------------------
provided in Section 4, the Severance Amount and the other amounts payable and
benefits provided in respect of the Employee pursuant to this Section 3
following termination of his employment shall be in full and complete
satisfaction of the Employee's rights under this Agreement and any other claims
he may have in respect of his employment by the Company or any of its
subsidiaries. Such amounts shall constitute liquidated damages with respect to
any and all such rights and claims and, upon the Employee's receipt of such
amounts, the Company shall be released and discharged from any and all liability
to the Employee in connection with this Agreement or otherwise in connection
with the Employee's employment with the Company and its subsidiaries. Without
limiting the generality of the foregoing, the Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Employee or others whether by reason of the
subsequent employment of the Employee or otherwise. Nothing in this Section
3(d), however, shall in any way limit the Company's obligations to the Employee
pursuant to Section 3(c) hereof.
(e) Limit on Payments by the Company.
--------------------------------
(i) Application of Section 3(e). In the event that any amount or
---------------------------
benefit paid or distributed to the Employee pursuant to this Agreement, taken
together with any amounts or benefits otherwise paid or distributed to the
Employee by the Company or any affiliated company (collectively, the "Covered
Payments"), would be an "excess parachute payment" as defined in Section 280G
of the Code and would thereby subject the Employee to the tax (the "Excise
Tax") imposed under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the provisions of this Section 3(e) shall apply to
determine the amounts payable to Employee pursuant to this Agreement.
(ii) Calculation of Benefits. Immediately following delivery of any
-----------------------
Notice of Termination, the Company shall notify the Employee of the aggregate
present value of all termination benefits to which he would be entitled under
this Agreement and any other plan, program or arrangement as of the projected
Date of Termination, together with the projected maximum payments, determined
as of such projected Date of Termination that could be paid without the
Employee being subject to the Excise Tax.
7
<PAGE>
(iii) Imposition of Payment Cap. If (x) the aggregate value of all
------------------------- -
compensation payments or benefits to be paid or provided to the Employee
under this Agreement and any other plan, agreement or arrangement with the
Company exceeds the amount which can be paid to the Employee without the
Employee incurring an Excise Tax and (y) the Employee would receive a greater
-
net after-tax amount (taking into account all applicable taxes payable by the
Employee, including any Excise Tax) by applying the limitation contained in
this Section 3(e)(iii), then the amounts payable to the Employee under this
Section 3 shall be reduced (but not below zero) to the maximum amount which
may be paid hereunder without the Employee becoming subject to such an Excise
Tax (such reduced payments to be referred to as the "Payment Cap"). In the
event that Employee receives reduced payments and benefits hereunder,
Employee shall have the right to designate which of the payments and benefits
otherwise provided for in this Agreement that he will receive in connection
with the application of the Payment Cap. In addition, the Employee may elect,
by written notice to the Company delivered not later than the Change of
Control Date, that, in lieu of limiting the benefits payable hereunder (or,
if required to avoid an Excise Tax without regard to the payments made
hereunder), the "Requisite Portion" (as defined below) of the stock options
held by the Employee which are not then exercisable shall not become
exercisable by reason of the Change of Control, but rather shall become
exercisable in accordance with their original terms. The Requisite Portion
shall mean the portion of all such stock options pertaining to the least
number of shares necessary to avoid the imposition of an Excise Tax (taking
into account the potential payment of severance benefits hereunder); it being
understood that the portion of the options which would become exercisable at
the last date after the Change of Control shall be first taken into account
to satisfy this requirement, with such other portions of other options, in
reverse order of exercise date, applied thereunder until a sufficient number
of options have not been accelerated to avoid the imposition of an Excise
Tax.
(iv) Application of Section 280G. For purposes of determining whether
---------------------------
any of the Covered Payments will be subject to the Excise Tax and the amount
of such Excise Tax,
(A) such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise
Tax, unless, and except to the extent that, in the good faith
judgment of the Company's independent certified public accountants
appointed prior to the Effective Date or tax counsel selected by
such accountants (the "Accountants"), the Company has a
8
<PAGE>
reasonable basis to conclude that such Covered Payments (in whole
or in part) either do not constitute "parachute payments" or
represent reasonable compensation for personal services actually
rendered (within the meaning of Section 280G(b)(4)(B) of the Code)
in excess of the "base amount," or such "parachute payments" are
otherwise not subject to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with
the principles of Section 280G of the Code.
(v) Applicable Tax Rates. For purposes of determining whether the
--------------------
Employee would receive a greater net after-tax benefit were the amounts
payable under this Agreement reduced in accordance with Section 3(e)(iii),
the Employee shall be deemed to pay:
(A) Federal income taxes at the highest applicable marginal rate of
Federal income taxation for the calendar year in which the first
amounts are to be paid hereunder, and
(B) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for such calendar year, net of
the maximum reduction in Federal incomes taxes which could be
obtained from the deduction of such state or local taxes if paid in
such year;
provided, however, that the Employee may request that such determination be
made based on his individual tax circumstances, which shall govern such
determination so long as the Employee provides to the Accountants such
information and documents as the Accountants shall reasonably request to
determine such individual circumstances.
(vi) Adjustments in Respect of the Payment Cap. If the Employee
-----------------------------------------
receives reduced payments and benefits under this Section 3(e) (or this
Section 3(e) is determined not to be applicable to the Employee because the
Accountants conclude that Employee is not subject to any Excise Tax) and it
is established pursuant to a final determination of a court or an Internal
Revenue Service proceeding (a "Final Determination") that, notwithstanding
the good faith of the Employee and the Company in applying the terms of this
Agreement, the aggregate "parachute payments" within the meaning of Section
280G of the Code paid to the Employee or for his benefit are in an amount
that would result in the Employee being subject an
9
<PAGE>
Excise Tax and the Employee would still be subject to the Payment Cap under
the provisions of Section 3(e)(iii), then the amount equal to such excess
parachute payments shall be deemed for all purposes to be a loan to the
Employee made on the date of receipt of such excess payments, which the
Employee shall have an obligation to repay to the Company on demand, together
with interest on such amount at the applicable Federal rate (as defined in
Section 1274(d) of the Code) from the date of the payment hereunder to the
date of repayment by the Employee. If this Section 3(e) is not applied to
reduce the Employee's entitlements under this Section 3 because the
Accountants determine that the Employee would not receive a greater net
after-tax benefit by applying this Section 3(e) and it is established
pursuant to a Final Determination that, notwithstanding the good faith of the
Employee and the Company in applying the terms of this Agreement, the
Employee would have received a greater net after-tax benefit by subjecting
his payments and benefits hereunder to the Payment Cap, then the aggregate
"parachute payments" paid to the Employee or for his benefit in excess of the
Payment Cap shall be deemed for all purposes a loan to the Employee made on
the date of receipt of such excess payments, which the Employee shall have an
obligation to repay to the Company on demand, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of the
Code) from the date of the payment hereunder to the date of repayment by the
Employee. If the Employee receives reduced payments and benefits by reason of
this Section 3(e) and it is established pursuant to a Final Determination
that the Employee could have received a greater amount without exceeding the
Payment Cap, then the Company shall promptly thereafter pay the Employee the
aggregate additional amount which could have been paid without exceeding the
Payment Cap, together with interest on such amount at the applicable Federal
rate (as defined in Section 1274(d) of the Code) from the original payment
due date to the date of actual payment by the Company.
4. Legal Fees and Expenses. If the Employee asserts any claim in any
-----------------------
contest (whether initiated by the Employee or by the Company) as to the
validity, enforceability or interpretation of any provision of this Agreement,
the Company shall pay the Employee's legal expenses (or cause such expenses to
be paid) including, without limitation, his reasonable attorney's fees, on a
quarterly basis, upon presentation of proof of such expenses, provided that the
-------------
Employee shall reimburse the Company for such amounts, plus simple interest
thereon at the 90-day United States Treasury Bill rate as in effect from time to
time, compounded annually, if the arbitrator shall find that the Employee did
not have a good faith basis to assert or defend the claim in question.
5. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Company and its successors. The Company shall require any
successor to all or
10
<PAGE>
substantially all of the business and/or assets of the Company, whether direct
or indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Employee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as the Company would be required to perform if no such
succession had taken place. This Agreement is personal to the Employee and is
not assignable by the Employee otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Employee's legal representatives.
6. Miscellaneous. (a) Applicable Law. This Agreement shall be
------------- --------------
governed by and construed in accordance with the laws of the State of Iowa,
applied without reference to principles of conflict of laws.
(b) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be resolved by binding arbitration. The
arbitration shall be held in Des Moines, Iowa, and except to the extent
inconsistent with this Agreement, shall be conducted in accordance with the
Expedited Employment Arbitration Rules of the American Arbitration Association
then in effect at the time of the arbitration, and otherwise in accordance with
principles which would be applied by a court of law or equity. The arbitrator
shall be acceptable to both the Company and the Employee. If the parties cannot
agree on an acceptable arbitrator, the dispute shall be heard by a panel of
three arbitrators, one appointed by each of the parties and the third appointed
by the other two arbitrators.
(c) Entire Agreement. Upon the Change of Control Date, this Agreement
----------------
shall constitute the entire agreement between the parties hereto with respect to
the matters referred to herein. Notwithstanding anything else to the contrary,
this Agreement is not intended to replace or supersede any other written
agreement with the Employee, but rather is intended solely to provide the
Employee with additional rights and obligations upon a Change of Control which
may supplement rather than replace any rights or obligations the Employee may
have pursuant to any written agreement with the Company which is in effect on
such Change of Control Date. There are no promises, representations,
inducements or statements between the parties other than those that are
expressly contained herein. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives. In the event any provision of
this Agreement is invalid or unenforceable, the validity and enforceability of
the remaining provisions hereof shall not be affected. The Employee acknowledges
that he is entering into this Agreement of his own free will and accord, and
with no duress, that he has read this Agreement and that he understands it and
its legal consequences.
11
<PAGE>
(d) Notices. All notices and other communications hereunder shall be
-------
in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee: at the home address of the Employee noted on
the records of the Company
If to the Company: ALLIED Group, Inc.
701 5th Avenue
Des Moines, Iowa 50391-2000
Attn.: [_____________]
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and Employee has hereunto set his hand
as of the day and year first above written.
ALLIED GROUP, INC.
By
-------------------------------
Name:
Title:
WITNESSED:
- --------------------
[NAME]
---------------------------------
WITNESSED:
- --------------------
<PAGE>
EXHIBIT 30
AMENDMENT TO ALLIED GROUP EMPLOYEE STOCK OWNERSHIP PLAN
June 1, 1998
WHEREAS, Nationwide Mutual Insurance Company ("Nationwide") announced
a tender offer to purchase all outstanding shares of the ALLIED Group, Inc.
Common Stock, including the shares of Common Stock held by the Trustee of the
ALLIED Group Employee Stock Ownership Plan (the "Plan");
WHEREAS, the Plan does not specifically address the method for
allocating cash proceeds received pursuant to the sale of Common Stock held in
the Suspense Account of the Plan;
WHEREAS, current employee/participants in the Plan could have
anticipated that Common Stock released from the Suspense Account would have been
allocated pursuant to the method of allocating employer contributions;
WHEREAS, ALLIED Group, Inc. (the "Company") believes that current
employees should be rewarded for their continued and long service to the Company
and should be allocated the proceeds received from the Nationwide tender offer
in the same manner as if the Plan debt were repaid over time with employer
contributions; and
WHEREAS, the Company recognizes the need to retain current employees
until the Nationwide tender offer is resolved;
BE IT RESOLVED, that the Plan shall be amended as set forth in the
attached Second Amendment to the Plan.
<PAGE>
Second Amendment to
The ALLIED Group Employee Stock Ownership Plan ("Plan")
By virtue and in exercise of the amending power reserved to ALLIED
Group, Inc. (the "Company") pursuant to subsection 12.1 of the Plan, and
pursuant to resolutions to amend adopted June 1, 1998, the Plan is hereby
amended as set forth below, effective as of June 1, 1998.
1. Section 1 shall be amended by inserting a new subsection 1.15 and
amending the old subsection 1.15 to be subsection 1.16:
1.15 Change in Control.
-----------------
A "Change in Control" shall be deemed to have occurred upon the first
to occur of the following:
(i) Any person other than (a) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (b) a
corporation owned directly or indirectly by the shareholders of
the Company in substantially the same proportions as their
ownership of stock of the Company, or (c) ALLIED Mutual
Insurance Company, is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing twenty
percent (20%) or more of the total voting power represented by
the Company's then outstanding voting securities; or
<PAGE>
(ii) During any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the Board of
Directors of the Company plus any new Director (a) whose
election by the Board of Directors or nomination for election by
the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose
election or nomination for election was previously so approved
or (b) whose nomination for election by the Company's
shareholders was made pursuant to the Stock Rights Agreement
between the Company and ALLIED Mutual, cease for any reason to
constitute a majority thereof; or
(iii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least eighty percent (80%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
the Company's assets.
<PAGE>
2. Section 6 shall be amended by adding at the end thereof a new
subsection 6.11 to read as follows:
6.11 Allocation in the Event of a Change in Control.
----------------------------------------------
In the event of a Change in Control resulting in the sale of Company
Stock held in the Suspense Account, the Trustee shall withdraw the
cash proceeds available ("Proceeds") in full from the Suspense Account
and allocate such Proceeds, as set forth herein, exclusively to
Participants who are eligible Participants as of the date of the
Change in Control (including each employee who has satisfied the
requirements of subsection 2.1 as of the date of the Change in
Control).
(a) eligible Participants. For purposes of this subsection 6.11, the
---------------------
term "eligible Participant" means any Participant who is employed
by an Employer during the Plan Year in which the Change in
Control occurs exclusively on a regular full time basis, and is
employed by an Employer or a Related Company on the date of
Change in Control. The term "eligible Participant" also includes
any Participant who died or retired (within the meaning of
paragraphs (a), (b), (c), or (d) of subsection 8.3) during the
Plan Year in which the Change in Control occurs. Finally, the
term "eligible Participant" includes any Participant who is not
employed on a regular full time basis during the Plan Year in
which the Change in Control occurs, but who satisfies the
remaining requirements of this paragraph (a); provided that such
Participant completes a period of service during such Plan Year
equal to (A) times (B), where (A) is 1,000 Hours of Service, and
(B)
<PAGE>
is a fraction, the numerator of which is the number of days in
the Plan Year to the date of Change in Control and the
denominator of which is 365.
(b) Method of Allocation. For purposes of this subsection 6.11, there
--------------------
shall be allocated and credited to each eligible Participant's
Account the portion of the Proceeds equal to the product of (A)
times (B), where (A) is the amount of the Proceeds, and (B) is a
fraction, the numerator of which is the allocation factor for the
eligible Participant based upon the following chart and the
denominator of which is the aggregate allocation factor for all
eligible Participants based upon the following chart:
If the eligible Participant's the eligible Participant's
Years of Service are: allocation factor is:
- ----------------------------- --------------------------
Less than 6 6% of Compensation.
At least 6 but less than 11, 7% of Compensation.
At least 11 but less than 21, 8% of Compensation.
21 or more, 9% of Compensation.
(c) Definitions. For purposes of this subsection 6.11, Years of
-----------
Service shall have the meaning provided in subsection 3.3 and
shall be determined as of the date of the Change in Control;
provided, however, that if an eligible Participant incurs five
consecutive One Year Periods of Severance, then his number of
Years of Service, if any, accrued prior to such break shall be
disregarded for purposes of this subsection. For purposes of this
subsection 6.11, Compensation shall have the meaning provided in
subsection 6.6,
<PAGE>
except that the Participant's Compensation for the Plan Year
preceding the Plan Year in which the Change in Control occurs
shall be used, and Compensation shall include Compensation with a
Related Company.
In the event the Proceeds received qualify as Company Stock, such Stock
shall not be allocated in accordance with this subsection 6.11, but shall
be held in the Suspense Account and released in accordance with the Plan.
3. Section 7.2 shall be amended by striking out the last sentence thereof
and inserting in lieu thereof the following:
Plan earnings, including for purposes of this subsection, amounts released
from the Suspense Account attributable to the sale of Company Stock to a
third party buyer in a bona fide commercial transaction, shall not
constitute Annual Additions.
4. Section 8.2 shall be amended by adding at the end thereof the
following:
Finally, each Participant who is employed by an Employer or a Related
Company as of the date of a Change in Control shall be fully vested in his
Account as of such date.
5. Section 1.2 shall be amended by inserting after the term "6.7," the
following: "an eligible Participant under subsection 6.11,".
<PAGE>
6. Appendix A shall be amended by inserting after the term "Board of
Directors" the following: "1.15 -- Change in Control".
<PAGE>
EXHIBIT 31
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made this 14th day of December, 1994, by and
between John E. Evans ("Evans") and ALLIED Group, Inc. ("AGI"), ALLIED Mutual
Insurance Company ("Mutual"), and ALLIED Life Financial Corporation ("ALFC").
AGI, Mutual, and ALFC shall be known collectively as "ALLIED".
WHEREAS, the purpose of this Consulting Agreement ("Agreement") is to set
forth the services which Evans is to render to ALLIED following his retirement
as an employee and officer on December 31, 1994;
WHEREAS, due to the intercompany relationships of AGI, Mutual, and ALFC,
the parties intend that Evans will provide consulting services to all three
entities;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
I. CONSULTING AND ADVISORY SERVICES
Evans shall make himself available at all reasonable times upon the request
of ALLIED to provide the following consulting and advisory services:
(a) Provide advice and consultation to the Board of Directors and the
President of each of AGI, Mutual, and ALFC on such matters as strategic
planning, personnel and organization activities, marketing and product
planning, and acquisitions and divestitures;
(b) Assist in developing and maintaining relationships with key
shareholders of AGI and ALFC, major financial institutions, and primary
insurance agents and agencies;
(c) Assist in advancing ALLIED and industry positions in various
legislative, political, and industry forums;
<PAGE>
(d) Offer the full benefit of his knowledge, expertise, advice, and
recollections as to the ALLIED business; and
(e) Provide such other consultation services as may be requested from time
to time by the Board of Directors or the President of each of AGI, Mutual,
and ALFC.
Although this Agreement does not require a fixed schedule or a required
minimum number of hours, Evans shall be expected to make himself available to
devote up to fifty percent (50%) of his time during the calendar year to render
the services described above as well as to serve in the additional capacities
contemplated in Section II below. Evans shall designate the times, places, and
manner in which these services and duties will be performed. These
aforementioned services are to be performed in close association with each of
the Presidents of AGI, Mutual, and ALFC and under the general auspices of the
Boards of AGI, Mutual, and ALFC. It is anticipated that Evans will make
periodic reports to the Boards at their request on the nature and scope of his
consulting and advisory activities.
II. ADDITIONAL CAPACITIES
In addition to performing services as a consultant during the term of this
Agreement, it is anticipated that Evans will be nominated for re-election to the
Board of Directors of each of AGI, Mutual, and ALFC, and also nominated for re-
election to the Board of Directors of their subsidiaries on which he is a member
as of the date of this Agreement. If elected to the Board of Directors of each
of AGI, Mutual, and ALFC, it is anticipated that Evans will serve (in addition
to any capacities to which he is appointed or elected) as Chairman of the Board
of Directors and as Chairman of the Executive and Investment Committees of each
of AGI, Mutual, and ALFC. For the term of this Agreement and in accordance with
Mutual's nomination rights under the Stock Rights Agreement with AGI, Mutual
agrees to nominate Evans for re-election to the AGI Board of Directors. In
addition, for the term of this Agreement and in accordance with Mutual's
nomination rights
2
<PAGE>
under the Stock Rights Agreement with ALFC, Mutual agrees to nominate Evans for
re-election to the ALFC Board of Directors.
Evans understands that any such Board or committee nominations, elections,
or appointments would be within the purview of individuals then serving as
members of the Board of Directors, the shareholders of AGI and ALFC, or the
policyholders of Mutual. Accordingly, Evans' obligation to perform the
consulting services for ALLIED as contemplated in Section I above is an
obligation independent from any obligations which may result from his service in
any of the Board capacities contemplated in this Section II, and his obligation
to perform such consulting services shall continue regardless of whether he is
nominated, elected, or appointed to serve in any such capacities.
III. COMPENSATION
A. Consulting Services
-------------------
In consideration for the consulting and advisory services to be rendered
hereunder, Evans will be entitled to receive $250,000 per year, payable on a
monthly basis within fifteen (15) days after the end of each calendar month.
Evans shall be entitled to receive the aforementioned consulting fees
regardless (i) of whether requests for his consulting services result in
devotion of less than fifty percent (50%) of his time or (ii) of whether he
serves in the capacities contemplated in Section II above.
AGI, Mutual, and ALFC shall prorate the consulting fee and reimbursable
expenses payable under this Agreement in such proportion as is mutually agreed
upon by such companies.
B. Director Compensation
---------------------
It is agreed that during the term of this Agreement Evans will be entitled
to any director fees (e.g., retainer, Board or committee meeting fees) with
respect to any service by
3
<PAGE>
Evans as a director on the Board or any Board committee. Evans shall also be
entitled to the reimbursement of expenses and to the other nonmonetary benefits
available to nonemployee members of the Board of Directors of AGI, Mutual, and
ALFC.
C. Benefits Upon Retirement
------------------------
Upon Evans' retirement as an officer and employee effective December 31,
1994, Evans will be entitled to all compensation and benefits payable or
distributable to him pursuant to the provisions of any ALLIED qualified or non-
qualified retirement, welfare benefit, and other compensation or benefit plan,
program, or policy applicable to him as a retiree or any contractual
arrangements in effect with him by reason of his employment with AGI prior to
such retirement. Evans will be regarded by AGI as a retired employee for
purposes of AGI's qualified retirement and welfare benefit plans. Nothing
herein, including, without limitation, any failure or inability on his part to
perform any of the services or duties required or contemplated hereby or any
breach by him of any of the provisions herein, shall result in any reduction,
offset, or ineligibility for any such compensation or benefits.
IV. SUPPORT STAFF AND SERVICES
ALLIED will make available during the term of this Agreement for Evans'
use, in connection with and to facilitate his performance of consulting services
hereunder, the following support facilities and resources:
(a) An office with appropriate equipment and facilities, together with a
full-time executive secretary; and
(b) Reimbursement of reasonable travel and other business expenses.
V. TERM AND TERMINATION
This Agreement shall commence on January 1, 1995, upon
4
<PAGE>
Evans' retirement as an employee effective December 31, 1994, and shall continue
in effect until the earlier of:
(a) December 31, 1996;
(b) Evans' death;
(c) the effective date of any written notice of termination from Evans to
ALLIED (which notice, in the event of any failure by ALLIED to perform any
of its obligations hereunder, shall not prejudice any legal or equitable
remedies available to Evans); or
(d) the effective date of any written notice of termination from ALLIED
which ALLIED may provide in the event of:
(i) Evans' physical or mental disability if he is unable to perform
the duties required by this Agreement (such determination to be in the
sole discretion of the Board of Directors of AGI, Mutual, and ALFC)
for a period of six (6) months or more (in the aggregate) in any
twelve (12) month period;
(ii) Evans' breach of the provisions of Sections VII or VIII hereof
followed by a failure or inability by Evans to cure such breach in a
timely manner;
(iii) Evans' personal dishonesty in the course of his duties, his
breach of a fiduciary duty to ALLIED involving personal profit or
conflict of interest, or his conviction of any crime; or
(iv) Evans' conduct is determined by the Board of Directors of AGI,
Mutual, and ALFC to be inconsistent with the dignity and character of
a representative of ALLIED, and it is determined by such Boards that
Evans' conduct has a material
5
<PAGE>
adverse effect on the business of ALLIED.
If this Agreement has been not terminated in accordance with any of the
aforementioned items (b) through (d) by December 15, 1996, this Agreement may be
renewed on an annual basis by December 15th of each year (provided the Agreement
has not been terminated in accordance with any of the aforementioned items (b)
through (d)) upon the mutual agreement of Evans and ALLIED.
VI. INDEPENDENT CONTRACTOR
Evans' status, commencing January 1, 1995 and at all times thereafter in
connection with the performance of consulting services hereunder, will be that
of an independent contractor and not, for any purpose, that of an employee or
officer with authority to bind ALLIED in any respect. Accordingly, among other
things, Evans will not be entitled to participate in any compensation or benefit
plans, programs, or policies maintained by ALLIED solely for its employees,
unless such benefit plans, programs, or policies are available to other retired
employees of ALLIED. All payments and other consideration made or provided to
Evans under this Agreement will be made or provided without withholding or
deduction of any kind, and Evans assumes sole responsibility for all tax or
other obligations associated therewith, including but not limited to federal,
state, city, or other income taxes or social security taxes.
VII. CONFIDENTIALITY
Evans shall continue to hold in confidence all secret or confidential
information, knowledge, or data relating to ALLIED that shall have been obtained
by him during his employment by or affiliation with ALLIED. Evans agrees to
maintain the confidentiality of any material, nonpublic information concerning
the business and affairs of ALLIED which is disclosed to him or to which he
otherwise becomes privy in connection with the performance of the services and
duties under this Agreement.
6
<PAGE>
VIII. NONCOMPETE
During the term of this Agreement, Evans agrees that he will not, directly
or indirectly, either as principal, agent, stockholder, employee, or in any
other capacity, without the prior written approval of the Board of Directors of
AGI, Mutual, and ALFC, engage in any activity, be employed, assist, or have an
equity interest in any business or other entity that competes in any material
respect with any of the principal businesses of ALLIED or which may be
detrimental or adverse to the interest of ALLIED; provided, however, that such
prohibited activity shall not include the ownership of 1% or less of the voting
securities of any publicly traded corporation regardless of the business of such
corporation.
IX. INDEMNIFICATION
ALLIED agrees to defend, indemnify, and hold Evans harmless from and
against any losses, liabilities, damages, or expenses including reasonable
attorney's fees, incurred by him as a result of any lawsuits or claims against
him in connection with his performance of the consulting services contemplated
herein, provided that such services have been performed by Evans in a good
faith, non-negligent, and, to the best of his knowledge, lawful manner.
X. SUCCESSORS
This Agreement shall inure to the benefit of and be binding upon AGI,
Mutual, and ALFC and any of their successors. Any successor of AGI, Mutual,
and/or ALFC (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to substantially all of the business and/or its assets will be
required to assume and agree to perform this Agreement in the same manner and to
the same extent that AGI, Mutual, and/or ALFC would be required to perform it if
no such succession had taken place.
7
<PAGE>
XI. MISCELLANEOUS
Neither Evans nor ALLIED shall assign this Agreement or any rights, duties,
or obligations hereunder without the prior written consent of the other parties.
If any term or provision of this Agreement shall be invalid or unenforceable to
any extent, the remainder of this Agreement shall not be affected by such
invalidity or unenforceability and each remaining provision shall be valid and
enforceable to the fullest extent permitted by law. This Agreement constitutes
the entire agreement between ALLIED and Evans concerning the subject matter
hereof and supersedes and cancels any and all other written or oral agreements
or understandings with respect to the subject hereof. No modification,
amendment, or waiver of any term or provision of this Agreement shall be
effective unless in writing and signed by and on behalf of each of the parties.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
__________________________ By:___________________________
John E. Evans Its:__________________________
ALLIED Group, Inc. ALLIED Life Financial Corporation
By:_______________________ By:___________________________
Its:______________________ Its:__________________________
8
<PAGE>
EXHIBIT 32
AMENDMENT TO
CONSULTING AGREEMENT
THIS AMENDMENT is made this 18th day of December, 1996, by and between John
E. Evans ("Evans") and ALLIED Group, Inc. ("AGI"), ALLIED Mutual Insurance
Company ("Mutual"), and ALLIED Life Financial Corporation ("ALFC"). AGI,
Mutual, and ALFC shall be known collectively as "ALLIED".
WHEREAS, on December 14, 1994, ALLIED and Evans entered into a Consulting
Agreement setting forth the services which Evans was to render to ALLIED
following his retirement;
WHEREAS, the parties desire to amend the Consulting Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Section IV of the Consulting Agreement is amended to add new
subsection (c) as follows:
(c) Payment of expenses associated with income tax preparation and other
tax services, provided that ALLIED may review Evans' tax returns at any
time.
2. Subsection (a) of Section V of the Consulting Agreement is amended to
read as follows:
(a) the mutual agreement of the parties;
3. The last sentence of Section V of the Consulting Agreement which
begins "If this Agreement has..." is deleted in its entirety.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
/s/ John E. Evans By: /s/ Douglas L. Andersen
- -------------------------- ---------------------------
John E. Evans Its: President
---------------------------
ALLIED Group, Inc. ALLIED Life Financial Corporation
By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells
---------------------- ----------------------------
Its: President Its: President
---------------------- ----------------------------
2
<PAGE>
EXHIBIT 33
SECOND AMENDMENT
TO CONSULTING AGREEMENT
THIS AMENDMENT is made this 13th day of May, 1997, by and between John E.
Evans ("Evans") and ALLIED Group, Inc. ("AGI"), ALLIED Mutual Insurance Company
("Mutual"), and ALLIED Life Financial Corporation ("ALFC"). AGI, Mutual, and
ALFC shall be known collectively as "ALLIED".
WHEREAS, on December 14, 1994, ALLIED and Evans entered into a Consulting
Agreement setting forth the services which Evans was to render to ALLIED
following his retirement;
WHEREAS, on December 18, 1996, ALLIED and Evans amended the Consulting
Agreement;
WHEREAS, the parties desire to amend the Consulting Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Effective June 1, 1997, Section III of the Consulting Agreement is
amended by deleting "$250,000" and replacing it with "$180,000".
2. All other terms and conditions remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
/s/ John E. Evans By: /s/ Douglas L. Andersen
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John E. Evans Douglas L. Andersen,
President
<PAGE>
ALLIED Group, Inc. ALLIED Life Financial Corporation
By: /s/ Douglas L. Andersen By: /s/ Samuel J. Wells
----------------------- ----------------------------
Douglas L. Andersen, Samuel J. Wells,
President President
2
<PAGE>
EXHIBIT 34
THIRD AMENDMENT
TO CONSULTING AGREEMENT
THIS AMENDMENT is made this 24th day of March, 1998, by and between John E.
Evans ("Evans") and ALLIED Group, Inc. ("AGI"), ALLIED Mutual Insurance Company
("Mutual"), and ALLIED Life Financial Corporation ("ALFC"). AGI, Mutual, and
ALFC shall be known collectively as "ALLIED".
WHEREAS, on December 14, 1994, ALLIED and Evans entered into a Consulting
Agreement setting forth the services which Evans was to render to ALLIED
following his retirement;
WHEREAS, on December 18, 1996 and May 13, 1997, ALLIED and Evans amended
the Consulting Agreement;
WHEREAS, the parties desire to amend the Consulting Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants set forth below and other valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. Effective March 1, 1998, Section III of the Consulting Agreement is
amended by deleting "$180,000" and replacing it with "$120,000".
2. All other terms and conditions remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year above first written.
ALLIED Mutual Insurance Company
/s/ John E. Evans By: /s/ Douglas L. Andersen
- -------------------------- ----------------------------
John E. Evans Douglas L. Andersen,
President
ALLIED Group, Inc. ALLIED Life Financial Corporation
By: /s/ Douglas L. Andersen By: /s/ Samuel J. Wells
----------------------- ----------------------------
Douglas L. Andersen, Samuel J. Wells,
President President
2
