UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN STATES FINANCIAL CORPORATION
(Name of Issuer)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
029861101
(CUSIP Number)
ROD A. PIERSON
SAFECO CORPORATION
SAFECO PLAZA
SEATTLE, WASHINGTON 98185
(206) 545-5000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
Copy to:
CRAIG M. WASSERMAN
WACHTELL, LIPTON ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
June 6, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Sched-
ule 13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box / /.
Page 1 of 10 Pages<PAGE>
CUSIP NO. 029861101 Page 2 of 10 Pages
SCHEDULE 13D
1. NAME OF REPORTING PERSON
SS OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SAFECO Corporation
91-0742146
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
BK, WC, OO
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Washington
NUMBER OF 7. SOLE VOTING POWER
SHARES 0
BENEFICIALLY
OWNED BY 8. SHARED VOTING POWER
EACH 0
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER
WITH 0
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 See Item 5 of this Schedule 13D.
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CER-
TAIN SHARES / /
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0%.
14. TYPE OF REPORTING PERSON
HC, CO
Page 2 of 10 Pages<PAGE>
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the common stock, no par
value per share ("ASFC Common Stock"), of American States Finan-
cial Corporation, an Indiana corporation ("ASFC"). The principal
executive offices of ASFC are located at 500 North Meridian
Street, Indianapolis, Indiana 46204-1275.
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13D is filed by SAFECO Corporation, a
Washington corporation ("SAFECO" or the "Corporation"). SAFECO
owns subsidiaries in various segments of insurance and other fi-
nancially related businesses. SAFECO's principal executive of-
fices are located at SAFECO Plaza, Seattle, Washington 98185.
Each executive officer and each director of SAFECO is a
citizen of the United States. The name, business address and
present principal occupation of each executive officer and direc-
tor are set forth in Annex I to this Schedule 13D which is incor-
porated herein by this reference.
During the last five years, to the best of SAFECO's
knowledge, none of SAFECO or any of its executive officers or di-
rectors has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a party to
a civil proceeding of a judicial or administrative body of compe-
tent jurisdiction as a result of which SAFECO or such person was
or is subject to a judgment, decree or final order enjoining fu-
ture violations of, or prohibiting or mandating activities subject
to, federal or state securities laws, or finding any violation
with respect to such laws, and which judgment, decree or final
order was not subsequently vacated.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
SAFECO entered into an Agreement and Plan of Merger,
dated as of June 6, 1997 (the "Merger Agreement"), by and among
American States Financial Corporation, an Indiana corporation
("ASFC"), SAFECO and ASFC Acquisition Co., an Indiana corporation
and a wholly owned subsidiary of SAFECO ("Merger Sub"). The
Merger Agreement provides for, among other things, the merger of
Merger Sub with and into ASFC (the "Merger"), with ASFC surviving
the Merger as a wholly owned subsidiary of SAFECO. Pursuant to
the Merger Agreement and upon consummation of the Merger, each
outstanding share of ASFC Common Stock, of ASFC, will be converted
into the right to receive $47.00 in cash without interest thereon.
In connection with the Merger Agreement, the Corporation
and Lincoln National Corporation, an Indiana corporation and the
holder of approximately 83% of the outstanding ASFC Common Stock
("LNC"), entered into a Voting, Support and Indemnification Agree-
ment, dated June 6, 1997 (the "Voting Agreement"), pursuant to
which LNC agreed, among other things, (i) to vote all ASFC Common
Page 3 of 10 Pages<PAGE>
Stock held by it or any of its subsidiaries in favor of the
Merger, the Merger Agreement, and the transactions contemplated
thereby, (ii) to grant SAFECO an irrevocable proxy in all ASFC
Common Stock held by it or any of its subsidiaries for purposes of
a vote of the holders of ASFC Common Stock held to consider the
Merger, and (iii) to allocate between LNC and SAFECO certain tax
and benefits liabilities and assets of ASFC.
A copy of the Voting Agreement is included as Exhibit
2.1 to this Schedule 13D and is incorporated herein by this refer-
ence. The foregoing description of the Voting Agreement is quali-
fied in its entirety by reference to such exhibit.
ITEM 4. PURPOSE OF TRANSACTION.
In connection with the execution of the Voting Agree-
ment, ASFC, SAFECO, and Merger Sub entered into the Merger Agree-
ment, pursuant to which, among other matters and subject to the
terms and conditions set forth in the Merger Agreement, Merger Sub
will merge with and into ASFC, with ASFC as the surviving corpora-
tion. The Voting Agreement was entered into as a condition of
and in consideration for SAFECO entering into the Merger Agree-
ment.
Pursuant to the Merger Agreement and upon consummation
of the Merger the ASFC Common Stock will be converted into the
right to receive aggregate consideration equal to $47.00 per share
in cash without interest thereon.
Consummation of the Merger is subject to certain custom-
ary conditions, including, among others regulatory approval under
applicable state insurance laws and regulations and under the fed-
eral Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
approval of the holders of ASFC Common Stock.
Following consummation of the Merger, SAFECO intends to
integrate and combine certain of ASFC's operations with SAFECO's
existing insurance and financial services operations.
Except as set forth herein or otherwise relating to in-
tegration in connection with the Merger, SAFECO does not have any
current plans or proposals that relate to or would result in (i)
the acquisition by any person of additional shares of ASFC Common
Stock or the disposition of shares of ASFC Common Stock; (ii) an
extraordinary corporate transaction, such as a merger, reorganiza-
tion or liquidation, involving ASFC or any of its subsidiaries;
(iii) a sale or transfer of any material amount of assets of ASFC
or any of its subsidiaries; (iv) any change in the present board
of directors or management of ASFC, including any plans or propos-
als to change the number or term of directors or to fill any va-
cancies on the board; (v) any material change in the present capi-
talization or dividend policy of ASFC; (vi) any other material
change in ASFC's business or corporate structure; (vii) any change
in ASFC's Articles of Incorporation or By-laws, or instruments
Page 4 of 10 Pages<PAGE>
corresponding thereto, or other actions that may impede the acqui-
sition of control of ASFC by any person; (viii) causing a class of
securities of ASFC to be delisted from a national securities ex-
change or to cease to be authorized to be quoted in an inter-
dealer quotation system of a registered national securities as-
sociation; (ix) a class of equity securities of ASFC becoming eli-
gible for termination of registration pursuant to Section 12(g)(4)
of the Securities Exchange Act of 1934, as amended; or (x) any
action similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
SAFECO does not beneficially own any shares of ASFC Com-
mon Stock. Pursuant to the Voting Agreement, SAFECO may be deemed
to exercise the power to direct voting and disposition, only as to
certain matters relating to the Merger, of the 50,000,000 shares
of ASFC Common Stock beneficially owned by LNC, which represents
approximately 83.3% of the ASFC Common Stock issued and outstand-
ing, as calculated pursuant to Rule 13d-3(d) under the Exchange
Act. SAFECO does not have any power to direct the voting or dis-
position of LNC's shares of ASFC Common Stock other than the power
provided pursuant to the Voting Agreement. A copy of the Voting
Agreement is included as Exhibit 2.1 to this Schedule 13D and is
incorporated herein by this reference.
The filing of this Schedule 13D shall not be construed
as an admission that SAFECO is the beneficial owner of any ASFC
Common Stock.
To the best of SAFECO's knowledge, no executive officer
or director of SAFECO beneficially owns any shares of ASFC Common
Stock, nor have any transactions in ASFC Common Stock been ef-
fected during the past 60 days by SAFECO or, to the best knowledge
of SAFECO, by any executive officer or director of SAFECO. In
addition, no other person is known by SAFECO to have the right to
receive or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the securities covered by this
Schedule 13D.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
Other than the Merger Agreement and the Voting Agree-
ment, SAFECO has no contract, arrangement, understanding or rela-
tionship with respect to ASFC Common Stock.
A copy of the Voting Agreement is included as Exhibit
2.1 to this Schedule 13D and is incorporated herein by this refer-
ence. See Items 3, 4 and 5.
Page 5 of 10 Pages<PAGE>
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed as part of this Sched-
ule 13D:
2.1 Voting, Support, and Indemnification Agreement, dated
June 6, 1997, by and among SAFECO Corporation and Lin-
coln National Corporation.
Page 6 of 10 Pages<PAGE>
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the name and present principal oc-
cupation of each director and executive officer of SAFECO Corpora-
tion as of June 6, 1997. Each director and executive officer is a
citizen of the United States of America. Unless otherwise noted
below, the business address of each such director and executive
officer is c/o SAFECO Corporation, SAFECO Plaza, Seattle, Washing-
ton 98185.
DIRECTORS AND EXECUTIVE
OFFICERS OF SAFECO CORPORATION:
NAME PRINCIPAL OCCUPATION
PHYLLIS J. CAMPBELL* President and Chief Executive Officer of
1420-5th Ave., Suite 2100 U.S. Bank of Washington, N.A., Seattle,
Seattle, WA 98101 Washington, and an executive officer of
the bank since 1989. She is also Execu-
tive Vice President of U.S. Bancorp.
ROBERT S. CLINE* Chairman and Chief Executive Officer of
3101 Western, 8th Floor Airborne Freight Corporation, Seattle,
Seattle, WA 98121 Washington, an air freight carrier.
BOH A. DICKEY* President of the Corporation and Chairman
of the Board of Trustees for the 25
SAFECO mutual funds.
ROGER H. EIGSTI* Chairman and Chief Executive Officer of
the Corporation.
JOHN W. ELLIS* Chairman and Chief Executive Officer of
One Bellevue Center - the corporate general partner of The
15th Floor Baseball Club of Seattle, L.P., the owner
411 108th Avenue N.E. of the Seattle Mariners baseball team.
Bellevue, WA 98004-5515
WILLIAM P. GERBERDING* President Emeritus of the University of
Washington, where he served as President
from 1979 until his retirement in 1995.
JOSHUA GREEN III* Chairman and Chief Executive Officer of
1425 4th Avenue, Suite 420 the Joshua Green Corporation, Seattle,
Seattle, WA 98101 Washington, a family investment firm,
and Chairman of its wholly-owned subsid-
iary, Sage Manufacturing Corporation.
WILLIAM W. KRIPPAEHNE, JR.* President and Chief Executive Officer of
1525 One Union Square Fisher Companies Inc., Seattle, Washing
600 University St. ton, whose primary subsidiaries are en
Seattle, WA 98101-3185 gaged in broadcasting, flour milling and
real estate ownership and development.
Page 7 of 10 Pages<PAGE>
DANIEL D. MCLEAN President of the Corporation's property
and casualty insurance subsidiaries.
WILLIAM G. REED, JR.* Former Chairman of Simpson Investment
1201 Third Avenue Company, Seattle, Washington, a forest
Suite 4900 products holding company.
Seattle, WA 98101-3045
JAMES W. RUDDY Senior Vice President and General Counsel
of the Corporation.
JUDITH M. RUNSTAD* Partner of the Seattle law firm of Foster
1111 Third Avenue Pepper & Shefelman, PLLC.
Seattle, WA 98101
PAUL W. SKINNER* President of Skinner Corporation,
1326 - 5th Avenue, Seattle, Washington, an investment
Suite 711 company.
Seattle, WA 98101
GEORGE H. WEYERHAEUSER* Chairman of the Board of Weyerhaeuser
33663 Weyerhaeuser Way Company, Tacoma, Washington, a forest
South products company.
Federal Way, WA 98003
RICHARD E. ZUNKER President of the Corporation's life in-
surance subsidiaries.
___________________
* Directors of the Corporation
Page 8 of 10 Pages<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.
SAFECO CORPORATION
By: /s/ Rod A. Pierson
Rod A. Pierson
Senior Vice President and
Chief Financial Officer
Dated: June 16, 1997
Page 9 of 10 Pages<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
2.1 Voting, Support, and Indemnification Agreement, dated
June 6, 1997, by and among SAFECO Corporation and
Lincoln National Corporation.
Page 10 of 10 Pages
Exhibit 2.1
VOTING, SUPPORT AND INDEMNIFICATION AGREEMENT
AGREEMENT, dated June 6, 1997 (this "Agreement"), by
and among SAFECO Corporation, a Washington corporation ("Ac-
quiror"), and Lincoln National Corporation, an Indiana corpo-
ration, on behalf of itself and any of its subsidiaries that
may own any Common Stock (as defined below), collectively (the
"Shareholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Acquiror and American
States Financial Corporation, an Indiana corporation (the "Com-
pany"), are entering into an Agreement and Plan of Merger (as
such agreement may hereafter be amended from time to time, the
"Merger Agreement"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the
Merger Agreement) pursuant to which a subsidiary of Acquiror
will be merged with and into the Company (the "Merger");
WHEREAS, Shareholder owns 50 million shares (the
"Shares"), no par value, of common stock of the Company ("Com-
mon Stock"); and
WHEREAS, as an inducement and a condition to entering
into the Merger Agreement, Acquiror has required that the
Shareholder agree, and the Shareholder has agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and
the mutual premises, representations, warranties, covenants and
agreements contained herein, the parties hereto hereby agree as
follows:
1. Provisions Concerning Shares. (a) The Share-
holder hereby agrees that during the period commencing on the
date hereof and continuing until this provision terminates pur-
suant to Section 7 hereof, at any meeting of the holders of
shares of Common Stock, however called, or in connection with
any written consent of the holders of shares of Common Stock,
it shall vote (or cause to be voted) the Shares held of record
or Beneficially Owned (as defined below) by it, whether here-
tofore owned or hereafter acquired, (i) in favor of the adop-
tion of the Merger Agreement and any actions required in fur-
therance thereof and hereof; (ii) against any action or agree-
ment that would result in a breach in any respect of any cov-
enant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement (after giv-
ing effect to any materiality or similar qualifications con-
tained therein); and (iii) except as otherwise agreed to in
writing in advance by Acquiror, against the following actions
(other than the Merger and the transactions contemplated by the
-1-<PAGE>
Merger Agreement): (A) any extraordinary corporate transac-
tion, such as a merger, consolidation or other business combi-
nation involving the Company; (B) a sale, lease or transfer of
a material amount of assets of the Company, or a reorganiza-
tion, recapitalization, dissolution or liquidation of the Com-
pany; (C) (1) any change in a majority of the persons who con-
stitute the board of directors of the Company; (2) any change
in the present capitalization of the Company or any amendment
of the Company's Articles of Incorporation or By-Laws; (3) any
other material change in the Company's corporate structure or
business; or (4) any other action which, in the case of each of
the matters referred to in clauses C (1), (2), (3) or (4), is
intended, or could reasonably be expected, to impede, interfere
with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by this Agreement and
the Merger Agreement. The Shareholder shall not enter into any
agreement or understanding with any Person the effect of which
would be inconsistent or violative of the provisions and agree-
ments contained in Section 1 or 3 hereof. For purposes of this
Agreement, "Beneficially Own" or "Beneficial Ownership" with
respect to any securities shall mean having "beneficial owner-
ship" of such securities (as determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Ex-
change Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplica-
tive counting of the same securities by the same holder, secu-
rities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person
would constitute a "group" as within the meanings of Section
13(d)(3) of the Exchange Act.
(b) In furtherance of the foregoing, (i) the Share-
holder hereby appoints Acquiror and the proper officers of Ac-
quiror, and each of them, with full power of substitution in
the premises, its proxies to vote all Shares at any meeting,
general or special, of the shareholders of the Company, and to
execute one or more written consents or other instruments from
time to time in order to take such action without the necessity
of a meeting of the shareholders of the Company, in accordance
with the provisions of the preceding paragraph and (ii) Ac-
quiror hereby agrees to vote such Shares or execute written
consents or other instruments in accordance with the provisions
of the preceding paragraph. The proxy and power of attorney
granted herein shall be irrevocable during the term specified
in Section 7 hereof, shall be deemed to be coupled with an in-
terest and shall revoke all prior proxies granted by the Share-
holder. The Shareholder shall not grant any proxy to any per-
son which conflicts with the proxy granted herein, and any at-
tempt to do so shall be void ab initio. The agency granted
herein shall survive the insolvency or bankruptcy of the Share-
holder.
-2-<PAGE>
(c) The foregoing voting provisions are subject in
all respects to the receipt of any required state insurance
department approvals.
2. Prepayment of Debt. As contemplated by the
Merger Agreement, on the Closing Date, (i) Acquiror shall pay
to the Shareholder the respective amounts of the Assumed Debt
Prepayment and the Term Note Prepayment by wire transfer of
immediately available funds to an account designated by the
Shareholder, (ii) the Shareholder shall take any and all action
necessary or appropriate on its part to terminate that certain
Assumption Agreement dated May 16, 1996, between the Share-
holder and the Company, relating to the outstanding 7 1/8%
notes due July 15, 1999, originally issued to the public by the
Shareholder on July 15, 1992, and (iii) the Shareholder shall
surrender to the Company for cancellation that certain Term
Note due August 15, 1999, issued by the Company on May 16,
1996.
3. Other Covenants, Representations and Warranties.
The Shareholder hereby agrees, represents and warrants as to
itself to Acquiror as follows:
(a) Ownership of Shares. The Shareholder is the
Beneficial Owner of 50 million Shares. On the date hereof,
such Shares constitute all of the shares of Common Stock owned
of record or Beneficially Owned by the Shareholder. The Share-
holder has sole voting power and sole power to issue instruc-
tions with respect to the matters set forth in Section 1
hereof, sole power of disposition, sole power of conversion,
sole power to demand appraisal rights and, subject to the re-
ceipt of any required state insurance department approvals sole
power to agree to all of the matters set forth in this Agree-
ment, in each case with respect to all such Shares, with no
limitations, qualifications or restrictions on such rights.
(b) Power; Binding Agreement. The execution, deliv-
ery and performance by the Shareholder of this Agreement are
within the Shareholder's corporate powers and have been duly
authorized by all necessary corporate action on the part of the
Shareholder. The execution, delivery and performance of this
Agreement by the Shareholder will not violate any other agree-
ment to which such Shareholder is a party including, without
limitation, any voting agreement, shareholders agreement or
voting trust. This Agreement has been duly and validly ex-
ecuted and delivered by the Shareholder and constitutes a valid
and binding agreement of the Shareholder, enforceable against
such Shareholder in accordance with its terms, subject to the
receipt of any required state insurance department approvals.
(c) No Conflicts. (A) No filing with, and no per-
mit, authorization, consent or approval of, any state or fed-
eral public body or authority is necessary for the execution of
this Agreement by the Shareholder and, except for any required
-3-<PAGE>
state insurance department approvals, the consummation by it of
the transactions contemplated hereby and (B) none of the execu-
tion and delivery of this Agreement by the Shareholder, the
consummation by it of the transactions contemplated hereby or
compliance by it with any of the provisions hereof shall (1)
result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, inden-
ture, license, contract, commitment, arrangement, understand-
ing, agreement or other instrument or obligation of any kind to
which the Shareholder is a party or by which it or any of its
properties or assets may be bound, or (2) subject to the re-
ceipt of any required state insurance department approvals,
violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to it or any of its
properties or assets.
(d) No Solicitation. From and after the date hereof
and continuing until this provision terminates pursuant to Sec-
tion 7 hereof, the Shareholder shall immediately cease any ex-
isting discussions or negotiations with any third parties con-
ducted prior to the date hereof with respect to any Acquisition
Proposal. The Shareholder shall not, directly or indirectly,
through any officer, director, employee, representative or
agent or any of its Subsidiaries, (i) solicit, initiate or en-
courage any Acquisition Proposal, (ii) engage in negotiations
or discussions concerning or provide any nonpublic information
to any person or entity relating to, any Acquisition Proposal
or (iii) agree to or approve any Acquisition Proposal.
(e) Restriction on Transfer, Proxies and Non-
Interference. The Shareholder shall not, directly or indi-
rectly, during the period commencing on the date hereof and
continuing until this provision terminates pursuant to Sec-
tion 7 hereof: (i) except as contemplated by the Merger Agree-
ment, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, op-
tion or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of
its Shares or any interest therein (provided, however, the
Shareholder may transfer, by sale, exchange or capital contri-
bution, Shares to any of its directly or indirectly wholly
owned subsidiaries if prior to such transfer such subsidiary
becomes a party to this Agreement); (ii) except as contemplated
by this Agreement, grant any proxies or powers of attorney,
deposit any Shares into a voting trust or enter into a voting
agreement with respect to any Shares; or (iii) take any action
that would make any of its representations or warranties con-
tained herein untrue or incorrect or have the effect of pre-
venting or disabling it from performing its obligations under
this Agreement.
-4-<PAGE>
(f) Indiana Takeover Laws. The execution of this
Agreement and the transactions contemplated hereby are exempt
from all statutes of the State of Indiana that purport to limit
or restrict business combinations or the ability to acquire or
to vote shares and from all applicable charter or contractual
provisions containing change of control or anti-takeover provi-
sions.
(g) Reliance by Acquiror. The Shareholder under-
stands and acknowledges that Acquiror is entering into the
Merger Agreement in reliance upon the Shareholder's execution
and delivery of this Agreement.
(h) Tax Representations. The Shareholder has filed
a consolidated federal income tax return including the Company
and each of its domestic Subsidiaries for the taxable year im-
mediately preceding the current taxable year, and the Share-
holder is eligible to make an election under Section 338(h)(10)
of the Code (and any comparable election under state, local or
foreign income tax law) with respect to the Company and each of
its domestic Subsidiaries.
4. Tax and Benefits Matters.
(a) The Shareholder shall indemnify and hold harm-
less Acquiror, the Company and each Subsidiary of the Company
(each, an "Indemnified Party) against any liability asserted
against the Company or any Subsidiary of the Company on the
basis of joint and several liability in connection with any
employee benefit plan (within the meaning of section 3(3) of
ERISA) or any other fringe benefit program or arrangement main-
tained by the Shareholder or any ERISA Affiliate of the Share-
holder for employees or former employees of the Shareholder or
any ERISA Affiliate of the Shareholder other than the Company
or any Subsidiary of the Company, including any loss, cost,
expense (including all legal and expert fees and expenses),
damage (including damages to Persons, property or the environ-
ment), fines, penalties or claims. The Shareholder may elect
to compromise or defend at its own expense and by its own coun-
sel (which counsel shall be reasonably satisfactory to the Ac-
quiror) any claim asserted by a third party against an Indemni-
fied Party for which the Shareholder, pursuant to this Section
4(a) is indemnifying such Indemnified Party. If the Share-
holder elects to compromise or defend such a claim, it shall,
within 10 days after receiving notice of such claim, notify the
Indemnified Party of its intent to do so, and such Indemnified
Party shall cooperate, at the expense of the Shareholder, in
the compromise of, or defense against, such claim. If the
Shareholder elects not to compromise or defend against such
claim, or fails to notify the Indemnified Party of its election
to do so as herein provided, or otherwise abandons the defense
of such claim, (i) such Indemnified Party may pay (without
prejudice to any of its rights as against the Shareholder),
compromise or defend such claim (until such defense is assumed
-5-<PAGE>
by the Shareholder) and (ii) the costs and expenses of such
Indemnified Party incurred in connection therewith shall be
indemnifiable by the Shareholder pursuant to this Section 4(a).
Notwithstanding the foregoing, neither the Shareholder nor any
Indemnified Party may settle or compromise any claim (however,
if the sole settlement relief payable to a third party in re-
spect of such claim is monetary damages that are paid in full
by the Shareholder, Shareholder may settle such claim without
the consent of the Indemnified Party) over the objection of the
other; provided, however, that consent to settlement or compro-
mise shall not be unreasonably withheld by such Indemnified
Party. In any event, except as otherwise provided herein, the
Shareholder and the Indemnified Party may each participate, at
its own expense, in the defense of such claim.
(b)(i) The Shareholder and Acquiror shall jointly
make timely and irrevocable elections under Section 338(h)(10)
of the Code and, if permissible, similar elections under any
applicable state, local or foreign income tax laws for the Com-
pany and each domestic subsidiary of the Company specified by
Acquiror in writing on or before the Closing Date (the "Elec-
tions"). The Shareholder, the Company and Acquiror shall re-
port the transactions contemplated herein and in the Merger
Agreement consistent with the Elections and shall take no posi-
tion contrary thereto unless and to the extent required to do
so pursuant to a determination (as defined in Section 1313(a)
of the Code or any similar state, local or foreign tax provi-
sion).
(ii) To the extent possible, the Shareholder, the
Company and Acquiror shall execute at the Closing any and all
forms necessary to effectuate the Elections (including, without
limitation, Internal Revenue Service Form 8023-A and any simi-
lar forms under applicable state, local and foreign income tax
laws (the "Section 338 Forms")). In the event, however, any
Section 338 Forms are not executed at the Closing, the Share-
holder, the Company and Acquiror shall prepare and complete
each such Section 338 Form no later than 15 days prior to the
date such Section 338 Form is required to be filed. The Share-
holder, the Company and Acquiror shall each cause the Section
338 Forms to be duly executed by an authorized person for the
Shareholder, the Company and Acquiror in each case, and shall
duly and timely file the Section 338 Forms in accordance with
applicable tax laws and the terms of this Agreement.
(iii) The Shareholder and Acquiror agree to use
their best efforts to enter into an agreement (the "Allocation
Agreement") as soon as practicable after the Closing Date to
address the computation of the Modified Aggregate Deemed Sale
Price (as defined under applicable Treasury Regulations)
("MADSP") of the assets of the Company and the Subsidiaries of
the Company for which an Election is made. Acquiror shall ini-
tially prepare a statement setting forth a proposed computation
and allocation of MADSP (the "Computation") and submit it to
-6-<PAGE>
the Shareholder no later than one hundred twenty days after the
Closing Date. If, within thirty (30) days of the Shareholder's
receipt of the Computation, the Shareholder shall not have ob-
jected in writing to such Computation, the Computation shall
become the Allocation Agreement. If, sixty (60) days before
the last date on which the Section 338(h)(10) Forms must be
filed, Acquiror and the Shareholder have not adopted an Alloca-
tion Agreement, any disputed aspects of the Allocation Agree-
ment shall be resolved, before the last date on which the Sec-
tion 338(h)(10) Forms may be filed, by a big six accounting
firm mutually acceptable to Acquiror and the Shareholder (the
"Neutral Auditors"). The decision of the Neutral Auditors
shall be final, and the costs, expenses and fees of the Neutral
Auditors shall be borne equally by Acquiror and the Share-
holder. Acquiror and the Shareholder shall not take a position
before any Taxing Authority or otherwise (including in any Re-
turn) inconsistent with the Allocation Agreement unless and to
the extent required to do so pursuant to a determination (as
defined in Section 1313(a) of the Code or any similar state,
local or foreign law).
(c) Except as otherwise required by law or permitted
by Section 4(b) hereof, Acquiror covenants that it will not
cause or permit the Company, its Subsidiaries, Acquiror or any
Affiliate of Acquiror (i) to take any action on the Closing
Date, other than in the ordinary course of business or except
as agreed in writing between the parties (including, but not
limited to, the distribution of any dividend or the effectua-
tion of any redemption) that could give rise to any Tax li-
ability or loss of the Consolidated Group under this Agreement
and the Merger Agreement, (ii) to make any election or deemed
election under Section 338 of the Code with respect to the
Merger or (iii) to amend any Return, file a claim for refund,
make or change any Tax election, change an annual Tax account-
ing period, adopt or change any method of Tax accounting, ad-
just any reserve, or make any other change with respect to any
Tax position of the Company or any of its Subsidiaries that
results or will result in any materially increased Tax li-
ability to, or material reduction of any Tax Benefit of, the
Consolidated Group, the Company or any Affiliate of the Company
for any Pre-Closing Period.
(d)(i) Except as provided in this Section 4(d) or
Section 4(e) hereof, liability for Consolidated Taxes and en-
titlement to any refund with respect to Consolidated Taxes
shall be allocated to the Shareholder, and the Shareholder
shall indemnify and hold harmless Acquiror, the Company and the
Subsidiaries of the Company for such Consolidated Taxes (in-
cluding, without limitation, all Consolidated Taxes attribut-
able to the Elections or any of the transactions contemplated
by this Agreement and the Merger Agreement).
(ii) Acquiror shall be liable for and shall indem-
nify and hold harmless the Shareholder for (i) the Taxes of the
-7-<PAGE>
Company and each Subsidiary of the Company for any taxable year
or period that begins after the Closing Date and (ii) all Taxes
of the Company and each Subsidiary other than Consolidated
Taxes ("Standalone Taxes").
(iii) In the event that any Taxing Authority makes
any adjustment to the Tax liability of the Company or any Sub-
sidiary of the Company for any Pre-Closing Period and such ad-
justment could reasonably be expected to produce a Tax Benefit
to Acquiror, the Company or any Subsidiary of the Company for
any Tax period beginning on or after the Closing Date, Acquiror
shall pay the Shareholder the reasonably anticipated net after-
Tax value to Acquiror, the Company or any Subsidiary of the
Company of such Tax Benefit, discounted at a rate of 7 percent
per annum from the anticipated date of realization of such Tax
Benefit to the date of payment, as the amount of the Tax Ben-
efit is determined under this Section 4(d)(iii). Following the
date of any such adjustment to the Tax liability of the Company
or any Subsidiary of the Company, the Shareholder shall prepare
a statement showing a proposed computation of the anticipated
payment by Acquiror and shall submit it to Acquiror for review.
If, within thirty (30) days of Acquiror's receipt of the state-
ment, Acquiror shall not have objected to the computation, the
computation shall become final and Acquiror shall pay the
Shareholder the computed amount within fifteen (15) days of
such date. If, within sixty (60) days of Acquiror's receipt of
the statement, Acquiror and the Shareholder have not agreed on
the correct payment due to the Shareholder hereunder, the dis-
pute shall be submitted to the Neutral Auditors for resolution,
and the Neutral Auditors shall resolve the dispute within
thirty (30) days of submission. The decision of the Neutral
Auditors shall be final, and the costs, expenses and fees of
the Neutral Auditors shall be borne equally by Acquiror and the
Shareholder. Acquiror shall pay the Shareholder the amount
determined by the Neutral Auditors within fifteen (15) days of
their determination. For purposes of this Section 4(d)(iii),
the Shareholder, Acquiror, and, if necessary, the Neutral Audi-
tors shall make reasonable assumptions regarding the existing
and future business and operations of the Company and its Sub-
sidiaries, the Tax positions of the Company, its Subsidiaries
and Acquiror, probable Tax consequences under the Code, and
other factors relevant to a reasonable and equitable determina-
tion of the anticipated value of any such Tax Benefit, taking
into account any special circumstances known to the parties at
the time of such determination.
(iv) Any payment by the Shareholder or Acquiror un-
der this Section 4(d) will be an adjustment to the portion of
the Merger Consideration allocable to the Shares that are held
by the Shareholder immediately prior to the Effective Time.
(v) The Shareholder shall file or cause to be filed
(including by causing the Company or the relevant Subsidiary to
file) when due all Returns with respect to Consolidated Taxes
-8-<PAGE>
that are required to be filed by or with respect to a member of
the Consolidated Group (including the Company and/or any Sub-
sidiary of the Company for Pre-Closing Periods), and Acquiror
shall file or cause to be filed when due all other Returns that
are required to be filed by or with respect to the Company.
4(e)(i). Subject to Section 4(e)(ii) hereof, the Tax
Sharing Agreements and any other Tax allocation or sharing
agreement or arrangement, whether or not written, that may have
been entered into by the Shareholder or any member of the Con-
solidated Group and the Company or any Subsidiary of the Com-
pany shall be terminated as of the Closing Date for all peri-
ods, and all amounts then due from or to the Company or any
Subsidiary of the Company under any such Tax Sharing Agreements
or other tax sharing agreement or arrangement shall be paid on
or prior to the Closing Date.
(ii) Notwithstanding Section 4(e)(i) hereof, as soon
as practicable after the Closing Date (but in any event within
seventy-five (75) days of such date), the Company shall prepare
and deliver to the Shareholder accurate and complete separate
income and franchise Tax Returns for any Tax period of the Com-
pany and its Subsidiaries for any Tax period of the Company or
its Subsidiaries beginning January 1, 1997 and ending on the
Closing Date, and payment shall be made within ten (10) days of
such delivery to or by the Shareholder, as the case may be, of
the difference, if any, between (i) the Separate Tax Liability
of the ASFC Group (each as defined in the Tax Sharing Agree-
ments) for such period and (ii) the sum of all amounts previ-
ously paid to the Shareholder by the Company for such period
pursuant to the Tax Sharing Agreements.
(f) From and after the Closing Date, each of the
Shareholder and Acquiror shall:
(i) assist in all reasonable respects (and cause
their respective Affiliates to assist) the other party in
preparing any Returns or reports which such other party is
responsible for preparing and filing in accordance with
Section 4(c);
(ii) cooperate in all reasonable respects in prepar-
ing for any audits of, or disputes with Taxing Authorities
regarding, any Returns of the Company or any Subsidiary of
the Company;
(iii) make available to the other and to any Taxing
Authority as reasonably requested all information,
records, and documents relating to Taxes of the Company
and each Subsidiary of the Company (including with respect
to any potential payments contemplated by Section
4(d)(iii) hereof);
-9-<PAGE>
(iv) provide timely notice to the other in writing
of any pending or threatened Tax audits or assessments of
the Company and each Subsidiary of the Company for taxable
periods for which the other may have a liability under
Section 4(d) hereof; and
(v) furnish the other with copies of all correspon-
dence received from any Taxing Authority in connection
with any Tax audit or information request with respect to
any such taxable period.
(g)(i) The Shareholder shall control, manage and solely
be responsible for any audit, contest, claim, proceeding or
inquiry with respect to Consolidated Taxes and shall have the
exclusive right to settle or contest in its sole discretion any
such audit, contest, claim, proceeding or inquiry without the
consent of any other party; provided, however, that the Share-
holder shall not, without the prior written consent of Acquiror
which consent shall not be unreasonably withheld, file, or
cause to be filed, any Return affecting the liability of the
Company or its Subsidiaries with respect to Taxes for any pe-
riod other than a Pre-Closing Period.
(ii) Acquiror shall control, manage and solely be
responsible for any audit, contest, claim, proceeding or in-
quiry with respect to Standalone Taxes or Taxes for any taxable
year or period beginning after the Closing and shall have the
exclusive right to settle or contest any such audit, contest,
claim, proceeding, or inquiry without the consent of any other
party.
(h) The provisions of this Section 4 shall survive
the consummation of the Merger and shall not expire.
5. Further Assurances. From time to time, at the
other party's request and without further consideration, the
Shareholder and Acquiror shall execute and deliver such ad-
ditional documents and take all such further lawful action as
may be necessary or desirable to consummate and make effective,
in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Merger Agreement.
6. Stop Transfer. The Shareholder agrees with, and
covenants to, Acquiror that it shall not request that the Com-
pany register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing the Shares,
unless such transfer is made in compliance with this Agreement.
In the event of a stock dividend or distribution, or any change
in the Company Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or
the like, the term "Shares" shall be deemed to refer to and
include the Shares as well as all such stock dividends and dis-
tributions and any shares into which or for which any or all of
the Shares may be changed or exchanged.
-10-<PAGE>
7. Termination. Except as otherwise provided here-
in, the covenants and agreements contained in Sections 1, 3(f)
and 6 hereof with respect to the Shares shall terminate (a) in
the event the Merger Agreement is terminated in accordance with
the terms of Article 12 thereof, upon such termination, and (b)
in the event the Merger is consummated, upon the Effective
Time.
8. Miscellaneous.
(a) Entire Agreement. This Agreement and consti-
tutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agree-
ments and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
(b) Assignment. Except for any assignment pursuant
to a transfer permitted by Section 3(e)(i), this Agreement
shall not be assigned by operation of law or otherwise without
the prior written consent of the other party. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors.
(c) Amendments, Waivers, Etc. This Agreement may
not be amended, changed, supplemented, waived or otherwise
modified or terminated, except upon the execution and delivery
of a written agreement executed by the relevant parties hereto.
(d) Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and
shall be in writing and shall be deemed to have been duly given
when delivered by hand, or when sent by facsimile transmission
(with receipt confirmed by an electronically generated written
confirmation), addressed as follows (or to such other address
as a party may designate by notice to the others):
If to the Shareholder: Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile: (219) 455-5403
Attention: Jack D. Hunter, Esq.
If to Acquiror: SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185
Facsimile: (206) 545-5559
Attention: James W. Ruddy, Esq.
(e) Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be inter-
preted in such manner as to be effective and valid under ap-
plicable law but if any provision or portion of any provision
of this Agreement is held to be invalid, illegal or unenforce-
able in any respect under any applicable law or rule in any
-11-<PAGE>
jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or portion of any provision
in such jurisdiction, and this Agreement will be reformed, con-
strued and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision
had never been contained herein.
(f) Specific Performance. Each of the parties
hereto recognizes and acknowledges that a breach by it of any
covenants or agreements contained in this Agreement will cause
the other party to sustain damages for which it would not have
an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such
breach the aggrieved party shall be entitled to the remedy of
specific performance of such covenants and agreements and in-
junctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(g) Remedies Cumulative. All rights, powers and
remedies provided under this Agreement or otherwise available
in respect hereof at law or in equity shall be cumulative and
not alternative, and the exercise of any thereof by any party
shall not preclude the simultaneous or later exercise of any
other such right, power or remedy by such party.
(h) No Waiver. The failure of any party hereto to
exercise any right, power or remedy provided under this Agree-
ment or otherwise available in respect hereof at law or in eq-
uity, or to insist upon compliance by any other party hereto
with its obligations hereunder, and any custom or practice of
the parties at variance with the terms hereof, shall not con-
stitute a waiver by such party of its right to exercise any
such or other right, power or remedy or to demand such compli-
ance.
(i) No Third Party Beneficiaries. This Agreement is
not intended to be for the benefit of, and shall not be en-
forceable by, any person or entity who or which is not a party
hereto.
(j) Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Indi-
ana, without giving effect to the principles of conflicts of
law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH
ACTION, SUIT OR PROCEEDING.
(l) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the
same Agreement.
-12-<PAGE>
IN WITNESS WHEREOF, Acquiror and the Shareholder have
caused this Agreement to be duly executed as of the day and
year first above written.
SAFECO CORPORATION
By:/s/ R.H. Eigsti
Name: R.H. Eigsti
Title: Chairman and Chief
Executive Officer
LINCOLN NATIONAL CORPORATION
By: /s/ Barbara S. Kowalczyk
Name: Barbara S. Kowalczyk
Title: Senior Vice President
AGREED TO AND ACKNOWLEDGED
(with respect to Sections 3 and 6):
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Robert A. Anker
Name: Robert A. Anker
Title: Chief Executive Officer
-13-
