UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11840
THE ALLSTATE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3871531
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
2775 SANDERS ROAD, NORTHBROOK, ILLINOIS 60062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 847/402-5000
REGISTRANT HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES /X/ NO
AS OF APRIL 30, 1999, THE REGISTRANT HAD 806,981,906 COMMON SHARES, $.01 PAR
VALUE, OUTSTANDING.
<PAGE>
THE ALLSTATE CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1999
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations for the Three
Month Periods Ended March 31, 1999 and 1998 (unaudited). 1
Condensed Consolidated Statements of Financial Position as of
March 31, 1999 (unaudited) and December 31, 1998. 2
Condensed Consolidated Statements of Cash Flows for the Three
Month Periods Ended March 31, 1999 and 1998 (unaudited). 3
Notes to Condensed Consolidated Financial Statements (unaudited). 4
Independent Accountants' Review Report. 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 10
PART II OTHER INFORMATION
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K. 22
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
--------------------
1999 1998
------- -------
(In millions, except per share data) (Unaudited)
Revenues
Property-liability insurance premiums earned $ 4,852 $ 4,747
Life and annuity premiums and contract charges 385 353
Net investment income 971 964
Realized capital gains and losses 599 386
------- -------
6,807 6,450
------- -------
Costs and expenses
Property-liability insurance claims and claims
expense 3,321 3,303
Life and annuity contract benefits 606 575
Amortization of deferred policy acquisition costs 793 724
Operating costs and expenses 552 466
Interest expense 30 32
------- -------
5,302 5,100
------- -------
Income from operations before income tax expense,
dividends on preferred securities, and equity
in net income of unconsolidated subsidiary 1,505 1,350
Income tax expense 461 414
------- -------
Income before dividends on preferred securities and
equity in net income of unconsolidated subsidiary 1,044 936
Dividends on preferred securities of subsidiary trusts (9) (9)
Equity in net income of unconsolidated subsidiary - 9
------- -------
Net income $ 1,035 $ 936
======= =======
Earnings per share:
Net income per share - basic $ 1.27 $ 1.11
======= =======
Weighted average shares - basic 813.6 845.3
======= =======
Net income per share - diluted $ 1.27 $ 1.10
======= =======
Weighted average shares - diluted 817.0 850.1
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<S> <C> <C>
March 31, December 31,
($ in millions) 1999 1998
--------------- ---------------
(Unaudited)
Assets
Investments
Fixed income securities, at fair value
(amortized cost $51,758 and $49,946) $ 54,557 $ 53,560
Equity securities, at fair value
(cost $4,140 and $4,231) 5,928 6,421
Mortgage loans 3,602 3,458
Short-term 2,817 2,477
Other 615 609
--------------- ---------------
Total investments 67,519 66,525
Cash 190 258
Premium installment receivables, net 3,182 3,082
Deferred policy acquisition costs 3,213 3,096
Reinsurance recoverables, net 1,984 1,932
Accrued investment income 852 751
Property and equipment, net 818 803
Other assets 1,199 1,146
Separate Accounts 10,466 10,098
--------------- ---------------
Total assets $ 89,423 $ 87,691
=============== ===============
Liabilities
Reserve for property-liability insurance
claims and claims expense $ 16,874 $ 16,881
Reserve for life-contingent contract benefits 7,434 7,601
Contractholder funds 21,466 21,133
Unearned premiums 6,404 6,425
Claim payments outstanding 763 778
Other liabilities and accrued expenses 5,992 4,578
Deferred income taxes 181 461
Short-term debt 327 393
Long-term debt 1,353 1,353
Separate Accounts 10,466 10,098
--------------- ---------------
Total liabilities 71,260 69,701
--------------- ---------------
Commitments and Contingent Liabilities (Notes 2 and 4)
Mandatorily Redeemable Preferred Securities of Subsidiary Trusts 750 750
Shareholders' equity
Preferred stock, $1 par value, 25 million
shares authorized, none issued - -
Common stock, $.01 par value, 2 billion shares
authorized and 900 million issued, 812 million
and 818 million shares outstanding 9 9
Additional capital paid-in 3,099 3,102
Retained income 15,403 14,490
Deferred ESOP expense (216) (252)
Treasury stock, at cost (88 million and 82 million shares) (3,285) (3,065)
Accumulated other comprehensive income:
Unrealized net capital gains 2,440 2,994
Unrealized foreign currency translation adjustments (37) (38)
--------------- ---------------
Total accumulated other comprehensive income 2,403 2,956
--------------- ---------------
Total shareholders' equity 17,413 17,240
--------------- ---------------
Total liabilities and shareholders' equity $ 89,423 $ 87,691
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Three months ended
March 31,
-------------------------
(In millions) 1999 1998
---------- ----------
(Unaudited)
Cash flows from operating activities
Net income $ 1,035 $ 936
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and other non-cash items (6) (5)
Realized capital gains and losses (599) (386)
Interest credited to contractholder funds 320 303
Changes in:
Policy benefit and other insurance reserves (36) (55)
Unearned premiums (22) (10)
Deferred policy acquisition costs (43) (48)
Premium installment receivables, net (101) (103)
Reinsurance recoverables, net (52) (2)
Income taxes payable 407 332
Other operating assets and liabilities (187) (73)
---------- ----------
Net cash provided by operating activities 716 889
---------- ----------
Cash flows from investing activities
Proceeds from sales
Fixed income securities 4,239 3,600
Equity securities 2,975 1,421
Real estate - 30
Investment collections
Fixed income securities 1,219 1,082
Mortgage loans 48 41
Investment purchases
Fixed income securities (7,067) (5,189)
Equity securities (2,343) (1,018)
Mortgage loans (193) (103)
Change in short-term investments, net 651 (138)
Change in other investments, net (7) (20)
Purchases of property and equipment, net (49) (43)
---------- ----------
Net cash used in investing activities (527) (337)
---------- ----------
Cash flows from financing activities
Change in short-term debt, net (67) 52
Contractholder fund deposits 1,006 695
Contractholder fund withdrawals (865) (744)
Dividends paid (111) (114)
Treasury stock purchases (252) (444)
Other 32 46
---------- ----------
Net cash used in financing activities (257) (509)
---------- ----------
Net increase in cash (68) 43
Cash at beginning of period 258 220
---------- ----------
Cash at end of period $ 190 $ 263
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
THE ALLSTATE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of The Allstate Corporation and its wholly owned subsidiaries,
primarily Allstate Insurance Company ("AIC"), a property-liability insurance
company with various property-liability and life and savings subsidiaries,
including Allstate Life Insurance Company (collectively referred to as the
"Company" or "Allstate").
The condensed consolidated financial statements and notes as of March 31,
1999, and for the three month periods ended March 31, 1999 and 1998 are
unaudited. The condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for the fair presentation of the financial
position, results of operations and cash flows for the interim periods. These
condensed consolidated financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in Appendix C of the 1999 Notice of Annual Meeting and Proxy Statement
and the Annual Report on Form 10-K for 1998. The results of operations for the
interim periods should not be considered indicative of results to be expected
for the full year.
Effective January 1, 1999, the Company adopted Statement of Position ("SOP")
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." The SOP provides guidance concerning when to recognize a liability
for insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The adoption of this statement was
immaterial to the Company's results of operations and financial position.
To conform with the 1999 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
2. RESERVE FOR PROPERTY-LIABILITY INSURANCE CLAIMS AND CLAIMS EXPENSE
The Company establishes reserves for claims and claims expense on reported
and unreported claims of insured losses. These reserve estimates are based on
known facts and interpretation of circumstances, including the Company's
experience with similar cases and historical trends involving claim payment
patterns, loss payments, pending levels of unpaid claims and product mix, as
well as other factors including court decisions, economic conditions and public
attitudes. The effects of inflation are implicitly considered in the reserving
process.
The establishment of appropriate reserves, including reserves for
catastrophes, is an inherently uncertain process. Allstate regularly updates its
reserve estimates as new facts become known and further events occur which may
impact the resolution of unsettled claims. Changes in prior year reserve
estimates, which may be material, are reflected in the results of operations in
the period such changes are determined to be needed.
Catastrophes are an inherent risk of the property-liability insurance
business which have contributed, and will continue to contribute, to material
year-to-year fluctuations in the Company's results of operations and financial
position. The level of catastrophe losses experienced in any year cannot be
predicted and could be material to the results of operations, liquidity and
financial position.
Reserves for environmental, asbestos and mass tort exposures are comprised
of reserves for reported claims, incurred but not reported claims and related
expenses. Establishing net loss reserves for these types of claims is subject to
uncertainties that are greater than those presented by other types of claims.
Among
-4-
<PAGE>
the complications are a lack of historical data, long reporting delays,
uncertainty as to the number and identity of insureds with potential exposure,
unresolved legal issues regarding policy coverage, availability of reinsurance
and the extent and timing of any such contractual liability. The legal issues
concerning the interpretation of various insurance policy provisions and whether
these losses are, or were ever intended to be covered, are complex. Courts have
reached different and sometimes inconsistent conclusions as to when losses are
deemed to have occurred and which policies provide coverage; what types of
losses are covered; whether there is an insured obligation to defend; how policy
limits are determined; how policy exclusions are applied and interpreted; and
whether environmental and asbestos clean-up costs represent insured property
damage. Management believes these issues are not likely to be resolved in the
near future.
In 1986, the general liability policy form used by Allstate and others in
the property-liability industry was amended to introduce an "absolute pollution
exclusion," which excluded coverage for environmental damage claims and added an
asbestos exclusion. Most general liability policies issued prior to 1987 contain
annual aggregate limits for product liability coverage, and policies issued
after 1986 also have an annual aggregate limit as to all coverages. Allstate's
experience to date is that these policy form changes have effectively limited
its exposure to environmental and asbestos claim risks assumed, as well as
primary commercial coverages written, for most policies written in 1986 and all
policies written after 1986. Allstate's reserves for environmental and asbestos
claims were $1.09 billion and $1.10 billion at March 31, 1999 and December 31,
1998, net of reinsurance recoverables of $448 million and $426 million,
respectively.
Management believes its net loss reserves for environmental, asbestos and
mass tort claims are appropriately established based on available facts,
technology, laws and regulations. However, due to the inconsistencies of court
coverage decisions, plaintiffs' expanded theories of liability, the risks
inherent in major litigation and other uncertainties, the ultimate cost of these
claims may vary materially from the amounts currently recorded, resulting in an
increase in the loss reserves. In addition, while the Company believes that
improved actuarial techniques and databases have assisted in its ability to
estimate environmental, asbestos and mass tort net loss reserves, these
refinements may subsequently prove to be inadequate indicators of the extent of
probable loss. Due to the uncertainties and factors described above, management
believes it is not practicable to develop a meaningful range for any such
additional net loss reserves that may be required.
3. REINSURANCE
Property-liability insurance premiums and life and annuity premiums and
contract charges are net of the following reinsurance ceded for the three months
ended March 31:
<TABLE>
<S> <C> <C>
(In millions) 1999 1998
---- ----
Property-liability premiums $102 $110
Life and annuity premiums and contract 39 46
charges
</TABLE>
Property-liability insurance claims and claims expense and life and annuity
contract benefits are net of the following reinsurance recoveries for the three
months ended March 31:
<TABLE>
<S> <C> <C>
(In millions) 1999 1998
---- ----
Property-liability insurance claims and $98 $66
claims expense
Life and annuity contract benefits 17 16
</TABLE>
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<PAGE>
4. REGULATION AND LEGAL PROCEEDINGS
The Company's insurance businesses are subject to the effects of a changing
social, economic and regulatory environment. Public and regulatory initiatives
have varied and have included efforts to adversely influence and restrict
premium rates, restrict the Company's ability to cancel policies, impose
underwriting standards and expand overall regulation. The ultimate changes and
eventual effects, if any, of these initiatives are uncertain.
Allstate and plaintiffs' representatives have agreed to settle certain civil
suits filed in California, including a class action, related to the 1994
Northridge, California earthquake. The plaintiffs in these civil suits have
challenged licensing and engineering practices of certain firms Allstate
retained and have alleged that Allstate systematically pressured engineering
firms to improperly alter their reports to reduce the loss amounts paid to some
insureds with earthquake claims. The class action settlement received a
preliminary approval in the Superior Court of the State of California for the
County of Los Angeles on December 30, 1998. Under the terms of the proposed
settlement, and subject to court approval, Allstate will begin a
court-administered program to enable up to approximately 11,500 homeowners
customers to seek review of their claims by an independent engineer and an
independent adjusting firm to ensure that they have been compensated for all
structural earthquake damage under the terms of their Allstate policies.
Allstate will also retain an independent consultant to review Allstate's
practices and procedures for handling catastrophe claims, and will establish a
charitable foundation devoted to consumer education on loss prevention and
consumer protection and other insurance issues. Notice of the settlement was
mailed to class members during the week of February 15, 1999. Objections to the
settlement had to be postmarked no later than March 30, 1999. In order to
participate in the settlement, class members must affirmatively respond and
their replies must be postmarked no later than May 17, 1999. The final approval
hearing has been rescheduled for May 14, 1999. The Company does not expect that
the effect of the proposed settlement on Allstate's financial position,
liquidity and results of operations will be material.
In April 1998, Federal Bureau of Investigation agents executed search
warrants at three Allstate offices for documents relating to the handling of
certain claims for losses resulting from the Northridge earthquake. Allstate has
received subpoenas issued in April 1998, and in April 1999 from the U.S.
District Court for the Central District of California in connection with a Los
Angeles grand jury proceeding, for the production of documents and records
relating to the Northridge earthquake. Allstate is cooperating with the
investigation. At present, the Company cannot determine the impact of resolving
these matters.
For the past four years, the Company has been distributing to certain
Personal Property and Casualty ("PP&C") claimants, documents regarding the
claims process and the role that attorneys may play in that process. Suits
challenging the use of these documents have been filed against the Company,
including a suit by the Commonwealth of Pennsylvania and purported class actions
in seven other states. The suit in Pennsylvania alleged that the Company, by
distributing these documents, had engaged in an unauthorized practice of law and
violated the Pennsylvania Consumer Protection Law. A Pennsylvania court recently
has ruled that Allstate did not engage in the unauthorized practice of law but
did permit the Commonwealth to proceed with its case on the claim involving the
Consumer Protection Law. In addition to these suits, the Company has received
inquires from other states' attorneys general, bar associations and departments
of insurance. In certain states, the Company continues to use these documents
after agreeing to make certain modifications. The Company is vigorously
defending its rights to use these forms. The outcome of these disputes is
currently uncertain.
Various other legal and regulatory actions are currently pending that
involve Allstate and specific aspects of its conduct of business, including some
related to the Northridge earthquake. Like other employers and other members of
the insurance industry, the Company is the target of an increasing number of
class action law suits. These suits are based on a variety of issues including
the classification of workers
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<PAGE>
and insurance practices. In the opinion of management, the ultimate liability,
if any, in one or more of these actions in excess of amounts currently reserved
is not expected to have a material effect on the results of operations,
liquidity or financial position of the Company.
5. BUSINESS SEGMENTS
Summarized financial performance data for each of the Company's reportable
segments for the three months ended March 31, are as follows:
<TABLE>
<S> <C> <C> <C>
(In millions) 1999 1998
---- ----
INCOME FROM OPERATIONS BEFORE INCOME TAXES
AND OTHER ITEMS
Property-Liability:
Underwriting income (loss)
PP&C $ 367 $410
Discontinued Lines and Coverages (1) (7)
--- ---
Total underwriting income 366 403
Net investment income 420 438
Realized capital gains and losses 530 280
--- ---
Property-Liability income from
operations before income taxes
and equity in net income of
unconsolidated subsidiary 1,316 1,121
Life and Savings:
Premiums and contract charges 385 353
Net investment income 536 518
Realized capital gains and losses 69 103
Contract benefits 606 575
Operating costs and expenses 177 155
--- ---
Life and Savings income from
operations before income taxes 207 244
Corporate and Other:
Net investment income 15 8
Realized capital gains and losses - 3
Operating costs and expenses 33 26
--- ---
Corporate and Other loss from
operations before income taxes and
dividends on preferred securities (18) (15)
--- ---
Consolidated income from
operations before income taxes and
other items $1,505 $1,350
===== =====
</TABLE>
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<PAGE>
Summarized revenues for each of the Company's business segments for the
three months ended March 31, are as follows:
<TABLE>
<S> <C> <C> <C>
(In millions) 1999 1998
---- ----
REVENUES
Property-Liability:
Premiums earned
PP&C $ 4,845 $ 4,747
Discontinued Lines and Coverages 7 -
---- ----
Total premiums earned 4,852 4,747
Net investment income 420 438
Realized capital gains and losses 530 280
---- ----
Total Property-Liability 5,802 5,465
Life and Savings:
Premiums and contract charges 385 353
Net investment income 536 518
Realized capital gains and losses 69 103
---- ----
Total Life and Savings 990 974
Corporate and Other:
Net investment income 15 8
Realized capital gains and losses - 3
---- ----
Total Corporate and Other 15 11
---- ----
Consolidated Revenues $6,807 $6,450
===== =====
</TABLE>
6. COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis
for the three months ended March 31, are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(In millions) 1999 1998
------------------------- ---------------------------
Pretax Tax After-tax Pretax Tax After-tax
Unrealized capital gains and losses:
Unrealized holding gains (losses)
arising during the period $(311) $109 $(202) $586 $(205) $ 381
Less: reclassification adjustment
for realized net capital gains
included in net income 541 (189) 352 374 (131) 243
------ ----- ----- ----- ----- -----
Unrealized net capital gains (losses) (852) 298 (554) 212 (74) 138
Unrealized foreign currency translation
adjustments 2 (1) 1 - - -
------ ----- ----- ----- ----- -----
Other comprehensive income (loss) $(850) $297 (553) $ 212 $ (74) 138
===== === ----- ==== ==== -----
Net income 1,035 936
----- -----
Comprehensive income $ 482 $1,074
===== =====
</TABLE>
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<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
The Allstate Corporation:
We have reviewed the accompanying condensed consolidated statement of
financial position of The Allstate Corporation and subsidiaries as of March 31,
1999, and the related condensed consolidated statements of operations and cash
flows for the three-month periods ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of The Allstate
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, comprehensive income, shareholders'
equity, and cash flows for the year then ended, not presented herein. In our
report dated February 19, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated statement of financial position as of
December 31, 1998 is fairly stated, in all material respects, in relation to the
consolidated statement of financial position from which it has been derived.
Deloitte & Touche LLP
Chicago, Illinois
May 13, 1999
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<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
The following discussion highlights significant factors influencing results
of operations and changes in financial position of The Allstate Corporation (the
"Company" or "Allstate"). It should be read in conjunction with the condensed
consolidated financial statements and notes thereto found under Part I. Item 1
contained herein and with the discussion, analysis, consolidated financial
statements and notes thereto in Part I. Item 1 and Part II. Item 7 and Item 8 of
The Allstate Corporation Annual Report on Form 10-K for 1998 and in Appendix C
of the 1999 Notice of Annual Meeting and Proxy Statement.
<TABLE>
<S> <C> <C> <C>
CONSOLIDATED REVENUES
THREE MONTHS ENDED
MARCH 31,
(In millions) 1999 1998
---- ----
Property-Liability insurance premiums $ 4,852 $ 4,747
Life and Savings premiums and contract
charges 385 353
Net investment income 971 964
Realized capital gains and losses 599 386
---- ----
Total revenues $ 6,807 $ 6,450
====== ======
</TABLE>
Consolidated revenues for the first quarter of 1999 increased 5.5%,
reflecting growth primarily in Property-Liability insurance premiums earned and
higher realized capital gains.
CONSOLIDATED NET INCOME
Net income for the first quarter of 1999 was $1.04 billion, or $1.27 per
diluted share, compared with $936 million, or $1.10 per diluted share, for the
first quarter of 1998. Growth in Property-Liability earned premiums and higher
realized capital gains were partially offset by increased Property-Liability
expenses.
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<PAGE>
PROPERTY-LIABILITY OPERATIONS
OVERVIEW
The Company's Property-Liability operations consist of two principal
business segments: Personal Property and Casualty ("PP&C") and Discontinued
Lines and Coverages ("Discontinued Lines and Coverages"). PP&C is principally
engaged in the sale of private passenger auto and homeowners insurance to
individuals in both the United States and in other countries. Discontinued Lines
and Coverages consists of business no longer written by Allstate, including
results from environmental, asbestos and mass tort exposures, mortgage pool
insurance business and other commercial business in run-off. Such groupings of
financial information are consistent with that used internally for evaluating
segment performance and determining the allocation of resources.
Underwriting results for each of the Property-Liability business segments
are discussed separately beginning on page 12.
Unaudited summarized financial data and key operating ratios for the
Company's Property-Liability operations for the three month periods ended March
31, are set forth in the following table:
<TABLE>
<S> <C> <C>
(In millions, except ratios) 1999 1998
---- ----
Premiums written $ 4,839 $ 4,745
===== =====
Premiums earned $ 4,852 $ 4,747
Claims and claims expense 3,321 3,303
Operating costs and expenses 1,165 1,041
----- -----
Underwriting income 366 403
Net investment income 420 438
Income tax expense on operations 212 236
------ -----
Operating income 574 605
Realized capital gains and losses, after-tax 344 182
Equity in net income of unconsolidated
subsidiary - 9
------- -------
Net income $ 918 $ 796
======= =======
Catastrophe losses $ 126 $ 119
======= =======
Operating ratios
Claims and claims expense ("loss") ratio 68.5 69.6
Expense ratio 24.0 21.9
----- -----
Combined ratio 92.5 91.5
===== =====
Effect of catastrophe losses on combined ratio 2.6 2.5
===== =====
</TABLE>
NET INVESTMENT INCOME AND REALIZED CAPITAL GAINS
Net investment income decreased 4.1% to $420 million compared to the same
period last year as lower investment yields continued to offset income from
slightly higher investment balances. Positive cash flows from Property-Liability
operations, which typically increase the investment portfolio, were
substantially offset by the impact of increased dividends paid to The Allstate
Corporation during the last twelve months. The lower investment yields are due,
in part, to the investment of proceeds from calls and maturities and the
investment of positive cash flows from operations in securities yielding less
than the average portfolio rate. In relatively low interest rate environments,
funds from maturing investments may be reinvested at interest rates lower than
those which prevailed when the funds were previously invested, resulting in
lower investment yields.
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<PAGE>
Net realized capital gains for the first quarter of 1999 were $344 million
after-tax versus $182 million after-tax for the same period in 1998. Period to
period fluctuations in realized capital gains are largely due to the timing of
sales decisions reflecting management's view of the positioning of the
portfolio, individual securities and overall market conditions.
UNDERWRITING RESULTS
PP&C - Summarized financial data and key operating ratios for Allstate's
PP&C operations for the three month periods ended March 31, are presented in the
following table:
<TABLE>
<S> <C> <C>
(In millions, except ratios) 1999 1998
---- ----
Premiums written $ 4,832 $ 4,745
===== ======
Premiums earned $ 4,845 $ 4,747
Claims and claims expense 3,318 3,301
Operating costs and expenses 1,160 1,036
----- -----
Underwriting income $ 367 $ 410
====== ======
Catastrophe losses $ 126 $ 119
====== ======
Operating ratios
Claims and claims expense ("loss") ratio 68.5 69.5
Expense ratio 23.9 21.8
---- ----
Combined ratio 92.4 91.3
==== ====
Effect of catastrophe losses on combined ratio 2.6 2.5
==== ====
</TABLE>
PP&C provides primarily private passenger auto and homeowners insurance to
individuals. The Company separates the voluntary personal auto insurance
business into two categories for underwriting purposes according to insurance
risks: the standard market and the non-standard market. The standard market
consists of drivers who meet certain criteria which classify them as having low
to average risk of loss expectancy. The non-standard market consists of drivers
who have higher-than-average risk profiles due to their driving records, lack of
prior insurance or the types of vehicles they own. These policies are generally
written at rates higher than standard auto rates.
The Company's marketing strategy for auto and homeowners varies by
geographic area. The strategy for auto is to grow business more rapidly in areas
where the regulatory climate is more conducive to attractive returns. The
strategy for homeowners is to manage exposure on policies in areas where the
potential loss from catastrophes exceeds acceptable levels. The process to
designate geographic areas as growth and limited growth is dynamic and may be
revised as changes occur in the legal, regulatory and economic environments, as
catastrophe exposure is reduced and as new products are approved and introduced.
The Company continuously monitors its designated growth and limited growth
areas, and adjusts its actions including limiting premium growth, as necessary,
to maintain acceptable catastrophe exposure levels in these areas. The areas
currently designated as auto limited growth markets represent an insignificant
percentage of the total United States population. As a result of the Company's
success in introducing policy changes and purchasing catastrophe reinsurance
coverage, the homeowners limited growth markets have been reduced to areas where
approximately 4% of the United States population resides.
PP&C premiums written for the first quarter of 1999 increased 1.8%, compared
to the same period in 1998. The increase was primarily due to an increase in new
and renewal policies in force (unit sales), partially offset by decreases in
average premiums.
-12-
<PAGE>
Standard auto premiums written increased 0.8% to $2.83 billion in the first
quarter of 1999, from $2.81 billion for the same three month period in 1998. The
increase was primarily due to an increase in new and renewal policies in force,
partially offset by slight decreases in average premiums. The decrease in
average premiums was primarily due to rate decreases taken in 1998 which are now
being reflected in 1999 written premiums. Favorable loss trends, competitive
considerations and regulatory pressures in some states have affected the
Company's ability to maintain rates at historical levels. The Company has filed,
or plans to file in 1999, rate changes including decreases in several key
states, which are expected to adversely impact average premium growth further in
1999 as compared to the prior year. In addition, the Company is subject to
regulated rate and coverage reductions in the state of New Jersey that are
effective in the second quarter of 1999. Additional discussion of these changes
is included in the Other Developments section beginning on page 20.
Non-standard auto premiums written increased 1.8% to $859 million in the
first quarter of 1999, from $844 million for the same period in 1998. The
increase was driven by an increase in renewal policies in force and increased
production in the independent agency channel, partially offset by a decrease in
average premiums. Management believes non-standard auto premiums written
continued to be adversely impacted by competitive pressures.
Homeowners premiums written for the first quarter were $700 million, an
increase of 4.6% from the first quarter 1998 premiums of $669 million. The
increase was driven by an increase in policies in force and, to a lesser extent,
average premiums. The higher average premiums were primarily due to rate
increases.
For the first quarter of 1999, PP&C had underwriting income of $367 million
versus $410 million for the first quarter of 1998. Underwriting income decreased
10.5% as earned premium growth and favorable auto loss experience were more than
offset by increases in expenses, catastrophe losses and unfavorable homeowners
loss experience. Auto claim severity growth was below the growth of relevant
cost indices related to medical services, auto body work and used car prices.
CATASTROPHE LOSSES AND CATASTROPHE MANAGEMENT - Catastrophe losses for the
first quarter of 1999 were $126 million compared with $119 million for the same
period in 1998. The level of catastrophe losses experienced in any year cannot
be predicted and could be material to results of operations and financial
position. The Company has experienced two severe catastrophes in the past ten
years which each resulted in losses of approximately $2 billion. While
management believes the Company's catastrophe management initiatives will
greatly reduce the severity of possible future losses, the Company continues to
be exposed to catastrophes which could be of similar or greater magnitude.
The establishment of appropriate reserves for catastrophes, as for all
outstanding property-liability claims, is an inherently uncertain process.
Catastrophe reserve estimates are regularly reviewed and updated, using the most
current information. Any resulting adjustments, which may be material, are
reflected in current operations.
Allstate has implemented initiatives to limit, over time, its insurance
exposures in certain regions prone to catastrophes, subject to the requirements
of insurance laws and regulations and as limited by competitive considerations.
These initiatives include limits on new business production, limitations on
certain policy coverages, increases in deductibles, policy brokering and
participation in catastrophe pools. In addition, Allstate has requested and
received rate increases and has expanded its use of or the level of deductibles
in certain regions prone to catastrophes. The Company has continued to make
substantial progress in reducing its exposure to catastrophes in Florida,
California and the northeastern portion of the United States ("Northeast").
-13-
<PAGE>
For Allstate, major areas of potential losses due to hurricanes include
major metropolitan centers near the eastern and gulf coasts of the United
States. Allstate Floridian Insurance Company ("Floridian") and Allstate
Floridian Indemnity Company ("AFI") were formed to sell and service Allstate's
Florida residential property policies, and have access to reimbursements, and
exposure to assessments from the Florida Hurricane Catastrophe Fund. In
addition, Floridian and AFI are subject to assessments from the Florida
Windstorm Underwriting Association and the Florida Property and Casualty Joint
Underwriting Association which are organizations created to provide coverage for
catastrophic losses to property owners unable to obtain coverage in the private
market.
Exposure to potential earthquake losses in California is limited by the
Company's participation in the California Earthquake Authority ("CEA"), except
for losses incurred on coverages not covered by the CEA. Other areas in the
United States for which Allstate faces exposure to potential earthquake losses
include areas surrounding the New Madrid fault system in the Midwest and faults
in and surrounding Seattle, Washington and Charleston, South Carolina. Allstate
continues to evaluate alternative business strategies to more effectively manage
its exposure to catastrophe losses in these and other areas.
DISCONTINUED LINES AND COVERAGES - Underwriting results for Discontinued
Lines and Coverages for the three month periods ended March 31, are summarized
below:
<TABLE>
<S> <C> <C>
(In millions) 1999 1998
---- ----
Underwriting loss $ (1) $ (7)
=== ===
</TABLE>
Discontinued Lines and Coverages consists of business no longer written by
Allstate, including results from environmental, asbestos and mass tort
exposures, mortgage pool business and other commercial business in run-off.
LIFE AND SAVINGS OPERATIONS
Life and Savings markets life insurance, savings and group pension products.
Life insurance products primarily include traditional life, including term and
whole life, and universal life insurance. Savings products consist of fixed
annuity products, including indexed, market value adjusted and structured
settlement annuities, as well as variable annuities. Life and Savings products
are distributed through a combination of Allstate agents (which include life
specialists), banks, independent agents, brokers and direct response marketing.
-14-
<PAGE>
Summarized financial data for Life and Savings operations and investments at
or for the three month periods ended March 31, are illustrated in the following
table:
<TABLE>
<S> <C> <C>
(In millions) 1999 1998
---- ----
Statutory premiums and deposits $ 1,511 $ 1,204
====== ======
Investments $32,088 $30,519
Separate Account assets 10,466 8,555
------ ------
Investments including Separate Account
assets $42,554 $39,074
====== ======
Premiums and contract charges $ 385 $ 353
Net investment income 536 518
Contract benefits 606 575
Operating costs and expenses 163 152
------ ------
Income from operations 152 144
Income tax expense on operations 53 51
------ ------
Operating income 99 93
Realized capital gains and losses,
after-tax (1) 37 64
----- ------
Net income $ 136 $ 157
====== ======
<FN>
(1) Net of the effect of related amortization of deferred policy acquisition
costs.
</FN>
</TABLE>
Statutory premiums and deposits, which includes premiums and deposits for
all products, are utilized to analyze sales trends. The following table
summarizes statutory premiums and deposits by product line for the three month
periods ended March 31:
<TABLE>
<S> <C> <C>
(In millions) 1999 1998
---- ----
Life products
Universal $194 $185
Traditional 74 72
Other 143 57
Annuity products
Fixed 476 306
Variable 382 394
Group pension products 242 190
--- ---
Total $ 1,511 $1,204
======= ======
</TABLE>
Total statutory premiums and deposits increased $307 million or 25.5% in the
first quarter of 1999 compared with the same period last year primarily due to
higher sales of fixed annuities and life products. Fixed annuity sales for the
first quarter of 1999 increased 55.6% over the prior year due to the
introduction of new products and new marketing partnerships in the independent
agent and banking distribution channels. Statutory premiums for life products
increased $97 million primarily due to the introduction of a new bank-owned life
product. Variable annuity statutory premiums decreased 3.0% for the first
quarter of 1999 as higher sales in the independent agent and direct marketing
channels were more than offset by lower sales in the bank and broker
distribution channels.
-15-
<PAGE>
Under generally accepted accounting principles ("GAAP"), revenues exclude
deposits on most annuity contracts and premiums on universal life policies, and
will vary with the mix of business sold during the period. For the first quarter
of 1999, premium and contract charges increased $32 million to $385 million due
to increased premiums from structured settlement annuities with life
contingencies and higher universal life and variable annuity contract charges.
Pretax net investment income increased 3.5% in the first quarter of 1999
compared with the same period last year as higher investment balances were
partially offset by lower investment yields. Investments at March 31, 1999,
excluding Separate Accounts and unrealized gains on fixed income securities,
grew 6.1% from the same period last year. Lower investment yields are due, in
part, to the investment of proceeds from calls and maturities and the investment
of positive cash flows from operations in securities yielding less than the
average portfolio rate. In relatively low interest rate environments, funds from
maturing investments may be reinvested at interest rates lower than those which
prevailed when the funds were previously invested, resulting in lower investment
yields.
Operating income increased 6.5% to $99 million for the first three months of
1999 compared with the same period last year. The increase for the period was
primarily due to growth in contract charges and increased investment income
partially offset by higher expenses and unfavorable mortality experience.
Realized capital gains and losses, after-tax for the three month period
ended March 31, 1999 were $37 million compared to $64 million for first quarter
of 1998. The decrease in realized capital gains and losses was due primarily to
lower gains from equity linked investments, increases in high-yield bond trading
losses and writedowns on certain fixed income securities.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
The Company maintains two credit facilities totaling $1.55 billion as a
potential source of funds to meet short-term liquidity requirements, including a
$1.50 billion, five-year revolving line of credit, expiring in 2001 and a $50
million, one-year revolving line of credit expiring in 2000. In order to borrow
on the five-year line of credit, Allstate Insurance Company ("AIC") is required
to maintain a specified statutory surplus level, and the Company's debt to
equity ratio (as defined in the agreement) must not exceed a designated level.
These requirements are currently being met, and management expects to continue
to meet them in the future. Allstate also has a commercial paper program with an
authorized borrowing limit of up to $1.00 billion to cover its short-term cash
needs. The majority of the proceeds from the issuance of commercial paper have
been used by the insurance operations for general purposes. At March 31, 1999,
the Company had outstanding commercial paper borrowings of $327 million. Total
borrowings under the combined commercial paper program and line of credit are
limited to $1.55 billion.
The Company currently has a shelf registration statement, filed with the
Securities and Exchange Commission in August 1998, under which up to $2.00
billion of debt securities, preferred stock or debt warrants may be issued. No
securities have been issued under this registration statement.
During the first quarter of 1999, the Company purchased approximately 6.8
million shares of its common stock, as part of its stock repurchase program, at
a cost of $251 million. In August 1998, the Company announced a new $2.00
billion stock repurchase program to be completed on or before December 31, 2000.
At March 31, 1999, this program was approximately 25.7% complete. The prior
$2.00 billion stock repurchase program was completed during the third quarter of
1998.
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company, receipt of dividends from
AIC and other relevant factors. The payment of
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<PAGE>
shareholder dividends by AIC without the prior approval of the state insurance
regulator is limited to formula amounts based on net income and capital and
surplus, determined in accordance with statutory accounting practices, as well
as the timing and amount of dividends paid in the preceding twelve months. The
maximum amount of dividends that AIC can distribute during 1999 without prior
approval of the Illinois Department of Insurance is $2.96 billion. In the twelve
months beginning May 1, 1998, AIC has paid approximately $2.64 billion in
dividends to The Allstate Corporation, and at April 30, 1999, has remaining
capacity to pay an additional $325 million in dividends. This capacity will vary
during the year as dividends previously paid are excluded from the calculation
after twelve months, and decrease as AIC continues to pay dividends. AIC intends
to continue to pay dividends in advance of Corporate funding requirements and up
to the maximum amount allowed without requiring prior approval. Dividends paid
have historically been used for general corporate purposes including the
Company's stock repurchase program.
Financial Ratings and Strength
The following table summarizes the Company and its major subsidiaries' debt
and commercial paper ratings and the insurance claims-paying ratings, which were
determined by Standard & Poor's during the first quarter of 1999:
<TABLE>
<S> <C> <C>
The Allstate Corporation (debt) A+
The Allstate Corporation (mandatorily redeemable preferred
securities of subsidiary trusts) A-
The Allstate Corporation (commercial paper) A-1
Allstate Insurance Company (claim-paying ability) AA
Allstate Life Insurance Company (claim-paying ability) AA+
</TABLE>
Liquidity
Surrenders and withdrawals for Allstate Life were $667 million for the three
month period ended March 31, 1999, compared to $502 million for the same period
in 1998. As the Company's interest-sensitive life policies and annuity contracts
in-force grow and age, the dollar amount of surrenders and withdrawals could
increase.
INVESTMENTS
The composition of the investment portfolio at March 31, 1999, at financial
statement carrying values, is presented in the table below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORPORATE
PROPERTY-LIABILITY LIFE AND SAVINGS AND OTHER TOTAL
------------------ ---------------- -------------- --------------
Percent Percent Percent Percent
(In millions) to to to to
total total total total
----- ----- ----- -----
Fixed income securities (1) $27,490 79.3% $26,629 83.0% $ 438 57.7% $54,557 80.8%
Equity securities 5,315 15.3 611 1.9 2 0.3 5,928 8.8
Mortgage loans 186 0.6 3,416 10.6 - - 3,602 5.3
Short-term 1,667 4.8 831 2.6 319 42.0 2,817 4.2
Other 14 - 601 1.9 - - 615 0.9
------ ----- ------ ----- ----- ----- ------ -----
Total $34,672 100.0% $32,088 100.0% $ 759 100.0% $67,519 100.0%
====== ===== ====== ===== ==== ===== ====== =====
<FN>
(1) FIXED INCOME SECURITIES ARE CARRIED AT FAIR VALUE. AMORTIZED COST FOR THESE
SECURITIES WAS $26.4 BILLION, $24.9 BILLION AND $441 MILLION FOR
PROPERTY-LIABILITY, LIFE AND SAVINGS, AND CORPORATE AND OTHER, RESPECTIVELY.
</FN>
</TABLE>
-17-
<PAGE>
Total investments increased to $67.52 billion at March 31, 1999 from $66.53
billion at December 31, 1998. Property-Liability investments increased $939
million to $34.67 billion at March 31, 1999 from $33.73 billion at December 31,
1998. Allstate Life investments at March 31, 1999, increased $323 million to
$32.09 billion from $31.77 billion at December 31, 1998. The increase in
investments was primarily attributable to amounts invested from positive cash
flows generated from operations, partially offset by a decrease in unrealized
capital gains on the fixed income and equity securities portfolios.
Nearly 93.5% of the Company's fixed income securities portfolio is rated
investment grade, which is defined by the Company as a security having an NAIC
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, insurance processing,
underwriting, loss reserving, investments and other enterprise systems. Since
many computer software programs recognize only the last two digits of the year
in any date, some software may fail to operate properly in or after the year
1999, if the software is not reprogrammed, remediated, or replaced ("Year
2000"). Also, many systems and equipment that are not typically thought of as
computer-related (referred to as "non-IT") contain embedded hardware or software
that may have a Year 2000 sensitive component. Allstate believes that many of
its counterparties and suppliers also have Year 2000 issues and non-IT issues
which could affect the Company.
In 1995, the Company commenced a plan consisting of four phases which are
intended to mitigate and/or prevent the adverse affects of the Year 2000 issues
on its systems: 1) inventory and assessment of affected systems and equipment,
2) remediation and compliance of systems and equipment through strategies that
include the replacement or enhancement of existing systems, upgrades to
operating systems already covered by maintenance agreements and modifications to
existing systems to make them Year 2000 compliant, 3) testing of systems using
clock-forward testing for both current and future dates and for dates which
trigger specific processing, and 4) contingency planning which will address
possible adverse scenarios and the potential financial impact to the Company's
results of operations, liquidity or financial position.
The Company believes that the first three steps of this plan, assessment,
remediation and testing, including clock-forward testing which is being
performed on the Company's systems and non-IT, are mostly complete for the
Company's critical systems. In April 1998, the Company announced its main
premium application system, ALERT, which manages more than 20 million auto and
homeowners policies, is Year 2000 compliant. The Company also began migrating
certain policies to a new premium application system which is also Year 2000
compliant. The Company is relying on other remediation techniques for its
midrange and personal computer environments, and certain mainframe applications.
Certain other processing systems are planned to be remediated by the middle
of 1999, and the implementation and rollout of the remediated personal computer
environment will continue through the third quarter of 1999. Some systems and
non-IT related to discontinued or non-critical functions of the Company are
planned to be abandoned by the end of 1999.
The Company is currently in the process of developing contingency plans in
the event that the systems supporting key processes are not Year 2000 compliant
in or after the year 1999. Management believes these contingency plans should be
completed by mid-1999 with testing of these plans conducted throughout the
second half of 1999. Management has also begun to identify and model the impacts
of the most reasonably likely worst case scenarios. Until these plans are
complete, management is unable to
-18-
<PAGE>
determine an estimate of the most reasonably likely worst case scenario due to
issues relating to the Year 2000.
In addition, the Company is actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Company's exposure to both their Year 2000 issues and non-IT issues. This
assessment has included soliciting external counterparties and suppliers,
evaluating responses received and testing third party interfaces and
interactions to determine compliance. Currently the Company has solicited, and
has received responses from, the majority of its counterparties and suppliers.
These responses generally state that they believe they will be Year 2000
compliant and that no transactions will be affected. However, certain vendors
are also in ongoing assessment and testing of their products whereby they are
currently unable to identify all potential problems in certain products which
are used by the Company. The Company believes that these vendors will make no
statements regarding their Year 2000 readiness other than to publish
declarations addressing specific compliance issues identified with their
products. The Company has begun to work with these key vendors and is developing
procedures in order to stay aware of any compliance issues encountered by these
vendors. The Company has also decided to test certain interfaces and
interactions to gain additional assurance on third party compliance. If key
vendors are unable to meet the Year 2000 requirement, Allstate is preparing
contingency plans that will allow the Company to continue to sell its products
and to service its customers. Management believes these contingency plans should
be completed by mid-1999. The Company currently does not have sufficient
information to determine whether or not all of its external counterparties and
suppliers will be Year 2000 ready.
The Company is also potentially exposed to Year 2000 risks associated with
certain personal lines policies that have been issued. While the Company has not
changed its personal auto or homeowners insurance policies to specifically
exclude coverage for Year 2000-related losses, this does not mean that all
losses, or any particular type of loss, that might be related to Year 2000 will
be covered under these policies. Losses incurred due to mere failures of
personal electronic devices to function as intended by their manufacturer or
distributor, or as expected by the policyholder, are not the type of losses
which would be covered by the Company's personal auto or homeowners insurance
policies. Such product failures are considered to be product warranty issues
best addressed between the policyholder and the manufacturer or distributor of
the products. However, certain other types of Year 2000-related losses may be
covered under the Company's policies, depending upon the particular
circumstances of the loss and the type of policy in force at the time of loss.
Some of the Company's homeowners policies, for instance, provide significantly
broader protection than others, and therefore may provide coverage for certain
types of losses. In determining whether coverage exists in any particular
circumstance, all facts of the loss as well as the applicable policy terms and
conditions will be reviewed. The Company currently does not have sufficient
information to determine the impacts of such losses on it's results of
operations, liquidity or financial position.
The Company may be exposed to the risk that the issuers of investments in
its portfolio will be adversely impacted by Year 2000 issues. The Company
assesses the impact which Year 2000 issues have on the Company's investments as
part of due diligence for proposed new investments and in its ongoing review of
all current portfolio holdings. Any recommended actions with respect to
individual investments are determined by taking into account the potential
impact of Year 2000 on the issuer. Based on its current review, the Company
believes the potential impact of Year 2000 on its investment portfolio will not
be material.
The Company presently believes that it will resolve the Year 2000 issue in
a timely manner. Year 2000 costs are expensed as incurred. The majority of the
expenses related to this project have been incurred as of March 31, 1999. The
Company estimates that approximately $125 million in costs will be incurred
between the years of 1995 and 2000. These amounts include costs directly related
to fixing Year 2000 issues, such as modifying software and hiring Year 2000
solution providers, as well as costs incurred to replace certain non-compliant
systems which would not have been otherwise replaced.
-19-
<PAGE>
OTHER DEVELOPMENTS
In 1997, the Company formed a new company, Allstate New Jersey Insurance
Company ("ANJ"), which is dedicated to serving insurance consumers in New
Jersey. ANJ became the replacement carrier for AIC and Allstate Indemnity
Company ("AI") in New Jersey. AIC and AI have legally withdrawn from New Jersey.
The Certificates of Authority for AIC and AI were officially surrendered as of
December 31, 1998 pursuant to the requirement that they run off all policies and
claims. In accordance with that legal process, ANJ began absorbing business in
New Jersey by offering coverage to customers, and receiving property, commercial
and assigned risk policies from AIC and AI in 1998. In December 1998, ANJ began
absorbing all voluntary private passenger auto policies, a process that should
be complete in 1999. Due to legislative and regulatory reform of the auto
insurance system that included regulated rate and coverage reductions effective
for new policies written and renewals processed on and after March 22, 1999,
management expects to see reduced premiums as well as decreases in losses. The
overall impact of these statutory and regulatory changes in the system is
intended to lower costs in the state. Until the rating plan and coverage changes
are fully implemented, the Company can not be assured of improved results of
operations in New Jersey.
The financial services industry has experienced a substantial increase in
merger and acquisition activity which is leading to a consolidation of certain
industry segments and a broadening of the business scope of some competitors.
While the ultimate impact to the Company is not determinable, Allstate is
considering mergers, acquisitions, and business alliances in both the United
States and internationally in the pursuit of its business strategy.
PENDING ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 replaces existing
pronouncements and practices with a single, integrated accounting framework for
derivatives and hedging activities. The requirements are effective for fiscal
years beginning after June 15, 1999. Earlier application is encouraged but is
only permitted as of the beginning of any fiscal quarter after issuance. This
statement requires that all derivatives be recognized on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Additionally, the change in fair value of a
derivative which is not effective as a hedge will be immediately recognized in
earnings. The Company expects to adopt SFAS No. 133 as of January 1, 2000. Based
on existing interpretations of the requirements of SFAS No. 133, the impact of
adoption is not expected to be material to the results of operations or
financial position of the Company.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes several
important factors that could cause the Company's actual results and experience
with respect to forward-looking statements to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements:
-20-
<PAGE>
1. Exposures to Catastrophes. Management believes that the Company's catastrophe
management initiatives will reduce the severity of possible future losses, that
initiatives taken in Florida and the Northeast will reduce the Company's
exposure to catastrophic losses in those areas, and that the Company's exposure
to earthquake losses in California is limited as a result of its participation
in the CEA. (See "Catastrophe Losses and Catastrophe Management" at page 13).
These beliefs are based in part on the efficacy of techniques adopted by
Allstate and the accuracy of the data used by Allstate and the CEA which are
designed to predict the probability of catastrophes and the extent of losses to
Allstate and the CEA resulting from catastrophes. Catastrophic events may occur
in the future which indicate that such techniques and data do not accurately
predict Allstate's or the CEA's losses from catastrophes. In that event, the
probability and extent of such losses may differ materially from that which
would have been predicted by such techniques and data.
2. In order to borrow on the five-year line of credit (see "Liquidity and
Capital Resources" at page 16), AIC is required to maintain a specified
statutory surplus level and the Company's debt to equity ratio (as defined in
the credit agreement) must not exceed a designated level. Management expects to
continue to meet such borrowing requirements in the future. However, the ability
of AIC and Allstate to meet these requirements is dependent upon the economic
well-being of AIC. Should AIC sustain significant losses from catastrophes, its
and Allstate's ability to continue to meet these credit agreement requirements
could be adversely affected. Consequently, Allstate's right to draw upon the
five-year line of credit could be diminished or eliminated during a period when
it would be most in need of financial resources.
3. The Company presently believes that it will resolve the Year 2000 issues
affecting its computer operations in a timely manner, and that the costs
incurred between the years of 1995 and 2000 in resolving those issues will be
approximately $125 million. However, the extent to which the computer operations
of the Company's external counterparties and suppliers are adversely affected
could, in turn, affect the Company's ability to communicate with such
counterparties and suppliers, could increase the cost of resolving the Year 2000
issues, and could materially affect the Company's results of operations in any
period or periods.
4. Management believes favorable loss trends, competitive considerations and
regulatory pressures in some states will continue to impact the Company's
ability to maintain rates at historical levels (see "Underwriting Results" at
page 12). However, other factors that affect the average premium growth rate,
such as loss ratio deterioration, could accelerate the rate.
5. Due to legislative and regulatory reform of the auto insurance system in New
Jersey that included regulated rate and coverage reductions effective for new
policies written and renewals processed on and after March 22, 1999, the
management of ANJ expects to see reduced premiums as well as decreases in
losses. (See "Other Developments" at page 20.) However, until the rating plan
and coverage changes are fully implemented, the Company can not be assured of
improved profitability. It is possible that losses may increase or that any
decrease will not be commensurate with the reductions in premiums.
See the Company's 1998 Annual Report on Form 10-K (the "1998 10-K") for
other important risk factors which may affect the results of operations and
financial condition of the Company. For those risk factors affecting the Company
as a regulated insurance holding company, see "Risk Factors Affecting Allstate"
at page 3 of the 1998 10-K.
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<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
In February 1999, John L. Carl was elected Vice President and Chief Financial
Officer of the Registrant and Senior Vice President and Chief Financial Officer
of Allstate Insurance Company, both effective April 1, 1999. Mr. Carl had
previously served as Executive Vice President and Chief Financial Officer of
Amoco Corporation since 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An Exhibit Index has been filed as part of this report on Page
E-1.
(b) Reports on Form 8-K.
Registrant filed a Current Report on Form 8-K on February 19,
1999 (Items 5 and 7).
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Allstate Corporation
(Registrant)
May 13, 1999 By /s/ Samuel H. Pilch
--------------------
Samuel H. Pilch, Controller
(Principal Accounting Officer and duly
authorized Officer of Registrant)
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<S> <C> <C> <C>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
4 Registrant hereby agrees to furnish the Commission, upon
request, with the instruments defining the rights of holders of
each issue of long-term debt of the Registrant and its
consolidated subsidiaries.
10.1 Retirement Benefits - Edward M. Liddy, Chairman,
President and Chief Executive Officer
10.2 Termination of Employment - Jerry D. Choate
10.3 CEO Change of Control Employment Agreement
10.4 Other Named Executive Officers Change of Contol Empoloyment
Agreement
15 Acknowledgment of awareness from Deloitte & Touche LLP, dated
May 13, 1999, concerning unaudited interim financial
information.
27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only and
not filed.
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EXHIBIT 10.1
RETIREMENT BENEFITS--EDWARD M. LIDDY,
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
The following resolution was duly adopted by the Board of Directors of
The Allstate Corporation on November 10, 1998:
FURTHER RESOLVED, that if Mr. Liddy retires as an officer of this
Corporation on or after reaching the age of 60 but before reaching the age of
65, Allstate Insurance Company or its successor shall pay him an additional
retirement benefit over his accrued benefits calculated as of retirement under
the Allstate Retirement Plan and the Supplemental Retirement Income Plan (such
benefits calculated and payable solely under the terms of those plans), as
though he had an additional five years of service and age; such additional years
of service and age to reduce each year Mr. Liddy remains as an officer after age
60 and result in zero additional years when he reaches age 65.
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EXHIBIT 10.2
TERMINATION OF EMPLOYMENT--JERRY D. CHOATE
In September 1998, the Board of Directors of The Allstate Corporation
reluctantly acquiesced in Mr. Choate's retirement and accepted his resignation
as Chairman and Chief Executive Officer effective January 1, 1999. The Board
continues to hold Mr. Choate's knowledge of the insurance industry in very high
regard and wants to ensure that Allstate can continue to look to him for advice.
Accordingly, the Board has asked him to serve as a consultant to Allstate. To
compensate him for his services as a consultant in 1999 and 2000, the Board
agreed to pay Mr. Choate a total of $3,458,000, an amount equal to the sum of
(a) two times Mr. Choate's annual base salary at the date of his retirement,
plus (b) his assumed award at target under the Annual Executive Incentive
Compensation Plan for 1999 and 2000. In addition, Allstate will pay the
reasonable expenses of maintaining an office for Mr. Choate until his 70th
birthday (September 16, 2008) for the purpose of providing consulting services
to Allstate.
In addition, in recognition of his many years of service to Allstate, the
Board agreed as follows:
o In 2000 Allstate will pay Mr. Choate the amount that would have been
payable to him for the 1997-1999 cycle under the Long-Term Executive
Incentive Compensation Plan as if he had not retired.
o Allstate will pay Mr. Choate an additional lump sum retirement
benefit based on two additional years of service at his base salary
at the date of his retirement, plus the actual amount of his award
for 1998 under the Annual Executive Incentive Compensation Plan, plus
his assumed award at target for 1999 under the Annual Executive
Incentive Compensation Plan.
o The exercisability of 319,480 of Mr. Choate's outstanding stock
options was accelerated to December 31, 1998.
o In recognition of his many years of service, Mr. Choate received
several retirement gifts.
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EXHIBIT 10.3
THE ALLSTATE CORPORATION
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of March __, 1999 (the "AGREEMENT DATE") is made by
and among The Allstate Corporation, a Delaware corporation ("ALLSTATE"), the
Allstate Insurance Company, an Illinois insurance corporation ("AIC"), and
Edward M. Liddy ("EXECUTIVE").
PURPOSES
Allstate has determined that it is in the best interests of Allstate and
its stockholders to assure that the Company will have the continued service of
Executive. Allstate also believes it is imperative to reduce the distraction of
Executive that would result from the personal uncertainties caused by a pending
or threatened change of control of Allstate, to encourage Executive's full
attention and dedication to the Company, and to provide Executive with
compensation and benefits arrangements upon a change of control that will
satisfy the expectations of Executive and be competitive with those of similarly
situated corporations. This Agreement is intended to accomplish these
objectives.
ARTICLE I.
CERTAIN DEFINITIONS
As used in this Agreement, the terms specified below shall have the
following meanings:
1.1 "ACCRUED ANNUAL BONUS" means the amount of any Annual Bonus earned but
not yet paid to Executive as of the Executive's Termination Date, other than
amounts that Executive has elected to defer.
1.2 "ACCRUED BASE SALARY" means the amount of Executive's Base Salary that
is accrued but unpaid as of the Executive's Termination Date, other than amounts
that Executive has elected to defer.
1.3 "ACCRUED LTIP BONUS" means the amount of any LTIP Bonus earned but not
yet paid to Executive as of the Executive's Termination Date, other than amounts
that Executive has elected to defer.
1.4 "ACCRUED OBLIGATIONS" means, as of any date, the sum of Executive's
Accrued Base Salary, Accrued Annual Bonus, Accrued LTIP Bonus, any accrued but
unpaid vacation pay, and any other amounts and benefits that are then due to be
paid or provided to Executive by the Company (other than pursuant to Sections
2.4 or 4.1(b) or any defined benefit or defined contribution plan of the
Company, whether or not qualified under Section 401(a) of the Code), but have
not yet been paid or provided (as applicable).
1.5 "AGREEMENT DATE" -- see the introductory paragraph of this Agreement.
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1.6 "AGREEMENT TERM" means the period commencing on the Agreement Date and
ending on the third anniversary of the Agreement Date or, if later, such later
date to which the Agreement Term is extended pursuant to the following sentence.
Commencing on the second anniversary of the Agreement Date, the Agreement Term
shall automatically be extended each day by one day to create a new one-year
term until, at any time after the second anniversary of the Agreement Date, the
Company delivers written notice (an "EXPIRATION NOTICE") to Executive that the
Agreement shall expire on a date specified in the Expiration Notice (the
"EXPIRATION DATE") that is not less than 12 months after the date the Expiration
Notice is delivered to Executive; provided, however, that if an Effective Date
or an Imminent Control Change Date occurs before the Expiration Date specified
in the Expiration Notice, then such Expiration Notice shall be void and of no
further effect. "IMMINENT CONTROL CHANGE DATE" means (i) any date on which a
proposal or offer for a Change of Control is presented to Allstate's
stockholders generally or to any of Allstate's directors or executive officers
or is publicly announced (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) or (ii) any subsequent
date as of which such proposal or offer for a Change of Control remains
effective and has not expired or been revoked.
1.7 "AIC" -- see the introductory paragraph of this Agreement.
1.8 "ALIC" means the Allstate Life Insurance Company.
1.9 "ALLSTATE" -- see the introductory paragraph of this Agreement.
1.10 "ALLSTATE INCUMBENT DIRECTORS" means, determined as of any date by
reference to any baseline date:
(a) the members of the Board on the date of such determination who
have been members of the Board since such baseline date, and
(b) the members of the Board on the date of such determination who
were appointed or elected after such baseline date and whose election, or
nomination for election by stockholders of Allstate or the Surviving
Corporation, as applicable, was approved by a vote or written consent of
two-thirds (100% for purposes of paragraph (a) of the definition of "Merger
of Equals") of the directors comprising the Allstate Incumbent Directors on
the date of such vote or written consent, but excluding any such member
whose initial assumption of office was in connection with (i) an actual or
threatened election contest, including a consent solicitation, relating to
the election or removal of one or more members of the Board, (ii) a "tender
offer" (as such term is used in Section 14(d) of the Exchange Act), (iii) a
proposed Reorganization Transaction, or (iv) a request, nomination or
suggestion of any Beneficial Owner of Voting Securities representing 15% or
more of the aggregate voting power of the Voting Securities of Allstate or
the Surviving Corporation, as applicable.
1.11 "ANNUAL BONUS" s-- ee Section 2.2(b).
1.12 "ANNUAL PERFORMANCE PERIOD" -- see Section 2.2(b).
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1.13 "ANNUALIZED LTIP BONUS" means, in respect of any Termination Date, an
amount equal to the quotient of the following:
(a) the sum of the amounts potentially payable under all of
Executive's LTIP Target Awards outstanding as of such Termination Date,
divided by:
(b) the number of whole and fractional years during the period
beginning on the earliest commencement date of the LTIP Performance Periods
then in effect and ending on the latest termination date of the LTIP
Performance Periods then in effect.
1.14 "APPROVED PASSIVE HOLDER" means, as of any date, any Person that
satisfies all of the following conditions:
(a) as of such date, such Person is a 20% Owner, but is the Beneficial
Owner of less than 30% of the then-outstanding Common Stock and of Voting
Securities representing less than 30% of the combined voting power of all
then-outstanding Voting Securities of Allstate;
(b) prior to becoming a 20% Owner, such Person has filed, and as of
such date has not withdrawn, or made any subsequent regulatory or judicial
filing or public statement or announcement that is inconsistent with, a
statement with the SEC pursuant to Section 13(g) of the Exchange Act that
includes a certification by such Person to the effect that such beneficial
ownership does not have the purpose or effect of changing or influencing
the control of Allstate;
(c) prior to such Person's becoming a 20% Owner, at least two-thirds
of the Allstate Incumbent Directors (such Allstate Incumbent Directors to
be determined as of such date using the Agreement Date as the baseline
date) shall have voted in favor of a resolution adopted by the Board to the
effect that:
(i) the terms and conditions of such Person's investment in the
Company will not have the effect of changing or influencing the
control of Allstate, and
(ii) notwithstanding clause (a) of the definition of "Change of
Control," such Person's becoming a 20% Owner shall be treated as
though it were a Merger of Equals for purposes of this Agreement and
all other similar agreements between the Company and its executives.
1.15 "ARTICLE" means an article of this Agreement.
1.16 "BASE SALARY"-- see Section 2.2(a).
1.17 "BENEFICIAL OWNER" means such term as defined in Rule 13d-3 of the SEC
under the Exchange Act.
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1.18 "BENEFICIARY" -- see Section 10.3.
1.19 "BOARD" means the Board of Directors of Allstate or, from and after
the Effective Date of a Change of Control that gives rise to a Surviving
Corporation, the Board of Directors of such Surviving Corporation.
1.20 "BONUS PLAN" -- see Section 2.2(b).
1.21 "CAUSE"-- see Section 3.3(b).
1.22 "CEO" means Chief Executive Officer.
1.23 "CHANGE OF CONTROL" means, except as otherwise provided at the end of
this Section, the occurrence of any one or more of the following:
(a) any person (as such term is used in Rule 13d-5 of the SEC under
the Exchange Act) or group (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act), other than a Subsidiary or any employee
benefit plan (or any related trust) of Allstate or any of its Subsidiaries,
becomes the Beneficial Owner of 20% or more of the common stock of Allstate
or of Voting Securities representing 20% or more of the combined voting
power of all Voting Securities of Allstate (such a person or group that is
not a Similarly Owned Company (as defined below), a "20% OWNER"), except
that no Change of Control shall be deemed to have occurred solely by reason
of such beneficial ownership by a corporation (a "SIMILARLY OWNED COMPANY")
with respect to which both more than 70% of the common stock of such
corporation and Voting Securities representing more than 70% of the
combined voting power of the Voting Securities of such corporation are then
owned, directly or indirectly, by the persons who were the direct or
indirect owners of the common stock and Voting Securities of Allstate
immediately before such acquisition in substantially the same proportions
as their ownership, immediately before such acquisition, of the common
stock and Voting Securities of Allstate, as the case may be; or
(b) the Allstate Incumbent Directors (determined using the Agreement
Date as the baseline date) cease for any reason to constitute at least
two-thirds of the directors of Allstate then serving (provided that this
clause (b) shall be inapplicable during a Post-Merger of Equals Period); or
(c) approval by the stockholders of Allstate of a merger,
reorganization, consolidation, or similar transaction, or a plan or
agreement for the sale or other disposition of all or substantially all of
the consolidated assets of Allstate or a plan of liquidation of Allstate
(any of the foregoing, a "REORGANIZATION TRANSACTION") that, based on
information included in the proxy and other written materials distributed
to Allstate's stockholders in connection with the solicitation by Allstate
of such stockholder approval, is not expected to qualify as an Exempt
Reorganization Transaction; provided, however, that if (i) the merger or
other agreement between the parties to a Reorganization Transaction expires
or is terminated after the date of such stockholder approval but prior
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to the consummation of such Reorganization Transaction (a "REORGANIZATION
TRANSACTION TERMINATION") or (ii) immediately after the consummation of the
Reorganization Transaction, such Reorganization Transaction does qualify as
an Exempt Reorganization Transaction notwithstanding the fact that it was
not expected to so qualify as of the date of such stockholder approval,
then such stockholder approval shall not be deemed a Change of Control for
purposes of any Termination of Employment as to which the Termination Date
occurs on or after the date of the Reorganization Transaction Termination
or the date of the consummation of the Exempt Reorganization Transaction,
as applicable; or
(d) the consummation by Allstate of a Reorganization Transaction that
for any reason fails to qualify as an Exempt Reorganization Transaction as
of the date of such consummation, notwithstanding the fact that such
Reorganization Transaction was expected to so qualify as of the date of
such stockholder approval; or
(e) a 20% Owner who had qualified as an Approved Passive Holder ceases
to qualify as such for any reason other than ceasing to be a 20% Owner
(such cessation of Approved Passive Holder status to be considered for all
purposes of this Agreement (including the definition of "Effective Date") a
Change of Control distinct from and in addition to the Change of Control
specified in clause (a) above).
Notwithstanding the occurrence of any of the foregoing events, a Change of
Control shall not occur with respect to Executive if, in advance of such event,
Executive agrees in writing that such event shall not constitute a Change of
Control.
1.24 "CODE" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also refer to any successor
provision.
1.25 "COMPANY" means Allstate, AIC and each of Allstate's other
Subsidiaries.
1.26 "COMPANY CERTIFICATE" -- see Section 5.1(b).
1.27 "COMPANY COUNSEL OPINION" -- see Section 5.5.
1.28 "COMPETITIVE BUSINESS" means as of any date (including during the
one-year period commencing on the Termination Date) any corporation or other
Person (and any branch, office or operation thereof) that engages in, or
proposes to engage in:
(a) the underwriting, reinsurance, marketing or sale of (i) any form
of insurance of any kind that the Company as of such date does, or proposes
to, underwrite, reinsure, market or sell (any such form of insurance, an
"ALLSTATE INSURANCE PRODUCT") or (ii) any other form of insurance that is
marketed or sold in competition with any Allstate Insurance Product, or
(b) any other business that as of such date is a direct and material
competitor of the Company;
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and that is located (i) anywhere in the United States, or (ii) anywhere outside
of the United States where the Company is then engaged in, or proposes to engage
in, any of such activities.
1.29 "CONSUMMATION DATE" means the date on which a Reorganization
Transaction is consummated.
1.30 "DISABILITY" -- see Section 3.1(b).
1.31 "DISABILITY EFFECTIVE DATE" see Section 3.1.
1.32 "EFFECTIVE DATE" means the date on which a Change of Control first
occurs during the Agreement Term.
1.33 "EXCHANGE ACT" means the Securities Exchange Act of 1934.
1.34 "EXCISE TAXES" -- see Section 5.1.
1.35 "EXECUTIVE COUNSEL OPINION" -- see Section 5.5.
1.36 "EXECUTIVE'S GROSS-UP DETERMINATION" -- see Section 5.2(a).
1.37 "EXEMPT REORGANIZATION TRANSACTION" means a Reorganization Transaction
that results in the Persons who were the direct or indirect owners of the
outstanding common stock and Voting Securities of Allstate immediately before
such Reorganization Transaction becoming, immediately after the consummation of
such Reorganization Transaction, the direct or indirect owners of both more than
70% of the then-outstanding common stock of the Surviving Corporation and Voting
Securities representing more than 70% of the combined voting power of the
then-outstanding Voting Securities of the Surviving Corporation, in
substantially the same respective proportions as such Persons' ownership of the
common stock and Voting Securities of Allstate immediately before such
Reorganization Transaction.
1.38 "GOOD REASON" -- see Section 3.4(b).
1.39 "GROSS-UP MULTIPLE" -- see Section 5.4.
1.40 "GROSS-UP PAYMENT" -- see Section 5.1.
1.41 "INCLUDING" means including without limitation.
1.42 "IRS" means the Internal Revenue Service.
1.43 "IRS CLAIM" -- see Section 5.6.
1.44 "LEGAL AND OTHER EXPENSES" -- see Section 6.1(a).
1.45 "LTIP" means the Allstate Long-Term Executive Incentive Compensation
Plan (or any successor plan).
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1.46 "LTIP AWARD" means an incentive compensation opportunity granted under
the LTIP.
1.47 "LTIP BONUS" means the amount paid or earned in respect of an LTIP
Award.
1.48 "LTIP PERFORMANCE PERIOD" means any performance period designated in
accordance with any LTIP approved by the Board or any committee of the Board.
1.49 "LTIP TARGET AWARD" means, in respect of any LTIP Award, the
amount that Executive would have been entitled to receive for the LTIP
Performance Period corresponding to such LTIP Award if the performance goals
established pursuant to such LTIP Award were achieved at the 100% level as of
the end of the LTIP Performance Period.
1.50 "LUMP SUM VALUE" of an annuity payable pursuant to a defined benefit
plan means, as of a specified date, the present value of such annuity, as
determined, as of such date, under generally accepted actuarial principles using
(i) the applicable interest rate, mortality tables and other methods and
assumptions that the Pension Benefit Guaranty Corporation ("PBGC") would use in
determining the value of an immediate annuity on the Termination Date or (ii) if
such interest rate and mortality assumptions are no longer published by the
PBGC, interest rate and mortality assumptions determined in a manner as similar
as practicable to the manner by which the PBGC's interest rate and mortality
assumptions were determined immediately prior to the PBGC's cessation of
publication of such assumptions; provided, however, that if such defined benefit
plan provides for a lump sum distribution and such lump-sum distribution either
(x) is the only payment method available under such plan or (y) provides for a
greater amount than the Lump Sum Value of the Maximum Annuity available under
such plan, then "Lump Sum Value" shall mean such lump sum amount.
1.51 "MAXIMUM ANNUITY" means, in respect of a defined benefit plan (whether
or not qualified under Section 401(a) of the Code), an annuity computed in
whatever manner permitted under such plan (including frequency of annuity
payments, attained age (whether determined as of a current date or as of a
future date upon the commencement of annuity payments), and nature of surviving
spouse benefits, if any) that yields the greatest Lump Sum Value.
1.52 "MERGER OF EQUALS" means, as of any date, a transaction that,
notwithstanding the fact that such transaction may also qualify as a Change of
Control, satisfies all of the conditions set forth in paragraphs (a) or (b)
below:
(a) If such date is on or after the Consummation Date, a
Reorganization Transaction in respect of which all of the following
conditions are satisfied as of such date, or, if such date is prior to the
Consummation Date, a proposed Reorganization Transaction in respect of
which the merger agreement or other documents (including the exhibits and
annexes thereto) setting forth the terms and conditions of such
Reorganization Transaction, as in effect on such date after giving effect
to all amendments thereof or waivers thereunder, require that the following
conditions be satisfied on and, where applicable, after the Consummation
Date:
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(i) at least 50%, but not more than 70%, of the common stock of
the Surviving Corporation outstanding immediately after the
consummation of the Reorganization Transaction, together with Voting
Securities representing at least 50%, but not more than 70%, of the
combined voting power of all Voting Securities of the Surviving
Corporation outstanding immediately after such consummation shall be
owned, directly or indirectly, by the persons who were the owners,
directly or indirectly, of the common stock and Voting Securities of
Allstate immediately before such consummation in substantially the
same proportions as their respective direct or indirect ownership,
immediately before such consummation, of the common stock and Voting
Securities of Allstate, respectively; and
(ii) Allstate Incumbent Directors (determined as of such date
using the date immediately preceding the Effective Date as the
baseline date) shall, throughout the period beginning on the Effective
Date and ending on the third anniversary of the Effective Date,
continue to constitute not less than 50% of the members of the Board;
and
(iii) the person who was the CEO of Allstate immediately prior to
the Effective Date shall serve as (x) the CEO of Allstate throughout
the period beginning on the Effective Date and ending on the
Consummation Date and (y) the CEO of the Surviving Corporation at all
times during the period commencing on the Consummation Date and ending
on the first anniversary of the Consummation Date;
provided, however, that a Reorganization Transaction that qualifies as a
Merger of Equals shall cease to qualify as a Merger of Equals (a "MERGER OF
EQUALS CESSATION") and shall instead qualify as a Change of Control that is
not a Merger of Equals from and after the first date during the Post-Change
Period (such date, the "MERGER OF EQUALS CESSATION DATE") as of which any
one or more of the following shall occur for any reason:
(1) if any condition of clause (i) of paragraph (a) of this
Section shall for any reason not be satisfied as of immediately
after the consummation of the Reorganization Transaction; or
(2) if as of the close of business on any date on or after
the Effective Date, any condition of clauses (ii) or (iii) of
paragraph (a) of this Section shall not be satisfied; or
(3) if on any date prior to the first anniversary of the
Consummation Date, the Company shall make a filing with the SEC,
issue a press release, or make a public announcement to the
effect that Allstate is seeking or intends to seek a replacement
for the CEO, whether such replacement is to become effective
before or after such first anniversary.
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(b) As of such date, each Person, if any, who is a 20% Owner qualifies
as an Approved Passive Holder.
The Company shall give Executive written notice of any Merger of Equals
Cessation and the applicable Merger of Equals Cessation Date as soon as
practicable after the Merger of Equals Cessation Date.
1.53 "MERGER OF EQUALS CESSATION DATE" -- see the definition of "MERGER OF
EQUALS."
1.54 "MERGER OF EQUALS CESSATION NOTICE" -- means a written notice given in
accordance with Section 10.8 by the Company to notify Executive of the facts and
circumstances of a Merger of Equals Cessation, including the Merger of Equals
Cessation Date.
1.55 "NOTICE OF CONSIDERATION" -- see Section 3.3(c).
1.56 "NON-QUALIFIED PLAN" -- see Section 2.4.
1.57 "NOTICE OF TERMINATION" means a written notice given in accordance
with Section 10.8 that sets forth (i) the specific termination provision in this
Agreement relied on by the party giving such notice, (ii) in reasonable detail
the specific facts and circumstances claimed to provide a basis for such
Termination of Employment, and (iii) if the Termination Date is other than the
date of receipt of such Notice of Termination, the Termination Date.
1.58 "PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government instrumentality, division, agency, body or department.
1.59 "PLANS" means plans, programs, or Policies of the Company.
1.60 "POLICIES" means policies, practices or procedures of the Company.
1.61 "POST-CHANGE PERIOD" means the period commencing on the Effective Date
and ending on the third anniversary of the Effective Date.
1.62 "POST-MERGER OF EQUALS PERIOD" means the period commencing on an
Effective Date of a Change of Control that qualifies as a Merger of Equals and
ending on the third anniversary of such Effective Date or, if sooner, the Merger
of Equals Cessation Date.
1.63 "POTENTIAL PARACHUTE PAYMENTS" -- see Section 5.1.
1.64 "PRO-RATA ANNUAL BONUS" means, in respect of the Company's fiscal year
during which the Termination Date occurs, an amount equal to the product of
Executive's Target Annual Bonus (determined as of the Termination Date)
multiplied by a fraction, the numerator of which equals the number of days from
and including the first day of such fiscal year through and including the
Termination Date, and the denominator of which equals 365.
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1.65 "PRO-RATA LTIP BONUS" means an amount equal to the sum of each of the
following amounts: for each LTIP Performance Period that is in effect as of a
Termination Date, Executive's LTIP Target Award for such LTIP Performance Period
multiplied by a fraction, the numerator of which equals the number of days from
and including the beginning of such LTIP Performance Period through and
including the Termination Date, and the denominator of which equals the
aggregate number of days in such LTIP Performance Period.
1.66 "REFUND CLAIM" -- see Section 5.6.
1.67 "REORGANIZATION TRANSACTION" -- see clause (c) of the definition of
"CHANGE OF CONTROL."
1.68 "RESTRICTED SHARES" means shares of restricted stock, restricted stock
units or similar awards.
1.69 "SEC" means the Securities and Exchange Commission.
1.70 "SECTION" means, unless the context otherwise requires, a section of
this Agreement.
1.71 "SERP" means a supplemental executive retirement Plan that is a
Non-Qualified Plan.
1.72 "SEVERANCE PERIOD" -- see Section 4.1(g).
1.73 "STOCK OPTIONS" means stock options, stock appreciation rights
(including limited stock appreciation rights), or similar awards.
1.74 "SUBSIDIARY" means any corporation, business trust, limited liability
company or partnership with respect to which Allstate owns, directly or
indirectly, Voting Securities representing more than 50% of the aggregate voting
power of the then-outstanding Voting Securities.
1.75 "SURVIVING CORPORATION" means the corporation resulting from a
Reorganization Transaction or, if securities representing at least 50% of the
aggregate Voting Power of such resulting corporation are directly or indirectly
owned by another corporation, such other corporation.
1.76 "TARGET ANNUAL BONUS" as of any date means the amount equal to the
product of Base Salary determined as of such date multiplied by the percentage
of such Base Salary to which Executive would have been entitled immediately
prior to such date under any Bonus Plan for the Annual Performance Period for
which the Annual Bonus is awarded if the performance goals established pursuant
to such Bonus Plan were achieved at the 100% level as of the end of the Annual
Performance Period.
1.77 "TAXES" means federal, state, local and other income, employment
and other taxes.
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1.78 "TERMINATION DATE" means the date of the receipt of the Notice of
Termination by Executive (if such Notice is given by the Company) or by the
Company (if such Notice is given by Executive), or any later date, not more than
15 days after the giving of such Notice, specified in such Notice; provided,
however, that:
(a) if Executive's employment is terminated by reason of death or
Disability, the Termination Date shall be the date of Executive's death or
the Disability Effective Date (as defined in Section 3.1(a)), as
applicable; and
(b) if no Notice of Termination is given, the Termination Date shall
be the last date on which Executive is employed by the Company.
1.79 "TERMINATION OF EMPLOYMENT" means any termination of Executive's
employment with the Company, whether such occurs by reason of (a) the initiative
of any Company or Executive or (b) the death of Executive.
1.80 "20% OWNER" -- see paragraph (a) of the definition of "Change of
Control."
1.81 "VOTING SECURITIES" of a corporation means securities of such
corporation that are entitled to vote generally in the election of directors of
such corporation.
ARTICLE II.
POST-CHANGE PERIOD
2.1 POSITION AND DUTIES.
(a) During the Post-Change Period, (i) Executive's position (including
offices, titles, reporting requirements and responsibilities), authority
and duties shall be at least commensurate in all material respects with the
most significant of those held, exercised and assigned at any time during
the 90-day
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period immediately before the Effective Date and (ii) Executive's services
shall be performed at the location where Executive was employed immediately
before the Effective Date or any other location no more than 30 miles from
such former location.
(b) During the Post-Change Period (except during any periods of
vacation to which Executive is entitled and any authorized sick, disability
or other leave of absence), Executive shall devote Executive's full
attention and time to the business and affairs of the Company and, to the
extent necessary to discharge the duties assigned to Executive in
accordance with this Agreement, to use Executive's best efforts to perform
such duties. During the Post-Change Period, Executive may (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage personal investments, so long as such activities are consistent with
the Policies of the Company at the Effective Date and do not significantly
interfere with the performance of Executive's duties under this Agreement.
To the extent that any such activities have been conducted by Executive
immediately prior to the Effective Date and were consistent with the
Policies of the Company at the Effective Date, the continued conduct of
such activities (or activities similar in nature and scope) after the
Effective Date shall not be deemed to interfere with the performance of
Executive's duties under this Agreement.
2.2 COMPENSATION.
(a) BASE SALARY. During the Post-Change Period, the Company shall pay
or cause to be paid to Executive an annual base salary in cash, which shall
be paid in a manner consistent with the Company's payroll practices in
effect immediately before the Effective Date, at an annual rate not less
than 12 times the highest monthly base salary paid or payable to Executive
by the Company in respect of the 12-month period immediately before the
Effective Date (such annual rate salary, the "BASE SALARY"). During the
Post-Change Period, the Base Salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall be
substantially consistent
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with increases in base salary awarded to other peer executives of the
Company; provided, however, that no provision of this Agreement shall
require the Company to increase Executive's Base Salary during a
Post-Merger of Equals Period. Any increase in Base Salary shall not limit
or reduce any other obligation of the Company to Executive under this
Agreement. After any such increase, the Base Salary shall not be reduced
and "Base Salary" shall thereafter refer to the increased amount.
(b) ANNUAL BONUS. The Company shall also pay or cause to be paid to
Executive a bonus (the "ANNUAL BONUS") for each Annual Performance Period
that ends during the Post-Change Period. "ANNUAL PERFORMANCE PERIOD" means
each period designated in accordance with any annual bonus arrangement or
Plan (a "BONUS PLAN") that is based on performance and approved by the
Board or any committee of the Board, or in the absence of any Bonus Plan or
any such designated period of time, each calendar year. The Annual Bonus
shall be not less than the Target Annual Bonus determined as of the
Effective Date; provided, however, that no provision in this Agreement
shall require the Company to pay any Target Annual Bonus or other minimum
Annual Bonus during a Post-Merger of Equals Period.
(c) LTIP BONUS. The Company shall also:
(i) pay or cause to be paid to Executive an LTIP Bonus equal to
the LTIP Target Award for each LTIP Award for which an LTIP
Performance Period is in effect as of the Effective Date; and
(ii) throughout the Post-Change Period, grant LTIP Awards to
Executive as follows:
(1) LTIP Awards shall be granted no less frequently than is
contemplated by the terms of the LTIP and the Company's practices
thereunder, as such terms and practices are in effect immediately
prior to the Effective Date;
(2) each such LTIP Award shall provide for the payment of a
percentage of Executive's Base Salary in effect at the beginning
of the Performance Period applicable to such LTIP Award that is
no less than the average of the Target LTIP Percentages (as
defined below) for all of Executive's LTIP Awards outstanding
immediately prior to the Effective Date; and
(3) the target performance goals established for each such
LTIP Award shall be substantially comparable to the target
performance goals under Executive's LTIP Awards outstanding on
the Effective Date;
provided, however, that during a Post-Merger of Equals Period, no provision
of this Agreement shall require the Company to (x) pay any minimum LTIP
Bonus amount pursuant to clause (i) above, except to the extent required by
the terms of such LTIP
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Award or (y) grant any LTIP Award pursuant to clause (ii) above. "TARGET
LTIP PERCENTAGE" means, in respect of any LTIP Award, the percentage of
Executive's Base Salary (determined as of the beginning of the applicable
LTIP Performance Period) that Executive would be entitled to receive after
the completion of the applicable LTIP Performance Period if the performance
goals applicable to such LTIP Award as of the date immediately prior to the
Effective Date were achieved at the 100% level.
(d) INCENTIVE, SAVINGS AND RETIREMENT PLANS. Executive shall also be
entitled to participate during the Post-Change Period in all incentive
(including long-term incentives), savings and retirement Plans applicable
to other peer executives of the Company, but in no event (except during a
Post-Merger of Equals Period) shall such Plans provide Executive with
incentive (including long-term incentives), savings and retirement benefits
during the Post-Change Period that are, in any case, materially less
favorable, in the aggregate, than the most favorable of those provided by
the Company for Executive under such Plans as in effect at any time during
the 90-day period immediately before the Effective Date.
(e) WELFARE BENEFIT PLANS. During the Post-Change Period, Executive
and Executive's family shall be eligible to participate in, and receive all
benefits under, welfare benefit Plans provided by the Company (including
medical, prescription, dental, disability, salary continuance, individual
life, group life, dependent life, accidental death and travel accident
insurance Plans) and applicable to other peer executives of the Company and
their families, but in no event (except during a Post-Merger of Equals
Period) shall such Plans provide benefits during the Post-Change Period
that are materially less favorable, in the aggregate, than the most
favorable of those provided to Executive under such Plans as in effect at
any time during the 90-day period immediately before the Effective Date.
(f) FRINGE BENEFITS. During the Post-Change Period, Executive shall be
entitled to fringe benefits in accordance with the most favorable Plans
applicable to peer executives of the Company, but in no event (except
during a Post-Merger of Equals Period) shall such Plans provide fringe
benefits that are in any case materially less favorable, in the aggregate,
than the most favorable of those provided by the Company to Executive under
such Plans in effect at any time during the 90-day period immediately
before the Effective Date.
(g) EXPENSES. During the Post-Change Period, Executive shall be
entitled to prompt reimbursement of all reasonable employment-related
expenses incurred by Executive upon the Company's receipt of accountings in
accordance with the most favorable Policies applicable to peer executives
of the Company, but in no event (except during a Post-Merger of Equals
Period) shall such Policies be materially less favorable, in the aggregate,
than the most favorable of those provided by the Company for Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
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(h) OFFICE AND SUPPORT STAFF. During the Post-Change Period, Executive
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to secretarial and other assistance in
accordance with the most favorable Policies applicable to peer executives
of the Company, but in no event (except during a Post-Merger of Equals
Period) shall such Policies be materially less favorable, in the aggregate,
than the most favorable of those provided by the Company for Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
(i) VACATION. During the Post-Change Period, Executive shall be
entitled to paid vacation in accordance with the most favorable Policies
applicable to peer executives of the Company, but in no event (except
during a Post-Merger of Equals Period) shall such Policies be materially
less favorable, in the aggregate, than the most favorable of those provided
by the Company for Executive under such Policies in effect at any time
during the 90-day period immediately before the Effective Date.
2.3 STOCK INCENTIVE AWARDS. On the Effective Date of a Change of Control
that is not a Merger of Equals or, if applicable, on a Merger of Equals
Cessation Date, (i) all of Executive's unvested Stock Options then outstanding
(whether granted before or after the Agreement Date) shall immediately become
fully vested and exercisable, and (ii) all of Executive's Restricted Shares then
outstanding shall immediately become fully vested and nonforfeitable. This
Section amends all award agreements dated as of any date before the Agreement
Date.
2.4 UNFUNDED DEFERRED COMPENSATION. On the Effective Date of a Change of
Control that is not a Merger of Equals or, if applicable, on a Merger of Equals
Cessation Date, Executive shall become fully vested in all benefits previously
accrued under any deferred compensation Plan (including a SERP) that is not
qualified under Section 401(a) of the Code (a "NON-QUALIFIED PLAN"). Within five
business days after (i) any such Effective Date of a Change of Control that is
not a Merger of Equals or (ii) such Merger of Equals Cessation Date, as
applicable, the Company shall pay to Executive a lump-sum cash amount equal to:
(a) the sum of the Lump-Sum Values of all Maximum Annuities that are
payable pursuant to all defined benefit Non-Qualified Plans, plus
(b) the sum of Executive's account balances under all defined
contribution Non-Qualified Plans.
To the extent that, if, for any reason, any portion of such Non-Qualified Plan
benefit is not so paid, the Company shall pay Executive in lieu thereof a
lump-sum cash payment equal to such unpaid portion within the five-business day
period specified in the preceding sentence.
ARTICLE III.
TERMINATION OF EMPLOYMENT
3.1 DISABILITY.
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(a) During the Post-Change Period, the Company may terminate
Executive's employment because of Executive's Disability by giving
Executive or his legal representative, as applicable, (i) written notice in
accordance with Section 10.8 of the Company's intention to terminate
Executive's employment pursuant to this Section and (ii) a certification of
Executive's Disability by a physician selected by the Company or its
insurers, subject to the consent of Executive or Executive's legal
representative, which consent shall not be unreasonably withheld or
delayed. Executive's employment shall terminate effective on the 30th day
(the "DISABILITY EFFECTIVE DATE") after Executive's receipt of such notice
unless, before the Disability Effective Date, Executive shall have resumed
the full-time performance of Executive's duties.
(b) "DISABILITY" means any medically determinable physical or mental
impairment of an Executive that:
(i) has lasted for a continuous period of not less than (x) six
months or (y) such longer period, if any, that is available to
Executive under the Company's Policies relating to the continuation of
employee status after the onset of disability, as such Policies are in
effect when Disability is determined, but in no event (except during a
Post-Merger of Equals Period) shall such Policies be materially less
favorable to the Executive than the most favorable of such Policies in
effect for peer executives at any time during the 90-day period
immediately before the Effective Date,
(ii) can be expected to be permanent or of indefinite duration,
and
(iii) renders Executive unable to perform the duties required
under this Agreement.
3.2 DEATH. Executive's employment shall terminate automatically upon
Executive's death during the Post-Change Period.
3.3 CAUSE.
(a) During the Post-Change Period, the Company may terminate
Executive's employment for Cause solely in accordance with all of the
substantive and procedural provisions of this Section.
(b) "CAUSE" means any one or more of the following:
(i) Executive's conviction of a felony or other crime involving
fraud, dishonesty or moral turpitude;
(ii) Executive's willful or reckless material misconduct in the
performance of Executive's duties;
(iii) Executive's habitual neglect of duties; or
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(iv) Executive's willful or intentional breach of this Agreement;
provided, however, that for purposes of clauses (ii), (iii), and (iv),
Cause shall not include any one or more of the following:
(1) bad judgment or negligence;
(2) any act or omission believed by Executive in good faith
to have been in or not opposed to the interest of the Company
(without intent of Executive to gain, directly or indirectly, a
profit to which Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board that
Executive had satisfied the applicable standard of conduct for
indemnification or reimbursement under Allstate's by-laws, any
applicable indemnification agreement, or applicable law, in each
case as in effect at the time of such act or omission; or
(4) any act or omission with respect to which Executive
receives a Notice of Consideration (as defined below) more than
six months after the earliest date on which any member of the
Board, not a party to the act or omission, knew or should have
known of such act or omission; and
further provided, that if a breach of this Agreement involved an act or
omission based on Executive's good faith and reasonable belief that
Executive's act or omission was in the best interests of the Company or was
required by applicable law or administrative regulation, such breach shall
not constitute Cause unless the Company gives Executive written notice of
such breach that specifically refers to this Section and, within 30 days
after such notice is given, Executive fails to cure such breach to the
fullest extent that it is curable.
(c) The Company shall strictly observe each of the following
procedures in connection with any Termination of Employment for Cause:
(i) A meeting of the Board shall be called for the stated purpose
of determining whether Executive's acts or omissions satisfy the
requirements of Section 3.3(b) and, if so, whether to terminate
Executive's employment for Cause.
(ii) Not less than 30 days prior to the date of such meeting, the
Company shall provide Executive and each member of the Board written
notice (a "NOTICE OF CONSIDERATION") of (x) a detailed description of
the acts or omissions alleged to constitute Cause, (y) the date, time
and location of such meeting of the Board, and (z) Executive's rights
under clause (iii) below.
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(iii) If the Notice of Consideration is given to Executive at any
time during a Post-Change Period, then Executive shall have the
opportunity to appear before the Board in person and, at Executive's
option, with legal counsel, and/or to present to the Board a written
response to the Notice of Consideration.
(iv) Executive's employment may be terminated for Cause only if
(x) the acts or omissions specified in the Notice of Consideration did
in fact occur and do constitute Cause as defined in this Section, (y)
the Board makes a specific determination to such effect and to the
effect that Executive's employment should be terminated for Cause and
(z) the Company thereafter provides Executive with a Notice of
Termination that specifies in specific detail the basis of such
Termination of Employment for Cause and which Notice shall be
consistent with the reasons set forth in the Notice of Consideration.
The Board's determination specified in clause (y) of the preceding
sentence shall require the affirmative vote of at least 75% of the
members of the Board.
(v) In the event that the existence of Cause shall become an
issue in any action or proceeding between the Company and Executive,
the Company shall, notwithstanding the determination referenced in
clause (iv) of this Section 3.3(c), have the burden of establishing
that the actions or omissions specified in the Notice of Consideration
did in fact occur and do constitute Cause and that the Company has
satisfied the procedural requirements of this Section 3.3(c). The
satisfaction of the Company's burden shall require clear and
convincing evidence.
3.4 GOOD REASON.
(a) During the Post-Change Period, Executive may terminate his
employment for Good Reason in accordance with the substantive and
procedural provisions of this Section.
(b) "GOOD REASON" means any one or more of the following actions
or omissions that, unless otherwise specified, occurs during a
Post-Change Period:
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(i) any failure to pay Executive's Base Salary in violation
of Section 2.2(a) or any failure to increase Executive's Base
Salary to the extent, if any, required by such Section;
(ii) any failure to pay Executive's Annual Bonus or any
reduction in Executive's Target Annual Bonus, in either case in
violation of Section 2.2(b);
(iii) any failure to grant or pay an LTIP Award or LTIP
Bonus in violation of Section 2.2(c);
(iv) any material adverse change in Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties in violation of Section
2.1(a);
(v) at any time during a Post-Change Period, causing
Executive to cease to be the CEO of Allstate or, if applicable,
the Successor Company or causing Executive to report to anyone
other than the Board;
(vi) requiring Executive to be based at any office or
location in violation of Section 2.1(a);
(vii) any other material adverse change to the terms and
conditions of Executive's employment;
(viii) any other material breach of this Agreement by the
Company;
(ix) any Termination of Employment by the Company that
purports to be for Cause, but is not in full compliance with all
of the substantive and procedural requirements of this Agreement
(any such purported termination shall be treated as a Termination
of Employment without Cause for all purposes of this Agreement);
(x) the giving of a Notice of Consideration pursuant to
Section 3.3(c) and the subsequent failure to terminate Executive
for Cause within a period of 90 days thereafter in compliance
with all of the substantive and procedural requirements of
Section 3.3(c);
(xi) the failure at any time of a successor to the Company
explicitly to assume and agree to be bound by this Agreement;
(xii) a Termination of Employment by Executive for any
reason or no reason at any time during the one-month period
commencing on the first day after the end of the 12-month period
commencing on the Effective Date; provided that
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such a Termination of Employment during a Post-Merger of Equals
Period shall not qualify as Good Reason for purposes of this
clause (xii); or
(xiii) in the event that a Merger of Equals Cessation shall
occur at any time during the Post-Change Period, a Termination of
Employment by Executive for any reason or no reason at any time
(whether during or after the Post-Change Period) that is both (x)
after the last day of the 12-month period commencing on the
Effective Date and (y) not more than 60 days after the Company
gives Executive a Merger of Equals Cessation Notice or, if
sooner, Executive obtains actual knowledge of the Merger of
Equals Cessation;
provided, however, that any action or omission by the Company during a
Post-Merger of Equals Period that is specified in clauses (i), (ii),
(iii), (v), (vi), (vii), (viii) or (xi) of this Section 3.4(b) and is
not intentional or willful shall not constitute Good Reason unless (x)
Executive shall give the Company a written notice that identifies such
action or omission and specifically refers to this Section, and (y)
the Company shall fail for any reason to cure such act or omission
within 30 days after Executive gives the Company such notice.
(c) Any reasonable determination by Executive that any of the
events specified in subsection (b) above has occurred and constitutes
Good Reason shall be conclusive and binding for all purposes, unless
the Company establishes by clear and convincing evidence that
Executive did not have any reasonable basis for such determination.
(d) In the event of any Termination of Employment by Executive
for Good Reason, Executive shall as soon as practicable thereafter
notify the Company of the events constituting such Good Reason by a
Notice of Termination. A delay in the delivery of such Notice of
Termination or a failure by Executive to include in the Notice of
Termination any fact or circumstance that contributes to a showing of
Good Reason shall not waive any right of Executive under this
Agreement or preclude Executive from asserting such fact or
circumstance in enforcing rights under this Agreement; provided,
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that no act or omission by the Company shall qualify as Good Reason
(i) if Executive's Termination Date is more than 12 months after the
first date on which Executive obtained actual knowledge of such act or
omission or (ii) if such act or omission would not constitute Good
Reason during a Post-Merger of Equals Period and Executive's
Termination Date is more than 12 months after the first date on which
Executive obtained actual knowledge of the fact that no Merger of
Equals has occurred or that a Merger of Equals Cessation has occurred.
(e) In the event that the Company fraudulently conceals any act
or omission by the Company that occurs during the Post-Change Period
and qualifies as Good Reason, any subsequent Termination of Employment
(whether by the Company or by Executive and regardless of the
circumstances of such Termination) that occurs on any date (but in no
event more than 12 months after the first date on which Executive
obtains actual knowledge of such act or omission) shall conclusively
be deemed to be a Termination of Employment by Executive for Good
Reason, notwithstanding any provision of this Agreement to the
contrary.
ARTICLE IV.
COMPANY'S OBLIGATIONS UPON A TERMINATION OF EMPLOYMENT
4.1 IF BY EXECUTIVE FOR GOOD REASON OR BY THE COMPANY OTHER THAN FOR CAUSE
OR DISABILITY. If, during the Post-Change Period, the Company terminates
Executive's employment other than for Cause or Disability, or if Executive
terminates employment for Good Reason, the Company's sole obligations to
Executive under Sections 2.1 and 2.2 and this Article shall be as follows:
(a) The Company shall pay Executive, in addition to all vested rights
arising from Executive's employment as specified in Article II, a lump-sum
cash amount equal to the sum of the following:
(i) all Accrued Obligations;
(ii) Executive's Pro-rata Annual Bonus reduced (but not below
zero) by the amount of any Annual Bonus paid to Executive with respect
to the Company's fiscal year in which the Termination Date occurs;
(iii) Executive's Pro-rata LTIP Bonus reduced (but not below
zero) by the amount of any LTIP Bonus paid to Executive with respect
to the Company's fiscal year in which the Termination Date occurs;
(iv) all amounts previously deferred by, or accrued to the
benefit of, Executive under any defined contribution Non-Qualified
Plans, whether or not vested, together with any accrued earnings
thereon, to the extent that such amounts and earnings have not been
previously paid by the Company (whether pursuant to Section 2.4 or
otherwise);
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(v) an amount equal to three (3.0) times the sum of (x) Base
Salary, (y) the Target Annual Bonus, and (z) the Annualized LTIP
Bonus, each determined as of the Termination Date; provided, however,
that any reduction in Executive's Base Salary, Target Annual Bonus or
Annualized LTIP Bonus that would qualify as Good Reason shall be
disregarded for this purpose; and
(vi) to the extent not paid pursuant to clause (iv) of this
Section 4.1(a), an amount equal to the sum of the value of the
unvested portion of Executive's accounts or accrued benefits under any
defined contribution Plan (whether or not qualified under Section
401(a) of the Code) maintained by the Company as of the Termination
Date and forfeited by Executive by reason of the Termination of
Employment.
Such lump-sum amount shall be paid no more than five business days after
the Termination Date; provided, however, that such lump-sum amount shall be
paid no more than 30 calendar days after a Termination Date that occurs
during a Post-Merger of Equals Period.
(b) The Company shall pay Executive, in lieu of all benefits under all
defined benefit Non-Qualified Plans that have accrued on or before the
Termination Date but remain unpaid as of such date, a lump-sum cash amount
equal to the positive difference, if any, between:
(i) the sum of the Lump-Sum Values of each Maximum Annuity that
would be payable to Executive under any defined benefit Plan (whether
or not qualified under Section 401(a) of the Code) if Executive had:
(1) become fully vested in all such benefits to the extent
that such benefits are unvested as of the Termination Date,
(2) attained as of the Termination Date an age that is three
years greater than Executive's actual age,
(3) accrued a number of years of service (for purposes of
determining the amount of such benefits, entitlement to early
retirement benefits, and all other purposes of such defined
benefit plans) that is three years greater than the number of
years of service actually accrued by Executive as of the
Termination Date, and
(4) received the lump-sum severance benefits specified in
Section 4.1(a) (excluding all LTIP Bonuses and any severance
multiples thereof, and all amounts in respect of Stock Options or
Restricted Shares, if any) as covered compensation in equal
monthly installments during the Severance Period,
minus
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(ii) the sum of (x) the Lump-Sum Values of the Maximum Annuity
benefits vested and payable (whether currently or at some future date)
to Executive under each defined benefit Plan that is qualified under
Section 401(a) of the Code and (y) the aggregate amounts
simultaneously or previously paid (whether pursuant to Section 2.4 or
otherwise) to Executive under the defined benefit Plans (whether or
not qualified under Section 401(a) of the Code) described in clause
(i) of this Section 4.1(b).
Such lump-sum amount shall be paid no more than five business days after
the Termination Date; provided, however, that such lump-sum amount shall be
paid no more than 30 calendar days after a Termination Date that occurs
during a Post-Merger of Equals Period.
(c) (i) On the Termination Date, all of Executive's unvested Stock
Options then outstanding (whether granted before or after the Agreement
Date) shall immediately become fully vested and exercisable, and (ii) all
of Executive's Restricted Shares then outstanding shall immediately become
fully vested and nonforfeitable. This Section amends all award agreements
dated as of any date before the Agreement Date.
(d) All of Executive's then-outstanding Stock Options that were
granted after the Agreement Date, whether vested on or before the
Termination Date, shall thereafter remain exercisable until the last to
occur of (x) the first anniversary of the Termination Date, (y) the
expiration of any restrictions on Executive's right to sell the shares
issuable upon the exercise of such Stock Options, which restrictions were
imposed to permit a Reorganization Transaction to be accounted for on a
pooling-of-interests basis, and (z) any period provided in the applicable
stock option agreement or stock option plan as then in effect, but in no
event shall such period of exercisability continue after the date on which
such Stock Options would have expired if Executive had remained an employee
of the Company.
(e) Within five business days after Executive's Termination Date, the
Company shall deliver to Executive certificates for all Restricted Shares
theretofore held by or on behalf of the Company.
(f) The Company shall pay on behalf of Executive all reasonable fees
and costs charged by the outplacement firm selected by Executive to provide
outplacement services to Executive or, at the election of Executive, shall
pay to Executive within five business days of its receipt of notice of
Executive's election an amount equal to the reasonable fees and expenses
such outplacement firm would charge.
(g) Until the third anniversary of the Termination Date or such later
date as any Plan may specify (the "SEVERANCE PERIOD"), the Company shall
continue to provide to
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Executive and Executive's family welfare benefits (including medical,
prescription, dental, disability, salary continuance, individual life,
group life, accidental death and travel accident insurance plans and
programs) that are at least as favorable as the most favorable Plans of the
Company applicable to other peer executives and their families as of the
Termination Date, but which are in no event less favorable than the most
favorable Plans of the Company applicable to other peer executives and
their families during the 90-day period immediately before the Effective
Date. The cost of such welfare benefits to Executive shall not exceed the
cost of such benefits to Executive immediately before the Termination Date
or, if less, the Effective Date. Executive's rights under this Section
shall be in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights Executive may have pursuant to
applicable law, including continuation coverage required by Section 4980 of
the Code. Notwithstanding any of the above, such welfare benefits shall be
secondary to any similar welfare benefits provided by Executive's
subsequent employer.
4.2 IF BY THE COMPANY FOR CAUSE. If the Company terminates Executive's
employment for Cause during the Post-Change Period, the Company's sole
obligation to Executive under Sections 2.1 and 2.2 and this Article shall be to
pay Executive a lump-sum cash amount equal to all Accrued Obligations determined
as of the Termination Date.
4.3 IF BY EXECUTIVE OTHER THAN FOR GOOD REASON. If Executive terminates
employment during the Post-Change Period other than for Good Reason, Disability
or death, the Company's sole obligation to Executive under Sections 2.1 and 2.2
and this Article shall be to pay Executive a lump-sum cash amount equal to all
Accrued Obligations determined as of the Termination Date.
4.4 IF BY THE COMPANY FOR DISABILITY. If the Company terminates Executive's
employment by reason of Executive's Disability during the Post-Change Period,
the Company's sole obligation to Executive under Sections 2.1 and 2.2 and this
Article shall be as follows:
(a) to pay Executive a lump-sum cash amount equal to all Accrued
Obligations determined as of the Termination Date, and
(b) to provide Executive disability and other benefits after the
Termination Date that are not less favorable to Executive than the most
favorable of such benefits then available under Plans of the Company to
disabled peer executives of the Company.
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Such disability and other benefits shall also be not materially less favorable,
in the aggregate, to Executive than the most favorable of the disability and
other benefits available to Executive under such Plans in effect at any time
during the 90-day period immediately preceding the Effective Date.
4.5 IF UPON DEATH. If Executive's employment is terminated by reason of
Executive's death during the Post-Change Period, the Company's sole obligations
to Executive under Sections 2.1 and 2.2 and this Article shall be as follows:
(a) to pay Executive's estate or Beneficiary a lump-sum cash amount
equal to all Accrued Obligations; and
(b) to provide Executive's estate or Beneficiary survivor and other
benefits that are not less than the most favorable survivor and other
benefits then available under Plans of the Company to the estates or the
surviving families of peer executives of the Company.
Such survivor benefits shall also be no less favorable, in the aggregate, than
the most favorable of the survivor benefits available to Executive under such
Plans in effect at any time during the 90-day period immediately preceding the
Effective Date.
4.6 AMOUNT CONTESTED.
(a) In the event of any dispute between the Company and Executive as
to the nature or extent of the Company's obligation to make any payments or
provide other benefits to Executive or Executive's family pursuant to
Sections 4.1 or 2.4, Executive shall have the right, exercisable by written
notice given to the Company at any time on or after an Effective Date, to
obtain, within 30 days after the Company's receipt of Executive's demand
therefor, a written certificate prepared by the Company and certified by
Allstate's independent auditors (a "SECTION 4.6 CERTIFICATE"). The Section
4.6 Certificate shall specify in detail either (i) the amount and nature of
each payment or other benefit that the Company believes is then due and
owing to Executive pursuant to Section 2.4 or 4.1, as applicable, or (ii)
if the Company asserts that the conditions to Executive's entitlement to
severance or other benefits pursuant to Section 4.1 or 2.4, as applicable,
have for any reason not been satisfied, the amount and nature of each
payment or other benefit that the Company believes would be due and owing
to Executive pursuant to Section 4.1 or 2.4, as applicable, if all of such
applicable conditions had been fully satisfied. Executive may not demand
more than one Section 4.6 Certificate in respect of his rights under
Section 4.1 or more than one Section 4.6 Certificate in respect of his
rights under Section 2.4.
(b) Each Section 4.6 Certificate shall include schedules that specify
in detail how each amount or other benefit specified therein was computed,
together with appropriate references to specific provisions of this
Agreement or of any applicable Plans
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or Policies of the Company, copies of which Plans or Policies shall be
attached to such schedules.
(c) The Company shall be precluded from asserting that any portion of
the payments or other benefits due to Executive pursuant to Section 4.1 or
2.4, as applicable, is less than the amount specified in the Section 4.6
Certificate. The Section 4.6 Certificate shall in no event be binding on
Executive and Executive shall have the right to assert that any or all of
the payments or other benefits to be provided pursuant to Section 4.1 or
2.4 are greater than or different from those specified in the Section 4.6
Certificate.
(d) If the Company shall for any reason fail to deliver to Executive a
Section 4.6 Certificate in compliance with this Section within 30 days
after the Company's receipt of Executive's written demand therefor,
Executive's determination of the amount and nature of payments or other
benefits due to Executive (i) pursuant to Section 4.1 and set forth in an
Executive's Severance Determination (as defined below) or (ii) pursuant to
Section 2.4 and set forth in an Executive's Deferred Compensation
Determination (as defined below) shall be conclusive and binding for all
purposes of this Agreement unless the Company shall establish, by clear and
convincing evidence, that Executive's Severance Determination or
Executive's Deferred Compensation Determination, as applicable, is
incorrect and that a different amount (which may be zero or a positive
amount) or nature of payments or other benefits is correct. "EXECUTIVE'S
SEVERANCE DETERMINATION" means an opinion of nationally recognized
executive compensation counsel to the effect that the amount and nature of
severance and other benefits due to Executive pursuant to Section 4.1 is
the amount and nature that a court of competent jurisdiction, based on a
final judgment not subject to further appeal, is most likely to decide to
have been calculated in accordance with this Agreement and applicable law.
"EXECUTIVE'S DEFERRED COMPENSATION DETERMINATION" means an opinion of
nationally recognized executive compensation counsel to the effect that the
amount of payments due to Executive pursuant to Section 2.4 is the amount
that a court of competent jurisdiction, based on a final judgment not
subject to further appeal, is most likely to decide to have been calculated
in accordance with this Agreement and applicable law.
ARTICLE V.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
5.1 GROSS-UP FOR CERTAIN TAXES.
(a) If it is determined by Allstate's independent auditors that
any monetary or other benefit received or deemed received by Executive
from the Company or any Affiliate pursuant to this Agreement or
otherwise, whether or not in connection with a Change of Control (such
monetary or other benefits collectively, the "POTENTIAL PARACHUTE
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PAYMENTS"), is or will become subject to any excise tax under Section
4999 of the Code or any similar tax under any United States federal,
state, local or other law (such excise tax and all such similar taxes
collectively, "EXCISE TAXES"), then the Company shall, subject to
Sections 5.6 and 5.7, within five business days after such
determination, pay Executive an amount (the "GROSS-UP PAYMENT") equal
to the product of:
(i) the amount of such Excise Taxes
multiplied by
(ii) the Gross-Up Multiple (as defined in Section 5.4).
The Gross-Up Payment is intended to compensate Executive for all
Excise Taxes payable by Executive with respect to Potential Parachute
Payments and all Taxes or Excise Taxes payable by Executive with
respect to the Gross-Up Payment.
(b) The determination of Allstate's independent auditors
described in Section 5.1(a), including the detailed calculations of
the amounts of the Potential Parachute Payments, Excise Taxes and
Gross-Up Payment and the assumptions relating thereto, shall be set
forth in a written certificate of such auditors (the "COMPANY
CERTIFICATE") delivered to Executive. Executive or the Company may at
any time request the preparation and delivery to Executive of a
Company Certificate. The Company shall cause the Company Certificate
to be delivered to Executive as soon as reasonably possible after such
request.
5.2 DETERMINATION BY EXECUTIVE.
(a) If (i) the Company shall fail to deliver a Company
Certificate to Executive within 30 days after its receipt of his
written request therefor, or (ii) at any time after Executive's
receipt of a Company Certificate, Executive disputes either (x) the
amount of the Gross-Up Payment set forth therein or (y) the
determination set forth therein to the effect that no Gross-Up Payment
is due by reason of Section 5.7 or otherwise, then Executive may elect
to require the Company to pay a Gross-Up Payment in the amount
determined by Executive as set forth in an Executive Counsel Opinion
(as defined in Section 5.5). Any such demand by Executive shall be
made by delivery to the Company of a written notice that specifies the
Gross-Up Payment determined by Executive (together with the detailed
calculations of the amounts of Potential Parachute Payments, Excise
Taxes and Gross-Up Payment and the assumptions relating thereto) and
an Executive Counsel Opinion regarding such Gross-Up Payment (such
written notice and opinion collectively, the "EXECUTIVE'S GROSS-UP
DETERMINATION"). Within 30 days after delivery of an Executive's
Gross-Up Determination to the Company, the Company shall either (i)
pay Executive the Gross-Up Payment set forth in the Executive's
Gross-Up Determination (less the portion thereof, if any, previously
paid to
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Executive by the Company) or (ii) deliver to Executive a Company
Certificate and a Company Counsel Opinion (as defined in Section 5.5),
and pay Executive the Gross-Up Payment specified in such Company
Certificate. If for any reason the Company fails to comply with the
preceding sentence, the Gross-Up Payment specified in the Executive's
Gross-Up Determination shall be controlling for all purposes.
(b) If Executive does not request a Company Certificate, and the
Company does not deliver a Company Certificate to Executive, then (i)
the Company shall, for purposes of Section 5.7, be deemed to have
determined that no Gross-Up Payment is due and (ii) Executive shall
not pay any Excise Taxes in respect of Potential Parachute Payments
except in accordance with Sections 5.6(a) or (d).
5.3 ADDITIONAL GROSS-UP AMOUNTS. If for any reason (whether pursuant to
subsequently enacted provisions of the Code, final regulations or published
rulings of the IRS, a final judgment of a court of competent jurisdiction, a
determination of the Company's independent auditors set forth in a Company
Certificate or, subject to the last two sentences of Section 5.2(a), an
Executive's Gross-Up Determination) it is later determined that the amount of
Excise Taxes payable by Executive is greater than the amount determined by the
Company or Executive pursuant to Section 5.1 or 5.2, as applicable, then the
Company shall, subject to Sections 5.6 and 5.7, pay Executive an amount (which
shall also be deemed a Gross-Up Payment) equal to the product of:
(a) the sum of (i) such additional Excise Taxes and (ii) any interest,
penalties, expenses or other costs incurred by Executive as a result of
having taken a position in accordance with a determination made pursuant to
Section 5.1 or 5.2, as applicable,
multiplied by
(b) the Gross-Up Multiple.
5.4 GROSS-UP MULTIPLE. The "GROSS-UP MULTIPLE" shall equal a fraction, the
numerator of which is one (1.0), and the denominator of which is one (1.0) minus
the lesser of (i) the sum, expressed as a decimal fraction, of the effective
after-tax marginal rates of all Taxes and any Excise Taxes applicable to the
Gross-Up Payment or (ii) 0.80, it being intended that the Gross-Up Multiple
shall in no event exceed five (5.0). (If different rates of tax are applicable
to various portions of a Gross-Up Payment, the weighted average of such rates
shall be used.) For purposes of this Section, Executive shall be deemed to be
subject to the highest effective after-tax marginal rate of Taxes.
5.5 OPINION OF COUNSEL. "EXECUTIVE COUNSEL OPINION" means an opinion of
nationally recognized executive compensation counsel to the effect (i) that the
amount of the Gross-Up Payment determined by Executive pursuant to Section 5.2
is the amount that a court of competent jurisdiction, based on a final judgment
not subject to further appeal, is most likely to decide to have been calculated
in accordance with this Article and applicable law and (ii) if the Company has
previously delivered a Company Certificate to Executive, that there is no
reasonable basis or no substantial authority for the calculation of the Gross-Up
Payment set forth
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in the Company Certificate. "COMPANY COUNSEL OPINION" means an opinion of
nationally recognized executive compensation counsel to the effect that (i) the
amount of the Gross-Up Payment set forth in the Company Certificate is the
amount that a court of competent jurisdiction, based on a final judgment not
subject to further appeal, is most likely to decide to have been calculated in
accordance with this Article and applicable law and (ii) for purposes of Section
6662 of the Code, Executive has substantial authority to report on his federal
income tax return the amount of Excise Taxes set forth in the Company
Certificate.
5.6 AMOUNT INCREASED OR CONTESTED.
(a) Executive shall notify the Company in writing (an "EXECUTIVE'S
NOTICE") of any claim by the IRS or other taxing authority (an "IRS CLAIM")
that, if successful, would require the payment by Executive of Excise Taxes
in respect of Potential Parachute Payments in an amount in excess of the
amount of such Excise Taxes determined in accordance with Section 5.1 or
5.2, as applicable. Executive's Notice shall include the nature and amount
of such IRS Claim, the date on which such IRS Claim is due to be paid (the
"IRS CLAIM DEADLINE), and a copy of all notices and other documents or
correspondence received by Executive in respect of such IRS Claim.
Executive shall give the Executive's Notice as soon as practicable, but no
later than the earlier of (i) 10 business days after Executive first
obtains actual knowledge of such IRS Claim or (ii) five business days
before the IRS Claim Deadline; provided, however, that any failure to give
such Executive's Notice shall affect the Company's obligations under this
Article only to the extent that the Company is actually prejudiced by such
failure. If at least one business day before the IRS Claim Deadline the
Company shall:
(i) deliver to Executive a Company Certificate to the effect that
the IRS Claim has been reviewed by the Company's independent auditors
and, notwithstanding the IRS Claim, the amount of Excise Taxes,
interest or penalties payable by Executive is less than the amount
specified in the IRS Claim,
(ii) pay to Executive an amount (which shall also be deemed a
Gross-Up Payment) equal to the positive difference between the product
of (x) the amount of Excise Taxes, interest and penalties specified in
the Company Certificate, if any, multiplied by (y) the Gross-Up
Multiple, less the portion of such product, if any, previously paid to
Executive by the Company, and
(iii) direct Executive pursuant to Section 5.6(d) to contest the
balance of the IRS Claim,
then Executive shall pay only the amount, if any, of Excise Taxes, interest
and penalties specified in the Company Certificate. In no event shall
Executive pay an IRS Claim earlier than 30 days after having given an
Executive's Notice to the Company (or, if sooner, the IRS Claim Deadline).
(b) At any time after the payment by Executive of any amount of Excise
Taxes or related interest or penalties in respect of Potential Parachute
Payments (whether or not
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such amount was based on a Company Certificate, an Executive's Gross-Up
Determination or an IRS Claim), the Company may in its discretion require
Executive to pursue a claim for a refund (a "REFUND CLAIM") of all or any
portion of such Excise Taxes, interest or penalties as the Company may
specify by written notice to Executive.
(c) If the Company notifies Executive in writing that the Company
desires Executive to contest an IRS Claim or to pursue a Refund Claim,
Executive shall:
(i) give the Company all information that it reasonably requests
in writing from time to time relating to such IRS Claim or Refund
Claim, as applicable,
(ii) take such action in connection with such IRS Claim or Refund
Claim (as applicable) as the Company reasonably requests in writing
from time to time, including accepting legal representation with
respect thereto by an attorney selected by the Company, subject to the
approval of Executive (which approval shall not be unreasonably
withheld or delayed),
(iii) cooperate with the Company in good faith to contest such
IRS Claim or pursue such Refund Claim, as applicable,
(iv) permit the Company to participate in any proceedings
relating to such IRS Claim or Refund Claim, as applicable, and
(v) contest such IRS Claim or prosecute Refund Claim (as
applicable) to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company may from time to time determine in its discretion.
The Company shall control all proceedings in connection with such IRS Claim
or Refund Claim (as applicable) and in its discretion may cause Executive
to pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the IRS or other taxing authority in respect
of such IRS Claim or Refund Claim (as applicable); provided that (i) any
extension of the statute of limitations relating to payment of taxes for
the taxable year of Executive relating to the IRS Claim is limited solely
to such IRS Claim, (ii) the Company's control of the IRS Claim or Refund
Claim (as applicable) shall be limited to issues with respect to which a
Gross-Up Payment would be payable, and (iii) Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(d) The Company may at any time in its discretion direct Executive to
(i) contest the IRS Claim in any lawful manner or (ii) pay the amount
specified in an IRS Claim and pursue a Refund Claim; provided, however,
that if the Company directs Executive to pay an IRS Claim and pursue a
Refund Claim, the Company shall advance the amount of such payment to
Executive on an interest-free basis and shall indemnify
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Executive, on an after-tax basis, for any Taxes, Excise Taxes and related
interest or penalties imposed with respect to such advance.
(e) The Company shall pay directly all legal, accounting and other
costs and expenses (including additional interest and penalties) incurred
by the Company or Executive in connection with any IRS Claim or Refund
Claim, as applicable, and shall indemnify Executive, on an after-tax basis,
for any Taxes, Excise Taxes and related interest and penalties imposed as a
result of such payment of costs and expenses.
5.7 LIMITATIONS ON GROSS-UP PAYMENTS.
(a) Notwithstanding any other provision of this Article V, if the
aggregate After-Tax Amount (as defined below) of the Potential Parachute
Payments and Gross-Up Payment that, but for this Section 5.7, would be
payable to Executive, does not exceed 110% of the After-Tax Floor Amount
(as defined below), then no Gross-Up Payment shall be made to Executive and
the aggregate amount of Potential Parachute Payments payable to Executive
shall be reduced (but not below the Floor Amount) to the largest amount
that would both (i) not cause any Excise Taxes to be payable by Executive
and (ii) not cause any Potential Parachute Payments to become nondeductible
by the Company by reason of Section 280G of the Code (or any successor
provision). For purposes of the preceding sentence, Executive shall be
deemed to be subject to the highest effective after-tax marginal rate of
Taxes.
(b) For purposes of this Agreement:
(i) "AFTER-TAX AMOUNT" means the portion of a specified amount
that would remain after payment of all Taxes and Excise Taxes paid or
payable by Executive in respect of such specified amount; and
(ii) "FLOOR AMOUNT" means the greatest pre-tax amount of
Potential Parachute Payments that could be paid to Executive without
causing Executive to become liable for any Excise Taxes in connection
therewith; and
(iii) "AFTER-TAX FLOOR AMOUNT" means the After-Tax Amount of the
Floor Amount.
5.8 REFUNDS. If, after the receipt by Executive of any payment or advance
of Excise Taxes by the Company pursuant to this Article, Executive receives any
refund with respect to such Excise Taxes, Executive shall (subject to the
Company's complying with any applicable requirements of Section 5.6) promptly
pay the Company the amount of such refund (together with any interest paid or
credited thereon after Taxes applicable thereto). If, after the receipt by
Executive of an amount advanced by the Company pursuant to Section 5.6, a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in writing of
its intent to contest such determination within 30 days after the Company
receives written notice of such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to
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the extent thereof, the amount of Gross-Up Payment required to
be paid. Any contest of a denial of refund shall be controlled by Section 5.6.
ARTICLE VI.
EXPENSES AND INTEREST
6.1 LEGAL AND OTHER EXPENSES.
(a) If Executive incurs legal fees (including fees in connection with
the delivery of an Executive Counsel Opinion) or other expenses (including
expert witness and accounting fees) in an effort to determine, secure,
preserve, establish entitlement to, or obtain benefits under this Agreement
(collectively, "LEGAL AND OTHER EXPENSES"), the Company shall, regardless
of the outcome of such effort, pay or reimburse Executive for such Legal
and Other Expenses in accordance with Section 6.1(b), and shall also pay
Executive an additional payment (an "EXPENSE GROSS-UP") such that, after
payment of all Taxes and Excise Taxes on such amount and such additional
payment, there remains a balance sufficient to pay all such Legal and Other
Expenses.
(b) All Legal and Other Expenses and the Expense Gross-Ups shall be
paid or reimbursed on a monthly basis within 10 days after Allstate's
receipt of Executive's written request accompanied by evidence that such
Legal and Other Expenses were incurred.
(c) If Executive does not prevail (after exhaustion of all available
judicial remedies) in respect of a claim by Executive or by the Company
hereunder, and the Company establishes before a court of competent
jurisdiction, by clear and convincing evidence, that Executive had no
reasonable basis for his claim hereunder, or for his response to the
Company's claim hereunder, or acted in bad faith, no further payment of or
reimbursement for Legal and Other Expenses shall be due to Executive in
respect of such claim and Executive shall refund any amounts previously
paid or reimbursed hereunder with respect to such claim.
(d) All accrued but unpaid obligations of the Company to pay or
reimburse Executive for Legal and Other Expenses pursuant to this Section
(other than any portion of such Expenses that are accrued prior to an
Effective Date) shall be secured by an irrevocable $5.0 million letter of
credit in the form attached as Exhibit 1 to this Agreement (the "LETTER OF
CREDIT"). Allstate shall cause Executive to be listed as an "Executive" in
the applicable annex to the Letter of Credit as soon as reasonably
practicable after the Agreement Date. In addition, Executive shall be an
intended third-party beneficiary of the Escrow Agreement referenced in the
Letter of Credit and attached hereto as Exhibit 2.
6.2 INTEREST. If the Company does not pay an amount due to Executive under
this Agreement within five business days after such amount first became due and
owing, interest
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shall accrue on such amount from the date it became due and
owing until the date of payment at an annual rate equal to 200 basis points
above the base commercial lending rate published in The Wall Street Journal in
effect from time to time during the period of such nonpayment.
ARTICLE VII.
NO SET-OFF OR MITIGATION
7.1 NO SET-OFF BY COMPANY. Executive's right to receive when due the
payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Time is of the essence in the performance by the Company of its
obligations under this Agreement. Any claim that the Company may have against
Executive, whether for a breach of this Agreement or otherwise, shall be brought
in a separate action or proceeding and not as part of any action or proceeding
brought by Executive to enforce any rights against the Company under this
Agreement, except if (i) the Company's claim is determined by a court to be a
compulsory counterclaim under applicable law or (ii) if a court determines that
the Company would otherwise be materially prejudiced if its claim were to be
brought in a separate action.
7.2 NO MITIGATION. Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement by seeking new employment or
self-employment following termination. Except as specifically otherwise provided
in this Agreement, all amounts payable pursuant to this Agreement shall be paid
without reduction regardless of any amounts of salary, compensation or other
amounts that may be paid or payable to Executive as the result of Executive's
employment by another employer or self-employment.
ARTICLE VIII.
RESTRICTIVE COVENANTS
8.1 NON-COMPETITION. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the period beginning on
the Effective Date and ending on the first anniversary of the Termination Date,
directly or indirectly, in any capacity:
(a) engage or participate in, become employed by, serve as a director
of, or render advisory or consulting or other services in connection with,
any Competitive Business; provided, however, that this Section 8.1(a) shall
not preclude Executive from being an employee of, or consultant to, any
business unit of a Competitive Business if (i) such business unit does not
qualify as a Competitive Business in its own right and (ii) Executive does
not have any direct or indirect involvement in, or responsibility for, any
operations of such Competitive Business that cause it to qualify as a
Competitive Business; or
(b) make or retain any financial investment, whether in the form of
equity or debt, or own any interest, in any Competitive Business; provided,
however, that nothing
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in this subsection shall restrict Executive from making an investment in
any Competitive Business if such investment (i) represents no more than 1%
of the aggregate market value of the outstanding capital stock or debt (as
applicable) of such Competitive Business, (ii) does not give Executive any
right or ability, directly or indirectly, to control or influence the
policy decisions or management of such Competitive Business, and (iii) does
not create a conflict of interest between Executive's duties under this
Agreement and his interest in such investment.
8.2 NON-SOLICITATION. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the period beginning on
the Effective Date and ending on the first anniversary of the Termination Date,
directly or indirectly:
(a) other than in connection with the good-faith performance of his
duties as an officer of the Company, encourage any employee or agent of the
Company to terminate his relationship with the Company;
(b) employ, engage as a consultant or adviser, or solicit the
employment or engagement as a consultant or adviser, of any employee or
agent of the Company (other than by the Company or its Affiliates), or
cause or encourage any Person to do any of the foregoing;
(c) establish (or take preliminary steps to establish) a business
with, or encourage others to establish (or take preliminary steps to
establish) a business with, any employee or agent of the Company; or
(d) interfere with the relationship of the Company with, or endeavor
to entice away from the Company, any Person who or which at any time during
the period commencing one year prior to the Agreement Date was or is a
material customer or material supplier of, or maintained a material
business relationship with, the Company.
8.3 REASONABLENESS OF RESTRICTIVE COVENANTS.
(a) Executive acknowledges that the covenants contained in Sections
8.1 and 8.2 are reasonable in the scope of the activities restricted, the
geographic area covered by the restrictions, and the duration of the
restrictions, and that such covenants are reasonably necessary to protect
the Company's relationships with its employees, customers and suppliers.
Executive further acknowledges such covenants are essential elements of
this Agreement and that, but for such covenants, the Company would not have
entered into this Agreement.
(b) The Company and Executive have each consulted with their
respective legal counsel and have been advised concerning the
reasonableness and propriety of such covenants. Executive acknowledges that
his observance of the covenants contained in Sections 8.1 and 8.2 will not
deprive him of the ability to earn a livelihood or to support his
dependents.
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8.4 RIGHT TO INJUNCTION; SURVIVAL OF UNDERTAKINGS.
(a) In recognition of the necessity of the limited restrictions
imposed by Sections 8.1 and 8.2, the parties agree that it would be
impossible to measure solely in money the damages that the Company would
suffer if Executive were to breach any of his obligations under such
Sections. Executive acknowledges that any breach of any provision of such
Sections would irreparably injure the Company. Accordingly, Executive
agrees that the Company shall be entitled, in addition to any other
remedies to which the Company may be entitled under this Agreement or
otherwise, to an injunction to be issued by a court of competent
jurisdiction, to restrain any actual breach, or threatened breach, of such
provisions, and Executive hereby waives any right to assert any defense
that the Company has an adequate remedy at law for any such breach.
(b) If a court determines that any of the covenants included in this
Article VIII is unenforceable in whole or in part because of such
covenant's duration or geographical or other scope, such court may modify
the duration or scope of such provision, as the case may be, so as to cause
such covenant as so modified to be enforceable.
(c) All of the provisions of this Article VIII shall survive any
Termination of Employment without regard to (i) the reasons for such
termination or (ii) the expiration of the Agreement Term.
8.5 NON-DISPARAGEMENT. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the two-year period
commencing on the Termination Date (a) make any written or oral statement that
brings the Company or any of its then-current or former employees, officers or
agents into disrepute, or tarnishes any of their images or reputations or (b)
publish, comment on or disseminate any statements suggesting or accusing the
Company or any of its then-current or former agents, employees or officers of
any misconduct or unlawful behavior. This Section shall not be deemed to be
breached by testimony of Executive given in any judicial or governmental
proceeding that Executive reasonably believes to be truthful at the time given
or by any other action of Executive that he reasonably believes is taken in
accordance with the requirements of applicable law or administrative regulation.
ARTICLE IX.
NON-EXCLUSIVITY OF RIGHTS
9.1 WAIVER OF CERTAIN OTHER RIGHTS. To the extent that Executive shall have
received severance payments or other severance benefits under any other Plan or
agreement of the Company prior to receiving severance payments or other
severance benefits pursuant to Article IV, the severance payments and other
severance benefits under such other Plan or agreement shall reduce (but not
below zero) the corresponding severance payments or other severance benefits to
which Executive shall be entitled under Article IV. To the extent that Executive
receives payments or other benefits pursuant to Article IV, Executive hereby
waives the right to receive a corresponding amount of future severance payments
or other severance
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benefits under any other Plan or agreement of the Company. To the extent that
Executive receives payments pursuant to Section 4.1(b), Executive hereby waives
the right to receive payments or other benefits under any Non-Qualified Plan
that have accrued as of the Termination Date.
9.2 OTHER RIGHTS. Except as expressly provided in Section 9.1, this
Agreement shall not prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other Plans provided by the
Company and for which Executive may qualify, nor shall this Agreement limit or
otherwise affect such rights as Executive may have under any other agreements
with the Company. Amounts that are vested benefits or which Executive is
otherwise entitled to receive under any Plan and any other payment or benefit
required by law at or after the Termination Date shall be payable in accordance
with such Plan or applicable law except as expressly modified by this Agreement.
ARTICLE X.
MISCELLANEOUS
10.1 NO ASSIGNABILITY. This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
10.2 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding on the Company and its successors and assigns. The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. Any successor to the business or assets of the
Company that assumes or agrees to perform this Agreement by operation of law,
contract, or otherwise shall be jointly and severally liable with the Company
under this Agreement as if such successor were the Company.
10.3 PAYMENTS TO BENEFICIARY. If Executive dies before receiving amounts to
which Executive is entitled under this Agreement, such amounts shall be paid in
a lump sum to one or more beneficiaries designated in writing by Executive
(each, a "Beneficiary"), or if none is so designated, to Executive's estate.
10.4 NON-ALIENATION OF BENEFITS. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
10.5 NO DEFERENCE. Unless otherwise expressly provided in this Agreement,
no determination pursuant to, or interpretation of, this Agreement made by the
board of directors (or
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any committee thereof) of Allstate or any Successor Corporation shall be
entitled to any presumptive validity or other deference in connection with any
judicial or administrative proceeding relating to or arising under this
Agreement.
10.6 SEVERABILITY. If any one or more Articles, Sections or other portions
of this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any Article, Section or other portion not so declared to be unlawful
or invalid. Any Article, Section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such Article,
Section or other portion to the fullest extent possible while remaining lawful
and valid. 10.7 Amendments. This Agreement shall not be amended or modified
except by written instrument executed by Executive, Allstate and AIC.
10.8 NOTICES. All notices and other communications under this Agreement
shall be in writing and delivered by hand, by nationally recognized delivery
service that promises overnight delivery, or by first-class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive, to Executive at his most recent home
address on file with the Company.
If to Allstate or AIC:
The Allstate Corporation
2775 Sanders Road
Northbrook, Illinois 60062
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
10.10 GOVERNING LAW. This Agreement shall be interpreted and construed
in accordance with the laws of the State of Illinois, without regard to its
choice of law principles.
10.11 CAPTIONS. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
10.12 NUMBER AND GENDER. Wherever appropriate, the singular shall include
the plural, the plural shall include the singular, and the masculine shall
include the feminine.
10.13 TAX WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement any Taxes that are required to be withheld by any
applicable law or regulation.
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10.14 NO WAIVER. Executive's failure to insist upon strict compliance with
any provision of this Agreement shall not be deemed a waiver of such provision
or any other provision of this Agreement. A waiver of any provision of this
Agreement shall not be deemed a waiver of any other provision, and any waiver of
any default in any such provision shall not be deemed a waiver of any later
default thereof or of any other provision.
10.15 JOINT AND SEVERAL LIABILITY. The obligations of Allstate and AIC to
Executive under this Agreement shall be joint and several.
10.16 NO RIGHTS PRIOR TO EFFECTIVE DATE. Notwithstanding any provision of
this Agreement to the contrary, this Agreement shall not entitle Executive to
any compensation, severance or other benefits of any kind prior to an Effective
Date.
10.17 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of Allstate, AIC and Executive with respect to its subject matter.
IN WITNESS WHEREOF, Executive, Allstate and AIC have executed this Change
of Control Employment Agreement as of the date first above written.
EXECUTIVE
Edward M. Liddy
THE ALLSTATE CORPORATION
By:
Title:
ALLSTATE INSURANCE COMPANY
By:
Title:
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EXHIBIT 10.4
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AMONG
THE ALLSTATE CORPORATION,
ALLSTATE INSURANCE COMPANY
AND
Insert Name
(Tier One)
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THE ALLSTATE CORPORATION
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of March , 1999 (the "AGREEMENT DATE") is made by
and among The Allstate Corporation, a Delaware corporation ("ALLSTATE"), the
Allstate Insurance Company, an Illinois insurance corporation ("AIC"), and
("EXECUTIVE").
PURPOSES
Allstate has determined that it is in the best interests of Allstate and
its stockholders to assure that the Company will have the continued service of
Executive. Allstate also believes it is imperative to reduce the distraction of
Executive that would result from the personal uncertainties caused by a pending
or threatened change of control of Allstate, to encourage Executive's full
attention and dedication to the Company, and to provide Executive with
compensation and benefits arrangements upon a change of control that will
satisfy the expectations of Executive and be competitive with those of similarly
situated corporations. This Agreement is intended to accomplish these
objectives.
ARTICLE I.
CERTAIN DEFINITIONS
As used in this Agreement, the terms specified below shall have the
following meanings:
1.1 "ACCRUED ANNUAL BONUS" means the amount of any Annual Bonus earned
but not yet paid to Executive as of the Executive's Termination Date, other than
amounts that Executive has elected to defer.
1.2 "ACCRUED BASE SALARY" means the amount of Executive's Base Salary
that is accrued but unpaid as of the Executive's Termination Date, other than
amounts that Executive has elected to defer.
1.3 "ACCRUED LTIP BONUS" means the amount of any LTIP Bonus earned but
not yet paid to Executive as of the Executive's Termination Date, other than
amounts that Executive has elected to defer.
1.4 "ACCRUED OBLIGATIONS" means, as of any date, the sum of Executive's
Accrued Base Salary, Accrued Annual Bonus, Accrued LTIP Bonus, any accrued but
unpaid vacation pay, and any other amounts and benefits that are then due to be
paid or provided to Executive by the Company (other than pursuant to Sections
2.4 or 4.1(b) or any defined benefit or defined contribution plan of the
Company, whether or not qualified under Section 401(a) of the Code), but have
not yet been paid or provided (as applicable).
1.5 "AGREEMENT DATE" -- see the introductory paragraph of this Agreement.
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1.6 "AGREEMENT TERM" means the period commencing on the Agreement Date and
ending on the third anniversary of the Agreement Date or, if later, such later
date to which the Agreement Term is extended pursuant to the following sentence.
Commencing on the second anniversary of the Agreement Date, the Agreement Term
shall automatically be extended each day by one day to create a new one-year
term until, at any time after the second anniversary of the Agreement Date, the
Company delivers written notice (an "EXPIRATION NOTICE") to Executive that the
Agreement shall expire on a date specified in the Expiration Notice (the
"EXPIRATION DATE") that is not less than 12 months after the date the Expiration
Notice is delivered to Executive; provided, however, that if an Effective Date
or an Imminent Control Change Date occurs before the Expiration Date specified
in the Expiration Notice, then such Expiration Notice shall be void and of no
further effect. "IMMINENT CONTROL CHANGE DATE" means (i) any date on which a
proposal or offer for a Change of Control is presented to Allstate's
stockholders generally or to any of Allstate's directors or executive officers
or is publicly announced (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) or (ii) any subsequent
date as of which such proposal or offer for a Change of Control remains
effective and has not expired or been revoked.
1.7 "AIC" -- see the introductory paragraph of this Agreement.
1.8 "ALIC" means the Allstate Life Insurance Company.
1.9 "ALLSTATE" -- see the introductory paragraph of this Agreement.
1.10 "ALLSTATE INCUMBENT DIRECTORS" means, determined as of any date by
reference to any baseline date:
(a) the members of the Board on the date of such determination who
have been members of the Board since such baseline date, and
(b) the members of the Board on the date of such determination who
were appointed or elected after such baseline date and whose election, or
nomination for election by stockholders of Allstate or the Surviving
Corporation, as applicable, was approved by a vote or written consent of
two-thirds (100% for purposes of paragraph (a) of the definition of "Merger
of Equals") of the directors comprising the Allstate Incumbent Directors on
the date of such vote or written consent, but excluding any such member
whose initial assumption of office was in connection with (i) an actual or
threatened election contest, including a consent solicitation, relating to
the election or removal of one or more members of the Board, (ii) a "tender
offer" (as such term is used in Section 14(d) of the Exchange Act), (iii) a
proposed Reorganization Transaction, or (iv) a request, nomination or
suggestion of any Beneficial Owner of Voting Securities representing 15% or
more of the aggregate voting power of the Voting Securities of Allstate or
the Surviving Corporation, as applicable.
1.11 "ANNUAL BONUS" -- see Section 2.2(b).
1.12 "ANNUAL PERFORMANCE PERIOD" -- see Section 2.2(b).
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1.13 "ANNUALIZED LTIP BONUS" means, in respect of any Termination Date, an
amount equal to the quotient of the following:
(a) the sum of the amounts potentially payable under all of
Executive's LTIP Target Awards outstanding as of such Termination Date,
divided by:
(b) the number of whole and fractional years during the period
beginning on the earliest commencement date of the LTIP Performance Periods
then in effect and ending on the latest termination date of the LTIP
Performance Periods then in effect.
1.14 "APPROVED PASSIVE HOLDER" means, as of any date, any Person that
satisfies all of the following conditions:
(a) as of such date, such Person is a 20% Owner, but is the Beneficial
Owner of less than 30% of the then-outstanding Common Stock and of Voting
Securities representing less than 30% of the combined voting power of all
then-outstanding Voting Securities of Allstate;
(b) prior to becoming a 20% Owner, such Person has filed, and as of
such date has not withdrawn, or made any subsequent regulatory or judicial
filing or public statement or announcement that is inconsistent with, a
statement with the SEC pursuant to Section 13(g) of the Exchange Act that
includes a certification by such Person to the effect that such beneficial
ownership does not have the purpose or effect of changing or influencing
the control of Allstate;
(c) prior to such Person's becoming a 20% Owner, at least two-thirds
of the Allstate Incumbent Directors (such Allstate Incumbent Directors to
be determined as of such date using the Agreement Date as the baseline
date) shall have voted in favor of a resolution adopted by the Board to the
effect that:
(i) the terms and conditions of such Person's investment in the
Company will not have the effect of changing or influencing the
control of Allstate, and
(ii) notwithstanding clause (a) of the definition of "Change of
Control," such Person's becoming a 20% Owner shall be treated as
though it were a Merger of Equals for purposes of this Agreement and
all other similar agreements between the Company and its executives.
1.15 "ARTICLE" means an article of this Agreement.
1.16 "BASE SALARY" -- see Section 2.2(a).
1.17 "BENEFICIAL OWNER" means such term as defined in Rule 13d-3 of the SEC
under the Exchange Act.
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1.18 "BENEFICIARY" -- see Section 10.3.
1.19 "BOARD" means the Board of Directors of Allstate or, from and after
the Effective Date of a Change of Control that gives rise to a Surviving
Corporation, the Board of Directors of such Surviving Corporation.
1.20 "BONUS PLAN" -- see Section 2.2(b).
1.21 "CAUSE" -- see Section 3.3(b).
1.22 "CEO" means Chief Executive Officer.
1.23 "CHANGE OF CONTROL" means, except as otherwise provided at the end of
this Section, the occurrence of any one or more of the following:
(a) any person (as such term is used in Rule 13d-5 of the SEC under
the Exchange Act) or group (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act), other than a Subsidiary or any employee
benefit plan (or any related trust) of Allstate or any of its Subsidiaries,
becomes the Beneficial Owner of 20% or more of the common stock of Allstate
or of Voting Securities representing 20% or more of the combined voting
power of all Voting Securities of Allstate (such a person or group that is
not a Similarly Owned Company (as defined below), a "20% Owner"), except
that no Change of Control shall be deemed to have occurred solely by reason
of such beneficial ownership by a corporation (a "SIMILARLY OWNED COMPANY")
with respect to which both more than 70% of the common stock of such
corporation and Voting Securities representing more than 70% of the
combined voting power of the Voting Securities of such corporation are then
owned, directly or indirectly, by the persons who were the direct or
indirect owners of the common stock and Voting Securities of Allstate
immediately before such acquisition in substantially the same proportions
as their ownership, immediately before such acquisition, of the common
stock and Voting Securities of Allstate, as the case may be; or
(b) the Allstate Incumbent Directors (determined using the Agreement
Date as the baseline date) cease for any reason to constitute at least
two-thirds of the directors of Allstate then serving (provided that this
clause (b) shall be inapplicable during a Post-Merger of Equals Period); or
(c) approval by the stockholders of Allstate of a merger,
reorganization, consolidation, or similar transaction, or a plan or
agreement for the sale or other disposition of all or substantially all of
the consolidated assets of Allstate or a plan of liquidation of Allstate
(any of the foregoing, a "REORGANIZATION TRANSACTION") that, based on
information included in the proxy and other written materials distributed
to Allstate's stockholders in connection with the solicitation by Allstate
of such stockholder approval, is not expected to qualify as an Exempt
Reorganization Transaction; provided, however, that if (i) the merger or
other agreement between the parties to a Reorganization Transaction expires
or is terminated after the date of such stockholder approval but prior
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to the consummation of such Reorganization Transaction (a "REORGANIZATION
TRANSACTION TERMINATION") or (ii) immediately after the consummation of the
Reorganization Transaction, such Reorganization Transaction does qualify as
an Exempt Reorganization Transaction notwithstanding the fact that it was
not expected to so qualify as of the date of such stockholder approval,
then such stockholder approval shall not be deemed a Change of Control for
purposes of any Termination of Employment as to which the Termination Date
occurs on or after the date of the Reorganization Transaction Termination
or the date of the consummation of the Exempt Reorganization Transaction,
as applicable; or
(d) the consummation by Allstate of a Reorganization Transaction that
for any reason fails to qualify as an Exempt Reorganization Transaction as
of the date of such consummation, notwithstanding the fact that such
Reorganization Transaction was expected to so qualify as of the date of
such stockholder approval; or
(e) a 20% Owner who had qualified as an Approved Passive Holder ceases
to qualify as such for any reason other than ceasing to be a 20% Owner
(such cessation of Approved Passive Holder status to be considered for all
purposes of this Agreement (including the definition of "Effective Date") a
Change of Control distinct from and in addition to the Change of Control
specified in clause (a) above).
Notwithstanding the occurrence of any of the foregoing events, a Change of
Control shall not occur with respect to Executive if, in advance of such event,
Executive agrees in writing that such event shall not constitute a Change of
Control.
1.24 "CODE" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also refer to any successor
provision.
1.25 "COMPANY" means Allstate, AIC and each of Allstate's other
Subsidiaries.
1.26 "COMPANY CERTIFICATE" -- see Section 5.1(b).
1.27 "COMPANY COUNSEL OPINION" -- see Section 5.5.
1.28 "COMPETITIVE BUSINESS" means as of any date (including during the
one-year period commencing on the Termination Date) any corporation or other
Person (and any branch, office or operation thereof) that engages in, or
proposes to engage in:
(a) the underwriting, reinsurance, marketing or sale of (i) any form
of insurance of any kind that the Company as of such date does, or proposes
to, underwrite, reinsure, market or sell (any such form of insurance, an
"ALLSTATE INSURANCE PRODUCT") or (ii) any other form of insurance that is
marketed or sold in competition with any Allstate Insurance Product, or
(b) any other business that as of such date is a direct and material
competitor of the Company;
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and that is located (i) anywhere in the United States, or (ii) anywhere outside
of the United States where the Company is then engaged in, or proposes to engage
in, any of such activities.
1.29 "CONSUMMATION DATE" means the date on which a Reorganization
Transaction is consummated.
1.30 "DISABILITY" -- see Section 3.1(b).
1.31 "DISABILITY EFFECTIVE DATE" -- see Section 3.1.
1.32 "EFFECTIVE DATE" means the date on which a Change of Control first
occurs during the Agreement Term.
1.33 "EXCHANGE ACT" means the Securities Exchange Act of 1934.
1.34 "EXCISE TAXES" -- see Section 5.1.
1.35 "EXECUTIVE COUNSEL OPINION" -- see Section 5.5.
1.36 "EXECUTIVE'S GROSS-UP DETERMINATION" -- see Section 5.2(a).
1.37 "EXEMPT REORGANIZATION TRANSACTION" means a Reorganization Transaction
that results in the Persons who were the direct or indirect owners of the
outstanding common stock and Voting Securities of Allstate immediately before
such Reorganization Transaction becoming, immediately after the consummation of
such Reorganization Transaction, the direct or indirect owners of both more than
70% of the then-outstanding common stock of the Surviving Corporation and Voting
Securities representing more than 70% of the combined voting power of the
then-outstanding Voting Securities of the Surviving Corporation, in
substantially the same respective proportions as such Persons' ownership of the
common stock and Voting Securities of Allstate immediately before such
Reorganization Transaction.
1.38 "GOOD REASON" -- see Section 3.4(b).
1.39 "GROSS-UP MULTIPLE" -- see Section 5.4.
1.40 "GROSS-UP PAYMENT" -- see Section 5.1.
1.41 "INCLUDING" means including without limitation.
1.42 "IRS" means the Internal Revenue Service.
1.43 "IRS CLAIM" -- see Section 5.6.
1.44 "LEGAL AND OTHER EXPENSES" -- see Section 6.1(a).
1.45 "LTIP" means the Allstate Long-Term Executive Incentive Compensation
Plan (or any successor plan).
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1.46 "LTIP AWARD" means an incentive compensation opportunity granted under
the LTIP.
1.47 "LTIP BONUS" means the amount paid or earned in respect of an LTIP
Award.
1.48 "LTIP PERFORMANCE PERIOD" means any performance period designated in
accordance with any LTIP approved by the Board or any committee of the Board.
1.49 "LTIP TARGET AWARD" means, in respect of any LTIP Award, the amount
that Executive would have been entitled to receive for the LTIP Performance
Period corresponding to such LTIP Award if the performance goals established
pursuant to such LTIP Award were achieved at the 100% level as of the end of the
LTIP Performance Period.
1.50 "LUMP SUM VALUE" of an annuity payable pursuant to a defined benefit
plan means, as of a specified date, the present value of such annuity, as
determined, as of such date, under generally accepted actuarial principles using
(i) the applicable interest rate, mortality tables and other methods and
assumptions that the Pension Benefit Guaranty Corporation ("PBGC") would use in
determining the value of an immediate annuity on the Termination Date or (ii) if
such interest rate and mortality assumptions are no longer published by the
PBGC, interest rate and mortality assumptions determined in a manner as similar
as practicable to the manner by which the PBGC's interest rate and mortality
assumptions were determined immediately prior to the PBGC's cessation of
publication of such assumptions; provided, however, that if such defined benefit
plan provides for a lump sum distribution and such lump-sum distribution either
(x) is the only payment method available under such plan or (y) provides for a
greater amount than the Lump Sum Value of the Maximum Annuity available under
such plan, then "Lump Sum Value" shall mean such lump sum amount.
1.51 "MAXIMUM ANNUITY" means, in respect of a defined benefit plan (whether
or not qualified under Section 401(a) of the Code), an annuity computed in
whatever manner permitted under such plan (including frequency of annuity
payments, attained age (whether determined as of a current date or as of a
future date upon the commencement of annuity payments), and nature of surviving
spouse benefits, if any) that yields the greatest Lump Sum Value.
1.52 "MERGER OF EQUALS" means, as of any date, a transaction that,
notwithstanding the fact that such transaction may also qualify as a Change of
Control, satisfies all of the conditions set forth in paragraphsor (b) below:
(a) If such date is on or after the Consummation Date, a
Reorganization Transaction in respect of which all of the following
conditions are satisfied as of such date, or, if such date is prior to the
Consummation Date, a proposed Reorganization Transaction in respect of
which the merger agreement or other documents (including the exhibits and
annexes thereto) setting forth the terms and conditions of such
Reorganization Transaction, as in effect on such date after giving effect
to all amendments thereof or waivers thereunder, require that the following
conditions be satisfied on and, where applicable, after the Consummation
Date:
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(i) at least 50%, but not more than 70%, of the common stock
of the Surviving Corporation outstanding immediately after the
consummation of the Reorganization Transaction, together with
Voting Securities representing at least 50%, but not more than
70%, of the combined voting power of all Voting Securities of the
Surviving Corporation outstanding immediately after such
consummation shall be owned, directly or indirectly, by the
persons who were the owners, directly or indirectly, of the
common stock and Voting Securities of Allstate immediately before
such consummation in substantially the same proportions as their
respective direct or indirect ownership, immediately before such
consummation, of the common stock and Voting Securities of
Allstate, respectively; and
(ii) Allstate Incumbent Directors (determined as of such
date using the date immediately preceding the Effective Date as
the baseline date) shall, throughout the period beginning on the
Effective Date and ending on the third anniversary of the
Effective Date, continue to constitute not less than 50% of the
members of the Board; and
(iii) the person who was the CEO of Allstate immediately
prior to the Effective Date shall serve as (x) the CEO of
Allstate throughout the period beginning on the Effective Date
and ending on the Consummation Date and (y) the CEO of the
Surviving Corporation at all times during the period commencing
on the Consummation Date and ending on the first anniversary of
the Consummation Date;
provided, however, that a Reorganization Transaction that qualifies as
a Merger of Equals shall cease to qualify as a Merger of Equals (a
"MERGER OF EQUALS CESSATION") and shall instead qualify as a Change of
Control that is not a Merger of Equals from and after the first date
during the Post-Change Period (such date, the "MERGER OF EQUALS
CESSATION DATE") as of which any one or more of the following shall
occur for any reason:
(1) if any condition of clause (i) of paragraphof this
Section shall for any reason not be satisfied as of immediately
after the consummation of the Reorganization Transaction; or
(2) if as of the close of business on any date on or after
the Effective Date, any condition of clauses (ii) or (iii) of
paragraphof this Section shall not be satisfied; or
(3) if on any date prior to the first anniversary of the
Consummation Date, the Company shall make a filing with the SEC,
issue a press release, or make a public announcement to the
effect that Allstate is seeking or intends to seek a replacement
for the CEO, whether such replacement is to become effective
before or after such first anniversary.
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(b) As of such date, each Person, if any, who is a 20% Owner qualifies
as an Approved Passive Holder.
The Company shall give Executive written notice of any Merger of Equals
Cessation and the applicable Merger of Equals Cessation Date as soon as
practicable after the Merger of Equals Cessation Date.
1.53 "MERGER OF EQUALS CESSATION DATE" -- see the definition of "Merger of
Equals."
1.54 "MERGER OF EQUALS CESSATION NOTICE" -- means a written notice given in
accordance with Section 10.8 by the Company to notify Executive of the facts and
circumstances of a Merger of Equals Cessation, including the Merger of Equals
Cessation Date.
1.55 "NOTICE OF CONSIDERATION" -- see Section 3.3(c).
1.56 "NON-QUALIFIED PLAN" -- see Section 2.4.
1.57 "NOTICE OF TERMINATION" means a written notice given in accordance
with Section 10.8 that sets forth (i) the specific termination provision in this
Agreement relied on by the party giving such notice, (ii) in reasonable detail
the specific facts and circumstances claimed to provide a basis for such
Termination of Employment, and (iii) if the Termination Date is other than the
date of receipt of such Notice of Termination, the Termination Date.
1.58 "PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity or
government instrumentality, division, agency, body or department.
1.59 "PLANS" means plans, programs, or Policies of the Company.
1.60 "POLICIES" means policies, practices or procedures of the Company.
1.61 "POST-CHANGE PERIOD" means the period commencing on the Effective Date
and ending on the third anniversary of the Effective Date.
1.62 "POST-MERGER OF EQUALS PERIOD" means the period commencing on an
Effective Date of a Change of Control that qualifies as a Merger of Equals and
ending on the third anniversary of such Effective Date or, if sooner, the Merger
of Equals Cessation Date.
1.63 "POTENTIAL PARACHUTE PAYMENTS" -- see Section 5.1.
1.64 "PRO-RATA ANNUAL BONUS" means, in respect of the Company's fiscal year
during which the Termination Date occurs, an amount equal to the product of
Executive's Target Annual Bonus (determined as of the Termination Date)
multiplied by a fraction, the numerator of which equals the number of days from
and including the first day of such fiscal year through and including the
Termination Date, and the denominator of which equals 365.
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1.65 "PRO-RATA LTIP BONUS" means an amount equal to the sum of each of the
following amounts: for each LTIP Performance Period that is in effect as of a
Termination Date, Executive's LTIP Target Award for such LTIP Performance Period
multiplied by a fraction, the numerator of which equals the number of days from
and including the beginning of such LTIP Performance Period through and
including the Termination Date, and the denominator of which equals the
aggregate number of days in such LTIP Performance Period.
1.66 "REFUND CLAIM" -- see Section 5.6.
1.67 "REORGANIZATION TRANSACTION" -- see clause (c) of the definition of
"Change of Control."
1.68 "RESTRICTED SHARES" means shares of restricted stock, restricted stock
units or similar awards.
1.69 "SEC" means the Securities and Exchange Commission.
1.70 "SECTION" means, unless the context otherwise requires, a section of
this Agreement.
1.71 "SERP" means a supplemental executive retirement Plan that is a
Non-Qualified Plan.
1.72 "SEVERANCE PERIOD" -- see Section 4.1(g).
1.73 "STOCK OPTIONS" means stock options, stock appreciation rights
(including limited stock appreciation rights), or similar awards.
1.74 "SUBSIDIARY" means any corporation, business trust, limited liability
company or partnership with respect to which Allstate owns, directly or
indirectly, Voting Securities representing more than 50% of the aggregate voting
power of the then-outstanding Voting Securities.
1.75 "SURVIVING CORPORATION" means the corporation resulting from a
Reorganization Transaction or, if securities representing at least 50% of the
aggregate Voting Power of such resulting corporation are directly or indirectly
owned by another corporation, such other corporation.
1.76 "TARGET ANNUAL BONUS" as of any date means the amount equal to the
product of Base Salary determined as of such date multiplied by the percentage
of such Base Salary to which Executive would have been entitled immediately
prior to such date under any Bonus Plan for the Annual Performance Period for
which the Annual Bonus is awarded if the performance goals established pursuant
to such Bonus Plan were achieved at the 100% level as of the end of the Annual
Performance Period.
1.77 "TAXES" means federal, state, local and other income, employment and
other taxes.
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1.78 "TERMINATION DATE" means the date of the receipt of the Notice of
Termination by Executive (if such Notice is given by the Company) or by the
Company (if such Notice is given by Executive), or any later date, not more than
15 days after the giving of such Notice, specified in such Notice; provided,
however, that:
(a) if Executive's employment is terminated by reason of death or
Disability, the Termination Date shall be the date of Executive's death or
the Disability Effective Date (as defined in Section 3.1(a)), as
applicable;
(b) if no Notice of Termination is given, the Termination Date shall
be the last date on which Executive is employed by the Company; and
(c) solely for purposes of determining when the amount of severance
payable to Executive pursuant to Section 4.1(a)(v), if any, is to be deemed
due and owing for purposes of computing interest on such amount pursuant to
Section 6.2:
(i) if Executive terminates his employment with the Company for
Good Reason pursuant to Section 3.4(b)(xiii), the Termination Date
shall be deemed to be the Merger of Equals Cessation Date or, if
later, the date that is 12 months after the Effective Date; and
(ii) if Executive terminates his employment with the Company for
Good Reason pursuant to Section 3.4(b)(xiv) on or after a Merger of
Equals Cessation Date, the Termination Date shall be deemed to be the
date of the Company's act or omission that qualifies as Good Reason.
1.79 "TERMINATION OF EMPLOYMENT" means any termination of Executive's
employment with the Company, whether such occurs by reason of (a) the initiative
of any Company or Executive or (b) the death of Executive.
1.80 "20% OWNER" -- see paragraph (a) of the definition of "Change of
Control."
1.81 "VOTING SECURITIES" of a corporation means securities of such
corporation that are entitled to vote generally in the election of directors of
such corporation.
ARTICLE II.
POST-CHANGE PERIOD
2.1 POSITION AND DUTIES.
(a) (i) During the Post-Change Period, except as otherwise
provided in Section 2.1(a)(ii) or (iii) in the case of a Merger
of Equals, (x) Executive's position (including offices, titles,
reporting requirements and responsibilities), authority and
duties shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned
at any time during the 90-day
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period immediately before the Effective Date and (y) Executive's
services shall be performed at the location where Executive was
employed immediately before the Effective Date or any other
location no more than 30 miles from such former location.
(ii) During any portion of the Post-Change Period that qualifies
as a Post-Merger of Equals Period, the Company may in its discretion
change Executive's position (including offices, titles, reporting
requirements and responsibilities) so long as (x) Executive remains an
elected officer of Allstate, AIC or ALIC, as applicable, and (y)
Executive's services shall be performed at the location where
Executive was employed immediately before the Effective Date or any
other location not more than 30 miles from such former location.
(iii) During the remainder of the Post-Change Period commencing
on the Merger of Equals Cessation Date, clause (i) of this Section
2.1(a) shall be applicable in respect of changes in Executive's
position, authority and duties occurring on or after such date, except
that all references to "Effective Date" in such clause shall instead
be to the Merger of Equals Cessation Date.
(b) During the Post-Change Period (except during any periods of
vacation to which Executive is entitled and any authorized sick, disability
or other leave of absence), Executive shall devote Executive's full
attention and time to the business and affairs of the Company and, to the
extent necessary to discharge the duties assigned to Executive in
accordance with this Agreement, to use Executive's best efforts to perform
such duties. During the Post-Change Period, Executive may (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (iii)
manage personal investments, so long as such activities are consistent with
the Policies of the Company at the Effective Date and do not significantly
interfere with the performance of Executive's duties under this Agreement.
To the extent that any such activities have been conducted by Executive
immediately prior to the Effective Date and were consistent with the
Policies of the Company at the Effective Date, the continued conduct of
such activities (or activities similar in nature and scope) after the
Effective Date shall not be deemed to interfere with the performance of
Executive's duties under this Agreement.
2.2 COMPENSATION.
(a) Base Salary. During the Post-Change Period, the Company shall pay
or cause to be paid to Executive an annual base salary in cash, which shall
be paid in a manner consistent with the Company's payroll practices in
effect immediately before the Effective Date, at an annual rate not less
than 12 times the highest monthly base salary paid or payable to Executive
by the Company in respect of the 12-month period immediately before the
Effective Date (such annual rate salary, the "BASE SALARY"). During the
Post-Change Period, the Base Salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall be
substantially consistent
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with increases in base salary awarded to other peer executives of the
Company; provided, however, that no provision of this Agreement shall
require the Company to increase Executive's Base Salary during a
Post-Merger of Equals Period. Any increase in Base Salary shall not limit
or reduce any other obligation of the Company to Executive under this
Agreement. After any such increase, the Base Salary shall not be reduced
and "Base Salary" shall thereafter refer to the increased amount.
(b) ANNUAL BONUS. The Company shall also pay or cause to be paid to
Executive a bonus (the "ANNUAL BONUS") for each Annual Performance Period
that ends during the Post-Change Period. "ANNUAL PERFORMANCE PERIOD" means
each period designated in accordance with any annual bonus arrangement or
Plan (a "BONUS PLAN") that is based on performance and approved by the
Board or any committee of the Board, or in the absence of any Bonus Plan or
any such designated period of time, each calendar year. The Annual Bonus
shall be not less than the Target Annual Bonus determined as of the
Effective Date; provided, however, that no provision in this Agreement
shall require the Company to pay any Target Annual Bonus or other minimum
Annual Bonus during a Post-Merger of Equals Period.
(c) LTIP BONUS. The Company shall also:
(i) pay or cause to be paid to Executive an LTIP Bonus equal to
the LTIP Target Award for each LTIP Award for which an LTIP
Performance Period is in effect as of the Effective Date; and
(ii) throughout the Post-Change Period, grant LTIP Awards to
Executive as follows:
(1) LTIP Awards shall be granted no less frequently than is
contemplated by the terms of the LTIP and the Company's practices
thereunder, as such terms and practices are in effect immediately
prior to the Effective Date;
(2) each such LTIP Award shall provide for the payment of a
percentage of Executive's Base Salary in effect at the beginning
of the Performance Period applicable to such LTIP Award that is
no less than the average of the Target LTIP Percentages (as
defined below) for all of Executive's LTIP Awards outstanding
immediately prior to the Effective Date; and
(3) the target performance goals established for each such
LTIP Award shall be substantially comparable to the target
performance goals under Executive's LTIP Awards outstanding on
the Effective Date;
provided, however, that during a Post-Merger of Equals Period, no provision
of this Agreement shall require the Company to (x) pay any minimum LTIP
Bonus amount pursuant to clause (i) above, except to the extent required by
the terms of such LTIP
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Award or (y) grant any LTIP Award pursuant to clause (ii) above. "TARGET
LTIP PERCENTAGE" means, in respect of any LTIP Award, the percentage of
Executive's Base Salary (determined as of the beginning of the applicable
LTIP Performance Period) that Executive would be entitled to receive after
the completion of the applicable LTIP Performance Period if the performance
goals applicable to such LTIP Award as of the date immediately prior to the
Effective Date were achieved at the 100% level.
(d) INCENTIVE, SAVINGS AND RETIREMENT PLANS. Executive shall also be
entitled to participate during the Post-Change Period in all incentive
(including long-term incentives), savings and retirement Plans applicable
to other peer executives of the Company, but in no event (except during a
Post-Merger of Equals Period) shall such Plans provide Executive with
incentive (including long-term incentives), savings and retirement benefits
during the Post-Change Period that are, in any case, materially less
favorable, in the aggregate, than the most favorable of those provided by
the Company for Executive under such Plans as in effect at any time during
the 90-day period immediately before the Effective Date.
(e) WELFARE BENEFIT PLANS. During the Post-Change Period, Executive
and Executive's family shall be eligible to participate in, and receive all
benefits under, welfare benefit Plans provided by the Company (including
medical, prescription, dental, disability, salary continuance, individual
life, group life, dependent life, accidental death and travel accident
insurance Plans) and applicable to other peer executives of the Company and
their families, but in no event (except during a Post-Merger of Equals
Period) shall such Plans provide benefits during the Post-Change Period
that are materially less favorable, in the aggregate, than the most
favorable of those provided to Executive under such Plans as in effect at
any time during the 90-day period immediately before the Effective Date.
(f) FRINGE BENEFITS. During the Post-Change Period, Executive shall be
entitled to fringe benefits in accordance with the most favorable Plans
applicable to peer executives of the Company, but in no event (except
during a Post-Merger of Equals Period) shall such Plans provide fringe
benefits that are in any case materially less favorable, in the aggregate,
than the most favorable of those provided by the Company to Executive under
such Plans in effect at any time during the 90-day period immediately
before the Effective Date.
(g) EXPENSES. During the Post-Change Period, Executive shall be
entitled to prompt reimbursement of all reasonable employment-related
expenses incurred by Executive upon the Company's receipt of accountings in
accordance with the most favorable Policies applicable to peer executives
of the Company, but in no event (except during a Post-Merger of Equals
Period) shall such Policies be materially less favorable, in the aggregate,
than the most favorable of those provided by the Company for Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
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(h) OFFICE AND SUPPORT STAFF. During the Post-Change Period, Executive
shall be entitled to an office or offices of a size and with furnishings
and other appointments, and to secretarial and other assistance in
accordance with the most favorable Policies applicable to peer executives
of the Company, but in no event (except during a Post-Merger of Equals
Period) shall such Policies be materially less favorable, in the aggregate,
than the most favorable of those provided by the Company for Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
(i) VACATION. During the Post-Change Period, Executive shall be
entitled to paid vacation in accordance with the most favorable Policies
applicable to peer executives of the Company, but in no event (except
during a Post-Merger of Equals Period) shall such Policies be materially
less favorable, in the aggregate, than the most favorable of those provided
by the Company for Executive under such Policies in effect at any time
during the 90-day period immediately before the Effective Date.
2.3 STOCK INCENTIVE AWARDS. On the Effective Date of a Change of Control
that is not a Merger of Equals or, if applicable, on a Merger of Equals
Cessation Date, (i) all of Executive's unvested Stock Options then outstanding
(whether granted before or after the Agreement Date) shall immediately become
fully vested and exercisable, and (ii) all of Executive's Restricted Shares then
outstanding shall immediately become fully vested and nonforfeitable. This
Section amends all award agreements dated as of any date before the Agreement
Date.
2.4 UNFUNDED DEFERRED COMPENSATION. On the Effective Date of a Change of
Control that is not a Merger of Equals or, if applicable, on a Merger of Equals
Cessation Date, Executive shall become fully vested in all benefits previously
accrued under any deferred compensation Plan (including a SERP) that is not
qualified under Section 401(a) of the Code (a "NON-QUALIFIED PLAN"). Within five
business days after (i) any such Effective Date of a Change of Control that is
not a Merger of Equals or (ii) such Merger of Equals Cessation Date, as
applicable, the Company shall pay to Executive a lump-sum cash amount equal to:
(a) the sum of the Lump-Sum Values of all Maximum Annuities that are
payable pursuant to all defined benefit Non-Qualified Plans, plus
(b) the sum of Executive's account balances under all defined
contribution Non-Qualified Plans.
To the extent that, if, for any reason, any portion of such Non-Qualified Plan
benefit is not so paid, the Company shall pay Executive in lieu thereof a
lump-sum cash payment equal to such unpaid portion within the five-business day
period specified in the preceding sentence.
ARTICLE III.
TERMINATION OF EMPLOYMENT
3.1 DISABILITY.
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(a) During the Post-Change Period, the Company may terminate
Executive's employment because of Executive's Disability by giving
Executive or his legal representative, as applicable, (i) written notice in
accordance with Section 10.8 of the Company's intention to terminate
Executive's employment pursuant to this Section and (ii) a certification of
Executive's Disability by a physician selected by the Company or its
insurers, subject to the consent of Executive or Executive's legal
representative, which consent shall not be unreasonably withheld or
delayed. Executive's employment shall terminate effective on the 30th day
(the "DISABILITY EFFECTIVE DATE") after Executive's receipt of such notice
unless, before the Disability Effective Date, Executive shall have resumed
the full-time performance of Executive's duties.
(b) "DISABILITY" means any medically determinable physical or mental
impairment of an Executive that:
(i) has lasted for a continuous period of not less than (x) six
months or (y) such longer period, if any, that is available to
Executive under the Company's Policies relating to the continuation of
employee status after the onset of disability, as such Policies are in
effect when Disability is determined, but in no event (except during a
Post-Merger of Equals Period) shall such Policies be materially less
favorable to the Executive than the most favorable of such Policies in
effect for peer executives at any time during the 90-day period
immediately before the Effective Date,
(ii) can be expected to be permanent or of indefinite duration,
and
(iii) renders Executive unable to perform the duties required
under this Agreement.
3.2 DEATH. Executive's employment shall terminate automatically upon
Executive's death during the Post-Change Period.
3.3 CAUSE.
(a) During the Post-Change Period, the Company may terminate
Executive's employment for Cause solely in accordance with all of the
substantive and procedural provisions of this Section.
(b) "CAUSE" means any one or more of the following:
(i) Executive's conviction of a felony or other crime involving
fraud, dishonesty or moral turpitude;
(ii) Executive's willful or reckless material misconduct in the
performance of Executive's duties;
(iii) Executive's habitual neglect of duties; or
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(iv) Executive's willful or intentional breach of this Agreement;
provided, however, that for purposes of clauses (ii), (iii), and (iv),
Cause shall not include any one or more of the following:
(1) bad judgment or negligence;
(2) any act or omission believed by Executive in good faith to
have been in or not opposed to the interest of the Company (without
intent of Executive to gain, directly or indirectly, a profit to which
Executive was not legally entitled);
(3) any act or omission with respect to which a determination
could properly have been made by the Board that Executive had
satisfied the applicable standard of conduct for indemnification or
reimbursement under Allstate's by-laws, any applicable indemnification
agreement, or applicable law, in each case as in effect at the time of
such act or omission; or
(4) any act or omission with respect to which Executive receives
a Notice of Consideration (as defined below) more than six months
after the earliest date on which any member of the Board, not a party
to the act or omission, knew or should have known of such act or
omission; and
further provided, that if a breach of this Agreement involved an act or
omission based on Executive's good faith and reasonable belief that
Executive's act or omission was in the best interests of the Company or was
required by applicable law or administrative regulation, such breach shall
not constitute Cause unless the Company gives Executive written notice of
such breach that specifically refers to this Section and, within 30 days
after such notice is given, Executive fails to cure such breach to the
fullest extent that it is curable.
(c) The Company shall strictly observe each of the following
procedures in connection with any Termination of Employment for Cause:
(i) A meeting of the Board shall be called for the stated purpose
of determining whether Executive's acts or omissions satisfy the
requirements of Section 3.3(b) and, if so, whether to terminate
Executive's employment for Cause.
(ii) Not less than 30 days prior to the date of such meeting, the
Company shall provide Executive and each member of the Board written
notice (a "NOTICE OF CONSIDERATION") of (x) a detailed description of
the acts or omissions alleged to constitute Cause, (y) the date, time
and location of such meeting of the Board, and (z) Executive's rights
under clause (iii) below.
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(iii) If the Notice of Consideration is given to Executive at any
time during a Post-Change Period other than during a Post-Merger of
Equals Period, then Executive shall have the opportunity to appear
before the Board in person and, at Executive's option, with legal
counsel, and/or to present to the Board a written response to the
Notice of Consideration. If the Notice of Consideration is given to
Executive during a Post-Merger of Equals Period, then Executive shall
have the opportunity to present to the Board a written response to the
Notice of Consideration, but shall not have the right to appear in
person or by counsel before the Board.
(iv) Executive's employment may be terminated for Cause only if
(x) the acts or omissions specified in the Notice of Consideration did
in fact occur and do constitute Cause as defined in this Section, (y)
the Board makes a specific determination to such effect and to the
effect that Executive's employment should be terminated for Cause and
(z) the Company thereafter provides Executive with a Notice of
Termination that specifies in specific detail the basis of such
Termination of Employment for Cause and which Notice shall be
consistent with the reasons set forth in the Notice of Consideration.
The Board's determination specified in clause (y) of the preceding
sentence shall require the affirmative vote of at least 75% of the
members of the Board, unless the Notice of Consideration is given
during a Post-Merger of Equals Period, in which case such
determination shall require the affirmative vote of a simple majority
of the members of the Board.
(v) In the event that the existence of Cause shall become an
issue in any action or proceeding between the Company and Executive,
the Company shall, notwithstanding the determination referenced in
clause (iv) of this Section 3.3(c), have the burden of establishing
that the actions or omissions specified in the Notice of Consideration
did in fact occur and do constitute Cause and that the Company has
satisfied the procedural requirements of this Section 3.3(c). The
satisfaction of the Company's burden shall require clear and
convincing evidence, unless the Notice of Consideration is given
during a Post-Merger of Equals Period, in which case the Company may
satisfy its burden by a preponderance of the evidence.
3.4 GOOD REASON.
(a) During the Post-Change Period, Executive may terminate his
employment for Good Reason in accordance with the substantive and
procedural provisions of this Section.
(b) "GOOD REASON" means any one or more of the following actions or
omissions that, unless otherwise specified, occurs during a Post-Change
Period:
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(i) any failure to pay Executive's Base Salary in violation of
Section 2.2(a) or any failure to increase Executive's Base Salary to
the extent, if any, required by such Section;
(ii) any failure to pay Executive's Annual Bonus or any reduction
in Executive's Target Annual Bonus, in either case in violation of
Section 2.2(b);
(iii) any failure to grant or pay an LTIP Award or LTIP Bonus in
violation of Section 2.2(c);
(iv) any material adverse change in Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties in violation of Section 2.1(a);
provided, however, that the occurrence of such a material adverse
change during a Post-Merger of Equals Period shall not qualify as Good
Reason for purposes of this clause (iv);
(v) causing Executive to cease to be an elected officer of
Allstate, AIC or ALIC;
(vi) requiring Executive to be based at any office or location in
violation of Section 2.1(a);
(vii) any other material adverse change to the terms and
conditions of Executive's employment; provided, however, that the
occurrence of such a material adverse change during a Post-Merger of
Equals Period shall not qualify as Good Reason for purposes of this
clause (vii);
(viii) any other material breach of this Agreement by the
Company;
(ix) any Termination of Employment by the Company that purports
to be for Cause, but is not in full compliance with all of the
substantive and procedural requirements of this Agreement (any such
purported termination shall be treated as a Termination of Employment
without Cause for all purposes of this Agreement);
(x) the giving of a Notice of Consideration pursuant to Section
3.3(c) and the subsequent failure to terminate Executive for Cause
within a period of 90 days thereafter in compliance with all of the
substantive and procedural requirements of Section 3.3(c);
(xi) the failure at any time of a successor to the Company
explicitly to assume and agree to be bound by this Agreement;
(xii) a Termination of Employment by Executive for any reason or
no reason at any time during the one-month period commencing on the
first day after the end of the 12-month period commencing on the
Effective Date; provided that
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such a Termination of Employment during a Post-Merger of Equals Period
shall not qualify as Good Reason for purposes of this clause (xii);
(xiii) in the event that a Merger of Equals Cessation shall occur
at any time during the Post-Change Period, a Termination of Employment
by Executive for any reason or no reason at any time (whether during
or after the Post-Change Period) that is both (x) after the last day
of the 12-month period commencing on the Effective Date and (y) not
more than 60 days after the Company gives Executive a Merger of Equals
Cessation Notice or, if sooner, Executive obtains actual knowledge of
the Merger of Equals Cessation; or
(xiv) in the event that (x) at any time during the Post-Change
Period a Merger of Equals Cessation shall occur and (y) at any time
during the Post-Change Period and on or after the Merger of Equals
Cessation Date, the Company shall commit an act or omission that
qualifies as Good Reason by reason of clause (iv) or (vii) above, any
Termination of Employment by Executive at any time during the
remainder of the Post-Change Period or thereafter at any time during
the period ending 60 days after the Company gives Executive a Merger
of Equals Cessation Notice or, if earlier, 60 days after Executive
obtains actual knowledge of the Merger of Equals Cessation;
provided, however, that any action or omission by the Company during a
Post-Merger of Equals Period that is specified in clauses (i), (ii), (iii),
(v), (vi), (viii) or (xi) of this Section 3.4(b) and is not intentional or
willful shall not constitute Good Reason unless (x) Executive shall give
the Company a written notice that identifies such action or omission and
specifically refers to this Section, and (y) the Company shall fail for any
reason to cure such act or omission within 30 days after Executive gives
the Company such notice.
(c) If the Termination Date occurs during any portion of a Post-Change
Period that is not a Merger of Equals Period, any reasonable determination
by Executive that any of the events specified in subsection (b) above has
occurred and constitutes Good Reason shall be conclusive and binding for
all purposes, unless the Company establishes by clear and convincing
evidence that Executive did not have any reasonable basis for such
determination. If the Termination Date occurs during a Post-Merger of
Equals Period, a determination by Executive that any of the foregoing
events has occurred and constitutes Good Reason shall not be entitled to
any presumptive validity or other deference by a court.
(d) In the event of any Termination of Employment by Executive for
Good Reason, Executive shall as soon as practicable thereafter notify the
Company of the events constituting such Good Reason by a Notice of
Termination. A delay in the delivery of such Notice of Termination or a
failure by Executive to include in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason shall not waive
any right of Executive under this Agreement or preclude Executive from
asserting such fact or circumstance in enforcing rights under this
Agreement; provided,
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that no act or omission by the Company shall qualify as Good Reason (i) if
Executive's Termination Date is more than 12 months after the first date on
which Executive obtained actual knowledge of such act or omission or (ii)
if such act or omission would not constitute Good Reason during a
Post-Merger of Equals Period and Executive's Termination Date is more than
12 months after the first date on which Executive obtained actual knowledge
of the fact that no Merger of Equals has occurred or that a Merger of
Equals Cessation has occurred.
(e) In the event that the Company fraudulently conceals any act or
omission by the Company that occurs during the Post-Change Period and
qualifies as Good Reason, any subsequent Termination of Employment (whether
by the Company or by Executive and regardless of the circumstances of such
Termination) that occurs on any date (but in no event more than 12 months
after the first date on which Executive obtains actual knowledge of such
act or omission) shall conclusively be deemed to be a Termination of
Employment by Executive for Good Reason, notwithstanding any provision of
this Agreement to the contrary.
ARTICLE IV.
COMPANY'S OBLIGATIONS UPON A TERMINATION OF EMPLOYMENT
4.1 IF BY EXECUTIVE FOR GOOD REASON OR BY THE COMPANY OTHER THAN FOR CAUSE
OR DISABILITY. If, during the Post-Change Period, the Company terminates
Executive's employment other than for Cause or Disability, or if Executive
terminates employment for Good Reason, the Company's sole obligations to
Executive under Sections 2.1 and 2.2 and this Article shall be as follows:
(a) The Company shall pay Executive, in addition to all vested rights
arising from Executive's employment as specified in Article II, a lump-sum
cash amount equal to the sum of the following:
(i) all Accrued Obligations;
(ii) Executive's Pro-rata Annual Bonus reduced (but not below
zero) by the amount of any Annual Bonus paid to Executive with respect
to the Company's fiscal year in which the Termination Date occurs;
(iii) Executive's Pro-rata LTIP Bonus reduced (but not below
zero) by the amount of any LTIP Bonus paid to Executive with respect
to the Company's fiscal year in which the Termination Date occurs;
(iv) all amounts previously deferred by, or accrued to the
benefit of, Executive under any defined contribution Non-Qualified
Plans, whether or not vested, together with any accrued earnings
thereon, to the extent that such amounts and earnings have not been
previously paid by the Company (whether pursuant to Section 2.4 or
otherwise);
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(v) an amount equal to three (3.0) times the sum of (x) Base
Salary, (y) the Target Annual Bonus, and (z) the Annualized LTIP
Bonus, each determined as of the Termination Date; provided, however,
that any reduction in Executive's Base Salary, Target Annual Bonus or
Annualized LTIP Bonus that would qualify as Good Reason shall be
disregarded for this purpose; and
(vi) to the extent not paid pursuant to clause (iv) of this
Section 4.1(a), an amount equal to the sum of the value of the
unvested portion of Executive's accounts or accrued benefits under any
defined contribution Plan (whether or not qualified under Section
401(a) of the Code) maintained by the Company as of the Termination
Date and forfeited by Executive by reason of the Termination of
Employment.
Such lump-sum amount shall be paid no more than five business days after
the Termination Date; provided, however, that such lump-sum amount shall be
paid no more than 30 calendar days after a Termination Date that occurs
during a Post-Merger of Equals Period.
(b) The Company shall pay Executive, in lieu of all benefits under all
defined benefit Non-Qualified Plans that have accrued on or before the
Termination Date but remain unpaid as of such date, a lump-sum cash amount
equal to the positive difference, if any, between:
(i) the sum of the Lump-Sum Values of each Maximum Annuity that
would be payable to Executive under any defined benefit Plan (whether
or not qualified under Section 401(a) of the Code) if Executive had:
(1) become fully vested in all such benefits to the extent
that such benefits are unvested as of the Termination Date,
(2) attained as of the Termination Date an age that is three
years greater than Executive's actual age,
(3) accrued a number of years of service (for purposes of
determining the amount of such benefits, entitlement to early
retirement benefits, and all other purposes of such defined
benefit plans) that is three years greater than the number of
years of service actually accrued by Executive as of the
Termination Date, and
(4) received the lump-sum severance benefits specified in
Section 4.1(a) (excluding all LTIP Bonuses and any severance
multiples thereof, and all amounts in respect of Stock Options or
Restricted Shares, if any) as covered compensation in equal
monthly installments during the Severance Period,
minus
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(ii) the sum of (x) the Lump-Sum Values of the Maximum Annuity
benefits vested and payable (whether currently or at some future date)
to Executive under each defined benefit Plan that is qualified under
Section 401(a) of the Code and (y) the aggregate amounts
simultaneously or previously paid (whether pursuant to Section 2.4 or
otherwise) to Executive under the defined benefit Plans (whether or
not qualified under Section 401(a) of the Code) described in clause
(i) of this Section 4.1(b).
Such lump-sum amount shall be paid no more than five business days after
the Termination Date; provided, however, that such lump-sum amount shall be
paid no more than 30 calendar days after a Termination Date that occurs
during a Post-Merger of Equals Period.
(c) (i) On the Termination Date, all of Executive's unvested Stock
Options then outstanding (whether granted before or after the Agreement
Date) shall immediately become fully vested and exercisable, and (ii) all
of Executive's Restricted Shares then outstanding shall immediately become
fully vested and nonforfeitable. This Section 4.1(c) amends all award
agreements dated as of any date before the Agreement Date.
(d) All of Executive's then-outstanding Stock Options that were
granted after the Agreement Date, whether vested on or before the
Termination Date, shall thereafter remain exercisable until the last to
occur of (x) the first anniversary of the Termination Date, (y) the
expiration of any restrictions on Executive's right to sell the shares
issuable upon the exercise of such Stock Options, which restrictions were
imposed to permit a Reorganization Transaction to be accounted for on a
pooling-of-interests basis, and (z) any period provided in the applicable
stock option agreement or stock option plan as then in effect, but in no
event shall such period of exercisability continue after the date on which
such Stock Options would have expired if Executive had remained an employee
of the Company.
(e) Within five business days after Executive's Termination Date, the
Company shall deliver to Executive certificates for all Restricted Shares
theretofore held by or on behalf of the Company.
(f) If the Termination Date shall occur during the Post-Merger of
Equals Period, the Company shall pay on behalf of Executive all fees and
costs charged by the outplacement firm selected by the Company to provide
outplacement services to Executive. If the Termination Date shall occur at
any other time during the Post-Change Period, the Company shall pay on
behalf of Executive all reasonable fees and costs charged by the
outplacement firm selected by Executive to provide outplacement services to
Executive or, at the election of Executive, shall pay to Executive within
five business days of its receipt of notice of Executive's election an
amount equal to the reasonable fees and expenses such outplacement firm
would charge.
(g) Until the third anniversary of the Termination Date or such later
date as any Plan may specify (the "SEVERANCE PERIOD"), the Company shall
continue to provide to
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Executive and Executive's family welfare benefits (including medical,
prescription, dental, disability, salary continuance, individual life,
group life, accidental death and travel accident insurance plans and
programs) that are at least as favorable as:
(i) during a Post-Change Period other than Post-Merger of Equals
Period, the most favorable Plans of the Company applicable to other
peer executives and their families as of the Termination Date, but
which are in no event less favorable than the most favorable Plans of
the Company applicable to other peer executives and their families
during the 90-day period immediately before the Effective Date; or
(ii) during a Post-Merger of Equals Period, those in effect from
time to time for other peer executives of the Company and their
families,
as applicable. The cost of such welfare benefits to Executive shall not
exceed the cost of such benefits to Executive immediately before the
Termination Date or, if less, the Effective Date, except that if the
Termination Date occurs during a Post-Merger of Equals Period, such cost
may only be any amount not in excess of the cost of such welfare benefits
to peer executives of the Company as in effect from time to time.
Executive's rights under this Section shall be in addition to, and not in
lieu of, any post-termination continuation coverage or conversion rights
Executive may have pursuant to applicable law, including continuation
coverage required by Section 4980 of the Code. Notwithstanding any of the
above, such welfare benefits shall be secondary to any similar welfare
benefits provided by Executive's subsequent employer.
4.2 IF BY THE COMPANY FOR CAUSE. If the Company terminates Executive's
employment for Cause during the Post-Change Period, the Company's sole
obligation to Executive under Sections 2.1 and 2.2 and this Article shall be to
pay Executive a lump-sum cash amount equal to all Accrued Obligations determined
as of the Termination Date.
4.3 IF BY EXECUTIVE OTHER THAN FOR GOOD REASON. If Executive terminates
employment during the Post-Change Period other than for Good Reason, Disability
or death, the Company's sole obligation to Executive under Sections 2.1 and 2.2
and this Article shall be to pay Executive a lump-sum cash amount equal to all
Accrued Obligations determined as of the Termination Date.
4.4 IF BY THE COMPANY FOR DISABILITY. If the Company terminates Executive's
employment by reason of Executive's Disability during the Post-Change Period,
the Company's sole obligation to Executive under Sections 2.1 and 2.2 and this
Article shall be as follows:
(a) to pay Executive a lump-sum cash amount equal to all Accrued
Obligations determined as of the Termination Date, and
(b) to provide Executive disability and other benefits after the
Termination Date that are not less favorable to Executive than the most
favorable of such benefits then available under Plans of the Company to
disabled peer executives of the Company.
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Unless the Disability Effective Date occurs during a Post-Merger of Equals
Period, such disability and other benefits shall also be not materially less
favorable, in the aggregate, to Executive than the most favorable of the
disability and other benefits available to Executive under such Plans in effect
at any time during the 90-day period immediately preceding the Effective Date.
4.5 IF UPON DEATH. If Executive's employment is terminated by reason of
Executive's death during the Post-Change Period, the Company's sole obligations
to Executive under Sections 2.1 and 2.2 and this Article shall be as follows:
(a) to pay Executive's estate or Beneficiary a lump-sum cash amount
equal to all Accrued Obligations; and
(b) to provide Executive's estate or Beneficiary survivor and other
benefits that are not less than the most favorable survivor and other
benefits then available under Plans of the Company to the estates or the
surviving families of peer executives of the Company.
Unless Executive's death occurs during a Post-Merger of Equals Period, such
survivor benefits shall also be no less favorable, in the aggregate, than the
most favorable of the survivor benefits available to Executive under such Plans
in effect at any time during the 90-day period immediately preceding the
Effective Date.
4.6 AMOUNT CONTESTED.
(a) In the event of any dispute between the Company and Executive as
to the nature or extent of the Company's obligation to make any payments or
provide other benefits to Executive or Executive's family pursuant to
Sections 4.1 or 2.4, Executive shall have the right, exercisable by written
notice given to the Company at any time on or after an Effective Date
(except during a Post-Merger of Equals Period), to obtain, within 30 days
after the Company's receipt of Executive's demand therefor, a written
certificate prepared by the Company and certified by Allstate's independent
auditors (a "SECTION 4.6 CERTIFICATE"). The Section 4.6 Certificate shall
specify in detail either (i) the amount and nature of each payment or other
benefit that the Company believes is then due and owing to Executive
pursuant to Section 2.4 or 4.1, as applicable, or (ii) if the Company
asserts that the conditions to Executive's entitlement to severance or
other benefits pursuant to Section 4.1 or 2.4, as applicable, have for any
reason not been satisfied, the amount and nature of each payment or other
benefit that the Company believes would be due and owing to Executive
pursuant to Section 4.1 or 2.4, as applicable, if all of such applicable
conditions had been fully satisfied. Executive may not demand more than one
Section 4.6 Certificate in respect of his rights under Section 4.1 or more
than one Section 4.6 Certificate in respect of his rights under Section
2.4.
(b) Each Section 4.6 Certificate shall include schedules that specify
in detail how each amount or other benefit specified therein was computed,
together with appropriate references to specific provisions of this
Agreement or of any applicable Plans
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or Policies of the Company, copies of which Plans or Policies shall be
attached to such schedules.
(c) If the Termination of Employment occurred during a Post-Change
Period (except during a Post-Merger of Equals Period), the Company shall be
precluded from asserting that any portion of the payments or other benefits
due to Executive pursuant to Section 4.1 or 2.4, as applicable, is less
than the amount specified in the Section 4.6 Certificate. The Section 4.6
Certificate shall in no event be binding on Executive and Executive shall
have the right to assert that any or all of the payments or other benefits
to be provided pursuant to Section 4.1 or 2.4 are greater than or different
from those specified in the Section 4.6 Certificate.
(d) If the Company shall for any reason fail to deliver to Executive a
Section 4.6 Certificate in compliance with this Section within 30 days
after the Company's receipt of Executive's written demand therefor,
Executive's determination of the amount and nature of payments or other
benefits due to Executive (i) pursuant to Section 4.1 and set forth in an
Executive's Severance Determination (as defined below) or (ii) pursuant to
Section 2.4 and set forth in an Executive's Deferred Compensation
Determination (as defined below) shall be conclusive and binding for all
purposes of this Agreement unless the Company shall establish, by clear and
convincing evidence, that Executive's Severance Determination or
Executive's Deferred Compensation Determination, as applicable, is
incorrect and that a different amount (which may be zero or a positive
amount) or nature of payments or other benefits is correct. "EXECUTIVE'S
SEVERANCE DETERMINATION" means an opinion of nationally recognized
executive compensation counsel to the effect that the amount and nature of
severance and other benefits due to Executive pursuant to Section 4.1 is
the amount and nature that a court of competent jurisdiction, based on a
final judgment not subject to further appeal, is most likely to decide to
have been calculated in accordance with this Agreement and applicable law.
"EXECUTIVE'S DEFERRED COMPENSATION DETERMINATION" means an opinion of
nationally recognized executive compensation counsel to the effect that the
amount of payments due to Executive pursuant to Section 2.4 is the amount
that a court of competent jurisdiction, based on a final judgment not
subject to further appeal, is most likely to decide to have been calculated
in accordance with this Agreement and applicable law.
ARTICLE V.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
5.1 GROSS-UP FOR CERTAIN TAXES.
(a) If it is determined by Allstate's independent auditors that any
monetary or other benefit received or deemed received by Executive from the
Company or any Affiliate pursuant to this Agreement or otherwise, whether
or not in connection with a Change of Control (such monetary or other
benefits collectively, the "POTENTIAL PARACHUTE
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PAYMENTS"), is or will become subject to any excise tax under Section 4999
of the Code or any similar tax under any United States federal, state,
local or other law (such excise tax and all such similar taxes
collectively, "EXCISE TAXES"), then the Company shall, subject to Sections
5.6 and 5.7, within five business days after such determination, pay
Executive an amount (the "GROSS-UP PAYMENT") equal to the product of:
(i) the amount of such Excise Taxes
multiplied by
(ii) the Gross-Up Multiple (as defined in Section 5.4).
The Gross-Up Payment is intended to compensate Executive for all Excise
Taxes payable by Executive with respect to Potential Parachute Payments and
all Taxes or Excise Taxes payable by Executive with respect to the Gross-Up
Payment.
(b) The determination of Allstate's independent auditors described in
Section 5.1(a), including the detailed calculations of the amounts of the
Potential Parachute Payments, Excise Taxes and Gross-Up Payment and the
assumptions relating thereto, shall be set forth in a written certificate
of such auditors (the "COMPANY CERTIFICATE") delivered to Executive.
Executive or the Company may at any time request the preparation and
delivery to Executive of a Company Certificate. The Company shall cause the
Company Certificate to be delivered to Executive as soon as reasonably
possible after such request.
5.2 DETERMINATION BY EXECUTIVE.
(a) If (i) the Company shall fail to deliver a Company Certificate to
Executive within 30 days after its receipt of his written request therefor,
or (ii) at any time after Executive's receipt of a Company Certificate,
Executive disputes either (x) the amount of the Gross-Up Payment set forth
therein or (y) the determination set forth therein to the effect that no
Gross-Up Payment is due by reason of Section 5.7 or otherwise, then
Executive may elect to require the Company to pay a Gross-Up Payment in the
amount determined by Executive as set forth in an Executive Counsel Opinion
(as defined in Section 5.5). Any such demand by Executive shall be made by
delivery to the Company of a written notice that specifies the Gross-Up
Payment determined by Executive (together with the detailed calculations of
the amounts of Potential Parachute Payments, Excise Taxes and Gross-Up
Payment and the assumptions relating thereto) and an Executive Counsel
Opinion regarding such Gross-Up Payment (such written notice and opinion
collectively, the "EXECUTIVE'S GROSS-UP DETERMINATION"); provided, however,
that Executive shall not be entitled to present an Executive's Gross-Up
Determination during a Post-Merger of Equals Period unless the Company
shall have failed to deliver a Company Certificate as required by clause
(i) of the first sentence of this Section 5.2. Within 30 days after
delivery of an Executive's Gross-Up Determination to the Company, the
Company shall either (i) pay Executive the Gross-Up Payment set forth in
the Executive's Gross-Up Determination (less the portion thereof, if any,
previously paid to
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Executive by the Company) or (ii) deliver to Executive a Company
Certificate and a Company Counsel Opinion (as defined in Section 5.5), and
pay Executive the Gross-Up Payment specified in such Company Certificate.
If for any reason the Company fails to comply with the preceding sentence,
the Gross-Up Payment specified in the Executive's Gross-Up Determination
shall be controlling for all purposes.
(b) If Executive does not request a Company Certificate, and the
Company does not deliver a Company Certificate to Executive, then (i) the
Company shall, for purposes of Section 5.7, be deemed to have determined
that no Gross-Up Payment is due and (ii) Executive shall not pay any Excise
Taxes in respect of Potential Parachute Payments except in accordance with
Sections 5.6(a) or (d).
5.3 ADDITIONAL GROSS-UP AMOUNTS. If for any reason (whether pursuant to
subsequently enacted provisions of the Code, final regulations or published
rulings of the IRS, a final judgment of a court of competent jurisdiction, a
determination of the Company's independent auditors set forth in a Company
Certificate or, subject to the last two sentences of Section 5.2(a), an
Executive's Gross-Up Determination) it is later determined that the amount of
Excise Taxes payable by Executive is greater than the amount determined by the
Company or Executive pursuant to Section 5.1 or 5.2, as applicable, then the
Company shall, subject to Sections 5.6 and 5.7, pay Executive an amount (which
shall also be deemed a Gross-Up Payment) equal to the product of:
(a) the sum of (i) such additional Excise Taxes and (ii) any interest,
penalties, expenses or other costs incurred by Executive as a result of
having taken a position in accordance with a determination made pursuant to
Section 5.1 or 5.2, as applicable,
multiplied by
(b) the Gross-Up Multiple.
5.4 GROSS-UP MULTIPLE. The "Gross-Up Multiple" shall equal a fraction, the
numerator of which is one (1.0), and the denominator of which is one (1.0) minus
the lesser of (i) the sum, expressed as a decimal fraction, of the effective
after-tax marginal rates of all Taxes and any Excise Taxes applicable to the
Gross-Up Payment or (ii) 0.80, it being intended that the Gross-Up Multiple
shall in no event exceed five (5.0). (If different rates of tax are applicable
to various portions of a Gross-Up Payment, the weighted average of such rates
shall be used.) For purposes of this Section, Executive shall be deemed to be
subject to the highest effective after-tax marginal rate of Taxes.
5.5 OPINION OF COUNSEL. "EXECUTIVE COUNSEL OPINION" means an opinion of
nationally recognized executive compensation counsel to the effect (i) that the
amount of the Gross-Up Payment determined by Executive pursuant to Section 5.2
is the amount that a court of competent jurisdiction, based on a final judgment
not subject to further appeal, is most likely to decide to have been calculated
in accordance with this Article and applicable law and (ii) if the Company has
previously delivered a Company Certificate to Executive, that there is no
reasonable basis or no substantial authority for the calculation of the Gross-Up
Payment set forth
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in the Company Certificate. "COMPANY COUNSEL OPINION" means an opinion of
nationally recognized executive compensation counsel to the effect that (i) the
amount of the Gross-Up Payment set forth in the Company Certificate is the
amount that a court of competent jurisdiction, based on a final judgment not
subject to further appeal, is most likely to decide to have been calculated in
accordance with this Article and applicable law and (ii) for purposes of Section
6662 of the Code, Executive has substantial authority to report on his federal
income tax return the amount of Excise Taxes set forth in the Company
Certificate.
5.6 AMOUNT INCREASED OR CONTESTED.
(a) Executive shall notify the Company in writing (an "EXECUTIVE'S
NOTICE") of any claim by the IRS or other taxing authority (an "IRS CLAIM")
that, if successful, would require the payment by Executive of Excise Taxes
in respect of Potential Parachute Payments in an amount in excess of the
amount of such Excise Taxes determined in accordance with Section 5.1 or
5.2, as applicable. Executive's Notice shall include the nature and amount
of such IRS Claim, the date on which such IRS Claim is due to be paid (the
"IRS CLAIM DEADLINE), and a copy of all notices and other documents or
correspondence received by Executive in respect of such IRS Claim.
Executive shall give the Executive's Notice as soon as practicable, but no
later than the earlier of (i) 10 business days after Executive first
obtains actual knowledge of such IRS Claim or (ii) five business days
before the IRS Claim Deadline; provided, however, that any failure to give
such Executive's Notice shall affect the Company's obligations under this
Article only to the extent that the Company is actually prejudiced by such
failure. If at least one business day before the IRS Claim Deadline the
Company shall:
(i) deliver to Executive a Company Certificate to the effect that
the IRS Claim has been reviewed by the Company's independent auditors
and, notwithstanding the IRS Claim, the amount of Excise Taxes,
interest or penalties payable by Executive is less than the amount
specified in the IRS Claim,
(ii) pay to Executive an amount (which shall also be deemed a
Gross-Up Payment) equal to the positive difference between the product
of (x) the amount of Excise Taxes, interest and penalties specified in
the Company Certificate, if any, multiplied by (y) the Gross-Up
Multiple, less the portion of such product, if any, previously paid to
Executive by the Company, and
(iii) direct Executive pursuant to Section 5.6(d) to contest the
balance of the IRS Claim,
then Executive shall pay only the amount, if any, of Excise Taxes, interest
and penalties specified in the Company Certificate. In no event shall
Executive pay an IRS Claim earlier than 30 days after having given an
Executive's Notice to the Company (or, if sooner, the IRS Claim Deadline).
(b) At any time after the payment by Executive of any amount of Excise
Taxes or related interest or penalties in respect of Potential Parachute
Payments (whether or not
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such amount was based on a Company Certificate, an Executive's Gross-Up
Determination or an IRS Claim), the Company may in its discretion require
Executive to pursue a claim for a refund (a "REFUND CLAIM") of all or any
portion of such Excise Taxes, interest or penalties as the Company may
specify by written notice to Executive.
(c) If the Company notifies Executive in writing that the Company
desires Executive to contest an IRS Claim or to pursue a Refund Claim,
Executive shall:
(i) give the Company all information that it reasonably requests
in writing from time to time relating to such IRS Claim or Refund
Claim, as applicable,
(ii) take such action in connection with such IRS Claim or Refund
Claim (as applicable) as the Company reasonably requests in writing
from time to time, including accepting legal representation with
respect thereto by an attorney selected by the Company, subject to the
approval of Executive (which approval shall not be unreasonably
withheld or delayed),
(iii) cooperate with the Company in good faith to contest such
IRS Claim or pursue such Refund Claim, as applicable,
(iv) permit the Company to participate in any proceedings
relating to such IRS Claim or Refund Claim, as applicable, and
(v) contest such IRS Claim or prosecute Refund Claim (as
applicable) to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company may from time to time determine in its discretion.
The Company shall control all proceedings in connection with such IRS Claim
or Refund Claim (as applicable) and in its discretion may cause Executive
to pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the IRS or other taxing authority in respect
of such IRS Claim or Refund Claim (as applicable); provided that (i) any
extension of the statute of limitations relating to payment of taxes for
the taxable year of Executive relating to the IRS Claim is limited solely
to such IRS Claim, (ii) the Company's control of the IRS Claim or Refund
Claim (as applicable) shall be limited to issues with respect to which a
Gross-Up Payment would be payable, and (iii) Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the IRS or
other taxing authority.
(d) The Company may at any time in its discretion direct Executive to
(i) contest the IRS Claim in any lawful manner or (ii) pay the amount
specified in an IRS Claim and pursue a Refund Claim; provided, however,
that if the Company directs Executive to pay an IRS Claim and pursue a
Refund Claim, the Company shall advance the amount of such payment to
Executive on an interest-free basis and shall indemnify
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Executive, on an after-tax basis, for any Taxes, Excise Taxes and related
interest or penalties imposed with respect to such advance.
(e) The Company shall pay directly all legal, accounting and other
costs and expenses (including additional interest and penalties) incurred
by the Company or Executive in connection with any IRS Claim or Refund
Claim, as applicable, and shall indemnify Executive, on an after-tax basis,
for any Taxes, Excise Taxes and related interest and penalties imposed as a
result of such payment of costs and expenses.
5.7 LIMITATIONS ON GROSS-UP PAYMENTS.
(a) Notwithstanding any other provision of this Article V, if the
aggregate After-Tax Amount (as defined below) of the Potential Parachute
Payments and Gross-Up Payment that, but for this Section 5.7, would be
payable to Executive, does not exceed 110% of the After-Tax Floor Amount
(as defined below), then no Gross-Up Payment shall be made to Executive and
the aggregate amount of Potential Parachute Payments payable to Executive
shall be reduced (but not below the Floor Amount) to the largest amount
that would both (i) not cause any Excise Taxes to be payable by Executive
and (ii) not cause any Potential Parachute Payments to become nondeductible
by the Company by reason of Section 280G of the Code (or any successor
provision). For purposes of the preceding sentence, Executive shall be
deemed to be subject to the highest effective after-tax marginal rate of
Taxes.
(b) For purposes of this Agreement:
(i) "AFTER-TAX AMOUNT" means the portion of a specified amount
that would remain after payment of all Taxes and Excise Taxes paid or
payable by Executive in respect of such specified amount; and
(ii) "FLOOR AMOUNT" means the greatest pre-tax amount of
Potential Parachute Payments that could be paid to Executive without
causing Executive to become liable for any Excise Taxes in connection
therewith; and
(iii) "AFTER-TAX FLOOR AMOUNT" means the After-Tax Amount of the
Floor Amount.
5.8 REFUNDS. If, after the receipt by Executive of any payment or
advance of Excise Taxes by the Company pursuant to this Article, Executive
receives any refund with respect to such Excise Taxes, Executive shall
(subject to the Company's complying with any applicable requirements of
Section 5.6) promptly pay the Company the amount of such refund (together
with any interest paid or credited thereon after Taxes applicable thereto).
If, after the receipt by Executive of an amount advanced by the Company
pursuant to Section 5.6, a determination is made that Executive shall not
be entitled to any refund with respect to such claim and the Company does
not notify Executive in writing of its intent to contest such determination
within 30 days after the Company receives written notice of such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to
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the extent thereof, the amount of Gross-Up Payment required to be paid. Any
contest of a denial of refund shall be controlled by Section 5.6.
ARTICLE VI.
EXPENSES AND INTEREST
6.1 LEGAL AND OTHER EXPENSES.
(a) If Executive incurs legal fees (including fees in connection with
the delivery of an Executive Counsel Opinion) or other expenses (including
expert witness and accounting fees) in an effort to determine, secure,
preserve, establish entitlement to, or obtain benefits under this Agreement
(collectively, "LEGAL AND OTHER EXPENSES"), the Company shall, regardless
of the outcome of such effort, pay or reimburse Executive for such Legal
and Other Expenses in accordance with Section 6.1(b), and shall also pay
Executive an additional payment (an "EXPENSE GROSS-UP") such that, after
payment of all Taxes and Excise Taxes on such amount and such additional
payment, there remains a balance sufficient to pay all such Legal and Other
Expenses.
(b) All Legal and Other Expenses and the Expense Gross-Ups shall be
paid or reimbursed on a monthly basis within 10 days after Allstate's
receipt of Executive's written request accompanied by evidence that such
Legal and Other Expenses were incurred.
(c) If Executive does not prevail (after exhaustion of all available
judicial remedies) in respect of a claim by Executive or by the Company
hereunder, and the Company establishes before a court of competent
jurisdiction, by clear and convincing evidence, that Executive had no
reasonable basis for his claim hereunder, or for his response to the
Company's claim hereunder, or acted in bad faith, no further payment of or
reimbursement for Legal and Other Expenses shall be due to Executive in
respect of such claim and Executive shall refund any amounts previously
paid or reimbursed hereunder with respect to such claim.
(d) All accrued but unpaid obligations of the Company to pay or
reimburse Executive for Legal and Other Expenses pursuant to this Section
(other than any portion of such Expenses that are accrued prior to an
Effective Date or during a Post-Merger of Equals Period as to which no
Merger of Equals Cessation has occurred) shall be secured by an irrevocable
$5.0 million letter of credit in the form attached as Exhibit 1 to this
Agreement (the "LETTER OF CREDIT"). Allstate shall cause Executive to be
listed as an "EXECUTIVE" in the applicable annex to the Letter of Credit as
soon as reasonably practicable after the Agreement Date. In addition,
Executive shall be an intended third-party beneficiary of the Escrow
Agreement referenced in the Letter of Credit and attached hereto as Exhibit
2.
6.2 INTEREST. If the Company does not pay an amount due to Executive under
this Agreement within five business days after such amount first became due and
owing, interest
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shall accrue on such amount from the date it became due and owing until the date
of payment at an annual rate equal to 200 basis points above the base commercial
lending rate published in The Wall Street Journal in effect from time to time
during the period of such nonpayment.
ARTICLE VII.
NO SET-OFF OR MITIGATION
7.1 NO SET-OFF BY COMPANY. Executive's right to receive when due the
payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Time is of the essence in the performance by the Company of its
obligations under this Agreement. Any claim that the Company may have against
Executive, whether for a breach of this Agreement or otherwise, shall be brought
in a separate action or proceeding and not as part of any action or proceeding
brought by Executive to enforce any rights against the Company under this
Agreement, except if (i) the Company's claim is determined by a court to be a
compulsory counterclaim under applicable law or (ii) if a court determines that
the Company would otherwise be materially prejudiced if its claim were to be
brought in a separate action.
7.2 NO MITIGATION. Executive shall not have any duty to mitigate the
amounts payable by the Company under this Agreement by seeking new employment or
self-employment following termination. Except as specifically otherwise provided
in this Agreement, all amounts payable pursuant to this Agreement shall be paid
without reduction regardless of any amounts of salary, compensation or other
amounts that may be paid or payable to Executive as the result of Executive's
employment by another employer or self-employment.
ARTICLE VIII.
RESTRICTIVE COVENANTS
8.1 NON-COMPETITION. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the period beginning on
the Effective Date and ending on the first anniversary of the Termination Date,
directly or indirectly, in any capacity:
(a) engage or participate in, become employed by, serve as a director
of, or render advisory or consulting or other services in connection with,
any Competitive Business; provided, however, that this Section 8.1(a) shall
not preclude Executive from being an employee of, or consultant to, any
business unit of a Competitive Business if (i) such business unit does not
qualify as a Competitive Business in its own right and (ii) Executive does
not have any direct or indirect involvement in, or responsibility for, any
operations of such Competitive Business that cause it to qualify as a
Competitive Business; or
(b) make or retain any financial investment, whether in the form of
equity or debt, or own any interest, in any Competitive Business; provided,
however, that nothing
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in this subsection shall restrict Executive from making an investment in
any Competitive Business if such investment (i) represents no more than 1%
of the aggregate market value of the outstanding capital stock or debt (as
applicable) of such Competitive Business, (ii) does not give Executive any
right or ability, directly or indirectly, to control or influence the
policy decisions or management of such Competitive Business, and (iii) does
not create a conflict of interest between Executive's duties under this
Agreement and his interest in such investment.
8.2 NON-SOLICITATION. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the period beginning on
the Effective Date and ending on the first anniversary of the Termination Date,
directly or indirectly:
(a) other than in connection with the good-faith performance of his
duties as an officer of the Company, encourage any employee or agent of the
Company to terminate his relationship with the Company;
(b) employ, engage as a consultant or adviser, or solicit the
employment or engagement as a consultant or adviser, of any employee or
agent of the Company (other than by the Company or its Affiliates), or
cause or encourage any Person to do any of the foregoing;
(c) establish (or take preliminary steps to establish) a business
with, or encourage others to establish (or take preliminary steps to
establish) a business with, any employee or agent of the Company; or
(d) interfere with the relationship of the Company with, or endeavor
to entice away from the Company, any Person who or which at any time during
the period commencing one year prior to the Agreement Date was or is a
material customer or material supplier of, or maintained a material
business relationship with, the Company.
8.3 REASONABLENESS OF RESTRICTIVE COVENANTS.
(a) Executive acknowledges that the covenants contained in Sections
8.1 and 8.2 are reasonable in the scope of the activities restricted, the
geographic area covered by the restrictions, and the duration of the
restrictions, and that such covenants are reasonably necessary to protect
the Company's relationships with its employees, customers and suppliers.
Executive further acknowledges such covenants are essential elements of
this Agreement and that, but for such covenants, the Company would not have
entered into this Agreement.
(b) The Company and Executive have each consulted with their
respective legal counsel and have been advised concerning the
reasonableness and propriety of such covenants. Executive acknowledges that
his observance of the covenants contained in Sections 8.1 and 8.2 will not
deprive him of the ability to earn a livelihood or to support his
dependents.
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8.4 RIGHT TO INJUNCTION; SURVIVAL OF UNDERTAKINGS.
(a) In recognition of the necessity of the limited restrictions
imposed by Sections 8.1 and 8.2, the parties agree that it would be
impossible to measure solely in money the damages that the Company would
suffer if Executive were to breach any of his obligations under such
Sections. Executive acknowledges that any breach of any provision of such
Sections would irreparably injure the Company. Accordingly, Executive
agrees that the Company shall be entitled, in addition to any other
remedies to which the Company may be entitled under this Agreement or
otherwise, to an injunction to be issued by a court of competent
jurisdiction, to restrain any actual breach, or threatened breach, of such
provisions, and Executive hereby waives any right to assert any defense
that the Company has an adequate remedy at law for any such breach.
(b) If a court determines that any of the covenants included in this
Article VIII is unenforceable in whole or in part because of such
covenant's duration or geographical or other scope, such court may modify
the duration or scope of such provision, as the case may be, so as to cause
such covenant as so modified to be enforceable.
(c) All of the provisions of this Article VIII shall survive any
Termination of Employment without regard to (i) the reasons for such
termination or (ii) the expiration of the Agreement Term.
8.5 NON-DISPARAGEMENT. If Executive remains employed by the Company on the
Effective Date, Executive shall not at any time during the two-year period
commencing on the Termination Date (a) make any written or oral statement that
brings the Company or any of its then-current or former employees, officers or
agents into disrepute, or tarnishes any of their images or reputations or (b)
publish, comment on or disseminate any statements suggesting or accusing the
Company or any of its then-current or former agents, employees or officers of
any misconduct or unlawful behavior. This Section shall not be deemed to be
breached by testimony of Executive given in any judicial or governmental
proceeding that Executive reasonably believes to be truthful at the time given
or by any other action of Executive that he reasonably believes is taken in
accordance with the requirements of applicable law or administrative regulation.
ARTICLE IX.
NON-EXCLUSIVITY OF RIGHTS
9.1 WAIVER OF CERTAIN OTHER RIGHTS. To the extent that Executive shall have
received severance payments or other severance benefits under any other Plan or
agreement of the Company prior to receiving severance payments or other
severance benefits pursuant to Article IV, the severance payments and other
severance benefits under such other Plan or agreement shall reduce (but not
below zero) the corresponding severance payments or other severance benefits to
which Executive shall be entitled under Article IV. To the extent that Executive
receives payments or other benefits pursuant to Article IV, Executive hereby
waives the right to receive a corresponding amount of future severance payments
or other severance
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<PAGE>
benefits under any other Plan or agreement of the Company. To the extent that
Executive receives payments pursuant to Section 4.1(b), Executive hereby waives
the right to receive payments or other benefits under any Non-Qualified Plan
that have accrued as of the Termination Date.
9.2 OTHER RIGHTS. Except as expressly provided in Section 9.1, this
Agreement shall not prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other Plans provided by the
Company and for which Executive may qualify, nor shall this Agreement limit or
otherwise affect such rights as Executive may have under any other agreements
with the Company. Amounts that are vested benefits or which Executive is
otherwise entitled to receive under any Plan and any other payment or benefit
required by law at or after the Termination Date shall be payable in accordance
with such Plan or applicable law except as expressly modified by this Agreement.
ARTICLE X.
MISCELLANEOUS
10.1 NO ASSIGNABILITY. This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
10.2 SUCCESSORS. This Agreement shall inure to the benefit of and be
binding on the Company and its successors and assigns. The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. Any successor to the business or assets of the
Company that assumes or agrees to perform this Agreement by operation of law,
contract, or otherwise shall be jointly and severally liable with the Company
under this Agreement as if such successor were the Company.
10.3 PAYMENTS TO BENEFICIARY. If Executive dies before receiving amounts to
which Executive is entitled under this Agreement, such amounts shall be paid in
a lump sum to one or more beneficiaries designated in writing by Executive
(each, a "BENEFICIARY"), or if none is so designated, to Executive's estate.
10.4 NON-ALIENATION OF BENEFITS. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, before actually being received by
Executive, and any such attempt to dispose of any right to benefits payable
under this Agreement shall be void.
10.5 NO DEFERENCE. Unless otherwise expressly provided in this Agreement,
no determination pursuant to, or interpretation of, this Agreement made by the
board of directors (or
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<PAGE>
any committee thereof) of Allstate or any Successor Corporation shall be
entitled to any presumptive validity or other deference in connection with any
judicial or administrative proceeding relating to or arising under this
Agreement.
10.6 SEVERABILITY. If any one or more Articles, Sections or other portions
of this Agreement are declared by any court or governmental authority to be
unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any Article, Section or other portion not so declared to be unlawful
or invalid. Any Article, Section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such Article,
Section or other portion to the fullest extent possible while remaining lawful
and valid.
10.7 AMENDMENTS. This Agreement shall not be amended or modified except by
written instrument executed by Executive, Allstate and AIC.
10.8 NOTICES. All notices and other communications under this Agreement
shall be in writing and delivered by hand, by nationally recognized delivery
service that promises overnight delivery, or by first-class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive, to Executive at his most recent home
address on file with the Company.
If to Allstate or AIC:
The Allstate Corporation
2775 Sanders Road
Northbrook, Illinois 60062
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
10.10 GOVERNING LAW. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Illinois, without regard to its choice
of law principles.
10.11 CAPTIONS. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
10.12 NUMBER AND GENDER. Wherever appropriate, the singular shall include
the plural, the plural shall include the singular, and the masculine shall
include the feminine.
10.13 TAX WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement any Taxes that are required to be withheld by any
applicable law or regulation.
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<PAGE>
10.14 NO WAIVER. Executive's failure to insist upon strict compliance with
any provision of this Agreement shall not be deemed a waiver of such provision
or any other provision of this Agreement. A waiver of any provision of this
Agreement shall not be deemed a waiver of any other provision, and any waiver of
any default in any such provision shall not be deemed a waiver of any later
default thereof or of any other provision.
10.15 JOINT AND SEVERAL LIABILITY. The obligations of Allstate and AIC to
Executive under this Agreement shall be joint and several.
10.16 NO RIGHTS PRIOR TO EFFECTIVE DATE. Notwithstanding any provision of
this Agreement to the contrary, this Agreement shall not entitle Executive to
any compensation, severance or other benefits of any kind prior to an Effective
Date.
10.17 ENTIRE AGREEMENt. This Agreement contains the entire understanding of
Allstate, AIC and Executive with respect to its subject matter.
IN WITNESS WHEREOF, Executive, Allstate and AIC have executed this Change
of Control Employment Agreement as of the date first above written.
EXECUTIVE
THE ALLSTATE CORPORATION
By:
Title:
ALLSTATE INSURANCE COMPANY
By:
Title:
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<PAGE>
EXHIBIT 15
To the Board of Directors and Shareholders of
The Allstate Corporation:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim condensed
consolidated financial statements of The Allstate Corporation and subsidiaries
for the three-month periods ended March 31, 1999 and 1998, as indicated in our
report dated May 13, 1999; because we did not perform an audit, we expressed no
opinion on such financial statements.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999, is
incorporated by reference in Registration Statement Nos. 333-34583 and 333-61817
on Form S-3 and Registration Statement Nos. 33-77928, 33-93758, 33-93760,
33-93762, 33-99132, 33-99136, 33-99138, 333-04919, 333-16129, 333-23309,
333-40283, 333-40285 and 333-40289 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Chicago, Illinois
May 13, 1999
E-81
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ALLSTATE CORPORATION FINANCIAL STATEMENTS INCLUDED IN SUCH COMPANY'S QUARTERLY
REPORT FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 899051
<NAME> THE ALLSTATE CORPORATION
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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