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April 23, 1996
Mr. Todd R. Stephenson, CPCU
Senior Vice President, Treasurer,
and Chief Financial Officer
American States Financial Corporation
500 North Meridian Street
Indianapolis, IN 46204-1275
Fax Number: 317-262-6616
Dear Todd:
J.P. Morgan Securities Inc. ("JPMSI") is pleased to arrange financing in the
amount of $200,000,000 for American States Financial Corporation (the
"Borrower"). Attached is an outline of the principal terms and conditions of
proposed loans to be made by Morgan Guaranty Trust Company of New York
("Morgan") and other banks acceptable to Morgan and the Borrower (Morgan and
such other banks being herein called the "Banks"), pursuant to loan
documentation mutually acceptable to the Banks and the Borrower.
Morgan hereby commits to lend up to $50,000,000 on the attached terms and
conditions. JPMSI shall inform the Borrower of the date (the "Commitment
Date") on which the Banks (other than Morgan) have sent to JPMSI by telex or
other written confirmation of their commitments on the attached terms and
conditions in an aggregate amount (together with Morgan's commitment) of
$200,000,000. All such commitments will be subject to the negotiation,
execution and delivery of mutually acceptable definitive loan documentation (to
be prepared by Morgan's counsel, Davis Polk & Wardwell).
The Borrower acknowledges its obligation to pay the following fees:
(i) a syndication and advisory fee of $75,000 for the
account of JPMSI, payable on the date of execution of
definitive loan documentation;
(ii) an administrative fee of $1,000 per Bank per annum,
payable quarterly in arrears to Morgan; and
(iii) an auction fee of $2,000 per money market auction,
payable quarterly in arrears to Morgan.
The Borrower, by signing below, agrees to indemnify and defend JPMSI,
Morgan and each other Bank and their respective directors, officers,
agents, employees, and affiliates from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses
incurred by, arising out of or by reason of any investigation, litigation
or other proceeding brought or threatened relating to any loan made or
proposed to be made to the Borrower in connection with the matters herein
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referred to (including, but without limitation, any use made or proposed
to be made by the Borrower or any of its affiliates of the proceeds of
such loans, but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful
misconduct of the indemnitee) including, without limitation, amounts paid
in settlement, court costs, and fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding.
Finally, the Borrower hereby agrees to pay JPMSI and Morgan's
out-of-pocket costs and expenses in connection with the negotiation and
documentation of the loan transaction contemplated hereby, including fees
and disbursements of its counsel, regardless of whether any loan
documents are agreed to and signed by the Banks and the Borrower and
regardless of whether any loans are actually made. This offer will
expire at 9:00 a.m. New York time on May 2, 1996, unless accepted by you
as set out below.
If you accept and agree to this proposal, please so indicate by signing
in the space provided below and returning a copy of this letter to us.
Very truly yours,
J.P. MORGAN SECURITIES INC. MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By /s/ Richard J. Herder By /s/ Anthony R. Malloy
------------------------ -----------------------
Name: Richard J. Herder Name: Anthony R. Malloy
Title: Vice President Title: Vice President
60 Wall Street 60 Wall Street
New York, NY 10260-0060 New York, NY 10260-0060
Telephone: 212-648-6790 Telephone: 212-648-8087
Telecopier: 212-648-5016 Telecopier: 212-648-5249
ACCEPTED AND AGREED TO
this 24th day of April, 1996:
AMERICAN STATES FINANCIAL CORPORATION
By /s/ Todd R. Stephenson
-----------------------------
Name: Todd R. Stephenson
Title: Senior Vice President,
Treasurer and Chief Financial Officer
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JPMORGAN
SUMMARY OF INDICATIVE TERMS AND CONDITIONS
FOR AMERICAN STATES FINANCIAL CORPORATION
BORROWER: American States Financial Corporation.
AMOUNT: Up to $200 million.
MORGAN'S COMMITMENT: Up to $50 million.
PURPOSE: General Corporate Purposes.
AGENT: Morgan Guaranty Trust Company of New York
("Morgan").
ARRANGER: J.P. Morgan Securities Inc.
LENDERS: Syndicate of lenders acceptable to the
Borrower and Morgan (the "Banks").
FACILITY DESCRIPTION: Five years on a fully revolving basis.
BORROWING OPTIONS: Adjusted LIBOR, Adjusted CD, Base Rate, and
Money Market.
LIBOR and CD will be adjusted for reserves
and other regulatory requirements. Base
Rate means the higher of Morgan's prime rate
or the federal funds rate + 0.50%.
MONEY MARKET OPTION DESCRIPTION: The Borrower may request the Agent to
solicit competitive bids from the Banks at a
margin over LIBOR ("Money Market LIBOR
Loans") or at an absolute rate ("Money Market
Absolute Rate Loans"). Each Bank will bid at
its own discretion for amounts up to the
total amount of commitments and the
Borrower will be under no obligation to
accept any of the bids. Any Money Market
advances made by a Bank shall be deemed usage
of the facility for the purpose of
availability of the facility. However, each
Bank's advance shall not reduce such Bank's
obligation to lend its pro rata share of the
remaining undrawn availability under the
facility.
April 24, 1996 Page 1
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JPMORGAN
Bid Selection Mechanism: The Borrower will
determine the aggregate amount of bids or
portion thereof, if any, it will
accept. Bids will be accepted in order of
the lowest to the highest rates ("Bid
Rates"). If two or more Banks bid at the
same Bid Rate and the amount of such bids
accepted is less than the aggregate amount of
such bids, then the amount to be borrowed at
such Bid Rate will be allocated among such
Banks in proportion to the amount for which
each Bank bid at such Bid Rate. The Borrower
may cancel the auction for any reason.
PRICING: Pricing on the commitments and loans will be
expressed in basis points per annum and will
vary according to the pricing level
commensurate with credit quality.
Margins: See attached Pricing Grid.
Facility Fee: A per annum fee calculated on a 360 day
basis payable on each Bank's commitment
irrespective of usage, quarterly in
arrears. See attached Pricing Grid.
REFERENCE BANKS: Three Banks representative of the lender
group.
INTEREST PAYMENTS: At the end of each applicable Interest
Period or quarterly, if earlier.
INTEREST PERIODS: Syndicated Borrowings:
---------------------------------------------
Base Rate - 30 days.
Adjusted LIBOR Loans - 1, 2, 3, or 6 months.
Adjusted CD Loans - 30, 60, 90, or 180 days.
Non-Syndicated Borrowings:
---------------------------------------------
Money Market LIBOR Loans - minimum one month.
Money Market Absolute Loans - minimum 7 days.
DRAWDOWNS: Minimum amounts of $10 million with
additional increments of $1 million.
Drawdowns are at the Borrower's option with
same day notice for Base Rate Loans, one
business day's for Money Market Absolute
Loans, two business days' for Adjusted CD
Loans, three business days' for Adjusted
LIBOR Loans, and five business days' for
Money Market LIBOR Loans.
April 24, 1996 Page 2
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JPMORGAN
PREPAYMENTS: Base Rate Loans may be prepaid at any time
on one business day's notice. Adjusted LIBOR
and Adjusted CD Loans may be prepaid before
the end of an Interest Period provided all
related break funding costs are paid. Money
Market Loans may not be prepaid.
TERMINATION OR REDUCTION OF The Borrower may terminate the
COMMITMENTS: aggregate amount of the commitments in
amounts of at least $10 million at any time
on three business days' notice (which will
reduce each Bank's Commitment pro rata).
REPRESENTATIONS AND WARRANTIES: Customary for credit agreements of this
nature, with respect to the Borrower and its
Subsidiaries, including but not limited to:
1. Corporate existence.
2. Corporate and governmental
authorization; no contravention; binding
effect.
3. Financial information.
4. No material adverse change (at closing
only).
5. Compliance with laws, including ERISA.
6. Environmental matters.
7. No material litigation (at closing
only).
8. Existence, incorporation, etc. of
subsidiaries.
9. Payment of taxes.
10. Not an investment company.
11. Full disclosure.
CONDITIONS PRECEDENT: Customary in credit agreements of this
nature, including but not limited to:
1. Negotiation and execution of
satisfactory closing documentation.
2. Deal-specific requirements if any;
regulatory approval, licenses.
3. All transactions contemplated by the Form
S-1, filed with the SEC on March 15,
1996 (as then in effect) shall have been
completed.
CONDITIONS TO BORROWING: Customary in credit agreements of this
nature, including but not limited to:
1. Absence of default.
2. Accuracy of representations and
warranties except, the representation as
to no material adverse change or
material litigation.
April 24, 1996 Page 3
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JP Morgan
COVENANTS: Customary in credit agreements of this
nature, with respect to the Borrower and
its Subsidiaries, including but not limited
to:
1. Financial information.
2. Maintenance of property; insurance
coverage.
3. Conduct of business; maintenance of
existence.
4. Compliance with applicable laws and
regulations, including ERISA and
environmental regulations.
5. Negative pledge (including subsidiary
stock and assets).
6. Minimum Consolidated Tangible Net Worth
(defined as Shareholders Equity less
Goodwill and less the impact of FASB
115) of the Borrower will not at any
date be less than the sum of 70% of
level at date of IPO plus 50% of
consolidated net income for each year
thereafter.
7. Maximum Leverage. If a Ratings Event
shall have occurred, then the
Consolidated Debt to Equity (defined as
Shareholders Equity less the impact of
FASB 115) of the Borrower shall not at
any time be greater than 50%. A Ratings
Event will be defined as having occurred
if either (I) the Borrower's senior
unsecured long term debt rating is not
at least A- or higher from Standard &
Poor's or A3 or higher from Moody's; or
(ii) the claims paying rating or
financial strength rating of American
States Insurance Company is not at least
A or higher from S&P or A2 from Moody's.
8. Consolidations, mergers and sale of
assets.
9. Use of proceeds to comply with
Regulation U.
EVENTS OF DEFAULT: Customary in credit agreements of this
nature, including but not limited to the
following:
1. Failure to pay any principal under the
Credit Agreement when due or failure to
pay any interest or fees within four
days of the due date.
2. Failure to meet covenants (with grace
periods, where appropriate).
3. Representations or warranties false in
any material respect when made.
4. Cross default to other debt of the
Borrower and its Subsidiaries, other
than newly acquired subsidiaries for a
period of 180 days from the date of such
acquisition, which is triggered by an
event which permits or, with the giving
of notice or lapse of time (or both),
would permit
April 24, 1996 Page 4
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the holder to accelerate its debt or
terminate its commitment.
5. Change of ownership or control. Defined
as any Person, other than Lincoln
National Corporation and its
subsidiaries, owning more than 20% of
the voting stock of the Borrower, unless
Lincoln National Corporation and its
subsidiaries continue to own a majority
interest in the voting stock of the
Borrower.
6. Other usual defaults with respect to the
Borrower and its Subsidiaries, including
but not limited to insolvency,
bankruptcy, ERISA, and judgment
defaults.
INCREASED COSTS/CHANGE OF CIRCUMSTANCES: The credit agreement will contain
customary provisions protecting the
Banks in the event of unavailability
of funding, illegality, increased
costs and funding losses.
Capital adequacy compensation will be
required only with respect to changes
to capital requirements adopted after
the date of execution of the Credit
Agreement.
INDEMNIFICATION: The Borrower will indemnify the Banks
against all losses, liabilities,
claims, damages, or expenses relating
to their loans, the Borrower's use of
loan proceeds or the commitments,
including but not limited to
reasonable attorneys' fees and
settlement costs (except such as
result from the indemnitee's gross
negligence or willful misconduct).
TRANSFERS AND PARTICIPATIONS: Banks will have the right to transfer
or sell participations in their loans
or commitments with the
transferability of voting rights
limited to changes in principal,
rate, fees and term. Assignments,
which must be in amounts of at least
$10 million subject to a minimum hold
of $10 million, will be allowed with
the consent of the Borrower;
assignment to other Banks and Banks'
affiliates without the Borrower's
consent.
EXPENSES: Borrower will pay all legal and other
out-of-pocket expenses of JPMSI and
Morgan related to this transaction
and any subsequent amendments or
waivers, including the reasonable
fees and expenses of Davis Polk &
Wardwell, special counsel to Morgan.
GOVERNING LAW: State of New York.
April 24, 1996 Page 5
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JP Morgan
PRICING GRID FOR AMERICAN STATES FINANCIAL CORPORATION
5 YEAR $200 MILLION REVOLVER
(basis points per annum)
LEVEL I LEVEL II LEVEL III
Basis for Pricing If the If the If the
claims-paying claims-paying claims-paying
ratings* are at ratings* are at ratings* are at
least AA+ by least AA- by least A+ by
Standard & Poor's Standard & Poor's Standard & Poor's
or Aa1 by Moody's. or Aa3 by Moody's. or A1 by Moody's.
-------------------- -------------------- -------------------
Facility Fee 7.00 8.00 9.00
"Unused" Cost 7.00 8.00 9.00
LIBOR + 13.00 17.00 21.00
CD + 25.50 29.50 33.50
Base Rate + 0 0 0
"Used" Cost L + 20.00 L + 25.00 L + 30.00
LEVEL IV LEVEL V LEVEL VI
Basis for Pricing If the If the If Levels I-V do
claims-paying claims-paying not exist.
ratings* are at ratings* are at
least A by Standard least A- by
& Poor's or A2 by Standard & Poor's
Moody's. or A3 by Moody's.
-------------------- -------------------- ------------------
Facility Fee 10.00 12.50 20.00
"Unused" Cost 10.00 12.50 20.00
LIBOR + 25.00 27.50 55.00
CD + 37.50 40.00 67.50
Base Rate + 0 0 0
"Used" Cost L + 35.00 L + 40.00 L + 75.00
* Claims-paying ratings of American States Insurance Company.
April 24, 1996