1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-11733
AMERICAN STATES FINANCIAL CORPORATION
INDIANA NO. 35-1976549
State of Incorporation I.R.S. Employer Identification No.
500 NORTH MERIDIAN STREET
INDIANAPOLIS, INDIANA 46204-1275 (317) 262-6262
Address of principal executive offices Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, No Par Value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of Common Stock held by nonaffiliates (computed as of
January 31, 1997): $265,082,333
Shares of Common Stock outstanding as of January 31, 1997: 60,050,515
DOCUMENTS INCORPORATED BY REFERENCE: None
The exhibit index to this report is located on page 70 of Form 10-K filed by the
registrant for the fiscal year ended December 31, 1996.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the executive officers of the Registrant may be
found in Part I of this report under the heading "EXECUTIVE OFFICERS OF THE
REGISTRANT" as permitted by General Instruction G to Form 10-K. Information
regarding directors of the Registrant is set forth in the following chart:
PRINCIPAL
NAME AND OCCUPATION
POSITION WITH DIRECTOR AND OTHER
THE REGISTRANT AGE SINCE EMPLOYMENT DIRECTORSHIPS
- ------------------------------ ----- --------------- ------------------------- ------------------------
ROBERT A. ANKER 55 February, Chairman and Chief Fort Wayne National
Chairman and Chief 1996 Executive Officer of Corporation
Executive Officer and the Registrant and of
Director (Term expires American States
1998) Insurance Company,
a wholly owned
subsidiary of the
Registrant
WILLIAM J. LAWSON 57 February, President and Chief None
President and Chief 1996 Operating Officer of
Operating Officer and the Registrant and of
Director (Term expires American States
1998) Insurance Company,
a wholly owned
subsidiary of the
Registrant
EDWIN J. GOSS 70 February, Retired (formerly, Ipalco Enterprises,
Director (Term expires 1996 Chairman and Chief Inc.; Indianapolis
in 1997) Executive Officer of Power and Light
American States Company
Insurance Company,
a wholly owned
subsidiary of the
Registrant)
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PRINCIPAL
NAME AND OCCUPATION
POSITION WITH DIRECTOR AND OTHER
THE REGISTRANT AGE SINCE EMPLOYMENT DIRECTORSHIPS
- ------------------------------ ----- --------------- ------------------------- ------------------------
STEPHEN J. PARIS 58 February, Attorney at Law, None
Director (Term expires 1996 Morrison, Mahoney
1998) & Miller
PAULA M. PARKER- 45 February, Program Director, None
SAWYERS 1996 Indiana University
Director (Term expires Center on
1998) Philanthropy
WILLIAM E. PIKE 68 February, Private Investor VF Corporation
Director (Term expires 1996
1998)
MILTON O. THOMPSON 42 February, President, Grand None
Director (Term expires 1996 Slam Licensing, Inc.;
in 1997) General Partner
Grand Slam III, LP;
Partner, Baker, Siege
& Page, Attorneys at Law
RICHARD C. VAUGHAN 47 January, 1997 Executive Vice None
Director (Term expires President and the
1998) Chief Financial
Officer of Lincoln
National Corporation
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1996 each of the following officers and directors of the
Registrant failed to file Securities and Exchange Commission Form 3, Initial
Statement of Beneficial Ownership of Securities timely: F. Cedric McCurley,
William J. Lawson, Robert A. Anker, Jerome T. Gallogly, David N. Hafling, Todd
R. Stephenson, Harry R. Simpson, Thomas M. Ober, J. Robert Coffin, Janis E.
Stoddard-Smith, Ronald K. Young, Edwin J. Goss, Stephen J. Paris, William E.
Pike, Gabriel L. Shaheen, Milton O. Thompson and Thomas R. Kaehr. In addition,
Lincoln National Corporation ("LNC"), the owner of 83.26% of the Registrant's
Common Stock, failed to file a timely Form 3. In each of the foregoing cases,
the required forms were filed shortly after their due dates. There were no
transactions that were not reported on a timely basis.
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ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY ANNUAL AND LONG-TERM COMPENSATION
The following Summary Compensation Table sets forth information as to
annual, long-term and other compensation for services to the Registrant in all
capacities for Mr. Anker and the other four most highly compensated current
executive officers of the Registrant as well as for F. Cedric McCurley, who
served as Chairman and Chief Executive Officer of the Registrant until December
31, 1996 (collectively, the "Named Executives"). The information provided
includes all compensation received in 1996, the year in which the Registrant was
incorporated.
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SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------------- -------------------------- -----------
OTHER
NAME AND ANNUAL RESTRICTED LONG TERM
PRINCIPAL POSITION COMP- STOCK PERFORMANCE ALL OTHER
- --------------------- BONUS ENSATION AWARD OPTIONS PLAN (LTPP) COMPEN-
YEAR SALARY (1) (2) (3) (4) (5) (6) PAYOUTS (5) SATION (7)
---- ------ --- --- ------------ --- ----------- ----------
R.A. Anker (8), 1996 $563,846 $-0- $-0- $-0- 40,000 $704,915 $75,302
Chairman and 1995 534,038 -0- -0- -0- 5,000 712,829 89,010
CEO of the
Registrant
F. C. McCurley, 1996 385,000 12,500 9,553 241,960 32,000 229,450 50,467
Former Chairman 1995 370,425 -0- 350 269,674 14,000 179,825 54,829
and CEO of the
Registrant
W. J. Lawson, 1996 340,000 -0- 16,185 199,985 23,800 200,000 22,121
President and 1995 340,000 -0- -0- -0- 10,000 -0- 14,967
COO of the
Registrant
J. T. Gallogly, 1996 303,000 4,100 11,281 150,006 14,500 145,900 41,938
Executive Vice 1995 283,000 -0- 1,250 211,974 7,000 42,026 44,996
President of the
Registrant
T. R. Stephenson, 1996 208,000 5,500 9,553 117,507 14,000 111,950 19,652
Senior Vice 1995 155,812 -0- 238 -0- 6,000 21,709 18,180
president and CFO
of the Registrant
R. K. Young, 1996 195,000 -0- 9,588 111,941 7,000 111,950 19,256
Senior Vice 1995 151,803 -0- -0- -0- 3,000 22,710 18,611
President of ASI
- ---------------------
(1) This amount represents a cash award, which together with the award under the
LNC Executive Value Sharing Plan (the "EVSP" - See also footnote 3) brought
total compensation to a competitive level relative to the market.
(2) These amounts represent reimbursements during the year for payment of taxes.
None of the Named Executives received perquisites or other personal benefits
which exceeded the lesser of $50,000 or 10% of the total of base salary and
annual bonus.
(3) Executive Performance Incentive Compensation Plan (the "EPIC Plan") results
for 1996 are not available at this time because financial information on peer
group companies necessary to calculate these awards are not yet available. The
amounts shown for 1996 include restricted stock awards made in May to the Named
Executives under the LNC Executive Value Sharing Plan (the "EVSP") for the
1993-1995 performance cycle pursuant to formula and supplemental awards made to
Mr. McCurley, Mr. Gallogly and Mr. Stephenson so that the total award to these
three executives was competitive relative to the market, all valued at the date
of the award. A breakdown of these awards and their values at relevant dates are
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displayed below:
Restricted Supplemental Total
Shares Awarded Award of Restricted
Under EVSP Restricted Shares Aggregate Value at Aggregate Value
Name Formula Shares Awarded Date of Award at 12/31/96
- ---- ------- ------ ------- ------------- -----------
F. C. McCurley 9,977 543 10,520 $241,960 $278,780
W. J. Lawson 8,695 -0- 8,695 199,985 230,418
J. T. Gallogly 6,344 178 6,522 150,006 173,486
T. R. Stephenson 4,870 239 5,109 117,507 135,389
R. K. Young 4,867 -0- 4,867 111,941 128,976
(4) As of December 31, 1996, there were 50,515 restricted shares of the
Registrant, with a market value of $1,338,648, held by all employees. At that
time, Mr. McCurley held 10,520 such shares, Mr. Lawson held 8,695 such shares,
Mr. Gallogly held 6,522 such shares Mr. Stephenson held 5,109 such shares and
Mr. Young held 4,867 such shares.
The year-end 1996 values of these holdings are set forth in footnote 3, above.
(5) In addition to the restricted shares reported in the Restricted Stock Award
column for 1996, each Named Executive also received a cash award under the EVSP
for the 1993-1995 Performance cycle. These amounts were paid in cash and are
reported in the Long Term Performance Plans (LTPP) Payouts column.
(6) All 1996 options except those awarded to Mr. Anker are for Common Stock of
the Registrant. Mr. Anker's options are for common stock of LNC. All 1995
options were for the common stock of LNC.
(7) Included in the All Other Compensation column are:
(A) The dollar value of insurance premiums paid by the Registrant for
the benefit of the Named Executives. The amounts for 1996 are as
follows: Mr. McCurley, $25,565; Mr. Lawson, $14,699; Mr. Gallogly,
$22,217; Mr. Stephenson, $7,355; and Mr. Young, $7,254. LNC paid
$41,000 for Mr. Anker's insurance in 1996.
(B) The Registrant's contribution under its flexible benefit plan. For
1996 those amounts were as follows: Mr. McCurley, $2,322; Mr. Lawson,
$2,322, Mr. Gallogly, $2,322; Mr. Stephenson, $2,101; and Mr. Young,
$2,182. The Registrant contributed no amounts for Mr. Anker in either
1995 or 1996. In 1996, LNC contributed $1,588 to its flexible benefit
plan for Mr. Anker.
(C) Amounts accrued for the Named Executives as company contributions
pursuant to the Registrant's Savings and Profit Sharing Plan and a
related supplemental plan and, for Mr. Anker, pursuant to the
corresponding plans of LNC. During 1996, the amount of such company
contributions made by the Registrant was $0.25 for each $1.00 of
employee contributions made to the plans, up to 6% of salary.
(D) Amounts allocated to the Named Executives as additional company
contributions pursuant to the LNC Employees' Savings and Profit Sharing
Plan for 1995. The amount of such additional company contributions
$0.757 for each $1.00 of employee contributions made to the plans, up
to 6% of salary, was determined and allocated to each Named Executive
in 1996.
The aggregate amount paid or allocated pursuant to (C) and (D), above, for each
Named Executive in 1996 is: Mr. Anker, $32,714; Mr. McCurley, $22,580; Mr.
Lawson, $5,100; Mr. Gallogly, $17,399; Mr. Stephenson, $10,196; and Mr. Young,
$9,820.
Page 6 of 20
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(8) Mr. Anker became an executive officer of the Registrant effective December
31, 1996. Prior to that he served as the President and Chief Operating Officer
of LNC, in which capacity some part of his responsibilities included monitoring
and supervision of the Registrant's affairs. The compensation disclosed
represents compensation paid or allocated to Mr. Anker by LNC in 1996,
regardless of the year in which it was earned. That is consistent with the
amounts reported for the other Named Executives. Because of tax considerations,
the award of restricted stock reported for Mr. Anker was made in restricted
stock units in lieu of restricted stock. The value of those units is reflected
in the "Long Term Performance Payouts" column.
STOCK OPTION PLANS
The following table sets forth information on grants of stock options
during 1996 to the Named Executives, which are reflected in the Summary
Compensation Table. All options are for the purchase of shares of the
Registrant's Common Stock, except those granted to Mr. Anker, for whom grants
under option plans maintained by LNC were for the purchase of LNC common stock.
No stock appreciation rights were granted to any of the Registrant's executive
officers during 1996.
OPTION GRANTS IN 1996
(All such Options were for the Registrant's
Common Stock, unless otherwise noted)
POTENTIAL REALIZABLE VALUE
AT ASSUMED RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
------------------------------------------------------------------ ---------------------------
NUMBER OF
SECURITIES % OF OPTIONS
UNDERLYING GRANTED TO PER SHARE
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED (2) 1996 (3) BASE PRICE (4) DATE (5) 5% 10%
---- ----------- -------- -------------- -------- -- ---
R. A. Anker (6) 40,000 6.32% $45.38 5/08/2006 $1,141,444 $2,892,643
F. C. McCurley 32,000 16.05 23.00 5/29/2006 462,866 1,172,994
W. J. Lawson 23,800 11.94 23.00 5/29/2006 344,257 872,415
J. T. Gallogly 14,500 7.27 23.00 5/29/2006 209,736 531,513
T. R. Stephenson 14,000 7.02 23.00 5/29/2006 202,504 513,185
R. K. Young 7,000 3.51 23.00 5/29/2006 101,252 256,593
(1) The amounts in the two columns below this heading represent the potential
realizable value of each grant of options, assuming that the market price of the
underlying shares appreciates in value from the date of grant to the end of the
option term, at annualized rates of 5% and 10%.
(2) 25% of the options granted on May 29, 1996 are exercisable on the first
anniversary of the grant date. An
Page 7 of 20
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additional 25% become exercisable on each successive anniversary date, with
earlier full vesting occurring on death or disability.
(3) Options for shares of the Registrant totaling 199,400 shares were granted to
95 eligible employees in 1996.
(4) The exercise price and tax withholding obligations related to exercise may
be paid by delivery or already owned shares or by offset of the underlying
shares, subject to certain conditions.
(5) The options were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
(6) Mr. Anker's options were for LNC common stock and were granted under option
plans maintained by LNC. LNC granted 632,700 options for its shares to 490 of
its employees in 1996.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to option
exercises in 1996 and unexercised options to purchase shares of Registrant's
Common Stock granted under the Registrant's option plan (the "Company Option
Plan") and common stock of LNC granted under option plans maintained by LNC (the
"LNC Option Plans") to the Named Executives. Grants under the Company Option
Plan were made to each of the Named Executives except Mr. Anker in 1996. All
such options are for the purchase of shares of Common Stock of the Registrant.
Grants under the LNC Option Plans were made to Mr. Anker in 1996 and prior years
and to the other Named Executives in 1995 and prior years. All such options are
for the purchase of shares of common stock of LNC.
AGGREGATED OPTION EXERCISES IN 1996 AND
OPTION PLAN VALUES AT DECEMBER 31, 1996
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
---------------------------- ----------------------
SHARES EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
ACQUIRED ON VALUE ----------- ------------- ----------- -------------
NAME EXERCISE(2) REALIZED (3) (4) (3) (4)
---- ----------- -------- --- --- --- ---
R. A. Anker 7,000 $197,310 110,250 73,750 $2,535,162 $663,902
F. C. McCurley 8,000 195,380 44,150 53,252 856,290 463,714
W. J. Lawson 6,500 139,790 18,750 34,050 319,977 168,012
J. T. Gallogly 2,400 55,430 18,950 24,100 376,074 159,597
T. R. Stephenson 1,800 43,020 3,400 19,800 39,340 110,300
R. K. Young 600 16,670 5,400 10,500 97,146 2,877
------ -------- ------- ------- ---------- ----------
Grand Total 26,300 $647,600 200,900 215,452 $4,223,989 $1,628,402
(1) Based on the closing prices on the New York Stock Exchange on December 31,
1996 of $52.50 for LNC stock
Page 8 of 20
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and $26.50 for the Registrant's shares.
(2) All shares acquired were common stock of LNC.
(3) All options exercisable at December 31, 1996 were for shares of LNC.
(4) At December 31, 1996 some of the unexercisable options were for the Common
Stock of the Registrant and some where for shares of LNC. The Following chart
shows the breakdown as to number of shares and value as between the two
securities:
Unexercised Options for Registrant Unexercised Options for LNC
Securities Held at December 31, 1996 Securities Held at December 31, 1996
------------------------------------ -------------------------------------
Name Number of Shares Value Number of Shares Value
- ---- ---------------- ----- ---------------- -----
R. A. Anker -0- $-0- 73,750 $663,920
F. C. McCurley 32,000 112,000 21,250 242,967
W. J. Lawson 23,800 83,000 10,250 84,712
J. T. Gallogly 14,500 50,750 9,650 108,847
T. R. Stephenson 14,000 49,000 5,800 61,300
R. K. Young 7,000 24,500 3,500 38,377
LONG-TERM INCENTIVE PLANS
The table below sets forth the estimated future payments for the
performance cycles ending in 1996 and 1997 under the EPIC Plan for the Named
Executives. No targets have been set for any other performance cycle.
[This space intentionally left blank]
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LONG-TERM INCENTIVE PLANS - AWARDS IN 1996
ESTIMATED PAYOUTS UNDER NON-STOCK PRICE-
BASED PLANS
---------------------------------------------
PERFORMANCE OR
NUMBER OF OTHER PERIOD
SHARES, UNITS OR UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS (1) OR AWARD (2) AWARD AWARD (3) AWARD (4)
---- ---------------- ------------ ----- --------- ---------
R. A. Anker N/A 1996-1997 $525,000 $1,310,000 $2,300,000
1996-1998 590,000 1,430,000 2,500,000
F. C. McCurley N/A 1996-1997 370,000 930,000 1,400,000
1996-1998 420,000 1,010,000 1,760,000
W. J. Lawson N/A 1996-1997 320,000 780,000 1,300,000
1996-1998 360,000 860,000 1,500,000
J. T. Gallogly N/A 1996-1997 210,000 530,000 920,000
1996-1998 240,000 570,000 1,010,000
T. R. Stephenson N/A 1996-1997 160,000 400,000 690,000
1996-1998 180,000 420,000 740,000
R. K. Young N/A 1996-1997 160,000 400,000 690,000
1996-1998 180,000 420,000 740,000
- ---------------
(1) The Registrant's EPIC Plan is administered by the Compensation Committee of
the Registrant's Board of Directors (the "Committee"). The performance goals for
the Named Executives are based on the Registrant's performance compared to that
of a group of peer companies determined by the Committee. If results are
consistent with the pre-determined goals, then awards will be made in accordance
with established formulae, with the Committee retaining the discretion to adjust
them downward.
(2) In determining the amount of the LNC portion of the EPIC Plan awards, the
Committee will use the following three-year performance cycles: 1995-97 and
1996-98.
(3) The targets are the estimated maximums to be paid for the 1996-97 cycle and
the 1996-98 cycle if the Registrant's performance is at the target level
established by the Committee.
(4) The amounts shown are the most that may be awarded with respect to each
listed cycle if the performance goals established by the Committee are fully
achieved and, in addition, the maximum discretionary award is made.
RETIREMENT PLANS
The following chart sets forth the estimated annual retirement benefits
payable on a straight life annuity basis to participating employees, including
the Named Executives, under the Registrant's retirement plans which cover most
officers and other employees. The plans are non-contributory. The benefits
displayed reflect a reduction to recognize in part the Registrant's cost of
Social Security benefits related to service with the Registrant.
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PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR CREDITED YEARS OF SERVICE (1) (2)
-----------------------------------------------------------------------------------------------------
FINAL
AVERAGE
SALARY (3) 10 15 20 25 30 35 40
---------- -- -- -- -- -- -- --
$200,000 $ 32,897 $ 49,345 $ 65,794 $ 82,242 $ 98,691 $115,139 $120,139
$250,000 41,397 62,095 82,794 103,492 124,191 144,889 151,139
$300,000 49,897 74,845 99,794 124,742 149,691 174,639 182,139
$350,000 58,397 87,595 116,794 145,992 175,191 204,389 213,139
$400,000 66,897 100,345 133,794 167,242 200,691 234,139 244,139
$450,000 75,397 113,095 150,794 188,492 266,191 263,889 275,139
$500,000 83,897 125,845 167,794 209,742 251,691 293,639 306,139
$550,000 92,397 138,595 184,794 230,992 277,191 323,389 337,139
$600,000 100,897 151,345 201,794 252,242 302,691 353,139 368,139
$650,000 109,397 164,095 218,794 273,492 328,191 382,889 399,139
$700,000 117,897 176,845 235,794 294,742 353,691 412,639 430,139
- -------------
(1) The above table assumes retirement at age 65 (the current normal retirement
age). At that age Messrs. Anker, McCurley, Lawson, Gallogly, Stephenson and
Young will have 31, 14, 41, 39, 41 and 41 years of service credited to them,
respectively. Mr. McCurley, who will retire early on December 31, 1997, will
have 12 years of credited service at that time.
(2) As a result of limitations under the Internal Revenue Code, a portion of
these benefits will be paid under an unfunded non-qualified supplemental defined
benefit retirement plan established by the Registrant to provide benefits
(included in the above table) which would exceed these limits.
(3) Under the Registrant's retirement plan, the "final average salary" is the
average of an employee's base salary paid in any consecutive 60-month period
during an employee's last ten years of active employment which produces the
highest average salary.
SUPPLEMENTAL RETIREMENT PLANS
Certain officers of the Registrant and its subsidiaries, including all
Named Executives, have entered into salary continuation agreements pursuant to
the terms of the American States Executive Salary Continuation Plan (the "Salary
Continuation Plan"). Under the Salary Continuation Plan, the amount each
participant is entitled to receive upon retirement is 2% of final compensation
times the number of years the salary continuation agreement has been in effect
up to a maximum of 10% of final salary, so long as the participant agrees to an
exclusive consulting arrangement until the earlier of the waiver of such
arrangement or attainment of age 65. This amount will be paid in the form of a
120-
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month certain and life annuity. In the event of death prior to retirement,
designated beneficiaries of executives who were participating in the Salary
Continuation Plan on December 31, 1991, will instead receive annual payments
each equal to 25% of the employee's final annual salary until the later of the
date on which the employee would have attained age 65 or the date on which a
minimum of ten payments have been made. These salary continuation agreements
automatically terminate upon the officer's termination of service for reasons
other that death, disability or retirement; except that in the event of a
change-in-control of American States Insurance Company or LNC, and a subsequent
voluntary or involuntary termination of the employee's employment within 2 years
of the change-in-control, such employee will be treated as continuing employment
until age 65 at which time benefits will begin. The Salary Continuation Plan
caps compensation used to determine benefits at the greater of $200,000 or the
annual base compensation in effect on December 31, 1991, for all current and
future participants and eliminates the death benefit for future participants.
COMPENSATION OF DIRECTORS
Directors of the Registrant who are not employees of the Registrant or
its affiliates receive an annual retainer of $15,000 plus a fee of $900 for each
Board and Board committee meeting attended. The annual retainer and fees are
either paid currently in cash or deferred in phantom units of Common Stock of
the Registrant which are payable in cash at termination of service as a
director, including death or disability, as elected by the director annually
with respect to each succeeding year of service as a director. In addition, the
Registrant reimburses directors for reasonable travel expenses incurred in
attending Board and Board committee meetings. Directors and retired directors
are permitted to participate in the Registrant's matching gifts program, in
which the Registrant matches each dollar contributed to an institution of higher
education, up to an aggregate maximum of $2,500 per year for each individual.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
The Registrant has entered into employment agreements (the "Employment
Agreements") with Messrs. Anker, McCurley, Lawson, Gallogly and Stephenson (the
"Contract Executives"). The Employment Agreements of Messrs. Anker and McCurley
will expire on December 31, 1997 and those of Messrs. Lawson, Gallogly and
Stephenson will expire on May 28, 1998 (the date which is 24 months after the
date on which the Registrant made its initial public offering). The Employment
Agreements provide for the capacities in which the Contract Executives will
serve as employees of the Registrant, their responsibilities, compensation,
benefits and eligibility for stock options and restricted stock awards. The
Employment Agreements also provide that in the event of termination of
employment for reasons other than incapacity or death and without cause, the
Registrant will continue to provide the Contract Executive's salary, bonus under
the EPIC Plan and benefits until the termination of the Employment Agreement and
for vesting and exercisability of all stock options as if employment had
continued until such date.
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In addition, the Employment Agreement with Mr. Anker provides that if
his employment terminates at the agreement's expiration for reasons other than
death, incapacity or cause, he will be entitled to an early retirement benefit
without adjustment for his age, outplacement benefits and executive financial
planning benefits for calendar year 1998. In the event that Mr. Anker's
employment terminates prior to the end of the contract period due to poor
performance, he will be entitled to $285,000 payable in twenty-six equal
biweekly installments. Similarly, should his employment terminate during the
contract period due to his arrest or indictment for a possible criminal
violation involving fraud or dishonesty, which is later dismissed or of which he
is later acquitted, Mr. Anker will also be entitled to $285,000 payable in
twenty-six equal biweekly installments. Mr Anker's Employment Agreement also
contains provisions which protect the Registrant from competition by him and
prevent him from seeking to effect a change of control of the Registrant or LNC
for a period of three years after his employment terminates.
Pursuant to the Employment Agreements, in 1997 Mr. Anker's base salary
will be not less than $565,000; Mr. McCurley's will be not less than $385,000;
Mr. Lawson's will be not less than $340,000; Mr. Gallogly's will be $303,000;
and Mr. Stephenson's will be not less than $208,000. Subject to those minimums,
each Contract Executive's base salary may be adjusted annually at the discretion
of the Board of Directors of the Registrant. Contract Executives are also
entitled to participate in and receive all benefits under any and all benefit
programs maintained by the Registrant for executives at their levels, except for
the severance plan.
Each of the Contract Executives has agreed not to disclose or reveal
any trade secrets or other confidential information related to the Registrant
both during and after the term of his Employment Agreement. Each Contract
Executive has also agreed that certain specified amounts payable under his
Employment Agreement are subject to compliance with these and other provisions
of the Employment Agreement.
As a result of the decision announced March 26, 1997 to seek a buyer
for 100% of the Registrant's Common Stock, it was decided that the Registrant
would benefit from a program designed to retain certain key executives.
Therefore, certain key executives (the "Key Executives"), including all of the
Named Executives except Mr. McCurley, were offered and accepted employment
contracts which embody a two part plan, including benefits which accrue upon a
change of control and incentives for Key Executives to continue their employment
with the Registrant. In some cases, there are two tiers of benefits, recognizing
differing levels of contribution. In each case, participating Named Executives
receive Tier 1 benefits.
The change-in-control portion of the plan provides two categories of
benefits. The first category accrues if there is an acquisition of 50% or more
of the Registrant's Common Stock. It provides for immediate vesting of any
unvested LNC restricted stock, unvested options for LNC stock and unvested
restricted stock of the Registrant held by a Key Executive. Under the plan, any
unvested options for Common Stock of the Registrant held by a Key Executive
will be released upon a change-in-control and replaced with the Retention
Incentive discussed below.
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The second category of change-in-control benefits accrues if there is
an acquisition of 50% of the Registrant's Common Stock followed within 18
months by termination of the Key Executive's employment either (i)
involuntarily (except for cause), or (ii) voluntarily for good reason. It
provides for (a) immediate vesting of any accrued benefits under existing
access benefit plans and payment of those benefits according to the terms of
each plan, (b) payout of actual amounts due under incentive compensation plans,
prorated to the end of the most recently completed quarter (c) outplacement
services up to the greater of $25,000 or 20% of base salary, (d) continued
coverage under welfare benefit plans for one year, (e) the Key Executive and
his or her spouse will be eligible for retiree health insurance coverage if, at
the time of the change-in-control, the executive meets certain age or service
requirements and (f) excise tax gross up, if any such taxes are applicable. In
addition, there are two tiers of severance benefits payable if they exceed the
benefits available under the Registrant's regular severance pay plan: Tier 1,
100% of annual salary; or Tier 2, 50% of annual salary.
The retention incentive portion of the plan provides the following
benefits for continuing employment, or at involuntary termination (other than
for cause) or voluntary termination for good reason. Six months after a
change-in-control, each Key Executive will be paid the difference between
$23 and the per share price paid by the buyer for each unvested option held at
the time of the change-in-control. In addition, one year after a
change-in-control Key Executives will receive either (a) Tier 1 -- 50% of annual
salary plus an additional 25% of annual salary for each $1.00 by which the
purchase price paid by the buyer exceeds $34 (with linear interpolation of
amounts between each whole dollar); or (b) Tier 2 -- 25% of annual salary plus
an additional 12.5% of annual salary for each $1.00 by which the purchase price
paid by the buyer exceeds $34 (with linear interpolation of amounts between each
whole dollar).
Under the plan, all Key Executives must sign a general release. The
retention incentive expires for all Key Executives if no change of control
occurs before March 31, 1998. The change of control benefits expire for some Key
Executives if no change of control occurs before March 31, 1998. For other Key
Executives, including all participating Named Executives, these benefits
continue and would be applicable to a later change-in-control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following chart sets forth certain information regarding the only
person known to the Registrant to be the beneficial owner of more than five
percent of any class of the Registrant's voting securities:
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AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ---------------- --------- --------
Common Stock Lincoln National Corporation 50,000,000 shares -- 83.26%
200 East Berry Street ownership is direct, giving
Fort Wayne, Indiana 46802 Lincoln National Corporation
the power to vote and sell or
otherwise dispose of the
shares held.
The following chart sets forth certain information regarding the
securities ownership of the directors and executive officers of the Registrant
with respect to equity securities of the Registrant and LNC as of March 31,
1997:
REGISTRANT COMMON
STOCK TOTAL LNC COMMON STOCK TOTAL
-------------------------- REGISTRANT ------------------------ LNC
NAME OF BENEFICIAL OWNER OF SHARES SHARES SHARES SHARES
SECURITIES (1) (2) UNITS (3) AND UNITS (1) (4) UNITS (3) AND UNITS
- -------------------------- ---------- -------- ---------- --------- -------- ----------
R. A. Anker 1,065 -0- 1,065 156,814 48,739 205,553
J. T. Gallogly 10,503 78 10,581 40,345 1,178 41,523
E. J. Goss 5,000 -0- 5,000 40,085 -0- 40,085
W. J. Lawson 26,701 54 26,755 30,443 6,200 36,643
F. C. McCurley 20,546 46 20,592 79,308 1,122 80,430
S. J. Paris 1,000 822 1,822 -0- -0- -0-
P. M. Parker-Sawyers 200 -0- 200 -0- -0- -0-
W. E. Pike 3,000 -0- 3,000 -0- -0- -0-
T. R. Stephenson 17,275 846 18,121 9,719 391 10,110
M. O. Thompson 1,500 -0- 1,500 -0- -0- -0-
R. C. Vaughan -0- -0- -0- 45,440 13,179 58,619
R. K. Young 12,534 1,120 13,654 9,541 4 9,545
DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP - 20 PEOPLE 149,781 2,989 152,770 471,704 71,232 542,936
- ------------------------------------ ------------- ------------- --------------- ------------ ------------- -------------
(1) The amounts shown in these columns represent shares beneficially owned, but
exclude the individuals' interest in "phantom shares" pursuant to various
deferred compensation plans maintained by the Registrant and LNC. All of those
interests are accounted for in participation units and are reported in the
appropriate columns.
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(2) These amounts represent less than 1% of the Registrant's Common Stock
outstanding. Except as disclosed in the following chart, each of the individuals
listed above has sole investment and voting power with respect to the shares
beneficially owned:
P. M.
J. T. W. J. F. C. S. J. Parker- T. R. M. O. R. K.
Gallogly Lawson McCurley Paris Sawyers Stephenson Thompson Young
-------- ------ -------- ----- ------- ---------- -------- -----
Shared voting and
investment power 300 12,000 2,000 1,000 200 4,000 1,500 2,500
-------- ------- -------- ----- ------- -------- -------- -----
Sole voting and no
investment power 6,522 8,695 10,520 -0- -0- 5,109 -0- 4,867
-------- ------- -------- ----- ------- -------- -------- -----
(3) The amounts shown in these columns represent interests in "phantom shares"
pursuant to various deferred compensation plans maintained by the Registrant and
LNC. All of those interests are accounted for in participation units and are
reported in the appropriate columns.
(4) These amounts represent less than 1% of LNC's common stock outstanding.
Except as disclosed in the following chart, each of the individuals listed above
has sole investment and voting power with respect to the shares beneficially
owned:
R. A. J. T. E. J. W. J. F. C. T. R. R. C. R. K.
Anker Gallogly Goss Lawson McCurley Stephenson Vaughan Young
----- -------- ---- ------ -------- ---------- ------- -----
Shared voting and
investment power 9,864 4,084 21,025 9,842 9,584 1,218 2,851 623
----- ----- ------ ----- ----- ------ ----- ---
Sole voting and no
investment power -0- 5,685 -0- -0- 7,232 -0- 3,752 -0-
----- ----- ------ ----- ----- ------ ----- ---
In addition, LNC has an issue of Preferred Stock outstanding, none of which is
owned by any director or executive officer of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant engaged in no reportable transactions with any of its
directors or executive officers. The following is a list of transactions
involving more than $60,000 involving the registrant and LNC, the holder of more
than 5% of the Registrant's Common Stock:
1. As part of the recapitalization which accompanied the initial
public offering of the Registrant's Common Stock, LNC transferred all of the
outstanding shares of American States Insurance Company ("ASI") to the
Registrant in exchange for 50,000,000 shares of the Registrant's Common Stock.
Concurrent with the transfer of the ASI stock, the Registrant assumed $100
million of debt owed by LNC (the "Assumed Debt") and issued a note for $200
million to LNC (the "Term Note").
The Assumed Debt is governed by an assumption agreement which provides
for the payment by the Registrant of the currently outstanding 7-1/8% notes due
July 15, 1999, originally issued to the public by LNC on July 15, 1992. LNC
continues to be the primary obligor of this public debt; however, pursuant to
the assumption agreement, the Registrant will make a $100 million principal
payment on July 15, 1999 to repay the holders of the public debt. The assumption
agreement also
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provides that interest at 7-1/8% is payable semi-annually by the Registrant.
The Term Note is governed by a term note agreement and pays interest
quarterly at a rate of 50 basis points over the rate on Treasury securities with
a comparable maturity, adjusted annually on November 15 of each year. The
interest rate on the Term Note is currently 6.7% and will remain at that level
until the next annual adjustment in November, 1998. The Term Note will be
payable in three equal principal payments due on August 15, 1997, 1998 and 1999.
Pursuant to the provisions of the Term Note Agreement, the Registrant has the
right to prepay the Term Note at any time. The term note agreement also contains
covenants that, among other things, restrict the ability of the Registrant to
incur indebtedness in excess of 50% of its adjusted consolidated net worth and
to enter into a major corporate transaction unless the Registrant is the
survivor and would not be in default.
2. The Registrant and its principal subsidiaries and Lincoln Investment
Management Company ("LIM"), a subsidiary of LNC, have entered into Investment
Management Agreements (the "Agreements") pursuant to which LIM provides
investment advice and services in connection with the management of their
respective portfolios. Pursuant to the Agreements, LIM receives an annual fee
equal to 0.13 of 1% of the average assets under management. These fees are
comparable to the fees which LIM charges its non-affiliated clients. The
Agreements have an initial term of three years and termination after the initial
term will then take effect upon 60 days notice by either party. The parties have
agreed to indemnify each other against certain liabilities under the Agreements.
LIM retains various subadvisors to manage portions of the portfolio. Some of
these subadvisors are affiliates of LNC. Subadvisors charge fees for services
ranging from 0.25 of 1% to 1% of average assets managed. During 1996, the
Registrant paid $3.2 million pursuant to these agreements.
3. The Registrant and its subsidiaries are part of the LNC consolidated
tax group for most federal income and Indiana corporate income tax purposes.
Under a Tax Sharing Agreement with LNC effective as of January 1, 1996, the
Registrant and its subsidiaries are treated as if they constituted a stand-alone
consolidated group (the "Company Tax Group"). Generally, the terms of the Tax
Sharing Agreement result in the Company Tax Group paying no more than it would
have paid on a stand-alone basis, though it may be necessary to consider more
than one taxable year when making that determination. Amounts owed by the
Company Tax Group are paid to LNC pursuant to the Tax Sharing Agreement. In 1996
that amount was $31.4 million.
4. American States Life Insurance Company ("ASLIC") is a party to several
reinsurance agreements with affiliated companies of LNC (the "Reinsurance
Agreements"). The Reinsurance Agreements consist of indemnity coinsurance
agreements, quota share reinsurance agreements and excess of loss reinsurance
agreements. Indemnity coinsurance and quota share reinsurance agreements are
contractual arrangements whereby the LNC affiliate, as reinsurer, assumes an
agreed percentage of certain risks insured by ASLIC, as the ceding reinsurer,
and shares premium revenues and losses in proportion to the percentage defined
in the agreement. Reinsurance premiums paid by ASLIC to LNC affiliates under the
Reinsurance Agreements during 1996 were $4.3 million and claims were $7.9
million.
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5. The Registrant is currently a party to an agreement with LNC
pursuant to which the Registrant and its subsidiaries receive, and will continue
to receive, certain services provided by LNC and in turn pay to LNC its share of
the cost of such services (the "Service Agreement"). These services include
systems, strategic planning and management advice, financial services, legal
services, accounting services, and assistance with employee benefits,
information services, data processing, actuarial, marketing and human resources.
Under the current Service Agreement, the Registrant incurred service fees of
$7.0 million payable to LNC in 1996.
6. An intercompany agreement between ASI and Linsco Reinsurance
Company, an LNC subsidiary ("Linsco"), exists for the supervision and
administration by ASI of Linsco (the "Administration Agreement"). Linsco is a
discontinued operation of LNC which is currently running off its existing book
of business. Linsco had provided property and casualty reinsurance. Pursuant to
the Administration Agreement, ASI manages Linsco's accounting, premium
collection, claim handling, reinsurance and other functions. The Administration
Agreement, however, prohibits ASI from obligating Linsco as an accepting
reinsurer without LNC's prior approval. LNC paid ASI an annual fee of $.4
million in 1996 pursuant to the Administration Agreement, based on LNC's and
ASI's annual estimates of costs incurred.
7. As part of the sale of LNC National Specialty Insurance Company
("LNSIC") in January, 1996, ASI assumed all of LNSIC's liabilities pursuant to a
100% Quota Share Reinsurance and Administration Agreement. On a statutory
accounting principals basis, the value of the liabilities assumed was
approximately $63.7 million and ASI received assets having an equivalent market
value as consideration for its assumption of LNSIC's liabilities.
8. Pursuant to the lease of ASI's headquarters facility in Indianapolis,
Indiana, LNC executed an irrevocable guaranty dated August 1, 1984 (the
"Guaranty"), covering payment in full to a third-party lessor, The Connecticut
Bank and Trust Company, National Association and F.W. Kawam, as Trustees, of all
sums due and performance by ASI of all covenants and conditions under the lease.
The sum total of future minimum lease payments through 2009 guaranteed by LNC
under the Guaranty is in excess of $117.6 million.
ASI owns a corporate bond issued by the acquiror of ASI's headquarters
facility and two other properties when they were acquired from LNC in 1984. The
properties were leased back to ASI and LNC by the third party acquiror as part
of the transaction. This bond is a zero coupon, 15 year note due in August,
1999. The par value of the bond at maturity will be approximately $130 million.
As of December 31, 1996, the market value of the bond was $108.4 million and the
accreted value of the bond was $88.4 million. If the call or put option on the
bond is not exercised in August, 1999, the term of the bond extends to August,
2009. The bond is secured by a second mortgage on the properties, a second
assignment of lease and guaranty, and other collateral. The guaranty is a
guaranty by LNC of the obligation of each lease.
9. The Registrant, through ASI, provides administrative processing
services and insurance coverage to LNC in a number of coverage areas including:
directors and officers liability, professional
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liability, commercial general liability, business automobile, worker's
compensation, and surety bonds. For the most part, these policies are subject to
retrospective adjustment based on actual loss experience, and as such, do not
represent a significant potential for loss to the Registrant. The Registrant's
services in this area are utilized by LNC primarily to track its actual claims
history, to provide administrative support, and to reduce costs (i.e. avoidance
of outside insurance brokers' commissions which may otherwise be payable). The
net profits from this business are not material. LNC paid total premiums to the
Registrant of $7.4 million in 1996.
The Registrant also utilizes the services of LNC to purchase outside
market insurance coverage for umbrella, liability, employee fidelity, directors
and officers liability, professional liability, property, travel accident,
fiduciary liability, and fidelity bonds. In total, the actual costs of such
policies are allocated by various means, but typically by headcount, revenues or
property values, and in any event expenses are billed at no profit to LNC. LNC
also prefunds the Registrant's expected losses related to various deductibles
under the employee fidelity and property policies. These costs are passed on to
the Registrant at no profit to LNC. In 1996 ASI incurred total costs for these
coverages and services payable to LNC of $2.8 million.
There are no formal agreements for provision of any of the
aforementioned services.
10. Prior to the initial public offering of the Registrant's Common
Stock, LNC had established procedures that permitted affiliates to invest with
or borrow from LNC to meet short-term cash management requirements. Investments
held in the LNC short-term pool consist mainly of U.S. Treasury securities and
higher grade commercial paper with aver age maturities of 30 to 60 days.
Following the initial public offering, the Registrant and its subsidiaries no
longer invested in or borrow funds from the short-term pool, having established
a similar facility of their own. During 1996, the Registrant and its
subsidiaries invested $572.2 million in the pool and received back all of such
funds, plus an additional $37.9 million.
11. ASLIC has a software license agreement with an LNC affiliate for a
life insurance underwriting system. Fees paid by ASLIC to the LNC affiliate
under this agreement are on similar terms as to that which the LNC affiliate
provides to third parties and totaled $.1 million in 1996. The software license
is perpetual, unless terminated due to breach. The agreement continues until
terminated by either party in writing with 90 days prior written notice.
12. The Registrant and LNC have agreed to indemnify each other against
certain liabilities in connection with the initial public offering of the
Registrant's Common Stock, including liabilities under the Securities Act. No
liabilities subject to these agreements have arisen.
13. At the request of LNC, ASI provided a surety bond (the "Bond"),
effective November 3, 1993, to enhance the issuance of a series of industrial
revenue bonds ("IRBs") having the Industrial Development Authority of the City
of Clayton, Missouri as obligor and Mercantile Bank of St. Louis, N.A. as
obligee. The IRBs were issued in 1983 to finance the construction of an office
building by a joint venture of which LNC was a party. LNC's contribution to the
joint venture was to provide
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a guaranty on the IRBs. After a sale and leaseback of the real property
underlying the office complex to a third party and a subsequent default on the
lease, the joint venture gave the improvements to the third party in full
satisfaction of the lease and then dissolved. In 1993, the third party
approached LNC, which still remained as guarantor on the IRBs, about refinancing
the IRBs at a lower interest rate. To accomplish this refinancing, LNC requested
the ASI to provide the Bond since, under applicable statutes, LNC could no
longer remain a guarantor since it no longer had an equity interest in the
property.
Claims against the Bond are limited solely to losses associated with
the underlying IRBs. The IRBs had an original principal amount of $8.6 million
and are composed of a combination of serial and term bonds having a final
maturity of May 1, 2008. As of December 31, 1996, the outstanding principal
balance of the IRBs was approximately $8.4 million. Management does not expect
any claims against the Bond, although no assurances to that effect are given.
LNC fully indemnifies ASI for any losses. LIM pays ASI $4,300 per year for
providing the Bond.
SIGNATURES
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 hereunto duly authorized.
AMERICAN STATES FINANCIAL CORPORATION
(Registrant)
Date: April 30, 1997 /s/ Thomas M. Ober
----------------------------------------
(Signature)
Thomas M. Ober, Secretary
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