SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
AMERICAN STATES FINANCIAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
Not Applicable
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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American States Financial Corporation
500 North Meridian Street
Indianapolis, Indiana 46204
Phone (317) 262-6262
August 15, 1997
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders (the
"Special Meeting") of American States Financial Corporation (the "Company"),
which will be held on Wednesday, September 17, 1997 at 10:00 a.m., Eastern
Standard Time, in the auditorium located on the third floor of the Company's
offices, 500 North Meridian Street, Indianapolis, Indiana 46204.
At the Special Meeting you will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger among the Company, SAFECO
Corporation ("Buyer") and a subsidiary of Buyer (the "Merger Agreement"), and
the merger of Buyer's subsidiary into the Company as provided for in the Merger
Agreement (the "Merger"). In the Merger, each outstanding share of Common Stock
of the Company will be converted into the right to receive $47.00 in cash,
without interest, and the Company will become a wholly owned subsidiary of
Buyer.
You should read carefully the accompanying Notice of Special Meeting of
Shareholders and the Proxy Statement for details of the Merger and additional
related information.
The Company's Board of Directors:
(a) has determined that the Merger is fair to and in the best interests of
the Company and its shareholders;
(b) has unanimously approved and declared advisable the Merger Agreement
and the Merger; and
(c) recommends a vote for approval of the Merger Agreement and the Merger.
The affirmative vote of the holders of shares representing a majority of the
outstanding voting power of the Company's Common Stock is necessary to approve
the Merger Agreement and the Merger. Pursuant to a Voting, Support and
Indemnification Agreement between Lincoln National Corporation ("LNC") and Buyer
(as amended), LNC, which beneficially owns approximately 83.3% of the voting
power of the Company's Common Stock, has agreed to vote in favor of the Merger
Agreement and the Merger. Accordingly, approval of the proposal by the Company's
shareholders is assured.
Whether or not you plan to attend the Special Meeting, please complete, sign and
date the enclosed proxy card and return it promptly in the enclosed postage
prepaid envelope. If you attend the Special Meeting, you may vote in person if
you wish, even though you previously have returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Please do not send your share certificates with your proxy card. After approval
of the Merger Agreement and the Merger by the Company's shareholders and
satisfaction of all other conditions to the Merger, you will receive a
transmittal form and instructions for the surrender and exchange of your shares.
On behalf of the Board of Directors, thank you for your continued support.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chairman
AMERICAN STATES FINANCIAL CORPORATION
500 North Meridian Street
Indianapolis, Indiana 46204
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 17, 1997
A Special Meeting of Shareholders (the "Special Meeting") of American States
Financial Corporation, an Indiana corporation (the "Company"), will be held on
Wednesday, September 17, 1997 at 10:00 a.m., Eastern Standard Time, in the
auditorium located on the third floor of the Company's offices, 500 North
Meridian Street, Indianapolis, Indiana 46204, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated June 6, 1997 (the "Merger
Agreement"), among the Company, SAFECO Corporation, a Washington
corporation ("Buyer"), and ASFC Acquisition Co., an Indiana
corporation and a wholly owned subsidiary of Buyer ("Buyer Sub"),
and the merger of Buyer Sub into the Company upon the terms and
subject to the conditions thereof (the "Merger"). Pursuant to the
Merger Agreement, the Company will become a wholly owned subsidiary
of Buyer, and each share of Common Stock, no par value, of the
Company issued and outstanding immediately prior to the merger will
be converted into the right to receive $47.00 in cash, without
interest. The Merger is more completely described in the
accompanying Proxy Statement, and a copy of the Merger Agreement is
attached as Annex A thereto.
2. To transact such other matters relating to the conduct of the
Special Meeting or any adjournments or postponements thereof.
Only holders of record of the Company's Common Stock at the close of business on
August 8, 1997, the record date for the Special Meeting, are entitled to notice
of and to vote at the Special Meeting and any adjournments or postponements
thereof.
The Company's Board of Directors:
(a) has determined that the Merger is fair to and in the best interests of
the Company and its shareholders;
(b) has unanimously approved and declared advisable the Merger Agreement
and the Merger; and
(c) recommends a vote for approval of the Merger Agreement and the Merger.
The affirmative vote of the holders of shares representing a majority of the
outstanding shares of the Company's Common Stock is necessary to approve the
Merger Agreement and the Merger. Pursuant to a Voting, Support and
Indemnification Agreement dated June 6, 1997 (the "Voting Agreement"), between
Lincoln National Corporation, an Indiana corporation ("LNC"), and Buyer (as
amended), LNC, which beneficially owns approximately 83.3% of the voting power
of
the Company's Common Stock, has agreed to vote in favor of the Merger Agreement
and the Merger. Accordingly, approval of the proposal by the Company's
shareholders is assured. A copy of the Voting Agreement is attached as Annex B
to the accompanying Proxy Statement.
Holders of the Company's Common Stock will not be entitled to appraisal rights
as a result of the Merger. Under Indiana law, appraisal rights are unavailable
to such holders because the Company's Common Stock was, on the record date,
listed on the New York Stock Exchange. See "THE MERGER--Absence of Appraisal
Rights" in the accompanying Proxy Statement.
Whether or not you plan to attend the Special Meeting, please complete, sign and
date the enclosed proxy card and return it promptly in the enclosed postage
prepaid envelope. PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME. Your
proxy may be revoked at any time before it is voted by signing and returning a
later-dated proxy with respect to the same shares, by filing with the Secretary
of the Company a written revocation bearing a later date, or by attending and
voting at the Special Meeting.
August 15, 1997 For the Board of Directors,
/s/ Thomas M. Ober
Thomas M. Ober
Secretary
AMERICAN STATES FINANCIAL CORPORATION
PROXY STATEMENT
For a Special Meeting of Shareholders
To Be Held on September 17, 1997
American States Financial Corporation, an Indiana corporation (the "Company"),
is furnishing this Proxy Statement to its shareholders in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board")
for use at its Special Meeting of Shareholders and at any adjournments or
postponements thereof (the "Special Meeting"). The Special Meeting is being held
on September 17, 1997 at 10:00 a.m., Eastern Standard Time, in the auditorium
located on the third floor of the Company's principal executive offices, 500
North Meridian Street, Indianapolis, Indiana 46204. The purpose of the Special
Meeting is to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of June 6, 1997 (the "Merger Agreement"),
among the Company, SAFECO Corporation, a Washington corporation ("Buyer"), and
ASFC Acquisition Co., an Indiana corporation and a wholly owned subsidiary of
Buyer ("Buyer Sub"), and the merger of Buyer Sub into the Company upon the terms
and subject to the conditions thereof (the "Merger"). Pursuant to the Merger
Agreement, the Company will become a wholly owned subsidiary of Buyer, and each
share of Common Stock, no par value, of the Company ("Common Stock") issued and
outstanding immediately prior to the Merger will be converted into the right to
receive $47.00 in cash, without interest. The Merger Agreement provides that,
until the Merger is consummated, the Company may continue to declare and pay its
regular quarterly dividend in an amount not in excess of $0.21 per share.
Pursuant to a Voting, Support and Indemnification Agreement dated June 6, 1997
(the "Voting Agreement"), between Lincoln National Corporation, an Indiana
corporation ("LNC"), and Buyer (as amended), certain sections of which were
agreed to and acknowledged by the Company, LNC, which beneficially owns
approximately 83.3% of the voting power of the Common Stock, has agreed to vote
in favor of the Merger Agreement and the Merger. Accordingly, approval of the
proposal by the Company's shareholders is assured.
This Proxy Statement, the letter to shareholders, the Notice of Special Meeting
and the form of proxy for use at the Special Meeting are first being mailed to
shareholders on or about August 15, 1997. The date of this Proxy Statement is
August 15, 1997.
THE SPECIAL MEETING
Solicitation of Proxies
Any shareholder giving a proxy has the power to revoke it at anytime before its
exercise by signing and returning a later-dated proxy, by filing with the
Secretary of the Company a written revocation bearing a later date, or by
attending and voting at the Special Meeting. Proxies in the form provided are
being solicited by the Board for use at the Special Meeting.
SHAREHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR PROXY
CARDS. UPON CONSUMMATION OF THE MERGER, COMMON STOCK CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL
WHICH WILL BE SENT TO SHAREHOLDERS BY THE EXCHANGE AGENT. See "THE
MERGER--Merger Consideration and Exchange of Certificates" below.
The cost of soliciting proxies will be paid by the Company. The Company has made
arrangements with brokerage firms, banks, custodians and other fiduciaries to
forward proxy materials to their principals, and the Company will reimburse them
for their reasonable mailing and other expenses.
In addition to solicitation by mail, certain directors, officers and employees
of the Company, who will receive no additional compensation for their services,
may solicit proxies by telephone, telecopy and by personal contacts. Because
shareholder approval is assured, it is expected that the costs of solicitation
will be minimal.
The completion of the enclosed proxy/direction card is considered to constitute
voting instructions furnished to the trustee of the American States Financial
Corporation Employees' Savings and Profit-Sharing Plan with respect to shares
allocated to individual accounts under that plan. To the extent that account
information is the same, participants in the plan who are also shareholders of
record will receive a single card representing all shares. If a plan participant
does not return a proxy/direction card to the Company, the trustee of the plan
will vote such shares in proportion to shares for which directions have been
received, unless the trustee determines that voting in this manner is not
consistent with the Employee Retirement Income Security Act of 1974, as amended.
Shareholders Entitled to Vote and Shares Outstanding
Only holders of record of Common Stock at the close of business on August 8,
1997, the record date for the Special Meeting (the "Record Date"), will be
entitled to vote at the Special Meeting. As of that date, there were 60,050,515
shares of Common Stock issued and outstanding. Holders of Common Stock are
entitled to one vote for each share of Common Stock held by them on any matter
to be voted on at the Special Meeting.
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Votes Necessary for Quorum and Adoption of Proposals
The Company is incorporated in the state of Indiana. A majority of all
outstanding shares of Common Stock constitutes a quorum. Once a share is
represented for any purpose at a meeting it is deemed present for quorum
purposes for the remainder of the meeting or any adjournment or postponement
thereof. The affirmative vote of the holders of a majority of the shares of
Common Stock issued and outstanding and entitled to vote at the Special Meeting
is necessary for approval of the Merger Agreement and the Merger. Abstentions
and broker non-votes will have the same effect as a vote against the approval of
the Merger Agreement and the Merger. As noted above, LNC, the owner of
approximately 83.3% of the issued and outstanding shares of Common Stock, has
agreed to vote in favor of approval of the Merger Agreement and the Merger, and
accordingly, approval thereof by the Company's shareholders is assured.
PARTIES TO THE MERGER
The Company
The Company, through its subsidiaries, is a leading property-casualty insurance
company. For businesses with fewer than 50 employees, the Company is one of the
country's largest writers of property-casualty insurance, based on net premiums
written during 1996. The Company's personal lines business focuses on the
preferred automobile and homeowners segments of the market. In addition to its
property-casualty business, the Company owns a life insurance company that sells
predominantly universal and term life policies and operates through the same
independent agency network that distributes its property-casualty products. The
mailing address of the Company's principal executive offices is 500 North
Meridian Street, Indianapolis, Indiana 46204, and its telephone number is (317)
262-6262.
Buyer Sub
Buyer Sub, a wholly owned subsidiary of Buyer, was formed by Buyer solely for
the purpose of effectuating the Merger. The mailing address of Buyer Sub's
principal executive offices is c/o SAFECO Corporation, SAFECO Plaza, 4333
Brooklyn Avenue N.E., Seattle, Washington 98185, and its telephone number is
(206) 545-5000.
Buyer
Founded in 1923 as the General Insurance Company of America, Buyer today is one
of the largest diversified financial corporations in the country, with more than
$20 billion in assets as of March 31, 1997. Property-casualty insurance was
Buyer's original business and remains its largest operation. In addition,
Buyer's subsidiaries today engage in life and health insurance, surety, real
estate investment and management, commercial lending and leasing, investment
management, and insurance agency and financial services distribution. The
mailing address of
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Buyer's principal executive offices is SAFECO Plaza, 4333 Brooklyn Avenue N.E.,
Seattle, Washington 98185, and its telephone number is (206) 545-5000.
THE MERGER
The description of certain matters set forth below, to the extent such matters
are addressed by the Merger Agreement, does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached as Annex A to this Proxy Statement and incorporated herein by
reference. Shareholders are advised to read the Merger Agreement in its entirety
prior to voting.
Recommendation of the Board
The Board:
(a) has determined that the Merger is fair to and in the best interests of
the Company and its shareholders;
(b) has unanimously approved and declared advisable the Merger Agreement
and the Merger; and
(c) recommends a vote for approval of the Merger Agreement and the Merger.
Background of and Reasons for the Merger
Prior to May 29, 1996, the Company was a wholly owned subsidiary of LNC; on that
date, newly issued shares constituting approximately 16.7% of the issued and
outstanding shares of Common Stock (after giving effect to such issuance) were
delivered to persons who purchased such shares in an initial public offering.
LNC currently owns approximately 83.3% of the outstanding shares of Common
Stock.
LNC is a publicly held Indiana corporation that, through its various
subsidiaries, operates multiple insurance and investment management businesses.
Its operations are divided into four business segments: (i) life insurance and
annuities; (ii) life-health reinsurance; (iii) investment management; and (iv)
property-casualty insurance. Most of LNC's property-casualty business is
conducted through the Company and the Company's subsidiaries.
At a regularly scheduled meeting of the Board of Directors of LNC (the "LNC
Board") held on January 15, 1997, representatives of Goldman, Sachs & Co.
("Goldman Sachs") met with the LNC Board to discuss trends in the insurance
industry and the possible sale of the Company. The LNC Board did not take any
action on this issue at that meeting, but allowed the internal exploration of
such sale to proceed.
On February 19, 1997, the Company's Board held a meeting which was attended by
representatives of LNC. At that meeting, the Board was advised by
representatives of LNC that
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it was considering exiting the property-casualty insurance business in order to
focus on the life insurance, annuities and investment management businesses,
which LNC views as its core competencies. Also at that meeting, representatives
of Goldman Sachs discussed with the Board potential purchasers of the Company.
The Board did not take any action on this issue at that meeting, but allowed the
exploration of a sale of the Company to proceed. After the meeting, the Company
retained Goldman Sachs to act as its financial advisor and Sutherland, Asbill &
Brennan LLP, as counsel, to assist with the process of soliciting indications of
interest in the Company.
Subsequent to the February 19, 1997 Board meeting, an offering memorandum was
prepared and provided to potentially interested persons. Prior to receiving a
copy of the offering memorandum, such persons were required to execute
confidentiality agreements. Thirteen potentially interested persons executed
confidentiality agreements and were provided with a copy of the offering
memorandum.
Based on the information contained in the offering memorandum, seven preliminary
indications of interest were submitted on or prior to April 4, 1997. One of the
indications of interest contained an expression of interest in structuring all
or part of the transaction as a taxable purchase under Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended (the "Code"). At a meeting of the
Board held on April 10, 1997, the Board informally agreed to permit all of the
persons who had submitted preliminary indications of interest, including Buyer,
to perform a due diligence investigation of the Company. After the April 10
Board meeting, one additional potentially interested person executed a
confidentiality agreement and was provided with a copy of the offering
memorandum; such person then submitted a preliminary indication of interest,
containing a per-share cash proposal within the same range as the others, and
was permitted to proceed with due diligence.
During late April and May, 1997, the eight persons who had submitted preliminary
indications of interest, including Buyer, performed due diligence on the
Company. Those persons were invited to submit two proposals, one assuming an
election pursuant to Section 338(h)(10) of the Code, and one assuming no such
election, by June 3, 1997. The making of a Section 338(h)(10) election can have
negative tax consequences to a shareholder owning 80% or more of the outstanding
shares. From a shareholder's perspective, a cash merger is normally treated as a
sale of stock with taxable gain equal to the difference between the merger price
and the shareholder's tax basis in the shares. A Section 338(h)(10) election
changes this tax result because it has the effect of treating a merger
transaction as a sale by the company of all of its assets and a subsequent
liquidating distribution of all of the proceeds to the electing shareholder. The
election can be made only by a shareholder owning 80% or more of the outstanding
shares, and the election results in that shareholder paying tax on 100% of the
difference between the total merger consideration and the company's tax basis in
its assets. The election has no tax consequences to the other shareholders.
While the Section 338(h)(10) election would have negative tax consequences to
LNC, it would provide substantial tax benefits to most purchasers
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primarily because it results in a "step-up" in the tax basis of the Company's
assets, which creates a higher depreciable asset base and permits the
amortization for tax purposes of any goodwill generated by the transaction.
On June 3, 1997, five of the eight persons who performed due diligence on the
Company submitted cash proposals to the Company. Between June 3 and June 6, the
five interested persons increased the value of their respective proposals. On or
prior to June 6, 1997, five final proposals (each with a Section 338(h)(10)
election, except for one, which attributed no value to such election) were
received, along with comments on the proposed merger agreement that had been
provided to each of the interested persons. One of those proposals contained a
financing contingency. A number of the proposals, including Buyer's, were
conditioned upon the execution by LNC of an agreement to vote in favor of the
transaction and to indemnify the person making such proposal against any tax or
employee benefit plan liabilities not properly allocable to the Company. As
discussed below, of the final proposals received, Buyer's proposal was the
highest per share cash proposal and contained no contingency regarding
financing. In addition, Buyer requested relatively few changes to the merger
agreement proposed by the Company.
Approval by the Board
On June 6, 1997, the Board held a special meeting and unanimously approved the
sale of the Company to Buyer and authorized the execution of the Merger
Agreement, and further authorized the Company's executive officers to take
whatever steps may be necessary to consummate the Merger. The Board considered a
number of factors in deciding whether to approve the sale of the Company to
Buyer. These factors included: (i) the solicitation process described above;
(ii) the overall value of each of the proposals made; (iii) whether financing or
any other contingencies existed with respect to a particular proposal; (iv)
whether substantial modifications to the acquisition document would be required,
particularly modifications which would impose a substantial burden on the
Company or its shareholders; (v) a presentation by Goldman Sachs and its oral
opinion that the consideration of $47.00 per share of Common Stock in cash to be
received by the holders of Common Stock is fair to such holders; (vi) LNC's
statement that it was willing to execute the Voting Agreement and, as required
by the Voting Agreement, to make the Section 338(h)(10) election; and (vii) the
best interests of the Company, including the effects of the sale of the Company
to Buyer on the Company's employees, independent agents and policyholders and on
the communities in which the Company has major offices.
In evaluating Buyer's proposal in light of the foregoing factors, the Board
noted the following: (i) the proposal made by Buyer was the highest proposal
received for the Company and resulted from an extensive auction process for the
Company; (ii) Buyer's proposal was an all-cash offer with no financing or other
significant contingencies; (iii) Buyer proposed no significant modifications to
the acquisition agreement proposed by the Company; and (iv) Buyer's proposal
stated its intention to maintain a significant presence in Indianapolis, which
will serve as
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headquarters for all small commercial property-casualty insurance operations of
the combined entity.
Opinion of Goldman Sachs
On June 6, 1997, Goldman Sachs delivered its oral opinion to the Board that as
of the date of such opinion, the $47.00 per share of Common Stock in cash to be
received by the holders of Common Stock pursuant to the Merger Agreement is fair
to such holders. Goldman Sachs subsequently confirmed its earlier oral opinion
by delivery of its written opinion dated as of the date hereof.
The full text of the written opinion of Goldman Sachs dated as of the date
hereof, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached hereto as
Annex C and is incorporated herein by reference. Shareholders of the Company are
urged to, and should, read such opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things: (i)
the Merger Agreement; (ii) the Voting Agreement; (iii) this Proxy Statement;
(iv) audited consolidated financial statements of the Company and its
subsidiaries for the five years ended December 31, 1996; (v) the Annual Report
to Shareholders and Annual Report on Form 10-K and Form 10-K/A of the Company
for the year ended December 31, 1996; (vi) certain interim reports to
shareholders and Quarterly Reports on Form 10-Q of the Company; (vii) the
Company's Registration Statement on Form S-1 dated May 22, 1996; (viii)
statutory financial statements for the Company's insurance subsidiaries for the
five calendar years ended December 31, 1996; (ix) certain other communications
from the Company to its shareholders; (x) certain financial analyses and
actuarial appraisals performed by nationally recognized actuarial and appraisal
firms (the "Appraisals"); and (xi) certain internal financial analyses,
including certain actuarial analyses, and forecasts for the Company prepared by
its management. Goldman Sachs also held discussions with members of the senior
management of the Company regarding the Company's past and current business
operations, financial condition and future prospects. In addition, Goldman Sachs
reviewed the reported price and trading activity for the Common Stock, compared
certain financial and stock market information for the Company with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the insurance industry specifically and in other industries generally and
performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it and
has assumed such accuracy and completeness for purposes of its opinion,
including, without limitation, the information furnished by the Company and its
actuaries relating to loss and loss adjustment expense reserves and related
items. Goldman Sachs is not an actuarial firm and its services to the Company
did not
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include any actuarial determinations or evaluations by Goldman Sachs or an
attempt to evaluate actuarial assumptions. In addition, Goldman Sachs has not
made an independent evaluation or appraisal of the assets and liabilities
(including the loss and loss adjustment expense reserves) of the Company or any
of its subsidiaries and, except for the Appraisals, Goldman Sachs has not been
furnished with any such evaluation or appraisal. The advisory services and
opinion of Goldman Sachs referred to herein were provided for the information
and assistance of the Board in connection with its consideration of the
transaction contemplated by the Merger Agreement, and such opinion does not
constitute a recommendation as to how any holder of Common Stock should vote
with respect to the Merger.
The following is a summary of certain of the financial analyses used by Goldman
Sachs in connection with providing its oral opinion to the Board on June 6,
1997. Goldman Sachs utilized substantially the same type of financial analyses
is connection with providing the written opinion attached hereto as Annex C.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Common Stock. In addition,
Goldman Sachs analyzed the consideration to be received by holders of
Common Stock pursuant to the Merger Agreement in relation to the May 23,
1996 initial public offering price of the Common Stock of $23.00 per share
(the "IPO Price") and the closing market prices of the Common Stock on
February 19, 1997, the date on which the Board met to consider the
exploration of a sale of the Company, and on June 5, 1997, the last full
trading day prior to the signing of the Merger Agreement. Such analysis
indicated that the price per share of Common Stock to be paid pursuant to
the Merger Agreement represented a premium of 23.7% based on the closing
market price of the Common Stock on June 5, 1997 of $38.00 per share,
74.1% based on the closing market price on February 19, 1997 of $27.00 per
share and 104% based on the IPO Price.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to the Company to corresponding
financial information, ratios and public market multiples for two groups
of publicly traded corporations: The Allstate Corporation, American
International Group, Buyer, The Chubb Corp., CIGNA Corporation, Cincinnati
Financial Corp., CNA Financial Corp., The Progressive Corporation, The St.
Paul Companies, Inc. and Travelers Property Casualty Corp. (the "Large Cap
Companies"), and Allmerica Property & Casualty Companies, Inc., Ohio
Casualty Corporation, Old Republic International Corporation, Orion
Capital Corporation, TIG Holdings Inc., USF&G Corporation and W.R. Berkley
Corporation (the "Mid-Cap Companies" and, together with the Large Cap
Companies, the "Selected Companies"). The Selected Companies were chosen
because they are publicly traded companies with operations that for
purposes of analysis may be considered similar to the Company. Goldman
Sachs calculated and compared various financial multiples and ratios for
the Company with those of the Selected Companies using the respective
closing price per share for each of the Selected Companies and the Company
on June 5, 1997,
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which in the case of the Company was $38.00 per share. The multiples and
ratios for the Company were based on earnings estimates provided by the
management of the Company. The multiples and ratios for each of the
Selected Companies were based on the most recent publicly available
information and from estimates provided by the Institutional Brokers
Estimate System ("IBES").
With respect to the Selected Companies, Goldman Sachs considered estimated
calendar year 1997 and 1998 price/earnings ratios, which ranged from 12.1x
to 20.1x with a mean of 15.1x for 1997 and 11.5x to 17.8x with a mean of
13.7x for 1998 for the Large Cap Companies and from 10.3x to 14.0x with a
mean of 12.4x for 1997 and 9.3x to 12.6x with a mean of 10.9x for 1998 for
the Mid-Cap Companies, as compared to 13.1x for 1997 and 11.2x for 1998
for the Company; a five-year EPS growth rate (provided by IBES) ranging
from 9.0% to 15.0% with a mean of 11.9% for the Large Cap Companies and
9.0% to 14.5% with a mean of 12.0% for the Mid-Cap Companies, as compared
to 14.9% for the Company; multiples of market capitalization to book value
ranging from 0.94x to 3.38x with a mean of 2.24x for the Large Cap
Companies and from 1.26x to 1.82x with a mean of 1.47x for the Mid-Cap
Companies, as compared to 1.88x for the Company; and the return on average
common equity for the twelve-month period ended March 31, 1997 ranging
from 6.5% to 20.7% with a mean of 12.5% for the Large Cap Companies and
from 7.9% to 14.2% with a mean of 11.2% for the Mid-Cap Companies, as
compared to 12.5% for the Company.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis under the following two scenarios: (a) using earnings
estimates provided by IBES for 1997 and 1998 and assuming a 5% annual
growth rate in operating earnings after 1998 (the "First Case") and (b)
using earnings estimates provided by IBES for 1997 and 1998 and assuming a
10% annual growth rate in operating earnings after 1998 (the "Second
Case"). Goldman Sachs calculated the terminal values of the Company in the
year 2001 based on multiples ranging from 1.5x to 2.5x of estimated GAAP
shareholders equity in 2001 and based on multiples ranging from 11.0x to
15.0x of GAAP operating income in 2002. These terminal values were then
discounted to present value using discount rates ranging from 12.5% to
17.5%.
Using the Company's terminal values in 2001 based on multiples ranging
from 1.5x to 2.5x of estimated GAAP shareholders equity in 2001 and
discounting these terminal values to present value using discount rates
ranging from 12.5% to 17.5%, the implied per share values ranged from
$26.23 to $50.63 in the First Case and from $26.94 to $51.94 in the Second
Case. Using the Company's terminal values in the year 2001 based on
multiples ranging from 11.0x to 15.0x of estimated GAAP operating income
in 2002 and discounting these terminal values to present value using
discount rates ranging from 12.5% to 17.5%, the implied per share values
ranged from $23.38 to $37.28 in the First Case and from $27.75 to $44.44
in the Second Case.
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(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the insurance industry
since 1989 (the "Selected Transactions"). Such analysis indicated that for
the Selected Transactions levered aggregate consideration (i) as a
multiple of latest twelve months' net income ranged from 5.3x to 47.1x
with a mean of 24.7x and median of 21.4x, compared to 17.7x for the
aggregate consideration to be paid in the Merger, (ii) as a multiple of
tangible GAAP book value ranged from 0.55x to 4.10x with a mean of 1.58x
and median of 1.29x, compared to 2.53x for the aggregate consideration to
be paid in the Merger and (iii) as a multiple of statutory surplus ranged
from 0.56x to 6.33x with a mean of 2.04x and median of 1.69x, compared to
3.07x for the aggregate consideration to be paid in the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
the Company or the contemplated transaction. The analyses were prepared solely
for purposes of Goldman Sachs' providing its opinion to the Board as to the
fairness of the $47.00 per share in cash to be received by the holders of the
Common Stock pursuant to the Merger Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of the
Company, Buyer, Buyer Sub, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Board was one of many factors
taken into consideration by the Board in making its determination to approve the
Merger Agreement. The foregoing summary does not purport to be a complete
description of the analysis performed by Goldman Sachs and is qualified by
reference to the written opinion of Goldman Sachs set forth in Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. The Company selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the Merger. Goldman Sachs has provided certain investment banking services to
the Company from time to time including having acted as underwriter for the
Company's initial public offering of 10,000,000 shares of Common Stock in May
1996 and having acted as the Company's financial advisor in connection with, and
having participated in certain of the negotiations leading to, the
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Merger Agreement. Goldman Sachs provides a full range of financial, advisory and
brokerage services and in the course of its normal trading activities may from
time to time effect transactions and hold positions in the securities or options
on the securities of the Company for its own account or the account of
customers. Goldman Sachs has provided certain investment banking services to LNC
and the Buyer from time to time and may provide investment banking services to
LNC and the Buyer in the future.
Pursuant to a letter agreement dated February 19, 1997 (the "Engagement
Letter"), the Company engaged Goldman Sachs to act as its financial advisor in
connection with the possible sale of all or a portion of the Company. Pursuant
to the terms of the Engagement Letter, the Company has agreed to pay Goldman
Sachs upon consummation of the Merger a transaction fee equal to (i) 0.53% of
the aggregate consideration paid in the Merger up to and including $32.00 per
share plus (ii) 2.50% of the aggregate consideration paid in the Merger in
excess of $32.00 per share; provided, that in no event shall the fee exceed
0.80% of the aggregate consideration paid in the Merger. The Company has agreed
to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,
including certain liabilities under the federal securities laws.
Effective Time of the Merger
The Merger will become effective at the time of filing of articles of merger
with the Secretary of State of the State of Indiana (the "Articles of Merger"),
in accordance with the Indiana Business Corporation Law (the "IBCL"), or at such
other time as specified in the Articles of Merger (the "Effective Time"). Prior
to such filing, a closing (the "Closing") will be held at the offices of the
Company's counsel, Sutherland, Asbill & Brennan LLP, or such other place as the
parties may agree, on a date set by Buyer (the "Closing Date"), which date will
be within ten business days following the later of (i) the date of the approval
of the Merger and the Merger Agreement by the Company's shareholders and (ii)
the date upon which all conditions set forth in the Merger Agreement have been
satisfied or waived. See "Conditions to the Merger" below.
Terms of the Merger
Pursuant to the Merger Agreement, Buyer Sub will be merged with and into the
Company at the Effective Time. The separate corporate existence of Buyer Sub
will thereupon cease, and the Company will continue as the surviving corporation
and succeed to and assume all the rights and obligations of Buyer Sub in
accordance with the IBCL and the Merger Agreement. Also at the Effective Time,
Buyer will become the sole shareholder of the surviving corporation, the
directors of Buyer Sub will become the directors of the surviving corporation,
and the officers of the Company will become the officers of the surviving
corporation. From and after the Effective Time, all of the shares of Common
Stock will no longer be outstanding and will be canceled and retired and cease
to exist, and holders of certificates theretofore evidencing shares of Common
Stock will cease to have any rights as shareholders, except as provided in the
Merger Agreement
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or by law. No transfer of shares of Common Stock will, after the Effective Time,
be made on the stock transfer books of the Company.
Merger Consideration and Exchange of Certificates
At the Effective Time, each issued and outstanding share of Common Stock will
automatically be converted into the right to receive, without interest thereon,
$47.00 in cash (the "Merger Consideration"), and Buyer will deposit with or for
the account of a bank or trust company selected by Buyer and reasonably
satisfactory to the Company (the "Exchange Agent"), for the benefit of those
persons who were shareholders of the Company immediately prior to the Effective
Time, cash in immediately available same-day funds payable as Merger
Consideration (the "Exchange Fund"). Promptly after the Effective Time, the
Exchange Agent will mail to each former shareholder of the Company (i) a form of
letter of transmittal and (ii) instructions for use in surrendering such
shareholder's Common Stock certificates in exchange for payment. Upon surrender
of a Common Stock certificate to the Exchange Agent, together with a signed
letter of transmittal and any other required documents, the holder of the Common
Stock certificate will be entitled to receive the Merger Consideration, without
interest thereon, for each of the shares of Common Stock represented by the
certificate, and the certificate so surrendered will be canceled. Until
surrendered, certificates formerly evidencing shares of Common Stock will be
deemed for all purposes to evidence only the right to receive the Merger
Consideration. No interest will accrue or be paid on any cash payable upon the
surrender of certificates which immediately prior to the Effective Time
represented outstanding shares of Common Stock.
Payment of the Merger Consideration will be made by corporate check mailed
within three business days after the surrender of the Common Stock certificate
and the submission of the letter of transmittal; provided, that any shareholder
holding in excess of 20% of the Company's shares will be entitled to receive
payment by wire transfer of immediately available funds not later than one
business day after such surrender and submission. Any portion of the Exchange
Fund which remains undistributed to former shareholders of the Company for 360
days after the Effective Time will be delivered to Buyer, upon demand of Buyer,
and any former shareholders of the Company may thereafter look only to Buyer for
payment of their claim for the Merger Consideration.
Options
Each person to whom the Company has granted an option to purchase shares of
Common Stock who is not a Key Executive (see "--Interests of Certain Persons in
the Merger" below) will receive payment for all such options, whether vested or
unvested at the Effective Time, held by him or her. Key Executives will receive
payment for only their vested options; their unvested options will be replaced
by certain change-of-control benefits and retention incentives. See "--Interests
of Certain Persons in the Merger" below. Options will be paid by means of a
"cashless" exercise on the business day immediately preceding the Closing date,
whereby each option holder will be deemed to receive a total number of shares of
Common Stock having a
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value equal to the total amount of the "spread" between $47.00 per share and the
exercise price of each option for which payment is to be made. The shares that
are deemed to be received pursuant to the cashless exercise will be paid for in
the same manner as the Company's other shares. See "--Merger Consideration and
Exchange of Certificates" above.
Representations and Warranties
The Merger Agreement contains certain representations and warranties made by
each of the Company, Buyer and Buyer Sub that are customary for a transaction of
this type. The Company represents and warrants as to the following matters,
among others: (i) organization and corporate power; (ii) authority to enter into
the Merger Agreement; (iii) necessary governmental approvals; (iv) no violation
of certain instruments or of any law resulting from the execution and
performance of the Merger Agreement; (v) capitalization; (vi) assets necessary
to carry on the operations of the business; (vii) the subsidiaries of the
Company; (viii) financial statements and reports filed with the Securities and
Exchange Commission and state insurance departments; (ix) the conduct of the
business of the Company from March 31, 1997 to the date of the Merger Agreement;
(x) material liabilities and investments; (xi) material contracts; (xii)
non-claims litigation; (xiii) compliance with law; (xiv) good title to
properties; (xv) licenses and permits; (xvi) employee benefit plans; (xvii)
environmental matters; (xviii) accounts with LNC; (xix) intellectual property
and software; (xx) labor matters; (xxi) loans and advances; (xxii) the
information contained in this Proxy Statement; (xxiii) brokers; (xxiv) Indiana
takeover laws; and (xxv) certain tax matters.
Buyer represents and warrants as to the following matters, among others: (i)
organization and corporate power; (ii) authority to enter into the Merger
Agreement; (iii) necessary governmental approvals; (iv) no violation of certain
instruments or of any law resulting from the execution and performance of the
Merger Agreement; (v) financing; (vi) litigation; (vii) brokers; (viii) lack of
prior activity by Buyer Sub; (ix) financial statements and reports filed with
the Securities and Exchange Commission; and (x) the information contained in
this Proxy Statement.
All of the representations and warranties set forth in the Merger Agreement will
terminate at the Closing.
Conduct of the Business of the Company Prior to the Merger
The Company has agreed that, from the date of the Merger Agreement to the
Closing date, it will, and will cause its subsidiaries to, conduct their
respective operations according to their ordinary course of business consistent
with past practice (including, among other things, underwriting, pricing,
actuarial and investment policies generally, the preservation intact of their
respective business organizations and the maintenance of existing relationships
with agents and customers) and, except as contemplated by the Merger Agreement,
will not take certain actions without the prior written consent of Buyer, which
actions include, among others: (i) amendment of its articles of incorporation or
bylaws; (ii) except for any employer contribution made pursuant
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to the American States Financial Corporation Employees' Savings and
Profit-Sharing Plan, the issuance or sale of any shares of its capital stock;
(iii) stock splits, combinations or reclassifications, dividends (other than the
Company's regular quarterly dividend) or stock redemptions or repurchases; (iv)
incur any indebtedness for borrowed money (except for short-term indebtedness
incurred in the ordinary course of business consistent with past practice
pursuant to existing lines of credit or extensions or renewals thereof); (v)
enter into, adopt, terminate or amend any bonus, compensation or other employee
benefit plan or other arrangement for the benefit or welfare of any director,
officer or employee of Company (except for changes in base compensation and
bonuses, and changes in benefits in accordance with plans or arrangements in
effect as of the date hereof, in the ordinary course of business consistent with
past practice); (vi) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets which in the aggregate are material to
the Company and its subsidiaries, taken as a whole; (vii) change any of the
accounting practices used by it, except as may be required as a result of a
change in law or generally accepted accounting principles ("GAAP"); (viii)
change the method of determining the GAAP reserves for any guaranty fund
assessment, second injury fund assessment, special insurance assessment or
similar assessment or tax; (ix) acquire any business organization or division
thereof or authorize any new capital expenditures which, in the aggregate, are
in excess of $5,000,000; (x) pay any material liabilities, other than in the
ordinary course of business consistent with past practice or in accordance with
their terms; (xi) terminate or materially amend certain agreements specified in
the Merger Agreement; and (xii) enter into any facultative reinsurance contract,
other than in the ordinary course of business consistent with past practice, or
commute any facultative reinsurance contract.
Access to Information
The Company has agreed that, from the date of the Merger Agreement until the
Closing date, it will give Buyer full access to the offices, properties, books
and records of the Company and its subsidiaries, subject to applicable
confidentiality agreements and other contractual restrictions and to applicable
legal privileges.
No Solicitation
The Company has agreed to cease immediately any existing discussions or
negotiations with any third parties conducted prior to the date of the Merger
Agreement with respect to the sale of the Company and has agreed not to: (i)
solicit, initiate or encourage any inquiries or proposals from third parties
regarding the sale of the Company; (ii) subject to proper exercise of fiduciary
duties, engage in negotiations or discussions regarding any such third-party
proposal; or (iii) agree to or approve any such third-party proposal.
Other Company Covenants
In addition to the covenants summarized above, the Company has agreed to, among
other things: (i) promptly notify Buyer of any non-claims litigation in which
the actual damages alleged
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exceeds $1 million or any governmental proceeding seeking to prevent
consummation of the Merger; (ii) take no action that will interfere with or
frustrate the purpose of the Voting Agreement; (iii) take no action to terminate
or amend any confidentiality agreement pursuant to which information was
provided to any person other than Buyer; and (iv) cause a meeting of the
shareholders to be duly called and held to consider and vote upon approval of
the Merger and, subject to proper exercise of the Board's fiduciary duties,
cause the Board to recommend, declare advisable and use all reasonable efforts
to obtain such approval.
Buyer Covenants
Buyer has agreed to, among other things: (i) maintain as confidential all
information provided by the Company prior to the Effective Time; (ii) continue
to provide indemnification and insurance to the current or former officers and
directors of the Company; (iii) prepay certain debt obligations of the Company
(see "VOTING AGREEMENT--Prepayment of Debt" below); (iv) undertake certain
obligations with respect to tax matters (see "VOTING AGREEMENT--Benefits and Tax
Matters" below); and (v) maintain certain employee benefit plans or benefit
levels for certain specified periods.
Mutual Covenants
In addition to the covenants summarized above, the Company and Buyer have agreed
to, among other things: (i) subject to the terms and conditions of the Merger
Agreement, take all actions reasonably necessary or desirable under applicable
laws and regulations to consummate the transactions contemplated by the Merger
Agreement; (ii) cooperate to make certain filings and obtain certain consents
necessary to consummate the Merger; (iii) consult with each other before issuing
any press release; and (iv) except as otherwise agreed to by LNC, cause the
Company, immediately following the Closing, to cease using any printed material
bearing the trademarks, trade names or service marks of LNC.
Conditions to the Merger
The obligation of Buyer to consummate the Closing is subject to the following
conditions, among others: (i) the Company must have GAAP equity immediately
prior to the Effective Time equal to at least 90% of the Company's GAAP equity
as of March 31, 1997, exclusive of adjustments to reflect the market value of
the Company's bond portfolio (in accordance with Financial Accounting Standard
115); (ii) the truth, as of the Closing date, of the representations and
warranties of the Company contained in the Merger Agreement (except where the
failure of such representations and warranties to be true would not have a
material adverse effect on the Company); (iii) the Company's performance in all
material respects of its obligations under the Merger Agreement; and (iv) the
absence of any governmental proceeding seeking to prevent consummation of the
Merger. The obligation of the Company to consummate the Closing is subject to
the following conditions, among others: (i) the truth, as of the Closing date,
of the representations and warranties of Buyer contained in the Merger Agreement
(except where the
- 15 -
failure of such representations and warranties to be true would not adversely
affect the consummation of the Merger); and (ii) Buyer's performance in all
material respects of its obligations under the Merger Agreement. In addition,
the obligations of Buyer and the Company to consummate the Closing are subject
to the following conditions, among others: (i) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), relating to the transactions contemplated in the Merger Agreement
shall have expired or been terminated (see "--Regulatory Approvals" below); (ii)
all other regulatory consents, approvals or clearances necessary for the
consummation of the Closing shall have been obtained (see "--Regulatory
Approvals" below); (iii) all material consents, approvals or waivers of all
non-governmental persons necessary for the consummation of the Closing shall
have been obtained; and (iv) no temporary restraining order, preliminary
injunction or permanent injunction or other order issued by any court of
competent jurisdiction shall be in effect preventing the consummation of the
transactions contemplated under the Merger Agreement.
Termination of the Merger Agreement
The Merger Agreement may be terminated and the Merger may be abandoned at any
time prior to the Closing: (i) by mutual written agreement of the Company and
Buyer; (ii) by either the Company or Buyer upon written notice to the other
party if the Merger shall not have been consummated on or before December 31,
1997 (provided, that the right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or has resulted in the failure of the Merger to
occur on or before such date); or (iii) if any court or other governmental body
shall have issued an order or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order or other action
shall have become final and nonappealable.
Amendments and Waivers
Any provision of the Merger Agreement may be amended or waived if, but only if,
such amendment or waiver is explicit and in writing and is signed, in the case
of an amendment, by each party to the Merger Agreement, or in the case of a
waiver, by the party against whom the waiver is to be effective.
Costs and Expenses
The fee for filing the application pursuant to the HSR Act shall be paid by
Buyer. All other fees and expenses incurred in connection with the Merger
Agreement, including all brokers', finders', investment advisory or similar
fees, shall be paid by the party incurring or responsible for incurring such
cost or expense. Expenses associated with this proxy solicitation will be borne
by the Company.
- 16 -
Federal Income Tax Consequences
The receipt of cash by a shareholder of the Company in exchange for such
shareholder's shares of Common Stock pursuant to the Merger will constitute a
taxable transaction for federal income tax purposes and may also be a taxable
transaction under state, local, foreign and other tax laws. The federal income
tax consequences to holders of shares of Common Stock who are citizens or
residents of the United States generally will be as follows:
1. Each holder of shares of Common Stock will recognize a gain or loss
equal to the difference, if any, between (i) the amount of cash
received and (ii) the holder's cost or other adjusted tax basis in
the shares exchanged therefor.
2. Such gain or loss will be a capital gain or loss (assuming the
shares of Common Stock are capital assets in the hands of the
shareholder). Any such capital gain or loss will be long-term if the
shareholder's holding period for such shares is more than one year
as of the Effective Time; otherwise, such capital gain or loss will
be short-term. The Code limits the deductibility of capital losses.
3. Each shareholder of the Company will, in general, be required to
provide to the Exchange Agent his or her Social Security number or
other taxpayer identification number ("TIN"), or in some instances
certain other information, in order to avoid "backup withholding" at
a rate of 31% which might otherwise apply under the Code. A
shareholder who does not furnish the correct TIN may be subject to a
penalty imposed by the Internal Revenue Service.
The tax discussion set forth above is included herein for general information
only and does not address the tax consequences to LNC. In view of the individual
nature of tax consequences, each shareholder of the Company should consult a tax
advisor as to the particular tax consequences of the Merger to the shareholder,
including the effect and applicability of federal, state and other tax laws.
Regulatory Approvals
State insurance holding company laws and regulations applicable to the Company
generally provide that no person may acquire control of the Company unless such
person has provided certain required information to, and such acquisition has
been approved (or not disapproved) by, the appropriate insurance regulatory
authorities. In accordance with the insurance holding company laws of Indiana,
Illinois and Texas, Buyer, on behalf of itself and certain of its subsidiaries,
has filed an application on Form A for the approval of the Merger with the
Indiana, Illinois and Texas insurance departments. As of the date of this Proxy
Statement, the Merger has been approved by the Illinois insurance department,
but the Indiana and Texas insurance departments have not completed their review
of the application. A hearing before officials of the Indiana insurance
department is scheduled for August 21, 1997.
- 17 -
The Merger is also subject to review under the HSR Act by the Federal Trade
Commission and the Department of Justice. On July 15, 1997, the Company and
Buyer were notified that early termination of the requisite waiting period under
the HSR Act was granted as of such date.
Absence of Appraisal Rights
Under the IBCL, holders of Common Stock will not be entitled to appraisal rights
as a result of the Merger. Under the IBCL, appraisal rights are unavailable in a
merger for shares of any class of stock which on the applicable record date for
the shareholder vote on such merger are listed on a national securities
exchange. On the Record Date, shares of Common Stock were listed on the New York
Stock Exchange. Accordingly, holders of Common Stock will not be entitled to
appraisal rights as of result of the Merger.
VOTING AGREEMENT
The description of the Voting Agreement set forth below does not purport to be
complete and is qualified in its entirety by reference to the Voting Agreement,
a copy of which is attached as Annex B to this Proxy Statement and incorporated
herein by reference.
Voting
Concurrently with the execution of the Merger Agreement, LNC and Buyer entered
into, and the Company acknowledged and agreed to certain sections of, the Voting
Agreement pursuant to which LNC has agreed, at any meeting of the holders of
shares of Common Stock, to vote (or cause to be voted) the shares of Common
Stock held by it in favor of the adoption of the Merger Agreement and against
any action or agreement that would result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement. On July 22, 1997, the parties agreed to
amend the Voting Agreement to add two wholly owned subsidiaries of LNC as
parties. See Amendment No. 1 to Voting Agreement in Annex B to this Proxy
Statement.
The Voting Agreement provides for the appointment of Buyer as proxy for LNC and
its subsidiaries to vote all shares of Common Stock held by LNC and its
subsidiaries at any meeting of the shareholders of the Company. The voting
provisions are subject in all respects to the receipt of any required state
insurance department approvals.
Prepayment of Debt
The Voting Agreement also provides, as contemplated by the Merger Agreement,
that Buyer will (i) pay $100 million plus an amount equal to the accrued but
unpaid interest on the outstanding 7 1/8 % notes due July 15, 1999, originally
issued to the public by LNC on July 15, 1992, to LNC in consideration of the
termination of that certain Assumption Agreement dated May 16,
- 18 -
1996, between LNC and the Company, whereby the Company assumed such public debt,
and (ii) pay the outstanding principal balance of, plus accrued but unpaid
interest on, that certain $200 million Term Note due August 15, 1999, issued by
the Company to LNC on May 16, 1996, to LNC in consideration of the surrender of
such Term Note by LNC to the Company for cancellation.
Other Covenants, Representations and Warranties
LNC agrees, represents and warrants as to the following matters, among others:
(i) ownership of its shares of Common Stock; (ii) authority to enter into the
Voting Agreement; (iii) necessary governmental approvals; (iv) no violation of
certain instruments or of any law resulting from the execution and performance
of the Voting Agreement; (v) no solicitation of proposals from third parties
regarding the sale of the Company; (vi) no transfer of, or granting of proxies
with respect to, its shares of Common Stock; (vii) Indiana takeover laws; (viii)
reliance by Buyer; and (ix) eligibility to make a Section 338(h)(10) election.
Benefits and Tax Matters
The Voting Agreement provides that LNC shall indemnify and hold harmless Buyer,
the Company and each subsidiary of the Company against any liability asserted
against the Company or any of its subsidiaries in connection with any employee
benefit plan or any other fringe benefit program or arrangement maintained by
LNC for its employees or former employees.
The Voting Agreement provides that LNC and Buyer will jointly make timely and
irrevocable elections under Section 338(h)(10) of the Code and any similar
provisions of state law and LNC, Buyer and the Company agree to execute any and
all forms necessary to effectuate the elections at the Closing. LNC and Buyer
have agreed to use their best efforts to enter into an agreement as soon as
practicable after the Closing date to address the computation of the Modified
Aggregate Deemed Sale Price of the assets of each of the Company and its
subsidiaries for which a Section 338(h)(10) election is made.
The Voting Agreement also provides for (i) liability for taxes and related
matters; (ii) filing of tax returns; (iii) termination of tax allocation or
sharing agreements or arrangements; and (iv) allocation of payment of 1997
taxes. LNC and Buyer also agree to: (i) assist in all reasonable respects the
other party in preparing any tax returns or reports; (ii) cooperate in all
reasonable respects in preparing for any audits or disputes; (iii) make
available any requested information, records or documents relating to taxes of
the Company and each subsidiary of the Company; (iv) provide timely notice to
the other in writing of any pending or threatened tax audit or assessments; and
(v) furnish the other with copies of all correspondence received from any taxing
authority in connection with any tax audit or information request.
- 19 -
HIGH AND LOW PRICES OF STOCK
On June 6, 1997, the business day prior to announcement of the Merger Agreement
with Buyer, the high and low prices quoted for shares of Common Stock on the New
York Stock Exchange were $38-5/8 and $38, respectively.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Except as described below, no director or executive officer of the Company or
associate of any such director or executive officer has any substantial interest
in the Merger, other than any interest arising from the ownership of securities
of the Company (in which case each such owner receives no extra or special
benefit not shared on a pro rata basis by all other holders of the same class of
securities). For a description of the holdings of the Company's securities by
officers and directors of the Company, see "SECURITY OWNERSHIP BY DIRECTORS AND
EXECUTIVE OFFICERS" below.
In connection with the exploration of strategic options, the Board adopted
change of control, retention incentive and severance arrangements to provide
added incentives for certain employees (the "Key Executives") to continue to
work to enhance shareholder value through and after any change of control and to
fairly compensate them for the personal risk of any change of control. The
arrangements were embodied in individual letter agreements between the Company
and the Key Executives, including Messrs. Anker, Gallogly, Lawson, Stephenson
and Young (the "Participating Named Executives"). The arrangements varied for
individual employees in accordance with several factors, including whether they
had prior employment contracts and their differing levels of contribution.
The letter agreements provide change of control and retention incentive
benefits. Under such agreements, upon a change of control, generally Key
Executives become immediately vested in any unvested LNC options, LNC restricted
stock, LNC dividend equivalent rights or restricted stock or dividend equivalent
rights of the Company. Messrs. Anker and Lawson would become vested in LNC
restricted phantom stock units and restricted stock and dividend equivalent
rights of the Company; they would be treated as retirees for LNC options. Under
such agreements, a change of control is defined as the acquisition by one
individual or entity of 50% or more of the Common Stock.
The retention incentive benefits would be two-fold to replace unvested options
for Common Stock granted in 1996 and options that would otherwise have been
granted in 1997. First, upon the earlier of six months after a change of
control, or termination of employment, either involuntarily (other than for
cause) or by the executive for good reason, each Key Executive would be paid the
difference between $23.00 and the per share price of Common Stock to be paid by
the purchaser in the change of control for each unvested option held at the time
of the change of control. Mr. Anker, who has no unvested options for Common
Stock, would not
- 20 -
receive this benefit. Second, upon the earlier of 12 months after a change of
control or termination of employment, either involuntarily (other than for
cause) or by the executive for good reason, each Key Executive would receive a
cash payment equal to (a) if in Tier 1, 50% of base annual salary plus an
additional 25% of base annual salary for each $1.00 by which the price per share
to be paid by the purchaser in the change of control exceeds $34.00 (with linear
interpolation for amounts between each whole dollar), or (b) if in Tier 2, 25%
of base annual salary plus an additional 12.5% of base annual salary for each
$1.00 by which the price per share to be paid by the purchaser in the change of
control exceeds $34.00 (with linear interpolation for amounts between each whole
dollar). The above retention incentive benefits expire if no change of control
occurs before March 31, 1998. Each Participating Named Executive is in Tier 1.
The letter agreements provide the following additional benefits payable upon
termination of a Key Executive's employment within 18 months after a change of
control, either involuntarily (other than for cause) or for good reason: (1)
outplacement expenses to a maximum of the greater of $25,000 or 20% of base
annual salary, (2) continued coverage under specified welfare benefit plans of
the Company, including split dollar coverage, if any, for up to one year after
termination of employment, (3) vesting of any benefits under excess benefit
plans, and (4) payments under incentive compensation plans, prorated to the end
of the most recently completed quarter. Following termination of employment, any
Key Executive who meets certain age and service requirements as of the date of
change of control would also be eligible for retiree health benefits commencing
at age 55, covering themselves, their spouses and eligible dependents. Finally,
the following severance benefits will be payable under the letter agreements
unless benefits payable under the Company's regular severance pay plan are
greater: (a) for Tier 1, 100% of base annual salary, and (b) for Tier 2, 50% of
base annual salary. Messrs. Lawson, Gallogly, Stephenson and Young are entitled
to severance equal to the greatest of the amount determined under their
individual employment contracts, the Tier 1 amount or the amount payable under
the Company's regular plan. Mr. Anker's letter agreement does not entitle him to
any of the benefits described in this paragraph.
Under the letter agreements, the Company also committed to pay an amount
necessary to gross up the amounts paid and benefits provided to each Key
Executive to compensate him or her for any liability for federal excise taxes,
if any such taxes are applicable. In exchange for the benefits provided under a
letter agreement, each Key Executive must sign a general release of the Company
and LNC.
- 21 -
SECURITY OWNERSHIP BY DIRECTORS
AND EXECUTIVE OFFICERS
The following chart sets forth certain information regarding the ownership by
the directors, named executive officers and all directors and executive officers
(as a group) of the Company of equity securities of the Company and its parent,
LNC as of June 6, 1997:
=======================================================================================
Company Common LNC Common Stock
Stock Total Total
--------------- Company ----------------- LNC
Name of Beneficial Shares Units Shares Shares Units (4) Shares
Owner of Securities (2) (3) (4) and Units (2) (5) and Units
=======================================================================================
R. A. Anker 1,075 2 1,077 157,028 49,171 206,199
- ---------------------------------------------------------------------------------------
J. T. Gallogly 10,572 87 10,659 40,551 1,189 41,740
- ---------------------------------------------------------------------------------------
E. J. Goss (1) 5,000 0 5,000 40,271 0 40,271
- ---------------------------------------------------------------------------------------
W. J. Lawson 26,767 63 26,830 26,578 0 26,578
- ---------------------------------------------------------------------------------------
F. C. McCurley 20,560 62 20,622 79,483 1,132 80,615
- ---------------------------------------------------------------------------------------
S. J. Paris 1,000 1,012 2,012 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 17,243 945 18,188 9,842 395 10,237
- ---------------------------------------------------------------------------------------
M. O. Thompson (1) 1,500 0 1,500 0 0 0
- ---------------------------------------------------------------------------------------
R. C. Vaughan 0 0 0 50,860 13,299 64,159
- ---------------------------------------------------------------------------------------
R. K. Young 12,606 1,199 13,805 9,652 4 9,656
=======================================================================================
Directors and Executive 150,502 3,408 153,910 475,670 67,396 543,066
Officers as a Group - 20
People
=======================================================================================
(1) No annual meeting of the Company's shareholders has yet been held in 1997 as
a result of the pending Merger. See "ANNUAL MEETING AND PROPOSALS OF
SHAREHOLDERS" below. Therefore, Messrs. Goss and Thompson, whose terms otherwise
would have expired at such annual meeting, continue to serve.
(2) 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 Company and LNC. All of those
interests are accounted for in participation units and are reported in the
appropriate columns.
- 22 -
(3) These amounts represent less than 1% of the shares of 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 6,522 8,695 10,520 -0- -0- 5,109 -0- 4,867
power
- -------------------------------------------------------------------------------------------
(4) The amounts shown in these columns represent interests in "phantom shares"
pursuant to various deferred compensation plans maintained by the Company and
LNC. All of those interests are accounted for in participation units and are
reported in the appropriate columns.
(5) 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 4,120 21,211 7,889 9,584 1,218 2,851 623
- -------------------------------------------------------------------------------------------
Sole voting and
no investment -0- 5,685 -0- -0- 7,232 -0- 8,943 -0-
power
- -------------------------------------------------------------------------------------------
In addition, LNC has an issue of Preferred Stock outstanding, none of which is
owned by any director or executive officer of the Company.
- 23 -
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
The following chart sets forth certain information regarding each person known
to the Company to be the beneficial owner of more than five percent of any class
of the Company's voting securities as of August 14, 1997:
- -------------------------------------------------------------------------------------------
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND PERCENT
BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL
OWNERSHIP
- -------------------------------------------------------------------------------------------
Common Stock Lincoln National Corporation 50,000,000 shares (1) (2) 83.3%
200 East Berry Street
Fort Wayne, Indiana 46802
- -------------------------------------------------------------------------------------------
Common Stock The Lincoln National Life 25,000,000 shares 41.6%
Insurance Company
200 East Berry Street
Fort Wayne, Indiana 46802
- -------------------------------------------------------------------------------------------
Common Stock Lincoln Funds Corporation 7,500,000 shares 12.5%
200 East Berry Street
Fort Wayne, Indiana 46802
- -------------------------------------------------------------------------------------------
(1) LNC directly owns 17,500,000 shares; the remaining shares are held by two of
its wholly owned subsidiaries, The Lincoln National Life Insurance Company and
Lincoln Funds Corporation.
(2) Pursuant to the Voting Agreement, Buyer may be deemed to exercise the power
to direct voting and disposition, only as to certain matters relating to the
Merger, of the 50,000,000 shares of Common Stock beneficially owned by LNC;
however, Buyer does not have any power to direct the voting or disposition of
LNC's shares of Common Stock other than the power provided pursuant to the
Voting Agreement. Accordingly, LNC does not believe that the Voting Agreement
transfers beneficial ownership of LNC's shares of Common Stock.
PRINCIPAL ACCOUNTANTS
The Company's principal accountants, Ernst & Young, will not be represented at
the Special Meeting.
ANNUAL MEETING AND PROPOSALS OF SHAREHOLDERS
If the Merger is not consummated, the annual meeting of shareholders for the
election of directors and such other business as may be specified in the notice
of such meeting will be held on the earliest practicable date. If an annual
meeting is held, any proposals to be presented by a
- 24 -
shareholder at such annual meeting must be received by the Company on or prior
to October 6, 1997.
OTHER MATTERS
Only business within the purposes described in the Notice of Special Meeting of
Shareholders accompanying this Proxy Statement may be conducted at the Special
Meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission are
incorporated into this Proxy Statement by reference:
1. The Company's Annual Report on Form 10-K and Forms 10-K/A for the
year ended December 31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997; and
3. The Company's Current Reports on Form 8-K filed with the Commission
on March 28, 1997 and June 17, 1997.
All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, by the Company after the date
hereof but prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part of this
Proxy Statement from the date of filing of such document. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
As used herein, the terms "Proxy Statement" and "herein" mean this Proxy
Statement, including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. The Company will provide without charge to any
person to whom this Proxy Statement is delivered, on the written or oral request
of such person, a copy of any or all of its documents incorporated by reference
herein (other than exhibits not specifically incorporated by reference into the
texts of such documents). Requests for such documents should be directed to:
Investor Relations, American States Financial Corporation, 500 North Meridian
Street, Indianapolis, Indiana 46204. Telephone requests may be directed to
Investor Relations at (317) 262-6930.
- 25 -
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of June 6, 1997
by and among
AMERICAN STATES FINANCIAL CORPORATION,
SAFECO CORPORATION
and
ASFC ACQUISITION CO.
================================================================================
ARTICLE 1
DEFINITIONS
1.1 Definitions.......................................................
ARTICLE 2
THE MERGER
2.1 The Merger........................................................
2.2 Effective Time of the Merger......................................
2.3 Terms of the Merger...............................................
2.4 Effect of the Merger..............................................
2.5 Conversion or Cancellation of Shares in the Merger................
2.6 Payment for Shares in the Merger..................................
2.7 Status of Options.................................................
2.8 Closing of ASFC's Transfer Books..................................
2.9 No Further Ownership Rights in ASFC Common Stock..................
2.10 No Liability......................................................
2.11 Investment of Exchange Fund.......................................
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ASFC
3.1 Corporate Existence and Power.....................................
3.2 Corporate Authorization...........................................
3.3 Governmental Authorization........................................
3.4 Non-Contravention.................................................
3.5 Capitalization....................................................
3.6 All Assets Necessary..............................................
3.7 Subsidiaries......................................................
3.8 Financial Statements; SEC Reports.................................
3.9 Absence of Certain Changes........................................
3.10 Material Liabilities; Investments.................................
3.11 Material Contracts................................................
3.12 Non-Claims Litigation.............................................
3.13 Compliance with Laws..............................................
3.14 Properties........................................................
3.15 Licenses and Permits; Policies; Regulatory Matters................
3.16 ERISA Representations.............................................
3.17 Environmental Matters.............................................
3.18 Intercompany Accounts.............................................
- A-i -
3.19 No Representation with Respect to Reserves........................
3.20 Intellectual Property; Software...................................
3.21 Labor Matters.....................................................
3.22 Loans and Advances................................................
3.23 Proxy Statement...................................................
3.24 No Other Broker...................................................
3.25 Indiana Takeover Laws.............................................
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power.....................................
4.2 Corporate Authorization...........................................
4.3 Governmental Authorization........................................
4.4 Non-Contravention.................................................
4.5 Financing.........................................................
4.6 No Actions; Suits or Proceedings..................................
4.7 No Other Broker...................................................
4.8 Merger Subsidiary.................................................
4.9 Reports and Financial Statements..................................
4.10 Proxy Statement...................................................
ARTICLE 5
COVENANTS OF ASFC
5.1 Conduct...........................................................
5.2 Access to Information.............................................
5.3 Notices of Certain Events.........................................
5.4 No Solicitation...................................................
5.5 Voting Agreement..................................................
5.6 Confidentiality Agreements........................................
5.7 Meeting of ASFC Shareholders......................................
5.8 Supplements or Amendments.........................................
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality...................................................
6.2 Indemnification and Insurance.....................................
6.3 Supplements or Amendments.........................................
6.4 Prepayment of Debt................................................
- A-ii -
ARTICLE 7
COVENANTS OF BUYER AND ASFC
7.1 Reasonable Efforts................................................
7.2 Public Announcements..............................................
7.3 Trademarks; Trade Names...........................................
7.4 Consents..........................................................
7.5 Proxy Statement...................................................
7.6 Updating Schedules................................................
ARTICLE 8
TAX MATTERS
8.1 Tax Representations...............................................
8.2 Tax Covenants.....................................................
8.3 Termination of Existing Tax Sharing Agreements....................
8.4 Survival..........................................................
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees.........................................................
9.2 Retirement Plans..................................................
9.3 Group Health Plans................................................
9.4 Severance Arrangements............................................
9.5 Nonqualified Plans................................................
9.6 Other Benefit Plans...............................................
9.7 Other Liabilities.................................................
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and ASFC.......................
10.2 Conditions to Obligation of Buyer.................................
10.3 Conditions to Obligation of ASFC..................................
ARTICLE 11
SURVIVAL
11.1 Survival..........................................................
- A-iii -
ARTICLE 12
TERMINATION
12.1 Grounds for Termination...........................................
12.2 Effect of Termination.............................................
ARTICLE 13
MISCELLANEOUS
13.1 Notices...........................................................
13.2 Amendments and Waivers............................................
13.3 Expenses..........................................................
13.4 Successors and Assigns............................................
13.5 Governing Law.....................................................
13.6 Jurisdiction......................................................
13.7 Counterparts......................................................
13.8 No Third Party Beneficiaries......................................
13.9 Entire Agreement..................................................
13.10 Construction......................................................
13.11 Specific Performance..............................................
- A-iv -
EXHIBIT
Exhibit A Voting, Support and Indemnification Agreement
SCHEDULES
Schedule 1.1(a) ASFC Options
Schedule 1.1(b) Incentive Letter Agreements
Schedule 1.1(c) Knowledge of ASFC
Schedule 1.1(d) Knowledge of Buyer
Schedule 3.3 Governmental Authorization
Schedule 3.4 Non-Contravention
Schedule 3.6 All Assets Necessary
Schedule 3.7 Subsidiaries
Schedule 3.9 Absence of Certain Changes
Schedule 3.9(x) Investment Policies
Schedule 3.10(a) Material Liabilities
Schedule 3.10(b) ASFC Investment Assets
Schedule 3.11 Material Contracts
Schedule 3.12 Non-Claims Litigation, Investigations and Proceedings
Schedule 3.13 Compliance with Laws
Schedule 3.15 License and Permits; Policies; Regulatory Matters
Schedule 3.16(a) Employee Plans
Schedule 3.16(c) Benefit Plan Compliance with Laws
Schedule 3.16(d) Benefit Arrangements
Schedule 3.16(g) Benefit Plan Funding; Penalties
Schedule 3.16(i) Accelerated Vesting; Prohibited Transactions; "Deemed
Severance"
Schedule 3.18 Intercompany Accounts
Schedule 3.20 Software Licenses
Schedule 3.22 Loans and Advances
Schedule 4.3 Governmental Authorization
Schedule 4.4 Non-Contravention
Schedule 5.1 Conduct of ASFC
Schedule 8.1 Tax Representations
- A-v -
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of June 6,
1997, by and among American States Financial Corporation, an Indiana corporation
("ASFC"), SAFECO Corporation, a Washington corporation ("Buyer"), and ASFC
Acquisition Co., an Indiana corporation ("Buyer Sub").
RECITALS
WHEREAS, the respective boards of directors of ASFC, Buyer and Buyer Sub
have approved the taxable cash merger of Buyer Sub with and into ASFC (the
"Merger") upon the terms and subject to the conditions set forth herein;
WHEREAS, ASFC, Buyer and Buyer Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger; and
WHEREAS, simultaneously with the execution of this Agreement, Lincoln
National Corporation, an Indiana corporation ("LNC"), and Buyer have entered
into a Voting, Support and Indemnification Agreement in the form attached hereto
as Exhibit A (the "Voting Agreement");
NOW, THEREFORE, the parties hereto do hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Acquisition Proposal" shall have the meaning specified in Section 5.4.
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with such
Person; provided that none of the Subsidiaries of ASFC shall be considered an
Affiliate of ASFC.
"Agreement" means this Agreement and Plan of Merger, including the
schedules and exhibit hereto.
"Annual Statements" shall have the meaning specified in Section 3.8.
"Articles of Incorporation" means the Restated Articles of Incorporation
of ASFC as filed with the Secretary of State of the State of Indiana on March
14, 1996.
"Articles of Merger" shall have the meaning specified in Section 2.2.
- A-1 -
"ASFC Common Stock" means the Common Stock, no par value, of ASFC.
"ASFC Investment Assets" means any investment assets (whether or not
required by GAAP or SAP to be reflected on a balance sheet) beneficially owned
(within the meaning of Rule 13d-3 under the Exchange Act) by ASFC or any
Subsidiary of ASFC, including but not limited to bonds, notes, debentures,
mortgage loans, collateral loans and all other instruments of indebtedness,
stocks, partnership or joint venture interests and all other equity interests,
certificates issued by or interests in trusts, derivatives and all other assets
acquired for investment purposes.
"ASFC Options" means the options identified on Schedule 1.1(a).
"ASFC Preferred Stock" means the preferred stock, no par value, of ASFC.
"ASFC Shareholders' Approval" shall have the meaning specified in Section
5.7.
"ASFC Shareholders' Meeting" shall have the meaning specified in Section
5.7.
"ASFC Securities" shall have the meaning specified in Section 3.5.
"Assumed Debt Prepayment" shall have the meaning specified in Section 6.4.
"Balance Sheet Date" means March 31, 1997.
"Benefit Arrangement" means any employment, severance or similar contract,
arrangement or policy, or any plan or arrangement (whether or not written) to
provide benefits as compensation for services rendered, including but not
limited to severance benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, executive compensation arrangements
(including but not limited to stock options, stock appreciation rights,
restricted stock rights and performance unit awards and other forms of incentive
compensation) or post-retirement insurance, compensation or benefits that (i) is
not an Employee Plan, (ii) is entered into or maintained, as the case may be, by
ASFC or any of its ERISA Affiliates and (iii) covers any present or former
employee, director, agent or independent contractor of ASFC or any of its
Subsidiaries.
"Benefit Plan" means any Employee Plan or Benefit Arrangement.
"Benefits Continuation Date" shall have the meaning specified in Section
9.5.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which commercial banks in Indianapolis, Indiana or New York, New York are
required or permitted to be closed.
"Buyer Financial Statements" shall have the meaning specified in Section
4.9.
- A-2 -
"Buyer SEC Reports" means all reports (including but not limited to
definitive proxy statements), forms, schedules, registration statements and
other documents together with all amendments and supplements thereto which Buyer
has been required to file with the SEC since January 1, 1996.
"Catastrophe" means any event that is designated to be a "catastrophe" by
the Property Claims Service Division of the American Insurance Services Group,
Inc.
"Certificates" means one or more certificates that immediately prior to
the Effective Time represented outstanding Shares.
"Claims Provision" shall have the meaning specified in Section 3.19.
"Closing" shall have the meaning specified in Section 2.2.
"Closing Date" shall have the meaning specified in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means that certain Confidentiality Agreement
dated March 13, 1997, between ASFC and Buyer.
"Consolidated Group" means (i), with respect to Federal Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code with
due regard to Section 1504(c) of the Code) of which LNC (or any successor or
predecessor of LNC or any such successor or predecessor) and ASFC and its
Subsidiaries are members and (ii), with respect to state or local income or
franchise Taxes, any consolidated, combined, unitary or similar group of which
LNC (or any successor or predecessor of LNC or any such successor or
predecessor) and ASFC and its Subsidiaries are members.
"Consolidated Taxes" means federal, state, local or foreign income or
franchise Taxes for which the Consolidated Group is liable for any Pre-Closing
Period (but in no event including any Taxes for which ASFC of any of ASFC's
Subsidiaries may be liable as "new T" (within the meaning of Treasury Regulation
Section 1.338(h)(10) or any successor provision or any corresponding provision
of state or local law) as a consequence of any timely and irrevocable elections
jointly made by LNC and Buyer under Section 338(h)(10) of the Code and any
similar elections under any applicable state, local or foreign income tax laws
for ASFC and any domestic subsidiary of ASFC).
"Constituent Corporations" means each of ASFC and Buyer Sub.
"D&O Insurance" shall have the meaning specified in Section 6.2.
"Effective Time" shall have the meaning specified in Section 2.2.
- A-3 -
"Employee Plan" means any "employee benefit plan," as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by ASFC or any of its ERISA
Affiliates and (iii) covers any employee or former employee of ASFC or any of
its Subsidiaries.
"Environmental Laws" means any and all foreign, federal, state or local
statutes, laws, regulations, ordinances, rules or codes now in effect relating
to the environment, to the effect of the environment on human health or safety
or to the use, generation, manufacturing, treatment, disposal, storage,
discharge or release of any toxic, radioactive, caustic or otherwise hazardous
substance, including petroleum and its derivatives and by-products, or any
substance having any constituent elements displaying any of the foregoing
characteristics, into the environment, including but not limited to ambient air,
surface water, groundwater or land, or the remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code or Section 4001 of ERISA and any partnership of which ASFC or any of its
Subsidiaries is or has been a general partner.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Agent" means a bank or trust company selected by Buyer, and
reasonably satisfactory to ASFC, to effectuate the payment for Shares in the
Merger.
"Exchange Fund" shall have the meaning specified in Section 2.6.
"Federal Tax" means any Tax imposed under the Code.
"GAAP" means U.S. generally accepted accounting principles.
"Governmental Body" means any federal, state, municipal, political
subdivision or other governmental legislature, court, tribunal, arbitrator,
authority, official, department, commission, board, bureau, agency or
instrumentality, whether domestic or foreign.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"IBCL" means the Indiana Business Corporation Law, as amended.
"Incentive Letter Agreements" means the separate letter agreements dated
April 1, 1997, between ASFC and each of the ASFC employees identified on
Schedule 1.1(b).
- A-4 -
"Intellectual Property" shall mean: trademarks, service marks, brand
names, certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not in any jurisdiction; patents, applications for patents
(including but not limited to divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any Person; writings and other works, whether copyrightable or not in
any jurisdiction; registrations or applications for registration of copyrights
in any jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights; provided, that "Intellectual
Property" shall not include Software.
"Knowledge of ASFC" means the actual knowledge of the individuals named on
Schedule 1.1(c).
"Knowledge of Buyer" means the actual knowledge of the individuals named
on Schedule 1.1(d).
"Law" means any statute, law, rule, regulation or ordinance of any
Governmental Body.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"LNC" shall have the meaning specified in the Recitals.
"Material Adverse Effect" means, with respect to any Person or Persons, a
material adverse effect on the financial condition, results of operations,
business, assets or liabilities of such Person or Persons and its or their
Subsidiaries, taken as whole.
"Merger" shall have the meaning specified in the Recitals.
"Merger Consideration" shall have the meaning specified in Section 2.5.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"Option" means any subscriptions, options, warrants, rights (including
"phantom" stock rights), preemptive rights or other contracts, commitments,
understandings or arrangements,
- A-5 -
including any right of conversion or exchange under any outstanding security,
instrument or agreement to issue or sell any shares of capital stock of a
corporation, or any securities exchangeable for or exercisable into any such
shares.
"Order" means any judgment, decree, order, writ, permit or license of any
Governmental Body.
"Permits" shall have the meaning specified in Section 3.15.
"Permitted Investments" means short-term U.S. government obligations or
interest-bearing money market accounts that invest solely in such obligations.
"Person" means an individual, corporation, partnership, association,
trust, limited liability company or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Pre-Closing Period" means any Tax period or portion thereof ending on or
before the Closing Date with respect to Consolidated Taxes.
"Pre-March 31 Tax Period" means any Tax period ending on or before March
31, 1997 and the portion of calendar year 1997 ending on and including March 31,
1997.
"Proxy Statement" shall have the meaning specified in Section 7.5.
"Regulators" shall have the meaning specified in Section 3.8.
"Returns" means all Tax returns, statements, reports, forms or other
documentation required to be filed with any Taxing Authority.
"SAP" means the accounting procedures and practices prescribed or
permitted from time to time by the National Association of Insurance
Commissioners and adopted, permitted or promulgated by the respective states of
incorporation of ASFC and its Subsidiaries and employed in a consistent manner
throughout the periods involved.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" means all forms, reports and documents filed by ASFC with
the SEC since January 1, 1996 and prior to the date hereof.
"Services Agreement" means that certain Services Agreement effective as of
May 22, 1996, between LNC and ASFC.
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"Shares" means shares of ASFC Common Stock issued and outstanding
immediately prior to the Effective Time, after giving effect to the exercise or
cancellation of each ASFC Option pursuant to Section 2.7.
"Significant Agreements" shall have the meaning specified in Section 3.11.
"Significant Subsidiary" has the meaning given to such term in Rule
1-02(w) of Regulation S-X promulgated by the SEC.
"Software" shall mean all computer and telecommunication software
including source and object code and documentation and any other media
(including but not limited to manuals, journals and reference books).
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect
50% or more of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Subsidiary Securities" shall have the meaning specified in Section 3.7.
"Surviving Corporation Common Stock" shall have the meaning specified in
Section 2.5.
"Tax" means all taxes, charges, fees, levies or other assessments,
including but not limited to any net income tax or franchise tax based on net
income, any alternative or add-on minimum taxes, any gross income, gross
receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, social security, Medicare, payroll, employment, excise, severance,
stamp, occupation, property, environmental or windfall profit tax, custom, duty
or other tax, governmental fee or other like assessment, together with any
interest, penalty, addition to tax or additional amount imposed by any Taxing
Authority.
"Tax Benefit" means any item of deduction, credit, amortization, exclusion
from income, loss or other tax attribute.
"Tax Sharing Agreements" means the separate Tax Sharing Agreements between
or among LNC and each of (i) ASFC, dated August 22, 1996, (ii) American States
Insurance Company and American States Lloyds Insurance Company, dated November
22, 1996, (iii) American States Insurance Company and Insurance Company of
Illinois, dated October 9, 1996, (iv) American States Insurance Company and
American States Life Insurance Company, dated August 22, 1996, (v) American
Economy Insurance Company and American States Insurance Company of Texas, dated
November 22, 1996, (vi) American States Insurance Company and American States
Preferred Insurance Company, dated August 22, 1996, (vii) American States
Insurance Company and American Economy Insurance Company, dated August 22, 1996,
(viii) ASFC and American States Insurance Company, dated August 22, 1996,
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and (ix) American States Insurance Company and City Insurance Agency, Inc.,
dated August 22, 1996, in each case applicable to the taxable year ending
December 31, 1997 and all other periods specified therein (and applicable to any
prior taxable period or periods, to the extent still in effect), and the
procedures and practices employed pursuant thereto or reflected therein,
including but not limited to all procedures and practices with respect to
alternative minimum taxes.
"Taxing Authority" means any governmental authority (domestic or foreign)
responsible for the imposition of any Tax.
"Term Note Prepayment" shall have the meaning specified in Section 6.4.
"Transferred Employees" shall have the meaning specified in Section 9.1.
"Unaudited March Balance Sheet" shall have the meaning specified in
Section 3.8.
"Voting Agreement" shall have the meaning specified in the Recitals.
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions hereof, at the
Effective Time and in accordance with the provisions of this Agreement and the
applicable provisions of the IBCL, Buyer Sub shall be merged with and into ASFC,
and ASFC shall continue as the surviving corporation (the "Surviving
Corporation"). Thereupon the separate corporate existence of Buyer Sub shall
cease, and the Surviving Corporation shall continue in existence under the laws
of the State of Indiana.
2.2 Effective Time of the Merger. On or prior to the Closing Date, the
Merger shall be consummated by filing with the Secretary of State of the State
of Indiana, as provided in Section 23-1-40-5 of the IBCL, the articles of
merger, in such form as is required by and executed in accordance with Section
23-1-18-1 of the IBCL and satisfactory to the parties hereto (the "Articles of
Merger"), on behalf of the Constituent Corporations. The Merger shall become
effective at the time of filing or at such later time as shall be specified in
the Articles of Merger (the "Effective Time"). Prior to such filing, a closing
(the "Closing") shall be held at the offices of Sutherland, Asbill & Brennan
LLP, 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004, or such other place
as the parties may agree, on a date set by Buyer (the "Closing Date"), which
date shall be within ten Business Days following the later of (i) the date of
the ASFC Shareholders' Approval and (ii) the date upon which all conditions set
forth in Article 10 hereof have been satisfied or waived.
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2.3 Terms of the Merger. (a) The Articles of Merger shall provide that,
upon the filing thereof, the Articles of Incorporation of ASFC shall be the
articles of incorporation of the Surviving Corporation.
(b) The bylaws of Buyer Sub in effect at the Effective Time shall be
the bylaws of the Surviving Corporation, until duly amended in accordance with
the terms thereof, of the articles of incorporation of the Surviving Corporation
and of the IBCL.
(c) The directors of Buyer Sub at the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's articles of incorporation and bylaws.
(d) The officers of ASFC at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's articles of incorporation and bylaws.
2.4 Effect of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the IBCL.
2.5 Conversion or Cancellation of Shares in the Merger. Subject to the
provisions of this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, the shares of the
Constituent Corporations shall be converted or canceled, as the case may be, in
the following manner:
(a) Each Share shall be converted into the right to receive, without
interest thereon, from Buyer forty-seven dollars and no cents ($47.00) in cash
(the "Merger Consideration").
(b) Each share of common stock, no par value, of Buyer Sub issued and
outstanding immediately prior to the Effective Time shall remain outstanding and
be converted into one share of common stock, no par value, of the Surviving
Corporation ("Surviving Corporation Common Stock").
2.6 Payment for Shares in the Merger. The manner of making payment for and
conversion of Shares in the Merger shall be as follows:
(a) At the Effective Time, Buyer shall deposit, or shall cause to be
deposited (the "Exchange Fund"), with or for the account of the Exchange Agent,
for the benefit of those Persons who immediately prior to the Effective Time
were the holders of Shares, cash in immediately available same-day funds payable
as Merger Consideration. The Exchange Agent shall, pursuant to irrevocable
instructions, effect the payments of cash provided for in Section 2.5 out of the
Exchange Fund.
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(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a Certificate (i) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificate shall pass, only upon proper delivery of the Certificate to
the Exchange Agent) and (ii) instructions for use in surrendering the
Certificate for payment therefor. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal
duly executed and any other required documents, the holder of such Certificate
shall be entitled to receive for each of the Shares represented by such
Certificate the Merger Consideration pursuant to this Article 2, and the
Certificate so surrendered shall forthwith be canceled. The payment of the
Merger Consideration shall be made by corporate check mailed within three
Business Days after the surrender of such Certificate and the submission of such
letter of transmittal; provided, that any shareholder holding in excess of 20%
of the Shares shall be entitled to receive such payment by wire transfer of
immediately available funds not later than one Business Day after such surrender
and submission. Until so surrendered, the Certificate shall represent solely the
right to receive the cash with respect to each of the Shares represented
thereby. If any cash is to be paid to any Person other than the Person to which
the Certificate surrendered is registered, it shall be a condition of such
payment that the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required by
reason of the payment to a Person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(c) Any portion of the Exchange Fund which remains undistributed to former
shareholders of ASFC for 360 days after the Effective Time shall be delivered to
Buyer, upon demand of Buyer, and any former shareholders of ASFC shall
thereafter look only to Buyer for payment of their claim for the Merger
Consideration.
2.7 Status of Options. Prior to the Closing Date, ASFC shall cause the
ASFC Options to be amended in the following respects: (i) each ASFC Option,
whether or not such ASFC Option is then exercisable, shall become fully vested
and exercisable as of the close of business on the Business Day immediately
preceding the Closing Date, (ii) each ASFC Option shall terminate as of the
Effective Time unless exercised prior to the Effective Time, and (iii) each
holder of an ASFC Option shall be deemed as of the Business Day immediately
prior to the Closing Date to have irrevocably exercised in full such ASFC Option
as of such Business Day by means of a "cashless" exercise pursuant to which
ASFC, when issuing shares of ASFC Common Stock on exercise, will withhold from
such issuance shares with an aggregate value (when valued at $47.00 per share)
equal to the sum of (i) the aggregate exercise price payable upon such exercise,
in lieu of the payment by the holder of such exercise price in cash, and (ii)
any applicable tax withholding. The amendment of ASFC Options provided for in
this Section 2.7 shall be conditional upon the consummation of the Merger such
that, in the event the Merger is not consummated and this Agreement is
terminated, the ASFC Options shall in all respects revert to the terms in effect
prior to the Business Day immediately prior to the Closing Date and all notices
of exercise deemed given pursuant to this Section 2.7 shall be null and void.
Other than payment of the Merger Consideration with respect to Shares received
upon the deemed exercise
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of ASFC Options, no payment, assumption or conversion shall occur in the Merger
with respect to the ASFC Options. All Shares issued upon exercise of ASFC
Options pursuant to this Section 2.7 shall be deemed issued and outstanding at
the Effective Time for purposes of the Merger.
2.8 Closing of ASFC's Transfer Books. The stock transfer books of ASFC
shall be closed at the close of business on the Business Day immediately
preceding the date of the Effective Time. In the event of a transfer of
ownership of ASFC Common Stock which is not registered in the transfer records
of ASFC, the Merger Consideration to be distributed pursuant to this Agreement
may be delivered to a transferee, if a Certificate is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by payment of any applicable stock transfer taxes. Buyer and the
Exchange Agent shall be entitled to rely upon the stock transfer books of ASFC
to establish the identity of those persons entitled to receive the Merger
Consideration specified in this Agreement for their shares of ASFC Common Stock,
which books shall be conclusive with respect to the ownership of such shares. In
the event of a dispute with respect to the ownership of any such shares, the
Surviving Corporation and the Exchange Agent shall be entitled to deposit any
Merger Consideration represented thereby in escrow with an independent party and
thereafter be relieved with respect to any claims to such Merger Consideration.
2.9 No Further Ownership Rights in ASFC Common Stock. All Merger
Consideration issued upon surrender of a Certificate in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of ASFC Common Stock represented thereby, and
there shall be no further registration of transfers on the stock transfer books
of ASFC of shares of ASFC Common Stock outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article 2.
2.10 No Liability. None of Buyer, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time, any such cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by Law or Order, become the property of Buyer, free and clear of all
claims or interest of any person previously entitled thereto.
2.11 Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Buyer, on a daily basis in
Permitted Investments. Any interest and other income resulting from such
investments shall be paid to Buyer upon termination of the Exchange Fund
pursuant to Section 2.6(c).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ASFC
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ASFC represents and warrants to Buyer as of the date hereof and as of the
Closing Date (but as of no other dates unless expressly so stated) that:
3.1 Corporate Existence and Power. ASFC (i) has been duly incorporated and
is validly existing as a corporation under the laws of the State of Indiana,
(ii) has all corporate powers required to carry on its business as now
conducted, (iii) has all material governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted and (iv) is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on ASFC. ASFC
has heretofore delivered or made available to Buyer true and complete copies of
the respective articles of incorporation and bylaws of ASFC and its Subsidiaries
as in effect on the date hereof. Neither ASFC nor any of its Subsidiaries is in
violation of any of the provisions of its articles of incorporation or bylaws.
3.2 Corporate Authorization. The execution, delivery and, subject to the
receipt of the approvals referred to in Section 3.3, performance by ASFC of this
Agreement are within ASFC's corporate powers and have been duly authorized by
all necessary corporate action on the part of ASFC. This Agreement constitutes a
valid and legally binding agreement of ASFC, enforceable against ASFC in
accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
3.3 Governmental Authorization. The execution, delivery and performance by
ASFC of this Agreement require no consent, approval or action of, filing with or
notice to any Governmental Body other than (i) compliance with any applicable
requirements of the HSR Act, (ii) approvals or filings under the insurance laws
of the jurisdictions set forth on Schedule 3.3, (iii) filings and notices not
required to be made or given until after the Closing Date, (iv) filings, at any
time, of tax returns, tax reports and tax information statements and (v) any
such action or filing as to which the failure to take or make such action or
filing would not, individually or in the aggregate, materially impair the
ability of ASFC and its Subsidiaries, taken as a whole, to conduct their
businesses.
3.4 Non-Contravention. Except as set forth in Schedule 3.4, the execution,
delivery and performance by ASFC of this Agreement do not and will not (i)
violate the articles of incorporation or bylaws of ASFC or any of its
Subsidiaries, (ii) assuming compliance with the matters referred to in Section
3.3, violate any applicable Law or Order, (iii) to the Knowledge of ASFC,
require any consent or other action by any Person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of ASFC or any of its Subsidiaries or to a loss of any
benefit to which ASFC or any of its Subsidiaries is entitled under, any material
agreement or other material instrument binding upon ASFC or any of its
Subsidiaries or any material license, franchise, permit or other similar
authorization held by ASFC or any of its Subsidiaries or (iv) to the Knowledge
of ASFC, result
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in the creation or imposition of any material Lien on any asset of ASFC or any
of its Subsidiaries.
3.5 Capitalization. (a) The authorized capital stock of ASFC consists of
two hundred million (200,000,000) shares, consisting of one hundred ninety-five
million (195,000,000) shares of ASFC Common Stock and five million (5,000,000)
shares of ASFC Preferred Stock. As of the date hereof, (i) there are outstanding
60,050,515 shares of ASFC Common Stock, (ii) no shares of ASFC Preferred Stock
are outstanding, and (iii) no shares of capital stock of ASFC are held in
treasury.
(b) All outstanding shares of capital stock of ASFC have been duly
authorized and validly issued and are fully paid and non-assessable. Except as
set forth in Section 3.5(a) and except for the ASFC Options and unvested options
governed by the Incentive Letter Agreements, there are no outstanding (i) shares
of capital stock or voting securities of ASFC, (ii) securities of ASFC
convertible into or exchangeable for shares of capital stock or voting
securities of ASFC or (iii) options or other rights to acquire from ASFC, or
other obligations of ASFC to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of ASFC (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "ASFC Securities"). There are no outstanding obligations of
ASFC or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
ASFC Securities.
3.6 All Assets Necessary. Except as set forth in Schedule 3.6, ASFC and
its Subsidiaries own, lease or license all material property and assets
necessary to carry on their businesses and operations as presently conducted,
all such assets and properties (other than as Buyer and ASFC may mutually agree)
will be conveyed to Buyer at the Closing and will as of the Closing permit Buyer
to conduct such businesses and operations in the same manner as such businesses
and operations have been conducted prior to the Closing.
3.7 Subsidiaries. (a) Except as set forth in Schedule 3.7, each Subsidiary
of ASFC has been duly incorporated or organized and is validly existing as a
corporation, partnership or association in good standing under the laws of its
jurisdiction of incorporation or organization and has all powers and all
material governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted. Each Subsidiary of ASFC is
duly qualified to do business as a foreign corporation or organization and is in
good standing in each jurisdiction where such qualification is necessary, or is
duly licensed to do business as an insurer and is in good standing in each
jurisdiction where such licensing is necessary, as the case may be, except for
those jurisdictions where failure to be so qualified or licensed, as the case
may be, would not, individually or in the aggregate, have a Material Adverse
Effect on ASFC. All Subsidiaries of ASFC and their respective jurisdictions of
incorporation or organization are identified on Schedule 3.7.
(b) All outstanding shares of capital stock of each Subsidiary of ASFC
have been duly authorized and validly issued and are fully paid and
non-assessable. As of the Closing Date, except as set forth in Schedule 3.7, all
of the outstanding capital stock of, and other voting
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securities or ownership interests in, each Subsidiary of ASFC will be owned by
ASFC, directly or indirectly, free and clear of any Lien. Except as set forth in
Schedule 3.7, there are no outstanding (i) securities of ASFC or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Subsidiary of ASFC or (ii)
options or other rights to acquire from ASFC or any of its Subsidiaries, or
other obligations of ASFC or any of its Subsidiaries to issue, any capital stock
or other voting securities or ownership interests in, or any securities
convertible into or exchangeable for any capital stock or other voting
securities or ownership interests in, any Subsidiary of ASFC (the items in
clauses (i) and (ii) being referred to collectively as the "Subsidiary
Securities"). There are no outstanding obligations of ASFC or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
3.8 Financial Statements; SEC Reports. (a) The audited consolidated
balance sheet of ASFC and its Subsidiaries as of December 31, 1995 and December
31, 1996 and the related consolidated statements of income and cash flows for
each of the years ended December 31, 1995 and December 31, 1996 and the
unaudited consolidated balance sheet of ASFC and its Subsidiaries as of March
31, 1997 (the "Unaudited March Balance Sheet") and the related consolidated
statement of income for the three months ended March 31, 1997, respectively,
previously delivered to Buyer, present fairly, in all material respects, the
consolidated financial position of ASFC and its Subsidiaries as of the dates
thereof and the consolidated results of operations of ASFC and its Subsidiaries
for the periods then ended in conformity with GAAP consistently applied (subject
to normal year-end adjustments in the case of the unaudited interim financial
statements).
(b) The audited balance sheets of ASFC and the Subsidiaries as of December
31, 1996, and the related statements of operations and statements of cash flows
for the year then ended, and their respective annual statements for the fiscal
year ended December 31, 1996 (the "Annual Statements") filed with the insurance
regulatory authorities in their respective jurisdictions of domicile
(collectively, the "Regulators"), copies of which have been delivered to Buyer,
fairly present in all material respects their respective statutory financial
conditions as of such date and the results of their respective operations for
the year then ended in conformity with SAP. The other information contained in
the Annual Statements fairly presents in all material respects the information
required to be contained therein in conformity with SAP. The balance sheets of
ASFC and its Subsidiaries in respect of any period ending after December 31,
1996, and the related statements of operations and statements of cash flows,
which have been filed with Regulators, copies of which have been delivered to
Buyer, fairly present in all material respects their respective statutory
financial conditions as of such date and the results of their respective
operations for the period then ended in conformity with SAP consistently
applied.
(c) As of the date of the latest filing of an SEC Report, the SEC Reports
taken as a whole, including but not limited to any financial statements or
schedules included therein, did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, it being understood that for purposes of
this
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subparagraph (c) "material" is to be assessed in the context of ASFC and all of
its Subsidiaries taken as a whole.
3.9 Absence of Certain Changes. Except as disclosed in Schedule 3.9,
during the period from the Balance Sheet Date to the date hereof, the business
of ASFC and its Subsidiaries has been conducted in the ordinary course
consistent with past practices (including but not limited to with regard to
underwriting, pricing, actuarial and investment policies generally) and there
has not been:
(i) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material Adverse
Effect on ASFC, other than (A) those affecting the property and casualty
insurance industry as a whole, (B) Catastrophes or (C) changes in general
economic conditions (including but not limited to changes in interest rates);
(ii) a decline in ASFC's GAAP equity of more than 10%; provided,
that in determining whether the representation set forth in this Section 3.9(ii)
has been satisfied, changes in ASFC's GAAP equity after March 31, 1997 resulting
from FAS 115 mark-to-market accounting shall be excluded from the calculation of
ASFC's GAAP equity on the date hereof;
(iii) other than the declaration or payment of ASFC's regular
quarterly dividend in an amount not in excess of $0.21 per share, any
declaration, setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of ASFC, or any repurchase, redemption or
other acquisition by ASFC or any Subsidiary of ASFC of any outstanding shares of
capital stock or other securities of, or other ownership interests in, ASFC or
any Subsidiary of ASFC;
(iv) any incurrence, assumption or guarantee by ASFC or any
Subsidiary of ASFC of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(v) any transaction or commitment made, or any contract or agreement
entered into, by ASFC or any Subsidiary of ASFC (including the acquisition or
disposition of any assets) or any relinquishment by ASFC or any Subsidiary of
ASFC of any contract or other right, other than transactions and commitments in
the ordinary course of business consistent with past practices;
(vi) any change in any method of accounting or accounting practice
or policy (including but not limited to any reserving method, practice or
policy) by ASFC or any Subsidiary of ASFC, except for any such change (A) as a
result of a concurrent change in GAAP or SAP or (B) that is not material to ASFC
and its Subsidiaries, taken as a whole;
(vii) to the extent payable directly or indirectly by ASFC or any
Subsidiary of ASFC, other than the Incentive Letter Agreements, any (A)
employment, deferred compensation,
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severance, retirement or other similar agreement entered into with any director,
officer or employee of ASFC (or any amendment to any such existing agreement),
(B) grant of any severance or termination pay to any director, officer or
employee of ASFC other than in the ordinary course of business, (C) change in
compensation or other benefits payable to any director, officer or employee of
ASFC, other than changes in base compensation and bonuses, and changes in
benefits in accordance with plans or arrangements in effect as of the Balance
Sheet Date, in the ordinary course of business consistent with past practice, or
(D) loans or advances to any directors, officers or employees, except in
connection with transfer or for ordinary travel and business expenses in the
ordinary course of business consistent with past practice;
(viii) to the Knowledge of ASFC, any transaction by ASFC or any
Subsidiary of ASFC involving ASFC Investment Assets other than in the ordinary
course of business consistent with past practice;
(ix) (A) any entering into of any facultative reinsurance contract,
other than in the ordinary course of business consistent with past practice, (B)
any commutation of any facultative reinsurance contract, or (C) any entering
into or any commutation of any reinsurance treaty, purchased by any Subsidiary
of ASFC;
(x) any investment made in ASFC Investment Assets other than in
accordance with the investment policies of ASFC or any Subsidiary of ASFC set
forth in Schedule 3.9(x); or
(xi) any agreement or commitment (contingent or otherwise) by ASFC
or any Subsidiary of ASFC to do any of the foregoing.
3.10 Material Liabilities; Investments. (a) To the Knowledge of ASFC,
there are no liabilities of ASFC or any Subsidiary of ASFC of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(i) liabilities provided for in the Unaudited March Balance Sheet;
(ii) liabilities disclosed on Schedule 3.10(a);
(iii) liabilities incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practice and in amounts and on
terms consistent with past practice; and
(iv) other undisclosed liabilities that are not individually or in
the aggregate material to ASFC and its Subsidiaries, taken as a whole.
(b) Schedule 3.10(b) describes in reasonable detail all ASFC Investment
Assets as of the Balance Sheet Date.
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3.11 Material Contracts. (a) Except as disclosed in Schedule 3.11, as of
the date hereof, neither ASFC nor any of its Subsidiaries is a party to or bound
by:
(i) any lease of real property where any of ASFC or its Subsidiaries
are tenants (A) providing for annual base rentals of $1,000,000 or more, (B)
expiring after December 31, 2002 or (C) where ASFC or any of its Affiliates
holds an equity interest in such real property;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets, including any license for Software, that
provides for either (A) annual payments by ASFC or any Subsidiary of ASFC of
$1,000,000 or more or (B) aggregate required payments by ASFC or any Subsidiary
of ASFC of $5,000,000 or more;
(iii) any limited partnership, joint venture or other unincorporated
business organization or similar arrangement or agreement in which ASFC or any
Subsidiary of ASFC serves as a general partner or otherwise has unlimited
liability;
(iv) any agreement relating to the acquisition or disposition of any
business (whether by merger, sale of stock, sale of assets or otherwise);
(v) any agreement relating to indebtedness for borrowed money or any
guarantee or similar agreement or arrangement relating thereto, other than (A)
any guarantees issued in the ordinary course of the surety business of ASFC and
its Subsidiaries consistent with past practice and (B) any such agreement with,
or relating to, an aggregate outstanding principal amount or guaranteed
obligation not exceeding $10,000,000;
(vi) any license, franchise or similar agreement material to ASFC
and its Subsidiaries, taken as a whole;
(vii) any agency, dealer, sales representative, marketing or other
similar agreement material to ASFC and its Subsidiaries, taken as a whole;
(viii) any agreement that restricts or prohibits ASFC or any
Subsidiary of ASFC from competing with any Person in any line of business or
from competing in, engaging in or entering into any line of business in any area
and which would so restrict or prohibit ASFC or any Subsidiary of ASFC after the
Closing Date;
(ix) any reinsurance treaty or any facultative reinsurance contract
(in each case applicable to insurance in force), other than any such treaty or
contract entered into in the ordinary course of business consistent with past
practice;
(x) any material agreement containing "change in control" or similar
provisions relating to change in control of ASFC or any of its Subsidiaries;
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(xi) any "stop loss" agreements, other than those entered into in
the ordinary course of business consistent with past practice;
(xii) any agreements (other than insurance policies or other similar
agreements issued by any Subsidiary of ASFC in the ordinary course of its
business) material to ASFC and its Subsidiaries taken as a whole pursuant to
which ASFC or any Subsidiary of ASFC is obligated to indemnify any other Person;
or
(xiii) any agreement with ASFC or any of its Affiliates.
(b) ASFC has heretofore furnished or made available to Buyer complete and
correct copies of the contracts, agreements and instruments listed on Schedule
3.11, each as amended or modified to the date hereof, including any waivers with
respect thereto (the "Significant Agreements"). Except as specifically disclosed
on Schedule 3.11, and except to the extent not material to ASFC and its
Subsidiaries taken as a whole: (i) each of the Significant Agreements is in full
force and effect and enforceable in accordance with its terms, subject to (A)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and the rights of creditors of insurance companies
generally and (B) general principles of equity (regardless of whether considered
in a proceeding at law or in equity); (ii) neither ASFC nor any of its
Subsidiaries has received any notice (written or oral) of cancellation or
termination of, or any expression or indication of an intention or desire to
cancel or terminate, any of the Significant Agreements; (iii) no Significant
Agreement is the subject of, or, to the Knowledge of ASFC, has been threatened
to be made the subject of, any arbitration, suit or other legal proceeding; and
(iv) there exists no material event of default or occurrence, condition or act
on the part of ASFC or any Subsidiary of ASFC which constitutes or would
constitute (with notice or lapse of time or both) a material breach of or
material default under any of the Significant Agreements.
3.12 Non-Claims Litigation. Except as set forth on Schedule 3.12 and
except for any action, suit, investigation or proceeding that involves a claim
under any insurance, reinsurance or indemnity policy, fidelity bond, surety bond
or similar contract or undertaking issued or entered into by ASFC or any
Subsidiary of ASFC, there is no action, suit, investigation or proceeding
pending against, or, to the Knowledge of ASFC, threatened against, or affecting
the properties of, ASFC or any Subsidiary of ASFC or any of their respective
properties before any Governmental Body, and to the Knowledge of ASFC, there is
no reasonable basis for any such claim in which the actual damages alleged or
sought exceeds $1,000,000. As of the date hereof and as of no other date, there
is no action, suit, investigation or proceeding pending against, or, to the
Knowledge of ASFC, threatened against, or affecting the properties of, ASFC or
any Subsidiary of ASFC or any of their respective properties before any
Governmental Body which challenges or seeks to prevent the transactions
contemplated hereby. Except as disclosed in Schedule 3.12, neither ASFC nor any
Subsidiary of ASFC nor any of their respective properties is subject to any
material Order which would prevent or delay the consummation of the transactions
contemplated hereby.
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3.13 Compliance with Laws. Except as set forth in Schedule 3.13, ASFC and
its Subsidiaries are and have at all times since January 1, 1996 been in
compliance in all material respects with all applicable material Laws.
3.14 Properties. ASFC and its Subsidiaries have good title to, or in the
case of leased property have valid leasehold interests in, all of their
respective properties and assets (whether real or personal, tangible or
intangible) except for imperfections in title or invalidities in leasehold
interests that do not, individually or in the aggregate, materially detract from
the value reflected on the Unaudited March Balance Sheet. None of such
properties or assets is subject to any Liens, except:
(i) Liens reflected on the Unaudited March Balance Sheet;
(ii) Liens for taxes not yet due or being contested in good faith
(and for which adequate accruals or reserves have been established on the
Unaudited March Balance Sheet); and
(iii) Liens which do not, individually or in the aggregate,
materially detract from the value reflected on the Unaudited March Balance Sheet
or materially interfere with any present or intended use of any material
properties or assets.
3.15 Licenses and Permits; Policies; Regulatory Matters. Except as set
forth on Schedule 3.15, ASFC and its Subsidiaries hold all material licenses,
franchises, permits or other similar authorizations (the "Permits") necessary
for the ownership and conduct of the respective businesses of ASFC and its
Subsidiaries in each of the jurisdictions in which ASFC and its Subsidiaries
conduct or operate their respective businesses in the manner now conducted, and
such Permits are in full force and effect except where any failure to hold any
Permit or any failure of any Permit to be in full force and effect would not,
individually or in the aggregate, materially impair the ability of ASFC and its
Subsidiaries, taken as a whole, to conduct their businesses. No material
violations exist in respect of any material Permit of ASFC and its Subsidiaries,
and no proceeding or investigation is pending or, to the Knowledge of ASFC,
threatened, that would be reasonably likely to result in the suspension,
revocation or material limitation or restriction of any material Permit and, to
the Knowledge of ASFC, there is no reasonable basis for the assertion of any
such violation or the institution of any such proceeding. All insurance policies
issued by any Subsidiary of ASFC, as now in force are, to the extent required
under applicable law, in a form acceptable to applicable regulatory authorities
to the Knowledge of ASFC, or have been filed with and not objected to by such
authorities within the period provided for such objection. ASFC and each
Subsidiary of ASFC has filed, all material reports, statements, documents,
registrations, filings or submissions required to be filed by ASFC or any
Subsidiary of ASFC, respectively, with any applicable federal, state or local
regulatory authorities, including but not limited to state insurance regulatory
authorities. All such reports, statements, documents, registrations, filings and
submissions complied in all material respects with applicable law in effect when
filed and, except as set forth on Schedule 3.15, no material deficiencies have
been asserted by any such regulatory authority with respect to such reports,
statements, documents, registrations, filings or submissions that have not been
satisfied. Except
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as set forth on Schedule 3.15, all premium rates, rating plans and policy forms
established or used by any Subsidiary of ASFC that are required to be filed with
or approved by insurance regulatory authorities have been so filed or approved,
the premiums charged conform in all material respects to the premiums so filed
or approved and comply in all material respects with the insurance laws
applicable thereto.
3.16 ERISA Representations. (a) Schedule 3.16(a) identifies each Employee
Plan. ASFC has furnished or made available to Buyer copies of the Employee
Plans, summary plan descriptions and, if applicable, related trust agreements,
and all amendments thereto, together with (i) the most recent annual report
prepared in connection with any Employee Plan (Form 5500 including, if
applicable, Schedule B thereto) and (ii) the most recent actuarial valuation
report prepared in connection with any Employee Plan.
(b) There is no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code, with
respect to any pension plan of ASFC or any ERISA Affiliate of ASFC. Neither ASFC
nor any ERISA Affiliate of ASFC has incurred, or reasonably expects to incur
prior to the Closing Date, any liability under Title IV of ERISA (other than a
liability for premiums under Section 4007 of ERISA) that will not be satisfied
in full as of the Closing Date. No Employee Plan is a Multiemployer Plan.
(c) Except as described in Schedule 3.16(c), each Employee Plan has been
maintained in material compliance with its terms and with the requirements
prescribed by any and all applicable Laws, including but not limited to ERISA
and the Code.
(d) Schedule 3.16(d) identifies each Benefit Arrangement. ASFC has
furnished or made available to Buyer copies or descriptions of each Benefit
Arrangement. Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable Laws.
(e) Each Employee Plan that is a "group health plan" (as defined in
Section 4980B of the Code) has been operated in material compliance with Section
4980B of the Code at all times.
(f) With respect to any Employee Plan that provides disability benefits,
the amounts accrued on the March Unaudited Balance Sheets in accordance with FAS
112 are reasonably expected to be sufficient to pay all future obligations to
the Transferred Employees who are disabled as of the Balance Sheet Date.
(g) Except as disclosed in Schedule 3.16(g), (i) ASFC and each of its
Subsidiaries has made full and timely payment of all amounts required to be
contributed under the terms of each Benefit Plan and applicable Law, or required
to be paid as expenses under such Benefit Plan, and (ii) no excise or penalty
taxes are assessable as a result of a nondeductible or other contribution made
or not made to any Benefit Plan.
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(h) Other than claims for benefits arising in the ordinary course of the
administration and operation of the Benefit Plans, no claims, investigations, or
arbitrations are pending or threatened against any Benefit Plan, or ASFC, any
Subsidiary of ASFC, any trustee, fiduciary, custodian, administrator, or other
person or entity holding or controlling assets of any Benefit Plan in connection
with such Benefit Plan, and no basis to anticipate any such claim or claims
exists.
(i) Except as disclosed in Schedule 3.16(i) and as expressly provided in
Section 2.7, neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (i) accelerate the time of
payment or vesting, or increase the amount, of compensation or benefits due
under any Benefit Plan, (ii) constitute or result in a prohibited transaction
with respect to any Benefit Plan under Section 4975 of the Code or Section 406
or 407 of ERISA for which an exemption is not available, or (iii) constitute a
"deemed severance" or "deemed termination" under any Benefit Plan or with
respect to any Benefit Plan under any applicable Law.
(j) Under each Employee Plan subject to Title IV of ERISA, as of the last
day of the most recent plan year ended prior to the date hereof, the actuarially
determined present value of all "benefit liabilities," within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions in such Employee Plan's most recent actuarial valuation), did not
exceed the then-current value of the assets of such Employee Plan.
3.17 Environmental Matters. Except as would not, individually or in the
aggregate, have a Material Adverse Effect on ASFC: (i) ASFC and its Subsidiaries
are each in compliance with all applicable Environmental Laws; (ii) ASFC and its
Subsidiaries have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their respective
requirements; (iii) to the Knowledge of ASFC, there are no pending or overtly
threatened claims against ASFC or any of its Subsidiaries alleging a violation
of Environmental Laws; and (iv) to the knowledge of ASFC, under applicable law,
there are no circumstances with respect to any property or operations of ASFC or
any of its Subsidiaries that are reasonably likely to form the basis of a claim
against ASFC or any of its Subsidiaries alleging a material violation of
Environmental Laws. No representation in this Section 3.17 is intended to imply
any representation as to any obligation or liability that ASFC or any of its
Subsidiaries has or may have in connection with, as a result of or arising out
of any insurance or reinsurance or indemnity policy, surety bond or similar
contract or undertaking issued or entered into by ASFC or any Subsidiary of ASFC
in the ordinary course of business.
3.18 Intercompany Accounts. Schedule 3.18 contains a complete list of all
intercompany balances as of the Balance Sheet Date between any Affiliate of
ASFC, on the one hand, and ASFC or any Subsidiary of ASFC, on the other hand.
Except as disclosed on Schedule 3.18, since the Balance Sheet Date, there has
not been any incurrence or accrual of liability (as a result of allocations or
otherwise) by ASFC or any Subsidiary of ASFC to any Affiliate of ASFC or other
transaction between ASFC or any Subsidiary of ASFC and any Affiliate of ASFC,
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except (i) in the ordinary course of business in accordance with past practice
or (ii) as contemplated by this Agreement.
3.19 No Representation with Respect to Reserves. Buyer acknowledges that
ASFC makes no representation or warranty hereunder that the liabilities for
unpaid claims and claim expenses, whether reported or incurred but not reported,
of ASFC and its Subsidiaries (the "Claims Provision") are adequate or
sufficient.
3.20 Intellectual Property; Software. (a) ASFC and its Subsidiaries own or
otherwise have rights to use (in each case, free and clear of any material Liens
or other material limitations or restrictions) all Intellectual Property used in
their respective businesses as currently conducted; the use of any Intellectual
Property by ASFC and its Subsidiaries does not infringe on or otherwise violate
the rights of any Person; and, to the Knowledge of ASFC, no person is
challenging, infringing on or otherwise violating any right of ASFC or any
Subsidiary of ASFC with respect to any Intellectual Property owned by and/or
licensed to ASFC and its Subsidiaries.
(b) Except as set forth in Schedule 3.20, (i) ASFC and its Subsidiaries
own or have valid and enforceable licenses or other rights to use (in each case,
free and clear of any material Liens or other material limitations or
restrictions) all Software used in the conduct of their respective businesses as
currently conducted, (ii) the use of the Software by ASFC and its Subsidiaries
does not infringe on or otherwise violate the rights of any person, and (iii) to
the Knowledge of ASFC, no person is challenging, infringing on or otherwise
violating any right of ASFC or any Subsidiary of ASFC with respect to any
Software used by ASFC and its Subsidiaries.
3.21 Labor Matters. Neither ASFC nor any Subsidiary of ASFC is a party to
any collective bargaining or other labor union contract, and no collective
bargaining agreement is being negotiated by ASFC or any Subsidiary of ASFC. To
the Knowledge of ASFC, there are no material activities or proceedings of any
labor union to organize any employees of ASFC or any Subsidiary of ASFC. There
is no material labor dispute, strike or work stoppage against ASFC or any
Subsidiary of ASFC pending or, to the Knowledge of ASFC, threatened which may
interfere with the respective business activities of ASFC or any of its
Subsidiaries.
3.22 Loans and Advances. Except as set forth in Schedule 3.22, other than
in the ordinary course of its portfolio investment activities, neither ASFC nor
any of its Subsidiaries has any contractual commitment to make any loan, advance
or capital contribution to, or investment in, any other Person in excess of
$250,000.
3.23 Proxy Statement. (a) Neither the Proxy Statement as amended or
supplemented from time to time nor any other document to be filed by ASFC with
the SEC or any self-regulatory organization in connection with the Merger will,
on the date of its filing, at the time it is mailed to shareholders, at the time
of the ASFC Shareholders' Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the
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circumstances under which they are made, not misleading insofar as the
information therein relates to ASFC.
(b) Neither the information supplied or to be supplied by or on behalf of
ASFC for inclusion, nor the information incorporated by reference from documents
filed by ASFC with the SEC, in any document to be filed by Buyer with the SEC or
any self-regulatory organization in connection with the Merger will, on the date
of its filing or effectiveness, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
3.24 No Other Broker. Other than Goldman, Sachs & Co., no broker, finder
or similar intermediary has acted for or on behalf of ASFC in connection with
this Agreement or the transactions contemplated hereby, and no other broker,
finder, agent or similar intermediary is entitled to any brokers', finders' or
similar fee or other commission in connection therewith based on any agreement,
arrangement or understanding with ASFC or any action taken by ASFC.
3.25 Indiana Takeover Laws. ASFC has taken all steps necessary to exempt
irrevocably (i) the execution of this Agreement and the Voting Agreement, (ii)
the Merger and (iii) the transactions contemplated hereby from (y) any statute
of the State of Indiana that purports to limit or restrict business combinations
or the ability to acquire or to vote shares and (z) any applicable charter or
contractual provision containing change of control or anti-takeover provisions.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Buyer Sub represent and warrant to ASFC as of the date hereof
and as of the Closing Date (but as of no other dates unless expressly so stated)
that:
4.1 Corporate Existence and Power. Buyer has been duly incorporated and is
validly existing as a corporation in good standing under the laws of Washington
and has all corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted. Buyer Sub has been duly incorporated and is validly
existing as a corporation under the laws of Indiana. Buyer and Buyer Sub have
heretofore delivered or will deliver to ASFC true and complete copies of their
respective articles of incorporation and bylaws as in effect on the date hereof.
4.2 Corporate Authorization. The execution, delivery and, subject to the
receipt of the approvals referred to in Section 4.3, performance by each of
Buyer and Buyer Sub of this Agreement are within the corporate powers of Buyer
and Buyer Sub and have been duly authorized by all necessary corporate action on
the part of Buyer and Buyer Sub. This Agreement constitutes a valid and legally
binding agreement of Buyer and Buyer Sub, enforceable against Buyer or Buyer Sub
in accordance with its terms, subject to (i) bankruptcy,
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insolvency, reorganization, fraudulent conveyance, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
4.3 Governmental Authorization. The execution, delivery and performance by
Buyer and Buyer Sub of this Agreement require no consent, approval or action of,
filing with or notice to any Governmental Body other than (i) compliance with
any applicable requirements of the HSR Act, (ii) approvals or filings under the
insurance laws of the jurisdictions set forth in Schedule 4.3, (iii) filings and
notices not required to be made or given until after the Closing Date and (iv)
filings, at any time, of tax returns, tax reports and tax information
statements.
4.4 Non-Contravention. Except as set forth in Schedule 4.4, the execution,
delivery and performance by Buyer and Buyer Sub of this Agreement do not and
will not (i) violate the articles of incorporation or bylaws of Buyer or Buyer
Sub, (ii) assuming compliance with the matters referred to in Section 4.3,
violate any applicable Law or Order, (iii) to the Knowledge of Buyer, require
any consent or other action by any Person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of Buyer or Buyer Sub or to a loss of any benefit to which Buyer
or Buyer Sub is entitled under, any material agreement or other instrument
binding upon Buyer or Buyer Sub or any material license, franchise, permit or
other similar authorization held by Buyer or Buyer Sub or (iv) to the Knowledge
of Buyer, result in the creation or imposition of any material Lien on any asset
of Buyer or Buyer Sub.
4.5 Financing. Buyer has, or will have prior to the Closing, sufficient
cash, available lines of credit or other sources of immediately available funds
to enable it to make payment of the Merger Consideration, the Assumed Debt
Prepayment, the Term Note Prepayment and any other amounts to be paid by it
hereunder.
4.6 No Actions; Suits or Proceedings. There is no pending action, suit or
proceeding, nor, to the Knowledge of Buyer, has any litigation been overtly
threatened in writing or, if probable of assertion, orally, against Buyer or
Buyer Sub before any Governmental Body which questions the validity or legality
of this Agreement or of the transactions contemplated hereby, or which seeks to
prevent the consummation of the transactions contemplated hereby, including the
Merger.
4.7 No Other Broker. Other than Smith Barney Inc., no broker, finder or
similar intermediary has acted for or on behalf of Buyer or Buyer Sub in
connection with this Agreement or the transactions contemplated hereby, and no
other broker, finder, agent or similar intermediary is entitled to any brokers',
finders' or similar fee or other commission in connection therewith based on any
agreement, arrangement or understanding with Buyer or Buyer Sub or any action
taken by Buyer or Buyer Sub.
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4.8 Merger Subsidiary. Buyer Sub has engaged and until the Effective Time
will engage in no business and has, and at the Effective Time will have, no
liabilities, in each case, other than by reason of this Agreement.
4.9 Reports and Financial Statements. Buyer has filed with the SEC all
Buyer SEC Reports and has made available to ASFC true and complete copies of all
Buyer SEC Reports. As of their respective dates, the Buyer SEC Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto)
included in the Buyer SEC Reports (the "Buyer Financial Statements") fairly
present (subject, in the case of the unaudited interim financial statements, to
normal, recurring year-end audit adjustments which are not expected,
individually or in the aggregate, to be material or to result in a Material
Adverse Effect on Buyer) the consolidated financial position of Buyer and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended, in each case, in accordance with GAAP consistently applied.
Each Significant Subsidiary of Buyer is treated as a consolidated subsidiary of
Buyer in the Buyer Financial Statements for all periods covered thereby.
4.10 Proxy Statement. Neither the information supplied or to be supplied
by or on behalf of Buyer for inclusion, nor the information incorporated by
reference from documents filed by Buyer with the SEC, in the Proxy Statement or
any other document to be filed by ASFC with the SEC or any self-regulatory
organization in connection with the Merger will, on the date of its filing or
effectiveness, at the time it is mailed to shareholders, at the time of the ASFC
Shareholders' Meeting or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE 5
COVENANTS OF ASFC
ASFC agrees that:
5.1 Conduct. Except as otherwise expressly provided in this Agreement,
during the period from the date hereof to the Closing, ASFC will, and will cause
its Subsidiaries to: (i) conduct their respective operations according to their
ordinary course of business consistent with past practice (including but not
limited to with regard to underwriting, pricing, actuarial and investment
policies generally); (ii) use commercially reasonable efforts to preserve intact
their respective business organizations; (iii) generally keep available the
services of their respective officers and employees; and (iv) generally maintain
existing relationships with agents, licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with them. Without limiting the generality of the foregoing, and except as
otherwise expressly
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provided in this Agreement or as set forth in Schedule 5.1, ASFC will not, and
will cause each Subsidiary of ASFC not to, without the prior written consent of
Buyer:
(i) amend its articles of incorporation or bylaws;
(ii) except for any employer contribution made pursuant to the American
States Financial Corporation Employees' Savings and Profit-Sharing Plan,
authorize for issuance, issue, sell, deliver or agree or commit to issue, sell
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities or equity equivalents (including but not limited
to stock appreciation rights), or amend any of the terms of any such securities
or agreements outstanding as of the date hereof;
(iii) (A) split, combine or reclassify any shares of its capital stock,
(B) other than the declaration or payment of ASFC's regular quarterly dividend
in an amount not in excess of $0.21 per share, declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or (C) redeem, repurchase
or otherwise acquire any of its securities;
(iv) (A) incur any indebtedness for borrowed money (except for short-term
indebtedness incurred in the ordinary course of business consistent with past
practice pursuant to existing lines of credit or extensions or renewals thereof)
or issue any debt securities or, except in the ordinary course of business
consistent with past practice, assume, guarantee or endorse the obligations of
any other Person; (B) make any loans, advances or capital contributions to, or
investments in, any other Person, in excess of $250,000 (other than (w)
investments made to replace investments governed by a participation agreement
between ASFC or any Subsidiary of ASFC, on the one hand, and any Affiliate of
ASFC, on the other hand, (x) to wholly owned Subsidiaries of ASFC, (y)
investments in the ordinary course of business consistent with past practice or
(z) loans to agents in the ordinary course of business consistent with past
practice not exceeding $250,000 aggregate principal amount to any one agent or
$1,000,000 aggregate principal amount to all agents); (C) pledge or otherwise
encumber shares of its capital stock; (D) enter into or invest in any derivative
financial instruments except in the ordinary course of business consistent with
current investment and risk management policies; or (E) except in the ordinary
course of business consistent with past practice, mortgage or pledge any of its
assets, tangible or intangible, or create or suffer to exist any Lien thereupon;
(v) to the extent payable directly or indirectly by ASFC or any Subsidiary
of ASFC: enter into, adopt or (except as may be required by law or the terms of
any such arrangement) terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee of ASFC, amend any such arrangement
as it relates to such directors, officers or employees or (except for changes in
base compensation and bonuses, and
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changes in benefits in accordance with plans or arrangements in effect as of the
date hereof, in the ordinary course of business consistent with past practice)
change in any manner the compensation or other benefits payable to any director,
officer or employee of ASFC; provided that Buyer agrees it will not unreasonably
withhold its consent, if requested by ASFC, to transactions governed by this
paragraph (v);
(vi) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to ASFC and
its Subsidiaries, taken as a whole, or enter into any contract, agreement,
commitment or transaction with respect thereto outside the ordinary course of
business consistent with past practice;
(vii) change any of the accounting principles, practices, methods or
policies (including but not limited to any reserving methods, practices or
policies) used by it, except as may be required as a result of a change in law,
SEC guidelines, GAAP or SAP;
(viii) change the method of determining the GAAP reserves for any guaranty
fund assessment, second injury fund assessment, special insurance assessment or
similar assessment or tax;
(ix) (A) acquire (by merger, consolidation or acquisition of stock or
assets, but excluding foreclosure) any corporation, partnership or other
business organization or division thereof; (B) authorize any new capital
expenditures which, in the aggregate, are in excess of $5,000,000; or (C) enter
into or amend any contract, agreement, commitment or arrangement with respect to
any of the foregoing;
(x) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms of liabilities reflected or reserved against in the consolidated financial
statements (or the notes thereto) of ASFC and its Subsidiaries or incurred in
the ordinary course of business consistent with past practice;
(xi) terminate, or in any manner material thereto modify, amend or waive
compliance with, any provision of any of the Significant Agreements;
(xii) (A) enter into any facultative reinsurance contract, other than in
the ordinary course of business consistent with past practice; (B) commute any
facultative reinsurance contract (provided that Buyer will not unreasonably
withhold its consent to any of the transactions specified in the foregoing
clauses (A) and (B)); or (C) without giving Buyer at least ten Business Days'
prior written notice thereof, enter into or commute any reinsurance treaty,
purchased by any subsidiary of ASFC;
(xiii) make any investment in ASFC Investment Assets other than in
accordance with ASFC's current investment policies;
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(xiv) except to the extent permitted by paragraphs (i) through (xiii)
above, enter into any agreement of the type described in Section 3.11(a)(i),
(ii), (iii), (vi), (vii), (viii), (x), (xi) or (xii); or
(xv) take, or agree in writing or otherwise to take, any of the actions
described above in this Section 5.1.
5.2 Access to Information. From the date hereof until the Closing Date,
subject to the terms of the Confidentiality Agreement, any applicable
contractual restrictions and applicable legal privileges, and to the extent
applicable law would not thereby be violated, ASFC will (i) give, and will cause
its Subsidiaries to give, to Buyer and its counsel, financial advisors, auditors
and other authorized representatives full access, upon reasonable prior notice
and during normal business hours, to the offices, properties, books and records
of ASFC and each of its Subsidiaries, (ii) furnish, and will cause its
Subsidiaries to furnish, to Buyer and its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information relating to ASFC or any of its Subsidiaries as such Persons may
reasonably request and (iii) instruct the employees, counsel and financial
advisors of ASFC or any of its Subsidiaries to cooperate with Buyer in its
investigation of ASFC or any of its Subsidiaries; provided that this Section 5.2
shall not obligate ASFC to provide or make available to Buyer any employee
medical records; provided, further, that to the extent contractual restrictions
limit ASFC's ability to take any of the actions set forth in this Section 5.2,
ASFC shall use commercially reasonable efforts to obtain any necessary
contractual consent or accommodate any reasonable request by Buyer with respect
to such action by alternative means; and provided, further, that to the extent
applicable legal privileges or applicable laws limit ASFC's ability to take any
of the actions set forth in this Section 5.2, ASFC shall use commercially
reasonable efforts to accommodate any reasonable request by Buyer with respect
to such action by alternative means.
5.3 Notices of Certain Events. ASFC shall promptly notify Buyer of any
actions, suits, claims, investigations or proceedings commenced or, to the
Knowledge of ASFC, threatened against, relating to or involving or otherwise
affecting ASFC or any Subsidiary of ASFC that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
3.12 or that relate to the consummation of the transactions contemplated by this
Agreement.
5.4 No Solicitation. ASFC will immediately cease any existing discussions
or negotiations with any third parties conducted prior to the date hereof with
respect to any Acquisition Proposal (as defined below). ASFC shall not, directly
or indirectly, through any officer, director, employee, representative or agent
or any of its Subsidiaries, (i) solicit, initiate or encourage any inquiries or
proposals that constitute, or would lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of a
substantial percentage of shares of capital stock or similar transactions
involving ASFC or any of its Subsidiaries, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"),
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(ii) subject to proper exercise of fiduciary duties, engage in negotiations or
discussions concerning or provide any nonpublic information to any person or
entity relating to, any Acquisition Proposal or (iii) agree to or approve any
Acquisition Proposal.
5.5 Voting Agreement. ASFC shall take no action which will result in
termination, amendment, waiver or modification of any provision of or otherwise
interfere with or frustrate the purpose of the Voting Agreement.
5.6 Confidentiality Agreements. ASFC agrees that, without Buyer's consent,
after the date hereof and until the expiration of such agreements, it will not
terminate, amend, waive or modify any provision of any confidentiality agreement
pursuant to which information was provided to any Person (other than Buyer) with
respect to ASFC or its Subsidiaries or their respective businesses and
operations. ASFC shall, at Buyer's expense, take all action reasonably requested
by Buyer to enforce the terms of each such confidentiality agreement.
5.7 Meeting of ASFC Shareholders. ASFC agrees that (i) ASFC will take all
action necessary in accordance with applicable law and its Articles of
Incorporation and bylaws to convene a meeting of its shareholders (the "ASFC
Shareholders' Meeting") as promptly as practicable to consider and vote upon the
approval of the Merger and the other transactions contemplated hereby (the "ASFC
Shareholders' Approval"), (ii) subject to proper exercise of the board's
fiduciary duties, the board of directors of ASFC shall recommend and declare
advisable such approval and shall not modify or revoke such recommendation and
declaration, and (iii) subject to proper exercise by the board of its fiduciary
duties, ASFC shall take all lawful action to solicit, and use all reasonable
efforts to obtain, such approval.
5.8 Supplements or Amendments. If, at any time prior to the ASFC
Shareholders' Meeting, any event with respect to ASFC or any of its Subsidiaries
or any of their respective officers and directors should occur which is required
to be described in an amendment of, or a supplement to, the Proxy Statement,
ASFC shall notify Buyer thereof by reference to this Section 5.8 and such event
shall be so described, and such amendment or supplement shall be promptly filed
with the SEC and, as required by law, disseminated to shareholders of ASFC. Such
amendment or supplement shall comply with all provisions of applicable law. If,
at any time prior to the Effective Time, ASFC or any of its Subsidiaries or any
of their respective officers or directors becomes aware of any fact or condition
that would cause any material statement in the Proxy Statement to have been
untrue or would cause the Proxy Statement to omit to state a material fact
required to have been stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, ASFC shall promptly notify Buyer in writing of such fact or
condition.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
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6.1 Confidentiality. All information provided to Buyer or any of the
Persons referred to in Section 5.2 will be treated as if provided under the
Confidentiality Agreement.
6.2 Indemnification and Insurance. (a) Buyer and Buyer Sub agree that all
rights to indemnification and exculpation from liability for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors, officers or employees of ASFC and its Subsidiaries, as
provided in their respective articles of incorporation or bylaws or in
indemnification agreements to which any of them is a party and which have been
made available to Buyer prior to the date hereof, shall survive the Effective
Time and shall continue in full force and effect in accordance with their
respective terms for a period of not less than six (6) years after the Effective
Time. As of the Effective Time, Buyer shall, without any further action, be
liable for all obligations of ASFC and its Subsidiaries with respect to such
indemnification and exculpation from liability as are provided for in this
Section 6.2.
(b) Buyer shall cause to be maintained, for a period of not less
than six (6) years after the Effective Time, all of ASFC's and its Subsidiaries'
current directors' and officers' insurance and indemnification policies to the
extent that such policies provide coverage for events occurring prior to the
Effective Time (collectively, the "D&O Insurance") for all current or former
directors, officers or employees of ASFC or its Subsidiaries; provided, however,
that Buyer may, in lieu of maintaining such existing D&O Insurance as provided
above, and shall, if the existing D&O Insurance expires or is terminated or
canceled during such six (6) year period, cause comparable coverage to be
provided under any policy maintained for the benefit of the directors, officers
and employees of Buyer or any of its Subsidiaries; and provided, further, that
(i) the issuer thereof shall have a claims-paying rating at least equal to the
issuer of the existing D&O Insurance; and (ii) the terms thereof shall be no
less advantageous to the directors, officers and employees of ASFC and its
Subsidiaries than the existing D&O Insurance.
6.3 Supplements or Amendments. If, at any time prior to the ASFC
Shareholders' Meeting, any event with respect to Buyer or any of its
Subsidiaries or any of their respective officers and directors should occur
which is required to be described in an amendment of, or a supplement to, the
Proxy Statement, Buyer shall notify ASFC thereof by reference to this Section
6.3 and such event shall be so described, and such amendment or supplement shall
be promptly filed with the SEC and, as required by law, disseminated to
shareholders of ASFC. Such amendment or supplement shall comply with all
provisions of applicable law. If, at any time prior to the Effective Time, Buyer
or any of its Subsidiaries or any of their respective officers or directors
becomes aware of any fact or condition that would cause any material statement
in the Proxy Statement to have been untrue or would cause the Proxy Statement to
omit to state a material fact required to have been stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, Buyer shall promptly notify ASFC in
writing of such fact or condition.
6.4 Prepayment of Debt. Subject to the provisions of this Agreement, at
the Effective Time, (i) Buyer shall pay $100 million plus an amount equal to the
accrued but unpaid interest on the outstanding 7 1/8% notes due July 15, 1999,
originally issued to the public by
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LNC on July 15, 1992 (the "Assumed Debt Prepayment"), to LNC in consideration of
the termination by LNC of that certain Assumption Agreement dated May 16, 1996,
between LNC and ASFC, and (ii) Buyer shall pay the outstanding principal balance
of, plus accrued but unpaid interest on, that certain Term Note due August 15,
1999, issued by ASFC to LNC on May 16, 1996 (the "Term Note Prepayment"), to LNC
in consideration of the surrender of such Term Note by LNC to ASFC for
cancellation.
ARTICLE 7
COVENANTS OF BUYER AND ASFC
Buyer and ASFC agree that:
7.1 Reasonable Efforts. Subject to the terms and conditions of this
Agreement, Buyer and ASFC will use their reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things reasonably
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Buyer and ASFC will promptly, and
in any event within 30 days of the date hereof, prepare and file all
applications, notices, consents and other documents necessary or advisable to
obtain the regulatory approvals specified in Schedule 4.3 and Schedule 3.3,
respectively, promptly file all supplements or amendments thereto and use
reasonable efforts to obtain the regulatory approvals specified in Schedule 4.3
and Schedule 3.3 as promptly as practicable. Buyer and ASFC will provide each
other and their counsel the opportunity to review in advance and comment on all
such filings. Buyer and ASFC will keep each other informed of the status of
matters relating to obtaining the regulatory approvals specified in Schedule 4.3
and Schedule 3.3. ASFC and Buyer agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement. In addition to
and not in limitation of the foregoing, each of the parties will (i) promptly
take all actions necessary to make the filings required of Buyer and ASFC or
their respective Affiliates or Subsidiaries under the HSR Act, (ii) comply at
the earliest practicable date with any request for additional information
received by such party or its Affiliates or Subsidiaries from the Federal Trade
Commission (the "FTC") or the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the HSR Act, (iii) cooperate with the
other party in connection with such party's filings under the HSR Act and in
connection with resolving any investigation or other inquiry concerning the
Merger or the other matters contemplated by this Agreement commenced by either
the FTC or the Antitrust Division or state attorneys general and (iv) request
early termination of the waiting period under the HSR Act.
7.2 Public Announcements. The parties agree to consult with each other
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
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7.3 Trademarks; Trade Names. Following the Closing, except as provided in
the Services Agreement, the Surviving Corporation shall immediately cease to use
signs, labels, containers, stationery, forms (including policy forms) and other
printed material or matter which are included as of the Closing in the assets or
inventory of ASFC or any Subsidiary of ASFC containing or bearing the
trademarks, trade names or service marks of LNC.
7.4 Consents. Between the date hereof and the Closing Date, ASFC and Buyer
shall use their respective best efforts, without payment of any consideration to
the persons from whom or which consents or agreements are required, to obtain at
the earliest practicable date, and prior to the Closing Date, all consents and
agreements of third parties necessary for the performance by ASFC and Buyer of
their respective obligations under this Agreement or any agreement referred to
herein or contemplated hereby or to the consummation of the transactions
contemplated hereby or thereby except for those consents and agreements which,
if not obtained, would not have a Material Adverse Effect on ASFC or Buyer. No
consideration, whether such consideration shall consist of the payment of money
or shall take any other form, for any such consent or agreement necessary to the
consummation of the transactions contemplated hereby shall be given or promised
by either ASFC or Buyer or any of their respective Subsidiaries without the
prior written approval of the other party.
7.5 Proxy Statement. ASFC and Buyer will, as promptly as practicable,
cooperate to prepare and file with the SEC a proxy statement in connection with
the Merger and the vote of ASFC's shareholders with respect to the transactions
contemplated by this Agreement (such proxy statement, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to ASFC's shareholders, is herein called the "Proxy Statement"). ASFC and
Buyer will use all reasonable efforts to have or cause the Proxy Statement to
become definitive as promptly as practicable following the clearance of the
Proxy Statement by the SEC. ASFC and Buyer also will take any other related
action required to be taken under federal or state securities laws, and ASFC
will use all reasonable efforts to cause the Proxy Statement to be mailed to
shareholders of ASFC at the earliest practicable date.
7.6 Updating Schedules. In connection with the Closing, ASFC and Buyer
will promptly supplement or amend the various Schedules to this Agreement to
reflect any matter which, if existing, occurring or known on the date of this
Agreement, would have been required to be set forth or described in such
Schedules or which is necessary to correct any information in such Schedules
which was or has been rendered inaccurate thereby. No such supplement or
amendment to the Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article 5, 6, 7 or 10 hereof, or the
compliance by any party hereto with its covenants and agreements set forth
herein.
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ARTICLE 8
TAX MATTERS
8.1 Tax Representations. ASFC represents and warrants to Buyer as of the
date hereof that:
(i) except as set forth on Schedule 8.1, all material Returns
required to be filed by or with respect to ASFC or any of its Subsidiaries on or
before the Closing Date have been filed or will be timely filed on or before the
Closing Date in accordance with all applicable laws, and all such Returns are
true, correct and complete in all material respects;
(ii) ASFC and its Subsidiaries have timely paid (or there have been
timely paid on their behalf) all Taxes shown to be due on such Returns;
(iii) ASFC and its Subsidiaries have made adequate provision on the
Unaudited March Balance Sheet for all Taxes payable by ASFC and its Subsidiaries
for any Pre- March 31 Tax Period for which no Return has yet been filed or for
which Returns have been filed but payment of the Tax shown to be due thereon is
not yet due;
(iv) except as set forth on Schedule 8.1, there is no action, suit,
proceeding, investigation, assessment, adjustment, audit or claim now proposed
or pending against or with respect to ASFC or its Subsidiaries in respect of any
Tax;
(v) except as set forth on Schedule 8.1, there are no outstanding
waivers or other agreements extending any statutory periods of limitation for
the assessment of Taxes of ASFC and its Subsidiaries; and
(vi) on or prior to the date hereof, ASFC has provided Buyer with
copies of all record retention agreements currently in effect between the
Consolidated Group and any Taxing Authority, and no such record retention
agreements have been entered into or modified since March 31, 1997.
8.2 Tax Covenants. Except as otherwise required by law or permitted by the
Voting Agreement, Buyer covenants that it will not cause or permit ASFC, its
Subsidiaries, Buyer or any Affiliate of Buyer (i) to take any action on the
Closing Date, other than in the ordinary course of business or except as agreed
in writing between the parties (including, but not limited to, the distribution
of any dividend or the effectuation of any redemption) that could give rise to
any Tax liability or loss of the Consolidated Group under this Agreement, (ii)
to make any election or deemed election under Section 338 of the Code with
respect to the Merger or (iii) to amend any Return, file a claim for refund,
make or change any Tax election, change an annual Tax accounting period, adopt
or change any method of Tax accounting, adjust any reserve or make any other
change with respect to any Tax position of ASFC or any of its Subsidiaries that
results or will result in any materially increased Tax liability to, or material
reduction of any Tax Benefit of, the Consolidated Group, ASFC or any Affiliate
of ASFC for any Pre-Closing Period.
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8.3 Termination of Existing Tax Sharing Agreements. (a) Subject to Section
8.3(b) hereof, the Tax Sharing Agreements and any other Tax allocation or
sharing agreement or arrangement, whether or not written, that may have been
entered into by LNC or any member of the Consolidated Group and ASFC or any
Subsidiary of ASFC shall be terminated as of the Closing Date for all periods,
and all amounts then due from or to ASFC or any Subsidiary of ASFC under any
such Tax Sharing Agreements or other tax sharing agreement or arrangement shall
be paid on or prior to the Closing Date.
(b) Notwithstanding Section 8.3(a) hereof, as soon as practicable after
the Closing Date (but in any event within seventy-five (75) days of such date),
ASFC shall prepare and deliver to LNC accurate and complete separate income and
franchise Tax Returns for any Tax period of ASFC and its Subsidiaries for any
Tax period of ASFC or its Subsidiaries beginning January 1, 1997 and ending on
the Closing Date, and payment shall be made within ten (10) days of such
delivery to or by LNC, as the case may be, of the difference, if any, between
(i) the Separate Tax Liability of the ASFC Group (each as defined in the Tax
Sharing Agreements) for such period and (ii) the sum of all amounts previously
paid to LNC by ASFC for such period pursuant to the Tax Sharing Agreements.
8.4 Survival. The covenants contained in this Article 8 (Tax Matters)
(including the provisions of Section 8.3 hereof) shall survive the consummation
of the Merger and shall not expire.
ARTICLE 9
EMPLOYEES AND EMPLOYEE BENEFITS
9.1 Employees. With respect to each employee who, as of the Closing Date,
is employed by ASFC or any Subsidiary of ASFC (including any such employee
absent as of such date from active service for any reason, including but not
limited to disability or leave of absence but excluding any terminated employee
receiving severance) ("Transferred Employees"), subject to any employment
contract between ASFC and any such employee, Buyer shall cause each Transferred
Employee's employer to continue to employ such Transferred Employee in a
position that is substantially similar to that held with the Business as of the
Closing Date, at a salary (and with commissions, where applicable) substantially
equivalent to that provided as of such date; provided, however, that nothing
herein is intended to, or shall, require such employer to employ any such
employee (other than any such employee who is a party to an employment contract)
on any other basis than as an employee-at-will.
9.2 Retirement Plans. Effective as of the Closing Date, Buyer shall either
(i) cause ASFC to continue to maintain the American States Insurance Company
Employees' Retirement Plan and the American States Financial Corporation
Employees' Savings and Profit-Sharing Plan, (ii) create and maintain new
Benefits Plans that are at least as favorable in the aggregate to Transferred
Employees as the American States Insurance Company Employees' Retirement Plan
and the American States Financial Corporation Employees' Savings and
Profit-Sharing Plan or (iii) allow Transferred Employees to participate in
comparable existing Benefit Plans of Buyer
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that are at least as favorable in the aggregate to Transferred Employees as the
American States Insurance Company Employees' Retirement Plan and the American
States Financial Corporation Employees' Savings and Profit-Sharing Plan, in each
case until at least December 31, 1998.
9.3 Group Health Plans. Effective as of the Closing Date, Buyer shall
maintain, cause an ERISA Affiliate of Buyer to maintain, or cause ASFC to
continue to maintain, for the benefit of all Transferred Employees and their
dependents, any group health plan maintained by ASFC and any of ASFC's
Subsidiaries or a group health plan that either (i) provides coverage under the
same terms and conditions (within the meaning of proposed Treasury regulation
section 1.162-26, Q&A 18) as were applicable to the Transferred Employees
immediately before the Closing Date or (ii) satisfies the requirements of Code
section 4980B(f)(2)(B)(iv), until at least December 31, 1998. To the extent that
Buyer or any of its affiliates has the power and authority to do so without
unreasonable cost, Buyer or its affiliates shall cause any waiting period,
pre-existing condition exclusion, or evidence-of-insurability requirement under
any plan, program or arrangement maintained or contributed to by Buyer and
providing health, life insurance or disability coverage to be waived with
respect to any Transferred Employee who accepts employment with the Buyer.
9.4 Severance Arrangements. Until December 31, 1998, Buyer shall cause
ASFC, effective as of the Closing Date, to continue to maintain ASFC's severance
plan and other similar severance arrangements listed in Schedule 3.16(a) or
3.16(d) (other than the Incentive Letter Agreements) to the extent that they
apply to Transferred Employees, and will take all steps necessary to ensure that
all severance and other payments called for thereunder as of any date are made
to any Transferred Employee who voluntarily or involuntarily terminates
employment at any time and under any circumstances that would entitle the
Transferred Employee to receive severance and other benefits under such plans
and arrangements. Without limiting the foregoing, Buyer shall be responsible and
assume all liability for all salary and benefit continuation and/or severance
payments relating to any Transferred Employee that may be payable as a result of
any termination of employment of any such Transferred Employee or the
transactions contemplated by this Agreement, and for all notices, payments,
fines or assessments due to any government authority pursuant to any applicable
foreign, federal, state or local law, common law, statute, rule or regulation
with respect to the employment, discharge or layoff of employees, including but
not limited to the Worker Adjustment and Retraining Notification Act and any
rules or regulations that have been issued in connection with any of the
foregoing. Buyer shall cause ASFC to comply with the Incentive Letter Agreements
in accordance with their terms.
9.5 Nonqualified Plans. Effective as of the Closing Date, Buyer shall
cause ASFC to continue to maintain the ASFC Executives' Excess Compensation
Pension Benefit Plan (or Benefit Plans of Buyer or ASFC that either are
substantially equivalent or are at least as favorable in the aggregate to the
ASFC Executives) and the ASFC Employees' Supplemental Pension Benefit Plan until
at least the last day of the month that is 12 months after the month in which
the Closing Date falls (the "Benefits Continuation Date"). Buyer shall cause
ASFC to continue to be responsible for any liabilities to Transferred Employees,
and any former employees of ASFC or any of ASFC's Subsidiaries, under the LNC
Executive Deferred
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Compensation Plan for Employees as of the Closing Date and shall either (i)
provide for the payment of such liabilities under a deferred compensation plan
maintained by Buyer for Buyer's employees or (ii) cause ASFC to establish a
deferred compensation plan on terms substantially similar to a plan maintained
by Buyer for Buyer's employees or the LNC Executive Deferred Compensation Plan
for Employees and continue to maintain such plan until at least the Benefits
Continuation Date.
9.6 Other Benefit Plans. Except as otherwise provided in this Article 9,
Buyer shall, effective as of the Closing Date, cause ASFC to continue to
maintain any and all Benefit Plans maintained by ASFC or any of its Subsidiaries
covering Transferred Employees until at least December 31, 1998 and to continue
to be responsible for any liability to provide benefits under such Benefit Plans
that exist on the Closing Date. Buyer will permit any elections made under the
Customized Security Flexible Benefits Plan to continue in effect to the
remainder of the plan year that includes the Closing Date. Until at least
December 31, 1998, Buyer shall not make any change to ASFC's accounting or
reserving practices or take any other action that would adversely affect the
computation of amounts payable to Transferred Employees under any incentive
compensation or bonus plan of ASFC without making such equitable adjustments to
the performance measures under the affected plans as may be appropriate to
ensure that the Transferred Employees receive substantially the same bonuses or
other benefit payments under the affected plans as they would have received in
the absence of such change or other action for any performance cycle for which
the targets or goals have been established as of the date hereof.
9.7 Other Liabilities. Buyer shall assume, and shall indemnify and hold
harmless ASFC and any of its Subsidiaries from and against, any and all damages,
loss, liability and expense (including but not limited to reasonable expenses of
investigation and reasonable attorneys' fees) relating to or arising out of any
workers' compensation claims of, or violations of any Law, including but not
limited to, the Age Discrimination in Employment Act, the Family and Medical
Leave Act, the Americans with Disabilities Act and Title VII of the Civil Rights
Act, with respect to, Transferred Employees pending as of the Closing Date or
asserted after the Closing Date but relating to events occurring on or before
the Closing Date.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and ASFC. The obligations of Buyer
and ASFC to consummate the Closing are subject to the satisfaction of the
following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(b) All other regulatory consents, approvals or clearances necessary
for the consummation of the Closing shall have been obtained, and no provision
of any applicable law or regulation shall prohibit the consummation of the
Closing.
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(c) All material consents, approvals or waivers of all
non-governmental Persons necessary for the consummation of the Closing shall
have been obtained.
(d) There shall not be in effect any temporary restraining order,
preliminary injunction or permanent injunction or other order issued by any
court of competent jurisdiction preventing the consummation of the transactions
contemplated hereby; provided that the party invoking this condition shall have
used its reasonable best efforts to have such order or injunction vacated.
(e) ASFC shall have obtained the ASFC Shareholders' Approval from
the requisite holders of Shares in accordance with applicable law and the
Articles of Incorporation and bylaws of ASFC.
10.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a) (i) ASFC shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to the
Closing Date, (ii) the representations and warranties of ASFC contained in this
Agreement shall be true at and as of the Closing Date, as if made at and as of
such date (without giving effect to any materiality qualifications or exceptions
contained therein), except for those representations and warranties made as of a
specified date, which shall be true and correct as of the date specified
(without giving effect to any materiality qualifications or materiality
exceptions contained therein); provided, that this condition (ii) shall be
deemed satisfied if any inaccuracies in any of such representations and
warranties at and as of the applicable date (without giving effect to any
materiality qualifications or materiality exceptions contained therein) would
not, individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on ASFC, other than those resulting from (A) any event,
occurrence, development or state of circumstances or facts affecting the
property and casualty insurance industry as a whole, any Catastrophe or any
change in general economic conditions (including but not limited to a change in
interest rates) or (B) any obligation or liability that ASFC or any of its
subsidiaries has or may have in connection with, as a result of or arising out
of any insurance or reinsurance or indemnity policy, surety bond or similar
contract or undertaking issued or entered into by ASFC or any Subsidiary of ASFC
in the ordinary course of business, and (iii) Buyer shall have received a
certificate signed by the chief financial officer of ASFC to the effect that the
foregoing conditions have been satisfied.
(b) ASFC shall have GAAP equity immediately prior to the Effective
Time equal to at least 90% of ASFC's GAAP equity as of March 31, 1997; provided,
that in determining whether the condition set forth in this Section 10.2(b) has
been satisfied, changes in ASFC's GAAP equity after March 31, 1997 resulting
from FAS 115 mark-to-market accounting shall be excluded from the calculation of
ASFC's GAAP equity on the date in question.
(c) Buyer shall have received a certificate, dated as of the
Effective Time, from the secretary or assistant secretary of ASFC certifying as
to the accuracy and completeness
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of the attached Articles of Incorporation and bylaws, and resolutions, consents
and authorizations with respect to the execution and delivery of this Agreement
and the transactions contemplated hereby.
(d) No Governmental Body shall have commenced any proceeding seeking
a temporary restraining order, preliminary or permanent injunction or other
order preventing the consummation of the transactions contemplated hereby, other
than any such proceeding which, in the reasonable judgment of Buyer, would not
be reasonably likely, assuming such consummation occurs, to have a Material
Adverse Effect on ASFC or Buyer; provided that Buyer shall have used its
reasonable best efforts to have such proceeding dismissed or terminated.
10.3 Conditions to Obligation of ASFC. The obligation of ASFC to
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a) (i) Buyer shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Closing Date, (ii) the representations and warranties of Buyer contained in this
Agreement shall be true at and as of the Closing Date, as if made at and as of
such date (without giving effect to any materiality qualifications and
materiality exceptions contained therein), except for those representations and
warranties made as of a specified date, which shall be true and correct as of
the date specified (without giving effect to any materiality qualifications or
materiality exceptions contained therein); provided, that this condition (ii)
shall be deemed satisfied if any inaccuracies in any such representations and
warranties at and as of the applicable date (without giving effect to any
materiality qualifications or materiality exceptions contained therein) would
not, individually or in the aggregate, have or reasonably be expected to
adversely affect the consummation of the Merger, and (iii) ASFC shall have
received a certificate signed by the chief financial officer of Buyer to the
effect that the foregoing conditions have been satisfied.
(b) ASFC shall have received a certificate, dated as of the
Effective Time, from the secretary or assistant secretary of Buyer and Buyer
Sub, respectively, certifying as to the accuracy and completeness of the
attached articles of incorporation and bylaws, and resolutions, consents and
authorizations with respect to the execution and delivery of this Agreement and
the transactions contemplated hereby.
ARTICLE 11
SURVIVAL
11.1 Survival. Except as provided in Section 8.4, the covenants,
agreements, representations and warranties of the parties hereto contained in
this Agreement shall not survive the Closing; provided that the covenants and
agreements that, by their terms, are to have effect or be performed after the
Closing Date shall survive in accordance with their terms.
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ARTICLE 12
TERMINATION
12.1 Grounds for Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Closing:
(i) by mutual written agreement of ASFC and Buyer;
(ii) by either ASFC or Buyer upon written notice to the other party
if the Merger shall not have been consummated on or before December 31, 1997;
provided that the right to terminate this Agreement under this clause (ii) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or has resulted in the failure of the Merger to
occur on or before such date; or
(iii) any court of competent jurisdiction in the United States or
any other Governmental Body in the United States shall have issued an Order or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such Order or other action shall have become final
and nonappealable.
12.2 Effect of Termination. If this Agreement is terminated as permitted
by Section 12.1, termination shall be without liability of any party (or any
shareholder, director, officer, employee, agent, consultant or representative of
such party) to any other party to this Agreement, except for payment of costs
and expenses in accordance with Section 13.3 and except that no such termination
shall relieve Buyer of its obligations under Section 6.1; and provided that if
such termination shall result from the willful failure of any party to fulfill a
condition to the performance of the obligations of any other party or to perform
a covenant of this Agreement or from a willful breach by any party to this
Agreement, such party shall be fully liable for any and all damage, loss,
liability and expense (including but not limited to reasonable expenses of
investigation and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding) incurred or suffered by the other party as a result
of such failure or breach. The provisions of this Section 12.2, Section 13.3 and
Section 13.5 shall survive any termination hereof pursuant to Section 12.1.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered by hand, or when sent by facsimile transmission (with receipt
confirmed by an electronically generated written confirmation), addressed as
follows (or to such other address as a party may designate by notice to the
others):
-A-39-
if to Buyer or Buyer Sub, to:
SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185
Attention: James W. Ruddy, Esq.
Fax: (206) 545-5559
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Craig M. Wasserman, Esq.
Fax: (212) 403-2000
if to ASFC, to:
American States Financial Corporation
500 North Meridian Street
Indianapolis, Indiana 46204
Attention: Thomas M. Ober, Esq.
Fax: (317) 262-7157
with copies to:
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Attention: Jack D. Hunter, Esq.
Fax: (219) 455-5403
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey, Esq.
Fax: (202) 637-3593
13.2 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is explicit and in
writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is
to be effective.
-A-40-
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. Other than as provided herein,
the rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
13.3 Expenses. Except as otherwise expressly provided herein, the fee for
filing an application pursuant to the HSR Act shall be paid by Buyer, and all
other costs and expenses incurred in connection with this Agreement, including
all brokers', finders', investment advisory or similar fees, shall be paid by
the party incurring or responsible for incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of each other party hereto.
13.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana without regard to any laws that
might otherwise govern under applicable principles of conflicts of laws.
13.6 Jurisdiction. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby shall be brought only in the United States
District Court for the Southern District of Indiana or any Indiana State court
sitting in Indianapolis, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in this Section
13.6 shall be deemed effective service of process on such party.
13.7 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies each signed by less than all, but together signed by all, the parties
hereto.
13.8 No Third Party Beneficiaries. No provision of this Agreement is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder, except for the indemnification and insurance provisions
contained in Section 6.2, which provisions may be enforced by the parties to be
indemnified or insured thereunder.
-A-41-
13.9 Entire Agreement. Except for the Confidentiality Agreement, this
Agreement constitutes the entire agreement among the parties with respect to the
subject matter of this Agreement and supersedes all prior agreements and
understandings, both oral and written, among the parties with respect to such
subject matter. No representation, inducement, promise, understanding, condition
or warranty not set forth herein has been made or relied upon by any party
hereto.
13.10 Construction. Whenever the context may require, any pronoun used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns, pronouns and verbs shall include the
plural and vice versa. The name assigned this Agreement and the section captions
used herein are for convenience of reference only and shall not affect the
interpretation and construction hereof. Unless otherwise specified, (i) the
terms "hereof," "herein" and similar terms refer to this Agreement as a whole
and (ii) references herein to Articles or Sections refer to articles or sections
of this Agreement. This Agreement is the result of arms-length negotiations
between the parties hereto and has been prepared jointly by the parties. In
applying and interpreting the provisions of this Agreement, there shall be no
presumption that the Agreement was prepared by any one party or that the
Agreement shall be construed in favor of or against any one party.
13.11 Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
-A-42-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Robert A. Anker
---------------------------------------
Name: Robert A. Anker
Title: Chief Executive Officer
SAFECO CORPORATION
By: /s/ R. H. Eigsti
---------------------------------------
Name: R. H. Eigsti
Title: Chairman and Chief Executive Officer
ASFC ACQUISITION CO.
By: /s/ B. A. Dickey
---------------------------------------
Name: B. A. Dickey
Title: President
-A-43-
ANNEX B
VOTING, SUPPORT AND INDEMNIFICATION AGREEMENT
AGREEMENT, dated June 6, 1997 (this "Agreement"), by and among
SAFECO Corporation, a Washington corporation ("Acquiror"), and Lincoln National
Corporation, an Indiana corporation, on behalf of itself and any of its
subsidiaries that may own any Common Stock (as defined below), collectively (the
"Shareholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Acquiror and American States
Financial Corporation, an Indiana corporation (the "Company"), are entering into
an Agreement and Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement)
pursuant to which a subsidiary of Acquiror will be merged with and into the
Company (the "Merger");
WHEREAS, Shareholder owns 50 million shares (the "Shares"), no par
value, of common stock of the Company ("Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, Acquiror has required that the Shareholder agree, and the
Shareholder has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereto hereby agree as follows:
1. Provisions Concerning Shares. (a) The Shareholder hereby agrees
that during the period commencing on the date hereof and continuing until this
provision terminates pursuant to Section 7 hereof, at any meeting of the holders
of shares of Common Stock, however called, or in connection with any written
consent of the holders of shares of Common Stock, it shall vote (or cause to be
voted) the Shares held of record or Beneficially Owned (as defined below) by it,
whether heretofore owned or hereafter acquired, (i) in favor of the adoption of
the Merger Agreement and any actions required in furtherance thereof and hereof;
(ii) against any action or agreement that would result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement (after giving effect to any
materiality or similar qualifications contained therein); and (iii) except as
otherwise agreed to in writing in advance by Acquiror, against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business
- B-1 -
combination involving the Company; (B) a sale, lease or transfer of a material
amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; (C) (1) any change in a majority of
the persons who constitute the board of directors of the Company; (2) any change
in the present capitalization of the Company or any amendment of the Company's
Articles of Incorporation or By-Laws; (3) any other material change in the
Company's corporate structure or business; or (4) any other action which, in the
case of each of the matters referred to in clauses C (1), (2), (3) or (4), is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. The Shareholder shall
not enter into any agreement or understanding with any Person the effect of
which would be inconsistent or violative of the provisions and agreements
contained in Section 1 or 3 hereof. For purposes of this Agreement,
"Beneficially Own" or "Beneficial Ownership" with respect to any securities
shall mean having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" as within the meanings of Section 13(d)(3) of
the Exchange Act.
(b) In furtherance of the foregoing, (i) the Shareholder hereby
appoints Acquiror and the proper officers of Acquiror, and each of them, with
full power of substitution in the premises, its proxies to vote all Shares at
any meeting, general or special, of the shareholders of the Company, and to
execute one or more written consents or other instruments from time to time in
order to take such action without the necessity of a meeting of the shareholders
of the Company, in accordance with the provisions of the preceding paragraph and
(ii) Acquiror hereby agrees to vote such Shares or execute written consents or
other instruments in accordance with the provisions of the preceding paragraph.
The proxy and power of attorney granted herein shall be irrevocable during the
term specified in Section 7 hereof, shall be deemed to be coupled with an
interest and shall revoke all prior proxies granted by the Shareholder. The
Shareholder shall not grant any proxy to any person which conflicts with the
proxy granted herein, and any attempt to do so shall be void ab initio. The
agency granted herein shall survive the insolvency or bankruptcy of the
Shareholder.
(c) The foregoing voting provisions are subject in all respects to
the receipt of any required state insurance department approvals.
2. Prepayment of Debt. As contemplated by the Merger Agreement, on
the Closing Date, (i) Acquiror shall pay to the Shareholder the respective
amounts of the Assumed Debt Prepayment and the Term Note Prepayment by wire
transfer of immediately available funds to an account designated by the
Shareholder, (ii) the Shareholder shall take any and all action necessary or
appropriate on its part to terminate that certain Assumption Agreement dated May
16, 1996, between the Shareholder and the Company, relating to the outstanding 7
1/8% notes due July 15, 1999, originally issued to the public by the Shareholder
on July 15, 1992, and (iii)
- B-2 -
the Shareholder shall surrender to the Company for cancellation that certain
Term Note due August 15, 1999, issued by the Company on May 16, 1996.
3. Other Covenants, Representations and Warranties. The Shareholder
hereby agrees, represents and warrants as to itself to Acquiror as follows:
(a) Ownership of Shares. The Shareholder is the Beneficial Owner of
50 million Shares. On the date hereof, such Shares constitute all of the shares
of Common Stock owned of record or Beneficially Owned by the Shareholder. The
Shareholder has sole voting power and sole power to issue instructions with
respect to the matters set forth in Section 1 hereof, sole power of disposition,
sole power of conversion, sole power to demand appraisal rights and, subject to
the receipt of any required state insurance department approvals sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all such Shares, with no limitations, qualifications or restrictions
on such rights.
(b) Power; Binding Agreement. The execution, delivery and
performance by the Shareholder of this Agreement are within the Shareholder's
corporate powers and have been duly authorized by all necessary corporate action
on the part of the Shareholder. The execution, delivery and performance of this
Agreement by the Shareholder will not violate any other agreement to which such
Shareholder is a party including, without limitation, any voting agreement,
shareholders agreement or voting trust. This Agreement has been duly and validly
executed and delivered by the Shareholder, enforceable against such Shareholder
in accordance with its terms, subject to the receipt of any required state
insurance department approvals.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Shareholder and, except for
any required state insurance department approvals, the consummation by it of the
transactions contemplated hereby and (B) none of the execution and delivery of
this Agreement by the Shareholder, the consummation by it of the transactions
contemplated hereby or compliance by it with any of the provisions hereof shall
(1) result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which the Shareholder is a party or by
which it or any of its properties or assets may be bound, or (2) subject to the
receipt of any required state insurance department approvals, violation any
order, writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to it or any of its properties or assets.
(d) No Solicitation. From and after the date hereof and continuing
until this provision terminates pursuant to Section 7 hereof, the Shareholder
shall immediately cease any existing discussions or negotiations with any third
parties conducted prior to the date hereof with respect to any Acquisition
Proposal. The Shareholder shall not, directly or indirectly, through
- B-3 -
any officer, director, employee, representative or agent or any of its
Subsidiaries, (i) solicit, initiate or encourage any Acquisition Proposal, (ii)
engage in negotiations or discussions concerning or provide any nonpublic
information to any person or entity relating to, any Acquisition Proposal or
(iii) agree to or approve any Acquisition Proposal.
(e) Restriction on Transfer, Proxies and Non-Interference. The
Shareholder shall not, directly or indirectly, during the period commencing on
the date hereof and continuing until this provision terminates pursuant to
Section 7 hereof: (i) except as contemplated by the Merger Agreement, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of its Shares or any
interest therein (provided, however, the Shareholder may transfer, by sale,
exchange or capital contribution, Shares to any of its directly or indirectly
wholly owned subsidiaries if prior to such transfer such subsidiary becomes a
party to this Agreement); (ii) except as contemplated by this Agreement, grant
any proxies or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or (iii) take any
action that would make any of its representations or warranties contained herein
untrue or incorrect or have the effect of preventing or disabling it from
performing its obligations under this Agreement.
(f) Indiana Takeover Laws. The execution of this Agreement and the
transactions contemplated hereby are exempt from all statutes of the State of
Indiana that purport to limit or restrict business combinations or the ability
to acquire or to vote shares and from all applicable charter or contractual
provisions containing change of control or anti-takeover provisions.
(g) Reliance by Acquiror. The Shareholder understands and
acknowledges that Acquiror is entering into the Merger Agreement in reliance
upon the Shareholder's execution and delivery of this Agreement.
(h) Tax Representations. The Shareholder has filed a consolidated
federal income tax return including the Company and each of its domestic
Subsidiaries for the taxable year immediately preceding the current taxable
year, and the Shareholder is eligible to make an election under Section
338(h)(10) of the Code (and any comparable election under state, local or
foreign income tax law) with respect to the Company and each of its domestic
Subsidiaries.
4. Tax and Benefits Matters.
(a) The Shareholder shall indemnify and hold harmless Acquiror, the
Company and each Subsidiary of the Company (each, an "Indemnified Party) against
any liability asserted against the Company or any Subsidiary of the Company on
the basis of joint and several liability in connection with any employee benefit
plan (within the meaning of section 3(3) of ERISA) or any other fringe benefit
program or arrangement maintained by the Shareholder or any ERISA Affiliate of
the Shareholder for employees or former employees of
- B-4 -
the Shareholder or any ERISA Affiliate of the Shareholder other than the Company
or any Subsidiary of the Company, including any loss, cost, expense (including
all legal and expert fees and expenses), damage (including damages to Persons,
property or the environment), fines, penalties or claims. The Shareholder may
elect to compromise or defend at its own expense and by its own counsel (which
counsel shall be reasonably satisfactory to the Acquiror) any claim asserted by
a third party against an Indemnified Party for which the Shareholder, pursuant
to this Section 4(a) is indemnifying such Indemnified Party. If the Shareholder
elects to compromise or defend such a claim, it shall, within 10 days after
receiving notice of such claim, notify the Indemnified Party of its intent to do
so, and such Indemnified Party shall cooperate, at the expense of the
Shareholder, in the compromise of, or defense against, such claim. If the
Shareholder elects not to compromise or defend against such claim, or fails to
notify the Indemnified Party of its election to do so as herein provided, or
otherwise abandons the defense of such claim, (i) such Indemnified Party may pay
(without prejudice to any of its rights as against the Shareholder), compromise
or defend such claim (until such defense is assumed by the Shareholder) and (ii)
the costs and expenses of such Indemnified Party incurred in connection
therewith shall be indemnifiable by the Shareholder pursuant to this Section
4(a). Notwithstanding the foregoing, neither the Shareholder nor any Indemnified
Party may settle or compromise any claim (however, if the sole settlement relief
payable to a third party in respect of such claim is monetary damages that are
paid in full by the Shareholder, Shareholder may settle such claim without the
consent of the Indemnified Party) over the objection of the other; provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld by such Indemnified Party. In any event, except as otherwise provided
herein, the Shareholder and the Indemnified Party may each participate, at its
own expense, in the defense of such claim.
(b)(i)The Shareholder and Acquiror shall jointly make timely and
irrevocable elections under Section 338(h)(10) of the Code and, if permissible,
similar elections under any applicable state, local or foreign income tax laws
for the Company and each domestic subsidiary of the Company specified by
Acquiror in writing on or before the Closing Date (the "Elections"). The
Shareholder, the Company and Acquiror shall report the transactions contemplated
herein and in the Merger Agreement consistent with the Elections and shall take
no position contrary thereto unless and to the extent required to do so pursuant
to a determination (as defined in Section 1313(a) of the Code or any similar
state, local or foreign tax provision).
(ii) To the extent possible, the Shareholder, the Company and
Acquiror shall execute at the Closing any and all forms necessary to effectuate
the Elections (including, without limitation, Internal Revenue Service Form
8023-A and any similar forms under applicable state, local and foreign income
tax laws (the "Section 338 Forms")). In the event, however, any Section 338
Forms are not executed at the Closing, the Shareholder, the Company and Acquiror
shall prepare and complete each such Section 338 Form no later than 15 days
prior to the date such Section 338 Form is required to be filed. The
Shareholder, the Company and Acquiror shall each cause the Section 338 Forms to
be duly executed by an authorized person for the Shareholder, the Company and
Acquiror in each case, and shall duly and timely file the Section 338 Forms in
accordance with applicable tax laws and the terms of this Agreement.
- B-5 -
(iii) The Shareholder and Acquiror agree to use their best efforts
to enter into an agreement (the "Allocation Agreement") as soon as practicable
after the Closing Date to address the computation of the Modified Aggregate
Deemed Sale Price (as defined under applicable Treasury Regulations) ("MADSP")
of the asserts of the Company and the Subsidiaries of the Company for which an
Election is made. Acquiror shall initially prepare a statement setting forth a
proposed computation and allocation of MADSP (the "Computation") and submit it
to the Shareholder no later than one hundred twenty days after the Closing Date.
If, within thirty (30) days of the Shareholder's receipt of the Computation, the
Shareholder shall not have objected in writing to such Computation, the
Computation shall become the Allocation Agreement. If, sixty (60) days before
the last date on which the Section 338(h)(10) Forms must be filed, Acquiror and
the Shareholder have not adopted an Allocation Agreement, any disputed aspects
of the Allocation Agreement shall be resolved, before the last date on which the
Section 338(h)(10) Forms may be filed, by a big six accounting firm mutually
acceptable to Acquiror and the Shareholder (the "Neutral Auditors"). The
decision of the Neutral Auditors shall be final, and the costs, expenses and
fees of the Neutral Auditors shall be borne equally by Acquiror and the
Shareholder. Acquiror and the Shareholder shall not take a position before any
Taxing Authority or otherwise (including in any Return) inconsistent with the
Allocation Agreement unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar state,
local or foreign law).
(c) Except as otherwise required by law or permitted by Section 4(b)
hereof, Acquiror covenants that it will not cause or permit the Company, its
Subsidiaries, Acquiror or any Affiliate of Acquiror (i) to take any action on
the Closing Date, other than in the ordinary course of business or except as
agreed in writing between the parties (including, but not limited to, the
distribution of any dividend or the effectuation of any redemption) that could
give rise to any Tax liability or loss of the Consolidated Group under this
Agreement and the Merger Agreement, (ii) to make any election or deemed election
under Section 338 of the Code with respect to the Merger or (iii) to amend any
Return, file a claim for refund, make or change any Tax election, change an
annual Tax accounting period, adopt or change any method of Tax accounting,
adjust any reserve, or make any other change with respect to any Tax position of
the Company or any of its Subsidiaries that results or will result in any
materially increased Tax liability to, or material reduction of any Tax Benefit
of, the Consolidated Group, the Company or any Affiliate of the Company for any
Pre-Closing Period.
(d)(i) Except as provided in this Section 4(d) or Section 4(e)
hereof, liability for Consolidated Taxes and entitlement to any refund with
respect to Consolidated Taxes shall be allocated to the Shareholder, and the
Shareholder shall indemnify and hold harmless Acquiror, the Company and the
Subsidiaries of the Company for such Consolidated Taxes (including, without
limitation, all Consolidated Taxes attributable to the Elections or any of the
transactions contemplated by this Agreement and the Merger Agreement).
(ii) Acquiror shall be liable for and shall indemnify and hold
harmless the Shareholder for (i) the Taxes of the Company and each Subsidiary of
the Company for any
- B-6 -
taxable year or period that begins after the Closing Date and (ii) all Taxes of
the Company and each Subsidiary other than Consolidated Taxes ("Standalone
Taxes").
(iii) In the event that any Taxing Authority makes any adjustment to
the Tax liability of the Company or any Subsidiary of the Company for any
Pre-Closing Period and such adjustment could reasonably be expected to produce a
Tax Benefit to Acquiror, the Company or any Subsidiary of the Company for any
Tax period beginning on or after the Cloning Date, Acquiror shall pay the
Shareholder the reasonably anticipated net after-Tax value to Acquiror, the
Company or any Subsidiary of the Company of such Tax Benefit, discounted at a
rate of 7 percent per annum from the anticipated date of realization of such Tax
Benefit to the date of payment, as the amount of the Tax Benefit is determined
under this Section 4(d)(iii). Following the date of any such adjustment to the
Tax liability of the Company or any Subsidiary of the Company, the Shareholder
shall prepare a statement showing a proposed computation of the anticipated
payment by Acquiror and shall submit it to Acquiror for review. If, within
thirty (30) days of Acquiror's receipt of the statement, Acquiror shall not have
objected to the computation, the computation shall become final and Acquiror
shall pay the Shareholder the computed amount within fifteen (15) days of such
date. If, within sixty (60) days of Acquiror's receipt of the statement,
Acquiror and the Shareholder have not agreed on the correct payment due to the
Shareholder hereunder, the dispute shall be submitted to the Neutral Auditors
for resolution, and the Neutral Auditors shall resolve the dispute within thirty
(30) days of submission. The decision of the Neutral Auditors shall be final,
and the costs, expenses and fees of the Neutral Auditors shall be borne equally
by Acquiror and the Shareholder. Acquiror shall pay the Shareholder the amount
determined by the Neutral Auditors within fifteen (15) days of their
determination. For purposes of this Section 4(d)(iii), the Shareholder,
Acquiror, and, if necessary, the Neutral Auditors shall make reasonable
assumptions regarding the existing and future business and operations of the
Company and its Subsidiaries, the Tax positions of the Company, its Subsidiaries
and Acquiror, probable Tax consequences under the Code, and other factors
relevant to a reasonable and equitable determination of the anticipated value of
any such Tax Benefit, taking into account any special circumstances known to the
parties at the time of such determination.
(iv) Any payment by the Shareholder or Acquiror under this Section
4(d) will be an adjustment to the portion of the Merger Consideration allocable
to the Shares that are held by the Shareholder immediately prior to the
Effective Time.
(v) The Shareholder shall file or cause to be filed (including by
causing the Company or the relevant Subsidiary to file) when due all Returns
with respect to Consolidated Taxes that are required to be filed by or with
respect to a member of the Consolidated Group (including the Company and/or any
Subsidiary of the Company for Pre-Closing Periods), and Acquiror shall file or
cause to be filed when due all other Returns that are required to be filed by or
with respect to the Company.
4(e)(i). Subject to Section 4(e)(ii) hereof, the Tax Sharing
Agreements and any other Tax allocation or sharing agreement or arrangement,
whether or not written, that may have
-B-7-
been entered into by the Shareholder or any member of the Consolidated Group and
the Company or any Subsidiary of the Company shall be terminated as of the
Closing Date for all periods, and all amounts then due from or to the Company or
any Subsidiary of the Company under any such Tax Sharing Agreements or other tax
sharing agreement or arrangement shall be paid on or prior to the Closing Date.
(ii) Notwithstanding Section 4(e)(i) hereof, as soon as practicable
after the Closing Date (but in any event within seventy-five (75) days of such
date), the Company shall prepare and deliver to the Shareholder accurate and
complete separate income and franchise Tax Returns for any Tax period of the
Company and its Subsidiaries for any Tax period of the Company or its
Subsidiaries beginning January 1, 1997 and ending on the Closing Date, and
payment shall be made within ten (10) days of such delivery to or by the
Shareholder, as the case may be, of the difference, if any, between (i) the
Separate Tax Liability of the ASFC Group (each as defined in the Tax Sharing
Agreements) for such period and (ii) the sum of all amounts previ ously paid to
the Shareholder by the Company for such period pursuant to the Tax Sharing
Agreements.
(f) From and after the Closing Date, each of the Shareholder and
Acquiror shall:
(i) assist in all reasonable respects (and cause their respective
Affiliates to assist) the other party in preparing any Returns or reports
which such other party is responsible for preparing and filing in
accordance with Section 4(c);
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with Taxing Authorities regarding, any Returns of
the Company or any Subsidiary of the Company;
(iii) make available to the other and to any Taxing Authority as
reasonably requested all information, records, and documents relating to
Taxes of the Company and each Subsidiary of the Company (including with
respect to any potential payments contemplated by Section 4(d)(iii)
hereof);
(iv) provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments of the Company and each Subsidiary of
the Company for taxable periods for which the other may have a liability
under Section 4(d) hereof; and
(v) furnish the other with copies of all correspondence received
from any Taxing Authority in connection with any Tax audit or information
request with respect to any such taxable period.
(g)(i)The Shareholder shall control, manage and solely be
responsible for any audit, contest, claim, proceeding or inquiry with respect to
Consolidated Taxes and shall have the exclusive right to settle or contest in
its sole discretion any such audit, contest, claim, proceeding
-B-8-
or inquiry without the consent of any other party; provided, however, that the
Shareholder shall not, without the prior written consent of Acquiror which
consent shall not be unreasonably withheld, file, or cause to be filed, any
Return affecting the liability of the Company or its Subsidiaries with respect
to Taxes for any period other than a Pre-Closing Period.
(ii) Acquiror shall control, manage and solely be responsible for
any audit, contest, claim, proceeding or inquiry with respect to Standalone
Taxes or Taxes for any taxable year or period beginning after the Closing and
shall have the exclusive right to settle or contest any such audit, contest,
claim, proceeding, or inquiry without the consent of any other party.
(h) The provisions of this Section 4 shall survive the consummation
of the Merger and shall not expire.
5. Further Assurances. From time to time, at the other party's
request and without further consideration, the Shareholder and Acquiror shall
execute and deliver such ad ditional documents and take all such further lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and the Merger Agreement.
6. Stop Transfer. The Shareholder agreed with, and covenants to,
Acquiror that it shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing the Shares, unless such transfer is made in compliance with this
Agreement. In the event of a stock dividend or distribution, or any change in
the Company Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term "Shares"
shall be deemed to refer to and include the Shares as well as all such stock
dividends and distributions and any shares into which or for which any or all of
the Shares may be changed or exchanged.
7. Termination. Except as otherwise provided herein, the covenants
and agreements contained in Sections 1, 3(f) and 6 hereof with respect to the
Shares shall terminate (a) in the event the Merger Agreement is terminated in
accordance with the terms of Article 12 thereof, upon such termination, and (b)
in the event the Merger is consummated, upon the Effective Time.
8. Miscellaneous.
(a) Entire Agreement. This Agreement and constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agree ments and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
(b) Assignment. Except for any assignment pursuant to a transfer
permitted by Section 3(e)(i), this Agreement shall not be assigned by operation
of law or otherwise without
-B-9-
the prior written consent of the other party. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors.
(c) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the relevant
parties hereto.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, or when sent by facsimile transmission (with
receipt confirmed by an electronically generated written confirmation),
addressed as follows (or to such other address as a party may designate by
notice to the others):
If to the Shareholder: Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile: (219) 455-5403
Attention: Jack D. Hunter, Esq.
If to Acquiror: SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185
Facsimile: (206) 545-5559
Attention: James W. Ruddy, Esq.
(e) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(g) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative
-B-10-
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in eq uity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(i) No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(j) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Indiana, without giving effect to the
principles of conflicts of law thereof.
(k) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(l) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
-B-11-
IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this
Agreement to be duly executed as of the day and year first above written.
SAFECO CORPORATION
By: /s/ R. H. Eigsti
------------------------------------------
Name: R. H. Eigsti
Title: Chairman & Chief Executive Officer
LINCOLN NATIONAL CORPORATION
By: /s/ Barbara S. Kowalczyk
------------------------------------------
Name: Barbara S. Kowalczyk
Title: Senior Vice President
AGREED TO AND ACKNOWLEDGED
(with respect to Sections 3 and 6):
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ Robert A. Anker
----------------------------------
Name: Robert A. Anker
Title: Chief Executive Officer
-B-12-
AMENDMENT NO. 1
TO
VOTING AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment") to the Voting Agreement (as
defined below) is made and entered into as of July 22, 1997, by and among SAFECO
Corporation, a Washington corporation ("SAFECO"), Lincoln National Corporation,
an Indiana corporation ("LNC"), The Lincoln National Life Insurance Company, an
Indiana corporation ("LNLIC"), Lincoln Funds Corporation, a Delaware corporation
("LFC"), and American States Financial Corporation, an Indiana corporation
("ASFC").
WHEREAS, SAFECO and LNC are parties to, and ASFC has agreed to and
acknowledged Sections 3 and 6 of, that certain Voting, Support and
Indemnification Agreement dated June 6, 1997 (the "Voting Agreement");
WHEREAS, LNC desires to transfer certain shares of Common Stock (as
defined in the Voting Agreement) to each of LNLIC and LFC; and
WHEREAS, Section 3(e) of the Voting Agreement provides that, prior
to such transfer, LNLIC and LFC shall become parties to the Voting Agreement;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto do hereby agree, effective for all purposes as
of the date first above written, as follows:
1. The Voting Agreement is hereby amended to add each of LNLIC and
LFC as a party thereto.
2. Each of LNLIC and LFC shall be, and hereby is, bound by the terms
of the Voting Agreement.
3. The Voting Agreement is hereby ratified and confirmed in all
other respects, and the Voting Agreement, as amended by this Amendment, shall
continue in full force and effect.
-B-13-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
SAFECO CORPORATION
By: /s/ Rod A. Pierson
-------------------------------------
Name: Rod A. Pierson
Title: Senior Vice President and
Chief Financial Officer
LINCOLN NATIONAL CORPORATION
By: /s/ Barbara S. Kowalczyk
-------------------------------------
Name: Barbara S. Kowalczyk
Title: Senior Vice President
THE LINCOLN NATIONAL LIFE INSURANCE
COMPANY
By: /s/ Jon A. Boscia
-------------------------------------
Name: Jon A. Boscia
Title: President and Chief Executive
Officer
LINCOLN FUNDS CORPORATION
By: /s/ Jeffrey J. Nick
-------------------------------------
Name: Jeffrey J. Nick
Title: President
AMERICAN STATES FINANCIAL CORPORATION
By: /s/ William J. Lawson
-------------------------------------
Name: William J. Lawson
Title: President & Chief Operating
Officer
-B-14-
ANNEX C
[Letterhead of Opinion Of Goldman, Sachs & Co.]
PERSONAL AND CONFIDENTIAL
August 15, 1997
Board of Directors
American States Financial Corporation
500 North Meridian Street
Indianapolis, IN 46204
Gentlemen and Madam:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, no par value per share (the "Shares"), of
American States Financial Corporation (the "Company") of the $47.00 per Share in
cash to be received by such holders pursuant to the Agreement and Plan of Merger
dated as of June 6, 1997 among SAFECO Corporation ("Buyer"), ASFC Acquisition
Co., a wholly-owned subsidiary of Buyer, and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as underwriter for the Company's
initial public offering in May 1996, and having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
leading to, the Agreement. We also have provided certain investment banking
services to Lincoln National Corporation ("Lincoln"), which owns approximately
83% of the Shares, and the Buyer from time to time and may provide investment
banking services to Lincoln and the Buyer in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Voting Support and Indemnification Agreement between Lincoln and
Buyer dated June 6, 1997; the Proxy Statement relating to the Special Meeting of
Stockholders of the Company to be held in connection with the Agreement; audited
consolidated financial statements for the Company and its subsidiaries for the
five years ended December 31, 1996; the Annual Report to Stockholders and the
Annual Reports on Form 10-K and 10-K/A of the Company for the year ended
December 31, 1996; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of the Company; the Company's Registration Statement on Form S-1
dated May 22, 1996; statutory financial statements for the Company's insurance
subsidiaries for the five years ended December 31, 1996; certain other
communications from the Company to its stockholders; certain financial analyses
and actuarial appraisals performed by nationally recognized actuarial and
appraisal firms (the "Appraisals"); and
American States Financial Corporation
August 15, 1997
Page Two
certain internal financial analyses, including certain actuarial analyses, and
forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company regarding its
past and current business operations, financial condition and future prospects.
In addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the insurance industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion, including, without limitation, the
information furnished by the Company and its actuaries relating to loss and loss
adjustment expense reserves and related items. We are not actuaries and our
services did not include any actuarial determinations or evaluations by us or an
attempt to evaluate actuarial assumptions. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities (including the
loss and loss adjustment expense reserves) of the Company or any of its
subsidiaries and, except for the Appraisals, we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of Directors
of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $47.00 per
Share in cash to be received by the holders of Shares pursuant to the Agreement
is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------------
(GOLDMAN, SACHS & CO.)
-C-2-
APPENDIX A
FORM OF PROXY
AMERICAN STATES FINANCIAL CORPORATION
500 North Meridian Street
Indianapolis, Indiana 46204
This proxy is solicited on behalf of the Board of Directors of American States
Financial Corporation (the "Company")
Capitalized terms used but not defined herein shall have the meaning specified
in the accompanying Proxy Statement. The undersigned hereby appoints Robert A.
Anker, William J. Lawson and Thomas M. Ober, acting alone or together, as proxy
(the "Appointed Proxy"), with the power to appoint his substitute, and hereby
authorizes him to represent and vote, as designated on the reverse, all of the
Common Stock held of record by the undersigned on August 8, 1997 at the Special
Meeting of Shareholders to be held on Wednesday, September 17, 1997 at 10:00
a.m., Eastern Standard Time, in the auditorium located on the third floor of the
Company's offices, 500 North Meridian Street, Indianapolis, Indiana 46204, or
any adjournment or postponement thereof.
(continued and to be signed on other side)
- --------------------------------------------------------------------------------
1. Approval of the [ ] FOR
Merger Agreement [ ] AGAINST
and the Merger [ ] ABSTAIN
2. In his discretion, the Appointed Proxy is authorized to vote upon such
other matters relating to the conduct of the Special Meeting or any
adjournments or postponement thereof as may properly come before the
Special Meeting.
IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE MERGER AGREEMENT
AND THE MERGER AND OTHERWISE AT THE DISCRETION OF THE APPOINTED PROXY. YOU MAY
REVOKE THE PROXY PRIOR TO THE MEETING BY MAILING A SIGNED INSTRUMENT REVOKING
THE PROXY TO: THOMAS M. OBER, SECRETARY, AMERICAN STATES FINANCIAL CORPORATION,
500 NORTH MERIDIAN STREET, INDIANAPOLIS, INDIANA 46204; TO BE EFFECTIVE, THE
REVOCATION MUST BE RECEIVED ON OR BEFORE SEPTEMBER 16, 1997. IF YOU ATTEND THE
MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature of Stockholder ________________________________ DATE _____, 1997
NOTE: This proxy must be signed exactly as name appears hereon. If shares are
held jointly, each shareholder named should sign. Executors, administrators,
trustees, guardians, attorneys-in-fact, etc., should give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officers, and officers should sign with personal signature and give title. If
the signer is a partnership, please sign partnership name by authorized person.