-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdoQC3NfgCl/4t+CtvL/whrxhgiAo2hpwuOv8N3ipm5onv5VRU/5Su/PcwBXY2T6 ef2IX9Pn1dZdVYvzWpFL4A== 0000005103-98-000039.txt : 19980518 0000005103-98-000039.hdr.sgml : 19980518 ACCESSION NUMBER: 0000005103-98-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GENERAL CORP /TX/ CENTRAL INDEX KEY: 0000005103 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 740483432 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07981 FILM NUMBER: 98622382 BUSINESS ADDRESS: STREET 1: 2929 ALLEN PKWY CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135221111 10-Q 1 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number 1-7981 American General Corporation (Exact name of registrant as specified in its articles of incorporation) Texas 74-0483432 (State of Incorporation) (I.R.S. Employer Identification No.) 2929 Allen Parkway, Houston, Texas 77019-2155 (Address of principal executive offices) (Zip Code) (713) 522-1111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of April 30, 1998, there were 253,680,098 shares (excluding shares held in treasury and by a subsidiary) of American General's Common Stock and 2,317,701 shares of American General's 7% Convertible Preferred Stock outstanding. AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 INDEX TO FORM 10-Q Page Part I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Statement of Income for the three months ended March 31, 1998 and 1997 ............. 2 Consolidated Balance Sheet at March 31, 1998 and December 31, 1997 ................................ 3 Consolidated Statement of Shareholders' Equity for the three months ended March 31, 1998 and 1997 ... 4 Consolidated Condensed Statement of Cash Flows for the three months ended March 31, 1998 and 1997 ... 5 Notes to Consolidated Financial Statements ......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 10 Part II. OTHER INFORMATION. Item 1. Legal Proceedings .................................. 22 Item 6. Exhibits and Reports on Form 8-K ................... 22 -1- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. AMERICAN GENERAL CORPORATION Consolidated Statement of Income (Unaudited) (In millions, except per share data) Three Months Ended March 31, 1998 1997 Revenues Premiums and other considerations ................ $ 878 $ 801 Net investment income ............................ 1,226 971 Finance charges .................................. 327 320 Realized investment gains (losses) ............... 1 (6) Equity in earnings of Western National Corporation ..................................... - 13 Other ............................................ 47 43 Total revenues ............................... 2,479 2,142 Benefits and expenses Insurance and annuity benefits ................... 1,224 1,040 Operating costs and expenses ..................... 382 347 Commissions ...................................... 249 210 Change in deferred policy acquisition costs and cost of insurance purchased ..................... (34) (25) Provision for finance receivable losses .......... 49 68 Interest expense Corporate ....................................... 50 36 Consumer Finance ................................ 122 113 Other charges - Year 2000 costs .................. 9 2 Total benefits and expenses .................. 2,051 1,791 Earnings Income before income tax expense, minority interest, and dividends on preferred securities . 428 351 Income tax expense ............................... 151 124 Income before minority interest and dividends on preferred securities ............................ 277 227 Minority interest in net income of Western National Corporation ............................ 11 - Net dividends on preferred securities of subsidiaries .................................... 22 17 Net income ................................... $ 244 $ 210 Net income per share Basic ........................................... $ .98 $ .87 Diluted ......................................... $ .96 $ .85 -2- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Balance Sheet (Unaudited) (In millions, except share data) March 31, December 31, 1998 1997 Assets Investments Fixed maturity securities (amortized cost: $55,704; $44,961) ........................... $58,690 $47,747 Mortgage loans on real estate ................. 3,504 3,272 Equity securities (cost: $100; $93) ........... 124 116 Policy loans .................................. 2,228 2,156 Investment real estate ........................ 232 233 Other long-term investments ................... 221 176 Short-term investments ........................ 904 306 Total investments ......................... 65,903 54,006 Assets held in Separate Accounts ............... 13,510 11,482 Finance receivables, net ....................... 7,695 7,639 Deferred policy acquisition costs .............. 3,135 2,718 Cost of insurance purchased .................... 913 680 Goodwill ....................................... 1,514 677 Other assets ................................... 3,381 2,835 Investment in Western National Corporation ..... - 583 Total assets .............................. $96,051 $80,620 Liabilities Insurance and annuity liabilities .............. $58,208 $47,659 Liabilities related to Separate Accounts ....... 13,510 11,482 Debt (short-term) Corporate ($1,291; $575) ...................... 2,427 1,916 Consumer Finance ($3,296; $3,255) ............. 7,365 7,266 Income tax liabilities ......................... 1,623 1,380 Other liabilities .............................. 2,717 1,608 Total liabilities ......................... 85,850 71,311 Redeemable equity Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely company subordinated notes Non-convertible ............................. 1,480 1,479 Convertible ................................. 247 247 Total redeemable equity ................... 1,727 1,726 Shareholders' equity Convertible preferred stock (shares issued and outstanding: 2,317,701) ................... 85 85 Common stock (shares issued: 269,298,493; 259,135,053; outstanding: 253,621,032; -3- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 243,206,215) .................................. 928 326 Cost of treasury stock ......................... (622) (621) Retained earnings .............................. 6,776 6,624 Accumulated other comprehensive income ......... 1,307 1,169 Total shareholders' equity ................ 8,474 7,583 Total liabilities and equity .............. $96,051 $80,620 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Statement of Shareholders' Equity (Unaudited) (In millions, except per share data) Three Months Ended March 31, 1998 1997 Compre- Compre- hensive hensive Total Income Total Income Convertible preferred stock Balance at beginning and end of period ........................... $ 85 $ 85 Common stock Balance at beginning of period .... 326 572 Issuance of shares for Western National Corporation acquisition.. 580 - Valuation of stock options issued for acquisition .................. 37 - Issuance of treasury shares ....... (15) 2 Balance at end of period .......... 928 574 Cost of treasury stock Balance at beginning of period .... (621) (860) Share repurchases ................. (31) (127) Issuance under employee benefit plans and other .................. 30 12 Balance at end of period .......... (622) (975) Retained earnings Balance at beginning of period .... 6,624 6,420 Net income ........................ 244 $ 244 210 $ 210 Cash dividends (per share) Preferred stock ($.64; $.64) ..... (1) (1) Common stock ($.38; $.35) ........ (91) (79) Other ............................. - 1 Balance at end of period .......... 6,776 6,551 -4- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Accumulated other comprehensive income Balance at beginning of period.... 1,169 627 Change in net unrealized gains (losses) on securities, net of reclassification adjustment ..... 137 137 (503) (503) Other ............................ 1 1 - - Balance at end of period ......... 1,307 138 124 (503) Comprehensive income (loss) ..... $ 382 $ (293) Total shareholders' equity ...... $8,474 $6,359 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Consolidated Condensed Statement of Cash Flows (Unaudited) (In millions) Three Months Ended March 31, 1998 1997 Operating activities Net cash provided by operating activities ... $ 637 $ 749 Investing activities Investment purchases .............................. (2,342) (3,887) Investment dispositions and repayments ............ 1,748 3,289 Finance receivable originations and purchases ..... (1,274) (1,017) Finance receivable principal payments received .... 1,147 1,082 Net (increase) decrease in short-term investments . 35 (248) Acquisition of Western National Corporation ....... (590) - Other, net ........................................ (30) 5 Net cash used for investing activities ...... (1,306) (776) Financing activities Retirement Services and Life Insurance Policyholder account deposits ................... 931 814 Policyholder account withdrawals ................ (920) (781) Net policyholder account deposits ............ 11 33 Short-term collateralized financings ............ 315 - Total Retirement Services and Life Insurance. 326 33 Consumer Finance Net increase (decrease) in short-term debt ...... 41 (94) Long-term debt issuances ........................ 536 2 Long-term debt redemptions ...................... (479) (208) Total Consumer Finance ..................... 98 (300) -5- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Corporate Net increase in short-term debt ................. 620 56 Long-term debt redemptions ...................... (354) - Dividends on common and preferred stock ......... (92) (80) Common stock repurchases ........................ (31) (128) Issuance of preferred securities of subsidiaries. - 498 Other, net ...................................... 68 (21) Total Corporate ............................ 211 325 Net cash provided by financing activities ..................... 635 58 Net increase (decrease) in cash .................... (34) 31 Cash at beginning of period ........................ 263 176 Cash at end of period .............................. $ 229 $ 207 Supplemental disclosure of cash flow information: Cash paid (received) during the period for Income taxes .................................... $ (98) $ (13) Interest Corporate ...................................... 59 23 Consumer Finance ............................... 139 130 Dividends on preferred securities of subsidiaries ................................... 14 14 Item 1. Financial Statements (continued). AMERICAN GENERAL CORPORATION Notes to Consolidated Financial Statements March 31, 1998 1. Accounting Policies. The accompanying unaudited consolidated financial statements of American General Corporation and its subsidiaries (American General or the company) have been prepared in accordance with generally accepted accounting principles for interim periods. In the opinion of management, these statements include all adjustments that are necessary for a fair presentation of the company's consolidated financial position at March 31, 1998, and the consolidated results of operations, shareholders' equity, and cash flows for the three months ended March 31, 1998 and 1997. 2. New Accounting Standard. During first quarter 1998, the company adopted Statement of Financial Accounting Standards 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components in the financial statements. American General elected to report comprehensive income and its components in the consolidated statement of shareholders' equity, which is included herein. Application of this statement did not change recognition or measurement of net income and, therefore, did not impact the company's consolidated results of operations or financial position. 3. Acquisition of Western National. On February 25, 1998, the company -6- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 acquired the remaining 54% equity interest of Western National Corporation (Western National) for $1.2 billion. The purchase price consisted of $580 million cash and 10.2 million shares of American General common stock. In addition, the company issued options to acquire 1.4 million shares of American General common stock to replace outstanding options to acquire Western National common stock. The fair value of these options, excluding options surrendered for $10 million cash pursuant to a pre-existing employment agreement, was $37 million. Western National's results of operations and cash flows have been consolidated in the company's financial statements effective January 1, 1998. Earnings attributable to minority interests through February 25, 1998 have been reflected as a charge against consolidated income. The acquisition was accounted for using the purchase method, and the purchase price has been allocated to Western National's specific assets and liabilities based on management's best estimate of their fair values at the date of acquisition. Evaluation of fair values assigned to Western National's assets and liabilities (primarily related to insurance and annuity liabilities) is continuing, and allocation of the purchase price may be adjusted when additional information is available. The difference between the aggregate purchase price and the net assets acquired is attributed to goodwill that will be amortized on a straight- line basis over 40 years. Item 1. Financial Statements (continued). Non-cash activities related to the acquisition that are not reflected in the consolidated condensed statement of cash flows for the three months ended March 31, 1998 were as follows: (In millions) Fair value of assets acquired $ 7,224 Liabilities assumed (6,017) Issuance of common stock (580) Fair value of stock options issued (37) Net cash paid $ 590 Western National is the parent of Western National Life Insurance Company, which changed its name to American General Annuity Insurance Company (American General Annuity) effective May 1, 1998. 4. Calculation of Earnings Per Share. The calculation of basic and diluted earnings per share follows: Three Months Ended March 31, (In millions, except share data) 1998 1997 Net income $244 $210 -7- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Net dividends on convertible preferred stock (1) (1) Earnings available to common shareholders (a) 243 209 Net dividends on dilutive securities Convertible preferred securities of subsidiary 3 3 Convertible preferred stock 1 1 Earnings available to common shareholders assuming dilution (b) $247 $213 Average shares outstanding (a) 247,263,168 239,627,435 Dilutive securities Convertible preferred securities of subsidiary 6,144,016 6,144,016 Convertible preferred stock 2,317,701 2,396,023 Stock options 1,558,167 1,277,704 Average shares outstanding assuming dilution (b) 257,283,052 249,445,178 Net income per share Basic $.98 $.87 Diluted .96 .85 (a) Used to compute basic earnings per share. (b) Used to compute diluted earnings per share. Item 1. Financial Statements (continued). 5. Investing Activities. Cash flows related to investing activities were as follows: Dispositions and Purchases Repayments Three Months Ended Three Months Ended (In millions) March 31, March 31, 1998 1997 1998 1997 Fixed maturity securities $2,279 $3,738 $1,584 $3,096 Mortgage loans 38 103 131 133 Equity securities 1 - 6 19 Other 24 46 27 41 Total $2,342 $3,887 $1,748 $3,289 6. Derivative Financial Instruments. In March 1998, the company purchased options to enter into interest rate swap agreements (swaptions) to limit its exposure to reduced spreads between investment yields and interest crediting rates should interest rates decline significantly over prolonged periods. These swaptions, with a total notional amount of $725 million and strike rates ranging from 4.00% to 5.00%, expire during 1998 and 1999. American General Annuity had interest rate swap agreements with a total -8- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 notional amount of $120 million outstanding at the acquisition date. These interest rate swap agreements, which require the receipt of fixed rates and the payment of floating rates, were entered into by American General Annuity to convert specific investment securities from a floating rate to a fixed rate basis. Derivative financial instruments did not have a material effect on net investment income, interest expense, or net income during the three months ended March 31, 1998 or 1997. 7. Dollar Rolls. American General has entered into dollar roll agreements as part of its strategy to increase investment yields. Dollar rolls are agreements to sell mortgage-backed securities (MBSs) and repurchase substantially the same securities at a specified price and date in the future. The dollar rolls are accounted for as short-term collateralized financings and are included in other liabilities. American General Annuity had outstanding dollar rolls of $520 million at the acquisition date. At March 31, 1998, the company had outstanding dollar roll agreements of $845 million, which were collateralized by MBSs with approximately the equivalent fair value. The average amount outstanding and the weighted average interest rate on dollar rolls for the three months ended March 31, 1998 were $657 million and 5.02%, respectively. Item 1. Financial Statements (continued). 8. Legal Contingencies. Market Conduct. In recent years, various life insurance companies have been named as defendants in class action lawsuits relating to life insurance pricing and sales practices, and a number of these lawsuits have resulted in substantial settlements. Certain of American General's subsidiaries are defendants in such purported class action lawsuits filed since 1996, asserting claims related to pricing and sales practices. These claims are being defended vigorously by the subsidiaries. Given the uncertain nature of litigation and the early stages of this litigation, the outcome of these actions cannot be predicted at this time. American General nevertheless believes that the ultimate outcome of all such pending litigation should not have a material adverse effect on American General's consolidated financial position. It is possible that settlements or adverse determinations in one or more of these actions or other future proceedings could have a material adverse effect on American General's consolidated results of operations for a given period. No provision for any adverse determinations in this pending litigation has been made in the consolidated financial statements because the amount of the loss, if any, from these actions cannot be reasonably estimated at this time. -9- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Other. In addition to those lawsuits or proceedings disclosed herein, the company is a party to various other lawsuits and proceedings arising in the ordinary course of business. Many of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, the company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the company's consolidated results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to create the potential for an unpredictable judgment in any given suit. 9. Tax Return Examinations. American General and the majority of its subsidiaries file a consolidated federal income tax return. The Internal Revenue Service (IRS) has completed examinations of the company's returns through 1988 and has raised certain issues related to 1987 and 1988, which the company is currently contesting. The IRS is currently examining the company's tax returns for 1989 through 1996. Although the final outcome of any issue raised in examination is uncertain, the company believes that the ultimate liability, including interest, will not materially exceed amounts recorded in the consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This item presents specific comments on material changes to the company's consolidated results of operations, capital resources, and liquidity for the periods reflected in the interim financial statements filed with this report. This analysis should be read in conjunction with the consolidated financial statements and related notes on pages 2 through 9 of this Quarterly Report on Form 10-Q. OVERVIEW American General reported financial highlights as follows: Three Months Ended (In millions, March 31, except share data) 1998 1997 Net income $ 244 $ 210 Net income per share (diluted) .96 .85 Revenues and deposits 4,409 3,403 Assets 96,051 74,443 -10- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Shareholders' equity 8,474 6,359 As discussed below, the acquisitions of Home Beneficial Life on April 16, 1997 and American General Annuity on February 25, 1998 affected the comparability of the company's quarter-to-quarter financial results. BUSINESS DIVISIONS To facilitate meaningful period-to-period comparisons, earnings of each business division include earnings from its business operations and earnings on that amount of equity considered necessary to support its business, and exclude non-recurring items and net realized investment gains. Division earnings were as follows: Three Months Ended March 31, (In millions) 1998 1997 Retirement Services $ 112 $ 63 Life Insurance 158 138 Consumer Finance 45 39 Division earnings $ 315 $ 240 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Retirement Services Retirement Services division results were as follows: Three Months Ended March 31, (In millions) 1998 1997 Earnings $ 112 $ 63 Assets Investments 35,343 21,956 Separate Accounts 12,466 7,435 Sales Tax-qualified 391 421 Non-qualified 579 27 Deposits Fixed Tax-qualified 372 425 Non-qualified 549 - -11- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Variable (mainly tax-qualified) 551 421 Operating expenses 57 36 Earnings. Division earnings increased 77% for the three months ended March 31, 1998 compared to the same period in 1997. American General Annuity's operations, which were included in the division's results effective January 1, 1998, increased division earnings by $28 million. Earnings attributable to minority interests through February 25, 1998 are reported in corporate operations. Asset growth, higher investment income from prepayment of investments, and management of fixed investment spread also contributed to the division's profitability. Asset growth, excluding American General Annuity's $13.2 billion of assets at the acquisition date and the fair value adjustment related to the division's securities, was 20% from March 31, 1997 to March 31, 1998, and 7% from December 31, 1997. This growth was attributable to an increase in variable deposits in each of the division's primary markets, as well as stock market appreciation on assets held in Separate Accounts. Sales and Deposits. American General Annuity, which primarily markets non- qualified fixed annuities through financial institutions, contributed $557 million to sales and total deposits in the first three months of 1998. Excluding American General Annuity, sales in first quarter 1998 were 8% lower than in the same period in 1997, because 1997 had record high levels of capital transfers. Excluding American General Annuity, total deposits increased 8% and variable account deposits increased 29% for the three months ended March 31, 1998 compared to the same period in 1997 as a result of customers' preference for equity-based instruments. The division's Separate Account assets, which relate to variable account options, increased $5.0 billion from March 31, 1997 to March 31, 1998 and $1.9 billion from December 31, 1997, reflecting deposit growth and stock market appreciation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Fixed Investment Spread. Investment results and crediting rates on fixed accounts were as follows: Three Months Ended March 31, (In millions) 1998 1997 Net investment income $ 646 $ 420 Investment yield 7.98% 7.93% Average crediting rate 5.94 6.18 Fixed investment spread 2.04 1.75 Net investment income increased 54% in 1998 as a result of the acquisition of American General Annuity, growth in invested assets, and an increase in investment yield. Investment yield for the three months ended March 31, 1998 increased 5 basis points compared to the same period in 1997 due to changes in investment strategy and higher premium income on investments called or tendered before their maturity dates. This increase was partially offset by -12- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 lower market rates on new investment purchases. In response to the effect of declining market rates on investment yield, the company adjusted the rates credited to policyholders. As a result, the investment spread on fixed accounts increased 29 basis points in first quarter 1998 compared to the same period in 1997. Separate Account Fees. Separate Account fees include mortality, administrative, and investment advisory fees. These fees increased $13 million, or 55%, for the first three months of 1998 compared to the same period in 1997, due to growth in Separate Account assets. Surrenders. Policyholder surrenders are influenced by both competition and market performance. The division's rate of policyholder surrenders for tax- qualified accounts was 5.45% of average reserves for the first three months of 1998 compared to 5.28% for the same period in 1997. The division's rate of policyholder surrenders for non-qualified accounts, which relate primarily to American General Annuity's block of business, was 10.10% of average reserves for the first three months of 1998. Operating Expenses. Operating expenses increased $21 million for the three months ended March 31, 1998 compared to the same period of 1997 due to the addition of American General Annuity's operating expenses and variable expenses to support the division's growth in deposits. The ratio of operating expenses to average assets improved to .43% for the first three months of 1998 from .48% for the same period of 1997, reflecting growth in assets in excess of growth in operating expenses and American General Annuity's lower overall expense ratio. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Life Insurance Life Insurance division results were as follows: Three Months Ended March 31, (In millions) 1998 1997 Earnings $ 158 $ 138 Assets 35,212 32,454 Insurance and annuity liabilities 25,328 24,625 Premiums and other considerations 776 730 Net investment income 548 510 Insurance and annuity benefits 731 704 Operating expenses 187 178 Earnings. Division earnings for the three months ended March 31, 1998 -13- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 increased 14% compared to the same period in 1997. This increase was due to: 1) the acquisition of Home Beneficial Life in April 1997, 2) higher investment income from prepayment of investments, and 3) cost savings from the consolidation of operations in connection with recent acquisitions and the realignment of the division, partially offset by startup costs for new product development and new systems designed to support the division's growth and efficiency objectives. Premiums and Deposits. Sales and deposits of individual life insurance and annuities were as follows: Three Months Ended March 31, (In millions) 1998 1997 Individual life insurance Sales $ 177 $ 116 Deposits 340 281 Annuities Sales 109 96 Deposits 135 134 Premiums and other considerations increased 6% for the first three months of 1998 compared to the same period of 1997 primarily due to new sales and the acquisition of Home Beneficial Life. Individual life insurance sales and deposits for first quarter 1998 exceeded comparable 1997 amounts by 53% and 21%, respectively, primarily due to the division's recent entry into the corporate executive benefits market and the addition of Home Beneficial Life. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Annuity sales increased 13% in 1998 due to recently introduced variable annuity products, partially offset by lower structured settlement sales due to an unfavorable interest-rate environment. Other fixed annuity sales also declined due to customers' preference for equity-based products. Annuity deposits remained essentially flat as a result of the decline in the fixed annuity business, which offset the growth in variable annuities. Investment Spread. Investment results and interest crediting rates were as follows: Three Months Ended March 31, 1998 1997 Investment yield 8.34% 8.10% Average crediting rate 6.08 6.11 -14- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Investment spread 2.26 1.99 Net investment income increased 8% for the first three months of 1998 compared to the same period of 1997 due to the Home Beneficial Life acquisition, growth in invested assets, and an increase in premiums on investments called or tendered before their maturity dates. Although market rates were lower on new investment purchases, investment yield and spread increased due to the higher premiums on calls and tenders and lower investment expenses. The spread between investment yield and the average rate credited to policyholders is within product pricing assumptions. Mortality and Persistency. Death claims and premium termination rates were as follows: Three Months Ended March 31, 1998 1997 Death claims (in millions) $ 251 $ 231 Death claims per $1,000 in force $ 3.64 $ 3.47 Premium termination rate 12.68% 13.12% Death claims, included in insurance and annuity benefits, increased 9% in first quarter 1998 compared to the same period of 1997 due to the inclusion of Home Beneficial and less favorable mortality experience in 1998. The lower premium termination rate for the three months ended March 31, 1998 compared to the same period in 1997 reflected lower terminations in the health and fire lines of business. Overall, mortality and persistency experience was within pricing assumptions. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Operating Expenses. Operating expenses increased $9 million for the first three months of 1998 compared to the same period in 1997. During first quarter 1998, the division achieved cost savings from the ongoing consolidation and integration of acquired companies which were reinvested in the development of new variable life and annuity products and the systems to support those products. In addition, first quarter 1998 included Home Beneficial's operating expenses which were not included in first quarter 1997. The ratio of operating expenses to direct premiums and deposits was 16.60% for the first three months of 1998 compared to 17.19% in the same period of 1997. The lower ratio reflected the higher life insurance deposits in first quarter 1998. Consumer Finance Consumer Finance division results were as follows: -15- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Three Months Ended March 31, (In millions) 1998 1997 Earnings $ 45 $ 39 Average finance receivables 8,002 7,550 Yield on finance receivables 16.48% 17.09% Borrowing cost 6.71 6.71 Interest spread 9.77 10.38 Operating expenses $ 119 $ 112 Earnings. Division earnings for the three months ended March 31, 1998 increased 15% compared to the same period of 1997, primarily due to improved credit quality and an increase in average finance receivables. Finance Receivables. Average finance receivables in the first quarter of 1998 increased $452 million compared to first quarter 1997. Finance receivables at March 31, 1998 increased $609 million from March 31, 1997 and $51 million from December 31, 1997. These increases were primarily due to the growth of real estate secured loans, which reflect the company's program to improve credit quality by increasing the proportion of real estate secured loans. The increase from March 31, 1997 was also attributable to growth in retail sales contracts resulting from the introduction of new marketing programs, partially offset by the sale of certain under-performing private label receivables in second quarter 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Credit Quality. The allowance for finance receivable losses and delinquencies at March 31, 1998, December 31, 1997, and March 31, 1997, and charge offs for the three months then ended, were as follows: March 31, December 31, March 31, ($ in millions) 1998 1997 1997 Allowance for finance receivable losses $ 368 $ 373 $ 390 % of finance receivables 4.56% 4.65% 5.23% Delinquencies $ 303 $ 310 $ 304 % of finance receivables 3.49% 3.60% 3.76% -16- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Charge offs $ 54 $ 68 $ 73 % of average finance receivables 2.70% 3.64% 3.83% The decreases in the allowance, delinquency, and charge off ratios reflected the positive impact of the company's credit quality improvement program, including the increased proportion of real estate secured loans and higher underwriting standards. The decreases in the allowance and delinquency ratios from March 31, 1997 were also due to the sale of certain private label receivables in second quarter 1997. Interest Spread. The interest spread between yield and borrowing cost decreased 61 basis points for the three months ended March 31, 1998 compared to the same period in 1997 due to declining yields. The 1998 decline reflected the increased proportion of real estate secured loans, which generally have a higher level of credit quality and lower yields. Operating Expenses. Operating expenses as a percentage of average finance receivables decreased to 5.87% for the first three months of 1998 from 5.96% for the same period of 1997 due to the increase in average finance receivables, which more than offset the increase in operating expenses. INVESTMENTS Invested assets consist primarily of fixed maturity securities, mortgage loans on real estate, and policy loans. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Fair Value of Securities. A decrease in interest rates and resulting increases in bond values in first quarter 1998 caused a $142 million increase in the fair value adjustment to fixed maturity securities and a related $136 million positive adjustment to shareholders' equity from December 31, 1997. The components of the adjustment to report fixed maturity and equity securities at fair value at March 31, 1998 and December 31, 1997, and the 1998 change, were as follows: March 31, December 31, (In millions) 1998 1997 Change Fair value adjustment to fixed maturity securities $2,986 $ 2,844 $ 142 Decrease in deferred policy acquisition costs and cost of -17- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 insurance purchased (990) (1,062) 72 Increase in deferred income taxes (706) (628) (78) Net unrealized gains Fixed maturity securities 1,290 1,154 136 Equity securities 16 15 1 Net unrealized gains on securities $1,306 $ 1,169 $ 137 Fixed Maturity Securities. At March 31, 1998, fixed maturity securities included $43.7 billion of corporate bonds, $12.7 billion of mortgage-backed securities, and $2.1 billion of bonds issued by governmental agencies. The average credit rating of the fixed maturity securities was A+ at March 31, 1998 and December 31, 1997. Average credit ratings by category at March 31, 1998 were as follows: March 31, Average Credit (In millions) 1998 % Rating Investment grade $43,122 73% A Mortgage-backed 12,725 22 AAA Below investment grade 2,843 5 BB- Total fixed maturity securities $58,690 100% A+ Below Investment Grade. Below investment grade securities have credit ratings below BBB-. Below investment grade securities were 4% of invested assets at March 31, 1998 and December 31, 1997. The company invests in below investment grade securities to enhance the overall yield of the portfolio. Investment income from below investment grade securities was $58 million for the three months ended March 31, 1998 and $35 million for the same period in 1997. Realized investment gains (losses) were immaterial. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Non-Performing. Bonds are deemed to be non-performing when the payment of interest is sufficiently uncertain as to preclude accrual of interest. Non- performing bonds were less than 0.1% of total fixed maturity securities at March 31, 1998 and December 31, 1997. Mortgage Loans. Mortgage loans on real estate, consisting primarily of loans on office and retail properties, represented 5% of invested assets at March 31, 1998 and 6% at December 31, 1997. Mortgage loan statistics at March 31, 1998 and December 31, 1997 were as follows: March 31, December 31, (In millions) 1998 1997 Mortgage loans $ 3,553 $ 3,326 -18- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Allowance for losses (49) (54) Mortgage loans, net $ 3,504 $ 3,272 Allowance for losses 1.4% 1.6% Delinquent loans (60+ days) $ 33 $ 20 % of mortgage loans .9% .6% Restructured loans $ 99 $ 115 % of mortgage loans 2.8% 3.5% Yield on restructured loans 7.8% 8.6% Watch List. At March 31, 1998, $89 million of mortgage loans were on the company's watch list, compared to $128 million at December 31, 1997. The decrease was due to loans that were no longer undercollateralized or were reinstated, refinanced, or repaid. While the watch list loans may be predictive of higher non-performing loans in the future, the company does not anticipate a significant effect on operations, liquidity, or capital from these loans. CAPITAL RESOURCES Corporate Capital. American General's target capital structure consists of 25% corporate debt, 15% redeemable equity, and 60% shareholders' equity. At March 31, 1998, corporate capital totaling $11.3 billion, excluding the fair value adjustment on securities, consisted of $2.4 billion corporate debt (21%), $1.7 billion redeemable equity (16%), and $7.2 billion shareholders' equity (63%). On February 25, 1998, American General issued 10.2 million shares of common stock and paid $580 million cash to complete the $1.2 billion acquisition of Western National. The cash portion of the purchase price was financed through short-term borrowings. Additionally, the company issued options to acquire 1.4 million shares of American General common stock with an average exercise Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). price of $24.75 to replace outstanding options to acquire Western National common stock. The fair value of these options, excluding options surrendered for $10 million cash pursuant to a pre-existing employment agreement, was $37 million. In connection with the acquisition, the company assumed Western National's long-term debt of $148 million. Subsequent to the acquisition date, several of American General Annuity's ratings were raised. American General Annuity's claims-paying ability ratings at April 30, 1998 were as follows: Standard Duff & A.M. & Poor's Phelps Moody's Best -19- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 AA- AAA Aa3 A+ Consumer Finance. The Consumer Finance division's capital varies directly with the amount of total finance receivables. The capital mix of consumer finance debt and equity is based primarily upon maintaining leverage at a level that supports cost-effective funding. Consumer finance capital of $8.6 billion at March 31, 1998 included $7.4 billion of consumer finance debt, which was not guaranteed by the parent company, and $1.2 billion of equity. The Consumer Finance division's target ratio of debt to tangible net worth, a standard measure of financial risk in the consumer finance industry, is 7.5 to 1. The ratio equaled the target at March 31, 1998 and December 31, 1997. LIQUIDITY The company's overall liquidity is based on cash flows from the business divisions and its ability to borrow in both the long-term and short-term markets at competitive rates. At March 31, 1998, the company had committed and unused credit facilities of $4.8 billion. The company believes that its overall sources of liquidity will continue to be sufficient to satisfy its foreseeable financial obligations. Parent Company. The parent company received $451 million of net dividends from subsidiaries during the three months ended March 31, 1998. No dividends were paid to the parent company in first quarter 1997 because the company was re-evaluating the capital requirements for its business segments. While the subsidiaries are restricted in the amount of dividends they may pay to the parent company, these restrictions are not expected to affect American General's ability to meet its cash obligations. American General repurchased .5 million shares of its common stock at a cost of $31 million during first quarter 1998. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). Retirement Services and Life Insurance. Principal sources of cash for the Retirement Services and Life Insurance divisions were as follows: Three Months Ended March 31, (In millions) 1998 1997 Operating activities $561 $645 Fixed policyholder account deposits, net of withdrawals 11 33 Variable account deposits, net of withdrawals 593 469 -20- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Short-term collateralized financings 315 - Operating cash flows for the Retirement Services and Life Insurance divisions decreased $84 million in the first three months of 1998 compared to the same period of 1997, primarily due to tax recoveries received in 1997. The decrease in net fixed policyholder account deposits and increase in net variable account deposits in the first quarter of 1998 was a result of policyholders seeking higher returns in equity-based investments, including the company's Separate Accounts. The decrease in net fixed policyholder account deposits was partially offset by the acquisition of American General Annuity, which primarily markets fixed annuities. Because the investment risk on variable accounts lies solely with the policyholder, deposits and withdrawals related to Separate Accounts are not included in the company's consolidated condensed statement of cash flows. The major uses of cash were the net purchase of investments necessary to support increases in insurance and annuity liabilities, and net dividends paid to the parent. The subsidiaries in these divisions paid net dividends of $412 million in the first three months of 1998. Consumer Finance. Principal sources of cash for the Consumer Finance division were as follows: Three Months Ended March 31, (In millions) 1998 1997 Operating activities $ 140 $ 169 Increase (decrease) in borrowings 98 (300) Cash provided by operating activities decreased in the first three months of 1998 since first quarter 1997 included operations related to the non-strategic assets sold in second quarter 1997. Cash provided by borrowings increased in the three months ended March 31, 1998 compared to the same period in 1997 due to growth in receivables. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued). The major uses of cash were to fund finance receivables and net dividends paid to the parent company. Net cash used to fund finance receivables was $127 million for the three months ended March 31, 1998, up from $65 million for the same period in 1997. Net dividends paid to the parent company totaled $32 million in the first three months of 1998. YEAR 2000 The company is in the process of modifying its computer systems to be Year 2000 compliant. During the first three months of 1998, the company incurred -21- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 and expensed $9 million (pretax) related to this project. Through March 31, 1998, the company has incurred and expensed $24 million (pretax) related to Year 2000 compliance. The company expects to substantially complete this project during 1998. However, risks and uncertainties exist in most significant systems development projects. If conversion of the company's systems is not completed on a timely basis, due to non-performance by third-party vendors or other unforeseen circumstances, the Year 2000 issue could have a material adverse impact on the operations of the company. FORWARD-LOOKING STATEMENTS The statements contained herein that are not historical facts are forward- looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the company. There can be no assurance that future developments affecting the company will be those anticipated by management. Actual results may differ materially from those included in the forward- looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: (1) changes in general economic conditions, including the performance of financial markets and interest rates; (2) customer responsiveness to both new products and distribution channels; (3) competitive, regulatory, or tax changes that affect the cost of or demand for the company's products; (4) adverse litigation results; (5) resolution of market conduct issues; (6) the company's ability to render its computer systems Year 2000 compliant; and (7) the company's failure to achieve anticipated levels of earnings or operational efficiencies related to recently acquired companies, as well as other cost-saving initiatives. Investors are also directed to other risks and uncertainties discussed in documents filed by the company with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Note 8 to the Registrant's Unaudited Consolidated Financial Statements in Part I of this Form 10-Q for the quarter ended March 31, 1998. Item 6. Exhibits and Reports on Form 8-K. a. Exhibits. Exhibit 4 Articles of Amendment to the Restated Articles of -22- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Incorporation of American General (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-52103 filed by American General) Exhibit 10.1 Form of Change in Control Severance Agreement Exhibit 10.2 American General Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-52103 filed by American General) Exhibit 10.3 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and Robert M. Devlin Exhibit 10.4 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and Jon P. Newton Exhibit 10.5 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and James S. D'Agostino Jr. Exhibit 10.6 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and Robert M. Devlin Exhibit 10.7 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and Jon P. Newton Exhibit 10.8 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and James S. D'Agostino Jr. Exhibit 10.9 Forms of Split-Dollar Agreement and Assignment of Life Insurance Policy as Collateral Agreement Item 6. Exhibits and Reports on Form 8-K (continued). Exhibit 11 Computation of Earnings per Share (included in Note 4 of Notes to Financial Statements) Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 27 Financial Data Schedule b. Reports on Form 8-K. -23- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 The following reports on Form 8-K were filed after December 31, 1997: (1) Current Report on Form 8-K dated January 26, 1998, with respect to certain executive compensation information for the year ended December 31, 1997. (2) Current Report on Form 8-K dated January 27, 1998, with respect to issuance of an earnings release announcing certain unaudited financial results for the year ended December 31, 1997. (3) Current Report on Form 8-K dated February 19, 1998, with respect to issuance of a press release announcing the closing date and exchange ratio in connection with the acquisition of Western National. (4) Current Report on Form 8-K dated February 25, 1998, with respect to adoption of Statement of Financial Accounting Standards 128, "Earnings per Share," effective December 31, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 1998. AMERICAN GENERAL CORPORATION (Registrant) By: PAMELA J. PENNY Pamela J. Penny Vice President and Controller (Duly Authorized Officer and Chief Accounting Officer) -24- AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 EXHIBIT INDEX Exhibit 4 Articles of Amendment to the Restated Articles of Incorporation of American General (incorporated by reference to Exhibit 4.2 to Registration Statement No. 333-52103 filed by American General) 10.1 Form of Change in Control Severance Agreement 10.2 American General Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-52103 filed by American General) 10.3 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and Robert M. Devlin 10.4 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and Jon P. Newton 10.5 First Amendment to Employment Agreement, dated as of February 1, 1998, between American General and James S. D'Agostino Jr. 10.6 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and Robert M. Devlin 10.7 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and Jon P. Newton 10.8 First Amendment to Supplemental Executive Retire- ment Agreement, dated as of February 1, 1998, between American General and James S. D'Agostino Jr. 10.9 Forms of Split-Dollar Agreement and Assignment of Life Insurance Policy as Collateral Agreement 11 Computation of Earnings per Share (included in Note 4 of Notes to Financial Statements) 12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 27 Financial Data Schedule -25- EX-10.1 2 CHANGE IN CONTROL SEVERANCE AGREEMENT THIS Change in Control Severance Agreement ("Agreement") is made effective as of the 1st day of April, 1998 (the "Effective Date"), between American General Corporation, a Texas corporation having its principal place of business in Houston, Texas (the "Company" as hereinafter defined) and FullName~ ("the Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel that are employed by the Company and/or its Affiliates; and WHEREAS, the Company's Board of Directors recognize that, as is the case of many publicly held corporations, the possibility of a change in control exists and that such possibility, and the uncertainty that it may engender among management, may result in the departure or distraction of management personnel to the detriment of the Company and its Affiliates and the Company's shareholders; and WHEREAS, the Company's Board of Directors has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's and its Affiliates' management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control. NOW, THEREFORE, for and in consideration of the premises and the respective covenants and obligations specified herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: 1. Defined terms: 1.1. "Additional Payment" shall have the meaning set forth in Section 4.7. 1.2. "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Securities Exchange Act of 1934, as amended from time to time. 1.3. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended from time to time. 1.4. "Board" means the Company's Board of Directors. 1.5. "Cause" for purposes of this Agreement means only the following actions or inactions: [i] a willful material misrepresentation by the Executive pertaining to the business or property of the Company or its Affiliates, [ii] misappropriation by the Executive of a material aspect of the business or property of the Company or its Affiliates, [iii] the Executive willfully causes material damage to the property or business of the Company or its Affiliates, [iv] willful gross neglect by the Executive to substantially perform the Executive's duties with the Company or its Affiliates (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 5.1), [v] the engaging by the Executive in willful gross misconduct resulting in demonstrable and material economic harm to the Company or its Affiliates, or [vi] the Executive's conviction of a felony that either involves moral turpitude or involves some aspect of the business or property of the Company or its Affiliates. 1.6. "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: A. Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of Paragraph C below; or B. The following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company), whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or C. There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation [or a share exchange between shareholders of the Company or any direct or indirect subsidiary of the Company and another corporation or entity pursuant to Article 5.02 (or any successor provision thereto) of the Texas Business Corporation Act] other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least fifty-one percent (51%) of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent -- Page 2 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT (30%) or more of the combined voting power of the Company's then outstanding securities; or D. The shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least fifty-one percent (51%) of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transaction. 1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.8. "Committee" shall mean the Personnel Committee of the Board until six months prior to the occurrence of a Change in Control and thereafter shall mean (i) the individuals (not fewer than three in number) who, on the date six months before a Change in Control, constitute the Personnel Committee of the Board, plus (ii) in the event that fewer than three individuals are available from the group specified in clause (i) above for any reason, such individuals as may be appointed by the individual or individuals so available [including for this purpose any individual or individuals previously so appointed under this clause (ii)]; provided, however, that the maximum number of individuals constituting the Committee shall not exceed five. 1.9. "Company" means American General Corporation, a Texas corporation, and, except in determining under Section 1.6 hereof whether any Change in Control has occurred, shall include any successor to American General Corporation's business and/or assets which assumes and agrees to perform this Agreement by operation of law or otherwise. 1.10. "Date of Termination" shall have the meaning specified in Section 5.1. 1.11. "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if: (i) as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, (ii) a physician agreed upon by the Executive (or the Executive's legal representative) and the Company (or, if the parties hereto are unable to agree upon a single physician, a third physician agreed upon by the two physicians, each of whom -- Page 3 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT has been selected by either the Executive [or the Executive's legal representative] or the Company) shall have determined that the Executive will be incapable, due to physical or mental illness, of substantially performing the Executive's duties and responsibilities to the Company or its Affiliates, (iii) the Company shall have given the Executive a Notice of Termination based on Disability, and (iv) within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. 1.12. "Good Reason" for termination of the Executive's employment by the Executive means the occurrence of any one or more of the following, without the Executive's express written consent, on or after any Change in Control, or during an applicable Period of Anticipated Change in Control, but, in either case, only as specified below in Section 4.4: 1.12.1. A material reduction in the nature or scope of the Executive's authorities or duties from the Executive's authorities and duties either [i] immediately prior to the date on which a Change in Control occurs or [ii] immediately prior to a Period of Anticipated Change in Control during which a material reduction in the nature or scope of the Executive's authorities or duties occurs at the request of the Person causing the Company to be in such Period of Anticipated Change in Control, as the case may be. 1.12.2. A reduction in the Executive's annual base salary as in effect either [i] immediately prior to the date on which a Change in Control occurs or [ii] immediately prior to a Period of Anticipated Change in Control during which the Executive's annual base salary is reduced at the request of the Person causing the Company to be in such Period of Anticipated Change in Control, as the case may be. 1.12.3. A diminution in the Executive's eligibility to participate or level of participation in bonus, stock option, incentive award and other compensation plans which provide opportunities to receive compensation, from the greater of: (a) the opportunities provided by the Company (including its Affiliates) for other executives with the Company (including its Affiliates) with comparable duties or (b) the opportunities under any such plans under which the Executive was participating either [i] immediately prior to the date on which a Change in Control occurs or [ii] immediately prior to a Period of Anticipated Change in Control during which the Executive's eligibility or level of participation is diminished at the request of the Person causing the Company to be in such Period of Anticipated Change in Control, as the case may be. -- Page 4 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT 1.12.4. A diminution in the Executive's benefits (including but not limited to pension, thrift, medical, dental, life insurance, long- term disability plans) and perquisites applicable to Executive, from the greater of: (a) the employee benefits and prerequisites provided by the Company (including its Affiliates) to other executives with comparable duties with the Company (including its Affiliates) or (b) the employee benefits and perquisites to which the Executive was entitled either [i] immediately prior to the date on which a Change in Control occurs or [ii] immediately prior to a Period of Anticipated Change in Control during which the Executive's benefits are reduced at the request of the Person causing the Company to be in such Period of Anticipated Change in Control, as the case may be. 1.12.5. A change in the location of the Executive's principal place of employment by the Company (or its Affiliates) by more than fifty (50) miles from the location where the Executive was principally employed either [i] immediately prior to the date on which a Change in Control occurs or [ii] immediately prior to a Period of Anticipated Change in Control during which there occurs the Executive's change of location at the request of the Person causing the Company to be in such Period of Anticipated Change in Control, as the case may be. 1.12.6. A determination by the Board that as a result of a Change in Control or the occurrence of an event that commences a Period of Anticipated Change in Control and a change in circumstances thereafter significantly affecting the Executive's position, the Executive is or shall be unable to exercise the authorities or duties attached to the Executive's position as in effect immediately prior to the date on which the Change in Control occurs or will occur. 1.13. "Notice of Termination" has the meaning specified in Section 5.1. 1.14. "Period of Anticipated Change in Control" shall have the following meaning for the purposes of this Agreement: the Company shall be deemed to be in a Period of Anticipated Change in Control during the time which commences when either [a] a Person has submitted a written offer to the Company which, if accepted by the Company, would result in an agreement the consummation of which would constitute a Change in Control and/or [b] the Company has entered into a written signed agreement with a Person the consummation of which would constitute a Change in Control. The Period of Anticipated Change in Control ends when the Company either rejects such written offer or terminates, cancels or consummates such agreement. There may be more than one period of time in which the Company is in a Period of Anticipated Change in Control. 1.15. "Person" has the meaning specified in Section 3(a)(9) of the Securities Exchange Act of 1934 (as amended from time to time) and used in Sections 13(d) and 14(d) thereof, except that such term shall not include [i] the Company or any of its subsidiaries, [ii] a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, [iii] an underwriter temporarily holding securities pursuant to an offering of such securities, or [iv] a corporation owned, directly or -- Page 5 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company. 2. This Agreement is not a contract of employment and does not modify the at-will nature of the Executive's employment relationship: 2.1. This Agreement is not an employment agreement. This Agreement shall not be construed as creating an express or implied contract of employment and does not modify the nature of the Executive's employment relationship with the Company or its Affiliates, as the case may be. Except as otherwise agreed in writing between the Executive and the Company or an Affiliate, the employment relationship between the Executive and the Company or its Affiliates is at-will, i.e., the employment relationship may be terminated at any time at the will of either the Company or the Executive for any reason or no reason at all. 2.2. Notwithstanding any provision herein to the contrary, except as provided in Section 4.7, no payments shall be due or payable pursuant to this Agreement unless [i] the Executive has remained in the employ of the Company or one of its Affiliates until there occurs, during the Term of this Agreement, a Change in Control, or there occurs an event that commences a Period of Anticipated Change in Control, and then [ii] the Executive's employment by the Company or one of its Affiliates is terminated during the Term of this Agreement either by the Company or the Executive as specified in Section 4.4. 2.3. If the Executive is employed not by the Company itself but by one of the Company's Affiliates, then if, during the Term of this Agreement but prior to a Change in Control and prior to a Period of Anticipated Change in Control during which the Person seeking to acquire the Company requests that such Affiliate be sold or disposed of, the Company sells or otherwise disposes of such Affiliate whereby the Company no longer owns or controls, directly or indirectly, at least a majority of the stock having the right to vote for directors or of the equity interest of such Affiliate, this Agreement shall automatically terminate thirty days thereafter if the Executive does not within such thirty day period of time following the sale or other disposition become an employee of the Company or one of its remaining majority-owned Affiliates. 3. Term and termination of this Agreement: 3.1. The Term of this Agreement shall commence on the Effective Date and end on March 31, 2000. However, if a Change in Control shall have occurred prior to March 31, 2000, the Term of this Agreement shall be automatically extended for a period of thirty-six (36) complete calendar months commencing with the month immediately following the month in which the Change in Control occurs. Moreover, if March 31, 2000 falls within a Period of Anticipated Change in Control, the Term of this Agreement shall be automatically extended until either [i] the Period of Anticipated Change in Control ceases without resulting in a Change in Control or [ii] if such Period of Anticipated Change in Control results in a Change in Control, for thirty- six (36) complete calendar months commencing with the month immediately -- Page 6 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT following the month in which such Change in Control occurs. Upon expiration of the Term of this Agreement, this Agreement shall automatically terminate. The termination of this Agreement under this Section 3.1 shall not under any circumstances constitute an event which obligates the Company to make payments or to extend benefits to the Executive pursuant to this Agreement. 3.2. This Agreement can not be terminated by the Company prior to the expiration of its Term except upon either [a] the death of the Executive or [b] the Company terminating the Executive's employment based on Disability in accordance with Section 1.11. Upon either event, this Agreement shall automatically terminate. The termination of this Agreement because of the death or Disability of the Executive shall not under any circumstances constitute an event which obligates the Company to make payments or to extend benefits to the Executive pursuant to this Agreement. However, in the event that the Executive dies or incurs a Disability after the Company has become obligated to make payments or extend benefits to the Executive under Section 4.4 hereof, the death or Disability of the Executive shall not affect the Executive's right, or the rights of the Executive's heirs, legatees, executors or administrators, to receive such payments or benefits (if such benefits are applicable after death or Disability). 4. Company's obligations to Executive upon Change in Control or during a Period of Anticipated Change in Control: 4.1. After a Change in Control or during a Period of Anticipated Change in Control, which, in either case, occurs during the Term of this Agreement, if there occurs any period during which the Executive fails to perform the Executive's full-time duties with the Company or its Affiliates, as the case may be, as a result of incapacity due to physical or mental illness, the Company shall pay, or if the Executive is employed by an Affiliate, cause the Affiliate to pay, the Executive's full base salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive's employment is terminated by the Company or its Affiliate for Disability or death; provided, however, that such salary payments shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such salary payment under disability benefit plans of the Company or its Affiliates or under the Social Security disability insurance program, which amounts were not previously applied to reduce any such salary payment. 4.2. During the Term of this Agreement, if the Executive's employment shall be terminated for any reason other than Disability or death following a Change in Control, or if the Executive's employment shall be terminated during a Period of Anticipated Change in Control at the request of the Person seeking to acquire the Company, the Company shall pay, or if the Executive is employed by an Affiliate, cause the Affiliate to pay, the Executive's full base salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable -- Page 7 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason. 4.3. In addition, but not in duplication of the benefits provided in Sections 4.5 and 4.6, the Company shall pay, or cause to be paid, to the Executive the Executive's post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's compensation and benefit plans as in effect immediately prior to the Date of Termination or, in the case of a termination of the Executive's employment by the Executive for Good Reason and if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason that is specified in the Executive's Notice of Termination; provided, however, that the Company shall have the right at any time, even after a Change in Control, to effect amendments, changes, or modifications to any and all compensation and benefit plans, programs or arrangements that are not substantial and material. 4.4. [A] If, during the Term of this Agreement, the Executive's employment is terminated on or after a Change in Control other than: (a) by the Company or an Affiliate for Cause, (b) by reason of the Executive's Disability or death, or (c) by the Executive without Good Reason; then, in addition to the Company's obligations specified above in Sections 4.1 through 4.3, the Company shall pay, or if the Executive is employed by an Affiliate, cause the Affiliate to pay, the Executive the amounts and provide the Executive the benefits described in Sections 4.5 through 4.11. [B] During the Term of this Agreement and notwithstanding any provisions of Subsection [A] above to the contrary, the Executive's employment shall be considered to have been terminated under Subparagraph [A] under circumstances that obligate the Company to pay the Executive the amounts and provide the Executive the benefits described in Sections 4.5 through 4.11 if the Executive's employment is terminated by the Company or its Affiliate during a Period of Anticipated Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request of a Person who either [i] had entered into the written signed agreement with the Company the consummation of which would constitute a Change in Control or [ii] had submitted a written offer to the Company which, if accepted by the Company, would result in an agreement the consummation of which would constitute a Change in Control. [C] During the Term of this Agreement and notwithstanding any provisions of Subsection [A] above to the contrary, the Executive's employment shall be considered to have been terminated under Subparagraph [A] under -- Page 8 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT circumstances that obligate the Company to pay the Executive the amounts and provide the Executive the benefits described in Sections 4.5 through 4.11, if: (i) an event that constitutes Good Reason occurs during a Period of Anticipated Change in Control; (ii) such event occurs at the request of a Person who either [a] had entered into the written signed agreement with the Company the consummation of which would constitute a Change in Control or [b] had submitted a written offer to the Company which, if accepted by the Company, would result in an agreement the consummation of which would constitute a Change in Control; (iii) the Executive notifies the Company in writing as promptly as possible, and no later than three (3) months after the first event which constitutes Good Reason, of the Executive's position that a event which constitutes Good Reason occurred at the request of such Person; (iv) the Period of Anticipated Change in Control in fact culminates in a Change in Control; and (v) the Executive refrains from providing a Notice of Termination and continues to perform the Executive's duties and responsibilities until at least sixty (60) days after a Change in Control occurs as a result of the Person having entered into the written signed agreement with the Company or having submitted the written offer to the Company. [D] The right of the Executive to terminate employment for Good Reason under Section [C] hereof is based solely on an event or events constituting Good Reason that occur during a Period of Anticipated Change in Control. The right of the Executive to terminate employment for Good Reason under Section [A] hereof is in addition to the Executive's right to terminate employment for Good Reason under Section [C] but is based solely on an event or events constituting Good Reason that occur on or after a Change in Control. The Executive may give a Notice of Termination under Section [A] immediately the occurrence of the event or events constituting Good Reason [i.e., there is no requirement under Section [A] that the Executive refrain from providing a Notice of Termination and continue to perform the Executive's duties and responsibilities until at least sixty (60) days after the Change in Control occurs]. 4.5. If a termination of the Executive's employment described in Section 4.4 hereof shall have occurred, in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefits otherwise payable to the Executive, the Company shall pay, or if the Executive is employed by an Affiliate, cause the Affiliate to pay, to the Executive a lump sum severance payment, in cash, equal to three (3) times the sum of [i] the Executive's annual base salary as in effect immediately prior to the Date of Termination or, in the case of a termination of the Executive's employment by the Executive for Good Reason and if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason that is specified in the Executive's Notice of Termination, and [ii] the average annual bonus earned by the Executive pursuant to any annual bonus or annual incentive plan maintained by the Company or an Affiliate in which the Executive participated in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, in the case of a termination of the Executive's employment by the Executive for Good Reason and if more favorable to the Executive, the three fiscal years ending -- Page 9 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason that is specified in the Executive's Notice of Termination; provided, however, that if there are fewer than three such bonuses earned by the Executive in the applicable three-year period, the average annual bonus shall be calculated by dividing the total amount of the annual bonuses paid by the number of annual bonuses paid; and provided further that if the Executive has been so recently hired by the Company or an Affiliate that he has not earned any annual bonus which can be used to calculate an average bonus pursuant to this provision, he shall be deemed to have earned an average annual bonus determined by multiplying his applicable base salary by a fraction, the numerator of which is the total of the average annual bonuses of all employees of the Company and its Affiliates who have change in control severance agreements with the Company immediately prior to the Executive's Date of Termination and the denominator of which is the total of the applicable base salaries of such employees (as such terms are defined in their respective change in control severance agreements and determined as if such employees had been terminated without Cause as of the Executive's Date of Termination). 4.6. If a termination of the Executive's employment described in Section 4.4 hereof shall have occurred, for the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and the Executive's dependents with life, accident, medical, and dental insurance benefits substantially similar to those provided to the Executive and to the Executive's dependents immediately prior to the Date of Termination or, in the case of a termination of the Executive's employment by the Executive for Good Reason and if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason, at no greater cost to the Executive than the cost to the Executive immediately prior to such date or occurrence that is specified in the Executive's Notice of Termination; provided, however, that the Company shall have the right to effect amendments, changes, or modifications to any and all benefit plans, programs or arrangements that are not substantial and material and such amendments, changes or modifications shall apply to the Executive's benefits. Benefits otherwise receivable by the Executive pursuant to this Section 4.6 may be reduced to the extent benefits of the same type are received by or made available to the Executive by a successor employer during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall reimburse the Executive for the excess, if any, of the reasonable and necessary cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, in the case of a termination of the Executive's employment by the Executive for Good Reason and if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason that is specified in the Executive's Notice of Termination. As provided in Section 6.2, the Company may withhold from any payments made or benefits provided pursuant to this Agreement all federal, State, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. -- Page 10 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT 4.7. [A] Regardless whether or not a termination of the Executive's employment described in Section 4.4 shall have occurred, to the extent that any of the payments or benefits (excluding payments to be made pursuant to this Section 4.7) received or to be received by the Executive (the "Total Payments") in connection with a Change in Control or the Executive's termination of employment (whether or not such payments or benefits are provided pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, with any Persons whose actions result in a Change in Control, or with any Person affiliated with the Company or such Person) will be subject to the excise tax imposed by Section 4999 of the Code, or any successor provision of the Code (any such excise tax is referred to in this Section as the "Excise Tax"), then the benefit or payment shall be increased by an amount (referred to in this Section as the "Additional Payment") such that the net amount received by the Executive, after paying any applicable Excise Tax and any federal, State or local income or FICA taxes on such Additional Payment, shall be equal to the amount that the Executive would have received if such Excise Tax were not applicable to the Total Payments. [B] For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" [within the meaning of Section 280G(b)(2) of the Code] unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code; (ii) all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered [within the meaning of Section 280G(b)(4)(B) of the Code] in excess of the base amount [as the term "base amount" is defined in Section 280G(b)(3) of the Code] allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax; and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Additional Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Additional Payment is to be made and State and local income taxes at the highest marginal rate of taxation in the State and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then on the date on which the Additional Payment is calculated for purposes of this Section 4.7), net of the maximum reduction in federal income taxes which could be obtained from deduction of such State and local taxes. -- Page 11 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT [C] In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Additional Payment, the Executive shall repay to the Company, within ten business days immediately following the date that the amount of such reduction in the Excise Tax is finally determined, the portion of the Additional Payment attributable to the amount of such reduction (including the Excise Tax component and the federal, State and local income and employment tax components of the Additional Payment) to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, State and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Additional Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Additional Payment), the Company shall make another Additional Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within the ten (10) business days immediately following the date that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 4.8. If a termination of the Executive's employment described in Section 4.4 hereof shall have occurred, the Company shall promptly reimburse to the Executive all reasonable attorneys fees and expenses necessarily incurred by the Executive in disputing in good faith any issue with the Company or its Affiliates pursuant to this Agreement or lodging in good faith any claim, demand or cause of action against the Company or its Affiliates pursuant to this Agreement; provided, however, that the Company shall have no obligation to reimburse the Executive for such attorneys fees and expenses unless the Executive is the prevailing party as to such dispute, claim, demand or cause of action. 4.9. If a termination of the Executive's employment described in Section 4.4 hereof shall have occurred, the Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of nine months after the Date of Termination or, if earlier, until the first acceptance by the Executive of an offer of employment. 4.10. If (i) the Executive is or has been granted stock options, restricted stock, or other similar equity-based awards, whether before or after the Effective Date, pursuant to plans, programs or arrangements which provide that the Executive shall become fully vested upon a Change in Control and (ii) the definition of change in control in such plans, programs or arrangements does not provide for vesting upon the occurrence of an event creating a Period of Anticipated Change in Control, then the following shall apply: The requisite change in control for purposes of vesting under such plans, programs or arrangements shall be deemed to have occurred immediately prior to a termination described in subparagraphs (1) or (2) of this Section 4.10 if either -- -- Page 12 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT (1) The Executive's employment is terminated by the Company or an Affiliate without Cause (and not for Disability or death) during a Period of Anticipated Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request of a Person who either [i] had entered into the written signed agreement with the Company the consummation of which would constitute a Change in Control or [ii] had submitted a written offer to the Company which, if accepted by the Company, would result in an agreement the consummation of which would constitute a Change in Control; or (2) During the Term of this Agreement, the Executive's employment is terminated as follows: (i) an event that constitutes Good Reason occurs during a Period of Anticipated Change in Control; (ii) such event occurs at the request of a Person who either [a] had entered into the written signed agreement with the Company the consummation of which would constitute a Change in Control or [b] had submitted a written offer to the Company which, if accepted by the Company, would result in an agreement the consummation of which would constitute a Change in Control; (iii) the Executive notifies the Company in writing as promptly as possible, and no later than three (3) months after the first event which constitutes Good Reason, of the Executive's position that an event which constitutes Good Reason occurred at the request of such Person; (iv) the Period of Anticipated Change in Control in fact culminates in a Change in Control; and (v) the Executive shall refrain from providing a Notice of Termination and shall continue to perform the Executive's duties and responsibilities until at least sixty (60) days after a Change in Control occurs as a result of the Person having entered into the written signed agreement with the Company or having submitted the written offer to the Company. 4.11. The payments provided to the Executive or for the Executive's benefit in Sections 4.5 and 4.7[A] shall be made not later than the tenth (10) business day following the Date of Termination; provided, however, that if the amounts of such payments cannot be finally determined on or before such date, the Company shall pay to the Executive on such day an estimate of the payments under Section 4.5, as determined in good faith by the Executive and the Company, and an estimate of the payments under Section 4.7[A], as determined in accordance with Section 4.7[A] hereof, the estimate in each case to be of the minimum amount of such payments to which the Executive is clearly entitled, and shall pay the remainder of such payments [together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in Section 1274(b)(2)(B) of the Code] as soon as the amount thereof can be determined but in no event later than sixty (60) days after the Date of Termination. In the event that the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the tenth (10) business day after demand by the Company. At the time the payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations, including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor, or other advisors or -- Page 13 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT consultants and any such opinions or advice which are in writing shall be attached to the statement. 5. Termination procedures; resolution of disputes; arbitration; and no duty to mitigate: 5.1. After a Change in Control or during a Period of Anticipated Change in Control, and in either case, during the Term of this Agreement, any purported termination of the Executive's employment (other than the death of the Executive) shall be communicated by a written notice of termination from one party to the other in accordance with Section 6.6 (the "Notice of Termination"). The Notice of Termination shall specify the termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment pursuant to this Agreement. The date of termination ("Date of Termination") of the Executive's employment pursuant to this Agreement shall be [i] if the Executive's employment is terminated for Disability, thirty (30) days after the Notice of Termination is given, and [ii] if the Executive's employment is terminated pursuant to this Agreement for any other reason, the date specified in the Notice of Termination [which, in the case of termination by the Company or an Affiliate shall not be less than thirty (30) days, except in the case of termination for Cause, which may be immediate, and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, from the date such Notice of Termination is given]. 5.2. All claims by the Executive for payments or benefits under this Agreement shall be in writing, shall set forth the specific reasons for the basis of the Executive's claim and the specific provisions of this Agreement relied upon, shall be submitted to the Committee, and shall be decided by the Committee. Any denial by the Committee of a claim for payments or benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to file with the Committee, within sixty (60) days after notification by the Committee that the Executive's claim has been denied, a request that the Committee re-consider its decision. Upon receipt of such a request, the Committee shall reconsider its decision and notify the Executive of the Committee's decision on reconsideration. 5.3. [A] Any further dispute or controversy arising under or in connection with this Agreement and all claims, demands, causes of action, disputes, controversies, and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement involving the Executive, the Company, its Affiliates, and/or their respective representatives, even though some or all of such claims allegedly are extra- contractual in nature, whether such claims sound in contract, tort, or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in -- Page 14 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT accordance with the Employment Dispute Resolution Rules then in effect with the American Arbitration Association. The arbitration proceeding shall be conducted in Houston, Texas. This agreement to arbitrate shall be enforceable in either federal or state court. [B] The enforcement of this agreement to arbitrate and all procedural aspects of this agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the issues subject to arbitration (i.e., arbitrability), the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act and shall be decided by the arbitrators. In deciding the substance of any such claims, the arbitrators shall apply the substantive laws of the State of Texas (excluding Texas choice-of-law principles that might call for the application of some other state's law); provided, however, it is expressly agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary, or punitive damages in connection with any such claims. The arbitrators are authorized to award attorneys and fees and expenses as authorized in this Agreement. [C] The arbitration may be initiated by any party by providing to the other party a written notice of arbitration specifying the claims. Within 30 days of the notice of initiation of the arbitration procedure, the Executive shall denominate one arbitrator and the Company shall denominate one arbitrator. The two arbitrators shall select a third arbitrator failing agreement on which within 60 days of the original notice, either the Executive or the Company shall apply to the Senior Active United States District Judge for the Southern District of Texas, who shall appoint a third arbitrator. While the third arbitrator shall be neutral, the two party-appointed arbitrators are not required to be neutral and it shall not be grounds for removal of either of the two party-appointed arbitrators or for vacating the arbitrators' award that either of such arbitrators has past or present minimal relationships with the party that appointed such arbitrator. Evident partiality on the part of an arbitrator exists only where the circumstances are such that a reasonable person would have to conclude there in fact existed actual bias and a mere appearance or impression of bias will not constitute evident partiality or otherwise disqualify an arbitrator. [D] The three arbitrators shall by majority vote resolve all disputes between the parties. There shall be no transcript of the hearing before the arbitrators. The arbitrators' decision shall be in writing, but shall be as brief as possible. The arbitrators shall not assign the reasons for their decision. The arbitrators shall certify in their award that they have faithfully applied the terms and conditions of this Agreement and that no part of their award includes any amount for exemplary or punitive damages. All proceedings conducted hereunder and the decision of the arbitrators shall be kept confidential by the parties, e.g., the arbitrators' award shall not be released to the press or published in any of the various arbitration -- Page 15 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT reporters. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. 5.4. If during the Term of this Agreement the Executive's employment terminates under conditions that require the Company to make payments or extend benefits pursuant to Section 4.4, the Executive is not required to seek other employment or to attempt in any way to reduce the amounts payable to the Executive under Section 4.4 (other than an obligation to incur no more than reasonable and necessary attorneys fees). Further, the amount of any payment or benefit required pursuant to this Agreement (other than pursuant to Section 4.6) shall not be reduced or offset by any compensation or benefit that may be earned by the Executive as a result of employment by another employer after termination of the Executive's employment hereunder by the Company or its Affiliates, by retirement benefits, or against any amount claimed to be owed by the Executive to the Company unless such amount is evidenced by a promissory note or contract signed by the Executive. 6. Miscellaneous: 6.1. The applicable law and the forum for resolution of any disputes arising out of this Agreement are specified in the agreement to arbitrate contained in Section 5.3. 6.2. The Company may withhold from any payments made or benefits provided pursuant to this Agreement all federal, State, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 6.3. Except as provided in Sections 4.4[C] and 4.10(2) no failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.4. This Agreement shall be binding upon and inure to the benefit of the Company and any other person, association, or entity which may hereafter acquire or succeed to all or substantially all of the business or assets of the Company by any means whether direct or indirect, by purchase, merger, consolidation, or otherwise. In addition to the obligations imposed by law upon any successor to the Company, the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. -- Page 16 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT 6.5. The Executive's rights and obligations pursuant to this Agreement are personal to the Executive and such rights, benefits, and obligations of the Executive shall not be voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, without the prior written consent of the Company, except through a transfer by testament or by the laws of descent or distribution upon the death of the Executive. In the event of any attempted assignment or transfer contrary to this Section 6.5, the Company shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall be enforceable against the Executive and the Executive's personal and legal representatives, heirs, legatees, executors and administrators. 6.6. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: American General Corporation 2929 Allen Parkway Houston, Texas 77019 Attention: General Counsel If to the Executive, to the Executive's last known address on the records of the Company. Either the Company or the Executive may furnish a change of address to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.7. It is a desire and intent of the parties that the terms, provisions, covenants and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 6.8. Each of the Company and the Executive acknowledges that no representation, inducement, promise, or agreement, oral or written, express or implied, has been made by the other with respect to the subject matters of this Agreement which are not expressed in this Agreement. Except for benefit and compensation plans and grant documents thereunder that contain express change in control provisions, this Agreement constitutes the entire agreement of the parties with regard to the Company's Change in Control obligations to the Executive; terminates any prior severance agreements, including the existing Severance Agreement between the Company and the Executive; and -- Page 17 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT replaces and merges previous agreements and discussions pertaining to the Company's Change in Control obligations to Executive. No modification or amendment of this Agreement will be effective unless such modification or amendment is in writing and signed by the party whose rights are affected thereby. -- Page 18 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT IN WITNESS WHEREOF, the parties have executed and delivered this Agreement to be effective as of the Effective Date stated above. AMERICAN GENERAL CORPORATION By: ____________________________ Jon P. Newton Vice Chairman of the Board EXECUTIVE By: ____________________________ FullName~ -- Page 19 of 19 -- CHANGE IN CONTROL SEVERANCE AGREEMENT EX-10.3 3 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to the Employment Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corpora- tion (the "Company") and Robert M. Devlin (the "Executive") is made on April 30, 1998. 1. Section 8(e)(ii) of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "If the Executive is projected to attain age 60 while he is em- ployed by the Company and while he holds shares of the Company's common stock which were granted to him by the Company and which remain subject to forfeiture restrictions ("Restricted Shares"), then, on the December 31st immediately preceding the calendar year in which age 60 is project- ed to be attained, the Executive's Restricted Shares shall automatically convert into an equal number of Restricted Share Units, as to which payment will be postponed until the date of the Executive's actual termination of employment. While the Restricted Share Units are outstanding, the Executive will be credited with dividend equivalents on the Restricted Share Units, which dividend equivalents will be converted into additional Restricted Share Units. During any period in which the Executive has Restricted Share Units pursuant to this paragraph, for purposes of each provision of each document evidencing the grant of the original Restricted Shares and any plan under which they were granted and for purposes of the first paragraph of this Section 8(e)(ii), the Restricted Share Units shall be treated in a manner substantially equivalent to the treatment of Restricted Shares set forth in each such provision (except that there shall be no voting rights with respect to Restricted Share Units). When payment of any Restricted Share Units is made, it will be made in unrestricted shares of the common stock of the Company, except that any fractional share may be paid in cash." 2. Section 22(c) of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 22(c), if the annual bonus earned by the Executive in respect of the calendar year ending immediately prior to the calendar year in which occurs the Date of Termination (the Executive's "Last Annual Bonus") shall be higher than the average annual bonus calculated in accordance with such foregoing provisions, then, for all purposes of this Agreement, the "Average Annual Bonus" shall be deemed to be equal in amount to the Executive's Last Annual Bonus. 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ LARRY D. HORNER Name: Larry D. Horner Title: Chairman of the Personnel Committee /S/ ROBERT M. DEVLIN Robert M. Devlin 2 EX-10.4 4 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to the Employment Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corpora- tion (the "Company") and Jon P. Newton (the "Executive") is made on April 30, 1998. 1. Section 8(e)(ii) of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "If the Executive is projected to attain Normal Retirement Age while he is employed by the Company and while he holds shares of the Company's common stock which were granted to him by the Company and which remain subject to forfeiture restrictions ("Restricted Shares"), then, on the December 31st immediately preceding the calendar year in which Normal Retirement Age is projected to be attained, the Executive's Restricted Shares shall automatically convert into an equal number of Restricted Share Units, as to which payment will be postponed until the date of the Executive's actual termination of employment. While the Restricted Share Units are outstanding, the Executive will be credited with dividend equivalents on the Restricted Share Units, which dividend equivalents will be converted into additional Restricted Share Units. During any period in which the Executive has Restricted Share Units pursuant to this paragraph, for purposes of each provision of each document evidencing the grant of the original Restricted Shares and any plan under which they were granted and for purposes of the first paragraph of this Section 8(e)(ii), the Restricted Share Units shall be treated in a manner substantially equivalent to the treatment of Restricted Shares set forth in each such provision (except that there shall be no voting rights with respect to Restricted Share Units). When payment of any Restricted Share Units is made, it will be made in unrestricted shares of the common stock of the Company, except that any fractional share may be paid in cash." 2. Section 22(c) of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 22(c), if the annual bonus earned by the Executive in respect of the calendar year ending immediately prior to the calendar year in which occurs the Date of Termination (the Executive's "Last Annual Bonus") shall be higher than the average annual bonus calculated in accordance with such foregoing provisions, then, for all purposes of this Agreement, the "Average Annual Bonus" shall be deemed to be equal in amount to the Executive's Last Annual Bonus. 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ LARRY D. HORNER Name: Larry D. Horner Title: Chairman of the Personnel Committee /S/ JON P. NEWTON Jon P. Newton 2 EX-10.5 5 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to the Employment Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corpora- tion (the "Company") and James S. D'Agostino, Jr. (the "Executive") is made on April 30, 1998. 1. Section 8(e)(ii) of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "If the Executive is projected to attain Normal Retirement Age while he is employed by the Company and while he holds shares of the Company's common stock which were granted to him by the Company and which remain subject to forfeiture restrictions ("Restricted Shares"), then, on the December 31st immediately preceding the calendar year in which Normal Retirement Age is projected to be attained, the Executive's Restricted Shares shall automatically convert into an equal number of Restricted Share Units, as to which payment will be postponed until the date of the Executive's actual termination of employment. While the Restricted Share Units are outstanding, the Executive will be credited with dividend equivalents on the Restricted Share Units, which dividend equivalents will be converted into additional Restricted Share Units. During any period in which the Executive has Restricted Share Units pursuant to this paragraph, for purposes of each provision of each document evidencing the grant of the original Restricted Shares and any plan under which they were granted and for purposes of the first paragraph of this Section 8(e)(ii), the Restricted Share Units shall be treated in a manner substantially equivalent to the treatment of Restricted Shares set forth in each such provision (except that there shall be no voting rights with respect to Restricted Share Units). When payment of any Restricted Share Units is made, it will be made in unrestricted shares of the common stock of the Company, except that any fractional share may be paid in cash." 2. Section 22(c) of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 22(c), if the annual bonus earned by the Executive in respect of the calendar year ending immediately prior to the calendar year in which occurs the Date of Termination (the Executive's "Last Annual Bonus") shall be higher than the average annual bonus calculated in accordance with such foregoing provisions, then, for all purposes of this Agreement, the "Average Annual Bonus" shall be deemed to be equal in amount to the Executive's Last Annual Bonus. 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ ROBERT M. DEVLIN Name: Robert M. Devlin Title: Chief Executive Officer /S/ JAMES S. D'AGOSTINO,JR. James S. D'Agostino, Jr. 2 EX-10.6 6 FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This First Amendment to the Supplemental Executive Retirement Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corporation (the "Company") and Robert M. Devlin (the "Executive") is made on April 30, 1998. 1. Section 2.1 of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "Unless the Executive shall have notified the Company in writing no later than July 1, 1998 (and prior to any termination of his employ- ment) of his election that this paragraph shall be null and void and of no effect, then, notwithstanding the foregoing provisions of this Section 2.1, if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to Section 2.6 hereof, the annual amount of the Normal Retirement Benefit shall equal (X) minus (Y), where (X) is calculated as set forth above, but the amount of (Y) equals only the Social Security Benefit plus the Qualified Plan Benefit (and not the Restoration Plan Benefit). The resulting increase in such lump sum amount shall be paid in lieu of any Restoration Plan Benefit under the circumstances described in Section 2.6 hereof and the Executive hereby waives his right to any Restoration Plan Benefit under (and only under) such circumstances." 2. Section 2.6 of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 2.6, if termi- nation of the Executive's employment occurs after a Change in Control (or is deemed to have occurred after a Change in Control pursuant to the Executive's Employment Agreement) and if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to this Section 2.6 after the Executive shall have attained age 57, the Normal Retirement Benefit calculated pursuant to this Section 2.6 shall not be less than the Normal Retirement Benefit which the Executive would have accrued if the Executive had continued to be employed by the Company until his Normal Retirement Date." 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ LARRY D. HORNER Name: Larry D. Horner Title: Chairman of the Personnel Committee /S/ ROBERT M. DEVLIN Robert M. Devlin 2 EX-10.7 7 FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This First Amendment to the Supplemental Executive Retirement Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corporation (the "Company") and Jon P. Newton (the "Executive") is made on April 30, 1998. 1. Section 2.1 of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "Unless the Executive shall have notified the Company in writing no later than July 1, 1998 (and prior to any termination of his employ- ment) of his election that this paragraph shall be null and void and of no effect, then, notwithstanding the foregoing provisions of this Section 2.1, if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to Section 2.6 hereof, the annual amount of the Normal Retirement Benefit shall equal (X) minus (Y), where (X) is calculated as set forth above, but the amount of (Y) equals only the Social Security Benefit plus the Qualified Plan Benefit (and not the Restoration Plan Benefit). The resulting increase in such lump sum amount shall be paid in lieu of any Restoration Plan Benefit under the circumstances described in Section 2.6 hereof and the Executive hereby waives his right to any Restoration Plan Benefit under (and only under) such circumstances." 2. Section 2.6 of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 2.6, if termi- nation of the Executive's employment occurs after a Change in Control (or is deemed to have occurred after a Change in Control pursuant to the Executive's Employment Agreement) and if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to this Section 2.6 after the Executive shall have attained age 57, the Normal Retirement Benefit calculated pursuant to this Section 2.6 shall not be less than the Normal Retirement Benefit which the Executive would have accrued if the Executive had continued to be employed by the Company until his Normal Retirement Date." 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ LARRY D. HORNER Name: Larry D. Horner Title: Chairman of the Personnel Committee /S/ JON P. NEWTON Jon P. Newton 2 EX-10.8 8 FIRST AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This First Amendment to the Supplemental Executive Retirement Agreement made as of February 1, 1998 (the "Agreement") between American General Corporation, a Texas corporation (the "Company") and James S. D'Agostino, Jr. (the "Executive") is made on April 30, 1998. 1. Section 2.1 of the Agreement is hereby amended by the addition of the following new paragraph at the end thereof: "Unless the Executive shall have notified the Company in writing no later than July 1, 1998 (and prior to any termination of his employ- ment) of his election that this paragraph shall be null and void and of no effect, then, notwithstanding the foregoing provisions of this Section 2.1, if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to Section 2.6 hereof, the annual amount of the Normal Retirement Benefit shall equal (X) minus (Y), where (X) is calculated as set forth above, but the amount of (Y) equals only the Social Security Benefit plus the Qualified Plan Benefit (and not the Restoration Plan Benefit). The resulting increase in such lump sum amount shall be paid in lieu of any Restoration Plan Benefit under the circumstances described in Section 2.6 hereof and the Executive hereby waives his right to any Restoration Plan Benefit under (and only under) such circumstances." 2. Section 2.6 of the Agreement is hereby amended by the addition of the following sentence at the end thereof: "Notwithstanding the foregoing provisions of this Section 2.6, if termi- nation of the Executive's employment occurs after a Change in Control (or is deemed to have occurred after a Change in Control pursuant to the Executive's Employment Agreement) and if payment of a lump sum amount equal to the actuarial equivalent of a Normal Retirement Benefit is to be made pursuant to this Section 2.6 after the Executive shall have attained age 57, the Normal Retirement Benefit calculated pursuant to this Section 2.6 shall not be less than the Normal Retirement Benefit which the Executive would have accrued if the Executive had continued to be employed by the Company until his Normal Retirement Date." 3. As amended by this First Amendment, the Agreement is hereby specifi- cally ratified and reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this First Amend- ment on April 30, 1998. AMERICAN GENERAL CORPORATION By /S/ ROBERT M. DEVLIN Name: Robert M. Devlin Title: Chief Executive Officer /S/ JAMES S. D'AGOSTINO, JR. James S. D'Agostino, Jr. 2 EX-10.9 9 Office of the Chairman Second-to-Die Policy SPLIT-DOLLAR AGREEMENT THIS SPLIT-DOLLAR AGREEMENT (this "Agreement") is made and entered into effective as of May ___, 1998 (the "Effective Date"), by and among AMERICAN GENERAL CORPORATION, a Texas corporation, with principal offices and place of business in Houston, Texas (hereinafter referred to as the "Company"), __________________________________________________________________________ _________________________ (herein-after referred to as the "Executive"), and ______________________________________________________________________ _____________________________________________________ (hereinafter referred to as the "Owner"),1/ WITNESSETH THAT: WHEREAS, the Executive is currently employed by the Company or an affiliate of the Company; and WHEREAS, the Personnel Committee of the Board of Directors of the Company has heretofore authorized the Company to establish and pay premiums under a split-dollar life insurance arrangement relating to a life insur- ance policy insuring the life of the Executive and providing the Executive- 's family with a death benefit equal to 200% of the sum of the Executive's base salary and average annual incentive bonus; and WHEREAS, a greater percentage of the sum of the Executive's base salary and average annual incentive bonus can be provided to the Executive's family as a death benefit if the premiums the Company would have paid toward a life insurance policy insuring only the life of the Executive were used to pay premiums with respect to a life insurance policy insuring the life of the Executive and his spouse as of the Effective Date (the "Spouse"); and WHEREAS, in order to provide his family with greater death benefits, the Executive has requested the Company to use [all][some] of the premiums the Company would have paid toward such individual life insurance policy to make premium payments under a split-dollar arrangement relating to a life insurance policy insuring the life of the Executive and the Spouse; and WHEREAS, in order to retain the benefits of the services of the Executive for the Company and its affiliates, the Company desires to assist the Executive in providing life insurance protection for the Executive's family under a policy of life insurance (hereinafter referred to as the "Policy") insuring the life of the Executive and the Spouse, which Policy is described in Exhibit A attached hereto and by this reference made a part 1/ If the Executive will be the owner of the policy (as opposed to an insurance trust or other entity), then the Executive's name should be inserted in each of the blank spaces provided for the name of the Owner. If the space provided for the name of the Owner is not completed, then the Executive shall be deemed to be the Owner. hereof, and which is being issued by American General Life Insurance Company (hereinafter referred to as the "Insurer"); and WHEREAS, the Company is willing to pay all of the premiums due on the Policy as an additional employment benefit for the Executive, on the terms and conditions hereinafter set forth; and WHEREAS, the Owner will be the owner of the Policy and, as such, will possess all incidents of ownership in and to the Policy; and WHEREAS, the Company wishes to have the Policy collaterally assigned to it by the Owner in order to secure the repayment of the amounts which it will pay toward the premiums on the Policy; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Defined Terms. The terms "Agreement," "Company," "Effective Date," "Executive," "Insurer," "Owner," "Policy," and "Spouse" shall have the meanings assigned to such terms in the preceding provisions of this Agreement. Where the following words and terms are used in this Agreement, they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary: (a) Affiliate: The term "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Securities Exchange Act of 1934, as amended from time to time. (b) Anniversary Date: Each annual anniversary of the Effective Date; provided, however, that for purposes of Paragraph 1(d) below, the Effective Date shall also be considered an Anniversary Date. (c) Average Annual Bonus: As of any date for which the Benefit Amount must be determined pursuant to the terms of this Agreement that occurs (1) during the period beginning on the Effective Date and ending on the first Anniversary Date, an amount equal to the most recent annual incentive bonus paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the Effective Date, (2) during the period beginning on the day immediately following the first Anniver- sary Date and ending on the second Anniversary Date, an amount equal to the average of the two most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the first Anniversary Date, and (3) after the second Anniversary Date, an amount equal to the average of the three most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the Anniversary Date next preceding such date for which the Benefit Amount is determined. (d) Base Salary: As of any date for which the Benefit Amount must be determined pursuant to the terms of this Agreement, the Executi- ve's annual base salary from the Company or an Affiliate of the Company at the rate in effect on the Anniversary Date next preceding such date. -2- (e) Benefit Amount: As of any given date, an amount equal to _____% of the sum of the Executive's Base Salary and Average Annual Bonus as of such date. Notwithstanding the foregoing or any provision in this Agreement to the contrary, the Benefit Amount shall not be increased at any time after the Effective Date to the extent such increase is subject to the medical underwriting requirements of the Insurer and the Insurer refuses to increase the face amount of the Policy based upon the health or medical condition of the Executive or the Spouse. (f) Change in Control: The term "Change in Control" shall have the meaning assigned to such term in the Employment Agreement between the Company and the Executive that is in effect on the Effective Date (or any successor agreement thereto). (g) Claimant: The term "Claimant" shall have the meaning assigned to such term in Paragraph 10 hereof. (h) Measurement Date: The earlier of (1) the date upon which the Executive's employment with the Company terminates for any reason whatsoever (including, without limitation, termination of employment by reason of the death or retirement of the Executive), (2) the date of the death of the Spouse, (3) the date upon which the Executive becomes entitled to receive long-term disability benefits under a long-term disability plan maintained by the Company or an Affiliate of the Company, or (4) the effective date of the termination of this Agreement pursuant to Paragraph 8 hereof. (i) Normal Retirement Date: The term "Normal Retirement Date" shall have the meaning assigned to such term in the Supplemental Executive Retirement Agreement between the Company and the Executive that is in effect on the Effective Date. (j) Premium Payment Period: A period of 10 years commencing on the Effective Date. (k) Relevant Assumptions: As of any given date, (1) the Company's assumption as of such date with respect to the rate of in- crease, if any, in the Benefit Amount from such date to the Executive's Normal Retirement Date (or, if the Executive continues his employment with the Company beyond the Executive's Normal Retirement Date, to the Executive's projected date of retirement from the Company) and (2) current mortality rates and charges, crediting rates, expenses, and other relevant matters applicable to the Policy as of such date. Notwithstanding the foregoing, the assumed rate of increase in the Benefit Amount shall be 0% from and after the Measurement Date. 2. Acquisition and Ownership of Policy; Limitations on Owner's Rights in Policy. (a) The Owner shall contemporaneously purchase the Policy from the Insurer in the initial total face amount specified in Exhibit A attached hereto. The parties hereto agree that they shall take all reasonable action necessary to cause the Insurer to issue the Policy, and -3- shall take any further reasonable action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the Policy shall be subject to the terms and conditions of this Agreement and of the collateral assignment filed with the Insurer relating to the Policy. (b) The Policy names the Owner, and the Owner shall be, the sole and absolute owner of the Policy. The Owner shall not exercise any of the ownership rights granted to the owner of the Policy by the terms thereof except with the express written consent of the Company. Without limiting the scope of the foregoing, the Owner shall not sell, assign, transfer, borrow against or withdraw from the cash surrender value of the Policy, change the beneficiary designation provision of the Policy, change the elected death benefit option provisions of the Policy, decrease or increase the face amount of insurance, surrender or cancel the Policy, or take any other action with respect to the Policy without, in any such case, the express written consent of the Company. (c) Notwithstanding the provisions of Paragraph 2(b) above, the Owner shall have the right to take any of the following actions without the express written consent of the Company, provided that the Owner provides the Company with 15 days prior written notice of any such action: (1) designate the beneficiary or beneficiaries to receive the portion of the proceeds payable under the Policy specified in Paragraph 7(b) hereof; (2) elect the settlement option with respect to such proceeds from among the settlement options available under the Policy; and (3) change such benefi- ciary designation and settlement option from time to time. 3. Collateral Assignment; Limitation on Company's Rights in Policy. (a) To secure the repayment to the Company of the amount of the premiums on the Policy paid by the Company hereunder, the Owner has, contemporaneously herewith, assigned the Policy to the Company as collater- al under a separate assignment instrument. The collateral assignment of the Policy to the Company shall not be terminated, altered or amended by the Owner, without the express written consent of the Company. The parties hereto agree to take all action necessary to cause such collateral assign- ment to conform to the provisions of this Agreement and to be accepted by the Insurer. Without limiting the scope of the preceding provisions of this Paragraph 3, the parties hereto agree that the Company shall have an interest in the cash surrender value and the death benefits under the Policy to secure the amounts due to the Company hereunder, which interest shall in no event be less than the aggregate premium payments made with respect to the Policy by the Company pursuant to Paragraph 5 below. (b) The Company shall not at any time prior to the termination of this Agreement (1) take any action that would cause the death benefits under the Policy that would be available for distribution to the beneficia- ry or beneficiaries designated by the Owner as provided herein to be less than the Benefit Amount (determined as of the earlier of the Measurement Date or the date such action was taken by the Company) and (2) from and after the date upon which a Change in Control occurs, borrow against the Policy, pledge the Policy as collateral for a loan, withdraw any amount -4- from the Policy or otherwise access any funds held under the Policy until such time as the beneficiary or beneficiaries designated by the Owner have received all of the Policy death benefits to which they are entitled pursuant to the provisions of this Agreement. 4. Adjustments to Policy Face Amount. On each Anniversary Date that occurs prior to the Measurement Date, the parties hereto shall cause the total face amount of the Policy to be adjusted to the extent necessary, if any, so that such face amount is equal to the Benefit Amount (which Benefit Amount shall be determined as of the day immediately following such Anniversary Date); provided, however, that if any such adjustment would require a reduction in the face amount of the Policy, then the Company may, in its sole discretion, determine that no such adjustment to the face amount of the Policy shall be made for such Anniversary Date. The parties hereto agree that they shall take all reasonable action necessary to cause the Insurer to adjust the face amount of the Policy as provided in the preceding sentence. Without limiting the scope of the foregoing, (a) the Executive, the Spouse and the Owner shall furnish any and all information requested by the Company or the Insurer to facilitate an adjustment to the face amount of the Policy and (b) the Executive and the Spouse shall take such physical examinations as the Insurer may deem necessary. 5. Payment of Premiums. (a) On the Effective Date and on or before each Anniversary Date, the Company shall pay to the Insurer, as premium payments with respect to the Policy, the amount, if any, determined by the Company in its sole discretion; provided, however, that: (1) on the Effective Date and on each Anniversary Date that occurs during the Premium Payment Period and prior to the termina- tion of this Agreement, the Company shall make substantially level premium payments with respect to the Policy based upon a premium payment policy established by the Company that is designed to (i) maintain the Policy in a manner sufficient to provide the level of death benefits to the Owner s beneficiary or beneficiaries pursuant to Paragraph 7(b) hereof in the event of the death of both the Executive and the Spouse prior to the end of the Premium Payment Period and (ii) accumulate sufficient funds under the Policy (based upon the assumption that the Executive will retire as of the Executive's Normal Retirement Date) so that as of the end of the Premium Payment Period the Policy is projected to have sufficient funds to (A) at all times thereafter provide a minimum death benefit in an amount equal to the Benefit Amount without any further premium payments and (B) permit the Owner to terminate this Agreement as of the fifteenth Anniversary Date and use accumulations under the Policy to obtain the release of the collateral assignment of the Policy to the Company; and (2) on each Anniversary Date that occurs after the end of the Premium Payment Period and prior to the termination of this Agree- ment, the Company shall make a premium payment with respect to the Policy in at least the amount required so that as of such Anniversary Date the Policy is projected to have sufficient funds to (i) at all -5- times thereafter provide a minimum death benefit in an amount equal to the Benefit Amount without any further premium payments and (ii) permit the Owner to terminate this Agreement as of the fifteenth Anniversary Date and use accumulations under the Policy to obtain the release of the collateral assignment of the Policy to the Company. The amount of each premium payment required pursuant to clauses (1) and (2) of the preceding sentence shall be determined based upon (i) the Relevant Assumptions in effect as of the date such premium payment is required to be paid by the Company pursuant to this Paragraph 5(a) and (ii) if the Measurement Date has not occurred as of such premium payment date, the Company's estimate of the date upon which the Measurement Date will occur (which date shall be estimated to be no earlier than the Executive's Normal Retirement Date). The Owner and the Executive acknowledge and agree that (A) the Company is agreeing to make premium payments with respect to the Policy as described above based upon the Relevant Assumptions and for the period of time set forth in this Agreement, (B) the actual crediting rates under the Policy and the charges and expenses incurred with respect to the Policy may deviate from the rates, charges and expenses utilized from time to time under the Relevant Assumptions, and (C) accordingly, the Company makes no guarantee that the Policy will, in fact, have sufficient funds to provide a minimum death benefit in an amount equal to the Benefit Amount at all times after the termination of this Agreement without any further premium payments. The Company shall promptly notify the Owner of the date and the amount of each premium payment made by the Company with respect to the Policy and, promptly upon receipt, the Owner shall furnish the Company with a copy of the annual report for the Policy received by the Owner from the Insurer. (b) Upon the occurrence of a Change in Control, the Company shall promptly pay into a rabbi trust a single lump sum cash payment in an amount equal to the projected amount of premium payments that the Company would be required to make with respect to the Policy pursuant to Paragraph 5(a) hereof during the longer of (1) the remaining portion of the Premium Payment Period and (2) the 36 month period beginning on the date of such Change in Control. For purposes of this Paragraph 5(b), the longer of the periods referred to in clauses (1) and (2) of the preceding sentence shall be referred to as the "Rabbi Trust Period." Pursuant to the terms of the rabbi trust, on each Anniversary Date that occurs during the Rabbi Trust Period, the trustee of the rabbi trust shall pay to the Insurer as a premium with respect to the Policy an amount equal to (i) the amount initially deposited in the rabbi trust by the Company divided by (ii) the number of Anniversary Dates that will occur during the Rabbi Trust Period. After the trustee has made such a premium payment on each Anniversary Date that occurs during the Rabbi Trust Period, the rabbi trust shall terminate and any remaining funds held by the trustee shall be returned to the Company. Notwithstanding the foregoing, the Company shall remain obligated to make all premium payments required pursuant to Paragraph 5(a) hereof; provided, however, that the Company shall be relieved of such obligation to the extent of the amount of each premium payment made by the trustee of the rabbi trust with respect to the Policy. All costs and expenses associated with the establishment and maintenance of the rabbi trust shall be paid by the Company. -6- (c) Neither the Executive, the Spouse nor the Owner shall have any obligation to pay any premiums with respect to the Policy prior to the termination of this Agreement. The Company shall have no obligation to pay any premiums with respect to the Policy from and after the termination of this Agreement pursuant to Paragraph 8 below. 6. Provision of Information. On or before January 31 of each calendar year, the Company shall furnish to the Executive a statement of the amount of income, if any, reportable by the Executive for federal and state income tax purposes for the preceding calendar year as a result of the existence and maintenance of the Policy. The Owner and the Executive shall promptly furnish the Company with (a) copies of any information or notices provided by the Insurer from time to time with respect to the Policy and (b) any other material or information relating to the Policy and reasonably requested by the Company from time to time. Upon request, the Company shall promptly furnish to the Owner evidence of timely payment of any amount required to be paid by the Company pursuant to Paragraph 5 hereof. 7. Collection and Distribution of Death Proceeds. (a) Upon the death of the second to die of the Executive and the Spouse prior to the termination of this Agreement during the lifetime of the Executive or the Spouse, the Company and the Owner shall cooperate with the beneficiary or beneficiaries designated by the Owner to take whatever action is necessary to collect the death benefit provided under the Policy. When such benefit has been collected and paid as provided herein, this Agreement shall thereupon terminate. (b) Upon the death of the second to die of the Executive and the Spouse prior to the termination of this Agreement during the lifetime of the Executive or the Spouse, the beneficiary or beneficiaries designated by the Owner pursuant to Paragraph 2(c) hereof shall be entitled to receive a portion of the death benefits provided under the Policy in an amount equal to the Benefit Amount determined as of the Measurement Date. This amount shall be paid under the settlement option elected by the Owner. (c) Upon the death of the second to die of the Executive and the Spouse prior to the termination of this Agreement during the lifetime of the Executive or the Spouse, the Company shall have the unqualified right to receive any and all of the death benefits provided under the Policy in excess of the amount payable pursuant to Paragraph 7(b) above to the beneficiary or beneficiaries designated by the Owner. This amount shall be paid to the Company in a single lump sum cash payment. (d) The parties hereto agree that, upon the request of the Company, the beneficiary designation provision of the Policy shall conform to the provisions hereof. 8. Termination of Agreement. (a) This Agreement may be terminated by the Owner at any time during the lifetime of the Executive or the Spouse and after the fifteenth -7- Anniversary Date upon written notice to the Company and payment to the Company by the Owner at the time of such notice of a single lump sum cash payment in an amount equal to the aggregate premium payments made by the Company pursuant to Paragraph 5 hereof on or before the date of such termination, less any withdrawals from the Policy by the Company prior to the date of such termination and any indebtedness secured by the Policy which was incurred by the Company and remains outstanding as of the date of such termination, including any unpaid accrued interest on such indebted- ness. Upon receipt of such amount, the Company shall release the collater- al assignment of the Policy by the execution and delivery of an appropriate instrument of release. (b) This Agreement may be terminated by the Company at any time during the lifetime of the Executive or the Spouse and after the later of (i) the date upon which the Executive's employment with the Company termi- nates, (ii) the Executive's Normal Retirement Date and (iii) the fifteenth Anniversary Date. The Company shall provide the Owner and, if then living, the Executive with 30 days' prior written notice of any such termination of this Agreement by the Company. If this Agreement is terminated by the Company as provided in the preceding provisions of this Paragraph 8(b), then for 60 days after the effective date of the termination of this Agreement, the Owner shall have the option of obtaining the release of the collateral assignment of the Policy to the Company. To obtain such release, the Owner shall repay to the Company the total amount of the premium payments made by the Company hereunder, less any withdrawals from the Policy by the Company prior to the date of such termination and any indebtedness secured by the Policy which was incurred by the Company and remains outstanding as of the date of such termination, including any unpaid accrued interest on such indebtedness. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy by the execution and delivery of an appropriate instrument of release. If the Owner fails to exercise such option within such 60 day period, then the interest of the Owner in the Policy shall automatically be transferred to the Company and the Owner shall execute any document or documents requested by the Company or the Insurer to effect such transfer. Alternatively, the Company may enforce its right to be repaid the amount due it hereunder from the cash surrender value of the Policy under the collateral assignment of the Policy; provided that in the event the cash surrender value of the Policy exceeds the amount due the Company, such excess shall be paid to the Owner. Thereafter, neither the Owner nor any person claiming under the Owner shall have any further interest in and to the Policy, either under the terms thereof or under this Agreement. 9. Insurer Not a Party. Subject to the terms and conditions of the Policy, the Insurer shall be fully discharged from its obligations under the Policy by payment of the Policy death benefit to the beneficiary or beneficiaries named in the Policy and upon the performance of its other obligations in accordance with the terms of the Policy. In no event shall the Insurer be considered a party to this Agreement, or any modification or amendment hereof. No provision of this Agreement, nor of any modification or amendment hereof, shall in any way be construed as enlarging, changing, varying, or in any other way affecting the obligations of the Insurer as expressly provided in the Policy. -8- 10. Named Fiduciary, Determination of Benefits, Claims Procedure and Administration. (a) Named Fiduciary. The Company is hereby designated as the named fiduciary under this Agreement. The named fiduciary shall have authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a premium payment policy and method consistent with the objectives of this Agreement. (b) (1) Claim. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Agreement (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Company, setting forth his or her claim. The request must be addressed to the Company at its then principal place of business. (2) Claim Decision. Upon receipt of a claim, the Company shall advise the Claimant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. The Company may, however, extend the reply period for an additional 90 days for reasonable cause. If the claim is denied in whole or in part, the Company shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: (i) the specific reason or reasons for such denial; (ii) the specific reference to pertinent provisions of this Agreement on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under subsection (3) and for review under subsection (4) hereof. (3) Request for Review. Within 60 days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Company review its determination. Such request must be addressed to the Company, at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Company. If the Claimant does not request a review of the Company's determination within such 60 day period, he or she shall be barred and estopped from challenging the Company's determination. (4) Review of Decision. Within 60 days after the Company- 's receipt of a request for review, it will review the determination. After considering all materials presented by the Claimant, the Company will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based. If special circum- -9- stances require that the 60 day time period be extended, the Company will so notify the Claimant and will render the decision as soon as possible, but no later than 120 days after receipt of the request for review. 11. Arbitration. (a) Upon completion of the claims procedure described in Paragraph 10(b) hereof (if applicable), all claims, demands, causes of action, disputes, controversies, and other matters in questions arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement involving the parties hereto and/or their respective representatives, even though some or all of such claims allegedly are extra-contractual in nature, whether such claims sound in contract, tort, or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Employment Dispute Resolution Rules then in effect with the American Arbitration Association. The arbitration proceeding shall be conducted in Houston, Texas. This agreement to arbitrate shall be enforce- able in either federal or state court. (b) The enforcement of this agreement to arbitrate and all procedural aspects of this agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the issues subject to arbitration (i.e., arbitrability), the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act and shall be decided by the arbitrators. In deciding the substance of any such claims, the arbitrators shall apply the substantive laws of the State of Texas (excluding Texas choice-of-law principles that might call for the application of some other state s law); provided, however, it is expressly agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary, or punitive damages in connection with any such claims. The Company shall bear all of its costs and expenses incurred in connection with the arbitration proceed- ing. If arbitration is instituted to enforce the terms of this Agreement and the Owner or the Executive, as applicable, prevails on at least one of the issues involved in such arbitration, whether as plaintiff or defendant, then, in addition to the remedy or relief obtained in such arbitration proceeding by the Owner or the Executive, such party shall be entitled to recover its or his expenses incurred in connection with such arbitration proceeding, including, without limitation, arbitrators and attorneys fees, and the arbitrators are authorized to so award such costs and fees. -10- (c) The arbitration may be initiated by any party by providing to the other parties a written notice of arbitration specifying the claims. Within 30 days of the notice of initiation of the arbitration procedure, (1) the Owner and the Executive, acting together, shall denominate one arbitrator and (2) the Company shall denominate one arbitrator. The two arbitrators shall select a third arbitrator failing agreement on which within 60 days of the original notice, either the Owner, the Executive or the Company shall apply to the Senior Active United States District Judge for the Southern District of Texas, who shall appoint a third arbitrator. While the third arbitrator shall be neutral, the two party-appointed arbitrators are not required to be neutral and it shall not be grounds for removal of either of the two party-appointed arbitrators or for vacating the arbitrators' award that either of such arbitrators has past or present minimal relationships with the party that appointed such arbitrator. Evident partiality on the part of an arbitrator exists only where the circumstances are such that a reasonable person would have to conclude there in fact existed actual bias. A mere appearance or impression of bias will not constitute evident partiality or otherwise disqualify an arbitra- tor. (d) The three arbitrators shall by majority vote resolve all disputes between the parties. There shall be no transcript of the hearing before the arbitrators. The arbitrators' decision shall be in writing, but shall be as brief as possible. The arbitrators shall not assign the reasons for their decision. The arbitrators shall certify in their award that they have faithfully applied the terms and conditions of this Agree- ment and that no part of their award includes any amount for exemplary or punitive damages. All proceedings conducted hereunder and the decision of the arbitrators shall be kept confidential by the parties, e.g., the arbitrators award shall not be released to the press or published in any of the various arbitration reporters. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. 12. Amendment. This Agreement may not be amended, altered, or modified, except by a written instrument signed by the parties hereto, or their respective successors or assigns. Notwithstanding the foregoing or any other provision herein to the contrary, the Premium Payment Period, the face amount of the Policy, the amount of premiums to be paid by the Company, and/or the references in this Agreement to the fifteenth Anniver- sary Date may be changed by the Company without the consent of the Owner or the Executive to the extent necessary to (a) maintain the Policy as a "life insurance contract" (within the meaning of Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), and the interpretative authority promulgated thereunder) and (b) prevent the Policy from consti- tuting a "modified endowment contract" (within the meaning of Section 7702A of the Code and the interpretative authority promulgated thereunder). The Company shall provide the Owner and the Executive with prompt written notice of any such change. 13. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and the Owner, the Executive and their respective successors, assigns, heirs, executors, -11- administrators, and beneficiaries; provided, however, that the rights and obligations of the Owner and the Executive hereunder are personal and neither this Agreement, nor any right, benefit, or obligation of the Owner or the Executive hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or other- wise, without the prior written consent of the Company. 14. Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States registered or certified mail, postage prepaid, addressed to such party's last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of notice, consent or demand. 15. Employment Relationship. For all purposes of this Agreement, the Executive shall be considered to be in the employment of the Company as long as the Executive remains an employee of the Company or any Affiliate of the Company. However, this Agreement is not an employment agreement. This Agreement shall not be construed as creating an express or implied contract of employment and does not modify the nature of the Executive's employment relationship with the Company or its Affiliates, as the case may be. Except as otherwise agreed in writing between the Executive and the Company or an Affiliate of the Company, the employment relationship between the Executive and the Company or its Affiliates is at-will, i.e., the employment relationship may be terminated at any time at the will of either the Company or the Executive for any reason or no reason at all. 16. Taxes and Policy Illustrations. The Company makes no guarantees and assumes no obligations or responsibilities with respect to the Owner's, the Executive's or the Spouse's federal, state, or local income, estate, inheritance, and gift tax obligations, if any, under this Agreement, the Policy or the collateral assignment of the Policy to the Company. The Executive and the Owner agree and acknowledge that the Policy illustrations provided prior to the Effective Date and any Policy illustrations that may be provided from time to time thereafter by the Company, the Insurer or their respective agents and representatives are not guaranteed and are not a part of the Policy or this Agreement. Such Policy illustrations shall not create any additional obligations or responsibilities to the Executive or the Owner by the Company, the Insurer, or their respective agents and representatives. 17. Governing Law. This Agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of Texas. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this the _____ day of ____________, 1998, effective as of the Effective Date. AMERICAN GENERAL CORPORATION By:_______________________________________ Name:_____________________________________ Title:____________________________________ "COMPANY" __________________________________________ ____________________ "EXECUTIVE" __________________________________________ _______________________________________ "OWNER" The Spouse joins in the execution of this Agreement for the sole purpose of evidencing her agreement to the provisions set forth in Paragraphs 2(a) and 4 of this Agreement. __________________________________________ ______________________ "SPOUSE" EXHIBIT A The following life insurance policy is subject to the attached Split- Dollar Agreement: Insurer: American General Life Insurance Company Insureds: __________________________ Policy Number: __________________________ Face Amount on the Effective Date: $_________________________ Effective Date of Policy: May____, 1998 -13- Office of the Chairman Second-to-Die Policy ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL A. FOR VALUE RECEIVED, the undersigned (hereinafter the "Owner") hereby assigns, transfers and sets over to American General Corporation, with principal offices and place of business in Houston, Texas, its successors and assigns (hereinafter the "Assignee"), Policy No. __________- _______ issued by American General Life Insurance Company (hereinafter the "Insurer"), and any supplementary contracts issued in connection therewith (said policy and contracts hereinafter the "Policy"), insuring the lives of ________________ ___________ (the "Executive") and his spouse as of the date hereof, and all claims, options, privileges, rights, title and interest therein and thereunder (except as otherwise provided herein), subject to all the terms and conditions of the Policy and to all superior liens, if any, which the Insurer may have against the Policy. The Owner, by this Assignment, and the Assignee, by acceptance of the assignment of the Policy to it hereunder, agree to the terms and conditions contained herein. B. This Assignment is made and the Policy is to be held as collateral security for any and all liabilities and obligations of the Owner to the Assignee, either now existing or that may hereafter arise, under and pursuant to that certain Split-Dollar Agreement by and among the Owner, the Assignee, and the Executive, dated effective as of May ____, 1998 (herein- after the "Split-Dollar Agreement"). The liabilities and obligations described in the preceding sentence are hereinafter referred to as the "Liabilities." C. It is expressly agreed that, without detracting from the generali- ty of the foregoing, the following specific rights are included in this Assignment and pass to the Assignee by virtue hereof: 1. The sole right to collect from the Insurer the net proceeds of the Policy when it becomes a claim by death or maturity; 2. The sole right to surrender the Policy and receive the surrender value thereof at any time provided by the terms of the Policy and at such other times as the Insurer may allow; and 3. The sole right to obtain one or more withdrawals, loans or advances on the Policy, either from the Insurer or, at any time, from other persons, and to pledge or assign the Policy as security for such loans or advances. D. It is expressly agreed that the following specific rights, so long as the Policy has not been surrendered and to the extent permitted under the Split-Dollar Agreement, are reserved by the Owner and excluded from this Assignment and do not pass by virtue hereof: 1. The right to designate and change the beneficiary to receive the portion of the proceeds under the Policy specified in Paragraph 7(b) of the Split-Dollar Agreement; and 2. The right to elect any optional mode of settlement permitted by the Policy or allowed by the Insurer with respect to such proceeds. However, the reservation of these rights by the Owner shall in no way impair the right of the Assignee to surrender the Policy nor impair any other right of the Assignee hereunder. Further, any exercise of these rights shall be made subject to this Assignment and to the rights of the Assignee hereunder. E. Notwithstanding the foregoing, the Assignee covenants and agrees with the Owner as follows: 1. Any balance of sums received hereunder from the Insurer remaining after payment of the then existing Liabilities shall be paid by the Assignee to the persons entitled thereto under the terms of the Policy, had this Assignment not been executed; 2. The Assignee will not exercise the right to surrender the Policy, nor the right to make withdrawals from the Policy or obtain policy loans from the Insurer, unless and until there has been default in any of the Liabilities or the Split-Dollar Agreement has been terminated, pursuant to its terms; in any event, the Assignee will not exercise any such right until 15 days after the Assignee shall have mailed notice of intention to exercise such right, by first class mail, to the Owner at the address last supplied in writing to the Assignee specifically referring to this Assignment; and 3. The Assignee will, upon request, forward the Policy to the Insurer without unreasonable delay, for endorsement of any designation or change of beneficiary or any election of an optional mode of settle- ment that has been elected by the Owner. F. The Insurer is hereby authorized to recognize the Assignee's claims to rights hereunder without investigating the reason for any action taken by the Assignee, the validity or the amount of the Liabilities, the existence of any default therein, termination of the Split-Dollar Agree- ment, the giving of any notice hereunder, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of any rights under the Policy assigned hereby and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the Insurer. Payment for all or any part of the sums due under the Policy and assigned herein shall be drawn to the exclusive order of or as directed by the Assignee if, when, and in such amounts as may be requested by the Assignee. G. The Assignee shall be under no obligation to pay any premium on the Policy nor the principal of or interest on any loans or advances on the Policy, whether or not obtained by the Assignee, or any other charges on the Policy. H. The exercise of any right, option, privilege or power given herein to the Assignee shall be at the option of the Assignee, and (except as -15- provided herein) the Assignee may exercise any such right, option, privi- lege or power without notice to, or assent by, or affecting the liability of, or releasing any interest hereby assigned by the Owner. I. If applicable, the Assignee may take or release other security, may release any party primarily or secondarily liable for any of the Liabilities, may grant extensions, renewals or indulgences with respect to the Liabilities, or may apply the proceeds of the Policy hereby assigned or any amount received on account of the Policy by the exercise of any right permitted under this Assignment to the Liabilities in such order as the Assignee shall determine, without resorting to or regard to other security. J. As applied to the duties and responsibilities of the Insurer, in the event of any conflict between the provisions of this Assignment and the provisions of the Split-Dollar Agreement with respect to the Policy or the Assignee's rights of collateral security therein, the provisions of this Assignment shall prevail. As applied between the Owner and the Assignee, in the event of any such conflict, the provisions of the Split-Dollar Agreement shall prevail. K. The Owner declares that no proceedings in bankruptcy are pending against the Owner and that the Owner's property is not subject to any assignment for the benefit of creditors of the Owner. SIGNED this ___ day of ______________, 1998, effective as of May _____, 1998. ___________________________________ ___________________________________ ___________________________________ "OWNER" This Assignment is hereby accepted and agreed to by the Assignee. AMERICAN GENERAL CORPORATION By:______________________________________ Name:____________________________________ Title:___________________________________ "ASSIGNEE" -16- STATE OF _______________ Section Section _______________ COUNTY Section On the _____ day of ___________________________, 1998, before me personally came ______________________, __________________________________- __________________, to me known to be the individual who executed the Assignment on the preceding pages hereof and acknowledged to me that he or she executed the same. _____________________________________ Notary Public in and for THE STATE OF_________________________ My Commission Expires: ____________________________ -17- Other Executives SPLIT-DOLLAR AGREEMENT THIS SPLIT-DOLLAR AGREEMENT (this "Agreement") is made and entered into effective as of May ___, 1998 (the "Effective Date"), by and among AMERICAN GENERAL CORPORATION, a Texas corporation, with principal offices and place of business in Houston, Texas (hereinafter referred to as the "Company"), ____________________________________________ (hereinafter referred to as the "Executive"), and ____________________________________________________- ______ __________________ _________________________________ (hereinafter referred to as the "Owner"),2/ WITNESSETH THAT: WHEREAS, the Executive is currently employed by the Company or an affiliate of the Company; and WHEREAS, in order to retain the benefits of the services of the Execu- tive for the Company and its affiliates, the Company desires to assist the Executive in providing life insurance protection for the Executive's family under a policy of life insurance (hereinafter referred to as the "Policy") insuring the life of the Executive, which Policy is described in Exhibit A attached hereto and by this reference made a part hereof, and which is being issued by American General Life Insurance Company (hereinafter referred to as the "Insurer"); and WHEREAS, the Company is willing to pay all of the premiums due on the Policy as an additional employment benefit for the Executive, on the terms and conditions hereinafter set forth; and WHEREAS, the Owner will be the owner of the Policy and, as such, will possess all incidents of ownership in and to the Policy; and WHEREAS, the Company wishes to have the Policy collaterally assigned to it by the Owner in order to secure the repayment of the amounts which it will pay toward the premiums on the Policy; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein, the parties hereto agree as follows: 1. Defined Terms. The terms "Agreement," "Company," "Effective Date," "Executive," "Insurer," "Owner," and "Policy" shall have the meanings assigned to such terms in the preceding provisions of this Agreement. Where the following words and terms are used in this Agreement, 2/ If the Executive will be the owner of the policy (as opposed to an insurance trust or other entity), then the Executive's name should be inserted in each of the blank spaces provided for the name of the Executive and the name of the Owner. If the space provided for the name of the Owner is not completed, then the Executive shall be deemed to be the Owner. they shall have the respective meanings set forth below, unless the context clearly indicates to the contrary: (a) Affiliate: The term "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Securities Exchange Act of 1934, as amended from time to time. (b) Anniversary Date: Each annual anniversary of the Effective Date; provided, however, that for purposes of Paragraph 1(d) below, the Effective Date shall also be considered an Anniversary Date. (c) Average Annual Bonus: [FOR EXECUTIVES OTHER THAN MESSRS. GRAF AND SCOTT: As of any date for which the Benefit Amount must be determined pursuant to the terms of this Agreement that occurs (1) during the period beginning on the Effective Date and ending on the first Anniversary Date, an amount equal to the most recent annual incentive bonus paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the Effective Date, (2) during the period beginning on the day immediately following the first Anniver- sary Date and ending on the second Anniversary Date, an amount equal to the average of the two most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the first Anniversary Date, and (3) after the second Anniversary Date, an amount equal to the average of the three most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the Anniversary Date next preceding such date for which the Benefit Amount is determined.][FOR MESSRS. GRAF AND SCOTT: As of any date for which the Benefit Amount must be determined pursuant to the terms of this Agreement that occurs (1) during the period beginning on the Effective Date and ending on the first Anniversary Date, an amount equal to ____ % of the Executive s annual base salary from the Company or an Affiliate of the Company at the rate in effect on the Effective Date (the "Deemed Bonus"), (2) during the period beginning on the day immediately following the first Anniversary Date and ending on the second Anniversary Date, an amount equal to the average of the Deemed Bonus and the most recent annual incentive bonus paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the first Anniversary Date, (3) during the period beginning on the day immediately following the second Anniversary Date and ending on the third Anniversary Date, an amount equal to the average of the Deemed Bonus and the two most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the second Anniversary Date, and (4) after the third Anniversary Date, an amount equal to the average of the three most recent annual incentive bonuses paid in cash by the Company (or an Affiliate of the Company) to the Executive on or before the Anniversary Date next preceding such date for which the Benefit Amount is determined.] (d) Base Salary: As of any date for which the Benefit Amount must be determined pursuant to the terms of this Agreement, the Executi- ve's annual base salary from the Company or an Affiliate of the Company at the rate in effect on the Anniversary Date next preceding such date. -19- (e) Benefit Amount: As of any given date, an amount equal to 200% of the sum of the Executive's Base Salary and Average Annual Bonus as of such date; provided, however, that on the Executive's Normal Retirement Date, the Benefit Amount shall be reduced to 100% of the sum of the Executive's Base Salary and Average Annual Bonus as of the Measurement Date (except that if the Executive continues his or her employment beyond the Executive's Normal Retirement Date, then such reduction shall occur on the date of the Executive's termination of employment with the Company for a reason other than death). Notwith- standing the foregoing or any provision in this Agreement to the contrary, the Benefit Amount shall not be increased at any time after the Effective Date to the extent such increase is subject to the medical underwriting requirements of the Insurer and the Insurer refuses to increase the face amount of the Policy based upon the health or medical condition of the Executive. (f) Cause: The term "Cause" shall have the meaning assigned to such term in the Change in Control Severance Agreement. (g) Change in Control: The term "Change in Control" shall have the meaning assigned to such term in the Change in Control Severance Agreement. (h) Change in Control Severance Agreement: The Change in Control Severance Agreement between the Company and the Executive that is in effect on the Effective Date (or any successor agreement thereto). (i) Claimant: The term "Claimant" shall have the meaning assigned to such term in Paragraph 10 hereof. (j) Disabled: The Executive shall be considered "Disabled" for purposes of this Agreement at such time as the Executive becomes entitled to receive long-term disability benefits under a long-term disability plan maintained by the Company or an Affiliate of the Company. (k) Measurement Date: The earlier of (1) the date upon which the Executive's employment with the Company terminates for any reason whatsoever (including, without limitation, termination of employment by reason of the death or retirement of the Executive), (2) the date upon which the Executive becomes Disabled, or (3) the effective date of the termination of this Agreement pursuant to Paragraph 8 hereof. (l) Normal Retirement Date: The term "Normal Retirement Date" shall have the meaning assigned to such term in the Company's Supplemen- tal Executive Retirement Plan that is in effect on the Effective Date. (m) Premium Payment Period: A period of 10 years commencing on the Effective Date; provided, however, that upon written notice to the Owner and the Executive prior to the occurrence of a Change in Control, the Company may from time to time extend the Premium Payment Period for any period determined by the Company that ends on or before the later of -20- (1) the Executive's Normal Retirement Date or (2) the fifteenth Anniver- sary Date. (n) Relevant Assumptions: As of any given date, (1) the Company's assumption as of such date with respect to the rate of increase, if any, in the Benefit Amount from such date to the Executive- 's Normal Retirement Date (or, if the Executive continues his or her employment with the Company beyond the Executive's Normal Retirement Date, to the Executive's projected date of retirement from the Company) and (2) current mortality rates and charges, crediting rates, expenses, and other relevant matters applicable to the Policy as of such date. Notwithstanding the foregoing, the assumed rate of increase in the Benefit Amount shall be 0% from and after the Measurement Date. 2. Acquisition and Ownership of Policy; Limitations on Owner's Rights in Policy. (a) The Owner shall contemporaneously purchase the Policy from the Insurer in the initial total face amount specified in Exhibit A attached hereto. The parties hereto agree that they shall take all reasonable action necessary to cause the Insurer to issue the Policy, and shall take any further reasonable action which may be necessary to cause the Policy to conform to the provisions of this Agreement. The parties hereto agree that the Policy shall be subject to the terms and conditions of this Agreement and of the collateral assignment filed with the Insurer relating to the Policy. (b) The Policy names the Owner, and the Owner shall be, the sole and absolute owner of the Policy. The Owner shall not exercise any of the ownership rights granted to the owner of the Policy by the terms thereof except with the express written consent of the Company. Without limiting the scope of the foregoing, the Owner shall not sell, assign, transfer, borrow against or withdraw from the cash surrender value of the Policy, change the beneficiary designation provision of the Policy, change the elected death benefit option provisions of the Policy, decrease or increase the face amount of insurance, surrender or cancel the Policy, or take any other action with respect to the Policy without, in any such case, the express written consent of the Company. (c) Notwithstanding the provisions of Paragraph 2(b) above, the Owner shall have the right to take any of the following actions without the express written consent of the Company, provided that the Owner provides the Company with 15 days prior written notice of any such action: (1) designate the beneficiary or beneficiaries to receive the portion of the proceeds payable under the Policy specified in Paragraph 7(b) hereof; (2) elect the settlement option with respect to such proceeds from among the settlement options available under the Policy; and (3) change such benefi- ciary designation and settlement option from time to time. 3. Collateral Assignment; Limitation on Company's Rights in Policy. (a) To secure the repayment to the Company of the amount of the premiums on the Policy paid by the Company hereunder, the Owner has, contemporaneously herewith, assigned the Policy to the Company as collater- -21- al under a separate assignment instrument. The collateral assignment of the Policy to the Company shall not be terminated, altered or amended by the Owner, without the express written consent of the Company. The parties hereto agree to take all action necessary to cause such collateral assign- ment to conform to the provisions of this Agreement and to be accepted by the Insurer. Without limiting the scope of the preceding provisions of this Paragraph 3, the parties hereto agree that the Company shall have an interest in the cash surrender value and the death benefits under the Policy to secure the amounts due to the Company hereunder, which interest shall in no event be less than the aggregate premium payments made with respect to the Policy by the Company pursuant to Paragraph 5 below. (b) The Company shall not at any time prior to the termination of this Agreement (1) take any action that would cause the death benefits under the Policy that would be available for distribution to the beneficia- ry or beneficiaries designated by the Owner as provided herein to be less than the Benefit Amount (determined as of the earlier of the Measurement Date or the date such action was taken by the Company) and (2) from and after the date upon which a Change in Control occurs, borrow against the Policy, pledge the Policy as collateral for a loan, withdraw any amount from the Policy or otherwise access any funds held under the Policy until such time as the beneficiary or beneficiaries designated by the Owner have received all of the Policy death benefits to which they are entitled pursuant to the provisions of this Agreement. 4. Adjustments to Policy Face Amount. On each Anniversary Date that occurs prior to the Measurement Date, the parties hereto shall cause the total face amount of the Policy to be adjusted to the extent necessary, if any, so that such face amount is equal to the Benefit Amount (which Benefit Amount shall be determined as of the day immediately following such Anniversary Date); provided, however, that if any such adjustment would require a reduction in the face amount of the Policy, then the Company may, in its sole discretion, determine that no such adjustment to the face amount of the Policy shall be made for such Anniversary Date. Further, on, or as soon as administratively practicable after, the Executive's Normal Retirement Date (or, if later, the date of the termination of the Executiv- e's employment with the Company for a reason other than death), the parties hereto shall cause the total face amount of the Policy to be reduced to the extent necessary, if any, so that such face amount is equal to the Benefit Amount in effect at such time. The parties hereto agree that they shall take all reasonable action necessary to cause the Insurer to adjust the face amount of the Policy as provided in the preceding provisions of this Paragraph 4. Without limiting the scope of the foregoing, (a) the Execu- tive and the Owner shall furnish any and all information requested by the Company or the Insurer to facilitate an adjustment to the face amount of the Policy and (b) the Executive shall take such physical examinations as the Insurer may deem necessary. 5. Payment of Premiums. (a) On the Effective Date and on or before each Anniversary Date, the Company shall pay to the Insurer, as premium payments with -22- respect to the Policy, the amount, if any, determined by the Company in its sole discretion; provided, however, that: (1) on the Effective Date and on each Anniversary Date that occurs during the Premium Payment Period and prior to the termina- tion of this Agreement, the Company shall make substantially level premium payments with respect to the Policy based upon a premium payment policy established by the Company that is designed to (i) maintain the Policy in a manner sufficient to provide the level of death benefits to the Owner's beneficiary or beneficiaries pursuant to Paragraph 7(b) hereof in the event of the Executive's death prior to the end of the Premium Payment Period and (ii) accumulate sufficient funds under the Policy (based upon the assumption that the Executive will retire as of the Executive's Normal Retirement Date) so that as of the end of the Premium Payment Period the Policy is projected to have sufficient funds to (A) at all times thereafter provide a minimum death benefit in an amount equal to the Benefit Amount without any further premium payments and (B) permit the Owner to terminate this Agreement as of the later of the Executive s Normal Retirement Date or the fifteenth Anniversary Date and use accumulations under the Policy to obtain the release of the collateral assignment of the Policy to the Company; and (2) on each Anniversary Date that occurs after the end of the Premium Payment Period and prior to the termination of this Agree- ment, the Company shall make a premium payment with respect to the Policy in at least the amount required so that as of such Anniversary Date the Policy is projected to have sufficient funds to (i) at all times thereafter provide a minimum death benefit in an amount equal to the Benefit Amount without any further premium payments and (ii) permit the Owner to terminate this Agreement as of the later of the Executive s Normal Retirement Date or the fifteenth Anniversary Date and use accumulations under the Policy to obtain the release of the collateral assignment of the Policy to the Company. The amount of each premium payment required pursuant to clauses (1) and (2) of the preceding sentence shall be determined based upon (i) the Relevant Assumptions in effect as of the date such premium payment is required to be paid by the Company pursuant to this Paragraph 5(a) and (ii) if the Measurement Date has not occurred as of such premium payment date, the Company's estimate of the date upon which the Measurement Date will occur (which date shall be estimated to be no earlier than the Executive's Normal Retirement Date). The Owner and the Executive acknowledge and agree that (A) the Company is agreeing to make premium payments with respect to the Policy as described above based upon the Relevant Assumptions and for the period of time set forth in this Agreement, (B) the actual crediting rates under the Policy and the charges and expenses incurred with respect to the Policy may deviate from the rates, charges and expenses utilized from time to time under the Relevant Assumptions, and (C) accordingly, the Company makes no guarantee that the Policy will, in fact, have sufficient funds to provide a minimum death benefit in an amount equal to the Benefit Amount at all times after the termination of this Agreement without any further premium payments. The Company shall promptly notify the Owner of the date and the amount of each premium payment made by the Company with respect to -23- the Policy and, promptly upon receipt, the Owner shall furnish the Company with a copy of the annual report for the Policy received by the Owner from the Insurer. (b) If the Executive's employment with the Company is terminated under circumstances pursuant to which the Executive is entitled to a severance benefit under the Change in Control Severance Agreement, then the Company shall promptly pay into a rabbi trust a single lump sum cash payment in an amount equal to the projected amount of premium payments that the Company would be required to make with respect to the Policy pursuant to Paragraph 5(a) hereof during the 36 month period immediately following such termination of employment. Pursuant to the terms of the rabbi trust, on each of the first three Anniversary Dates that occur after the termina- tion of the Executive's employment with the Company, the trustee of the rabbi trust shall pay to the Insurer as a premium with respect to the Policy one-third of the amount initially deposited in the rabbi trust by the Company. After the trustee has made three such premium payments, the rabbi trust shall terminate and any remaining funds held by the trustee shall be returned to the Company. Notwithstanding the foregoing, the Company shall remain obligated to make all premium payments required pursuant to Paragraph 5(a) hereof; provided, however, that the Company shall be relieved of such obligation to the extent of the amount of each premium payment made by the trustee of the rabbi trust with respect to the Policy. All costs and expenses associated with the establishment and maintenance of the rabbi trust shall be paid by the Company. (c) Neither the Executive nor the Owner shall have any obliga- tion to pay any premiums with respect to the Policy prior to the termina- tion of this Agreement. The Company shall have no obligation to pay any premiums with respect to the Policy from and after the termination of this Agreement pursuant to Paragraph 8 below. 6. Provision of Information. On or before January 31 of each calendar year, the Company shall furnish to the Executive a statement of the amount of income, if any, reportable by the Executive for federal and state income tax purposes for the preceding calendar year as a result of the existence and maintenance of the Policy. The Owner and the Executive shall promptly furnish the Company with (a) copies of any information or notices provided by the Insurer from time to time with respect to the Policy and (b) any other material or information relating to the Policy and reasonably requested by the Company from time to time. Upon request, the Company shall promptly furnish to the Owner evidence of timely payment of any amount required to be paid by the Company pursuant to Paragraph 5 hereof. 7. Collection and Distribution of Death Proceeds. (a) Upon the death of the Executive prior to the termination of this Agreement during the Executive's lifetime, the Company and the Owner shall cooperate with the beneficiary or beneficiaries designated by the Owner to take whatever action is necessary to collect the death benefit provided under the Policy. When such benefit has been collected and paid as provided herein, this Agreement shall thereupon terminate. -24- (b) Upon the death of the Executive prior to the termination of this Agreement during the Executive's lifetime, the beneficiary or benefi- ciaries designated by the Owner pursuant to Paragraph 2(c) hereof shall be entitled to receive a portion of the death benefits provided under the Policy in an amount equal to the Benefit Amount determined as of the Measurement Date (which amount shall be reduced as provided in Paragraph 1(e) hereof upon the later of the Executive's Normal Retirement Date or the date of the termination of the Executive's employment with the Company for a reason other than death). This amount shall be paid under the settlement option elected by the Owner. (c) Upon the death of the Executive prior to the termination of this Agreement during the Executive's lifetime, the Company shall have the unqualified right to receive any and all of the death benefits provided under the Policy in excess of the amount payable pursuant to Paragraph 7(b) above to the beneficiary or beneficiaries designated by the Owner. This amount shall be paid to the Company in a single lump sum cash payment. (d) The parties hereto agree that, upon the request of the Company, the beneficiary designation provision of the Policy shall conform to the provisions hereof. 8. Termination of Agreement. (a) This Agreement may be terminated by the Owner at any time during the Executive's lifetime and after the fifteenth Anniversary Date upon written notice to the Company and payment to the Company by the Owner at the time of such notice of a single lump sum cash payment in an amount equal to the aggregate premium payments made by the Company pursuant to Paragraph 5 hereof on or before the date of such termination, less any withdrawals from the Policy by the Company prior to the date of such termination and any indebtedness secured by the Policy which was incurred by the Company and remains outstanding as of the date of such termination, including any unpaid accrued interest on such indebtedness. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy by the execution and delivery of an appropriate instrument of release. (b) This Agreement may be terminated by the Company at any time during the Executive's lifetime (including, without limitation, upon the Executive's termination of employment with the Company or at any time before or after such termination); provided, however, that (i) from and after the Executive s Normal Retirement Date, this Agreement may not be terminated by the Company until the later of such Normal Retirement Date, the date upon which the Executive's employment with the Company terminates, the expiration of the Premium Payment Period or the fifteenth Anniversary Date, (ii) from and after the date upon which the Executive becomes Disabled, this Agreement may not be terminated by the Company until the earlier of the Executive's Normal Retirement Date, the expiration of the Premium Payment Period, the fifteenth Anniversary Date or the third anniversary of the date upon which the Executive becomes Disabled, and (iii) from and after the date upon which a Change in Control occurs, this Agreement may be terminated by the Company only on or after the date upon -25- which the Executive's employment with the Company terminates (except that, if the Executive's employment with the Company terminates under circum- stances pursuant to which the Executive is entitled to a severance benefit under the Change in Control Severance Agreement, then this Agreement may not be terminated by the Company until the third anniversary of the date of such termination of employment). The Company shall provide the Owner and the Executive with 30 days prior written notice of any such termination of this Agreement by the Company. If this Agreement is terminated by the Company as provided in the preceding provisions of this Paragraph 8(b), then for 60 days after the effective date of the termination of this Agreement, the Owner shall have the option of obtaining the release of the collateral assignment of the Policy to the Company. To obtain such release, the Owner shall repay to the Company the total amount of the premium payments made by the Company hereunder, less any withdrawals from the Policy by the Company prior to the date of such termination and any indebtedness secured by the Policy which was incurred by the Company and remains outstanding as of the date of such termination, including any unpaid accrued interest on such indebtedness. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy by the execution and delivery of an appropriate instrument of release. If the Owner fails to exercise such option within such 60 day period, then the interest of the Owner in the Policy shall automatically be transferred to the Company and the Owner shall execute any document or documents requested by the Company or the Insurer to effect such transfer. Alternatively, the Company may enforce its right to be repaid the amount due it hereunder from the cash surrender value of the Policy under the collateral assignment of the Policy; provided that in the event the cash surrender value of the Policy exceeds the amount due the Company, such excess shall be paid to the Owner. Thereafter, neither the Owner nor any person claiming under the Owner shall have any further interest in and to the Policy, either under the terms thereof or under this Agreement. (c) Notwithstanding any provision in this Agreement to the contrary, if the Executive's employment with the Company is terminated for Cause at any time (whether before or after the Executive attains his or her Normal Retirement Date), then (i) this Agreement shall automatically terminate upon such termination of employment, (ii) the interest of the Owner in the Policy shall automatically be transferred to the Company and the Owner shall execute any document or documents requested by the Company or the Insurer to effect such transfer, (iii) the Company may exercise all rights of ownership of the Policy, take all proceeds of the Policy, take proceeds designated for the beneficiary or beneficiaries designated by the Owner, assign its ownership interest in the Policy to any other party or take any other action the Company determines in its sole discretion, and (iv) neither the Owner, the Executive nor their respective heirs, assigns, personal representatives, or beneficiaries shall have any further rights, claims, or interests of any nature whatsoever in the Policy or in this Agreement. (d) It is a condition precedent to the execution of this Agreement that the Owner and the Executive acknowledge and agree that the Company has the right, subject to certain limitations set forth in Para- graph 8(b) hereof, to terminate this Agreement at any time for any reason -26- whatsoever or for no reason at all. Without limiting the scope of the foregoing, the Owner and the Executive specifically acknowledge and agree that the Company shall have the right to terminate this Agreement prior to the occurrence of a Change in Control in the event that the premiums required to be paid under the Policy are increased due to a deterioration in the health or medical condition of the Executive after the Effective Date. In such event, the Owner and the Executive hereby waive, and agree that they shall not assert, any claim or cause of action, in contract, tort or otherwise, against the Company, any Affiliate of the Company or any employee, director, officer or agent of the Company or any such Affiliate with respect to the termination of this Agreement, including, without limitation, any claim or cause of action based on any alleged discriminato- ry practice. By entering into this Agreement, the parties hereto agree that the conditions and provisions set forth in this Paragraph 8(d) are an essential component of this Agreement, and it is their intent that such conditions and provisions not be severed from the other terms and provi- sions of this Agreement. 9. Insurer Not a Party. Subject to the terms and conditions of the Policy, the Insurer shall be fully discharged from its obligations under the Policy by payment of the Policy death benefit to the beneficiary or beneficiaries named in the Policy and upon the performance of its other obligations in accordance with the terms of the Policy. In no event shall the Insurer be considered a party to this Agreement, or any modification or amendment hereof. No provision of this Agreement, nor of any modification or amendment hereof, shall in any way be construed as enlarging, changing, varying, or in any other way affecting the obligations of the Insurer as expressly provided in the Policy. 10. Named Fiduciary, Determination of Benefits, Claims Procedure and Administration. (a) Named Fiduciary. The Company is hereby designated as the named fiduciary under this Agreement. The named fiduciary shall have authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a premium payment policy and method consistent with the objectives of this Agreement. (b) (1) Claim. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Agreement (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Company, setting forth his or her claim. The request must be addressed to the Company at its then principal place of business. (2) Claim Decision. Upon receipt of a claim, the Company shall advise the Claimant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. The Company may, however, extend the reply period for an additional 90 days for reasonable cause. -27- If the claim is denied in whole or in part, the Company shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: (i) the specific reason or reasons for such denial; (ii) the specific reference to pertinent provisions of this Agreement on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under subsection (3) and for review under subsection (4) hereof. (3) Request for Review. Within 60 days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Company review its determination. Such request must be addressed to the Company, at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Company. If the Claimant does not request a review of the Company's determination within such 60 day period, he or she shall be barred and estopped from challenging the Company's determination. (4) Review of Decision. Within 60 days after the Company's receipt of a request for review, it will review the determina- tion. After considering all materials presented by the Claimant, the Company will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based. If special circumstances require that the 60 day time period be extended, the Company will so notify the Claimant and will render the decision as soon as possible, but no later than 120 days after receipt of the request for review. 11. Arbitration. (a) Upon completion of the claims procedure described in Paragraph 10(b) hereof (if applicable), all claims, demands, causes of action, disputes, controversies, and other matters in questions arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement involving the parties hereto and/or their respective representatives, even though some or all of such claims allegedly are extra-contractual in nature, whether such claims sound in contract, tort, or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, shall be resolved by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Employment Dispute Resolution Rules then in effect with the American Arbitration Association. The arbitration proceeding shall be conducted in Houston, Texas. This agreement to arbitrate shall be enforce- able in either federal or state court. -28- (b) The enforcement of this agreement to arbitrate and all procedural aspects of this agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the issues subject to arbitration (i.e., arbitrability), the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act and shall be decided by the arbitrators. In deciding the substance of any such claims, the arbitrators shall apply the substantive laws of the State of Texas (excluding Texas choice-of-law principles that might call for the application of some other state's law); provided, however, it is expressly agreed that the arbitrators shall have no authority to award treble, exemplary, or punitive damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary, or punitive damages in connection with any such claims. If any party to this Agreement institutes arbitration to enforce the terms of this Agreement, the party who prevails in such arbitration, whether plaintiff or defendant, in addition to the remedy or relief obtained in such arbitration proceeding shall be entitled to recover its or his expenses incurred in connection with such arbitration proceeding, including, without limitation, arbitra- tors and attorneys fees, and the arbitrators are authorized to so award such costs and fees. (c) The arbitration may be initiated by any party by providing to the other parties a written notice of arbitration specifying the claims. Within 30 days of the notice of initiation of the arbitration procedure, (1) the Owner and the Executive, acting together, shall denominate one arbitrator and (2) the Company shall denominate one arbitrator. The two arbitrators shall select a third arbitrator failing agreement on which within 60 days of the original notice, either the Owner, the Executive or the Company shall apply to the Senior Active United States District Judge for the Southern District of Texas, who shall appoint a third arbitrator. While the third arbitrator shall be neutral, the two party-appointed arbitrators are not required to be neutral and it shall not be grounds for removal of either of the two party-appointed arbitrators or for vacating the arbitrators' award that either of such arbitrators has past or present minimal relationships with the party that appointed such arbitrator. Evident partiality on the part of an arbitrator exists only where the circumstances are such that a reasonable person would have to conclude there in fact existed actual bias. A mere appearance or impression of bias will not constitute evident partiality or otherwise disqualify an arbitra- tor. (d) The three arbitrators shall by majority vote resolve all disputes between the parties. There shall be no transcript of the hearing before the arbitrators. The arbitrators' decision shall be in writing, but shall be as brief as possible. The arbitrators shall not assign the reasons for their decision. The arbitrators shall certify in their award that they have faithfully applied the terms and conditions of this Agree- ment and that no part of their award includes any amount for exemplary or punitive damages. All proceedings conducted hereunder and the decision of the arbitrators shall be kept confidential by the parties, e.g., the -29- arbitrators' award shall not be released to the press or published in any of the various arbitration reporters. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. 12. Amendment. This Agreement may not be amended, altered, or modified, except by a written instrument signed by the parties hereto, or their respective successors or assigns. Notwithstanding the foregoing or any other provision herein to the contrary, the Premium Payment Period, the face amount of the Policy, the amount of premiums to be paid by the Company, and/or the references in this Agreement to the fifteenth Anniver- sary Date may be changed by the Company without the consent of the Owner or the Executive to the extent necessary to (a) maintain the Policy as a "life insurance contract" (within the meaning of Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), and the interpretative authority promulgated thereunder) and (b) prevent the Policy from consti- tuting a modified endowment contract (within the meaning of Section 7702A of the Code and the interpretative authority promulgated thereunder). The Company shall provide the Owner and the Executive with prompt written notice of any such change. 13. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and the Owner, the Executive and their respective successors, assigns, heirs, executors, administrators, and beneficiaries; provided, however, that the rights and obligations of the Owner and the Executive hereunder are personal and neither this Agreement, nor any right, benefit, or obligation of the Owner or the Executive hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or other- wise, without the prior written consent of the Company. 14. Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed to a party hereto, it shall be sent by United States registered or certified mail, postage prepaid, addressed to such party s last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of notice, consent or demand. 15. Employment Relationship. For all purposes of this Agreement, the Executive shall be considered to be in the employment of the Company as long as the Executive remains an employee of the Company or any Affiliate of the Company. However, this Agreement is not an employment agreement. This Agreement shall not be construed as creating an express or implied contract of employment and does not modify the nature of the Executive's employment relationship with the Company or its Affiliates, as the case may be. Except as otherwise agreed in writing between the Executive and the Company or an Affiliate of the Company, the employment relationship between the Executive and the Company or its Affiliates is at-will, i.e., the employment relationship may be terminated at any time at the will of either the Company or the Executive for any reason or no reason at all. -30- 16. Taxes and Policy Illustrations. The Company makes no guarantees and assumes no obligations or responsibilities with respect to the Owner's or the Executive's federal, state, or local income, estate, inheritance, and gift tax obligations, if any, under this Agreement, the Policy or the collateral assignment of the Policy to the Company. The Executive and the Owner agree and acknowledge that the Policy illustrations provided prior to the Effective Date and any Policy illustrations that may be provided from time to time thereafter by the Company, the Insurer or their respective agents and representatives are not guaranteed and are not a part of the Policy or this Agreement. Such Policy illustrations shall not create any additional obligations or responsibilities to the Executive or the Owner by the Company, the Insurer, or their respective agents and representa- tives. 17. Governing Law. This Agreement, and the rights of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this the _____ day of ____________, 1998, effective as of the Effective Date. AMERICAN GENERAL CORPORATION By:____________________________________________ Name:__________________________________________ Title:_________________________________________ "COMPANY" _________________________________________ ____________________ "EXECUTIVE" _________________________________________ _______________________________________ "OWNER" -31- EXHIBIT A The following life insurance policy is subject to the attached Split- Dollar Agreement: Insurer: American General Life Insurance Company Insured: __________________________ Policy Number: __________________________ Face Amount on the Effective Date: $_________________________ Effective Date of Policy: May____, 1998 -32- ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL A. FOR VALUE RECEIVED, the undersigned (hereinafter the "Owner") hereby assigns, transfers and sets over to American General Corporation, with principal offices and place of business in Houston, Texas, its successors and assigns (hereinafter the "Assignee"), Policy No. __________- _______ issued by American General Life Insurance Company (hereinafter the "Insurer"), and any supplementary contracts issued in connection therewith (said policy and contracts hereinafter the "Policy"), insuring the life of __________________ __________ (the "Executive"), and all claims, options, privileges, rights, title and interest therein and thereunder (except as otherwise provided herein), subject to all the terms and conditions of the Policy and to all superior liens, if any, which the Insurer may have against the Policy. The Owner, by this Assignment, and the Assignee, by acceptance of the assignment of the Policy to it hereunder, agree to the terms and conditions contained herein. B. This Assignment is made and the Policy is to be held as collateral security for any and all liabilities and obligations of the Owner to the Assignee, either now existing or that may hereafter arise, under and pursuant to that certain Split-Dollar Agreement by and among the Owner, the Assignee, and the Executive, dated effective as of May ____, 1998 (herein- after the "Split-Dollar Agreement"). The liabilities and obligations described in the preceding sentence are hereinafter referred to as the "Liabilities." C. It is expressly agreed that, without detracting from the generali- ty of the foregoing, the following specific rights are included in this Assignment and pass to the Assignee by virtue hereof: 1. The sole right to collect from the Insurer the net proceeds of the Policy when it becomes a claim by death or maturity; 2. The sole right to surrender the Policy and receive the surrender value thereof at any time provided by the terms of the Policy and at such other times as the Insurer may allow; and 3. The sole right to obtain one or more withdrawals, loans or advances on the Policy, either from the Insurer or, at any time, from other persons, and to pledge or assign the Policy as security for such loans or advances. D. It is expressly agreed that the following specific rights, so long as the Policy has not been surrendered and to the extent permitted under the Split-Dollar Agreement, are reserved by the Owner and excluded from this Assignment and do not pass by virtue hereof: 1. The right to designate and change the beneficiary to receive the portion of the proceeds under the Policy specified in Paragraph 7(b) of the Split-Dollar Agreement; and 2. The right to elect any optional mode of settlement permitted by the Policy or allowed by the Insurer with respect to such proceeds. However, the reservation of these rights by the Owner shall in no way impair the right of the Assignee to surrender the Policy nor impair any other right of the Assignee hereunder. Further, any exercise of these rights shall be made subject to this Assignment and to the rights of the Assignee hereunder. E. Notwithstanding the foregoing, the Assignee covenants and agrees with the Owner as follows: 1. Any balance of sums received hereunder from the Insurer remaining after payment of the then existing Liabilities shall be paid by the Assignee to the persons entitled thereto under the terms of the Policy, had this Assignment not been executed; 2. The Assignee will not exercise the right to surrender the Policy, nor the right to make withdrawals from the Policy or obtain policy loans from the Insurer, unless and until there has been default in any of the Liabilities or the Split-Dollar Agreement has been terminated, pursuant to its terms; in any event, the Assignee will not exercise any such right until 15 days after the Assignee shall have mailed notice of intention to exercise such right, by first class mail, to the Owner at the address last supplied in writing to the Assignee specifically referring to this Assignment; and 3. The Assignee will, upon request, forward the Policy to the Insurer without unreasonable delay, for endorsement of any designation or change of beneficiary or any election of an optional mode of settle- ment that has been elected by the Owner. F. The Insurer is hereby authorized to recognize the Assignee's claims to rights hereunder without investigating the reason for any action taken by the Assignee, the validity or the amount of the Liabilities, the existence of any default therein, termination of the Split-Dollar Agree- ment, the giving of any notice hereunder, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of any rights under the Policy assigned hereby and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefor to the Insurer. Payment for all or any part of the sums due under the Policy and assigned herein shall be drawn to the exclusive order of or as directed by the Assignee if, when, and in such amounts as may be requested by the Assignee. G. The Assignee shall be under no obligation to pay any premium on the Policy nor the principal of or interest on any loans or advances on the Policy, whether or not obtained by the Assignee, or any other charges on the Policy. H. The exercise of any right, option, privilege or power given herein to the Assignee shall be at the option of the Assignee, and (except as provided herein) the Assignee may exercise any such right, option, privi- lege or power without notice to, or assent by, or affecting the liability of, or releasing any interest hereby assigned by the Owner. -34- I. If applicable, the Assignee may take or release other security, may release any party primarily or secondarily liable for any of the Liabilities, may grant extensions, renewals or indulgences with respect to the Liabilities, or may apply the proceeds of the Policy hereby assigned or any amount received on account of the Policy by the exercise of any right permitted under this Assignment to the Liabilities in such order as the Assignee shall determine, without resorting to or regard to other security. J. As applied to the duties and responsibilities of the Insurer, in the event of any conflict between the provisions of this Assignment and the provisions of the Split-Dollar Agreement with respect to the Policy or the Assignee s rights of collateral security therein, the provisions of this Assignment shall prevail. As applied between the Owner and the Assignee, in the event of any such conflict, the provisions of the Split-Dollar Agreement shall prevail. K. The Owner declares that no proceedings in bankruptcy are pending against the Owner and that the Owner s property is not subject to any assignment for the benefit of creditors of the Owner. SIGNED this ___ day of ______________, 1998, effective as of May _____, 1998. __________________________________ __________________________________ __________________________________ "OWNER" This Assignment is hereby accepted and agreed to by the Assignee. AMERICAN GENERAL CORPORATION By:_____________________________________ Name: _________________________________ Title: _________________________________ "ASSIGNEE" -35- STATE OF _______________ Section Section _______________ COUNTY Section On the _____ day of ___________________________, 1998, before me personally came ______________________, __________________________________- __________________, to me known to be the individual who executed the Assignment on the preceding pages hereof and acknowledged to me that he or she executed the same. ___________________________________ Notary Public in and for THE STATE OF_______________________ My Commission Expires: ____________________________ -36- EX-12 10 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Exhibit 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited) ($ in millions) Three Months Ended March 31, 1998 1997 Consolidated operations: Income before income tax expense, minority interest, and dividends on preferred securities ............ $ 428 $ 351 Undistributed income of Western National ........... - (12) Fixed charges deducted from income Interest expense ................................. 172 162 Implicit interest in rents ....................... 5 5 Total fixed charges deducted from income ....... 177 167 Earnings available for fixed charges.......... $ 605 $ 506 Fixed charges per above ............................ $ 177 $ 167 Capitalized interest ............................... - 3 Total fixed charges ............................ 177 170 Dividends on preferred stock and securities .... 37 28 Combined fixed charges and preferred stock dividends ............................ $ 214 $ 198 Ratio of earnings to fixed charges ......... 3.41 2.97 Ratio of earnings to combined fixed charges and preferred stock dividends ............ 2.83 2.55 Consolidated operations, corporate fixed charges and preferred stock dividends only: Income before income tax expense, minority interest, and dividends on preferred securities . $ 428 $ 351 Undistributed income of Western National ......... - (12) Corporate fixed charges deducted from income - corporate interest expense ..................... 54 40 Earnings available for fixed charges ........... $ 482 $ 379 Total corporate fixed charges per above .......... $ 54 $ 40 Capitalized interest related to real estate operations ..................................... - 3 Total corporate fixed charges .................. 54 43 Dividends on preferred stock and securities .... 37 28 Combined corporate fixed charges and preferred stock dividends .................. $ 91 $ 71 Ratio of earnings to corporate fixed charges 8.85 8.92 Ratio of earnings to combined corporate fixed charges and preferred stock dividends ................................ 5.29 5.36 AMERICAN GENERAL CORPORATION FORM 10-Q For the Quarter Ended March 31, 1998 Exhibit 12 (continued) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited) ($ in millions) Three Months Ended March 31, 1998 1997 American General Finance, Inc.: Income before income tax expense ................... $ 71 $ 62 Fixed charges deducted from income Interest expense ................................. 122 125 Implicit interest in rents ....................... 3 3 Total fixed charges deducted from income ....... 125 128 Earnings available for fixed charges ......... $ 196 $ 190 Ratio of earnings to fixed charges ......... 1.57 1.48 EX-27 11
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 58,690 0 0 124 3,504 232 65,903 229 0 4,048 96,051 55,349 186 416 2,257 9,792 1,727 85 928 7,461 96,051 878 1,226 1 374 1,224 156 (190) 428 151 244 0 0 0 244 0.98 0.96 0 0 0 0 0 0 0 ALL FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND RECORDED AT FAIR VALUE. INCLUDES COST OF INSURANCE PURCHASED (CIP). THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES. CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARIES. CONSISTS OF CONVERTIBLE PREFERRED STOCK. CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON SECURITIES; RETAINED EARNINGS; COST OF TREASURY STOCK, AND FOREIGN CURRENCY TRANSLATION GAINS (LOSSES). INCLUDES INSURANCE CHARGES. INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES. CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF ACCRETION OF INTEREST. CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP. EXCLUDES $17 MILLION OF MINORITY INTEREST AND $34 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES, SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT. EXCLUDES $6 MILLION TAX BENEFIT FOR MINORITY INTEREST AND $12 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO PREFERRED SECURITIES OF SUBSIDIARIES.
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