SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________ SCHEDULE 14D-9 Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 __________ ALLIED Group, Inc. ------------------------------------------------ (Name of Subject Company) ALLIED Group, Inc. ------------------------------------------------ (Name of Person(s) Filing Statement) Common Stock, No Par Value -------------------------- (Title of Class of Securities) 019220102 ------------------------------------------------ (CUSIP Number of Class of Securities) __________ GEORGE OLESON, ESQ. Vice President and Corporate Counsel ALLIED Group, Inc. 710 Fifth Avenue Des Moines, Iowa 50391-2000 (515) 280-4211 ----------------------------------------------- (Name, address and telephone number of person authorized to receive notice and communications on behalf of the person(s) filing) With a copy to: STEVEN OSTNER, ESQ. Debevoise & Plimpton 875 Third Avenue New York, New York 10022 (212) 909-6000 ITEM 1. SECURITY AND SUBJECT COMPANY. The name of the subject company is ALLIED Group, Inc., an Iowa corporation (the "Company"). The address of the principal executive offices of the Company is 701 Fifth Avenue, Des Moines, Iowa 50391-2000. The title of the class of equity securities to which this Statement relates is the common stock, no par value (the "Shares"), of the Company. ITEM 2. TENDER OFFER OF THE BIDDER. This Statement relates to the tender offer by Nationwide Mutual Insurance Company, an Ohio corporation ("Nationwide"), and Nationwide Group Acquisition Corporation, an Ohio corporation and a wholly-owned subsidiary of Nationwide ("Nationwide Sub" and, collectively with Nationwide, the "Bidder"), disclosed in a Tender Offer Statement on Schedule 14D-1, filed with the Securities and Exchange Commission (the "Commission") on May 19, 1998 (as the same may be amended from time to time, the "Schedule 14D-1"), to purchase up to 30,634,052 Shares, at a price of $47 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 19, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which collectively constitute the "Offer"). According to the Schedule 14D-1, the address of the principal executive offices of each of Nationwide and Nationwide Sub is One Nationwide Plaza, Columbus, Ohio, 43215. ITEM 3. IDENTITY AND BACKGROUND. (a) The name and business address of the Company, which is the person filing this Statement, are set forth in Item 1 above, which information is incorporated herein by reference. (b) Nationwide, in addition to commencing the Offer has also proposed to the Board of Directors of ALLIED Mutual a merger of ALLIED Mutual into Nationwide, and has indicated its willingness to acquire all of the outstanding shares of common stock held by the public shareholders of ALLIED Life for $30 a share. Nationwide has also offered to distribute $110 million of cash to ALLIED Mutual's policyholders in connection with the merger. Certain of the directors and officers of the Company are also directors and/or officers of ALLIED Mutual and/or of ALLIED Life. A majority of the Company's directors Messrs, Carpenter, Colby, Jacobson, Taylor, Timmons and Willis (the "Unaffiliated Directors"), are not officers or directors of, or otherwise affiliated with, either ALLIED Mutual or ALLIED Life. Except as described herein or in Annex A hereto, which is incorporated herein by reference, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) any of the Company's executive officers, directors or affiliates or (ii) Bidder and its executive officers, directors or affiliates. Reference is made to the information contained under the captions "Compensation of the Members of the Board of Directors and the Outside Director Stock Purchase Plan," "Security Ownership of Directors and Executive Officers," "Board Compensation Committee Report on Executive Compensation" and "Compensation of Executive Officers" in the Company's proxy statement dated March 27, 1998 relating to the Company's 1998 Annual Meeting 2 of Stockholders (the "1998 Proxy Statement"), the relevant portions of which are filed as Exhibit 1 hereto and are incorporated herein by reference. ITEM 4. THE SOLICITATION OR RECOMMENDATION. (a)-(b) The Board of Directors of the Company acting on the unanimous recommendation of a committee (the "Committee") consisting of all of the Unaffiliated Directors has unanimously determined to recommend that shareholders do not tender their shares in response to the Offer at this time. The reasons for this determination are as follows: (i) Representatives of the Company have met with representatives of Nationwide during the last several days to determine the terms, if any, on which a negotiated transaction would be available. On June 1, Nationwide stated it was prepared to increase the per Share price of its Offer to $48.25 as part of a negotiated merger agreement, and also to reduce the amount of the termination fee that would be payable by the Company under certain circumstances pursuant to Nationwide's merger agreement. On June 1, as directed by the Board of Directors on the recommendation of the Committee, Morgan Stanley informed Nationwide that the Board was prepared in principle to recommend a transaction at that price and with the revised termination fee provision, subject to negotiation of an acceptable transaction agreement. (ii) Because negotiations with Nationwide concerning the proposed transaction agreement are ongoing, the Board of Directors, acting on the recommendation of the Committee, believes that it would be premature for shareholders to tender their Shares in response to the Offer at this time and recommends that Shareholders defer making a decision whether to tender while the Board and its advisors continue discussions with Nationwide and its advisors. A copy of a press release communicating the Board's position is filed as 3 hereto and is incorporated herein by reference. June 1, 1998 Background. On January 26, 1998, John E. Evans, Chairman of the Company, received a telephone call from Dimon R. McFerson, Chairman and Chief Executive Officer of Nationwide Insurance Enterprise. In the call, Mr. McFerson expressed Nationwide's interest in a possible transaction with the Company, ALLIED Mutual Insurance Company ("ALLIED Mutual") and ALLIED Life Financial Corporation ("ALLIED Life"; collectively with the Company and ALLIED Mutual, "ALLIED"). On January 28, 1998, at the request of Mr. McFerson, Mr. Evans, Douglas L. Andersen, President and Chief Executive Officer of the Company, and other 3 representatives of the Company met with representatives of Nationwide to discuss Nationwide's interest in acquiring each of the Company, ALLIED Mutual and ALLIED Life. After the January 28, 1998 meeting, Nationwide provided a draft confidentiality agreement to Mr. Andersen which did not include customary standstill provisions. On February 6, 1998, Mr. McFerson and Mr. Andersen engaged in further discussions by telephone regarding Nationwide's interest in acquiring the Company, ALLIED Mutual and ALLIED Life. Mr. McFerson requested that the Company, ALLIED Mutual and ALLIED Life agree to deal exclusively with Nationwide. Mr. Andersen informed Mr. McFerson that the ALLIED companies would not agree to deal exclusively with Nationwide, expressed concerns about the absence of an acceptable confidentiality agreement and other elements of Nationwide's proposal and stated that Nationwide's proposal could not be considered formally until it was received in writing by the Company, ALLIED Mutual and ALLIED Life. On February 10, 1998, the Company provided to Nationwide its own form of confidentiality agreement, executed by the Company, which included a customary standstill provision. Also, on February 10, 1998, Nationwide sent draft merger agreements to the Company, which provided for a transaction whereby Nationwide's wholly-owned subsidiaries would acquire the Company and ALLIED Life and Nationwide would merge with ALLIED Mutual. The draft merger agreements provided for the purchase of the Shares for $47 per Share and the purchase of all outstanding shares of ALLIED Life for $30 per share, subject to various conditions, including that the acquisition of all three ALLIED companies close simultaneously. The draft merger agreement with ALLIED Mutual provided for no distribution to ALLIED Mutual's policyholders. Each of the merger agreements included provisions requiring payment to Nationwide of termination fees, totaling $75 million in the aggregate, plus expenses of Nationwide in the event of the termination of the merger agreement under certain circumstances. On February 17, 1998, at a joint meeting of the Boards of Directors of the Company, ALLIED Mutual and ALLIED Life, Nationwide's proposal and proposed merger agreements were discussed. Following the joint Board meeting, a special meeting of the Board of Directors of the Company was convened. At that meeting it was noted that Nationwide's proposal was contingent on the consummation of transactions with all three ALLIED companies. The Board discussed the potential difficulty in obtaining approval from ALLIED Mutual policyholders and ALLIED Life shareholders, that the Company's employees and independent agents could perceive the proposal and change in control unfavorably and that the Company could suffer loss of business and disruption of its employee force. The Board noted that Nationwide's proposal included an exclusivity provision which restricted the Company from soliciting proposals from third parties and which limited the Board's ability to accept a superior offer from a third party for a period of 180 days. The Board also noted that Nationwide had refused to sign a confidentiality agreement with a standstill provision that would prevent it from making a hostile bid for a specified period of time after it had reviewed confidential documents of the Company. The Board discussed the 4 various regulatory approvals required before the acquisition could be approved and the uncertainty of obtaining those approvals. Finally, the Board noted that the substantial termination fees proposed by Nationwide presented additional risk to the Company. The Board determined that the proposal was not in the best interests of the Company and its shareholders and unanimously (with one member absent) determined that the proposal should be rejected. On February 19, 1998, at a special joint meeting of the Executive Committees of the Company, ALLIED Mutual and ALLIED Life, Mr. Andersen was authorized to advise Mr. McFerson that Nationwide's proposal had been rejected. On February 19, 1998, Nationwide sent to the Company a form of confidentiality agreement, signed on behalf of Nationwide and Nationwide Sub, which again did not contain the standstill provision and certain other items that the Company had proposed. On February 20, 1998, Mr. Andersen informed Mr. McFerson via telephone that the respective Boards of ALLIED had rejected Nationwide's proposal as presented. Later on February 20, 1998, Nationwide sent to the Company a letter indicating that Nationwide was withdrawing the executed confidentiality agreement that it had sent to the Company on February 19, 1998. On May 1, 1998, Mr. McFerson telephoned Mr. Evans to express that Nationwide wished to re-initiate contact with ALLIED. Mr. Evans indicated that Nationwide should speak with Mr. Andersen, but requested that Nationwide delay contacting Mr. Andersen for 30 days. On May 18, 1998, Mr. McFerson made an unannounced visit to the Company's Des Moines, Iowa offices and asked to see Mr. Andersen. However, Mr. Andersen and other executive officers of the Company were out of the country. Members of the Company's legal department met with Mr. McFerson, who stated that the purpose of his visit was to announce a tender offer for all the Shares. Mr. McFerson delivered three letters, addressed to each of the ALLIED companies, which letters were also publicly released by Nationwide, communicating the substance of the Offer. Also, on May 18, 1998, Nationwide and Nationwide Sub filed a complaint against the Company and its directors in the United States District Court for the Southern District of Iowa seeking, among other things, an order compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Section 490.1110 (the "Business Combination Statute," which is further discussed under Item 8 below) of the Iowa Business Corporation Act (the "Iowa Corporation Act"). A copy of this complaint is filed as Exhibit 4 hereto and is incorporated by reference herein. 5 Later on May 18, 1998, the Company issued a press release stating that the Board would review the Offer and requesting shareholders not to tender their Shares until they have been advised of the Board's position with respect to the Offer. A copy of the press release is filed as Exhibit 5 hereto and is incorporated by reference herein. On May 19, 1998, the Directors of the Company convened by conference call to discuss the Offer. At the recommendation of the Unaffiliated Directors, the Directors authorized the retention of Morgan Stanley as the Company's financial advisor concerning the Offer or any other acquisition transaction. Also on May 19, Nationwide delivered two letters to the Company requesting that the Company provide Nationwide with a list of the Company's shareholders. The Company delivered letters to Nationwide, dated May 21, 1998 and May 22, 1998, advising Nationwide that, as permitted by law, the Company was electing to deliver the Bidder's tender offer materials to the Company's shareholders rather than provide Nationwide with a shareholder list. On May 22, 1998, the Company's Board received a letter from Nationwide stating that Nationwide intended to file a proxy statement that proposes to call a special meeting of shareholders of the Company for the purpose of removing the members of the Board and electing new directors who support the Offer. On May 27, 1998, the Board of the Company met with management and the Company's financial and legal advisors. The Board authorized the Committee to conduct or supervise negotiations, if any, with Nationwide or with any other party, on behalf of the Company; to make recommendations to the Board as to any proposed transaction; to consult with ALLIED Mutual and ALLIED Life and their financial advisors; and to give instructions to Morgan Stanley. Following the meeting of the Board, the Committee met with the Company's financial and legal advisors to discuss the Offer and the Company's response. The Committee authorized Morgan Stanley to contact Nationwide's financial advisor, who had expressed an interest in meeting, to discuss the possibility of a mutually acceptable negotiated transaction. On May 28, 1998, the Company, Nationwide and Nationwide Sub entered into an agreement as to the confidentiality of settlement discussions on or before June 2, 1998 regarding the litigation filed by Nationwide. A copy of the confidentiality agreement is filed as Exhibit 6 hereto and is incorporated by reference herein. Beginning on May 28, 1998, representatives of Morgan Stanley (consulting with and under the supervision of the Committee) and representatives of Nationwide's financial advisor met on several occasions to discuss the terms of the Offer and whether a negotiated transaction could be achieved. On June 1, Nationwide stated that it was prepared to increase the per Share price of its Offer to $48.25 as part of a negotiated merger agreement, and also to reduce the amount of the termination fee that would be payable under certain circumstances pursuant 6 to Nationwide's proposed merger agreement. On June 1, as directed by the Board of Directors on the unanimous recommendation of the Committee, Morgan Stanley informed Nationwide that the Board determined that it was prepared in principle to recommend a transaction at that price and with the revised termination fee provisions, subject to negotiation of an acceptable transaction agreement. Discussions between representatives of the Company and representatives of Nationwide are ongoing at this time regarding the terms of a mutually acceptable transaction agreement. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. Pursuant to an engagement letter, dated May 22, 1998, the Company has retained Morgan Stanley to render financial advisory services to the Company in connection with Nationwide's proposal and such other matters as may be agreed upon by the Company and Morgan Stanley. The Company has agreed to pay Morgan Stanley: (i) an initial advisory fee of $250,000, payable immediately, and an additional advisory fee of $75,000 per month for any month after an initial two- month advisory period (collectively, the "Advisory Fees"); (ii) a fee of $1,000,000 (the "Opinion Fee"), which becomes payable upon delivery by Morgan Stanley of an opinion (whether oral or written, as requested by the Company) to the Board of Directors of the Company or its shareholders in connection with the Offer or any alternate transaction; and (iii) a final fee (the "Conclusion Fee") of $6,000,000 (less the Advisory Fees and Opinion Fee) upon the first occurrence of any of the following events: (a) Nationwide withdraws its Offer, (b) twelve months from the date of the engagement letter, if no change of control (as defined in the engagement letter) of the Company has occurred, or (c) the Company is involved in an acquisition transaction or otherwise experiences a change of control prior to that time. The Company has also agreed to reimburse Morgan Stanley for its reasonable out-of-pocket expenses, including reasonable fees and expenses of counsel, and to indemnify Morgan Stanley and certain related persons against certain liabilities in connection with their engagement including liabilities under the federal securities laws. The Company has retained Abernathy MacGregor Frank ("Abernathy") as public relations adviser and Innisfree M&A Incorporated ("Innisfree") to assist the Company with its communications to stockholders with respect to, and to provide other services to the Company in connection with, the Offer. The Company will pay Abernathy and Innisfree reasonable and customary compensation for their respective services, and will reimburse Abernathy and Innisfree for their reasonable out-of-pocket expenses incurred in connection therewith. Except as described above, neither the Company nor any person acting on its behalf has employed, retained or compensated any other person to make solicitations or recommendations to security holders on its behalf with respect to the Offer. 7 ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) Except as described in Annex B hereto, which is incorporated by reference herein, there have been no transactions in the Shares during the past 60 days by the Company or, to the best knowledge of the Company, by any executive officer, director, affiliate or subsidiary of the Company. (b) To the best knowledge of the Company, no executive officer, director, affiliate or subsidiary of the Company has any present intention to tender any Shares pursuant to the Offer. The foregoing statement does not include any Shares over which, or with respect to which, any such executive officer, director or affiliate acts in a fiduciary or representative capacity or is subject to the instructions of a third party with respect to such decision to tender. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) - (b) See the response to Item 4, concerning discussions between the Company and Nationwide to discuss the possibility of a mutually acceptable negotiated transaction involving the acquisition by Nationwide of the Company. As of the date hereof, there have been contacts with third parties as to their possible interest in acquiring or merging with the Company, but negotiations regarding potential transactions with third parties have not yet commenced. Except as stated in the preceding two sentences, no negotiation is being undertaken or is underway by the Company in response to the Offer which relates to or would result in: (i) an extraordinary transaction such as a merger or reorganization, involving the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary of the Company; (iii) a tender offer for or other acquisition of securities by or of the Company; or (iv) any material change in the present capitalization or dividend policy of the Company. The Board has determined, by resolution adopted at the Board meeting on June 1, 1998, that disclosure of the substance of negotiations concerning, or the possible terms of, or potential parties to, any such transactions or proposals prior to an agreement in principle with respect thereto would jeopardize continuation of such negotiations and has directed that no such disclosure be made unless and until such agreement in principle or a definitive agreement has been reached. 8 ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. Insurance Law Matters. The Company, which is incorporated in Iowa, directly or through its subsidiaries, owns three property-casualty insurance companies domiciled in Iowa and one excess and surplus lines insurance company domiciled in Arizona. Accordingly, the acquisition of Shares pursuant to the Offer may require filings with, and approvals of, state insurance regulatory authorities (the "Insurance Commissions" or "Insurance Commissioners") under the respective insurance codes (the "Insurance Codes") of Iowa and Arizona as well as Ohio, the domiciliary state of Nationwide. The Insurance Codes of Iowa and Arizona and the rules that have been promulgated thereunder each contain provisions applicable to the acquisition of "control" of a domestic insurer, including a presumption of control that arises from the ownership of ten percent (10%) or more of the voting securities of a domestic insurer or of a person that controls a domestic insurer. Generally, any person seeking to acquire voting securities, such as the Shares, in an amount that would result in such person controlling, directly or indirectly, a domestic insurer must, together with any person ultimately controlling such person, file with the relevant Insurance Commissioner certain information concerning the acquisition of control (generally known as a "Form A") and send a copy of each Form A to the domestic insurer. On the date of the Offer, Nationwide and Nationwide Sub made Form A filings with the Insurance Commissions of Arizona and Iowa and sent copies thereof to the relevant domestic insurer. In both Iowa and Arizona, the Form A filings trigger public hearing requirements and commence statutory periods within which decisions must be rendered approving or disapproving the acquisition of control of the Company by Nationwide and Nationwide Sub The periods within which hearings must be commenced or decisions rendered generally do not begin until the relevant Insurance Commissioner has deemed the Form A filing complete. The Insurance Commissioner has discretion to request that additional information be furnished before it deems the Form A filing complete. The Insurance Codes provide certain statutory standards for the approval or the disapproval of the acquisition of control of the Company. However, the Insurance Codes also permit the Insurance Commissioners discretion in determining whether such standards have been met. The Insurance Commissioner has discretion to request that Nationwide and Nationwide Sub furnish additional information before such Insurance Commissioner deems the Form A filing complete. The Iowa and Arizona Insurance Codes both provide that a public hearing must be commenced within thirty (30) days after the Form A is filed and that the relevant Insurance Commissioner must make the determination within thirty (30) days after the conclusion of such hearing. 9 The Iowa and Arizona Insurance Codes both generally require the relevant Insurance Commissioner to approve the application for the acquisition of control unless the Insurance Commissioner determines, after a public hearing, that such application should be disapproved on one or more prescribed regulatory grounds. The Iowa and Arizona Insurance Codes also contain provisions providing generally for judicial review of an Insurance Commissioner's order. On May 21, 1998, the Iowa Department of Insurance provided to the Company notice of a hearing to be held on June 9, 1998 with respect to the Form A approval. No notice of a hearing has been provided by the Arizona Department of Insurance. The Company is reviewing the Form A's filed by Nationwide in both Iowa and Arizona and, depending on the outcome of ongoing discussions with Nationwide, may seek to reschedule the hearing scheduled for June 9, 1998 and may seek discovery in connection with the Form A's in both Arizona and Iowa. State Corporation Law Requirements In the Offer to Purchase, Nationwide has stated its intention, as soon as practicable following consummation of the Offer, to seek to have the Company consummate a merger with Nationwide Sub with the Company continuing as the surviving corporation (the "Proposed Merger"), pursuant to which each then remaining Share outstanding (other than Shares owned by Nationwide or any of its wholly owned subsidiaries, Shares held in the treasury of the Company, and Shares held by shareholders who perfect any appraisal rights under the Iowa Corporation Act) would be converted into the right to receive $47.00 net per Share in cash. The Proposed Merger, including its timing and details, is subject to, among other things, the provisions of the Iowa Corporation Act, including the Business Combination Statute. In general, under the Iowa Corporation Act and the Company Articles (as defined below), the approval of the Company's Board and the affirmative vote of the holders of a majority of the outstanding Shares and the shares of 6 3/4% Series Preferred Stock of the Company (including any shares owned by Nationwide or Nationwide Sub), voting together as a single class, would be required to approve the Proposed Merger. The Business Combination Statute generally provides that an Iowa corporation may not engage in a "Business Combination," defined to encompass a variety of transactions including mergers, with an "Interested Shareholder," defined generally as a person that is the owner of ten percent (10%) or more of the outstanding voting stock of the corporation, for three years after the shareholder became an Interested Shareholder, unless (a) the Business Combination is approved by the corporation's board before the shareholder becomes an Interested Shareholder, (b) the Interested Shareholder, upon consummation of the transaction which resulted in the shareholder becoming an Interested Shareholder, owned at least eighty-five percent (85%) of the voting shares of the corporation, excluding those shares owned by officers and directors, or (c) after the shareholder becomes an Interested Shareholder, the Business Combination is approved 10 by the corporation's board and authorized by the affirmative vote of at least two-thirds of the voting stock, excluding that of the Interested Shareholder. Pending Litigation In addition to the litigation filed by Nationwide and described in the response to Item 4, the following litigation is pending that relates to the Offer or that is otherwise significant. On May 21, 1998, a class action on behalf of all shareholders of the Company was filed in Iowa District Court in and for Polk County, Iowa. Plaintiffs seek to compel the Company to consider the Offer or, in the alternative, to recover damages caused by an alleged breach of the fiduciary duty owed by the Board of Directors to its shareholders. A copy of this complaint is filed as Exhibit 7 hereto and is incorporated by reference herein. On December 31, 1997, a complaint was filed by Mary M. Rieff, a policyholder of ALLIED Mutual, in the Iowa District Court in and for Polk County Iowa, against the Company and certain other individuals who are or were officers and/or directors of ALLIED Mutual and the Company. The complaint, an alleged policyholder derivative action brought on behalf of ALLIED Mutual, asserts, among other things, (a) that the defendants were responsible for the - inappropriate transfer of ALLIED Mutual's corporate assets, the seizure of certain corporate opportunities, and the implementation of an improper de facto demutualization without informing or compensating policyholders or receiving the appropriate approval from regulatory authorities; (b) that this allegedly - wrongful demutualization began on or about January 1, 1985 and was accomplished through transfers of ALLIED Mutual's assets to the Company and to the individual defendants for inadequate consideration; (c) that the individual defendants - breached fiduciary duties owed to ALLIED Mutual, wasted its corporate assets, and intentionally interfered with its contracts, prospective business advantage, and business relationships; and (d) that the defendants improperly transferred - substantial ownership of and control over the Company and ALLIED Mutual's insurance business. The complaint further asserts that as a result of the foregoing, ALLIED Mutual and its policyholders have suffered damages in excess of 11 $500 million. The complaint requests an accounting of the assets allegedly wrongfully transferred to the Company and compensation to ALLIED Mutual for the value of such assets, for the seizure of corporate opportunities, and for the de factor demutualization of ALLIED Mutual. The complaint also asks for certain other relief, including attorneys' fees and costs, equitable relief and interest, and restitution for any assets wrongfully transferred or conveyed. A copy of this complaint is filed as Exhibit 8 hereto and is incorporated by reference herein. On June 1, 1998, the plaintiff filed a motion seeking to enjoin the defendant directors of ALLIED Mutual from considering, negotiating or approving any transaction on behalf of ALLIED Mutual with Nationwide or any third party because of alleged conflicts of interest of the members of the Board of Directors of ALLIED Mutual. A copy of the motion is filed as Exhibit 2 hereto and incorporated herein by reference. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Pages 7-8, 10-12 and 14-16 of the Company's Proxy Statement, dated March 27, 1998, in connection with the May 5, 1998 Annual Meeting of Stockholders. Exhibit 2 Motion filed in Rieff v. ALLIED Group in the Iowa District Court in and for Polk County on June 1, 1998./*/ Exhibit 3 Text of Press Release issued by the Company on June 2, 1998./*/ Exhibit 4 Complaint filed by Nationwide and Nationwide Sub in the United States District Court for the Southern District of Iowa on May 18, 1998. Exhibit 5 Text of Press Release issued by the Company on May 18, 1998. Exhibit 6 Confidentiality Agreement, dated May 28, 1998, among the Company, Nationwide and Nationwide Sub Exhibit 7 Complaint filed in Brickell v. Andersen in the Iowa District Court in and for Polk County on May 21, 1998. Exhibit 8 Complaint filed in Rieff v. Allied Group in the Iowa District Court in and for Polk County on December 31, 1997. Exhibit 9 Amended and Restated ALLIED Group Intercompany Operating Agreement, dated August 25, 1993, by and among ALLIED Mutual Insurance Company, ALLIED Group, Inc., ALLIED Life Financial Corporation and certain of their subsidiaries. - ------------------ * to be filed by amendment. 12 Exhibit 10 First Amendment, dated November 1, 1993, to Amended and Restated ALLIED Group Intercompany Operating Agreement by and among ALLIED Mutual Insurance Company, ALLIED Group, Inc., ALLIED Life Financial Corporation and certain of their subsidiaries. Exhibit 11 Second Amendment, dated May 16, 1994, to Amended and Restated ALLIED Group Intercompany Operating Agreement by and among ALLIED Mutual Insurance Company, ALLIED Group, Inc., ALLIED Life Financial Corporation and certain of their subsidiaries. Exhibit 12 Third Amendment, dated December 15, 1994, to Amended and Restated ALLIED Group Intercompany Operating Agreement by and among ALLIED Mutual Insurance Company, ALLIED Group, Inc., ALLIED Life Financial Corporation and certain of their subsidiaries. Exhibit 13 Second Amended and Restated Reinsurance Pooling Agreement, dated December 14, 1992, by and between ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company and Depositors Insurance Company. Exhibit 14 First Amendment to Second Amended and Restated Reinsurance Pooling Agreement, dated February 18, 1993, by and between ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company and Depositors Insurance Company. Exhibit 15 Second Amendment to Second Amended and Restated Reinsurance Pooling Agreement, dated December 13, 1994, by and between ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company and Depositors Insurance Company. Exhibit 16 Third Amendment to Second Amended and Restated Reinsurance Pooling Agreement, dated May 5, 1998, by and between ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company and Depositors Insurance Company. 13 Exhibit 17 Amended and Restated Management Information Services Agreement, dated January 24, 1997 (to be effective March 1, 1996), by and among AMCO Insurance Company, ALLIED Group Information Systems, Inc., ALLIED Mutual Insurance Company, ALLIED Group, Inc., ALLIED General Agency Company, ALLIED Group Mortgage Company, ALLIED Group Leasing Corporation, ALLIED Life Financial Corporation, ALLIED Life Insurance Company, ALLIED Life Brokerage Agency, ALLIED Group Merchant Banking Corporation, ALLIED Group Insurance Marketing Company, The Freedom Group, Inc., and Midwest Printing Services, Ltd. Exhibit 18 First Amendment, dated February 24, 1997, to Amended and Restated Management Information Services Agreement. Exhibit 19 The ALLIED Group Joint Marketing Agreement, dated August 30, 1993, by and between ALLIED Life Insurance Company, ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company. Exhibit 20 First Amendment to the ALLIED Group Joint Marketing Agreement, dated November 1, 1993, by and between ALLIED Life Insurance Company, ALLIED Mutual Insurance Company, AMCO Insurance Company, ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company. Exhibit 21 Stock Rights Agreement, dated July 5, 1990, by and between ALLIED Mutual Insurance Company and ALLIED Group, Inc. Exhibit 22 First Amendment, dated November 11, 1992, to the Stock Rights Agreement by and between ALLIED Mutual Insurance Company and ALLIED Group, Inc. Exhibit 23 Agency Agreement, dated September 1, 1991, by and between Allied Group Insurance Marketing Company, Depositors Insurance Company, and AMCO Insurance Company. 14 Exhibit 24 Amendment, dated February 1, 1992, to the Agency Agreement relating to the addition of ALLIED Property and Casualty Insurance Company as a party thereto. Exhibit 25 Addendum A to the Agency Agreement, attached to the Agency Agreement effective January 1, 1994. Exhibit 26 Intercompany Cash Concentration Fund Agreement, effective as of April 24, 1995, by and among AID Finance Services, Inc. ALLIED Mutual Insurance Company, ALLIED Group, Inc., AMCO Insurance Company, ALLIED Property and Casualty Insurance Company, Depositors Insurance Company Western Heritage Insurance Company, ALLIED Group Leasing Corporation, ALLIED Group Information Systems, Inc., Midwest Printing Services, Ltd., The Freedom Group, Inc., ALLIED General Agency Company, ALLIED Life Financial Corporation, ALLIED Life Insurance Company, ALLIED Group Merchant Banking Corporation, ALLIED Life Brokerage Agency, Inc., ALLIED Group Insurance Marketing Company and ALLIED Group Medical Plan Trust. Exhibit 27 Aggregate Catastrophe Excess of Loss Reinsurance Agreement, dated May 15, 1997, by and among AMCO Insurance Company, ALLIED Property and Casualty Insurance Company, Depositors Insurance Company, Motor Club of Iowa Insurance Company, and General Reinsurance Corporation and ALLIED Mutual Insurance Company (the Subscribing Reinsurers). Exhibit 28 Severance Pay Plan, dated May 30, 1998 of the Company. Exhibit 29 Form of Severance Agreement. Exhibit 30 Amendment, dated June 1, 1998 to the Company's Employee Stock Ownership Plan. Exhibit 31 Consulting Agreement, dated December 14, 1994 by and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual Insurance Company, and ALLIED Life Financial Corporation. Exhibit 32 First Amendment to Consulting Agreement, dated December 18, 1996 by and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual Insurance Company, and ALLIED Life Financial Corporation. Exhibit 33 Second Amendment to Consulting Agreement, dated May 13, 1997, by and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual Insurance Company, and ALLIED Life Financial Corporation. Exhibit 34 Third Amendment to Consulting Agreement, date March 24, 1998, by and between John E. Evans and ALLIED Group, Inc., ALLIED Mutual Insurance Company, and ALLIED Life Financial Corporation. 15 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Dated: June 2, 1998 ALLIED GROUP, INC. By: /s/ Sally J. Malloy --------------------------- Name: Sally J. Malloy Title: Corporate Secretary 16 ANNEX A Certain Transactions and Relationships Intercompany Operating Agreement The Company and its subsidiaries are parties to an Intercompany Operating Agreement ("IOA") with ALLIED Life, ALLIED Mutual, and each of their respective subsidiaries. The following summary of the IOA is qualified in its entirety by reference to the full text of the IOA and the amendments thereto, copies of which are filed as Exhibits 9 through 12 hereto and are incorporated herein by reference. The IOA provides for the sharing of employees, office space, agency forces, data processing, and other services and facilities. The IOA extends through December 31, 2004 and continues thereafter subject to any party providing two years notice that such party intends to cease participation. The Company leases to ALLIED Mutual and its subsidiaries (except for ALLIED Life) the employees utilized in their operations for a fee and reimbursement of personnel costs based on certain allocation methods. The Company is obligated to provide the entire requirements for employees to ALLIED Mutual and its subsidiaries (other than ALLIED Life), but ALLIED Mutual reserves the right to hire employees independently rather than leasing them from the Company. The Company has the right to determine the compensation and benefits of all leased employees. However, if the Company wishes to adopt or amend any employee benefit plan or program and pass on the increased costs thereof with respect to employees leased by ALLIED Mutual, it must obtain the approval of ALLIED Mutual (or a joint Compensation Committee consisting of directors of the Company and ALLIED Mutual). The IOA contains a covenant not to compete that binds each of the Company, ALLIED Life, and ALLIED Mutual not to engage in a business that competes with the products or markets of any other party or such party's subsidiaries for the term of the IOA and five years thereafter. Any disputes regarding the use of occupancy of facilities or the terms on which property is leased or used are to be referred to the Coordinating Committee, consisting of two directors of each of the Company, ALLIED Mutual and ALLIED Life, for resolution. Decisions of the Coordinating Committee must be unanimous and are binding on the parties. If an issue is not resolved by the Coordinating Committee, it will be submitted to arbitration. In such arbitration, each party to the dispute selects one arbitrator, and if such dispute involves only two parties, such arbitrators select third arbitrator. During 1997, the Company received revenues of $2.6 million for employees leased to ALLIED Mutual and certain of ALLIED Mutual's subsidiaries, substantially all of which represented cost reimbursement. The IOA also provides for the leasing by ALLIED Mutual to the Company of substantially all of the office space utilized by the Company and the provision of data processing services by the Company to ALLIED Mutual and its subsidiaries. The Company paid to ALLIED Mutual rent expense for office space of $3.6 million for the year ended December 31, 1997. ALLIED Mutual, the Company, and ALLIED Life share agency forces as well as other services and facilities. Pooling Agreement ALLIED Mutual and the Company's three property-casualty subsidiaries, AMCO Insurance Company ("AMCO"), ALLIED Property and Casualty Insurance Company ("ALLIED Property and Casualty") and Depositors Insurance Company ("Depositors"), are parties to a reinsurance pooling agreement in which the Company's subsidiaries in the aggregate were 64% participants in 1997. The following summary of the Pooling Agreement is qualified in its entirety by reference to the full text of the Pooling Agreement and the amendments thereto, copies of which are filed as Exhibits 13 through 16 hereto and are incorporated herein by reference. The Pooling Agreement provides that ALLIED Mutual, ALLIED Property and Casualty, and Depositors cede to AMCO (the pool administrator) premiums, losses, allocated loss settlement expenses, commissions, premium taxes, service charge income, and dividends to policyholders and assume from AMCO an amount of the pooled property-casualty business equal to their participation in the pooling agreement. The agreement provides that AMCO will pay certain underwriting expenses, unallocated loss settlement expenses, and premium collection expenses for all of the pool participants and receive a fee equal to a specified percentage of premiums. AMCO currently charges each of the other pool participants 12.85% of written premiums for underwriting services, 7.25% of earned premiums for unallocated loss settlement expenses, and 0.75% of earned premiums for premium collection services. During 1997, ALLIED Mutual paid AMCO $71 million in fees under the pooling agreement. A-2 In the event of a change of control of the Company, ALLIED Mutual may, in its sole discretion at any time after such change of control, (i) terminate the Pooling Agreement as well as the MIS Agreement and IOA upon six months' notice to the Company, AMCO, APC and Depositors, (ii) extend the term of all three agreements for up to 10 additional years beyond December 31, 2004 upon six months' notice to the Company, AMCO, APC and Depositors, or (iii) allow the agreements to continue in effect. A change of control is any event whereby a person, group or entity unaffiliated with the Company or ALLIED Mutual acquires the ownership of 50% or more of the voting stock of the Company. The Pooling Agreement is not assignable. In the event of a change of control (whenever ownership of 50% or more of the voting stock of ALLIED Life is acquired by a nonaffiliated party) of ALLIED Life, either the Company or ALLIED Mutual may (i) terminate the IOA and the MIS Agreement (as defined below) on 6 months notice to ALLIED Life, (ii) extend the term of both agreements for up to 10 years beyond December 31, 2004 upon six months' notice, or (iii) allow the agreements to remain in effect without change. In the event of a change of control (whenever ownership of 50% or more of the voting stock of the Company is acquired by a nonaffiliated party) of the Company, ALLIED Mutual may (i) terminate all three of the IOA, the Pooling Agreement (as defined below), and the MIS Agreement on six months' notice to the party with respect to which a change of control takes place, (ii) extend the term of all three agreements for up to 10 years beyond December 31, 2004 upon six months' notice, or (iii) allow the agreements to remain in effect without change. ALLIED Life enjoys the same rights of termination on a change of control of the Company with respect to the IOA and the MIS Agreement. Management Information Services Agreement The Company, ALLIED Mutual, ALLIED Life, and other affiliated companies are parties to a Management Information Services Agreement ("MIS Agreement") with AMCO, whereby AMCO provides certain computer services, printing, equipment leasing, and mail and communication services to affiliates on a fee basis. The following summary of the MIS Agreement is qualified in its entirety by reference to the full text of the MIS Agreement and the amendments thereto, copies of which are filed as Exhibits 17 and 18 hereto and are incorporated herein by reference. The agreement terminates on December 31, 2004 and has an extension provision similar to that in the IOA described above. Any disputes under this agreement are to be referred to the Coordinating Committee for resolution. Decisions of the Coordinating Committee must be unanimous and are binding on the parties. If an issue is not resolved by the Coordinating Committee, it will be submitted to arbitrators for resolution. For the year 1997, amounts paid to AMCO and certain subsidiaries of the Company by ALLIED Mutual, ALLIED Life and their subsidiaries under the MIS Agreement were $2.5 million. A-3 In the event of a change of control of ALLIED Life, either the Company or Mutual may, in its sole discretion at any time after such change of control, (i) terminate the MIS Agreement and IOA upon six months' notice to ALLIED Life, (ii) extend the term of the MIS Agreement and IOA for up to 10 additional years beyond December 31, 2004 upon six months' notice to ALLIED Life, or (iii) allow the agreements to continue in effect. A change of control is any event whereby a person, group or entity unaffiliated with ALLIED Life or ALLIED Mutual acquires the ownership of 50% or more of the voting stock of ALLIED Life. In the event of a change of control of the Company, ALLIED Mutual may, in its sole discretion at any time after such change of control, (i) terminate the Pooling Agreement, the MIS Agreement and IOA upon six months' notice, (ii) extend the term of all three agreements for up to 10 additional years beyond December 31, 2004 upon six months' notice to the Company, AMCO, ALLIED Property and Casualty and Depositors, or (iii) allow the agreements to continue in effect. ALLIED Life enjoys the same rights with respect to the MIS Agreement and the IOA in the event of a change of control of the Company. A change of control is any event whereby a person, group or entity unaffiliated with the Company or ALLIED Mutual acquires the ownership of 50% or more of the voting stock of the Company. Joint Marketing Agreement AMCO, ALLIED Property and Casualty, and Depositors are parties to the ALLIED Group Joint Marketing Agreement ("JMA") with ALLIED Mutual and ALLIED Life Insurance Company ("ALIC"). The following summary of the JMA is qualified in its entirety by reference to the full text of the JMA and the amendments thereto, copies of which are filed as Exhibits 19 and 20 hereto and are incorporated herein by reference. The JMA requires ALLIED Mutual and the Company's property-casualty subsidiaries to promote to their customers and agents the sale of the products of ALIC. The JMA provides for payment by ALIC to AMCO (as pool administrator for the property-casualty companies) of an annual access fee of $100,000 plus an annual new production incentive fee ("NPIF"), calculated based on the percentage increase from the preceding year's production credit premiums for ALIC produced by the independent property-casualty agencies representing ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors ("ALLIED agencies"). The annual NPIF is not payable unless production credit premiums increase by at least 10% over the prior year and is capped at an increase of 25% over the prior year. For the year ended December 31, 1997, the fee incurred by ALIC under the JMA totaled $100,000. The JMA also provides for joint systems development, including joint data bases of customers and agents, multiple account billing systems, marketing plans and promotions, and other systems to be developed. Development costs are to be allocated on a mutually agreeable basis reflecting projected and actual utilization of the systems. The JMA continues to the year 2008 and continues thereafter subject to termination on two years notice given by any party. The JMA contains a non- compete provision structured along product lines which are applicable during the term of the JMA and for a period of ten years thereafter. The non-compete provision prevents A-4 ALLIED Mutual and the property-casualty subsidiaries of the Company, directly or indirectly through any subsidiary, affiliate, joint venture or partnership from selling life insurance or annuities in the states where ALIC now sells these life products (or on termination of the JMA, any states where the life insurance and annuity products are sold by ALIC). ALLIED Mutual and the property-casualty subsidiaries, which are not licensed to sell life insurance or annuity products, do not operate in all the states in which ALIC operates. The JMA non-compete provision also prevents ALIC from offering property-casualty products in states in which ALLIED Mutual and the property-casualty subsidiaries of the Company now operate. In the event of a change of control of ALIC or ALLIED Life (whenever ownership of 50% or more of the voting stock is acquired by a nonaffiliated party), the Company, ALLIED Mutual, or any of the Company's property-casualty subsidiaries may (i) terminate it upon six months' notice; (ii) extend the term for up to ten additional years beyond 2008; or (iii) allow the JMA to continue in effect without change. Those three rights are also given to ALIC in the event of a change of control of the Company, any of its property-casualty subsidiaries or ALLIED Mutual. Disputes are to be resolved by the Coordinating Committee. Decisions of the Coordinating Committee must be unanimous and are binding on the parties. If the Coordinating Committee fails to resolve an issue, it would be submitted to arbitration. In such arbitration, one arbitrator will be appointed jointly by ALLIED Mutual and the Company's property-casualty subsidiaries and a second arbitrator will be appointed by ALLIED Life. Both arbitrators so selected will jointly select a third arbitrator. Other Arrangements and Transactions The Company and ALLIED Mutual are parties to a Stock Rights Agreement which expires in 2005. Under the Stock Rights Agreement, ALLIED Mutual is entitled to nominate and the Company is required to use its best efforts to cause the election or retention of a number of members of the Company's Board of Directors in proportion to ALLIED Mutual's percentage ownership of the total number of shares of the Company's voting stock outstanding at the time of nomination. In addition, the Company is required to elect to its Executive Committee at least one Company director who has been nominated by ALLIED Mutual but who is not an officer or employee of ALLIED Mutual, and the Company must limit the number of directors serving on the Executive Committee to five at any time. The Stock Rights Agreement restricts the ability of ALLIED Mutual to grant proxies to other than affiliated individuals and to solicit other stockholders of the Company. ALLIED Mutual has incidental registration rights and three demand registration rights with respect to the 6-3/4% Preferred. The preceding summary of the Stock Rights Agreement is qualified in its entirety by reference to the full text of the Stock Rights Agreement and the amendment thereto, copies of which are filed as Exhibits 21 and 22 hereto and are incorporated herein by reference. A-5 The Company and its affiliates pool their excess cash into a short-term investment fund pursuant to the Intercompany Cash Concentration Fund Agreement. The fund, administered by AID Finance Services, Inc. (an affiliate of the Company), also issues short-term loans (30 days or less) to affiliated companies in accordance with the current intercompany borrowing policy. At December 31, 1997, the Company had several unsecured notes payable totalling $5.9 million, bearing interest rate at 8.8%. The Company and its affiliates pay to AID Finance Services, Inc. a management fee (5 basis points of invested assets) which is offset against investment income. At December 31, 1997, $8.3 million was invested in the fund by the Company and its subsidiaries, which is carried as a short-term investment. Interest earned by the Company and its subsidiaries from the fund during 1997 was $477,000. Interest expense paid to AID Finance Services, Inc. during 1997 amounted to $424,000. The preceding summary of the Intercompany Cash Concentration Fund Agreement is qualified in its entirety by reference to the full text of the Intercompany Cash Concentration Fund Agreement, a copy of which is filed as Exhibit 26 hereto and is incorporated herein by reference. ALLIED Group Insurance Marketing Company ("AGIMC"), a wholly-owned subsidiary of AID Finance Services, Inc., markets insurance products for the Company's property-casualty subsidiaries on a commission basis pursuant to an Agency Agreement. The Company's share of commissions paid to AGIMC was $3.7 million for the year ending December 31, 1997. The Agency Agreement and amendments thereto are filed as Exhibits 23 through 25 hereto and are incorporated herein by reference. The Company paid premiums to ALLIED Life for term life insurance on the Company's employee group in the amount of $468,000 in 1997. The property-casualty subsidiaries of the Company paid premiums to ALLIED Mutual in the amount of $2.9 million in 1997 for ALLIED Mutual's participation in a reinsurance agreement with General Re-Insurance Company. There were recoveries from ALLIED Mutual in the amount of $2 million. The reinsurance agreement for 1997 is filed as Exhibit 27 hereto and is incorporated by reference herein. On December 31, 1997, State Street Bank and Trust Company, as the ESOP Trustee, purchased for the ESOP Trust 18,865 shares of Common Stock from the Company for $540,000. AMCO administers many of the bank accounts for the affiliated ALLIED companies. During the fiscal year 1997, AMCO issued checks in payment of certain transactions between affiliated ALLIED companies and the companies of certain directors of the Company. During 1997, ALLIED Mutual, as owner of the ALLIED office buildings, paid $214,000 for construction services to Taylor Ball, of which John P. Taylor, a director of the Company, is CEO and Chairman. It is anticipated that in 1998 ALLIED Mutual will continue to use the construction services of Taylor Ball and A-6 that AMCO will issue the checks on behalf of ALLIED Mutual in payment for the construction services. During the year ended December 31, 1997, ALLIED Mutual, the Company, and its subsidiaries paid $1 million in fees and media costs to J.D. Evans & Associates, of which Julie Evans (daughter of John E. Evans) is a stockholder. Donald S. Willis, a Director of the Company, is a majority stockholder of Willis and Moore, Inc., a general insurance agency. During 1997, ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors paid $233,000 in property- casualty commissions and profit share to Willis and Moore, Inc. These commissions and profit share were paid on the same basis and terms as those paid to unrelated agencies. During 1997, directors and executive officers of the Company purchased insurance or obtained residential mortgages from the Company or its subsidiaries on terms comparable to those offered in the normal course of business to nonaffiliated customers. In addition, corporations of which Company directors are executive officers purchased insurance from the Company's subsidiaries and ALLIED Mutual in the ordinary course of business during 1997. Amendment to Employee Stock Ownership Plan On June 1, 1998, the Board of Directors of the Company, acting upon the recommendation of the Compensation Committee of the Board, amended the ALLIED Group Employee Stock Ownership Plan ("ESOP") to provide that participants in the ESOP (including executive officers) will be fully vested in their accounts upon the occurrence of a "Change in Control" (as defined below) and to clarify that surplus assets following such a Change in Control will generally be allocated based on the same formula applicable to employer contributions. The amendment to the ESOP is filed as Exhibit 30 hereto and is incorporated by reference herein. For purposes of the foregoing, a "Change in Control" shall be deemed to have occurred upon the first to occur of the following: (i) Any person other than (a) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (b) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (c) ALLIED Mutual, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the total voting power represented by the Company's then outstanding voting securities; or A-7 (ii) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board plus any new Director (a) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the Directors at the beginning of the period or whose election or nomination for election was previously so approved or (b) whose nomination for election by the Company's shareholders was made pursuant to the Stock Rights Agreement between the Company and ALLIED Mutual, cease for any reason to constitute a majority thereof; or (iii) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation (and such merger or consolidation is in fact consummated), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least eighty percent (80%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets , provided that such merger, consolidation, liquidation, sale or disposition, as the case may be, is actually consummated. Amendment to John Evans Consulting Agreement The consulting agreement between the Company, ALLIED Mutual, ALLIED Life and John Evans, which is described in the 1998 Proxy Statement, was amended on March 24,1998 to provide for a decrease in the annual compensation payable to Mr. Evans from $180,000 to $120,000. Such annual compensation is consideration for consulting services rendered by Mr. Evans and is prorated among the Company, ALLIED Mutual and ALLIED Life. The consulting agreement and the amendments thereto are filed as Exhibits 31 to 34 hereto and are incorporated herein by reference. Change of Control Provisions in Long-Term Management Incentive Plan As discussed in the 1998 Proxy Statement, the Company maintains a Long-Term Management Incentive Plan (the "Long-Term Plan") which provides for the award of stock options, stock appreciation rights ("SAR's") and shares of restricted stock. On March 10, 1998, the following option grants were made to executive officers of the Company: Douglas L. Andersen - 25,000 options, W. Kim Austen - 7,500 options, Steven A. Biggi - 15,000 options, Marla J. Franklin - 8,000 options, James J. Hachenbucher - 10,000 options, Michael D. Holmes - 15,000 options, Steven P. Larsen - 15,000 options, Charles H. McDonald - 5,000 options, Michael L. Pollard - 12,000 options, Stephen S. Rasmussen - 18,000 options, Scott E. Reddig - 10,000 options, A-8 Jamie H. Shaffer - 15,000 options, Edward E. Sullivan - 10,000 options and Kirt A. Walker - 7,500 options. Additionally, on May 30, 1998, Paul J. Curran was granted 5,000 shares of restricted stock pursuant to the Long-Term Plan. The Long-Term Plan provides that upon a change of control (as defined in the Long- Term Plan), all options and SAR's shall become immediately exercisable, and any restriction periods and restrictions imposed on restricted stock will lapse. Amendment to Stock Option Plans On May 30, 1998, the Compensation Committee of the Company's Board of Directors, seeking to provide parallel treatment of employee stock options upon a change in control, determined that it would interpret the Company's Restated and Amended Stock Option Plan and Nonqualified Stock Option Plan (together, the "Option Plans") in the same manner as the Long Term Plan with respect to a change in control. On June 1, 1998, the Board of Directors approved and ratified the action of the Compensation Committee. Severance Plan and other Agreements On May 30, 1998, the Compensation Committee of the Company's Board of Directors, following publication of the Offer and after consideration of the potentially destabilizing effects of the pendency of such proposal on the morale and retention of Company employees, approved the adoption by the Company of a severance policy applicable to the Company's salaried and hourly employees and approved the entry by the Company into separate severance agreements (the "Severance Agreements") with executives and certain other employees of the Company. On June 1, 1998, the Board of Directors approved and ratified these actions of the Compensation Committee. The following is a summary of the ALLIED Group, Inc. Severance Pay Plan (the "Severance Pay Plan"). This summary is qualified in its entirety by reference to the full text of the Severance Plan, a copy of which is filed as Exhibit 28 hereto and is incorporated herein by reference. The Severance Plan provides for certain benefits to eligible employees following an involuntary termination of employment or Company-approved resignation. The benefits consist of a lump sum payment equal to one week's base salary for each full calendar year of employment and continuation of health benefits for approximately the same period as is used to calculate the lump sum payment. Benefit continuation terminates when the employee becomes eligible to receive benefits from another employer. An employee is not eligible to receive severance benefits if his termination of employment is due to death, transfer of employment to an affiliate or successor of the Company or for "Cause." "Cause" is generally defined as with respect to the termination of an eligible employee's employment with the Company, termination (or deemed termination) because the employee has consistently failed to function as required by Company A-9 standards. In the event an employee's employment terminates for any reason and the plan administrator subsequently determines that Cause for termination existed at the time the employee's employment terminated, such employee shall be deemed to have been terminated for Cause. Enhanced benefits are provided to employees who are terminated, whose employment has been adversely affected, or who resign with the Company's approval following a change in control (as defined above). The enhanced benefits consist of an additional lump sum payment equal to employee's base salary for a period equal to the greater of three months or from the date of termination of employment through the first anniversary of the change in control, benefit continuation for the additional period, and outplacement services to be provided at the expense of the Company. The Severance Agreement, the form of which is filed as Exhibit 29 hereto and is incorporated herein by reference, generally provides that in the event of any involuntary termination or constructive termination of employment (including a material reduction in responsibilities, a reduction in base pay or incentive compensation opportunities or a involuntary relocation) within the two year period following a change in control an employee who is a party to such an agreement would receive, in lieu of any other severance, a lump sum payment equal to one year's base pay plus the employee's highest bonus over the preceding two years and benefit continuation for eighteen months following the termination of employment (or until the employee becomes eligible for benefits under new employer). For a small number of employees, the benefit would be a lump sum severance payment equal to two times annual base salary plus the employee's highest bonus over preceding two years and benefit continuation for eighteen months following the termination of employment (or until the employee becomes eligible for benefits under new employer). In the event that such severance payments would subject the employee to an excise tax imposed under section 4999 of the Internal Revenue Code of 1986, as amended, the amount of the severance otherwise payable will generally be reduced to avoid the imposition of such excise tax. The Company has offered Severance Agreements that provide for a severance equal to two times the employee's base salary and higher bonus over the preceding two years to the following executive officers of the Company: Douglas L. Andersen, Michael D. Holmes, and Stephen S. Rasmussen. The Company has also offered such agreements to six other employees, who are not executive officers. The Company has offered Severance Agreements that provide for a severance equal to the employee's base salary and higher bonus over the preceding two years to the following officers and other senior executives of the Company: Cheryl M. Critelli, Paul J. Curran, Marla J. Franklin, Sally Malloy, Charles H. McDonald, George T. Oleson, and Jamie H. Shaffer. The Company has also offered such agreements to 34 other employees, who are not executive officers. A-10 The Company has calculated that the maximum aggregate lump sum that could be payable pursuant to all of the Severance Agreements described above (including non-executive officers), assuming termination of each of these individuals, is approximately $9.2 million. A-11 ANNEX B ITEM 6(a) (i) The Company. In response to a sharp decline in the market price of the Company's Shares following the announcement on May 5, 1998 of changes to its Pooling Agreement, the Company announced an increase in its previously authorized stock repurchase program. Between May 7, 1998 and May 14, 1998, the Company repurchased in the open market an aggregate of 557,600 Shares pursuant to its previously announced stock repurchase program on the date, in the amounts and at the prices listed below: Date of Purchase Number of Shares Price per Share Total May 7, 1998 125,000 $26.0000 $3,256,250.00 May 8, 1998 25,000 $26.1875 $ 655,937.50 May 8, 1998 100,000 $26.0000 $2,605,000.00 May 11, 1998 25,000 $27.0000 $ 676,250.00 May 11, 1998 51,000 $27.0000 $1,379,550.00 May 12, 1998 164,100 $27.1250 $4,459,417.50 May 13, 1998 29,000 $27.6250 $ 802,575.00 May 13, 1998 16,600 $27.6634 $ 460,042.44 May 14, 1998 21,900 $27.4977 $ 603,294.63 The Company has not purchased any Shares since May 14, 1998. (ii) ALLIED Group, Inc.'s Executive Officers and Directors. On April 23, 1998, Charles H. McDonald, Vice President of the Company, sold 9,000 Shares at a price of $31.6806 per Share. On April 24, 1998, Mr. McDonald sold 2,000 Shares at a price of $31.5625 per Share. On April 27, 1998, Mr. McDonald sold 1,000 Shares at a price of $31.5000 per Share. On April 28, 1998, Steve A. Biggi, Regional Vice President of certain subsidiaries, exercised outstanding stock options to acquire 3,936 Shares at a price per Share that ranged between $10.778 and $17.889 and sold 1,968 Shares the same day at a price per Share of $31.4375. He exercised 843 cash-only SARs with exercise prices of from $10.778 to $17.889 and a fair market value of $31.563. On April 29, 1998, W. Kim Austen, Regional Vice President of certain subsidiaries, exercised outstanding stock options to acquire 15,184 Shares at a price per Share that ranged between $10.7778 and $17.8889 and sold 12,684 Shares the same day at a price per Share of $30.7147. He exercised 844 cash-only SARs at exercise prices of from $10.778 to $17.8889 and a fair market value of $30.7813. On May 7, 1998, Douglas L. Andersen, Chief Executive Officer and President of the Company acquired 474 Shares at a price of $26.6875 per Share. On May 11, 1998, Jamie H. Shaffer, Senior Vice President and Chief Financial Officer of the Company, acquired 500 Shares at a price of $27.00 per Share. On May 12, 1998, Harold S. Carpenter, a Director of the Company, acquired 10,000 Shares at a price of $27.1875 per Share. On May 13, 1998, Michael D. Holmes, Vice President of the Company, exercised outstanding stock options to acquire 5,625 Shares at a price per Share of $17.1667. On May 14, 1998, Harold S. Carpenter, a Director of the Company, acquired 5,000 Shares at a price of $27.5000 per Share. (iii) Employee Stock Purchase Plan Other transactions include regular on-going acquisitions through the Company's Employees Stock Purchase Plan. B-2 Exhibit 1 Charles I. Colby, age 70, has been a Director of the Company since 1993. Mr. Colby had been a Director of ALLIED Mutual from 1971 to 1991. Since 1984, Mr. Colby has been Chairman of the Board of Colby Properties, which is in the business of real estate development. Mr. Colby is a member of the Board of Directors of West Des Moines State Bank. Harold S. Evans, age 69, has been a Director of the Company since 1974 and of ALLIED Mutual since 1965. Mr. Evans also serves on the Board of Directors of AMCO, ALLIED Property and Casualty, Depositors, and ALLIED Life Financial Corporation. He was employed by Aluminum Company of America beginning in 1955, serving as Group Vice President-International until his retirement in 1989. Mr. Evans is a brother of John E. Evans, Chairman of the Board and a Director of the Company. Meetings and Committees of the Board of Directors During 1997, there were five meetings of the Board of Directors. All directors attended more than seventy-five percent of the aggregate committee and Board meetings during 1997. The Board has established Executive, Audit, Investment, Compensation, and Coordinating Committees. The Company does not have a standing nominating committee, and the functions that are normally performed by such a committee are carried out by the Executive Committee. The Executive Committee will consider nominees recommended by stockholders. Such recommendations for nominees for election of the 1999 Annual Meeting should be submitted in writing to the Executive Committee in care of the Secretary of the Company, 701 Fifth Avenue, Des Moines, Iowa 50391-2000, no later than February 4, 1999. The Executive Committee members are John E. Evans, James W. Callison, Harold S. Evans, and Douglas L. Andersen. The Executive Committee has the authority, with certain exceptions, to exercise the powers of the full Board of Directors. The Board of Directors reviews and approves the minutes of all meetings of the Executive Committee. The Executive Committee met five times in 1997. The Audit Committee members consist of outside directors John P. Taylor and Donald S. Willis. The Committee selects and retains the Company's independent certified public accountants and approves the staffing and budgets of the Company's internal audit department. Both the internal auditors and the independent certified public accountants periodically meet with the Audit Committee and have access to the members of the Committee. The Audit Committee met two times in 1997. C. Fred Morgan, a member of the ALLIED Mutual Board of Directors, sits as a nonvoting representative of ALLIED Mutual on the Audit Committee. The Investment Committee is a committee authorized to direct and approve investment activities of the Company. The members of the Investment Committee are John E. Evans, Harold S. Evans, James W. Callison, Charles I. Colby, and Douglas L. Andersen. The Investment Committee met eight times in 1997. The Compensation Committee of the Board has the authority to establish all compensation and benefits for all of the executive officers and employees of the Company and its subsidiaries. The members of the Compensation Committee, Harold S. Evans, James W. Callison, and Charles I. Colby, met five times in 1997. The Coordinating Committee is a committee responsible for matters involving actual or potential conflicts of interest, if and when they arise, between the Company, ALLIED Mutual, and ALLIED Life Financial Corporation. The Company's members of the committee, Donald S. Willis and Harold S. Carpenter, are outside directors of the Company who are not members of the Board of Directors of ALLIED Mutual or ALLIED Life Financial Corporation. The Coordinating Committee met one time in 1997. Compensation of the Members of the Board of Directors and the Outside Director Stock Purchase Plan Directors who are not officers or employees of the Company received an annual retainer in 1997 of $20,000 plus expenses incurred in attending Board meetings. Directors were also paid $1,000 per Board meeting and $750 per committee meeting. Directors who are executive officers of the Company do not receive any fees in addition to their remuneration as officers. The annual retainer is split among the Company, ALLIED Mutual, and ALLIED Life Financial Corporation for James W. Callison, Harold S. Evans, and John E. Evans (each of whom are also directors of ALLIED Mutual and ALLIED Life Financial Corporation), and many of the meeting fees are also split for these three individuals in the 8 event the companies have meetings on the same day. In addition, Donald S. Willis receives from the Company $750 per committee meeting for sitting as a Company representative and nonvoting member of the ALLIED Mutual Contributions Committee. The Company's directors who are not employees or officers of the Company may elect to receive all or a portion of their director fees in the form of Common Stock obtained under the ALLIED Group, Inc. Outside Director Stock Purchase Plan ("Director Purchase Plan"). Under the Director Purchase Plan, a participant may purchase Common Stock with a fair market value of no more than $25,000 per calendar year. The price per share paid to the Company is 100% of the fair market value of shares of Common Stock. The director fees that are withheld are applied to 85% of the price per share, with the remainder being paid proportionally by the Company and/or other ALLIED companies to whom the participant's director fees are allocated. A participant may not dispose of the Common Stock purchased under the Director Purchase Plan for a period of one year from the purchase date. An Administrative Committee composed of employee directors of the Company administers the Director Purchase Plan. During 1997, the following directors participated in the Director Purchase Plan purchasing the number of shares and receiving the dollar value of discount for all shares purchased as indicated: Harold S. Carpenter, 924 shares, $3,746; John E. Evans, 952 shares, $3,750; Richard O. Jacobson, 920 shares, $3,747; John P. Taylor, 924 shares, $3,746; William E. Timmons, 333 shares, $1,368; and Donald S. Willis, 156 shares, $640. John E. Evans has a Consulting Agreement with the Company, ALLIED Mutual, and ALLIED Life Financial Corporation pursuant to which he performs certain consulting services for the companies until such agreement is terminated by Mr. Evans or the companies. Mr. Evans is to be paid an annual fee which is to be prorated among the Company, ALLIED Mutual, and ALLIED Life Financial Corporation. The annual fee was $250,000 for the first six months or 1997 and $180,000 for the latter six months. The Company's portion of the fee for 1997 was $172,365. ALLIED Mutual agreed to nominate Mr. Evans for re-election to the Board of Directors of the Company in accordance with ALLIED Mutual's nomination rights under this Stock Rights Agreement between ALLIED Mutual and the Company. Executive Officers In addition to Douglas L. Andersen, the following are the executive officers of the Company and its subsidiaries. Stephen S. Rasmussen, age 45, has been Executive Vice President since March 3, 1998 and had been Senior Vice President of the Company since 1995. He serves in a similar capacity in each of ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors. Mr. Rasmussen had previously been Vice President of underwriting of ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1986. He has been employed by ALLIED Mutual since 1974 holding a variety of underwriting and managerial positions. Jamie H. Shaffer, age 54, has been Senior Vice President and Chief Financial Officer of the Company, ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1997. He has been President (Financial) of the Company since 1994. Since 1978, Mr. Shaffer has served as Treasurer of the Company, ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors. Mr. Shaffer joined ALLIED Mutual in 1971. Marla J. Franklin, age 51, has been Vice President of the Company and Vice President of Human Resources of ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1994. Previously, Mr. Franklin was Assistant Vice President of Human Resources having been with ALLIED since 1973. Michael D. Holmes, age 40, has been Vice President of Information Systems for ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1996. Mr. Holmes served as Vice President of Emerging Technologies for AmerUs Mutual Life Insurance Company from 1995 until 1996. Previously, Mr. Holmes served in various management positions in the information systems area with ALLIED since 1983. Steven P. Larsen, age 41, has been Vice President of Claims of ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors since 1993. Mr. Larsen joined ALLIED in 1991 as Assistant Vice President-Claims Legal. Previously, he was employed by United Services Automobile Association as Claims Counsel since 1985. Charles H. McDonald, age 59, has been Vice President of the Company since 1990 and was named Vice President of Communications in 1994 for ALLIED Mutual, AMCO, ALLIED Property and Casualty, and Depositors. He had been Vice President of Human Resources from 1979 to 1994. His employment in personnel and employee relations commenced with ALLIED Mutual in 1973. 10 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS As of February 28, 1998, the directors, the executive officers named in the Summary Compensation Table, and the directors and executive officers as a group beneficially owned shares of Common Stock as set forth below. The issued and outstanding Common Stock and 6-3/4% Preferred as of February 28, 1998 were 30,549,314 shares and 1,827,222 shares, respectively. Amount and Nature of Percent Voting Name of Beneficial Owner Beneficial Ownership (1) of Class (1) Percentage ------------------------ ------------------------ ------------ ---------- John E. Evans 866,219 1.2% 1.0% James W. Callison 26,542 - - Harold S. Carpenter 67,795 (4) - - Charles I. Colby 23,349 (5) - - Harold S. Evans 47,994 (6) - - Richard O. Jacobson 9,974 - - John P. Taylor 22,202 - - William E. Timmons 13,898 - - Donald S. Willis 30,952 - - Douglas L. Andersen 224,430 (2) (3) - - Stephen E. Rasmussen 103,069 (2) (3) - - Jamie H. Shaffer 196,083 (2) (3) - - Steve A. Biggi 67,643 (2) (3) - - Scott E. Reddig 1,811 - - All directors and executive officers as a group (24 persons) 1,664,270 (2) (3) (4) (5) (6) 5.4% 4.6% - --------- (1) Except as noted, all persons have sole voting and investment power with respect to the shares reported; asterisks indicate ownership of less than 1%. (2) Includes the following number of shares that are also reported as beneficially owned by the ESOP Trustee: Mr. Andersen, 56,301 shares; Mr. Rasmussen, 29,961 shares; Mr. Shaffer, 58,161 shares; Mr. Biggi, 14,086 shares; Mr. Reddig, 1,244 shares; and all executives as a group 345,588 shares. Allocated shares are voted by the ESOP Trustee in accordance with the direction of the ESOP participant. Generally, unallocated shares and allocated shares as to which no direction is made by the participant are voted by the ESOP Trustee in the same percentage as the allocated shares as to which directions are received by the ESOP Trustee. (3) Includes the following number of shares which the following persons have the right to acquire within 60 days of February 28, 1998 pursuant to stock options granted under the ALLIED Group, Inc. Restated and Amended Stock Option Plan. ALLIED Group, Inc. Nonqualified Stock Option Plan, and ALLIED Group, Inc. Long-Term Management Incentive Plan: Mr. Andersen, 47,623 shares; Mr. Rasmussen, 13,688 shares; Mr. Shaffer, 23,436 shares; Mr. Biggi, 7,308 shares; and all executive officers as a group, 244,363 shares. (4) Includes 57,375 shares of Common Stock owned by Superior Gas and Chemical, Inc. (5) Includes 15,750 shares of Common Stock owned by Charles I. Colby & Ruth Colby Trust #1, Ruth Colby Trust A, and Charles I. Colby and Ruth Colby Family Trust, each of which Charles I. Colby is Trustee and Beneficiary. (6) Includes 34,266 shares of Common Stock owned by the Bethany Foundation, a nonprofit corporation, of which Harold S. Evans is President. BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors of the Company (the "Committee") is responsible for establishing and administering the compensation policies which govern annual compensation, stock ownership programs, and employee benefit programs for the executive officers as well as other employees of the Company and its subsidiaries. 11 Compensation Criteria In making compensation determinations, the Committee considers and endeavors to obtain the following goals: 1) attract and obtain highly qualified and motivated executive officers and employees, 2) encourage and reward achievement of annual and long-term financial goals and operating plans of the Company, and 3) encourage executive officers and employees to become stockholders with interests aligned with those of other stockholders. The Committee's policy with regard to the compensation of executive officers is to meet the foregoing goals through a combination of base salary, annual bonus, stock ownership, and other benefits with a particular focus on encouraging executive officers to attain individual performance goals that are designed to favorably impact overall Company performance. Compensation Components The basic components of Compensation for executive officers, including those individuals listed in the Summary Compensation Table, are in four areas: Base Salary: The Committee sets salary ranges annually which are intended to reflect the median level of base pay for comparable positions at companies of similar size and complexity. The Committee reviews salary survey data provided by independent survey consultants and information provided by the Standard and Poor's property-casualty insurance segment. Based on the scope and responsibility of the position in the survey compared to the scope and responsibility of the position at the Company, the Committee determines whether the officer's salary range should be set at, above, or below the median level of the industry. To determine the level of a specific salary within its range, the Committee considers management input regarding the officer's length of service in the position, experience, and management skills in handling short and long range issues. In addition, the Committee reviews the officer's performance during the prior year measured against predetermined corporate and individual plans and objectives approved by the Board. Annual Bonus: The Committee believes that a significant portion of annual cash compensation for the executive officers should be variable ("at risk") and tied to the Company's financial results. The Short Term Management Incentive Compensation Plan (the "Short Term Plan") is administered by the Committee which annually establishes goals for profit and growth. Depending upon attainment of Short Term Plan goals, executive officers may receive a bonus amount equal to 12-19% of base salary if the minimum profit goal is attained, and up to 48-75% of base salary if both profit and growth goals are maximized. Profit is based on consolidated net income or profit center net income as appropriate for measuring the participant's overall contribution to the Company's success. Growth is measured in direct written premiums for the property-casualty companies (excluding Western Heritage and crop-hail business). The profit and growth goals are established annually by the Committee. Goals are set to exceed expected profit and growth performance of the industry. The potential total award is weighted toward profit: 75% of the award may come from profit goal attainment and 25% from growth attainment. No incentive for growth is given if the minimum profit target is not met. The Committee may use its discretion to modify a portion of a participant's award, either upward or downward, based on management's recommendation of the participant's contribution to the achievement of goals. Stock Ownership: The Committee believes that a fundamental goal of executive compensation is to encourage and create opportunities for long-term executive stock ownership. Stock ownership guidelines for officers were established by the Committee in 1994. Over a period of ten years, the following ownership levels of Company Common Stock should be attained: President 150,000 - 200,000 shares Senior Vice Presidents 100,000 - 150,000 shares Key Vice Presidents 75,000 - 100,000 shares Other Executive Officers 30,000 - 50,000 shares The Long-Term Management Incentive Plan (the "Long-Term Plan") provides for the award of stock options (nonqualified and incentive stock options), stock appreciation rights ("SARs"), and shares of restricted stock. The Committee 12 encourages ownership of Company stock through the grant of options to participants in the Long-Term Plan. In determining who will participate and the amount of awards, the Committee selects key management employees, and based on their position, salary, performance, and previous grants, the Committee determines the amount of awards to be given to each participant. Generally, the amount increases with the level of position. The Committee intends to make grants on an annual basis and establish a vesting schedule at each grant date. The 1997 option grants vest in 33-1/3% increments on the third, fourth, and fifth anniversary of the grant date. In 1997, 240,000 options were awarded to 33 participants, and 555,969 shares remain available for award. Employee Benefits: The Company offers benefit plans such as vacation, medical, life and disability insurance to executive officers on the same basis as offered to all employees. In keeping with the Company's commitment to align employee interests with those of stockholders, employees may acquire shares of stock through the Employee Stock Purchase Plan ("ESPP"), and all eligible employees are allocated shares through the Employee Stock Ownership Plan ("ESOP"). The ESPP allows employees to purchase stock at 85% of its fair market value, and the ESOP is discussed in note 5 to the Summary Compensation Table in this Proxy Statement. Executive officers are eligible for these programs on the same basis as other employees. CEO's Compensation Mr. Andersen participates in the compensation program described above and has a significant portion of his total compensation at-risk. In March, 1997 Mr. Andersen was elected Chief Executive Officer of the Company and received a 16% increase in base salary. In 1997, he received 15,000 shares subject to option, which adjusted for the stock split in November 1997, amounts to 22,500 shares subject to option. Mr. Andersen led the Company toward excellent financial results in 1997 and received a bonus award of $166,036 for that performance. Tax Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code (the "Code") generally limits to $1 million per individual per year the federal income tax deduction for compensation paid by a publicly-held company to the company's chief executive officer and its other four highest paid executive officers. Compensation that qualifies as performance-based compensation for purposes of Section 162(m) is not subject to the $1 million deduction limitation. Options and stock appreciation rights granted under the Long-Term Plan satisfy the requirements for performance-based compensation. The Committee presently does not intend to seek to qualify other components of the Company's incentive compensation for executive officers as performance-based compensation under Section 162(m) of the Code, such as the Short Term Plan. However, the Committee currently does not anticipate that any executive officer will be paid compensation from the Company in excess of $1 million in any year (including amounts that do not qualify as performance-based compensation under the Code), and accordingly, the Committee anticipates that all amounts paid as executive compensation will be deductible by the Company for federal income tax purposes. COMPENSATION COMMITTEE James W. Callison Charles I. Colby Harold S. Evans 14 COMPENSATION OF EXECUTIVE OFFICERS All employees are directly employed by the Company. The Company leases employees to all of its subsidiaries and to ALLIED Mutual and certain of its subsidiaries. The following table shows the compensation earned by the CEO and the four most highly compensated officers of the Company for services rendered in all capacities to the Company, its subsidiaries, and to ALLIED Mutual and its subsidiaries. Summary Compensation Table Long-Term Compensation --------------------------------- Annual Compensation Awards ------------------------ --------------------------------- Restricted Securities Stock Underlying All Other Name and Principal Position Year Salary (1) Bonus (2) Awards (3) Options/SARs (4) Compensation (5) - --------------------------- ---- --------- --------- ---------- ---------------- ---------------- Douglas L. Andorsen 1997 $318,930 $166,036 -0- 22,500 $61,200 President, CEO, and Director 1996 279,594 -0- $11,900 15,750 27,000 of Company, AMCO, ALLIED 1995 260,000 108,754 22,200 38,250 21,000 Property and Casualty, Depositors, and ALLIED Mutual Stephen S. Rasmussen 1997 $180,847 $ 70,000 -0- 15,000 $67,600 Executive Vice President of 1996 169,825 -0- $10,750 11,250 30,375 Company, AMCO, ALLIED 1995 158,000 50,026 19,700 33,001 23,625 Property and Casualty, Depositors, and ALLIED Mutual Jamie H. Shaffer 1997 $229,362 $117,602 -0- 18,000 $57,600 Senior Vice President, 1996 219,132 -0- $13,000 15,750 30,375 Treasurer, and CFO of 1995 200,000 83,662 24,900 60,750 23,625 Company, AMCO, ALLIED Property and Casualty, Depositors, and ALLIED Mutual Steve A. Biggi 1997 $157,750 $ 89,040 -0- 15,000 $57,600 Regional Vice President 1996 148,260 84,643 $ 9,000 7,875 30,375 of AMCO, ALLIED Property 1995 145,385 -0- 16,500 5,625 23,625 and Casualty, Depositors and ALLIED Mutual Scott E. Reddig 1997 $145,038 $ 53,400 -0- 6,000 $35,605 Vice President of AMCO, 1996 19,953(6) -0- -0- 22,500 -0- ALLIED Property and Casualty, 1995 -0- -0- -0- -0- -0- Depositors, and ALLIED Mutual - --------- (1) Includes amounts deferred at the election of the officer pursuant to the Company's Savings and Investment Plan (401(k)). (2) Amounts were earned in the year indicated but paid in the following year under the ALLIED Group Short Term Management Incentive Compensation Plan. (3) Awards of restricted stock were made to satisfy obligations under the Long- term Management Incentive Compensation Plan (also known as the Performance Unit Plan) which was discontinued in 1994. For the three-year performance period ending in 1995 and 1996, shares of 15 restricted stock were awarded to satisfy prorated cash awards to which the participants were entitled. The restricted stock vests 25% per year beginning the second year after the award. Dividends are paid on the restricted stock awarded to participants. The number and value of the aggregate restricted stock holdings at the end of 1997 are as follows (using a market value of $29.72 per share): Mr. Andersen, 1,989 shares valued at $57,124; Mr. Rasmussen, 1,777 shares valued at $51,035; Mr. Shaffer, 2,215 shares valued at $63,615; and Mr. Biggi, 1,488 shares valued at $42,735. (4) The number of reported options and SARs reflect the 3-for-2 stock split in November 1997. See "Option/SAR Grants in Last Fiscal Year" for a description of the terms and conditions of the option grants. (5) Amounts are deferred compensation and reflect contributions made by the Company under The ALLIED Group Employee Stock Ownership Plan ("ESOP") which is a defined contribution retirement plan covering all eligible Company employees. The amount of employer contribution is based on a percentage of annual pay (capped at $160,000) and calculated as follows: less than 6 years of service, 6% of pay; 6 years but less than 11 years; 7% of pay; 11 years but less than 21 years, 8% of pay; and for 21 years or more, 9% of pay. In 1995, 1996, and 1997, employees participating in the ESOP received an additional 75%, 125%, and 300%, respectively, increased stock allocation to their accounts. In 1997, Mr. Rasmussen received cash dividends on the ESOP shares purchased with funds transferred from the terminated retirement plan in the amount of $6,624. (6) Mr. Reddig began employment with the Company on November 11, 1996. In 1996, he received $21,600 in perquisites, the majority of which were for moving expenses. Option/SAR Grants in Last Fiscal Year The following table summarizes certain information regarding options granted during 1997 to the named executive officers and reflects the November 1997 3-for-2 stock split. Potential Individual Grants Realizable Value at ------------------------------- Assumed Annual Number of % of Total Rates of Stock Price Securities Options/SARs Appreciation Underlying Granted to Exercise or for Option Term (2) Options/SARs Employees in Base Expiration --------------------- Name Granted (1) Fiscal Year Price (5/ ) Date 5% 10% - -------------------- -------------- ------------ ----------- ---------- -------- -------- Douglas L. Andersen 22,600 options 9.4% $22.9167 3/21/2007 $324.274 $821,775 Stephen S. Rasmussen 15,000 options 6.3% $22.9167 3/21/2007 $216,183 $547,650 Jamie W. Shaffer 18,000 options 7.5% $22.9167 3/21/2007 $250,419 $657,420 Steve A. Biggi 15,000 options 6.3% $22.9167 3/21/2007 $216,183 $547,850 Scott E. Reddig 6,000 options 2.5% $22.9167 3/21/2007 $ 86,479 $219,140 - ---------------- (1) These options will vest and become exercisable as follows: 33-1/3% as of 3/21/2000; 66-2/3% as of 3/21/2001; and 100% as of 3/21/2002. (2) These amounts represent assumed rates of stock price appreciation of 5% and 10% which are specified in applicable federal securities regulations. The actual value, if any, an executive officer may realize depends on the market value of the Common Stock at a future date. There is no assurance that the value realized by an executive officer will be at or near the values set forth in the table. 16 Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option Values The following table summarizes certain information regarding options exercised during 1997 and presents the value of unexercised options and SARs held at December 31, 1997. The SARs entitle the participant to receive payment from the Company solely in cash. Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs at TY-End at FY-End (1) Shares Acquired Exercisable (E)/ Exercisable (E)/ Name on Exercise Value Realized (1) Unexercisable (U) Unexercisable (U) - -------------------- --------------- -------------------- ---------------------- ------------------------- Douglas L. Andersen 6,149 $138,891 options/$73,148 SARS 30,001 (E)/ 75,440 (U) $473,245 (E)/5 1,144,141 (U) Stephen S. Rasmussen 3,949 $ 71,685 options/$11,983 SARS -0- (E)/ 60,564 (U) $ -0- (E)/5 780,104 (U) Jamie H. Shaffer 4,149 $154,651 options/$35,170 SARS -0- (E)/ 94,505 (U) $ -0- (E)/5 780,104 (U) Steve A. Biggi -0- $ -0- options/$ -0- SARS 3,435 (E)/ 29,910 (U) $ 67,279 (E)/5 292,202 (U) Scott E. Reddig -0- $ -0- options/$ -0- SARS -0- (E)/ 20,500 (U) $ -0- (E)/5 244,735 (U) - ----------- (1) Values are calculated by determining the difference between the fair market value of the Common Stock and the exercise price of the options and SARs on the exercise date or at fiscal year end, as appropriate. The fair market value (average of the high and low as reported on The New York Stock Exchange) as of December 31, 1997 was $29.72 per share. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's executive officers and directors and persons who own more than 10% of a registered class of the Company's equity securities file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on a review of the reports, during the fiscal year ended December 31, 1997, all Section 16(a) filing requirements applicable to its officers, directors, and greater than 10% beneficial owners were complied with. CERTAIN TRANSACTIONS AND RELATIONSHIPS Intercompany Operating Agreement The Company and its subsidiaries are parties to an Intercompany Operating Agreement ("IOA") with ALLIED Life Financial Corporation ("ALFC"), ALLIED Mutual, and each of their respective subsidiaries. The IOA provides for the sharing of employees, office space, agency forces, data processing, and other services and facilities. The IOA extends through December 31, 2004 and continues thereafter subject to any party providing two years notice that such party intends to cease participation. In the event of a change of control (whenever ownership of 50% or more of the voting stock of the Company or ALFC is acquired by a nonaffiliated party) of the Company or ALFC, the other party or ALLIED Mutual may (i) terminate it upon six months notice; (ii) extend the term for up to ten additional years beyond 2004; or (iii) allow the IOA to continue in effect without change. The Company leases to ALLIED Mutual and its subsidiaries (except for ALFC) the employees utilized in their operations for a fee and reimbursement of personnel costs based on certain allocation methods. The Company is obligated to provide the entire requirements for employees to ALLIED Mutual and its subsidiaries (other than ALFC), but ALLIED Mutual reserves the right to hire employees independently rather than leasing them from the Company. The Company has the right to determine the compensation and benefits of all leased employees. However, if the Company wishes to adopt or amend any employee benefit plan or program and pass on the increased costs thereof with respect to employees leased by ALLIED Mutual, it must obtain the approval of Exhibit 4 ================================================================================ UNITED STATES DISTRICT COURT SOUTHERN IOWA DISTRICT OF - -------------------------------------------------------------------------------- NATIONWIDE MUTUAL INSURANCE COMPANY and NATIONWIDE ACQUISITION CORP., SUMMONS IN A CIVIL ACTION (Plaintiffs), CASE NUMBER: V. ALLIED GROUP, INC., and ALLIED MUTUAL INSURANCE, DOUGLAS L. ANDERSEN, JOHN E. EVANS, HAROLD S. EVANS, JAMES W. CALLISON, HAROLD S. CARPENTER, CHARLES I. COLBY, RICHARD O. JACOBSON, JOHN P. TAYLOR, WILLIAM E. TIMMONS, DONALD S. WILLIS, C. FRED MORGAN, and JAMES D. KIRKPATRICK, (Defendants). TO: (Name and Address of Defendants) ALLIED GROUP, INC. Jamie H. Schaffer, Registered Agent 701 5th Avenue Des Moines, IA 50309 YOU ARE HEREBY SUMMONED and required to file with the Clerk of this Court and serve upon PLAINTIFF'S ATTORNEY (name and address) Harold N. Schneebeck, Esq. BROWN, WINICK, GRAVES, GROSS, BAKERVILLE & SCHOENEAU, P.L.C. Two Ruan Center Suite #1100 601 Locust Street Des Moines, Iowa 50309 an answer to the complaint which is herewith served upon you, within twenty (20) days after service of this summons upon you, exclusive of the day of service. If you fail to do so, judgment by default will be taken against you for the relief demanded in the complaint. [STAMP APPEARS HERE] ___________________________________ ______________________________ CLERK DATE ___________________________________ BY DEPUTY CLERK IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF IOWA CENTRAL DIVISION Nationwide Mutual Insurance ) Company and Nationwide Group ) Acquisition Corporation, ) ) Plaintiffs, ) ) V. ) Case Number ____________ ) Allied Group, Inc., Allied Mutual ) Insurance Company, Douglas L. ) Andersen, John E. Evans, ) Harold S. Evans, James W. ) Callison, Harold S. Carpenter, ) Charles I. Colby, Richard O. ) Jacobson, John P. Taylor, ) William E. Timmons, Donald S. ) Willis, C. Fred Morgan, ) and James D. Kirkpatrick, ) ) Defendants. ) COMPLAINT --------- Plaintiffs, Nationwide Mutual Insurance Company ("Nationwide") and Nationwide Group Acquisition Corporation ("Nationwide Acquisition"), by their undersigned attorneys, allege upon knowledge with respect to themselves and their own acts, and upon information and belief as to other matters, as follows: NATURE OF THE ACTION -------------------- 1. Plaintiffs seek an injunction, inter alia, prohibiting those ----- ---- individual defendants who are members of the board of directors of defendant Allied Group, Inc. ("Allied Group"), from breaching their fiduciary duties and violating the securities laws of the state of Iowa by entrenching themselves and their management and denying the shareholders of Allied Group their right to decide for themselves upon the future of the company they own. In particular, Allied Group's board has caused Allied Group to rebuff Nationwide's offer to purchase the common shares and the preferred stock of Allied Group at a substantial premium. Allied Group's board has done so in derogation of its duty to place the interests of the shareholders above those of the board members. In addition, plaintiffs seek an injunction that would prohibit those individual defendants who are members of the Board of Directors of defendant Allied Mutual Insurance Company ("Allied Mutual"), an affiliate of Allied Group, from engaging in certain acts in assistance of the Allied Group board's wrongful actions. PARTIES ------- 2. Plaintiff Nationwide is an Ohio mutual insurance company with its principal place of business in Columbus, Ohio. Nationwide owns 4.9% of the stock of defendant Allied Group. Formed in 1925, Nationwide and its affiliated entities are engaged in selling a variety of insurance products, including personal auto and homeowners policies. Nationwide sells these products primarily through an exclusive career agency force, mainly in the eastern and central states. In 1997, Nationwide wrote approximately $5 billion of insurance premiums and had a net income in excess of $1.6 billion. Since 1982, one of Nationwide's affiliate companies has been Farmland Mutual Insurance Company, located in Des Moines, Iowa. 3. Plaintiff Nationwide Acquisition is an Ohio corporation with its principal place of business in Columbus, Ohio. Nationwide 2 TO COME 3 9. Defendant James W. Callison is a director of both Allied Group and Allied Mutual, and is not a citizen of the state of Ohio. 10. Defendant Harold S. Carpenter is a director of Allied Group, and is not a citizen of the state of Ohio. 11. Defendant Charles I. Colby is a director of Allied Group, and is not a citizen of the state of Ohio. 12. Defendant Richard O. Jacobson is a director of Allied Group, and is not a citizen of the state of Ohio. 13. Defendant John P. Taylor is a director of Allied Group, and is not a citizen of the state of Ohio. 14. Defendant William B. Timmons is a director of Allied Group, and is not a citizen of the state of Ohio. 15. Defendant Donald S. Willis is a director of Allied Group, and is not a citizen of the state of Ohio. 16. Defendant C. Fred Morgan is a director of Allied Mutual, and is not a citizen of the state of Ohio. 17. Defendant James D. Kirkpatrick is a director of Allied Mutual, and is not a citizen of the state of Ohio. JURISDICTION AND VENUE ---------------------- 18. This court has jurisdiction pursuant to 28 U.S.C. (S)(S) 1332(a) and 2201. The amount in controversy exceeds $75,000, exclusive of interest and costs. 19. Venue is proper in this district pursuant to 28 U.S.C. (S) 1391(a) and (c). 4 SCHEME OF ALLIED GROUP'S BOARD TO ENTRENCH ITSELF ------------------------------------------------- 20. The individual defendant directors of Allied Group have participated in a long-standing scheme to entrench themselves at the expense of Allied Group's shareholders. 21. As part of this scheme, Allied Group and Allied Mutual have certain interlocking executive officers. Also, at all times relevant, three directors of Allied Group have been directors of Allied Mutual. Additionally, Douglas L. Andersen, president of Allied Group, is a director of Allied Mutual. Thus, four of the six members of Allied Mutual's board are also officers or directors of Allied Group. Evans has dominated and controlled the actions of the boards of directors of both Allied Group and Allied Mutual. 22. For the sole purpose of entrenching Allied Group's board, Allied Group and Allied Mutual entered into a written Stock Rights Agreement dated July 5, 1990 (the "Stock Rights Agreement" or "Agreement"). Pursuant to Article I of this Agreement, Allied Group agreed to use its best efforts to cause the election and retention of a number of Allied Mutual nominees as members of Allied Group's board. Under the Stock Rights Agreement, Allied Mutual may nominate a number of directors in proportion to that percentage of voting securities held by Allied Mutual. Allied Mutual is the only shareholder of Allied Group that receives this special treatment. Absent this Agreement, Allied Mutual would be in the position of every other shareholder, i.e., without Allied - - Group board's guaranteed support for its nominees. 5 23. As a result of this arrangement and the interlocking boards, the board of Allied Group has perpetuated itself while diluting the voting rights of the shareholders of Allied Group. 24. Allied Group and Allied Mutual have acted pursuant to the Stock Rights Agreement and have accordingly placed three of Allied Mutual's candidates on the board of Allied Group. ALLIED'S USE OF THE PREFERRED STOCK AS AN ENTRENCHMENT DEVICE ------------------------------------------------------------- 25. As noted above (paragraph 5), Allied Mutual owns all of the Preferred Stock of Allied Group. The Certificate of Designations -- 6 3/4% of Series Preferred Stock of Allied Group provides in paragraph 3(c) and 3(d) as follows: (c) In the event the Company shall, at any time, declare or pay any dividend on its common stock or on its voting Preferred Stock of any series (herein referred to as "voting stock"), payable in shares of its voting stock, or effect a subdivision or combination of the outstanding shares of its voting stock (by reclassification or otherwise than by payment of a dividend in shares of voting stock) either (i) the Company shall take all comparable action necessary to preserve the relative voting power of the holders of the 6 3/4% Preferred Stock outstanding by subdividing or combining the outstanding shares of 6 3/4% Preferred Stock, or otherwise; or (ii) each outstanding share of 6 3/4% Preferred Stock outstanding shall thereafter have that number of votes which is equal to the number of votes which the holder of an outstanding share of voting stock on which such dividend was paid or which was so subdivided or combined held immediately after the payment of such dividend or the subdivision or combination of such share. 6 (d) In the event of any assignment, transfer, or other disposition of shares of 6 1/4% Preferred Stock to any person other than [Allied] Mutual Insurance Company ("[Allied] Mutual") or an affiliate or successor corporation to [Allied] Mutual, the shares of 6 1/4% Preferred Stock so disposed, upon such disposition and without any further action by the Company or the holder thereof, shall become non-voting, and no such person or entity receiving the disposed of shares shall have any of the voting powers ascribed to shares of 6 1/4% Preferred Stock hereunder except as may be required by law. Whenever the 6 1/4% Preferred Stock is non-voting, pursuant to the preceding sentence, in the event that Dividends shall remain unpaid for more than six quarterly periods, the holder shall thereafter, commencing with the Company, be entitled to elect one director to the board of directors of the Company, upon notice to the Company sufficient to permit its compliance with all regulatory requirements. Certificates representing shares of 6 1/4% Preferred Stock shall be legended to reflect the provisions of this Section 3(d). 26. Through Allied Mutual's control of the Preferred Stock and the interlocking boards of directors of Allied Group and Allied Mutual, the board of Allied Group wields a virtually unassailable power to control nearly twenty percent of the voting shares of Allied Group. This power has been granted with the intention of protecting the interests of the Allied Group board. The enhanced voting power of the Preferred Stock vanishes upon transfer, at which time the Preferred Stock becomes non-voting altogether. In effect the Allied Group board controls a large block of its own voting stock. There is no legitimate business purpose to the aforesaid voting arrangement, and it serves only further to entrench the Allied Group board. 7 ALLIED GROUP'S AMENDMENT TO ITS BY-LAWS TO LIMIT SHAREHOLDER RIGHTS TO CALL A SPECIAL MEETING ----------------------------------------------------- 27. In furtherance of the scheme to entrench the Allied Group board, on December 18, 1997, the board amended the Allied Group by-laws to provide that special meetings of the stockholders may be called only by the holders of at least fifty percent of all of the votes entitled to be cast on any issue proposed to be considered at the meeting. Prior to this amendment, a special meeting of shareholders could be called by the holders of ten percent of such votes. The amendment prevents minority shareholders from challenging the already entrenched position of Allied Group's board. There is no legitimate business purpose to this change in Allied Group's by-laws. It serves only to entrench Allied Group's board to the detriment of its shareholders, including Nationwide. NATIONWIDE'S OFFER TO ALLIED GROUP ---------------------------------- 28. In the last half of 1997, Nationwide engaged in an analysis of Allied Group based upon then available public information. Nationwide concluded that Allied Group provided a unique opportunity for expanding Nationwide's property and casualty business both geographically and by use of Allied Group's distribution system. Consequently, Nationwide concluded that it should initiate discussions with Allied Group about the possibility of a friendly merger. 29. On or about January 26, 1998 Dimon R. McFerson ("McFerson"), Chairman of Nationwide, contacted Evans to discuss Nationwide's interest in acquiring all of the outstanding voting 8 securities of Allied Group. A meeting between McFerson and Evans and certain members of Allied Group's management was scheduled for later that week. 30. On or about January 28, 1998, McFerson and other members of Nationwide's management met with Evans and certain members of senior management of Allied Group in Des Monies, Iowa. At that meeting, Nationwide made an all cash offer to purchase the common stock of Allied Group for $47 per share, subject to Nationwide receiving all necessary regulatory approvals and performing due diligence. 31. Nationwide's offer was non-coercive, fair to Allied Group's shareholders and represented a substantial premium over the market price for Allied Group's shares at the time it was made. Evans stated at the January 29 meeting that he thought the price offered was generous; however, he expressed two concerns. First, he wanted assurance that Nationwide would indemnify the members of the boards of Allied Group and Allied Mutual for all claims that could be asserted against them for matters that arose prior to the closing of the sale. This request would provide no benefit to Allied Group's shareholders, but was of substantial benefit to the individual Allied board defendants, who were concerned about pending or potential shareholder and policyholder claims. Before leaving that meeting, McFerson responded by agreeing, on behalf of Nationwide, to the indemnification requested by Evans. Evans' second concern was that the Iowa Division of Insurance in the Department of Commerce might not approve the transaction. 9 Consequently, he wanted some assurance that regulatory approval would be forthcoming from that agency. 32. In early February 1998, representatives of Nationwide met with representatives of the Iowa Division of Insurance in the Department of Commerce. Based upon this meeting, Nationwide satisfied itself that there were no regulatory obstacles that would prevent the transaction from succeeding. Nationwide conveyed this information to Allied group's executives in February 1998. Nationwide would not have devoted any more effort to the acquisition if it had believed that it would be unable to obtain all necessary regulatory approvals. 33. Based upon the discussions between the representatives of Nationwide and Allied Group, on February 10, 1998, Nationwide sent Andersen, Allied Group's president, a draft merger agreement and other documents pertaining to the proposed acquisition. 34. On or about February 18, 1998, McFerson spoke with Andersen to discuss the proposed acquisition. Andersen rejected Nationwide's offer and told McFerson that although the price offered was reasonable, the Allied Group board did not authorize any further negotiations. 35. Nationwide, at all times, has planned to operate Allied Group as an ongoing entity headquartered in Des Moines. Nationwide plans to continue the business of Allied Group intact. Nationwide plans not only to maintain Allied Group's independent agency distribution network, but also to expand it for use in Nationwide's 10 business. Nationwide does not intend to strip Allied Group of its assets or to liquidate it. 36. Nationwide's acquisition of Allied Group on the terms offered would render a substantial benefit to all of Allied Group's constituencies, as well as to Allied Mutual's policyholders. It does not pose any threat to the corporate policy and effectiveness of Allied Group or to the policy or effectiveness of Allied Mutual. 37. All reasons proffered by the defendants for failure to accept Nationwide's offer were pretextual. In addition to the substantial premium of the $47 per share price offered by Nationwide for the Allied Group stock, payment was to be in cash, not securities. There was no question about Nationwide's financial ability to make three payment. Given Nationwide's financial strength and more than 50 years of experience in the insurance industry, there was no serious reason to believe that Nationwide could not secure all of the necessary regulatory approvals. The true reason for the rejection of the offer was the desire of the board of directors of Allied Group to maintain control and further entrench themselves to the detriment of Allied Group's shareholders. 38. On or about May 4, 1998, McFerson telephoned Evans and advised him that Nationwide was still interested in acquiring Allied Group. Evans told McFerson that the time was not right for such an acquisition, that McFerson should not contact Evans again, but that McFerson should contact Anderson in 30 days. 11 ALLIED GROUP'S FALSE PRESS RELEASES ----------------------------------- 39. On May 5, 1998, Allied Group issued a press release announcing that its board had approved a stock repurchase program to acquire up to 250,000 shares of Allied Group's shares of common stock over the next twelve months. The press release stated that "the program is not a request or an offer for or in response to a tender offer or any other offer for Company shares." This statement was material, false, and was known to be false at least by Evans and Allied Group at the time it was made. Allied Group's repurchase program was a defensive response to Nationwide's offer. 40. On or about May 7, 1998, Allied Group issued a press release announcing that its board had increased its stock repurchase program to buy back up to 2 million of Allied Group's shares. In that press release Allied Group again stated: "The program is not a request or an offer for or in response to a tender offer or any other offer for company shares." This statement again was material, false, and was known to be false at least by Evans and Allied Group at the time it was made. Like the earlier statement, it constituted a breach of the fiduciary duty of honesty and candor. The decision of Allied Group's board to increase eight-fold the number of shares in its repurchase program was made in response to Nationwide's continuing attempts to purchase the outstanding shares of Allied Group. 41. The initial repurchase program for 250,000 shares represented less than 1% of Allied Group's then outstanding 30-plus million shares of common stock. The revised 2 million share 12 repurchase program represented approximately 6.5% of Allied Group's outstanding common stock. The purpose and effect of Allied Group's stock repurchase program are to make it more difficult for plaintiffs, or others, to acquire control of Allied Group or to call a special meeting of Allied Group's shareholders. 42. Since announcing its stock repurchase program, Allied Group has repurchased substantial blocks of its shares at market prices, and it intends to continue to do so. 43. Thus, not only has Allied Group and/or its board disseminated false and misleading information about its stock repurchase program, but it has also recently repurchased substantial numbers of shares of its own stock at prices well below the $47 price that Nationwide offered. NATIONWIDE'S TENDER OFFER ------------------------- 44. On May 18, 1998, Nationwide publicly announced its intention to commence a tender offer for all of the outstanding shares of common stock of Allied Group at $47 per share, net to the seller in cash, subject to certain conditions and regulatory approvals (the "Tender Offer"). The Tender Offer is not conditioned upon financing. The price offered represents a 69.36% premium over the market price of the Allied Group shares which closed at 27% on May 15, 1998. The terms of the Tender Offer are more fully set forth in a Schedule 14D-1 filed with the Securities and Exchange Commission. The contents of Schedule 14D-1 are incorporated herein by reference, and a copy will be provided to 13 the court after it is filed with the Securities and Exchange Commission. 45. Nationwide's Tender Offer is not 'front-end loaded' or otherwise coercive in nature. It provides all of Allied Group's shareholders with the opportunity to realize a substantial premium over the market price of their stock prior to announcement of the Tender Offer. 46. The Tender Offer does not pose any threat to Allied Group's corporate policy and effectiveness, to the interests of Allied Group's shareholders, or to the interests of Allied Mutual or its policyholders. 47. The actions of defendants specified in paragraphs 20 through 43, Allied Group's repurchase program set forth in paragraphs 39 and 40, and the false or misleading statements contained in Allied Group's press releases set out in paragraphs 39 and 40, constitute breaches of fiduciary duties by the individual defendants who have thereby entrenched themselves at the cost of the Allied Group shareholders and to the detriment of plaintiffs. 48. As a consequence of this improper entrenchment, Nationwide's first two offers to purchase the stock of Allied Group at a substantial premium were rejected to the detriment of plaintiffs and the shareholders of Allied Group. These offers were rejected without reasonable investigation. 14 COUNT I ------- (BREACH OF FIDUCIARY DUTY UNDER THE IOWA BUSINESS COMBINATIONS STATUTE) 49. Plaintiffs repeat and reallege paragraphs 1 through 48 as if they were set forth in full. 50. Defendant Allied Group has all of the benefits provided by the anti-takeover protections of Section 490.1110 of the Iowa Code (the "Business Combinations Statute"). Under that statute, a third-party, such as Nationwide, that acquires ten percent or more of the outstanding voting stock of an Iowa corporation, such as Allied Group, cannot merge with Allied Group until three years following the acquisition of the ten percent of Allied Group's stock, absent circumstances not present in this case. Three of the exceptions of this three-year restriction are: (a) pre-approval by the board of the Iowa corporation of the third party's acquisition of 10% or more of the Iowa Corporation's stock; (b) the third party owning at least 85% of the voting stock of the Iowa corporation, "excluding, for purposes of determining the number of shares outstanding, those shares owned by persons who are directors and officers" of the Iowa corporation; or (c) the board of the Iowa corporation adopting a by-law amendment by September 1997 electing not to be governed by the statute (opting out). 51. The defendants' wrongful conduct, as set forth above, together with the restriction in the Business Combinations Statute, frustrates and impedes the ability of Allied Group's shareholders to decide for themselves whether they wish to receive the benefits of Nationwide's Tender Offer. These devices unreasonably and 15 inequitably hamper plaintiffs' ability to consummate the Tender Offer. Given the history of this matter, the Allied Group board defendants cannot be expected, absent an order from this court, to approve the combination with plaintiffs. The failure of Allied Group and its board to adopt a by-law amendment opting out of the Business Combinations Statute and its anticipated failure to approve the Tender Offer for purposes of the Business Combinations Statute, constitute a breach of fiduciary duties by the Allied Group board. 52. The 18.2% voting rights in Allied Group controlled by its affiliate Allied Mutual constitute a block that prevents plaintiffs from obtaining 85% of the voting stock of Allied Group, which would enable plaintiffs to avoid the restriction of the Business Combinations Statute. As alleged above (paragraph 26), the 18.2% voting rights in the Preferred Stock is actually controlled by the board of Allied Group. Under corporation law, including Iowa corporate law, a corporation and its subsidiaries cannot vote the corporation's own stock. Under this policy, the Preferred Stock should be treated the same as "shares owned by persons who are directors and officers" and the 18.2% should not be counted for purposes of determining whether plaintiffs obtain 85% of Allied Group stock in the Tender Offer. 53. Defendants' actions are causing plaintiffs irreparable harm, and plaintiffs' remedies at law are inadequate. WHEREFORE, plaintiffs request that the court enter an order: A. Granting plaintiffs judgment on Count I of the Complaint; 16 B. Declaring that the failure of Allied Group's board to "elect [_] not to be governed" by the Business Combinations Statute (i.e., not opting out) constitutes a breach of fiduciary duty because it stifles any attempted tender offer for Allied Group's stock; C. Declaring that the failure of Allied Group's board to approve Nationwide Acquisition's purchase of at least ten percent of the Allied Group common stock would constitute a breach of fiduciary duty; D. Preliminarily and permanently enjoining those defendants who are members of the Allied Group board from failing to approve, pursuant to Section 490.1110 (a) (a) of the Iowa Code, Nationwide Acquisition's purchase of at least ten percent of the outstanding common stock of Allied Group; E. Declaring that the use of the Preferred Stock by defendants is in violation of Iowa law and is part of a scheme to entrench the board of Allied Group in breach of its fiduciary duties; F. Preliminarily and permanently enjoining those defendants who are members of the board of Allied Mutual from voting the Preferred Stock of Allied Group; G. Granting costs to plaintiffs; and H. Granting plaintiffs such further relief as the court deems just. 17 Count II -------- (Breach of Fiduciary Duties by the Individual Defendants) 54. Plaintiffs repeat and reallege paragraphs 1 through 48 as if they were set forth in full. 55. The conduct of the defendants as set forth in paragraphs 20 through 43 above indicate that, without an injunction from this court, defendants will manipulate or otherwise subvert the process of corporate democracy by amending the by-laws of Allied Group or taking other actions to frustrate efforts of plaintiffs to facilitate the Tender Offer. 56. Plaintiffs' remedies at law are inadequate. WHEREFORE, plaintiffs request that the Court enter an order: A. Granting plaintiffs judgment on Count II of the Complaint; B. Declaring that the conduct of the individual defendant members of the Allied Group board, as set forth in paragraphs 20 through 43, constitutes a breach of their fiduciary duties; C. Preliminarily and permanently enjoining Allied Group and its directors from effectuating its stock repurchase program; D. Requiring defendants to negotiate with plaintiffs in good faith; E. Prohibiting the defendants from taking any action in any way to impair the Tender Offer or to deny Allied Group's shareholders the opportunity to avail themselves of the right to tender their shares pursuant to the Tender Offer, including but not limited to, amending the by-laws or articles of incorporation of 18 Allied Group or Allied Mutual, instituting shareholders' rights plans or other devices commonly known as "poison pills," adopting blank check preferred share plans, or issuing dual classes of stock; F. Granting plaintiffs their costs of this action; and G. Granting plaintiffs such further relief as the court deems just. Count III --------- (Violations of the Iowa Securities Laws) 57. Plaintiffs repeat and reallege paragraphs 1 through 33 of the Complaint herein as if they were set forth in full. 58. The false and misleading statements of material fact described in paragraphs 39 and 40 above, made in connection with Allied Group's May 5 and May 7 press releases, related to Allied Group as a target company as defined in Iowa Code Section 502.407. Iowa Code Ann. (S) 502.407 (West 1991 & Supp. 1998). 59. It was reasonably foreseeable that these statements would induce other persons to sell securities of Allied Group. Allied Group violated Section 502.407 by issuing the May 5 and May 7 press releases. 60. Pursuant to Section 502.502 of the Iowa Code, Nationwide is a party aggrieved by Allied Group's violation of Section 502.407, because those violations improperly obstructed Nationwide's legitimate efforts to acquire Allied Group. WHEREFORE, plaintiffs request that the court enter an order: A. Granting plantiffs judgment on Count III; 19 B. Declaring that the false and misleading statements of material fact described in paragraphs 39 and 40 above constitute violations of Iowa Code Section 502.407. Iowa Code Ann. (S) 502.407 (West 1991 & Supp. 1998); C. Preliminary and permanently enjoining defendants from issuing false or misleading statements regarding or relating to the Tender Offer; D. Requiring Allied Group to disseminate an appropriate correction of its false and misleading statements; E. Granting plaintiffs their costs of this action and reasonable attorneys' fees; and F. Granting plaintiffs such further relief as the court deems just. COUNT IV -------- (BREACH OF FIDUCIARY DUTIES IN CONNECTION WITH THE PREFERRED STOCK) 61. Plaintiffs repeat and reallege paragraphs 1 through 48 of the Complaint herein as if they were set forth in full. 62. The provisions of the Certificate of Designations set forth in paragraph 25 endow the Preferred Stock held by Allied Mutual with enhanced voting power, but only so long as that stock is held by Allied Mutual. The existence of this class of stock violates Section 490.601 of the Iowa Code, which specifies the characteristics that a corporation's classes of stock may possess. This section does not allow for a class of stock that possesses certain voting powers in the hands of one person but altogether eliminates voting powers in the hands of others. 20 63. The existence of this Preferred Stock, as currently held by Allied Mutual, serves no legitimate business purpose. Rather, it functions only to entrench the board of Allied Group. Specifically, this entrenchment results from the fact that the Allied Group board controls the Allied Mutual board and thus controls the voting of Allied Mutual Preferred Stock. 64. The preferential voting rights of the Preferred Stock, coupled with the loss of those rights upon transfer, places a significant impediment in the way of plaintiffs or any third party who might attempt to gain control of Allied Group. By thus exploiting the improper characteristics of the Preferred Stock, the Allied Group board has breached its fiduciary duties to the shareholders of Allied Group. WHEREFORE, plaintiffs request that the Court enter an order: A. Granting plaintiffs' judgment on Count IV of the Complaint; B. Declaring that Allied Mutual's possession and voting of the Preferred Stock while under the control of the Allied Group board constitutes a breach of the fiduciary duties of the individual defendants as well as a violation of Section 490.601 of the Iowa Code; C. Preliminarily and permanently enjoining Allied Mutual from voting its Preferred Stock; D. Preventing Allied Group from counting Allied Mutual's Preferred Stock as a part of Allied Group's outstanding shares on any vote taken by the Allied Group shareholders; 21 E. Granting plaintiffs their costs of this action; and F. Granting plaintiffs such further relief as the court deems just. NATIONWIDE MUTUAL INSURANCE COMPANY NATIONWIDE GROUP ACQUISITION CORPORATION By: [SIGNATURE ILLEGIBLE] -------------------------------- One of their attorneys Harold N. Schneebeck Brown, Winick, Graves, Gross, Bakerville, and Schoenbau, P.L.C. Two Ruan Center, Suite 1100 601 Locust Street Des Moines, Iowa 50309 (515) 242-2400 OF COUNSEL: ---------- Michael A. Reiter Richard S. Rhodes Holleb & Coff 55 East Monroe Street, Suite 4000 Chicago, Illinois 60603 (312) 807-4600 22 Exhibit 5 [NEWS RELEASE LETTERHEAD OF ALLIED GROUP INC. APPEARS HERE] To All Holders of Common Stock of ALLIED Group, Inc. Dear Shareholder: Today Nationwide Mutual Insurance Company has advised Allied Group, Inc. that it intends to make a cash tender offer for all of the outstanding shares of Common Stock of ALLIED Group, Inc. Such offer will be considered by the Company. On or before June 1, 1998, ALLIED Group, Inc. will advise its shareholders as to whether ALLIED Group, Inc. recommends acceptance or rejection of such tender offer. In the meantime, I urge ALLIED Stockholders to defer making a determination whether to accept or reject such tender offer until you have been advised of ALLIED Group's position with respect to such tender offer. Sincerely, John E. Evans Chairman of the Board ALLIED Group, Inc. Exhibit 6 CONFIDENTIALITY AGREEMENT ------------------------- This Agreement is entered by and among Allied Group, Inc. (Allied Group"), Nationwide Mutual Insurance Company and Nationwide Group Acquisition Corporation (collectively, "Nationwide"), as of May 28, 1998. RECITALS -------- WHEREAS, on May 19, 1998, Nationwide made a tender offer for all of the Common Stock of Allied Group at $47 per share; WHEREAS, on May 18, 1998, Nationwide filed a lawsuit against Allied Group, Allied Mutual Insurance Company ("Allied Mutual") and their directors, in the United States District Court for the Southern District of Iowa, under Case No. 4-98-CV-10280 (the "Litigation"); WHEREAS, the parties to this Agreement, their agents and representatives plan to meet on one or more occasions on or before June 2, 1998, (the "Meeting") to discuss resolving the Litigation and the terms upon which a possible transaction between the parties can take place on a consensual basis and in order to do so they have entered into this Agreement to facilitate those discussions; WITNESSETH ---------- NOW, THEREFORE, it is hereby agreed as follows: 1. Subject to the parties' rights to enforce this Agreement, nothing said or written by anyone at the meeting shall be discoverable or admissible in the Litigation or in any court, administrative or arbitration proceeding to which the parties hereto are parties. 2. Subject to any legal obligations they may have, including those under federal and state securities laws, the parties hereto will forever keep confidential and not disclose to any third party the existence of the Meeting (unless and until the existence of the Meeting has previously been disclosed pursuant to applicable legal requirements), any offer, terms of any offer, rejections of any offer, or discussions regarding the economics or the structure of any proposed transaction discussed at the Meeting, except that the parties hereto may disclose such information to their directors, officers, employees, agents, representatives, attorneys, accountants,and financial advisors who need to know such information for the purpose of evaluating a transaction between Nationwide and Allied Group, so long as each recipient of this information, (a) is informed by the party disclosing it of the confidential nature of such information and (b) expressly agrees to treat such information confidentially in accordance with this Agreement. 3. If any of the parties hereto becomes (or it is reasonably likely that any of the parties hereto shall become) legally compelled to disclose any information that is required to be kept confidential under this Agreement, prompt notice of such fact shall be given to the other parties, so that any appropriate legal action may be taken to protect the confidentiality of such information. 4. Without prejudice to any other rights or remedies that any party hereto may have under this Agreement, each party acknowledges and agrees that damages would not be an adequate remedy for any breach of this Agreement and any party hereto shall be entitled to the remedies of injunction, specific performance and other equitable relief for any threatened or actual breach of this Agreement. 2 5. If any provision of this Agreement shall be held to be unenforceable, it shall not affect the enforceability of the remainder of this Agreement. 6. This Agreement constitutes the entire agreement between the parties hereto regarding the subject matter hereof. This Agreement may changed only by a written agreement signed by the parties hereto. 7. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. ALLIED GROUP, INC. Date: 5-28-98 By: [SIGNATURE APPEARS HERE] ---------------- --------------------------------------------- Its: President -------------------------------------------- NATIONWIDE MUTUAL INSURANCE COMPANY Date: 5-28-98 By: [SIGNATURE APPEARS HERE] ---------------- --------------------------------------------- Its: Vice President - Associate General Counsel -------------------------------------------- NATIONWIDE GROUP ACQUISITION CORPORATION Date: 5-28-98 By: [SIGNATURE APPEARS HERE] ---------------- --------------------------------------------- Its: Vice President - Associate General Counsel -------------------------------------------- 3 Exhibit 7 IN THE IOWA DISTRICT COURT IN AND FOR POLK COUNTY - -------------------------------------------------------------------------------- BRICKELL PARTNERS, . Case No. CL 76440 Individually And On Behalf of . -------- All Others Similarly Situated, . Plaintiff. . -against- . . DOUGLAS L. ANDERSEN, JOHN E. CLASS ACTION PETITION EVANS, WILLIAM E. TIMMONS, . DONALD S. WILLIS, HAROLD S. . CARPENTER, CHARLES I. COLBE, HAROLD S. EVANS, JAMES W. . CALLISON, RICHARD O. JACOBSON, . JOHN P. TAYLOR, and ALLIED GROUP, INC., . . Defendants. - -------------------------------------------------------------------------------- Plaintiff, by its attorneys, allege upon personal knowledge as to their own acts and upon information and belief as to all other matters, as follows: 1. Plaintiff brings this action individually and as a class action on behalf of all persons, other than defendants, who own the securities of Allied Group, Inc. ("Allied" or the "Company") and who are similarly situated (the "Class"), for injunctive and other relief. Plaintiff seeks to compel Allied, inter alia, to consider the bona fide offer of Nationwide Mutual Insurance Company ("Nationwide") to acquire all of the outstanding stock of Allied for $47 per share. Alternatively, plaintiff seeks to recover damages caused by the breach of fiduciary duties owned by the defendants. PARTIES ------- 2. Plaintiff is and, at all relevant times, has been the owner of shares of Allied common stock. 3. Allied is a corporation duly organized and existing under the laws of the State of Iowa. The Company through subsidiaries operates a regional property-casualty insurance business specializing in personal lines and small commercial lines of insurance. Allied maintains its principal executive offices at 701 Fifth Avenue, Des Moines. As of March 27, 1998, Allied had approximately 30,546,746 shares of common stock outstanding and hundreds of stockholders of record. Allied stock trades on the New York Stock Exchange. 4. Defendant John E. Evans is the Chairman of the Allied Board of Directors. Evans also served as the Company's President from 1974 through 1994. 5. Defendant Douglas L. Andersen is the President, Chief Executive Officer and a Director of Allied. 6. Defendant Donald S. Willis is a Director of Allied. Willis also serves as a Director for AMCO, Allied Property and Casualty, and Depositors Insurance Company - subsidiaries of Allied. 7. Defendant Harold S. Carpenter is a Director of Allied. Carpenter also serves as a Director of AMCO, Allied Property and Casualty, and Depositors Insurance Company - subsidiaries of Allied. 8. Defendant Charles I. Colby is a Director of Allied. Colby also serves as a Director for AMCO - a subsidiary of Allied. 2 9. Defendant Harold S. Evans is a Director of Allied. Evans also serves as a Director for AMCO, Allied Property and Casualty, Depositors Insurance Company, and Allied Life Financial Corporation - subsidiaries of Allied. 10. Defendant James W. Callison is a Director of Allied. Callison also serves as a Director for AMCO, Allied Property and Casualty, Depositors Insurance Company, and Allied Life Financial Corporation - subsidiaries of Allied. 11. Defendant William E. Timmons is a Director of Allied. 12. Defendant Richard O. Jacobson is a Director of Allied. 13. Defendant John P. Taylor is a Director of Allied. 14. The defendants named in paragraphs 4 through 13 are hereinafter referred to as the "Individual Defendants." 15. Because of their positions as officers or directors, the Individual Defendants owe fiduciary duties of loyalty and due care to the plaintiff and the other members of the Class. 16. Each defendant herein is sued individually as a conspirator, as well as in his/her/its capacity as an officer or director of the Company, and the liability of each arises from the fact that each defendant has engaged in all or part of the unlawful acts, plans, schemes, or transactions complained of herein. 3 CLASS ACTION ALLEGATIONS ------------------------ 17. Plaintiff brings this case in its own behalf and as a class action, pursuant to Rule 42 of the Iowa Rules of Civil Procedure, on behalf of all stockholders of the Company, except defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants, who will be threatened with injury arising from defendants' actions as is described more fully below. 18. This action is properly maintainable as a class action. 19. The Class is so numerous that joinder of all members is impracticable. The Company has approximately 30,546,746 shares of common stock. There are hundreds of record and beneficial stockholders. 20. There are questions of law and fact common to the Class including, inter alia, whether: a. defendants have breached and will continue to breach the fiduciary and other common law duties owed by them to plaintiff and the members of the Class; and b. plaintiff and the other members of the Class would be irreparably damaged by the wrongs complained of herein. 21. Plaintiff is committed to prosecuting this action and have retained competent counsel experienced in litigation of this nature. Plaintiff's claims are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Plaintiff is an adequate representative of the Class. 4 22. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 23. The defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. SUBSTANTIVE ALLEGATIONS ----------------------- 24. In January 1998, representatives of Nationwide initiated discussions with Allied concerning a possible business combination of the two companies. Despite specific offers made by Nationwide, defendants rebuffed all such offers and refused to even inform themselves or negotiate with the representatives of Nationwide. 25. On May 19, 1998, after months of attempting to negotiate with the defendants, Nationwide publicly disclosed that it had offered to acquire all of the outstanding stock of Allied for $47 per share in a transaction valued at more than $1.59 billion. Nationwide further stated that it had no intention of firing Allied workers or closing Allied offices. 26. Nationwide Chairman Dimon McFerson made Nationwide's offer public after becoming "consistently frustrated" with Allied's "stalling tactics." As reported by Reuters 5 News Service on May 18, 1998, McFerson stated, "We felt it was important that [Allied's] stakeholders should all have a chance to vote on this thing for themselves and not accept the vote of their board of directors so we decided to take the unsolicited offer to the marketplace." 27. Nationwide's $47 offer constitutes a remarkable 69% premium over the unaffected trading price of Allied's stock prior to the public announcement. 28. Despite the unusually high premium offered, Allied's only public response to the formalized offer was a terse statement that it would evaluate the offer in due course. 29. Financial analysts following Allied favored the transaction proposed by Nationwide. For example, Stephen Musser, an analyst at A. G. Edwards & Sons Inc. stated that the proposed transaction "will help [Allied] to compete with the State Farms and the Allstates of the world." 30. Defendants have breached their fiduciary obligations to Allied's shareholders to maximize shareholder value by entrenching themselves in refusing to consider the Nationwide offer, thereby assuring their positions and benefits as directors of Allied. Defendants have further breached their fiduciary obligations in failing to fully and properly inform themselves about Nationwide's bona fide offer or negotiate with Nationwide to maximize the price paid to the Company's shareholders. 31. Defendants have violated fiduciary and other common law duties owed to the plaintiff and the other members of the Class in that they have not and are not exercising independent business judgment, and have acted and are acting to the detriment of the Class. 32. As a result of defendants' actions, plaintiff and the Class have been and will be 6 damaged by the breaches of fiduciary duty and, therefore, plaintiff and the Class will not receive the fair value of Allied's assets and businesses. 33. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the Class, and will succeed in their plan to exclude plaintiff and the Class from their fair proportionate share of Allied's valuable assets and businesses, all to the irreparable harm of the Class. 34. Plaintiff and the Class have no adequate remedy of law. WHEREFORE, plaintiff prays for judgment and relief as follows: a. declaring that this lawsuit is properly maintainable as a class action and certifying plaintiff as a representative of the Class; b. declaring that the defendants and each of them have committed a gross abuse of trust and have breached their fiduciary duties to plaintiff and the other members of the Class; c. preliminarily and permanently enjoining defendants and their counsel, agents, employees, and all persons acting under, in concert with, or for them, from proceeding with or implementing the sale of Allied to Select at the current bid price; d. in the event this sale is consummated, rescinding it and setting it aside; e. awarding compensatory damages against defendants, jointly and severally, in an amount to be determined at trial, together with prejudgment interest at the maximum rate allowable by law; f. awarding plaintiff and the Class their costs and disbursements and 7 reasonable allowances for plaintiff's counsel and experts' fees and expenses; and g. granting such other and further relief as may be just and proper. Dated: May 21, 1998 LAMARCA & LANDRY, P.C. By: /s/ George A. LaMarca ------------------------------------- George A. LaMarca PK 0003017 Alexander R. Rhoads PK 2015123 Walnut Grove Center 1300 50th Street - Suite 104 West Des Moines, Iowa 50266 Telephone: (515) 225-2600 Telefax: (515) 225-5851 CO-COUNSEL FOR PLAINTIFF Of Counsel: WECHSLER HARWOOD HALEBIAN & FEFFER LLP Matthew M. Houston 488 Madison Avenue New York, New York 10022 (212) 935-7400 8 EXHIBIT 8 IN THE IOWA DISTRICT COURT IN AND FOR POLK COUNTY, IOWA MARY M. RIEFF, SSN: 480-16-6027 PLAINTIFF, v. Civil Action No. JOHN E. EVANS, DOUGLAS L. PETITION IN EQUITY ANDERSEN, HAROLD S. EVANS, JAMIE H. SHAFFER, JAMES W. CALLISON, JAMES M. HOAR, JR., MARK W. PUTNEY, WILLIAM J. HANCOCK, JAMES D. KIRKPATRICK, CHARLES T. COLBY, GEORGE E. MOORE, HERSCHEL G. LANGDON, CHARLES F. MORGAN, HARDY G. KUYKENDALL, WALTER J. FAYLE, AND ALLIED GROUP, INC., Defendants, and ALLIED MUTUAL INSURANCE COMPANY, Nominal Defendant Plaintiff, a policyholder of Allied Mutual Insurance Company, by her undersigned attorneys, for this Verified Derivative Petition, alleges upon personal knowledge as to herself and her own acts, and upon information and belief as to all other matters, based upon, among other things, a review of public documents, published reports and news articles, as follows: NATURE OF ACTION ---------------- 1. This is a policyholder's derivative action brought on behalf of nominal defendant Allied Mutual Insurance Company ("Allied Mutual" or the "Company") against defendants who were responsible for the stripping and inappropriate transfer of Allied Mutual's corporate assets, the seizure of its corporate opportunities, and the implementation of an improper de facto demutualization (i.e. the conversion of the Company from mutual policyholder ownership to corporate stock ownership form) without either informing or compensating policyholders or receiving the appropriate approval from regulatory authorities. The decimation of Allied Mutual began on or about January 1, 1985, and was accomplished through more than a dozen piecemeal, yet systematic, transfers of Allied Mutual's policyholder-owned premiums, assets, employees, and business opportunities to defendant Allied Group, Inc. ("Allied Group"), a stock company, and to the individual defendants, for no consideration or grossly inadequate consideration. Each and every major transaction between Allied Mutual and Allied Group since 1985 benefited the latter company at the expense of the former, and benefited Allied Mutual's directors and officers, who gained significant ownership in Allied Group. Although Allied Mutual created and once owned 100% of Allied Group, Allied Mutual has - 2 - been stripped of its ownership of Allied Group so that its sole remaining interest is effectively that of a subordinated creditor. In addition, all of Allied Mutual's employees have now been transferred to Allied Group, turning Allied Mutual into little more than a corporate shell that is wholly dependent upon Allied Group. The individuals named as defendants in this action wrongfully appropriated over $500 million from Allied Mutual through this transfer of the Company's assets and business to Allied Group. These defendants personally benefited through a series of self-dealing transactions that resulted in their ownership of Allied Group stock, options, grants, an ESOP, and convertible preferred shares which they improperly seized through their "control" of Allied Mutual's board. The defendants further benefited and continue to benefit from their control of Allied Mutual's approximately $400 million in assets, which inter alia, are used to benefit Allied Group through fees and underwriting - ---------- capacity. The stock, options, grants and other forms of equity obtained by the defendants and other directors, officers, and employees of Allied Mutual and Allied Group, are worth at least $250 million. The value was siphoned from Allied Mutual by the defendants' actions. Allied Group has a current stock market value approximately $900 million. If Allied Mutual were to be valued at the same multiple of earnings used to value - 3 - Allied Group, it would be worth a mere $125 million. 2. The individuals named as defendants in this action, either directly or indirectly, participated in the course of conduct leading to the decimation of Allied Mutual, or failed to prevent it when they were in a position to do so. The individuals named as defendants were all officers and/or directors of Allied Mutual and Allied Group during all or a portion of the relevant time period. These defendants were responsible for decisions affecting both Allied Mutual and Allied Group, for the overwhelming benefit of Allied Group, in total disregard of the interests of Allied Mutual, and in complete derogation of defendants' duties to the Company's policyholders. Defendants breached their fiduciary duties of care and loyalty to Allied Mutual and its policyholders, wasted Allied Mutual's assets, and committed acts of gross mismanagement and self-dealing to enrich their own financial positions to the detriment of the Company and its policyholders, while retaining control of Allied Mutual's assets and lucrative insurance business and improperly transferring them to Allied Group through the transactions detailed herein. 3. As a direct result of the individual defendants' breach of fiduciary obligations to Allied Mutual and its policyholders, Allied Mutual and its policyholders have suffered - 4 - damages in excess of $500 million and continue to suffer injuries as described below. JURISDICTION AND VENUE ---------------------- 4. This derivative action is brought pursuant to I.C.A. $490,740. Allied Mutual is a mutual insurance company duly organized under the laws of the state of Iowa, with its principal place of business in Des Moines, Iowa. 5. The plaintiff policyholder, Mary M. Rieff, is a resident and citizen of the city of Des Moines, County of Polk, State of Iowa. Plaintiff purchased a homeowner's insurance policy from Allied Mutual in or about 1950, and purchased an auto insurance policy from Allied Mutual in or about 1960. Plaintiff is currently a policyholder of Allied Mutual, and was a policyholder at all times relevant to this complaint. THE PARTIES ----------- 6. The plaintiff is, and was at the time of the commission of the wrongful acts complained of herein, a policyholder of Allied Mutual, holding all rights and privileges of ownership under the laws of the State of Iowa, including the right to vote and the right to receive dividends as and when declared. Plaintiff brings this action derivatively on behalf of, and for the benefit of, Allied Mutual, nominal defendant herein. - 5 - 7. Nominal defendant Allied Mutual, an Iowa mutual insurance company, was incorporated in 1929 by the grandfather of defendant John E. Evans. Allied Mutual has engaged, at all times relevant hereto, in the property-casualty insurance business. Before the transactions complained of herein, Allied Mutual and its subsidiaries underwrote personal and commercial property-casualty insurance. Allied Mutual also underwrote life insurance through Allied Life Insurance Company, then a subsidiary of its wholly owned subsidiary, Allied Group. At the time of the initial public offering of Allied Group's stock (the "IFO") in 1985, the officers of both corporations were identical and two-thirds of Allied Group's directors were Allied Mutual directors. 8. Defendant Allied Group was incorporated in 1974 by Allied Mutual as a wholly owned subsidiary. At the time of the IPO of Allied Group's stock in 1985, Allied Group was a regional insurance holding company engaged in the property-casualty and life insurance business, operating through four subsidiaries. Its operating subsidiaries were AMCO Insurance Company ("AMCO"), Allied property & casualty Insurance Company ("AFC"), Depositors Insurance Company ("Depositors") and Allied Life. At the time of the IPO, Allied Group had no employees and effectuated its entire business using Allied Mutual's employees. - 6 - 9. Defendant John E. Evans ("J. Evans") has been Chairman of the Board and a director of Allied Mutual at all times relevant hereto. He has also been Chairman of the Board and a director of Allied Group at all relevant times. J. Evans has controlled Allied Mutual since at least 1961. He was the President and Chief Executive Officer of both companies until he retired in 1994. He has also been Chairman of the Board and a director and President of Allied Life at all relevant times. His cumulative compensation for the period 1992 to 1995 was $8.9 million. 10. Defendant Douglas Andersen has been Vice President for Marketing of Allied Mutual and Allied Group's AMCO, APC and Depositors subsidiaries at all times relevant hereto. Since 1993, Andersen has been President of Allied Mutual, AMCO, APC and Depositors. In 1993, Andersen was elected a director of Allied Mutual and was elected to the Allied Group's Board and named its Chief Executive Officer in March 1997. 11. Defendant Harold Evans - ("H. Evans"), J. Evans' brother, has been a director of both Allied Mutual, Allied Group, Allied Life and other Allied Group companies, at all times relevant hereto. 12. Defendant Jamie Shaffer has been Treasurer and the senior financial executive of Allied Mutual, Allied Group and -7- other Allied Group companies at all times relevant hereto. 13. Defendant James W. Callison has been a director of both Allied Mutual and Allied Group at all times relevant hereto. He is also a director of other related Allied Group companies. 14. Defendant James M. Hoak, Jr. was a director of Allied Mutual from 1983 until approximately 1989 and of Allied Group from 1984 until approximately 1990. 15. Defendant Mark W. Putney was a director of Allied Mutual from 1983 until approximately 1989 and of Allied Group from 1984 until 1993. 16. Defendant William J. Hancock was an employee of Allied Mutual from 1941 to 1978 and a director of Allied Mutual until at least December 1990 (but not as of December 31, 1994). Hancock was an Allied Group director from 1974 until at least 1990. 17. Defendant James D. Kirkpatrick was a director of Allied Mutual from as early as 1990 until at least December 31, 1996. Kirkpatrick had been employed by Allied Mutual and its related companies, including Allied Group since 1949, until he retired from his positions as President of Allied Mutual, Allied Group, AMCO, APC and Depositors at the end of 1993. He is the second largest employee shareholder of Allied Group after J. -8- Evans. 18. Defendant Charles I. Colby was a director of Allied Mutual from 1971 until 1993. In 1993, he joined the Board of Allied Group. 19. Defendant George E. Moore was a director of Allied Mutual until at least 1991 and was a Vice President of Allied Mutual before his retirement in or before 1987. 20. Defendant Herschel G. Langdon was a director of Allied Mutual until approximately 1993. 21. Defendant Charles F. Morgan has been a director of Allied Mutual since approximately 1994 and has been a Vice President of Allied Mutual and an employee of Allied Group since at least 1994. 22. Defendant Hardy G. Kuykendall was a director and a Vice President of Allied Mutual until approximately 1988. 23. Defendant Walter J. Fayle was a director of Allied Mutual until approximately 1989. Fayle retired as a Vice President of Allied Mutual in or before 1987. 24. Each of the individual defendants who was an officer and/or director of Allied Mutual at the time of any or all of the actions complained of herein is liable as a direct participant in, and/or an aider and abettor of, the wrongful actions that are the subject of this action. -9- DEMAND AND THE NEED FOR DERIVATIVE ACTION ----------------------------------------- 25. Plaintiff has not made a demand on the current Board of Directors of Allied Mutual because such a demand would be futile. The current Board of Allied Mutual consists of defendants J. Evans, H. Evans, Callison, Kirkpatrick, Andersen and Charles Morgan, all of whom are directors and/or current or former executive management employees of Allied Group, who cannot be expected to sue themselves for the wrongful conduct and breaches of loyalty alleged herein. 26. Allied Mutual's Board of directors is dominated and controlled by J. Evans, who has run the company since 1961 and upon whom each of the remaining board members relies for continuation of his lucrative position with Allied Mutual and/or Allied Group. 27. Each of these individuals has received substantial grants of stock and/or stock options as a result of the transactions complained of herein, to his significant personal financial benefit. None of these individuals would be willing to pursue actions to reverse any or all of the transactions that decimated Allied Mutual as described below, because to so would cause his substantial assets wrongfully accumulated as a result of the conduct alleged herein, to be returned to Allied Mutual. The relief requested in this action to restore to -10- Allied Mutual the assets and business that the defendants wrongfully transferred to Allied Group would significantly reduce the value of the Allied Mutual director's holdings of Allied Group stock and expose defendants to claims by Allied Group stock and expose defendants to claims by Allied Group's shareholders. Thus, demand on the Allied Mutual board would be futile. 28. Attached to this petition, and incorporated by this reference, is an affidavit of the Plaintiff pursuant to Iowa Rule of Civil Procedure 44. DUTIES OF ALLIED MUTUAL DIRECTORS --------------------------------- 29. Each of the individual defendants who was a director of Allied Mutual, by reason of his corporate position and his ability to control the Company's business and corporate affairs, owed the Company and its policyholder-owners fiduciary obligations of candor, fidelity and trust and the duty to exercise a high degree of care and diligence in the management and administration of the Company's affairs, as well as in the use and preservation of its property and assets. The individual defendants are and were required to use their utmost ability to manage and oversee the Company in a fair, just and equitable manner, as well as to act in furtherance of Allied Mutual's and its policyholders' best interests. To discharge this duty, each of these defendants had a duty to exercise reasonable and -11- prudent supervision over the management, policies, practices and controls over the affairs of Allied Mutual. In fulfillment of these duties, the defendants were required, among other things, to manage, conduct, supervise and direct the business affairs of Allied Mutual for the continued benefit of its policyholder-owners and to avoid self-dealing and personal enrichment to themselves. 30. At all time mentioned herein, each of the defendants has been engaged in a common course of conduct, acting in concert with the other defendants. Each of the defendants was the agent of each of the remaining defendants and was at all times mentioned herein acting within the course and scope of that agency. SUBSTANTIVE ALLEGATIONS ----------------------- 31. Allied Mutual was incorporated in 1929 as Allied Mutual Automobile Association. It has operated as a mutual insurance company owned by its policyholders throughout the century under a variety of names. It adopted its current name in 1986. Allied Mutual formed Allied Group as a wholly owned subsidiary in 1974. 32. As described below, through a series of transactions beginning in 1985 and continuing through 1993 and to the present, J. Evans and the other individual defendants -12- manipulated the boards and wrongfully utilized the corporate assets of both companies through the gradual transfer of the business and assets of Allied Mutual to Allied Group for no or grossly inadequate consideration, and to secure lucrative financial positions for themselves that by right belonged to Allied Mutual. 33. Before October 30, 1985, Allied Mutual owned 100% of Allied Group. On October 30, 1985, Allied Group, at the direction of Allied Mutual, consummated an initial public offering of 21% of Allied Group stock outstanding with net proceeds of $16.4 million. The stock was sold at a price approximating book value, which was below its intrinsic value. Allied Mutual contributed the proceeds of the offering to the capital and surplus of its subsidiaries, AMCO, AFC and Depositors. At the time of the IPO, all of Allied Group's officers were officers of Allied Mutual and officers and/or directors of its subsidiaries. Two-thirds of Allied Group's directors were Allied Mutual directors and controlled Allied Mutual's board. On January 1, 1985, in anticipation of the proceeds Allied Group's percentage participation in the underwriting pool described below from 15% to 38%. 34. At or around the time of the IPO, J. Evans and other -13- Allied Mutual employees received large grants of Allied Group stock options. J. Evans received options for 351,915 shares (as adjusted for subsequent stock splits) of Allied Group's stock, approximately 1.6% of the stock of Allied Group. Eleven other employees received options on 713,915 shares (adjusted) of Allied Group stock. 35. At the time of the public offering of Allied Group stock, Allied Group was completely dependent upon Allied Mutual, since Allied Group had no employees and utilized the services and facilities of Allied Mutual to conduct its business. Pursuant to an agreement in place at the time of the IPO (the "pooling agreement"), Allied Group's subsidiaries (excluding Allied Life) participated in an underwriting pool with Allied Mutual. Allied Mutual held the critical position of the pool administrator at that time. Allied Mutual and the Allied Group subsidiaries contributed all of their business to the pool and in return assumed a set percentage of all the business in the pool. Premiums, -------------- losses, loss settlement expenses, underwriting and other costs and expenses were prorated among the parties on the basis of their set percentage participation in the pool. Allied Mutual provided data processing, professional claims, financial, investment, actuarial, auditing, risk management, risk improvement, marketing and underwriting services to the -14- pool participants, the costs of which were shared by the pool members. The operation of the pooling agreement was described as follows in the offering documents: [Allied Group] cedes to [Allied] Mutual all of its insurance business and assumes 38% of all business in the pool. All premiums, losses, loss settlement expenses and underwriting expenses are prorated among the parties on the basis of participation in the pool, which includes all of [Allied]. Mutual's property-casualty business. [Allied] Mutual provides data processing, professional claims, financial, investment, actuarial, auditing, risk management, risk improvement, marketing and underwriting services, the costs of which are shared by the pool members. The pooling agreement may be amended or terminated at the end of any calendar year by agreement of the parties, subject to the review and approval of the coordinating committee. At no time was Allied Mutual obligated to amend the pooling agreement or to increase Allied Group's percentage participation in the pool. 36. In 1985 the Boards of Directors of Allied Mutual and Allied Group established a Coordinating Committee consisting of two representatives of Allied Mutual and two representatives of Allied Group. The Coordinating Committee's primary purpose was and is supposed to be to review all transactions between the companies to determine if any conflicts of interest might arise. In this context, the Coordinating Committee also was and is -15- responsible for approving changes in the pooling agreement. The decisions of the Coordinating Committee are binding on both companies. At all times relevant hereto, the Committee consisted of two outside directors from both Allied Mutual and Allied Group who, although they did not hold seats on both boards, were hand picked by J. Evans and were beholden to him for their positions. 37. The members of the Coordinating Committee on behalf of Allied Mutual as of December 31, 1990 were Charles Colby, and Allied Mutual director from 1971 until 1993, when he left Allied Mutual's Board to join Allied Group's board, and Herschel Langdon, a Des Moines attorney and member of Allied Mutual's Board. In 1987, a plan was implemented permitting outside directors of Allied Mutual to receive stock options in Allied Group. As of December 31, 1994, Allied Mutual's representatives on the Coordinating Committee were James D. Kirkpatrick and Charles F. Morgan. Kirkpatrick, while he represented Allied Mutual on the Coordinating Committee, had significant holdings of Allied Group stock. Morgan is in fact an employee of Allied group since Allied Mutual has not had employees of its own since the beginning of 1990. As such, Allied Mutual was not independently represented because both of Allied Mutual's "representatives" had significant conflicts of interest arising -16- from their personal relationships with Allied Group. 38. In 1986, Allied Group formed Western Heritage Insurance Company, a surplus-lines insurer, as a subsidiary. Allied Mutual's agency force marketed Western Heritage's insurance products for which services Allied Mutual received no compensation from Allied Group or Western Heritage. Nor did Western Heritage participate in the pooling agreement. Thus, all of Western Heritage's premiums incured to the benefit of Allied Group, even though Allied Mutual gave Western Heritage free use of its valuable distribution system for its marketing efforts. Allied Mutual was deprived of ownership of Western Heritage, an asset with a current approximate value of $80 million. 39. On January 1, 1985. Allied Group's pool participation increased from 15% to 38%. On January 1, 1987, the pooling agreement was amended to increase Allied Group's percentage participation in the pool to 41%, while decreasing Allied Mutual's percentage participation from 62% to 59%. Allied Mutual transferred $5.3 million to Allied Group as part of its increased pool participation. Allied Mutual had no pressing need to reduce its participation (it maintained excellent premium-to-surplus and gross leverage ratios) other than to benefit Allied Group and its stockholders at the expense of -17- Allied Mutual and its policyholders. 40. Also on January 1, 1987, Allied Group formed another subsidiary, Allied Group Information Systems ("AGIS"), to provide data processing services to all Allied companies. Since Allied Group had no employees of its own until 1990, it used Allied Mutual employees to operate AGIS. AGIS than sold the services of these employees back to Allied Mutual at a profit. In 1987 alone, Allied Mutual paid $4.7 million to AGIS for data processing services performed by Allied Mutual's own employees. In 1988, Allied Mutual paid AGIS $5.4 million for such services. 41. In 1988, Allied Group approved an Executive Equity Incentive Plan through which defendant J. Evans and other Allied Group executives, including defendants Shaffer, Andersen, and Kirkpatrick, received large grants of stock options at a nominal exercise price. All of these Allied Group executives were Allied Mutual directors who now had even greater personal financial incentives to advance the fortunes of Allied Group to the detriment of Allied Mutual. This option plan easily received approval from Allied Group's shareholders because Allied Mutual, which still owned 77% of Allied Group's common stock, voted for the plan. J. Evans, the major beneficiary of the plan, controlled Allied Mutual. 42. Stock options were also offered to Allied Group's non- -18- employee directors, two-thirds of whom were also Allied Mutual directors at the time. 43. In early 1989, a corporate opportunity of Allied Mutual was given to Allied Group which acquired 100% of the investment banking firm of Dougherty Dawkins, Inc. for $10.8 million, 74% of which was financed by a loan from Allied Mutual. 44. In October 1989, the interlocking boards of Allied Mutual and Allied Group, rife with admitted "inherent conflicts of interest," approved an unprecedented restructuring plan that stripped Allied Mutual of its assets and employees and provided a boon to Allied Group's stockholders, including many of the Allied Mutual/Allied Group board members. The plan was not submitted to policyholders or state regulators for approval. The restructuring consisted of the following transactions: a. Allied Group sold its Allied Life Insurance Company subsidiary to Allied Mutual in exchange for approximately half of Allied Mutual's interest in Allied Group. In the exchange, Allied Life was valued in the exchange at $36.5 million, a $5.4 million (or 17%) premium over its book value. By comparison, the Allied Group stock relinquished by Allied Mutual was valued for the transaction at an $8 million (or 18%) discount to book value. The current value of the 9,112,500 Allied Group shares that Allied Mutual gave up in the -19- transaction is approximately $260 million, while the current value of Allied Life is approximately $30 million -- a differential of $210 million. Allied Group's proxy statement in November 1989, which was disseminated to its stockholders (but not to Allied Mutual's policyholders) stated that Allied Group's management (consisting of many of Allied Mutual's officers and directors) "believe(d) that the future long-term profitability of property- casualty operations will be greater than the profitability of life operations...." Despite that, Allied Life was valued at 13.4 times earnings, and Allied Group - a far stronger and better positioned company - was valued at 9.2 times earnings. Thus, Allied Group, the public company in which all of the individual defendants herein had a substantial financial stake through their stock and option holdings, admittedly took control of the portion of Allied Mutual's insurance business with the brighter future and left Allied Mutual and its policyholders with the less valuable subsidiary. b. All of Allied Mutual's employees became Allied Group employees, leaving the Company wholly dependent upon Allied Group in the future. The allocation of personnel costs continued (for a time) in accordance with the pooling agreement. c. Allied Group established a leveraged employee stock ownership plan ("ESOP"), of which J. Evans, Andersen, -20- Kirkpatrick, Shaffer among others, were beneficiaries. The ESOP bought 8.1 million shares (or 378) of Allied Group in the form of Allied Group 8% Convertible Preferred stock (each share convertible to 1 share of common stock) for %36 million, approximately half its fair value. Allied Group guaranteed $35 million to finance the $36 million acquisition price for the ESOP (and contributed the remaining $1 million of the acquisition of price to the ESOP0). The ostensible purpose of this Transaction was for Allied Mutual to save %5million (present value) in employee benefits over 15 years. Today, the 8.1 million shares the ESOP bought at a bargain price are worth $231 million, a difference of $226 million. d. On January 1, 1990, Allied Group increased its share of the pool from 418 to 530, with the related decreases in Allied Mutual's participation from 590 to 478. In conjunction with the pooling change, Allied Group assumed $47.5 million of Allied Mutual's reserves and received $47 million in assets on which it would earn investment income until the reserves were paid out. In its 1990 Annual Report (disseminated to Allied Group stockholder, buy not to Allied Mutual policyholders), Allied Group boasted that the restructuring "gave [Allied Group] all the advantages of an acquisition without any of the drawbacks." Thus profitable premiums were shifted out of Allied -21- Mutual and into Allied Group. With the restructuring alone, the defendants gave the vast bulk of Allied Mutual's growth potential to Allied Group, in exchange for Allied Life, an admittedly less desirable company. 45. In February 1992, Allied Group completed a public offering of new shares, the proceeds of which were contributed to Allied Group's insurance companies. The contribution allowed Allied Group to increase its participation in the pool from 53% to 60%. As a result of the pooling change, Allied Mutual's premiums shrunk 10% in 1992 to $191 million, 9% higher than its 1987 premiums. By contrast, Allied Group's premiums had nearly doubled during the same time period, increasing from $121 million in 1987 to $230 million in 1992. 46. In November 1992, Allied Group issued to Allied Mutual 1,827,222 share of perpetual nonconvertible 6 3/4% preferred stock, valued at $52 million, in exchange for 6,166,875 shares (adjusted) of Allied Group stock. The 6,166,875 shares represented 23.9% of Allied Group's $37 million of 1993 earnings or approximately $8.8 million. Thus, Allied Mutual gave up $8.8 million of current earnings in a growing enterprise in exchange for preferred stock that would never pay more than $3.5 million in annual dividends in perpetuity. This perpetual preferred stock was inherently incompatible with Allied Mutual's short -22- duration liabilities in the form of reserves. (Allied Group, in contrast, owns no preferred stock in its investment portfolio.) The 23.9% stake in Allied Group that Allied Mutual gave up in exchange for the preferred stock is currently worth approximately $175 million. The preferred stock is worth approximately $52 million. The preferred stock allows Allied Mutual to currently nominate two of Allied Group's ten directors. Defendant J. Evans, the Chairman of Allied Group's board, a director of Allied Group since the mid-1970s, and an officer and director of many of Allied Group's affiliates, and defendant H. Evans, an Allied Group board member since 1974, have served as Allied Mutual's representatives on Allied Group's board since Allied Mutual received the preferred stock. 47. On January 1, 1993, Allied Group's participation in the pool increased from 60% to 64%, and Allied Mutual's share decreased to 36%. Thus, between January 1, 1995 and late February 1993, Allied Mutual's interest in the Allied pool premiums were reduced from 100% to 36% without Allied Mutual receiving financial consideration. Allied Mutual thus was stripped on the lifeblood of any insurance company - its premiums and assets - from which all profits, investment income, and enterprise value are derived. In Allied Group's 1993 annual report, defendant Shaffer told shareholders that Allied Group's -23- "intent was to increase [its] participation in (the) pooling agreement with Allied Mutual" because Allied Group's "profit potential [had been] limited by the level of our pooling participation." Shaffer admitted that Allied Group could (and did) make more money by shifting premiums from Allied Mutual into Allied Group's insurance subsidiaries. 48. On January 1, 1993, Allied Mutual was replaced as the pool administrator by AMCO, wholly owned Allied Group subsidiary. In approving such a change, Allied Mutual's directors gave up an asset worth substantially more than $200 million for no material financial consideration. Under the amended pool administration agreement, the pool's expenses were no longer allocated in the customary manner, which is based upon each company's percentage of the pool. Instead, the agreement was structured so that Allied Mutual would pay a fixed cost for services from AMCO -- approximately 20.85% of premiums -- which was far in excess of the actual costs that it would have paid had the pool expenses continued to be allocated in the way that they had been for almost 20 years. The effect of this pooling administration change was to shift profits to Allied Group (through AMCO) by overcharging Allied Mutual for services. Allied Group did not inform the Iowa Department of Insurance or Allied Mutual policyholders of this, nor did it tell them that -24- Allied Group would generate significantly higher profits that would exactly equal the increased losses that Allied Mutual would suffer. Defendant J. Evans and the other individual defendants knew that this change would benefit Allied Group at Allied Mutual's expense. In Allied Group's 1992 Annual Report to Shareholders (disseminated in 1993), J. Evans wrote that "having (AMCO) named administrator of the Allied pool is an opportunity to flow every dollar of savings straight to [Allied Group's] bottom line." As this statement reveals, the purpose of the change in the pool administrator was to benefit Allied Groups's bottom line (and, Consequently, Allied Group's shareholders, including the directors and officers of Allied Group, and the directors of Allied Mutual who owned stock in Allied Group) at the expense of Allied Mutual. 49. The impact the pooling administration change has had on Allied Mutual has been substantial. Before the change, Allied Mutual and AMCO experienced similar loss ratios and expense ratios. (The "loss ratio" is the percentage of claims and claims-adjustment costs paid out of a dollar's worth of premiums. The "expense ratio" is the percentage of underwriting, marketing, administrative and other costs paid out of a dollar's worth of premiums. The sum of the loss ratio and -25- the expense ratio is known as the "combined ratio".) As a result of the amended pool administration agreement, AMCO's conbined ratio improved substantially relative to Allied Mutual's, at Allied Mutual's expense. By 1996, although both companies still experienced similar loss ratios (62.9% for Allied Mutual and 62.6% for AMCO), their expense ratios were grossly different. Allied Mutual's expense ratio had remained relatively stable at 44.1%, whereas AMCO's expense ratio had decreased substantially (approximately twenty-five percent) to 31.5%. As a result, Allied Mutual's combined ratio was 107% -- grossly disproportionate to AMCO's combined ratio of only 94.1%. This unjustifiable difference in profitability was the result of the shift of expenses from AMCO to Allied Mutual. Indeed, the shifting of expenses has continued. In the first six months of 1997, AMCO's combined ratio was 90.2% while Allied Mutual's was 103.9%. According to A.M. Best, the leading insurance industry rating agency, AMCO earned a 13% return on premiums in that period versus the 2% return experienced by Allied Mutual. 50. In 1992, Allied Mutual's operating earnings were $15.1 million compared to $8.6 million for AMCO. As a result of the pooling administration change, Allied Mutual's results have soured. Allied Mutual's earnings declined to $6.87 million in 1996, approximately the same amount the company earned 20 years -26- earlier. AMCO's operating earnings, however, have multiplied more than fivefold, to $46.3 million. In 1996, for example, Allied Mutual, with a 36% share of the pool, would have had a $6.4 million underwriting loss had the pool expenses been allocated based upon each pool participants share of the pool. Allied Mutual's actual underwriting loss was $23 million, due to expenses charged on a fixed basis by AMCO, the pool administrator. The $16.6 million difference went directly to Allied Group as profit. As a result of the amended pooling administration agreement, and the other transactions engineered by defendant J. Evans and the other defendants, from 1993 through 1996, Allied Group earned $21.4 million from underwriting while Allied Mutual lost $63 million. 51. Defendant Kirkpatrick also knew that Allied Group would profit at Allied Mutual's expense. In Allied Group's 1992 Annual Report, he wrote, "instead of projecting numbers for the close of 1993, let's talk about the strategies that will automatically create the numbers... The amended pooling agreement will put an emphasis on cost-savings. As we begin to market our menu of services to other property-casualty companies, efficiencies will have an even greater impact on [Allied Group's] bottom line." (Emphasis added.) Kirkpatrick's admission is even more stunning because of his position at the -27- time as Allied Mutual's president. --------------- 52. In Allied Group's 1993 Annual Report, defendant Shaffer told Allied Group shareholders that due to the amended pool administration agreement, "AMCO has new opportunities to profit from increased efficiencies." Thus, Shaffer baldly admitted that Allied Group (through AMCO) had seized a valuable Allied Mutual corporate opportunity to profit from those increased efficiencies, now inuring to the benefit of AMCO and Allied Group. 53. On February 10, 1993, to complete the process of the de facto demutualization of Allied Mutual, its directors sold its remaining Allied Group common stock as part of a public offering for which it received approximately $24 million. These shares are now worth approximately $62 million. 54. After this public offering, Allied Mutual's only ownership interest in Allied Group was the nonconvertible perpetual preferred stock it had received in 1992. Allied Mutual no longer had any employees and was committed to paying fixed fees to Allied Group well in excess of the value of the services it received. As a result of the defendants' corporate mismanagement, waste of assets and extraordinary course of self-dealing described above, Allied Mutual has received $24 million in cash, $52 million of preferred stock and Allied Life, valued -28- at approximately $50 million, in exchange for substantial ownership of and total control over its former wholly owned subsidiary, Allied Group, now worth approximately $900 million. FRAUDULENT CONCEALMENT ---------------------- 55. The effect of the transactions enumerated above was newer fully disclosed to the policyholder-owners of Allied Mutual. No mention of the effect of those transactions was ever made in any Proxy Statement or other document disseminated to Allied Mutual's policyholder-owners. 56. The effect of the transactions was not even apparent to the representatives of the Commissioners of Iowa and other states in which Allied Mutual has done business. Examination Reports submitted to the State Commissioners of Insurance, describing the audits of Allied Mutual performed by the state examiners and dated as of December 31, 1990, and as of December 31, 1994, made no mention of any problems with the transactions enumerated above because when viewed on a piecemeal basis no harm to Allied Mutual as a result of any of the individual and seemingly separate transactions is readily apparent. In fact, the Iowa Insurance Department's 1994 Examination Report of Allied Mutual incorrectly describes the pool expense allocation as still being prorated. It is the customary practice of the insurance department, prior to signing off on the Examination -29- Report, to send a copy to the insurance company for approval. Upon information and belief. Allied Mutual received a draft of the examination report and did not call the incorrect pool description to the Department's attention. 57. It was not until a September 1997, insurance industry newsletter, Schiff's Insurance Observer, published an analysis of the de facto - --------------------------- demutalization of Allied Mutual by Allied Group and the systematic appropriation of Allied Mutual's corporate opportunities by Allied Group through the actions of the defendants herein (and for their own personal gain) that the true nature of the transactions became apparent. COUNT I-^^^^^ OF FIDUCIARY DUTIES --------------------------------- 58. Plaintiff incorporates herein by reference the allegations contained in paragraphs 1 through 57 of this Petition. 59. The individual defendants owed Allied Mutual fiduciary duties by reason of their positions as directors of Allied Mutual. These duties include the duties of care, fidelity, loyalty and diligence in the management and administration of the Company's affairs, and in the use and preservation of its property, assets, and corporate opportunities. 60. The individual defendants breached their duties to Allied Mutual by failing to protect and maintain the business -30- and assets of Allied Mutual and not allow its business and assets to be co-opted by Allied Group for the benefit of the officers and directors of Allied Group, including the individual defendants herein, through the gradual transfer of the business and assets of Allied Mutual for no or grossly inadequate consideration while at the same time granting themselves generous stock options and lavish compensation packages, and other privileges. 61. The individual defendants breached their fiduciary duties by wasting corporate assets and engaging in flagrant self-dealing to the detriment of Allied Mutual. 62. Allied Mutual has been damaged by the actions of the defendants. COUNT TWO - WASTE OF CORPORATE ASSETS ------------------------------------- 63. Plaintiff incorporates herein by reference paragraphs 1 through 62 of this Petition. 64. At all times the individual defendants had a duty to Allied Mutual and to its policyholders-owners to preserve the Company's assets, including the opportunity for future growth, and not dispose of them at less than favorable terms to the Company. 65. The de facto demutualization of Allied Mutual and the wrongful transfer of its assets to Allied Group constituted a -31- waste of Allied Mutual's corporate assets. 66. As a direct and proximate result of defendants' waste of corporate assets, Allied Mutual has suffered damages as set forth herein. Plaintiff, on behalf of Allied Mutual, seeks damages and other relief as set forth below. COUNT THREE - IMPROPER TRANSFER OF CONTROL ------------------------------------------ 67. Plaintiff incorporates herein by reference paragraphs 1 through 66 of this Petition. 68. Through the course of conduct described above, defendants have improperly transferred from Allied Mutual substantial ownership of and total control over Allied Group and Allied Mutual's lucrative insurance business. 69. Each and every defendant benefited from the improper transfer to the detriment of Allied Mutual. 70. As a direct result of the improper transfer of control and ownership of Allied Group, Allied Mutual has suffered damages as set forth herein. Plaintiff, on behalf of Allied Mutual, seeks damages and other relief as set forth below. 71. Each and every defendant conspired to effectuate the improper transfer of control and ownership of Allied Group from Allied Mutual to its detriment. 72. Each and every defendant benefited from the improper transfer to the detriment of Allied Mutual. -32- 73. As direct result of the civil conspiracy to effectuate the improper transfer of control and ownership of Allied Group, Allied Mutual has suffered damages as set forth herein. Plaintiff, on behalf of Allied Mutual, seeks damages and other relief as set forth below. COUNT FOUR - INTENTIONAL INTERFERENCE WITH ---------------------------------------- BUSINESS ADVANTAGES AND CONTRACTS --------------------------------- 74. Plaintiff incorporates herein by reference paragraphs 1 through 73 of this Petition. 75. The individual defendants, by engaging in the above-described conduct, intentionally interfered with the contracts, prospective business advantage and business relationships of Allied Mutual. 76. The above-described interference proximately caused damages to Allied Mutual. WHEREFORE: plaintiff demands judgment derivatively for Allied Mutual as follows: A. Requiring an accounting of the actual value of the assets wrongfully transferred to Allied Group as part of the de facto demutualization of Allied Mutual described herein; B. Requiring Allied Group to fairly compensate Allied Mutual for the value of the assets wrongfully transferred to -33- Allied Group for the seizure of corporate opportunities and for the de facto demutualization of Allied Mutual described herein: C. Requiring the individual defendants to return to Allied Mutual all salaries and the value of other remunerations of whatever kind paid to them by Allied Mutual and Allied Group during the time they were in breach of the fiduciary duties they owed to Allied Mutual, and otherwise ordering restitution as appropriate; D. Ordering any and all appropriate equitable and/or injunctive relief against the defendants to the extent an adequate remedy at law does not exist; E. Awarding plaintiff reasonable attorney's fees, expert fees, and other reasonable costs and expenses and prejudgment and post-judgment interest; F. Ordering restitution for any assets wrongfully transferred or conveyed, and for corporate opportunities and profits lost as a result; and G. Granting such other and further relief as this Court may deem just and proper. DATED: December 31, 1997 -34- /s/ Brad J. Brady ------------------------- Brad J. Brady LI000045^ /s/ Robert J. O'Shea ------------------------- Robert J. O'Shea LI0014884 BRADY & O'SHEA, P.C. 2735 1st Avenue SE Cedar Rapids, IA 52402 Tel. No. 319/866-9277 Fax No. 319/866-9280 BARRACK, ^^ & BACINE Leonard Barrack PA ID #03459 Daniel E. Bacine PA ID #16742 Leslie Bornstein Molder PA ID #39746 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19103 Tel. No. 215/963-0600 - and - KELSTON & ASSOCIATES David Kelston MA ID #267310 90 Canal Street Boston, MA 02114 Tel. No. 617/367-1040 - and - CENTER FOR INSURANCE RESEARCH Jason Adkins MA ID #558560 1130 Massachusetts Avenue Cambridge, MA 02130 Tel. No. 617/441-2900 Attorneys for Plaintiff -35- STATE OF IOWA ) ) ss: COUNTY OF POLK ) I, Mary M. Rieff, being first duly sworn upon my oath, depose and state that I am the Plaintiff in the above cause, that the Petition was prepared at my request, that I have read the same and know the contents thereof, and the statements made therein are true and correct as I verily believe. /s/ Mary M. Rieff ---------------------- Mary M. Rieff, Plaintiff Subscribed and sworn to before me by Mary M. Rieff on this 31st day of December 1997. /s/ Robert J. O'Shea ------------------------ Notary Public in and for the State of Iowa -36- EXHIBIT 9 AMENDED AND RESTATED ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT TABLE OF CONTENTS Page ---- I. TRANSFER OF EMPLOYEE GROUP.......................................... 2 Section 1.1 Mutual Employees...................................... 2 Section 1.2 Western Heritage Employees............................ 2 Section 1.3 Employment Agreements................................. 3 Section 1.4 Option Agreements..................................... 4 II. LEASE OF EMPLOYEES.................................................. 4 Section 2.1 Lease of Employees.................................... 4 Section 2.2 Allocation of Personnel Cost.......................... 6 Section 2.3 Employment Relationships.............................. 6 Section 2.4 Officers.............................................. 7 Section 2.5 Joint Compensation Committee Membership............... 7 Section 2.6 Joint Compensation Committee Authority................ 7 Section 2.7 Notification of Plan Charges.......................... 8 III. OFFICE FACILITIES................................................... 8 Section 3.1 Currently Occupied Office Facilities.................. 8 Section 3.2 New Office Space...................................... 9 Section 3.3 Disputes.............................................. 9 IV. COMPUTER EQUIPMENT AND SERVICES..................................... 9 Section 4.1 Management Information Services Agreement............. 9 V. AIRCRAFT AND FLIGHT SERVICES........................................ 9 Section 5.1 Availability.......................................... 9 Section 5.2 Cost and Allocations.................................. 10 VI. EQUIPMENT, VEHICLES, AND OTHER PROPERTY............................. 10 Section 6.1 ALLIED Leasing Property............................... 10 Section 6.2 Cost Allocation....................................... 10 VII. AGENCY FORCE........................................................ 10 Section 7.1 Independent Agents.................................... 10 Section 7.2 Exclusive Agency Listings............................. 11 VIII. POOLING AGREEMENT................................................... 11 Section 8.1 Pooled Elements....................................... 11 IX. REPRESENTATIONS AND WARRANTIES...................................... 11 Section 9.1 General............................................... 11 Section 9.2 Representations and Warranties by AGI and AGI Subsidiaries......................................... 11 Section 9.3 Representations and Warranties by Mutual and the Mutual Subsidiaries......................................... 13 Section 9.4 Representations and Warranties by ALFC and the ALFC Subsidiaries......................................... 15 X. TERMINATION, AMENDMENT, AND CHANGE OF CONTROL....................... 16 Section 10.1 Term and Termination.................................. 16 Section 10.2 Amendment............................................. 17 Section 10.3 Charge of Control of ALFC............................. 17 Section 10.4 Charge of Control of AGI.............................. 18 XI. ARBITRATION......................................................... 18 Section 11.1 Consent to Arbitration................................ 18 Section 11.2 Authority of Arbitrators.............................. 19 Section 11.3 Expenses; Location.................................... 19 Section 11.4 Restriction........................................... 19 XII. INDEMNIFICATION..................................................... 20 Section 12.1 Indemnification by Mutual............................. 20 Section 12.2 Indemnification by AGI................................ 20 Section 12.3 Indemnification by ALFC............................... 20 Section 12.4 Limitations........................................... 20 Section 12.5 Participation in Defense.............................. 20 XIII. AFFIRMATIVE COVENANTS............................................... 21 Section 13.1 Cooperation........................................... 21 Section 13.2 Marketing............................................. 21 Section 13.3 Life Insurance Products............................... 21 Section 13.4 Agency................................................ 22 Section 13.5 Current Information................................... 22 Section 13.6 Confidences and Trade Secrets......................... 22 Section 13.7 Covenant Not To Compete............................... 23 i Page ---- XIV. REGULATORY AND OTHER APPROVALS...................................... 23 Section 14.1 Regulatory Filings.................................... 23 Section 14.2 Other Approvals....................................... 23 XV. ALFC, ALLIED LIFE, AND ALBA EMPLOYEES............................... 24 Section 15.1 ALFC, ALLIED Life, and ALBA Employees................. 24 XVI. MISCELLANEOUS....................................................... 24 Section 16.1 Assignment............................................ 24 Section 16.2 Waiver; Remedies...................................... 25 Section 16.3 Permissive Release of Confidential Information........ 25 Section 16.4 Notices............................................... 25 Section 16.5 Governing Law......................................... 25 Section 16.6 Enforceability........................................ 26 Section 16.7 Survival of Representations and Warranties............ 26 Section 16.8 Counterparts.......................................... 26 Section 16.9 Headings.............................................. 26 Section 16.10 Entire Agreement...................................... 26 XVII. DEFINITIONS......................................................... 26 Section 17.1 ACA................................................... 26 Section 17.2 AGA................................................... 26 Section 17.3 AGI................................................... 27 Section 17.4 AGI Subsidiaries...................................... 27 Section 17.5 ALBA.................................................. 27 Section 17.6 ALFC.................................................. 27 Section 17.7 ALFC Subsidiaries..................................... 27 Section 17.8 ALLIED Group.......................................... 27 Section 17.9 ALLIED Leasing........................................ 27 Section 17.10 ALLIED Life........................................... 27 Section 17.11 AMCO.................................................. 27 Section 17.12 AMCO Subsidiaries..................................... 27 Section 17.13 Annual Rental Cost.................................... 27 Section 17.14 APC................................................... 27 Section 17.15 Coordinating Committee................................ 27 Section 17.16 Current Restructuring................................. 28 Section 17.17 Depositors............................................ 28 Section 17.18 Direct Employee Allocation............................ 28 Section 17.19 Direct Employees...................................... 28 Section 17.20 Dougherty Daukins, Inc................................ 28 Section 17.21 Dougherty Daukins Subsidiaries........................ 28 Section 17.22 Employee Group........................................ 28 Section 17.23 Employee Utilization Percentage....................... 28 Section 17.24 ESOP.................................................. 28 Section 17.25 Human Resources Department............................ 28 Section 17.26 Insurance Approvals................................... 28 Section 17.27 Joint Compensation Committee.......................... 29 Section 17.28 Joint Marketing Agreement............................. 29 Section 17.29 MIS Agreement......................................... 29 Section 17.30 Mutual................................................ 29 Section 17.31 Mutual Subsidiaries................................... 29 Section 17.32 Pool.................................................. 29 Section 17.33 Pooling Agreement..................................... 29 Section 17.34 Restructuring Plan.................................... 29 Section 17.35 Staff Employees....................................... 29 Section 17.36 Surplus Office Space.................................. 29 Section 17.37 Total Personnel Costs................................. 30 XVIII.RESTATEMENT OF ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT........ 30 Section 18.1 Restatement........................................... 30 SIGNATURES.............................................................. 30-31 SUBSIDIARY SIGNATURE ADDENDA............................................ 32-37 ii AMENDED AND RESTATED ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT This Amended and Restated ALLIED Group Intercompany Operating Agreement ("Agreement"), made effective as of January 1, 1990, is amended and restated on August 25, 1993, by and among ALLIED Mutual Insurance Company, an Iowa mutual insurance corporation, ("Mutual") including the Mutual Subsidiaries listed in Section 17.31 of this Agreement which are or will become parties by executing an addendum to this Agreement, ALLIED Group, Inc., an Iowa corporation, ("AGI") including the AGI Subsidiaries listed in Section 17.4 of this Agreement which are or will become parties by executing an addendum to this Agreement, and ALLIED Life Financial Corporation, and Iowa corporation ("ALFC") including the ALFC subsidiaries listed in Section 17.7 of this Agreement which are or will become parties by executing an addendum to this Agreement. Mutual, the Mutual Subsidiaries, AGI, the AGI Subsidiaries, ALFC, and the ALFC Subsidiaries together constitute the "ALLIED Group." All other capitalized terms used in this Agreement and not otherwise defined shall have the meanings set forth below under Article XVII. RECITALS WHEREAS, the companies in the ALLIED Group are engaged in various businesses including property-casualty insurance, life insurance, data processing, and various financial services using common employees, office facilities, agency contacts, aircraft, vehicles, and equipment; and WHEREAS, prior to the original adoption of this Agreement on January 1, 1990, Mutual owned a majority voting interest in all companies in the ALLIED Group, either directly or indirectly, and allocation of employees and other business resources had been accomplished without, for the most part, formal written agreements, and that Mutual had employed persons, owned or leased office facilities, together with AMCO had maintained agency relationships, together with ALLIED Leasing had owned or leased property, equipment, or vehicles that have been required to conduct the business of the ALLIED Group, and had made such resources available to the companies in the ALLIED Group; and WHEREAS, as of January 1, 1990, responsibility for the employment of persons for the ALLIED Group, except persons employed by ALLIED Life, Dougherty Dawkins, Inc., and the Dougherty Dawkins Subsidiaries, was transferred to AGI from Mutual to implement a portion of a Restructuring Plan for the ALLIED Group; and WHEREAS, ALFC was formed July 20, 1993 and is entering into this Agreement as part of the Current Restructuring of the ALLIED Group; and WHEREAS, unless otherwise indicated, capitalized terms shall have such meaning as set forth in Article XVII of this Agreement; 1 NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants set forth below and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: I. TRANSFER OF EMPLOYEE GROUP Section 1.1 Mutual Employees. (a) Under the Restructuring Plan, Mutual terminated its employment of all persons shown on the ALLIED Mutual Insurance Company Payroll Register (the "Mutual Payroll Register") as of the close of business on December 31, 1989. The Mutual Payroll Register was a true, correct, and complete listing of all persons employed by Mutual as of that date, and contained true and correct information as to the positions, years of service, and salaries of all such employees. (b) Under the Restructuring Plan, AGI hired all persons who were listed or properly should have been listed on the Mutual Payroll Register at the same salaries and benefits, on the same terms and conditions, and subject to the same defenses, rights, and obligations to which Mutual may be subject, or to which Mutual may be entitled, commencing as of the start of business January 1, 1990. AGI shall not be deemed to have employed any persons whose employment by Mutual would otherwise terminate as of or prior to such date but for this Agreement. Except as may be set forth in Section 1.3, nothing in this Agreement shall obligate AGI to continue to retain or employ any employee hired by AGI pursuant to this Agreement for any particular period of time or at any particular rate of compensation after January 1, 1990. (c) Mutual transferred to AGI all assets relating to the employee group hired by AGI pursuant to this Agreement. (d) AGI assumed and paid all liabilities including but not limited to compensation, fringe benefits, taxes, withholdings, and reimbursements relating to obligations of Mutual relating to employees hired by AGI pursuant to this Agreement from and after January 1, 1990. AGI assumed all liabilities of Mutual relating to employees hired by AGI which were unknown or contingent as of January 1, 1990; provided, however, that any losses, expenses, or payments made on any such unknown or contingent liabilities shall be allocated pursuant to Section 2.2 below according to pooling percentages or time and cost study percentages in effect on the date of payment. Section 1.2. Western Heritage Employees. (a) Under the Restructuring Plan, Western Heritage Insurance Company ("Western Heritage") terminated its employment of all 2 persons listed on the Western Heritage Insurance Company Payroll Register (the "Western Heritaqe Payroll Register") as of the close of business on December 31, 1989. The Western Heritage Payroll Register was a true, correct, and complete list of all persons employed by Western Heritage and contained true, correct information as to the positions, years of service, and salaries of all such employees. (b) Under the Restructurinq Plan, AGI hired all persons who were listed or properly should be listed on the Western Heritage Payroll Register, at the same salaries and benefits, on the same terms and conditions, and subject to the same defenses, rights, and obligations to which Western Heritage may be subject, or to which Western Heritage may be entitled, commencing as of the start of business January 1, 1990. AGI shall not be deemed to have employed any persons whose employment by Western Heritage would otherwise terminate as of or prior to such date but for this Agreement. Except as may be set forth in Section 1.3, nothing in this Agreement shall obligate AGI to continue to retain or employ any employee hired by AGI pursuant to this Agreement for any particular period of time or at any particular rate of compensation after January 1, 1990. (c) Western Heritage transferred to AGI all assets relating to the employee group hired by AGI pursuant to this Agreement. (d) AGI assumed and paid all liabilities including but not limited to those that may have arisen, or were accrued but unpaid as of January 1, 1990, including but not limited to compensation, fringe benefits, taxes, withholdings, and reimbursements relating to obligations of Western Heritage to employees hired by AGI pursuant to this Agreement from and after January 1, 1990. AGI assumed all liabilities of Western Heritage relating to employees hired by AGI pursuant to this Agreement that were unknown or contingent as of January 1, 1990; provided, however, that any losses, expenses, or payments made on any such unknown or contingent liabilities shall be allocated pursuant to Section 2.2 below according to pooling percentages or time and cost study percentages in effect on the date of payment. Section 1.3. Employment Agreements. Mutual delivered to AGI, and AGI acknowledged receipt of, true, correct, and complete copies of each written agreement, policy, plan, or obligation providing the sick leave, salaries, wages, vacations, holidays, pensions, retirement benefits, profit sharing, insurance, incentive, bonus, or other compensation for employees, whether or not legally binding. AGI agreed to enter into written employment agreements with such officers of Mutual, AGI, or Western Heritage who were parties to written employment agreements with such companies as of January 1, 1990, upon the same terms and conditions of employment as were set forth in the employment agreements. AGI shall indemnify and hold harmless Mutual from liability for employee claims arising under such agreement arising after January 3 1, 1990; provided, however, that nothing herein shall prvent AGI from including the cost of such indemnity in the calculation of the personnel costs allocated to the parties pursuant to this Agreement. Section 1.4 Option Agreements. (a) Substitution of AGI. AGI has entered into new stock option agreements or caused the amendment of existing option agreements with employees of AGI, which substitute AGI in the position of Mutual as of January 1, 1990. Neither amendment of the stock option agreements or plans, nor any terms of this Agreement or the Restructurinq Plan shall change the terms on which any stock options shall be measured, qranted, or exercised. (b) AGI Tax Benefit Allocation. AGI is the issuer of all common stock to be issued pursuant to the stock option agreements referred to in paragraph (a) of this Section 1.4. The price which AGI will receive when the option is exercised is equal to the fair market value of the stock on the date of grant of the option. If there is a difference between the fair market value of the stock on the date of grant and the price to be paid by the optionee, such difference will be paid to AGI when the options are exercised by the company to which the optionee's salary has been allocated. Any tax benefit associated with the difference between the fair market value of the stock at the date of grant of the option and the fair market value of the stock at the date of exercise shall be an allocable cost to be included in the Total Personnel Costs assessed by AGI to the companies in the ALLIED Group for which AGI provides employees and option benefits. (c) ALFC Tax Benefit Allocation. If in the future ALFC is tbe issuer of ALFC common stock pursuant to stock option agreements, the price which ALFC will receive when the option is exercised is equal to the fair market value of the stock on the date of grant of the option. If there is a difference between the fair market value of the stock on the date of grant and the price to be paid by the optionee, such difference will be paid to ALFC when the options are exercised by the company to which the optionee's salary has been allocated. Any tax benefit associated with the difference between the fair market value of the stock at the date of grant of the option and the fair market value of the stock at the date of exercise shall be an allocable cost to be assessed by ALFC to the companies in the ALLIED Group to which the optionee's salary has been allocated. II. LEASE OF EMPLOYEES Section 2.1. Lease of Employees. (a) Obligation to Provide Employees. AGI shall provide the entire requirement of employees of each other company in the ALLIED 4 Group, except for ALFC, ALFC Subsidiaries, and Dougherty Dawkins, Inc. and its subsidiaries, for use in the company's business according to such job descriptions, qualifications, experience, education, or skills as may be specified by the company to AGI from time to time. Such specifications shall be retained in the files of the Human Resources Department. Each company may notify the Human Resources Department at any time of its intention to change such specifications, and the Human Resources Department shall make the requested changes to the specifications promptly upon the receipt thereof. AMCO will lease employees from AGI for the operation of the Pool under the Pooling Agreement and will determine the specifications of the leased employees. (b) Provider. Except for ALFC, the ALFC Subsidiaries, and Dougherty Dawkins, Inc. and its subsidiaries, each company in the ALLIED Group shall lease from AGI employee services required for the operation of their respective businesses and shall, in partial consideration for such leased employees, pay its proportionate share of AGI's Total Personnel Costs as provided in Section 2.2. (c) Independent Hiring. Notwithstanding paragraph (b) above and Mutual's present intent to continue leasing employees from AGI, Mutual and the Mutual Subsidiaries shall have the unrestricted right to directly obtain and hire any or all employees from any other sources and on any terms to perform such duties as Mutual and the Mutual Subsidiaries may determine from time to time, rather than leasing such employees from AGI. Should Mutual or the Mutual Subsidiaries choose to exercise their right to hire employees from other sources, it will not hire any individual who was an AGI employee leased to Mutual or the Mutual Subsidiaries within three (3) months preceding such hiring, without the written consent of AGI. (d) Human Resources Department. The Human Resources Department shall be responsible for the implementation, management, and operation of AGI's employee leasing obligations under this Agreement. The AGI employees operating the Human Resources Department shall not be leased to any other company, and the personnel costs and related expenses of such employees shall be borne solely by AGI. The Human Resources Department shall pay to Mutual an allocated Annual Rent Cost in accordance with Section 3.1 and shall also be subject to Sections 3.2. and 3.3. (e) Fees for Leasing and Other Services. Each company in the ALLIED Group which leases employees from AGI shall pay a fee to AGI for such services, and each company in the ALLIED Group which utilizes services from the Human Resources Department but does not lease employees from AGI shall pay to AGI a reasonable negotiated fee therefor. Such fees shall be set as follows: (i) Each company in the ALLIED Group, except for the APC, Depositors, ALFC, ALFC Subsidiaries, Dougherty Dawkins, Inc. and its subsidiaries, and Western Heritage, shall pay to AGI a fee equal to 5.07% of the gross payroll of those employees leased to such company, such fee 5 to be calculated and paid every two (2) weeks; (ii) Since Western Heritage is leasing employees from AGI but is not receiving compensation or payroll processing services from AGI, Western Heritage shall pay a fee to AGI as set by the Executive Committee of the AGI Board of Directors; (iii) Dougherty Dawkins, Inc. and its subsidiaries are receiving certain services from the Human Resources Department and shall thus pay a fee to AGI as set by the Executive Committee of the AGI Board of Directors; and (iv) ALFC and the ALFC Subsidiaries are receiving certain services from the Human Resources Department, which include but are not limited to maintaining employment documents, salary administration, employee benefit administration, payroll administration, related recordkeeping functions, employee placement, termination counseling and processing, and payroll data processing, and for such services ALFC and the ALFC Subsidiaries shall pay to AGI a fee equal to 4.62% of each company's gross payroll, such fee to be calculated and paid every two (2) weeks to AGI. Section 2.2. Allocation of Personnel Costs. The Employee Group is generally divided into two types of employees, "Direct Employees" and "Staff Employees". "Direct Employees" constitute the majority of the members of the Employee Group and each employee of this type is assigned to perform substantially all of such employee's services for a particular company in the ALLIED Group or for the Pool. "Staff Employees" are employees who are assigned to perform services for more than one of the companies in the ALLIED Group. The Total Personnel Costs, as defined in Section 17.37, associated with a Direct Employee shall be allocated to the company in the ALLIED Group for which such employee performs services (the "Direct Employee Allocation"). The utilization of Staff Employees by each company in the ALLIED Group shall be determined annually for the next succeeding fiscal year on the basis of time and cost studies performed by AGI management. Such utilization shall be reduced to an allocation amount for each company in the ALLIED Group (the "Employee Utilization Percentage"). Each company in the ALLIED Group shall pay to AGI an amount on each pay day equal to its most recent Employee Utilization Percentage multiplied by AGI's Total Personnel Costs applicable to Staff Employees for such pay period resulting in each company's allocable share of the Total Personnel Costs for Staff Employees, plus its Direct Employee Allocation for such pay period. Section 2.3. Employment Relationships. AGI shall establish performance criteria or standards, which reflect specifications supplied by each company in the ALLIED Group to AGI, for leased Direct Employees assigned to the company and for leased Staff Employees while performing services for the company. Each such company shall have the right to advise AGI on the performance of employees performing service for the company, and to request investigation, disciplinary action, reassignment, and removal of such employees. AGI shall have the exclusive right, however, to direct all AGI employees as to the manner in which services are to be rendered and performance goals are to be achieved. AGI shall 6 be, and shall have all the privileges, rights, and responsibilities of, common law employer of all AGI employees, including but not limited to, establishing work and disciplinary rules, setting compensation levels, and directing each AGI employee as to the manner in which daily duties are completed, whether or not the employee actually performs services for AGI or another company in the ALLIED Group. Section 2.4. Officers. Employment, termination, and terms of employment, of all officers shall be reserved to the full Board of Directors of AGI, provided, however, that while any such individual is leased to Mutual to perform services as an officer (or provides the same or similar function as an officer), Mutual will be consulted prior to all determinations regarding the employment, or terms thereof, of such individuals; provided, however, that Mutual's input shall be of an advisory nature and will not be binding on AGI which is the common law employer of all such individuals. Section 2.5. Joint Compensation Committee Membership. AGI and Mutual shall have a Joint Compensation Committee of the Boards of Directors of AGI and Mutual. The Joint Compensation Committee shall not have fewer than three members, and Mutual shall have the right to appoint not less than one-half of all members of the Joint Compensation Committee. Subject to the foregoing right of Mutual to appoint at least one-half of the members of the Joint Compensation Committee, the ratio of Mutual directors to AGI directors on the Joint Compensation Committee may be adjusted no more often than once each year for the next succeeding fiscal year as may be agreed by both AGI and Mutual. A quorum for action at any meeting of the Joint Compensation Committee shall be a majority but not less than three members. In general, actions of the Joint Compensation Committee shall be by majority vote of its members, provided a quorum is present. Section 2.6. Joint Compensation Committee Authority. The role of the Joint Compensation Committee shall be advisory only in all respects. The Joint Compensation Committee shall be authorized to: (a) Propose assignment and grant of stock options under all stock option plans; (b) Propose development, modification, or termination of benefit plans, employee stock ownership plans, stock option plans, supplemental compensation programs, or other incentive plans and propose such plans to the respective Boards of Directors of AGI and Mutual for approval; (c) Propose amendments or modifications of the ESOP, changes of the ESOP Trustee, direction or modification in the voting of allocated and unallocated shares, or increases or decreases in the amount of assets held or debt incurred by the ESOP. 7 Section 2.7. Notification of Plan Changes. With respect to Section 2.6, if AGI adopts or implements any employee benefit plan or program, or any amendment to any employment benefit plan or program, different from (i) those in existence as of the date of this Agreement and (ii) those hereafter recommended in writing by the Joint Compensation Committee, which new plan, program, or amendment would cause the Total Personnel Costs to be higher than it would be without such plan, program, or amendment, AGI shall provide Mutual with written notice of at least three (3) months (unless such changes are required by law in which case Mutual will be notified as soon as possible) before such plan, program, or amendment is to be effective, describing such new benefit and the projected increase in the Total Personnel Costs and in the payments from Mutual to AGI for leased employees pursuant to Section 2.1(b) as a result of such plan, program, or amendment. Mutual shall have the right to elect not to pay its share of the increased (or total, as the case may be) cost of such plan, program or amendment. In the event Mutual elects not to pay its share of such costs, AGI shall provide all such increased benefits to all AGI employees who qualify for such plans, programs, or amendments, including those employees leased to Mutual and any Mutual Subsidiary, at AGI's cost and shall not charge such amounts directly or indirectly to Mutual. Mutual shall give AGI notice if it elects not to share in the cost of any such plan, program, or amendment within forty-five (45) days after written notice from AGI of AGI's intent to adopt or implement such plan, program, or amendment. III. OFFICE FACILITIES Section 3.1. Currently Occupied Office Facilities. Mutual currently is the owner or lessee of certain office facilities now provided to the ALLIED Group. A list of such office facilities shall be available upon request to Mutual. All office facilities currently provided by Mutual are fully furnished. Other property owned or leased by companies in the ALLIED Group for their specific use shall be listed by such companies and provided upon request. Mutual, or the other owners or lessees, shall continue to own or lease, in accordance with the terms of the leases now in effect, the office facilities listed therein from and after the date of this Agreement and shall continue to provide appropriate office space to each company in the ALLIED Group, to the extent such facilities are available except as may be mutually agreed upon by AGI and Mutual or ALFC and Mutual. The utilization of office facilities by each company in the ALLIED Group shall be determined annually on the basis of cost and time studies performed by Mutual. An Annual Rental Cost per location occupied by a company shall be developed by Mutual. Each company in the ALLIED Group shall pay to Mutual (or at the request of Mutual, pay to such other owner or lessee, if applicable) an amount equal to its allocated Annual Rental Cost per location on a monthly basis. The percentage contribution of each of the parties to the Pooling Agreement to Mutual for the Pool's 8 Annual Rental Cost shall be determined in accordance with the terms of the Pooling Agreement. With respect to Surplus Office Space, the Annual Rental Cost of such space shall be allocated to each party in the same ratio as the party's percentage allocation of the total Annual Rental Cost per location of the entire ALLIED Group. Section 3.2 New Office Space. Mutual shall have a right of first refusal to provide appropriate additional office space needed by any company in the ALLIED Group from and after the date of this Agreement, if Mutual at that time possesses appropriate Surplus Office Space. Prior to any company in the ALLIED Group obtaining office space or any other interests in real estate (for its own use and not for investment), such company shall present its requirements to Mutual who shall within 60 days provide the necessary facilities, indicate the manner in which such facilities will be provided, or decline in writing to provide such facilities, in which case the company shall be entitled to seek to obtain appropriate facilities to satisfy such requirements from whatever source available. Disputes over whether any office space is appropriate shall be resolved by the Coordinating Committee. Section 3.3. Disputes. Any conflicts or disputes regarding use or occupancy of facilities for the conduct of business of the companies in the ALLIED Group, or the terms upon which property is leased to the companies in the ALLIED Group or upon which property is obtained, developed, or utilized, whether separately or in combination with other companies in the ALLIED Group, shall be resolved by the Coordinating Committee, provided such matter materially affects AGI, the AGI Subsidiaries, ALFC, or the ALFC Subsidiaries. IV. COMPUTER EQUIPMENT SERVICES Section 4.1. Management Information Services Agreement. Mutual, AGI, ALFC, and certain of their subsidiaries are parties to an Amended and Restated Management Information Services Agreement with ALLIED Group Information Systems, Inc. ("AGIS"), a subsidiary of AGI. Such agreement sets forth certain terms relating to the use and provision of computers and data processing services to the companies in the ALLIED Group, and shall govern the utilization and expense of those services. V. AIRCRAFT AND FLIGHT SERVICES Section 5.1. Availability. Mutual or a Mutual Subsidiary from time to time owns or leases private aircraft, hangar facilities, and other equipment, property, or rights necessary to operate such private aircraft and to have flight services available to itself and the other companies in the ALLIED Group. Such 9 services shall be made available to companies in the ALLIED Group on a by-appointment basis, subject to availability. There can be no assurance that (a) Mutual will continue to make flight services available, (b) such flight services will be available when requested by any company in the ALLIED Group, or (c) costs allocated to users will be less than the expenses associated with commercial flight services. No company in the ALLIED Group shall be obligated to use any flight services made available by Mutual. Section 5.2. Cost and Allocations. Companies which elect to utilize such flight services shall pay Mutual for such services on the basis of the cost per hour established by Mutual. All participants in the Pool shall pay their respective allocable share of the remaining costs of making flight services available according to the percentages set forth in the Pooling Agreement on an annual basis. Any dispute regarding availability, determination, or allocation of costs, or other matters regarding flight services shall be resolved by the Coordinating Committee. VI. EQUIPMENT, VEHICLES AND OTHER PROPERTY Section 6.1. ALLIED Leasing Property. ALLIED Leasing presently owns certain motor vehicles and other items of personal property and equipment listed in the ALLIED Group Leasing Corporation Asset Inventory and Lessee List (the "ALLIED Leasing Inventory") which are utilized by persons who serve the Pool or one or more of the companies in the ALLIED Group. Section 6.2. Cost Allocations. The cost of those vehicles and items of personal property leased by ALLIED Leasing shall be allocated to the members in the ALLIED Group based on actual usage, at rates that are set forth in the leases in effect as of the date of this Agreement. Lease rates and terms for property leased by ALLIED Leasing to companies in the ALLIED Group shall be as negotiated and mutually agreed by the parties, or as determined by the Coordinating Committee from time to time in the event of a dispute as to such rates or terms. Nothing herein shall require ALLIED Leasing to lease property to companies in the ALLIED Group or to require companies in the ALLIED Group to lease any property from ALLIED Leasing except as they may mutually agree. VII. AGENCY FORCE Section 7.1. Independent Agents. Parties hereto acknowledge that the independent agency listings utilized by the ALLIED Group are the joint property of Mutual and AMCO. The current agency listings amount to more than 1,900 agencies that are under contract with Mutual and AMCO as set forth in the agents master file. The parties to this Agreement shall use their best efforts to maintain 10 working relationships with the independent agencies for their proper business purposes in substantially the same manner as prior to the effective date of this Agreement. Mutual, ALLIED Life, AMCO, APC, and Depositors are all parties to the Joint Marketing Agreement to memorialize their relationship in connection with the agency force. Section 7.2 Exclusive Agency Listings. Depositors and APC maintain exclusive agency listings. Depositors and APC shall maintain their individual property rights to each of the exclusive agency listings and in any developments or additions to such listings that may be made in the future. Any future companies or future business of existing companies that may take the form of exclusive agency listings shall, prior to becoming the exclusive property right of any particular company within the ALLIED Group, be approved by the Coordinating Committee. VIII. POOLING AGREEMENT Section 8.1 Pooled Elements. Mutual, AMCO, APC, and Depositors ("Pool Participants") are all parties to a Second Amended and Restated Reinsurance Pooling Agreement, as amended (the "Pooling Agreement"). The Pooling Agreement sets forth the rights, duties and obligations of the Pool Participants among themselves regarding their respective businesses. As to matters set forth herein regarding the Pool or the Pool Participants, the Pooling Agreement shall control the manner in which the Pool Participants perform the obligations of the Pool with respect to this Agreement. IX. REPRESENTATIONS AND WARRANTIES Section 9.1. General. Each of AGI, Mutual, and ALFC have had knowledge of all aspects of the financial condition, property, business, employees, agents, material contracts, licenses, and qualifications of the other and its subsidiaries. Therefore, Mutual, AGI, and ALFC each represent and warrant to the other that it has no knowledge or information that any of the representations or warranties of the other in this Agreement are untrue or incorrect in any material respect. Section 9.2. Representations and Warranties by AGI and AGI Subsidiaries. AGI and the AGI Subsidiaries hereby represent and warrant to Mutual and ALFC as follows: (a) AGI and each AGI Subsidiary are duly organized, validly existing insurance or business corporations, as the case may be, in good standing under the laws of the State of Iowa, except for Western Heritage, which is an Arizona insurance company, and Dougherty Dawkins, Inc. and the Dougherty Dawkins Subsidiaries, 11 which are Minnesota corporations, and each has all requisite corporate power and authority to conduct its business, to own its properties, and to execute, deliver, and perform all of its obligations under this Agreement. (b) The execution, delivery, and performance of this Agreement has been or will be duly authorized by all requisite action, corporate or otherwise, by AGI and each AGI Subsidiary. This Agreement constitutes the legal, valid, and binding obligation of AGI and each AGI Subsidiary, enforceable against them in accordance with its terms. Subject to the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, compliance by AGI and each AGI Subsidiary with the provisions of this Agreement will not violate the provisions of any law, regulation, or order applicable to it, will not conflict with, or result in the breach or default by it of any of the terms, conditions, or provisions of its articles of incorporation or bylaws or any material contract or agreement to which it is a party or by which it or its property is bound. Neither AGI nor any of the AGI Subsidiaries is a party to, subject to or bound by or a beneficiary of any material agreement or judgment, order, writ, injunction, or decree of any court, governmental body, or arbitrator which would be contravened or breached by, or under which any payment or other obligation could be accelerated as a result of, the execution, delivery, or performance by AGI or the AGI Subsidiaries of this Agreement, or which could prevent the consummation of this Agreement and the transactions contemplated hereby, or which, by operation of law, or pursuant to its terms, would terminate upon consummation of this Agreement. To the best knowledge of AGI and each AGI Subsidiary, other than the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, no permit, consent, approval, or authorization of, or declaration to or filing or registration with any governmental or regulatory authority is or will be required in connection with the valid execution, delivery, or performance by AGI or the AGI Subsidiaries of this Agreement. (c) To the best knowledge and belief of AGI and each AGI Subsidiary, it is duly qualified, licensed, or registered to do business as a foreign insurer or foreign corporation, as the case may be, and is in good standing in each jurisdiction which requires such licensing, qualification, or registration wherein any of them conduct any business or lease any property and wherein the failure to so qualify or register would have a material adverse effect on the business, condition, or properties of AGI and the AGI Subsidiaries, taken as a whole; and AGI and each AGI Subsidiary has all requisite power and authority, corporate or otherwise, to own its respective properties and to conduct its respective business in the manner in which it is presently conducted. (d) Mutual and ALFC have heretofore been provided an opportunity to review complete copies of the most recent financial statements of AGI and the AGI Subsidiaries (the "Financial 12 Statements"). To the best knowledge and belief of AGI and the AGI Subsidiaries, the Financial Statements are true, complete, and correct in all material respects. The Financial Statements present fairly the consolidated financial condition and results of operations of AGI and the AGI Subsidiaries as of the dates and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles or statutory accounting principles, as the case may be, applied on a consistent basis throughout the periods indicated. (e) No representation or warranty made by AGI or an AGI Subsidiary in this Agreement or in any schedule, or other instrument furnished or to be furnished to Mutual, ALFC, or their representatives pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. To the best knowledge of each of AGI and the AGI Subsidiaries, there is no information of a confidential nature concerning its assets, operations, customers, or employees which has not heretofore been disclosed to Mutual in writing which information could have a material adverse effect on its operations after consummation of the transactions contemplated herein. Section 9.3. Representation and Warranties by Mutual and the Mutual Subsidiaries. Mutual and the Mutual subsidiaries hereby represent and warrant to AGI and ALFC as follows: (a) Mutual and each Mutual Subsidiary are duly organized, validly existing insurance or business corporations, as the case may be, in good standing under the laws of the State of Iowa, and each has all requisite corporate power and authority to conduct its business, to own its properties, and to execute, deliver, and perform all of its obligations under this Agreement. (b) The execution, delivery, and performance of this Agreement has been or will be duly authorized by all requisite action, corporate or otherwise, by Mutual and each of the Mutual Subsidiaries. This Agreement constitutes the legal, valid and binding obligation of Mutual and each Mutual Subsidiary, enforceable against it in accordance with its terms. Subject to the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, compliance by Mutual and each Mutual Subsidiary with the provisions of this Agreement will not violate the provisions of any law, regulation, or order applicable to it, will not conflict with, or result in the breach or default by it of any of the terms, conditions, or provisions of its articles of incorporation or bylaws or any material contract or agreement to which it is a party or by which it or its property is bound. Neither Mutual nor any of the Mutual Subsidiaries is a party to, subject to or bound by or a beneficiary of any material agreement or judgment, order, writ, injunction, or decree of any court, governmental body, or arbitrator which would be contravened 13 or breached by, or under which any payment or other obligation could be accelerated as a result of, the execution, delivery, or performance by Mutual or the Mutual Subsidiaries of this Agreement, or which could prevent the consummation of this Agreement and the transactions contemplated hereby, or which, by operation of law, or pursuant to its terms, would terminate upon consummation of this Agreement. To the best knowledge and belief of Mutual and each Mutual subsidiary, other than the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, no permit, consent, approval, or authorization of, or declaration to or filing or registration with any governmental or regulatory authority is or will be required in connection with the valid execution, delivery, or performance by Mutual or the Mutual Subsidiaries of this Agreement. (c) To the best knowledge and belief of Mutual and each Mutual Subsidiary it is duly qualified, licensed, or registered to do business as a foreign insurer or foreign corporation, as the case may be, and is in good standing in each jurisdiction which requires such licensing, qualification, or registration wherein any of them conduct any business or lease any property and wherein the failure to so qualify or register would have a material adverse effect on the business, condition, or properties of Mutual and the Mutual Subsidiaries, taken as a whole; and Mutual and each Mutual Subsidiary has all requisite power and authority, corporate or otherwise, to own its respective properties and to conduct its respective business in the manner in which it is presently conducted. (d) AGI and ALFC have heretofore been provided opportunity to review complete copies or the most recent financial statements of Mutual and the Mutual Subsidiaries (the "Financial Statements"). To the best knowledge and belief of Mutual and the Mutual Subsidiaries, the Financial Statements are true, complete, and correct in all material respects. The Financial Statements present fairly the consolidated financial condition and results of operations of Mutual and the Mutual Subsidiaries as of the dates and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles or statutory accounting principles, as the case may be, applied on a consistent basis throughout the period indicated. (e) No representation or warranty made by Mutual or a Mutual Subsidiary in this Agreement or in any schedule, or other instrument furnished or to be furnished to AGI, ALFC, or their representatives pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. To the best knowledge of each of Mutual and the Mutual Subsidiaries there is no information of a confidential nature concerning its assets, operations, customers, or employees which has not heretofore been disclosed to AGI and 14 ALFC in writing which information could have a material adverse effect on its operations after consummation of the transactions contemplated herein. Section 9.4. Representations and Warranties by ALFC and ALFC Subsidiaries. ALFC and the ALFC Subsidiaries hereby represent and warrant to Mutual and AGI as follows: (a) ALFC and each AFLC Subsidiary are duly organized, validly existing insurance or business corporations, as the case may be, in good standing under the laws of the State of Iowa, and each has all requisite corporate power and authority to conduct its business, to own its properties, and to execute, deliver, and perform all of its obligations under this Agreement. (b) The execution, delivery, and performance of this Agreement has been or will be duly authorized by all requisite action, corporate or otherwise, by ALFC and each ALFC Subsidiary. This Agreement constitutes the legal, valid, and binding obligation of ALFC and each ALFC Subsidiary, enforceable against them in accordance with its terms. Subject to the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, compliance by ALFC and each ALFC Subsidiary with the provisions of this Agreement will not violate the provisions or any law, regulation, or order applicable to it, will not conflict with, or result in the breach or default by it of any of the terms, conditions, provisions of its articles of incorporation or bylaws, or any material contract or agreement to which it is a party or by which it or its property is bound. Neither ALFC nor any of the ALFC Subsidiaries is a party to, subject to or bound by or a beneficiary of any material agreement or judgment, order, writ, injunction, or decree of any court, governmental body, or arbitrator which would be contravened or breached by, or under which any payment or other obligation could be accelerated as a result of, the execution, delivery, or performance by ALFC or the ALFC Subsidiaries of this Agreement, or which could prevent the consummation of this Agreement and the transactions contemplated hereby, or which, by operation of law, or pursuant to its terms, would terminate upon consummation of this Agreement. To the best knowledge of ALFC and each ALFC Subsidiary, other than the receipt of the Insurance Approvals and any other approvals required pursuant to Article XIV hereof, no permit, consent, approval, or authorization of, or declaration to or filing or registration with any governmental or regulatory authority is or will be required in connection with the valid execution, delivery, or performance by ALFC or the ALFC Subsidiaries of this Agreement. (c) To the best knowledge and belief of ALFC and each ALFC Subsidiary, it is duly qualified, licensed, or registered to do business as a foreign insurer or foreign corporation, as the case may be, and is in good standing in each jurisdiction which requires such licensing, qualification, or registration wherein any of them conduct any business or lease any property and wherein the failure 15 to so qualify or register would have a material adverse effect on the business, condition, or properties of ALFC and the ALFC Subsidiaries, taken as a whole; and ALFC and each ALFC subsidiary has all requisite power and authority, corporate or otherwise, to own its respective properties and to conduct is respective business in the manner in which it is presently conducted. (d) Mutual and AGI have heretofore been provided the opportunity to review complete copies of the most recent financial statements of ALFC and the ALFC Subsidiaries (the "Financial Statements"). To the best knowledge and belief of ALFC and the ALFC Subsidiaries, the Financial Statements are true, complete, and correct in all material respects. The Financial Statements present fairly the consolidated financial condition and results of operations of ALFC and the ALFC Subsidiaries as of the dates and for the periods indicated therein and have been prepared in accordance with generally accepted accounting principles or statutory accounting principles, as the case may be, applied on a consistent basis throughout the periods indicated. (e) No representation or warranty made by ALFC or an ALFC Subsidiary in this Agreement or in any schedule, or other instrument furnished or to be furnished to Mutual, AGI, or their representatives pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. To the best knowledge of each ALFC and the ALFC subsidiaries there is no information of a confidential nature concerning its assets, operations, customers, or employees which has not heretofore been disclosed to Mutual and AGI in writing which information could have a material adverse effect on its operations after consummation of the transactions contemplated herein. X. TERMINATION, AMENDMENT, AND CHANGE OF CONTROL Section 10.1. Term and Termination. (a) Term. This Agreement shall continue from January 1, 1990 to December 31, 2004, and shall continue thereafter unless prior to December 31, 2002, a party to this Agreement delivers to the other parties a written notice that such party intends to cease participation and terminate the Agreement as to it on December 31, 2004 or as of a specified date thereafter. This Agreement may be terminated by any party effective after December 31, 2004 provided that such party has given written notice of termination to the others at least two (2) years prior to the proposed termination date. Termination of any party's participation in this Agreement prior to December 31, 2004 shall require Coordinating Committee approval. 16 (b) Allocation in the Event of Termination. At the time any notice of termination is given under this Agreement, AGI and Mutual promptly, and no later than 60 days thereafter, shall identify all key employees, whether Direct or Staff, who have been providing services to AGI or any of the AGI Subsidiaries and to Mutual or any of the Mutual Subsidiaries. AGI and Mutual shall cooperate diligently and in good faith to allocate those employees to AGI and the AGI Subsidiaries and to Mutual and the Mutual Subsidiaries with a view toward insuring, to the greatest extent possible, the viability and continued operations of all companies with those employees. It is the intent of this provision that AGI and Mutual shall together allocate such employees in a way which is equitable and fair to both companies and their subsidiaries. The Coordinating Committee shall resolve any disputes arising under this paragraph. AGI and Mutual shall use their best efforts in attempting to effect the allocation of those employees by obtaining those employees' agreements to become employed by the respective companies as allocated pursuant to this paragraph. Anything in this Agreement to the contrary notwithstanding, if any disputes under this paragraph must be resolved by arbitration, no termination of this Agreement which otherwise would occur shall occur until after final resolution by the arbitrator. (c) Post-termination Relationship. The Coordinating Committee will address the post-termination access to services provided to the terminating party or parties. Any post-termination disputes concerning the termination of the Agreement, including interpretation of the covenant not to compete in Section 13.7, will be addressed to the Coordinating Committee for resolution. Section 10.2. Amendment. This Agreement may be amended, modified, or altered only by a writing signed by Mutual, AGI, and ALFC and approved by the Coordinating Committee. As a condition to participation in this Agreement, each AGI subsidiary, Mutual Subsidiary, and ALFC Subsidiary hereby agrees to be bound by any such amendment, modification, or alteration that is approved by AGI, Mutual, ALFC, and the Coordinating Committee as if they had each individually approved the amendment. Notwithstanding the foregoing, Mutual, AGI, and ALFC may amend the Agreement without the approval of the Coordinating Committee in order (1) that AGI Subsidiaries, Mutual Subsidiaries, or ALFC Subsidiaries may be added or deleted as parties hereto or (2) to record any change in a name thereof; provided, that such addition, deletion, or name change shall not have a material effect upon the operation of the Agreement. Section 10.3. Change of Control of ALFC. In the event of a Change of Control (as hereinafter defined in this section) of ALFC, either Mutual or AGI may, in its sole discretion, at any time after such Change of Control: (i) terminate the MIS Agreement and this Agreement upon six (6) months notice to ALFC; (ii) extend the term of the MIS Agreement and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months 17 notice to ALFC; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with ALFC or Mutual acquires the ownership of 50% or more of the voting stock of ALFC. A person, group, or entity "affiliated" with ALFC or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with ALFC or Mutual. Section 10.4. Change of Control of AGI. (a) In the event of a Change of Control (as hereinafter defined in this section) of AGI, Mutual may, in its sole discretion, at any time after such Change of Control: (i) terminate all three of the Pooling Agreement, MIS Agreement, and this Agreement upon six (6) months notice to AGI; (ii) extend the term of the Pooling Agreement, MIS Agreement, and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to AGI; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with AGI or Mutual acquires the ownership of 50% or more of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with AGI or Mutual. (b) In the event of a Change of Control (as hereinafter defined in this section) of AGI, ALFC may, in its sole discretion, at any time after such Change of Control: (i) terminate both the MIS Agreement and this Agreement upon six (6) months notice to AGI; (ii) extend the term of the MIS Agreement and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to AGI; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with AGI or Mutual acquires the ownership of 50% or more of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with AGI or Mutual. XI. ARBITRATION Section 11.1. Consent to Arbitration. Each party to this Agreement hereby consents and agrees that any dispute between the parties hereto with respect to the interpretation, performance, or breach of any of the terms of this Agreement or the transactions 18 contemplated by this Agreement which cannot be resolved by the Coordinating Committee shall be referred to arbitration conducted in accordance with the rules and procedures of the American Arbitration Association ("AAA"), upon written request of AGI, Mutual, and/or ALFC given to the others. Within thirty (30) days of the giving of such written notice, each party involved shall nominate an AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty (30) days of their nomination, if there are two Party Arbitrators, the Party Arbitrators shall select a third AAA-licensed arbitrator (the "Third Arbitrator") and shall give the parties involved notice of such choice. If each party selects a Party Arbitrator, the three Party Arbitrators selected shall constitute the Arbitrators without further selection. Section 11.2. Authority of Arbitrators. The arbitrators shall be empowered to decide all issues submitted to arbitration using principles of law and equity and, if required, by application of any customary practices in the insurance and reinsurance industries. The arbitrators shall be relieved of all judicial formalities and shall not be required to follow any rules of evidence except as such rules may be imposed on arbitration proceedings conducted in accordance with the laws of the State of Iowa, but the arbitrators shall attempt to enforce the intents and purposes of this Agreement to the extent practicable and in accordance with Iowa law. The decision of a majority of the arbitrators shall be final and binding on AGI, Mutual, ALFC, and their subsidiaries. Section 11.3. Expenses; Location. Each of AGI, Mutual, and ALFC shall bear the expenses of its respective Party Arbitrator. If only two parties are involved in the arbitration, the involved parties shall jointly share all other expenses of the arbitration proceeding and the expenses of the Third Arbitrator. The arbitration proceeding shall take place at Des Moines, Iowa unless another location is mutually agreed upon by the parties. The arbitration proceeding shall be governed by the laws of the State of Iowa. The parties hereto hereby agree that any information respecting any matters submitted to arbitration in accordance with the foregoing or any aspect of the arbitration proceeding itself shall be treated as confidential and will not be disclosed to anyone not employed or acting on behalf of AGI, Mutual, or ALFC in connection with such arbitration or used at any time in any manner that is adverse to the interests of any party hereto but, in any such case, such information may be disclosed if such disclosure is made in connection with either party's prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. Section 11.4. Restriction. Anything set forth herein to the contrary notwithstanding, with respect to any issue to be determined by arbitration, AGI, Mutual, and/or ALFC shall each submit in writing to the arbitrators their proposed resolution of 19 such issue. The arbitrators shall be constrained in their decision relating to such issue to select only between the proposed resolutions, and the arbitrators shall have no discretion to fashion any compromise or other resolution of the issue submitted for arbitration. XII. INDEMNIFICATION Section 12.1. Indemnification by Mutual. Mutual shall defend, indemnify, and hold harmless AGI, ALFC, and their successors and assigns against and in respect of any and all damages, claims, losses, liabilities, and expenses (including, without limitation, legal and other expenses) which may arise out of or be in respect of any breach or misrepresentation by Mutual or the Mutual Subsidiaries under this Agreement. Section 12.2. Indemnification by AGI. AGI shall defend, indemnify, and hold harmless Mutual, ALFC, and their successors and assigns against and in respect of any and all damages, claims, losses, liabilities, and expenses (including, without limitation, legal and other expenses) which may arise out of or be in respect of any breach or misrepresentation by AGI or the AGI Subsidiaries under this Agreement. Section 12.3. Indemnification by ALFC. ALFC shall defend, indemnify, and hold harmless AGI, Mutual, and their successors and assigns against and in respect of any and all damages, claims, losses, liabilities, and expenses (including, without limitation, legal and other expenses) which may arise out of or be in respect of any breach or misrepresentation by ALFC or the ALFC Subsidiaries under this Agreement. Section 12.4. Limitations. Notwithstanding the foregoing, no indemnification shall be available hereunder unless (i) notice of any claim for indemnification is given to the indemnifying party within one year of the date on which the loss under Section 12.1, Section 12.2, or Section 12.3 above occurs or becomes known to the party to be indemnified and (ii) the party seeking indemnification has previously paid or incurred damages, claims, losses, liabilities, or expenses otherwise subject to indemnification hereunder in excess of $75,000 in the aggregate. Section 12.5 Participation in Defense. Promptly after receipt of notice of any claim or the commencement of any action in respect to which indemnity may be sought on account of the indemnity agreements contained in this Section, the indemnified party will notify the indemnifying party in writing thereof. In case any claim shall be asserted against an indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, to assume the defense, conduct, or 20 settlement thereof, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to so assume the defense, conduct, or settlement thereof, the indemnifying party will not be liable to the indemnified party under this Section for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense, conduct, or settlement thereof. Notwithstanding an election by the indemnifying party to assume the defense, conduct, or settlement of any claim subject to indemnification hereunder, if the indemnified party reasonably determines that its interests may be adverse to, or in conflict with, those of the indemnifying party, it may elect, at its own expense, to retain or continue to retain its own counsel to participate in the defense, conduct, or settlement of such claim. The indemnified party will cooperate with the indemnifying party without charge in connection with any such claim, make personnel books and records relevant to the claim available to the indemnifying party, and grant such authorizations or powers of attorney to the agents, representatives, and counsel of the indemnifying party as such indemnifying party may reasonably consider desirable in connection with the defense of any such claim. XIII. AFFIRMATIVE COVENANTS Section 13.1 Cooperation. Mutual, AGI, ALFC, and their subsidiaries will fully cooperate with each other and their respective counsel, if any, and accountants in connection with any action to be taken in the performance of their obligations under this Agreement. They shall use their best efforts to take or cause to be taken any and all actions necessary or required to obtain each of the regulatory consents or approvals described herein and any third-party consents described in Article XIV of this Agreement, unless the receipt thereof has been waived in writing by the parties to this Agreement. In the conduct of their affairs and the performance of this Agreement the parties hereto shall, unless otherwise agreed by the Coordinating Committee, maintain the working relationships of the parties on substantially the same terms as before the effectiveness of this Agreement. Section 13.2. Marketing. Parties hereto shall attempt to position themselves in their respective target markets, whether separate or overlapping, in all ways so as to preserve and strengthen their individual identities and businesses, while making the best use of their association as described in this Agreement and in the related agreements and relationships described in this Agreement. Section 13.3. Life Insurance Products. AGI has transferred ownership of all of the issued and outstanding capital stock of ALLIED Life to Mutual pursuant to a certain Stock Purchase 21 Agreement dated October 24, 1989. Upon the closing thereof, AGI shall not engage in the business of providing life insurance, annuities, or related products directly or indirectly, nor shall AGI acquire, directly or indirectly, any life insurance company or an interest in any life insurance company during the term of this Agreement and for a period of five years thereafter, except with or through ALFC or the ALFC Subsidiaries. Except as may be required by the Joint Marketing Agreement, nothing herein shall require AGI or the AGI Subsidiaries to sell, offer, or provide any life insurance products. The terms and conditions, if any, upon which AGI, the AGI Subsidiaries, ALFC, or the ALFC Subsidiaries may jointly offer life insurance products or services shall be as determined from time to time by the parties. Any dispute relating to the offering of life insurance products hereunder shall be resolved by the Coordinating Committee. Notwithstanding any other provision of this Agreement, this paragraph survives early termination of the Agreement. Section 13.4. Agency. No party to this Agreement shall be deemed to be a partner of, or agent for, any other party, except and only to the extent necessary to effect any transactions which the parties may in their discretion determine to be advantageous to enter into jointly, for example, joint purchases of property or joint obligations to third parties, and then only as may be set forth in a writing evidencing the scope of the parties' involvement in such transactions which writing shall be subject to the approval of the Coordinating Committee. Section 13.5. Current Information. Each party to this Agreement shall, upon request, annually certify to the others that the representations and warranties made in this Agreement by such party are true and correct as of the anniversary date of this Agreement, or such certification shall indicate in what manner or to what extent such representations and warranties are incorrect. Upon request, each party to this Agreement shall provide all other parties with financial statements and shall annually certify to the others that the representations and warranties in Section 9.2(d), Section 9.3(d), or Section 9.4(d) of this Agreement apply to such financial statements. Section 13.6. Confidences and Trade Secrets. (a) Each party to this Agreement shall keep confidential, except as the other party or parties may otherwise consent in writing, and, except for the other parties' benefit, not disclose or make any use of at any time and for any purpose whatsoever, any trade secrets, confidential information, knowledge, data, trademarks or trade names, or other information of any of the companies in the ALLIED Group relating to their products, know-how, designs, customer lists, business plans, marketing plans and strategies, pricing strategies, or other subject matter pertaining to any business of the ALLIED Group or any of its clients, customers, consultants, licensees, or affiliates, which it has 22 obtained or may obtain, or otherwise acquire during the course of contacts, discussions, negotiation, or agreement with any of the Companies in the ALLIED Group, except as herein provided (hereafter, collectively, "Confidential Information"). No party shall deliver, reproduce or in any way allow any Confidential Information of the other parties or any documentation relating thereto, to be delivered to or used by any third parties without specific written direction or consent of a duly authorized officer of AGI, Mutual, or ALFC as the case may be. (b) Upon termination of this Agreement for any reason whatsoever, each party shall promptly surrender and deliver to each other party all records, materials, equipment, drawings, documents, data, and all Confidential Information of the other parties and shall not retain any description containing or pertaining to any Confidential Information of the other parties, unless otherwise consented to in writing by a duly authorized officer of AGI, Mutual, or ALFC as the case may be. 13.7 Covenant Not To Compete. AGI, Mutual, and ALFC agree not to engage in a business, enterprise, or market that directly competes with the products or markets of one another or the AGI Subsidiaries, Mutual Subsidiaries, or ALFC subsidiaries for the term of the Agreement and five (5) years following the termination of the Agreement for any reason. XIV. REGULATORY AND OTHER APPROVALS Section 14.1. Regulatory Filings. AGI, Mutual, and ALFC shall promptly undertake such actions as may be necessary to file, amend, or apply for any documents, certificates, or reports now filed or to be filed with any federal or state authorities having jurisdiction over the subject matter of this Agreement or the parties to this Agreement. Section 14.2. Other Approvals. On or before the date of this Agreement, any and all regulatory consents or approvals required to effect the transactions contemplated herein shall have been obtained (or the receipt shall have been waived by both of the parties hereto) without the imposition of a material cost, liability, or restriction upon any of the parties hereto which is not consented to by the affected party, which regulatory consents or approvals shall include but shall not be limited to, the following: (a) The Commissioner of the Insurance Division of the Department of Commerce of the State of Iowa (the "Commissioner") shall have issued one or more orders or consents (the "Insurance Approvals") to approve the terms of this Agreement to the extent that the Commissioner shall have the regulatory authority to disapprove the terms of this Agreement. 23 (b) On or before the effective date of this Agreement, all material consents or approvals by any third party which were required to be obtained by Mutual, AGI, or ALFC in connection with the execution, delivery, or performance of this Agreement or the consummation of any transactions contemplated herein shall have been obtained, or the receipts thereof shall have been waived by AGI, Mutual, and ALFC. XV. ALFC, ALLIED LIFE, AND ALBA EMPLOYEES Section 15.1. ALFC, ALLIED Life, and ALBA Employees. (a) ALFC, ALLIED Life, and ALBA shall be listed together on an ALLIED Life and ALBA Payroll Register (the "Life Payroll Register"). AGI shall have no control, discretion, or authority over such employees. The Life Payroll Register shall be a true, correct, and complete listing of all persons employed by ALFC, ALLIED Life, and ALBA, and shall contain true and correct information as to the positions, years of service, and salaries of all such employees. (b) ALLIED Life and ALBA, respectively, hired all persons who were listed on the Life Payroll Register and subject to the same defenses, rights, and obligations to which AGI may be subject, or to which AGI may be entitled, commencing as of the start of business July 1, 1990. ALLIED Life and ALBA shall not be deemed to have employed any persons whose employment by AGI would otherwise terminate as of or prior to January 1, 1990 but for this Agreement. Nothing in this Agreement shall obligate ALLIED Life or ALBA to continue to retain or employ any employee hired by ALLIED Life or ALBA pursuant to this Agreement for any particular period of time or at any particular rate of compensation after the effective date of this Agreement. (c) ALLIED Life and ALBA assumed and paid all liabilities for the employee group as of June 30, 1990 including but not limited to compensation, fringe benefits, taxes, withholdings, and reimbursements relating to obligations of AGI relating to employees hired by AGI pursuant to this Agreement from and after July 1, 1990. XVI. MISCELLANEOUS Section 16.1. Assignment. Neither this Agreement nor any rights hereunder may be assigned by any of the parties hereto. Section 16.2. Waiver; Remedies. No delay or omission of any party to this Agreement to exercise any right or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein; and any single or partial exercise of any 24 such right or power shall not preclude other or further exercise thereof or the exercise of any other right. In addition to any rights granted herein, the parties hereto shall have and may exercise any and all rights and remedies now or hereafter provided by law except as may be limited by Article XI of this Agreement. Section 16.3. Permissive Release of Confidential Information. Notwithstanding the provisions of Section 13.6 of this Agreement, any Confidential Information may be used in connection with any arbitration relating to the transactions contemplated by this Agreement and such information may be disclosed if such disclosure is made in connection with the parties' prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. Section 16.4. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or if mailed by certified or registered mail (return receipt requested): (a) If to Mutual: ALLIED Mutual Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: President (b) If to AGI: ALLIED Group, Inc. 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: President (c) If to ALFC: ALLIED Life Financial Corporation 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: President Any notice given as provided in this section 16.4, if given personally, shall be effective upon delivery and if given by certified or registered mail shall be effective three days after deposit in the mail. Any party hereto may change the address at which it is to be given notice by giving notice to the other party as provided in this section 16.4. Section 16.5. Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of Iowa and shall be construed and interpreted under the laws of such state 25 applicable to contracts made and to be performed entirely within such state. Section 16.6. Enforceability. If any one or more of the covenants, agreements, provisions, or other terms of this Agreement shall be for any reason whatsoever determined to be invalid, then such terms shall be deemed severable from the remaining terms of this Agreement and shall in no way affect the validity or enforceability of the other terms of this Agreement and such invalid terms shall be replaced by valid terms bearing the closest possible similarity in substance so that the intentions and purposes being the basis of this Agreement could be enforced to the greatest extent permitted by law. Section 16.7. Survival of Representations and Warranties. All covenants, agreements, representations, and warranties made in this Agreement by any of the parties hereto, including but not limited to, the indemnification provisions set forth herein shall be effective on the effective date hereof and thereafter. Section 16.8. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 16.9. Headings. The headings in the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. Section 16.10. Entire Agreement. This Agreement, including the schedules and exhibits referred to herein and any documents executed by the parties simultaneously herewith constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, between the parties with respect to the transactions contemplated herein. Provided, however, the foregoing shall not operate or be construed to prohibit proof of prior understandings and agreements between or among the parties to the extent necessary to properly construe or interpret this Agreement. XVII. DEFINITIONS Section 17.1. ACA. The term "ACA" shall mean ALLIED Crop Agency, Inc., an Iowa corporation. Section 17.2. AGA. The term "AGA" shall mean ALLIED General Agency Company, an Iowa corporation. Section 17.3. AGI. The term "AGI" shall mean ALLIED Group, Inc., an Iowa corporation. 26 Section 17.4. AGI Subsidiaries. The term "AGI Subsidiaries" shall mean AMCO, APC, Depositors, ALLIED Group Mortgage Corporation, ALLIED Leasing, Dougherty Dawkins, Inc., the Dougherty Dawkins Subsidiaries, the AMCO Subsidiaries, and any subsidiary added as a party hereto pursuant to the procedure set forth in Section 10.2; provided, that any subsidiary deleted as a party pursuant to said procedure shall no longer be included in the definition of such term. Section 17.5. ALBA. The term "ALBA" shall mean ALLIED Life Brokerage Agency, Inc., an Iowa corporation, and the wholly-owned subsidiary of ALFC. Section 17.6. ALFC. The term "ALFC" shall mean ALLIED Life Financial Corporation, an Iowa corporation. Section 17.7 ALFC Subsidiaries. The term "ALFC Subsidiaries" shall mean ALLIED Life and ALBA and any subsidiary added as a party hereto pursuant to the procedure set forth in Section 10.2; provided, however, that any subsidiary deleted as a party pursuant to said procedure shall no longer be included in the definition of such term. Section 17.8. ALLIED Group. The term "ALLIED Group" shall mean Mutual, the Mutual Subsidiaries, AGI, the AGI Subsidiaries, ALFC, and the ALFC Subsidiaries. Section 17.9. ALLIED Leasing. The term "ALLIED Leasing" shall mean the AGI subsidiary, ALLIED Group Leasing Corporation, an Iowa corporation. Section 17.10. ALLIED Life. The term "ALLIED Life" shall mean ALLIED Life Insurance Company, an Iowa life insurance corporation and the wholly-owned subsidiary of ALFC. Section 17.11 AMCO. The term "AMCO" shall mean AMCO Insurance Company, an Iowa stock insurance corporation. Section 17.12. AMCO Subsidiaries. The term "AMCO Subsidiaries" shall mean AGA, AGIS, The Freedom Group, Inc., Western Heritage Insurance Company, Midwest Printing Services, Ltd. and Freedom Insurance Services, Inc. Section 17.13 Annual Rental Cost. The term "Annual Rental Cost" shall mean the annual total costs and expenses of providing furnished office space, including depreciation and interest. Section 17.14. APC. The term "APC" shall mean ALLIED Property and Casualty Insurance Company, an Iowa stock insurance company. Section 17.15. Coordinating Committee. The term "Coordinating Committee" shall mean the joint meeting of the committees 27 established by the Bylaws of Mutual, AGI, and ALFC for the purpose, among others, of resolving issues under this Agreement. Section 17.16. Current Restructuring. The term "Current Restructuring" shall refer to the incorporation of ALFC and its capitalization by Mutual transferring the stock of ALLIED Life and ALBA in exchange for ALFC common and preferred stock. Section 17.17. Depositors. The term "Depositors" shall mean the AGI subsidiary, Depositors Insurance Company, an Iowa stock insurance corporation. Section 17.18. Direct Employee Allocation. The term "Direct Employee Allocation" shall have the meaning set forth in Section 2.2 of this Agreement. Section 17.19. Direct Employees. The term "Direct Employees" shall have the meaning set forth in Section 2.2 of this Agreement. Section 17.20. Dougherty Dawkins, Inc. The term "Dougherty Dawkins, Inc." shall mean Dougherty Dawkins, Inc., a Minnesota corporation. Section 17.21. Dougherty Dawkins Subsidiaries. The term "Dougherty Dawkins Subsidiaries" shall mean Voyageur Fund Distributors, Inc., Voyageur Asset Management Group, Inc., Dougherty, Dawkins, Strand & Bigelow Incorporated, and Dougherty Dawkins Portfolio Advisory Services, all of which are Minnesota corporations. Section 17.22. Employee Group. The term "Employee Group" shall mean those persons listed on or who properly should be listed on the AGI Payroll Register. Section 17.23. Employee Utilization Percentage. The term "Employee Utilization Percentage" shall have the meaning set forth in Section 2.2 of this Agreement. Section 17.24. ESOP. The term "ESOP" shall mean that certain leveraged employee stock ownership plan adopted by the Board of Directors of AGI on December 8, 1989, including any amendments thereto. Section 17.25. Human Resources Department. The term "Human Resources Department" shall mean the personnel and payroll departments of AGI, exclusive of training, personnel development, switchboard and receptionist functions, and communications media. The Human Resources Department is an AGI department and is staffed with AGI employees. Section 17.26. Insurance Approvals. The term "Insurance Approvals" shall have the meaning set forth in Section 14.2(a) of this Agreement. 28 Section 17.27. Joint Compensation Committee. The term "Joint Compensation Committee" shall mean the committee formed in accordance with Article II of this Agreement. Section 17.28. Joint Marketing Agreement. The term "Joint Marketing Agreement" shall mean the ALLIED Group Joint Marketing Agreement and any amendments thereto. Section 17.29. MIS Agreement. The term "MIS Agreement" shall mean that certain Amended and Restated Management Information Services Agreement and any amendments thereto or successor agreements. Section 17.30. Mutual. The term "Mutual" shall mean ALLIED Mutual Insurance Company, an Iowa mutual insurance corporation. Section 17.31. Mutual Subsidiaries. The term "Mutual Subsidiaries" shall mean AID Finance Services, Inc., ACA, ALLIED Jet Center, Inc., ALLIED Group Merchant Banking Corporation, ARE, Inc., ALLIED Group Insurance Marketing Company, and any subsidiary added as a party hereto pursuant to the procedure set forth in Section 10.2; provided, that any subsidiary deleted as a party pursuant to said procedure shall no longer be included in the definition of such term. Section 17.32. Pool. The term "Pool" shall mean the arrangement for sharing insurance business revenues and expenses created by the Pooling Agreement. Section 17.33. Pooling Agreement. The term "Pooling Agreement" shall mean that certain Second Amended and Restated Reinsurance Pooling Agreement, and any amendments thereto or successor agreements. Section 17.34. Restructuring Plan. The term "Restructuring Plan" shall mean 1) the sale of 100% of the issued and outstanding capital stock of ALLIED Life from AGI to Mutual in exchange for 2,700,000 shares of AGI common stock; 2) the transfer of the Employee Group from Mutual to AGI; 3) the formation by AGI of an employee stock ownership plan; 4) the termination of the ALLIED Mutual Defined Benefit Plan; 5) the amendment of the Pooling Agreement; and 6) the entering into of such other agreements as may be necessary to document such transactions and to retain for the companies in the ALLIED Group the continued benefits of their close business relationships, all as provided in the minutes of the meetings of the Boards of Directors of AGI and Mutual held on October 23, 1989. Section 17.35. Staff Employees. The term "Staff Employees" shall have the meaning set forth in Section 2.2 of this Agreement. Section 17.36. Surplus Office Space. The term "Surplus Office Space" shall mean any vacant or unoccupied office space that is 29 owned or leased by Mutual or any of the Mutual Subsidiaries with the exception of the Eden Prairie, Minnesota property. Section 17.37. Total Personnel Costs. The term "Total Personnel Costs" shall include all costs or expenses of whatever nature and from whatever origin arising out of or related to the maintenance of an employee group. Such term shall include but shall not be limited to the following costs, expenses, and obligations: (a) salaries, wages, reimbursements; (b) benefit plans, including the ESOP; (c) payroll taxes; (d) employee insurance; (e) litigation with employees; (f) termination benefits; (g) retiree medical benefits. XVIII. RESTATEMENT OF ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT Section 18.1. Restatement. The ALLIED Group Intercompany Operating Agreement originally became effective January 1, 1990 and all previous amendments and agreements are hereby superseded and replaced by this Agreement. IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be executed as of the date and year above first written. ALLIED MUTUAL INSURANCE COMPANY By /s/ James D. Kirkpatrick --------------------------------------- James D. Kirkpatrick, President By /s/ George T. Oleson --------------------------------------- George T. Oleson, Secretary 30 ALLIED GROUP, INC. By /s/ John E. Evans --------------------------------------- John E. Evans, Chairman of the Board and President By /s/ George T. Oleson --------------------------------------- George T. Oleson, Secretary ALLIED Life Financial Corporation By /s/ Samuel J. Wells --------------------------------------- Samuel J. Wells, President By /s/ George T. Oleson --------------------------------------- George T. Oleson, Secretary 31 SUBSIDIARY SIGNATURE ADDENDUM As of August 25, 1993, the undersigned companies hereby agree to become a party and be subject to the Amended and Restated ALLIED Group Intercompany Operating Agreement that became effective January 1, 1990 and is amended and restated as of the date of this Addendum, and the undersigned companies consent to ALLIED Group, Inc. as its agent with respect to those matters as specified in the Amended and Restated ALLIED Group Intercompany Operating Agreement. Dougherty Dawkins, Inc. By: /s/ -------------------------------------- Title: President Dougherty, Dawkins, Strand & Bigelow Incorporated By: /s/ -------------------------------------- Title: Chairman Dougherty Dawkins Portfolio Advisory Services By: /s/ -------------------------------------- Title: Chairman Voyager Asset Management Group, Inc. By: /s/ -------------------------------------- Title: Chairman Voyageur Fund Distributors, Inc. By: /s/ -------------------------------------- Title: Chairman 32 ALLIED Group Mortgage Company By: /s/ -------------------------------------- Title: President AMCO Insurance Company By: /s/ -------------------------------------- Title: Pres. ALLIED General Agency Company By: /s/ -------------------------------------- Title: Pres. ALLIED Group Information Systems, Inc. By: /s/ Bob O. Myers -------------------------------------- Title: President The Freedom Group, Inc. By: /s/ -------------------------------------- Title: Secretary Freedom Insurance Services, Inc. By: /s/ -------------------------------------- Title: Asst. Secretary 33 Midwest Printing Services, Ltd. By: /s/ Leslie D. Peltz -------------------------------------- Title: Vice President & Treasurer ALLIED Group Leasing Corporation By: /s/ -------------------------------------- Title: President ALLIED Property and Casualty Insurance Company By: /s/ -------------------------------------- Title: Pres. Depositors Insurance Company By: /s/ -------------------------------------- Title: Pres. 34 Western Heritage Insurance Company By: /s/ Joseph T. Olson -------------------------------------- Title: President 35 SUBSIDIARY SIGNATURE ADDENDUM As of August 25, 1993, the undersigned companies hereby agree to become a party and be subject to the Amended and Restated ALLIED Group Intercompany Operating Agreement that became effective January 1, 1990 and is amended and restated as of the date of this Addendum, and the undersigned companies consent to ALLIED Mutual Insurance Company as its agent with respect to those matters as specified in the Amended and Restated ALLIED Group Intercompany Operating Agreement. AID Finance Services, Inc. By: /s/ -------------------------------------- Title: President ALLIED Crop Agency, Inc. By: /s/ Stephen S. Rasmussen -------------------------------------- Title: President ALLIED Jet Center, Inc. By: /s/ -------------------------------------- Title: President ALLIED Group Merchant Banking Corporation By: /s/ -------------------------------------- Title: President ARE, Inc. By: /s/ -------------------------------------- Title: President ALLIED Group Insurance Marketing Company By: /s/ -------------------------------------- Title: President 36 SUBSIDIARY SIGNATURE ADDENDUM As of August 25, 1993, the undersigned companies hereby agree to become a party and be subject to the Amended and Restated ALLIED Group Intercompany Operating Agreement that became effective January 1, 1990 and is amended and restated as of the date of this Addendum, and the undersigned companies consent to ALLIED Life Financial Corporation as its agent with respect to those matters as specified in the Amended and Restated ALLIED Group Intercompany Operating Agreement. ALLIED Life Insurance Company By: /s/ -------------------------------------- Title: President ALLIED Life Brokerage Agency, Inc. By: /s/ -------------------------------------- Title: President 37 Exhibit 10 FIRST AMENDMENT TO AMENDED AND RESTATED ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT THIS AMENDMENT is made this 1st day of November, 1993, by and between ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and ALLIED Life Financial Corporation ("ALFC"). WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered into the Amended and Restated ALLIED Group Intercompany Operating Agreement on August 25, 1993 (the "Agreement"); and WHEREAS, on October 14, 1993, the Executive Committee of the Board of Directors for each of Mutual, AGI, and ALFC approved certain amendments to the Agreement regarding the Coordinating Committee: NOW, THEREFORE, in consideration of the foregoing, and or the mutual covenants set forth below and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. The Agreement is hereby amended by changing the heading for Article XI from "Arbitration" to "Coordinating Committee; Arbitration". 2. Sections 11.1, 11.2, 11.3, and 11.4 are renumbered as Sections 11.2, 11.3, 11.4, and 11.5. 3. New Section 11.1 is added as follows: Section 11.1. Coordinating Committee. All disputes under this Agreement shall be referred for resolution to the Coordinating Committee. Each of the coordinating committees of Mutual, AGI, and ALFC (a) has the right to participate in each and every Coordinating Committee deliberation unless it elects to abstain therefrom and (b) has one vote which shall be cast for or against any such decision unless it elects to abstain. Each such coordinating committee shall be comprised of two persons, one of whom shall constitute a quorum for the transaction of any business. All decisions of the Coordinating Committee must be unanimous, except for abstentions. All decisions of the Coordinating Committee are binding on the parties hereto. 4. Section 17.15 of the Agreement is amended as follows: Section 17.15. Coordinating Committee. The term "Coordinating Committee" shall mean the joint meeting of the coordinating committees established by Mutual, AGI, 1 and ALFC in accordance with their respective bylaws or pursuant to resolution for the purpose, among others, of resolving issues under this Agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the day and year above first written. ALLIED Mutual Insurance Company By: /s/ Douglas L. Andersen -------------------------------- Douglas L. Andersen, President By: /s/ George T. Oleson -------------------------------- George T. Oleson, Secretary ALLIED Group, Inc. By: /s/ John E. Evans -------------------------------- John E. Evans, Chairman of the Board and President By: /s/ George T. Oleson -------------------------------- George T. Oleson, Secretary ALLIED Life Financial Corporation By: /s/ Samuel J. Wells -------------------------------- Samuel J. Wells, President By: /s/ George T. Oleson -------------------------------- George T. Oleson, Secretary 2 Exhibit 11 SECOND AMENDMENT TO AMENDED AND RESTATED ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT THIS AMENDMENT is made this 16th day of May, 1994, by and between ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and ALLIED Life Financial Corporation ("ALFC"). WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered into the Amended and Restated ALLIED Group Intercompany Operating Agreement on August 25, 1993, as amended as of November 1, 1993 (the "Agreement"); and WHEREAS, on May 16, 1994, the Executive Committee of the Board of Directors for each of Mutual, AGI, and ALFC approved the amendment to the Agreement regarding the fees for employee leasing and other services; NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants set forth below and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Section 2.1 (e), second sentence, subsection (i) is hereby amended by replacing "5.07%" with "3.5%". 2. Section 2.1(e), second sentence, subsection (iv) is hereby amended by replacing "4.62%" with "3.5%". 3. All other terms and conditions remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the day and year above first written. ALLIED Mutual Insurance Company By: /s/ Douglas L. Andersen --------------------------------- Douglas L. Andersen, President By: /s/ George T. Oleson --------------------------------- George T. Oleson, Secretary ALLIED Group, Inc. By: /s/ John E. Evans --------------------------------- John E. Evans, Chairman of the Board and President By: /s/ George T. Oleson --------------------------------- George T. Oleson, Secretary ALLIED Life Financial Corporation By: /s/ Samuel J. Wells --------------------------------- Samuel J. Wells, President By: /s/ George T. Oleson --------------------------------- George T. Oleson, Secretary Exhibit 12 THIRD AMENDMENT TO AMENDED AND RESTATED ALLIED GROUP INTERCOMPANY OPERATING AGREEMENT THIS AMENDMENT is made this 15th day of December, 1994, by and between ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), and ALLIED Life Financial Corporation ("ALFC"). WHEREAS, Mutual, AGI, and ALFC and their respective subsidiaries entered into the Amended and Restated ALLIED Group Intercompany Operating Agreement on August 25, 1993, as amended as of November 1, 1993 and May 16, 1994 (the "Agreement"); and WHEREAS, on December 12, 1994, the Executive and Coordinating Committees of the Board of Directors for each of Mutual, AGI, and ALFC approved the amendment to the Agreement regarding the fees for employee leasing and other services; NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants set forth below and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Section 2.1(e), second sentence, subsection (i) is hereby amended by replacing "3.5%" with "4.0%". 2. Section 2.1(e), second sentence, subsection (iv) is hereby amended by replacing "3.5%" with "4.0%". 3. This Amendment shall be effective January 1, 1995. All other terms and conditions remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the day and year above first written. ALLIED Mutual Insurance Company By: /s/ Douglas L. Andersen ------------------------------- Douglas L. Andersen, President By: /s/ George T. Oleson ------------------------------- George T. Oleson, Secretary ALLIED Group, Inc. By: /s/ Jamie H. Shaffer ------------------------------- Jamie H. Shaffer, Office of the President By: /s/ George T. Oleson ------------------------------- George T. Oleson, Secretary ALLIED Life Financial Corporation By: /s/ Samuel J. Wells ------------------------------- Samuel J. Wells, President By: /s/ George T. Oleson ------------------------------- George T. Oleson, Secretary Exhibit 13 SECOND AMENDED AND RESTATED REINSURANCE POOLING AGREEMENT THIS AGREEMENT made this 14th day of December, 1992, by and between ALLIED Mutual Insurance Company (hereinafter referred to as "Mutual"), AMCO Insurance Company (hereinafter referred to as "AMCO" or the "Pool Administrator"), ALLIED Property and Casualty Insurance Company (hereinafter referred to as "APC"), and Depositors Insurance Company (hereinafter referred to as "Depositors"), for and in consideration of their mutual promises and agreements herein and for their mutual benefit. Mutual, APC, and Depositors are hereinafter collectively referred to as "Affiliated Companies". Mutual, AMCO, APC, and Depositors are hereinafter collectively referred to as "Participants". WITNESSETH: WHEREAS, each Participant is an Iowa corporation with its principal place of business located in Des Moines, Polk County, Iowa; and WHEREAS, each Participant is engaged in the property-casualty insurance business, and the Participants maintain a close business relationship; and WHEREAS, the Participants are parties to an Amended and Restated Reinsurance Pooling Agreement, dated December 29, 1989, -1- which was subsequently amended March 28, 1990; May 31, 1991; August 14, 1991; and February 25, 1992; and WHEREAS, the Participants again desire to amend and restate the terms of such Reinsurance Pooling Agreement; and WHEREAS, on January 1, 1993, this Second Amended and Restated Reinsurance Pooling Agreement ("Agreement") shall supersede and replace the aforementioned document and the amendments thereto; and WHEREAS, the purpose of this Agreement is to pool or share the risk of loss, allocated loss adjustment expenses, commissions, and certain taxes proportionately among the Participants in order to reduce reinsurance costs; to limit certain of the Affiliated Companies' administrative expenses to a specified percentage of premiums; and to bring about for each Participant the potential for added economies of operation, more uniform underwriting results, diversification as to the classes of insurance business written, and maximization of capacity; and WHEREAS, to accomplish such purpose, (1) the Affiliated Companies will cede to AMCO their Pooled Insurance Business and assume from AMCO an amount equal to their Applicable Participation Percentage, each as herein defined; (2) all Pooled Items, as defined herein, will be prorated among the Participants on the basis of such Applicable Participation Percentages, upon the terms and conditions set forth herein; and (3) the Pool Administrator will pay, in exchange for the payment of a fee, the Affiliated Companies' Administrative Expenses, as herein defined; -2- NOW THEREFORE, in consideration of the foregoing premises and for the mutual covenants contained herein and other good and valuable consideration, the Participants agree as follows: I. DEFINITIONS Section 1.1. The term "Applicable Participation Percentage(s)" shall mean those percentages as set forth in Exhibit A attached hereto and incorporated herein as they may be amended from time to time as provided herein. Section 1.2. The term "Annual Statement" shall mean the statutory form ---------------- annual statement, fire and casualty companies-association edition. The references to the Annual Statement contained hereinafter are to the following ---------------- Exhibits set forth therein: 1. Page 4, Underwriting and Investment Exhibit, Statement of Income (Column 1, only): "Income Statement." 2. Page 7, Underwriting and Investment Exhibit, Part 2 - Premiums Earned: "Earned Premiums Exhibit." 3. Page 11, Underwriting and Investment Exhibit, Part 4 - Expenses: "Expense Exhibit." Section 1.3. The term "Pooled Insurance Business" shall mean all insurance business conducted by the Participants exclusive of any such business or line of business which is set forth in Exhibit B, "Non-Pooled Business," attached hereto and incorporated herein, as it may be amended from time to time as provided herein. -3- Section 1.4. The term "Insurance Policies" shall mean the Participants' insurance, surety, and other underwriting obligations on Pooled Insurance Business. Section 1.5. The term "Pooled Items" shall mean those items of income or expense which are reported in each Participant's Annual Statement for each year, ---------------- as applicable during the term hereof on the Income Statement, Lines 1, 2, 10, 11, 12, and 14A and on the Expense Exhibit, Columns 1-3, Lines 1, 2, and 18, excluding therefrom however any entry or portion thereof which relates to any business or line of business set forth in Exhibit B, "Non-Pooled Business." Such exclusions shall be referred to hereinafter as "Non-Pooled Items." Section 1.6. The term "Administrative Expenses" shall mean those "Loss Adjustment," "Other Underwriting," "Investment," and "Miscellaneous" expenses of each Participant which are reported in its Annual Statement for each year, as ---------------- applicable, during the term hereof on the Expense Exhibit, Lines 3-17 and Line 21 (Column 2, only). Section 1.7. The term "Company Specific Items" shall mean those items of income or expense which are reported in each Participant's Annual Statement for ---------------- each year, as applicable, during the term hereof on the Income Statement, Lines 8, 9, and 15 and the Expense Exhibit, Columns 1-3, Lines 19 and 20. In addition, Company Specific Items shall mean (1) all Non-Pooled Items and (2) investment portfolio management fees, interest expense, and security transaction fees which are included in the entries to Line 21, Column 3, on the Expense Exhibit. -4- Section 1.8. The term "Loss" or "Losses" shall mean those loss payments and allocated loss adjustment expenses incurred by a Participant on Insurance Policies as reported in its Annual Statement on Income Statement Line 2 and ------ --------- Expense Exhibit Line 1 (Column 1, only). Section 1.9. The term "Statutory Reserves" shall mean those reserves required by statute on Insurance Policies. Section 1.10. The term "Statement Reserves" shall mean actual loss and allocated loss adjustment expense reserves on Insurance Policies. Section 1.11. The term "Underwriting Expenses(s)" shall mean the sum of those expenses which are reported on Lines 2 and 18 of the Expense Exhibit in each participant's Annual Statement with respect to Pooled Insurance Business. ------ --------- Section 1.12. The term "Net Statutory Underwriting Liabilities" shall mean the difference between those underwriting assets and underwriting liabilities which relate to Pooled Insurance Business. Underwriting assets as used in defining "Net Statutory Underwriting Liabilities" include insurance agents' balances or uncollected premiums, prepaid reinsurance premiums, reinsurance recoverable on loss payments, equities and deposits in pools and associations, and all other statutory underwriting assets. Underwriting liabilities include reserves for Losses, reserves for unearned premiums, and all other underwriting liabilities as evidenced by the books and records of the Participants but shall not include liabilities which relate to either Administrative Expenses or Company Specific Expenses. -5- Section 1.13. The term "Net Underwriting Liabilities" shall mean Net Statutory Underwriting Liabilities less deferred policy acquisition costs (computed under generally accepted accounting principles) less nonadmitted accounts receivable (computed under statutory accounting principles) plus allowances for bad debts (computed under generally accepted accounting principles). Section 1.14. The term "Net Underwriting Cash Flow" shall mean net premiums written (net of reinsurance) by the Participants on Insurance Policies reduced by net Losses (net of reinsurance and salvage and subrogation) and Underwriting Expenses paid. Section 1.15. The term "Net Insurance Policy Liability" shall mean each Participant's respective rights and obligations under the Insurance Policies, less all reinsurance recoveries (other than those made pursuant to this Agreement) and salvage and subrogations recoveries relating to the Insurance Policies. Net Insurance Policy Liability shall include Net Statutory Underwriting Liabilities and Net Underwriting Cash Flow. Section 1.16. The term "Coordinating Committee" shall mean the committee established by Mutual and ALLIED Group, Inc. ("AGI") which consists of two members of the AGI Board of Directors who do not serve on the Mutual Board of Directors and two members of the Mutual Board of Directors who do not serve on the AGI Board of Directors. -6- II. TERM Section 2.1. This Agreement shall be effective at 12:01 A.M., January 1, 1993 and shall continue in effect until 11:59 P.M., December 31, 2004, and shall continue thereafter unless prior to December 31, 2002, a party to this Agreement delivers to the other parties a written notice that such party intends to cease participation and terminate the Agreement as to it on December 31, 2004 or as of a specified date thereafter. This Agreement may be terminated by any party effective after December 31, 2004, provided that such party has given written notice of termination to the others at least two years prior to the proposed termination date. Termination of any party's participation in this Agreement prior to December 31, 2004 shall require Coordinating Committee approval, provided, however, that the terms and conditions of this Agreement other than the Administration Fee (See: Section 3.7) shall be subject to renegotiation by the parties at the written request of any Affiliated Company to the Pool Administrator at least six months prior to every thirty months during its term (i.e., July 1, 1995; January 1, 1998; etc.) and, provided further, that the Administration Fee shall be subject to renegotiation by the parties at the written request of any party to the others at least six months prior to every fifth year during its term (i.e., January 1, 1998, 2003, etc.). Section 2.2. In the event of a Change of Control (as hereinafter defined in this section) of AGI, Mutual may, in its sole discretion, at any time after such Change of Control: (i) -7- terminate all three of the Intercompany Operating Agreement ("IOA"), Management Information Services Agreement ("MIS"), and this Agreement upon six (6) months notice to AGI, AMCO, APC, and Depositors; (ii) extend the term of all three of the IOA, MIS, and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to AGI, AMCO, APC, and Depositors; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with AGI or Mutual acquires the ownership of 50% or more of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with AGI or Mutual. III. AGREEMENT TO ADMINISTER INSURANCE BUSINESS Section 3.1. Throughout the term of this Agreement, the Affiliated Companies shall delegate to, and the Pool Administrator shall assume, responsibility for the administration of the insurance business of the Affiliated Companies as hereinafter set forth. Section 3.2. The Pool Administrator shall undertake and perform the obligations assumed hereunder in the behalf of the Affiliated Companies in good faith and in a timely, diligent fashion in keeping with reasonable, accepted business practices in the property-casualty insurance industry. Such business -8- practices shall comport with and be substantially equivalent to those utilized by the Pool Administrator in the operation of its own insurance business. Section 3.3. Upon entering this agreement for the administration of insurance business, the parties acknowledge their existing business affiliation and/or common ownership, the term of this Agreement, and the IOA to which each is a party. The parties hereby agree that any dispute concerning the Pool Administrator's or any Affiliated Company's rights or obligations hereunder shall be resolved pursuant to Art. IX, Dispute Resolution, hereof. Section 3.4. Upon the effective date hereof and thereafter throughout the term of this Agreement, the Pool Administrator shall be responsible for and shall administer all operations relating to the Pooled Insurance Business and Non-Pooled Insurance Business of each Affiliated Company that are not reserved for the direct control of said company's board of directors, any duly authorized committee thereof, or its officers. Such operations shall include but are not limited to the following and such other functions as are typically and necessarily performed by property-casualty insurers. -9- . Underwriting - Policy Design - Rate Making - Reinsurance . Claims - Reserving - Investigations and adjustment . Marketing - Advertising - Agency relations . Policyholder Services - Policy issuance and endorsement - Cancellation, renewal, nonrenewal - Collections . Administrative Services - Accounting - Legal - Data Processing - Investment The Pool Administrator shall either conduct such operations directly or shall arrange for and administer the performance thereof by duly-qualified third parties. Section 3.5. Section 3.4 notwithstanding, each Affiliated Company, through its board of directors, any duly-authorized committee thereof, or its officers, shall have ultimate control over and responsibility for its operations as conducted by the Pool Administrator. Each Affiliated Company shall own and have -10- access without restriction to all records and accounts of its insurance business which are created or maintained by the Pool Administrator. Officers of each Affiliated Company will duly execute and review the performance of all contracts to which such company is or becomes a party during the term of the Agreement which are administered by the Pool Administrator and will be directly responsible for all matters of applicable insurance or other regulatory oversight. All premiums and other monies which are collected by the Pool Administrator on behalf of the Affiliated Companies during the term hereof will be held thereby in a fiduciary capacity until paid over to the company entitled thereto pursuant to the terms of the reinsurance pooling arrangement set forth herein. Section 3.6. In discharging its obligations hereunder, the Pool Administrator is hereby authorized to incur and pay necessary and reasonable business expenses on behalf of each Affiliated Company. All such expenses shall fall into the categories of Company Specific Expenses or Pooled Items. Each Affiliated Company shall be responsible for and pay its own Company Specific Expenses, whether or not incurred by or at the direction of the Pool Administrator; its proportionate share of the expense component of Pooled Items; and all such expenses which are Non-Pooled Items. The Pool Administrator shall be responsible for and pay in a timely fashion all Administrative Expenses. The board of directors of each Affiliated Company or any duly-authorized committee or officer thereof at any time during the term hereof or within twelve months thereafter may -11- demand of and shall receive from the Pool Administrator upon reasonable written notice thereto an accounting for and explanation of the business reason for any Company Specific Expense or expenses related to Pooled Items incurred by the Pool Administrator in its behalf or for any pricing, reserving, or other policy or decision which affects its insurance business. Section 3.7. As consideration for the obligations undertaken by the Pool Administrator pursuant hereto, each Affiliated Company shall pay to the Pool Administrator certain fees as set forth in Exhibit C, Administration Fee, attached hereto and incorporated herein. Such fees shall be calculated and paid to the Pool Administrator each month along with any amounts necessary to reimburse the Pool Administrator for Company Specific Expenses and Non-Pooled Items paid on behalf of the Affiliated Company. Section 3.8. In addition to that compensation described in Section 3.7 hereof, the Pool Administrator may earn an annual Performance Fee, as hereinafter defined, the payment of which by each Affiliated Company shall be contingent upon such Company's Combined Operating Ratio (as defined below and adjusted pursuant to generally-accepted accounting principles) pursuant to the following formulae: Benchmark Ratio = 104.0 --------------- Performance Ratio = Benchmark Ratio less the Combined Operating Ratio ----------------- multiplied by .5 -12- Combined Operating Ratio = Income Statement Line 6* ------------------------ ----------------------- Income Statement Line 1 *excluding Performance Fees Performance Fee = Performance Ratio multiplied --------------- by net earned premiums. The maximum Performance Fee which may be earned by the Pool Administrator and which shall be paid by any Affiliated Company for any calendar year shall equal 2.5% of such Company's net earned premiums. In the event that any Affiliated Company's Performance Ratio is equal to or less than zero for any such year, no Performance Fee shall be paid. Such negative differences shall not be cumulative for the purpose of the ensuing year's calculation. IV. REINSURANCE OF INSURANCE IN FORCE AND THEREAFTER WRITTEN Section 4.1. Each Affiliated Company shall and does hereby cede to AMCO 100% of its respective Net Insurance Policy Liability on all applicable classes of insurance business in force during the term of this Agreement and shall and does hereby cede to AMCO 100% of all Net Insurance Policy Liability incurred or for which the Affiliated Company may become obligated. AMCO agrees to and does hereby accept such Net Insurance Policy Liability during the term of this Agreement. Section 4.2 AMCO shall and does hereby cede to each Affiliated Company, based upon its Applicable Participation Percentage, a portion of the total Net Insurance Policy Liability -13- of all Participants (including that of AMCO and that assumed under Section 4.1), on all classes of insurance business in force during the term of this Agreement, and AMCO shall and does hereby cede to each Affiliated Company the same percentage of the total Net Insurance Policy Liability incurred or for which the Participants shall become obligated during the term of this Agreement. Each Affiliated Company agrees to and does hereby accept such Net Insurance Policy Liability during the term of this Agreement. Section 4.3. Adjustments to the Applicable Participation Percentages may be made from time to time as agreed upon by the Coordinating Committee and the Board of Directors of each Participant. Whenever an adjustment to the Applicable Participation Percentages is made among the Participants, Net Underwriting Liabilities will be transferred from AMCO to Affiliated Companies as AMCO's Applicable Participation Percentage is lowered or from Affiliated Companies to AMCO as AMCO's Applicable Participation Percentage is increased. If the adjustment to the Applicable Participation Percentages is made only among the Affiliated Companies, then a transfer of Net Underwriting Liabilities among the Affiliated Companies in the same manner shall be required. A Participant which receives additional Net Underwriting Liabilities as a result of such an adjustment in Applicable Participation Percentages shall receive pro rata from the other Participants which have had their respective Applicable Participation Percentage adjusted either cash, securities, other property, or a combination thereof (at -14- fair market value as of the date of transfer) in an amount equal to the additional Net Underwriting Liabilities. The Participant making the transfer determines whether cash, securities, other property, or a combination thereof is transferred. A Participant which transfers Net Underwriting Liabilities as a result of such an adjustment in Applicable Participation Percentages shall transfer pro rata to the other Participants which have had their respective Applicable Participation Percentage adjusted either cash, securities, other property, or a combination thereof (at fair market value as of the date of transfer) in an amount equal to the reduced Net Underwriting Liabilities. If the cash, securities, other property, or a combination thereof, are not transferred by a Participant on the effective date of a change in the Applicable Participation Percentages, such Participant shall pay interest (at commercially reasonable rates) on an amount equal to the amount of the Net Underwriting Liabilities which were to be transferred from the effective date of the change in the Applicable Participation Percentages to the effective date of the actual transfer of cash, securities, other property, or a combination thereof. In no event will the number of days between the effective date of the change in the Applicable Participation Percentages and the actual date of transfer of cash, securities or property exceed ninety (90) days. Section 4.4. During the term of this Agreement, monthly cash settlements and accounting adjustments shall be made by AMCO as is necessary to maintain the proportionate distribution of the Net Statutory Underwriting Liabilities and the Net Underwriting -15- Cash Flows among the Participants in accordance with the Applicable Participation Percentages as established from time to time. To the extent cash distributions among the Participants are required, such amounts will be paid within thirty (30) days after the end of the month for which such a payment is necessary. In addition, each Affiliated Company agrees to advance to AMCO at any time during any month, immediately upon AMCO's request, any funds the payment of which is required by this Agreement. Such advances are to be applied to each Participant's obligations hereunder. Section 4.5. The Participants expressly agree that all losses which result from bad debts relating to Pooled Items, including reinsurance recoverables, shall be shared proportionately in accordance with their Applicable Participation Percentages. V. RECIPROCAL ASSIGNMENTS Section 5.1. In conformity with this Agreement, each Affiliated Company hereby sells, assigns, and delivers to AMCO all right, title, and interest in its Net Underwriting Liabilities as of the effective date of this Agreement, and AMCO hereby accepts and assumes the same. As of the same date, AMCO hereby sells, assigns, and delivers to each of the Affiliated Companies, based upon their respective Applicable Participation Percentages, their proportionate share of the total Net Underwriting Liabilities of all of the Participants, and Affiliated Companies accept and assume the same. Notwithstanding -16- anything to the contrary herein contained, each Participant agrees to assume, for statutory annual statement and other financial statement purposes, its respective proportionate share (based upon the Applicable Participation Percentages) of amounts disallowed for unauthorized reinsurance effected by any Participant with non-admitted companies (not authorized to do insurance business within a state) and any amount disallowed for overdue premium balances or other non-admitted assets included within the scope of this Agreement. Each individual Participant will establish its own liability for the excess of Statutory Reserves over Statement Reserves, irrespective of the Applicable Participation Percentages. VI. SET OFF Section 6.1. The obligations of each Participant under this Agreement to transfer monies or other assets to any other Participant may be offset by the reciprocal obligations of the other Participant such that only a net amount need be transferred. Transactions under this Agreement may be cleared through an account of AMCO or through a joint account carried for the benefit of all Participants in accordance with this Agreement. VII. ADMINISTRATION Section 7.1. It is the intent of the Participants that administration of the Agreement shall be accomplished by persons who are employees of AGI and that such officers and employees -17- shall be subject to the direction and control of its board of directors and committees thereof as may be provided in the IOA to which each Participant is a party. VIII. MODIFICATIONS AND AMENDMENTS Section 8.1. With the approval of the Coordinating Committee and the Board of Directors of each Participant, this Agreement may be modified at any time to accomplish any of the following ends: (1) to permit any Participant to conform to applicable law, (2) to change the Applicable Participation Percentages to recognize changes in the financial condition or direct business production of the Participants, or (3) to make any reasonable and equitable amendments where such amendments are deemed necessary or helpful in the conduct of the business of the Participants. IX. DISPUTE RESOLUTION Section 9.1. Any dispute arising out of the operation of this Agreement to which Mutual is an interested party shall be resolved by the Coordinating Committee. Any dispute in which Mutual has no interest shall be resolved by the Executive Committee of the Board of Directors of AGI. Section 9.2. Each Participant hereby consents and agrees that any dispute between the parties hereto with respect to the interpretation, performance, or breach of any of the terms of this Agreement or the transactions contemplated hereby which cannot be resolved as hereinbefore provided shall be referred to arbitration conducted in accordance with the rules and procedures -18- of the American Arbitration Association ("AAA"), upon written request of any disputing Participant, such request to be delivered to the other Participants. Within thirty (30) days of the delivery of such written notice, the disputing Participants shall each nominate an AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty (30) days of their nomination, the two Party Arbitrators shall select a third AAA-licensed arbitrator (the "Third Arbitrator") and shall give the disputing Participants written notice of such choice. Section 9.3. The arbitrators shall be empowered to decide all issues submitted to arbitration using principles of law and equity and, if required, by application of any customary practices in the insurance and reinsurance industries. The arbitrators shall be relieved of all judicial formalities and shall not be required to follow any rules of evidence except as such rules may be imposed on arbitration proceedings conducted in accordance with the laws of the State of Iowa, but the arbitrators shall attempt to enforce the intents and purposes of this Agreement to the extent practicable and in accordance with Iowa law. The decision of a majority of the arbitrators shall be final and binding. Section 9.4. The disputing Participants shall each bear the expenses of its Party Arbitrator. The disputing Participants shall jointly share all other expenses of the arbitration proceeding and the expenses of the Third Arbitrator. The arbitration proceeding shall take place at Des Moines, Iowa unless another location is mutually agreed upon by the disputing -19- Participants. The arbitration proceeding shall be governed by the laws of the State of Iowa. The Participants hereby agree that any information respecting any matters submitted to arbitration in accordance with the foregoing or any aspect of the arbitration proceeding itself shall be treated as confidential and will not be disclosed to anyone not employed or acting on behalf of a party hereto in connection with such arbitration or used at any time in any manner that is adverse to the interests of the parties hereto but, in any such case, such information may be disclosed if such disclosure is made in connection with party's prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. Section 9.5. Anything set forth herein to the contrary notwithstanding, with respect to any issue to be determined by arbitration, the disputing Participants shall each submit in writing to the arbitrators their proposed resolution of such issue. The arbitrators shall be constrained in their decision relating to such issue to select only between the proposed resolutions of the disputing Participants, and the arbitrators shall have no discretion to fashion any compromise or other resolution of the issue submitted for arbitration. X. AUTONOMY OF PARTICIPANTS AND COOPERATION Section 10.1. The Participants shall attempt to position themselves in their respective target markets, whether separate -20- or overlapping, so as to preserve and strengthen their individual identities while making the best use of their association as described herein. The underwriting policies and programs of each Participant and the declaration of dividends to its shareholders or policyholders shall be subject to the control and be the responsibility of its board of directors. Section 10.2. Notwithstanding the foregoing, Participants will fully cooperate with each other and their respective counsel, if any, and accountants in connection with any steps to be taken as part of their obligations under this Agreement. They shall use their best efforts to take or cause to be taken any and all actions necessary or required to obtain all of the regulatory consents or approvals and any third party consents described herein, unless the receipt thereof has been waived in writing by the Participants. XI. INSOLVENCY Section 11.1. Each Participant accepts as well as cedes its Pooled Items. The reinsurance provided hereunder shall be payable by the accepting Participant on the basis of the liability of the ceding Participant under the policy or contract reinsured without diminution because of the insolvency of the ceding Participant; provided, that such reinsurance shall be payable directly to the ceding Participant or to its liquidator, receiver or other statutory successor, except: (i) where this Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the ceding Participant, or (ii) -21- where the accepting Participant, with the consent of the direct insured or insureds, has assumed such policy obligations of the ceding Participant as direct obligations of the accepting Participant to the payees under such policies and in substitution for the obligations of the ceding Participant to such payee. XII. ALLOCATION OF REFUNDS Section 12.1. Although Losses and costs are based on the Applicable Participation Percentages in effect on the date of payment, any refund of net earned premiums (net premiums written adjusted for the change in the net unearned premium reserve for all Participants) required by any insurance regulatory authorities will be allocated to the various Participants based upon the Applicable Participation Percentages in effect in the month such premiums were earned. The same allocation method will be used for related commission refunds from agents, interest due to policyholders, end any other related items. XIII. ASSIGNMENTS Section 13.1. Neither this Agreement nor any rights hereunder may be assigned by any of the Participants. XIV. WAIVER, MODIFICATIONS, REMEDIES Section 14.1. No delay or omission of any Participant to exercise any right or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein. Any single or partial exercise of any such right or power shall -22- not preclude other or further exercise thereof or the exercise of any other right. No waiver or modification hereto shall be valid unless in writing signed by the Participants and then only to the extent as specifically set forth in such writing. In addition to any rights granted herein, the Participants shall have and may exercise any and all rights and remedies now or hereafter provided by law. XV. CONFIDENTIAL INFORMATION Section 15.1. The Participants agree that any confidential information provided to any of them or their representatives in connection with this Agreement will be used solely for the purpose of the transactions contemplated by this Agreement, will not be disclosed to anyone not employed or acting on behalf of the Participants, and will not be used at any time in any manner that is adverse to the interest of the Participants. The aforesaid notwithstanding, information may be used in connection with any arbitration relating to the transactions contemplated by this Agreement, and such information may be disclosed if such disclosure is made in connection with the Participants' prosecution or defense of any legal proceeding or if such disclosure is required pursuant to a legal order issued by any judicial or regulatory body or is otherwise required by law. XVI. NOTICES Section 16.1. All notices, demands or requests given pursuant to or required by this Agreement shall be in writing and -23- shall be deemed to be received when personally delivered or, if mailed, when sent by registered or certified mail, to any Participant at its address below set forth or such other address as it may from time to time designated in writing and shall be deemed given on the date given or mailed. XVII. GOVERNING LAW Section 17.1. The provisions of this Agreement shall be governed and interpreted in accordance with the laws of the State of Iowa. XVIII. SEVERABILITY Section 18.1. If any of the provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, it is agreed that such invalidity or illegality should not invalidate the whole Agreement, but as to such jurisdiction this Agreement shall be construed as if it did not contain the provision or provisions held to be invalid or illegal in that particular jurisdiction, but only insofar as such construction does not affect the substance of this Agreement, and the rights and obligations of the parties hereto shall be construed and enforced accordingly in that jurisdiction. XIX. ENTIRE AGREEMENT Section 19.1. This Agreement constitutes the entire understanding and agreement of the Participants with respect to the subject matter hereof and supersedes all other prior -24- agreements and understandings, written or oral, among the Participants with respect to such subject matter. -25- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year above first written. ALLIED Mutual Insurance Company 701 Fifth Avenue Des Moines, IA 50309 By: /s/ ------------------------------- President AMCO Insurance Company 701 Fifth Avenue Des Moines, IA 50309 By: /s/ ------------------------------- Chairman ALLIED Property and Casualty Insurance Company 701 Fifth Avenue Des Moines, IA 50309 By: /s/ ------------------------------- President Depositors Insurance Company 701 Fifth Avenue Des Moines, IA 50309 By: /s/ ------------------------------- President -26- EXHIBIT A - APPLICABLE PARTICIPATION PERCENTAGES The Applicable Participation Percentages as of 12:01 a.m. January 1, 1993 are: Mutual 40% AMCO 43% APC 11% Depositors 6% -27- EXHIBIT B - NON-POOLED INSURANCE BUSINESS The Non-Pooled Insurance Business as of 12:01 a.m., January 1, 1993 shall be: 1. All premiums written by the Square Deal Division of Mutual. 2. Any premiums ceded or assumed pursuant to the Property Special Catastrophe Excess Contract, dated 01-01-93. -28- EXHIBIT C - ADMINISTRATION FEE The Administration Fee to be paid to the Pool Administrator by each Affiliated Company pursuant to Section 3.6 of the Agreement as of 12:01 a.m., January 1, 1993 shall be the total of the following: 1. 12.85% of Adjusted Written Premiums* multiplied by its Applicable Participation Percentage (underwriting expense). 2. 8.0% of Adjusted Earned Premiums+, multiplied by its Applicable Participation Percentage (7.25% for unallocated LAE and 0.75% for investment expense). 3. 25.89% of crop-hail direct written premiums (underwriting expense). 4. 11.95% of crop-hail direct earned premiums (11.2% for unallocated LAE and 0.75% for investment expense.) * Adjusted Written Premiums are the Participants' total direct written premiums on Pooled Insurance Business plus those written premiums assumed by AMCO from Motor Club of Iowa Insurance Company. + Adjusted Earned Premiums are the Participants' total direct earned premiums on Pooled Insurance Business plus those earned premiums assumed by AMCO from Motor Club of Iowa Insurance Company. -29- Exhibit 14 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REINSURANCE POOLING AGREEMENT THIS AMENDMENT made this 18th day of February, 1993, by and between ALLIED Mutual Insurance Company (hereinafter referred to as "Mutual"), AMCO Insurance Company (hereinafer referred to as "AMCO"),ALLIED Property and Casualty Insurance Company (hereinafter referred to as "APC"), and Depositors Insurance Company (hereinafter referred to as "Depositors"), for and in consideration of their mutual promises and agreements herein and for their mutual benefit. Mutual, APC, and Depositors are hereinafter collectively referred to as "Affiliated Companies". Mutual, AMCO, APC, and Depositors are hereinafter collectively referred to as "Participants". WITNESSETH: WHEREAS, the Participants entered into a Second Amended and Restated Reinsurance Pooling Agreement on December 14, 1992 (the "Agreement"); and WHEREAS, the Participants desire to amend Exhibit A - Applicable Participation Percentages to increase the pool participation of AMCO and APC and to decrease the pool participation of Mutual effective January 1, 1993; NOW THEREFORE, in consideration of the foregoing premises and for the mutual covenants contained herein and other good and valuable consideration, the Participants agree as follows: 1. The Agreement is amended by the deletion of Exhibit A and in replacement thereof the addition of the attached Exhibit A, incorporated by reference herein. Attached Exhibit A provides that the Applicable Participation Percentages are Mutual 36%, AMCO 46%, APC 12%, and Depositors 6%. 2. This Amendment shall be effective as of 12:01 a.m. January 1, 1993. All other terms and conditions remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year above first written. ALLIED Mutual Insurance Company AMCO Insurance Company 701 Fifth Avenue 701 Fifth Avenue Des Moines, IA 50391-2000 Des Moines, IA, 50391-2013 By: /s/ James D. Kirkpatrick By: /s/ James D. Kirkpatrick ------------------------------- ------------------------------- James D. Kirkpatrick, President James D. Kirkpatrick, President ALLIED Property and Casualty Depositors Insurance Company Insurance Company 701 Fifth Avenue 701 Fifth Avenue Des Moines, IA, 50391-2014 Des Moines, IA 50391-2011 By: /s/ James D. Kirkpatrick By: /s/ James D. Kirkpatrick ------------------------------- ------------------------------- James D. Kirkpatrick, President James D. Kirkpatrick, President 1 EXHIBIT A - APPLICABLE Participation Percentages The Applicable Participation Percentages as of 12:01 a.m. January 1, 1993 shall be: Mutual 36% AMCO 46% APC 12% Depositors 6% 2 Exhibit 15 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED REINSURANCE POOLING AGREEMENT WHEREAS, the undersigned parties (Participants) entered into the above-captioned agreement (Agreement) on December 14, 1992 and executed an amendment thereto on February 18, 1993; WHEREAS, pursuant to Section 8.1 of the Agreement, the Participants desire to enter into a second amendment thereto; and WHEREAS, on December 13, 1994, the terms of the amendment set out hereinbelow were approved by the board of directors of each Participant and by the Coordinating Committee; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the Participants hereby agree that, effective January 1, 1995, Section 2.1 of the Agreement shall be deleted in its entirety and replaced with the following: Section 2.1. This Agreement shall be effective at 12:01 a.m., January 1, 1993, and shall continue in force as to each party hereto until terminated as provided herein. Termination of any party's participation in the Agreement prior to December 31, 2004 shall require Coordinating Committee (as defined in Section 1.16) approval. Termination of any party's participation in the Agreement effective on or at any time after December 31, 2004 may be effected by delivery of notice, pursuant to Article XVI hereof, to each of the other parties setting forth the date upon which such party intends to terminate its participation. Any such notice of intent to terminate on or at anytime after December 31, 2004 must be given at least sixty months prior to the date of termination set forth therein. The parties further agree than, effective January 1, 1995, the following sentence shall be added to the end of Section 3.7 of the Agreement: The Administration Fee shall be subject to renegotiation by the parties at any time during the term of the Agreement upon at lease sixty months notice, pursuant to Article XVI hereof, by any party to the others. IN WITNESS HEREOF, the undersigned parties hereto have executed this amendment on the 10th day of February, 1995. ALLIED Mutual Insurance Company AMCO Insurance Company By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen --------------------------- --------------------------- Douglas L. Andersen Douglas L. Andersen President President ALLIED Property & Casualty Depositors Insurance Company Insurance Company By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen --------------------------- --------------------------- Douglas L. Andersen Douglas L. Andersen President President 3 EXHIBIT 16 THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED REINSURANCE POOLING AGREEMENT WHEREAS, the undersigned parties (Participants) entered into the above- captioned agreement (Agreement) on December 14, 1992 and executed amendments thereto on February 18, 1993 and February 10, 1995; WHEREAS, the Participants desire to enter into a third amendment to the Agreement pursuant to Section 8.1 thereof; and WHEREAS, the amendments set out hereinbelow were approved by the Coordinating Committee and the board of directors of ALLIED Mutual Insurance Company on May 4, 1998 and by the boards of directors of AMCO Insurance Company, ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company on May 5, 1998; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, the Participants hereby agree as follows; 1. Effective January 1, 1998, Section 3.8 of the Agreement is deleted therefrom in its entirety; 2. Effective on the date of this amendment, Section 3.7 of the Agreement is hereby amended by deleting therefrom in its entirety the final sentence thereof, as added by the Second Amendment thereto; 3. Effective July 1, 1998, Exhibit C to the Agreement, which is captioned "Administrative Fee" and which is incorporated by reference into Section 3.7 thereof, is amended as follows: A. Subsection 2 of Exhibit C is deleted in its entirety and replaced with the following; "7.5% of Adjusted Earned Premiums+ multiplied by its Applicable Participation Percentage (6.75% for unallocated LAE and 0.75% for investment expense)" B. The following is added to the definitions of Adjusted Written Premiums and Adjusted Earned Premiums by insertion at the end thereof: "and those premiums written by the Square Deal Division of Mutual" C. Subsections 3 and 4 of Exhibit C are deleted therefrom in their entirety. 4. Effective January 1, 1999, Exhibit C to the Agreement is amended as follows: A. Subsection 1 is deleted in its entirety and replaced with the following: "Commencing on January 1, 1999, its Applicable Participation Percentage multiplied by that percentage of Adjusted Written Premiums* which is the product of Adjusted Written Premiums* and a percentage equaling the average underwriting expense (excluding commissions and premiums taxes) incurred by the Participants and the Square Deal Division of Mutual during the Annual Statement years 1994 through 1998." B. Subsection 2 is deleted in its entirety and replaced with the following: "Commencing on January 1, 1999, its Applicable Participation Percentage multiplied by the total of (i) total unallocated loss adjustment expense incurred by the Participants and the Square Deal Division of Mutual for that Annual Statement year and (ii) 0.50% of Adjusted Earned Premiums+." C. The following is added to the Exhibit as Subsection 3: "The foregoing notwithstanding, for Annual Statement years 1998 through 2000, no Affiliated Company shall be required to pay the Pool Administrator in any year an Administration Fee calculated pursuant hereto which is greater than that it would have paid if the Administrative Fee had been calculated pursuant to the terms of the Agreement as they existed prior to execution of this Third Amendment." 5 Effective January 1, 2000, Exhibit C to the Agreement is amended by (i) striking the phrase "1994 through 1998" from the last line of Subsection 1 and by replacing it with "1995 through 1999" and (ii) striking the phrase "0.50% of Adjusted Earned Premiums+" from the last line of Subsection 2 and by replacing it with "0.25% of Adjusted Earned Premiums+." 6. Effective January 1, 2001, the Agreement shall be amended by deleting Section 3.7 and Exhibit C therefrom in their entirety and by replacing Section 3.7 with the following: "For each Annual Statement year commencing on or after January 1, 2001, the Pool Administrator shall be reimbursed by each Affiliated Company for those Company Specific Expenses and Non- Pooled Items paid by the Pool Administrator on its behalf. In addition thereto, each Affiliated Company shall pay to the Pool Administrator an amount equaling its Applicable Participation Percentage of the Participants', including Square Deal Division of Mutual, total Administrative Expenses." IN WITNESS HEREOF, the undersigned parties hereto have executed this amendment on the 5th day of May, 1998. ALLIED Mutual Insurance Company AMCO Insurance Company By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen -------------------------------- -------------------------------- Its: President and Chief Executive Its: President and Chief Executive ------------------------------ ------------------------------ Officer Officer ------- ------- ALLIED Property and Casualty Depositors Insurance Company Insurance Company By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen -------------------------------- -------------------------------- Its: President and Chief Executive Its: President and Chief Executive ------------------------------ ------------------------------ Officer Officer ------- ------- Exhibit 17 AMENDED AND RESTATED MANAGEMENT INFORMATION SERVICES AGREEMENT Effective March 1, 1996 AMENDED AND RESTATED MANAGEMENT INFORMATION SERVICES AGREEMENT This Agreement ("Agreement") is made as of this 24th day of January, 1997, to be effective March 1, 1996, (unless a different effective date is indicated) by and among AMCO Insurance Company ("AMCO"), ALLIED Group Information Systems, Inc. ("AGIS"), ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), ALLIED General Agency Company ("AGA"), ALLIED Group Mortgage Company ("AGMC"), ALLIED Group Leasing Corporation ("AGLC"), ALLIED Life Financial Corporation ("ALFC"), ALLIED Life Insurance Company ("ALLIED Life"), ALLIED Life Brokerage Agency ("ALBA"), ALLIED Group Merchant Banking Corporation ("AGMBC"), ALLIED Group Insurance Marketing Company ("AGIMC"), The Freedom Group, Inc. ("TFG"), and Midwest Printing Services, Ltd. ("Midwest Printing"). AGIS, AGI, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, AGIMC, TFG, and Midwest Printing shall be hereinafter referred to collectively as the "Companies". WITNESSETH: WHEREAS, AGIS and Mutual, AGI, AMCO, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, and AGIMC entered into an Amended and Restated Management Information Services Agreement effective January 1, 1995 (the "January 1995 Agreement") on December 14, 1995; and WHEREAS, effective March 1, 1996, AGIS was restructured, with AGIS declaring and paying a dividend to AMCO consisting of all assets and related liabilities of TFG-ALLIED Operations; and WHEREAS, effective March 1, 1996, AMCO began providing the services previously provided by AGIS under the January 1995 Agreement; WHEREAS, effective May 13, 1996, the AMCO programmers working on ALIC data were transferred to ALIC as employees; NOW, THEREFORE, in consideration of the foregoing premises, and for and in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: I. DEFINITIONS 1.1 "AGI and Its Subsidiaries" shall mean the following companies which are parties to this Agreement: AGI, AMCO, AGA, AGMC, AGLC, TFG, AGIS, and Midwest Printing. 1.2 "ALFC and Its Subsidiaries" shall mean the following companies which are parties to this Agreement: ALFC, ALLIED Life, ALBA, and AGMBC. 1.3 "Coordinating Committee" shall mean the joint meeting of the coordinating committees established by Mutual, AGI, and ALFC in accordance with their respective bylaws or pursuant to resolution for the purpose, among others, of resolving issues under this Agreement. 1.4 "Management Information Services" or "MIS" shall mean the Methods/Procedures, the processing, and support of information and data functions. MIS does not include: (a) third-party data processing services provided to any of the Companies by contract; (b) processing flexible premium payment plans; or (c) printing services, unless otherwise provided herein. 1.5 "Methods/Procedures" shall mean studies or work flow analysis, training on software systems, and other computer support. 1.6 "Mutual and Its Subsidiaries" shall mean the following companies which are parties to this Agreement: Mutual and AGIMC. 1.7 "PC" shall mean personal computer. 1.8 "PC Support" shall mean PC installation, training, and assistance, but shall not include PC maintenance. 1.9 "Programming/Development" shall mean the analysis, design, programming, and development of PC and mainframe Software and shall include mainframe Software consulting and maintenance services. The maintenance services shall include, but not be limited to, error corrections, enhancements, and updates. Unless specifically provided for herein, Programming/Development shall not include those programming functions performed by any of the Companies on personal computers. 1.10 "Software" shall mean any and all computer programs, models, plans, outlines, packages, or systems thereof and related documentation or manuals as developed, or which may be developed in the future by AMCO and used by the Companies for MIS, but does not include those computer programs which are used by any of the Companies pursuant to license agreements with third parties. II. POOLING AGREEMENT 2.1 AMCO, Mutual, ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company are parties to the Second Amended and Restated Reinsurance Pooling Agreement dated December 14, 1992, as amended February 18, 1993 and February 10, 1995 ("Pooling Agreement"), pursuant to which AMCO, as the pool administrator, conducts insurance operations and provides certain administrative services to the other parties. Included in these administrative services are the provision of data processing services for the jointly conducted insurance operations. The Pooling Agreement shall control as to matters regarding data processing services provided by AMCO to Mutual, ALLIED Property and Casualty Insurance Company, and Depositors Insurance Company and the payment for any services provided thereto. III. SERVICES 3.1 GENERAL MIS. AMCO shall provide all MIS required by ALLIED Life, AGI's human resources department, and AGIMC. The MIS to be provided during the term of this Agreement shall be substantially the same as those services presently provided to or utilized by ALLIED Life, AGI's human resources department, and AGIMC as of the effective date of this Agreement. In addition, AMCO shall provide MIS to any of the Companies if requested. The scope and extent of MIS provided under this Agreement may be amended or modified from time to time by written agreement between AMCO and the party receiving the MIS. 3.2 PC SUPPORT. AMCO shall provide PC Support to ALLIED Life, ALBA, AGI's human resources department, AGA, AGMC, AGLC, AGMBC, AGIMC, and AGIS. AMCO shall also provide AGIMC with PC Support for its phone system. 3.3 PC MAINTENANCE. AMCO will assist in coordinating with each of the Companies for third-party vendor maintenance on the personal computers, and each of the Companies shall be responsible for payment to such third-party vendors. 3.4 AGMC SCANLINE PROCESSING. AMCO shall use its scanline equipment to process AGMC payment forms on a daily basis, Monday through Friday, during the term of this Agreement. AMCO shall provide its own personnel, program disk, and tapes to process such forms. 3.5 FLEXIBLE PREMIUM PAYMENT PLANS. AMCO shall perform the processing, billing, scanline, and remittance services with regard to the flexible premium payment plan offered by ALLIED Life to its insureds on ALLIED Life policies. All service charges and reinstatement fees assessed to insureds pursuant to the flexible premium payment plan shall be retained by ALLIED Life. 3.6 AGIS CUSTOMERS. AGIS sells to its insurance customers data processing services which are presently provided using AMCO's mainframe and other equipment. AMCO agrees to continue to provide insurance processing services subject to AGIS obtaining AMCO's written consent prior to entering into future data processing agreements and limiting annual growth so it does not exceed 10%. 3.7 PRINTING. (a) FORMS AND REPORTS. AMCO shall generate the following data and record output for ALLIED Life and AGIS customers: (i) policy forms, (ii) claim forms, (iii) billing forms, and (iv) internal reports not generated by personal computers. AMCO shall generate internal reports for AGI's human resources department which cannot be generated by personal computers. (b) TYPESETTING AND OTHER PRINTING. AMCO shall provide typesetting services to Companies requesting typesetting services. Any other printing services including, but not limited to, specialty printing or brochures, shall be provided by AMCO to the Companies, or any of them, if requested. 3.8 POLICY ASSEMBLY. AMCO shall provide policy assembly for AGIS customers. The policy assembly shall include the preparing, handling, and mailing of insurance policies. 3.9 POSTAGE AND MAIL PROCESSING. AMCO shall provide mail processing for the Companies which are located in Polk County, Iowa. This mail processing shall include internal and external distribution of mail among such Companies, to and from the proper post office facilities and may include inserting and sorting mail services. 3.10 SUPPLY SERVICES. For those Companies which desire to use the supply service, AMCO shall administer and manage the storage, warehousing, and distribution of the inventory of office supplies owned by such Companies. The supply service provided by AMCO shall include, but not be limited to, the ordering of paper used in processing forms for ALLIED Life and AGIS customers. 3.11 TELEPHONE AND COMMUNICATIONS. AMCO shall provide telephone equipment, long-distance communication services, or both, for such Companies requesting equipment and/or service upon mutually agreeable terms and conditions. AMCO shall also provide computer and telephone port access to those Companies which office at 701 Fifth Avenue, Des Moines, Iowa. 3.12 OTHER SERVICES. Any other services provided by AMCO to the Companies, or any of them, shall be negotiated between AMCO and such company on such terms and conditions as are mutually agreeable. IV. WARRANTIES 4.1 LICENSE OF SOFTWARE. AMCO shall own or license any Software necessary to provide the services described in this Agreement. AMCO shall be responsible for resolving any licensing conflicts that may result from its use of such Software. 4.2 NO WARRANTIES. AMCO makes no warranties, express or implied as to performance of the machines, equipment, or Software provided under the terms of this Agreement. AMCO will not be liable for any damages, of any kind, as a result of the unavailability or malfunction of the machines, equipment or Software. V. PAYMENT FOR SERVICES 5.1 GENERAL. The fees described in this Article III may be renegotiated in the future at the agreement of the affected parties. The amount of the renegotiated fee to be paid by any of the Companies shall be renegotiated on an arm's length basis. 5.2 FEES. The Companies shall pay the fees set forth in Addendum A to this Agreement. VI. TERM, TERMINATION, AND CHANGE OF CONTROL 6.1 TERM AND TERMINATION. This Agreement shall be effective on March 1, 1996 and shall continue in effect until December 31, 2004, and shall continue thereafter unless prior to December 31, 2002, a party to this Agreement delivers to the other parties a written notice that such party intends to cease participation and terminate the Agreement as to it on December 31, 2004 or as of a specified date thereafter. This Agreement may be terminated by a party to this Agreement, as to such party's participation in the Agreement, effective after December 31, 2004, provided that such party has given written notice of termination to the others at least two (2) years prior to the proposed termination date. 6.2 CHANGE OF CONTROL OF ALFC. In the event of a Change of Control (as hereinafter defined in this section) of ALFC, either Mutual or AGI may, in its sole discretion, at any time after such Change of Control: (i) terminate the Intercompany Operating Agreement ("IOA Agreement") and this Agreement upon six (6) months notice to ALFC; (ii) extend the term of the IOA Agreement and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to ALFC; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with ALFC or Mutual acquires the ownership of 50% or more of the voting stock of ALFC. A person, group, or entity "affiliated" with ALFC or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with ALFC or Mutual. 6.3 CHANGE OF CONTROL OF AGI. (a) In the event of a Change of Control (as hereinafter defined in this section) of AGI, Mutual may, in its sole discretion, at any time after such Change of Control: (i) terminate all three of the Pooling Agreement, IOA Agreement, and this Agreement upon six (6) months notice to AGI; (ii) extend the term of the Pooling Agreement, IOA Agreement, and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to AGI; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with AGI or Mutual acquires the ownership of 50% or more of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with AGI or Mutual. (b) In the event of a Change of Control (as hereinafter defined in this section) of AGI, ALFC may, in its sole discretion, at any time after such Change of Control: (i) terminate both the IOA Agreement and this Agreement upon six (6) months notice to AGI; (ii) extend the term of the IOA Agreement and this Agreement for up to ten (10) additional years beyond December 31, 2004 upon six (6) months notice to AGI; or (iii) allow such agreements to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with AGI or Mutual acquires the ownership of 50% or more of the voting stock of AGI. A person, group, or entity "affiliated" with AGI or Mutual shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with AGI or Mutual. VII. DISPUTE RESOLUTION 7.1 AGI AND ITS SUBSIDIARIES. Any controversy, claim, or dispute arising out of or relating to this Agreement, or breach thereof, among or between AGI and Its Subsidiaries shall be resolved by AGI's Board of Directors, the decision of which shall be binding. 7.2 MUTUAL AND ITS SUBSIDIARIES. Any controversy, claim, or dispute arising out of or relating to this Agreement, or breach thereof, among or between Mutual and Its Subsidiaries shall be resolved by Mutual's Board of Directors, the decision of which shall be binding. 7.3 ALFC AND ITS SUBSIDIARIES. Any controversy, claim, or dispute arising out of or relating to this Agreement, or breach thereof, among or between ALFC and Its Subsidiaries shall be resolved by ALFC's Board of Directors, the decision of which shall be binding. 7.4 ALL OTHER DISPUTES. All other disputes under this Agreement shall be referred for resolution to the Coordinating Committee. Each of the coordinating committees of Mutual, AGI, and ALFC (a) has the right to participate in each and every Coordinating Committee deliberation unless it elects to abstain therefrom and (b) has one vote which shall be cast for or against any such decision unless it elects to abstain. Each such coordinating committee shall be comprised of two persons, one of whom shall constitute a quorum for the transaction of any business. All decisions of the Coordinating Committee must be unanimous, except for abstentions. All decisions of the Coordinating Committee are binding on the parties hereto. 7.5 ARBITRATION. If a controversy, claim, or dispute cannot be resolved by the Coordinating Committee pursuant to Section 7.4, then it will be submitted to arbitration as set forth hereafter. (a) Consent to Arbitration. Each party to this Agreement hereby consents and agrees that any dispute between the parties hereto with respect to the interpretation, performance, or breach of any of the terms of this Agreement or the transactions contemplated hereby which cannot be resolved by the Coordinating Committee shall be referred to arbitration conducted in accordance with the rules and procedures of the American Arbitration Association ("AAA"), upon written request of the disputing party hereto delivered to the party with which it has a dispute. Within thirty (30) days of the delivery of such written notice, each party involved shall nominate an AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty (30) days of their nomination, if there are two Party Arbitrators, the Party Arbitrators shall select a third AAA-licensed arbitrator (the "Third-Arbitrator") and shall give the parties hereto written notice of such choice. If there are three parties to the dispute and each party selects a Party Arbitrator, the three Party Arbitrators selected shall constitute the Arbitrators without further selection. If there are more than three parties to the dispute, the parties to this Agreement agree that Mutual shall represent Mutual and Its Subsidiaries, ALFC shall represent ALFC and Its subsidiaries, and AGI shall represent AGI and Its Subsidiaries. (b) Authority of Arbitrators. The arbitrators shall be empowered to decide all issues submitted to arbitration using principles of law and equity and, if required, by application of any customary practices in the insurance and reinsurance industries. The arbitrators shall be relieved of all judicial formalities and shall not be required to follow any rules of evidence except as such rules may be imposed on arbitration proceedings conducted in accordance with the laws of the State of Iowa, but the arbitrators shall attempt to enforce the intents and purposes of this Agreement to the extent practicable and in accordance with Iowa law. The decision of a majority of the arbitrators shall be final and binding on each of the parties to the arbitration proceeding. (c) Expenses; Location. Each party to the dispute shall bear the expenses of its respective Party Arbitrator. If only two parties are involved in the arbitration, the involved parties shall jointly share all other expenses of the arbitration proceeding and the expenses of the Third Arbitrator. The arbitration proceeding shall take place at Des Moines, Iowa unless another location is mutually agreed upon by the parties. The arbitration proceeding shall be governed by the laws of the State of Iowa. The parties hereto hereby agree that any information respecting any matters submitted to arbitration in accordance with the foregoing or any aspect of the arbitration proceeding itself shall be treated as confidential and will not be disclosed to anyone not employed or acting on behalf of a party hereto in connection with such arbitration or used at any time in any manner that is adverse to the interests of either party hereto but, in any such case, such information may be disclosed if such disclosure is made in connection with either party's prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. (d) Restriction. Anything set forth herein to the contrary notwithstanding, with respect to any issue to be determined by arbitration, each of the parties to the arbitration proceeding shall submit in writing to the arbitrators the party's proposed resolution of such issue. The arbitrators shall be constrained in their decision relating to such issue to select only between the proposed resolutions of the parties, and the arbitrators shall have no discretion to fashion any compromise or other resolution of the issue submitted for arbitration. VIII. CONFIDENTIAL INFORMATION AND TRADE SECRETS 8.1 OBLIGATION TO KEEP CONFIDENTIAL. (a) Each party to this Agreement shall keep confidential, except as the other party or parties may otherwise consent in writing, and, except for the other parties' benefit, not disclose or make any use of at any time and for any purpose whatsoever, any trade secrets, confidential information, knowledge, data, trademarks or trade names, or other information of any of the Companies to their products, know-how, designs, customer lists, business plans, marketing plans and strategies, pricing strategies, or other subject matter pertaining to any business of the Companies or any of their clients, customers, consultants, licensees, or affiliates, which the party has obtained or may obtain, or otherwise acquire during the course of contacts, discussions, negotiation, or agreement with any of the other parties, except as herein provided (hereafter, collectively, "Confidential Information"). No party shall deliver, reproduce, or in any way allow any Confidential Information of the other parties or any documentation relating thereto, to be delivered to or used by any third parties without specific written direction or consent of a duly authorized officer of the other party. (b) Upon termination of this Agreement for any reason whatsoever each party shall promptly surrender and deliver to each other party all records, materials, equipment, drawings, documents, data, and all Confidential Information of the other parties and shall not retain any description containing or pertaining to any Confidential Information of the other parties, unless otherwise consented to in writing by a duly authorized officer of the other party. 8.2 PERMISSIVE RELEASE OF CONFIDENTIAL INFORMATION. Notwithstanding the provisions of this section, any Confidential Information may be used in connection with any arbitration relating to the transactions contemplated by this Agreement and such information may be disclosed if such disclosure is made in connection with the parties' prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. IX. MISCELLANEOUS 9.1 ASSIGNMENT. This Agreement, including any or all rights and obligations hereunder, shall not be assigned by any of the parties to any third party without the prior written consent of all of the other parties. Except as otherwise provided in this Agreement, the obligations and rights of the parties shall be binding upon and inure to the benefit of any assignee, transferee, successor, or receiver of each of the parties. 9.2 WAIVER; REMEDIES. No delay or omission of any party to this Agreement to exercise any right or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein; and any single or partial exercise of any such right or power shall not preclude other or further exercise thereof or the exercise of any other right. In addition to any rights granted herein, the parties hereto shall have and may exercise any and all rights and remedies now or hereafter provided by law except as may be limited by Section 7 of this Agreement. 9.3 NOTICES. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or if mailed by certified or registered mail (return receipt requested) to the party at its address as set forth on the signature page of this Agreement. Any notice given as provided in this section, if given personally, shall be effective upon delivery, or if given by certified or registered mail, shall be effective three days after deposit in the mail. Any party hereto may change the address at which it is to be given notice by giving notice to the other party as provided in this section. 9.4 GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of Iowa and shall be construed and interpreted under the laws of such state applicable to contracts made and to be performed entirely within such state. 9.5 ENFORCEABILITY. If any one or more of the covenants, agreements, provisions, or other terms of this Agreement shall be for any reason whatsoever determined to be invalid, then such terms shall be deemed severable from the remaining terms of this Agreement and shall in no way affect the validity or enforceability of the other terms of this Agreement and such invalid terms shall be replaced by valid terms bearing the closest possible similarity in substance so that the intentions and purposes being the basis of this Agreement could be enforced to the greatest extent permitted by law. 9.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All covenants, agreements, representations, and warranties made in this Agreement by any of the parties hereto, including but not limited to, the indemnification provisions set forth herein, shall be effective on the effective date hereof and thereafter. 9.7 COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.8 HEADINGS. The headings in the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 9.9 ENTIRE AGREEMENT. This Agreement, including the schedules and addenda referred to herein and any documents executed by the parties simultaneously herewith constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, between the parties with respect to the transactions contemplated herein. Provided, however, the foregoing shall not operate or be construed to prohibit proof of prior understandings and agreements between or among the parties to the extent necessary to properly construe or interpret this Agreement. 9.10 AMENDMENTS. Any changes to this Agreement and any further obligations of the parties to each other must be in writing and executed by their respective duly authorized officers. IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Management Information Services Agreement to be signed by their duly- authorized officers all as of the date and year first written above. ALLIED Mutual Insurance Company ALLIED Group, Inc. 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2000 Des Moines, IA 50391-2000 By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer ----------------------------- ----------------------------- Title: President Title: President (Financial) -------------------------- -------------------------- AMCO Insurance Company ALLIED General Agency Company 701 5th Avenue 701 5th Ave. Des Moines, IA 50391-2013 Des Moines, IA 50391-2002 By: /s/ Douglas L. Andersen By: /s/ Douglas L. Andersen ----------------------------- ----------------------------- Title: President Title: President -------------------------- -------------------------- ALLIED Life Financial ALLIED Group Leasing Corporation Corporation 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines, IA 50391-2015 By: /s/ Samuel J. Wells By: /s/ Jamie H. Shaffer ----------------------------- ----------------------------- Title: President Title: President -------------------------- -------------------------- ALLIED Group Mortgage Company ALLIED Life Insurance Company 1701 48th St. 701 5th Ave. West Des Moines, IA 50391-2009 Des Moines, IA 50391-2003 By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells ----------------------------- ----------------------------- Title: Secretary Title: President -------------------------- -------------------------- ALLIED Group Merchant Banking ALLIED Group Insurance Corporation Marketing Company 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines, IA 50391-2010 By: /s/ Paul McGillivray By: /s/ Jamie H. Shaffer ----------------------------- ----------------------------- Title: President Title: Treasurer -------------------------- -------------------------- ALLIED Group Information ALLIED Life Brokerage Agency Systems, Inc. 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines, IA 50391-1002 By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells ----------------------------- ----------------------------- Title: Secretary Treasurer Title: President -------------------------- -------------------------- The Freedom Group, Inc. Midwest Printing Services, Ltd. 701 5th Ave. 3820 109th St. Des Moines, IA 50391-1002 Des Moines, IA 50391-1003 By: /s/ Jamie H. Shaffer By: /s/ Leslie D. Peltz ----------------------------- ----------------------------- Title: Secretary Treasurer Title: Treasurer -------------------------- --------------------------- ADDENDUM A I. ALLIED LIFE. ALLIED Life shall pay AMCO on a monthly basis fees for services under this Agreement in accordance with the following: (a) $37.50 per hour for Programming/Development time and Methods/Procedures time. (c) ALLIED Life shall also pay fees in accordance with Sections VII through XI of this Addendum. (d) ALLIED Life shall reimburse AMCO for the actual costs AMCO incurs on a monthly basis for providing ALLIED Life the services provided under Sections 3.1 ("General MIS"), 3.2 ("PC Support"), 3.7 (a) ("Printing--Forms and Reports"), and 3.8 ("Policy Assembly"). In order to reimburse AMCO for the cost of these services, ALLIED Life will forward $56,250 at the end of each month as an estimation of the costs of providing the services for that month. (e) At the end of the calendar year, AMCO will calculate its actual cost of providing these services and compare it to the monthly payments forwarded to AMCO for the services by ALLIED Life. If the total actual costs exceed the total monthly payments made, ALLIED Life will promptly pay the difference to AMCO. If the total actual costs are less than the total monthly payments made, AMCO will promptly refund the difference to ALLIED Life. The aforementioned fees shall be renegotiated by ALLIED Life and AMCO each calendar year. If ALLIED Life and AMCO are unable to agree on an annual fee for the next calendar year by December 15th of each year, the calculation of a reasonable annual fee for the next calendar year shall be submitted to the Coordinating Committee for resolution. II. AGI HUMAN RESOURCES. For the services provided by AMCO to AGI's human resources department under Sections 3.1 ("General MIS"), 3.2 ("PC Support"), and 3.7(a) ("Printing--Forms and Reports"), AGI shall pay to AMCO $42.00 per hour for Programming/Development time and $40.00 per hour for Methods/Procedures time. Each year, beginning January 1, 1997, this hourly rate shall be recalculated based upon estimated costs for the year in question. Such fees shall be billed and paid monthly. If applicable, AGI shall also pay fees in accordance with Sections VI through X of this Addendum. III. AGIMC. AGIMC shall pay AMCO for services under this Agreement in accordance with the following: (a) For the services provided under Sections 3.1 ("General MIS") and 3.2 ("PC Support"), AGIMC shall pay to AMCO $42.00 per hour for Programming/Development time and $40.00 per hour for Methods/Procedures. Such fees shall be billed and paid monthly. Each year, beginning January 1, 1996, this hourly rate shall be recalculated based upon estimated costs for the year in question. (b) If applicable, AGIMC shall also pay fees in accordance with Sections VII through XI of this Addendum. IV. AGMC. AGMC shall pay to AMCO for services under this Agreement in accordance with the following: (a) For the services provided under Section 3.4 ("AGMC Scanline Processing") the fee of .089 dollars ($.089) for each payment form processed daily. In the event of any dispute as to the amount due under the per item charge, AMCO's records shall control. AMCO will bill AGMC monthly for the per item processing charges. Such amount shall be immediately due and payable upon receipt by AGMC. (b) If applicable, AGMC shall also pay fees in accordance with Sections VI through X of this Addendum. V. PROGRAMMING. Each of the Companies (except as may be provided elsewhere for ALLIED Life, AGI, and AGIMC) which request that AMCO provide Programming/Development services shall pay a rate of $42.00 per hour. Each of the Companies (except for ALLIED Life, AGI, and AGIMC) which request that AMCO provide Methods/Procedures services shall pay $40.00 per hour. Such fees shall be billed and paid monthly. Each year, beginning January 1, 1997, this hourly rate shall be recalculated based upon estimated costs for the year in question. Vi. TYPESETTING/OTHER PRINTING. The Companies which request that AMCO provide typesetting services in accordance with Section 3.7(b) ("Printing--Typesetting/Other Printing") shall pay a rate of $22.00 per hour. Such fees shall be billed and paid monthly. Any other printing services shall be provided by AMCO to any of the Companies for a fee to be negotiated between AMCO and such company in addition to the fees specified in this Addendum A. VII. PC MAINTENANCE. If AMCO assists in coordinating third-party vendor maintenance for the personal computers of any of the Companies, such Companies agree to pay upon receipt of an invoice from AMCO the third-party vendor's actual charges as billed to AMCO. VIII. POSTAGE/MAIL PROCESSING. For the services provided under Section 3.9, the Companies which have offices located in Polk County, State of Iowa, shall pay AMCO for mail processing as follows: (a) the Companies shall reimburse AMCO for the actual cost of postage utilized, (b) if AMCO performs any mail inserting services for any of the Companies, such Companies shall pay AMCO $0.032 per item, (c) if AMCO performs any proof of mail services for any of the Companies, such Companies shall pay AMCO $0.057 per item, (d) if AMCO performs any outgoing mail sorting services for any of the Companies, such Companies shall pay AMCO $0.0225 per item, (e) if AMCO performs incoming mail sorting services for any of the Companies, such Companies shall pay AMCO $0.0225 per item, (f) if AMCO performs special handling services in mail processing, it will be billed at $0.051 per item, (g) if AMCO performs remittance processing, it will be billed at $0.089 per item, and, (h) if AMCO performs a manual look up requested by one of the Companies the fee is $0.54 per item. The number of items and the fees shall be billed to each of the Companies utilizing the services and paid by each of them monthly. IX. TELEPHONE/COMMUNICATIONS. The Companies which request that AMCO provide telephone/communications equipment under Section 3.11 ("Telephone and Communications") shall pay to AMCO a mutually agreed upon monthly fee for the equipment. Each of the Companies requesting long-distance communication services (the "Long-Distance Companies") will pay a monthly charge based upon the proportion of their actual long distance minutes to the total actual long distance minutes used by the Long-Distance Companies overall. X. TAXES. AMCO shall pay any sales, use, and personal property taxes which may be due and owing with respect to the services provided under this Agreement. AMCO shall receive reimbursement from the appropriate Companies for any sales or use tax paid. Exhibit 18 FIRST AMENDMENT TO AMENDED AND RESTATED MANAGEMENT INFORMATION SERVICES AGREEMENT Effective March 1, 1996 This First Amendment ("amendment") to the Amended and Restated Management Information Services Agreement ("Agreement") is made as of this 24th day of February, 1997, to be effective March 1, 1996, (unless a different effective date is indicated) by and among AMCO Insurance Company ("AMCO"), ALLIED Group Information Systems, Inc. ("AGIS"), ALLIED Mutual Insurance Company ("Mutual"), ALLIED Group, Inc. ("AGI"), ALLIED General Agency Company ("AGA"), ALLIED Group Mortgage Company ("AGMBC"), ALLIED Group Leasing Corporation ("AGLC"), ALLIED Life Financial Corporation ("ALFC"), ALLIED Life Insurance Company ("ALLIED Life"), ALLIED Life Brokerage Agency ("ALBA"), ALLIED Group Merchant Banking Corporation ("AGMBC"), ALLIED Group Insurance Marketing Company ("AGIMC"), The Freedom Group, Inc. ("TFG"), and Midwest Printing Services, Ltd. ("Midwest Printing"). AGIS, AGI, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, AGIMC, TFG, and Midwest Printing shall be hereinafter referred to collectively as the "Companies". WITNESSETH: WHEREAS, AGIS, Mutual, AGI, AMCO, AGA, AGMC, AGLC, ALFC, ALLIED Life, ALBA, AGMBC, TFG, Midwest Printing, and AGIMC entered into an Amended and Restated Management Information Services Agreement effective March 1, 1996 on January 24, 1997; and WHEREAS, Section I of Addendum A to the Agreement was not accurate in stating certain fees for ALLIED Life; WHEREAS, Section IX of the Agreement allows amendment of the Agreement in writing and executed by the parties; NOW, THEREFORE, in consideration of the foregoing premises, and for and in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. The Agreement is hereby amended by deleting Section I(a) of the Addendum and inserting in place thereof the following: (a) $37.50 per hour for Programming/Development time and Methods/Procedures time from March 1, 1996 through May 13, 1996 when the programmers became ALLIED Life employees and no charge thereafter. 2. The Agreement is hereby amended by deleting Section I(d) of the Addendum and inserting in place thereof the following: (d) ALLIED Life shall reimburse AMCO for the actual costs AMCO incurs on a monthly basis for providing ALLIED Life the services provided under Sections 3.1 ("General MIS"), 3.2 ("PC Support"), 3.7 (a) ("Printing-- Forms and Reports"), and 3.8 ("Policy Assembly"). In order to reimburse AMCO for the cost of these services, ALLIED Life will forward $50,000.00 at the end of each month as an estimation of the costs of providing the services for that month. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to the Amended and Restated Management Information Services Agreement to be signed by their duly-authorized officers all as of the date and year first written above. ALLIED Mutual Insurance Company ALLIED Group, Inc. 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2000 Des Moines, IA 50391-2000 By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer ----------------------------- --------------------------------- Title: President Title: President (Financial) -------------------------- ------------------------------ AMCO Insurance Company ALLIED General Agency Company 701 5th Avenue 701 5th Ave. Des Moines, IA 50391-2013 Des Moines, IA 50391-2002 By: /s/ Douglas L. Andersen By: /s/ Jamie H. Shaffer ----------------------------- --------------------------------- Title: President Title: Treasurer -------------------------- ------------------------------ ALLIED Life Financial ALLIED Group Leasing Corporation Corporation 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines IA 50391-2015 By: /s/ Samuel J. Wells By: /s/ Jamie H. Shaffer ----------------------------- --------------------------------- Title: President Title: President -------------------------- ------------------------------ ALLIED Group Mortgage Company ALLIED Life Insurance Company 1701 48th St. 701 5th Ave. West Des Moines, IA 50391-2009 Des Moines, IA 50391-2003 By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells ----------------------------- --------------------------------- Title: Secretary Title: President -------------------------- ------------------------------ ALLIED Group Merchant Banking ALLIED Group Insurance Corporation Marketing Company 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines, IA 50391-2010 By: /s/ Paul McGillivray By: /s/ Jamie H. Shaffer ----------------------------- --------------------------------- Title: President Title: Treasurer -------------------------- ------------------------------ ALLIED Group Information ALLIED Life Brokerage Agency Systems, Inc. 701 5th Ave. 701 5th Ave. Des Moines, IA 50391-2003 Des Moines, IA 50391-1002 By: /s/ Jamie H. Shaffer By: /s/ Samuel J. Wells ----------------------------- --------------------------------- Title: Secretary Treasurer Title: President -------------------------- ------------------------------ The Freedom Group, Inc. Midwest Printing Services, Ltd. 701 5th Ave. 3820 109th St. Des Moines, IA 50391-1002 Des Moines, IA 50391-1003 By: /s/ Jamie H. Shaffer By: /s/ Leslie D. Peltz ----------------------------- --------------------------------- Title: Secretary Treasurer Title: Treasurer -------------------------- ------------------------------ EXHIBIT 19 THE ALLIED GROUP JOINT MARKETING AGREEMENT TABLE OF CONTENTS Page ---- 1. Segment Differentiation.................................................. 1 1.1 Promotion of Products............................................... 1 1.2 Existing Agency Relationship........................................ 1 1.3 Types of Agencies................................................... 1 1.4 No Limitation on Agency Appointments................................ 2 2. Joint Agency Promotion Responsibilities.................................. 2 2.1 Promotion of Joint Agencies......................................... 2 2.2 Promotion of Life Products.......................................... 2 2.3 Development of Marketing Materials.................................. 2 3. Promotion Fee............................................................ 2 3.1 ALIC Fees to AMCO................................................... 2 3.2 Calculation of Growth Rate and NPIF................................. 3 4. Systems Development...................................................... 3 4.1 Development of Joint Date Base...................................... 3 4.2 Joint Billing Arrangement........................................... 3 4.3 Other Systems....................................................... 3 4.4 Allocation of Costs of Promotion Activities........................................................ 4 5. Non-Compete.............................................................. 4 5.1 Agreement Not To Compete............................................ 4 5.2 Protected Product List.............................................. 4 5.3 Amendment of Products Lists......................................... 4 6. Term/Termination/Dispute Resolution...................................... 4 6.1 Term and Termination................................................ 4 6.2 Resolution of Disputes.............................................. 5 6.3 Resolution of Post Termination Disputes............................. 5 7. Arbitration.............................................................. 5 7.1 Selection of Arbitrators............................................ 5 7.2 Authority of Arbitrators............................................ 5 7.3 Allocation of Expense of Arbitration................................ 6 7.4 Limitation on Authority of Arbitrators.............................. 6 8. Change of Control........................................................ 6 8.1 Change of Control in the Life Segment or ALFC....................... 6 8.2 Change of Control in the P/C Segment or AGI......................... 7 i Page ---- 9. Confidential Information and Trade Secrets............................. 7 9.1 Confidential Information.......................................... 7 9.2 Confidentiality of Joint Data Base................................ 7 9.3 Return of Confidential Information................................ 7 9.4 Injunctive Relief................................................. 8 9.5 Survival of this Section.......................................... 8 10. Indemnification........................................................ 8 10.1 Indemnification by ALIC........................................... 8 10.2 Indemnification by the P/C Segment................................ 8 10.3 Limitations on Indemnification.................................... 8 10.4 Participation in Defense.......................................... 8 11. Affirmative Covenants.................................................. 9 11.1 Cooperation....................................................... 9 11.2 Current Information............................................... 9 12. Approvals.............................................................. 9 13. Amendment.............................................................. 9 14. Miscellaneous.......................................................... 10 14.1 Assignment....................................................... 10 14.2 Waiver; Remedies................................................. 10 14.3 Permissive Release of Confidential Information................... 10 14.4 Notices.......................................................... 10 14.5 Governing Law.................................................... 11 14.6 Enforceability................................................... 11 14.7 Survival of Representations and Warranties....................... 11 14.8 Counterparts..................................................... 11 14.9 Headings......................................................... 11 14.10 Entire Agreement................................................. 11 14.11 Execution of Agreement Authorized................................ 12 Signature Page.............................................................. 12 Schedule 3.2 New Production Incentive Fee........................................... 13 Schedule 5.2(a) Life Segment Products.................................................. 14 Schedule 5.2(b) P/C Segment Products List.............................................. 15 ii THE ALLIED GROUP JOINT MARKETING AGREEMENT This Joint Marketing Agreement ("Agreement") by and between ALLIED Life Insurance Company ("ALIC"), ALLIED Mutual Insurance Company ("AMIC"), AMCO Insurance Company ("AMCO"), ALLIED Property and Casualty Insurance Company ("APC"), and Depositors Insurance Company ("DIC") shall be effective on the 30th day of August, 1993. WHEREAS, the parties hereto are affiliated pursuant to their common ownership and existing business relationships which include, without limitation, various distribution systems, marketing strategies, and contracts relating to their ongoing operations; WHEREAS, ALIC is in the business of underwriting and marketing life insurance and annuities (referred to herein as the "Life Segment"); WHEREAS, AMIC, AMCO, APC, and DIC are in the business of underwriting and marketing property-casualty insurance (referred to herein collectively as the "P/C Segment"); WHEREAS, the Life Segment and the P/C Segment each desire to expand their markets and to increase their penetration of the other's customer base through cross selling and increasing the number of joint life/P/C agencies; and WHEREAS, the P/C Segment's existing marketing organization is in a position which enables it to immediately begin to promote the Life Segment to its/their insurance agents; NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements set forth herein, the undersigned parties hereto hereby agree as follows as of the date first set forth above: 1.0 Segment Differentiation. 1.1 Promotion of Products. The Life Segment and the P/C Segment each agree to promote the products of the other to their respective customers and agents according to the terms and conditions of this Agreement. 1.2 Existing Agency Relationships. The parties acknowledge the existing working and contractual relationships that each has with its respective insurance agents/agencies and agree that they will cooperate to foster and promote those relationships. 1.3 Types of Agencies. The parties acknowledge that their agents/agencies are appointed (1) both by the Life Segment and by one or more of the companies of the P/C Segment ("Joint Agencies") or (2) only by one Segment ("Life-only Agencies" or 1 "P/C-on1y Agencies"), and they agree that, when requested, each segment will promote the other to those Life-only or P/C-only Agencies, as the case may be. 1.4 No Limitation on Agency Appointments. Nothing in this Agreement constrains any party from exercising any right to appoint any agent/agency, terminate any existing agency contract, or exercise any agency contract right. 2.0 Joint Agency Promotion Responsibilities 2.1 Promotion of Joint Agencies. In consideration of payment of the Promotion Fee defined in Section 3 hereof, the P/C Segment hereby agrees to promote the sale of Life Segment Products, as defined in Section 5.2, within Joint Agencies and to facilitate the establishment of such Joint Agencies pursuant to the procedure set forth in Section 1.2. 2.2 Promotion of Life Products. The parties agree to begin work immediately to establish and maintain specific guidelines, strategies, and requirements for the promotion of Life Segment Products by the P/C Segment marketing representatives to Joint Agencies. Such promotion will begin on or before January 1, 1994. 2.3 Development of Marketing Materials. Promotion efforts will include joint promotions and marketing strategies and the development of marketing materials which shall include but not be limited to advertising, oral presentations, illustrations, recruiting materials, and such other communications as are necessary to promote the sale of the Life Segment Products by Joint Agencies. The Life Segment retains the right to review and approve all such materials prior to presentation to Joint Agencies. The P/C Segment will use its best efforts to conform all advertising materials and any forms to applicable laws and regulations. 3.0 Promotion Fee 3.1 ALIC Fees to AMCO. In compensation for the promotion activities described in this Agreement, ALIC agrees to pay to AMCO, in its capacity as Pool Administrator under the Second Amended and Restated Reinsurance Pooling Agreement dated December 14, 1992, the following amounts; (a) an annual access fee of $100,000.00 ("Access Fee") will be paid in four (4) equal quarterly installments with the first payment due within 30 days of January 1, 1994, and within the first month of each quarter thereafter during the term hereof; and (b) an annual new production incentive fee ("NPIF"), as calculated in Section 3.2(f) to be paid within thirty (30) days of the end or each calendar year based on production for that year. 2 3.2 Calculation of Growth Rate and NPIF. (a) NPIF is based on the growth rate in production credit premiums ("PCPs") for Joint Agencies. (b) PCPs are the numerical method utilized by ALIC to measure production of agencies. PCPs are calculated as a percentage of premiums, and the applicable percentage may be different for each product. (c) The year of calculation ("YOC") shall be the calendar year just ended, and the PCPs for that year shall be the "YOC PCPs." (d) The PCPs as of the end of the calendar year prior to the YOC shall be referred to as the prior year PCPs or "PY PCPs". (e) The growth rate ("Growth Rate") equals YOC PCPs minus PY PCPs divided by PY PCPs. If the Growth Rate calculated herein is less than 10%, the fee percentage (the "Fee Percentage") equals zero. If the Growth Rate calculated herein exceeds 25%, the Fee Percentage equals 20%. If the Growth Rate is between 10% and 25%, then the Fee Percentage is calculated as follows: (i) Fee Percentage = [({ Growth Rate - 10%} / 15%) x 10%] + 10% (ii) For a graph calculating NPIF and an example of the calculation above, see Schedule 3.2. (f) If the Growth Rate is 25% or less, NPIF equals the Fee Percentage, as calculated above, multiplied by the difference between YOC PCPs and PY PCPs. If the Growth Rate exceeds 25%, NPIF equals Fee Percentage multiplied by 25% of PY PCPs. 4.0 Systems Development 4.1 Development of Joint Data Base. The Life Segment and the P/C Segment agree to work together to develop and coordinate joint data bases of customers and agents for purposes of the promotion activities under this Agreement. Each segment agrees to provide the other with a listing of its insureds and agents and other relevant marketing or statistical information as may be reasonably requested by the parties. 4.2 Joint Billing Arrangement. The parties agree to jointly develop and use a mutually agreeable multiple account billing system which will allow the billing of life and property-casualty products on one statement. 4.3 Other Systems. The parties agree to work together and develop any other systems which may be identified as mutually advantageous to the parties to this Agreement. 3 4.4 Allocation of Costs of Promotion Activities. The Life Segment and P/C Segment agree to work together to develop a mutually agreeable basis for the sharing of system development and operation costs for systems developed under Section 4.0. The parties further agree that the method of allocation will reflect the projected and actual utilization of these systems. 5.0 Non-Compete. 5.1 Agreement Not To Compete. Each party to this Agreement hereby covenants and agrees that it will not compete directly, or indirectly through any subsidiary, affiliate, partnership, joint venture, or third party, with any party in the other segment for the duration of this Agreement and for a period of ten (10) years thereafter. This agreement not to compete shall extend to and include any Life Segment Products or P/C Segment Products, as defined in Section 5.2, and any market in which the segment seeking protection pursuant hereto is then active; provided that protection afforded hereby after any termination of this Agreement shall extend only to markets in which the Life Segment Products and P/C Segment Products were sold at the date of termination. "Market" for purposes of this section shall be the individual states in which Life Segment Products or P/C Segment Products are sold. The parties, in the event of a breach or anticipated breach of this Agreement, agree money damages will not be a sufficient remedy to the injured party or parties and agree to the imposition of injunctive relief to enforce this Section in addition to other available remedies. 5.2 Protected Product List. The product list of the respective segments is set forth as follows: (a) The Life Segment products list ("Life Segment Products") is attached hereto and incorporated herein as Schedule 5.2(a). (b) The P/C Segment products list ("P/C Segment Products") is attached hereto and incorporated herein as Schedule 5.2(b). 5.3 Amendment of Products Lists. The products lists referred to in Section 5.2 may be amended from time to time to add or delete products through written notification to the other parties to the Agreement. Upon notice of an addition to the products list, the parties shall have ten (10) days in which to object to the proposed addition. If there is disagreement in revising the products list, the Coordinating Committee as defined in Section 6.2 shall resolve the dispute. 6.0 Term/Termination/Dispute Resolutions 6.1 Term and Termination. This Agreement shall continue from August 30, 1993 to August 30, 2008, and shall continue thereafter unless prior to August 30, 2006, a party to this Agreement delivers to each of the other parties a written notice 4 that such party intends to cease participation and terminate the Agreement as to it on August 30, 2008 or as of a specified date thereafter. This Agreement may be terminated by any party effective after August 30, 2008 provided that such party has given written notice at least two (2) years prior to the proposed termination date. 6.2 Resolution of Disputes. The members of the coordinating committees of the Boards of Directors of ALLIED Mutual Insurance Company, ALLIED Group, Inc., and ALLIED Life Financial Corporation ("Coordinating Committee") shall be asked to resolve any disputes arising under this Agreement. Notwithstanding anything in this Agreement to the contrary, if any disputes under this Agreement must be resolved by arbitration pursuant to Section 7.0, termination of this Agreement which otherwise would occur shall not occur until after final resolution by the arbitrator. 6.3 Resolution of Post Termination Disputes. In the event there are any post termination disputes in connection with this Agreement, such disputes shall be submitted to the Coordinating Committee for resolution. 7.0 Arbitration. 7.1. Selection of Arbitrators. Each party to this Agreement hereby consents and agrees that any dispute between the parties hereto with respect to the interpretation, performance, or breach of any of the terms of this Agreement or the transactions contemplated by this Agreement which cannot be resolved by the Coordinating Committee shall be referred to arbitration conducted in accordance with the rules and procedures of the American Arbitration Association ("AAA"), upon written request of any party given to the others. Within thirty (30) days of the giving of such written notice, the Life Segment and the P/C Segment shall each nominate an AAA-licensed arbitrator (the "Party Arbitrators"). Within thirty (30) days of their nomination, the two Party Arbitrators shall select a third AAA-licensed arbitrator (the "Third Arbitrator") and shall give the Life Segment and the P/C Segment written notice or such choice. 7.2 Authority of Arbitrators. The arbitrators shall be empowered to decide all issues submitted to arbitration using principles of law and equity and, if required, by application of any customary practices in the insurance and reinsurance industries. The arbitrators shall be relieved of all judicial formalities and shall not be required to follow any rules of evidence except as such rules may be imposed on arbitration proceedings conducted in accordance with the laws of the State of Iowa, but the arbitrators shall attempt to enforce the intents and purposes of this Agreement to the extent practicable and in accordance with Iowa law. The decision of a majority of the arbitrators shall be final and binding on the Life Segment, the P/C Segment, and their subsidiaries. 5 7.3 Allocation of Expense of Arbitration. Each party shall bear the expenses of its Party Arbitrator. The parties shall jointly share all other expenses of the arbitration proceeding and the expenses of the Third Arbitrator. The arbitration proceeding shall take place at Des Moines, Iowa, unless another location is mutually agreed upon by the Life Segment and the P/C Segment and shall be governed by the laws of the State of Iowa. The parties hereto hereby agree that any information respecting any matters submitted to arbitration in accordance with the foregoing or any aspect of the arbitration proceeding itself shall be treated as confidential and will not be disclosed to any person or entity not employed or acting on behalf of the Life Segment or the P/C Segment in connection with such arbitration or used at any time in any manner that is adverse to the interests of any party hereto but, in any such case, such information may be disclosed if such disclosure is made in connection with either party's prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. 7.4 Limitation on Authority of Arbitrators. Notwithstanding anything set forth herein to the contrary, with respect to any issue to be determined by arbitration, the Life Segment and the P/C Segment shall each submit in writing to the arbitrators their proposed resolution of such issue. The arbitrators shall be constrained in their decision relating to such issue to select only between the proposed resolutions, and the arbitrators shall have no discretion to fashion any compromise or other resolution of the issue submitted for arbitration. 8.0 Change of Control. 8.1 Change of Control in the Life Segment or ALLIED Life Financial Corporation. In the event of a Change of Control (as hereinafter defined in this section) of ALIC or ALLIED Life Financial Corporation, the P/C Segment may, in its sole discretion, at any time after such Change of Control; (i) terminate this Agreement upon six (6) months notice to the Life Segment; (ii) extend the term of this Agreement for up to ten (10) additional years beyond August 30, 2008 upon notice to the Life Segment; or (iii) allow this Agreement to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC acquires the ownership of 50% or more of the voting stock of ALIC or ALLIED Life Financial Corporation. A person, group, or entity "affiliated" with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC. 6 8.2 Change of control in the P/C Segment or ALLIED Group, Inc. In the event of a Change of Control (as hereinafter defined in this section) of any of the companies comprising the P/C Segment or ALLIED Group, Inc., ALIC may, in its sole discretion, any time after such Change of Control: (i) terminate this Agreement upon six (6) months notice to the P/C Segment; (ii) extend the term of this Agreement for up to ten (10) additional years beyond August 30, 2008 upon six (6) months notice to the P/C Segment; or (iii) allow this Agreement to continue in effect. "Change of Control" for purposes of this section shall mean an event whereby a person, group, or entity that is not affiliated with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC acquires the ownership of 50% or more of the voting stock of any company in the P/C Segment or of ALLIED Group, Inc. A person, group, or entity "affiliated" with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC shall mean a person, group, or entity that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with ALLIED Group, Inc., ALLIED Life Financial Corporation, or AMIC. 9.0 Confidential Information and Trade Secrets 9.1 Confidential Information. Each party to this Agreement shall keep confidential, except as the other party or parties may otherwise consent in writing, not disclose or make any use of at any time and for any purpose whatsoever, any trade secrets, confidential information, knowledge, data, trademarks or trade names, or other information of any of the companies who are parties to this Agreement relating to their products, know-how, designs, customer lists, business plans, marketing plans and strategies, pricing strategies, or other subject matter pertaining to any business of the parties to this Agreement or any of their clients, customers, consultants, licensees, or affiliates, which it has obtained or may obtain or otherwise acquire during the course of contacts, discussions, negotiations, or agreements with any of the parties to this Agreement, except as herein provided (hereafter, collectively, "Confidential Information"). No party shall deliver, reproduce, or in any way allow any Confidential Information of the other parties or any documentation relating thereto to be delivered to or used by any third parties without specific written direction or consent of a duly authorized officer of the other party, as the case may be. 9.2 Confidentiality of Joint Data Base. The parties agree to treat the joint data bases developed under Section 4.1 as proprietary and confidential information and prohibit the release of all or any portion thereof to any third party including subsidiaries and affiliates of the parties without the consent of the other parties to this Agreement. 9.3 Return of Confidential Information. Upon termination of this Agreement for any reason whatsoever, each party shall promptly surrender and deliver to each other party all records, materials, equipment, drawings, documents, data, and all Confidential Information of the other parties and shall not 7 retain any description containing or pertaining to any Confidential Information of the other parties, unless otherwise consented to in writing by a duly authorized officer of the other party, as the case may be. 9.4 Injunctive Relief. The parties agree that money damages would not be a sufficient remedy for a breach or anticipated breach of this Section 9.0, and they therefore agree that any party which is or may be damaged thereby shall be entitled to injunctive relief in addition to any available remedies. 9.5 Survival of this Section. The agreements in this Section 9.0 shall survive termination of the Agreement and continue in full force and effect thereafter. 10.0 Indemnification. 10.1 Indemnification by ALIC. ALIC shall defend, indemnify, and hold harmless the companies in the P/C Segment, their successors and assigns against and in respect of any and all damages, claims, losses, liabilities, and expenses (including, without limitation, legal and other expenses) which may arise out of or be in respect of any breach or misrepresentation by the companies of the Life Segment under this Agreement. 10.2 Indemnification by the P/C Segment. The companies in the P/C Segment shall defend, indemnify, and hold harmless the companies in the Life Segment, their successors and assigns against and in respect of any and all damages, claims, losses, liabilities, and expenses (including, without limitation, legal and other expenses) which may arise out of or be in respect of any breach or misrepresentation by the companies of the P/C Segment under this Agreement. 10.3 Limitations on Indemnification. Notwithstanding the foregoing, no indemnification shall be available hereunder unless notice of any claim for indemnification is given to the indemnifying party within one year of the date on which the loss under Section 10.1 or Section 10.2 above occurs or becomes known to the party to be indemnified. 10.4 Participation in defense. Promptly after receipt of notice of any claim or the commencement of any action in respect to which indemnity may be sought on account of the indemnity agreements contained in this Section 10.0, the indemnified party will notify the indemnifying party in writing thereof. In case any claim shall be asserted against an indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, to assume the defense, conduct, or settlement thereof, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to so assume the defense, conduct, or settlement thereof, the indemnifying party 8 will not be liable to the indemnified party under this Section 10.0 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense, conduct, or settlement thereof. Notwithstanding an election by the indemnifying party to assume the defense, conduct, or settlement of any claim subject to indemnification hereunder, if the indemnified party reasonably determines that its interests may be adverse to, or in conflict with, those of the indemnifying party, it may elect, at its own expense, to retain or continue to retain its own counsel to participate in the defense, conduct, or settlement of such claim. The indemnified party will cooperate with the indemnifying party without charge in connection with any such claim, make personnel books and records relevant to the claim available to the indemnifying party, and grant such authorizations or powers of attorney to the agents, representatives, and counsel of the indemnifying party as such indemnifying party may reasonably consider desirable in connection with the defense of any such claim. 11.0 Affirmative Covenants. 11.1 Cooperation. The companies in the Life Segment and P/C Segment as well as their subsidiaries will fully cooperate with each other and their respective counsel, if any, and accountants in connection with any action to be taken in the performance of their obligations under this Agreement. They shall use their best efforts to take or cause to be taken any and all actions necessary or required to be taken under this Agreement. In the conduct of their affairs and the performance of this Agreement the parties hereto shall maintain the working relationships of the parties on substantially the same terms as before the effectiveness of this Agreement. 11.2 Current Information. Each party to this Agreement shall, upon request, annually certify to the others that the representations and warranties made in this Agreement by such party are true and correct as of the anniversary date of this Agreement, or such certification shall indicate in what manner or to what extent such representations and warranties are incorrect. Upon request, each party to this Agreement shall provide all other parties with its financial statements. 12.0 Approvals. On or before the date of this Agreement, any and all regulatory consents or approvals required to effect the transactions contemplated herein shall have been obtained (or the receipt shall have been waived by the parties hereto) without the imposition of a material cost, liability, or restriction upon any of the parties hereto. 13.0 Amendment. This Agreement may be amended, modified, or altered only by a writing signed by the parties hereto and approved by the Coordinating Committee. 9 14.0 Miscellaneous 14.1 Assignment. Neither this Agreement nor any rights hereunder may be assigned by any of the parties hereto without the consent of all the parties. 14.2 Waiver; Remedies. No delay or omission of any party to this Agreement to exercise any right or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein; and any single or partial exercise of any such right or power shall not preclude other or further exercise thereof or the exercise of any other right. In addition to any rights granted herein, the parties hereto shall have and may exercise any and all rights and remedies now or hereafter provided by law except as may be limited by Section 11.0 of this Agreement. 14.3 Permissive Release of Confidential Information. Notwithstanding the provisions of Section 9.0 of this Agreement, any Confidential Information may be used in connection with any arbitration relating to the transactions contemplated by this Agreement and such information may be disclosed if such disclosure is made in connection with the parties' prosecution or defense of any legal proceedings or if such disclosure is required pursuant to a subpoena or other legal order issued by any judicial or regulatory body or is otherwise required by law. 14.4 Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, mailed by certified or registered mail (return receipt requested): (a) If to AMIC: ALLIED Mutual Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: President (b) If to AMCO: AMCO Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2013 Attention: President (c) If to APC: ALLIED Property and Casualty Company 701 Fifth Avenue Des Moines, Iowa 50391-2011 Attention: President 10 (d) If to DIC: Depositors Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2014 Attention: President (e) If to ALIC: ALLIED Life Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2003 Attention: President Any notice given as provided in this Section, if given personally, shall be effective upon delivery, if given by certified or registered mail, shall be effective three (3) days after deposit in the mail, and if given by telex or telecopier, shall be effective upon transmission. Any party hereto may change the address at which it is to be given notice by giving notice to the other party as provided in this Section. 14.5 Governing Law. This Agreement shall be deemed to be a contract made under the laws of the State of Iowa and shall be construed and interpreted under the laws of such state applicable to contracts made and to be performed entirely within such state. 14.6 Enforceability. If any one or more of the covenants, agreements, provisions, or other terms of this Agreement shall be for any reason whatsoever determined to be invalid, then such terms shall be deemed severable from the remaining terms of this Agreement and shall in no way affect the validity or enforceability of the other terms of this Agreement and such invalid terms shall be replaced by valid terms bearing the closest possible similarity in substance so that the intentions and purposes being the basis of this Agreement could be enforced to the greatest extent permitted by law. 14.7 Survival of Representations and Warranties. All covenants, agreements, representations, and warranties made in this Agreement by any of the parties hereto, including but not limited to, the indemnification provisions set forth herein shall be effective on the effective date hereof and thereafter. 14.8 Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.9 Headings. The headings in the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. 14.10 Entire Agreement. This Agreement, including the schedules and exhibits referred to herein and any documents 11 executed by the parties simultaneously herewith constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, between the parties with respect to the transactions contemplated herein; provided, however, the foregoing shall not operate or be construed to prohibit proof of prior understandings and agreements between or among the parties to the extent necessary to properly construe or interpret this Agreement. 14.11 Execution of Agreement Authorized. The persons signing this Agreement on behalf of the parties hereto, warrant, covenant, and represent that they are duly authorized to execute this document on behalf of such parties. ALLIED Mutual Insurance Company ALLIED property and, Casualty Company By [SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE] ----------------------------- ------------------------------- Its President Its President --------------------------- ----------------------------- ALLIED Life Insurance Company AMCO Insurance Company By [SIGNATURE APPEARS HERE] By [SIGNATURE APPEARS HERE] ----------------------------- ------------------------------- Its President Its President --------------------------- ----------------------------- Depositors Insurance Company By [SIGNATURE APPEARS HERE] ----------------------------- Its President --------------------------- 12 SCHEDULE 3.2 NEW PRODUCTION INCENTIVE FEE ("NPIF") [GRAPH APPEARS HERE] EXAMPLE FOR 1993 a. Assume PCPs of 5,184,000 in 1992 b. Assume PCPs of 6,221,000 in 1993 for a growth rate of 20% c. Growth Rate = YOC PCPs / PY PCPS + PY PCPs Growth Rate = 6,221,000 - 5,184,000 / 5,184,000 Growth Rate = .20003 or 20% d. Fee Percentage = [((Growth Rate - 10%) / 15%) x 10%] + 10% Fee Percentage = [((20% - 10%) / 15%) X 10%] + 10% Fee Percentage = .1666667 e. NPIF = Fee Percentage X (YOC PCPs - PY PCPs) NPIF = .1666667 X (6,221,000 - 5,184,000) NPIF = $172,833.33 13 SCHEDULE 5.2(a) LIFE SEGMENT PRODUCTS ALIC will reserve to itself the opportunity to develop, administer, and market in its own name the following products including, but not limited to; 1. Individual and group life insurance 2. Individual and group annuities 3. Individual and group health insurance 4. Individual and group accident insurance 5. Individual and group long-term care insurance 6. Individual and group disability insurance 7. Individual and group variable life insurance 8. Individual and group variable annuities 9. Registered investment products (e.g. mutual funds, UITs) 14 SCHEDULE 5.2 (b) P/C SEGMENT PRODUCTS LIST The following is a list of products reserved to be marketed by the property casualty companies. 1. Personal lines property-casualty products including but not limited to the following: Private Passenger Automobile Homeowners Dwelling Fire Recreational Vehicles 2. Commercial lines property-casualty products including but not limited to the following: Fire Inland Marine Workers compensation Liability Automobile Commercial Packages Farm Fidelity and Surety Crop Hail 15 Exhibit 20 FIRST AMENDMENT TO THE ALLIED GROUP JOINT MARKETING AGREEMENT THIS AMENDMENT is made this 1st day of November, 1993, by and between ALLIED Life Insurance Company ("ALIC"), ALLIED Mutual Insurance Company ("AMIC"), AMCO Insurance Company ("AMCO"), ALLIED Property and Casualty Insurance Company ("APC"), and Depositors Insurance Company ("DIC"). WHEREAS, on August 30, 1993, ALIC, AMIC, AMCO, APC, and DIC entered into the ALLIED Group Joint Marketing Agreement (the "Agreement"); and WHEREAS, on October 14, 1993, the Executive Committee of the Board of Directors for each of ALIC, AMIC, AMCO, APC, and DIC approved certain amendments to the Agreement regarding the Coordinating Committee; NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants set forth below and other valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. The Agreement is hereby amended by deleting Section 6.2 and inserting in place thereof the following: Section 6.2 Resolution of Disputes. All disputes under this Agreement shall be referred for resolution to the Coordinating Committee. "Coordinating Committee" shall mean the joint meeting of the coordinating committees established by AMIC, ALLIED Group, Inc., and ALLIED Life Financial Corporation in accordance with their respective bylaws or pursuant to resolution for the purpose, among others, of resolving issues under this Agreement. Each of the coordinating committees of AMIC, ALLIED Group, Inc., and ALLIED Life Financial Corporation (a) has the right to participate in each and every Coordinating Committee deliberation unless it elects to abstain therefrom and (b) has one vote which shall be cast for or against any such decision unless it elects to abstain. Each such coordinating committee shall be comprised of two persons, one of whom shall constitute a quorum for the transaction of any business. All decisions of the Coordinating Committee must be unanimous, except for abstentions. All decisions of the Coordinating Committee are binding on the parties hereto. 2. The Agreement is hereby amended by the addition of the following sentence to the end of Section 6.1: Notwithstanding anything in this Agreement to the contrary, if any disputes under this Agreement must be 1 resolved by arbitration pursuant to Section 7.0, termination of this Agreement which otherwise would occur shall not occur until after final resolution by the arbitrators. 3. The Agreement is hereby amended by deleting Section 6.3 and inserting in place thereof the following: 6.3 Resolution of Post-Termination Disputes. Section 6.2 and Article 7.0 shall survive the termination of this Agreement with regard to disputes in connection with this Agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the day and year above first written. ALLIED Mutual Insurance Company By: /s/ Douglas L. Andersen --------------------------------- Douglas L. Andersen, President ALLIED Life Insurance Company By: /s/ Samuel J. Wells --------------------------------- Samuel J. Wells, President Depositors Insurance Company By: /s/ Douglas L. Andersen --------------------------------- Douglas L. Andersen, President ALLIED Property and Casualty Insurance Company By: /s/ Douglas L. Andersen --------------------------------- Douglas L. Andersen, President AMCO Insurance Company By: /s/ Douglas L. Andersen --------------------------------- Douglas L. Andersen, President 2 with this Section 1.01. Mutual and AGI hereby agree that it is in the best interests of both parties to have the total number of persons nominated by Mutual in accordance with the provisions of this Article I divided as equally as is practicable among the three classes of directors serving on the AGI Board from time to time. SECTION 1.02. Mutual's Nominees for AGI Board. ------------------------------- (a) By February 1 in any calendar year, if in connection with any annual meeting of the stockholders of AGI at which directors will be elected, or at least forty-five (45) days prior to any special meeting of the stockholders of AGI at which directors will be elected (or, with respect to special stockholders' meetings, such shorter period of time as is permitted under the bylaws of AGI), Mutual shall give the Chairman of the Board of AGI written notice identifying the person or persons nominated by Mutual to stand for election as members of the AGI Board at such stockholder's meeting, with the number of persons to be nominated by Mutual to be determined pursuant to Section 1.02(b) below. (b) After giving effect to those directors, if any, previously nominated by Mutual and continuing in office as members of any class of the AGI Board not standing for election at any stockholders' meeting at which directors will be elected, Mutual shall be entitled to nominate that number of persons to stand for election as directors as is necessary (when combined with any such Mutual-nominated directors continuing in office) to provide Mutual approximate proportionate representation on the AGI Board in accordance with the provisions of Section 1.01 above. Any notice of nomination submitted by Mutual shall comply with the provisions of the bylaws of AGI respecting the information to be contained therein. SECTION 1.03. Newly-Created Directorships; Vacancies. -------------------------------------- (a) In the event the AGI Board or the stockholders of AGI at any time approves any increase in the number of members of the AGI Board and at such time, Mutual would, if the provisions of Section 1.01 above were applied, be otherwise entitled to nominate one or more additional persons to serve on the AGI Board, as increased, AGI agrees to allow such additional person or persons as are nominated by Mutual, by written notice delivered to the Chairman of the Board of AGI within thirty (30) days of the date on which Mutual is notified of any increase in the number of members of the AGI Board, to fill one or more of the newly-created directorships to provide Mutual approximate proportionate representation on the AGI Board in accordance with the provisions of Section 1.01 above. -3- Exhibit 21 STOCK RIGHTS AGREEMENT ---------------------- This is a Stock Rights Agreement (the "Agreement") made as of July 5, 1990 by and between ALLIED Mutual Insurance Company, an Iowa mutual insurance company ("Mutual"), and ALLIED Group, Inc., an Iowa corporation ("AGI"). WHEREAS, AGI is a publicly-traded diversified non-operating holding company with subsidiaries in property-casualty insurance, life insurance, data processing and investment services; and WHEREAS, as of September 30, 1989, Mutual owned 5,295,083 shares of AGI's no par value common stock, such shares constituting approximately 78% of the outstanding common stock of AGI as of such date; and WHEREAS, Mutual and AGI have entered into a Stock Purchase Agreement dated as of October 24, 1989, as amended under date of November 20, 1989 (as amended, the "Stock Purchase Agreement") wherein, subject to the satisfaction of the terms and conditions set forth in the Stock Purchase Agreement, Mutual has agreed to purchase from AGI, and AGI has agreed to sell to Mutual, 80,000 shares of the $10 par value common stock and 30,000 shares of the $100 par value preferred stock of ALLIED Life Insurance Company, an Iowa stock life insurance corporation ("Life"), such common and preferred shares constituting 100% of the outstanding capital stock of Life (collectively the "Life Shares"); and WHEREAS, the Stock Purchase Agreement provides that the consideration to be paid by Mutual for the Life Shares shall be 2,700,000 shares of the no par value common stock of AGI owned by Mutual (the "AGI Shares"); and WHEREAS, subject to the satisfaction of the terms and conditions set forth in the Stock Purchase Agreement, Mutual shall be required to deliver the AGI Shares to AGI in exchange for the Life Shares; and WHEREAS, in connection with the Stock Purchase Agreement, AGI has established an employee stock ownership plan for the benefit of AGI employees (the "AGI ESOP"); and WHEREAS, AGI intends to fund the AGI ESOP through the issuance of 2,400,000 shares of the no par value convertible preferred stock of AGI (the "ESOP Shares"), which issuance shall occur within thirty days subsequent to the closing of the transactions contemplated by the Stock Purchase Agreement; and WHEREAS, the ESOP Shares entitle the holder thereof to vote on all matters submitted to the holders of the AGI common stock, with the holder of the ESOP Shares and the holders of the AGI common stock voting together as one class; and WHEREAS, upon Mutual's delivery to AGI of the AGI Shares in exchange for the Life Shares and AGI's issuance of the ESOP Shares to the AGI ESOP, Mutual's substantial stock interest in AGI shall be significantly reduced to the extent that Mutual shall own only approximately 40% of the outstanding voting securities of AGI based on the total of the number of shares of the no par value common stock of AGI (the "AGI Common Stock") and the number of the ESOP Shares outstanding as of the time immediately following the closing of the Stock Purchase Agreement; and WHEREAS, notwithstanding Mutual's delivery to AGI of the AGI Shares in exchange for the Life Shares and AGI's issuance of the ESOP Shares to the AGI ESOP, Mutual will remain the single largest stockholder of AGI; and WHEREAS, Mutual and AGI mutually desire to have Mutual proportionately represented on the Board of Directors of AGI during the term of this Agreement; and WHEREAS, Mutual and AGI believe that it is necessary, advisable and the best interests of both organizations and their respective policyholders and stockholders that they enter into an agreement settling forth the relative rights, duties and obligations of each with respect to Mutual's ongoing stock interest in AGI and to provide one or more mechanisms, to the extent required, to enable Mutual to effect orderly distributions of shares of the AGI Common Stock in the future. NOW, THEREFORE, in consideration of the premises and for other valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I MUTUAL REPRESENTATION ON AGI BOARD SECTION 1.01. Mutual's Proportionate Representation. ------------------------------------- Mutual and AGI hereby acknowledge and agree that each party shall use their best efforts to cause, to the extent practicable, the election or retention as members of the Board of Directors of AGI (the "AGI Board") of that number of nominees proposed by and representing Mutual which most closely approximates the same percentage of the total number of members of the AGI Board as is equal to Mutual's percentage ownership of the total number of shares of AGI Common Stock and AGI preferred stock outstanding at the time Mutual is required to submit any nomination in accordance with the provisions of Section 1.02 below. Notwithstanding the foregoing, AGI may at any time agree to nominate a number of nominees proposed by and representing Mutual for election to the AGI Board in excess of the minimum number required in accordance -2- with this Section 1.01. Mutual and AGI hereby agree that it is in the best interests of both parties to have the total number of persons nominated by Mutual in accordance with the provisions of this Article I divided as equally as is practicable among the three classes of directors serving on the AGI Board from time to time. SECTION 1.02. Mutual's Nominees For AGI Board. ------------------------------- (a) By February 1 in any calendar year, if in connection with any annual meeting of the stockholders of AGI at which directors will be elected, or at least forty-five (45) days prior to any special meeting of the stockholders of AGI at which directors will be elected (or, with respect to special stockholders' meetings, such shorter period of time as is permitted under the bylaws of AGI), Mutual shall give the Chairman of the Board of AGI written notice identifying the person or persons nominated by Mutual to stand for election as members of the AGI Board at such stockholders' meeting, with the number of persons to be nominated by Mutual to be determined pursuant to Section 1.02(b) below. (b) After giving effect to those directors, if any, previously nominated by Mutual and continuing in office as members of any class of the AGI Board not standing for election at any stockholders' meeting at which directors will be elected, Mutual shall be entitled to nominate that number of persons to stand for election as directors as is necessary (when combined with any such Mutual-nominated directors continuing in office) to provide Mutual approximate proportionate representation on the AGI Board in accordance with the provisions of Section 1.01 above. Any notice of nomination submitted by Mutual shall comply with the provisions of the bylaws of AGI respecting the information to be contained therein. SECTION 1.03. Newly-Created Directorships; Vacancies. -------------------------------------- (a) In the event the AGI Board or the stockholders of AGI at any time approves any increase in the number of members of the AGI Board and at such time, Mutual would, if the provisions of Section 1.01 above were applied, be otherwise entitled to nominate one or more additional persons to serve on the AGI Board, as increased, AGI agrees to allow such additional person or persons as are nominated by Mutual, by written notice delivered to the Chairman of the Board of AGI within thirty (30) days of the date on which Mutual is notified of any increase in the number of members of the AGI Board, to fill one or more of the newly-created directorships to provide Mutual approximate proportionate representation on the AGI Board in accordance with the provisions of Section 1.01 above. -3- (b) In the event of any vacancy on the AGI Board in any directorship previously filled by a nominee of Mutual, whether such vacancy results from death, resignation, disqualification, removal or other cause, AGI agrees to allow a person nominated by Mutual, by written notice delivered to the Chairman of the Board of AGI within thirty (30) days of the date on which Mutual is notified of such vacancy, to fill the vacant directorship. SECTION 1.04. Election of Mutual's Nominee to Executive Committee. AGI --------------------------------------------------- hereby agrees to elect as a member of the Executive Committee of the AGI Board (the "Executive Committee") at least one member of the AGI Board who has been nominated by Mutual but who is not an officer or employee of Mutual. AGI hereby agrees that the total number of members serving on the Executive Committee shall not be greater than five. In the event of any vacancy on the Executive Committee in any position previously filled by a nominee of Mutual in accordance with this section, whether such vacancy results from death, resignation, disqualification, removal or other cause, another member of the AGI Board who is nominated by Mutual in accordance with this section by written notice delivered to the Chairman of the Executive Committee within thirty (30) days of the date on which Mutual is notified of such vacancy, shall be elected to fill the vacant position on the Executive Committee. SECTION 1.05. Recommendation of Mutual's Nominees: No Preventive Action. --------------------------------------------------------- AGI hereby agrees: (a) that it will recommend the election of any person or persons nominated by Mutual in accordance with any of the foregoing provisions in any and all proxy statements or other soliciting materials provided to stockholders of AGI in connection with any stockholders' meeting at which directors will be elected; and (b) that it will not take, or cause to be taken, any action, whether direct or indirect, which would be reasonably likely to prevent, discourage or otherwise interfere with the election to the AGI Board of any persons nominated by Mutual in accordance with any of the foregoing provisions. ARTICLE II STOCKHOLDER ACTIVITIES SECTION 2.01. Stockholder Activities. Mutual agrees: --------------------- (a) that it will not give a proxy with respect to its shares of AGI Common Stock to any person other than (i) an officer or director of Mutual, (ii) a majority-controlled affiliate of Mutual, or (iii) the management of AGI; -4- (b) that its shares of AGI Common Stock will be represented, in person or by proxy, at all meetings of the stockholders of AGI, provided that nothing herein shall prevent Mutual from abstaining from a vote on any matter presented at any stockholders' meeting; and (c) that, except with regard to the election of directors, it will not, directly or indirectly, solicit any AGI stockholders (except a majority-controlled affiliate of Mutual) to vote on any particular matter. SECTION 2.02. Tender Offers. ------------- (a) Except as provided in Section 2.02(b) below, Mutual shall not, directly or indirectly, make, instigate or assist in the making of a tender offer for any shares of AGI Common Stock or other acquisition of any shares of AGI Common Stock which has the purpose or effect of constituting an acquisition of control. Notwithstanding the foregoing, Mutual may tender any of the AGI Common Stock owned by it in response to any tender offer by a third party in the following circumstances: (i) Mutual may tender its shares of AGI Common Stock in response to a tender offer that the AGI Board has recommended to the stockholders of AGI; and (ii) Mutual may tender its shares of AGI Common Stock in response to an unsolicited third-party tender offer in the event AGI has not exercised its right of first refusal with respect to such shares in accordance with Article III hereof and has not tendered or caused to be tendered payment for the shares of AGI Common Stock owned by Mutual prior to the business day next preceding the date on which such tender offer will expire. (b) Mutual may make a tender offer at a price higher than the price at which a bona fide tender offer for AGI Common Stock has been made by a third party; provided, however, that Mutual may not make a tender offer to purchase a -------- ------- greater number of shares of AGI Common Stock than are proposed to be purchased pursuant to such third-party tender offer. SECTION 2.03. Public Disclosure of Mutual's Disagreement. AGI hereby agrees ------------------------------------------ that if Mutual submits a letter to the Chairman of the Board of AGI wherein (a) Mutual expresses its disagreement with AGI on any matter relating to AGI's operations, policies or practices and (b) Mutual requests that the matter be disclosed, AGI will make a public disclosure, within thirty (30) days of the date on which it receives Mutual's letter, accurately summarizing Mutual's description of such disagreement. Such public disclosure shall include, but not be limited to, disclosure in any proxy statement AGI proposes to distribute to its stockholders if -5- the area of disagreement has not been resolved, to Mutual's reasonable satisfaction, on or before any date on which proxy materials are being disseminated to the stockholders of AGI. If AGI believes that Mutual's description of the disagreement is incorrect or incomplete, AGI may include in any such public disclosure a brief statement presenting AGI's views of such disagreement. SECTION 2.04. Other Rights. Except as otherwise provided in this Article ------------ II, Mutual shall be untitled to exercise any and all rights with respect to any shares of AGI Common Stock owned by it. ARTICLE III AGI RIGHT OF FIRST REFUSAL SECTION 3.01. Right of First Refusal. ---------------------- (a) Subject to the provisions of Section 4.02 hereof, Mutual hereby agrees that if it desires or proposes to sell any or all of its shares of AGI Common Stock pursuant to a bona fide offer to purchase such shares (the "Mutual Shares"), Mutual shall give prompt written notice to AGI (the "Seller's Notice") identifying the number of Shares, the intended method of sale, the name, address and principal business activity of the party who has made such bona fide offer for such shares (the "Offeror"), the price or other form of consideration payable therefor, the proposed sale date and all other material terms and conditions pertaining to such proposed sale (including written evidence therefor). Mutual agrees that it will offer to sell the Mutual Shares to AGI or its designee at the same price and upon the same terms and conditions as are set forth in the Seller's Notice, except that if the price specified in the Seller's Notice is payable in property (which term shall include the securities of any other issuer), the price shall be the fair market value of such property on the date AGI receives the Seller's Notice, as agreed upon by Mutual and AGI within fifteen (15) business days after AGI's receipt of the Seller's Notice or, if the parties are unable to agree, as determined by an independent investment banking firm designated by Mutual. (b) AGI shall have the sole right to purchase, or to designate one or more financially responsible persons to purchase all (and not less than all) of the Mutual Shares as to which the Seller's Notice relates and shall have thirty (30) days after it receives the Seller's Notice within which to decide to purchase such shares or make such designation. If AGI so elects to purchase, or to designate one or more financially responsible persons to purchase, all of the Mutual Shares, it shall notify -6- Mutual in writing (the "Purchaser's Notice") within such thirty-day period and the consummation of any sale to AGI shall occur within one hundred and eighty (180) days of the date of the Purchaser's Notice at the price and upon the same terms and conditions as those set forth in the Seller's Notice, except in the case of a purchase pursuant to Section 2.02(a)(ii) hereof, which shall be consummated prior to the business day next preceding the date on which the third-party tender offer will expire, if earlier. (c) In the event the purchase is to be made by one or more financially responsible persons designated by AGI, a binding agreement of each of such persons shall be furnished to Mutual at the time AGI delivers the Purchaser's Notice to Mutual. At the time such notice is transmitted, there shall be deemed to be a binding agreement between AGI and Mutual on the price and the terms determined as provided above, notwithstanding the designation of any alternate purchasers by AGI. Any purchase by any financially responsible person designated by AGI shall be consummated as provided in Section 3.01(b) above. (d) If AGI elects not to purchase and not to designate one or more financially responsible persons to purchase all of the Mutual Shares, Mutual may sell any or all of the Mutual Shares as to which the Seller's Notice relates to the Offeror at not less than the price and on the same terms and conditions as disclosed in the Seller's Notice. If the sale as described in the Seller's Notice shall for any reason not occur, then the provisions of this Section 3.01 shall again apply and no subsequent sale of the Mutual Shares shall be made unless in accordance herewith. SECTION 3.02. Sales Subject to Right of First Refusal. For purposes of --------------------------------------- Section 3.01 above, the term "sale" or "sell" shall be deemed to include any sale to or voluntary exchange with any other person of any shares of AGI Common Stock beneficially owned by Mutual but shall not be deemed to include: (a) a sale pursuant to any default or security provisions in any loan or security agreement under which Mutual Shares are bona fide pledged or otherwise ---- ---- serve as collateral; (b) a sale or exchange with an affiliate or majority-owned subsidiary of Mutual, provided that any such affiliate or subsidiary to whom such a disposition is made shall agree, in a writing to be furnished to AGI as a precondition of such disposition, to be bound by the provisions of this Agreement; (c) a sale pursuant to a distribution to the public in a firm underwriting of an offering registered under the Securities Act of 1933, as amended (the "Securities Act"); -7- (d) any sale or sales by Mutual pursuant to Rule 144 promulgated under the General Rules and Regulations under the Securities Act (or any substantially similar successor rule or provision), as now in effect or hereafter amended; (e) the sale of not more than 2% of the then outstanding shares of AGI Common Stock in any six consecutive calendar months, which amount shall be non-cumulative so that the sale of less than 2% of the then outstanding shares of AGI Common Stock by Mutual in any six-month period shall not entitle Mutual to sell more than 2% of the shares outstanding in any succeeding six-month period; (f) a disposition of all AGI Common Stock held by an affiliate or majority-owned subsidiary of Mutual to another corporation pursuant to a consolidation or merger of such affiliate or subsidiary with and into such other corporation (in a transaction in which such affiliate or subsidiary is not the surviving corporation) or a sale of all or substantially all of such affiliate's or subsidiary's assets to such other corporation, provided that, prior to the consummation of such consolidation, merger or sale, such other corporation (the "Successor") delivers a written agreement to AGI, satisfactory in form and substance to AGI and its counsel, wherein the Successor agrees to be bound by the provisions of this Agreement to the same extent as if the Successor were Mutual, Mutual's affiliate or the majority-owned subsidiary of Mutual hereunder; or (g) a sale in response to a third-party tender offer to the extent permitted by Section 2.02(a)(ii) hereof. SECTION 3.03. No Right of First Refusal if Unlawful. ------------------------------------- Notwithstanding the provisions of Section 3.01 hereof, if, at the time of any required notice of proposed sale by Mutual, AGI shall not be permitted by applicable law either to acquire the shares to be sold or to designate one or more purchasers pursuant to Section 3.01 hereof, AGI shall have no rights hereunder with respect to such shares for so long as AGI or its designees are not permitted to acquire such shares, provided Mutual has given at least ten (10) business days' prior written notice to AGI of the basis on which Mutual has concluded that AGI may not acquire such shares or designate any such purchaser and AGI agrees with Mutual's conclusion, which agreement shall not unreasonably be withheld. -8- ARTICLE IV MUTUAL'S REGISTRATION RIGHTS SECTION 4.01. Incidental Registration. ----------------------- (a) If AGI shall determine to register any shares of AGI Common Stock either for its own account or for the account of any other holder of shares of AGI Common Stock, other than a registration filed solely to (i) register shares of AGI Common Stock issuable pursuant to employee benefit plans; (ii) register shares of AGI Common Stock issuable pursuant to any dividend reinvestment plan or any similar plan involving rights to purchase shares of AGI Common Stock which is made generally available to stockholders of AGI and in which Mutual can elect to participate by virtue of its position as an AGI stockholders; or (iii) comply with Rule 145 (or any substantially similar successor rule or provision) promulgated under the General Rules and Regulations under the Securities Act, as now in effect or hereafter amended AGI will: (i) promptly give Mutual written notice thereof (which shall include a list of the jurisdictions in which AGI intends to attempt to qualify such securities under the applicable blue sky or other securities laws); and (ii) use its best efforts to include, upon the same terms (including the method of distribution), in such registration (and any related qualification under state blue sky laws and other compliance filings, and in an underwriting involved therein), all the shares of AGI Common Stock specified by Mutual in a written request delivered by Mutual of AGI within fifteen (15) business days after the written notice from AGI described in clause (i) above is delivered to Mutual; provided, however, -------- ------- that, notwithstanding the foregoing, Mutual's right to have shares of AGI Common Stock owned by Mutual included in such registration shall be limited to that number of shares of AGI Common Stock as represents that percentage of the total number of shares of AGI Common Stock proposed to be registered by AGI which equals the percentage of the outstanding AGI Common Stock then held by Mutual, unless AGI consents in writing to the inclusion of a greater number of shares of AGI Common Stock owned by Mutual. (b) Notwithstanding the foregoing, AGI shall not be required to include all or any portion of the AGI Common Stock owned by Mutual in any such registration if it is advised by its investment banking firm that the inclusion thereof may, in the reasonable opinion of such investment banking firm, interfere with the orderly sale and distribution of the AGI Common Stock -9- being offered by AGI. If any reduction is required, Mutual shall have the right and option to elect to withdraw from the registration. (c) AGI may, at its sole discretion and without the consent of Mutual, withdraw any such registration statement and abandon the proposed offering in which Mutual had requested to participate. (d) In connection with any registration pursuant to this Section 4.01, AGI and Mutual will pay, in the same proportions as the number of shares of AGI Common Stock being sold by each bears to the total number of shares of AGI Common Stock being sold, all Securities and Exchange Commission and state blue sky registration and filing fees, underwriting discounts, commissions and expenses, printing expenses, fees and disbursements of legal counsel and blue sky expenses, transfer agents' and registrars' fees, and fees and disbursements of experts used by AGI in connection with such registration, expenses of any special audits of AGI incidental to or required by such registration, expenses incidental to any post-effective amendment to any such registration statement, and any expenses associated with AGI's obligations under Section 4.03(b) hereof ("Registration Expenses"); provided, however, that Mutual shall not be required -------- ------- to bear any portion of the compensation expenses of regular employees of AGI, which shall be paid in any event by AGI. SECTION 4.02. Demand Registration. ------------------- (a) If AGI shall receive a written request from Mutual (complying with the provisions of Section 3.02(a)(ii) below) that AGI effect a registration with respect to all or any part of the AGI COmmon Stock then held by Mutual, AGI will: (i) use its best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as has been so requested and as would permit or facilitate the sale and distribution of all or such portion of such AGI Common Stock as is specified in the request of Mutual; provided, however, that AGI -------- ------- shall not be obligated to effect any such registration pursuant to this Section 4.02: (A) in any particular jurisdiction in which AGI would be required to execute a general consent (as opposed to a specific consent relating solely to the registration) to service or process in effecting any such registration, qualification or compliance, unless AGI is already subject to service in such jurisdiction and except as may otherwise be required by the Securities Act or applicable rules or regulations thereunder; or (B) more than three times at the request of Mutual during the term of this Agreement; or (C) covering AGI Common Stock representing less than 5% of shares of AGI Common Stock then held by Mutual unless the shares of AGI Common Stock subject to such request for registration represent the entire holdings of Mutual, if less; or (D) if Section 4.02(b) below applies, more than once within any 12-month period. (ii) Any request by Mutual for registration delivered to AGI in accordance with this Section 4.02 shall specify the number of shares of AGI Common Stock intended to be offered and sold, shall express Mutual's present intent to offer such shares for distribution to the public, shall describe the nature of the proposed offer and sale thereof and shall contain an undertaking of Mutual to provide all such information and materials and take all such action as may be required in order to permit AGI to comply with any and all applicable requirements under the Securities Act and to obtain acceleration of the effective date of the registration statement. (b) AGI Right to Postpone Registration. Notwithstanding the foregoing, ---------------------------------- AGI shall be entitled to postpone for a reasonable period of time the filing of any registration statement otherwise required to be prepared and filed by it pursuant to this Section 4.02, if at the time it receives a request for registration from Mutual pursuant to this Section 4.02, it determines, in its reasonable judgment, that such registration and offering would materially interfere with any financing, acquisition, corporate reorganization or other material transaction in which it is involved and AGI promptly gives Mutual written notice of such determination. If AGI shall so postpone the filing of a registration statement, Mutual shall have the right and option to elect to withdraw the request for registration by giving written notice to AGI within thirty (30) days after receipt of the notice of postponement (and, in the event of any such withdrawal, such request shall not be counted for purposes of determining the number of registrations to which Mutual is entitled pursuant to this Section 4.02). (c) Underwriting. Any registration effected at the request of Mutual in ------------ accordance with this Section 4.02 may, at Mutual's option, be effected pursuant to a firm commitment underwriting and the managing underwriter shall be a firm selected by Mutual -11- and approved by AGI (which approval will not be unreasonably withheld). AGI will enter into an underwriting agreement containing representations, warranties and agreements not substantially different from those customarily included by an issuer in underwriting agreements with respect to secondary distributions. Subject to the provisions of Section 4.02(d) below, if the underwriters have not limited the number of shares of AGI Common Stock to be underwritten, AGI may elect to include shares of AGI Common Stock for its own account in such registration provided that the number of shares of AGI Common Stock proposed to be distributed by Mutual and that would otherwise have been included in such registration and underwriting will not thereby be limited. (d) Additional Securities. Any registration statement filed pursuant to the --------------------- request of Mutual may, subject to the provisions of Section 4.02(c) above, include other securities of AGI that are held by officers or directors of AGI, or are held by persons who, by virtue of any agreements with AGI, are entitled to include their AGI Common Stock in any such registration; provided that the holders of such shares are granted no more favorable terms by AGI, with respect to such registration, than have been granted by AGI herein to Mutual. Notwithstanding the foregoing, if the managing underwriter determines that the inclusion of shares of AGI Common Stock held by AGI for its own account, by officers or directors of AGI or by other persons with registration rights pursuant to any agreements with AGI which are proposed to be distributed in such underwriting would, in the reasonable judgment of such underwriter, have a material adverse effect on the offering, the underwriter may limit the number of shares of AGI Common Stock to be included in the registration and underwriting. In such event, shares of AGI Common Stock proposed to be offered by AGI for its own account shall first be excluded from the registration, and, if a limitation on the number of shares to be included is still required, shares of AGI Common Stock held by officers or directors of AGI or by other persons with registration rights pursuant to any agreements with AGI shall then be excluded from the registration. (e) Expenses. All Registration Expenses incurred as a result of any -------- registration effected in accordance with this Section 4.02 shall be borne by Mutual unless, in accordance with the provisions of Section 4.02(c) or Section 4.02(d) hereof, such registration includes shares of AGI Common Stock (i) distributed by AGI for its own account, (ii) distributed by officers or directors of AGI, or (iii) distributed by persons with registration rights pursuant to any agreements with AGI, in which case (A) Mutual will pay that portion of the Registration Expenses as is equal to the same proportion the number of shares of AGI Common Stock being sold; and (B) AGI will pay that portion of the Registration Expenses as is equal to the same proportion the number of shares of AGI Common Stock being sold by AGI, its -12- officers or directors or persons with registration rights pursuant to any agreements with AGI bears to the total number of shares of AGI Common Stock being sold. SECTION 4.03. Registration Procedures. In connection with the filing of any ----------------------- registration statement pursuant to Section 4.01 or Section 4.02 hereof covering shares of AGI Common Stock owned and to be distributed by Mutual: (a) Mutual shall furnish to AGI such information regarding Mutual and the distribution proposed by Mutual as AGI may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Article IV; and (b) In the case of each registration effected by AGI pursuant to this Article IV, AGI will advise Mutual in writing as to the initiation of such registration and as to the completion thereof. AGI will: (i) keep such registration effective for a period of 90 days or until Mutual has completed the distribution described in the registration statement relating thereto, whichever first occ