December 19, 1996
Mr. Paul Liska
1048 Ashland Avenue
River Forest, Illinois 60305
Dear Paul,
The purpose of this letter is to outline the compensation
and benefits you will receive if your employment with The
St. Paul Companies, Inc. ("Company") is terminated by the
Company, or by you for "Good Reason" as defined in
Section II below. This letter will also outline the
Company's expectations relative to any eventual
subsequent employment with a competitor. Referring to my
letter to you of December 5, 1996, to the extent that the
content of this letter conflicts in any way with any
previous written or oral communication between you, me or
any other representative of the Company, the content of
this letter will control and take precedence over such
previous communication. The terms of this letter
agreement can be amended in the future only by express
mutual written agreement between Doug Leatherdale, me or
our successors (representing the Company) and you.
I. The benefits provided to you in a termination
situation initiated by the Company, will depend on
whether or not such termination is "For Cause". If
your termination is "For Cause", you will be
ineligible for any benefits not required by law.
For purposes of this agreement, "For Cause" shall
mean your conviction of any felony involving
intentional conduct, your conviction of any lesser
crime or offense involving the illegal use or
conversion of Company property, your willful
misconduct in connection with the performance of
your duties with the Company (which shall not be
deemed to include any action taken by you in good
faith in the interest of the Company), or your
taking illegal actions in your business or personal
life which materially and demonstrably harm the
reputation or damage the good name of the Company.
If the cause of the termination is a Change in
Control of the Company, the Company's Special
Severance Policy ("Policy") as in force as of the
date of a Change of Control, as defined below, will
determine the level of benefits to which you will be
entitled. For purposes of this Policy, as it
currently is drafted, "Change in Control" means a
change in control that would cause the Company to
file a Form 8-K with the SEC; the Company's
incumbent board of directors ceases to be a
majority; or fifty (50) per cent of the Company's
common stock is acquired by a "person" within the
meaning of Section 14 (d) of the Securities Exchange
Act of 1934. Under the Policy, you are eligible for
these benefits once you've been employed for three
months with the Company and your employment is
terminated by the Company within two years after a
Change in Control for reasons other than "Cause" or
you terminate voluntarily for "Good Reason". While
the "Policy" cannot be amended to waive the three
month requirement detailed above, if you were to be
terminated for reasons covered by the Policy in that
time frame, the Company will pay you the cash
equivalency of the benefits and compensation you
would have received under the Policy as if you had
met the three month eligibility requirements.
For senior executives, under the Policy and for
purposes of this Section I of this letter agreement,
"Good Reason" includes such situations as an adverse
change in status or position as a result of a
material diminution in duties or responsibilities,
the refusal to allow you to engage in activities
that were not prohibited before the Change in
Control, a reduction in your salary, job relocation
of a certain type and failure to maintain benefits
that are substantially the same as are in effect
when the Change in Control occurs.
If you are eventually eligible for severance
payments under this Policy, you will be entitled to
receive:
A lump sum severance payment equal to 299 per cent
(299%) of your "annualized includible compensation for
the base period" (as determined under Section 280 G of
the Internal Revenue Code). All payments are subject to
reduction so that no amount will be subject to federal
excise tax on "excess parachute payments" imposed under
Section 4999 of the Internal Revenue Code.
Continued participation for three years in Company
medical, dental, disability and life insurance programs
in which you participated on the date such employment is
terminated.
Outplacement assistance.
Please note that the Board may amend, modify or
revoke the Special Severance Policy as it applies to
senior executives of the Company as a group, at any
time prior to a Change in Control without employees'
consent. (There are restrictions on amendments to,
and the termination of, the policy after a Change in
Control has occurred.)
While the Policy addresses only the benefits as
outlined above, various Company benefit plans also
have Change in Control provisions. While these
plans are amended from time to time and the benefits
you would be entitled to receive in the future will
be affected by such amendments, currently such
provisions provide the following benefits to
individuals at your level in case of a Change in
Control. (What is provided below is a very brief
summary. If you would like more detail, I can
provide you with a complete copy of such plans for
your review):
If vested in the Company's qualified pension plan,
upon a Change in Control, the accrued benefits of all
participants is increased on a nondiscriminating basis to
apply any overfunded balance. You will also be credited
with three additional years of service as described
below, provided you are vested in the plan and meet any
other eligibility criteria.
Under the Company's 401 (k) plan, all Company
matching contributions become 100 percent (100%) vested
for terminated participants.
All stock options and shares of restricted stock
vest immediately upon a Change in Control and are fully
exercisable.
The Company provides non-qualified benefit
equivalization plans through a Rabbi Trust for executives
eligible to receive 401 (k) or pension benefits in excess
of the statutory limit. If there is a Change in Control,
the Rabbi Trust will be funded and any benefits to which
you may be entitled will be paid to you by the trustee in
accordance with the terms of the Trust and the underlying
plans.
II. If the termination is as a result of any reason
other than a (i) Change in Control or (ii) for
Cause, or if you terminate the agreement for Good
Reason (as defined in this Section), you will
receive the following benefits:
Severance pay. If the termination takes place
before your third anniversary of employment with the
Company, you will receive a severance payment equal to
three hundred percent (300%) of your then current annual
salary, plus three hundred percent (300%) of the average
annual incentive award you earned since joining the
Company, provided that you sign the standard Company
severance agreement for senior executives releasing the
Company from legal liability for your termination. If
the termination takes place after your third anniversary,
you will receive a severance payment equal to one hundred
fifty percent (150%) of your then current annual salary,
plus one hundred fifty percent (150%) of your average
annual incentive award in the previous three years,
again, provided you sign the release described above.
Pension Benefits. You will be provided with three
additional years of credited service, which will have the
affect of increasing your net pension benefit at the time
of your termination of employment from the Company. You
must be vested in the Employees' Retirement Plan at the
time of termination in order to receive this additional
service.
What follows is an example of the value of this
benefit. When you review this chart, please note that
this is a good faith estimate and does not reflect any
future changes in the Employees' Retirement Plan,
Executive Retirement Plan (ERP) or future interest
rates, and thus is for illustrative purposes only:
Actual Service +3 Years Credited Service
--------------- -------------------------
Annual Lump Annual Lump
Age Annuity Sum Annuity Sum
---- ------- ---------- --------- ----------
55 $183,144 $1,980,000 $228,924 $2,475,000
62 $545,388 $5,320,000 $663,888 $6,475,000
65 $830,256 $7,630,000 $943,476 $8,675,000
In preparing this estimate, we relied on the
following assumptions:
1997 Annual Salary: $600,000, with 4% per year
increases
1997 Annual $360,000, with 4% per year
Incentive: increases
Date of Birth: 1/1/55
Date of Hire: 1/1/97
Lump Sum Interest 30 - Year U. S. Treasury
Rate: rate of 8%
This estimate is based on the following current
defined benefit formula:
Multiply your monthly covered compensation amount by
45% (Your covered compensation amount is based on the
average of social security wage bases and your age, thus
it changes each year).
Multiply the amount of your five-year average
monthly salary, which is greater than your covered
compensation amount, by 54%.
Add the results of the first two bullets and
multiply the amount times your total years of credited
service (this is where the three additional years of
service will increase your benefit) and divide the result
by 30. This will be your normal monthly retirement
benefit under the current formula.
Note that all pension benefit attributable to the
additional three years of credited service will be
payable from the ERP (the Company's non-qualified pension
plan). As you are aware, the government restricts the
amount of pension benefits which may be paid through tax
qualified plans. The portion of your pension not
attributable to this additional three years of credited
service will be, to the greatest extent possible, paid
out of the qualified plan. The remainder of the latter
commitment will be paid out of the ERP.
Savings and other Pension Benefits. As with our
defined pension plan, each of our savings and benefit
equalization plans is governed by a plan document that
may be amended from time to time. Your treatment will be
governed by the wording of those plans at the time of
termination. Currently these would include:
Executive Savings Plan (ESP) - - your vested account
balance.
Deferred Incentive Bonuses - - your vested deferred
bonus.
401(k) Plan - - all your contributions, plus vested
Company contributions.
Employee Stock Ownership Plan (ESOP) - - all vested
Company contributions.
In addition, in the event you terminate within
six years of your commencement of employment
with the Company, the Company will pay you a
lump sum amount equal to the unvested balance
of your 401(k) (Savings Plus), ESP and ESOP
accounts, as soon as administratively possible.
Welfare Benefits. While we will be unable to cover
you under the Company's broad-based welfare plans after
termination, we will either reimburse your out of pocket
cost, grossed up for income tax purposes, to replace
these coverages in essentially the same form as under our
plan, or arrange for equivalent policies to be purchased
for you at Company expense.
For purposes of Section II of this agreement only,
"Good Reason" shall mean the continuation of any of
the following after written notice from you and a
failure of the Company to remedy such event within
thirty (30) days after the receipt of such notice:
(i) a reduction in your base salary as in effect
from time to time;
(ii) a failure of the Company to provide you
with any benefit or compensation plan (including
any pension, profit sharing, life insurance,
health, accidental death or disability plan)
which has been made available to other
comparable executives on terms and conditions no
less favorable to you than those offered to such
other executives [For purposes of this
subsection (ii), Pat Thiele, or a successor
executive performing essentially the same duties
currently being performed by Mr. Thiele will not
be considered a "comparable" executive.];
(iii) your receipt of any annual incentive payout
based on financial measures which are shared
with either senior executives that is not
consistent with the payout criteria of other
senior executives (all payouts are subject to
Board approval);
(iv) the assignment to you of duties materially
inconsistent with your position as Executive
Vice President and Chief Financial Officer of
the Company;
(v) a material adverse change in your title or the
line of authority through which you are required
to report; or
(vi) a relocation of the corporate headquarters
of the Company to a location outside of the
greater Minneapolis/St. Paul metropolitan area.
III. Upon termination, in exchange for all of the
benefits provided above, you agree, for a period of
two (2) years, to not engage directly or indirectly
in any business (as a shareholder, employee,
director, officer, partner, owner or in any capacity
calling for the performance of acts of management,
operation or control) which competes with the
Company. This non-compete prohibition applies to
any business engaging in the underwriting of
property and casualty insurance, or any other
business which the Company may enter between now and
the date of termination.
You also agree, for this two (2) year period, to not
hire or cause to be hired, without the express
written consent of the Company, any employee of the
Company by a successor entity or employer with whom
you may ultimately become associated.
You also agree, for an indefinite period, to not
divulge to any person or entities, without the
express written consent of the Company, confidential
information relating to the Company's business,
including, but not limited to, investment
strategies, business methods, rating methodologies
and strategies, actuarial methodologies and
reserving strategies, customer and agent lists,
trade secrets and the like.
If you are in agreement with the terms of this
letter, please indicate that acceptance by signing
below. Keep one original for your files and return
the other to me. As I noted above, to the extent
that the content of this letter conflicts in any way
with previous written or oral communication between
you, me or any other representatives of the Company,
the content of this letter will control and take
precedence over such previous communication.
Agreed to and Accepted:
PAUL LISKA THE ST. PAUL COMPANIES, INC.
/s/ Paul J. Liska
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Paul J. Liska
Date: January 20, 1997 By: /s/ Greg A.Lee
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Greg A. Lee
Its: Senior Vice President- Human
Resources
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Date: December 26, 1996
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