M E M O R A N D U M
DATE: November 21, 1996
TO: Harry Stout
FROM: Norm Blake
RE: F&G Life Executive Retention and Severance Plan
CC: November 21, 1996
As you know, USF&G has established a special Retention and Severance Plan for
selected members of the F&G Life management team, with the purpose of rewarding
those individuals for remaining at F&G Life through a period of uncertainty.
Your leadership of F&G Life is critical to the success of F&G Life during this
period. In addition, I view you as a vital leadership resource of USF&G, with
the capability to assume other and larger leadership roles at USF&G. You have,
therefore, been approved as a participant in this plan with provisions
reflective of your unique role as President of F&G Life.
Retention Bonus
As a participant in this program, you are eligible to receive a retention bonus
equivalent to twenty-four (24) months of base salary, less applicable
withholding and taxes. This cash bonus will be paid on or about December 31,
1998. If a sale or other change in control of F&G Life does occur, payment of
the bonus will be at completion of the change in control or December 31, 1998,
whichever comes first, and will be calculated on the salary in effect at time of
payment. You will be eligible for this bonus as long as you remain actively
employed with satisfactory performance through the date of payment.
Eligibility for Additional Payments
In the event of the sale of all or substantially all of the assets of, or the
sale of all or a controlling interest in the stock of F&G Life, or the merger or
consolidation of F&G Life into another business entity not wholly owned by
USF&G, or any other change in control of F&G Life, you may also be eligible to
receive a predetermined severance payment. Subject to the terms and conditions
of USF&G's severance plan and provided that no comparable employment
opportunities with the acquiring company or USF&G Corporation are offered and
accepted, severance equal to twelve months base salary, minus applicable
withholding and taxes, will be granted for the period immediately following the
sale. Under this plan, "employment" includes any consulting arrangements that
may be negotiated with an acquiring company.
If you are offered and accept a position with the acquiring company and are
subsequently terminated because of job elimination or reduction in force within
the first year following the sale, you will be considered protected by this
provision.
The severance payments may be taken in one of three ways:
- Bi-weekly payments, with continuation of benefits per standard
severance treatment
- Lump-sum payment, with no continuation of benefits
- Bi-weekly payments with option to take lump sum at any time
during the 12 month period, with benefits stopping when lump
sum payment is made
Stock Option and LTIP
In the event of a sale or other change in control of F&G Life, USF&G will
compensate you for the value (i.e. the difference between the option price and
the market price of USF&G stock on the date of sale closing) of all USF&G stock
options which are unvested at the time of sale, either by permitting exercise of
the unvested options or by making an equivalent cash payment. (Method to be
determined at the discretion of USF&G.) In addition, previously granted LTIP
award cycles will be paid out, according to standard award determination.
Transaction Bonus
In addition to the above arrangements, if we proceed with a sale or other
disposition of F&G Life, we will discuss with you a possible transaction bonus
to be paid to you (and possibly other key individuals) upon successful
completion of the transaction. While we have not determined the nature or amount
of any such transaction bonus, we will do so if a decision is made to proceed
with such a sale.
Deferral Option
Any cash amounts payable to you except the severance payments (i.e. the
retention bonus plus cash payment in lieu of unvested stock options, if made)
may, at your election, be paid on a deferred basis over a maximum 360 month
period. The election to defer would need to be made by December 31, 1996. Terms
and conditions and forms for the deferral will be provided to interested
participants in time to make the deferral election.
Excise Tax
In the event that your total compensation in any year exceeds the amount
permitted under applicable tax laws, USF&G will gross up your retention bonus to
cover the 15% excise tax that is assessed.
Provisions covered by this agreement expire 12/31/98. Please understand that
this agreement is not intended to create a contract of employment or in any way
to alter F&G Life's policy of employment at will. Additionally, details of
eligibility and award determination under certain circumstances, such as job
change or termination prior to the time of plan payments will be covered by the
prevailing plan document. And, of course, we ask that your participation in this
plan remain strictly confidential.
Please accept this agreement as a reflection of the value which USF&G places on
your contributions to F&G Life, a division which has played a critical role in
USF&G's return to profitability and financial success.
I would appreciate your signing a copy of this letter and returning it to John
MacColl by December 1, 1996.
NB:mag
cc: Dan Hale
John MacColl
Participant Signature:
/s/HARRY N. STOUT
Date:___________________________
I am interested in electing deferral. Please provide further information:
Yes_____ No_____
USF&G Memorandum
To: Harry Stout
From: John A. MacColl
Date: December 1, 1997
Re: F&G Life Executive Retention and Severance Plans
A number of questions have arisen regarding the interaction between the F&G
Life Executive Retention and Severance Plan (the "F&G Life Retention Plan") and
the USF&G Corporation Key Executive Severance Plan (the "USF&G Severance Plan").
This memorandum is to clarify how these plans interact.
The F&G Life Retention Plan is designed to deal with a possible sale of F&G
Life by USF&G Corporation, whereas the USF&G Severance Plan is designed to deal
with a change of control of USF&G Corporation. The USF&G Severance Plan is not
intended to and will not take away any severance or other benefits under the F&G
Life Retention Plan. The USF&G Severance Plan will, however, provide severance
protection in circumstances where, following a change of control of USF&G
Corporation, you are terminated without cause or you terminate your employment
with good reason. Standing alone, the F&G Life Retention Plan would not provide
you with any protection under these circumstances unless there was also a
separate sale of F&G Life. The following should clarify how these two plans
interact:
1. The provisions for severance under the F&G Life Retention Plan are not
triggered on a change of control of USF&G Corporation, but apply only in the
event of a disaffiliation (sale, spin-off, etc.) between USF&G Corporation and
F&G Life. Likewise, a sale of F&G Life following a change of control of USF&G
Corporation would not in and of itself trigger benefits under the USF&G
Severance Plan, although if such a sale occurred before December 31, 1998, it
would accelerate the retention bonus. Severance benefits under either plan are
triggered only upon a termination of employment with F&G Life and USF&G under
the circumstances described under such plans.
2. In the event of circumstances under which you would be entitled to
severance payments under either or both of such plans, you would be entitled to
receive benefits under whichever plan is more generous. Although Section 3.4.2
of the USF&G Severance Plan provides that such payments "shall be in lieu of any
severance or similar payments that otherwise might be payable . . .", the
intention was to avoid duplicative payments, not to reduce benefits to which you
may already be entitled. In no circumstances will you receive severance benefits
under both plans.
3. The retention bonus provided for in the F&G Life Retention Plan is not
in the nature of a severance benefit; therefore, such payments are not subject
to the limitations of Section 3.4.2 of the USF&G Severance Plan, which prohibits
duplication of payments. In other words, payments under the USF&G Severance Plan
would not be reduced by the amount of the retention benefit under the F&G Life
Retention Plan.
Attached as Exhibit A is a schedule which illustrates when the retention
bonus or severance benefits would be paid under different scenarios. As you will
see, the addition of the USF&G Severance Plan provides you with added protection
without taking from the protection provided by the F&G Life Retention Plan.
This memorandum and the accompanying schedule are provided as clarification
and in all respects the terms of the plans control and remain in full force and
effect.
If you agree with these interpretations, please countersign this letter
where indicated below and return a copy of this letter with the signed letter
relating to the USF&G Severance Plan. Please do not hesitate to call Gail Turek
(x46520) or me if you have further questions.
USF&G CORPORATION
By:/s/JOHN A. MACCOLL
John A. MacColl
Executive Vice President -
Human Resources and General Counsel
/s/HARRY N. STOUT
Participant
Exhibit A
- ---------- ------------------------------------------------ --------------------------------------------------------
No. Event Result(1)
- ---------- ------------------------------------------------ --------------------------------------------------------
- ---------- ------------------------------------------------ --------------------------------------------------------
1 Sale of F&G Life by USF&G Corp. Acceleration of "retention bonus" under F&G Life
Retention Plan
- ---------- ------------------------------------------------ --------------------------------------------------------
- ---------- ------------------------------------------------ --------------------------------------------------------
2 "Change of Control" of USF&G Corp. Acceleration of long-term incentive plan (LTIP)
under USF&G Severance Plan
- ---------- ------------------------------------------------ --------------------------------------------------------
- ---------- ------------------------------------------------ --------------------------------------------------------
3 Termination following Change of Control of Severance under USF&G Severance Plan
USF&G Corp. (without any sale of F&G Life)
- ---------- ------------------------------------------------ --------------------------------------------------------
- ---------- ------------------------------------------------ --------------------------------------------------------
4 Termination following sale of F&G Life Severance under F&G Life Retention Plan ("Retention
(without any Change of Control of USF&G bonus" would have already been paid under No. 1 above)
Corp.)
- ---------- ------------------------------------------------ --------------------------------------------------------
- ---------- ------------------------------------------------ --------------------------------------------------------
5 Termination following sale of F&G Life after Severance under F&G Life Retention Plan or USF&G
Change of Control of USF&G Corp. Severance Plan, whichever is more generous ("Retention
bonus" would already have been paid under No. 1 above)
- ---------- ------------------------------------------------ --------------------------------------------------------
<FN>
(1) Assumes events happen prior to December 31, 1998, at which time the F&G
Life Plan expires. The examples also assume that any termination which triggers
severance benefits is under circumstances and within the specified time periods
set forth in the respective plans.
This Exhibit A is presented for illustration purposes only, and any
retention, severance or other benefits payable shall be determined in accordance
with the terms of the respective plans.
</FN>