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American States Financial Corporation Exhibit 10.28 (9)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Todd R. Stephenson
8924 Stormhaven Ct.
Indianapolis, IN 46256
Dear Todd:
Thank you for the substantial contributions you have made to the
growth and success of American States Insurance Company ("ASI") and
American States Financial Corporation ("ASFC"). As you know, we are
seeking a buyer for ASFC, and during this transition, your continued
service and loyalty are essential to ASI and ASFC. This letter sets
forth our mutual agreement with respect to compensation and benefits
matters that otherwise might be of concern to you during the transition.
Our objectives are not only to reward you for your past service to ASI,
but also to give you an added incentive to remain with ASI and help us
reach our goals of achieving the highest possible return to ASFC
shareholders and assuring an orderly transition. By fairly compensating
you for the personal risk that the potential sale of ASFC entails, we
seek to ensure your continuing dedication to your duties and that you
will be in a position to work with and advise other ASI and ASFC
officers and the Board concerning purchase proposals without being
influenced by any uncertainties regarding your own situation.
As described in detail below, two types of benefits will be
provided to you -- change of control benefits and retention incentive
benefits. Upon a change of control of ASFC, you will automatically be
entitled to certain benefit enhancements. In addition, retention
incentive benefits will be payable after a change of control at the
earliest of your completion of a specified period of employment, your
involuntary termination of employment (other than for cause) or your
termination of employment for good reason. Finally, the change of
control benefits also include severance benefits that will be payable
if, within 18 months after a change of control of ASFC, you suffer an
involuntary termination of employment (other than for death or
disability) or you terminate employment for good reason. Please note
that the terms "change of control," "involuntary termination," "good
reason," and "cause" all have specific meanings for purposes of this
letter agreement; the meaning of each of these terms and certain other
terms is set forth in Exhibit A to this letter.
Automatic Change of Control Benefits. Automatically upon a change
of control of ASFC, you will be entitled to the following benefit
enhancements:
1. All Options granted to you under the Lincoln National
Corporation 1986 Stock Option Incentive Plan will become 100% vested
(i.e., nonforfeitable) and immediately exercisable.
2. All Restricted Stock Awards and Dividend Equivalent Rights
granted to you under the American States Financial Corporation Stock
Option Incentive Plan ("ASFC Option Plan") will become 100% vested.
3. All Options granted to you under the ASFC Option Plan that have
not become vested by the date of the change of control will be replaced
by retention incentive benefits, as described below.
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Retention Incentive Benefits. After a change of control of ASFC,
you will be entitled to the following retention incentive benefits:
1. 1996 Option Replacement. Six (6) months of employment after
the change of control or, if earlier, upon the involuntary termination
of your employment or the termination of your employment for good
reason, you will receive a cash payment equal to (a) the number of
Options granted to you in 1996 under the ASFC Option Plan that are
unvested, multiplied by (b) the difference between the per share price
paid for ASFC common stock in the change of control and $23.00. The
number of Options granted to you in 1996 under the ASFC Option Plan that
are unvested will be determined on the date of change of control.
2. 1997 Option Replacement. Twelve (12) months of employment
after the change of control or, if earlier, upon the involuntary
termination of your employment or termination of your employment for
good reason, you will receive a cash payment equal to a percentage of
your base salary. The amount of the payment will be based on the sale
price of ASFC common stock; if the price is $34.00 per share or less,
the payment will be 50% of your base salary as of the date of this
letter. Each $1.00 increase in the sale price of ASFC common stock
above $34.00 per share will produce a payment equal to an additional 25%
of your base salary as of the date of this letter, with linear
interpolation between $1.00 increments. To illustrate this formula, if
the sale price is $36.00 per share, you will receive 100% of your base
salary; if the sale price is $40.00 per share, you will receive 200% of
your base salary. There is no cap on the maximum benefit payable.
A retention incentive benefit under either paragraph above will
ordinarily be paid to you in cash within 30 days after you become
entitled to the payment. Alternatively, you may elect within 14 days
after the date of this letter to defer payment of all or a portion of
any retention incentive benefit under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (or the successor to
that plan) ("Deferred Compensation Plan"). To make a deferral election
for either retention incentive benefit, please complete the election
form attached to this letter as Exhibit B, and return the form to Lynda
Van Kirk within 14 days from the date of this letter.
3. Termination. If there is no change of control of ASFC by March
31, 1998, the Retention Incentive Benefits set out in paragraphs 1 and 2
above shall terminate as of such date.
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Change of Control - Severance. In the event of the involuntary
termination of your employment for reasons other than death or total and
permanent disability or your termination of employment for good reason
within 18 months after a change of control of ASFC, you will be entitled
to a severance benefit equal to the greatest of the benefit determined
under your employment contract, the benefit determined under the ASFC
severance plan or 100% of your base salary as of the date of this
letter. The severance benefit will be paid to you in cash within 30
days after your termination of employment, and the benefit under this
letter agreement will be in lieu of any other severance benefits you
would otherwise receive from ASI or ASFC or under the ASI severance
plan. If you receive the severance benefit, you will also be entitled
to:
1. Outplacement expenses to a maximum of the greater of $25,000 or
20% of your base salary as of the date of this letter for outplacement
benefits through a firm approved by ASFC.
2. Continued coverage under the following ASI welfare benefit
plans: life insurance, health insurance, dental and vision. The
coverage will be on the same basis as your coverage in effect before
termination of employment and will continue for one year after
termination of employment unless you secure a new job and become
entitled to substantially equivalent benefits. Under the split dollar
agreement, if you terminate employment within two years of a change of
control, you will have no obligation to repay cumulative premium
payments made by or on behalf of ASI; ASI's policy interest under the
split dollar agreement will be zero.
3. Vesting of benefits, if any, under any plan established by ASI
or ASFC (or in which ASI or ASFC is a participating employer) to restore
benefits not payable under the American States Insurance Company
Employees Retirement Plan as a result of the limitations under sections
401(a)(17) and 415 of the Internal Revenue Code and payment of benefits
in accordance with the terms of those plans.
4. Payments under the ASFC Executive Performance Incentive
Compensation Plan determined on the basis of performance through the
last day of the calendar quarter ending on or before the date of your
involuntary termination of employment or termination of employment for
good reason, payable in cash or deferred under the Deferred Compensation
Plan.
Salary Continuation Plan. In accordance with the terms of the
American States Executives' Salary Continuation Plan, you become 100%
vested in your benefits under that plan if you terminate employment
voluntarily or involuntarily within two (2) years after a change of
control. This letter agreement does not supersede or alter the terms of
the Salary Continuation Plan in any manner.
Employment Contract. Except as otherwise specifically provided in
this letter agreement, including Exhibit A, this agreement will not
supersede or alter the terms of your employment contract in any manner.
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Other. We will negotiate with any buyer of ASFC to have the buyer
assume ASFC's liabilities to pay benefits to you under the Deferred
Compensation Plan, if any. If the buyer is unwilling to accept that
liability, we will assure that those benefits will be paid.
Taxes. To the extent that any of the benefits under this letter
agreement are taxable to you, income and employment taxes will be
withheld from the benefit payments you receive. If you incur any
federal excise tax as a result of the payment of any of the benefits
provided under this letter agreement (although we believe you will not),
ASFC will make an additional cash payment to you to make you whole.
That is, ASFC will pay you an amount equal to any federal excise tax you
must pay, plus any income tax and employment taxes on the payment from
ASFC for the excise tax. ASFC will pay the amount to you within 30 days
after you present to the General Counsel of ASI either proof of payment
of the excise tax or an assessment from the Internal Revenue Service for
the tax.
Mediation/Arbitration. Generally, ASFC, acting through the
Compensation Committee of its Board or its Chief Executive Officer, will
determine whether you are entitled to benefits under this letter
agreement (for example, if you terminate employment, whether your
termination was for good reason) and the amount of benefits to which you
are entitled. If, however, you disagree with any determination
regarding your eligibility for benefits or the amount of benefits, the
dispute will be resolved through mediation. If mediation fails to
resolve the dispute within 60 days after a mediator has been agreed upon
(or any other longer period to which you and ASFC agree), the dispute
will be settled by arbitration. Please refer to Exhibit A for a
description of the arbitration rules that will apply, including the
rules for payment of your expenses by ASFC if you are successful in the
arbitration.
Release and Agreement. In consideration for the benefits provided
in this letter agreement, prior to the receipt of these benefits, you
must sign a release in the form acceptable to ASFC waiving all claims or
potential claims against ASI, ASFC, Lincoln National Corporation ("LNC")
or any affiliate. In addition, by accepting this letter agreement, you
agree to release and waive all rights to any Options granted to you
under the ASFC Option Plan which have not vested before the change of
control. By accepting this letter agreement, you also agree to retain
in confidence any confidential information regarding ASI, ASFC, LNC or
any affiliate that you became privy to during your employment, unless
you are required by law to divulge that information.
Board Approval. Because the process of seeking a buyer for ASFC
has been evolving very rapidly, and we are eager to provide you with
assurance concerning your own situation, we are providing this letter
agreement to you before obtaining formal approval of the Compensation
Committee of the Board and the Board. Therefore, you should be aware
that this agreement is being offered to you subject to the approval of
the Compensation Committee and the Board.
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We are pleased to provide you with the benefits described in this
letter agreement in recognition of your service and dedication to ASI
and ASFC. Please sign the attached copy of this letter to confirm your
acceptance of this agreement and the benefits provided for you. Kindly
return the copy of the letter with your signature to Lynda Van Kirk by
the close of business on April 3, 1997.
Sincerely,
/s/ Robert A. Anker
Robert A. Anker
Chief Executive Officer
American States Financial Corporation
In consideration of the foregoing, I, Todd R. Stephenson, hereby
accept the benefits provided under this letter agreement, and I accept
and agree to be bound by the terms of this letter agreement. Moreover,
I release and waive all my rights to any Options granted to me in 1996
under the ASFC Option Plan that are unvested on the date of a change of
control. I further agree that such Options shall automatically be
canceled and become null and void upon the occurrence of a change of
control.
4/3/97 /s/ Todd R. Stephenson
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Date Signature of Employee
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EXHIBIT A
DEFINITIONS AND SPECIAL RULES
I. Definitions. As used in the letter agreement, the following terms
have the following meanings.
1. Affiliate. "Affiliate" means any corporation which directly or
indirectly controls or is controlled by or is under common control with
ASI, ASFC or LNC. For purposes of this definition, control means the
power to direct or cause the direction of management and policies of a
corporation through the ownership of voting securities.
2. Change of Control. "Change of control" means the acquisition by
any individual, entity or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of more than fifty percent (50%) of
the then outstanding shares of common stock of ASFC; provided, however,
that the following acquisitions shall not constitute a change of
control: (a) any acquisition directly from ASFC other than an
acquisition by virtue of the exercise of a conversion privilege, (b) any
acquisition by ASFC, or (c) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by ASFC, or any entity
controlled by ASFC.
3. Cause. "Cause" means:
(a) conviction of a felony, or other fraudulent or willful
misconduct materially and demonstrably injurious to the business or
reputation of ASI or ASFC by the employee to whom this letter agreement
is addressed, or
(b) the willful and continued failure of the employee to perform
substantially the employee's duties with ASI or ASFC (other than such
failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
employee by the Board or the Chief Executive Officer of ASFC which
specifically identifies the manner in which the Board or Chief Executive
Officer believes that the employee has not substantially performed his
duties.
For purposes of this definition, no act or failure to act, on the
part of the employee, shall be considered "willful" unless it is done,
or omitted to be done, by the employee in bad faith or without
reasonable belief that the employee's action or omission was in the best
interests of ASI and ASFC. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chief Executive Officer or a senior officer
of ASI or ASFC or based upon the advice of counsel for ASFC shall be
conclusively presumed to be done, or omitted to be done, by the employee
in good faith and in the best interests of ASI and ASFC. An employee
shall not be deemed to have been terminated for cause unless and until
the Chief Executive Officer has found in good faith that the employee
was guilty of conduct set forth above in (a) or (b) and specified the
particulars thereof in detail in a notice of termination (as defined
below).
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4. Good Reason. "Good Reason" means, without the employee's
written consent:
(a) a material reduction in the employee's compensation
opportunity as in effect on the date of the letter agreement, or as the
same may be increased from time to time during the 18-month period
following a change of control;
(b) the failure to continue in effect the letter agreement for a
period of at least 18 months after a change of control;
(c) the failure of any successor or assign of ASFC to assume and
expressly agree to perform the obligations under the letter agreement
for a period of at least 18 months after a change of control, in the
same manner and to the same extent that ASFC would be required to
perform them if no such succession had taken place; or
(d) any request by ASFC or ASI that the employee participate in an
unlawful act or take any action constituting a breach of the employee's
professional standard of conduct.
Any termination of the employee's employment by ASI or ASFC for
cause, or by the employee for good reason, shall be communicated by
notice of termination to the other party given by hand delivery,
registered or certified mail, return receipt requested, postage prepaid,
to the last known home address of the employee or to the address of the
principal office of ASFC, copy to the Compensation Committee of the
Board, the Chief Executive Officer or their designate. For purposes of
the letter agreement and this Exhibit A, a "notice of termination" means
a written notice which (i) indicates the specific termination provision
(as set forth in this Exhibit A) relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the employee's employment
under the provision so indicated and (iii) if the date of termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the employee or ASFC to set forth in the notice
of termination any fact or circumstance which contributes to a showing
of good reason or cause shall not waive any right of the employee or
ASFC, respectively, hereunder, or preclude the employee or ASFC,
respectively, from asserting such fact or circumstance in enforcing the
employee's or ASFC's rights hereunder.
5. Involuntary Termination. "Involuntary termination" means
termination of the employee's employment with ASI (a) by ASI or ASFC
other than for cause, or (b) except for purposes of all severance
benefits, for death or total and permanent disability.
6. Per Share Price . "Per share price paid for ASFC common stock
in the change of control" or "sale price of ASFC common stock" means the
per share price of ASFC common stock paid by the purchaser in the
transaction giving rise to the change of control.
7. Total and Permanent Disability. "Total and permanent
disability" means the inability of the employee to perform his duties or
fulfill his responsibilities by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or which can be expected to last for a continuous period of not less
than six (6) months. The determination of whether the employee is
totally and permanently disabled shall be made by a qualified physician
selected by ASFC or its insurers and acceptable to the employee or the
employee's legal representative.
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II. Special Rules.
1. Arbitration. Any arbitration under the letter agreement shall
be conducted in accordance with the Center for Public Resources Rules
for Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon the award
rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be
Indianapolis, Indiana. In any controversy or dispute, regardless of
whether the employee or ASFC initiates the controversy or dispute, if
the employee provides written notice and presents appropriate vouchers,
ASFC will pay all of the employee's legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary out-of-pocket
costs of attorneys, billed to and payable by the employee in connection
with the controversy or dispute (i.e., the bringing, prosecuting,
defending, litigating, negotiating, or settling of it), but only if (and
after) the employee is successful on the merits in the arbitration.
Furthermore, if the controversy or dispute is settled, the settlement
agreement will provide for the allocation of such expenses, fees and
costs between the employee and ASFC.
2. Successors. References to ASI and ASFC in the letter
agreement, including this Exhibit to the letter agreement, shall include
and apply to any successor to or assign of ASI or ASFC. Furthermore,
the obligations under the letter agreement shall be binding upon and
inure to the benefit of the employee, his beneficiary or estate, ASI or
ASFC and any successor to ASI or ASFC.
PCDocs No. 48910/2
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EXHIBIT B
[Please return this form to Lynda Van Kirk, whether or not you wish to
defer. To elect deferral, you must return this form by April 15, 1997.]
ASFC 1996 AND 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
----------------------------------------------
Social Security #
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DEFERRAL ELECTIONS
Pursuant to ASFC's letter of April 1, 1997, to me and my acceptance of
that letter agreement, I make the following elections with respect to
deferring receipt of all or a portion of any 1996 or 1997 Option
Replacement payments to which I may become entitled, with deferral
effective as of the date the amount would otherwise be payable (complete
the two applicable items):
[ ] I elect to defer receipt of _____% (up to 100%) of my 1996 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1996 Option Replacement
payments.
[ ] I elect to defer receipt of _____% (up to 100%) of my 1997 Option
Replacement payments.
[ ] I do not wish to defer any portion of my 1997 Option Replacement
payments.
I understand that my elections set forth above cannot be changed and
that the LNC Executive Deferred Compensation Plan for Employees, or the
successor to that plan, (the "Plan") will govern all aspects of any
deferrals elected.
Any amounts that I have elected to defer above may be subject to FICA
(social security) tax -- in most cases, the hospital insurance portion
of that tax -- at the time I would have become entitled to payment
absent a deferral election. I understand that my Employer may reduce
the amount of any deferrals I have elected to the extent necessary to
pay the employee's share of FICA (and the income taxes resulting from
paying this share from amounts that otherwise would have been deferred)
or any other taxes that my Employer is required to withhold with respect
to the deferred amounts.
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INVESTMENT OPTIONS
I direct my Employer to credit the amounts deferred above under the Plan
with the earnings which would otherwise accrue on my account had my
account been invested as directed below (in multiples of 10%). I
understand that the amount of earnings credited will be in accordance
with the performance of the LNL Variable Annuity Account C Multi Funds
which I have selected. Notwithstanding the preceding, I understand that
neither my Employer nor Lincoln National Corporation is under any
obligation to effectuate my investment option selection and that such
selection shall be treated merely as an expression of my investment
preference.
_____% Money Market Fund _____% Global Asset Allocation Fund
_____% Social Awareness Fund _____% Growth and Income Fund
_____% Fixed Fund _____% Bond Fund
_____% Managed Fund _____% Special Opportunities Fund
_____% International Fund _____% Equity-Income Fund
_____% Aggressive Growth Fund _____% Capital Appreciation Fund
Signature Date
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