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American States Financial Corporation Exhibit 10.28 (1)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
Robert A. Anker
3603 W. Hamilton Road
Ft. Wayne, IN 46804
Dear Bob:
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
- -- automatic change of control benefits and a retention incentive benefit.
Retention incentive benefits will be payable after a change of control at the
earlier of your completion of a specified period of employment or your
termination of employment on or after the end of the term of your employment
contract. Please note that the term "change of control"has a specific meaning
for purposes of this letter agreement; the meanings of this term and certain
other terms are 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. Restricted phantom stock units granted to you under the Lincoln
National Corporation 1986 Stock Option Incentive Plan will become 100%
vested (i.e., nonforfeitable). You will be treated as a retiree under this
Plan for all outstanding Options.
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.
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Retention Incentive Benefits/1997 Option Replacement. After a change of
control of ASFC, you will be entitled to the following retention incentive
benefit: upon the earlier of 12 months of employment after the change of
control or the termination of your employment on or after the end of the term
of your employment contract, 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 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 the 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 the 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.
If there is no change of control of ASFC by March 31, 1998, the Retention
Incentive Benefits set out above shall terminate as of such date.
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.
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.
If any amount becomes payable under this letter agreement while you are a
covered employee as defined in section 162(m) of the Internal Revenue Code and
the amount (either alone or in combination with other remuneration) would
exceed the limit under that section, ASFC reserves the right to defer the
payment until you are no longer a covered employee. In this case, the amount
may be unilaterally deferred and credited with interest or other earnings in
accordance with the terms of the Deferred Compensation Plan.
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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/ William J. Lawson
William J. Lawson
President
American States Financial Corporation
In consideration of the foregoing, I, Robert A. Anker, 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/ Robert A. Anker
- ------ --------------------------
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. 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.
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.
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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 1997 OPTION REPLACEMENT PAYMENT
DEFERRAL ELECTION FORM
Print Name
---------------------------------------------------------
Social Security #
----------------------------------------
DEFERRAL ELECTION
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 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 applicable item):
[ ] 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 election 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
deferral 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 deferral 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 amount.
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INVESTMENT OPTIONS
I direct my Employer to credit the amount 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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