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American States Financial Corporation Exhibit 10.28 (2)
500 North Meridian Street
Indianapolis, IN 46204
April 1, 1997
J. Robert Coffin
219 Greyhound Pass
Carmel, IN 46032
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
- -- 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 greater of the benefit determined under the
ASI 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. Retiree health plan coverage commencing at age 55, since as of the
date of change of control you have 25 years of service with ASI, ASFC, Lincoln
National Corporation ("LNC") or any affiliate. The coverage will be available
to you, your spouse and your eligible dependents who are covered under the ASI
health insurance plan as of the date of change of control.
5. 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.
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.
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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, 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.
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
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In consideration of the foregoing, I, J. Robert Coffin, 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.
4/2/97 /s/ J. Robert Coffin
- ------ -------------------------
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.
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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.
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. 48888/2
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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 #
---------------------------------------
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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