EXHIBIT 10.4
HORACE MANN EDUCATORS CORPORATION
DEFERRED COMPENSATION PLAN FOR EMPLOYEES
SECTION 1. INTRODUCTION
1.1 ESTABLISHMENT OF PLAN. Horace Mann Educators Corporation, a Delaware
corporation (the "Company"), hereby establishes the Horace Mann Educators
Corporation Deferred Compensation Plan for Employees (the "Plan") for those
employees of the Company who are eligible for the Long Term Incentive Plan
Bonus payments (the LTIP Employees). The Plan provides the opportunity for
LTIP Employees to defer receipt of all or a part of their Short Term
Incentive Plan bonus compensation and/or their Long Term Incentive Plan bonus
cash compensation on a pretax basis.
1.2 PURPOSES. The Plan is unfunded and is maintained by the Company
primarily for the purpose of providing deferred compensation for a select
group of management highly compensated employees. More particularly, the
purposes of the Plan are to align the interests of LTIP Employees more
closely with the interests of other shareholders of the Company, to encourage
the highest level of LTIP Employee performance by providing the LTIP
Employees with a direct interest in the Company's attainment of its financial
goals and to help attract and retain qualified LTIP Employees.
1.3 EFFECTIVE DATE. This Plan shall be effective December 01, 1997. To the
extent an investment or distribution of cash or Stock may be made under the
Plan, the Plan is intended to qualify for the exemption from short swing
profits liability under Section 16(b) of the Exchange Act, provided by Rule
16b-3 of the Securities and Exchange Commission as now in effect or hereafter
amended.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. THE FOLLOWING TERMS SHALL HAVE THE MEANINGS SET FORTH
BELOW:
(a) "Administrator" means the person designated in Section 3 to administer
the Plan.
(b) "Annual Bonus Compensation" means the bonus payable under the Company's
Short Term Incentive Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means either of the events set forth below:
(i) any person, as defined in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
pursuant to the Exchange Act), directly or indirectly, of securities of the
Company having 25% or more of the voting power in the election of directors
of the Company; or
(ii) the occurrence within any twelve-month period during the term of the
Plan of a change in the Board with the result that the Incumbent Members do
not constitute a majority of the Company's Board.
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(e) "Common Stock Equivalent" means a hypothetical share of Stock which shall
have a value on any date equal to the Fair Market Value of one share of Stock
on that date.
(f) "Deferred Stock Equivalent Account" means the bookkeeping account
established by the Company in respect to each LTIP Employee pursuant to
Section 5.3 hereof and to which shall be credited the amounts of Annual Bonus
Compensation and/or Long Term Bonus Compensation deferred by the LTIP
Employee as provided in the Plan and the Common Stock Equivalents into which
such deferred compensation are deemed invested pursuant to the Plan.
(g) "LTIP Employee" means an employee who is eligible to participate in the
Company's Long Term Incentive Plan.
(h) "Long Term Compensation" means the bonus payable under the Company's Long
Term Incentive Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
(j) "Fair Market Value" means as of any applicable date the closing sale
price of a share of Stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if Stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if Stock is not listed on such Exchange, on
the principal United States securities exchange registered under the Exchange
Act on which Stock is listed, or, if Stock is not listed on any such
exchange, the last closing bid quotation with respect to a share of Stock
immediately preceding the time in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use (or any other system of reporting or ascertaining quotations then
available), or if Stock is not so quoted, the fair market value at the time
in question of a share of Stock as determined by the Board in good faith.
(k) "Incumbent Members" means the members of the Board on the date
immediately preceding the commencement of a twelve-month period, provided
that any person becoming a Director during such twelve-month period whose
election or nomination for election was approved by a majority of the
Directors who, on the date of such election or nomination for election,
comprised the Incumbent Members shall be considered one of the Incumbent
Members in respect of such twelve-month period.
(l) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(m) "Payment Date" means the dates in the same calendar year in which the
Company pays the Annual Bonus Compensation and/or the Long Term Bonus
Compensation to LTIP Employees.
(n) "Stock" means the $0.001 par value common stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definitions
of any term herein in the singular shall also include the plural.
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SECTION 3. PLAN ADMINISTRATION The Plan shall be administered by the Human
Resources Benefits Officer of the Company. Subject to the limitations of the
Plan, the Administrator shall have the sole and complete authority: (i) to
impose such limitations, restrictions and conditions as he shall deem
appropriate, (ii) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the
Plan and (iii) to make all other determinations and to take all other actions
necessary or advisable for the implementation and administration of the Plan.
Notwithstanding the foregoing, the Administrator shall have no authority,
discretion or power to alter any terms or conditions specified in the Plan.
The Administrator's determinations on matters within its authority shall be
conclusive and binding upon the Company, the LTIP Employees and all other
persons.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. The Company shall at all times during the term of the
Plan retain as authorized and unissued Stock at least the number of shares
from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder. The
shares of Stock issuable hereunder shall be authorized and unissued shares or
previously issued and outstanding shares of Stock reacquired by the Company.
4.2 ADJUSTMENTS UPON CHANGES IN STOCK. If there shall be any change in the
Stock, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, spinoff, split up, dividend in kind or other change in
the corporate structure or distribution to the shareholders, appropriate
adjustments shall be made by the Administrator (or if the Company is not the
surviving corporation in any such transaction, the board of directors of the
surviving corporation) in the aggregate number and kind of shares subject to
the Plan and the number and kind of shares which may be issued under the
Plan. Appropriate adjustments may also be made by the Administrator in the
terms of Common Stock Equivalents under the Plan to reflect such changes and
to modify any other terms on an equitable basis as the Administrator in his
or her discretion determines.
SECTION 5. DEFERRALS AND DISTRIBUTIONS
5.1 DEFERRAL ELECTIONS. An LTIP Employee may elect to defer receipt of all
or a specified portion of his Annual Bonus Compensation and/or his Long Term
Bonus Compensation. An LTIP Employee may make the elections permitted
hereunder by giving written notice to the Company in a form approved by the
Administrator. The notice shall include: (i) the percentage of each
applicable Annual Bonus Compensation payment to be deferred and the
percentage of each applicable Long Term Bonus Compensation payment to be
deferred (ii) subject to the limitations of this Section 5, the year(s) in
which the applicable distribution is to commence and the form(s) (i.e., lump
sum or installments in cash over a stated number of years) of the applicable
distribution. Amounts deferred by an LTIP Employee pursuant to this Section
5.1 shall be converted into Common Stock Equivalents in accordance with
Section 5.3 on the Payment Date. Annual Bonus Compensation and Long Term
Bonus Compensation that share the same Payment Date shall share the same
commencement of and manner of distribution.
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5.2 TIME FOR ELECTING DEFERRAL AND CHANGE IN ELECTION. An election to defer
Annual Bonus Compensation and/or Long Term Bonus Compensation shall be made
in the first instance within 30 days of the establishment of the Plan,
thereafter, prior to the latest to occur of the following: (i) the beginning
of the calendar year (or with the respect to the Long Term Incentive Plan,
the beginning of the first calendar year in the performance period)for which
the Bonus Compensation is to be earned; or (ii) the thirtieth day following
the date the LTIP Employee first becomes eligible to participate in the Plan;
provided that, an election made on or after the first day of a calendar year
shall only apply to Annual Bonus Compensation and Long Term Bonus
Compensation amounts payable after the date of the election. An election to
defer, once made, is irrevocable except as provided in Section 5.11 hereof.
5.3 DEFERRED STOCK EQUIVALENT ACCOUNTS. A Deferred Stock Equivalent Account
shall be established for each LTIP Employee. Annual Bonus Compensation
and/or Long Term Bonus Compensation deferred by an LTIP Employee shall be
credited to such Account as of the Payment Date, and shall be converted into
Common Stock Equivalents based on Fair Market Value as of such date. An LTIP
Employee's Deferred Stock Equivalent Account shall also be credited with
dividend equivalents and other distributions pursuant to Section 5.4. The
Deferred Stock Equivalent Account will be reduced by the amount of any
distributions which amount shall be converted into common stock equivalents
based on Fair Market Value as of the date of distribution.
5.4 DIVIDEND EQUIVALENTS. Dividends and other distributions with respect to
Common Stock Equivalents shall be deemed to have been paid as if such Common
Stock Equivalents were actual shares of Stock issued and outstanding on the
respective record or distribution dates. Common Stock Equivalents shall be
credited to an LTIP Employee's Deferred Stock Equivalent Account in respect
of cash dividends and any other securities or property distributed with
respect to the Stock in connection with reclassifications, spinoffs and the
like on the basis of the value of the dividend or other asset distributed and
the Fair Market Value of the Common Stock Equivalents on the record date of
the dividend or asset distribution, all at the same time and in the same
amount as dividends or other distributions are paid or distributed with
respect to the Stock. Fractional shares shall be credited to the LTIP
Employee's Deferred Stock Equivalent Account cumulatively, but the balance of
shares of Common Stock Equivalents in a LTIP Employee's Deferred Stock
Equivalent Account shall be rounded to the next highest whole share for any
distribution to such LTIP Employee pursuant to this Section 5.
5.5 STATEMENT OF ACCOUNTS. A statement as to the balance of his or her
Deferred Stock Equivalent Account will be sent to each LTIP Employee at least
once each calendar year.
5.6 PAYMENT OF ACCOUNTS. Subject to this Section 5, as soon as practicable,
an LTIP Employee shall receive a distribution of his Deferred Stock
Equivalent Account as directed by the LTIP Employee in the applicable
election deferral notice. Either a lump sum of cash or HMEC stock or the
first of a stated number of equal annual cash installments shall be paid in
the year selected for distribution. Succeeding cash installments (if any)
shall be paid on July 01 of each calendar year following the calendar year in
which the first payment was made. Such distribution shall consist of cash or
one share of Stock for each Common Stock Equivalent credited to such LTIP
Employee's Deferred Stock Equivalent Account. In the event a distribution
occurs after a cash dividend record date but before its dividend payment
date, the Deferred Stock Equivalent Account as of the dividend record date
will be credited with Common Stock Equivalents equal to the cash dividend.
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5.7 PAYMENTS FOLLOWING THE TERMINATION OR DEATH OF AN LTIP EMPLOYEE. In the
event an LTIP employee dies while employed or terminates employment prior to
retirement as defined in the Horace Mann Pension Plan, as amended from time
to time, before the balance of his Deferred Stock Equivalent Account is fully
paid, payment of the balance of the LTIP Employee's Deferred Stock Equivalent
Account shall as soon as practicable be made to the LTIP Employee or his or
her beneficiary or beneficiaries, as the case may be, in a lump sum cash
distribution. In the event a retired LTIP Employee dies before the balance
of his Deferred Stock Equivalent Account is fully paid, payment of the
balance of the retired LTIP Employee's Deferred Stock Equivalent Account
shall then be made to the retired LTIP Employee's beneficiary or
beneficiaries, at such time or times and in such manner as payments were
being made to the retired LTIP Employee prior to his death. The
Administrator may, in his discretion, take into account the application of
any retired LTIP Employee's designated beneficiary and direct that the
balance of the retired LTIP Employee's Deferred Stock Equivalent Account be
paid to such beneficiary in the manner requested by such application.
5.8 DESIGNATION OF BENEFICIARY. An LTIP Employee shall file with the
Administrator a written designation of one or more persons as the beneficiary
who shall be entitled to receive the amount, if any, payable hereunder after
the LTIP Employee's death. An LTIP Employee may, from time to time, revoke
or change his beneficiary designation without the consent of any prior
beneficiary by filing a new designation with the Administrator. The last
such designation received by the Administrator shall be controlling;
provided, however, that no designation, or change or revocation thereof,
shall be effective unless received by the Administrator prior to the LTIP
Employee's death and in no event shall it be effective as of a date prior to
its receipt. If no such beneficiary designation is in effect at the time of
the LTIP Employee's death, or if no designated beneficiary survives the LTIP
Employee, the LTIP Employee's estate shall be deemed to have been designated
his beneficiary and the executor or administrator thereof shall receive the
amount, if any, payable hereunder after the LTIP Employee's death. If the
Administrator is in doubt as to the right of any person to receive all or
part of such amount, the Company may retain such amount until the rights
thereto are determined, or the Company may pay such amount into any court of
appropriate jurisdiction and such payment shall be a complete discharge of
the liability of the Company therefor.
5.9 CHANGE IN CONTROL. Notwithstanding any provision of this Plan to the
contrary, in the event of a Change in Control, each LTIP Employee shall
receive as directed by the LTIP Employee, within ten (10) days of the date of
such Change in Control, a lump sum distribution of his Deferred Stock
Equivalent Account in cash or if available, the number of shares of Stock
equal to the number of Common Stock Equivalents credited to such LTIP
Employee's Deferred Stock Equivalent Account as of the date of the Change in
Control.
5.10 EMERGENCY PAYMENTS. In the event of an "unforeseeable emergency" as
defined herein, the Administrator may determine the value of the Deferred
Stock Equivalent Account and pay all or a part of such amounts in cash
without regard to the payment dates otherwise determined pursuant to Sections
5.6 and 5.7, to the extent the Administrator determines that such action is
necessary in light of immediate and substantial needs of the LTIP Employee
(or his beneficiary) occasioned by severe financial hardship. For the
purposes of this Section, an "unforeseeable emergency" is a severe financial
hardship to the LTIP Employee resulting from a sudden and unexpected illness
or accident of the LTIP Employee or beneficiary, or of a dependent (as
defined in Section 152(a) of the Internal Revenue Code) of the LTIP Employee
or beneficiary, loss of the LTIP Employee's or beneficiary's property due to
casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the LTIP Employee or
beneficiary. Payments shall not be made pursuant to this Section to the
extent that such hardship is or may be relieved: (a) through reimbursement or
compensation by insurance or
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otherwise, (b) by liquidation of the LTIP Employee's or beneficiary's assets,
to the extent the liquidation of such assets would not itself cause severe
financial hardship or (c) by cessation of the LTIP Employee's deferrals under
the Plan. Such action shall be taken only if the LTIP Employee (or a LTIP
Employee's legal representatives or successors) signs an application
describing fully the circumstances which are deemed to justify the payment,
together with an estimate of the amounts necessary to prevent such hardship,
which application shall be approved by the Administrator after making such
inquiries as the Administrator deems necessary or appropriate.
5.11 PAYMENT OF TAXABLE AMOUNT. Notwithstanding any other provision of this
Section 5 or any payment schedule directed by an LTIP Employee and regardless
of whether payments have commenced under this Section 5, in the event that
the Internal Revenue Service should finally determine that part or all of the
value of a LTIP Employee's Deferred Stock Equivalent Account which has not
actually been distributed to the LTIP Employee is nevertheless required to be
included in the LTIP Employee's or beneficiary's gross income for federal
income tax purposes, then the balance of the Deferred Account or the part
thereof that was determined to be includable in gross income shall be
distributed (as directed by the LTIP Employee in his most recent election
deferral notice) in cash or shares of Stock to the LTIP Employee or
beneficiary, as the case may be, in a lump sum as soon as practicable after
such determination, without any action or approval by the Administrator. A
"final determination" of the Internal Revenue Service for purposes of this
Section is a determination in writing by said Service ordering the payment of
additional tax, reporting of additional gross income or otherwise requiring
Plan amounts to be included in gross income, which is not appealable or which
the LTIP Employee or beneficiary does not appeal within the time prescribed
for appeals.
5.12 WITHHOLDING The Company, at the time of any deferral or distribution
under this Plan, shall withhold benefits otherwise due or payable in order to
comply with any federal, state, local or other income or other tax laws
requiring withholding with respect to benefits provided to the LTIP Employee
under this Plan.
SECTION 6. GENERAL CREDITOR STATUS Each participating LTIP Employee and
beneficiary designated by a LTIP Employee shall be and remain an unsecured
general creditor of the Company with respect to any payments due and owing to
such LTIP Employee or beneficiary hereunder. All payments to persons
entitled to benefits hereunder shall be made out of the general assets and
shall be solely the obligation of the Company. The Plan is a promise by the
Company to pay benefits in the future and it is the intention of the Company
and participating LTIP Employees that the Plan be "unfunded" for tax purposes
(and for the purposes of Title I of the Employee Retirement Income Security
Act of 1974 ("ERISA")).
SECTION 7. CLAIMS PROCEDURES If a claim for benefits made by any person (the
"Applicant") is denied, the Administrator shall furnish to the Applicant,
within 90 days after its receipt of such claim (or within 180 days after such
receipt if special circumstances require an extension of time), a written
notice which: (i) specifies the reasons for the denial, (ii) refers to the
pertinent provisions of the Plan on which the denial is based, (iii)
describes any additional material or information necessary for the perfection
of the claim and explains why such material or information is necessary, and
(iv) explains the claim review procedures. Upon the written request of the
Applicant submitted within 60 days after receipt of such written notice, the
Administrator shall afford the Applicant a full and fair review of the
decision denying the claim and, if so requested: (i) permit the Applicant to
review any documents which are pertinent to the claim, (ii) permit the
Applicant to submit to the Administrator issues and comments in writing and
(iii) afford the Applicant an opportunity to meet with the Administrator as a
part of the review procedure. Within 60 days after his receipt of a request
for review (or within 120 days after such receipt if special circumstances,
such as the need to hold a hearing, require an extension of time) the
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Administrator shall notify the Applicant in writing of his decision and the
reasons for his decision and shall refer the Applicant to the provisions of
the Plan which form the basis for his decision.
SECTION 8. ASSIGNABILITY The right of a LTIP Employee and his
beneficiary to receive payments or distributions hereunder shall not be
subject in any manner to anticipation, alienation, sale, transfer (other than
by will or the laws of descent and distribution), assignment, pledge,
encumbrance, attachment, or garnishment by creditors of a participating LTIP
Employee or his beneficiary.
SECTION 9. PLAN TERMINATION, AMENDMENT AND MODIFICATION The Board may
at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no amendment or modification may become effective
without approval of the amendment or modification by the shareholders if
shareholder approval is required to enable the Plan to satisfy any applicable
federal or state statutory or regulatory requirements, and, provided further
that no termination, amendment or modification shall reduce the then existing
balance of any LTIP Employee's Deferred Stock Equivalent Account or otherwise
adversely change the terms and conditions thereof without the LTIP Employee's
consent.
SECTION 10. GOVERNING LAW/PLAN CONSTRUCTION The Plan and all agreements
hereunder shall be construed in accordance with and governed by the laws of
the State of Illinois. Nothing in this document shall be construed as an
employment agreement or in any way impairing the right of the Company to
terminate the employment of an LTIP Employee.
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