EXHIBIT 10(a)
<PAGE>
May 4, 1998
Amended and Restated, August 5, 1999
Stephen W. Lilienthal
St. Paul Fire and Marine Insurance Company
385 Washington Street
St. Paul, MN 55102
Dear Steve:
The purpose of this letter agreement ("Letter Agreement") is
to confirm our respective understandings and agreements
regarding: i) your employment, remuneration and obligations
as of April 24, 1998, the effective time ("Effective Time")
of the merger ("Merger") detailed in the Agreement and Plan
of Merger among USF&G Corporation, The St. Paul Companies,
Inc. and SP Merger Corporation dated as of January 19, 1998
(as amended through April 24, 1998) ("Merger Agreement"),
ii) your rights and St. Paul's rights under the Executive
Severance Agreement you signed on October 16, 1997 (the
"Severance Agreement") with respect to the USF&G Senior
Executive Severance Plan dated as of February 27, 1997 (the
"Severance Plan"), and iii) your remuneration after August 5,
1999.
I. EMPLOYMENT TERMS
----------------
On or about June 12, 1998, The St. Paul Companies, Inc.
and its affiliates ("St. Paul") paid to you (i) all cash
severance payments pursuant to Sections 3.2.2, 3.2.3 and
3.2.4 of the Severance Plan (the "Cash Severance
Payments"), and (ii) certain excise tax protection
payments pursuant to Section 3.4 of the Severance Plan
[the combination of (i) and (ii) referred to as the
"Severance Benefits"] as provided in the Severance
Agreement and Severance Plan. For purposes of this
Letter Agreement and the Severance Agreement and
Severance Plan, it is agreed that (a) the approval of
the Merger by the shareholders of USF&G constituted a
Change in Control for purposes of the Severance Plan,
and (b) you were entitled to, and have received, payment
of the Severance Benefits as if you had terminated your
employment with USF&G for Good Reason (as defined in the
Severance Plan) and signed a Waiver (as defined in the
Severance Plan) as of the Effective Time. St. Paul will
continue to provide the excise tax protection pursuant
to Section 3.4 of the Severance Plan.
<PAGE>
The St. Paul Companies, Inc. and/or any of its
affiliated companies, including USF&G, will employ you
for a period of three (3) years beginning on the
Effective Time (the "Term").
Your title will be that of Executive Vice President -
Commercial Lines Group, and you will report to James
Gustafson. Your principal job responsibilities will be
the management of St. Paul's commercial lines group.
The compensation and benefits listed below will not be
reduced, except as provided below with respect to
company-wide changes in a compensation or benefit plan
which similarly impact all or most other employees at
your level in the organization.
During the Term, St. Paul will provide you or has
provided you with the following compensation and
benefits in performance of the duties outlined above:
- For the period commencing August 5, 1999, through the
remainder of the Term, St. Paul will provide you with an
annual base salary of $450,000, with annual upward
adjustments considered based on actual performance.
- Participation in St. Paul's annual incentive plan,
wherein you will have a target bonus opportunity of forty-
five percent (45%) of your annualized base salary and a
maximum bonus opportunity of sixty-seven and one-half percent
(67.5%) of your annualized base salary, measured on St.
Paul's corporate performance and your personal performance,
subject to company-wide changes in the plan which similarly
impact all or most other employees at your level in the
organization.
- Participation in St. Paul's Stock Option Plan with an
annual target of forty eight thousand (48,000) shares (after
the stock split effected on May 5, 1998), subject to company-
wide changes in the plan which similarly impact all of most
other employees at your level in the organization.
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- A hiring bonus ("Hiring Bonus") equal to sixteen
thousand eighty (16,080) shares of St. Paul restricted stock
granted in May 1998, and nine thousand (9,000) shares of St.
Paul restricted stock granted in November 1998. The
restricted stock Hiring Bonus shall be fully vested and
freely transferable at the end of the Term, and you will be
entitled to receive all dividends on the shares and vote the
shares during the Term. Payment of the Hiring Bonus is
conditioned upon you remaining in your current position, or a
subsequent position to which St. Paul were to assign you
within St. Paul's various business entities, on a full-time
basis through the end of the Term, subject to the provisions
of Section II regarding termination by St. Paul without Cause
(as defined in Section II) and your voluntary termination for
Good Reason (as defined in Section II).
- A lump sum cash hiring bonus in the amount of Twenty
Five Thousand Two Hundred Dollars ($25,200.). This amount
was paid to make you whole relative to the automobile
allowance you received as a member of USF&G management that
you will not receive as a member of St. Paul management. The
amount referenced above was computed by multiplying your
current monthly allowance of Seven Hundred Dollars ($700.),
by the thirty six (36) month term of this Letter Agreement.
This payment was made to you within ten (10) days of your
becoming a St. Paul employee, and was subject to federal and
state income and employment tax withholding.
- You will be covered by St. Paul's "Homeowners Plan 1"
Relocation Policy relative to your move to the Minneapolis-
St. Paul metropolitan area. The "Homeowners Plan 1" has a
$15,000 "loss on sale" protection provision. This provision
will be upgraded by St. Paul in your case to provide for full
reimbursement of those financial losses described in Plan 1
that relate to the sale of your current, primary, principal
place of residence in the Baltimore area. For purposes of
this bullet, full reimbursement of financial losses shall
mean the sum of (i) the difference (if any) between (a) the
sum of the purchase price for such residence and the cost of
all capital improvements thereon, and (b) the proceeds
received upon the sale, net of all sales expenses and
commissions, and (ii) an amount which will be sufficient on
an after-tax basis to compensate you for all federal and
state income and employment taxes incurred with respect to
payments made to you hereunder in connection with the sale of
such residence.
<PAGE>
- You will be eligible to participate in those St. Paul
savings and retirement plans generally available to employees
at your level, including financial and tax planning services;
the St. Paul Companies, Inc. Retirement, Executive
Retirement, Savings Plus and Executive Savings Plus Plans; as
well as those welfare plans which provide employees with
medical, dental, life insurance (and AD&D), short-term
disability, long-term disability, and medical/day care
reserve accounts.
- On August 2, 1999, you will be granted 15,000 shares of
restricted stock under the 1994 Amended and Restated Stock
Incentive Plan, with the restrictions to lapse in 5,000
share annual increments on August 2, of 2000, 2001, and 2002.
II. EMPLOYMENT SEPARATION
---------------------
Should your employment with St. Paul terminate prior to
the end of the Term, The St. Paul will provide you with
severance payments as follows:
- If you terminate your employment without Good Reason (as
defined below) or if your employment is terminated by St.
Paul for Cause (as defined below), you will receive no
further payments, compensation or benefits under this Letter
Agreement, including no portion of the Hiring Bonus, except
you will be eligible to receive payments that were due and
payable prior to the date of your termination and such
compensation or benefits that have been earned and will
become payable without regard to future services.
- If you terminate your employment with Good Reason or you
are involuntarily terminated by The St. Paul without Cause,
upon the signing of St. Paul's standard release form in use
at that time for employees at your salary level, (i) the
Hiring Bonus will vest and become transferable at the later
of one year from the date the shares were granted or the
effective date of such termination, and (ii) you will receive
all other compensation and benefits outlined in Section I of
this Letter Agreement, including incentive bonuses paid at
the target forty-five percent (45%) of annualized base salary
level, prorated with respect to any partial bonus period, for
the period commencing on the date of such termination and
ending on the later of (x) the last day of the Term, or (y)
the date which is twelve (12) months following such
termination (such period referred to herein as the "Severance
Period"). St. Paul may, at its election, prepay any amounts
due to you during the Severance Period in a lump sum payment
at the beginning of the Severance Period. However, if such
termination occurs within twelve
<PAGE>
(12) months of the last day of the Term, you may
elect to receive severance benefits under the
severance plan applicable to senior executive
officers of St. Paul as in effect on the date your
employment terminates (the "St. Paul Executive
Severance Plan) in lieu of the benefits described in
clause (ii) of this bullet. If you receive benefits
under the St. Paul Executive Severance Plan in lieu
of the benefits described in clause (ii), then the
confidentiality and nonsolicitation provisions of
Section III of this Letter Agreement shall not apply
and you will be subject to the terms and conditions
of the St. Paul Executive Severance Plan with regard
to such confidentiality, non-solicitation and other
related restrictions. If prior to April 25, 2000
your employment is involuntarily terminated by St.
Paul without Cause (as defined in the Severance Plan)
or you voluntarily terminate your employment for Good
Reason (as defined in the Severance Plan), you will
receive the welfare benefit continuation described in
Section 3.2.5 of the Severance Plan, provided you
comply with the provisions of Section III of this
Letter Agreement, and provided you sign a release
form in use at that time for St. Paul employees at
your level. For purposes of benefit payments that
might be due you pursuant to this subsection, St.
Paul shall have the option of providing you a cash
equivalency or equivalent alternative coverage
outside of St. Paul's existing qualified or non-
qualified benefit plans.
For purposes of this Letter Agreement, "Cause" means
(i) your conviction of any felony involving
intentional misconduct; (ii) your conviction of any
lesser crime or offense involving the illegal use or
conversion of St. Paul property; (iii) your willful
misconduct in connection with the performance of your
duties with St. Paul (which shall not be deemed to
include any action taken by you in good faith in the
interest of St. Paul) provided, however, that St.
Paul will not terminate you for willful misconduct
without giving you written notice of, and the
opportunity to promptly remedy, the specific
misconduct; or (iv) your taking illegal actions in
your business or personal life which materially and
demonstrably harm the reputation or damage the good
name of St. Paul. For purposes of clauses (iii) and
(iv), Cause shall be determined by a majority vote of
the Board of Directors of The St. Paul Companies,
Inc. after at least 10 days notice to you.
<PAGE>
For purposes of the Letter Agreement, "Good Reason"
means (i) a substantial diminution in your title,
position, duties, or responsibilities; (ii)
assignment of duties that are inconsistent in any
material respect with the scope of duties and
responsibilities associated with your position as of
the effective date of this amended and restated
Letter Agreement; (iii) relocation of your principal
workplace to a location that is more than thirty (30)
miles from your current location; or (iv) a material
reduction of or failure to pay the compensation
required under Section I of this Letter Agreement.
For purpose of clauses (i), (ii), and (iv), an
isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by St. Paul
promptly after receipt of notice thereof shall be
excluded.
- If termination of your employment occurs after a Change
in Control of St. Paul (as defined below), and during the
Term, (i) the Hiring Bonus will immediately vest and become
transferable, and (ii) you will be entitled to all other
amounts payable, if any, under St. Paul's Special Severance
Policy ("Special Severance Policy") as in force as of the
date of the Change in Control of St. Paul (as defined below).
"Change in Control of St. Paul" means a change in control
that would cause St. Paul to file a Form 8-K with the SEC;
St. Paul's incumbent board of directors ceases to be a
majority; or fifty (50) percent of St. Paul's common stock is
acquired by a "person" within the meaning of Section 14(d) of
the Securities Exchange Act of 1934. Under the Special
Severance Policy, you are eligible for these benefits once
you've been employed for three months with St. Paul. You
have been designated as a "Tier I Executive" under the
Special Severance Policy, as in effect on the date this
amended and restated Letter Agreement is executed. To the
extent provided in the Special Severance Policy, St. Paul's
Board may amend, modify or revoke the Special Severance
Policy as it applies to senior executives of St. Paul as a
group, at any time prior to a Change in Control of St. Paul
without employees' consent. (There are restrictions on
amendments to, and the termination of, the policy after a
Change in Control of St. Paul has occurred.)
<PAGE>
If, after a Change of Control of St. Paul, you decide
to resign voluntarily without "Good Reason", you will
be able to do so without restrictions on your ability
to solicit St. Paul agents, customers or employees.
Should you make such an election, this Letter
Agreement will immediately terminate and you will be
entitled to receive only those payments described in
Section I of this Letter Agreement which have already
been earned and are payable as of your termination
date, and such compensation or benefits which have
been earned and will become payable without regard to
future services, and you will be entitled to no
severance or other payments pursuant to St. Paul's
Special Severance Policy or any other St. Paul
severance or compensation plan.
- In the event your employment terminates on account of
death or your becoming "disabled" [within the meaning of
section 72(m)(7) of the Internal Revenue Code as in effect as
of the date hereof] more than one year after the Effective
Time, you, or, in the event of your death, your estate, will
receive a pro rata portion of the Hiring Bonus based on a
fraction, the numerator of which is the number of whole and
partial calendar months from the Effective Time to the date
of death or total disability, as applicable, and the
denominator of which is 36.
Should St. Paul decide not to continue your employment
at or after the end of the Term, you will be entitled to
those severance benefits described in the St. Paul
Executive Severance Plan, subject to the terms and
conditions thereof.
III. CONFIDENTIALITY AND NON-SOLICITATION
------------------------------------
In exchange for the remuneration outlined above, in
addition to providing service to St. Paul as set forth
in this Letter Agreement, you agree to the following
covenants:
- You shall keep confidential any trade secrets and
confidential or proprietary information of St. Paul or USF&G
which are now known to you or which hereafter may become
known to you as a result of your employment or association
with St. Paul or USF&G and shall not at any time directly or
indirectly disclose any such information to any person, firm
or corporation, or
<PAGE>
use the same in any way other than in connection with
the business of St. Paul during, and at all times
after, the termination of your employment. For
purposes of this Letter Agreement, "trade secrets and
confidential or proprietary information" means
information unique to St. Paul or USF&G which has a
significant business purpose and is not known or
generally available from sources outside St. Paul or
USF&G or typical of industry practice.
- You further covenant that if your employment terminates
before the end of the Term, you will not, during the
"Restriction Period", directly or indirectly (for example,
through agents), (i) solicit any person who, at the time of
the termination of your employment with St. Paul, was a
client, customer or account of St. Paul or any of our
affiliates, including USF&G, to discontinue business, in
whole or in part, with St. Paul that was in effect at the
time of such termination, or (ii) hire or cause to be hired,
without the express written consent of St. Paul, any employee
of St. Paul and any of our affiliates, including USF&G, by a
successor entity or employer with whom you may ultimately
become associated. The term "Restriction Period" means the
period commencing on May 4, 1998, and ending twelve (12)
months after termination of your employment for any reason.
IV. GENERAL WAIVER AND RELEASE
--------------------------
The provisions of this Article IV were agreed to by you
(on May 5, 1998) and by St. Paul (on May 6, 1998) in the
original Letter Agreement dated May 4, 1998. No further
waiver and release is provided as a result of the
amendment and restatement of this revised Letter
Agreement first effective August 24, 1998 and now
subsequently effective as further revised as of August 5, 1999.
The waiver and release, as agreed to in the original Letter
Agreement, dated May 4, 1998, is as follows:
- As a material inducement to St. Paul to enter into this
Letter Agreement, and in consideration of St. Paul's promise
to make the payments set forth in the first paragraph of
Section I of this Letter Agreement, you hereby knowingly and
voluntarily release and forever discharge St. Paul, and all
of its Affiliates, parents, subsidiaries and related
entities, and all of its past, present and future respective
agents, officers, directors, shareholders, employees,
attorneys and assigns from any federal, state or local
charges, claims, demands, actions,
<PAGE>
liabilities, suits, or causes of action, at law or
equity or otherwise and any and all rights to or
claims for continued employment after the Separation
Date, attorneys fees or damages (including contract,
compensatory, punitive or liquidated damages) or
equitable relief, which you may ever have had, have
now or may ever have or which your heirs, executors
or assigns can or shall have, against any or all of
them, whether known or unknown, on account of or
arising out of your employment with St. Paul
(including USF&G) prior to the execution of this
Letter Agreement, except for claims which may arise
under this Letter Agreement or in connection with
future performance under Sections 3.2.5 and 3.4 of
the Severance Plan.
- This release includes, but is not limited to rights and
claims arising under the Age Discrimination in Employment Act
of 1967, as amended by the Older Workers Benefit Protection
Act of 1990, Title VII of the Civil Rights Act of 1964, as
amended, the Americans with Disabilities Act, the Fair Labor
Standards Act, any state or local human rights statute or
ordinance, any claims or rights of action relating to breach
of contract, public policy, personal or emotional injury,
defamation, additional compensation, or fringe benefits. You
specifically waive the benefit of any statute or rule of law
which, if applied to this Letter Agreement, would otherwise
exclude from its binding effect any claims not now known by
you to exist. This release does not purport to waive claims
arising under these laws after the date of this Letter
Agreement.
- This Letter Agreement was presented to you on or before
April 24, 1998. You acknowledge that you have reviewed the
information about the offer described above and given to you
as part of this Letter Agreement. You acknowledge that you
were granted at least forty-five (45) days within which to
consider this Letter Agreement. You further acknowledge that
by virtue of being presented with this Letter Agreement, you
have been advised in writing to consult with legal counsel
prior to executing this Letter Agreement. You acknowledge
that if you execute this Letter Agreement prior to the
expiration of forty-five (45) days, or choose to forgo the
advice of legal counsel, you do so freely and knowingly, and
waive any and all future claims that such action or actions
would affect the validity of this Letter Agreement.
<PAGE>
- You understand that you may cancel this Letter Agreement
at any time on or before the fifteenth (15th) day following
the date on which you sign this Letter Agreement. To be
effective, the decision to cancel must be in writing and
delivered to St. Paul, personally or by certified mail, to
the attention of:
Senior Vice President - Human Resources
St. Paul Fire and Marine Insurance Company
385 Washington Street, Mail Code 516A
St. Paul, Minnesota 55102-1396
on or before the fifteenth (15th) day after you sign
the Letter Agreement. No payments pursuant to the
first paragraph of Section I above will be issued
until sixteen (16) days have elapsed after you have
signed this Letter Agreement and St. Paul has
received this Letter Agreement. Thereafter, all Cash
Severance Payments will be made no later than the
twentieth (20th) day after St. Paul has received your
signature on this Agreement.
V. MISCELLANEOUS PROVISIONS
------------------------
This Letter Agreement may not be further amended or
terminated without the prior written consent of you and
St. Paul.
This Letter Agreement may be executed in any number of
counterparts which together shall constitute but one
agreement.
The rights and obligations described in this Letter
Agreement may not be assigned by either party without
the prior written consent of the other party, except
that St. Paul may assign its rights or delegate its
obligations to any direct or indirect wholly owned
subsidiary of The St. Paul Companies, Inc., without your
consent. This Letter Agreement shall be binding on and
inure to the benefit of our respective successors and,
in your case, your heirs and other legal
representatives.
Any controversy or claim between St. Paul and you
arising out of this Letter Agreement will be resolved by
binding arbitration in the State of Minnesota using the
Laws of the State of Minnesota in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. Any judgment on the award rendered by the
arbitration(s) may be entered in any court having
jurisdiction over such matters.
<PAGE>
If you are in agreement with the terms of this letter, please
indicate that acceptance by signing below. Keep one original
for your files and return the other to me. To the extent
that the content of this letter conflicts in any way with
previous written or oral communication between you and any
other representatives of The St. Paul Companies, Inc., the
content of this letter will control and take precedence over
such previous communication.
STEPHEN W. LILIENTHAL THE ST. PAUL COMPANIES, INC.
/s/ Stephen W. Lilienthal By /s/ James E. Gustafson
-------------------------- ----------------------------
Date: As of August 5, 1999 Its: President and
-------------------- Chief Operating Officer
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Date: As of August 5, 1999
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