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8-K - FORM 8-K - DELPHI FINANCIAL GROUP INC/DE | w81039e8vk.htm |
Exhibit 10.1
December 29, 2010
[Name]
c/o Reliance Standard Life Insurance Company
2001 Market Street, Suite 1500
Philadelphia, Pennsylvania 19103-7303
c/o Reliance Standard Life Insurance Company
2001 Market Street, Suite 1500
Philadelphia, Pennsylvania 19103-7303
Re: | Amended and Restated Award Agreement |
Dear [Name]:
This agreement (the Agreement) will serve to amend and restate the Stock Option Award
Agreement between Delphi Financial Group, Inc. (Delphi) and you dated August 17, 2009 (the
Existing Agreement). In such connection, it is hereby confirmed that, on December 29, 2010, (a)
the Compensation Committee (the Committee) of the Board of Directors of Delphi has, pursuant to
Sections 5, 6(a) and 9(d) of the 2003 Employee Long-Term Incentive and Share Award Plan, as amended
(the Plan), granted to you 25,854 Restricted Shares in exchange for options to purchase up to
60,000 shares of Delphis Class A Common Stock (the Stock), (b) you have surrendered options to
purchase up to 80,000 shares of the Stock as consideration for the modification of the financial
performance goals contained in the Existing Agreement and (c) such goals, as so modified, shall be
as set forth herein. This agreement, once countersigned by you, shall constitute an Award
Agreement as defined in Section 2(c) of the Plan. Capitalized terms used but not defined herein
have the meanings given to them in the Plan.
After giving effect to the aforementioned matters, the Awards having been granted to you
consist of options to purchase up to 60,000 shares of the Stock at the price of $24.91 per share
(the Options) and 25,854 Restricted Shares (the Restricted Shares). Such Awards are subject in
all respects to the terms and conditions described herein.
As of the date hereof, the Restricted Shares shall be issued in book-entry form to an account
established in your name at Delphis transfer agent, American Stock Transfer and Trust Company.
Unless and until the Restricted Shares are forfeited pursuant to the provisions of this Agreement,
you shall be the beneficial owner of the Restricted Shares and shall have the rights of a
stockholder of Delphi, including voting rights and
[Name]
December 29, 2010
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the right to receive dividends at the times and in the manner paid to stockholders generally,
subject to the restriction that none of the Restricted Shares may be sold, exchanged, transferred,
assigned, pledged, hypothecated or otherwise disposed of or hedged in any manner (collectively, the
Restrictions).
The Options will become exercisable and the Restrictions relating to the Restricted Shares
will lapse, in accordance with the procedures set forth herein, if and to the extent that Reliance
Standard Life Insurance Company of Texas and its consolidated subsidiaries (collectively, the RSL
Companies and, each, an RSL Company) meet the financial performance goal described in the
following paragraph, as measured and determined in accordance with the provisions of Exhibit A
hereto:
If the RSL Companies aggregate Adjusted Pre-Tax Operating Income, as defined in Exhibit A
hereto (Adjusted Pre-Tax Operating Income), for the period consisting of Delphis 2009, 2010,
2011 and 2012 fiscal years (the Performance Period) is at least $696,791,000, (i) 60,000 Options
shall become exercisable and (ii) the Restrictions shall lapse with respect to 25,854 of the
Restricted Shares. Alternatively, if the RSL Companies aggregate Adjusted Pre-Tax Operating
Income for the Performance Period does not reach $696,791,000, but is greater than $657,073,000,
(x) a reduced number of the Options shall become exercisable, such number to be determined by
interpolating between zero and 60,000 in relation to the point at which the Adjusted Pre-Tax
Operating Income amount falls in the range between $657,073,000 and $696,791,000 and (y) the
Restrictions shall lapse with respect to a reduced number of the Restricted Shares, such number to
be determined by interpolating between zero and 25,854 in relation to the point at which the
Adjusted Pre-Tax Operating Income amount falls in such range, in both cases rounding the number
obtained to the nearest whole number. For example, if the RSL Companies aggregate Adjusted
Pre-Tax Operating Income for the Performance Period were exactly $676,927,000, 30,000 Options would
become exercisable and the Restrictions would lapse with respect to 12,927 of the Restricted
Shares.
[Name]
December 29, 2010
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December 29, 2010
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In addition, if, during the Performance Period, your employment with Delphis subsidiary,
Reliance Standard Life Insurance Company (RSL), terminates due to death or Disability or is
terminated by RSL without Cause or by you for Good Reason, then, notwithstanding any provisions
hereof or of the Plan to the contrary, the Options will become exercisable and the Restrictions
shall lapse to such extent, if any, as would have been the case pursuant to such paragraph if not
for such termination; provided, however, that the number of Options that becomes
exercisable and the number of Restricted Shares whose Restrictions shall lapse will, in each case,
be reduced by a percentage equal to the percentage of the Performance Period during which you were
not employed by RSL by reason of such termination. For purposes of this paragraph, the following
definitions shall apply:
Disability shall mean an illness, injury, accident or condition of either a physical or
psychological nature as a result of which you are unable to perform substantially the duties and
responsibilities of your position during a period of 180 days during a period of 365 consecutive
calendar days.
Cause shall mean (i) conviction of a felony or other crime involving fraud, dishonesty or
moral turpitude, (ii) fraud or intentional misrepresentation, embezzlement, misappropriation or
conversion of assets or opportunities of Delphi or any Subsidiary thereof, or any unauthorized
disclosure of confidential information or trade secrets of Delphi or any Subsidiary thereof (a
Breach of Confidentiality), or (iii) gross neglect of duties of your office specified by the
Board of Directors of RSL.
Good Reason shall mean (i) reduction of your base salary for any fiscal year to less than
100 percent of the rate of base salary in effect for you as of the date of this Agreement; or (ii)
the failure of RSL to continue in effect any retirement, life insurance, medical insurance or
disability plan in which you were participating of as the date of this Agreement, except, as to any
such plan, where RSL provides you with a plan that provides substantially comparable benefits or
where the discontinuation of such plan applies generally with respect to the employees of RSL (or,
in the case of a plan furnished only
[Name]
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to a specified group of RSL employees, with respect to such group).
Options which do not become exercisable pursuant to the provisions of this Agreement shall
expire and terminate in their entirety without becoming exercisable. Restricted Shares whose
Restrictions do not lapse pursuant to such provisions shall be forfeited in their entirety,
effective on the date on which Delphi provides the written notification contemplated by the third
following paragraph following the completion of the Performance Period indicating the number of
Restricted Shares whose restrictions have failed to lapse. In addition, if you terminate your
employment with RSL during the Performance Period other than for Good Reason, death or Disability,
the Restricted Shares shall be forfeited in their entirety, effective immediately upon such
termination.
For purposes of application of the foregoing provisions relating to the exercisability of the
Options, the following procedures shall apply:
Each determination of Adjusted Pre-Tax Operating Income shall be made by Delphi, based upon a
statement of operations of the RSL Companies for the applicable period conforming to the provisions
of Exhibit A hereto and in form and substance reasonably acceptable to Delphi.
Delphi shall notify you in writing, within 65 days following the close of the Performance
Period (or, if later, within 10 days from the date on which Delphi receives the statement of
operations with respect to the Performance Period pursuant to the preceding paragraph) of its
determination as to the level of aggregate Adjusted Pre-Tax Operating Income achieved and, based on
such determination, the extent to which (if any) the Options have become exercisable and the
Restrictions relating to the Restricted Shares have lapsed pursuant to the fifth (or, if
applicable, sixth) paragraph of this Agreement. Options having become exercisable, as described in
such notice, shall for all purposes of the Plan be exercisable immediately as of the date of such
notice, and lapsing of the Restrictions with respect to the Restricted Shares, as described in such
notice, shall for all such purposes
[Name]
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be deemed to have occurred as of the date of such notice.
Options that become exercisable as provided in this Agreement will, if not sooner exercised or
terminated pursuant to the provisions hereof, terminate at the close of business on August 5, 2019.
The Options are in all respects subject to each of the terms and conditions of the Plan, except as
otherwise specifically provided herein and except that: (i) the provisions of Sections 5(b)(iii),
(iv), (vi) and (viii) of the Plan will not limit your ability to exercise, following a termination
of your employment by RSL or for the other reasons set forth therein, Options that have become
exercisable as of the date of such termination or that become exercisable thereafter pursuant to
the provisions of clause (c) above; provided, however, that the Options will terminate in their
entirety upon the occurrence of a Breach of Confidentiality on your part occurring subsequent to
such termination of employment; (ii) for purposes of Section 5(b)(v) of the Plan, your discharge
for cause shall result in the termination of Options that are exercisable at the time of such
discharge only where the Committee determines that the discharge was based on a Breach of
Confidentiality on your part; and (iii) the exercise price for the Options, as well as the minimum
amount of taxes required, in the Companys judgment, to be withheld under applicable federal, state
and local law in connection with any exercise of the Options, may be paid by your directing that
Delphi withhold from the shares to be issued pursuant to such Options a number of shares having a
market value equal to such exercise price and/or tax withholding amount, so long as such payment
method will not, in Delphis judgment, result in adverse accounting consequences for Delphi.
In addition, if RSL terminates your employment without Cause or if you terminate your
employment for Good Reason (as such term is defined above), in either case subsequent to the
occurrence of a Change of Ownership, and, as of the date of such termination (the Termination
Date), the Options then remain outstanding but have not become exercisable (whether such Options
are then exercisable for shares of Delphi or another company, cash or other property) and the
Restricted Shares then remain outstanding, subject to the Restrictions, then, so long as the
Performance Condition has been satisfied as of the Termination Date, such Options shall immediately
become
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exercisable in their entirety and the Restrictions shall immediately lapse in their entirety as to
such Restricted Shares. For purposes of this paragraph:
Change of Ownership shall mean, in addition to the events specified in the definition of
such term contained in the Plan, the occurrence of any transaction pursuant to which Delphi ceases
to own, directly or indirectly, a majority of the total voting power of the voting securities of
RSL.
Performance Condition shall mean the attainment by the RSL Companies, for the period
commencing on January 1, 2009 through and including the full calendar quarter most recently having
been completed as of the Termination Date, of aggregate Adjusted Pre-Tax Operating Income in an
amount representing a compound average annualized growth rate of at least one percent (1%),
utilizing $160,254,000 as the base amount. For example, as to a Termination Date occurring on July
12, 2011, the Performance Condition would relate to the period from January 1, 2009 through June
30, 2011, and would require that aggregate Adjusted Pre-Tax Operating Income for such period equal
at least $407,886,574.
If you are in agreement with and accept each of the terms and conditions of the Options and
the Restricted Shares, as described above, please confirm such agreement and acceptance by
executing and dating both counterparts of this Agreement and returning one fully executed
counterpart to me. The other counterpart should be retained for your files.
[Name]
December 29, 2010
Page 7
December 29, 2010
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Very truly yours, Chad W. Coulter Senior Vice President, Secretary and General Counsel |
Agreed to and accepted: |
||||
[Name] | ||||
Exhibit A
to
Stock Option Award Agreement
to
Stock Option Award Agreement
Adjusted Pre-Tax Operating Income
Capitalized terms used but not defined herein shall have the meanings given to them in the
Amended and Restated Award Agreement to which this Exhibit A is attached (the Option Agreement).
For purposes of the Option Agreement, Adjusted Pre-Tax Operating Income shall be determined for
each of the 2009, 2010, 2011 and 2012 fiscal years and shall consist, for each such year, of the
consolidated net income of the RSL Companies, excluding realized investment gains and losses and
before extraordinary gain or loss and federal income tax expense, with the following additional
adjustments:
(a) the effect, whether positive or negative, on the RSL Companies net investment income of
each and every Alternative Investment held by any of such companies during such year shall be
eliminated, with the same effect as if such Alternative Investment had not been held by any of the
RSL Companies at any time during such year. For this purpose, an Alternative Investment shall
mean an investment (which, for this purpose, shall be deemed to include a derivative instrument
except as provided in the following sentence) whose changes in fair value (positive or negative)
are included in net investment income for purposes of Delphis consolidated financial statements
for such year, including but not limited to investments in investment funds organized as limited
partnerships and limited liability companies, trading account securities and hybrid financial
instruments accounted for under Statement of Financial Accounting Standards No. 155 or any
subsequent replacement thereof or similar accounting pronouncement. For the purpose of this
definition, an Alternative Investment shall not include any derivative instrument utilized for
purposes of funding the RSL Companies interest crediting obligations under indexed annuities.
(b) the amount of the RSL Companies net investment income for such year shall, after taking
into account all adjustments made with respect to such year pursuant to the preceding clause (a),
be adjusted upward by adding to such amount the product of (i) five percent (5%) (the Substituted
Return Amount) and (ii) the Average Alternative Asset Balance for such year. For this purpose,
the Average Alternative Asset Balance shall mean, for
such year, (x) the sum of the carrying values of the Alternative Investments (other than derivative
instruments) held by the RSL Companies on the last business day of each of the twelve calendar
months in such year, divided by (y) twelve.
(c) for purposes of all calculations relating to the amortization of the RSL Companies
deferred acquisition costs performed with respect to such year which take into account the return
of Alternative Investments for such year, the Substituted Return Amount shall be utilized in lieu
of the actual return percentage of the Alternative Investments for such year.
(d) for purposes of all calculations relating to the amortization of the RSL Companies
deferred acquisition costs performed with respect to such year, the effect of realized investment
gains and losses, including but not limited to losses arising from other than temporary impairment,
shall be removed with the same effect as if such realized gains and/or losses had not occurred.
(e) the effects of (i) dividends received with respect to shares of stock of Delphi held by
any of the RSL Companies and (ii) the payment of interest on surplus notes issued by any of the RSL
Companies to Delphi and/or any subsidiary of Delphi shall be eliminated with the same effect as if
such dividends had not been paid and such interest payments had not been made.
(f) with respect to the RSL Companies Policy Administration and Claims System (the System)
presently licensed by RSL from Delphi pursuant to the Master Software License Agreement dated as of
September 1, 2002 (the Agreement), (i) all payments made by RSL pursuant to the Agreement shall
be eliminated with the same effect as if such payments had not been made and (ii) depreciation
expenses associated with the System shall be recognized by the RSL Companies to the same extent as
if RSL were the owner of the System.
(g) there shall be added as an additional item of expense for each year an amount equal to the
excess, if any, of (i) five percent (5%) of the aggregate premiums collected by the RSL Companies
for such year with respect to disability (short-term and long-term) and New York Disability
Benefits Law (DBL) coverages under policies issued pursuant to their Integrated Employee Benefits
program (including any similar future program, regardless of its name) over (ii) the aggregate of
all cash
compensation paid by the RSL Companies for such year to their affiliate, Matrix Absence
Management, Inc. (Matrix), or any other affiliate of the RSL Companies which in the future
provides services with respect to such program of a nature similar to those presently provided by
Matrix.
All accounting terms used herein shall be construed in accordance with United States Generally
Accepted Accounting Principles, as in effect as of January 1, 2009 (GAAP), and all calculations
relating to Adjusted Pre-Tax Operating Income required by this Exhibit A shall be made according to
GAAP, subject only to the modifications specifically required by clauses (a) through (g) of the
preceding paragraph. However, if subsequent to January 1, 2009, any change to GAAP becomes
effective which either the RSL Optionholders (as such term is defined below), on one hand, or
Delphi, on the other, believes should be taken into account for purposes of calculating Adjusted
Pre-Tax Operating Income hereunder (including, for example, a situation in which such change is
anticipated to have a significant impact on Delphis reported results), Delphi and the RSL
Optionholders will jointly discuss and consider in good faith whether any amendments to this
Exhibit A would be appropriate to take such change into account, and jointly recommend to the
Committee for adoption any amendments mutually determined to be appropriate for such purpose.
All calculations of Adjusted Pre-Tax Operating Income shall be subject to the further Special
Adjustments for which this Exhibit A provides. The determination of Adjusted Pre-Tax Operating
Income will be made by Delphi annually within 65 days of the end of each year.
Special Adjustments
Adjustment events: Each of the following shall constitute an Adjustment Event for
purposes of the Option Agreement:
(A) the payment by the RSL Companies of stockholder dividends (other than dividends
paid by a RSL Company to another RSL Company) exceeding $58,000,000 in the aggregate during
the period consisting of Delphis 2011 and 2012 fiscal years (such excess dividends, Excess
Dividends);
(B) the making by Delphi of capital and/or surplus contributions to any of the RSL
Companies during the period consisting of Delphis 2011 and 2012 fiscal years,
regardless of the form of such contributions, which exceed $10,000,000 in the aggregate
(such excess contributions, Excess Contributions);
(C) the acquisition by Delphi, directly or indirectly, of a company or a division or
business unit thereof by merger, consolidation, purchase of equity interests or assets or
any other similar transaction, the business activities of which are substantially related to
any of the business activities then conducted (or intended to be conducted subsequent to
such acquisition) by the RSL Companies.
If an Adjustment Event of the type described in clause (A) above occurs, Adjusted Pre-Tax
Operating Income for the applicable year(s) shall be increased by the amount of investment
income that would have been earned on the amount(s) constituting Excess Dividends for the
relevant portion of the Performance Period, and if an Adjustment Event of the type described
in clause (B) above occurs, Adjusted Pre-Tax Operating Income for the applicable year(s)
shall be decreased by the amount of investment income deemed to have been earned on the
amount(s) constituting Excess Contributions for the relevant portion of the Performance
Period. For purposes of determining the amount of investment income that would have been
earned or deemed to have been earned pursuant to the preceding sentence, a yield of 5% per
annum shall be assumed.
If an Adjustment Event of the type described in the preceding clause (C) occurs, Delphi
executive management, in consultation with the Chief Executive Officer of the RSL Companies,
may recommend to the Committee any amendments or modifications to the conditions to vesting
of the Options relating to the financial performance of the RSL Companies, as set forth in
clauses (a) and (b) at page 2 of the Option Agreement (the Vesting Provisions), which
Delphi executive management believes in good faith to be necessary or appropriate to take
into account the effect of such Adjustment Event, including but not limited to the
adjustment of one or more of the Adjusted Pre-Tax Operating Income thresholds set forth
therein. Upon receipt of any such recommendation, the Committee shall determine in its sole
discretion whether to amend or modify the Vesting Provisions based on such Adjustment Event,
and the terms and conditions of any such amendment or modification. Any
such amendment or modification shall be communicated in writing to, and shall be final and
binding on, each holder of Stock options whose terms contain goals relating to Adjusted
Pre-Tax Operating Income for the 2009-2012 period (collectively, the RSL Optionholders).
For the purpose of avoidance of doubt, no such amendment or modification shall be deemed to
have materially and adversely affected the rights of any RSL Optionholder under the Options
for any purpose of Section 9(d) of the Plan.
Employee option expenses: SFAS 123R expenses attributable to options granted to RSL
employees on or after January 1, 2009 (other than the options granted to the RSL
Optionholders) shall be included as items of expense.
Arbitration
Delphi shall provide each RSL Optionholder with a detailed written calculation supporting
Delphis determination as to whether the applicable goal has been achieved (each, a Delphi
Determination) and, where such calculation indicates such goal having been achieved,
confirming the number of Options having become exercisable as a result thereof, within
ninety (90) days after the completion of the 2012 fiscal period. If a majority of the RSL
Optionholders shall disagree with any Delphi Determination, the RSL Optionholders shall give
written notice of such disagreement to Delphi within ten (10) business days after receipt of
such Delphi Determination. If within twenty (20) business days after Delphis receipt of
the notice of disagreement from the RSL Optionholders referenced in the immediately
preceding sentence, Delphi and the RSL Optionholders are unable to agree with regard to any
Delphi Determination, the disagreement may be submitted to arbitration by either Delphi or
the RSL Optionholders, which arbitration determination shall be final and binding on the
parties. The party instituting the arbitration procedures shall give written notice to the
other party of its desire to arbitrate and such notice shall specify the name and address of
the person designated to act as an arbitrator on its behalf. Within twenty (20) business
days after the service of this notice, the other party shall notify the first party of the
appointment of its arbitrator within the twenty (20) business day period specified above,
then the appointment of the second arbitrator shall be made in the same manner as
hereinafter provided for the
appointment of a third arbitrator in a case where the two appointed arbitrators are unable
to agree upon a third arbitrator. The two arbitrators so chosen shall meet within 10
business days after the second arbitrator is appointed and shall select the third arbitrator
by mutual agreement. If the two arbitrators shall fail to appoint a third arbitrator within
10 business days after the second arbitrator is appointed, then the third arbitrator shall
be appointed by the American Arbitration Association (AAA), or any organization
successor thereto, in accordance with its prevailing rules. Each arbitrator chosen or
appointed pursuant to the foregoing provisions shall be an active or retired officer of an
insurance or reinsurance company and shall be a disinterested person.
The arbitrators shall review the provisions of this Exhibit A and the Option Agreement, as
well as any other documents or materials supplied by either party supporting such partys
position. The arbitrators shall render their decision with regard to the disputed Delphi
Determination upon the concurrence of at least two of their number not later than thirty
(30) business days after the appointment of the third arbitrator. The decision of the
arbitrators shall be in writing and counterpart copies shall be delivered to each of Delphi
and the RSL Optionholders. In rendering their decision, the arbitrators shall have no power
to modify any of the provisions of this Agreement. All arbitration proceedings shall occur
in Philadelphia, Pennsylvania. Judgment may be entered on the award of the arbitrators and
may be enforced in accordance with the laws of the Commonwealth of Pennsylvania.
Immediately upon a party hereto giving written notice of its desire to arbitrate hereunder,
Delphi agrees upon request to provide the RSL Optionholders with access to the books and
records of the RSL Companies which reasonably relate to the Delphi Determinations
(including, without limitation, examination rights and the right to make abstracts or copies
from such books and records) during the normal business hours of RSL.
Each party shall pay the fees and expenses of the original arbitrator that it appointed (or
in the case of the second party, the arbitrator appointed on its behalf if it should fail to
appoint its own arbitrator). The fees and expenses of the third arbitrator and all other
expenses of the
arbitrators shall be borne by Delphi, on one hand, and the RSL Optionholders, on the other
hand, equally. Each party shall bear the expense of its own counsel and the preparation and
presentation of proof or supportive documentation.