FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10 (39)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into as of October
27th, 2008 by and between CNA Surety Corporation, a Delaware corporation (“Company”),
and Xxxx X. Xxxxx (“Executive”).
W I T N E S S E T H:
WHEREAS, Company and Executive entered into that certain Employment Agreement, dated as of
December 13, 2005 (“Agreement”), pursuant to which Executive serves as the President and Chief
Executive Officer of Company, all as more specifically provided in the Agreement; and
WHEREAS, Company and Executive mutually desire to extend the term of the Agreement, currently
set to expire on December 31, 2008, and to modify certain other provisions of the Agreement, all
in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, as well as the mutual promises set forth
herein, the receipt and sufficiency of which are hereby acknowledged, Company and Executive hereby
agree as follows:
1. Employment Term. Section 1 of the Agreement is hereby amended to extend the Term from December
31, 2008 to December 31, 2011, or such earlier date as of which Executive’s employment is
terminated in accordance with Section 6 of the Agreement (“Extended Term”). The Extended Term
shall be upon all of the same terms, covenants and conditions as those contained in the Agreement,
as amended by this Amendment, except that all references to the word “Term” shall mean the
“Extended Term.”
2. Compensation.
(a) Base Compensation. Section 3(a) of the Agreement is hereby amended to increase the Base
Compensation to four hundred seventy thousand dollars ($470,000) beginning January 1, 2009. In
addition, at the discretion of the Board, the Base Compensation may be increased annually beginning
January 1, 2010 based upon market considerations, as well as Executive’s performance and
responsibilities.
(b) Stock Option Grant. Section 3(d) of the Agreement is hereby amended to provide that the
annual stock option grant described therein shall be equal to an estimated economic value of fifty
percent (50%) of Base Compensation during the Extended Term beginning with the 2009 performance
year. The foregoing grant shall continue to be subject to the approval of the Committee and to be
determined by the Company.
(c) Internal Revenue Code. Section 3(e) of the Agreement is hereby deleted and replaced in
its entirety with the following language:
For avoidance of doubt respecting awards to Executive under Sections 3(b), 3(c) and
3(d) hereof, the provisions of the Plan relating to the deferral of payments to
satisfy Section 162(m) of the Internal Revenue Code of 1986 (“Code”) or any
successor provision shall apply. The Company will defer until the first tax year in
which it reasonably anticipates, or should reasonably anticipate, that deductibility
is not limited by said Section 162(m) the payment of all compensation to which
Executive is entitled under this Agreement and/or the Plan which the Company
reasonably anticipates would be non-deductible under said Section 162(m) or any
successor provision with respect to deductibility of executive compensation if paid
in the tax year in which it would otherwise be payable; provided that such amounts
shall in any event be paid not later than the period beginning on the date on which
Executive separates from service (as defined in Section 409A of the Code) and ending
on the later of the last day of the year
in which the Executive separates from service or the fifteenth day of the third
month following the separation from service;
provided further, that if any payment
is deferred pursuant to this Section 3(e) until after Executive has separated from
service and Executive is a specified employee as defined in Section 409A on the date
of the separation from service, the preceding proviso shall be applied by
substituting the day that is six months after Executive’s separation from service
for the date of separation of service.
(d) Deferral. Section 3(f) of the Agreement is hereby amended to provide that such payments
shall also be subject to deferral, as the Company determines is required by law.
3. Other Benefits. Section 4 of the Agreement is hereby amended to delete the phrase “and
long-term incentive compensation plans” from the first sentence thereof such that Executive shall
no longer be entitled to any benefits under any such plans.
4. Termination of Employment.
(a) Termination by the Company Without Cause or For Convenience/Termination by Executive for
Good Reason.
(1) Severance Payments and Other Benefits. Section 6.3(a) of the Agreement is hereby deleted
and replaced in its entirety with the following language:
The Company shall pay to Executive severance consisting of an amount equal to the
sum of the Executive’s Base Compensation, Bonus at target and long-term incentive
compensation award at target, prorated based on the total number of months from the
date of termination through December 31, 2011; however, in no event shall the period
of time for which such severance is calculated be less than twelve (12) months.
Other than as set forth in this subset (a) the Company shall have no further
obligations under this Agreement in the event of such termination. The severance
shall be paid in equal monthly installments following such termination. The Company
shall also pay the Executive within thirty (30) days of his termination: (i) any
unpaid base salary prorated to the date of termination; (ii) any previous year’s
earned but unpaid Bonus; and (iii) unpaid cash entitlements, if any, earned and
accrued pursuant to the terms of the applicable Company plan or program (which
unpaid cash entitlements shall not include any unpaid Bonus or any unpaid long-term
incentive award or other award under the plan for the year in which such termination
occurs) prior to the date of the date of termination. Further, within thirty (30)
days after the Compensation Committee of the Company’s Board of Directors reviews
actual performance results for the entire calendar year in which the termination
occurs and determines Executive’s achievement of target levels of performance, the
Company shall pay the Executive any Bonus and long-term incentive compensation award
prorated to the date of termination. Executive agrees to be bound by the covenants
set forth in Sections 7 through 13 hereof prior to, as of and subsequent to the
termination date for such periods of time as provided for in said sections
respectively. In addition, Executive shall continue to participate in such health
benefit plans in which he was enrolled prior to termination throughout the term of
the payments set forth in this Section 6.3(a), with said period of participation in
any case to run concurrently with any period of COBRA coverage to which Executive
may be entitled. To the extent such health benefit coverage extends beyond the
aforesaid period of COBRA coverage, and to the extent that in such case the
difference between the premium paid by Executive for participation in such health
benefit plans and the premium that would be payable by an employee receiving COBRA
coverage constitutes taxable income to Executive and deferred compensation, subject
to Section 409A of the Code, Executive shall not receive any payment or other
benefit in lieu of such coverage
and, in any event, any reimbursement of medical expenses shall be paid not later
than the end of the year following the year in which Executive incurs the expense.
Other than as set forth in this Section 6.3(a), the Company shall have no further
obligations to Executive under this
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Agreement in the event of a termination of
Executive’s employment by the Company Without Cause or any termination of
Executive’s employment by Executive for Good Reason.
(2) Timing and Other Conditions of Payments. Section 6.3(d) of the Agreement is hereby
amended to add the following language to the end thereof:
Any term or provision in this Agreement to the contrary notwithstanding, the timing
and other conditions of any severance or other payments to be made under this
Agreement shall be subject to the requirements of all applicable laws and
regulations, whether or not they are in existence or in effect when this Agreement
is executed by the parties hereto. In the event of any termination of employment as
described in this Section 6.3, Executive agrees to continue to be bound by the
covenants set forth herein at Sections 7 through 13 subsequent to the date of such
termination for such periods of time as provided for in said sections respectively.
(b) Failure to Extend Agreement.
(1) Severance Payments and Other Benefits. Section 6.5(a) of the Agreement is hereby deleted
and replaced in its entirety with the following language:
Following December 31, 2011, if the Company fails to extend Executive’s employment
for any reason other than for Cause, in which case Paragraph 6.2 (relating to
termination for Cause) shall apply, or if the Company and Executive, after good
faith negotiations have not mutually agreed to the essential terms of, and entered
into a new employment agreement prior to March 31, 2012, Executive’s employment
shall terminate on April 1, 2012. Upon the termination of Executive’s employment
pursuant to this Section, the Company shall pay Executive severance consisting of
the sum of: (i) Executive’s then current annual Base Compensation; (ii) Executive’s
then current annual target Bonus; and (iii) Executive’s then current Long Term
Incentive Compensation target award. The severance shall be paid in twelve (12)
equal monthly installments following such termination. The Company shall also pay
Executive within thirty (30) days of his termination: (i) any unpaid base salary
prorated to the date of termination; (ii) any previous year’s earned but not paid
Bonus; and (iii) unpaid cash entitlements, if any, earned and accrued pursuant to
the terms of the applicable Company plan or program (which unpaid cash entitlements
shall not include any unpaid Bonus or any unpaid long-term incentive award or other
award under the plan for the year in which such termination occurs) prior to the
date of termination. Further, within thirty (30) days after the Compensation
Committee of the Company’s Board of Directors reviews actual performance results for
the entire calendar year in which the termination occurs and determines Executive’s
achievement of target levels of performance, the Company shall pay the Executive any
Bonus and long-term incentive compensation award prorated to the date of
termination. In the event of any termination of or failure to extend employment as
described in this Section 6.5, Executive agrees to continue to be bound by the
covenants set forth herein at Sections 7 through 13 subsequent to the date of such
termination for such periods of time as provided for in said sections respectively.
In addition, Executive shall continue to participate in such health insurance plans
in which he was enrolled at the time his employment ends throughout the term of the
payments set forth in this Section 6.5(a), as if he were still employed by the
Company, said participation in any case to run concurrently with any period of COBRA
coverage to which Executive may be entitled. To the extent such health benefit
coverage extends
beyond the aforesaid period of COBRA coverage, and to the extent that in such case
the difference between the premium paid by Executive for participation in such
health benefit plans and the premium that would be payable by an employee receiving
COBRA coverage constitutes taxable income to Executive and deferred compensation,
subject to
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Section 409A of the Code, Executive shall not receive any payment or
other benefit in lieu of such coverage and, in any event, any reimbursement of
medical expenses shall be paid not later than the end of the year following the year
in which Executive incurs the expense.
(2) Continued Employment Status. Section 6.5(c) of the Agreement is hereby deleted and
replaced in its entirety with the following language:
During such period as the Executive shall continue to be employed by the Company
between January 1, 2012 and April 1, 2012: (i), Executive shall be paid under the
same terms and at the same rate as was in effect on December 31, 2011; and (ii).
until April 1, 2012 Executive shall continue to participate, at the active employee
rates, in such health benefits plans on the same basis as he was participating as of
December 31, 2011.
(c) Release. Section 6.6 of the Agreement is hereby amended to add the following language to
the end thereof.
The Company shall furnish the release to Executive as soon as practical, but in no
event more than ten (10) days after the date on which Executive’s employment is
terminated. If Executive executes and delivers such release to the Company prior to
March 15 of the year following the year in which his employment is terminated (or,
if Executive has the right to revoke such release pursuant to the Age Discrimination
in Employment Act or any other applicable law, executes and delivers such release at
such time that such revocation period will expire prior to such March 15), then all
Payments (as defined in Section 6.8) that would otherwise have been paid prior to
the date on which the release is executed and delivered shall be paid to Executive
in a lump sum, without interest, as soon as practical after such release is
delivered (or such revocation period expires), but not later than such March 15. If
Executive fails to execute and deliver such release prior to the date set forth in
the preceding sentence, then the Company shall have no obligation to pay to
Executive any Payments that would otherwise have been payable prior to such March
15.
(d) Involuntary Termination Rule. The following language is hereby added to the Agreement as
Section 6.7:
6.7. Involuntary Termination Rule. Any term or provision of this Section 6 or
elsewhere in the Agreement to the contrary notwithstanding, the following provisions
shall apply to any payments to be made to Executive pursuant to Section 6.1 on
termination by reason of Permanent Disability, Section 6.3, or Section 6.5(a)
(collectively, the “Payments”):
(a) Each Payment to be made on a separate date shall be treated as a separate
Payment for purposes of §409A of the Code.
(b) The aggregate amount of all Payments, if any, payable after March 15 of the
year following the year that includes the date of such involuntary termination (the
“Termination Date”) but before the date that is six months after the Termination
Date (increased by any other amounts of taxable compensation paid to Executive
during such period that would not have been paid but for such termination) shall not
exceed two times the lesser of (i) Executive’s Base Compensation on the last day of
the year
immediately prior to the year that includes the Termination Date or (ii) the
limit in effect under §401(a)(17) of the Code during the year that includes the
Termination Date, as determined by the Company.
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(c) To the extent the Payments payable during the period described in
subparagraph (b) above would otherwise exceed the limit of subparagraph (b), such
Payments shall be reduced to the extent necessary to satisfy the requirement of
subparagraph (b) as determined by the Company, and the amount by which the Payments
are reduced will be paid to Executive in a lump sum, without interest, on the first
business day that is six months after the Termination Date as determined by the
Company. However, if Executive dies during such period, the limits of subparagraph
(b) shall not apply to Payments to the Executive’s beneficiaries or estate.
(d) If Executive’s termination of employment does not constitute a “separation
from service” as defined in §409A of the Code, as determined by the Company, then
all Payments that would otherwise be payable after March 15 of the year following
the year that includes the Termination Date, and that exceed the limit described in
Section 6.8(b), shall be deferred until six months after Executive has incurred a
separation from service, as so defined, and all Payments that are so deferred shall
be paid in a lump sum, without interest, on the first business day that is at least
six (6) months after Executive has incurred a separation from service.
5. Notices. The notice address for the Company set forth in Section 26 of the Agreement is hereby
amended to be CNA Surety Corporation, 000 X. Xxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxx 00000, Attn:
Corporate Secretary. Further, the notice address for Executive is hereby amended to be Xx. Xxxx X.
Xxxxx, ______________________________.
6. Miscellaneous. Capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Agreement, unless otherwise clearly indicated by the text or context hereof, and the
recitals set forth above shall be incorporated within and construed to be an integral part of this
Amendment. Except as modified by this Amendment, the Agreement remains in full force and effect in
accordance with its terms, covenants, and conditions, all of which are hereby ratified and
confirmed by the parties.
IN WITNESS WHEREOF, the parties have duly entered into this Amendment as of the date first
above written.
| CNA Surety Corporation | Xxxx X. Xxxxx | |||
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