EMPLOYMENT AGREEMENT
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EMPLOYMENT AGREEMENT dated the 31st day of December, 1997,
between Front Royal, Inc., a North Carolina corporation with offices at
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000 (the
"Company"), and J. Xxxx Xxxxx ("Employee").
W I T N E S S E T H:
1. Employment and Term.
The Company hereby employs Employee as President and Chief
Executive Officer of the Company, and Employee hereby accepts such
employment, on the terms and conditions set forth herein, for a term of
three (3) years, commencing on the date hereof, unless sooner terminated
or extended as herein provided. The term of this Agreement and Employee's
employment hereunder shall be automatically renewed for additional
periods of three (3) years unless written notice to the contrary shall be
given by either party to the other, not less than ninety (90) days before
the end of the initial or any renewal term (the initial term plus any
renewals thereof shall be referred to herein as the "Term"), in which
case this Agreement shall terminate at the end of such term, and neither
party hereto shall thereafter have any further rights or obligations
hereunder except the obligations of Employee under Section 3(b), (c) and
(d) hereof and any obligations of the Company under Sections 5, 6 and 7
hereof. The date upon which this Agreement and Employee's employment
hereunder shall terminate, whether pursuant to the terms of this Section
1, or pursuant to any other provision of this Agreement, shall
hereinafter be referred to as the "Termination Date."
2. Compensation.
(a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services
as an officer, director and/or member of committees of the Company or any
subsidiaries or affiliates of the Company ("Affiliates"), the Company
shall pay Employee a salary at the rate of Two Hundred Seventy Five
Thousand Dollars ($275,000.00) per annum ("Base Salary"), payable in
periodic installments in accordance with the Company's regular payroll
practices, as in effect from time to time. Within one hundred eighty
(180) days after the end of each fiscal year of the Company, Employee's
salary shall be reviewed and may be increased at the discretion of the
Board of Directors of the Company ("Board of Directors"). Employee's Base
Salary or such other salary as may be payable to Employee by action of
the Board of Directors, is hereinafter called "Salary".
(b) Within one hundred eighty (180) days after the end
of each fiscal year of the Company, Employee may, in the absolute
discretion of the Board of Directors, receive from the Company a bonus
based on the performance of the Company during the preceding fiscal year.
3. Duties and Restrictions.
(a) During the term of this Agreement, Employee shall
perform all duties and services incident to his position as President and
Chief Executive Officer of the Company, and such other reasonable duties
and services as may from time to time be assigned to him by the Board of
Directors of Front Royal, Inc. All of the duties and services to be
performed by Employee are at all times to be subject to the authority of
the Board of Directors. Employee shall devote his full and exclusive
time, attention and best efforts to the business of the Company and its
Affiliates. Employee hereby accepts such employment and agrees he shall
devote his full skill, abilities and productive time to the performance
of his duties under this Agreement, and he shall not, without the prior
consent of the Board of Directors, render to any third party any services
for compensation or which would interfere with the performance of his
duties hereunder.
(b) Employee will not at any time during the term of
this Agreement or thereafter:
(i) reveal, divulge or make known to any person, firm or
corporation or use for his personal benefit, directly or
indirectly, any confidential or proprietary information received
by him during the course of his employment or prior to the
commencement thereof. For purposes of this paragraph 3(b)(i)
confidential and proprietary information shall be defined to
mean (i) all historical and pro forma projections of loss ratios
incurred by the Company and any of the Affiliates, (ii) all
historical and pro forma actuarial data relating to the Company
and any of the Affiliates, (iii) historical and pro forma
financial results and projections for the Company and its
Affiliates, (iv) all information relating to the Company's or
the Affiliates' systems and software (other than the portion
thereof provided by the vendor to all purchasers of such systems
and software) and (v) all other information relating to the
financial, business or other affairs of the Company and its
Affiliates, including their customers, that is not available to
the general public or generally known or available within the
industry; or
(ii) reveal, divulge or make known to any person, firm or
corporation, or use for his personal benefit, directly or
indirectly, the name or names of any of the customers of the
Company or of any of its Affiliates, nor will he reveal, divulge
or make known, to any person, firm or corporation, or use for
his personal benefit, directly or indirectly, any trade secrets
or any knowledge or information, or any fact concerning any
business methods or operational procedures engaged in by the
Company or its Affiliates (collectively, "Privileged
Information"); provided, however, the restrictions set forth in
this paragraph 3(b)(ii) shall not apply to Employee following
the termination of his employment with the Company or its
Affiliates with respect to any Privileged Information known or
made generally available to the general public or within the
industry.
(c) Employee will not at any time during the term of
this Agreement, and for a period of one (1) year thereafter in the event
Employee's employment is terminated pursuant to Section 4, 5, 6 or 7(a)
hereof or upon the expiration of the term of this Agreement in accordance
with Section 1 hereof, engage in or have any interest in, directly or
indirectly, any Competitive Business, whether as principal, director,
officer, employee, consultant, partner, stockholder,
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director, trustee or manager of any competing corporation, association,
firm or business or otherwise, or directly or indirectly solicit,
interfere with, or endeavor to entice away from the Company or any of its
Affiliates any of their customers or employees. The restrictions
contained in this subsection 3(c) shall not prevent the purchase or
ownership by Employee of not more than three percent (3%) of the
securities of any class of any corporation, whether or not such
corporation is engaged in any Competitive Business, which are publicly
traded on any securities exchange or any "over the counter" market.
Employee will not, for a period of one (1) year following the Termination
Date, employ or associate in any manner in a business relationship with,
any person who was an employee of the Company or any Affiliate at any
time during the term of Employee's employment hereunder. For purposes of
this Agreement, the term "Competitive Business" shall mean the business
of acquiring, holding and operating property and casualty specialty
insurance companies.
The restrictions of this Section 3(c) shall not apply
if the Employee's employment is terminated following a Change of Control.
A "Change of Control" shall be deemed to have occurred (i) upon the sale,
in one or a series of related transactions, of all or substantially all
of the assets of the Company, (ii) if, as a result of one or a series of
related transactions, the holders of the issued and outstanding shares of
Class A Common Stock, Class B Common Stock and Class C Common Stock,
determined on a fully diluted basis as if all outstanding warrants,
options and convertible securities had been exercised or converted,
immediately prior to the effective date for such transaction or last of
such transactions beneficially own (as such term is defined under Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended),
in the aggregate, less than 55% of the issued and outstanding voting
securities of the Company, determined on a fully diluted basis as if all
outstanding warrants, options and convertible securities had been
exercised or converted, or the successor to the Company if such
transaction was a merger or consolidation in which the Company was not
the surviving entity, or (iii) if members comprising the Board of
Directors on the date hereof cease for any reason to comprise at least a
majority of the Board of Directors, provided, that, any Person who
becomes a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors comprising the Board of
Directors on the date hereof (either by a specific vote or by approval of
the proxy statement of the Company in which such Person is named as a
nominee for director, without objection to such nomination) shall be, for
all purposes of this definition, considered as though such Person were a
member of the Board of Directors on the date hereof.
(d) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which Employee may make,
conceive, discover or develop, either solely or jointly with any other
person or persons, at any time during the term of this Agreement or
during the term of his employment or association with the Company or any
Affiliate, whether during working hours or at any other time, and whether
upon the request or suggestion of the Company or otherwise, which relate
to or may be useful in connection with any business now or hereafter
during the term of this Agreement carried on or actively developed by the
Company or any Affiliate, including developments or expansions of its
present fields of operations, shall be the sole and exclusive property of
the Company. Employee shall make full and prompt disclosure to the Board
of Directors of all such writings, inventions, improvements, processes,
procedures and techniques and shall take all actions and shall execute
all documents requested by the Board of Directors to vest the absolute
title thereto in the Company. Employee shall not be entitled to
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receive any additional compensation or reimbursement with respect to such
writings, inventions, improvements, processes, procedures and techniques.
(e) Employee acknowledges that the restrictions
contained in paragraphs (b) and (c) of this Section 3 are reasonable and
necessary in order to protect the legitimate interests of the Company, in
view of the nature of the business in which the Company and its
Affiliates are engaged and the substantial equity interest of Employee in
the Company. If any provision contained in paragraph (b) or (c) of this
Section 3 is adjudged unreasonable in any proceeding, then such provision
shall be deemed modified by reducing the period of time during which such
provision is applicable and/or, if applicable, the geographic area to
which such provision applies, to the extent necessary for such provision
to be adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by
the Company "for cause" at any time, by written notice to Employee, for
any of the following reasons:
(a) If Employee shall willfully violate the provisions
of Section 3 of this Agreement, or shall willfully fail to comply with
any other term or condition of this Agreement or shall grossly neglect
his duties hereunder;
(b) If Employee shall (i) be convicted of a felony or a
crime involving moral turpitude (meaning a crime that includes the
commission of an act of gross depravity, dishonesty or bad morals), or
(ii) commit an act of dishonesty, fraud or embezzlement against the
Company;
(c) If the Company's operating results are substantially
below budget which shall mean 50% or less of the amount set forth on Attachment
1 hereto; or
(d) If Employee fails to comply for any reason with a
reasonable directive of the Board of Directors determined to be in the
best interest of the Company and its shareholders.
In the event of termination pursuant to paragraph (a),
(b) or (d) of this Section 4, then Employee's Salary and right to receive
any fringe benefits pursuant to Section 8 hereof shall terminate on the
Termination Date fixed in a written notice from the Company, which shall
be no earlier than the date of such notice.
In the event of termination pursuant to paragraph (c)
of this Section 4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of twelve (12) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof;
(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months
after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof.
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Thereafter, notwithstanding anything to the contrary contained in this
Agreement, the Company shall have no further obligations to Employee,
except as provided in any stock option or other bonus or incentive plan
to which Employer is entitled, and Employee shall have no further rights
hereunder.
5. Termination by Employee.
Employee shall have no right to terminate his employment
hereunder without the prior written consent of the Board of Directors,
other than by expiration of the term hereof in accordance with Section 1
hereof. In the event Employee elects to have the term of this Agreement
expire, upon the Termination Date the Company shall have no further
obligations to Employee and Employee shall have no further rights
hereunder.
6. Expiration or Termination Without Cause. The Company may
terminate this Agreement at any time without cause or may elect to have
the term of this Agreement expire.
In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire,
Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of eighteen (18) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof; provided,
however, that if the Employee continues to comply with the
covenants contained in Section 3(c) hereof beyond the one year
period set forth therein, then the Employee shall be entitled to
continue to receive Employee's Base Salary for so long as
Employee continues to comply with such covenants, up to an
additional eighteen (18) month period (it being understood that
the maximum time period during which Base Salary will continue
to be paid under this Section 6(i) shall be three (3) years;
(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months
after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death.
(a) If, on account of physical or mental disability,
Employee shall fail or be unable to perform his assigned duties in any
material respect for a period of (i) sixty (60) consecutive days, or (ii)
an aggregate of ninety (90) days during any twelve (12) month period, the
Company may, at its option, thereafter terminate this Agreement and
Employee's employment hereunder upon giving at least thirty (30) days
written notice to Employee.
(b) If Employee dies during the term hereof, this
Agreement shall automatically terminate on the date of his death.
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(c) In the event that this Agreement and Employee's
employment are terminated in accordance with this Section 7, then after
the Termination Date the Company shall have no further obligations
hereunder, except that, in the event of a termination pursuant to
paragraph (a) above, Employee shall be entitled to the benefits described
in Section 6 hereof (without regard to the proviso of Section 6(i)), net
of any payments or benefits to Employee under disability insurance or
similar plans maintained by the Company.
8. Fringe Benefits.
The Company shall provide at the Company's expense to Employee
during the term of the Agreement:
(a) a medical insurance plan covering Employee, his spouse and his
minor children and a disability income insurance policy, which insurance plans
and policies shall be at least comparable to such plans and policies provided
to the Company's other senior executive personnel.
(b) full participation in all other fringe benefits
provided to the Company's senior executive personnel, which fringe
benefits may include, in the sole discretion of the Board of Directors, a
pension plan, a profit sharing plan, a stock option plan and/or a stock
participation plan.
9. Vacation.
Employee shall be entitled, for each year during the term
hereof, to vacation time to be taken at such time or times as shall be
mutually convenient to the Company and Employee.
10. Other Expenses.
During the term of this Agreement, Employee shall be entitled to
be reimbursed for all reasonable business expenses incurred by him in
connection with the performance of his duties hereunder upon the timely
submission and approval of appropriate vouchers therefor, to the Chief
Financial Officer of the Company.
11. Representation by Employee.
Employee represents and warrants that he is not under any
obligation, contractual or otherwise, to any person, firm or corporation
that is inconsistent with this Agreement and his employment hereunder and
that he is free to enter into and perform the terms of this Agreement.
12. Uniqueness of Services.
Employee acknowledges that the services to be rendered under the
provisions of this Agreement are of a special, unique and extraordinary
character and that it would be difficult or impossible to replace such
services and that, by reason thereof, Employee agrees and consents that
if he violates any of the provisions of this Agreement, the Company, in
addition to any other rights and remedies available under this Agreement
or otherwise, shall be entitled to an
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injunction to be issued by a tribunal of competent jurisdiction
restricting Employee from committing or continuing any violation of this
Agreement.
13. Notices.
Any notices provided for or permitted by this Agreement shall be
in writing and shall be deemed to have been duly given when delivered in
person or three (3) days after it is deposited in a United States Postal
Depositary, postage prepaid, registered or certified mail, return receipt
requested, addressed to the party for whom intended at such party's
address set forth below or to such other address as such party may
designate by notice in writing given in the manner provided by this
Section 13, or when actually received by the party for whom such notice
was intended if sent by any other means:
To Employee: J. Xxxx Xxxxx
Front Royal, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000
To The Company: Front Royal, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Chairman of the Board of Directors
14. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement and
understanding between Employee and the Company with respect to the
subject matter hereof and shall supersede any and all other prior
agreements and understandings, whether oral or written, relating thereto
or to the employment of Employee by the Company. This Agreement may not
be rescinded, modified or amended except by an instrument in writing
signed by the parties hereto and any provision hereof may not be waived
except by an instrument in writing signed by the party hereto against
whom any such waiver is sought to be enforced. The waiver by the Company
of a breach by Employee of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by Employee.
15. Partial Invalidity.
The invalidity or unenforceability, by statute, court decision
or otherwise, of any term or condition of this Agreement shall not affect
the validity or enforceability of any other term or condition hereof.
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16. Governing Law.
This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of North Carolina.
17. Assignability.
This Agreement may not be assigned by Employee, and all of its
terms and conditions shall be binding upon and inure to the benefit of
Employee and his heirs and legal representatives and the Company and its
successors. Successors of the Company shall include, without limitation,
any corporation or corporations acquiring, directly or indirectly, all or
substantially all of the assets of the Company whether by merger,
consolidation, purchase or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
18. Captions.
The caption headings in this Agreement are for convenience of
reference only and are not intended and shall not be construed as having
any substantive effect.
19. Survival.
The obligations imposed upon Employee and the rights granted to
the Company in subsections 3(b), (c) and (d) hereof and the rights
granted to Employee in Sections 5, 6 and 7 hereof shall survive the
termination or expiration of this Agreement for any reason whatsoever
and, at the election of the Company, may be specifically enforced by it.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year first
above written.
FRONT ROYAL, INC.
By: /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
Chairman of the Board of Directors
/s/ J. Xxxx Xxxxx
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J. Xxxx Xxxxx
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Attachment 1
Front Royal, Inc.
Fiscal Year Pre-tax Net Income
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1998 $11,020,779
1999 $15,411,601
2000 $17,217,930
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