1
EXHIBIT 10.16 (1)
EMPLOYMENT AGREEMENT
WHEREAS, GGS Management Holdings, Inc. (the "Company") has entered into a
Stock Purchase Agreement dated as of January 31, 1996 by and among the Company,
GS Capital Partners II, L.P. ("GSCP"), Xxxxxx International Group, Inc. ("SIG")
and Goran Capital Inc. ("Goran") (the "Stock Purchase Agreement"), and it is a
condition to the Closing (all capitalized terms used and not defined herein
shall have the meanings ascribed to them in the Stock Purchase Agreement) that
(i) the Company and Xxxx X. Xxxxxx ("you" or the "Executive") enter into this
Employment Agreement and (ii) the Company, GSCP, SIG and Goran enter into a
Stockholder Agreement substantially in the form of Exhibit B to the Stock
Purchase Agreement (the "Stockholder Agreement").
WHEREAS, the Company considers it essential to its best interests and the
best interests of its stockholders to employ the Executive, upon the terms and
conditions hereinafter set forth; and
WHEREAS, the Executive desires to be employed by the Company, upon the
terms and conditions contained herein.
NOW, THEREFORE,in consideration of the covenants and agreements set forth
below, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence as of the Closing Date
and shall continue in effect until the fifth anniversary of the Closing
Date (the "Initial Term"); provided, however, that unless terminated
earlier pursuant hereto, the term of this Agreement shall automatically
be extended without further action of either party for additional one
year periods (each such one year period, a "Renewal Period") unless, not
later than six months prior to the end of the then effective term, either
the Company or the Executive shall have given written notice that such
party does not intend to extend this Agreement (the period beginning on
the Closing Date and ending on expiration or termination of the
Executive's employment hereunder being referred to herein as the
"Employment Period").
2. Terms of Employment. During the Initial Term and any Renewal Period, you
agree to be a full-time employee of the company serving in the position
of Chief Executive Officer and President of the Company and further agree
to devote substantially all of your working time and attention to the
business and affairs of the Company and, to the extent necessary to
discharge the responsibilities associated with your position as Chief
Executive Officer and President of the Company, to use your best efforts
to perform faithfully and efficiently such responsibilities. In
addition, you agree to serve in such other capacities or offices to which
you may be duly assigned, appointed or elected from time to time (but not
in diminution of your status as a senior executive officer of the
Company). Nothing herein shall prohibit you from devoting your time to
civic and community activities or managing personal investments, as long
as the foregoing do not interfere with the performance of your duties
hereunder. You shall be entitled to serve on the Board of Directors of
the Company until removed from such office pursuant to the Stockholder
Agreement.
2
3. Compensation.
(i) Base Salary. Executive shall receive base salary pursuant to
this Agreement during the Employment Period in bi-weekly
installments in an amount which shall be mutually agreed to
by and between Executive and the Company; provided, however,
that Company shall, at all times during the Initial Term,
agree that Executive's Base Salary shall be at an
annualized rate of at least $200,000 per annum (as such sum is
mutually agreed to from time to time, "Base Salary").
Executive shall receive bi-weekly installments of Base Salary
during the Initial Term and any Renewal Period (in each case on
a pro-rated basis if employment pursuant to this Agreement is
for less than a full calendar year during any portion of the
Initial Term or a Renewal Period). Executive's Base Salary
shall be reviewed at least annually by the Board of Directors
of the Company during the first calendar quarter of each year
and in the event that Executive's Base Salary shall be
increased, Executive shall receive a lump sum catch-up payment
(subjective to all applicable withholdings) in an amount
necessary to compensate Executive as if the increased Base
Salary had become effective on January 1 of the applicable
year; provided, however, that no catch-up payment shall be
made to Executive for any increase in Base Salary occurring
during 1996. Notwithstanding any other provision of this
Agreement, Executive's Base Salary shall be increased during
each year of this Agreement by a percentage which shall be at
least equal to or greater than the increase in the Consumer
Price Index applicable for such year.
(ii) Bonus. The bonus paid to Executive shall be determined in
accordance with the terms contained in Exhibit A hereto
and any bonus due Executive for any calendar year or any
portion of a year ending on December 31, shall be paid no later
than April 15 of the next succeeding year.
(iii) Other Expenses. The Company shall reimburse you for all
reasonable travel, entertainment and other business
expenses incurred by you during the Employment Period in the
performance of your responsibilities under this Agreement
promptly upon receipt of written substantiation of such
expenses in accordance with the policies of the Company in
respect thereto. You shall be entitled to reimbursement of all
reasonable travel expenses incurred by you for your spouse to
accompany you on any business trip where it is expected or
appropriate that spouses will accompany the participants.
-2-
3
(iv) Benefits. You shall be entitled, at the expense of
the Company, to participate in employee benefit and fringe benefit
plans and programs (including life, health, disability and officer
indemnity insurance and retirement plans) generally made
available by the Company to other senior executives and shall be
entitled to paid vacation in an amount which is commensurate with
other chief executive officers of similarly situated property and
casualty companies. Nothing in this Agreement shall restrict the
right of the Company to amend, modify or terminate any such
benefits.
(v) Automobile. The Company shall furnish Executive (at no
cost to Executive) with an automobile (including all maintenance
therefore) which is in keeping with automobiles historically
driven by Executive.
4. Termination of Employment. Unless earlier terminated, the Executive's
employment pursuant to this Agreement shall terminate upon the earliest
to occur of any of the following:
(i) The Executive and the Company mutually agree that the employment
of the Executive shall terminate;
(ii) The Executive's retirement;
(iii) The Executive's death or Disability ("Disability" means any
physical or mental impairment, infirmity or incapacity
rendering the Executive substantially unable to perform his
duties hereunder for any 120 days in the aggregate out of any
365 day period); or
(iv) The Company terminates the Executive's employment for Cause
("Cause" means (a) the Executive being convicted in the United
States of America, any state therein, or the District of
Columbia, or in Canada or any Province therein (each, a "Relevant
Jurisdiction"), of a crime for which the maximum penalty may
include imprisonment for one year or longer (a "felony") or the
Executive having had entered against him or consenting to any
judgment, decree or order (whether criminal or otherwise) based
upon fraudulent conduct or violation of securities laws, (b) the
Executive being indicted for, charged with or otherwise the
subject of any formal proceeding (criminal or otherwise) in
connection with any felony, fraudulent conduct or violation of
securities laws, in a case brought by a law enforcement or
securities regulatory official, agency or authority in a
Relevant Jurisdiction, (c) any consolidated balance sheet of
Goran, a Canadian insurance holding company, is required by the
independent certified public accountants of Goran to be restated
in a manner that results in the reported consolidated
shareholders' equity of Goran and its subsidiaries being reduced
by an amount equal to 10% or more of such reported consolidated
shareholders' equity, (d) the Executive engaging in fraud, or
engaging in any unlawful conduct relating to the Company or its
business, in either case as determined under the laws of any
Relevant Jurisdiction, (e) the Executive breaching any provision
of this
-3-
4
Agreement of (f) gross negligence or willful misconduct by the
Executive in the performance of his duties hereunder).
5. Compensation Upon Termination. Upon termination of your employment with
the Company, payments of base salary, bonus, or other compensation and/or
benefits provided to the Executive by the Company pursuant to this
Agreement or otherwise, shall be paid in accordance with the Company's
policies then in effect; provided, however, that upon termination by reason
of death, you shall also be entitled to have your then base salary continue
to be paid (on the regular payment dates) for a period of six months after
the Date of Termination.
6. Location. Your services shall be performed at the Company's current
headquarters location in Indianapolis, Indiana, or at such other place
within a fifty-mile radius of such current location as the Board may from
time to time deem appropriate. If you shall be otherwise temporarily
relocated in connection with an acquisition by the Company or its
subsidiaries, you shall be reimbursed for reasonable expenses for housing
at such location and for your spouse to visit such location from time to
time. If you shall be otherwise permanently relocated, you shall be
reimbursed for your reasonable moving expenses. Notwithstanding the
foregoing, you shall be required to travel to the extent necessary to the
performance of your responsibilities under this Agreement.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the signature page of this Agreement,
provided, that all notices to the Company shall be directed to the
attention of the Board with copies to the Secretary of the Company, or to
such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
8. Noncompetition. In consideration of the Company's entering into this
Agreement and the compensation and benefits to be provided by the Company
to you hereunder, and further in consideration of your exposure to
proprietary information of the Company, you agree as follows:
(i) Until the date of termination or expiration of your employment for any
reason (the "Date of Termination"), you agree not to enter into
competitive endeavors and not to undertake any commercial activity
which is contrary to the best interests of the Company or its
affiliates, including, directly or indirectly, becoming an employee,
consultant, owner (except for passive investments of not more than one
percent of the outstanding shares of, or any other equity interest in,
any company or entity listed or traded on a national securities
exchange or in an over-the-counter securities market), officer, agent
or director of, or otherwise participating in the management,
operation,
-4-
5
control or profits of (a) any firm or person engaged in the operation of
a business engaged in the acquisition of insurance businesses engaging
in the business of providing insurance, including reinsurance, relating
to nonstandard automobile insurance and related forms of insurance or
(b) any firm or person which either directly competes with a line or
lines of business of the Company accounting for five percent (5%) or
more of the Company's gross sales, revenues or earnings before taxes or
derives five percent (5%) or more of such firm's or person's gross
sales, revenues or earnings before taxes from a line or lines of
business which directly compete with the Company. Notwithstanding any
provision of this Agreement to the contrary, you agree that your
breach of the provisions of this Section 8(i) shall permit the Company
to terminate your employment for Cause.
(ii) If your employment is terminated by you, or by reason of your
Disability, or by the Company for Cause, then, for two years after the
Date of Termination, you agree not to become, directly or indirectly an
employee, consultant, owner (except for passive investments of not more
than one percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market),
officer, agent or director of, or otherwise to participate in the
management, operation, control or profits of, any firm or person which
directly competes with a business of the Company which at the Date of
Termination produced any class of products accounting for five percent
(5%) or more of the Company's gross sales, revenues or earnings before
taxes or which at the Date of Termination derived five percent (5%) or
more of such firm's or person's gross sales, revenues or earnings before
taxes.
(iii) You acknowledge and agree that damages for breach of the covenant not to
compete in this Section 8 will be difficult to determine and will not
afford a full and adequate remedy, and therefore agree that the Company
shall be entitled to an immediate injunction and restraining order
(without the necessity of a bond) to prevent such breach or threatened
or continued breach by you and any persons or entities acting for or
with you, without having to prove damages, and to all costs and expenses
(if a court or arbitrator determines that the Executive has breached the
covenant not to compete in this Section 8), including reasonable
attorneys' fees and court costs, in addition to any other remedies to
which the Company may be entitled at law or in equity; provided,
however, that in the event that a court or arbitrator finally determines
that the Executive has not breached the covenant not to compete in this
Section 8 after an action or suit is brought by the Company with respect
thereto, the Company shall pay all costs and expenses, including
reasonable attorney's fees and court costs, incurred by the Executive in
defending against such action or suit. You hereby waive any and all
defenses you may have on the ground of lack of jurisdiction or
competence of the court to grant such injunction, restraining order or
other equitable relief you and the Company agree that the provisions of
this covenant not to compete are reasonable and necessary for the
operation of the Company and its
-5-
6
subsidiaries. However, should any court or arbitrator
determine that any provision of this covenant not to
compete is unreasonable, either in period of time, geographical
area, or otherwise, the parties agree that this covenant not to
compete should be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.
9. Non-solicitation. During the Employment Period and for a period of two
years thereafter, the Executive shall not interfere with the
Company's or any of its subsidiaries' relationships with, or endeavor
to entice away from the Company or any of its subsidiaries, or hire,
any person who at any time during the Employment Period was an employee
or customer of the Company or any of its subsidiaries or otherwise had
a material business relationship with the Company or any of its
subsidiaries.
10. Confidentiality.
(i) You agree and understand that as a result of your position with
the Company, you have been and will be exposed to and
have received and will receive information relating to the
confidential affairs of the Company, including but not limited
to, technical information, business and marketing plans,
strategies, customer information, other information concerning
the Company's products, promotions, development, financing,
expansion plans, business policies and practices, information
concerning the principals of any of the businesses of the
Company, and other forms of information considered by the
Company to be confidential and in the nature of trade secrets.
You agree that during the Employment Period and thereafter, you
will keep such information confidential and not disclose such
information, either directly or indirectly, to any third person
or entity without the prior written consent of the Company and
you confirm that such information is the exclusive property of
the Company and its affiliates. You agree to hold as the
Company's property all memoranda, books, papers, letters and
other data and all copies thereof or therefrom, in any way
relating to the business of the Company and its affiliates,
whether made by you or otherwise coming into your possession
and, on termination or expiration of your employment, or on
demand of the Company at any time, to deliver the same to the
Company.
(ii) Any ideas, processes, characters, productions, schemes, titles,
names, formats, policies, adaptations, plots, slogans,
catchwords, incidents, treatment, and dialogue which you may
conceive, create, organize, prepare or produce during the
period of your employment and which ideas, processes, etc.
relate to any of the businesses of the Company, shall be owned
by the Company and its affiliates whether or not you should in
fact execute an assignment thereof to the Company, but you
agree to execute any assignment thereof or other instrument or
document which may be reasonably necessary to protect and
secure such rights to the Company.
-6-
7
11. Arbitration.
(i) Except as contemplated by Section 8(iii) hereof, any dispute or
controversy arising under or in connection with this Agreement
that cannot be mutually resolved by the parties to this Agreement
and their respective advisors and representatives shall be
settled exclusively by arbitration in Indianapolis, Indiana
before one arbitrator of exemplary qualifications and stature,
who shall be selected jointly by an individual to be designated
by the Company and an individual to be selected by you, or if
such two individuals cannot agree on the selection of the
arbitrator, who shall be selected by the American Arbitration
Association.
(ii) The parties agree to use their best efforts to cause (a) the two
applicable individuals set forth in the preceding Section 11(i),
or, if applicable, the American Arbitration Association, to
appoint the arbitrator within thirty days of the date that a
party hereto notifies the other party that a dispute or
controversy exists that necessitates the appointment of an
arbitrator, and (b) any arbitration hearing to be held within
thirty days of the date of selection of the arbitrator and, as a
condition to his or her selection, such arbitrator must consent
to be available for a hearing at such time.
12. Stock Options. The Executive shall be granted options for shares of
capital stock of the Company pursuant to the Company's 1996 Stock
Option Plan (the "Option Plan").
(i) With respect to any shares issued pursuant to such options in
accordance with the Option Plan, the Executive will be entitled
to unlimited piggyback registration rights in connection with any
offering of shares by the Company pursuant to an effective
registration statement under the Securities Act of 1933, on a
pari passu basis with any other stockholders of the Company
having piggyback registration rights (other than Xxxxxx
International Group, Inc. and GS Capital Partners II, L.P., and
their respective affiliates and transferees, who will have
priority over the Executive), subject to the Executive entering
into appropriate agreements relating to hold-back periods, legal
opinions and similar issues.
(ii) The options granted to the Executive pursuant to the Option Plan
shall become Vested Options (as defined in the Option Plan)
automatically upon a Company Sale (as defined in the Stock
Purchase Agreement).
(iii) Immediately prior to an Initial Public Offering (as defined in
the Option Plan), the Executive shall be entitled to purchase the
shares of capital stock of the Company subject to any option that
is an Unvested Option held by the Executive at a price per share
equal to the exercise price set forth with respect to such option
in the Option Plan; provided however, that all shares purchased
pursuant to such options shall be restricted shares, subject to
the same provisions, restrictions and limitations, including,
without limitation, the provisions, restrictions and limitations
relating to vesting,
-7-
8
forfeiture and transferability, to which such options that are
Unvested Options are subject pursuant to the Option Plan not
taking into account this Section 12(iii).
13. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officers as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements
or representations, oral or otherwise, express or implied, with respect
to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement (or in the Stockholder
Agreement). The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of
Indiana. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Sections 5 and 11 and your obligations
under Sections 8, 9, 10 and 11 hereof shall survive the expiration or
termination of the Employment Period and this Agreement.
14. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
15. Enforceability. The covenants set forth in Sections 8, 9, and 10 shall
be construed as independent of any of the other provisions contained in
this Agreement and shall be enforceable as aforesaid, notwithstanding the
existence of any claim or cause of action of the Executive against the
Company or any of its subsidiaries, whether based on this Agreement or
otherwise. In the event that any of the provisions of Sections 8, 9, or
10 should ever be adjudicated to exceed the time or other limitations
permitted by applicable law, then such provisions shall be deemed
reformed in any jurisdiction to the time or other limitations permitted
by applicable law.
16. Board Action. In the case of any provision of this Agreement which
requires or is subject to any action, approval or policy of, or
determination or notice by, (i) the Board, such action, approval, policy,
determination or notice may be effected by the GSCP Designees (as defined
in the Stockholder Agreement) or (ii) the Company, shall be subject, in
addition, to the consent of the GSCP Designees.
17. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
-8-
9
18. Entire Agreement. This Agreement (and the Stockholder Agreement)
contain the entire agreement by the parties with respect to the matters
covered herein and supersede any prior agreement (including, without
limitation, any prior employment agreement), condition, practice,
custom, usage and obligation with respect to such matters insofar as any
such prior agreement, condition, practice, custom, usage, or obligation
might have given rise to any enforceable right.
IN WITNESS WHEREOF, the parties have executed this Agreement this
____day of __________, 1996.
Address: GGS MANAGEMENT HOLDINGS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address: By: /s/ Xxxx X. Xxxxxx
-------------------------------
Xxxx X. Xxxxxx
-9-
10
EXHIBIT A
BONUS PLAN FOR XXXX X. XXXXXX
The Bonus Plan will be based on the following criteria:
1. GGS must make all interest and principal payments on a timely basis and
shall not allow any material breach of a material credit agreement covenant
to remain uncured beyond the applicable cure period.
2. If all interest and principal interest payments are met and covenant tests
passed, the following payment schedule will be used:
% of GGS Plan* % of Bonus Bonus Total Compensation
-------------- ---------- ----- ------------------
<=80% 25% $50,000 $250,000
85% 30% $60,000 $260,000
90% 35% $70,000 $270,000
95% 50% $100,000 $300,000
96% 60% $120,000 $320,000
97% 70% $140,000 $340,000
98% 80% $160,000 $360,000
99% 90% $180,000 $380,000
100% 100% $200,000 $400,000
*Note: Plan refers to operating income (excluding realized gains on fixed
income portfolio and any realized gains on the equity securities in excess
of a 7.5% return on the equity portfolio including dividends) in the GGS
projections as shown below.
4/30/96-
12/31/96 1997 1998 1999 2000 2001 2002
-------- ---- ---- ---- ---- ---- ----
Operating $8,982 $23,793 $28,730 $33,167 $38,397 $43,924 $49,948
Income
3. Performance exceeding plan will be rewarded at the Board's discretion.
-10-
