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EXHIBIT 7.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of June, 1998, by and
between Xxxxx X. Xxxxxx ("Xxxxxx") and Central Reserve Life Corporation, an Ohio
corporation (the "Company").
WHEREAS, Xxxxxx possesses valuable skills, expertise and abilities in
the life, accident and health insurance business; and
WHEREAS, the Company wishes to secure the services of Xxxxxx as the
Chief Executive Officer of the Company for a three year term, and Xxxxxx is
willing to serve in such capacity, all upon the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby retains and engages Xxxxxx as its
Chief Executive Officer commencing on July 1, 1998 (the "Commencement Date")
and, unless sooner terminated as hereinafter provided, ending on the third
anniversary of the Commencement Date (the "Term"). Xxxxxx hereby agrees to
render such services to die Company upon the terms and conditions set forth in
this Agreement. Xxxxxx shall devote such business time to the business and
affairs of the Company as is reasonably necessary to the discharge of his duties
as Chief Executive Officer. Xxxxxx will otherwise be free to pursue active
management of his personal investment portfolio. In the event there shall become
available to Xxxxxx during the Term, directly or indirectly, through an
affiliate or otherwise, any business opportunity (whether in the form of a
transaction or otherwise) reasonably related to the business of the Company or
any of its subsidiaries, Xxxxxx shall cause such opportunity to be presented to
the Company for its consideration and pursuit; provided, that Xxxxxx shall be
free to pursue such opportunity, directly or indirectly, through an affiliate or
otherwise, if the Company declines to pursue such opportunity and Xxxxxx obtains
the prior written consent of the Company, as authorized by its board of
directors (provided such consent is not unreasonably withheld or delayed).
2. COMPENSATION.
(a) STOCK AWARD. In lieu of any annual compensation and as an
inducement for Xxxxxx to remain employed by the Company through the third
anniversary of the Commencement Date, the Company shall pay Xxxxxx a stock award
(the "Stock Award") payable in shares of common stock of the Company (the
"Common Stock"), together with a cash payment equal to the taxes payable on the
Stock Award, as set forth in this Paragraph 2(a). If Xxxxxx is employed by the
Company. on the third anniversary of the Commencement Date, Xxxxxx shall receive
at such time a number of shares of Common Stock equal to: (i) $1,000,000,
divided by the closing price of the Common Stock on the closing date of the
Amended and Restated Stock Purchase Agreement, dated as of March 30, 1998, by
and among Insurance Partners, L.P., Insurance Partners Offshore Bermuda L.P.,
Strategic Acquisition Partners, LLC and the Company, plus (ii) $1,000,000
divided by the
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average closing price of the Common Stock for the period from the first
anniversary of the Commencement Date through the second anniversary of the
Commencement Date, plus (iii) $1,000,000, divided by the average closing price
of the Common Stock for the period from the second anniversary of the
Commencement Date through the third anniversary of the Commencement Date. The
number of shares of Common Stock granted pursuant to the Stock Award shall be
adjusted to account for stock splits, stock dividends or other reclassifications
of the Common Stock following the Commencement Date. Xxxxxx shall also receive a
cash payment equal to the amount of taxes payable on the. Stock Award prior to
the time such taxes become due. The Stock Award shall be structured to avoid
current taxation, however, in the event taxes are payable on the Stock Award
prior to receipt by Xxxxxx, the Company shall pay Xxxxxx the amount of taxes
payable on the Stock Award prior to the time such taxes become due. All Common
Stock paid to Xxxxxx pursuant to this Paragraph 2(a) shall be fully vested
immediately upon issuance. Xxxxxx shall forfeit all Tights to the Stock Award if
his employment with the Company is terminated for any reason other than a
Severenceable Event (as hereinafter defined). A "Severenceable Event" shall mean
any of the following: (i) termination by the Company for any reason other than
for Cause, (ii) termination upon a Change of Control, (iii) termination by
Xxxxxx for Good Reason, or (iv) termination due to the death or total or partial
disability of Xxxxxx.
(b) STOCK OPTIONS. As an inducement to Xxxxxx to enter into
this Agreement, the Company will grant to Xxxxxx on the Commencement Date,
options to purchase an aggregate of 500,000 shares of Common Stock (the
"Options"). The exercise price of the Options shall be as follows:
Number of Options Exercise Price
----------------- --------------
100,000 $6.50
100,000 $7.50
100,000 $8.50
100,000 $9.50
100,000 $10.50
Thirty percent (30%) of the Options will vest immediately upon issuance. The
remainder of the Options shall vest as follows: (i) twenty percent (20%) shall
vest on the first anniversary of the Commencement Date. (ii) twenty percent
(20%) shall vest on the second anniversary of the Commencement Date, and (iii)
thirty percent (30%) shall vest on the third anniversary of the Commencement
Date. The vesting of all Options shall occur pro rata among the various exercise
price levels. All unvested Options shall vest immediately upon the occurrence of
a Severenceable Event. Xxxxxx shall forfeit all unvested Options if his
employment with the Company is terminated for any reason other than a
Severenceable Event. The Options shall have the same antidilution protections as
contained in the warrants issued to Xxxxxx in connection with his equity
investment in the Company.
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(c) INCENTIVE PAY. Xxxxxx shall receive, with respect to each
year of employment, an amount equal to five percent (5%) of the amount by which
the Company's pretax income for such year exceeds the base case for each year of
employment as set forth on Exhibit A hereto.
(d) OTHER COMPENSATION. Xxxxxx may also receive such cash
bonuses or such other incentive compensation as the Board of Directors of the
Company may approve from time to time in its sole discretion.
(e) ASSIGNMENT BY XXXXXX. Notwithstanding anything herein to
the contrary, Xxxxxx may assign up to 25% of his right to receive payments
pursuant to this Paragraph 2 to a third party.
3. BENEFITS. Company agrees to provide Xxxxxx with such assistance
and work accommodations as are suitable to the character of his position and
necessary for the performance of his duties. The Company will maintain an
appropriate executive office and staff in reasonable proximity to Xxxxxx'x
principal residence. Xxxxxx shall be entitled to participate in any employee
benefit plans and insurance programs currently offered by the Company, or which
it may adopt from time to time, for its executive management or supervisory
personnel generally, in accordance with the eligibility requirements for
participation therein.
4. EXPENSES. The Company will pay or reimburse Xxxxxx for all
reasonable business expenses incurred by Xxxxxx in the performance of his
duties, including all costs relating to travel between Xxxxxx'x office and the
Company's offices in Cleveland, Ohio.
5. DEATH. Xxxxxx'x employment by the Company will terminate immediately
upon his death; provided that in the event of Xxxxxx'x death during the Term,
Xxxxxx'x estate shall be entitled to receive the payment described in the last
sentence of Section 7(b).
6. DISABILITY. If Xxxxxx becomes totally or partially disabled during
the Term, the Company shall continue to pay to Xxxxxx, as long as such
disability continues during the Term, the level of compensation payable to
Xxxxxx at the date his disability is determined, reduced dollar-for-dollar to
the extent of any disability insurance payments paid to Xxxxxx through insurance
programs, the premiums for which were paid by the Company or its subsidiaries.
For purposes of this Agreement the term. "total disability" shall mean Xxxxxx'x
inability due to illness, accident or other physical or mental incapacity to
engage in the full time performance of his duties under this Agreement as
reasonably determined by the Board of Directors of the Company based on such
evidence as such Board shall deem appropriate. For purposes of this Agreement,
"partial disability" shall mean Xxxxxx'x disability due to illness, accident or
other physical or mental incapacity to engage in only the partial performance of
his duties under this Agreement, as reasonably determined by the Board of
Directors of the Company based on such evidence as such Board shall deem
appropriate.
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7. TERMINATION.
(a) FOR CAUSE. The Company shall have the right to terminate
Xxxxxx'x employment hereunder at any time during the Term for Cause. For
purposes of this Agreement "Cause" shall be limited to (i) Xxxxxx'x conviction
of a felony or (ii) the continued willful malfeasance by Xxxxxx of his duties
under this Agreement following repeated written requests by the Company to
perform in accordance with the terms hereof Notwithstanding anything herein to
the contrary, Xxxxxx'x inability to perform the duties of his position due to
his death or his total or partial disability shall not be deemed to constitute
Cause.
If in the opinion of the Board of Directors of the Company,
Xxxxxx'x employment shall become subject to termination for Cause, the Board of
Directors shall give Xxxxxx written notice to that effect which notice shall
describe the matter or matters constituting such Cause. If, within thirty (30)
days of receipt of such notice, Xxxxxx has not substantially eliminated or cured
each such matter or matters, then the Company shall have the right to give
Xxxxxx notice of the termination of his employment. Xxxxxx'x employment
hereunder shall be considered terminated for Cause as of the date specified in
such notice of termination unless and until there is a final determination by a
court of competent jurisdiction that the cause of termination of Xxxxxx'x
employment did not exist at the time of giving said notice of termination. Upon
termination of Xxxxxx'x employment for Cause, this Agreement shall terminate
without further obligations to Xxxxxx other than the Company's obligation (i) to
pay to Xxxxxx within thirty (30) days after the date of termination that portion
of Xxxxxx'x aggregate compensation that is accrued through the date of
termination to the extent not theretofore paid and (ii) to pay or provide to
pay, to Xxxxxx on a timely basis any other amounts or benefits required to be
paid or provided or which Xxxxxx is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company to the extent not
theretofore paid or provided.
(b) WITHOUT CAUSE. The Company shall have the right to
terminate Xxxxxx'x employment hereunder without Cause at any time during the
Term. If the Board of Directors determines to terminate Xxxxxx'x employment
without Cause, the Company shall give notice of such termination to Xxxxxx and
Xxxxxx'x employment hereunder shall be considered terminated without Cause as of
the date specified in such notice of termination. Upon termination of Xxxxxx'x
employment without Cause, Xxxxxx shall be paid the following on the date of
termination (except as otherwise noted): (i) that portion of Xxxxxx'x aggregate
compensation that is accrued through the date of termination to the extent not
theretofore paid, (ii) any a-mounts or benefits required to be paid or provided
to which Xxxxxx is eligible to receive under any plan, program, policy,
practice, contract or agreement of the Company to the extent not theretofore
paid or provided, (iii) all stock awards and cash payments that would have been
payable to Xxxxxx pursuant to Paragraph 2(a) had Xxxxxx remained employed by the
Company through the third anniversary of the Commencement Date, and (iv) any
incentive pay that would have been payable to Xxxxxx pursuant to Paragraph 2(c)
during the remainder of the year of the Term in which Xxxxxx'x employment is
terminated, the payment of which shall occur following termination when the
amount of such incentive pay may be determined.
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(c) BY XXXXXX. Xxxxxx may terminate his employment hereunder
at any time by retirement or resignation, upon notice to the Company. Upon such
termination by Xxxxxx, no compensation for any period after the date of such
termination shall be payable to Xxxxxx; provided, that if such termination by
Xxxxxx is for Good Reason (as hereafter defined) then Xxxxxx shall be entitled
to the payments described in clauses (i), (ii), and (iii) of the last sentence
of Paragraph 7(b). "Good Reason" shall mean any of the following:
(i) if at any time the Board of Directors of the
Company does not approve a material course of action recommended by Xxxxxx as
Chief Executive Officer or approves a material course of action not recommended
by Xxxxxx as Chief Executive Officer;
(ii) a change in Xxxxxx'x status as Chief Executive
Officer of the Company, the assignment to Xxxxxx of any duties or
responsibilities which are inconsistent with Xxxxxx'x status as Chief Executive
Officer of the Company, or a reduction in the duties and responsibilities to be
exercised by Xxxxxx as Chief Executive Officer of the Company;
(iii) any action by the Company that renders Xxxxxx
unable to effectively discharge his duties and responsibilities as Chief
Executive Officer of the Company; or
(iv) a failure by the Company to continue in effect,
without material change, any benefit or incentive plan or arrangement in which
Xxxxxx and all other executive officers of the Company participate, or the
taking of any action by the Company that would materially and adversely affect
Xxxxxx'x participation in, or materially reduce Xxxxxx'x benefits under, any
such plan or arrangement.
(d) CHANGE OF CONTROL. This agreement shall terminate
automatically upon a Change of Control. Upon such termination, Xxxxxx shall be
entitled to the payments described in the last sentence of Paragraph 7(b).
"Change of Control" shall mean the occurrence of any of the following events:
(i) any person (as that term is defined in Section
13(d) of the Securities Exchange Act of 1934, as amended) shall become the
"beneficial owner" of securities of the Company representing the greater of (x)
thirty-three percent (33%) of the combined voting power of the Company's then
outstanding voting securities on a fully diluted basis or (y) the largest
percentage shareholder of the Company's then outstanding voting securities on a
fully diluted basis;
(ii) any consolidation or merger to which the Company
is a party, if following such consolidation or merger, the stockholders of the
Company immediately prior to such consolidation or merger shall not beneficially
own securities representing at least fifty-one percent (51%) of the combined
voting power of the outstanding voting securities on a fully diluted of the
surviving or continuing corporation; or
(iii) any sale, lease, exchange or other transfer (in
one transaction or in a series of related transactions) of all, or substantially
all, of the assets of the Company, other than. to an entity (or entities) of
which the Company or the stockholders of the Company immediately prior
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to such transaction beneficially own securities representing at least fifty-one
percent (51%) of the combined voting power of the outstanding voting securities
on a fully diluted basis.
8. MINIMUM INVESTMENT. During the period commencing 180 days after the
Commencement Date and extending through the remainder of the Term, Xxxxxx shall
retain, directly or indirectly, ownership of not less than 900,000 shares of
Common Stock unless, and except to the extent, released from this obligation in
writing by the Company. For purposes of this Agreement, "retain indirectly"
shall mean and refer to any shares of Common Stock that would be considered to
be owned by Xxxxxx under Section 267(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), or the income of which would be taxable to Xxxxxx, his
spouse or his children, or to any trust of which Xxxxxx would be deemed the
owner under any of Sections 671 through 677, inclusive, of the Code.
9. TAX GROSS-UP. If upon the occurrence of a Change of Control or the
termination of Xxxxxx'x employment by Xxxxxx for good reason, Xxxxxx becomes
subject to any federal, state or local income or employment tax that may be
imposed on the Stock Awards contemplated by Paragraph 2(a) (the "Tax"), the
Company shall pay to Xxxxxx upon demand an additional amount (the "Gross-up
Payment") (which shall include reimbursement for any penalties and interest that
may accrue in respect of such Tax) such that the net amount retained by Xxxxxx
after reduction for any federal, state or local income or employment tax imposed
on the Gross-Up Payment provided for by this Paragraph shall be equal to the
amount of the Tax.
For purposes of determining the amount of the Gross-up Payment, Xxxxxx
shall be deemed (i) to pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made; (ii) to pay any applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes if paid in
such year (determined without regard to limitations on deductions based upon the
amount of Xxxxxx'x adjusted gross income); and (iii) to have otherwise allowable
deductions for federal, state, and local income tax least equal to those
disallowed because of the inclusion of the Gross-up Payment in Xxxxxx'x adjusted
gross income.
10. COVENANTS.
(a) CONFIDENTIAL INFORMATION AND TRADE SECRETS. During
Xxxxxx'x employment by the Company, Xxxxxx will enjoy access to the Company's
"confidential information" and "trade secrets." For purposes of this Agreement,
"confidential information" shall mean information which is not publicly
available including without limitation, information concerning customers,
material sources, suppliers, financial projections, marketing plans and
operation methods, Xxxxxx'x access to which derives solely from Xxxxxx'x
employment with the Company. For purposes of this Agreement, "trade secrets"
shall mean the Company's processes, methodologies and techniques known only to
those employees of the Company who need to know such secrets in order to perform
their duties an behalf of the Company. The Company takes numerous steps,
including these
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provisions, to protect the confidentiality of its confidential information and
trade secrets, which it considers unique, valuable and special assets.
(b) RESTRICTED USE AND NON-DISCLOSURE. Xxxxxx, recognizing the
Company's significant investment of time, efforts and money in developing and
preserving its confidential inflation, shall not, during his employment
hereunder and for a two (2) year period after the end of Xxxxxx'x employment
hereunder, use for his direct or indirect personal benefit any of the Company's
confidential information or trade secrets. For a two (2) year period after the
end of Xxxxxx'x employment hereunder, Xxxxxx shall not disclose to any person
any of the Company's confidential information or trade secrets.
(c) RETURN OF THE COMPANY'S PROPERTY. Upon termination of
Xxxxxx'x employment with the Company, for whatever reason and in whatever
manner, Xxxxxx shall return to the Company all copies of all writings and
records relating to the Company's business, confidential information or trade
secrets that are in Xxxxxx'x possession of such time.
(d) NON-COMPETITION. During Xxxxxx'x employment hereunder, and
in the event of (i) a termination of Xxxxxx'x employment by Xxxxxx for Good
Reason, or (ii) a termination of Xxxxxx'x employment by the Company without
Cause, then for a period equal to the lesser of 12 months or the remainder of
original term of the Agreement, Xxxxxx shall not engage, directly or indirectly,
whether as an owner, partner, employee, officer, director, agent, consultant or
other-wise, in any location where the Company or any of its subsidiaries is
engaged in business after the date hereof and prior to the termination of
Xxxxxx'x employment, in a business the same or similar to, any business now, or
at any time after the date hereof and prior to Xxxxxx'x termination, conducted
by the Company or any of its subsidiaries; provided however, that the mere
ownership of 5% or less of the stock of a company whose shares are traded on a
national securities exchange or are quoted on the National Association of
Securities Dealers Automated Quotation System shall not be deemed ownership
which is prohibited hereunder; provided, further, that upon the occurrence of a
Change of Control, the provisions of this Paragraph 10(d) shall no longer be of
any force or effect.
(e) NON-SOLICITATION. In the event of (i) a termination of
Xxxxxx'x employment by Xxxxxx with Good Reason or (ii) a termination of Xxxxxx'x
employment by the Company without Cause, then during the period equal to the
lesser of twelve (12) months or the remainder of the original term of the
Agreement, Xxxxxx shall not, directly or indirectly, induce employees of the
Company or any of its subsidiaries to leave such employment with the result that
such employees would engage in business activities which are substantially
similar or are closely related to the business activities such employee
performed on behalf of the Company and which compete against the Company;
provided that upon the occurrence of a Change of Control, the provisions of this
Paragraph 10(e) shall no longer be of any force or effect.
(f) ENFORCEABILITY. The necessity of protection against the
competition of Xxxxxx and the nature and scope of such protection has been
carefully considered by the parties hereto. The parties hereto agree and
acknowledge that the duration, scope and geographic areas applicable to the
non-competition covenant in this Section 9 are fair, reasonable and necessary,
that adequate
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compensation has been received by Xxxxxx for such obligations, and that these
obligations do not prevent Xxxxxx from earning a livelihood. If, however for any
reason any court determines that the restrictions in this Agreement arc not
reasonable, that consideration is inadequate or that Xxxxxx has been prevented
from earning a livelihood, such restrictions shall be interpreted, modified or
rewritten to include as much of the duration, scope and geographic area
identified in this Section 9 as well render such restrictions valid and
enforceable.
(g) EQUITABLE REMEDIES. Notwithstanding the provisions of
Paragraph 11 hereof, in the event of a breach or threatened breach by Xxxxxx of
any of the covenants set forth in this Paragraph, the Company or any of its
affiliates shall be entitled to seek in any court of proper jurisdiction all
appropriate remedies, including without limitation injunctive relief and
monetary damages.
(h) SURVIVAL. The covenants set forth in this Paragraph shall
survive termination of this Agreement.
11. ARBITRATION OF DISPUTES. Any controversy or claim, arising out of
or relating to this Agreement or the breach thereof shall be settled by
arbitration in the City of Chicago, Illinois, in accordance with the laws of the
State of Illinois by three arbitrators, one of whom shall be appointed by the
Company, one by Xxxxxx and the third by the first two arbitrators. If the first
two arbitrators, cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the Chief Judge of the United States
District Court for the North District of Illinois, Eastern Division. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this paragraph. Judgement upon the award rendered
by the arbitrators may be entered in any court. having jurisdiction thereof. The
Company shall pay the fees and expenses of such arbitrator and the other costs
of arbitration. In addition, the Company shall pay (or Xxxxxx shall be entitled
to recover from the Company, as the case may be) his reasonable attorneys' fees
and costs and expenses in connection with the successful enforcement of any of
his rights hereunder.
12. NOTICES. Any notice required or permitted pursuant to this
Agreement shall be deemed to have been properly given if in writing and when
delivered personally or by a national overnight courier service or five business
days after being sent by United States mail, certified or registered, postage
prepaid, addressed as follows:
If to the Company:
Central Reserve Life Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxxxxxx, Xxxx 00000
Attention: Xxxx Lick
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If to Xxxxxx:
Xxxxx X. Xxxxxx
0000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
With a copy to:
XxXxxxxxx Will & Xxxxx
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, P.C.
or to such other place as either party may designate to the other by written
notice in accordance with this Paragraph.
13. NO WAIVER. No waiver of any breach of any of the terms or
provisions of this Agreement shall be construed or held to be a waiver of any
other breach, or waiver of, acquiesence in or consent to any further or
succeeding breach thereof.
14. ASSIGNMENT. This Agreement shall not be assignable by either party
without the written consent of the other party. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and permitted assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without regard to its
principles of conflicts of law.
16. SEVERABILITY. If any provision of this Agreement is held for any
reason to be invalid, it will not invalidate any other provisions of this
Agreement which are in themselves valid, nor will it invalidate the provisions
of any other agreement between the parties hereto. Rather, such invalid
provision shall be construed so as to give it the maximum effect allowed by
applicable law. Any other written agreement between the parties hereto shall be
conclusively deemed to be an agreement independent of this Agreement.
17. HEADINGS. Paragraph headings hereunder are for convenience only and
shall not affect the meaning or interpretation of the provisions of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original without production of
the others.
19. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement and understanding among the parties hereto relating to the subject
matter hereof, and supersedes all
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previous written or oral negotiations commitments and writings with respect to
the subject matter hereof. This Agreement may be amended only by a written
instrument signed by each party hereto.
* * *
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CENTRAL RESERVE LIFE CORPORATION
By: /s/ Xxx Xxxxx
--------------------------------
Its:
/s/ Xxxxx X. Xxxxxx
--------------------------------
Xxxxx X. Xxxxxx
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EXHIBIT A
1998 $14,544,000
1999 $30,597,000
2000 $30,093,000
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