Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement"), is made this
15th day of December, 2003 with certain changes to be effective upon the
effective date (the "Effective Date") of the registration statement registering
under the Securities Act of 1933 the initial public offering (the "Initial
Public Offering") of the common stock of ProCentury Corporation (the "Company"),
by and between the Company and Xxxxxxxxxxx X. Xxxx ("Executive").(1)
RECITALS
Whereas, the Company desires to employ Executive as its Executive Vice
President , and Executive desires to be so employed under the terms and
conditions hereinafter set forth for a period through at least the second
anniversary of the Effective Date.
STATEMENT OF AGREEMENT
Now, therefore, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Executive agree as follows:
SECTION 1
EMPLOYMENT AND DUTIES
1.1 DUTIES AND POSITION. During the term of this Agreement,
Executive shall provide services to the Company in accordance with this
Agreement in the capacities of Executive Vice President of the Company and as an
executive officer, in the capacities identified on Exhibit A, of one or more
Affiliates (as that term is defined in Section 5.4) of the Company; provided,
however, that at the request of the Company's Board of Directors (the "Board")
at any time and from time to time, Executive shall serve in such other capacity
or capacities, of at least equal standing and dignity as Executive Vice
President of the Company and, with respect to any Affiliate of the Company, of
at least equal standing and dignity as the positions identified on Exhibit A;
and provided further that Executive shall serve as executive vice president of
any Affiliate that, as a result of any reorganization involving the Company, is
an entity controlling the Company or the assets or operations that were the
Company's immediately prior to such reorganization. Executive shall report
directly to the Chief Executive Officer and shall perform such duties and
responsibilities consistent with his positions as shall be assigned to him by
the Board. Executive shall serve as director of the board of directors of each
operating subsidiary that is an Affiliate controlled by the Company.
-------------------
(1) The current employment agreement of each of Messrs. Xxxxxxx and Xxxx will
remain in effect until the Effective Date, upon which Effective Date this form
of agreement with the base salary, Bonus and Options and Restricted set forth
herein will become effective.
1.2 STANDARD OF PERFORMANCE. Executive shall faithfully perform
the duties assigned to him pursuant to this Agreement. Executive agrees to abide
by the Company's rules, regulations, policies and practices as they are
presently in force and as they may be revoked, adopted or modified at any time
and from time to time during the term of this Agreement.
1.3 TIME DEVOTED TO THE COMPANY. Executive shall be required to
devote substantially full time and attention to his duties under this Agreement.
Subject to the obligations of Executive pursuant to Section 4.5 hereof and the
immediately preceding sentence, Executive may engage in any other activity,
whether for pecuniary gain or not, which does not materially interfere with his
obligations under this Agreement.
SECTION 2
COMPENSATION AND BENEFITS
2.1 BASE SALARY. The Company agrees to pay or cause to be paid to
Executive for Executive's services during the term of this Agreement an annual
base salary at the gross rate prior to all taxes and other withholdings of not
less than $264,000.00(2).(3) The base salary will be subject to annual review
and may be adjusted from time to time under the direction of the Board (or, if
the Board so directs, its Compensation Committee) considering factors such as
Executive's performance, compensation of similar executives of similarly sized
companies and other pertinent factors (the "Base Salary"). The Base Salary shall
be payable to Executive in accordance with the then current payment policies of
the Company for its employees.
2.2 PERFORMANCE BASED INCENTIVE BONUS. Executive shall be entitled
to an annual performance based cash incentive bonus in an amount up to 45
percent of the Base Salary (the "Bonus"). The Bonus shall be earned and paid in
accordance with the Company's performance based incentive compensation plan (the
"Incentive Plan"); provided, however, that with respect to Executive, the
"Performance Period" shall be the calendar year beginning with the 2004 calendar
year and continuing for each calendar year thereafter, and the Performance Goals
for each Performance Period shall include maintaining, to the extent within the
control of the Company's management, the Company's rating by A.M. Best Company
(which is currently A-). A copy of the Performance Goals as so established shall
be provided to Executive. The Bonus shall be payable as provided in the
Incentive Plan. The Performance Goals for 2004 shall be as set forth in Exhibit
B. Notwithstanding the forgoing, with the express approval by the Board after
review of Executive's performance for the Performance Period, the actual amount
of Incentive Award may exceed 45 percent of the Base Salary for such Performance
Period,
------------------------
(2) Increased by an amount to reimburse Executive for the annual cost of the
leased automobile and country club dues currently being paid by the Company that
Executive agrees to assume and pay out of his Base Salary hereafter.
(3) Until the Effective Date, Executive will remain at his current base salary.
If and when the Initial Public Offering becomes effective prior to January 1,
2005, the base salary will become as stated herein, and the difference between
the base salary as stated herein and the actual base salary paid for the period
prior to the Effective Date shall be paid as soon as possible after the
Effective Date.
2
provided that the amount of any such excess shall be paid in shares of Stock or
other property having a Fair Market Value equal to such excess.(4)
2.3 STOCK OPTIONS AND RESTRICTED STOCK. The Company shall grant to
Executive effective as of the Effective Date non-qualified stock options (to be
known as the "IPO Options") to purchase, and awards of restricted stock (to be
known as the "IPO Restricted Stock") for, an aggregate number of shares of the
Company's no par value common stock equal to 0.65 percent of the Shares that
will be outstanding immediately following the closing of the Initial Public
Offering (5), with 70 percent of such Shares (rounded to the nearest 100 and
being an estimated 36,400 Shares) being in the form of Stock Options and 30
percent of such Shares (rounded to the nearest 100 and being an estimated 15,600
Shares) being in the form of Restricted Stock under the Company's 2003 Stock
Option and Award Plan (the "Stock Option Plan"). The IPO Options shall be at an
exercise price equal to the fair market value of the Shares as determined by the
offering price in the Initial Public Offering. The Shares subject to the IPO
Options shall vest over three years of service and the shares of IPO Restricted
Stock shall vest over four years of service after the Effective Date. The grant
of the IPO Options and the IPO Restricted Stock and the exercise of the IPO
Options shall be subject to all of the terms and conditions of the Stock Option
Plan. Notwithstanding the forgoing, to the extent not contrary to applicable
law, all of the IPO Options shall become fully vested and remain exercisable
pursuant to their respective terms for the remainder of their respective
Exercise Periods , and all unvested Shares, if any, of the IPO Restricted Stock
shall become fully vested, effective upon termination of Executive's employment
by reason of death, discharge by the Company pursuant to 3.4(a) other than for
Cause, resignation by Executive pursuant to Section 3.4(b) for Good Reason,
termination by resignation or discharge for any reason other than Cause upon or
after a Change in Control, or "retirement" or "disability" within the meaning of
the Stock Option Plan; and all options granted after or in addition to the IPO
Options, all shares of Restricted Stock awarded after or in additional to the
IPO Restricted Stock, and any and all other awards to Executive pursuant to the
Stock Option Plan shall be subject to such terms and conditions as shall be
determined at the time of any such award under the direction of the Board
pursuant to the Stock Option Plan. The Company shall exercise best efforts to
register with the Securities and Exchange Commission under the Securities Act of
1933, as amended, the issuance of shares of stock issued pursuant to the Stock
Option Plan and to satisfy the current public information requirements of Rule
144(c) for purpose of allowing Executive to resell such shares. (6)
2.4 BENEFITS. In addition to the compensation to be paid under
this Agreement, the Company shall provide to, or for the benefit of, Executive
the following employee benefits:
(a) Participation in retirement or welfare benefit plans, if any,
which are made available from time to time to the salaried
employees of the Company or its Affiliates, to the extent that
Executive is eligible to participate therein pursuant to the
terms and conditions of such plans.
--------------------------
(4) This provision shall have no force or effect until the Effective Date. Until
then, Executive shall be entitled to an annual bonus pursuant to the current
bonus plan.
(5) Although the number of IPO Options and shares of IPO Restricted Stock to be
granted shall initially be calculated as if the IPO has been completed and the
amendment to the Articles providing for, among other things, a 500 for 1 stock
split (the "Stock Split"), has been filed, the number of IPO Options and shares
of IPO Restricted Stock actually issued shall be that number divided by 500,
since the number of IPO Options and shares of Restricted Stock will be
multiplied by 500 when the Stock Split is made effective.
(6) This provision shall have no force or effect until the Effective Date.
3
(b) Participation in health, disability and other insurance plans,
if any, which are made available from time to time to the
salaried employees of the Company or its Affiliates, to the
extent that Executive is eligible to participate therein
pursuant to the terms and conditions of such plans.
(c) At the option of Executive, (1) whole life insurance on the
life of Executive in an amount equal to 2.5 times Executive's
Base Salary, the premiums for which shall be timely paid by
the Company for so long as Executive remains employed with the
duties and position described in Section 2.1, provided that
Executive is insurable at reasonable prevailing rates; or (2)
additional benefits specified by Executive at an annual cost
to the Company equal to the annual premium that would
otherwise be payable for such life insurance. If Executive is
not insurable at reasonable prevailing rates, then the Company
shall not be obligated to provide life insurance coverage
pursuant to Section 2.4(c)(1), but shall be obligated to
provide additional benefits pursuant to Section 2.4(c)(2) at
an annual cost to the Company equal to such reasonable
prevailing rates. The beneficiary of the life insurance policy
covering the life of Executive (the "Policy") shall be
Executive's spouse or such other person(s) as Executive shall
designate in writing to the insurance company. The owner of
the Policy shall be the Company. The Company shall not borrow
against the cash surrender value of such Policy nor cause the
value thereof to become subject to any lien. If Executive's
employment is terminated pursuant to Section 3.3, 3.4(a),
3.5(a), 3.5(b), of this Agreement, or "Qualified Retirement"
as defined in the Incentive Plan, Executive shall have the
election, at his option, to require the Company (A) to assign
the Policy to Executive, provided that Executive shall be
responsible for paying or reimbursing the Company for all
premiums and other policy charges which are or become due and
payable, in the case of terminations pursuant to Section 3.3
or 3.5(a), unless otherwise agreed, on or after the date of
termination of Executive's employment, and in the case of
terminations pursuant to Section 3.4(a) or 3.5(b) or
"Qualified Retirement" as defined in the Incentive Plan, on or
after the date that severance benefits cease to be payable
pursuant to Section 3.6(c), or (B) to cancel the Policy or to
permit it to lapse, and to pay the cash value of the Policy,
in the case of terminations pursuant to Section 3.3 or 3.5(a),
unless otherwise agreed, as of Executive's date of termination
to Executive, and in the case of terminations pursuant to
Section 3.4(a) or 3.5(b) or "Qualified Retirement" as defined
in the Incentive Plan, as of the date that severance benefits
cease to be payable pursuant to Section 3.6(c); provided,
however, that if it is determined by the Company upon the
advice of legal counsel that this election would be an
extension of credit in the form of a personal loan within the
meaning of section 13(k) of the Exchange Act, the election
provided in this sentence shall be null and void. The option
granted by Section 2.4(c) may be exercised at one or more
times during the term of Executive's employment, with
Executive having the right to select either the insurance or
additional benefit, so long as the total cost to the Company
during each year and in the aggregate does not exceed the cost
that the Company
4
would have realized had Executive elected whole life insurance
at the time of the Effective Date. (6)
(d) Sick leave in accordance with the policies of the Company in
effect from time to time.
(e) Reasonable vacation time consistent with past practice or as
otherwise approved by the President or the Board.
(f) Such other benefits as may be approved by the Board or
appropriate oversight committee of the Board on a case-by-case
basis for proper business purpose.
2.5 REIMBURSEMENT OF BUSINESS EXPENSES. Executive shall be
entitled to receive reimbursement for, or payment of, the legitimate business
expenses incurred by Executive on behalf of the Company in accordance with the
Company policy in effect from time to time, including meals, lodging,
transportation and other travel expenses.
SECTION 3
TERM OF AGREEMENT; TERMINATION
3.1 TERM. This Agreement shall become effective on the date first
written above and shall continue in force until terminated in accordance with
this Section 3. Executive's employment with the Company pursuant to this
Agreement shall terminate concurrently with the termination of this Agreement.
3.2 TERMINATION UPON DEATH. Executive's employment under this
Agreement shall terminate automatically upon the death of Executive.
3.3 TERMINATION BY MUTUAL AGREEMENT. This Agreement may terminate
at any time upon the mutual agreement of the Company and Executive.
3.4 TERMINATION BY THE COMPANY.
(a) The Company may terminate Executive's employment under this
Agreement at any time, without Cause (as defined in Section 3.4(c)), upon thirty
(30) days prior written notice of termination to Executive. The Company, in its
sole discretion but without derogation to any rights of Executive under Section
2, may place Executive on administrative leave during the thirty (30) day notice
period.
(b) The Company may terminate Executive's Employment under this
Agreement with Cause immediately upon written notice of termination to
Executive, unless a later termination date is specified in the notice.
----------------------
(6) This provision shall have no force or effect until the Effective Date.
5
(c) For the purposes of this Agreement, "Cause" for termination
shall exist if Executive is:
(1) Convicted of, or pleads guilty or nolo contendere to, in a
court of competent jurisdiction, a felony amounting to
embezzlement, fraud, theft or other act of dishonesty harming
the Company or any employee, supplier, customer or other
person doing business with the Company;
(2) Convicted of, or pleads guilty or nolo contendere to, in a
court of competent jurisdiction, a felony resulting in death
or substantial bodily or psychological harm to, or other act
of moral turpitude harming, any person;
(3) Barred or suspended for a period of more than 60 days by any
court or regulatory agency of competent jurisdiction from
performing employment duties for, engaging in any activities
on behalf of, or otherwise being associated with, the Company;
(4) Found liable by any court of competent jurisdiction for
conduct undertaken with deliberate intent to cause harm or
injury, or undertaken with reckless disregard to the harm or
injury that would be caused, to the Company or any employee,
supplier, customer or other person doing business with the
Company other than conduct taken pursuant to advice of legal
counsel to the Company; or
(5) Found by the Company pursuant to Section 5.13 to have failed
to exercise reasonable efforts to properly perform any of
Executive's obligations under this Agreement or any direction
of the Board consistent with this Agreement within 10 business
days after receipt of written notice specifying each such
obligation or direction to be so perform, provided, however,
that the refusal to perform an obligation or direction should
not constitute "Cause" if Executive in good faith reasonably
believes that such obligation or direction is not legal,
ethical or moral and Executive so notifies the Board of his
belief.
3.5 TERMINATION BY EXECUTIVE.
(a) Executive may terminate his employment under this Agreement at
any time without Good Reason (as defined in Section 3.5(c) below) upon thirty
(30) days prior written notice to the Company. The Company, in its sole
discretion but without derogation to any rights of Executive under Section 2,
may place Executive on administrative leave during the thirty (30) day notice
period.
(b) Executive may terminate his employment under this Agreement,
upon fifteen (15) days prior written notice to the Company, if he resigns for
Good Reason; provided that Executive shall not resign pursuant to this Section
3.5(b) if, prior to the expiration of the fifteen (15) day notice period, the
Company causes the facts or events giving rise to the Good Reason for
resignation to no longer exist and provides evidence of a form and nature
satisfactory to Executive that such facts or events no longer and will not in
the foreseeable future exist. The Company, in its sole discretion but without
derogation to any rights of Executive under Section 2, may place Executive on
administrative leave during the fifteen (15) day notice period. Notwithstanding
anything to the contrary contained herein, Executive shall not be required to
6
perform any act stated in his written notice of resignation as Good Reason for
his resignation for the period beginning with the giving of such written notice
and ending with the effective date of the termination of his employment.
(c) Executive shall be considered to have resigned for Good Reason
if:
(1) Executive ceases to hold the positions and titles of Executive
Vice President as contemplated by Section 1.1 of this
Agreement;
(2) Executive is assigned, without his consent, authority or
responsibility materially inconsistent with the authority and
responsibility contemplated by Section 1.1 of this Agreement,
including without limitation any material diminution of his
authority and responsibility or change in reporting
requirements;
(3) Executive's Base Salary is reduced, or there is any material
delay in the payment of Executive's Base Salary, or there is
any material reduction in the nature and amount of benefits
(including benefits under the Incentive Plan or the Stock
Option Plan or any successor plans thereto) theretofore
provided to Executive pursuant to Section 2;
(4) Any requirement is imposed for Executive to reside or travel
outside of the Columbus, Ohio area, other than on travel
reasonably required to carry out Executive's obligations under
this Agreement and consistent with past practice;
(5) Executive becomes disabled to the extent that he cannot, with
reasonable accommodation, effectively perform the requirements
of his position for a period of three consecutive months
(which determination shall be made by a physician of
Executive's choice who is reasonably acceptable to the
Company);
(6) The Company commits a material breach of this Agreement (other
than breaches which may be covered by some other subsection of
this Section 3.5(c)), which breach is not cured within thirty
(30) days after written notice thereof is given by Executive;
or
(7) For so long as Executive remains employed with the duties and
position described in Section 2.1, Executive and Messrs.
Xxxxxx X. Xxxxxxx, Xxxx Xxxxxxx, Xxxxxxx X. Xxxx, Xx., so long
as each of them remains employed by the Company or its
Affiliate, do not continue to constitute a majority of
directors of, or otherwise control, the board of directors of
each operating subsidiary that is an Affiliate controlled by
the Company.
(d) A Change in Control shall be deemed to have occurred if there
is:(7)
(1) A purchase or other acquisition in any one or more
transactions by any person, entity or group of persons (within
the meaning of section 13(d)(3) or 14(d)(2) of the Exchange
Act or any comparable successor provisions), directly or
indirectly, which results in the beneficial ownership (within
the meaning of Rule 13d-3
-------------------
(7) Notwithstanding anything to the contrary contained herein, a Change in
Control shall not be deemed to have occurred as a result of the issuance of
securities pursuant to the contemplated Initial Public Offering.
7
promulgated under the Exchange Act) of such person, entity or
group of persons equaling fifty percent (50%) or more of the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors ("Voting Securities"); excluding,
however, any acquisition (A) by the Company or any person
controlled by the Company or the Board of Directors of the
Company, (B) by any employee benefit plan or related trust
sponsored or maintained by the Company, (C) by Executive; or
(D) by another group including Executive, but only if
Executive and other executives of the Company control such
group;
(2) A change, within any rolling two-year period beginning with
any date on or after the Effective Date, in the composition of
the Board such that the individuals who constitute the Board
(the "Incumbent Board") at the beginning of such rolling
period cease for any reason to constitute at least a majority
of the Board; provided, however, that for purposes of this
definition, any individual who becomes a member of the Board
after the Effective Date, whose election, or nomination for
election, by the Company's security-holders was approved by a
vote of at least a majority of those individuals who are
members of the Board and who were also members of the
Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board; and provided, however,
that any such individual whose initial assumption of office
occurs as a result of or in connection with either an actual
or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
or other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board
shall not be so considered as a member of the Incumbent Board;
(3) A merger, reorganization or consolidation to which the Company
is a party or a sale or other disposition of all or
substantially all of the assets of the Company (each, a
"Corporate Transaction"); excluding however, any Corporate
Transaction pursuant to which (A) persons who were security
holders of the Company immediately prior to such Corporate
Transaction own (solely because of their Voting Securities
owned immediately prior to such Corporate Transaction)
immediately thereafter more than 50 percent of the combined
voting power entitled to vote in the election of directors of
the then outstanding securities or the company surviving the
Corporate Transaction and (B) individuals who constitute the
Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the
members of the board of directors of the company surviving
such Corporate Transaction; or
(4) Approval by the security-holders of the Company of a plan of
complete liquidation or dissolution of the Company.
3.6 COMPENSATION UPON TERMINATION. In addition to any employee
benefits to which Executive is entitled pursuant to Section 2.4 and any
reimbursement of business expenses pursuant to Section 2.5 (with respect to
which Executive and the Company shall reasonably
8
cooperate), Executive shall be entitled to the following upon termination of
Employment under this Agreement:
(a) In the event that the Company discharges Executive pursuant to
Section 3.4(b) for Cause, or Executive resigns (other than for Good Reason)
pursuant to Section 3.5(a), Executive shall be entitled to receive and the
Company shall cause to be paid (1) any earned but unpaid Base Salary through the
effective date of termination and (2) any award for which a Bonus was earned
under the Incentive Plan for any Performance Period which ended prior to the
effective date of termination but was not theretofore paid to Executive.
(b) In the event that Executive's employment is terminated by
death, Executive's estate or personal representative shall be entitled to
receive and the Company shall cause to be paid (1) any earned but unpaid Base
Salary through the date of Executive's death; (2) any award for which a Bonus
was earned under the Incentive Plan for any Performance Period which ended prior
to the effective date of termination but was not theretofore paid to Executive;
(3) continued payment of Executive's then current Base Salary for the ninety
(90) day period following the date of his death; (4) an amount equal to the
Target Incentive Award established for Executive under the Incentive Plan for
the then current Performance Period had Executive's employment not been
terminated and had Executive satisfied all Performance Goals established with
respect to such Performance Period, multiplied by a fraction the numerator of
which is the number of days in the then current Performance Period under the
Incentive Plan occurring prior to and including the date of Executive's death,
and the denominator of which is the number of days of the whole Performance
Period; and continued benefits (to the same extent and at the same level as were
provided by the Company to Executive's family members immediately prior to
Executive's death) under the health insurance plan(s) referenced in Section
2.4(b), for the ninety (90) day period following the date of termination, and,
to the extent permitted pursuant to such health insurance plan(s), for such
longer period as to which Executive's beneficiaries pay the cost of coverage
thereof. Except as otherwise agreed to between Executive's estate or personal
representative and the Company, all such amounts (other than health benefits
continued pursuant to Section 3.6(b)(5) above, which shall be payable in
accordance with the terms of the applicable plan) shall be paid by the Company
in a lump sum within thirty (30) days after the date of Executive's death.
(c) (1) Except as provided in Section 3.6(c)(2) below, in the
event that the Company discharges Executive pursuant
to Section 3.4(a) other than for Cause or Executive
resigns pursuant to Section 3.5(b) for Good Reason,
Executive shall be entitled to receive and the
Company shall cause to be paid (A) any earned but
unpaid Base Salary through the date of termination;
(B) any award for which a bonus was earned under the
Incentive Plan for any Performance Period which ended
prior to the effective date of termination but was
not theretofore paid to Executive; (C) continued
payment of Executive's then current Base Salary for
the twelve (12) month period following the date of
termination or, if the date of
9
termination is after the Effective Date, but before
the first anniversary of the Effective Date, of the
Initial Public Offering, for the number of months
following the date of termination through the month
including the second anniversary of the Effective
Date;(8) (D) an amount equal to the product of (i)
the Target Incentive Award established for Executive
under the Incentive Plan for the then current
Performance Period had Executive's employment not
been terminated and had Executive satisfied all
Performance Goals established with respect to such
Performance Period, multiplied by (ii) a fraction,
the denominator of which shall be twelve (12) and the
numerator of which shall be twelve (12) unless the
date of termination is after the Effective Date, but
before the first anniversary of the Effective Date,
of the Initial Public Offering, in which event the
numerator shall be the number of months following the
date of termination through the month including the
second anniversary of the Effective Date;(9) and (E)
continued benefits (to the same extent and at the
same benefit level as were provided by the Company to
Executive immediately prior to termination) under the
retirement and welfare benefit plans referenced in
Section 2.4(a), the health, disability and other
insurance plans referenced in Section 2.4(b), and the
Policy referenced in Section 2.4(c), for the twelve
(12) month period following the date of termination,
and, to the extent permitted pursuant to such health
insurance plan(s), for such longer period as to which
Executive's beneficiaries pay the cost of coverage
thereof; provided, that if any such plans are
terminated, or benefits thereunder reduced or
eliminated, during such twelve (12) month period, or
if, as a result of termination or otherwise,
Executive ceases to be eligible to participate in any
such plans during such twelve (12) month period, the
Company shall provide to Executive substitute
benefits which are no less favorable to Executive
than those received by Executive under such
plan(s)(10). Subject to Section 3.8, and except as
otherwise agreed to between Executive and the
Company, all such amounts (other than the amounts
referenced in Section 3.6(c)(1)(C), which shall be
paid in accordance with the then current payment
policies of the Company for its employees, and the
Continuation Benefits referenced in Section
3.6(c)(2), which shall be payable in accordance with
the terms of the applicable benefit plan), shall be
paid by the Company in a lump sum within thirty (30)
days after the date of Executive's discharge or
resignation.
(2) Notwithstanding anything to the contrary in Section
3.6(C)(1) above, in the event that (A) a Change in
Control occurs and (B) within the twelve (12) month
period immediately following the date on which the
Change in control occurs, (i) the Company discharges
Executive pursuant to Section 3.4(a) other than for
Cause or (ii) Executive resigns pursuant to Section
3.5(b) for Good Reason, Executive shall be entitled
to receive and
--------------------
(8) This clause shall have no force or effect until the Effective Date.
(9) This clause shall have no force or effect until the Effective Date.
(10) This clause shall have no force or effect until the Effective Date.
10
the Company shall cause to be paid in lump-sum and
within thirty (30) days of Executive's termination of
employment an amount equal to ((a)) any earned but
unpaid Base Salary through the date of termination;
((b)) any award for which a bonus was earned under
the Incentive Plan for any Performance Period which
ended prior to the effective date of termination but
was not theretofore paid to Executive; the product of
two (2) times Executive's then current Base Salary at
the date of termination; (iv) the product of two (2)
times the Target Incentive Award established for
Executive under the Incentive Plan for the then
current Performance Period had Executive's employment
not been terminated and had Executive satisfied all
Performance Goals established with respect to such
Performance Period. In addition, Executive shall be
entitled to continued benefits (to the same extent
and at the same benefit level as were provided by the
Company to Executive immediately prior to
termination)(the "Continuation Benefits") under the
retirement and welfare benefit plans referenced in
Section 2.4(a), the health, disability and other
insurance plans referenced in Section 2.4(b), and the
Policy referenced in Section 2.4(c), for the twenty
four (24) month period following the date of
termination, and, to the extent permitted pursuant to
such health insurance plan(s), for such longer period
as to which Executive's beneficiaries pay the cost of
coverage thereof; provided, that if any such plans
are terminated, or benefits thereunder reduced or
eliminated, during such twenty four (24) month
period, or if, as a result of termination or
otherwise, Executive ceases to be eligible to
participate in any such plans during such twenty four
(24) month period, the Company shall provide to
Executive substitute benefits which are no less
favorable to Executive than those received by
Executive under such plan(s). Subject to Section 3.8,
and except as otherwise agreed to between Executive
and the Company, all such amounts (other than the
amounts referenced in Section 3.6(c)(2)(C), which
shall be paid in accordance with the then current
payment policies of the Company for its employees,
and the Continuation Benefits, shall be paid by the
Company in a lump sum within thirty (30) days after
the date of Executive's discharge or resignation.(11)
(d) Except as otherwise provided in Section 3.6(b) or 3.6(c),
Executive's right, upon and after the termination of his
employment under this Agreement pursuant to this Section 3 or
otherwise, to receive any benefit under the plans, if any, in
which Executive is entitled to participate pursuant to Section
2.4 shall be determined under the provisions of those plans.
3.7 NOTICES. Any termination of Executive's employment for which
notice of termination is required to be given pursuant to this Section 3 shall
be communicated in a writing which shall indicate the specific provision in this
Section 3 relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated.
------------------------
(11) This provision shall have no force or effect until the Effective Date.
11
3.8 GENERAL RELEASE. Notwithstanding anything in this Section 3 or
otherwise to the contrary, at the election of the Company no amount shall be
payable under this Section 3 in excess of (a) any earned but unpaid Base Salary
through the date of Executive's death; (b) any award under the Incentive Plan
which was earned pursuant to the terms and conditions of such plan prior to the
effective date of termination but was not theretofore paid to Executive, unless
Executive (or his personal representative or trustee of his estate, in the case
of his disability or death) executes a general release of known claims (in form
and containing provisions reasonably required by the Company), provided,
however, that any such general release shall be mutual with respect to known
claims of the Company against Executive and known claims of Executive against
the Company.
3.9 NO MITIGATION. In the event of the termination of Executive's
employment hereunder for any reason, Executive shall have no obligation to
mitigate damages.
SECTION 4
CONFIDENTIALITY AND NON-COMPETITION
4.1 CONFIDENTIAL INFORMATION. Except as otherwise provided in
Section 4.2, the term "Confidential Information" shall mean all trade secrets
and confidential and proprietary information of the Company, whether in written
or oral, tangible or intangible form, including, without limitation, the
following:
(a) The whole or any portion or phase of any data or information
relating to the Company's processes or techniques relating to
its business, whether or not copyrighted, copyrightable,
patented or patentable, (1) which is or has been disclosed to
Executive or about which Executive became or shall become
aware of as a consequence of, or through or during Executive's
employment with the Company; (2) which has value to the
Company; and (3) which is not generally known by others;
(b) Any software, programs, calculations, instructions or other
intellectual property and embodiments thereof of any media,
including electro magnetic, and in any form, including source
code and object code, whether or not copyrighted,
copyrightable, patented or patentable;
(c) Business plans, marketing concepts and marketing and sales
information of the Company;
(d) Financial, pricing and/or credit information regarding the
Company or customers and/or suppliers of the Company;
(e) The names, addresses, policy expiration dates and telephone
numbers of customers, agents and/or suppliers of the Company;
(f) The internal corporate policies and procedures of the Company;
12
(g) Any information of any nature whatsoever that gives the
Company the opportunity to obtain any advantage over its
competitors who do not have access to or use of such
information; and
(h) Any other information designated by the Company as
confidential or proprietary at the time of its disclosure to
Executive.
The term "Confidential Information" also shall include all trade secrets and
confidential and proprietary information of any customer, agent, supplier, or
prospective customer, agent or supplier of the Company, whether in written or
oral, tangible or intangible form, which have been disclosed to the Company
pursuant to the Company's agreement to maintain the confidentiality of such
information.
4.2 EXCLUDED INFORMATION. Notwithstanding anything in Section 4.1
to the contrary, the term "Confidential Information" shall not include any data
or information that (a) is voluntarily disclosed by the Company or has otherwise
become generally known to the insurance industry (except for such public
disclosure that has been made by or through Executive or by a third person with
the knowledge of Executive without authorization by the Company); (b) has been
independently developed and disclosed by parties other than Executive or the
Company to the public generally without a breach of any obligation of
confidentiality by any such person running directly or indirectly to the
Company; or (c) otherwise enters the public domain through lawful means.
4.3 CONFIDENTIALITY AGREEMENT. Executive agrees and acknowledges
that the Confidential Information is the property of the Company, and that such
information is sensitive, confidential and important and is furnished by the
Company to Executive under the terms and conditions of this Agreement. Executive
shall keep the Confidential Information (whether obtained prior to or after the
date of this Agreement) strictly confidential during the term of this Agreement
and at all times thereafter provided, however, that Executive may disclose
Confidential Information in the performance of his employment to the extent that
he reasonably believes such disclosure is necessary or convenient, in his sole
discretion, in order to perform his duties.
4.4 RETURN OF COMPANY PROPERTY. Executive agrees that upon
termination of this Agreement, Executive shall immediately surrender to the
Company, without request, or, at the Company's request and in the Company's sole
discretion, destroy or cause to be destroyed all memoranda, notes, reports,
documents, software and disks and all copies and other reproductions and
extracts thereof, including those prepared by Executive, which are in
Executive's possession or under his control and which contain or are derived
from Confidential Information.
4.5 COVENANT NOT TO COMPETE OR SOLICIT. Executive shall not,
directly or indirectly, do any of the following during the term of this
Agreement and for a period of twelve (12) months or, if longer, the entire
period for which Executive is entitled to (i) payments of Base Salary or Target
or other Incentive Awards or (ii) other benefits pursuant to Section 3 other
than payments and benefits pursuant to Section 3.6(c)(2) after a Change in
Control:
13
(a) Be employed by, serve as consultant or independent contractor
to, directly or indirectly beneficially own any equity or
similar interest in (except as the holder of not more than one
percent (1%) of the voting securities of any publicly traded
entity or as a shareholder of the Company or any successor
thereto), or otherwise engage in, any property and casualty
insurance company business that directly competes with any
insurance company subsidiary of the Company in the continental
United States, Canada or the Bahamas;
(b) Solicit or cause to be solicited, directly or indirectly, any
property and casualty wholesale agents under contract with the
Company for any purpose (other than, during the term of this
Agreement, as an employee of the Company on behalf of the
Company), without the prior written consent of the Company,
which written consent specifically refers to this Agreement;
or
(c) Solicit or cause to be solicited, directly or indirectly, or
in any way be responsible for, an offer of employment to any
employee of the Company by any other person.
The restrictions contained in this Section 4.5 shall cease to apply to, and
shall not bind, Executive in the event that the Company fails to timely and
completely pay all amounts due and owing to Executive pursuant to Section 3.6 of
this Agreement. For the purposes of the preceding sentence, the Company will be
deemed to have failed to timely and completely pay all amounts due and owing to
Executive pursuant to Section 3.6 if the Company fails (other than as the result
of a prior breach of this Section 4.5 by Executive) to make any such payment to
Executive within ten (10) days of its due date.
4.6 ADDITIONAL COVENANTS. During the term of this Agreement,
Executive shall not take advantage of any Company opportunity without first
offering the opportunity with full disclosure of material facts to the Company
and receiving notice that the Company has declined such opportunity. For this
purpose, "Company opportunity" means any opportunity to engage in a business
activity: (a) of which Executive becomes aware (1) by virtue of Executive's
relationship with, or in connection with performing functions in the business
of, or in using facilities or other resources of the Company; and (2) under
circumstances that should reasonably lead Executive to believe that the person
offering the opportunity expects it to be offered to the Company; or (b) which
Executive knows is closely related to a business in which the Company is engaged
or expected to engage.
4.7 REMEDIES FOR BREACH. Executive agrees that, in the event of
any breach or threatened breach of any provision of this Section 4 by Executive,
the Company shall be entitled to a temporary restraining order and other
temporary or permanent injunctive relief, provided that the Company has shown
irreparable harm. No remedy conferred upon the Company by this Agreement is
intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or now or hereafter existing at law, in equity
or by statute.
14
4.8 REASONABLENESS OF RESTRICTIONS. Executive agrees and
understands that there are significant business reasons for the restrictions
contained in this Agreement and that such restrictions are reasonable and
necessary to protect legitimate business interests of the Company. Without
limiting the generality of the foregoing, Executive agrees and understands that
because the Company may sell its products, technology and services nationally
and internationally, the geographic scope of Executive's agreement not to
compete with the Company is both reasonable and necessary.
4.9 SEVERABILITY. If any provision of this Section 4 is held
invalid, illegal or unenforceable, the remaining provisions shall continue in
full force and effect. If any provision of this Section 4 is for any reason held
to be excessively broad as to time, duration, geographic scope, activity or
subject, it shall be construed, by limiting and reducing it, so as to be
enforceable to the extent permitted by applicable law.
4.10 SCOPE OF SECTION 4. As used in this Section 4, the term the
"Company" shall include all Affiliates of the Company.
SECTION 5
MISCELLANEOUS
5.1 INDEMNIFICATION. The Company shall indemnify Executive if he
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, without limitation, an action by or in the right of
the Company) by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, partner, joint venturer or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees and expenses),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action, suit or
proceeding, had no reasonable cause to believe his conduct was unlawful. No
indemnification shall be made in respect of any derivative claim, issue or
matter as to which Executive shall have been adjudged to be liable to the
Company unless, and only to the extent that, the court in which such action,
suit or proceeding was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
Executive is fairly and reasonably entitled to indemnity for such expenses.
Expenses (including reasonable attorneys' fees and expenses) incurred in
defending any civil or criminal action, suit or proceeding referred to in this
Section shall be paid by the Company in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
Executive to repay such amount, unless it shall ultimately be determined that he
is not entitled to be indemnified by the Company as authorized in this Section.
The indemnification provided by this Section shall not be deemed exclusive of
any other rights to which Executive may be entitled under the common law, the
Ohio corporate law or the charter documents of the Company or any agreement,
vote of its shareholders or directors,
15
or otherwise, both as to action in his official capacity or as to action in
another capacity while holding such office.
5.2 KEY MAN LIFE INSURANCE; COLI. Executive agrees to cooperate
with the Company in connection with, and consent to the placement of, "key man"
or other corporate owned insurance on Executive's life by the Company, provided
that, except as provided in Section 2.4(c), nothing herein shall require the
Company to obtain or maintain any such insurance on Executive's life.
5.3 BREACH OF AGREEMENT BY COMPANY. The Company agrees that, in
the event of any breach or threatened breach of this Agreement by the Company,
Executive shall be entitled to any appropriate remedy in law or in equity. No
remedy conferred upon Executive by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law, in equity or by statute. The
Company shall pay all legal expenses (including reasonable attorney's fees and
expenses) and other damages incurred by Executive as the result of or in
connection with any breach of this Agreement by the Company. The Company is
aware that, following a Change in Control, the Board or a shareholder of the
Company may cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute, litigation seeking to have this Agreement
declared unenforceable, or may take, or attempt to take, other action to deny
Executive the benefits intended under this Agreement. In these circumstances,
the purpose of this Agreement could be frustrated. It is the intent of the
Company that Executive not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other legal
action because the cost and expense thereof would substantially detract from the
benefits intended to be extended to Executive hereunder, nor be bound to
negotiate any settlement of his rights hereunder under threat of incurring such
expenses. Accordingly, (a) if following a Change in Control (1) Executive
concludes that the Company has failed to comply with any of its obligations
under this Agreement or (2) the Company or any other person on behalf of the
Company or any shareholder or Affiliate of the Company takes any action to
declare this Agreement void or unenforceable, or institutes any litigation or
other legal action designed to deny, diminish, or recover from Executive the
benefits intended to be provided to Executive hereunder, and (b) if Executive
has complied with all of his obligations under this Agreement, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice at the expense of the Company as provided in this 5.3, to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any director, officer,
shareholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to Executive's
entering into an attorney-client relationship with such counsel, and in that
connection, the Company and Executive agree that a confidential relationship
shall exist between Executive and such counsel. The reasonable fees and expenses
of counsel selected from time to time by Executive as hereinabove provided shall
be paid or reimbursed to Executive by the Company on a regular periodic basis
upon presentation by Executive of a statement or statements prepared by such
counsel in accordance with its customary practices (provided that such
statements need not
16
contain descriptions of the services performed). The payment of such fees and
expenses shall not be contingent upon the success of such counsel. Executive
shall repay to the Company all such amounts paid by the Company under this
Section, and the Company shall not be obligated to make further payments
hereunder, in connection with a contest originated by Executive if the trier of
fact in such contest determines that Executive's claim was patently frivolous.
5.4 AFFILIATES. As used in this Agreement, an entity shall be
deemed to be an Affiliate of another entity if it controls, is controlled by or
is under common control with the other entity, where "control" means the power
to vote not less than ten percent (10%) of the voting securities of an entity.
5.5 NO CONFLICT. Executive represents that the performance by
Executive of all the terms of this Agreement, as an Executive of the Company,
has not, does not and will not breach any agreement as to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not entered into, and will not enter into, any
written or oral agreement in conflict herewith.
5.6 NOTICES. Any and all notices required to be given under this
Agreement shall be given, and be deemed given, as follows: (a) by personal
delivery which shall be deemed given when delivered; (b) by U. S. first-class
mail, postage prepaid, which shall be deemed given the third (3rd) day after
deposit; or (c) by telecopy (if telecopy number is listed) with confirmation of
receipt which shall be deemed given when sent. Any such notice shall be
addressed, if to the Company at its principal place of business (attn:
President) and, if to Executive at his most current home address on record with
the Company for payroll and other corporate purposes, unless a different address
for notice purposes is designated by Executive in a written notice complying
with and referring to this Section 5.6.
5.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio without regard to
conflict of law principles.
5.8 AMENDMENT AND WAIVER. This Agreement shall not be amended or
modified, and none of the provisions hereof shall be waived, except in a writing
signed on behalf of the Company and by Executive or, in the case of a waiver, on
behalf of the party making a waiver. In the event that any obligation, agreement
or covenant contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
5.9 SECTION HEADINGS. Section headings contained in this Agreement
are for convenience only and shall not be considered in construing any provision
hereof.
5.10 ASSIGNMENT. This Agreement is personal to Executive and
Executive may not assign or delegate any of his rights or obligations hereunder.
Subject to the foregoing, this Agreement shall inure to the benefit of and be
binding upon Executive and the Company and
17
their respective heirs, administrators, executors, successors and assigns,
including successive as well as immediate heirs, administrators, executors,
successors and assigns.
5.11 ENTIRE AGREEMENT. This Agreement terminates, cancels and
supersedes all previous written and oral employment agreements or other
agreements relating to the relationship of Executive with the Company entered
into between the parties hereto. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement. Executive is represented by independent legal counsel or has had the
opportunity to retain independent legal counsel to represent Executive's
interests. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring any party by virtue
of authorship of any of the specific provisions of the Agreement. EXECUTIVE
ACKNOWLEDGES THAT, BEFORE PLACING HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF
THE PROVISIONS OF THIS AGREEMENT, AND HAS THIS DAY RECEIVED A COPY HEREOF.
5.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such invalidity or unenforceability without
thereby rendering invalid or unenforceable the remaining terms and provisions
hereof or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
5.13 DISPUTE RESOLUTION.
(a) Notwithstanding any provision herein to the contrary, any
determination of (1) whether Cause for termination or Good
Reason for resignation exists and (2) whether something
"materially" affects anything, or is "substantially" or
"reasonably" or "effectively" done, or is "material" or
"reasonable," as such terms are used in this Agreement, shall
be made in the first instance by the Board or one of its
appropriate oversight committees.
(b) Any controversy, claim or dispute arising out of or relating
to this Agreement or the breach, termination, enforceability
or validity of this Agreement, including the determination of
the scope or applicability of the agreement to arbitrate set
forth in this Section 5.13(b) and any dispute of any
determination by the Company pursuant to Section 5.13(a),
shall be determined exclusively by binding arbitration in the
City of Columbus, Ohio. The arbitration shall be governed by
the rules and procedures of the American Arbitration
Association (the "AAA") under its Commercial Arbitration Rules
and its Supplementary Procedures for Large, Complex Disputes;
provided that persons eligible to be selected as arbitrators
shall be limited to attorneys-at-law each of whom (i) is on
the AAA's Large, Complex Case Panel or a Center for Public
Resources ("CPR") Panel of Distinguished Neutrals, or has
professional credentials comparable to those of the attorneys
listed on such AAA and CPR Panels and (ii) has actively
practiced law (in private or corporate practice or as a member
of the judiciary) for at least 15 years in the State of Ohio
concentrating in either general commercial litigation or
18
general corporate and commercial matters. Any arbitration
proceeding shall be before one arbitrator mutually agreed to
by the parties to such proceeding (who shall have the
credentials set forth above) unless the amount in question
exceeds $100,000, in which event, the mediation shall be by a
panel of three mediators or, if the parties are unable to
agree to the arbitrator(s) within 15 business days of the
initiation of the arbitration proceedings, then by the AAA. No
provision of, nor the exercise of any rights under, this
Section 5.13(b) shall limit the right of any party to request
and obtain from a court of competent jurisdiction in the State
of Ohio, County of Franklin (which shall have exclusive
jurisdiction for purposes of this Section 5.13) before, during
or after the pendency of any arbitration, provisional or
ancillary remedies and relief including injunctive or
mandatory relief or the appointment of a receiver. The
institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary
remedies shall not constitute a waiver of the right of any
party, even if it is the plaintiff, to submit the dispute to
arbitration if such party would otherwise have such right.
Each of the parties hereby submits unconditionally to the
exclusive jurisdiction of the state and federal courts located
in the County of Franklin, State of Ohio for purposes of this
provision, waives objection to the venue of any proceeding in
any such court or that any such court provides an inconvenient
forum and consents to the service of process upon it in
connection with any proceeding instituted under this Section
5.13 in the same manner as provided for the giving of notice
under this Agreement. Judgment upon the award rendered may be
entered in any court having jurisdiction. The parties hereby
expressly consent to the nonexclusive jurisdiction of the
state and federal courts situated in the County of Franklin,
State of Ohio for this purpose and waive objection to the
venue of any proceeding in such court or that such court
provides an inconvenient forum. The arbitrator(s) shall award
recovery of all costs (including attorneys' fees,
administrative fees, arbitrators' fees and court costs) to the
prevailing party. No arbitrator shall have power, by award or
otherwise, to vary any of the provisions of this Agreement.
SIGNATURES
In Witness Whereof, the parties have executed this Agreement as of the
date set forth above.
THE COMPANY: EXECUTIVE:
PROCENTURY CORPORATION
/s/ Xxxxxx X. Xxxxxxx /s/ Xxxxxxxxxxx X. Xxxx
-------------------------------------------- -------------------------------
Xxxxxx X. Xxxxxxx, Chairman of the Board Xxxxxxxxxxx X. Xxxx
President, Chief Executive Officer and
Director
19
EXHIBIT A
EXECUTIVE'S POSITIONS FOR SUBSIDIARIES
Member of the Board of Directors and President of each subsidiary
EXHIBIT B
PERFORMANCE GOALS FOR 2004
X.X.X (*) BONUS AS A % OF TARGET NET INCOME
--------- ---------------------- ----------
Under
BONUS THRESHOLD 14.50% 0% Less than 11,527,500
-----------------------------------------------------------------------------------------------------------
14.50% 15% 11,527,500
15.75% 30% 12,521,250
GOOD PERFORMANCE 17.00% 45% 13,515,000
18.25% 60% 14,508,750
19.50% 75% 15,502,500
-----------------------------------------------------------------------------------------------------------
20.75% 90% 16,496,250
EXCELLENT PERFORMANCE 22.00% 100% 17,490,000
23.25% 110% 18,483,750
-----------------------------------------------------------------------------------------------------------
24.50% 120% 19,477,500
25.75% 130% 20,471,250
OUTSTANDING PERFORMANCE 27.00% 140% 21,465,000
28.25% 150% 22,458,750
Over Greater than
28.25% Discretionary 22,458,750
-----------------------------------------------------------------------------------------------------------
* Return on Equity (X.X.X) based on average equity in 2004 ($79.5MM)
