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EXHIBIT 10.24
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is entered
into as of the 15th day of June, 1999, by and between Xxxxx X. Xxxxxx ("Xxxxxx")
and Ceres Group, Inc., a Delaware corporation, as successor to Central Reserve
Life Corporation, an Ohio corporation (the "Company") and amends the Employment
Agreement entered into by such parties dated June 30, 1998 (the "Agreement") and
the First Amendment to Employment Agreement dated Xxxxx 00, 0000 (xxxxxxxx to as
the "First Amendment" and the Agreement and the First Amendment are collectively
referred to as the "Amended Agreement").
WHEREAS, Xxxxxx and the Company desire to further amend and restate certain
provisions of the Amended Agreement to reduce the number of shares payable to
Xxxxxx in 1999 and increase the number of shares payable to Xxxxxx in 2001.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree as follows:
1. Deletion in Whole of First Amendment.
The First Amendment is deleted in whole and restated, replaced and
superseded by this Amendment.
2. Restatement of Section 2.
Section 2 of the Agreement shall be deleted in whole and shall be replaced
and superseded by the following new Section 2:
2. Compensation.
(a) Stock Award. 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") in each
of 1999, 2000 and 2001, together with a cash payment equal to the
federal, state and local taxes (the "Tax Payment") payable by Xxxxxx
with respect to the Stock Award; provided, however, in no event shall
a Tax Payment with respect to the taxes for any year exceed 50% of the
"Fair Market Value" of the Stock Award received by Xxxxxx in such year
as determined under Section 2(h) of this Agreement. The amount and
payment of the Stock Award shall be as follows: (i) on July 1, 1999,
Xxxxxx shall receive 108,108 shares of Common Stock, and (ii)
commencing on January 1, 2000, and on the 1st day after the close of
each three-month period thereafter (that is, the first day of April,
July, October and January), Xxxxxx shall receive a number of shares of
Common Stock equal
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to $250,000 divided by the average closing price of the Common Stock
for the three-month period preceding the most recently completed
three-month period on such date. For example, the January 1, 2000
Stock Award payment shall be based on the stock price during the
three-month period ending on September 30, 1999, and each Stock Award
payment thereafter shall be based on the three-month period ending
three months prior to the day before the date of such payment. The
last Stock Award payment under Section 2(a)(ii) shall be on July 1,
2001, and shall include the Stock Award for the three-month periods
ending March 31, 2001 and June 30, 2001. Also, on July 1, 2001, Xxxxxx
shall receive 58,559 shares of Common Stock. 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
receive the Tax Payment prior to April 15 of the year following the
year of payment of the Stock Award to which such Tax Payment relates.
All Common Stock paid to Xxxxxx pursuant to this Paragraph 2(a) shall
be fully vested immediately upon issuance; provided, however, that
Xxxxxx shall forfeit all rights to any unpaid Stock Award and the Tax
Payment related thereto if his employment with the Company is
terminated prior to June 30, 2001, 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.
All stock certificates issued to Xxxxxx in 1999, 2000, and 2001
pursuant to this Section 2(a), shall, if deemed necessary by the
Company, contain the following legends and any others deemed
reasonably necessary by the Company:
NOTICE
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO
TRANSFER RESTRICTIONS, VOTING LIMITATIONS, AND OTHER TERMS AND
CONDITIONS CONTAINED IN A VOTING AGREEMENT DATED JULY 1, 1998, BY
AND AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THIS SECURITY IS SUBJECT TO CERTAIN RIGHTS AND RESTRICTIONS SET
FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS OF JULY 1, 1998, A
COPY OF WHICH MAY OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICES.
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THE SHARES
EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE
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COMPANY MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
(b) Stock Options.
(i) As an inducement to Xxxxxx to enter into this Agreement,
the Company will grant to Xxxxxx on the closing date of the
Amended and Restated Stock Purchase, 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 (the "Stock Purchase Closing 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
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100,000 $ 6.50
100,000 $ 7.50
100,000 $ 8.50
100,000 $ 9.50
100,000 $ 10.50
(ii) 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
anti-dilution protections as contained in the warrants issued to
Xxxxxx in connection with his equity investment in the Company.
(iii) This Section 2(b) of the Agreement constitutes a plan
(the "Plan") under which the Options are granted for purposes of
Section 162(m) of the Internal Revenue Code. At the close of the
market on the date immediately preceding the Stock Purchase
Closing Date, the fair market value of one (1) share of Common
Stock was less than $6.50. The maximum number of shares of Common
Stock subject to this Plan on which options to purchase may be
granted is 500,000, all of which are granted to Xxxxxx in this
Section 2(b).
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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 to the Agreement.
(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; provided, however, that such
assignment does not violate any restrictions on transferability and
assignability of Common Stock awarded under Section 2(a) of this Agreement.
(f) Performance Goal. Xxxxxx'x right to and receipt of any Tax Payment
as provided under Section 2(a) of this Agreement is subject to the
satisfaction of the Performance Goal as set forth on Exhibit B of the
Agreement.
(g) Certification of Performance. Prior to Xxxxxx'x receipt of any Tax
Payment or incentive pay under Section 2(c) of this Agreement, the Board of
Directors of the Company or the Compensation Committee thereof shall
certify whether or not the Performance Goal was satisfied.
(h) Fair Market Value of Stock Award. For purposes of Sections 83 and
162 of the Internal Revenue Code, the "Fair Market Value" of a Stock Award
shall be equal to the product of (i) the number of shares of Common Stock,
including fractional shares, paid to Xxxxxx multiplied by (ii) the closing
price of one (1) share of Common Stock on the date of payment.
3. Deletion of Section of 9. Section 9 of the Agreement shall be deleted in
whole.
4. Correction to Section 10(f). References in Section 10(f) to "Section 9"
are deleted and substituted with "Section 10."
5. Governing Law. This Amendment 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.
6. Severability. If any provision of this Amendment is held for any reason
to be invalid, it will not invalidate any other provisions of this Amendment
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.
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7. Headings. Paragraph headings hereunder are for convenience only and
shall not affect the meaning or interpretation of the provisions of this
Amendment.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original without production of
the others.
9. Full Force and Effect. Except as expressly stated in this Amendment, all
terms and provisions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
CERES GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx, Xx.
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Its: Executive Vice President and CFO
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/s/ Xxxxx X. Xxxxxx
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Xxxxx X. Xxxxxx
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EXHIBIT B
5% year over year increase in the direct premium revenue of Central Reserve
Life Insurance Company, an Ohio corporation, based on 1998 revenues of
$264,868,186, as follows:
1999 $278,112,000
2000 $292,018,000
2001 $306,618,000
For the Tax Payment related to any Stock Award to be paid in any quarter in 1999
or 2000, the 1999 target must be met; and for the Tax Payment related to any
Stock Award to be paid in any quarter in 2001, the 2000 target must be met.
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