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EXHIBIT 10.7
EMPLOYMENT CONTINUITY AGREEMENT
This Agreement made as of October 28, 1996, by and between NORTH EAST
INSURANCE COMPANY, a Maine corporation with its principal place of business in
Scarborough, Maine (the "Company"), and Xxxxxx X. Xxxxxx ("Officer"), of Cape
Xxxxxxxxx, Maine.
WHEREAS, the Officer has been employed by the Company since March 29, 1988
and is presently serving in the capacity of President and Chief Executive
Officer; and
WHEREAS, the Company desires to assure itself of the continued employment
and sound judgment of the Officer in the event of any potential change in
control of the Company;
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein contained and for other good and valuable consideration, the receipt and
adequacy of which is acknowledged by each of the parties, the Officer and the
Company agree as follows:
1. GENERAL.
a. TERM OF THE AGREEMENT AND RENEWAL. The term of this Agreement
shall be for a period beginning on the date hereof and continuing
through the sixth anniversary thereof, provided that, if a Change
in Control Event (as defined below) occurs during the term, the
term shall extend through the later of (i) the date the term is
otherwise scheduled to end or (ii) three years following the date
of the Change in Control Event. Notwithstanding any provision
above, this Agreement shall remain effective for so long as
necessary to enforce all rights accrued and obligations arising
prior to the end of the Term.
b. EFFECT ON EMPLOYMENT AGREEMENT. The Officer is currently employed
pursuant to an Employment Agreement entered into March 26, 1991,
effective January 1, 1991 (the "Employment Agreement"). This
Agreement does not supersede the Employment Agreement, which
remains in full force and effect except as specifically amended
herein.
c. CHANGES TO EMPLOYMENT AGREEMENT. The Employment Agreement is
hereby amended effective immediately as follows: the terms
"Change in Control," "Cause" and "Good Reason" wherever they
appear in the Employment Agreement are amended to refer to
"Change in Control Event", "Good Cause" and "Good Reason"
respectively as those terms are as defined in this Agreement. The
terms "Officer" and "the Executive" shall be used
interchangeably.
In addition, the Company agrees that prior to December 1, 1998 it
shall not exercise its authority under Section 1 of the
Employment Agreement to give written notice that the Term of the
Employment Agreement shall not be extended, so that, in all
events, the Term shall extend at least through March 1, 1999.
2. "CHANGE IN CONTROL EVENT." Any one of the following events shall constitute
a "Change in Control Event" for purposes of this Agreement:
a. Any person acquires or holds beneficial ownership of stock
representing twenty percent (20%) or more of the combined voting
power of the Company's then outstanding stock. Notwithstanding
the above, if any person, prior to attaining beneficial ownership
equaling or exceeding such level, has entered into an agreement
approved by the affirmative vote of at least two-thirds of the
Directors then in office and providing for restrictions on such
person's acquisition of Company stock and other matters involving
control of the Company (a "Standstill Agreement"), then, so long
as such Standstill Agreement is in effect and has not been
breached by such person, neither such person's beneficial
ownership of Company stock nor that of any affiliate of such
person shall constitute a Change in Control.
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For purposes of this Agreement, "beneficial ownership" shall
be determined in accordance with Regulation 13D under the
Securities Exchange Act of 1934, or any similar successor
regulation or rule; the term "person" shall include, without
limitation, any individual, corporation, limited liability
company, partnership, trust or association, or any group or
combination thereof; and the term "affiliate" shall have the
meaning set forth in Rule 12b-2 under the Securities and Exchange
Act of 1934, or any similar successor statutes or rule or
regulation.
b. Within any twenty-five (25) month period, individuals who were
Outside Directors at the beginning of such period, together with
any other Outside Directors serving as directors of the Company
pursuant to nominations approved or ratified by a majority of the
Outside Directors in office immediately prior to such respective
elections, cease to constitute a majority of the Board of
Directors of the Company.
For purposes of this Agreement, an "Outside Director" as of a
given date shall mean a member of the Company's Board of
Directors who (x) is not then a beneficial owner of stock
representing twenty percent (20%) or more of the combined voting
power of the then outstanding stock of the Company and not an
officer, director or affiliate of any such owner, (y) has been a
director of the Company throughout the six (6) month period prior
to such date and (z) has not been an employee of the Company at
any time during the six (6) month period prior to such date.
c. The Company ceases to be a reporting company pursuant to Section
13(a) of the Securities Exchange Act of 1934 or any similar
successor provision.
d. The Company's shareholders approve:
i. Any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation
or pursuant to which shares of Company common stock
would be converted into cash, securities or other
property, other than a merger or consolidation of the
Company in which the holders of the Company's common
stock immediately prior to the merger or consolidation
own, directly or indirectly, in the aggregate a
majority of each class of stock entitled to vote for
the election of directors of the surviving corporation
(or the equivalent controlling interest in any
surviving entity other than a corporation) immediately
after the merger or consolidation; or
ii. Any sale, lease, exchange, liquidation or other
transfer (in one transaction or a series of
transactions) of all or substantially all of the assets
of the Company.
3. RIGHTS UPON INVOLUNTARY TERMINATION OF EMPLOYMENT. If, within twelve (12)
months after the occurrence of a Change in Control Event, the Company terminates
the Officer's employment for any reason other than Good Cause as defined in
Paragraph 6, or if the Officer voluntarily terminates employment for Good Reason
as defined in Paragraph 4, then (i) if the Employment Agreement is then in
effect, Section 8.6 of the Employment Agreement shall apply in lieu of this
Agreement and this Agreement shall forthwith terminate, or (ii) if the
Employment Agreement is not then in effect the Company shall provide the Officer
with the following:
a. Within thirty (30) days of such termination, a lump sum cash
payment in an amount equal to three hundred percent (300%) of the
sum of (i) the Officer's annual base salary in effect upon the
date of the Change in Control Event plus (ii) any profit-sharing
award made to the Officer in respect to the most recently
completed calendar year; and
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b. The continuation of the Officer's participation and the
participation of his dependents (to the extent they were
participating prior to this termination of employment) in the
Company's health, life, disability and other employee benefit
plans, programs and arrangements as applicable to the Officer on
the date of the Change in Control Event (excluding any Retirement
Plan or 401(k) Plan) for a period of thirty-six (36) months after
such termination as if he were still employed during such period;
provided, however, if such participation in any such plan,
program or arrangement is specifically prohibited by the terms
thereof, the Company shall provide the Officer (and his
dependents) with benefits substantially similar to those which he
was entitled to receive under such plan, program or arrangement
immediately prior to his termination of employment. For purposes
of this Paragraph 3(b), any employee benefit determined with
reference to the Officer's compensation or earnings shall be
based on his annual base salary in effect upon the date of the
Change in Control Event unless otherwise provided under the terms
of the applicable employee benefit plan, program or arrangement.
4. DEFINITION OF TERMINATION BY THE OFFICER FOR GOOD REASON. For purposes of
this Agreement, termination by the Officer of his employment for "Good Reason,"
except upon the Officer's express written consent otherwise, shall mean:
a. The assignment of duties to the Officer which result in his
having less authority or responsibility than he had prior to the
Change in Control Event; or
b. The Officer's removal from, or any failure to re-elect him to,
any position he held immediately prior to the Change in Control
Event with either the Company or any majority-owned subsidiary;
or
c. A reduction of the Officer's annual base salary or benefits in
effect on the date of the Change in Control Event or as the same
may be increased from time to time thereafter; or
d. The relocation of the Company's principal executive offices to a
place outside of the greater Portland, Maine, area, or the
Company's transferring or assigning the Officer to a place of
employment other than its principal executive offices, except for
required business travel to an extent substantially consistent
with his business travel obligations immediately prior to the
Change in Control Event; or
e. The Company's failure to provide the Officer with substantially
the same health, life and other employee benefit plans, programs
and arrangements (specifically including the Company's stock
plans and compensation and incentive plans, as the same may be
amended in the future), and substantially the same perquisites of
employment, as provided to him immediately prior to the Change in
Control Event or as the same may be increased thereafter; or
f. The Company's failure to provide the Officer with substantially
the same support staff as provided to him immediately prior to
the Change in Control Event; or
g. The Company's failure to obtain from any successor a satisfactory
agreement to assume and perform the terms of this Agreement; or
h. Breach of the Employment Agreement or the Employment Continuity
Agreement by the Company; or
i. Due to a change in the Company's structure or ownership, the
Officer no longer has the authority of a chief executive officer
of an independent company of the same size and nature as the
Company (determined immediately prior to the Change in Control
Event).
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5. RIGHTS UPON A VOLUNTARY TERMINATION OF EMPLOYMENT.
a. If the Officer remains in active employment through the last day
of the sixth full calendar month following the occurrence of a
Change in Control Event (the Stay On Date), but then voluntarily
terminates his employment, other than for Good Reason as defined
in Paragraph 4, within 90 days after the Stay On Date, then the
Officer may elect, in written form reasonably acceptable to the
Company, to waive all rights under the Employment Agreement and
substitute therefor his rights under this Agreement, in which
case the Company shall, subject to the provisions of Paragraph
5(b) below, provide the Officer with the following:
(i) Within thirty (30) days of such termination of
employment, a lump sum cash payment in an amount equal
to fifty percent (50%) of the Officer's annual base
salary in effect upon the date of the Change in Control
Event.
(ii) No later than the end of the sixth full calendar month
following such termination of employment, a second lump
sum cash payment in an amount equal to fifty percent
(50%) of the Officer's annual base salary in effect
upon the date of the Change in Control Event.
(iii) Continuation of benefits and rights as described in
Paragraph 3(b) above, except that the period described in
Paragraph 3(b) shall be twelve (12) months.
b. If the Officer terminates employment under this Paragraph 5, and
elects to be paid as provided in Paragraph 5(a) above, then, in
return for his rights hereunder, he agrees that for the period
extending through the sixth full calendar month following his
termination of employment (the "Restricted Period"), the Officer
shall not, (i) directly or indirectly, for his own account or for
the account of others, as an officer, director, stockholder,
owner, partner, employee, promoter, consultant, manager or
otherwise, participate in the promotion, financing, ownership,
operation, or management of, or assist in or carry on through a
proprietorship, corporation, partnership or other form of
business entity or otherwise, the business of property and
casualty insurance (the "Business"), in any place in which the
Company is conducting or is actively planning to conduct Business
as of the date of such termination, (ii) solicit or contact in an
effort to do business with any person who was a customer of the
Company during the term of this Agreement, or any affiliate of
any such person, if such solicitation or contact is in
competition with the Company, or (iii) whether for his own
account or for the account of any other person (excluding the
Company), solicit or induce any of the Company's employees to
leave their employment with the Company or accept employment with
anyone else or hire any such employees. A breach of any of the
covenants contained in this Paragraph 5(b) may result in
material, irreparable injury to the Company for which there is no
adequate remedy at law, such that it will not be possible to
measure damages for such injuries precisely, therefore , in the
event of such a breach, any rights to compensation hereunder
shall be forfeited and the Company shall be entitled to
injunctive relief.
6. TERMINATION FOR GOOD CAUSE. Notwithstanding the provisions of Paragraph 5
above, the Company retains the right to terminate the Officer for "Good Cause,"
in which event he shall not be entitled to receive any payment or benefits
pursuant to this Agreement. "Good Cause" shall mean:
a. The Officer's conviction, by a court of competent jurisdiction,
of or the Officer's plea of nolo contendere to a crime adversely
reflecting on his honesty, trustworthiness or fitness to carry
out the responsibilities of his position with the Company in
other respects;
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b. A willful breach by him of any material duty or obligation
imposed upon him under the terms of his employment, as those
terms existed immediately prior to any Change in Control Event,
and his failure to cure such breach within thirty (30) days after
receiving written notice thereof from the Company; or
c. The Officer's continued substantial neglect of duties, after
written notice from the Board and an opportunity to correct.
7. NOTICES. Any and all notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when deposited in the
United States mails, certified or registered mail, postage prepaid and addressed
as follows:
To the Officer: Xxxxxx X. Xxxxxx
XX Xxx 000
Xxxx Xxxxxxx Xxxxxx
Xxxx Xxxxxxxxx, XX 00000
To the Company: North East Insurance Company
000 Xxxxx Xxxx
Xxxxxxxxxxx, XX 00000
Either party may change, by notice to the other, the address to which notices to
it are to be addressed.
8. APPLICABLE LAW, TAXES, BINDING AGREEMENT, SEVERABILITY, CONSTRUCTION.
a. This Agreement shall be governed by and construed in accordance
with the laws of the State of Maine, except as to any matter
which is preempted by federal law.
b. Notwithstanding anything to the contrary herein contained, the
Company may withhold from any amounts payable under this
Agreement all federal, state or other taxes or assessments which
may be required by applicable statute or regulation to be
withheld.
c. This Agreement shall be binding upon and inure to the benefit of
the Officer, his heirs, assigns, executors and legal
representatives; and the Company, its successors and assigns.
d. If any provision of this Agreement shall be held invalid or
unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall not be affected thereby.
e. The Outside Directors shall have the authority to construe and
interpret this Agreement on behalf of the Company, and any such
determination by the Outside Directors shall be conclusive on the
Company.
9. LIMITATIONS ON AMOUNTS TO BE RECEIVED. If it is determined that part or all
of the compensation and benefits to be paid to the Officer under this Agreement
will result in a loss of deduction to the Company under Section 280G of the
Internal Revenue Code of 1986 as amended (the "Code"), the following limitation
shall apply:
If the aggregate present value of such parachute payments (the "Parachute
Amount") equals or exceeds 2.99 times the Officer's "Base Amount" as defined in
Section 280G of the Code, then the amounts otherwise payable to or for the
benefit of the Officer pursuant to this Agreement, and taken into account in
calculating the Parachute Amount (the "Termination Payments"), shall be reduced,
to the extent necessary so that the Parachute Amount is equal to 2.99 times the
Officer's "Base Amount." The Company shall retain a qualified independent
advisor in order to make any determination or calculations necessary in applying
the above-described limitations.
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10. EXECUTION OF FURTHER DOCUMENTS. In the event the Officer receives payments
or benefits pursuant to the terms hereof and the Company's independent counsel
deems it necessary for the Company to receive a release or other acknowledgment,
the Officer agrees to execute any such document, as may be reasonably required
as a condition of his receipt of such payment or benefits.
11. AMENDMENT AND WAIVER. This Agreement may be amended only in writing, by the
parties hereto, and no condition or provision of this Agreement may be waived
except in writing. Waiver by either party at any time of the other party's
breach of, or failure to comply with, any condition or provision of this
Agreement to be performed by such other party shall not be deemed a waiver of
any other provision or condition at the same time or of any provision or
condition at any prior or subsequent time, unless specifically stated therein.
12. FUNDING. This Agreement shall not be construed to create or require the
Company to create a Trust or to otherwise act to fund the amounts payable
hereunder.
13. ASSIGNMENT. Except as required by law, the right to receive payments
hereunder shall not be subject to alienation, assignment, garnishment,
attachment, execution or levy of any kind, and any attempt to cause such
payments to be so subject shall not be recognized by the Company.
14. NO ADDITIONAL EFFECT. Except as expressly provided herein, nothing
contained herein shall be construed to provide the Officer with any specific
period of employment, right to be retained in the service of the Company or
other rights, nor shall this Agreement be construed to otherwise limit the
rights of the Company to discharge or take other action with respect to the
Officer.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
NORTH EAST INSURANCE COMPANY
By: /s/ Xxxxxx Xxxxx
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Its Secretary
/s/ Xxxxxx X. Xxxxxx
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Officer: Xxxxxx X. Xxxxxx
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