EXHIBIT (10)(Z)
FORM OF CHANGE OF CONTROL EMPLOYMENT AGREEMENT
The agreement contained below has the same form as
separate agreements between the Company and its
executive officers except the factor in section
4(c)(ii)(b) is 2.999 for the Chief Executive Officer
instead of 2.000.
July 1, 1999
Name & Title of Employee
Harleysville Group Inc. and
Harleysville Mutual Insurance Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
RE: EMPLOYMENT AGREEMENT
Dear :
------------
Harleysville Group Inc. ("Employer") considers the
establishment and maintenance of a sound and vital management
team essential to protecting and enhancing the best interests of
it and its stockholders and those of its parent company,
Harleysville Mutual Insurance Company ("Parent") and the Parent's
policyholders. In this connection, the Employer recognizes that,
as is the case with many publicly held corporations, the
possibility of a change in control of the Employer exists and
that such possibility and the uncertainty and questions which it
may raise among management personnel as to the effect of such
change in control on the Employer, may result in the departure or
distraction of such personnel to the detriment of the Employer,
the Parent, the Employer's stockholders and the Parent's
policyholders. Accordingly, the Board of Directors of the
Employer ("Board") has determined that appropriate steps should
be taken to reinforce and encourage the continued attention and
dedication of the key members of the Employer's management,
including yourself, to their assigned duties without the
distraction arising from the possibility of a change in control.
In order to induce you to remain in the Employer's employ,
this letter agreement ("Agreement") sets forth the severance
benefits which the Employer agrees will be provided to you in the
event your employment is terminated subsequent to a "change in
control" (as defined in Section 2) and under the circumstances
described below.
1. Term. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 1999;
provided, however, that commencing on January 1, 2000, and each
January 1 thereafter, the term of this Agreement shall
automatically be extended for one additional year unless, not
later than September 30 of the preceding year, the Employer shall
have given notice that it does not wish to extend this Agreement;
provided, further, if a change in control of the Employer shall
have occurred during the original or extended term of this
Agreement, this Agreement shall continue in effect for a period
of thirty-six (36) months beyond the month in which such change
in control occurred.
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July 1, 1999 - Page No. 2
2. Change in Control. Except as provided in Section 5(a),
no benefits shall be payable hereunder unless there shall have
been a change in control of the Employer or of the Parent, as set
forth below, and your employment shall thereafter have been
terminated in accordance with Section 3 below. For purposes of
this Agreement, a "change in control" shall mean, if any of the
following have occurred: (i) there shall consummated (a) any
consolidation or merger of the Employer or the Parent in which
they are not the continuing or survivor corporation or pursuant
to which shares of the Employer's stock would be converted in
whole or in part into cash, securities or other property, other
than a merger of the Employer in which the holders of the
Employer's stock immediately prior to the merger have
substantially the same proportionate ownership of Common Stock of
the surviving corporation immediately after the merger or (b) any
sale, lease, exchange or transfer (in one transaction or a series
of related transactions) of all or substantially all the assets
of the Employer or the Parent; (ii) the stockholders of the
Employer or policyholders of the Parent shall approve any plan or
proposal for the liquidation or dissolution of the Employer or
the Parent; (iii) any "person" (as such term is used in
Sections 13(d) and 14(d) (2) of the Exchange Act, other than the
Employer, the Parent, or a subsidiary thereof or any employee
benefit plan sponsored by the Employer, the Parent, or a
subsidiary thereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of
the Employer representing 20% or more of the combined voting
power of the Employer then outstanding securities ordinarily
(and apart from special circumstances) having the right to vote
in the election of Directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or
otherwise; (iv) at any time during a period of two consecutive
years, individuals who at the beginning of such period
constituted the Board of the Employer or the Parent shall cease
for any reason to constitute at least a majority thereof, unless
the election or the nomination for election of each new Director
during such two-year period was approved by a vote of a least two-
thirds of the Directors then still in office who were Directors
at the beginning of such two-year period; (v) any other event
shall occur that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act; or (vi) any other change in the power to direct or
cause the direction of management and policies of the Employer or
the Parent, by contract or otherwise.
3. Termination Following Change in Control. If any of the
events described in Section 2 hereof constituting a change in
control shall occur during the term hereof, you shall be entitled
to the benefits provided in Section 4 hereof upon the subsequent
termination of your employment unless such termination is (a)
because of your death or Retirement, (b) by the Employer for
Cause or Disability, or (c) by you other than for Good Reason, in
accordance with the following:
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July 1, 1999 - Page No. 3
(a) Disability; Retirement.
(i) If, as a result of your incapacity due to
physical or mental illness, you shall have
been absent from your duties with the
Employer on a full time basis for six (6)
consecutive months and within 30 days after
written notice of termination is given you
shall not have returned to the full time
performance of your duties, the Employer may
terminate this Agreement for "Disability."
(ii) Termination of your employment based on
"Retirement" shall mean termination in
accordance with the Employer's retirement
policy, including early retirement, generally
applicable to its salaried employees or in
accordance with any retirement arrangement
established with your consent with respect to
you.
(b) Cause. The Employer may terminate your employment
for Cause. Termination by the Employer of your
employment for "Cause" shall mean termination upon
(A) the willful and continued failure by you to
substantially perform your duties with the
Employer (other than any such failure resulting
from your incapacity due to physical or mental
illness), or any such actual or anticipated
failure after the issuance of a Notice of
Termination by you for Good Reason, as such terms
are defined in Subsections 3(d) and 3(c),
respectively, after a written demand specifically
identifies the manner in which the Board believes
that you have not substantially performed your
duties, or (B) the willful engaging by you in
conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise.
For purposes of this paragraph, no act or failure
to act on your part shall be considered "willful"
unless done or omitted to be done by you not in
good faith and without reasonable belief that your
action or omission was in the best interest of the
Employer. Notwithstanding the foregoing, you
shall not be deemed to have been terminated for
Cause unless and until there shall have been
delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than
three-quarters of the entire membership of the
Board of a meeting of the Board called and held
for the purpose (after reasonable notice to you
and an opportunity for you, together with your
counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, you
were guilty of conduct set forth above and
specifying the particulars thereof in detail.
(c) Good Reason. You may terminate your employment
for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, after any change in
control and without your express written consent:
(i) the assignment to you of any duties
inconsistent with your positions, duties,
responsibilities and status with the Employer
immediately prior to a change in control or a
change in your reporting responsibilities,
titles or offices as in effect immediately
prior to a change in control, or any removal
of you from or any failure to re-elect you to
any of such positions, except in connection
with the termination of your employment for
Cause, Disability, Retirement or by you other
than for Good Reason or as a result of your
death;
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July 1, 1999 - Page No. 4
(ii) a reduction in your base salary under the
Employer's Wage and Salary Program in effect
immediately prior to a change in control or
as the same may be increased from time to
time thereafter;
(iii) a failure by the Employer to continue
its executive incentive plans, as the same
may be amended or modified from time to time
but substantially in the form presently in
effect ("Program"), or failure by the
Employer to continue you as a participant in
the Program on at least the basis in effect
immediately preceding a change in control or
to pay you any installment of a previous
award or of deferred compensation, if any,
under the Program or any deferred
compensation program in effect in which you
participate immediately preceding a change in
control;
(iv) the Employer requiring you to be based
anywhere other than the office in
Harleysville, Pennsylvania, except for
required travel on business to an extent
substantially consistent with the business
travel obligations you experienced
immediately preceding a change in control;
(v) the failure by the Employer to continue in
effect any benefit or compensation plan or
arrangement, in which you are participating
immediately preceding change in control, the
taking of any action by the Employer not
required by law which would adversely affect
your participation in or materially reduce
your benefits under any of such plans or
deprive you of any material fringe benefit
enjoyed by you at the time of the change in
control or the failure by the Employer to
provide you with the number of paid vacation
days, holidays and personal days to which you
are then entitled in accordance with the
Employer's normal leave policy in effect
immediately preceding a change in control;
(vi) the failure of the Employer to obtain the
assumption of the agreement to perform this
Agreement by any successor as contemplated in
Section 5 hereof; or
(vii) any purported termination of your
employment by the Employer which is not
effected pursuant to a Notice of Termination
satisfying the requirements of subparagraph
(d) below (and, if applicable, subparagraph
(b) above). Your continued employment shall
not constitute consent to, or a waiver of
rights with respect to, any circumstance
constituting Good Reason hereunder.
(d) Notice of Termination. Any termination by the Employer
pursuant to subparagraphs (a) or (b), above, or by you pursuant
to subparagraph (c), above, shall be communicated by a written
Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific
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July 1, 1999 - Page No. 5
termination provision in this Agreement relied
upon and shall set forth, in reasonable detail,
the facts and circumstances claimed to provide a
basis for termination of your employment under the
provision so indicated.
(e) Date of Termination. "Date of Termination" shall
mean (A) if this Agreement is terminated for
Disability, 30 days after Notice of Termination is
given (provided that you shall not have returned
to the performance of your duties on a full-time
basis during such 30-day period), (B) if your
employment is terminated pursuant to subparagraph
(c), above, the date specified in the Notice of
Termination and (C) if your employment is
terminated for any other reason, the date on
which a Notice of Termination is given; provided
that, if within 30 days after any Notice of
Termination is given, the party receiving such
Notice of Termination gives good faith notice to
the other party that a dispute exists concerning
the termination and the party giving such Notice
shall pursue his claim diligently and in good
faith, the Date of Termination shall be the date
on which the dispute is finally resolved, either
by mutual written agreement of the parties, by a
binding and final arbitration award or by a final
judgement, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected).
4. Compensation Upon Termination Or During Disability Following
A Change In
Control.
(a) During any period following a change in control
that you fail to perform your duties hereunder as
a result of incapacity due to physical or mental
illness, you shall continue to receive your full
base salary at the rate then in effect and any
installments of deferred portions of awards under
the Program paid during such period until your
employment is terminated pursuant to paragraph
3(a) hereof. Thereafter, your benefits shall be
determined in accordance with the Employer's Long-
Term Disability Plan, or any substitute plan then
in effect.
(b) If, following a change in control, you terminate your
employment other than for Good Reason or your employment
shall be terminated for Cause, the Employer shall pay
you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination
or regulatory order is given plus all other amounts to
which you are entitled under any compensation plan, the
annual incentive plan, long-term incentive plan, or stock
option plan of the Employer at the time such payments
are due and the Employer shall have no further
obligation to you.
(c) If, following a change in control, the Employer shall
terminate your employment other than pursuant to paragraph
(a) or (b) hereof or if you shall terminate your employment
for Good Reason, then the Employer shall pay to you as
severance pay in a lump sum on the thirtieth day
following the Date of Termination or, at your election,
provided such
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July 1, 1999 - Page No. 6
election is made by you by written notice to the
Employer at least 90 days prior to change of
control, in substantially equal monthly payments
over two years, the following amounts:
(i) your full base salary through the Date of
Termination at the rate in effect at the time
Notice of Termination is given and an amount
equal to the amount, if any, of the deferred
portion of any awards which have been awarded
to you pursuant to the Program but which have
not yet been paid to you and the amount of
Deferred Compensation, if any, under the
Program which has accrued to your account;
and
(ii) in lieu of any further salary payments to you
for periods subsequent to the Date of
Termination, an amount equal to the product
of (a) your annual base salary in effect as
of the Date of Termination plus the average
target awards under any annual incentive plan
for the last three years, multiplied by (b)
the number 2.000; and
(iii) in lieu of payments of
any type under any long-term incentive plan,
a cash amount equal to the sum of the target
bonuses, pro-rated on a month-completed
basis, for all long-term incentive plan
periods in which you are currently
participating plus any incentive compensation
which has been allocated or awarded to you
for a fiscal year or other measuring period
preceding the Date of Termination but has not
yet been paid. If all or part of a target
award is comprised of shares of Employer's
stock, the amount paid in cash shall be equal
to the fair market value of the stock at the
beginning of the plan period; and
(iv) to the extent you may not legally exercise
any stock options at the time of change of
control for valid securities law reasons or
other reasons, then in lieu of shares of
stock of the Company otherwise issuable upon
exercise of stock options ("Options"), if
any, granted to you under the Employer's
Equity Incentive Plan or other plan then in
effect (which Options shall be cancelled upon
the making of the payment referred to below),
you shall receive an amount in cash equal to
the aggregate spread between the exercise
prices of all Options held by you and the
higher of (a) the highest closing price of
the stock subject to the Options during the
twelve months immediately preceding the Date
of Termination, or (b) the highest price per
share actually paid in connection with any
change in control of the Parent including,
without limitation, prices paid in any
subsequent merger or combination with any
entity that acquires control (the higher
price being hereinafter referred to as the
Termination Price"); and
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(v) in the event that any payments made to you
under this Agreement or otherwise (the
"Payments") are subject to the excise tax
imposed by Section 4999 of the Internal
Revenue Code (the "Excise Tax"), then the
Employer shall pay you an additional amount
("Gross Up") such that the net amount
retained by you after deduction of any Excise
Tax on the Payments and any Federal and State
income taxes and Excise Tax upon the Payments
shall be equal to the Payments. For purposes
of determining the amount of the Gross Up,
you shall be deemed to pay Federal, State and
local income taxes at the highest marginal
rate of taxation in the calendar year in
which the Payment is to be made. State and
local income taxes shall be determined based
upon the state and locality of your domicile
on the Termination Date. The determination
of whether such Excise Tax is payable and the
amount thereof shall be based upon the
opinion of tax counsel selected by the
Employer and acceptable to you. If such
opinion is not finally accepted by the IRS
upon audit, then appropriate adjustments
shall be computed (without interest but with
Gross Up, if applicable) by such tax counsel
based upon the final amount of the Excise Tax
so determined. The amount shall be paid by
the appropriate party in one lump cash sum
within 30 days of such computation; and
(vi) the Employer shall pay all legal fees and
expenses incurred by you as a result of such
termination (including all such fees and
expenses, if any, incurred in contesting or
disputing any such termination or in seeking
to obtain or enforce any right or benefit
provided by this Agreement or in connection
with any tax audit or proceeding to the
extent attributable to the application of
Section 4999 of the Code to any payment or
benefit hereunder). Reimbursement of such
legal fees and expenses shall be made on a
regular and periodic basis by the Employer
upon your presentation to the Employer of a
statement of such fees and expenses prepared
by your counsel under standard and customary
methods; and
(d) Unless you are terminated for Cause or by regulatory order,
the Employer shall maintain in full force and effect, for your
continued benefit for three years after the Date of Termination,
all employee benefit plans, programs or arrangements in which you
were entitled to participate immediately prior to the Date of
Termination including without limitation medical and dental,
life, disability, accident and death insurance plans provided
your continued participation is possible under the general terms
and provisions of such plans and programs. In the event that
your participation in any such plan or program is barred, the
Employer shall arrange to provide you with benefits substantially
similar to those which you would have been entitled to receive
under such plans and programs. Except for any insurance policy
used by the Employer to fund any Rabbi Trust, at the
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July 1, 1999 - Page No. 8
end of the period of coverage, you shall have the
option to have assigned to you at no cost and with
no apportionment of prepaid premiums, any
assignable insurance policy owned by the Employer
and relating specifically to you. In addition,
the Employer shall make a lump sum payment of an
amount necessary to continue these premiums
through your normal retirement age; and
(e) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by
seeking other employment or otherwise, nor shall
the amount of any payment or benefit provided for
in this Section 4 be reduced by any compensation
earned by you or benefits including retirement
benefits provided to you as the result of
employment by another employer after the Date of
Termination or otherwise.
(f) Should you elect to receive payments hereunder in
installments over two years, the amount of the
Employer's outstanding obligation to you shall be
credited with interest on a monthly basis at a
rate equal to the then current rate for one-year
insured certificates of deposit at a commercial
bank.
(g) In addition to all other amounts payable to you
under Section 4, you shall be entitled to receive
all benefits payable to you under the Extra
Compensation Plan, the Supplemental Retirement
Plan, the Pension Plan, the Non-Qualified Deferred
Compensation Plan and any other plan or agreement
relating to retirement benefits.
5. Successors' Binding Agreement
(a) The Employer will require any successor (whether
direct or indirect, by purchase, merger,
consolidation or otherwise) to all or
substantially all of the business and/or assets of
the Employer, by agreement in form and substance
reasonably satisfactory to you, to expressly
assume and agree to perform this Agreement in the
same manner and to the same extent that the
Employer would be required to perform it if no
such succession had taken place. The Employer
will also obtain agreement from such successor
that it will not exercise its non-renewal option
at any time within one year from the date of the
change in control. Failure of the Employer to
obtain such agreement prior to the effectiveness
of any such succession shall be a breach of this
Agreement and shall entitle you to compensation
from the Employer in the same amount and on the
same terms as you would be entitled hereunder if
you terminated your employment for Good Reason,
except that for purposes of implementing the
foregoing, the date on which any such succession
becomes effective shall be deemed the Date of
Termination. As used in the Agreement, "Employer"
shall mean the Employer as hereinbefore defined
and any successor to its business and/or assets as
aforesaid which executes and delivers the
agreement provided for in this Section 5 or which
otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
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(b) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal
representatives, executors, administrators,
successors, heirs, distributees, devisees and
legatees. If you should die while any amounts
would still be payable to you hereunder if you had
continued to live, all such amounts, unless
otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to
your devisee, legatee, or other designee or, if
there be no such designee, to your estate.
6. Notice. For the purposes of this Agreement, notices
and all other communications provided for in the Agreement shall
be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided
that all notices to the Employer shall be directed to the
attention of the Corporate Secretary or to such other address as
either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address
shall be effective only upon receipt.
7. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be authorized by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto
of or compliance with any condition or provision of this
Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provision or conditions at the
same or at any prior o r subsequent time. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in the Agreement. It is
intended that the benefits payable hereunder shall be considered
paid to you for your past services to the Employer and continuing
services from the date hereof. Any payment provided for
hereunder shall be paid net of any applicable withholding
required under Federal, State and local law. The validity,
interpretation, construction and performance of this Agreement
shall be governed by the substantive law of the Commonwealth of
Pennsylvania.
8. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity of
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
10. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in the Commonwealth of Pennsylvania in accordance
with the rules of the American Arbitration Association then in
effect. Notwithstanding the pendancy of any such dispute or
controversy, the Employer will continue to pay your full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, base salary and
installments under the Program) and, to the extent permitted by
law, continue you as a participant in all compensation, benefits
and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with paragraph 3(e) hereof.
Amounts paid under
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July 1, 1999 - Page No. 10
this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement. Judgment may be
entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled
to seek specific performance of your right to be paid until
the Date of Termination during pendancy of any dispute or
controversy arising under or in connection with this
Agreement .
Very truly yours,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chairman, President & CEO
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NAME OF EMPLOYEE
AGREED TO THIS DAY
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OF ,
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