EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 31st day of December,
1997, between FRONT ROYAL, INC., a North Carolina corporation with offices at
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, XX 00000 (the "Company") and
Xxxxx X. Xxxxx ("Employee").
W I T N E S S E T H:
1. Employment and Term. The Company hereby employs Employee as Chief
Financial Officer of the Company, and Employee hereby accepts such employment,
on the terms and conditions set forth herein, for a term of three (3) years,
commencing on the date hereof, unless sooner terminated or extended as herein
provided. The term of this Agreement and Employee's employment hereunder shall
be automatically renewed for additional periods of three (3) years unless
written notice to the contrary shall be given by either party to the other,
not less than ninety (90) days before the end of the initial or any renewal
term (the initial term plus any renewals thereof shall be referred to herein
as the "Term"), in which case this Agreement shall terminate at the end of
such term, and neither party hereto shall thereafter have any further rights
or obligations hereunder except the obligations of Employee under Sections
3(b), (c) and (d) hereof and any obligations of the Company under Sections 5,
6 and 7 hereof. The date upon which this Agreement and Employee's employment
hereunder shall terminate, whether pursuant to the terms of this Section 1, or
pursuant to any other provision of this Agreement, shall hereinafter be
referred to as the "Termination Date."
2. Compensation. (a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services as an
officer, director and/or member of committees of the Company or any
subsidiaries or affiliates of the Company ("Affiliates"), the Company shall
pay Employee a salary at the rate of One Hundred Seventy Six Thousand Four
Hundred Dollars ($176,400) per annum ("Base Salary"), payable in periodic
installments in accordance with the Company's regular payroll practices, as in
effect from time to time. Within one hundred and eighty (180) days after the
end of each fiscal year of the Company, Employee's salary shall be reviewed
and may be increased at the discretion of the Board of Directors of the
Company ("Board of Directors"). Employee's Base Salary or such other salary as
may be payable to Employee by action of the Board of Directors, is hereinafter
called "Salary."
(b) Within one hundred and eighty (180) days after the end
of each fiscal year of the Company, Employee may, in the absolute discretion
of the Board of Directors, receive from the Company a bonus based on the
performance of the Company during the preceding fiscal year.
3. Duties and Restrictions. (a) During the term of this Agreement,
Employee shall perform all duties and services incident to his position as
Chief Financial Officer of the Company and such other reasonable duties and
services as may from time to time be assigned to him by the Chief Executive
Officer and all of the duties and services to be performed by Employee are at
all times to be subject to the authority of the Chief Executive Officer.
Employee shall devote his full and exclusive time, attention and best efforts
to the business of the Company and its Affiliates. Employee hereby accepts
such employment and agrees he shall devote his full skill, abilities and
productive time to the performance of his duties under this Agreement, and he
shall not, without the prior consent of the Chief Executive Officer, render to
any third party any services for compensation or which would interfere with
the performance of his duties hereunder.
(b) Employee will not at any time during the term of this
Agreement or thereafter:
(i) reveal, divulge or make known to any person, firm or
corporation or use for his personal benefit, directly or indirectly,
any confidential or proprietary information received by him during
the course of his employment or prior to the commencement thereof.
For purposes of this paragraph 3(b)(i) confidential and proprietary
information shall be defined to mean (i) all historical and pro forma
projections of loss ratios incurred by the Company and any of the
Affiliates, (ii) all historical and pro forma actuarial data relating
to the Company and any of the Affiliates, (iii) historical and pro
forma financial results and projections for the Company and its
Affiliates, (iv) all information relating to the Company's or the
Affiliates' systems and software (other than the portion thereof
provided by the vendor to all purchasers of such systems and software)
and (v) all other information relating to the financial, business or
other affairs of the Company and its Affiliates, including their
customers, that is not available to the general public or generally
known or available within the industry; or
(ii) reveal, divulge or make known to any person, firm or
corporation, or use for his personal benefit, directly or indirectly,
the name or names of any of the customers of the Company or of any of
its Affiliates, nor will he reveal, divulge or make known, to any
person, firm or corporation, or use for his personal benefit,
directly or indirectly, any trade secrets or any knowledge or
information, or any fact concerning any business methods or
operational purposes engaged in by the Company or its Affiliates
(collectively, "Privileged Information"); provided, however, the
restrictions set forth in this paragraph 3(b)(ii) shall not apply to
Employee following the termination of his employment with the Company
or its Affiliates with respect to any Privileged Information known or
made generally available to the general public or within the
industry.
(c) Employee will not at any time during the term of this
Agreement, and for a period of one (1) year thereafter in the event Employee's
employment is terminated pursuant to Section 4, 5, 6 or 7(a) hereof or upon
the expiration of the term of this Agreement in accordance with Section 1
hereof, engage in or have any interest in, directly or indirectly, any
Competitive
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Business, whether as principal, director, officer, employee, consultant,
partner, stockholder, director, trustee or manager of any competing
corporation, association, firm or business or otherwise, or directly or
indirectly solicit, interfere with, or endeavor to entice away from the Company
or any of its Affiliates any of their customers or employees. The restrictions
contained in this subsection 3(c) shall not prevent the purchase or ownership
by Employee of not more than three percent (3%) of the securities of any class
of any corporation, whether or not such corporation is engaged in any
competitive business, which are publicly traded on any securities exchange or
any "over the counter" market. Employee will not, for a period of one (1) year
following the Termination Date, employ or associate in any manner in a business
relationship with, any person who was an employee of any Affiliate (other than
the Company) at any time during the term of Employee's employment hereunder.
For purposes of this Agreement, the term "Competitive Business" shall mean the
business of acquiring, holding and operating property and casualty specialty
insurance companies.
The restrictions of this Section 3(c) shall not apply if the
Employee's employment is terminated following a Change of Control. A "Change of
Control" shall be deemed to have occurred (i) upon the sale, in one or a series
of related transactions, of all or substantially all of the assets of the
Company, (ii) if, as a result of one or a series of related transactions, the
holders of the issued and outstanding shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock, determined on a fully diluted basis as
if all outstanding warrants, options and convertible securities had been
exercised or converted, immediately prior to the effective date for such
transaction or last of such transactions beneficially own (as such term is
defined under Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended), in the aggregate, less than 55% of the issued and
outstanding voting securities of the Company, determined on a fully diluted
basis as if all outstanding warrants, options and convertible securities had
been exercised or converted, or the successor to the Company if such
transaction was a merger or consolidation in which the Company was not the
surviving entity, or (iii) if members comprising the Board of Directors on the
date hereof cease for any reason to comprise at least a majority of the Board
of Directors, provided, that, any Person who becomes a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
comprising the Board of Directors on the date hereof (either by a specific
vote or by approval of the proxy statement of the Company in which such Person
is named as a nominee for director, without objection to such nomination)
shall be, for all purposes of this definition, considered as though such
Person were a member of the Board of Directors on the date hereof.
(d) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which Employee may make, conceive,
discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement or during the term of
his employment or association with the Company or any Affiliate, whether
during working hours or at any other time, and whether upon the request or
suggestion of the Company or otherwise, which relate to or may be useful in
connection with any business now or hereafter during the term of this
Agreement carried on or actively developed by the Company or any Affiliate,
including developments or expansions of its present fields of operations,
shall be the
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sole and exclusive property of the Company. Employee shall make full and
prompt disclosure to the Board of Directors of all such writings, inventions,
improvements, processes, procedures and techniques and shall take all actions
and shall execute all documents requested by the Board of Directors to vest
the absolute title thereto in the Company. Employee shall not be entitled to
receive any additional compensation or reimbursement with respect to such
writings, inventions, improvements, processes, procedures and techniques.
(e) Employee acknowledges that the restrictions contained in
paragraphs (b) and (c) of this Section 3 are reasonable and necessary in order
to protect the legitimate interests of the Company, in view of the nature of
the business in which the Company and its Affiliates are engaged and the
substantial equity interest of Employee in the Company. If any provision
contained in Paragraph (b) or (c) of this Section 3 is adjudged unreasonable
in any proceeding, then such provision shall be deemed modified by reducing
the period of time during which such provision is applicable and/or, if
applicable, the geographic area to which such provision applies, to the extent
necessary for such provision to be adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by the
Company "for cause" at any time, by written notice to Employee, for any of the
following reasons:
(a) If Employee shall willfully violate the provisions of
Section 3 of this Agreement, or shall willfully fail to comply with any other
term or condition of this Agreement or shall grossly neglect his duties
hereunder;
(b) If Employee shall (i) be convicted of a felony or a
crime involving moral turpitude (meaning a crime that includes the commission
of an act of gross depravity, dishonesty or bad morals), or (ii) commit an act
of dishonesty, fraud or embezzlement against the Company;
(c) If the Company's operating results are substantially
below budget which shall mean 50% or less of the amount set forth on
Attachment 1 hereto; or
(d) If Employee fails to comply for any reason with a
reasonable directive of the Board of Directors determined to be in the best
interest of the Company and its shareholders.
In the event of termination pursuant to paragraph (a), (b) or (d) of
this Section 4, then Employee's Salary and right to receive any fringe
benefits pursuant to Section 8 hereof shall terminate on the Termination Date
fixed in a written notice from the Company, which shall be no earlier than the
date of such notice.
In the event of termination pursuant to paragraph (c) of this Section
4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of twelve (12) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof;
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(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months after
the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof. Thereafter,
notwithstanding anything to the contrary contained in this Agreement,
the Company shall have no further obligations to Employee, except as
provided in any stock option or other bonus or incentive plan to which
Employee is entitled, and Employee shall have no further rights
hereunder.
5. Termination by Employee. Employee shall have no right to terminate
his employment hereunder without the prior written consent of the Board of
Directors, other than by expiration of the term hereof in accordance with
Section 1 hereof. In the event Employee elects to have the term of this
Agreement expire, upon the Termination Date the Company shall have no further
obligations to Employee and Employee shall have no further rights hereunder.
6. Expiration or Termination Without Cause. The Company may terminate
this Agreement at any time without cause or may elect to have the term of this
Agreement expire. In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire, Employee
shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a period of
eighteen (18) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof; provided, however,
that if the Employee continues to comply with the covenants contained
in Section 3(c) hereof beyond the one year period set forth therein,
then the Employee shall be entitled to continue to receive Employee's
Base Salary for so long as Employee continues to comply with such
covenants, up to an additional eighteen (18) month period (it being
understood that the maximum time period during which Base Salary will
continue to be paid under this Section 6(i) shall be three (3)
years);
(ii) the continuation at the Company's
expense of coverage under all plans, insurance policies and other
fringe benefits described in Section 8 hereof, for a period of twelve
(12) months after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination
Date pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death. (a) If, on account
of physical or mental disability, Employee shall fail or be unable to perform
his assigned duties in any material respect for a period of (i) sixty (60)
consecutive days, or (ii) an aggregate of ninety (90) days during any twelve
(12) month period, the Company may, at its option, thereafter terminate this
Agreement and Employee's employment hereunder upon giving at least thirty (30)
days written notice to Employee.
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(b) If Employee dies during the term hereof, this Agreement
shall automatically terminate on the date of his death.
(c) In the event that this Agreement and Employee's
employment are terminated in accordance with this Section 7, then after the
Termination Date the Company shall have no further obligations hereunder,
except that, in the event of a termination pursuant to paragraph (a) above,
Employee shall be entitled to the benefits described in Section 6 hereof
(without regard to the proviso of Section 6(i)), net of any payments or
benefits to Employee under disability insurance or similar plans maintained by
the Company.
8. Fringe Benefits. The Company shall provide at the Company's
expense to Employee during the term of the Agreement:
(a) a medical insurance plan covering Employee, his spouse
and his minor children and a disability income insurance policy, which
insurance plans and policies shall be at least comparable to such plans and
policies provided to the Company's other senior executive personnel.
(b) full participation in all other fringe benefits provided
to the Company senior executive personnel, which fringe benefits may include,
in the sole discretion of the Board of Directors, a pension plan, a profit
sharing plan, a stock option plan and/or a stock participation plan.
9. Vacation. Employee shall be entitled, for each year during the
term hereof, to vacation time to be taken at such time or times as shall be
mutually convenient to the Company and Employee.
10. Other Expenses. During the term of this Agreement, Employee
shall be entitled to be reimbursed for all reasonable business expenses incurred
by him in connection with the performance of his duties hereunder upon the
timely submission and approval of appropriate vouchers therefor, to the Chief
Executive Officer of the Company.
11. Representation by Employee. Employee represents and warrants
that he is not under any obligation, contractual or otherwise, to any person,
firm or corporation that is inconsistent with this Agreement and his employment
hereunder and that he is free to enter into and perform the terms of this
Agreement.
12. Uniqueness of Services. Employee acknowledges that the
services to be rendered under the provisions of this Agreement are of a special,
unique and extraordinary character and that it would be difficult or impossible
to replace such services and that, by reason thereof, Employee agrees and
consents that if he violates any of the provisions of this Agreement, the
Company, in addition to any other rights and remedies available under this
Agreement or otherwise, shall be entitled to an injunction to be issued by a
tribunal of competent jurisdiction restricting Employee from committing or
continuing any violation of this Agreement.
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13. Notices. Any notices provided for or permitted by this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or three (3) days after it is deposited in a United States
Postal Depositary, postage prepaid, registered or certified mail, return receipt
requested, addressed to the party for whom intended at such party's address
set forth below or to such other address as such party may designate by notice
in writing given in the manner provided by this Section 13, or when actually
received by the party for whom such notice was intended if sent by any other
means:
To Employee: Xxxxx X. Xxxxx
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
To the Company: Front Royal, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: Chief Executive Officer
14. Entire Agreement; Amendments. This Agreement constitutes the
entire agreement and understanding between Employee and the Company with
respect to the subject matter hereof and shall supersede any and all other
prior agreements and understandings, whether oral or written, relating thereto
or to the employment of Employee by the Company. This Agreement may not be
rescinded, modified or amended except by an instrument in writing signed by
the parties hereto and any provision hereof may not be waived except by an
instrument in writing signed by the party hereto against whom any such waiver
is sought to be enforced. The waiver by the Company of a breach by Employee of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by Employee.
15. Partial Invalidity. The invalidity or unenforceability, by
statute, court decision or otherwise, of any term or condition of this
Agreement shall not affect the validity or enforceability of any other term or
condition hereof.
16. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of North
Carolina.
17. Assignability. This Agreement may not be assigned by Employee,
and all of its terms and conditions shall be binding upon and inure to the
benefit of Employee and his heirs and legal representatives and the Company
with its successors. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring, directly or indirectly,
all or substantially all of the assets of the Company whether by merger,
consolidation, purchase or otherwise and such successor shall thereafter be
deemed the "Company" for purposes hereof.
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18. Captions. The caption headings in this Agreement are for
convenience of reference only and are not intended and shall not be construed
as having any substantive effect.
19. Survival. The obligations imposed upon Employee and the rights
granted to the Company in subsections 3(b), (c) and (d) hereof and the rights
granted to Employee in Sections 5, 6 and 7 hereof shall survive the
termination or expiration of this Agreement for any reason whatsoever and, at
the election of the Company, may be specifically enforced by it.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duty executed as of the day and year -first above
written.
FRONT ROYAL, INC.
By: /s/ J. Xxxx Xxxxx
------------------
J. Xxxx Xxxxx
President
/s/ Xxxxx X. Xxxxx
-------------------
Xxxxx X. Xxxxx
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Attachment 1
Front Royal, Inc.
Fiscal Year Pre-tax Net Income
----------- ------------------
1998 $11,020,779
1999 $15,411,601
2000 $17,217,930
