This EMPLOYMENT
AGREEMENT (the “Agreement”) is entered into on
May 5, 2009 (the “Effective Date”), between HCC
INSURANCE HOLDINGS, INC. (“HCC” or
“Company”) JOHN N. MOLBECK, JR.
(“Executive”), sometimes collectively referred to
herein as the “Parties.”
WHEREAS ,
Executive is to be employed as President and Chief Executive
Officer (“CEO”) of HCC;
WHEREAS ,
it is the desire of the Board of Directors of HCC (the
“Board”) to (i) directly engage Executive as an
officer of HCC; and (ii) directly engage, if elected, the
services of Executive as a director of HCC or its subsidiaries or
affiliates; and
WHEREAS ,
Executive is desirous of committing himself to serve HCC on the
terms herein provided;
WHEREAS ,
Executive and the Company have previously entered into an
Employment Agreement dated on August 10, 2007, but effective
as of March 1, 2007 (the “Original Employment
Agreement”); and
WHEREAS ,
Executive and the Company desire to terminate the Original
Employment Agreement and enter into this Agreement.
NOW,
THEREFORE , in consideration of the foregoing and of the
respective covenants and agreements set forth below, the Parties
agree as follows:
1.
Term . The Company hereby agrees to employ Executive as
its President and Chief Executive Officer and Executive hereby
agrees to accept such employment, on the terms and conditions set
forth herein, for the period (the “Term”) commencing on
the Effective Date and expiring at the earlier to occur of
(a) 11:59 p.m. on May 31, 2013 (the
“Expiration Date”) and (b) the Termination Date (as
hereinafter defined).
(a)
Duties as Employee of the Company . Executive shall,
subject to the supervision of the Board of Directors, have general
management and control of HCC in the ordinary course of its
business with all such powers with respect to such management and
control as may be reasonably incident to such responsibilities.
During normal business hours, Executive shall devote substantially
all of his time and attention to diligently attending to the
business of the Company. During the Term, Executive shall not
directly or indirectly render any services of a business,
commercial, or professional nature to any other person, firm,
corporation, or organization, whether for compensation or
otherwise, without the prior consent of the Board of Directors of
HCC. However, Executive shall have the right to engage in such
activities as may be appropriate in order to manage his personal
investments and in educational, charitable and philanthropic
activities, so long as such activities do not interfere or conflict
with the performance of his duties to the Company hereunder. The
conduct of such activity shall not be deemed to materially
interfere or conflict with Executive’s performance of his
duties until Executive has been notified in writing thereof and
given a reasonable period in which to cure same.
(1) If
elected, Executive agrees to serve in one or more executive offices
of any of HCC’s subsidiaries including managerial committees
or directorships, provided Executive is indemnified for serving in
any and all such capacities in a manner acceptable to the Company
and Executive. Executive agrees that while a full time employee he
shall not be entitled to receive any compensation, if elected, for
serving as a director of HCC, or in any capacities of HCC’s
subsidiaries other than the compensation to be paid to Executive by
the Company pursuant to this Agreement. If Executive is not a full
time employee of the Company or its subsidiary, he shall be
compensated as an outside director, if elected.
(2) Executive
acknowledges and agrees that he has read and considered the written
business policies and procedures of HCC as posted on HCC’s
intranet and that he will abide by such policies and procedures
throughout the term of his employment with the Company. Executive
further agrees that he will familiarize himself with any amendments
to the policies and procedures and that he will abide by such
policies and procedures as they may change from time to
time.
(c)
Work Situs . The Executive shall be entitled to work
from an off-site location as his office location for no more than
two (2) months during each calendar year provided that
Executive remains available by telephone and email while working
off-site and further provided that Executive remains available
while at his off-site office location to return to Houston or
elsewhere, upon reasonable notice, as requested by the Chairman of
the Board. This period shall not be considered vacation time for
purposes of this Agreement.
3.
Compensation and Related Matters .
(a)
Base Salary . During the Term Executive shall receive
a base salary (the “Base Salary”) paid by the Company
at the annual rate of $1,000,000.00 payable not less frequently
than in substantially equal monthly installments (or such other,
more frequent times as executives of HCC normally are
paid).
(b)
Deferred Compensation . During the Term Executive
shall receive deferred compensation (the “Deferred
Compensation”) at the annual rate of $950,000 or such greater
amount as is approved by the Compensation Committee of the Board
(the “Compensation Committee”) in its discretion.
Deferred Compensation under this Agreement shall be accrued under
one or more of the Company’s deferred compensation plans as
determined from time to time by the Compensation Committee.
Deferred Compensation accruals for a year shall be credited monthly
on a ratable basis throughout the year, unless more frequent
crediting is required by the applicable deferred compensation plan.
Notwithstanding anything herein to the contrary, such accruals of
Deferred Compensation shall be subject to and shall be governed by
the terms of the plan under which accrued (including, without
limitation, plan terms regarding the crediting of income and the
timing of distributions).
(c)
Bonus Payments . During the Term, Executive shall be
eligible to receive, in addition to the Base Salary, an annual cash
bonus payment in amounts to be determined as follows:
(1) If
Executive is a participant under the 2008 Flexible Incentive Plan
(the “Incentive Plan”) for a calendar year during the
Term, then Executive’s bonus payment, if any, for such year
shall be determined and paid in accordance with the terms of the
Incentive Plan.
(2) If
Executive is not a participant in the Incentive Plan for a calendar
year during the Term, then Executive’s bonus payment, if any,
for such year shall be determined in the sole discretion of the
Compensation Committee and payable in a lump sum within
30 days after the Compensation
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Committee’s determination of the amount of
said cash bonus. The Board or Compensation Committee may
unilaterally reduce or eliminate any such annual bonus payment, if
any, up until the time the bonus is actually paid (and
notwithstanding any earlier, tentative determination of the bonus
amount). There shall be no minimum bonus payable to Executive under
this subsection (2), and, except as provided in
Sections 4(b)(3), 4(c)(7), and 4(d)(7), no bonus shall be
payable to Executive pursuant to this subsection (2) for a
year if Executive’s Termination Date occurs at any time
during such year.
(d)
Expenses . During the Term of this Agreement,
Executive shall be entitled to receive prompt reimbursement for all
reasonable business expenses incurred by him (in accordance with
the policies and procedures established by the Board for the
Company’s senior executive officers) in performing services
hereunder, provided that Executive properly accounts therefor in
accordance with Company policy.
(e)
Medical and Other Benefits .
(1)
Other Benefits . From time to time the Company may
make available other compensation and employee benefit plans and
arrangements. During the Term Executive shall be eligible to
participate in such other compensation and employee benefit plans
and arrangements, except the Company’s paid time off policy,
on the same basis as similarly situated senior executive officers
and key management employees of the Company, subject to and on a
basis consistent with the terms, conditions, and overall
administration of such plans and arrangements, as amended from time
to time; provided, however , that medical coverage under the
Company’s group health plan shall be provided at no cost to
Executive. Nothing in this Agreement shall be deemed to confer upon
Executive or any other person (including any beneficiary or
dependent of Executive) any rights under or with respect to any
such plan or arrangement or to amend any such plan or arrangement,
and Executive and each other person (including any beneficiary)
shall be entitled to look only to the express terms of any such
plan or arrangement for his or her rights thereunder. Nothing paid
to Executive under any such plan or arrangement presently in effect
or made available in the future shall be deemed to be in lieu of
the Base Salary payable to Executive pursuant to
Section 3(a).
(2)
Continuation of Health Coverage after Death
.
(i) If
Executive’s employment ceases during the Term or after the
Expiration Date due to death, each “qualified
beneficiary” (as defined by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”)) of
Executive shall be eligible to continue coverage under the
Company’s group health plans in which the qualified
beneficiary participated on the Termination Date (including any
successor health plans, the “Company Health Plans”)
until the expiration of the maximum required period for
continuation coverage under COBRA, determined as if such qualified
beneficiary elected COBRA continuation coverage and paid the
required premium for such continuation coverage. The Company shall
pay the full required premium for such continuation coverage, which
shall satisfy any obligation to provide continuation coverage under
COBRA for such period.
(ii) After
the continuation coverage under subsection (i) above ends, the
Company shall reimburse Executive’s qualified beneficiaries
who would have been eligible for coverage under the Company Health
Plans at such time had Executive continued to be an active employee
of the Company for the cost of the premium for (A) an
individual health insurance policy or policies which provide
benefits during the Extended Coverage Period (as hereinafter
defined) which are comparable in the aggregate to the benefits
provided under the Company Health Plans (exclusive of the
Company’s health flexible spending account plan) or
(B) health coverage under any other employer health plan which
is available to the qualified beneficiaries and which provides
benefits during the Extended Coverage Period which are comparable
in the aggregate to the benefits provided under the Company Health
Plans
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(exclusive of
the Company’s health flexible spending account plan);
provided, however, that the Company shall not reimburse the cost of
such health coverage for a qualified beneficiary (including
Executive’s spouse) to the extent that coverage extends
beyond the Extended Coverage Period for such qualified beneficiary.
Such reimbursement shall be subject to the requirements of Section
3(e)(4).
(3)
Continuation of Health Coverage after Other Termination
Events .
(i) Executive
ceases to be an employee of the Company during the term or after
the Expiration Date for any reason other than death (including,
without limitation, due to a termination for Cause), Executive and
each of his qualified beneficiaries shall be eligible to continue
coverage under the Company Health Plans in which they participate
on the Termination Date until the expiration of the maximum
required period for continuation coverage under COBRA, determined
as if Executive and each such qualified beneficiary elected COBRA
continuation coverage and paid the required premium for such
continuation coverage. The Company shall pay the full required
premium for such continuation coverage, which shall satisfy any
obligation to provide continuation coverage under COBRA for such
period.
(ii) After
the continuation coverage under subsection (i) above ends, the
Company shall reimburse Executive for the cost of the premium for
(A) an individual health insurance policy or policies which
provide benefits to Executive and his qualified beneficiaries who
would have been eligible for coverage under the Company Health
Plans at such time had Executive continued to be an active employee
of the Company during the Extended Coverage Period (as hereinafter
defined), which benefits are comparable in the aggregate to the
benefits provided under the Company Health Plans (exclusive of the
Company’s health flexible spending account plan and
determined after applying the Company Health Plan provisions
regarding coordination of benefits if other health coverage
(including Medicare) is available to Executive) or (B) health
coverage under any other employer health plan which is available to
Executive and such qualified beneficiaries and which provides
benefits during the Extended Coverage Period which are comparable
in the aggregate to the benefits provided under the Company Health
Plans (exclusive of the Company’s health flexible spending
account plan); provided, however, that the Company shall not
reimburse the cost of such health coverage for Executive or for a
qualified beneficiary (including Executive’s spouse) to the
extent such coverage extends beyond the Extended Coverage Period
for Executive or for such qualified beneficiary. Such reimbursement
shall be subject to the requirements of
Section 3(e)(4).
(4) The
amount of expenses eligible for reimbursement under the provisions
of Sections 3(e)(2) and 3(e)(3) which refer to this
Section 3(e)(4) during the taxable year of the recipient of
such reimbursements shall not affect the expenses eligible for
reimbursement in any other taxable year. The recipient must submit
such eligible expenses to the Company within a reasonable period of
time after the expenses are incurred, and payment for any such
expenses must occur on or before the last day of the
recipient’s taxable year following the taxable year in which
the expense was incurred (expenses submitted after this payment
deadline shall not be eligible for reimbursement). The right to
reimbursement of such expenses is not subject to liquidation or
exchange for any other benefit.
(5) The
“Extended Coverage Period” for Executive or a qualified
beneficiary (including Executive’s spouse) is the period
(i) beginning on the date on which deemed COBRA continuation
coverage ends and (ii) ending on the earlier to occur of
(A) in the case of Executive, the date Executive dies and, in
the case of Executive’s spouse, the date Executive’s
spouse dies and (B) the date on which Executive’s
qualified beneficiary (other than Executive’s spouse) would
have ceased to be eligible for coverage under the terms of the
Company Health Plans if Executive had continued to be an active
employee of the Company.
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(f)
Vacations . Executive shall be entitled to thirty
(30) paid vacation days per year during the Term, or such
additional number as may be determined by the Board from time to
time, but in no event shall any unused vacation days carry over
from year-to-year. For purposes of this Section, weekends shall not
count as vacation days, and Executive shall also be entitled to all
paid holidays given by the Company to its senior executive
officers.
(g)
Life Insurance . The Company shall provide to
Executive a term life insurance policy or policies in an aggregate
face amount of $1,000,000.00 and shall pay the premiums therefor
during the Term. Upon Executive’s cessation as an employee of
the Company during or after the Term for any reason other than
death, the Company shall assign such policy or policies to
Executive. The life insurance provided for in this Section 3(g)
shall be in addition to the group life insurance program covering
Executive and substantially all of the employees of the Company
during the Term.
(h)
Proration . The Base Salary, bonus, and vacation
payable to Executive hereunder in respect of any calendar year
during which Executive is employed by the Company for less than the
entire year, unless otherwise provided in the applicable
arrangement, shall be prorated in accordance with the number of
days in such calendar year during which he is so employed. The
amounts payable to Executive pursuant to subsection (i) below
in respect of any month during which Executive is employed by the
Company for less than the entire month shall be prorated in
accordance with the number of days in such month during which he is
so employed.
(i)
Air Travel . During the Term Executive shall be
entitled to domestic and international first class air travel,
where available, when traveling on Company business, and Executive
agrees to use any upgrade programs or opportunities for such travel
whenever feasible. During the Term Executive shall have use of the
Company’s aircraft for business travel. During the Term,
Executive shall, upon approval of the Chairman of the Board of HCC,
have use of the Company’s aircraft for personal travel in
North America provided that such travel shall be limited to a
maximum of six (6) trips in any year. Personal use of the
Company’s aircraft shall be taxable to Executive based on the
then-current Internal Revenue Service rules for the taxation of
such benefit.
(j)
Other Perquisites . In addition to the benefits,
compensation, bonuses, and other payments provided herein,
Executive shall be entitled to receive any additional payments or
perquisites as are determined at the sole discretion of the
Compensation Committee.
(k)
Stock Options . Stock options, if any, issued to
Executive during the Term shall be at the discretion of the
Company’s Compensation Committee and shall be issued under a
stock option agreement containing terms with respect to vesting and
exercise upon the occurrence of certain termination events that are
substantially the same as those set forth on
Exhibit 3(l) hereto, subject to any then
required approval by the Compensation Committee of the
Board.
(1)
“ Cause ” shall mean any of the
following:
(i) Material
dishonesty by Executive which is not the result of an inadvertent
or innocent mistake of Executive with respect to the Company or any
of its subsidiaries;
(ii) Willful
misfeasance or nonfeasance of duty by Executive;
5
(iii) Material
violation by Executive of any material term of this Agreement;
or
(iv) Conviction
of Executive of any felony, any crime involving moral turpitude, or
any crime (other than a vehicular offense not involving DUI or
personal injury) which in some material fashion results in the
injury of the Company’s and any of its subsidiaries’
reputation, business, or business relationships.
Executive may
not be terminated for Cause unless and until there has been
delivered to Executive written notice from the Board supplying the
particulars of Executive’s acts or omissions that the Board
believes constitute Cause, a reasonable period of time (not less
than 30 days) has been given to Executive after such notice to
either cure the same or to meet with the Board, with his attorney
if so desired by Executive, and following which the Board reaffirms
that Executive has been terminated for Cause as of the date set
forth in the final notice to Executive.
(2) A
“ Change of Control ” shall be deemed to
have occurred if:
(i) Any
“person” or “group” (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of 50% or more of
the Company’s then outstanding voting common stock;
or
(ii) The
shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation (a) in which a majority of the directors of the
surviving entity were directors of the Company prior to such
consolidation or merger, and (b) which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being changed into voting securities of the surviving entity) more
than 50% of the combined voting power of the voting securities of
the surviving entity outstanding immediately after such merger or
consolidation; or
(iii) The
shareholders approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all
or substantially all of the Company’s assets.
(3) A
“ Disability ” shall mean the inability
of Executive to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months.
Executive shall be considered to have a Disability (i) if he
is determined to be totally disabled by the Social Security
Administration or (ii) if he is determined to be disabled
under HCC’s long-term disability plan in which Executive
participates and if such plan defines “disability” in a
manner that is consistent with the immediately preceding
sentence.
(4) A
“ Good Reason ” shall mean any of the
following (without Executive’s express written
consent):
(i) A
material diminution in Executive’s authority, duties or
responsibilities;
(ii) A
material diminution in Executive’s Base Salary;
(iii) A
relocation of the Company’s principal executive offices, or
Executive’s relocation to any place other than the principal
executive offices, exceeding a distance of fifty
(50) miles
6
from the
Company’s current executive office located in Houston, Texas,
except for reasonably required travel by Executive on the
Company’s business;
(iv) Any
material breach by the Company of any provision of this Agreement;
or
(v) The
termination or replacement of Executive as CEO, including after a
Change of Control.
However, Good
Reason shall exist with respect to a matter specified above only if
such matter is not corrected by the Company within thirty
(30) days after the Company’s receipt of written notice
of such matter from Executive. Any such notice from Executive must
be provided within thirty (30) days after the initial existence of
the specified event. In no event shall a termination by Executive
occurring more than ninety (90) days following the initial
date of the event described above be a termination for Good Reason
due to such event.
(5)
“ Termination Date ” shall mean the date
Executive’s employment with the Company terminates or is
terminated for any reason pursuant to this Agreement (including due
to the lapse of the Agreement after the Expiration Date). For
purposes of Sections 4(d), 6, and 19(a), Executive’s
employment with the Company shall be considered terminated only if
Executive has a “separation from service” with the
Company and its controlled subsidiaries and affiliates as such term
is defined for purposes of sections 409A(a)(2)(A)(i) and
409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended
(including any related Treasury regulations) (the
“Code”). To the extent permitted by Code section 409A,
Executive may be considered to have such a separation from service
even if (i) he continues to provide services as a non-employee
director of the Company or any of its controlled subsidiaries or
affiliates and/or (ii) he continues to provide limited
services as an employee or independent contractor of the Company or
any of its controlled subsidiaries or affiliates.
(b)
Termination Without Cause, or Termination For Good Reason:
Benefits . In the event the Company terminates
Executive’s employment with the Company without Cause during
the Term, or if Executive terminates his employment with the
Company for Good Reason during the Term, this Agreement shall
terminate and Executive shall be entitled to the following
severance benefits:
(1) An
amount equal to the Base Salary that would have been payable after
the Termination Date and before the Expiration Date or for twelve
(12) months, whichever period is longer, payable in a lump sum
in cash, appropriately discounted for present value at the rate of
return on 90-day Treasury bills in existence at the Termination
Date. Such amount shall be paid within sixty (60) days after the
Termination Date and, in any event, shall be paid after such
Termination Date and before March 15 of the year following the
year containing such Termination Date; provided, however, that if
upon the Termination Date Executive is a “specified
employee” within the meaning of Code section 409A, then
payment of such amount shall be deferred until the date that is six
(6) months following the Termination Date in accordance with
Section 19(a). Executive shall not have the right to designate
the taxable year of such payment;
(2) An
amount equal to the Deferred Compensation that would have been
accrued after the Termination Date and before the Expiration Date
or for twelve (12) months, whichever period is longer, payable
in a lump sum in cash, appropriately discounted for present value
at the rate of return on 90-day Treasury bills in existence at the
Termination Date. Such amount shall be paid within sixty
(60) days after the Termination Date and, in any event, shall
be paid after such Termination Date and before March 15 of the
year following the year containing such Termination Date; provided,
however, that if upon the Termination Date Executive is a
“specified employee” within the meaning of Code section
409A, then payment of such amount shall be deferred until the date
that is six (6) months
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following the
Termination Date in accordance with Section 19(a). Executive
shall not have the right to designate the taxable year of such
payment;
(3) An
amount equal to the average of the bonuses that were paid to
Executive over the last two years, except that in the event of a
termination for Good Reason pursuant to Section 4(a)(4)(v).
Executive shall receive an amount equal to the aggregate of the
Base Salary and bonus received by Executive for the two
(2) full calendar years prior to such termination. In each
case, the payment of such bonus, if any, shall be payable in a lump
sum and shall occur on or after the Termination Date and before
March 15 of the year following the year in which the
Termination Date occurs. Notwithstanding the foregoing provisions
of this subsection, if upon the Termination Date Executive is a
“specified employee” within the meaning of Code section
409A, then payment of any Incentive Plan or other bonus payments
(as applicable) otherwise payable during the first six (6) months
following the Termination Date shall be deferred until the date
that is six (6) months following the Termination Date in
accordance with Section 19(a);
(4) A
lump sum cash payment in the amount of $4,650.00 times the number
of months after the Termination Date and before the Expiration Date
in lieu of any other benefits that cease on the Termination Date.
Such amount shall be appropriately discounted for present value at
the rate of return on 90-day Treasury bills in existence at the
Termination Date and shall be paid within sixty (60) days
after the Termination Date and, in any event, shall be paid after
such Termination Date and before March 15 of the year
following the year containing such Termination Date; provided,
however, that if upon the Termination Date Executive is a
“specified employee” within the meaning of Code section
409A, then payment of such amount shall be deferred until the date
that is six (6) months following the Termination Date in accordance
with Section 19(a). Executive shall not be entitled to any
additional payments for such other benefits. Executive shall not
have the right to designate the taxable year of such
payment;
(5) Health
coverage or reimbursement for the cost of health coverage as
provided in Section 3(e)(3);
(6) All
accrued Base Salary through the Termination Date and all
unreimbursed expenses through the Termination Date in accordance
with Section 3(d). Such amounts shall be paid to Executive in
a lump sum in cash within sixty (60) days after the
Termination Date; and
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