THIS EMPLOYMENT
AGREEMENT, dated as of April 13, 2005, is by and between
American Wholesale Insurance Group, Inc., a Delaware corporation
(the “Company”), and Mark M. Smith (the
“Executive”) (this “Agreement”).
The Company has
entered into a Stock Purchase Agreement, dated as of
February 15, 2005 (the “Stock Purchase
Agreement”), among the Company, Willis of Greater New York,
Inc., a New York corporation (“Willis New York”), and
Willis North America Inc., a Delaware corporation, pursuant to
which, effective as of the date of this Agreement, the Company has
acquired all of the issued and outstanding capital stock of Stewart
Smith East, Inc., a New York corporation (“Stewart
Smith”), and McAlear Associates, Inc., a Michigan corporation
(together with Stewart Smith and their respective subsidiaries, the
“Stewart Smith Group”). The Executive formerly served
as the President of Stewart Smith and/or one or more of its
subsidiaries. In connection with the transactions contemplated by
the Stock Purchase Agreement, the Company and the Executive desire
to enter into this Agreement to set forth the terms and conditions
on which the Executive will be employed by the Company.
In consideration
of the premises and the respective covenants and agreements of the
parties herein contained, and intending to be legally bound hereby,
the parties hereto agree as follows:
1.
Term . The Executive’s employment under this Agreement
shall commence upon the date of the closing (the
“Closing”) of the transactions contemplated by the
Stock Purchase Agreement (the “Commencement Date”) and
shall end, unless terminated earlier pursuant to Section 4, at
the close of business on the five (5) year anniversary of the
Commencement Date (the “Term”); provided ,
however , that the Term shall thereafter be automatically
extended for each succeeding one (1) year period unless either
party hereto shall provide the other party with a written notice at
least one hundred eighty days (180) days prior to the end of
the then current Term, advising that the party providing the notice
shall not agree to so extend the Term.
2.
Title, Duties and Authority . The Executive shall serve as
President of the Company’s Wholesale Brokerage Division, and
shall have such responsibilities and duties (consistent with the
Executive’s position as President of the Company’s
Wholesale Brokerage Division) as may from time to time be assigned
to the Executive by the board of directors, the president or the
chief executive officer of the Company, and shall have all of the
powers and duties usually incident to such offices. In addition,
throughout the Term, the Executive shall serve as a member of the
Company’s Executive Leadership Committee. The Executive shall
devote substantially all of his working time and efforts to the
business and affairs of the Company, except for vacations, illness
and incapacity; provided , however , that the
Executive may serve on the boards of directors of non-public
companies and charitable organizations and may devote reasonable
time to charitable and civic organizations, in all cases provided
that the performance of his duties and responsibilities on such
boards and in such service does not interfere unreasonably with the
performance of his duties and responsibilities under this
Agreement.
3.
Compensation and Benefits .
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(a)
Base Salary . During the Term, the Company shall pay the
Executive an annual base salary of $750,000 (“Base
Salary”), payable in accordance with the Company’s
normal payroll practices and subject to annual review by the board
of directors, the president and the chief executive officer of the
Company; provided , however , that for each
subsequent calendar year during the Term, commencing with the 2006
calendar year, the amount of the Executive’s Base Salary
shall be increased by not less than a percentage equal to the
annual percentage change in the Consumer Price Index, for all urban
consumers for all items (U.S. City Average, Not Seasonally
Adjusted), as compiled by the Census Bureau and Bureau of Labor
Statistics and published in the Statistical Abstract of the United
States for the calendar year preceding the effective date of the
adjustment.
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(b)
Bonus . The Executive shall be eligible to receive a cash
bonus (“Bonus”) for each calendar year (or partial
calendar year) occurring during the Term, based upon the
satisfaction of certain predetermined financial goals determined by
the board of directors, the president or the chief executive
officer of the Company and communicated to the Executive in writing
by the Company by no later than February 15 of each calendar
year occurring during the Term. For the 2005 calendar year, the
amount of the Bonus shall be calculated and paid in accordance with
the terms set forth on Exhibit A attached hereto. The
parties acknowledge and agree that, in subsequent calendar years,
the Executive will have the opportunity to earn a Bonus of up to
two hundred percent (200%) of the Executive’s Base Salary for
the year in which the Bonus was earned.
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(c)
Employee Benefits and Incentive Arrangements . Throughout
the Term, the Executive shall be entitled to participate in all of
the Company’s employee benefit and incentive compensation
plans and arrangements made available during the Term to the senior
executives of the Company as may be in effect from time to
time.
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(d)
Equity Investment Option . The Company shall cause American
Wholesale Insurance Holding Company, LLC (the “Parent”)
to grant an option (the “Option”) to the Executive to
purchase up to Forty-One Thousand Six Hundred Thirty-Two (41,632)
of the common units (the “LLC Units”) of the Parent at
a purchase price of Twelve Dollars And One Cent ($12.01) per LLC
Unit. The Option shall be exercisable on and after the Commencement
Date and shall expire upon the earlier of the termination of the
Term and eighteen (18) months following the Commencement Date.
To exercise the Option with respect to all or any part of the LLC
Units, the Executive shall execute and deliver to the Parent a
purchase agreement, in form and substance reasonably satisfactory
to the Parent, evidencing the purchase of the LLC Units and
confirming the Executive’s agreement to be bound by the terms
of the Operating Agreement (as defined below), and pay the
aggregate option price for the purchased LLC Units in cash or by
wire transfer of immediately available funds to an account
designated by the Parent. At any time or from time to time after
the Commencement Date, the Executive shall, at the request of the
Company, execute and deliver such instruments or other documents
and take such further actions as the Company may reasonably request
to evidence or give effect to the Option, the issuance
of
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any LLC Units
in connection therewith and to otherwise carry out the intent of
the parties hereunder.
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(d)
Profits-Only Interest . On the Commencement Date, the
Company shall cause the Parent to issue to the Executive a
“profits-only” interest in the Parent (the
“Profits-Only Interest”), which Profits-Only Interest
shall entitle the Executive to 2.5% of the future appreciation in
the value of the Company over and above $12.01 per common unit
(which represents an enterprise value of One Hundred Fifty Million
Dollars ($150,000,000.00)). The Profits-Only Interest shall vest on
a monthly basis over a period of sixty (60) months, beginning
on the first day of the calendar month following the calendar month
in which the Commencement Date occurs. The issuance of the
Profits-Only Interest shall be conditioned upon Executive executing
and delivering to the Parent (A) the Parent’s Amended
and Restated Operating Agreement, dated as of May 31, 2002, as
amended, by and among Americana Financial Services, LLC, Pegasus
Partners, L.P., Pegasus Related Partners, L.P. and the other
persons listed on the signature pages thereto (the “Operating
Agreement”), (B) an Admission and Vesting Agreement
evidencing the issuance of the Profits-Only Interest and containing
the vesting terms described above and provisions addressing
compliance with federal and state securities laws, in form and
substance reasonably satisfactory to the Parent, (C) a Voting
Agreement, in form and substance reasonably satisfactory to the
Parent, pursuant to which the Executive provides a proxy in favor
of Pegasus Partners, L.P. relating to any and all voting rights he
has in respect of the Profits-Only Interest, and (D) such
other documentation reasonably requested by the Parent to otherwise
carry out the intent of the parties hereunder.
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(e)
Expenses . The Executive shall be entitled to receive prompt
reimbursement of customary and reasonable expenses incurred in the
performance of his employment hereunder upon his submission to the
Company of reasonable and customary expense claims to the Company.
In addition, the Company shall promptly reimburse the Executive for
his reasonable legal and other professional adviser expenses
incurred in negotiating the terms of this Agreement and the other
documents contemplated hereby, up to a maximum amount of Ten
Thousand Dollars ($10,000).
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(f)
Vacations . The Executive shall be entitled to five
(5) weeks paid vacation in each calendar year during the Term
with full and unlimited entitlement to carryover unusual vacation
time to future years.
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(g)
Supplemental Salary . During each calendar month of the
Term, the Company shall pay the Executive an additional salary (the
“Supplemental Salary”) equal to (i) the actual
dues owed by the Executive for such month for membership at a
country club, up to a maximum monthly amount of One Thousand Five
Hundred Dollars ($1,500.00), plus (ii) the actual expenses
incurred by the Executive in connection with his ownership or lease
and maintenance of an automobile for such month, up to a maximum
monthly amount of One Thousand Five Hundred Dollars ($1,500.00).
The Executive shall provide the Company with supporting
documentation of the dues and expenses incurred by him that are
used to calculate the Supplemental Salary.
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(h)
Transaction Fee . Upon the consummation of transactions
contemplated by the Stock Purchase Agreement, including the
execution and delivery of this Agreement, the Company shall pay the
Executive a one-time fee in the amount of One Million Dollars
($1,000,000.00).
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4.
Termination . The Executive’s employment hereunder
with the Company may be terminated under the following
circumstances:
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(a)
Death or Disability . The Company may terminate the
Executive’s employment hereunder if the Executive shall die
or become subject to a Permanent Disability. For purposes of this
Agreement, “Permanent Disability” means any physical or
mental impairment that renders the Executive unable to perform the
essential functions of the Executive’s job under the terms of
this Agreement for a period of at least 180 days during a
twelve-month period, either with or without reasonable
accommodation. At the Company’s request, the Executive shall
submit to an examination by a duly licensed physician who is
mutually acceptable to the Company and the Executive for the
purpose of ascertaining the existence of a Permanent Disability,
and shall authorize the physician to release the results of the
Executive’s examination to the Company.
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(b)
Cause . The Company may terminate the Executive’s
employment hereunder for Cause. For purposes of this Agreement, the
Company shall have “Cause” to terminate the
Executive’s employment hereunder upon:
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(i) the
failure by the Executive to substantially perform the
Executive’s duties hereunder (other than any such failure
resulting from the Executive’s death or Permanent Disability,
which shall be subject to the provisions of
Section 4(a));
(ii) the
willful violation by the Executive of any of the Executive’s
material obligations hereunder;
(iii) the
willful engaging by the Executive in misconduct which is materially
injurious to the business or reputation of the Company or any of
its affiliates;
(iv) the
Executive’s conviction of a felony;
(v) the
Executive’s material breach of any agreement between the
Executive, the Company, the Parent or any of their affiliates;
or
(vi) the
commission of an act by the Executive constituting financial
dishonesty against the Company or any of its affiliates.
Notwithstanding
the foregoing, the Executive shall not be terminated for Cause
without:
(A) delivery
of a written notice to the Executive setting forth
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the reasons for
the Company’s intention to terminate the Executive’s
employment hereunder for Cause; and
(B) the
failure of the Executive to cure the nonperformance, violation or
misconduct described in the notice referred to in clause
(A) of this paragraph, if cure thereof is possible, to the
reasonable satisfaction of the board of directors, the chief
executive officer and the president of the Company, within fifteen
(15) days of the Executive’s receipt of such notice;
and
(C) an
opportunity for the Executive, together with the Executive’s
counsel, to be heard before the board of directors of the
Company.
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(c)
Good Reason . The Executive may terminate his employment
hereunder for “Good Reason” upon the occurrence,
without the Executive’s consent, of any of the following
events that has not been cured within fifteen (15) days after
written notice thereof has been given to the Company by the
Executive;
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(i) a
material and adverse change in the Executive’s title, status,
authority, duties or function (in each case, other than as
contemplated by this Agreement);
(ii) the
Executive being required to report to anyone other than the board
of directors, the chief executive officer or the president of the
Company;
(iii) any
failure to pay the Executive’s Base Salary or Bonus when
due;
(iv) a
change of the Executive’s place of employment by the Company
without the Executive’s prior written consent to a location
which is greater than thirty-five (35) miles from the location
of the Executive’s place of employment in New York, New York
as of the Commencement Date; or
(v) the
willful violation by the Company of any of the Company’s
material obligations hereunder.
Notwithstanding
the foregoing, the Executive may not terminate his employment for
Good Reason without:
(A) delivery
of a written notice to the Company setting forth the reasons for
the Executive’s intention to terminate his employment for
Good Reason; and
(B) the
failure of the Company to cure the grounds for the
Executive’s intention to terminate his employment for Good
Reason, if
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cure thereof is
possible, to the reasonable satisfaction of the Executive, within
fifteen (15) days of the Company’s receipt of such
notice.
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(d)
Without Cause . The Company may
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