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Exhibit 10.4
EMPLOYMENT AGREEMENT
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").
BACKGROUND STATEMENT
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.
STATEMENT OF AGREEMENT
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 terminate the
Executive’s employment hereunder
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