Penn Independent
Corporation
420 South York Road
Hatboro, PA 19040
November 16, 2005
Robert A. Lear
3689 Markham Drive
Bensalem, PA 19020
Re: Terms of Continued Employment
Dear Bob:
Reference is made to the Executive Employment Agreement, as
amended (the “Agreement”) entered into as of
October 18, 2004 between you and Penn Independent Corporation
(the “Company”). This letter further amends the
Agreement, effective as of the date hereof, and is intended to be
legally binding:
1. You will be employed by the Company as Executive
Chairman of the Company until January 31, 2006 (the
“Retirement Date”) (the period beginning on the date
hereof until the Retirement Date, the “Transition
Period”) and you will keep your current office until the
Retirement Date. You shall report to the Chairman of United America
Indemnity, Ltd. (“UAI”), chair the Board of Directors
of the Company (the “Board”), provide guidance to the
Company’s new Chief Executive Officer and President and
otherwise assist in the transition of leadership of the Company. In
addition, you shall perform such other duties for the Company and
its subsidiaries as are consistent with your senior executive role,
as reasonably directed by such Chairman and the Boards of Directors
of UAI and the Company. During the Transition Period, your need to
travel for business purposes will not exceed your historical rate
of business travel. From time to time following the Transition
Period, the Company or its affiliates may contact you with respect
to matters in which you were involved while employed by the
Company. You agree to provide reasonable assistance ( e.g. ,
answering questions via telephone) with respect to such matters,
provided that such assistance does not unduly interfere with your
other professional or personal pursuits.
2. You will continue to be paid at your current base salary
rate through December 2005. Effective January 1, 2006,
your salary will be increased at the rate of the increase of the
Consumer Price Index Philadelphia, PA area for the twelve-month
period that is then most recently ended and for which final data is
then available (the “2006 Salary”).
3. While employed by the Company, you will remain eligible
for an annual bonus only with respect to 2005 pursuant to
Section 2(B) of the Agreement. Such bonus will be determined
in accordance with the terms of the Penn Independent Corporation
2005 Key Employee Incentive Bonus Plan and administered and paid
pursuant to the 2005 United America Indemnity, Ltd. Annual
Incentive Awards Program, provided that the Company agrees that
such bonus shall not be reduced as a result of the exercise of
negative discretion by the Board or any of its committees, except
that such reduction may take place if you are terminated pursuant
to Section 17(a)(iii)(2) of the Agreement.
4. You will continue to be eligible until the Retirement
Date for the benefits described in Sections 2(C), 2(F) (for
2005 only), 5, 6, 9 and 19 of the Agreement. You hereby acknowledge
your receipt of the 2004 Bonus (as defined in the Agreement) and
agree that you will not be eligible for an annual bonus with
respect to 2006. In addition, Section 19 of the Agreement is
modified so that with regard to any claim, suit or action by reason
of your being, or having been, an officer, employee or director of
the Company, UAI and/or their affiliates, as applicable, the
Company and UAI will indemnify you to the maximum extent provided
under each companies’ respective charters and by-laws and
applicable law, and will cause you to be covered by each
company’s Directors & Officers and General Liability
policies, both during your service and thereafter (with respect to
the period during which you were an officer, employee or director),
to the same extent as individuals then in service to the applicable
company.
5. The Company will pay you an integration bonus of
$125,000 in respect of your efforts following the Company’s
acquisition by UAI to integrate the Company’s operations with
those of UAI. Such amount will be paid on the Company’s first
payroll date in 2006, subject to applicable withholding and taxes,
and such payment shall be in full satisfaction of any obligation
under Section 2.H of the Agreement.
6. The Company will pay you a retirement bonus in an amount
equal to your 2006 Salary. Fifty-eight percent of that amount will
be paid in a lump sum six months following the Retirement Date; the
remaining forty-two percent of that amount will be paid in five
equal monthly installments commencing seven months following the
Retirement Date; provided, however, that such payments (or
any remaining portion thereof) will be accelerated and paid in a
single lump sum upon the occurrence of either (i) your death,
or (ii) a change in control, a change in effective control or
a change in ownership of the assets of, in each case, either the
Company or UAI (all as determined in accordance with
Section 409A of the Internal Revenue Code (the
“Code”) and related guidance
(“Section 409A”)). In addition, you shall receive
post-termination benefits pursuant to Sections 17(c) and 18 of the
Agreement. The cash amounts described in Section 17(c)(i) of
the Agreement will be paid on the earliest to occur of (x) six
months following the Retirement Date, (y) your death, or
(z) a change in control, a change in effective control or a
change in ownership of the assets of, in each case, either the
Company or UAI (again, in each case as determined in accordance
with Section 409A).
7. Notwithstanding the terms of any option agreements to
which you may be a party, you may exercise any options to purchase
shares in UAI (“Options”) in which you are vested as of
the cessation of your employment until the later of
(i) December 31, 2006, or (ii) the date that such
options would have expired in the absence of this paragraph. Your
unvested Options shall expire upon cessation of your
employment.
8. You hereby waive your right to terminate the Agreement
in accordance with Sections 17(a)(iv)(2) or 17(a)(iv)(3) of
the Agreement.
9. You and the Company hereby agree to the release attached
hereto as Annex A.
10. The parties’ desire to provide for your
retirement and an orderly transition of leadership following your
retirement is unrelated to the Company’s acquisition by UAI.
Accordingly, the parties believe that (a) the arrangement
contemplated by this letter does not implicate Sections 280G and
4999 of the Code (the “Sections”) in any manner, and
(b) will complete their respective tax reports accordingly.
Nevertheless, should the IRS assess excise taxes pursuant to the
Sections, the Company hereby agrees to indemnify you for any excise
taxes imposed pursuant to the Sections, as well as for any interest
or penalties arising from late payment of such amounts and for any
additional income, payroll, excise or other taxes that may be
imposed with respect to such indemnity payments (but not with
respect to income or payroll taxes due on amounts payable other
than in accordance with this paragraph).
11. The Company agrees to reimburse you for the reasonable
legal fees you incur in negotiating the subject matter of this
letter, subject to a maximum of $5,000.
12. Section 14 of the Agreement is revised to provide
that, if you prevail on a claim brought to enforce the
Company’s obligations under this letter, in addition to any
other relief awarded to you, you will be entitled to reasonable
costs and attorneys fees incurred by you in the course of bringing
such claim.
13. The foregoing is contingent on your continued
compliance with your obligations under the Agreement, including
without limitation Sections 7 and 8 thereof. Nothing herein
shall waive the Company’s ability to exerci
