Exhibit 10.4
Execution Copy
January 1, 2008
RELEASE AND SEVERANCE COMPENSATION AGREEMENT
THIS
RELEASE AND SEVERANCE COMPENSATION AGREEMENT (the
“Agreement”) is made and entered into effective
January 1, 2008 (the “Effective Date”) between and
among ProAssurance Group Services Corporation, an Alabama
corporation, and ProAssurance Corporation, a Delaware corporation
(“ProAssurance”), and
, an individual (the “Executive”). ProAssurance and its
direct and indirect subsidiaries are hereinafter collectively
referred to as the “Companies.”
RECITALS:
The
Executive currently provides services to the Companies as an at
will employee of ProAssurance Group Services Corporation which is a
wholly owned subsidiary of ProAssurance. Executive is currently
employed at the Companies’ offices in Jefferson County,
Alabama, which is Executive’s primary location of employment
on date of this Agreement. ProAssurance has offered to expand
protection to the Executive in the form of severance benefits
payable on termination of employment under certain circumstances in
consideration of Executive’s agreement to continue his [her]
employment with the Companies. ProAssurance and Executive have
entered into this Agreement to evidence the terms and conditions
for payment of severance benefits upon termination of
Executive’s employment with the Companies.
AGREEMENT
NOW, THEREFORE, These Premises Considered, and in
consideration of the mutual covenants and promises in this
Agreement, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Definitions . For
purposes of this Agreement, the following terms shall have the
meanings set forth below:
(a)
“Annual Base Salary” of the Executive shall be defined
as the Executive’s base rate of compensation in effect as of
the Date of Termination (herein defined), but in no event less than
the greater of: (A) the Executive’s base rate of
compensation in effect as of the date of the Agreement; or
(B) the Executive’s base rate of compensation in effect
as of the end of the last calendar quarter preceding the Date of
Termination
(b)
“Beneficial Ownership” is used as such term is used
within the meaning of Rule 13d-3 promulgated under the
Exchange Act.
(c)
“Board” means the Board of Directors of ProAssurance
either acting as a full Board or through its Compensation
Committee.
(d)
“Cause” means: (i) the Executive has been
convicted in a federal or state court of a crime classified as a
felony; (ii) action or inaction by the Executive (A) that
constitutes embezzlement, theft, misappropriation or conversion of
assets of the Companies which alone or together with related
actions or inactions involve assets of more than a de
minimus amount or that constitutes intentional fraud, gross
malfeasance of duty, or conduct grossly inappropriate to
Executive’s office, and (B) such action or inaction has
adversely affected or is likely to adversely affect the business of
the Companies, taken as a whole, or has resulted or is intended to
result in a direct or indirect gain or personal enrichment of
Executive to the detriment of the Companies; or (iii) Executive has
been grossly inattentive to, or in a grossly negligent manner
failed to competently perform, Executive’s job duties and the
failure was not cured within 45 days after written notice from
ProAssurance.
(e)
“Code” means the Internal Revenue Code of 1986, as
amended
(f)
“Change of Control” shall mean the occurrence of any
one of the following events during the term of this
Agreement:
(i) an
acquisition of the voting securities of ProAssurance by any Person,
immediately after which such Person has Beneficial Ownership of
more than 50.1% of the combined voting power of
ProAssurance’s then outstanding voting securities;
(ii) a
merger, consolidation or reorganization involving ProAssurance in
which an entity other than ProAssurance is the surviving entity or
in which ProAssurance is the surviving entity and the stockholders
of ProAssurance immediately preceding such transaction will own
less than 50.1% of the outstanding voting securities of the
surviving entity; or
(iii) the
sale or other disposition of substantially all of the assets of
ProAssurance (as defined in the regulations under Section 409A
of the Code) and ProAssurance ceases to function on a going forward
basis as an insurance holding company system that provides medical
professional liability insurance.
In
no event shall a Change of Control be deemed to have occurred, with
respect to Executive, if the Executive is part of a purchasing
group which consummates a Change of Control Transaction. The
Executive shall be deemed “part of a purchasing group”
for purposes of the preceding sentence if the Executive is an
equity participant or has agreed to become an equity participant in
the purchasing company or group (except for ownership of less than
5% of the stock of the purchasing company).
(g)
“Change of Control Transaction” means any of the
transactions as described in subparagraphs (i), (ii) and
(iii) of Section 1(f) hereof.
(h)
“Disability” means a serious injury or illness that
requires Executive to be under regular care of a licenses medical
physician and renders the Executive incapable of performing the
essential function of the Executive’s position for twelve
(12) consecutive months as determined by the Board in good
faith and upon receipt of and in reliance on competent medical
advice from one or more individuals selected by the Board, who are
qualified to give professional medical advice. Executive will
submit to such medical or psychiatric examinations
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and
tests as such medical professional deems necessary to make any
determination of Executive’s Disability and consent to such
medical professional sharing the results of such examination with a
representative of the Board.
(i)
“Date of Termination” means (i) if
Executive’s employment is terminated by Executive for any
reason other than death or Disability, the Date of Termination
shall be the last day of employment of Executive; (ii) if
Executive’s employment is terminated by reason of death of
the Executive, the date of death shall be the Date of Termination;
(iii) if the Executive’s employment is terminated by
reason of Disability, the Date of Termination shall be the date of
determination of Disability by the Board; or (iv) if
Executive’s employment is terminated by ProAssurance for any
reason, the Date of Termination shall be the last day of employment
of Executive unless otherwise provided in Section 6
hereof.
(j)
“Exchange Act” means the Securities Exchange Act of
1934, as amended.
(k)
“Good Reason” shall constitute any of the following
circumstances if they occur without the Executive’s express
written consent during the term of this Agreement: (i) a
material diminution in the Executive’s authority, duties or
responsibilities such that Executive no longer holds a position
with executive level responsibilities consistent with the
Executive’s training and experience; (ii) the Companies
require a material change in the Executive’s primary location
of employment of more than 100 miles from the location of the
Executive’s primary location of employment on date of this
Agreement; (iii) the Companies materially reduce the
Executive’s incentive compensation opportunities and employee
benefits to a level that is less than is provided to other
executives of comparable rank with the Companies; (iv) a
material breach by the Companies of any provision of this
Agreement; (v) a material reduction by the Companies in the
Executive’s Annual Base Salary (herein defined); or
(vi) the termination or non-renewal of this Agreement by the
Companies at any time prior to December 31 in the year that
Executive reaches 65 years of age.
(l)
“Severance Benefits” means the payments and other
benefits to be provided to the Executive under Section 3(a) or
Section 3(b), whichever is applicable.
2. Term of Agreement .
This Agreement shall continue in effect for a initial period
commencing on the Effective Date and ending on December 31,
2008. Thereafter, this Agreement shall automatically be extended
for successive terms of one year, except that this Agreement shall
not be renewed and shall terminate automatically and without any
action of the Companies or the Executive at the expiration of the
term in which the Executive reaches 65 years of age. If not
sooner terminated, any of the Companies may elect to terminate this
Agreement at the expiration of the then current term by delivery of
written notice of the termination of this Agreement at least six
months prior to the commencement of any renewal term.
3. Severance Benefits
.
(a) Subject
to the provisions of Section 3(b) hereof, if (A) during the
term of this Agreement, ( x ) the Companies terminate the
employment of Executive for any reason other than Cause, death or
Disability, or ( y ) the Executive terminates employment
with the Companies for Good Reason, and (B) the Executive,
executes the Release that is attached to and
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incorporated in this Agreement (“Release”) within sixty
(60) days after Date of Termination, the Executive shall
receive the following benefits:
(i) An
amount equal to the Executive’s Annual Base Salary;
(ii) An
amount equal to the average annual incentive award(s) and
bonus(es). The “average annual incentive award(s) and
bonus(es)” shall mean the amount equal to the average of the
annual incentive award(s) and bonus(es) paid to Executive in each
of the three complete calendar years prior to the Date of
Termination or, if shorter, in each of the complete calendar years
during the Executive’s entire period of employment with the
Companies. The “annual incentive award(s) and
bonus(es)” shall mean the dollar value of the cash or other
consideration paid to the Executive by the Companies as annual
performance based compensation (whether or not deferred) in each
calendar year during said period. The Executive’s annual
incentive awards and bonuses do not include long-term incentive
compensation; therefore, annual incentive awards and bonuses shall
be calculated excluding the value of options to purchase stock,
performance shares, or other long-term incentives; and
(iii) Payment
of the Executive’s monthly COBRA premiums for continued
health and dental insurance coverage for the shorter of the
following: (A) twelve (12) months from the Date of
Termination; (B) until the Executive no longer has coverage
under COBRA; or (C) until the Executive becomes eligible for
substantially similar coverage under a subsequent employer’s
group health plan; and
(iv) Outplacement
services that are customary to Executive’s position.
(b) Notwithstanding
the provisions of Section 3(a) hereof, the Executive shall receive
the Severance Benefits described in this Section 3(b) in lieu of
and not in addition to the Severance Benefits described in Section
3(a) hereof if all of the following conditions are satisfied:
(A) a Change of Control Transaction is publicly announced
during the term of this Agreement; (B) during the period
commencing on the public announcement of the Change of Control
Transaction and ending two (2) years after the effective date
of the Change of Control Transaction, ( x ) the Companies
terminate the employment of Executive for any reason other than
Cause, Disability or death, or ( y ) the Executive
terminates employment with the Companies for Good Reason; and
(C) the Executive executes the Release within sixty
(60) days after the Date of Termination. In such event, the
Severance Benefits payable to the Executive pursuant to this
Section 3(b) shall be as follows:
(i) An
amount equal to two (2) times the Executive’s Annual
Base Salary;
(ii) An
amount equal to two (2) times the average annual incentive
award(s) or bonus(es). The “average annual incentive award(s)
and bonus(es)” shall be calculated in the manner set forth in
Section 3(a) (ii) hereof;
(iii)
Payment of the Executive’s monthly COBRA premiums for
continued health and dental insurance coverage for the shorter of
the following: (A) eighteen (18) months from the Date of
Termination; (B) until the Executive no longer has coverage
under
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COBRA;
or (C) until the Executive becomes eligible for substantially
similar coverage under a subsequent employer’s group health
plan; and
(iv) Outplacement
services that are customary to Executive’s position.
(c) Subject
to the delivery of the executed Release by Executive, the Severance
Benefits described in subparagraphs (i) and (ii) of
either Section 3(a) or 3(b) hereof, which ever is applicable, shall
be paid in cash or good funds in equal monthly installments during
the Restricted Period (as defined in Section 7 hereof)
commencing no later than the fifteenth day of the calendar month
that occurs not less than seven (7) days after the execution
of the Release and ending on the first day of the last full
calendar month in the Restricted Period; provided that the
obligation of the Companies to pay such Severance Benefits to the
Executive shall be subject to termination as herein provided in the
event the Executive violates the covenants under Section 7
hereof. The Companies shall withhold from any amounts payable under
this Agreement all federal, state, city or other income and
employment taxes that shall be required. Notwithstanding the
foregoing, if the Executive is a “specified employee”
within the meaning of Code Section 409A(a)(2)(b)(i), the
payment schedule for Severance Benefits shall be modified or
adjusted to provide that no payments shall be made until the
expiration of six (6) months following the Date of
Termination. In the event that payments are so delayed, a lump sum
payment of the accumulated unpaid amounts attributable to the six
(6) month period shall be made to Executive on the first day
of the seventh month following the Date of Termination. This six
month delay shall not apply to any Severance Benefits which are not
subject to the requirements of Section 409A of the Code by
reason of their being separation pay upon an involuntary separation
from service and their meeting the requirements and limitations of
the regulations under the above referenced Code section. In no
event shall the aggregate amount of Severance Benefits be reduced
as a result of such modification or adjustment.
(d) The
outplacement services included in the Severance Benefits shall be
provided to the Executive promptly after the execution of the
Release but not later than the end of the calendar year following
the year in which the Date of Termination occurred.
(e) The
Executive shall be entitled to the following in addition to and not
in limitation of the Severance Benefits: (i) accrued and
unpaid base salary as of the Date of Termination; (ii) accrued
vacation and sick leave, if any, on Date of Termination in
accordance with the then current policy or plan of the Companies
with respect to terminated employees generally; and
(iii) vested benefits under the Companies’ employee
benefit plans in which the Executive was a participant on Date of
Termination, which vested benefits shall be paid or provided for in
accordance with the terms of said employee benefit plans.
(f) The
Executive shall not be entitled to receive Severance Benefits if
employment with the Companies is terminated by reason of death or
Disability of Executive; or by reason of termination of employment
by the Executive without Good Reason (herein defined); or by reason
of termination of employment by the Companies with Cause.
(g) The
Executive shall be under no duty or obligation to seek or accept
other employment and shall not be required to mitigate the amount
of the Severance Benefits provided under the Agreement by seeking
employment or otherwise; provided, however, that the
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Executive shall be required to notify the Companies if the
Executive becomes covered by a health or dental care program
providing substantially similar coverage, at which time health or
dental care continuation coverage provided under this Agreement
shall cease.
4. Parachute Payment Tax
Reimbursement .
(a) If
any payment or benefit within the meaning of
Section 280G(b)(2) of the Code to Executive for his benefit
paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise in connection with, or arising
out of, Executive’s employment with the Companies or a Change
of Control (a “Payment” or “Payments”) will
be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with
such interest and penalties are collectively referred to as the
“Excise Tax”), then the Executive will be entitled to
receive an additional payment (a “Gross Up Payment”).
The amount of the Gross Up Payment will be such that after payment
by the Executive of all taxes (including any interest or penalties,
other than interest and penalties imposed by reason of the
Executive’s failure to file a timely tax return or pay taxes
shown due on his return, imposed with respect to such taxes and the
Excise Tax), including any Excise Tax imposed upon the Gross Up
Payment, the Executive retains an amount of the Gross Up Payment
equal to the Excise Tax imposed upon the Payments. The Executive
shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year for which the
Excise Tax is to be paid.
(b) An
initial determination as to whether a Gross Up Payment is required
pursuant to this Agreement and the amount of such Gross Up Payment
shall be made by the Compensation Committee or the Board of
Directors of ProAssurance. In making such determination, the value
of any noncash benefits or any deferred payment or benefit shall be
determined in accordance with the principles set forth in
Sections 280G(d)(3) and (4) of the Code. ProAssurance
shall provide the determination (“Determination”)
together with detailed supporting calculations and documentation to
the Executive within a reasonable time after the Date of
Termination but not later than March 15 in the calendar year
following the year in which the Date of Termination occurred. If
ProAssurance determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it shall furnish
the Executive with an opinion of its income tax accountant or tax
counsel to the effect that no Excise Tax will be imposed with
respect to any Payment or Payments. Within ten days of the delivery
of the Determination to the Executive, the Executive shall have the
right to dispute the Determination. The Gross Up Payment, if any,
as determined pursuant to this Section 4(b) shall be paid by the
Companies to the Executive within 20 days of the receipt of
the Determination. The existence of the Dispute shall not in any
way affect the Exe
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