Employment Agreement between United America Indemnity, Ltd. and Robert M. Fishman (Chief Executive Officer)
This agreement outlines the terms of employment for Robert M. Fishman as Chief Executive Officer of United America Indemnity, Ltd., effective November 27, 2006. Mr. Fishman will serve as CEO and director, report to the board, and relocate to the Philadelphia area. He will receive a base salary of $600,000, annual bonuses, and relocation reimbursement, with specific conditions for repayment if he resigns or is terminated for cause within a year. The initial term runs through December 31, 2010, with automatic one-year renewals unless notice is given.
Chief Executive Officer
United America Indemnity, Ltd.
Positions & Titles: | On November 27, 2006 (Effective Date), CEO shall assume the position of chief executive officer of the Company as well as chief executive officer of any Company Affiliates (as defined below) of the Company (as may be specified in writing by the Chairman from time to time). CEO shall also serve on the Board as a director of the Company (a Director). | |
Responsibilities: | CEO shall have such responsibilities and duties as are customary for a chief executive officer of a company conducting business comparable to the Company (except as may be otherwise provided by the Board from time to time). CEO shall devote his full business time and efforts to his service as chief executive officer and as a Director and shall not engage in any other non-Company or non-Company Affiliate business activities without the written approval of the Board. Notwithstanding the foregoing, CEO shall be permitted to manage his and his familys personal investments and affairs, engage in charitable activities and community affairs, and act as a member, director, or officer of industry trade associations or groups, provided that such activities do not interfere with his chief executive officer duties. | |
Reporting: | During the Term (as defined below), CEO shall report to the Board regarding the affairs of the Company and Company Affiliates at scheduled meetings of the Board and shall otherwise report to the Chairman. All other executives and other employees of the Company shall report to CEO (or his designees as approved by the Board). | |
Location: | Within six months of the Effective Date, CEO shall establish his and his familys primary residence in the greater Philadelphia metropolitan area and shall be |
provided by the Company with an office at the headquarters of the Companys Affiliate in Bala Cynwyd, Pennsylvania. CEO shall be reimbursed, or the Company shall pay, for his and his familys reasonable relocation and closing expenses (including documented realtor commissions incurred in selling his primary residence, but not to exceed 6%); provided that such reimbursement shall not exceed $180,000; provided further that CEO shall be responsible for repaying to the Company all such reimbursed amounts in the event that CEO resigns or is terminated for Cause (as defined below), in each case on or before the first anniversary of the Effective Date. Prior to establishing his familys primary residence in the greater Philadelphia metropolitan area, CEO may commute from his current residence, but shall be present at the Companys or the Companys Affiliates facilities or at third party commercial facilities on behalf of the Company at least five days per week, except as may otherwise be approved by the Chairman. The Company shall reimburse CEO for his reasonable commuting expenses during the 135-calendar-day period commencing with the Effective Date, subject to applicable taxes and withholding. | ||
Term: | The initial term of CEOs employment under this Agreement shall be from the Effective Date through December 31, 2010. Such term will automatically be extended for additional one-year periods on a year-to-year basis unless CEO or the Company notifies in writing the other to the contrary not less than three months and not more than five months prior to the expiration of the initial term of this Agreement and of any renewal term (the initial term and any renewal term, collectively, the Term). Prior to the commencement of the Term and following the execution of this Agreement, CEO shall provide services to the Company as requested and as the Company determines are appropriate in light of any pre-Term commitments of CEO. | |
Annual Compensation: | $2,100,000+. Commencing on the Effective Date, CEO will accrue base salary and be eligible for an annual bonus as provided below in consideration of his services to the Company and its Affiliates. | |
Base Salary: | The Company agrees to pay CEO an annual base salary of $600,000 (Base Salary), commencing as of the Effective Date, in accordance with the Companys normal payroll practices for executives. Following a termination by the |
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Company of CEO without Cause (as defined below) or a resignation by CEO for Good Reason (as defined below), CEO will receive salary payments over an 18-month period totaling $900,000, less any amounts paid during the relevant notice period and any taxes and withholdings, subject to the conditions described in the Termination Section below. | ||
Annual Bonus: | In respect of 2006, CEO shall receive (i) a lump sum payment of $100,000 on December 30, 2006 and (ii) a lump sum payment of $400,000 on or about March 15, 2007, in each case subject to applicable taxes and withholding and to CEOs being employed by the Company in good standing on each such date. CEO shall repay any amounts received pursuant to the foregoing sentence to the Company if he is terminated for Cause or resigns without Good Reason on or before the first anniversary of the Effective Date, and such repayment shall occur within ten calendar days of CEOs termination of employment. | |
In respect of each full calendar year (commencing in respect of 2007) during the Term (a Bonus Year), the Company shall provide CEO with a bonus opportunity of $1,500,000+ (Annual Bonus), subject to the following and determined, awarded and paid as follows: | ||
A. Plan & Performance Score: | ||
a. Plan: Prior to the commencement of each Bonus Year, CEO shall prepare and submit to the Board for its approval a comprehensive business plan for the Company and its Affiliates projecting the business performance (including among other matters, consolidated net income per share) of the Company and its Affiliates in respect of the forthcoming Bonus Year (including any changes made in the good faith judgment of the Board at the time of its approval, the Plan). The Plan shall be prepared and presented both (1) in accordance with Generally Accepted Accounting Principles (GAAP) and (2) on an accident year basis (Accident Year Basis). |
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b. Performance Score: Within 75 days after completion of each Bonus Year, a performance score (Performance Score) for such Bonus Year shall be determined by the Board in accordance with the following steps: (1) dividing (i) the actual consolidated net income per share of the Company (adjusted to account for all items of gain, loss or expenses determined by the Board in its sole discretion to be unanticipated and/or extraordinary), determined on an Accident Year Basis and as verified by the Companys independent auditors for such Bonus Year by (ii) the projected consolidated net income per share of the Company (determined on an Accident Year Basis) as set forth in the Plan for such Bonus Year (and as approved by the Board prior to the commencement of such Bonus Year in accordance with paragraph a. (immediately preceding)), (2) multiplying the quotient determined in accordance with Step (1) (immediately preceding) by 100, and (3) rounding the result obtained in Step (2) (immediately preceding) to the nearest tenth. | ||
B. Bonus Computation: The Annual Bonus shall equal: | ||
a. $50,000 multiplied by the excess of the Performance Score over 90, plus | ||
b. $200,000 multiplied by the excess of the Performance Score (capped at 100 for this purpose) over 95, plus | ||
c. A cash payment equal to CEOs net federal and state tax liability directly resulting from the vesting of the restricted shares comprising the restricted shares portion of the Annual Bonus (to the extent provided for in Section C below), if CEO is employed by the Company and in good standing at the time of such vesting, with such payment to be made prior to CEOs actual payment of such tax liability. | ||
Example: If the Performance Score in respect of the 2007 Original Bonus Year equaled 100, the Annual Bonus in respect of 2007 would be equal to |
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$1,500,000 [($50,000 x (100-90)) + ($200,000 x (100-95))= $1,500,000]. | |||
Example: If the Performance Score in respect of the 2007 Original Bonus Year equaled 110, the Annual Bonus in respect of 2007 would be equal to $2,000,000 [($50,000 x (110-90)) + ($200,000 x (100-95))=$2,000,000]. |
C. | First $500,000 of each Annual Bonus: |
a. | Restricted Shares. Subject to the immediately succeeding paragraph b., the first $500,000 of each Annual Bonus (determined in accordance with the immediately preceding Section B but not including the tax liability payments made pursuant to paragraph c. of such Section) shall be satisfied by the issuance to CEO of restricted Class A common shares of the Company as of March 15 of the year following the Bonus Year, subject to CEO being employed by the Company in good standing as of such date (or if such date is not a business day, the immediately preceding business day) (valued for this purpose at the closing price of the Companys Class A common shares on the last trading day of the relevant Bonus Year as reported in the Wall Street Journal). Twenty-five percent (25%) of the Company shares that may be issued to CEO pursuant to this paragraph with respect to the 2007 Bonus Year, 2008 Bonus Year and the 2009 Bonus Year during the Term shall vest and become transferable on each of the first four anniversaries of the issuance thereof. One-third of the Company shares that may be issued to CEO pursuant to this paragraph with respect to the 2010 Bonus Year and subsequent Bonus Years during the Term shall vest and become transferable on each of the first three anniversaries of the issuance thereof. Notwithstanding the foregoing sentence, vesting of any such restricted shares issued to CEO pursuant to this Section C shall cease in the event and at such time as (1) CEO resigns from the Company without Good Reason, (2) CEO is terminated by the Company for Cause, (3) the Term expires, if at the time of such expiration (x) CEO declined the Companys proposal to |
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extend the duration of this Agreement on terms at least substantially equivalent to the terms hereof, or (y) the Company had Cause (as defined below) to terminate CEO, or (4) CEO does not comply with the Non-Competition, Non-Solicitation, Confidential Information and Cooperation Covenants set forth in Schedule I hereto along with his obligations, if applicable, under any release which he is required to provide in favor of the Company and those under any separation agreement to which he is party with the Company and/or its Affiliates (collectively, the Post-Termination Obligations). | |||
b. | Operational Goals & Milestones. Prior to the commencement of a Bonus Year, it shall be CEOs responsibility to propose in writing, based upon CEOs discussions with the Chairman, Company milestones and operational goals for the forthcoming Bonus Year that must be achieved for CEO to become entitled to the restricted shares award provided in this Section C. The absence of such a proposal as of the commencement of a Bonus Year will result in no achievement of such milestones and goals. The Chairman shall review and revise such milestones and goals in his discretion and refer them to the Board in writing for its approval, in its discretion. In addition to the other requirements of paragraphs a., b., and c. of this Section C, the Board shall make a good faith determination, which shall be conclusive, as to whether the milestones and operational goals as earlier approved by the Board have been satisfied thereby entitling CEO to the amount of restricted shares determined in accordance with paragraphs a. and b. of this Section C. | ||
c. | Bonus Year 2007 Goals & Milestones. The following shall constitute the Bonus Year 2007 operational goals and milestones for purposes of this paragraph c.: |
1. | Creation of a wholesale brokerage division fully complimenting the range |
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of the Companys property and casualty insurance program operations. | |||
2. | Creation of a proactive program division that originates, fully develops, and takes to market for distribution by managing general agents or other third parties excess and surplus lines insurance programs. | ||
3. | Establishment of an internal, cost effective, investment management and investment accounting division. | ||
4. | Assist the Companys Bermuda Affiliate in writing at least $30,000,000 in third party reinsurance in compliance with the Companys existing limited appetite for reinsurance risk strategic plan for such business. | ||
5. | Meaningfully enhance the Companys executive capabilities. | ||
6. | Establishment of an effective investor relations initiative. |
D. | Annual Bonus Cash Portion: To the extent an Annual Bonus amount exceeds $500,000 (but not including the tax liability payments made pursuant to paragraph c. of Section B above): |
a. | Fifty percent (50%) of such excess shall be paid in cash to CEO (the Paid Cash Bonus) within thirty days of the Boards determination with respect to such bonus as provided for in Sections A and B above; and | ||
b. | Fifty percent (50%) of such excess shall be retained by the Company (the Retained Cash Bonus) to satisfy the true-up adjustments provided in Section E (immediately succeeding). |
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E. | Accident Year True-Up Provisions: |
a. | The Performance Score and the amount of the Annual Bonus Cash Portion in respect to a Bonus Year (for purposes of this Section Annual Bonus and the Section Additional Equity Participation below, Target Year) shall be redetermined or trued-up on an Accident Year Basis within 15 days following the completion of the Companys audited financial statements in respect of the third full calendar year succeeding such Target Year, with such redetermination or true-up assuming the capital structure of the Company as of the last day of the applicable Target Year (for purposes of computing consolidated net income, consolidated net income per share, and other capital structure dependent items that would affect computation of the true-up contemplated by this Section E). (The Performance Score and Annual Bonus Cash Portion as so redetermined are referred to hereinbelow as the Trued-Up Performance Score and the Trued-Up Annual Bonus Cash Portion, respectively.) Computation of the Trued-Up Performance Score and the Trued-Up Annual Bonus Cash Portion shall be verified by Companys independent auditors and confirmed by the Board. All redeterminations hereunder shall (i) be made without regard to the tax liability payments made pursuant to paragraph c. of Section B above and (ii) not increase or reduce the number of restricted shares previously awarded to CEO pursuant to Section C of this Annual Bonus Section. | ||
b. | Subject to paragraph c. (immediately succeeding), if the Trued-Up Annual Bonus Cash Portion in respect to a Target Year equals or exceeds the amount of the Annual Bonus Cash Portion originally determined in respect of such Target Year, then the following amounts shall be paid to CEO (whether or not CEO is then employed by the Company, unless pursuant to paragraph c. (immediately succeeding) CEO is no longer then entitled to payments under this |
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paragraph b.) within thirty days of the redetermination: |
1. | The excess of the Trued-Up Annual Bonus Cash Portion in respect of the Target Year over the Annual Bonus Cash Portion originally determined in respect of the Target Year; plus | ||
2. | The Retained Cash Bonus in respect to the Target Year; plus | ||
3. | A deemed investment return on the amounts to be paid to CEO pursuant to paragraphs 1 & 2 (immediately preceding), which shall be calculated by utilizing the investment return realized by the Company and the Company Affiliates on their investable assets (including cash) over the period said amounts to be paid to CEO had been retained by the Company. |
c. | CEO shall not be entitled to receive any payments pursuant to paragraph b. (immediately preceding) from and after the first to occur of the following: (1) CEO resigns from the Company without Good Reason; (2) CEO is terminated by the Company for Cause; (3) the expiration of the Term, if at the time of such expiration (x) CEO declined the Companys proposal to extend the duration of this Agreement on terms at least substantially equivalent to the terms hereof, or (y) the Company had Cause to terminate CEO; or (4) CEO does not comply with the Post-Termination Obligations. | ||
d. | If the amount of the Annual Bonus Cash Portion originally determined in respect of a Target Year exceeds the amount of the Trued-Up Annual Bonus Cash Portion in respect of such Target Year, then the amount of such excess shall be offset against and reduce dollar-for-dollar (whether or not CEO is then employed by the Company) the aggregate amount of Retained |
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Cash Bonuses then or thereafter held by the Company. The remaining Retained Cash Bonus with respect to the Target Year, if any, shall then be paid to CEO within thirty days of the foregoing redetermination, along with a deemed investment return thereon, which shall be calculated by utilizing the investment return realized by the Company and the Company Affiliates on their investable assets (including cash) over the period such remaining Retained Cash Bonus had been retained by the Company. | ||||||||
Attached as Schedule II is an example of application of the Bonus provisions of this Agreement. | ||||||||
F. | Additional Matters: All bonus payments hereunder are intended to comply with Sections 162(m) and 409A of the Internal Revenue Code of 1986, as amended (the Code), and to the extent applicable shall be governed by the terms of the Companys incentive award plans. | |||||||
Employee Benefits/Expenses: | During the Term: | |||||||
A. | CEO shall be entitled to participate in or receive benefits under all employee benefit plans, including, but not limited to, any pension or retirement plan, savings plan, medical or health-and-accident plan, life, disability, and other insurance plans or arrangements generally made available by the Company to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements and of this Agreement. Following a termination by the Company of CEO without Cause or a resignation by CEO for Good Reason, CEO will be entitled to be reimbursed for the cost of COBRA continuation coverage under the Companys group health plans for up to eighteen months following his termination date, subject to CEOs continued eligibility for such coverage under COBRA and to the conditions described in the Termination Section below; | |||||||
B. | CEO shall be entitled to four weeks paid vacation per full year in accordance with the policies periodically |
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established by the Board for other senior executives of the Company; and | ||||||||
C. | The Company shall pay or reimburse CEO for all reasonable expenses incurred or paid by CEO in the performance of CEOs duties hereunder in accordance with the generally applicable policies and procedures of the Company. | |||||||
Additional Equity Participation: | A. | Share Purchase & Option Grant: As a condition precedent to all of the Companys obligations and all of CEOs rights pursuant to this Agreement, prior to the Effective Date, CEO shall purchase from the Company $1,000,000 of the Companys Class A common shares (Shares) at the closing price (as reported in the Wall Street Journal) on the trading day on the execution of this Agreement (rounded to the nearest whole share). CEO further agrees that the Shares shall not be transferable (other than for estate planning purposes where the ultimate beneficiary of the transfer is a member of CEOs immediate family) earlier than (i) the end of the Term, (ii) the occurrence of a Change of Control (as defined below), or (iii) the date on which CEO is terminated. The Company shall grant CEO stock options in accordance with the following (the Stock Options): | ||||||
a. | Each option shall represent the right to acquire from the Company one Class A common share of the Company, subject to paying to the Company the Exercise Price (as defined in the immediately succeeding paragraph); | |||||||
b. | The Exercise Price (or strike price) of each option shall be equal to the closing price of the Companys Class A Common Shares on the trading day on the execution of this Agreement (as reported in the Wall Street Journal), and each such option shall be granted as of such trading day; and | |||||||
c. | The number of options granted CEO shall equal the quotient obtained by dividing $10,000,000 by the Exercise Price (rounded to the nearest whole option). |
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B. | Time Vesting Options: 12.5% of the Stock Options shall vest on each of December 31, 2007, December 31, 2008, December 31, 2009, and December 31, 2010 (aggregating 50% of the Stock Options) if CEO is employed by the Company and in good standing as of such respective dates. | |||||||
C. | Performance Vesting Options: | |||||||
a. | An additional 12.5% of the Stock Options shall provisionally vest on each of December 31, 2007, December 31, 2008, December 31, 2009 and December 31, 2010 (aggregating the remaining 50% of the Stock Options (the Performance Stock Options)) if, in addition to the criteria described below, on such dates CEO is employed by the Company and in good standing. The number of provisionally vested Performance Stock Options in respect to a calendar year that shall vest conclusively shall be determined by multiplying the number of such provisionally vested Performance Stock Options by a fraction, the numerator of which fraction shall equal the excess over 90 of the Trued-Up Performance Score for the Target Year inclusive of the date on which such Performance Stock Options provisionally vested (capped at ten for this purpose) and the denominator of which fraction shall equal ten. | |||||||
b. | Provisionally vested Performance Stock Options shall become exercisable only in the event such options become conclusively vested as verified by the Companys independent auditors and confirmed by the Board. | |||||||
D. | Special Vesting of Options: | |||||||
a. | Notwithstanding paragraph a. of Section C (immediately preceding), all provisionally vested Performance Stock Options shall vest conclusively (and thereafter be exercisable) as of the 120th day following a two-year consecutive period of either calendar years (i) 2009 and 2010 or (ii) calendar years 2010 and 2011 if: |
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1. | the Companys return on equity (determined in accordance with GAAP) and the Companys percentage increase in gross written premiums (over the relevant preceding year) exceeded the return on equity (determined in accordance with GAAP) and the percentage increase in gross written premiums (over the relevant preceding year), of more than 50% of the Peer Group (as hereafter defined), as determined by the Board in its discretion within 120 days after the close of the relevant two-year period. The Board, in its sole discretion, may make such adjustments to the determination required by this paragraph as it deems appropriate to account for unanticipated and/or extraordinary matters affecting the Companys or Peer Group members results; and | ||
2. | CEO was employed by the Company and in good standing on (i) December 31 of each year in which the Companys performance satisfied the conditions of paragraph 1 (immediately preceding) and (ii) the date on which the relevant Board determination was made. |
3. | For purposes of paragraph 1 of this Section D, the Peer Group shall consist of W.R. Berkley Corporation (BER), RLI Corporation (RLI), James River Group, Inc. (JRVR), Navigators Insurance Group |
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(NAVG), Philadelphia Consolidated Group (PHLY), Markel Corporation (MKL), HCC Insurance Holdings, Inc. (HCC), Argonaut Group (AGII) and NYMAGIC, Inc. (NYM). The companies constituting the Peer Group may be modified by the Board from time to time in its discretion so as to take into account new competitive entrants to the Companys market niche, the departure of companies from the Companys market niche, as well as mergers, acquisitions and other changes affecting companies included in the Peer Group. |
b. | Notwithstanding any other provision of this Agreement, upon the consummation of a Change in Control (as defined below), if CEO is then employed by the Company in good standing and has not given notice of resignation, all unvested and provisionally vested Stock Options shall vest conclusively (and thereafter become exercisable) if the Companys publicly traded shares appreciated in value by a 15% or greater annual compounded rate measured from the closing price on the Effective Date through the closing price on the date of the consummation of the Change in Control (in each case as reported in the Wall Street Journal). In determining such compounded rate of the Companys publicly traded shares for purposes of this paragraph, the Board shall give appropriate credit to dividends and other distributions made in respect to the Companys shares to all shareholders as well as other relevant items (such as stock splits). | ||
c. For purposes of this Section D: |
1. | A Change of Control shall mean (i) the acquisition of all or substantially all of the Companys assets by an Unaffiliated Person, (ii) a merger, consolidation, statutory share exchange or similar form of corporate transaction after which the resulting entity is controlled by an Unaffiliated Person, or (iii) the acquisition by an Unaffiliated Person of sufficient voting shares of the |
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Company to cause the election of a majority of the Companys Directors. |
2. | Unaffiliated Person shall mean a person (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 and as such term is used in Section 13(d)(3) and 14(d)(2) of such Act) or a group of persons which is not an Affiliate of Fox Paine & Company, LLC (Fox Paine), the members thereof, or Fox Paine Capital Fund II, L.P. |
E. | Shareholding Guidelines. In addition to any other transfer restrictions contained herein, beginning as of January 1, 2009 and for the remainder of the Term, CEO shall be obligated at all times to hold shares in the Company with a value of no less than two times his Annual Compensation (as defined below) (or if less, the aggregate value of the Shares, any shares which he has been granted pursuant to this Agreement and any vested in the money Time Vesting Options which he has been granted pursuant to this Agreement), or such higher amount as may be required by the Board pursuant to share ownership guidelines adopted with respect to the Companys senior executive team. Such value shall include vested share options, assuming their exercise for the underlying shares. For purposes of this Section E, Annual Compensation shall be the Base Salary plus the Annual Bonus payable upon the achievement of a Performance Score of 100 and all applicable milestones and goals (including any retained portion of the Annual Bonus but excluding all tax liability payments). | ||
F. | Equity Agreements. Any restricted shares or options which are granted pursuant to this Agreement shall be granted pursuant to the restricted share and share option agreements attached as Exhibits A, B and C hereto, and any grants hereunder shall be conditioned on (i) CEOs execution of such agreements; and (ii) the Companys shareholder-approved, publicly-filed equity compensation plan, i.e., its Share Incentive Plan, as such plan may be amended from time to time (or any successor thereto). |
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Compliance with Section 409A: | The parties have attempted in good faith to structure this Agreement to comply with or be exempt from Section 409A of the Code and the regulations and guidance relating thereto (Section 409A). Therefore, notwithstanding any other provisions hereof, this Agreement shall be administered in good faith compliance with Section 409A, and accordingly any payment or vesting in severance benefits hereunder may be subject to a six-month delay as required by Section 409A, as determined by the Board in good faith. | |
Termination: | The Board may, in its absolute discretion, terminate CEOs employment with the Company at any time prior to the expiration of the Term, with or without Cause, upon three full calendar months written notice (in which event CEO shall receive accrued and unpaid Base Salary through the termination date) and during such three-month period the Company may request that CEO resign his officerships and direct CEO to perform only those services (if any) it determines are necessary. If CEOs employment terminates as a result of his death or Disability (such Disability occurring when a licensed physician selected by the Company determines that CEO is disabled and CEO is unable to perform or complete his duties under this Agreement for a period of 180 consecutive days or 180 days within any twelve-month period), CEO or his successors shall receive accrued and unpaid Base Salary through to the termination date. In the event CEOs employment with the Company is terminated by the Company without Cause or as a result of a resignation by the CEO for Good Reason, CEO shall receive from the Company the salary amounts payable pursuant to the second sentence of the Base Salary paragraph of the Annual Compensation Section hereof, continued benefits as provided in the Employee Benefits/Expenses Section hereof, and continued vesting in any equity awarded as provided in this Agreement, provided that such payments, benefits and vesting shall be conditioned on (i) CEO executing a general release in favor of the Company, its Directors, and employees, Fox Paine, and its members and employees, and all Affiliates of each of the foregoing, (ii) CEO remaining in compliance with all of his Post-Termination Obligations, and (iii) the Company determining that it did not have Cause to terminate CEO while he was employed. CEO may terminate his employment with the Company at any time without Good |
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Reason upon written notice to the Chairman of at least three full calendar months (and upon such notice the Company may elect to terminate CEO without any further payment obligations whatsoever as if CEO was terminated with Cause). Any termination by the Executive for Good Reason shall be upon thirty (30) days advance written notice and subject to the cure and other provisions related to Good Reason as set forth in the Cause/Good Reason section below. | ||
Cause / Good Reason: | Cause shall mean (i) the engaging by CEO in malfeasance, fraud, dishonesty or gross misconduct adverse to the interests of the Company or its Affiliates, (ii) the material violation by CEO of any of the covenants hereof or other provisions of this Agreement after notice from the Company and a failure to cure such violation within 10 days of said notice (to the extent the Board reasonably determines such violation is curable and subject to notice), (iii) a breach by CEO of any representation or warranty contained herein, (iv) the Boards determination that CEO has exhibited incompetence or gross negligence in the performance of his duties hereunder, (v) receipt of a final written directive or order of any governmental body or entity having jurisdiction over the Company requiring termination or removal of CEO, (vi) CEO being charged with a felony or other crime involving moral turpitude, (vii) failure to establish his and his familys primary residence in the greater Philadelphia metropolitan area within six months of the Effective Date, or (viii) CEO substantially failing to perform his duties hereunder after notice from the Company and failure to cure such non-performance within 10 days of said notice (to the extent the Board reasonably determines such failure to perform is curable and subject to notice) or violating any material Company policies, including, without limitation, the Companys corporate governance and ethics guidelines, conflicts of interests policies and code of conduct applicable to all Company employees or senior executives. | |
Good Reason shall mean a willful and substantial reduction in CEOs material responsibilities and reporting as provided for in the Responsibilities and Reporting Sections of this Agreement which remains uncured for thirty (30) days after written notice thereof is provided by CEO to the Company setting forth in reasonable detail the alleged breach at issue; provided that CEO must provide such written notice within ten (10) days of the event |
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allegedly giving rise to Good Reason or such alleged event shall not provide a basis for such notice; provided further that (i) dotted-line or dual reporting to the Chairman by any Company or Company Affiliate executive shall not constitute Good Reason and (ii) a modification as to whom CEO shall report resulting from a Change of Control shall not constitute Good Reason. | ||
Covenants: | As consideration for the payments made and equity awarded pursuant to this Agreement, along with other good and valuable consideration, including, without limitation, the trade secrets provided to CEO in connection with the performance of his duties, CEO agrees and acknowledges that he will be bound by the restrictive covenants set forth on Schedule II hereof. | |
Policies: | CEO covenants and agrees to be subject to the policies applicable to a senior executive of the Company, including without limitation the Companys corporate governance rules, procedures, and policies as may be adopted by the Board from time to time. | |
Miscellaneous: | CEO represents that he is not a party to any agreement or arrangement that would limit in any manner his ability to perform the duties contemplated hereunder and that he will not use any confidential information belonging to his previous employer(s) in the performance of his duties hereunder. The Company may set-off against or otherwise deduct from any amounts owed or due CEO or Company shares or options in respect of Company shares held by CEO if and to the extent that CEO is in default in respect of amounts he is obligated to pay to the Company (or any Company Affiliate). | |
Binding Agreement: | The obligations of CEO under this Agreement will continue after the termination of his employment with the Company for any reason, to the extent provided herein, and will be binding on his heirs, executors, and legal representatives. | |
Assignment: | This Agreement shall not be assignable by CEO. This Agreement is assignable by the Company to an Affiliate. The rights and obligations hereunder shall be binding upon and take effect for the benefit of any successor in interest of the Company created by merger, reorganization, sale of assets, assignment or otherwise, and the Company shall use commercially reasonable efforts to obtain an assumption |
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agreement with respect to this Agreement from such successor. | ||
Indemnity: | The Company shall, as provided for by its by-laws and charter, defend and indemnify CEO. The Company shall also include CEO in the coverage provisions of the directors and officers liability insurance policy that it maintains for its Directors and officers, including any applicable tail coverage that it provides to its current and former Directors, as may be applicable. | |
Board Approval: | This Agreement is subject to the approval of the Board and its Compensation Committee. Only upon such approval and the manual execution hereof by CEO and the Chairman shall the Agreement become a legally binding agreement of the Company and CEO. | |
Governing Law: | CEO and the Company agree that, due to the Companys significant and ongoing contacts and business relationships (including its listing on NASDAQ) with the State of New York, this Agreement shall be governed by and construed in accordance with the laws of such state, without reference to principles of conflict of laws of that jurisdiction or any other jurisdiction. | |
Arbitration: | All disputes between the Company and CEO or between CEO and any Affiliate shall be resolved by binding confidential arbitration in front of a single arbitrator in Philadelphia, Pennsylvania, United States conducted by the Judicial Arbitration and Mediation Services, Inc. (JAMS) in accordance with the comprehensive rules and procedures of JAMS, including the internal appeal process provided for in Rule 34 of the JAMS rules with respect to any initial judgment rendered in an arbitration. The Company, its Affiliates and CEO agree that the arbitrator shall have no authority to award any punitive or exemplary damages and waive, to the full extent permitted by law, any right to recover such damages in arbitration. The Company (or its Affiliate) shall pay the costs and fees of the arbitrator and appeal arbitrators. The Company (or its Affiliate) and CEO shall each bear its own respective costs, including attorneys fees (and there shall not be any award of attorneys fees). Judgment on the award rendered in such arbitration may be entered in any court having jurisdiction. Notwithstanding the foregoing, the Company and its Affiliates reserve the right to obtain judicial injunctive relief arising in connection with a prospective violation by |
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CEO of the provisions hereof relating to non-competition, non-solicitation, or Company Confidential Information and any claim or cause of action which CEO has against the Company or Affiliates shall not be a bar or defense to the granting of such relief. | ||
Affiliates/ company affiliates: | The term Affiliate(s) includes: (i) the Company and any person or entity controlled by, or under common control with, the Company; (ii) all current and former Directors; (iii) Fox Paine, Fox Paine Capital Fund II, L.P., and Fox Paine Capital Fund International II, L.P.; and (iv) each of such entities members, shareholders, partners, and employees. | |
The term Company Affiliate(s) includes only the Company and any person or entity controlled by the Company. | ||
Integration: | This writing supersedes and integrates all prior promises, representations, offers, contracts, and agreements between the Company or any Affiliate and CEO and among CEO and Fox Paine, Saul Fox, or any Affiliate of the foregoing. This letter may not be amended except in a writing which is manually executed by CEO and Saul Fox and approved by the Board. |
UNITED AMERICA INDEMNITY, LTD. | ||||||
By: | /s/ Saul A. Fox | /s/ Robert M. Fishman | ||||
Saul A. Fox | Robert M. Fishman | |||||
Chairman of the Board |
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1) | Non-Competition. CEO covenants and agrees that during his employment with the Company, and for a period of eighteen (18) months following the termination of such employment for any reason, CEO shall not directly or indirectly own, manage, operate, participate in, be employed, associate with, otherwise have an interest or engage in, or advise as a consultant or otherwise any Person (which term includes an individual, firm, trust, partnership, venture, limited liability company, sole proprietorship, corporation, syndicate, association, and other business vehicles) who engages in the property and casualty insurance business with or who solicits such from any Producer or Producers (as such terms are defined below) that either individually or in the aggregate account for 15% or more of the Companys aggregate premium volume. The term Producer or Producer(s) includes managing general agents, wholesale general agents, and other producers or distributors of property and casualty insurance business underwritten by the Company. Notwithstanding the foregoing, it shall not be a violation of CEOs obligations pursuant to this paragraph for CEO to hold publicly-traded securities of his former employer or one percent or less of the outstanding publicly-traded securities of a different company. |
2) | Non-Solicitation. CEO covenants and agrees that during his employment with the Company, and for a period of eighteen (18) months following the termination of such employment for any reason, he shall not (i) directly or indirectly nor shall he be associated with, employed by, or in business with any Person who hire(s), attempt(s) to hire, solicit(s), or induce(s) any employee of the Company or its Affiliates, including anyone so employed within the twelve-month period prior to his termination of employment, to either terminate such employment with the Company or its Affiliate or associate with, be employed by, or join in business with any other Person operating in the property and casualty insurance industry or (ii) directly or indirectly solicit, endeavor to entice away or otherwise interfere with the relationship of Company or its Affiliates with any of their Producers, customers, clients or accounts. |
3) | Confidential Information. CEO covenants and agrees not to, during or after his employment with the Company (i) disclose, in whole or in part, any Company Confidential Information (as defined below) to any Person unless authorized in writing to do so by the Company or required by law or (ii) use any Company Confidential Information for his own purpose or for the benefit of any Person other than the Company, except in the proper performance of his duties as instructed or approved by the Company in writing. | |
The term Company Confidential Information means the knowledge and information acquired by CEO concerning the Companys and its Affiliates confidential and proprietary information regarding business plans, software, formatting, programs, client prospects, client lists, supplier and vendor information, client contacts, client information and data, market data, marketing plans, data processing systems and information contained therein, products, proposals to clients and potential clients, account reports, |
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plans, studies, pricing information, loss experience information, competitive information, price lists, financial statements and records, files and other trade secrets, know-how, or other private, confidential or proprietary information of or about the Company or its Affiliates which is not already available to the public or known generally in the industry. The term Company Confidential Information shall not include (x) information in the public domain or generally known in the industry (unless CEO is responsible, directly or indirectly, for such Company Confidential Information entering the public domain or becoming known in the industry without the Companys consent), (y) information and know-how derived or known by CEO from experience in the industry generally and not specific to the Company, or (z) information disclosed by the Company to third parties without any duty or obligation of confidentiality or non-disclosure. |
4) | Work for Hire. All original works of authorship which have been or are made by CEO within the scope of and during the period of his employment with the Company and which are protectable by copyright are works for hire and the Company or its designee shall own all rights therein. |
5) | Assignment of Invention. CEO shall disclose promptly in writing to the Company, all inventions, including discoveries, concepts and ideas, patentable or not, hereafter made or conceived solely or jointly by CEO during employment with the Company (or its Affiliates), or within six months after the termination of CEOs employment, if based on or related to proprietary information of the Company or its Affiliates known by CEO, provided such invention, discovery, concepts and ideas relate in some manner to the business or activities of the Company. CEO agrees that in connection with any invention covered by this paragraph, CEO shall, on request of the Company, promptly execute a specific assignment of title to the Company or its Affiliates and do anything else reasonably necessary to enable the Company or its Affiliates to secure a patent therefor in the United States and foreign countries. |
6) | Cooperation. CEO agrees to be available to the Company from time to time to answer questions or provide information relating to Company matters that he worked on during his employment at the Company or its Affiliates for a period of six months following his termination of employment for any reason (the Cooperation Period). The Company shall make reasonable efforts to minimize any burden placed on CEO during the Cooperation Period and shall not unreasonably interfere in CEOs obligations to any subsequent employer. In the event that CEO would reasonably be required to incur any cost or expense to communicate with the Company or travel to any location requested by the Company, the Company shall advance any such travel or other costs reasonably incurred by CEO to comply with and perform his obligations during the Cooperation Period. |
7) | Acknowledgment. CEO acknowledges and agrees that the terms of these covenants: (i) are reasonable in light of all of the circumstances; (ii) are sufficiently limited to protect the legitimate interests of the Company and its subsidiaries; (iii) impose no undue hardship on CEO; and (iv) are not injurious to the public. CEO further acknowledges and agrees that (x) CEOs breach of the provisions of these covenants will cause the Company irreparable harm, which cannot be adequately compensated by money |
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damages, and (y) if the Company elects to prevent CEO from breaching such provisions by obtaining an injunction against CEO, there is a reasonable probability of the Companys eventual success on the merits. CEO consents and agrees that if he commits any such breach or threatens to commit any breach, the Company shall (at its election and notwithstanding the Arbitration provision hereof) be entitled to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage, in addition to, and not in lieu of, such other remedies as may be available to the Company for such breach, including the recovery of money damages. All references to the Company in this paragraph shall include its Affiliates. |
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Percent of Total Time Vesting Option | ||||
Date of Vesting | Grant Vested | |||
December 31, 2007 | 25 | % | ||
December 31, 2008 | 50 | % | ||
December 31, 2009 | 75 | % | ||
December 31, 2010 | 100 | % |
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UNITED AMERICA INDEMNITY, LTD. | ||||||||
By: | By: | |||||||
Title: | Robert M. Fishman |
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UNITED AMERICA INDEMNITY, LTD. | ||||||||
By: | By: | |||||||
Title: | Robert M. Fishman |
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Percent of Total | ||||||||
Grant Vested | Shares Vested | Vesting Date | ||||||
25 | % | | First Anniversary of Grant Date | |||||
50 | % | | Second Anniversary of Grant Date | |||||
75 | % | | Third Anniversary of Grant Date | |||||
100 | % | | Fourth Anniversary of Grant Date |
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UNITED AMERICA INDEMNITY, LTD. | ||||||||
By: | By: | |||||||
Title: | Robert M. Fishman |
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Retained Cash Bonus True-up Example
Year Ended | 2007 Payout on | Year Ended | 2008 Payout on | Year Ended | 2009 Payout on | Year Ended | 2010 Payout on | Year Ended | 2011 Payout on | Year Ended | 2012 Payout on | Year Ended | 2013 Payout on | |||||||||||||||||||||||||||||||||||||||||||
2007 | Mar./Apr. 2008 (1) | 2008 | Mar./Apr. 2009 | 2009 | Mar./Apr. 2010 | 2010 | Mar./Apr. 2011 (13) | 2011 | Mar./Apr. 2012 | 2012 | Mar./Apr. 2013 | 2013 | Mar./Apr. 2014 | |||||||||||||||||||||||||||||||||||||||||||
Projected Consolidated Net Income Per Share (Accident Year Basis) | $ | 2.30 | $ | 2.53 | $ | 2.78 | $ | 3.06 | $ | 3.37 | $ | 3.70 | $ | 4.07 | ||||||||||||||||||||||||||||||||||||||||||
Actual Consolidated Net Income Per Share (Accident Year Basis) | $ | 2.30 | $ | 2.67 | $ | 2.50 | $ | 3.34 | $ | 3.40 | $ | 3.65 | $ | 4.08 | ||||||||||||||||||||||||||||||||||||||||||
Performance Score Section A.b | 100.0 | % | 105.5 | % | 90.0 | % | 109.1 | % | 101.0 | % | 98.5 | % | 100.1 | % | ||||||||||||||||||||||||||||||||||||||||||
Bonus Components: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Section B.(a) bonus (2) | 500,000 | 775,000 | | 955,000 | 550,000 | 425,000 | 505,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Section B.(b) bonus (3) | 1,000,000 | 1,000,000 | | 1,000,000 | 1,000,000 | 700,000 | 1,000,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payment for Tax liability on restricted share vesting (12) Section B.c | | 46,250 | 92,500 | 92,500 | 154,167 | 169,584 | 185,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Annual Bonus | 1,500,000 | 1,821,250 | | 92,500 | 2,047,500 | 1,704,167 | 1,294,584 | 1,690,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
Paid in Restricted Stock (4) Section C | (500,000 | ) | 500,000 | (500,000 | ) | 500,000 | | | (500,000 | ) | 500,000 | (500,000 | ) | 500,000 | (500,000 | ) | 500,000 | (500,000 | ) | 500,000 | ||||||||||||||||||||||||||||||||||||
Annual Bonus Cash Portion (without regard to tax liability payments) Section D | 1,000,000 | 1,275,000 | | 1,455,000 | 1,050,000 | 625,000 | 1,005,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Paid Cash Bonus Section D.a | 500,000 | 500,000 | 637,500 | 637,500 | | | 727,500 | 727,500 | 525,000 | 525,000 | 312,500 | 312,500 | 502,500 | 502,500 | ||||||||||||||||||||||||||||||||||||||||||
Retained Cash Bonus Section D.b | 500,000 | 637,500 | | | 727,500 | 525,000 | 312,500 | 502,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
2007 Payout on | 2008 Payout on | 2009 Payout on | 2010 Payout on | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 | April 15, 2011 (6) | 2008 | April 15, 2012 | 2009 | April 15, 2013 | 2010 | April 15, 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accident Year Performance Score True-Up | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trued-up Performance Score Section E.a | 97.0 | % | 99.0 | % | 98.0 | % | 102.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Recalculated Section B.(a) Bonus | 350,000 | 450,000 | 400,000 | 600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Recalculated Section B.(b) Bonus | 400,000 | 800,000 | 600,000 | 1,000,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total recalculated Annual Bonus (without regard to tax liability payments) | 750,000 | 1,250,000 | 1,000,000 | 1,600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Less: Restricted Stock component (5) | (500,000 | ) | (500,000 | ) | (500,000 | ) | (500,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Trued Up Annual Bonus Cash Portion Section E.a | 250,000 | 750,000 | 500,000 | 1,100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess of Trued-Up Annual Bonus Cash Portion over originally determined Annual Bonus Cash Portion Section E.b or Section E.d | (750,000 | ) | (525,000 | ) | 500,000 | (355,000 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Retained Cash Bonus for Target Year Section E.b.2 | 500,000 | 637,500 | | 727,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Excess + Retained Cash Bonus for Target Year Sections E.b.1 and 2 or Section E.d (9) | (250,000 | ) | 112,500 | 112,500 | 500,000 | 500,000 | 372,500 | 372,500 | ||||||||||||||||||||||||||||||||||||||||||||||||
Deemed Investment Return (10) Section E.b.3 | | 17,733 | 17,733 | 78,813 | 78,813 | 58,715 | 58,715 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payment for Tax liability on restricted share vesting (11) Section B.c | | 46,250 | 92,500 | 92,500 | 154,167 | 169,584 | 185,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total Bonus Paid or Awarded (8) | $ | 1,000,000 | $ | 1,183,750 | $ | 92,500 | $ | 1,320,000 | $ | 1,309,400 | $ | 1,560,896 | $ | 1,618,716 | ||||||||||||||||||||||||||||||||||||||||||
Cumulative Retained Cash Bonus (7): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative Retained Cash Bonus as of the Prior Year | | | 500,000 | 1,137,500 | 1,137,500 | 1,137,500 | 1,137,500 | 1,115,000 | 1,115,000 | 1,115,000 | 1,002,500 | 1,315,000 | 1,315,000 | 1,462,500 | ||||||||||||||||||||||||||||||||||||||||||
Current Year Retained Cash Bonus | 500,000 | 500,000 | 637,500 | | | | 727,500 | | 525,000 | | 312,500 | | 502,500 | | ||||||||||||||||||||||||||||||||||||||||||
Retained Cash Bonus which is paid out (E.b or E.d) or used to reduce other held Retained Cash Bonues (E.d) | | | | | | | (750,000 | ) | (525,000 | ) | (112,500 | ) | | | (355,000 | ) | (372,500 | ) | ||||||||||||||||||||||||||||||||||||||
Cumulative Retained Cash Bonus (7) | 500,000 | 500,000 | 1,137,500 | 1,137,500 | 1,137,500 | 1,137,500 | 1,115,000 | 1,115,000 | 1,115,000 | 1,002,500 | 1,315,000 | 1,315,000 | 1,462,500 | 1,090,000 | ||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Vesting Schedule (12) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 (Granted on March 15, 2008) | | 125,000 | 125,000 | 125,000 | 125,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2008 (Granted on March 15, 2009) | | 125,000 | 125,000 | 125,000 | 125,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
2009 no shares granted due to original performance score of 90% | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 (Granted on March 15, 2011) (13) | | 166,667 | 166,667 | 166,667 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
2011 (Granted on March 15, 2012) | | 166,667 | 166,667 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 (Granted on March 15, 2013) | | 166,667 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 (Granted on March 15, 2014) | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Value of shares vesting per calendar year | | 125,000 | 250,000 | 250,000 | 416,667 | 458,334 | 500,001 |
(1) | Restricted stock grant is made as of March 15. Paid Cash Bonus is made within 30 days of the Boards determination, which is due within 75 days of the start of the year. | |
(2) | (Performance Score -90)x50,000 | |
(3) | (Performance Score <=100-95)x200,000 | |
(4) | Full $500,000 payment assumes goals/milestones fully achieved. | |
(5) | Restricted stock component is deducted because it is not impacted by true-up feature. | |
(6) | Retained Cash Bonus is paid within 45 days of completion of audited financial statements, which are expected on March 1. | |
(7) | Cumulative Retained Cash Bonus equals annual Retained Cash Bonus, less payouts of retained bonus or deficits after the true-up period has ended. | |
(8) | Calendar year bonus paid consists of restricted stock and 50% of Target Year Annual Cash Bonus, plus payout of trued-up remainder for the Target Year close out scheduled for that year. | |
(9) | The Retained Cash Bonus for 2007 upon true-up was depleted, and therefore no Retained Cash Bonus is paid, and the remaining deficit is netted against the cumulative Retained Cash Bonus. | |
(10) | CEO earns interest on the Retained Cash Bonus at the invested asset earned rate of the Company over the 3-year period. For purposes of this example, a 5% return on invested assets is assumed. | |
(11) | As per the employment contract, the CEO receives cash funding of the tax liability generated by the scheduled vesting of his restricted stock shares. A 37% effective tax rate (assuming a PA/non-Phila resident (35% federal, 3.07% state)) has been used for the purpose of this example. | |
(12) | Assumes flat share value over vesting period. | |
(13) | Payments and grants in 2011 and thereafter are based on CEO/Company reaching agreement on continued employment. True-ups for 2011 and beyond are not shown. |