©Copyright 1994 by Business Transition Network, Inc. and Gary E. Jacobson, J.D.
All Rights Reserved
Revised 10/11/94
[AGENCY NAME] / [EMPLOYEE NAME]
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT ('Contract') is by and between:
[AGENCY NAME], a [STATE NAME] corporation ('[Agency]');
and
[EMPLOYEE NAME], ('[Employee]').
RECITALS
A. Agency and [Employee] are involved in a merger of two independent insurance agencies consummated concurrently herewith (the 'merger'), from which the Agency corporation is the surviving entity.
B. Agency wishes to employ [Employee], and [Employee] has agreed to make himself available as an employee on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual obligations herein contained, it is agreed as follows:
1. EMPLOYMENT
The Agency hereby employs [Employee], and [Employee] hereby accepts employment, on the terms and conditions hereinafter set forth.
2. EMPLOYEE'S OBLIGATIONS
2.1 Job Description. [Employee]'s primary duties shall be to serve as President of the Agency corporation, overseeing all management and Agency operations. His other duties shall consist of marketing and sales of commercial lines, as well as overseeing the Personal Lines Department and general administration of the Agency, and serving on any 'Executive Committee' established by the Agency's Board of Directors (the 'Board'), including full authority to make decisions regarding all matters generally included in these areas. His specific responsibilities in those areas shall include without limitation the following:
2.1.1 Corporate Administration.
Oversee office manager-office Manager will report directly to [Employee] as President for all administrative procedures and issues
Personnel issues-entire staff
Agency accounting-check signing (if [Employee] absent, XXX will sign next, then [Agency]; XXX signs checks payable to [Employee]), management reports, accounts receivable, and enforcement of collection procedures
Produce reports
Agency agreements-processed and signed by [Employee] as President
Insurance company representatives-meet with or assign to proper department head
Serve on Executive Committee
Responsible for other agency acquisition possibilities
2.1.2 Personal Lines Manager. Coordinate all functions in the Personal Lines Department, including without limitation its:
Clerical Support
Customer Service Reps
Producers
Receptionist
Training
2.2 Time. [Employee] shall devote his full working time, attention, and best efforts to the Agency's business in order to accomplish his job as described above. [Employee] may have other side business and/or investment interests, but shall otherwise be devoting a full five-day week to the Agency. During the term of this Contract, he shall not engage in any activities which materially detract from his devotion to the Agency's business.
2.3 Travel. [Employee] desires to restrict his business travel. The parties intend that he generally average not more than four (4) nights per month away from the Vancouver area on Agency business.
3. COMPENSATION
3.1 Producer Compensation. During his employment hereunder, the Agency shall pay to [Employee] as compensation for his personal Commercial Lines production and/or account servicing, an amount re-computed quarterly in the manner set forth in Exhibit 'A' attached hereto (referred to hereinafter as his 'Producer Compensation').
3.1.1 His Producer's Compensation shall be paid in bi-monthly installments with a quarterly adjustment for new business, if any, and a final bonus calculation within sixty (60) days following the end of each fiscal year, based upon year-end reports.
3.1.2 This Producer Compensation arrangement is subject to revision by the Board at its regular annual meeting; provided, however, that [Employee]' compensation formula for that producer function remains equivalent to that applied to the other Founders.
3.2 Management Compensation. In addition to his Producer Compensation, the Agency agrees to pay [Employee] an additional amount for his management activities within the Agency and for serving as President thereof (collectively, his 'Management Compensation') during the 'initial term' of this Contract (defined below). There shall be two components of [Employee]' Management Compensation, as follows:
3.2.1 Active Management Portion. The first component (the 'Active Management' portion) of his Management Compensation shall be similar in nature to that earned by the other Founders, although their respective amounts differ.
(a) For calendar year 1994, the combination of [Employee]'s Producers' Compensation pursuant to paragraph 3.1 above plus his Active Management Compensation shall be one hundred forty-four thousand dollars ($144,000), with payment in equal bi-weekly increments throughout the year.
(b) After 1994, [Employee]'s Active Management portion shall be equal to fifteen percent (15%) of the gross commission income of the Agency's Personal Lines Department (including any additional books of personal lines business acquired by the Agency) for each fiscal year, and shall be earned as a direct result of his hands-on Agency management activities.
(c) This Active Management component of his total compensation:
(i) Shall be reviewed at least annually by the Founders at the annual meeting of Shareholders;
(ii) May be changed at any time by the Founders, but not without unanimous prior written consent of the Founders then holding Shares of stock of the Agency corporation; and
(iii) Any such change shall take into consideration overall growth and profitability of the Personal Lines Department, as well as profitability of the Agency as a whole.
(iv) Lacking such unanimous consent, [Employee]'s Active Management component shall continue throughout the 10-year initial term of his employment unless his then-remaining equity in the Agency corporation is bought out in accordance with the provisions of the Agency's SHAREHOLDERS AGREEMENT executed with [Employee] concurrently herewith or as hereafter amended (the 'Shareholders Agreement'), in which case this Active Management component shall automatically terminate at closing thereof.
3.2.2 Officer Portion. The second component (the 'Officer Portion') of his Management Compensation is unique to [Employee] alone. The parties agree that [Employee]'s knowledge base and experience as well as the nature of the industry are such that his contribution as President of the merged Agency will provide a unique body of knowledge, sphere of resource contacts, and insurance ideas which are deemed essential to the merged Agency's first decade, and which shall continue to benefit the Agency regardless of whether [Employee] continues to be actively employed by the Agency in his hands-on management capacity overseeing the Personal Lines Department and/or general administration. Therefore, it is agreed that:
(a) [Employee] shall receive the sum of forty-one thousand dollars ($41,000) per year throughout the entire 10-year initial term of this Contract, with payment in equal bi-weekly increments following March 1, 1994; and
(b) In the event [Employee]'s employment as President hereunder is terminated for any reason, including without limitation his resignation, death, disability, or termination of his status as a stockholder or employee of the Agency, the Agency will continue to benefit from that inertia created by him as President and shall therefore pay this Officer Portion of his Management Compensation to [Employee] or his estate for the remaining initial term hereof regardless.
(c) Notwithstanding anything in this Contract to the contrary, the Officer Portion of his compensation shall be irrevocably vested and not subject to loss, forfeiture, or divestment for any reason whatsoever; provided, however, that the Board may terminate [Employee]'s services as President by buying out that Officer Portion component of his management compensation at any time in accordance with the formula set forth on Exhibit 'B' attached hereto.
3.2.3 Other. All Management Compensation is entirely separate from and paid irrespective of Subchapter 'S' dividends distributed to stockholders at year-end, if any.
3.3 Fringe Benefits. During [Employee]' employment under this Contract he shall be entitled to the following at Agency expense:
3.3.1 Five (5) weeks paid vacation annually;
3.3.2 Medical/dental insurance coverage for [Employee] and his family as set by the Board commensurate with that of the other Founders;
3.3.3 Term life insurance on [Employee] in any amount set by the Board for all Founders (this is a separate employment benefit, and not part of any insurance program involved in the Shareholders Agreement); and
3.3.4 Such other fringe benefits as is the policy of the Agency to provide from time to time for its employees in similar positions of authority, as established by the Agency's Board.
3.4 Deductions and Withholding.
3.4.1 There shall be deducted and withheld from the actual compensation paid to [Employee] such sums as may be required to be deducted or withheld under all provisions of law, such as F.I.C.A. and F.U.T.A. taxes and Federal and/or state income taxes.
3.4.2 In addition, any funding deficiency attributable to termination of the defined benefit pension plan of [Employee] Agency, Inc. which is being terminated concurrently herewith, shall be paid by [Employee]. It shall be deducted from all payments due [Employee] hereunder until such deficiency is satisfied, following a determination by [CPA name], C.P.A. of the correct amount of such deficiency.
4. EXPENSES
[Employee] shall be reimbursed monthly for all reasonable expenses he incurs on behalf of the Agency, consistent with parameters and procedures established by the Board from time to time.
5. TERM
5.1 Initial Term. The 'initial term' of [Employee]' employment hereunder shall be deemed to have commenced on March 1, 1994, and continue through February 28, 2004 unless sooner terminated in accordance with the provisions set forth herein.
5.2 Extended Term. The term shall thereafter be automatically extended (the 'extended term') on a month-to-month basis unless terminated by either party in the manner set forth below.
6. TERMINATION
6.1 During the Initial Term. Employment of [Employee] in his active general management capacity during the initial term of this Contract may be terminated by the Agency only upon one or more of the following events:
6.1.1 Death. By [Employee]'s death; or
6.1.2 Disability. If [Employee] suffers a disability, either physical or mental, lasting more than ninety (90) consecutive days which causes him to be unable to perform his duties under this Contract, then the Board may terminate [Employee]'s Producer Compensation and fringe benefits (but not his Management Compensation) at the end of such 90-day period, unless [Employee] is given a leave of absence by the Board within its discretion. The determination of 'disability' shall be made by
(i) the carrier for his Agency-paid disability policy, if any, or if there is no such policy then
(ii) by two independent physicians chosen one by him and one by the Agency.
6.1.3 For Cause. In addition, [Employee]'s active management duties may be terminated for 'cause', defined as follows:
(a) Immediate Termination. Cause for immediate termination shall be any material:
(i) Fraud or dishonesty;
(ii) Violation of a State or Federal law involving commission of a crime against the Agency;
(iii) Conviction of a felony; or
(iv) Loss of his [State] State insurance license.
(b) Arbitrated Termination. Cause for termination following notice and arbitration pursuant to paragraph 6.1.4 below, shall be defined as:
(i) Failure or refusal to faithfully and diligently perform his obligations as an employee of the Agency in accordance with the provisions of this Contract;
(ii) Failure or refusal to comply with the employment policies, standards or regulations established by the Board from time to time, provided those do not materially conflict with provisions of this Contract;
(iii) Gross negligence in the performance of or inattention to the duties properly and assigned to him in accordance with this Contract;
(iv) Intentional injury to the Agency, its clients or its assets;
(v) Misuse of alcohol or controlled substances in a manner which materially impairs [Employee]'s ability to perform his duties hereunder; or
(vi) Material default by [Employee] with respect to the non-disclosure or non-compete provisions of the Shareholders Agreement (those provisions shall herein be referred to as the 'Non-Compete').
6.1.4 Notice of Cause.
(a) For Immediate Termination. Whenever a breach of this Contract pursuant to paragraph 6.1.3(a) above is asserted by the Board as the basis for terminating [Employee]'s active management duties hereunder for cause, the Board may give [Employee] notice and terminate him immediately.
(i) Provided, however, that if [Employee] notifies the Agency within 30 days following such notice that he disputes the cause for termination, then the issue of sufficient cause shall immediately be submitted for dispute resolution as provided below; and
(ii) In the event the arbitrators determine that termination was inappropriate according to terms hereof, then [Employee] shall be immediately reinstated with retroactive compensation and benefits of all kinds as provided herein.
(b) For Arbitrated Termination. Whenever a breach of this Contract pursuant to subparagraph 6.1.3(b) above is asserted by the Board as cause for an arbitrated termination of [Employee]'s employment hereunder, then before such termination can become effective, the Board shall give him at least thirty (30) days' written notice of the existence and nature of such cause, and an opportunity to correct it during that 30-day period.
(i) If the breach is not cured within that time period, [Employee]'s employment hereunder may be terminated; provided, that if he notifies the Agency during that time period that he disputes that determination of 'cause', then the issue of sufficient cause as defined above must be submitted for dispute resolution in the manner set forth below, and a determination made by the arbitrator that there was sufficient cause, before any such termination can be effected.
(ii) This notice and cure provision shall apply only where breach of this Contract for cause is asserted as the basis for termination, and shall not apply in any other situation.
6.1.5 Without Cause. [Employee]'s employment hereunder may not be terminated by the Board during the initial term without 'cause' as defined above, unless his then-remaining equity interest in the Agency is bought out in accordance with the Shareholders Agreement, in which case his employment shall automatically terminate upon closing of such buyout. Provided, however, that despite any such termination of his employment for cause or a buyout of his equity interest, [Employee] shall nevertheless thereafter be entitled to:
(a) The 'Officer Portion' of his compensation under paragraph 3.2.2 above through the end of the initial term hereof ending in 2004, unless that component of his management compensation is bought out in accordance with the formula set forth on Exhibit 'B'; and
(b) One (1) year of the 'Active Management' portion of his compensation as described in paragraph 3.2.1 above, for the 1-year period following the effective date of his termination.
6.1.6 By [Employee]. [Employee] may voluntarily terminate his Active Management employment under paragraph 3.2.1 at any time (without affecting his Officer Portion compensation) upon sixty (60) days prior notice to the Board, whereupon his:
(a) Active Management compensation shall thenceforth be extinguished, provided that he shall receive within 60 days following the Agency's fiscal year end, a pro rata share of his Active Management compensation in proportion to the percentage of such year that he was in fact performing his duties as set forth above;
(b) Then-existing employee benefits including health insurance shall be continued at Agency expense for 60 days following the effective date of such termination; and
(c) Producer Compensation shall cease upon the effective date of his termination.
6.2 During the Extended Term. During any extended term following the 10-year initial term hereof, either party may terminate [Employee]'s employment hereunder for any reason upon thirty (30) days prior notice; provided, however, that the Agency may only do so in conjunction with a buyout of [Employee]'s entire equity interest therein in accordance with the Shareholders Agreement.
6.3 Payments Due Deceased. If [Employee] dies during his term of employment hereunder, any compensation and/or benefits due him under this Contract for active management services performed prior to his death shall be paid promptly to his executors, administrators, heirs, personal representatives, or their successors and assigns. In no event shall anyone else be entitled to assume [Employee]' employment rights or responsibilities under this Contract.
7. WARRANTY AND FREEDOM TO CONTRACT
[Employee] warrants that he is under no contractual prohibition which would prevent him from entering into this Contract and complying with all of its provisions to their fullest extent. If [Employee] is enjoined or otherwise prevented by judicial or administrative determination from complying with the terms of this Contract, then the Board may terminate his active management employment immediately without incurring any further liability.
8. CROSS-DEFAULT
8.1 Timing. Time is of the essence in this Contract.
8.2 Other Agreements. It is the intent of all parties involved in the merger, that agreements involved therewith be subject to cross- default in order to protect [Employee]. Therefore, in the event the Agency fails to pay [Employee] or is otherwise in material default with respect to any of its obligations to [Employee], including without limitation those set forth in the Shareholders Agreement, and fails to remedy any such default within the allowable time provided for in that particular agreement; then a material default on any one of those shall, at [Employee]' election, be deemed a default hereunder as well. Provided, however, that [Employee]' actions or remedial measures as a result of any such default(s) shall not excuse nor relieve the Agency from any of its obligations to [Employee] hereunder.
9. DISPUTE RESOLUTION
All disputes relating to this Contract and the relationship of the parties hereto shall be resolved in accordance with the provisions of Section 14 of the Shareholders Agreement (entitled 'Dispute Resolution') which is hereby incorporated by reference.
10. MISCELLANEOUS MATTERS
10.1 Necessary Acts. Each party agrees to perform further acts and execute and deliver documents reasonable necessary to carry out the provisions of this Contract.
10.2 Amendments. The provisions of this Contract may be waived, altered, amended or repealed, in whole or in part, only with written consent of all parties hereto.
10.3 Successors and Assigns. This Contract shall be binding on and inure to the benefit of the parties to it and their respective heirs, legal representatives, successors, and assigns.
10.4 Severability. It is intended that each provision of this Contract be viewed as separate and divisible and if any provision is held to be invalid, the remaining provisions hereof shall continue in full force and effect.
10.5 Notices. All notices, requests, demands, and other communications under this Contract, other than immediate termination of [Employee]'s employment for cause in accordance with paragraph 6.1.3(a) above, shall be in writing by first class mail, certified, postage prepaid, return receipt requested, and properly addressed to the party at its address set forth on the signature page below, or any other address the party designates by notice to the others in that same manner. Such notice shall be deemed effective three (3) days following mailing in the prescribed manner.
10.6 Governing Law/Venue. This Contract shall be construed in accordance with, and governed by, the laws of the State of [State], and venue of any action expressly permitted hereunder shall be laid in [Name of County], [State] or the United States District Court for the [District Name] of [State], as appropriate.
10.7 Counterparts. This Contract may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
10.8 Attorneys' Fees. See Section 9 above, entitled Dispute Resolution.
10.9 Good Faith. The parties agree to cooperate with each other in good faith to facilitate the performance of the terms and provisions of this Contract. No party shall make disparaging commentary, or engage in any act or omission, the effect of which would hamper, damage or otherwise detrimentally affect the business prospects, reputation and customer relations of any party contrary to the intended purposes of this Contract.
10.10 Entire Agreement. This Contract constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes or cancels all other prior agreements and understandings, whether written or oral, of the parties in connection with such subject matter.
10.11 Indemnification. The Agency agrees, to the extent permitted by law, that it shall hold harmless, indemnify, and defend [Employee] against any loss or liability resulting from his involvement in performing his authorized duties as an officer, Director or employee of the Agency.
10.12 Non waiver of Breach. A party's failure to insist upon strict adherence to any one or more of the provisions in this Contract, on one or more occasions, shall not be construed as a waiver nor deprive that party of the right to require strict compliance thereafter with the same or any other provision of this Contract.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the 1st day of [Month], [Year].
AGENCY: EMPLOYEE:
[AGENCY] INSURANCE, INC. ___________________________
[EMPLOYEE]
By: _________________________ Address:
[Agency Principal] 182 NE 222nd
Its: Vice President Portland, OR 88020
Address:
P.O. Box 2112
Portland, OR 88020