EMPLOYMENT AGREEMENT
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EMPLOYMENT AGREEMENT dated as of the 31st day of December, 1997,
between Colony Management Services, Inc., a Virginia corporation with offices
at 9201 Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 (the
"Company"), and John K. Latham ("Employee").
W I T N E S S E T H:
1. Employment and Term.
The Company hereby employs Employee as President of the Company, and
Employee hereby accepts such employment, on the terms and conditions set forth
herein, for a term of three (3) years, commencing on the date hereof, unless
sooner terminated or extended as herein provided. The term of this Agreement
and Employee's employment hereunder shall be automatically renewed for
additional periods of three (3) years unless written notice to the contrary
shall be given by either party to the other, not less than ninety (90) days
before the end of the initial or any renewal term (the initial term plus any
renewals thereof shall be referred to herein as the "Term"), in which case
this Agreement shall terminate at the end of such term, and neither party
hereto shall thereafter have any further rights or obligations hereunder
except the obligations of Employee under Section 3(b), (c) and (d) hereof and
any obligations of the Company under Sections 5, 6 and 7 hereof. The date upon
which this Agreement and Employee's employment hereunder shall terminate,
whether pursuant to the terms of this Section 1, or pursuant to any other
provision of this Agreement, shall hereinafter be referred to as the
"Termination Date." For so long as Employee is President of Colony Management
Services, Inc., Front Royal, Inc., the sole shareholder of Colony Insurance
Company, shall appoint Employee as the President and Chief Executive Officer
of Colony Insurance Company, and as such, Employee shall perform all duties
and services incident to his position as President and Chief Executive Officer
of Colony Insurance Company and such other reasonable duties and services of
the nature typically performed by the President and CEO of an insurance
company.
2. Compensation.
(a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services as an
officer, director and/or member of committees of the Company or any
subsidiaries or affiliates of the Company ("Affiliates"), the Company shall
pay Employee a salary at the rate of Two Hundred Eight Thousand Dollars
($208,000.00) per annum ("Base Salary"), payable in periodic installments in
accordance with the Company's regular payroll practices, as in effect from
time to time. Within one hundred eighty (180) days after the end of each
fiscal year of the Company, Employee's salary shall be
reviewed and may be increased at the discretion of the Board of Directors of
the Company ("Board of Directors"). Employee's Base Salary or such other
salary as may be payable to Employee by action of the Board of Directors, is
hereinafter called "Salary".
(b) Within one hundred eighty (180) days after the end of
each fiscal year of the Company, Employee may, in the absolute discretion of
the Board of Directors, receive from the Company a bonus based on the
performance of the Company during the preceding fiscal year.
3. Duties and Restrictions.
(a) During the term of this Agreement, Employee shall
perform all duties and services incident to his position as President of the
Company and such other reasonable duties and services as may from time to time
be assigned to him by the Board of Directors and all of the duties and
services to be performed by Employee are at all times to be subject to the
authority of the Board of Directors. Employee shall devote his full business
time during normal business hours to the business of the Company and will use
his knowledge, skills and best efforts to perform faithfully, fully, and
efficiently the responsibilities assigned to him. It is understood that the
Employee may engage in other civic and business activities that do not
interfere with the performance of the Employee's services to the Company.
(b) Employee will not at any time during the term of this
Agreement or thereafter:
(i) reveal, divulge or make known to any person, firm or
corporation or use for his personal benefit, directly or indirectly,
any confidential or proprietary information received by him during
the course of his employment or prior to the commencement thereof.
For purposes of this paragraph 3(b)(i) confidential and proprietary
information shall be defined to mean (i) all historical and pro forma
projections of loss ratios incurred by the Company and any of the
Affiliates, (ii) all historical and pro forma actuarial data relating
to the Company and any of the Affiliates, (iii) historical and pro
forma financial results and projections for the Company and its
Affiliates, (iv) all information relating to the Company's or the
Affiliates' systems and software (other than the portion thereof
provided by the vendor to all purchasers of such systems and
software) and (v) all other information relating to the financial,
business or other affairs of the Company and its Affiliates,
including their customers, that is not available to the general
public or generally known or available within the industry; or
(ii) reveal, divulge or make known to any person, firm or
corporation, or use for his personal benefit, directly or indirectly,
the name or names of any of the customers of the Company or of any of
its Affiliates, nor will he reveal, divulge or make known, to any
person, firm or corporation, or use for his personal
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benefit, directly or indirectly, any trade secrets or any knowledge
or information, or any fact concerning any business methods or
operational procedures engaged in by the Company or its Affiliates
(collectively, "Privileged Information"); provided, however, the
restrictions set forth in this paragraph 3(b)(ii) shall not apply to
Employee following the termination of his employment with the
Company or its Affiliates with respect to any Privileged Information
known or made generally available to the general public or within
the industry.
(c) Employee will not at any time during the term of this
Agreement, and for a period of one (1) year thereafter in the event Employee's
employment is terminated pursuant to Section 4, 5, 6 or 7(a) hereof or upon
the expiration of the term of this Agreement in accordance with Section 1
hereof, engage in or have any interest in, directly or indirectly, any
Competitive Business, whether as principal, director, officer, employee,
consultant, partner, stockholder, director, trustee or manager of any
competing corporation, association, firm or business or otherwise, or directly
or indirectly solicit, interfere with, or endeavor to entice away from the
Company or any of its Affiliates any of their customers or employees. The
restrictions contained in this subsection 3(c) shall not prevent the purchase
or ownership by Employee of not more than three percent (3%) of the securities
of any class of any corporation, whether or not such corporation is engaged in
any Competitive Business, which are publicly traded on any securities exchange
or any "over the counter" market. Employee will not, for a period of one (1)
year following the Termination Date, solicit for hire any person who was an
employee of the Company or any Affiliate at any time during the term of
Employee's employment hereunder. For purposes of this Agreement, the term
"Competitive Business" shall mean the underwriting of property and casualty
insurance products sold through wholesale agents.
(d) Employee acknowledges that the restrictions contained in
paragraphs (b) and (c) of this Section 3 are reasonable and necessary in order
to protect the legitimate interests of the Company, in view of the nature of
the business in which the Company and its Affiliates are engaged and the
substantial equity interest of Employee in the Company. If any provision
contained in paragraph (b) or (c) of this Section 3 is adjudged unreasonable
in any proceeding, then such provision shall be deemed modified by reducing
the period of time during which such provision is applicable and/or, if
applicable, the geographic area to which such provision applies, to the extent
necessary for such provision to be adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by the
Company "for cause" at any time, by written notice to Employee, for any of the
following reasons:
(a) If Employee shall willfully violate the
provisions of Section 3 of this Agreement, or shall willfully fail to
comply with any other term or condition of this Agreement or shall
grossly neglect his duties hereunder;
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(b) If Employee shall (i) be convicted of a felony
or a crime involving moral turpitude (meaning a crime that includes
the commission of an act of gross depravity, dishonesty or bad
morals), or (ii) willfully commit an act of dishonesty, fraud or
embezzlement against the Company;
(c) If Employee willfully fails to comply for any
reason with a written reasonable directive of the Board of Directors
determined to be in the best interest of the Company and its
shareholders.
In the event of termination pursuant to paragraph (a), (b)
or (d) of this Section 4, then Employee's Salary and right to receive any
fringe benefits pursuant to Section 8 hereof shall terminate on the
Termination Date fixed in a written notice from the Company, which shall be no
earlier than the date of such notice.
In the event of termination pursuant to paragraph (c) of
this Section 4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary
for a period of twelve (12) months after the Termination Date,
payable in accordance with the terms of Section 2 hereof;
(ii) the continuation at the Company's
expense of coverage under all plans, insurance policies and other
fringe benefits described in Section 8 hereof, for a period of
twelve (12) months after the Termination Date; and
(iii) any amounts payable to Employee through
the Termination Date pursuant to Sections 9 and 10 hereof.
Thereafter, notwithstanding anything to the contrary contained in this
Agreement, the Company shall have no further obligations to Employee, except
as provided in any stock option or other bonus or incentive plan to which
Employer is entitled, and Employee shall have no further rights hereunder.
5. Termination by Employee.
Employee may terminate his employment hereunder upon giving
the Board of Directors ninety (90) days advanced written notice. In the event
Employee gives ninety (90) days written notice of his resignation or Employee
elects to have the term of this Agreement expire, upon the Termination Date,
the Company shall have no further obligations to Employee, Employee shall have
no further rights hereunder, and Employee shall have no further obligations
under this Agreement except those set forth in section 3(b) and 3(c).
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6. Expiration or Termination Without Cause. The Company may terminate
this Agreement at any time without cause or may elect to have the term of this
Agreement expire. In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire, Employee
shall be entitled to receive:
(i) an amount equal to Employee's Base Salary
for a period of eighteen (18) months after the Termination Date,
payable in accordance with the terms of Section 2 hereof; provided,
however, that if the Employee continues to comply with the covenants
contained in Section 3(c) hereof beyond the one year period set
forth therein, then the Employee shall be entitled to continue to
receive Employee's Base Salary for so long as Employee continues to
comply with such covenants, up to an additional eighteen (18) month
period (it being understood that the maximum time period during
which Base Salary will continue to be paid under this Section 6(i)
shall be three (3) years);
(ii) the continuation at the Company's
expense of coverage under all plans, insurance policies and other
fringe benefits described in Section 8 hereof, for a period of
twelve (12) months after the Termination Date; and
(iii) any amounts payable to Employee through
the Termination Date pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death.
(a) If, on account of physical or mental
disability, Employee shall fail or be unable to perform his assigned
duties in any material respect for a period of (i) one hundred (120)
consecutive days, or (ii) an aggregate of ninety (90) workdays during
any twelve (12) month period, the Company may, at its option,
thereafter terminate this Agreement and Employee's employment
hereunder upon giving at least thirty (30) days written notice to
Employee.
(b) If Employee dies during the term hereof, this
Agreement shall automatically terminate on the date of his death.
(c) In the event that this Agreement and Employee's
employment are terminated in accordance with this Section 7, then
after the Termination Date the Company shall have no further
obligations hereunder, except that, in the event of a termination
pursuant to paragraph (a) above, Employee shall be entitled to the
benefits described in Section 6 hereof (without regard to the proviso
of Section 6(i)), net of any payments or benefits to Employee under
disability insurance or similar plans maintained by the Company.
8. Fringe Benefits.
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The Company shall provide at the Company's expense to Employee during
the term of the Agreement:
(a) a medical insurance plan covering Employee, his
spouse and his minor children and a disability income insurance
policy, which insurance plans and policies shall be at least
comparable to such plans and policies provided to the Company's
other senior executive personnel.
(b) full participation in all other fringe benefits
provided to the Company's senior executive personnel, which fringe
benefits may include, in the sole discretion of the Board of
Directors, a pension plan, a profit sharing plan, a stock option plan
and/or a stock participation plan.
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9. Vacation.
Employee shall be entitled, for each year during the term hereof, to
vacation time to be taken at such time or times as shall be mutually
convenient to the Company and Employee.
10. Other Expenses.
During the term of this Agreement, Employee shall be entitled to be
reimbursed for all reasonable business expenses incurred by him in connection
with the performance of his duties hereunder upon the timely submission and
approval of appropriate vouchers therefor, to the Chief Financial Officer of
the Company.
11. Representation by Employee.
Employee represents and warrants that he is not under any obligation,
contractual or otherwise, to any person, firm or corporation that is
inconsistent with this Agreement and his employment hereunder and that he is
free to enter into and perform the terms of this Agreement.
12. Uniqueness of Services.
Employee acknowledges that the services to be rendered under the
provisions of this Agreement are of a special, unique and extraordinary
character and that it would be difficult or impossible to replace such
services and that, by reason thereof, Employee agrees and consents that if he
violates any of the provisions of this Agreement, the Company, in addition to
any other rights and remedies available under this Agreement or otherwise,
shall be entitled to an injunction to be issued by a tribunal of competent
jurisdiction restricting Employee from committing or continuing any violation
of this Agreement.
13. Notices.
Any notices provided for or permitted by this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person
or three (3) days after it is deposited in a United States Postal Depositary,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the party for whom intended at such party's address set forth
below or to such other address as such party may designate by notice in
writing given in the manner provided by this Section 13, or when actually
received by the party for whom such notice was intended if sent by any other
means:
To Employee: John K. Latham
9201 Forest Hill Avenue
Suite 200
Richmond, VA 23235
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To The Company: Colony Management Services, Inc.
9201 Forest Hill Avenue, Suite 200
Richmond, VA 23235
Attention: Chairman
Copy To: Front Royal, Inc.
2200 Gateway Boulevard
Morrisville, NC 27523
Attn: Chief Executive Officer
14. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement and understanding
between Employee and the Company with respect to the subject matter hereof and
shall supersede any and all other prior agreements and understandings, whether
oral or written, relating thereto or to the employment of Employee by the
Company. This Agreement may not be rescinded, modified or amended except by an
instrument in writing signed by the parties hereto and any provision hereof
may not be waived except by an instrument in writing signed by the party
hereto against whom any such waiver is sought to be enforced. The waiver by
the Company of a breach by Employee of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach by Employee.
15. Partial Invalidity.
The invalidity or unenforceability, by statute, court decision or
otherwise, of any term or condition of this Agreement shall not affect the
validity or enforceability of any other term or condition hereof.
16. Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Virginia.
17. Assignability.
This Agreement may not be assigned by Employee, and all of its terms
and conditions shall be binding upon and inure to the benefit of Employee and
his heirs and legal representatives and the Company and its successors.
Successors of the Company shall include, without limitation, any corporation
or corporations acquiring, directly or indirectly, all or substantially all of
the assets of the Company whether by merger, consolidation, purchase or
otherwise and such successor shall thereafter be deemed the "Company" for
purposes hereof.
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18. Captions.
The caption headings in this Agreement are for convenience of
reference only and are not intended and shall not be construed as having any
substantive effect.
19. Survival.
The obligations imposed upon Employee and the rights granted to the
Company in subsections 3(b), (c) and (d) hereof and the rights granted to
Employee in Sections 5, 6 and 7 hereof shall survive the termination or
expiration of this Agreement for any reason whatsoever.
20. Guarantee of Certain Payments.
To the extent that the Company does not pay any of the amounts
payable to Employee under Sections 4, 6 and 7, following the termination of
Employee's employment with the Company, in accordance with the terms of this
Agreement, then Front Royal, Inc. hereby agrees to pay such amounts to
Employee in accordance with the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed as of the day and year first above written.
COLONY MANAGEMENT SERVICES, INC.
By: /s/ J. Adam Abram
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J. Adam Abram
Chairman
/s/ John K.Latham
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John K. Latham
FRONT ROYAL, INC. (solely with respect to
Sections 1 and 20 of this Agreement and as the
sole shareholder of Colony Insurance Company)
By: /s/ J. Adam Abram
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J. Adam Abram
Chief Executive Officer
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