August 18, 1998
Ms. Mary R. Hennessy
1 Nostrand Road
Cranbury, New Jersey 08512
Re: Employment Agreement
Dear Mary:
The purpose of this letter agreement is to set forth the terms and
conditions of your employment with TIG Holdings, Inc. (the "Company") for the
employment period described below. Such terms and conditions shall be as
follows:
1. Term of Employment; Renewal
The term of your employment under this letter agreement shall commence on
the date of this letter agreement (the "Effective Date") and, unless sooner
terminated in accordance with paragraph 4 of this letter agreement or
extended as provided below, shall terminate on the third annual anniversary
of the Effective Date (the "Employment Period").
Commencing on the third annual anniversary of the Effective Date and on
each annual anniversary of such date (each, a "Renewal Date"), the
Employment Period shall be automatically extended so as to terminate on the
first annual anniversary of each Renewal Date unless either the Company or
you shall have given the other written notice, not less than sixty (60)
days prior to any Renewal Date, of the Company's or your election, as the
case may be, not to so extend the Employment Period, in which case the
Employment Period shall terminate on such Renewal Date. The election by the
Company not to extend the Employment Period in accordance with the
preceding sentence shall not be deemed a termination without "cause" or
give you grounds to terminate your employment for "good reason" for
purposes of paragraph 4(b) of this letter agreement.
2. Position and Responsibilities
During the Employment Period, you shall be employed as the President and
Chief Operating Officer of the Company, having the duties, authority and
responsibilities normally associated with the positions and offices of
President and Chief Operating Officer of a publicly-traded corporation. In
that position, you will report solely to the Chairman of the Board and
Chief Executive Officer of the Company. During the Employment Period, you
will devote your full attention and business time to the business and
affairs of the Company and its subsidiaries, and you will use your best
efforts to perform faithfully and efficiently and to discharge the duties
and responsibilities assumed by you under this letter agreement.
Nevertheless, you will be entitled to manage your personal affairs and to
serve on community, corporate, civic, professional or charitable boards or
committees, so long as such activities do not unreasonably interfere with
the performance of your duties and responsibilities under this letter
agreement.
3. Compensation; Stock Options
Your base salary during the Employment Period shall be no less than
$600,000 per year, payable in accordance with the Company's payroll
practices as in effect from time to time. Your base salary will be reviewed
annually by the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") to determine whether an increase is
warranted or appropriate. In addition, you shall be entitled to participate
in the employment benefits provided by the Company under the TIG Executive
Benefit Plan, including five (5) weeks of paid vacation. You also will be
entitled to be considered for awards under the Company's then existing
incentive bonus program which, in your case, will take into account
individual and Company-wide performance, or such other performance criteria
as the Compensation Committee may from time to time apply.
It is understood and agreed that your initial target total annual
compensation (i.e., base salary plus annual cash bonus plus the value of
restricted stock grants valued as of the date of grant) will be
$1.25 million. Your target total annual compensation will be reviewed
annually by the Compensation Committee to determine whether an increase is
warranted or appropriate.
In addition, simultaneous with the execution and delivery of this letter
agreement, you are being granted options to purchase 200,000 shares of
common stock of the Company under the Company's 1996 Long-Term Incentive
Plan, as amended from time to time (the "Plan"). The options will have an
exercise price equal to the fair market value of the common stock of the
company on the date of grant as determined in accordance with the Plan and
will vest in four equal annual installments commencing on the first
anniversary of the date of grant. The grant of such options will be
evidenced by the Company's standard form Executive Non-Qualified Stock
Option Agreement.
4. Termination of Employment
(a) Your employment with the Company may be terminated prior to the
scheduled expiration of the Employment Period (i) by the Company with
or without "cause" (as defined below), (ii) by you with or without
"good reason" (as defined below) or (iii) due to your death or
disability in accordance with the applicable programs and policies of
the Company. In the event that you wish to resign from the Company
without "good reason" prior to the scheduled expiration of the
Employment Period, you shall provide the Company with three (3)
months' advance written notice and, in such case, the Company may
terminate your employment prior to the end of such three (3) month
period provided that the Company makes the payments to you described
in paragraph (d) below. A termination of your employment by the
Company as provided in the preceding sentence shall not be deemed a
termination without "cause" or give you grounds to terminate your
employment for "good reason" for purposes of paragraph (b) below.
(b) In the event that your employment with the Company is terminated
pursuant to paragraph (a) above (i) by the Company without "cause" or
(ii) by you with "good reason", you shall be entitled to receive, in
addition to accrued salary and benefits payable to you through the
date of termination of your employment, a severance payment from the
Company in the amount of $2,500,000; provided that if any such
termination of employment occurs within two (2) years following a
"change of control" (as such term is defined in the Company's 1996
Long-Term Incentive Plan) of the Company, the amount of the severance
payment that you shall be entitled to receive shall be $3,000,000;
provided further that the severance payments provided for in this
paragraph shall be in lieu of any severance, bonus or retention
payment that you otherwise would be entitled to receive upon
termination of your employment with the Company and its subsidiaries
(whether in the event of a "change of control" of the Company or
otherwise) under the terms of any program or agreement maintained by
the Company and its subsidiaries. The Company's obligation to make the
severance payments referred to in this paragraph shall be conditioned
on your execution of a general release agreement in accordance with
the Company's customary practice.
(c) In the event of the termination of your employment for one of the
reasons described in paragraph (b) above, all outstanding restricted
stock grants and stock options previously granted to you by the
Company will automatically become fully vested as of the date of such
termination, notwithstanding anything to the contrary contained in the
terms or provisions of such grants or the related plans.
(d) In the event that your employment with the Company is terminated
pursuant to paragraph (a) above (i) by the Company for "cause", (ii)
by you without "good reason" or (iii) due to your death or disability,
you shall be entitled to receive only the accrued salary and benefits
payable to you through the date of termination of your employment or
otherwise payable to you under plans maintained by the Company in
accordance with their terms and nothing else. In addition, in the
event that you terminate your employment with the Company without
"good reason" in accordance with the second sentence of paragraph 4(a)
of this letter agreement, the Company shall be required (even if the
Company subsequently elects to terminate your employment prior to the
effective date of your termination in accordance with the second
sentence of paragraph 4(a) of this letter agreement) to continue to
provide you with your salary and benefits until the earlier of the
effective date of your termination and the end of the Employment
Period.
(e) If, in the event of the termination of your employment for one of the
reasons described in paragraph (b) above, you are required, pursuant
to Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), to pay (through withholding or otherwise) an excise tax on
"excess parachute payments" (as defined in Section 280G of the Code),
the Company shall pay you the amount necessary to place you in the
same after-tax financial position that you would have been in if you
had not incurred any excise tax liability under Section 4999 of the
Code. In addition, it is hereby confirmed that the Company's
obligations to you under the Tax Reimbursement Agreement dated
November 11, 1996 between the Company and you will survive the
termination of your employment with the Company for any reason.
(f) For purposes of this letter agreement:
(ii) "cause" means (x) an act or acts of personal dishonesty taken by
you and intended to result in your material personal enrichment
at the expense of the Company and its subsidiaries, excluding for
this purpose any isolated, insubstantial or inadvertent action
not taken in bad faith which is remedied by you in a reasonable
period of time after receipt of reasonably prompt written notice
thereof from the Company, (y) repeated violations by you of your
obligations under this letter agreement which are demonstrably
willful and deliberate and which are not remedied in a reasonable
period of time by you after receipt of reasonably prompt written
notice thereof from the Company or (z) your conviction of a
felony involving moral turpitude; and
(ii) "good reason" means (w) without your consent, the assignment to
you of any duties inconsistent in any material respect with your
position, authority, duties or responsibilities as contemplated
by paragraph 2 of this letter agreement, excluding for this
purpose any isolated, insubstantial or inadvertent action not
taken in bad faith which is remedied by the Company in a
reasonable period of time after receipt of reasonably prompt
written notice thereof from you, (x) the sale or other
disposition by the Company of all or substantially all of its
primary insurance operations or its reinsurance operations, or if
the head of the Company's primary insurance operations or
reinsurance operations does not report directly to the Executive
or to a subordinate of the Executive who reports directly to the
Executive, (y) repeated violations by the Company of its
obligations under this letter agreement which are demonstrably
willful and deliberate and which are not remedied in a reasonable
period of time by the Company after receipt of reasonably prompt
written notice thereof from you, or (z) without your consent, the
Company reduces your then current base salary or reduces your
then current target total annual compensation.
5. Confidential Information
During the Employment Period, you shall hold in a fiduciary capacity for
the benefit of the Company and its subsidiaries all secret or confidential
information, knowledge or data relating to the Company and its subsidiaries, and
their respective businesses, which you shall have obtained as a result of your
employment by the Company and which shall not be or become public knowledge
(other than by acts taken by you in violation of this letter agreement) or which
shall not be required to be disclosed by law, by applicable rule or regulation,
by court order or by any recognized subpoena power. Following the end of the
Employment Period and, if you remain employed with the Company following the end
of the Employment Period, after the termination of your employment with the
Company and its subsidiaries for any reason, you shall not, without the prior
written consent of the Company, communicate or divulge any such information,
knowledge or data to anyone other than the Company or its designees, except as
may be required by law, by applicable rule or regulation, by court order or by
any recognized subpoena power.
6. Non-Competition; Non-Solicitation
During the Employment Period and, if your employment with the Company is
terminated prior to the scheduled expiration of the Employment Period by the
Company for "cause" or by you without "good reason", for six (6) months after
the date of termination (in the case of paragraph (a) below) and for one (1)
year after the date of termination (in the case of paragraph (b) below), without
the prior consent of the Company, you will not, directly or indirectly:
(a) either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any
other capacity, carry on, engage in or have any financial
interest in any business which is in competition with any of the
businesses of the Company and its subsidiaries (a "Competing
Business"); provided that you may act as an independent
consultant to the insurance industry so long as (i) you are in
compliance with your confidentiality obligations set forth in
paragraph 5 of this letter agreement and (ii) you do not, on
behalf of any Competing Business for whom you are acting as an
independent consultant, solicit business from any customer or
client of the Company or any of its subsidiaries, or any person,
firm or company known to you as of the date of the termination of
your employment to have been targeted for solicitation by the
Company or any of its subsidiaries in the reasonably foreseeable
future, or otherwise seek to disrupt or reduce the business
provided by such customer or client to the Company and its
subsidiaries; or
(b) solicit or induce (i) customers, clients, suppliers, agents or
other persons under contract or otherwise associated or doing
business with the Company or any subsidiary or affiliate of the
Company (a "Business Associate"), or any of such persons or
entities with whom the Company or any of its subsidiaries or
affiliates is in active negotiations to become a Business
Associate, to terminate, reduce or alter any such association or
business with or from the Company or any subsidiary or affiliate
of the Company, and/or (ii) any person then in the employment of
the Company or any subsidiary or affiliate of the Company or any
consultant to the Company or any subsidiary or affiliate of the
Company to (x) terminate such employment or consulting
arrangement, and/or (y) accept employment, or enter into any
consulting arrangement, with anyone other than the Company or any
subsidiary or affiliate of the Company, provided, however, that
this clause (y) shall not apply to a consultant who does not
perform substantially all of such person's consulting services
for the Company and its subsidiaries and affiliates.
Nothing in subparagraph (a) of this paragraph 6 shall be construed to
preclude you from investing in any publicly-held company, provided that your
beneficial ownership of any class of any such company's securities does not
exceed five percent (5%) of the outstanding securities of such class.
7. Successors and Assigns
Without the prior written consent of the Company, your rights and
obligations under this letter agreement shall not be assignable otherwise than
by will or the laws of descent and distribution. This letter agreement shall (i)
inure to the benefit of, and be enforceable by, your legal representatives and
(ii) inure to the benefit of, be enforceable by, and be binding upon the Company
and its successors and assigns.
8. Withholding
The Company shall have the right to deduct from any payments due hereunder
any amount in respect of federal, state or local taxes that the Company deems
necessary to be withheld.
9. Resolution of Disputes
Any disputes arising under or in connection with this letter agreement
shall at the request of either party be resolved by binding arbitration in the
Borough of Manhattan in New York, New York by three arbitrators, in accordance
with the rules and procedures of the American Arbitration Association. Judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Each party shall bear such party's own costs of the
arbitration or litigation.
10. Notices
All notices and other communications under this letter agreement shall be
in writing and shall be deemed effective upon receipt if by hand-delivery to the
other party, receipt if by facsimile transmission, the next business day if by
overnight courier, or the third business day after mailing if by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to you: Mary R. Hennessy
1 Nostrand Road
Cranbury, New Jersey 08512
with a copy to: Sullivan & Cromwell
125 Broad Street
New York, New York 10004-2498
Facsimile No.: 212-558-3588
Attn: Theodore O. Rogers, Jr., Esq.
If to the Corporation: TIG Holdings, Inc.
65 East 55th Street
New York, New York 10022
Attn: General Counsel
with a copy to: Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Facsimile No.: 212-530-5219
Attn: Robert S. Reder, Esq.
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
11. Expenses
The Company will reimburse you for any amounts that you have paid or are
required to pay to Sullivan & Cromwell as your legal counsel in connection with
the negotiation, execution and delivery of this letter agreement.
12. Miscellaneous
This letter agreement shall be governed by and shall be construed in
accordance with the laws of the State of New York, without reference to the
principles of conflict of laws thereof. If any provision of this letter
agreement is held invalid or unenforceable for any reason, the remaining
provisions shall not be affected thereby and shall be construed as if the
invalid or unenforceable provision had not been included. This letter agreement
contains the entire agreement between the Company and you with respect to the
subject matter contained herein, and supersedes all prior agreements or prior
understandings, whether oral or written, between the Company and you relating to
such subject matter; provided that certain Tax Reimbursement Agreement dated
November 11, 1996 between the Company and you, and that certain Indemnification
Agreement dated November 11, 1996 between the Company and you, and any and all
stock option agreements and restricted stock agreements between the Company and
you shall all remain in full force and effect in accordance with their terms.
This letter agreement may only be modified by a writing executed by each of the
Company and you.
* * *
If you are in agreement with the terms of this letter agreement, please so
indicate by signing in the space provided below, at which time this letter
agreement will become a binding agreement between the Company and you.
Very truly yours,
TIG HOLDINGS, INC.
By: /s/ Jon W. Rotenstreich
Jon W. Rotenstreich
Chairman of the Board
and Chief Executive Officer
AGREED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
/s/Mary R. Hennessy
Mary R. Hennessy
TIG HOLDINGS, INC.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1998 TIG HOLDINGS, INC.
By: /s/CYNTHIA B. KOENIG
Name: Cynthia B. Koenig
Title: Controller
(Principal Accounting Officer)
By: /s/LOUIS J. PAGLIA
Name: Louis J. Paglia
Title: Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
39