Exhibit 10.1

 

EXECUTION DOCUMENT

 

SEPARATION AGREEMENT

 

1.                                       This Separation Agreement (this
“Agreement”), dated as of October 2, 2012, is by and between John N.
Molbeck, Jr. (“Executive”) and HCC Insurance Holdings, Inc., a Delaware
corporation (“Company”).  Unless otherwise specifically indicated, all terms
used in this Agreement shall have the meaning as set forth in the Executive’s
Employment Agreement entered into and effective on May 5, 2009, and as amended
on May 15, 2012 (the “Employment Agreement”).

 

2.                                       The Company currently employs Executive
as its Chief Executive Officer (“CEO”) pursuant to the Employment Agreement. 
Executive also serves as a director of the Company and certain of the Company’s
wholly owned subsidiaries.  All references in this Agreement to the Company
shall be deemed to include, unless the context otherwise requires, all of the
subsidiaries of the Company.  Executive hereby resigns from his position as CEO
effective as of December 19, 2012 and resigns from all of his other positions as
an officer of the Company and each of its subsidiaries effective as of
December 19, 2012 (the “Resignation Date”).  Executive hereby also resigns as a
director of each of the Company’s subsidiaries as of the Resignation Date, but
shall (a) remain an employee of the Company with the specific intention that the
CEO would assign such duties to Executive that would provide him with a level of
services to the Company or its subsidiaries that is 50% or more of the average
level of services performed by Executive during the 36-month period immediately
preceding the Resignation Date, and be  subject to the direction of and work in
consultation with the CEO with such duties as assigned by the CEO commensurate
with Executive’s previous responsibilities as CEO, from the Resignation Date
until midnight Central time on May 31, 2013 (the “Retirement Date”), and
(b) remain a director of the Company until such time as his term as a director
ends and he is not re-elected.  Beginning on the Retirement Date and for so long
as he continues to serve as a director of the Company, Executive shall be
compensated as an outside director.

 

3.                                       The parties agree that Executive has
received all sums owing to him by the Company pursuant to the Employment
Agreement except for (a) Base Salary payments, medical benefits and other
employee benefits arising after the date of this Agreement through the
Retirement Date,  (b) payment for accrued but unused vacation, if any, arising
prior to the Retirement Date; (c) expenses for which he is entitled to
reimbursement; (d) Bonus Payment for 2012 under the Company’s 2008 Flexible
Incentive Plan as described in paragraph 6 of this Agreement, (e) deferred
compensation accrued and accruing under the HCC Insurance Holdings, Inc.
NonQualified Deferred Compensation Plan for John N. Molbeck, Jr. (the “Deferred
Compensation Plan”), including all contributions made by the Company on his
behalf to the Deferred Compensation Plan after the date of this Agreement
through the Retirement Date as described in paragraph 4 of this Agreement,  and
(f) Consulting Agreement payments described in Section 6 of the Employment
Agreement arising after the Retirement Date.  Executive shall submit requests
for reimbursement of any unpaid expenses incurred prior to the Retirement Date
within 60 days of the Retirement Date, for which the Company shall reimburse him
in accordance with its usual policy with regard to reimbursement of employees.

 

4.                                       In accordance with Section 3.4 of the
Deferred Compensation Plan, for each month following the date of this Agreement
through and including May 2013, the Company shall make a

 

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contribution to Executive’s Participant Account in the amount and at such times
as would be required under Section 3.3 of the Deferred Compensation Plan but for
the termination of the Employment Agreement as provided herein.  .  In
accordance with Section 409A of the Internal Revenue Code, as amended
(“Section 409A”), the Retirement Date will constitute “Participant’s Separation
from Service” date under the Deferred Compensation Plan and Executive’s rights
under the Deferred Compensation Plan shall thereafter be as provided therein.

 

5.                                       Following the Resignation Date, the
Employment Agreement shall be terminated, and, except as otherwise expressly
provided in this Agreement, all of Executive’s and the Company’s obligations
under the Employment Agreement that are performable prior to the Resignation
Date shall be terminated and of no further force and effect.  Notwithstanding
the foregoing or anything in this Agreement to the contrary, the following
agreements shall survive the termination of the Employment Agreement:

 

(a)                                  Executive will continue to accrue and
receive the (i) Base Salary, and (ii) medical and other benefits,  as described
in Section 3(a) and 3(e), respectively, of the Employment Agreement through the
Retirement Date.

 

(b)                                 In accordance with Section 3(g) of the
Employment Agreement, within thirty (30) days of the Retirement Date, the
Company shall assign to Executive the $1,000,000 in aggregate face amount of
life insurance policy that the Company has been keeping in effect for
Executive.  Following the Retirement Date, Executive shall be responsible for
paying all premiums on such life insurance policies.

 

(c)                                  Following the earlier to occur of the
Retirement Date and the date Executive otherwise separates from service with the
Company (without regard to the reason for such separation), Executive (if
living) and each of Executive’s “qualified beneficiaries” (as defined by COBRA)
shall be covered under the Company Health Plans during the Coverage Continuation
Period.

 

(i)                                     The Company shall pay, on behalf of
Executive and his qualified beneficiaries, the premium cost of such coverage and
shall treat and report such payment as taxable compensation of Executive (that
is, the Company shall report such payment as if Executive had paid such premium
and been reimbursed by the Company).  Executive or his qualified beneficiary
shall be responsible for all copays, coinsurance, deductibles, and similar
participant costs of such coverage.  The parties intend that benefits payable
from the Company Health Plans during the Coverage Continuation Period shall be
excludable from the income of Executive and his qualified beneficiaries under
section 104 and/or other applicable provisions of the Internal Revenue Code.

 

(ii)                                  If the Company ceases to maintain any
Company Health Plans during the Coverage Continuation Period, or if Executive
and/or his eligible qualified beneficiaries are otherwise not eligible to
participate in the Company Health Plans, the Company shall reimburse Executive
for the cost of the premium for one or more individual health insurance policies
which provide benefits to Executive and his eligible qualified beneficiaries
that are comparable in the aggregate to the benefits

 

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provided under the Company Health Plans last in effect (exclusive of the
Company’s health flexible spending account plan and determined after applying
the Company Health Plan provisions regarding coordination of benefits if other
health coverage (including Medicare) is available to Executive).

 

(iii)                               The “Coverage Continuation Period” for
Executive and each qualified beneficiary (including Executive’s spouse) is the
period ending on (A) in the case of Executive, the date Executive dies; (B) in
the case of Executive’s spouse, the date Executive’s spouse dies; and (C) in the
case of each child of Executive who is a qualified beneficiary (if any), the
date on which such qualified beneficiary would have ceased to be eligible for
coverage under the terms of the Company Health Plans if Executive had continued
to be an active employee of the Company.

 

(iv)                              The reimbursement of medical benefit costs
shall be as set out in Section 3(e)(4) of the Employment Agreement. This
paragraph 5(c) reaffirms and extends the Company’s obligations as set out in
Section 3(e)(3) of the Employment Agreement and is not intended to expand or
reduce the benefits therein conferred on Executive or his qualified
beneficiaries.

 

(d)                                 In accordance with Section 5(h) of the
Employment Agreement, Executive hereby reaffirms Executive’s obligations under
the following sections of the Employment Agreement, which Executive and the
Company agree shall continue to apply to Executive following the Resignation
Date as if recited herein in full:  Sections  5(a) Non-Competition During
Employment, 5(b) Conflicts of Interest, 5(c) Non-Competition After Termination,
5(d) Non-Solicitation of Customers, 5(e) Non-Solicitation of Employees,
5(f) Confidential Information, 5(g) Return of Documents, Equipment, Etc.,
5(k) Breach, 5(m) Extension of Post-Employment Restrictions, and
5(n) Enforceability.

 

(e)                                  In accordance with Section 6 of the
Employment Agreement, the Company and the Executive reaffirm their respective
obligations for the consulting services which obligations shall commence
immediately following the Retirement Date pursuant to the terms as set out in
Section 6 of the Employment Agreement; provided, however, that in accordance
with Section 17 of this Agreement, any payments accrued under the Consulting
Agreement from the Retirement Date shall paid to Executive in a lump on
December 2, 2013.

 

6.                                       On March 15, 2013, provided that
(i) Executive is still employed by the Company on such date (except that this
Paragraph 6(i) shall not apply if Executive’s employment is terminated by reason
of his death, Disability, a Change in Control of the Company or by the Company
without Cause), (ii) Executive is in compliance with Executive’s obligation
under paragraph 5(d) of this Agreement, and (iii) the Company has satisfied the
performance goals required for such payment, the Company shall pay to the
Executive a Bonus for 2012 under the Company’s 2008 Flexible Incentive Plan,
which payment shall not be less than 0.75% or greater than 1.00%, as finally
determined in the sole discretion of the Board of Directors of the Company, of
the Company’s pre-tax income as reported in the Company’s audited financial
statements for its fiscal year-ending December 31, 2012.  For purposes of this
Agreement, “Disability,” “Change in Control,” and “Cause” shall have the same

 

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meaning as set forth in the Employment Agreement.

 

7.                                       On May 31, 2013, provided that
(i) Executive is still employed by the Company on such date (except that this
Paragraph 7(i) shall not apply if Executive’s employment is terminated by reason
of his death, Disability,  a Change in Control of the Company or by the Company
without Cause), (ii) Executive is in compliance with Executive’s obligation
under paragraph 5(d) of this Agreement, and (iii) the Company has satisfied the
performance goals required for such payment, the Company shall pay to the
Executive a discretionary bonus for 2013, which payment shall not be greater
than 1.00% of the Company’s pre-tax income as reported in the Company’s audited
financial statements for the quarter-ending March 31, 2013 and which may be
zero, as determined in the sole discretion of the Board of Directors of the
Company. For purposes of this Agreement, “Disability” and “Change in Control”
shall have the same meaning as set forth in the Employment Agreement.

 

8.                                       For the period commencing on January 1,
2013 and ending on the Retirement Date, Executive shall be entitled to use the
Company’s aircraft for three (3) round-trip personal flights within the
continental United States.  Personal use of the Company’s aircraft shall be
taxable to Executive based on the then-current Internal Revenue Service
rules for the taxation of such benefit.

 

9.                                       For avoidance of doubt, so long as
(i) Executive’s employment is not terminated for Cause and (ii) Executive does
not voluntarily terminate his employment with the Company prior to the
Retirement Date, the Company shall, for the period from the date this Agreement
is entered into through the Retirement Date: (A) continue to contribute to
Executive’s account under the Deferred Compensation Plan (and Executive shall
continue to accrue benefits thereunder) as provided in Paragraph 4 of this
Agreement; (B) pay all premiums under the life insurance policy addressed in
Paragraph 5(b) of this Agreement; (C) assign such life insurance policy to
Executive on the Retirement Date; (D) pay all Base Salary to Executive through
the Retirement Date; and (E)   deliver the restricted shares that have vested on
the Retirement Date pursuant to the two Restricted Stock Award Agreements
between the Company and the Executive with a grant date of January 4, 2010.

 

10.                                 No modification to any provisions contained
in this Agreement shall be binding upon any party unless made in writing and
signed by both parties.

 

11.                                 If any provision of this Agreement is held
to be unenforceable for any reason, the remaining parts of the Agreement shall
remain in full force and effect.

 

12.                                 This Agreement shall be construed in
accordance with Texas law.

 

13.                                 Except as expressly set forth in this
Agreement, the Deferred Compensation Plan  and those certain Restricted Stock
Award Agreements for the award of 35,474 shares and 106,421 shares of the
Company’s stock (both of which were granted to the Executive on January 4,
2010),  this Agreement constitutes a single, integrated written contract
expressing the entire agreement of the parties to this Agreement.  Any other
agreements, discussions, promises, and representations have been and are
integrated into and superseded by this Agreement, the Restricted Stock Award
Agreement and the Deferred Compensation Plan.

 

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14.                                 With respect to Executive, this Agreement
shall also bind and inure to the benefit of his respective heirs and assigns. 
With respect to the Company, this Agreement shall also bind and inure to the
benefit of any affiliated entities, successor-in-interests, or assigns.

 

15.                                 Any notices required to be given shall be
given as set forth in Section 10 of the Employment Agreement

 

16.                                 This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.

 

17.                                 Any payments required to be delayed as a
result of the Executive’s classification as a “specified employee” for purposes
of Section 409A shall be accumulated during the six-month period following the
Executive’s Retirement Date and paid in a lump sum payment on the earlier of
December 2, 2013 or the death of the Executive.

 

[Signature page follows.]

 

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HCC INSURANCE HOLDINGS, INC.

 

 

 

 

 

 

By:

/s/ Christopher J.B. Williams

 

Christopher J.B. Williams, Jr., President

 

 

 

 

 

 

 

/s/ John N. Molbeck, Jr.

 

John N. Molbeck, Jr.

 

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